Poor Russia. All those dreams of greatness, renewed world position, and (dare we say it) power. For awhile there they looked realistic. Putin was General Secretary of the Communist Party of the Soviet Union President of the Russian Federation Prime Minister for life. Russia had adroitly dominated energy reserves and carved itself into a capitalist (sort of) power. Bear reconnaissance bombers began to harass U.S. naval vessels again, as well as testing the air defenses of the Northeast, to the surprise (and alarm) of the United States. One mission was such a surprise that the craft hit Pennsylvania before being intercepted. The pilots got medals. Someone at NEADS got reassigned to Alaska.
But it was not to be.
Now, with oil $30 a barrel below the budget-balancing level for Russia, and their inability to even blackmail the Ukraine and Europe with natural gas effectively, (no one believes they can leave the spigot off for very long) their dreams of power have slowly slipped away, and Putin, if you can imagine this, is politically vulnerable. The daunting health crisis they have been ignoring is making itself known in ugly ways (really their population is frightfully sickly) and their currency is heading back to 1998 levels as the central bank devalues it (again) this week.
It doesn’t help, of course, that concern over their little camping trip in Georgia sucked over $120-$200 billion of foreign investment out of the country. Inflation was over 13% in December.
Of course, the problem is, with circumstances like this, military conquest looks like a nice distraction.
We’re not long bomb shelters yet here, but that’s only because a certain Goldman partner (who shall remain nameless) promised us spots in his basement in the Hamptons.
Russian Ruble Slides to Pre-1998 Crisis Low; Forint, Zloty Sink [Bloomberg]
FOREX
The Senate compromise looks dead at the moment. CNN is reporting that bipartisan talks have collapsed and the Senate bill looks dead.
The pressure actually falls back to Pelosi now, who played a bit of legislative brinkmanship with the Senate and has now lost (baring some miracle tomorrow).
GM will likely be the first victim, and the news will likely step up counterparty pressure on GM tomorrow.
GM is running out of options quite quickly.
UPDATE: Fox News is reporting that the sticking point was with the UAW, who were to take wage cuts to put them in line with Japanese rivals.
Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the United Auto Workers was willing to make the cuts, but not until 2011.
UPDATE 2: This has to be the best bit of nonsense I’ve heard on the topic courtesy of Senator Jim DeMint wherein he speculates that a bailout would equate to riots.
UPDATE 3: CSPAN: By a vote of 52 to 35 the Senate voted not to proceed to a bill to aid the U.S. automobile industry. Related?: The Dollar has hit a 13 year low v. the Yen.
Hopes that GM will last until the birth of the Obama administration are dimming, despite some pretty desperate cost cutting:
Factory supervisors who are seldom at their desks have had their landline phones and voice mail yanked. Elevators and escalators are shut down at night at GM’s headquarters towers in Detroit.
The slimmed-down choice of pens in office supply cabinets: one each of black, red and blue.
Perhaps just the red would have done fine.
Wall Street Is No More (Bloomberg)
“”There’s no more Wall Street,” Greenberg, 81, said last night in an interview on Bloomberg’s “Money & Politics” television program. “That model just doesn’t work because it’s at the mercy of rumors.”"
This is how cultures of fear are run: rumors are news because the worst is thought to be the only thing that can happen. Fear permeates everything from our love lives to corporate transactions these days – you can’t move but for being straddled with it. So, not only is trust completely out the window – but so is the idea that anything good could be borne of taking an outside chance, which is in effect us believing in each other as human beings. So we’ve lost that.
And while one common enemy is responsible at both fronts it’s fought differently depending on where you stand. In money if you want to fight fear you pull a Triple O: you saddle the fuck up, buy the best values in town, and smile gently while everyone calls you insane.
Saying Good-bye To Our Friends In Boston (TVSeriesFinale)
Allen married Denny, and it was beautiful. Thanks for the bat-shit crazy ideas, outstanding quotes, and shootings – you’ll be missed.
Copper River To Liquidate (WSJ)
It looks like “Copper River was unable to cash out derivative contracts in which Lehman was the counterparty before the Wall Street company filed for bankruptcy protection” and as PBs started to raise margins, Copper was screwed.
AIG Puts Japanese Life Insurance Co.’s On Block (Reuters)
In an effort to raise capital, AIG has put two Life Insurance companies in Japan on the block. I’m impressed but they’re selling off all their shit, but this ends in one of two ways: either the government forgives the loans, or AIG goes out of business.
Russia’s Credit Rating Downgraded By S&P (FT)
Russia’s Ruble faltered, so S&P kicked it in the sack – with the flight from the currency being more pronounced than less, it appears as though the ratings company didn’t feel safe with Russia’s long term ability to pay debt.
S&Ps model obviously doesn’t account for exports such as hookers, illegal caviar, and weapons to Iran, which is really just sad S&P. I think you need to spend some more time thinking about this.
Citi Considering New Chairman? (Reuters)
The BOD, dissatisfied with the performance of the company, may be moving to seek new leadership. The majority of this article is blatant conjecture, so we’ll skip the thriving analysis and just jump to the point: replacing the chairman at this point would probably send a strong signal to shareholders.
UBS Numbers: 1 Broker, 20,000 people, 20B (WSJ)
You have to really, really try to help 20,000 people dodge taxes on 20 billion USD. Not only does it take talent, my friends, but the level of commitment is unreal.
[Indictment, via WSJ]
Lower Oil Prices Drive Russia And Kuwait To Craig’s List For Money (Bloomberg)
“Oil, Russia’s chief export, has fallen 63 percent since the July-high of $147. The ruble has plunged 21 percent against the dollar in the past four months, even as the central bank sold 16 percent of its currency reserves in an attempt to arrest declines. Reserves dropped $9.2 billion last week to the lowest this year at $475.4 billion, central bank said today. ”
Historically, when Russia has been faced with tough times they’ve chosen to go one of two routes:
1) Nationalize everything, execute dissenters, and form food lines.
2) Start a War.
Given the recent trends in Russia’s social strata I wouldn’t be surprised if a bit of both happened this go round. Leadership has been excising anyone with power and money that could plausibly stand in their way and they’ve excited the people – there’s now wealth and pride, and that’s something Russians have been without for decades. The war comes in when you realize that you can’t just “make” money to keep all this BS alive, you actually have to have economic fundamentals to support it. So who do they take over (or try to take over)? Not a clue. I hear there’s money on the interwebs. You should take over the interwebs, Russia.
Insurers Set For Failure (NYT)
Life Insurers have thus far remained relatively unscathed by the recent trends in finance, but there’s strong signals that that’s about to change. It looks as though Life Insurance companies have been quietly lining up at the Government tit waiting for TARP money to sweep in and save their collective asses. What makes insurance companies so much fun is that they’re state counter-insured, such that if the insurance company goes out of business the state places the standing contracts with another insurance company that’s approved to operate in that area. Now, the issue with this is that they have to see to the contract fulfillment, but they haven’t taken any of the premiums to offset the risk of having to pay. Effectively, they’re getting screwed. But, states can’t afford to eat the money themselves, so if this happens on a wide enough scale, we could see a domino effect – that is until Pelosi buys the Insurance sector on behalf of the American People. Then we’ll be fine.
China Authorizes Massive Bailout (FT)
The Chinese have authorized a bailout package of unprecedented size: $586B. In a statement regarding the bold move, “The government said the spending plan reflected a decision to adopt an “active” fiscal policy to deal with the global financial crisis, while monetary policy would be “moderately active”.
The problem inherent in China’s “throw money at it until it goes away” plan is that the core of China’s revenue comes from manufacturing, and unfortunately, people just aren’t buying right now.
“Two recent surveys of manufacturers showed a slump in activity in October, confirming anecdotal evidence that the slowdown has accelerated in recent weeks. Some economists believe that growth, which was nearly 12 per cent last year, could fall to as low as 6 per cent next year without a substantial fiscal stimulus.”
And further, China seems to be acting on the principle that 12% year over year growth is healthy, whereas a 6% annual growth rate is slow, and weak. I don’t mean to be a contrarian here, but that’s just stupid: the idea that any country can sustain 12% growth over any respectable period and not expect some form of economic whiplash fights against all common sense.
Circuit City’s Bankruptcy Filing Affidavit (Dealbook)
Overnight Markets Gain On News of Chinese Extravagance (Reuters)
The Nikkei was up 3.6% overnight as Japan celebrated the massive spending package laid out by long time foe China; Exporters, Shippers, and Machinery companies were the biggest movers on the exchange. Other popular buys included pharmaceuticals, long seen stable in the face of economic slowdown.
As a side note, “Kawasaki … soared 14.1 percent to 211 yen after the machinery maker said it had received orders for another 140 New York subway cars worth about $275 million.”
The FTSE was also up overnight, showing a 2.9% surge (at print) with gains “across the board.” The biggest impact appears to have been in Mining and Energy however, with Lonmin, Anglo American, BHP Billiton and Xstrata all up more than 10% and Energy gains over 3%.
Read more »
European Markets All Out Of That Special European Flair, May Turn To Snorting Zoloft. (Reuters)
Markets across Europe were down overnight on continued credit worries and fear that the incoming administration may not be able to move quickly enough. In an attempt to allay panic it looks as though the EU CB is going to posture for rate cuts; we should be looking for a 50bps announcement sometime in the near future.
The FTSE was down 2.8% (at print), primarily on Commodities and Banks. As Oil prices have fallen, so goes those who sell – we saw BP, Royal Dutch Shell, Cairn Energy and Tullow Oil all fall back between 1% and 3%. Also of note, the mining sector saw a pull back overnight as metal prices fell in response to Vedanta Resources posting a 24.7% drop in first-half profit.
Bank of England Makes Rate Cut. (WSJ)
BOE cut their rate to 3% overnight; conservative numbers had it at 4%, liberal 3.5%.
Cerberus May Be Separating GMAC, Looking At Bank Formation (Bloomberg)
The idea is to spin off control of GMAC to investors, and allow it to blossom into a bank so as to take advantage of Government money. The move would keep Cerberus falling under Banking Regs, and possibly save GMAC. GM would have to give up its 49% stake in the company to avoid regulations, but one wonders if there’s not a super-secret master plan there.
Barclays To Buy Italian Mortgage Lender. (AP)
“The purchase increases the value of Barclays mortgage book by 1.1 billion euros ($1.4 billion) — or nearly 10 percent. Before this deal, Barclays mortgage book was worth roughly 12 billion euros ($15 billion).”
IEA Projecting $100 Barrels. (FT)
“The developed world’s energy watchdog has doubled its long-term price expectation from last year’s $108 a barrel for 2030 and assumes oil prices will rebound from today’s $60-$70 a barrel to trade, in real terms adjusted by inflation, at an average of more than $100 a barrel from 2008 to 2015.”
This is still optimistic, $200 barrels in 2030? The way things are going a bottle of Aspirin is going to cost $200 in 2030.
If all it takes to call energy prices 20 years from now is a flair for the ridiculous, I’m well qualified make calls on Economic Policy in 2030: I have it on good authority that in the near future we’re going to learn how to clone hotdogs. They’re going to be so abundant they’re going to become our currency: 20 hotdogs would equal roughly a Nickel, depending on the strength of the Yen. A barrel of Oil will cost between 60,000HD and 80,000HD.
Nikkei slides 6.5 pct as Toyota, Isuzu hammered. (Reuters)
I’m not upset that Japan failed miserably at picking itself up off the floor, I’m pissed that they made everyone watch. It’s one thing to admit you suck, take Emo kids for example: you know better than to look at them, you certainly don’t talk to them, and you couldn’t give a shit about their Grandmother. I feel like we’ve been made to care about Japan’s Grandmother, and we should all be pissed.
That being said, the Nikkei closed down 6.5% as Japanese automakers announce people aren’t buying their shit. Also of note in the story: they too are looking to the new US administration to quell economic fears.
Table of Projected Bonus Cuts. (Bloomberg)
Bloomberg has put together a table of bonus cuts they see coming down the road after talking with a consulting compensation firm. I want to emphasize here that this came from a consulting firm, which we all know is in the sales business.
It looks like anyone ever mentioned in a proxy statement is going to take it the hardest (60 – 70% reduction) with PE and IB following suit (at 30 – 45%).
As we love to compile our own data, anyone with concrete/rumored numbers for their firm are encouraged to email them to tips (AT) dealbreaker (DOT) com or text them to 973-495-0177.
–William Richards
“Analysts welcomed the move but said it had already been priced in and the outlook remains grim.” (Reuters)
This has all the grace of a blind dog running head first, full speed, into a brick wall. Sure Bernanke, you say there’s a treat on the other side, but we both know there isn’t. We’re floating dollar liquidity in concert with the IMF to the EMs until April 30th, and there’s a 600B Mortgage Billthat might be coming to the table in an exercise of insanity worthy of worship. But, at least this has nothing to do with fear or emotion, it’s completely logical.
Economic Fundamentals set the stage for Oilrebound (Bloomberg)
The question wasn’t ever whether Oil would rebound, but rather how long the illiquidity issue would keep it depressed.
Trading Markets provides the information to get on to the Exxon call this morning.
It’s (almost) always a good thing to beat the Street’s expectations. (WSJ)
Deutsche Bank beat expectations this year in spite of posting a 73% fallback this quarter “as results were boosted by a reclassification of assets under new European Union accounting rules and a tax benefit”.
Empire of the Sun. (BBC)
The Nikkei pushed ahead nearly ten percent (9.96%) last night in the third day of gains posted by the Japanese exchange. US liquidity injections into the EMs, the rate cute, the projected rate cut by the BOJ, and a 5 trillion yen stimulus package that includes highway toll (seriously?) cuts were listed as the primary culprits in the “rebound”.
FTSE 100 relatively flat overnight. (FT)
Promising indicators as to what Exxon might say came out of Shell, as they reported earnings overnight (71% rise in Q3 profits). The British banks are calling for rate cuts similar to those seen in the United States yesterday, and optimism about the move appears to be crutching the market, for now.
Best and brightest future of Government number crunching? (Reuters/Trading Places)
I’m torn between crying and laughing here:
“Yet another sign of tough times on Wall Street, dejected financial professionals were among those lined up yesterday for a shot to work for none other than the IRS, the New York Times reports.”
Economically today we’ve got the Q3 advanced GDP coming our way at 8:30, with the 3/6 month Bill announcements coming shortly thereafter. The EIA Natural Gas report should be out just in time to spike volatility in the energy sector (assuming it hasn’t been fully priced into the market) before Exxon reports. (Bloomberg)
–William Richards
From: Lowenthal, Albert
Sent: Oct 24, 2008 8:47 AM
Subject: Today
It has never been more difficult to come to work and face overnight market reports and the continuous cacophony from market pundits telling us how the world as we know it is coming to an end. This morning, we face markets that were down 7-10% around the world in the overnight, the Japanese yen at new highs versus every currency (only slightly ahead of an increasing U.S. dollar) and U.S. stock futures down the limit, projecting an opening down more than 6%. Meanwhile, commodities are dropping like a stone with oil down, despite OPEC announcing a cut in production.
Commentators are saying that “Wall Street is wallowing in despair after being beyond the panic stage.” The fundamental problem of a seized credit market is being resolved by the infusion of capital and guaranty of liquidity to the system. While we are in a recession of unknown duration, the world is in fact not coming to an end. Stock prices have gone beyond predicting a period of weaker earnings and now only reflect unremitting selling pressure without committed buyers. We need to recognize that unwinding of leverage is a painful process and that it is taking place in real time. Margin selling by hedge funds, individual investors and corporate chieftains is creating indiscriminate selling of financial assets with sellers focused on where they can get bids, as opposed to selling positions that they don’t believe will perform. While there is no way to predict the bottom for markets, many indicators show that it is not far off.
U.S. stock futures blasted after Asia plunge (Marketwatch)
U.S. futures are getting smashed up this morning after a nightmare trading session in the Asian markets (see next article). Dow futures are off 546 points, while Nasdaq futures are falling 82.5 points; S&P futures are down 60 points, at 855.20. There’s a lot of technical analysis that says the S&P has to hit 800 before we see a decent rebound; more and more, that’s looking the right analysis. That said, with the extent of this selloff, and the huge volatility, the potential for short squeezing has never looked so ominous or looming. Opec cut production by a whopping 1.5million barrels a day, not that that’s likely to have a huge effect: once a commodity market enters freefall, there’s little stopping it.
Tokyo, Seoul Head Asian Market Train Wreck (CNBC.com)
The overnight dealer notes from Hong Kong were all broadly disbelieving of the last-minute rally in the Dow yesterday … and those sentiments couldn’t have been proved more right. The Nikkei plummeted 9.6%, to 7649.08, more than a five-year low. The yen hit a 13-year high vs. the dollar, at around 91 yen. South Korea’s Kospi was off more than 10%, while everything else in Asia pretty much went belly-up too. Although it looks like a U.S.-led thing, much of the Asian mauling is really more to do with the yen than anything else.
Greenspan Concedes Error on Regulation (NYT)
In a dramatic and humbling mea culpa yesterday, the former fed chairman admitted he was “shocked” by the mess we now find ourselves in, and that he may have got it wrong a little bit with regard to regulation. It’s refreshing to see someone being honest right now, rather than blaming the market, the short speculators, the regulators, the homeowners, or whoever else is possibly in the firing line. It makes you think, actually, that he’s the only guy round who stands a chance of fixing the problem … given that half of it seems to have been in saying “we have a problem” in the first place.
German banks overexposed in Iceland (Daily Telegraph)
It turns out that the counter-parties hardest hit by Iceland’s recent banking turmoil are German banks, which are owed $21 billion. That’s around a third of Iceland’s $75 billion debt. German banks are having a hard time; it was also a major lender to both Spain and Ireland, which have been pretty badly beaten up in the credit crunch. These announcements could not have come on a worse day, either.
Sony Blames Profit Warning on Yen, Weak Demand (Business Week)
A lot of the Asian market selloff was down to a surprise announcement by Sony that its earnings would fall 58% on the year, to $2.04 billion, by March 2009. The article explains that Sony sees the higher yen harming sales. It’s not really the harm in sales that’s the issue here however, but more the margin on exports, which is just wiped away when the yen’s sitting up in the 90′s.
Microsoft earnings beat the Street (NYT)
Microsoft is turning out to be a bit of a contrary indicator. When times are rolling, the software giant is lagging … but now that things are in somewhat of a death spiral, earnings are up. Still, only just, a 48 cents a share vs. 47 cents a share. That’s the advantage of a monopoly: it’s almost recession-proof by default. After all, everyone still needs MS Word, if only to polish their resumes while they look for a new employer.
Futures fall as recession fears weigh (Reuters)
There’s no end in sight to the bottom of this week’s selloff — but this morning there is perhaps the beginning of one. S&P futures are down 7.7 points, Dow Jones futures lower by 35 points, and Nasdaq futures are off around 12 points or so. Those numbers are much lower than in futures trading in recent days, but that’s no indication of how bad things can get once the opening bell chimes.
Seoul, Hong Kong extend retreat; Tokyo cuts losses (Marketwatch)
Another spike in the yen and gloomy economic data in Japan overnight brought about a slump in Asian share prices. The Nikkei fell 2.5%, while the Hang Seng dropped 3.6%, to its lowest close since May; South Korea’s Kospi ended 7.5% lower, with trading halted at one point in the day.
Foreclosure Filings Rose 71% in Third Quarter as Prices Fell (Bloomberg)
The title of this piece says it all, really: 765,558 homes either foreclosed, or were auctioned off in the last quarter. As with data from yesterday: no doubt about it, deeply recessionary. In addition, lots of people predicting a rise in foreclosures throughout the rest of the year.
OPEC Faces Worsening Oil Price Drop as Growth Slips (Bloomberg)
Bloomberg is reporting that OPEC’s rumored 1 million barrel a day cut in production tomorrow at Vienna’s meeting will fail to stem a freefall in oil prices … right on the money: love it or hate it, oil is headed for $45 a barrel, where prices were the last time equities were at this level. The two will move in lockstep: just because the marginal cost of extraction has risen due to drilling in ever colder/more cumbersome climates, doensn’t mean everyone will pay that price.
Is Argentina’s government deliberately trying to fuck its consumers? Off the DJ wire:
Very few bonds had traded yet, but the dollar-denominated Boden 2012 was down sharply to the peso equivalent ARS136 from its open at ARS149.90.
On Tuesday, President Cristina Fernandez signed a bill that, if approved by the legislature, will end the country’s 14-year-old private pension fund system.
The private pension funds are set to receive very limited compensation under the proposed bill, according to a draft of the law which has been sent to Congress for debate.
The companies will “in no case (receive more than) the equivalent of the shareholder capital of the liquidated Administrators,” according to the bill.
In addition, compensation will be paid with government bonds, not cash.
According to Dow Jones, Argentina’s stock market fell 10% in the first 20 minutes of morning trading.
Granted — Argentina is an extreme example, but this is the first of many to come in the emerging market space. How anyone can think that emerging markets are more sheltered from the credit freeze than the giant, federally/huge central bank-backed European and American economies just because they weren’t as leveraged is beyond comprehension.
It doesn’t matter that emerging markets were not leveraged on credit. If the countries whose funds that were propping up their bond markets, equity markets, and growth in general (by buying their products/services) are suffering, they will too. Claiming – as some have – that emerging markets are somehow “decoupled” from America is like saying the Merrill plant-waterer is somehow decoupled from Merrill Lynch’s troubles. If the bottom falls out, the plants go too.
With spiraling oil prices and less and less liquidity around, emerging markets are going to feel pain similar to ’97 in the not-too-distant future. The fact that a lot of them are running current account surpluses and have enormous sovereign wealth funds won’t matter one iota either, because the point is, there will be no more income to make those surpluses sustainable any longer.
And the sovereign wealth funds that remained tied up in oil cash without diversifying into U.S. equities on the cheap will live to regret it.
Article (No Link): Argentina Stocks Down 10% After First 20 Minutes Of Trading (Dow Jones)
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