China Stocks Drop on Zhou Bubble Warning: World’s Biggest Mover (Bloomberg)
The Chinese stock market dropped 3.7% after central bank governor Zhou Xiaochuan warned of “irrational exuberance”. Just kidding. Maybe something got lost in translation, but it sounds like he just said that stocks may be overvalued and that the country may be forced to raise interest rates in order to reign things in. A number of stocks plunged by the maximum allowable on the news. But, c’mon people, it’s not like you didn’t know that Chinese officials have been skittish.
Report on Amaranth Collapse Is to Be Made Public (NYT)
A Senate subcommittee is set to release a report on the Amaranth crash. You know, typical government stuff — What happened? What went wrong? How can we avoid this in the future? Undoubtedly, the report will come alongside some prescriptive policy recommendations. It’s pretty unlikely that the Senate will have anything fresh to say that most people don’t already know, but even worse, they’ll probably miss the point. What would be interesting is if someone did a report about how such an enormous, highly-leveraged fund could collapse with such a small ripple. Why didn’t the collapse cause more of a panic? Why haven’t other funds and banks collapsed as a result of Amaranth’s collapse. Unfortunately, we can’t expect an answer to these questions.
Yen rebounds as profit-taking knocks carry trades (Reuters)
The Yen moved upward, as traders (allegedly) unwound positions based on the so-called carry trade. There are fears that the currency’s weakness and low interest rates are anomalous and unsustainable, and thus it’s only a matter of time before the fun is all over. It’s funny how long it can take for a certain arbitrage opportunity to disappear. Billions of dollars can be allocated just for the purpose of closing some interest rate gap, and yet it doesn’t happen. Even after everyone thinks it’s all over (like this March for example), it’s not over. As studies have shown, it’s the pervasive sentiment that an opportunity is over, which keeps the profits coming for those who seek to exploit it.
US apple growers brace for China rivals (AP)
Chinese apple farmers grow five times as many apples as their US counterparts, but at this point, there are no Chinese apples in the country. Ostensibly the country has to go through some safety review process before its apples can be sold here, but in the meantime it’s a nice trade barrier for the protection of US growers. Eventually, however, they will come, and US farmers will just have to deal. Here’s a recommendation: fix the goddamn red delicious. What was once a proud apple is now inedible. Yes it’s pretty, but that’s only because the skin is so tough and thick, much to the detriment of the eating experience. If you want to stave off the Chinese, bring back the delicious in the red delicious. Personally, as an apple fanatic, we’re looking forward to any new varietals that could hit American shores.
FOREX
Home Depot Gets $10 Billion Bids for Unit, People Say (Bloomberg)
No, HD isn’t under a private equity attack (just yet), but apparently two firms are after its contractor-supplies unit, the part of the business that does more wholesale industrial selling. If the rumors are true, it’d be a nicely counter-cyclical deal, as that business can’t be anywhere near its peak these days. The company apparently sees it similar, as former CEO Nardelli indicated that Home Depot would be open to a sale of it.
Jess Jackson Cries Foul Over Blackstone IPO
Jesse Jackson is angry that of the $150,000,000 in underwriting fees that will be paid out by Blackstone, only $750,000 is going to minority-owned business. In his view it’s “Wall Street apartheid”. Little dramatic there Jessie? First of all, it should be pointed out, that many of the Wall St. banks that will be doing the deal are publicly traded, so it’s impossible to know who owns them — presumably there are a number of minority shareholders (you know what we mean) of all of these banks. But admittedly this isn’t an issue that we’d thought of before, although, you need a lot more evidence than what Jesse Jackson has to allege that Blackstone actually discriminated against these firms during the process. Simply saying that not many minority-owned firms were part of the deal doesn’t mean much of anything. Still, it’ll be another good issue for the Dems on the banking committee to hold hearings about.
Boom Times for Banks in Venezuela (NYT)
By most accounts, Hugo Chavez is running the Venezuelan economy right into the dirt. Even years and years of record oil money, it’s believed, won’t be able to stave off the carnage that he’s inflicting. And yet, at least according to this article in the times, people in the country might be blind to the deteriorating economic situation. That’s because with all of the cash that’s going around (oil revenue + currency outflow controls), banks have inordinate piles sitting around, and they’re eager to lend it out for everything and anything (the times has a picture of a woman who got a loan for breast augmentation, if you like looking at that sort of thing). Now, obviously, this can’t last. Either they’ll run out of cash, or these loans will go bad (likely). But it would seem that until it all hits the fan, everyone’s having a party.
Sanofi setback clouds future of obesity drugs (Reuters)
There’s a certain claque of scientific optimists that think they key to cracking obesity will be found in a pill form. We’re pretty optimistic, ourselves, but we also think it’s going to be hard to avoid the laws of physics. Certain things like conservation of mass and conservation of energy are pretty hard to run up against. Thus the setbacks that Sanofi has run into with its Accomplia weight-loss pill are, perhaps, to be expected. And naturally, people are wondering whether the same problems will manifest themselves in other pills of the same class (probably). If you’re trying produce something that sounds too good to be true, there’s a good change that it is.
European Stocks Drop on China Concern; BHP, Volvo Shares Fall (Bloomberg)
Apparently, stocks in Europe fell after Alan Greenspan voiced some concern about the Chinese stock market. Wait, what? Let’s repeat that again: Apparently, stocks in Europe fell after Alan Greenspan voiced some concern about the Chinese stock market. So this would mean that Greenspan still has the power to jawbone down markets (for a day at a time), though we probably didn’t need Greenspan to tell us that the Chinese stock market looks like a bubble a tad overheated. And so what if Europe declines for a day if it resumes its astounding upward ascent tomorrow? We wonder if all this lip exercise is a way for Greenspan to prove his value to potential consulting clients. After all, who wouldn’t hire him if he can just talk and get the markets to move the way he says they will? All that being said, while Europe supposedly heeded Greenspan’s warning, China didn’t seem to care at all.
Oil Industry Says Biofuel Push May Hurt at Pump (NYT)
One of the big conspiracy theories out there is that the oil companies intentionally don’t build refineries so that the price of gas stays inflated. That’s never sounded particularly legitimate to us though. Apparently, however, the government’s love for ethanol has got some oil companies worried enough to want to postpone plans for building new refineries. At first this sounds like a load of rubbish, and the conspiracy theorists may think that oil companies will look for any excuse not to build new refineries. But, this sounds legitimate to us. After all, if its the policy of the government to reduce fuel consumption by 20% over the next 10 yeas (which it is), why in the world would we need new refineries? That wouldn’t make any sense. On the other hand, if this is just bluster and posturing from the government, then maybe our politicians need to realize that words have meaning and consequences.
Congress Calls For New Measures Against China During Wu Visit (Bloomberg)
Not surprisingly, members of Congress are starting to talk protectionism once again, even as Chinese government officials come to the US to talk trade. What’s really irritating is when you read stuff about Congressman getting all upset because they don’t like the way the Yuan is valued, and you just know that they don’t have a clue about how currency markets work or what the implications of an artificially-low Yuan actually are. Instead, they probably just read some articles about it in the Times, or maybe got a call from a union leader and started repeating what they heard.
Lawmakers scramble to act on pump prices (Houston Chronicle)
Meanwhile, some good news for you motorists. We’re finally going to get some relief from high gas prices, since Congress has passed a new law that makes price gouging a federal offense. Awesome. Sure, some cynics might wonder how much price gouging really has to do with current high prices at the pump. But that’s the great thing about this. Because price gouging is a vague and nebulous concept that can be defined any which way, there’s a lot of leeway for politicians and attorneys to go after people if they don’t like the price that’s being charged. So there you have it, pencil in that roadtrip this summer. It’s on.
Mortgage problems are manageable, Bernanke says (AP)
This is odd. Apparently some guy named Ben Bernanke (?) who says he’s the head of the Federal Reserve (ooookaaay) says that the nation’s mortgage woes are manageable. Ok Mr. Chairman, you’re the boss, whatever you say. But in America, we take our cues from Mr. Greenspan, not fly-by-night impostors. Meanwhile, a number of Congressman grilled Bernanke on the lax regulations that supposedly got into this mess. Hey Congress, regulations are your job, not the Fed’s. Meanwhile, as for this Bernanke fellow, Alex Tabarrok says he’s not a credit snob, which is a major compliment.
GE said close to selling plastics to Sabic or Basell (MarketWatch)
If the trade deficit keeps you up at night, this is the kind of news that you don’t like to see. GE is close to selling its plastics division and the leading candidate is Saudi Basic Industries Corp. In othewords, all that oil money that they get from us is now being used to loot our assets — just like Lenovo taking the computer division away from IBM. Of course this is just one way to look at it. GE is going to be $11 billion richer in cash, which is pretty nice for them. And it’s the company that’s pushing for a sale, so they’re not really being looted in some way. In fact, it’s been a pretty weak unit for ‘em, just like computers were to IBM. So if all of our cash will come back home in exchange for some low-margin underperforming units, then by all means.
China widens yuan trading band to half-percent a day (MarketWatch)
Get out the Drudge siren. China has expanded the trading band of the Yuan to half-percent of a day. If you think this has any significance then take note.
Wolfowitz Quits World Bank; Successor Search Starts (Bloomberg)
Under a ton of pressure, Word Bank Prez Paul Wolfowitz will finally be stepping down amid allegations that he used his position to help out his girlfriend at the bank. Felix Salmon has finally got his wish, though it’s worth noting that Wolfy did have his share of defenders, including a lot of folks at the Journal. Of course his successor will come from the US per tradition. Any suggestions?
Nacchio convicted on 19 of 42 counts (BusinessWeek)
Just in case you missed it, yesterday evening jurors in the Joe Nacchio case came back with a guilty verdict on 19 of the 42 counts. That’s slightly less than half, but it doesn’t really work that way. Nacchio could be in prison for a long time, so the fact that he was acquitted of most of the charges doesn’t mean zilch. Honestly, we wonder what it means when jurors come back with a mixed verdict like this. If we had to guess, we’d guess that they feel compelled to deliver a few not-guilties just so that they look like they were paying attention. Each guilty could conceivably carry a term of 10 years, though it’s doubtful he’ll get a 190-year sentence. Your over/under?
Google profit soars over the estimates (SF Chronicle)
Just a few days after Yahoo’s poor earnings, Google announced sales growth of 66% and earnings growth of 69%. Not bad. After the news, the stock rose modestly, indicating that Google’s results were basically what people expected. In other words, investors have set a damn high hurdle for the company, and if at some point it can’t keep delivering such tremendous growth (seems inevitable), the company may get punished.
Supervalu raises forecast; shares jump (MarketWatch)
Hey WallStrip! Do you guys take requests? We’ve always been intrigued by Supervalu, a company that basically strives to be the Dollar Store of grocery stores. They’re small format stores that have a complete range of items, many of them private label. They’re big in urban areas, and most importantly (for WallStrip, that is) they’re at an all time high as the business model seems to be clicking. What do you say?
H&R Block to Sell Option One Mortgage to Cerberus (Bloomberg)
H&R Block has agreed to sell its subprime mortgage business to Cerberus. Is it just us or has every attempt made by H&R Block to diversify away from taxes been a failure? At some point, if we recall, the company bought an asset manager, which had all these race-related complaints or lawsuits against it — the details are hazy in our mind. This sort of seems like the great move from dumb to smart money here. As Tom Kirkendall spotted the other day, actual losses from subprime assets aren’t as bad as you’d think, given all of the scare talk.
Does anyone know why you can’t get a Wii these days? There doesn’t seem to be any major production drama, yet many children remain chubby, dormant and with fully functioning elbows. The strange case of the missing Wii is taken by guest Freakonomics blogger Paul Kimmelman. Is this a deliberate maneuver on Nintendo’s part or even worse (gasp!) a conspiracy? Here’s a summary of the mystery puzzle muzzle, using the five issues Kimmelman raises:
1. Nintendo’s manufacturing lull is inexplicable. There are no known parts shortages. There hasn’t been a major production ramp by the first quarter of the console’s release, which is rare. It’s no secret that Nintendo is particularly coquettish about its hardware releases, and after two strikes with the strategy (N64 and GameCube), it finally paid off by creating buzz and a secondary market price spike with the Wii. Then again, perhaps vital Wii parts have been scattered across 8 distant lands, guarded by 8 fearsome creatures, overseen by 3 various forms of an evil presence, or large turtle.
2. Retailers like the hordes of kids dragging their parents to stores to check out Wii-vailability. This results in a lot of, “If we can’t get a Wii, we might as well get a box set of the Beastmaster trilogy,” purchases. In other words, Best Buy and Target are greasing the plumber’s palm.
More after the jump…
Coca-Cola Profit Climbs 14% on Gains in Asia, Europe (Bloomberg)
Coca-Cola is still basically a sugar water company, despite its efforts to get into things like green tea, herb-infused sports drinks, and stuff like that. Granted, the company’s pure green tea product, which can be found at some Japanese grocery stores, is pretty delicious. But it’s sweet “healthy” stuff, like Enviga (which sounds like a pharmaceutical), is down foul. Nevertheless, the company is turning in exceptionally strong number, as growth abroad offsets, ahem, flat sales here.
Sterling breaks $2 as further UK rate rises seen (Reuters)
I’ve never been particularly interested in traveling to Europe. I mean, I’ve been there once, but the whole climbing tall staircases at 500-year old churches just to get some good view of a Piaza doesn’t do much fore me. Anyway, I have a nice excuse now, since the Sterling (the Pound) has cracked the $2 level for the first time in 15 years. It’s just not worth it. As nice as it is to get away, it can’t be worth feeling so poor. Besides, I thought London seemed expensive when I was there, in 2000, when the dollar was hella strong.
Taxpayers face filing deadline (Rocky Mountain Telegram)
If you owe taxes, which you almost certainly do, then today, as you almost certainly know, is your last day to send the check to Uncle Sam. People who stand in line today are often thought of as procrastinators, and for some reason they’re looked down upon. But don’t worry, the critics are idiots. The real fools are the people who owe money, but don’t wait until the last minute to pay, since they’re giving up valuable teenths of interest that they could be earnings on their accounts.
Boston Scientific plant fixes send stock up 7% (Reuters)
Boston Scientific announced yesterday that it has resolved some flaws in its manufacturing plants and that the FDA had cleared its Guidant unit to begin selling implantable defibrillators again. The stock rose 7% yesterday on the news. Still, cynics that we are, we can’t help wondering whether the celebration is premature, since, you know, the business that this company is in is plagued by these problems. They may have solved one issue, ok, but there’s almost certainly numerous other ones lurking around the corner.
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