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News 11/25

This is another one of those once-in-a-blue-moon updates I get to do in this blog. Probably nothing substantial, just an attempt to get me worked up into doing this again after a long hiatus.

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So the issue involving the two Koreas have now subsided.  The South has already enacted on the attack, by means of halting shipments to the North – including cements and medicines – and is believed to be looking for other potential penalties for what has transpired Tuesday afternoon.  For a while, the whole world feared this would turn into another Korean war but the different world leaders were quick to respond, albeit only verbally.  Still effects were felt on the markets as global markets closed sharply lower on the day it happened.  While not completely gone, some releases from the US yesterday already took the markets’ attention away from Korea and to what seemingly are glimmers of hope for recovery. 

As the only ally of North Korea, China today addressed the issue when Premier Wen Jiabao denounced any provocative military action on the Korean peninsula, though did not point fingers on either of the two countries.   

Local

Over here in the Philippines, GDP growth for Q3 was slightly lower than expected, standing at 6.5% when somewhere between 6.7% and 7.7% was expected.  However, that still brings average for the 9 months to 7.5%, much higher than 5-6% target for the whole year. The Q3 GDP figure is much lower than the reported growth for Q2 and Q1.  Services, industry and manufacturing continued to strengthen but it was El Nino-induced drought that caused contraction in the agricultural sector. 

Meanwhile, tomorrow is the day new Peso bills containing Noynoy’s signature come out while next month is the projected launch of new bills with improved security features.  Both old and new monies will coexist but the BSP (Banko Sentral ng Pilipinas) is giving the old version 4 years to demonetize. 

Next month, preparations for the budget for 2012 are also poised to begin that would give the administration and the budget office sufficient time to consult with the relevant groups and open it for scrutiny by Congress, in order to avoid reenacted budgets just like what happened in Arroyo’s administration.  Two budget calls are said to be issued – one in order to set a schedule for the preparation.  Budget calls are documents that set out guideline and procedures for budget proposals.

May 27th: What’s news?

America

On the US:

U.S. Stocks Decline on Concern China May Reduce European Bond Investments U.S. stocks fell, with the Dow Jones Industrial Average closing below 10,000 for the first time since February, as reports that China may review investments in European government bonds spurred concern the credit crisis will worsen and wiped out an early rally.

Treasury Sells 20% of Citigroup Holdings for $6.2 Billion, Still Owns 21% The U.S. Treasury Department sold 20 percent of its shares in Citigroup Inc. at a profit during the past month and authorized adviser Morgan Stanley to keep selling under a pre-arranged plan.

U.S. Durable Goods Orders Beat Forecast The positive signs on the manufacturing front were accompanied by another large gain in sales of new homes in April.

Barton Biggs Says U.S. Stock Markets Oversold, Set for `Big Pop’ in Days U.S. stock markets are oversold and may rally strongly over the next few days, said investor Barton Biggs, who runs New York-based hedge fund Traxis Partners LP.

Lehman Sues JPMorgan to Recover Collateral Demanded Before Its ’08 Failure Lehman Brothers Holdings Inc. sued JPMorgan Chase & Co. to recover tens of billions of dollars in “lost value,” accusing the bank of precipitating its downfall and preventing it from winding down in an orderly fashion.

2 Charged With Selling Insider Data From Disney Two are accused of offering to sell confidential earnings information to more than 30 hedge funds in the United States and Europe.

S.E.C. Proposes a Uniform Audit Trail to Track Trading Regulators said the changes would make it easier to investigate disruptions like the so-called “flash crash” on May 6.

On LatAm:

Bovespa Stock Index Rallies, Halting Two-Day Drop, on U.S. Economic Growth Brazil’s Bovespa stock index rose, halting a two-day retreat, as gains in U.S. durable-goods orders and home sales added to evidence the economic recovery is strengthening.

Templeton’s Mobius Buys BRIC Stocks, Calls Drop a Bull Market `Correction’ Templeton Asset Management Ltd.’s Mark Mobius said he’s been buying stocks in Brazil, Russia, India and China in the past month and called the slump in emerging-economy shares a “correction” in a bull market.

Brazil’s Interest-Rate Futures Yields Rise From One-Month Low on Growth Yields on Brazil’s interest-rate futures contracts rose from a one-month low on speculation the European debt crisis has failed to slow growth in Latin America’s biggest economy.

25th May: What’s news?

Americas

On the US:

Geithner Shifts Focus to Global Threats as Crisis `Fires’ Subside in U.S. Treasury Secretary Timothy F. Geithner’s trip to Europe today shows how his focus is shifting to global economic threats as Congress puts the finishing touches on its overhaul of financial regulations and the U.S. winds down bailout programs.

Bernanke Says Central Banks Must Be Free From Politics to Prevent Crises [or from WSJ] Federal Reserve Chairman Ben S. Bernanke said central banks must be free from political pressure as they bolster regulation and try to prevent future financial crises.

Debt Level, Spending Pose Risk to U.S.’s Aaa Credit Rating, Moody’s Says The U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce projected record budget deficits, according to Moody’s Investors Service Inc.

S&P Says It May Take Months to Assess Bank Downgrades From Financial Bill Standard & Poor’s said it may take until early 2011 to decide whether legislation that bans the U.S. government from rescuing failing banks will lead to credit downgrades at lenders such as Citigroup Inc.

U.S. Consumer Confidence Rises to Highest Level Since 2008 on Job Optimism Consumers gained more confidence in May than projected as a recovering U.S. economy raised expectations hiring will pick up in coming months.

Banks Trim Debt, Obscuring Risks BofA, Deutsche Bank and Citigroup are among the most active at temporarily shedding debt just before reporting their finances to the public, a Wall Street Journal analysis shows.

21st May: What’s news?

Foreign Exchange

Euro Rises for Third Day as EU Officials May Discuss Ways to Stem Crisis The euro rose for a third day against the dollar on speculation European Union officials meeting today will discuss more measures to counter the region’s spreading debt crisis.

Brazil’s Real Posts Longest Losing Streak in 19 Months on Europe Crisis Brazil’s real fell for a sixth day, the longest losing streak in 19 months, on speculation tumbling commodity prices will lower the value of exports and as Europe’s debt crisis prompted investors to shun higher-yielding, emerging-market assets.

Canada’s Dollar Drops to Two-Week Low as Europe’s Debt Turmoil Deters Risk Canada’s dollar fell to the lowest level in two weeks after equities and commodities tumbled on Europe’s sovereign debt crisis and a U.S. jobs report.

Commodity-linked standards suffer from risk aversion The euro benefited as Wednesday’s short covering rally returned for a second day.

Morgan Stanley to reshuffle top posts

The incoming CEO of Morgan Stanley James Gorman is planning a reshuffling of the executive posts as he takes over the post currently handled by John Mack on January 1.  The changes will see Colm Kelleher and Paul Taubman run some of the bank’s largest divisions including sales,  trading and investment banking.

See the story on WSJ.

PIMCO hires Kashkari

Just yesterday, I linked to a story from the Washington Post on the man who handled the $700bn TARP by the US government.  In it, the man ponders about the possibility of going back to work after about 6 months of living free from all the troubles of Washington.  True enough, a day after, we’re finding out that Neel Kashkari has been hired by fixed income giant PIMCO to be a managing director and head of new investment initiatives.

See the story via WSJ.

Greece warned of possible downgrade

Troubles in Greece heightened after Standard & Poor’s put the country’s A-minus credit rating to negative outlook, warning of a possible downgrade.  If the past were to serve as a basis, credit rating downgrade usually follows after a month. ECB President Jean-Claude Trichet also said the country needs to act “courageously” if it is to bring its budget under control.

More from the FT.

The man behind TARP

Washington Post ran this story over the weekend on the man who managed the historic $700bn Troubled Asset Relief Program.  An excerpt:

It was October 2008 when Hank Paulson announced that the government rescue operation, the Troubled Asset Relief Program (TARP), would be run by his aide, Neel Kashkari. The choice was met with considerable surprise. Who was Neel Kashkari? He was too young, too inexperienced and had ties to Wall Street, detractors said. To some, the appointment seemed all wrong. Critics described Paulson as a “Dr. Evil” figure who brainwashed Congress into giving him unprecedented financial authority so that Kashkari, his “Mini-Me,” could distribute it to Wall Street friends.

Overnight, Kashkari became the face of the biggest, and one of the most controversial, market interventions in American history. Even he questioned their chances of success.

The Friday evening he was named, he slumped over a bowl of chips in Bethesda with a childhood friend. He held his head in hands and said: “Dude, tell me something funny.”

“Man, what’s going on, Neel?”

“I’ve been tapped to put TARP together. I gotta set up these seven teams and build this thing from scratch — by Monday morning.”

 It wasn’t a stellar story but I think I’d always be interested in stories of and about people who were part of the whole financial debacle.

Link to the whole WaPo story here.

JAL might get help

The Japanese government might include a 700bn yen aid to the national flag carrier Japan Airlines in its second extra budget for the fiscal year.  The budget might be released tomorrow.  This sent the shares of JAL soaring 7 percent, but some also are seeing the possibility of high swings as traders try to take advantage from huge moves such as today to take profits.

Follow the story on Bloomberg.

Build your own Manhattan

From Bloomberg:

Nakheel PJSC creditors may win the right to seize a strip of barren waterfront land the size of Manhattan if the company defaults on the $3.5 billion bond backing the development.

Investors will be able to seek foreclosure on the property’s mortgages should the Dubai World unit fail to repay the loan, according to the bond’s prospectus. The debt is due on Dec. 14, after which Nakheel has two weeks to remedy a default. The property forms part of the Dubai Waterfront project, where Nakheel plans to build a city twice the size of Hong Kong.

Is it just me or having your own Manhattan in Dubai sounds more interesting than getting paid the debt Dubai World owes you? Provided of course, it becomes as lively as the real Manhattan and it also gives birth to a formidable competitor of the one in the Big Apple. Both, of course, are the two that make the idea very attractive.

More from Bloomberg.

New bosses don’t mean much

An excellent article from WSJ:

If you took the CEOs with the best track records and brought them in to run the businesses with the worst performance, how often would those companies become more profitable? According to economist Antoinette Schoar of Massachusetts Institute of Technology’s Sloan School of Management, who has studied the effects of hundreds of management changes, the answer is roughly 60%. That isn’t much better than the flip of a coin.

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Since the 1970s, several other studies have measured what happens when companies bring in new bosses. Most of the findings have been consistent: Changes in leadership account for roughly 10% of the variance in corporate profitability on average.

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The real force in corporate performance isn’t the boss, but regression to the mean: Periods of good returns are highly likely to be followed by poor results, and vice versa. High returns attract fierce new competition, driving down future profits; low returns leave the survivors with fewer rivals, leading to better results down the road.

Most researchers agree that a company’s results are determined less by its CEO than by its industry and the economy—which, in turn, are shaped by a host of factors that most CEOs can’t control, like the price of raw materials, the value of the dollar, interest rates and inflation, bursts of technological innovation and so on.

Hat tip to Abnormal Returns.

Link to the article here.