Sunday, 2 May 2010

“Nothing has changed, except, of course, jobs have been lost, homes have gone into foreclosure, retirement incomes have evaporated, housing values have declined.” As Senator Dodd was saying these soul-stirring words, details of Goldman Sachs cheating widows and orphans in Europe were tumbling out and Amex was selling credit-card-loans backed bonds worth nearly a billion; some may get repackaged by somebody at some point of time, to cheat some charity or municipality. Nobody wants to utter Glass-Steagall. Buffett wants existing hedge deals to be excluded from regulation. Europe and Japan are equally passive.

The euro, not Greece, is what the world is speculating upon. Instability is suddenly in the air once again. After Greece, sovereign ratings of Portugal and Spain have also been cut. Shares of Asian companies having large sales in Europe, including Sony, Samsung and LG are down and most of them are moving to hedge their expected revenue against currency upheavals. Sony’s profit dips $500 mn for every one yen decline in euro. Looks like Asian economies are more dependent on euro’s health than the economy of Europe itself.

The euro started softening decisively last week and some are talking of parity with dollar. Agreement on Greece continues to elude Europe for reasons that aren’t very clear. Greece isn’t going to become Ghana tomorrow. It has already banned short-selling and possibility of the entire euro zone clamping down on speculation cannot be ruled out. Europe can’t afford to let euro be dismembered. Nevertheless, European consumption pattern will have to change to some extent.

Significant expansion of global capital flows, as well as M&A activity, are foregone conclusions now, though consumers are working hard to restore sanity. Purchases Americans made with Visa credit cards in Q1 were up 3.4% while debit card transactions leaped 21%. Europe says taxes of over $6 bn were evaded by carbon traders in 18 months to Dec 2009. Spain, with unemployment at around 20%, has started balking at subsidies for solar power and Germany may have to do the same. This is one area where the US has perhaps the most sensible approach as increased cost instantly gets distributed over the entire energy consumption.

Russia has stunned Ukraine by proposing merger of Gazprom with Naftogaz, China has started curbing lending and liquidity relentlessly and seems to have persuaded US to stop harping at the yuan. Brazil’s forex reserves have risen to $247 bn and its currency has rose 9% last quarter, Saudi Arabia has agreed to let Citi reestablish operations that were discontinued six years ago, and Singapore is fast emerging as a major in water recycling technology; its companies have won contracts worth over $5 bn in 15 countries. Japan has started looking at the venture capital industry to boost technological innovation and to address continuing deflation. Switzlernad’s exports plunged 15% last year as watches, cheese and chocolates were all down.

Ireland’s banks still need some $40 bn in additional capital because of losses from bad loans. Korea received net FDI of $140 bn last year, mostly in equities while its outstanding outward investments rose $40 bn. Hotel chains are looking at Europe for growth as they account for only 34% of hotels (in Europe) while the figure for US is 70%.

Smartphones seem to be changing the cellphones market landscape. Nokia and Samsung+LG continue to account for about two third of global market. Google is pushing its Nexus One and RIM too is growing. HP has bought Palm. Panasonic, NEC, Fujitsu and Sharp of Japan are working on having a common core software for cellphones. Ads on iPhone and iPad are in the pipeline. Baidu is benefiting from Google’s exit from China. Sony is exploring use of Intel chips and Google software to regain market share in home-entertainment devices.

Revenue and profits of most oil companies, including BP, Shell, ExxonMobil, ENI and others are rising, and the massive spill threatening US coastal areas can only result in further boosting investment in the oil industry. Pemex of Mexico is planning investments of $25 bn a year. German energy firm E.ON Ag is to sell assets worth over $12 bn to cut debt.

Volumes of companies producing necessities (Unilever, Whirlpool, Colgate, P&G, etc.) are growing furiously in Asia and LatAm, though the picture isn’t very clear as early 2009 was a particularly distressed period. In the latest quarter, 3M revenue rose 25% while UPS volume jumped 18%. DuPont is growing on chemicals used in photovoltaic cells and semiconductors. Caterpillar sales of engines and turbines plunged 28% in latest quarter; it expects fewer housing starts in US in 2010.

Wal-Mart continues to face charges of sexual discrimination against women employees, though perhaps it has provided part-time jobs to more women than any other company. BYD of China has started taking concrete steps to sell electric cars in US. National Pension Service of Korea continues to buy real estate in the developed world, the latest being the move to buy Sony Center in Berlin. Charles Schwab has agreed to pay 250,000 individual investors $200 mn against losses in a bond fund.

US narcotics authorities are beginning to realize that most drug cartels have succession plans in place and putting drug lords behind bars hardly impacts their functioning. A German managed to siphon electricity from an overhead line for a month with an ordinary meat hook.

Reuters research says Americans are losing confidence in effectiveness of healthcare plans; the US healthcare industry is spending more than a million a day on lobbying. Australia has decided to be the first country to ban branding of cigarettes. Belgium has voted to ban full face veils in public places and many expect several other EU countries to follow. Maryland researchers say American college students addicted to cellphones, social media and the Internet need treatment. So Google or Tweet? Just remember that if Sarah Palin’s emails can be hacked, so can be yours.

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