Sunday, 23 May 2010

Angela Merkel hit hedges with a sledgehammer last week. Equities, euro and oil tumbled. Before anybody could uncork champagne, euro bounced back from 1.2144 to 1.2522, and oil failed to recover. Sarkozy’s shenanigans got lost and Austria called for Europe-wide curbs on speculation. The Lioness said markets will not be allowed to extort the state and the mighty markets meekly melted into submission. UK was isolated. Rendered irrelevant.

Europe is dead serious about a pan-European watchdog with powers to coax information out of hedge funds. Greece, Portugal, Spain and Ireland and even France are yet to shun profligacy for frugality. The euro will eventually have to price itself more competitively but that can happen more smoothly and quickly now as the Iron Lady won’t allow New York to tinker with costs and cash flows of factories in Germany. Perhaps Hu Jintao should tell Geithner to postpone his visit and invite Angela since like China, Germany too is more interested in producing real wealth, real goods and real services rather than securitizing other people’s money, houses and wealth for earning livelihood.

The Capitol actually did some serious work last week as it was the Dow, not the Dax, that was running for cover. Senate is now working on banning banks from trading in derivatives, circuit breakers for all US stocks, an independent watchdog to safeguard consumers and borrowers, higher taxes on the so-called investment partnerships and powers for the government to decide which agency will rate whom. Europe is very likely to go for a rating outfit of its own.

US demand for home loans has plunged again, unemployment among 20-24 is 17%, credit card usage are declining steadily and 43% of workers have less than $10K in savings. However, for US, Dow and Nasdaq are the only measures of economic health; employment, savings and consumption are too mundane. Sales of Saks are more relevant than Wal-Mart and Home Depot. Harvard and Stanford dwarf primary education. Consumption has to remain unchanged, if not decline, in coming years.

Chinese economy is maintaining course with stable exports and growing domestic consumption; credit card usage in Q1 jumped 75% to CNY2.15 tn or over $300 bn. Auto sales are above a million a month. Forex reserves are expected to grow $100 bn this year also. Macau is catching up with Las Vegas.

Taiwan’s exports to China are booming and tourist arrivals too are growing. South Korea wants a Citi or BofA of its own. Venezuela currency is now unofficially trading at less than half the official rate. Bt cotton has started creating problems for farmers in China and India. Germany has completed 4G spectrum auction. Pakistan has banned YouTube and Facebook. Is that fighting Taliban?

HP expects sales of $125 bn in 2010 as global IT spending is to grow 5%, Symantec is to buy rival VeriSign for $1.28 bn in cash, Novell (software) is up for sale and 20 are interested and Twitter is being asked by Pennsylvania state to identify two users who criticized the Attorney General. BlackBerry (RIM) has started facing exodus to iPhone in the banking industry; Stanchart has allowed its employees to opt for iPhone and more banks are expected to follow suit.

Lufthansa has got its first superjumbo and seats are sold for months; fuel per passenger is 17% lower. Airbus has delivered 28 superjumbos so far. British Airways has announced loss of nearly $800 mn for 2009-10. Ford and Mazda, currently working jointly with Chongqing, are planning independent JVs with the Chinese auto firm. GM says it would stop paying union employees in US to leave the company.

BP is being accused of understating the oil leak crisis; some say leakage rate is 70K and not 5K barrels a day. US wants it to bear full cost, which cannot be estimated as of now. Abbott is to buy generics unit of India’s Piramal Healthcare in a $3.72 bn deal which will make it the largest pharma firm in India.

Unilever has put Italian frozen food unit on the block while Pepsi has announced further investment plans of $2.5 bn in China, to set up 10-12 new plants, besides expanding the existing 27. Wal-Mart is moving to lift goods directly from vendors’ plants, the idea being to cut transportation costs; its stores in high unemployment areas are hurt. Overall big retailers all over the world seem to be in reasonably comfortable position.

BofA has sold its stake in Itau of Brazil for $4.4 bn. Dubai World has worked out a deal to restructure its $23.5 bn debt. Seven of top ten trades recommended by Goldman resulted in losses for its clients last quarter.

Billionaire Allen Ponzi Stanford appears to have been beaten severely while in jail. Hyperion and Toshiba are close to commercialising nuclear reactors no larger than a large refrigerator with capacities ranging from 5 to 25mw. Specially developed chocolates can help prevent wrinkles and slow aging, besides making skin radiant, says a Swiss chocolate maker. Every fifth American visits an emergency room once a year. Scientists in China are using chemicals extracted from cigarette butts to protect steel from rusting. Bill Gates has been told by his father that Microsoft should pay more in taxes. Scientists finally appear to have created synthetic life.

A textile mill buys 6-month forward cotton from US, hedges against a dip in price, buys 6-month forward dollar, hedges forex receivables for a year and covers furnace oil for two years. NY shorts euro. Frankfurt buyer says sorry no demand. Cancel my order. The surplus goes on streets of Beijing at half the price. Some mills close. Thousands of workers are sent home to their villages. NY gets its share in exports that were never shipped. Get it? No? Hire McKinsey. It will tell you to cover against euro plunging also but then euro will go up and the buyer will demand a discount. Confused? That’s the new normal for industry.

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