Sunday, 9 May 2010

In a rather eventful week, euro tumbled and recovered partially, oil dived and didn’t come back, and Dow plunged a thousand points Thursday like it was Mumbai or Shanghai. The Greenback flexed its muscles, asserting it was still the Almighty.

“We want an end to the freefall of our living standards,” said a Greek union leader, while Angela Merkel insisted that “in the long run, you can’t live beyond your means.” Living within means implies adjusting living standards but the 11 mn Greeks are livid largely because they have been, like much of the developed world, on a high since 2003. The world needs to fear spread of not financial crises but discontent among people in countries with ageing populations where thrift continues to be discouraged actively by governments and available reserves of real wealth are still being swallowed by the slick and the smart.

Living standards in not only Europe but the entire developed world have to fall. Definition of normal is changing. Every eighth American is receiving food stamps, households net wealth declined by $17 tn between 2007 and 2009, and the people are no more in a position to keep paying $100 bn in credit card interest charges and penalties. Only 576 mn credit cards are now in circulation, against 708 mn in 2007. 68 banks have already closed shop in 2010. Unemployment is no more a stigma for most individuals.

Germany and France are frantically looking for ways of stabilizing euro and Europe as Spain and Portugal continue to be on weak wickets, UK is figuring out what the people want, and Italy says it is safe and sound. Some in the east like Hungary are jittery while Russia is minting money from oil. Greenland’s 56,000 citizens are looking forward to a prosperous future as oil majors are rushing in with huge investments.

Hong Kong retail sales are almost back to pre-Lehman levels, Korea South is being deluged by dollars while North’s Kim has finally seen inevitability of dependence on China. Japan’s ratings are being reviewed, Australia is ecstatic on the back of high commodity prices, and Brazil’s financial standing is growing while Costa Rica is undecided on controls on capital inflows.

Relief should come from oil softening. Crude 2018 is above 100 but Russia and Mexico continue to sell below market. Instability is going to cause pain to Asia too but Asia is willing to leash capital flows when necessary and composition of world consumption will likely change in favour of manufactures.

Looks like inevitability of adequate regulation of the finance industry is beginning to dawn upon policy-makers. US and EU are likely to tighten supervision significantly and restraints on capital flows are expected from many countries. Switzerland, with a much bigger TBTF problem than US, is pushing UBS and Credit Suisse to be more conservative. However, the developing world (plus Japan) seems to be determined to pass through the path US and EU have traversed.

BP was the most talked about company last week as it faced an estimated $14 bn of cleaning costs and its shares plunged. After takeover of Continental, United will be the world’s biggest airline with revenue of $29 bn while Cathay grapples to hedge or not to hedge oil. Starbucks has been sued for serving excessively hot tea, Nestle CEO says corporate philanthropy often misuses shareholders money, and US hospital chain HCA, bought for $33 bn by KKR and Bain, is issuing equity to cut debt. Swire of Hong Kong and Chian Tian Yuan Mining have postponed their IPOs. Newcrest of Australia is buying rival gold miner Lihir for $8.5 bn as it wants more overseas earnings. Nike expects revenue to grow from 20 to 27 bn by 2015; China now accounts for 10%.

Apple and Google are fiercely buying any available promising small and mid-sized tech firms, Nokia and Microsoft have launched software for running Office on cellphones, and FCC has ruled that Internet service providers cannot block others content.

Goldman Sachs, currently settling fraud charges with SEC, has found an ally in Warren Buffett who says Abacus was fine and normal. UBS is going all out to tap wealth management in Asia, Citi’s credit cards exposure expanded $80 bn last year, and American Express, with average card spending of $8,665 in 2009 (against 3,073 for Visa+Master), was the top performer among Dow components in 2009; Visa and Master aren’t affected by defaults since they do not issue any cards directly.

Prudential’s largest shareholder Capital Group is gunning for its CEO; acquisition of AIG’s Asian unit is getting delayed for want of regulatory clearances. AIG says it has started earning real money. Well, congratulations.

Moody’s, S&P and Fitch are beginning to face real heat now; over 90% of triple-As issued to subprimes in 2006 and 2007 have been downgraded to junk. Now S&P will rate debt of 23,000 unrated firms, hoping to eventually make them pay.

US nuclear warheads stockpile has plunged from 22,217 in 1989 to 5,113, says the Pentagon, rupture of a water main has forced Boston residents to boil all drinking water, and TIGER21, an exclusive club of those with $10 mn or more in investable assets (each member pays $30K a year) is looking for upright investment advisors.

US has about 100K centenarians and a survey says 8% are already texting, 12% have iPods and a majority wants to date Betty White. Another research says toddlers who watch too much TV eventually eat more snacks and score less in maths. US govt is trying to make physical exercise in school compulsory. US FDA is 15 years late in saying Tylenol doesn’t help much.

A fair in Italy aims to help divorcees start happy new lives; annual number of divorces is about half of marriages. Pakistanis, avoided by US employers since 9/11, have now started calling themselves Indians. Pollution in London is seven times that in Frankfurt; is there a positive correlation between pollution and financial innovation?

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