Sunday, 13 June 2010

Too Big To Kick (TBTK) corporate asses became a problem last week. Obama’s outbursts failed to wipe the smirk off BP CEO Hayward’s face; Brits said they can’t let BP go under as it accounts for about an eighth of dividend payouts. BP bought search results for “oil spill” from Google even as Florida demanded $2.5 bn in escrow for cleanup costs and Mexico feared spilled oil will reach its shores by December. TBTF Stanchart says BP is ripe for takeover by PetroChina. British pensioners have lost over $5 bn. Yet, nobody knows how much oil is getting into the sea and why the leak cannot be fixed. Oil clawed its way back to $75 last week, pushing indices up and perking up commodities in general.

US economy, despite its high dependence on services, is able to expand its output even after cutting over eight million jobs and India is able to expand industrial production 17% with less than 6% extra electricity. In China, prices of clothing, vegetables, home appliances and consumer goods are either steady or falling but the world is worried about inflation hurting its economy.

Euro recovered to 1.21 late last week but Roubini says parity with dollar is inevitable. Eventual default by Greece is considered a given by most. Uncertainty on euro has resulted in four Persian Gulf states postponing their plans for a common currency. Germany, France and Italy are determined to preserve the euro and significant convergence has been achieved on checking speculation. However, the overall scene is that everybody expects something to happen in Europe, though nobody knows what will happen when.

US economy continues to be shrouded in mystery. Even as retail sales are either flat or falling (gasoline demand dropped 5.8% in the most recent week), Bernanke says recovery is solid, without saying how long will the US keep 8 mn on dole. Public debt is already close to GDP, though without counting social security and trust programs it is still below $10 tn. CMBS issuance last year was 3.04 bn compared to 232 in 2007. Debate on the Volcker rule and issuing periodic warnings to China on the yuan issue have become perennial. Last week a 32 year old got Democratic nomination for the Senate from S Carolina without any campaigning or spending while former CEOs of eBay and HP won Republican nominations after spending nearly 100 mn dollars. Someday the US just may list its administration on NYSE, letting a dozen TBTFs ‘elect’ the President.

Number of millionaires in the world recovered to its 2007 figure in 2009 when global AUM was estimated at $111 tn, of which US+Canada account for 35 tn and Europe 37. IATA says worldwide industry profits will be $2.5 bn this year. Japan’s new PM, 5th in 4 years, says he wants to “drastically rebuilt Japan.”

China’s economy is going strong and it expects trade surplus to decline significantly this year. S Africa operationalised its first rapid rail system last week to connect Johannesburg airport to the city. Kenya wants to have a new constitution to usher in peace and investments. It has been doing that for several decades now.

As Americans and Europeans save more, liquidity is going to rise. Where the money will go remains an open question. Besides, the austerity wave sweeping Europe is going to have some political fall out too, contours of which may take time to develop.

After having sold a peak 8.75 mn iPhones last quarter, Apple unveiled iPhone4 last week, with a thinner body, better resolution and a front facing camera. Sprint says it did overstate launch day sales of EVO 4G phone 200%. Following merger of phone units of NEC, Casio and Hitachi, Fujitsu and Toshiba have decided to merge theirs. Motorola and BlackBerry have settled their IPR disputes.

France Telecom is to set up a 17K Kms cable to connect 23 African countries with broadband and India’s Bharti Airtel has taken over Zain’s African business to have total customer base of 180 mn. Emirates has decided to order 30 more A380 superjumbos, in addition to 58 already in the pipeline. Cathay and Air France have started introducing airbags in economy class also. GM is recalling 1.53 mn vehicles worldwide because of potential fire hazards and Volkswagen is to set up a 10th plant in China to double capacity to 3 mn vehicles.

AIG has been sued for having underreported premiums between 1985 and 1996 and while it is still undecided on its Asian operations, Manulife says its Asia business now accounts for a sixth of its revenue of C$40 bn. Lehman has sought court clearance to invest $255 mn in a Park Av building to protect an existing investment of $437 mn. Santander, Spanish bank, is buying out partner BofA in a JV in Mexico.

Warren Buffett’s famous lunch was auctioned for over $2 mn this year and Kellogg has agreed to stop claiming that its Krispies strengthen children’s immune system.

Macau is planning to ban smoking in casinos in three years. Catholics in US are angry because Empire State Building refused to illuminate itself in honour of Mother Teresa. Germany’s corporate honchos have magnanimously resolved that employees should be allowed to watch World Cup matches during office hours also.

Research says it costs about half-a-million to raise a child, without counting college. Add an equal amount for a couple’s own retirement and every family needs a million. Obviously, it is cheaper to import people from India and China. In Scotland, they say 97.5% of adults are either smokers or heavy drinkers or overweight. Donna Simpson of New Jersey weighs 600 lb and intends to touch 1,000 to become the heaviest living woman in the world.

US is determined to keep the roulette rolling but eurozone, and now S Korea (it has made prior approval necessary for derivatives; govt had to pay $3 bn to get exporters out of currency options in 2008) give cause for hope.

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