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GM vs. housing vs. reflation
Apr. 27th, 2009 10:59 amGood morning, Cascadia; good afternoon, everywhere else.
It's a quiet day, really, now that the OMGMEXISARS panic of the morning has worn off, but there are a few items of interest. GM's plan to trade debt for equity at a really quite silly price, on the basis that it's this or risk bankruptcy court. The problem, of course, is that this is trading preferred stock, bond positions, and outright liens for common stock at over two and a half times market price.
I'm not really sure who is going to go for this. Just sayin'.
Oh, they've also announced some other moves: Pontiac is joining Hummer, Saab, and Saturn as going away by 2010 (yes, yes, like the rest of the company, but no, they mean as brands, and sooner), they're cutting their dealer network by 42%, and lopping over a little over a third off their workforce, which is to say, laying off 21,000. Reports are that the two-weeks-to-a-month plant shutdown will actually be nine weeks. I heard a Michigander on the radio laying out a map of the lower peninsula of the state in comparison to a hand and mentioning it was asking for spare change; gallows humour is a bull market. Chrysler has also made some announcements, reaching concession agreements from the Canadian Auto Workers and the UAW; talks with Fiat for a partial sale of the company are ongoing.
Supertanker shipping rates are likely to climb as old single-hulled tankers are phased out this year in some quantity while orders for new double-hulled ships are stalling out. Oslo-based Fearnley Consultants A/S thinks rates will double.
Fed internal analysis says that US benchmark interest rates should be negative 5% to reach monetary policy goals; hence the various "unconventional" actions. This IMF analysis points to super-huge deficits across the G20 over the next few years.
Japan has revised its growth forecasts sharply lower, to -3.3%, as exports plunge.
Fannie Mae "loaned" distressed homeowners money they knew would not get paid back - so these distressed homeowners could put that "loaned" money into back-payments on FME-owned mortgages and appear current. This is called fraud. These "loans" are now valued at 1.7¢ on the dollar, which, frankly, is more than I'd expect - but then, with all the taxpayer money being thrown around to shore these things up, well, why not buy some lotto tickets?
Mish Shedlock points to an interesting paper on the M2 and monetary velocity, and talks about why banks aren't lending. The full paper is here; of interest is the historic low in factory utilisation (lowest since WWII, 15.2% below postwar average) and the Congressional Budget Office's estimation that US public debt will climb to post-1950 records by 2013, when World War II was still being paid off.
Dr. Roubini thinks that the L-shaped recession has been avoided, and that the US economy will be essentially flat in 2010, but in recovery by 2011. The "U" will be "severe, deep, and protracted," but with recovery in the two-year timeframe. Noted bear Doug Noland sees a "much faster-than-expected recovery" in Asia and indicators that "reflation" is starting to take hold:
eta: And as I hit post, the markets fall over a bit. Hello, what?
It's a quiet day, really, now that the OMGMEXISARS panic of the morning has worn off, but there are a few items of interest. GM's plan to trade debt for equity at a really quite silly price, on the basis that it's this or risk bankruptcy court. The problem, of course, is that this is trading preferred stock, bond positions, and outright liens for common stock at over two and a half times market price.
I'm not really sure who is going to go for this. Just sayin'.
Oh, they've also announced some other moves: Pontiac is joining Hummer, Saab, and Saturn as going away by 2010 (yes, yes, like the rest of the company, but no, they mean as brands, and sooner), they're cutting their dealer network by 42%, and lopping over a little over a third off their workforce, which is to say, laying off 21,000. Reports are that the two-weeks-to-a-month plant shutdown will actually be nine weeks. I heard a Michigander on the radio laying out a map of the lower peninsula of the state in comparison to a hand and mentioning it was asking for spare change; gallows humour is a bull market. Chrysler has also made some announcements, reaching concession agreements from the Canadian Auto Workers and the UAW; talks with Fiat for a partial sale of the company are ongoing.
Supertanker shipping rates are likely to climb as old single-hulled tankers are phased out this year in some quantity while orders for new double-hulled ships are stalling out. Oslo-based Fearnley Consultants A/S thinks rates will double.
Fed internal analysis says that US benchmark interest rates should be negative 5% to reach monetary policy goals; hence the various "unconventional" actions. This IMF analysis points to super-huge deficits across the G20 over the next few years.
Japan has revised its growth forecasts sharply lower, to -3.3%, as exports plunge.
Fannie Mae "loaned" distressed homeowners money they knew would not get paid back - so these distressed homeowners could put that "loaned" money into back-payments on FME-owned mortgages and appear current. This is called fraud. These "loans" are now valued at 1.7¢ on the dollar, which, frankly, is more than I'd expect - but then, with all the taxpayer money being thrown around to shore these things up, well, why not buy some lotto tickets?
Mish Shedlock points to an interesting paper on the M2 and monetary velocity, and talks about why banks aren't lending. The full paper is here; of interest is the historic low in factory utilisation (lowest since WWII, 15.2% below postwar average) and the Congressional Budget Office's estimation that US public debt will climb to post-1950 records by 2013, when World War II was still being paid off.
Dr. Roubini thinks that the L-shaped recession has been avoided, and that the US economy will be essentially flat in 2010, but in recovery by 2011. The "U" will be "severe, deep, and protracted," but with recovery in the two-year timeframe. Noted bear Doug Noland sees a "much faster-than-expected recovery" in Asia and indicators that "reflation" is starting to take hold:
It’s my view that the markets generally lead the economy – not vice-versa. If this stock market rally is sustained, I would expect the summer home selling season to surprise on the upside in many locations. When some semblance of confidence returns to housing markets, I would not be surprised to see some pent up demand positively impact auto sales. Anecdotally, it appears consumer Credit conditions are beginning to loosen – even in auto finance.Stocks are down a bit, but not sharply. This is an interesting message-board post I don't really understand yet, so I'm linking to it because it is interesting. (It may not be accessible until after US markets are closed.) The US dollar is stable after a reflex-jump as part of this morning's micropanic over the swine flu. And that's all; good luck.
If we step back and ponder the unprecedented scope of today’s global fiscal and monetary stimulus, we shouldn’t be all that surprised by the fledgling reflationary forces observable both at home and abroad. I have labeled emerging dynamics the “Government Finance Bubble.” There is mounting evidence that this Bubble is developing critical mass and should be taken seriously.
eta: And as I hit post, the markets fall over a bit. Hello, what?
