US current President George Bush said on 24 November 2008 that any other institutions that needs help, the US government will provide similar actions to help Citi. It has been interpreted by the market that in the future, the US government will continue to play the role of fire fighters. The implications behind those words and who will be the next Citi have been the key questions on Wall Street.
Banking Industry's Hidden Secret?
Not long ago Citi CEO Vikram Pandit repeatedly said that Citi has enough liquidity but in a snap of the fingers accepted the fund injection by the US treasury department. This viewed from another angle is that Citi has been lying all along before that. As such, investors start to suspect the other banks trustability. Other than Citi, what other secrets are the other banks hiding?
Although the fund injection news for Citi caused the US stock market to rally on Monday, but investors are still worried about the real value of the shares of the banks that they are holding on hand.
In this year, the FDIC has taken over 22 bankrupted banks. Net income from the commercial banks and savings institutions under guarantee by FDIC in 2Q is only about 5 billion USD, the lowest quarterly income since 1991 and down by 87% comparing to the same time the year before. In it, 20% of banks under guarantee by FDIC in 2Q are in losses.
Although the FDIC says that the current banks situation is not as serious during the great depression. But in the eyes of a lot of market people, when the government or the companies are repeating on the same problem, it means that behind it usually there is a hidden secret which could cause a much bigger problem. It will be like the examples as shown in Bear Stearns, Lehman Brothers and Citi.
Citi Is Not A Good Precedent
Critics also point out that by helping Citi, the US government has provided a new model on helping the banking industry. The model is to openly guarantee related industry's non-performing assets on risks from losses and tax payers paying for the costs of doing that.
According the plan to save Citi, the US government has stepped over the original framework laid down by the treasury department to inject funds and the FEDs providing credit. Till date, Citi's 306 billion USD worth of debt will be directly related to the US government. The US government will also have t share 90% of Citi's 29 billion USD worth of non-performing assets losses.
A US asset manager says that currently a lot of financial institutions need help from the US government. The current situation is over the expectations of the US treasury department and FED. A professor from Louisiana state university says that once the first case of the US government guaranteeing Citi's non-performing assets has been set, the other banks will follow such example and ask for help. According to compounded data, currently in the US banking industry, the other banks still face a 2 trillion USD worth of non-performing assets problem.
But, although with Citi as the precedent, the other banks may not be able to follow the model to get help and the US government may not help all the banks that asked for help. A US banking industry analyst points out that the US government does not wish to provide guarantee for all the banks problematic assets as it will cause tax payers to incur large losses.
Who's Next? Bank of America? Wells Fargo?
After Bank of America took over Country Wide and its 1 billion USD worth of mortgage loan assets, the performance has been weak. Currently it has over 250 billion USD worth of housing mortgage loans. Miller & Washington' Michael Farr says that from the performance of the stock price, Bank of America may be the US government's next bank to help. In January, Bank of America's share price dropped up to 50%, just after Citi. Research company Credit Sights says that if the drop in commercial and residential real estate market exceeds banks expectations, Bank of America's first grade capital adequacy ratio will drop to 1.7%, reaching the warning level.
Buffet's Wells Fargo situation is also not very good. Wells Fargo after taking over Wachovia has been busy with the latter's 120 billion USD worth of housing asset losses. Credit Sights estimates that if the turmoil in the financial market continues, Wells Fargo first grade capital adequacy ratio will drop to 6.98%.
Wednesday, November 26, 2008
After the financial crisis, Americans have no where else to invest their money
To a lot of Americans, since the financial crisis, where to place the spare cash is a headache problem.
It goes without saying about the risks of investing in the stock market. Since the beginning of the year, the 3 indexes on the New York stock market have plummeted up to 40% with no high hope for a possible Christmas rally. Investment guru Warren Buffett at about a month ago suggested Americans to invest in the US stock market but under the crisis not met before in a hundred years, the Buffett effect seems not effective. About a month ago, Buffett announced to pay 115 USD per share to buy Goldman Sachs shares. Now the price for Goldman Sachs share has dropped by more than half. The money loosing effect has made many investors staying out of the stock market. Not seeing any end to the bear market, investors would rather hold cash then loose money.
It is known that most Americans do not put their money in the bank. Fund investment is how Americans manage their money. In US close to half of the families have fund investments. Because of the lack of time and energy to manage their money, Americans placed trust in the fund manager's ability to manage their money. But with the recent overall bad performance of the market, the fund managers are unable to demonstrate their money management capability. Since this year, stock market, bond market and the commodities market all faced downturn. Except for some funds that does shorting, most US funds average returns are no better then S&P index performance. The sales pitch for fund managers are now something like the fund industry lost 40% but we only loose 30%. Out of dismay for the funds performance, investors simply withdrew their investments.
Out of concern for the safety of their money, some Americans considered putting the money in banks. But putting money in the bank may not be safe after all, something quite unexpected by the American people. In this year, there are 20 US banks that went bankrupt. Although depositors have 250,000 USD in deposit insurance, but to think of the troubles after the bank went bankrupt, depositors are now fearing the smaller banks.
Small banks can go bankrupt easily, but the big banks are no where better. Because of shortage of liquidity, some big US commercial banks came out with the idea of paying high interest rate for deposits. 2 weeks before going bankrupt, Washington Mutual once announced a 4.5% yearly interest rate savings deposit advertisement to attract clients. Not long after the ad was placed, the bank went bankrupt. Citi in November also announced a 4% yearly interest rate plan for 6 months deposit. But 1 week after the plan was launched, there are news that Citi encountered problems. People slowly began to realize that big banks coming out with savings plans paying high interest rates are not to attract clients from the smaller banks, but they are signs that the banks are facing shortage of liquidity.
To the normal investors, to invest in farming products, crude oil and other commonalities futures trading, the difficulties are quite high. Gold's ability to preserve value is weakening gradually. Other then putting the money in the backyard or under the pillow, there does not seem to have any other better ways of investing the money.
It goes without saying about the risks of investing in the stock market. Since the beginning of the year, the 3 indexes on the New York stock market have plummeted up to 40% with no high hope for a possible Christmas rally. Investment guru Warren Buffett at about a month ago suggested Americans to invest in the US stock market but under the crisis not met before in a hundred years, the Buffett effect seems not effective. About a month ago, Buffett announced to pay 115 USD per share to buy Goldman Sachs shares. Now the price for Goldman Sachs share has dropped by more than half. The money loosing effect has made many investors staying out of the stock market. Not seeing any end to the bear market, investors would rather hold cash then loose money.
It is known that most Americans do not put their money in the bank. Fund investment is how Americans manage their money. In US close to half of the families have fund investments. Because of the lack of time and energy to manage their money, Americans placed trust in the fund manager's ability to manage their money. But with the recent overall bad performance of the market, the fund managers are unable to demonstrate their money management capability. Since this year, stock market, bond market and the commodities market all faced downturn. Except for some funds that does shorting, most US funds average returns are no better then S&P index performance. The sales pitch for fund managers are now something like the fund industry lost 40% but we only loose 30%. Out of dismay for the funds performance, investors simply withdrew their investments.
Out of concern for the safety of their money, some Americans considered putting the money in banks. But putting money in the bank may not be safe after all, something quite unexpected by the American people. In this year, there are 20 US banks that went bankrupt. Although depositors have 250,000 USD in deposit insurance, but to think of the troubles after the bank went bankrupt, depositors are now fearing the smaller banks.
Small banks can go bankrupt easily, but the big banks are no where better. Because of shortage of liquidity, some big US commercial banks came out with the idea of paying high interest rate for deposits. 2 weeks before going bankrupt, Washington Mutual once announced a 4.5% yearly interest rate savings deposit advertisement to attract clients. Not long after the ad was placed, the bank went bankrupt. Citi in November also announced a 4% yearly interest rate plan for 6 months deposit. But 1 week after the plan was launched, there are news that Citi encountered problems. People slowly began to realize that big banks coming out with savings plans paying high interest rates are not to attract clients from the smaller banks, but they are signs that the banks are facing shortage of liquidity.
To the normal investors, to invest in farming products, crude oil and other commonalities futures trading, the difficulties are quite high. Gold's ability to preserve value is weakening gradually. Other then putting the money in the backyard or under the pillow, there does not seem to have any other better ways of investing the money.
A light at the end of the tunnel
Market Watch
A bright spot
Commentary: There's something to be hopeful about
By Irwin Kellner, MarketWatch
Last update: 8:33 p.m. EST Nov. 24, 2008
PORT WASHINGTON, N.Y. (MarketWatch) -- There's a light at the end of this tunnel we're now in -- and it's not a train coming at us.
No, Virginia, it's falling oil prices.
Since midyear, the drop in gasoline prices alone has put over $200 billion into people's pockets.
When added to the $150 billion in rebate checks that the government put in the mail during the summer, this has boosted our collective buying power by more than 4% in the last four months alone.
To make matters even more satisfying, the $200 billion from the decline in oil prices did not come out of Washington's coffers, thus it did not add one nickel to the government's burgeoning budget deficit.
It's also providing a needed lift to confidence. The sighs of relief at gas pumps around the country are palpable.
Simply put, $2.00 a gallon looks a lot better on the way down from $4.00 a gallon than it did when it was first breached on the way up.
And while some folks are beginning to drive a bit more and maybe a few more trucks and SUVs are moving off dealers' lots these days, it's all good.
We're still driving fewer miles than we did a year ago. In addition, people are continuing to switch from gas guzzlers to more fuel efficient vehicles, are taking fewer driving vacations and are shopping less. They are worried that this drop in gas prices is only temporary and will reverse when the economy picks up again.
But even if they do rise, prices for oil and gasoline are unlikely to regain their peaks reached in early July -- at least not anytime soon. Those levels reflected a bubble which has since burst.
With the benefit of hindsight, $4.00 a gallon was the tipping point. It set in motion changes in behavior that will remain, as will their side effects.
For example, the resulting cutback in shopping has led to unprecedented discounting by retailers all across the price spectrum. This has helped put the brakes on inflation: from a year-to-year gain of 5-1/2% a few months ago, consumer prices are now up only 3-1/2%.
Businesses of all stripes are finding an unexpected windfall in their budgets. It's helped them cut costs without firing workers and hurting their suppliers.
Besides airlines, delivery services and mass transit, cheers can also be heard from factories, hospitals, and landlords -- and even from local governments. Indeed, all users of energy are benefiting from the fall in prices.
Lower gas prices could even result in a modest pickup in spending -- just in time for the important holiday shopping season. It might even give the banks enough confidence to resume lending -- especially since today's low interest rates make it easier for borrowers to repay their loans.
Who knows, this might even thaw out the frozen financial markets without any more involvement by the government.
Finally, the reduction in use of oil and gas also reduces pollution. Less carbon dioxide emissions will help us achieve a cleaner environment.
Looks like a win-win to me.
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.
A bright spot
Commentary: There's something to be hopeful about
By Irwin Kellner, MarketWatch
Last update: 8:33 p.m. EST Nov. 24, 2008
PORT WASHINGTON, N.Y. (MarketWatch) -- There's a light at the end of this tunnel we're now in -- and it's not a train coming at us.
No, Virginia, it's falling oil prices.
Since midyear, the drop in gasoline prices alone has put over $200 billion into people's pockets.
When added to the $150 billion in rebate checks that the government put in the mail during the summer, this has boosted our collective buying power by more than 4% in the last four months alone.
To make matters even more satisfying, the $200 billion from the decline in oil prices did not come out of Washington's coffers, thus it did not add one nickel to the government's burgeoning budget deficit.
It's also providing a needed lift to confidence. The sighs of relief at gas pumps around the country are palpable.
Simply put, $2.00 a gallon looks a lot better on the way down from $4.00 a gallon than it did when it was first breached on the way up.
And while some folks are beginning to drive a bit more and maybe a few more trucks and SUVs are moving off dealers' lots these days, it's all good.
We're still driving fewer miles than we did a year ago. In addition, people are continuing to switch from gas guzzlers to more fuel efficient vehicles, are taking fewer driving vacations and are shopping less. They are worried that this drop in gas prices is only temporary and will reverse when the economy picks up again.
But even if they do rise, prices for oil and gasoline are unlikely to regain their peaks reached in early July -- at least not anytime soon. Those levels reflected a bubble which has since burst.
With the benefit of hindsight, $4.00 a gallon was the tipping point. It set in motion changes in behavior that will remain, as will their side effects.
For example, the resulting cutback in shopping has led to unprecedented discounting by retailers all across the price spectrum. This has helped put the brakes on inflation: from a year-to-year gain of 5-1/2% a few months ago, consumer prices are now up only 3-1/2%.
Businesses of all stripes are finding an unexpected windfall in their budgets. It's helped them cut costs without firing workers and hurting their suppliers.
Besides airlines, delivery services and mass transit, cheers can also be heard from factories, hospitals, and landlords -- and even from local governments. Indeed, all users of energy are benefiting from the fall in prices.
Lower gas prices could even result in a modest pickup in spending -- just in time for the important holiday shopping season. It might even give the banks enough confidence to resume lending -- especially since today's low interest rates make it easier for borrowers to repay their loans.
Who knows, this might even thaw out the frozen financial markets without any more involvement by the government.
Finally, the reduction in use of oil and gas also reduces pollution. Less carbon dioxide emissions will help us achieve a cleaner environment.
Looks like a win-win to me.
Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y.
Businesses still bullish on China
China Information News
Businesses still bullish on China
26 November 2008
European firms in China are still optimistic in spite of the global economic turmoil and remain firmly committed to the country, according to a survey released yesterday.
The survey, conducted by the European Union Chamber of Commerce in China, shows that most of the European companies in the country are still profitable. Over 70 percent of the firms said profitability for 2007 was positive, while 62 percent of those surveyed said they expect to stay profitable in 2008.
"This year's survey re-confirms that the Chinese market is the most important emerging market for European businesses, and given the global slowdown it might actually rise in significance," said Joerg Wuttke, president of the European Chamber.
The survey pointed out that China's growing domestic demand, rather than exports, will be the mainstay for European companies to set up businesses. This year over 70 percent of the respondents said the main focus is to produce goods or services for domestic consumption, compared with 49 percent two years ago.
Two-thirds of the firms generate less than 10 percent of their current global revenue in China, indicating the huge growth potential that still exists.
The survey was conducted in July-September but could show some changes over the last two months as the global economy saw a sharp downturn.
Wuttke, however, said that the 62 percent profitability figure is the lowest they have until now, largely due to the strong performance in the first three quarters of the year.
According to Wuttke the Chamber members are now anticipating slowdown in the car and services sectors. Like enterprises elsewhere, European companies are also experiencing an "unpredictable situation" here, but they are generally optimistic.
"Considering China's continued growth and the underlying confidence of European businesses in China, we hope to see positive developments in the year to come," said Marianne Friese, secretary general of the European Chamber.
Over 70 percent of the respondents are SMEs with less than 200 employees in China. Compared with large companies, SMEs are more upbeat than their bigger counterparts when it comes to future profitability, the survey said.
(China Daily November 26, 2008)
Businesses still bullish on China
26 November 2008
European firms in China are still optimistic in spite of the global economic turmoil and remain firmly committed to the country, according to a survey released yesterday.
The survey, conducted by the European Union Chamber of Commerce in China, shows that most of the European companies in the country are still profitable. Over 70 percent of the firms said profitability for 2007 was positive, while 62 percent of those surveyed said they expect to stay profitable in 2008.
"This year's survey re-confirms that the Chinese market is the most important emerging market for European businesses, and given the global slowdown it might actually rise in significance," said Joerg Wuttke, president of the European Chamber.
The survey pointed out that China's growing domestic demand, rather than exports, will be the mainstay for European companies to set up businesses. This year over 70 percent of the respondents said the main focus is to produce goods or services for domestic consumption, compared with 49 percent two years ago.
Two-thirds of the firms generate less than 10 percent of their current global revenue in China, indicating the huge growth potential that still exists.
The survey was conducted in July-September but could show some changes over the last two months as the global economy saw a sharp downturn.
Wuttke, however, said that the 62 percent profitability figure is the lowest they have until now, largely due to the strong performance in the first three quarters of the year.
According to Wuttke the Chamber members are now anticipating slowdown in the car and services sectors. Like enterprises elsewhere, European companies are also experiencing an "unpredictable situation" here, but they are generally optimistic.
"Considering China's continued growth and the underlying confidence of European businesses in China, we hope to see positive developments in the year to come," said Marianne Friese, secretary general of the European Chamber.
Over 70 percent of the respondents are SMEs with less than 200 employees in China. Compared with large companies, SMEs are more upbeat than their bigger counterparts when it comes to future profitability, the survey said.
(China Daily November 26, 2008)
China - Foreign funds for roads urged
China Information News
Foreign funds for roads urged
26 November 2008
The authorities are calling for more foreign investment in road and port construction next year, in line with plans to spur domestic demand in the sector, a transport official said Tuesday.
Road and port infrastructure projects will need 1 trillion yuan (US$147 billion) of investment next year, up from about 800 billion yuan needed this year, Li Xinghua, deputy director of the planning department of the Ministry of Transport, told a press conference yesterday.
"The gap in capital financing next year means more foreign capital is needed," he said.
Past road constructions have preferred domestic funds over foreign capital because they were said to offer "more favorable terms than foreign loans", Li said.
But the amount of foreign funds in road construction is "sure to exceed" that of the past, he said.
The country currently uses US$600 million to US$800 million of loans from the World Bank, Asian Development Bank and foreign governments each year for building roads, with the amount of funds expected to increase next year, Li said.
"From expressways to ports, all transport infrastructure projects are open to foreign capital as usual, and we have already established mature operational mechanisms for using the funds from past experiences," he said.
The foreign capital, as well as central and local government funds and domestic private capital, will together fund large-scale road and port construction next year, Li said.
The majority of investments next year will go to expressway projects, he said. About one-fifth will go to rural road projects, 70 billion yuan to coastal port projects and 20 billion yuan to inland port projects.
The exact amount of investment in expressways will have to be approved by the State Council, or the country's Cabinet, Li said.
The ministry's plans for the sector follow latest efforts of the State Council to fend off economic slowdown by investing 4 trillion yuan in areas that also cover housing and rural infrastructure.
The focus on expressways also stems from the strong effect such projects have in spurring demand, seen in the late 1990s when the Asian financial crisis struck, Transport Ministry spokesman He Jianzhong said.
He cited studies saying that building 1 km of expressway will consume 1,000 tons of steel, 9,000 tons of cement and 1,900 tons of asphalt on average, and every 100 million yuan invested in the roads will create 1,800 jobs directly and 2,100 jobs indirectly.
These large-scale investments on the transport network will help boost plans for a 100,000-km national highway network, He said. The country had 54,000 km of expressways by the end of last year.
(China Daily November 26, 2008)
Foreign funds for roads urged
26 November 2008
The authorities are calling for more foreign investment in road and port construction next year, in line with plans to spur domestic demand in the sector, a transport official said Tuesday.
Road and port infrastructure projects will need 1 trillion yuan (US$147 billion) of investment next year, up from about 800 billion yuan needed this year, Li Xinghua, deputy director of the planning department of the Ministry of Transport, told a press conference yesterday.
"The gap in capital financing next year means more foreign capital is needed," he said.
Past road constructions have preferred domestic funds over foreign capital because they were said to offer "more favorable terms than foreign loans", Li said.
But the amount of foreign funds in road construction is "sure to exceed" that of the past, he said.
The country currently uses US$600 million to US$800 million of loans from the World Bank, Asian Development Bank and foreign governments each year for building roads, with the amount of funds expected to increase next year, Li said.
"From expressways to ports, all transport infrastructure projects are open to foreign capital as usual, and we have already established mature operational mechanisms for using the funds from past experiences," he said.
The foreign capital, as well as central and local government funds and domestic private capital, will together fund large-scale road and port construction next year, Li said.
The majority of investments next year will go to expressway projects, he said. About one-fifth will go to rural road projects, 70 billion yuan to coastal port projects and 20 billion yuan to inland port projects.
The exact amount of investment in expressways will have to be approved by the State Council, or the country's Cabinet, Li said.
The ministry's plans for the sector follow latest efforts of the State Council to fend off economic slowdown by investing 4 trillion yuan in areas that also cover housing and rural infrastructure.
The focus on expressways also stems from the strong effect such projects have in spurring demand, seen in the late 1990s when the Asian financial crisis struck, Transport Ministry spokesman He Jianzhong said.
He cited studies saying that building 1 km of expressway will consume 1,000 tons of steel, 9,000 tons of cement and 1,900 tons of asphalt on average, and every 100 million yuan invested in the roads will create 1,800 jobs directly and 2,100 jobs indirectly.
These large-scale investments on the transport network will help boost plans for a 100,000-km national highway network, He said. The country had 54,000 km of expressways by the end of last year.
(China Daily November 26, 2008)
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