Links: 2009-05-12

You may have noticed that the news cycle has turned down: U.K. manufacturing down, bank stocks down, Chinese inflation and exports down. All of this points to the underlying weakness in the global economy.

I should also point out that a nasty outcome at GM would seriously hamper a recovery.

• BBC NEWS – Record fall in UK manufacturing

  Retail sales are now rising in the U.K. Does this mean that we are off to the races? Not necessarily: “UK manufacturing output continued to decline in March, but the falls were not as severe as had been expected.”

• Bronte Capital: The hookers no longer cost too much: geopolitics and the price of prostitutes in the Baltic States

  Interesting post about the Depression in Latvia. You’ll see another post by Gideon Rachman in the links as well showing that the worst seems to be over in Hungary. Let’s hope that we have seen Europe beat back the potential for financial collapse. Meanwhile, Latvia should be seen as the worst of the lot in Eastern Europe.

• naked capitalism: Credit Default Swaps Holders Likely to Force GM into Bankruptcy

  This post reminds s of the role that CDS now play. I had mentioned this as a likely outcome a few weeks back and it seems to be the case. You should note that the CDS play on GM was always far bigger tan it was on Chrysler.

• FT.com: Gideon Rachman – Hungarian lessons for a world crisis

  “The horror scenario envisaged a Hungarian banking collapse that would ripple back into the rest of Europe and then around the world. Many EU banks have lent heavily in central Europe. Austrian banks are thought to have lent the equivalent of more than 70 per cent of their country’s gross domestic product to the region. This idea – perhaps combined with a folk memory that the Great Depression had something to do with the collapse of an Austrian bank – helped heighten the panic about Hungary. But, having just visited Budapest, I can return with good news. The immediate crisis is over. There was a moment when there was a real fear of a bank run. One Hungarian financier is quite precise about the date: Friday, March 13. However, confidence just about held up, the moment passed and so has the threat of imminent collapse.”

• Schwarzenegger Says California Deficit May Widen to $21 Billion – Bloomberg.com

  “California’s budget deficit may widen to as much $21 billion if voters next week reject three ballot measures to cap spending, raise taxes and sell bonds backed by lottery profits, Governor Arnold Schwarzenegger said.”

• Retail sales rise at fastest rate in five years – guardian.co.uk

  “Retail sales rose last month at their fastest pace in three years, the British Retail Consortium (BRC) reports today, adding to growing evidence of a tentative recovery in the economy. Meanwhile, today’s monthly survey of the housing market from the Royal Institution of Chartered Surveyors (Rics) shows the biggest number of new buyer enquiries in nearly a decade.”

• FT.com – Chinese exports fall sharply

  “Chinese exports fell steeply year-on-year in April, raising fears that the worst is not yet over for an economy that has shown signs of bottoming out in recent weeks. The total value of Chinese exports fell 22.6 per cent from a year earlier in April to $91.9bn, a faster rate of decline than the 17.1 per cent year-on-year drop in March, which many analysts and officials took as a sign that external demand for Chinese goods was starting to recover.”

• FT.com – BofA raises $7.3bn from CCB stake

  “Bank of America has raised $7.3bn after selling a large stake in China Construction Bank to a select group of predominantly mainland investors, according to people familiar with the matter. The stricken US bank on Tuesday sold 13.5bn shares, or 6 per cent of CCB, at HK$4.20 each, to investors including China Life, China’s Hopu Investment Management and Temasek of Singapore, according to those people.”

• German Finance Ministry Completes ‘Bad Bank’ Draft – Bloomberg.com

  “Germany’s Finance Ministry published a draft law that allows banks to swap toxic assets for guaranteed bonds under a voluntary program to be considered by Chancellor Angela Merkel’s Cabinet on May 13.”

• How Did White People Vote? How Did Rich and Poor People Vote? – 538

  Based on Nate SIlver’s analyses, you have to conclude that the Republican party is the party of the rich, but not Super Rich. And it is the party of the white. Is this the big divide in America?

• Words from the (investment) wise for the week that was (May 4 – 10, 2009) » Investment Postcards from Cape Town

  Very good synopsis regarding the market and economy and the potential for further upside.

• How Cheney Remembers His Oath – Andrew Sullivan

  A good point here. The oath of office talks about defending the constituion from foreign and domestic enemies not defending the U.S. from them.

• China suffers defaltion for third month in a row – Telegraph

  “China’s inflation rate fell for the third month in a row in April as prices for foods and energy plunged from high levels the year before.” This the year-on-year trend but the recent trend is more benign.

• Soros says economic downward trend easing: report | Reuters

  “The downward trend in the financial crisis is easing and national economic stimulus packages are starting to work, billionaire investor George Soros was quoted as saying by a German newspaper on Monday. Soros also told the Frankfurter Allgemeine Zeitung daily that Asia would be the first region to pull out of the crisis and China was set to overtake the United States as the engine of world growth.”

• FT.com – Iceland seeks to start EU accession talks

  Obviously, Icelanders now see the benefits of the EU. “Iceland hopes to start accession talks with the European Union by July, although the island’s government and its 320,000 people remain deeply divided over whether to join the bloc.”

• Bruce Krasting: Stressing Fannie and Freddie – What Does It Mean?

  “The cost to the taxpayer for cleaning up the Agencies will take many years to calculate. It may take a decade to stabilize these important institutions. The guidelines established in the Fed stress test do provide some insight as to the magnitude of the losses we may face. Those losses will certainly exceed the Baseline Case of $400 billion. It is quite likely the losses will approach three quarters of a trillion dollars. It is difficult to put these very big numbers into perspective. By way of comparison, the losses at the Agencies will probably be larger then all of the costs that will be incurred in the Iraq war.”

• Capital One, U.S. Bancorp, BB&T to Repay U.S. Aid – Bloomberg.com

  “Capital One, the credit-card lender based in McLean, Virginia, said today it would sell 56 million shares of common stock, while Minneapolis’s U.S. Bancorp said its sale would total about $2.5 billion. BB&T Corp., North Carolina’s second- biggest bank, reduced its dividend and began a public offering of $1.5 billion of common stock.”

• A Fully Fledged Garden of Economic Recovery? – Marshall Auerback

  “Whilst we have not been in the camp that has tended to see every green shoot as an overflowing weed, we certainly thought the market was increasingly pricing in economic oblivion in February, a Great Depression II, if you will.”