This past weekend I went away to the beach where I watched no television, listened to no radio and read no newspapers. It was good to get away from the constant drip-drip of bad economic news that has overcome the global economy.
Now, I am back in the saddle and catching up on the weekend’s and Monday’s events. If you subscribe to our news feed, you will notice most of the important stories listed there but let me pull these together into a few threads.
Global recession
The first obvious thread is not the size, but rather the scope of economic hardship that we have seen in the news cycle yesterday and today. China, New Zealand, Australia, South Africa, the UK, Germany, Canada, Mexico, the U.S. Everywhere there is serious pain to be felt. I have broached the subject of an imminent global recession for quite some time now. I do think people are catching on to the severity of things. And as I see it, China’s $800-odd billion bailout package is no positive event. It signals that the Chinese realize they cannot decouple from the stagnating growth around the globe. After all, the country did just suffer a terrific stock market implosion and property prices are now falling. The banking system there is still quite weak and there is an ever-ready flow of peasant workers looking for work. China needs to continue growing.
- China okays $586 billion stimulus to boost economy – Reuters
- Australian Business Confidence Plunges to Record Low – Bloomberg.com
- New Zealand’s House Prices Fall at Fastest Pace in Three Years – Bloomberg.com
- Fitch: SA risks hard landing – Finance24
- UK house sales ‘at 30-year low’ – BBC News
- Record fall in UK producer prices – BBC News
- Deutsche Post cuts 9,500 DHL jobs – BBC News
- GM shares hit 62-year lows after broker downgrades – Reuters
- Circuit City Files for Bankruptcy – Deal Book
- Nortel to cut another 1,300 jobs – National Post
Financial Sector Pain
The financial sector seems to be getting worse if anything. As we cycle through the 3rd quarter earnings reports, the level of writedowns and need for capital is quite acute. A.I.G. was the big story today as they needed the Fed to invest another $40 billion in preferred shares in the company to stay afloat. And the U.S. government changed the terms on the loan it originally offered A.I.G. in order to keep the company from more pain But, there were large losses and writedowns at Fannie Mae and HSBC. There were troubles in Sweden and Germany as well. And even AMEX became a bank in order to get at the easy money the Fed has on offer.
We are fast approaching a point where another large financial institution could fail. However, governments are bailing out so many companies that socialization of the losses is more likely than failure. Notice, Obama’s Chief of Staff’s statements about bailing out the U.S. automakers. Get ready for some major government budget deficits.
- Dresdner Had EU650 Million Third-Quarter Writedowns – Bloomberg.com
- Nationwide profits dive on 17% mortgage drop – Times Online
- Goldman Shares Fall to 5-Year Low on Loss Estimates – Bloomberg.com
- American Express to Become Bank Holding Company – Deal Book
- Fannie Mae May Need More Than $100 Billion From U.S. – Deal Book
- On A.I.G. Call, a Question of Motivations – Deal Book
- A.I.G. Rescue Grows to $150 Billion – Deal Book
- Santander to Raise $9.2 Billion in Rights Issue – Deal Book
- HSBC’s Profit Up on Year, Takes $4.9 Billion Hit – Deal Book
- Sweden’s Carnegie to Raise $152 Million – Deal Book
- How the Thundering Herd Faltered and Fell – Deal Book
- Emanuel Urges Aid for Auto Industry – Deal Book
The UK
The last little tidbit to watch is the UK. It looks as if things in the UK are moving into the highly disinflationary realm and the economy is in freefall. The BoE was right to expect inflation to fall. But, does that justify 150 basis points? If you think panic is the right course for a central bank, then sure, why not.