10-07-10

 

SOVEREIGNS

 

UK Move to delay UK spending cuts  FT   Plan to spread pain of deficit reduction more evenly   IRELAND Fitch Downgrades Ireland's Rating on Cost of Banking Bailout BL Ireland must honour its debts, says business boss Telegraph

Small Investors Continue to Move Into Bonds Pragmatic Capitalist

 

The latest AAII small investors allocation survey showed a continued move into bonds.  Small investors are clearly hesitant to embrace the equity markets and continue to seek income in the safeness of bonds.  The latest survey showed a 55% equity allocation (60% historical average), 25% bond allocation (15% historical average), and 20% cash (25% historical average). Charles Rotblut of AAII elaborated on the results: This month’s special question asked AAII Members what factors influenced their decision to make or not make a recent change to their allocations. The responses centered on a few key themes. Some respondents cited uncertainty about the economy, the upcoming election and fiscal policy as complicating the outlook for stocks. Several are looking for a catalyst from the stock market, either an upside breakout or a near-term pullback that will create a more attractive buying opportunity. Others said they were comfortable with their allocations and saw no reasons to change. Here is a sampling of the responses: “Given the uncertainty in the economy and lack of leadership in Washington, there is no clear direction to take.” “No particular changes. I have absolutely no conviction of the stock market’s direction. Bonds are overpriced.” “There exists a tight trading range, as we wait for a jobs catalyst and election clarity. I expect to tilt towards equities as we approach November.” “Putting new money into cash and taking a ‘wait and see’ position before starting to dollar cost average my way back into stocks and ETFs.” “I made no changes because allocations are within my parameters and dividend income is meeting my cash flow requirements.”

4- STATE & LOCAL GOVERNMENT

Ominous Clouds Over State, Local & Federal Government Financing BIN

Illinois Pays More Than Mexico as Cash-Strapped States Sell Bonds Overseas  BL

 

Illinois capital-markets director John Sinsheimer and Citigroup Inc. bankers took a globe-girdling trip from the U.K. to China in June to persuade investors that the state’s $900 million of Build America Bonds were a bargain. The seven-country visit worked. The state sold one-fifth of the federally subsidized securities abroad the next month, tapping investors who are the fastest-growing source of borrowed cash for U.S. municipalities. Illinois, with the lowest credit rating of any state from Moody’s Investors Service, dangled yields higher than Mexico, which defaulted on debt in 1982, and Portugal, which costs more to insure against missed payments.

California Has to Delay Bills to Avert IOUs, Controller Says BL

Just How Much Are America's Teachers Getting Paid  BI

 

5- CENTRAL & EASTERN EUROPE

7- RISK REVERSAL

8- COMMERCIAL REAL ESTATE

Vacancies Drop at Shopping Malls  WSJ

 

U.S. shopping malls have arrested their declines in occupancy and lease rates and begun a slow recovery, but retail landlords caution that a stronger rebound will depend on job gains and renewed consumer confidence. Vacancy rates at malls in the top 80 U.S. markets declined to 8.8% in the third quarter, down two-tenths of a percentage point from a year earlier, according to data released Wednesday by commercial-property research firm Reis Inc. The occupancy gain was the first since the fourth quarter of 2006.   Meanwhile, third-quarter mall lease rates held steady at $38.72 per square foot per year, marking the first quarter that didn't show a year-over-year decline in lease rates in two years, according to Reis.   The numbers are similar for shopping centers, which are smaller centers typically anchored by grocery stores with a row of small shops facing a common parking lot. Shopping-center vacancies held steady in the third quarter at 10.9%. Lease rates declined by one-tenth of a percentage point to $16.58, the smallest decline since the second quarter of 2008.

9-RESIDENTIAL REAL ESTATE - PHASE II

Rule of Law Versus Bank Profits- Mortgage Fraud Edition Naked Capitalism

Real estate downturn could last 8 years: IMF MW

Foreclosure Furor Rises; Many Call for a Freeze NYT

Foreclosure Mess: How Much Worse Can It Get? ABC
As Document Scandal Unwinds, 'Unimaginably Bad' Outcomes Contemplated

New GM, Same Old Union? Atlantic

NICE SUMMARY OF THE US AUTO INDUSTRY PROBLEM

"GM has a little over 50,000 employees and about 500,000 retirees"

GM's death was ultimately driven in large part by how its management interacted with its unions.  You can have quite a bit of sympathy for both sides--as I do--and recognize that both sides were taking the most obvious course at any given time, while also realizing that the cumulative decisions were entirely toxic.   The first thing you need to recognize is that the militant unions of the thirties were to some extent made more militant by the abuses on the corporate side--the Battle of the Overpass, for example, where company representatives beat the crap out of organizers who were attempting to hand out leaflets in a public space.  Over time, that dynamic evolved into something that was more stable, but also more toxic:  a sort of awful marriage between two sides that hate each other, but hate everyone else even more.    One of the most remarkable things I learned in writing about GM was that Ron Gettlefinger was totally blindsided by GM's financial collapse.  The UAW had so often convinced itself that the company's dire warnings were simply strategic bargaining claims that it didn't understand how parlous the underlying finances were--and in fairness, in the past, management had often made exaggerated claims when it was bargaining.  One former auto analyst I talked to said that the company would routinely claim that anything it didn't want to do was being blocked by the union--but when the rare equity researcher actually talked to the UAW, they'd often find that the union had never heard of the issue where it was allegedly the sole obstacle to change.   That said, by the mid-1950s the Big Three had settled into a relatively stable relationship with the UAW.  When contract time came around, the UAW picked off the company it perceived as the least able to survive a strike; used the threat of a strike to get a good contract; and then demanded the same from the other two.  Those companies were now in a bad position, because if they risked a strike, their competitor, who already had a contract, would take all their customers.   This relationship essentially meant that the Big Three simply didn't compete on labor cost, work processes, or any of the other labor-side innovations that have enhanced productivity over the last forty years.  It's not that contracts didn't vary by company or plant, but the outlines were broadly similar across the industry.  This was good for the UAW and good for the auto manufacturers, because arguably it actually helped cement their cosy oligopoly by removing one of the major competitive pressures.    And in many ways, the voter base and political clout of the UAW was helpful to securing Detroit favors from Washington. During that period, union peace was very valuable, and management bought that union peace with concessions that seemed cheap at the time:  tax-favored pension and health care benefits.    Had there been no foreign competition, this wouldn't have mattered so much.

14- CORPORATE BANKRUPTCIES

GE buys Dresser in $3bn push on energy  FT

Treasury Estimates Bailout Loss at $29 Billion  NY Times

 

The Treasury Department expects to lose $29 billion on the federal bailouts stemming from the financial crisis, with most of the losses in its housing finance program and the auto rescue.    In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program.

OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE

19-US PUBLIC POLICY MISCUES

24-RETAIL SALES

Holiday sales forecast to rise 2.3%, retailers say CNN

26-GLOBAL OUTPUT GAP

31-FOOD PRICE PRESSURES

32-US STOCK MARKET VALUATIONS

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