Friday, August 28, 2009

Sampling of News Stories Today;FDIC Troubled Bank List (Yawn), Apple (AAPL) iPhone into China, Detroit & Whirpool Cut Workers,Steel Production Rebound

There is a smattering of interesting stuff on Bloomberg today, but nothing large enough to put into 1 separate entry so let me combine them.

(1) First let me say I normally post the FDIC troubled bank list (every quarter) with some analysis and warnings....
  1. [May 27, 2009: FDIC Troubled Bank List Now 305]
  2. [Feb 26, 2009: FDIC Troubled Bank List Up to 252]
  3. [Nov 25, 2008: FDIC Troubled Bank List Grows 46% - Is Your Bank Safe?]
  4. [Aug 26, 2008: FDIC Troubled Bank List]
.... but I think it's become a moot point. After all our trouble are over (see financial stock performance) At least if you are big enough to be attached to the government teat. But enough sarcasm - the real reason is Citigroup (C) & Bank of America (BAC) which required $300B (each!) of taxpayer assistance were never "troubled" enough to make the list. How do we know? Because not only do we see the # of troubled institutions but the aggregate dollars in said institutions. If any of our "too politically connected to fail" financial oligarch entities made the list it would stick out like a sore thumb in the asset area.

Aside from Citi and Bank of America never being troubled enough to make the list, the FDIC missed Washington Mutual - the largest S&L in America which was so untroubled it was forced in a firesale into JPMorgan as the stock rallied to $0ish. Meanwhile a no name blogger named Mark said Washington Mutual would fail on these very virtual pages - but he does not work at the FDIC.

Earnings should continue to dominate and the market reaction to Bank of America (BAC) Monday, and Wachovia (WB) and the death spiral that is Washington Mutual (WM) on Tuesday will be telling. The latter is the largest Savings & Loan in America and frankly appears headed for IndyMac status.

And then IndyMac, which was small enough that the US government allowed it to fail, was never on the list - although at the time it was the 3rd largest failure in US history. Apparently it passed under the radar of the FDIC. So what use is a list when we missed the 2 largest commercial banks in America (by missed I mean "would not admit they were troubled"), the largest S&L, and then even in the quarter before it failed, did not include IndyMac? It's a moot point but for amusement reasons we hear the "list" its up to 416 institutions now; just remember the top 19 banks in America have been deemed too large to fail (pinky swear arrangement), and ring fenced by our politicians so they will never make the list. Hence now hedge funds across the world are piling in since you, dear reader, are backstopping their investment. It's good to be an oligarch - or investor. Taxpayer? Not so much.

(2) Some local flavor in this one; if you want to see how bad things have to get for local governments to cut workers - Detroit has been in a 30 year downturn, the past 10 have been awful. Population has been cut in half. - see video here [May 15, 2008: One City Block in Detroit] to see that part of your country has turned into a 3rd world backwater. But finally the city comes to the realization it needs to cut a few workers... a whopping 200. And I will tell you from experience the protests are going to be immense - I would not be surprised to see them hired back in fact! Again, please reinforce to your children it is imperative to work in the public sector - your job is almost completely immune from reality. Even in a city like Detroit it takes decades to lose positions.
  • Bing, a Democrat, warned earlier this month that Detroit would run out of cash by October and may seek receivership unless the city’s 10,000 unionized workers agreed to wage reductions. Tax receipts and state aid have fallen as area unemployment surged to 17.1 percent in June.
  • The gap in Detroit’s $1.5 billion budget has risen to $275 million since 2007 from $155.6 million, according to Moody’s. In the 2010 fiscal year that began July 1, the deficit is expected to rise another $60 million to $70 million.

(3) Speaking of lost jobs (remember, jobs are a backwards looking indicator and the US economy can roar without them) Whirpool (WHR) will cut another 1100 people in 2010. While this is tiny versus previous cuts at Whirlpool and many other companies, it should shout at you to buy Whirlpool stock. Why? Because this means they can beat analysts estimates in 2010 - boo yah. More prosperity. Ironically, Whirlpool is cutting jobs in advance of a taxpayer giveaway in terms of "Cash for Clunker Appliances" which is just about to launch. [Aug 20, 2009: Cash for Clunkers Coming to Your Kitchen and Laundry Room] Strange - everyone tells me the economy is rebounding. Anyhow don't get bogged down in details about the economy (cursory "green shoots" sighting here); just know Whirpool's profits shall increase ever more. Hopefully other companies take their lead and continue to shed more workers as well, so profits can rise exponentially in the quarters to come. Then we can have Asians buy fridges overseas, while the US government hands money to unemployed Americans to buy domestically. [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] The perfect economy. Evansville, Indiana - welcome to the new US economy paradigm.
  • Whirpool, the world’s largest appliance maker, will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs as the housing slowdown hurts demand.
  • Last year, the company said it would fire 5,000 employees through 2010 to cut costs.
There IS a bright side - I want you to get long Chinese stocks and Mexican stocks along with Whirpool - the consumers there will still have jobs.
  • The plant’s refrigerator production will be moved to an existing factory in Mexico.
Ross Perot, yes I do hear the great sucking sound. And it feels good! As jobs Americans "won't do" leave the country we are replacing them with more government and healthcare work Ross. Working fantastic. New game changing industries to add jobs in place of those that are shifted overseas? Why bother Ross. That's what government is for. See entry above re: Detroit. I remember they called you a bit crazy Ross. They called Ron Paul crazy. And they call me crazy. It's crazy here outside the Matrix, I want to go back in where unicorns and butterflies live.

(4) Speaking of China, Apple (AAPL) is set to sell the iPhone in China. No surprise but just more incremental bullish data for Apple. Thankfully many Chinese have jobs and save money so I don't think "Cash for iPhone Clunkers" will be necessary.
  • Apple iPhone will go on sale in China in the fourth quarter, entering a market that has more wireless subscribers than the combined populations of the U.S. and the 16 nations that use the euro.
  • “It’s essential for Apple to be in China; it’s a huge market,” said Bertram Lai, deputy head of research at CIMB Securities (HK) Ltd. in Hong Kong. The iPhone “is not just the premium product, it’s an aspirational product,” he said.
  • Shipments of smart phones -- handsets that can handle Web browsing, video and applications -- will more than triple in China by 2013, up from last year’s unit sales of 11 million, said Aloysius Choong, a Singapore-based analyst at IDC.
Should also be a benefit for China Unicom (CHU) who appears to be the first distributor, although it is not an exclusive deal.
  • Unicom, which trails China Mobile Ltd. in the wireless market, may use the iPhone to attract higher-spending customers and bolster demand for more profitable Internet services, such as Web browsing and game downloads. Unicom announced the agreement with Apple as it reported a 45 percent decline in first-half profit today.
  • The company is the only Chinese carrier using technology that’s compatible with the iPhone, according to Clark.
  • Unicom will subsidize the iPhone handsets, Chang said, without saying how much they would sell for. Prices of the iPhone 3G in Hong Kong range from HK$4,488 ($579) to HK$6,288, according to Apple’s Web site.
  • Unicom had 141.1 million wireless-phone users at the end of July, fewer than a third of China Mobile’s 497.7 million. The company plans to invest 100 billion yuan ($14.6 billion) in mobile services during 2009 and 2010, with most of the money going into so-called third-generation networks.
We obviously are invested in a bevy of "mobile internet" and "China upgrade" names - they are currently being ignored as investors pile into ... well, see the previous post.

(5) Contrasting to what China appears to be doing , steel production is increasing elsewhere.
  • OAO Novolipetsk Steel, Russia’s largest producer, raised its 2009 output forecast today, and Voestalpine AG, the biggest in Austria, ended shortened working hours and restarted a blast furnace.
  • The price of hot-rolled coil, a benchmark steel product, has rebounded 15 percent since March 31 after declining 55 percent in the previous three quarters, according to data supplied by Metal Bulletin. Steelmakers cut prices, output and staff numbers in the second half of 2008 as builders and automakers struggled to survive the world economic crisis.
  • Demand will increase from here, but fairly slowly,” John Kovacs, an analyst at London-based metals consultant CRU Ltd., said today by phone. “The risk is whether too much capacity comes back to the market too soon, which may cause a ‘two steps forward, one step back’ type of recovery.”
  • Tata Steel Ltd., the biggest Indian steelmaker, said Aug. 21 its Corus unit would reopen a mill in Wales. ArcelorMittal, the world’s biggest steelmaker, last month said it was restarting furnaces in Belgium, France and Spain. On July 28, U.S. Steel Corp. Chief Executive Officer John Surma said some plants were firing up again as orders improved.

---------->>> So this situation in steel is a direct parallel to the big questions of the day for world government's, and world investors. The largest stimulus in history by central banks and world government's has just been undertaken, making Keynes aficionados proud of their accomplishments.

Now that loads of debt have been added to government balance sheets, what happens after the government and central bank efforts wear off? Will the US consumer - the champion of the world for 2 decades take his mantle back in early 2010 so a "natural" global supply and demand can somehow reassert itself, as the stimulative efforts of world governments wear off? Or will he / she have to show up in 2010 at all? Surely another US stimulus plan as unemployment stays high and politicians panic, cash for clunkers 2.0, and a new housing stimulus ($15,000 for anyone with a pulse) will await us this winter. Will responsible US citizens who save money finally backlash against the irresponsible handout takers ? Is there any breaking point for the former group? Or will the majority who gladly take any money handed out to them continue to dominate?

Will Mark be correct in his long term theory that is indeed just 1 long historic recession only interrupted by a tsunami of government spending that makes it look like a double dip recession?

Stay tuned - same bat channel, same bat time.

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