Diary of a Financier

Top Newsstuffs (August 13-19)

In Bookshelf on Sun 19 Aug 2012 at 06:58

This past week’s must-reads & must-remembers…

While dollar volume is at low end of its 2009-12 range (~$85b/day), it’s still higher than any period before 2007. Reverse splits (C) and expensive growth/tech stocks (AAPL & GOOG) disguise this. Plus, volume exploded 2004-09, so it’s a high base for comparison.

Natural Gas Exploration & Production writedowns signal bank squeeze on spending | Reuters
SEC has E&Ps use 12-mo average NG price to value assets, so highly levered E&P names are taking writedowns after NG fell >60% this year. Some might have trouble rolling bank loans. [Expect high M&A activity and discounted asset sales.]

Rail Traffic Weekly: Slow Growth Maintained | Association of American Railroads (AAR)
Carloads -2.4% and Intermodal +3.6 (y/y cumulative ytd volume); -1.2% and +3.2 respectively (vs. this week last year).
10 of 20 carload groups posted gains: Petroleum products +44.4%, Lumber/wood +19.8, Motor vehicles/parts +19.2; Metallic ores -22%, Iron scrap/steel -11.1.

Why QE Is Not Working: Shadow Bank System Needs Reflation | Matt King (Citigroup)
QE will never work to restimulate the economy until it plugs the $3.8t hole in the shadow banking system by taking risk assets onto the Fed’s balance sheet and unlocking their liquidity. This would kickstart lending by using riskier collateral for secured loans.
In order to deleverage enough to return to 60% Debt/GDP, developed countries need a debt reduction that’s exponentially higher than the losses from Lehman & Greece’s PSI combine. [At some point, you have to accept the boom years as excess and stop chasing the economy’s high-water-mark. It will take $Trillions to reflate, so I continue to vote for repair instead.]

The Problem with Reaganomics for 2012 | Mark Dow
Supply-side economics unleashed pent-up demand in Reagan’s 1980s, which we don’t have today. We need to adapt to the modern economy: globalization has been a supply-shock to our labor force & wages.

Brazilian President Dilma Rousseff Announces $66b Growth Stimulus | BBVA
2012 GDP growth expected ~3% (down fm 4.5 in 2011). Stimulus for fixed investment (FAI) in roads & railways, a shift in Brazil’s traditional growth model in credit expansion & private consumption.

The Housing Recovery in Perspective | Pragmatic Capitalism
The housing “recovery” is really “stabilization” when you look at Home Prices (+2.5% from lows), Housing Starts, Building Permits & New Home Sales.

VIX Futures Curve Steepens to Near-Record | Sober Look
Low spot VIX has accurately reflected the market’s low-vol, consolidating pattern. But, the curve is almost at record steepness, which suggests the stability isn’t trusted.

Chinese Shadow Banking: Pseudo-Bank Zhongdan on the Verge of Bankruptcy | Business Insider
Zhongdan guarantees its clients’ bank loans, then invests their borrowed money in its own wealth management products in which they’d buy stakes in small companies like pawn shops using leverage that they funneled through shell companies. Zhongdan has until August 20 to submit a restructuring plan to save it from bankruptcy.

Spanish & Italian Bank Borrowings from ECB Continue Parabolic Rise | ZeroHedge
In July, Spanish bank borrowing from ECB rose to record €375.5b (+€38b m/m); Italy also rose to record €283b (+€2b m/m).

Infographic: Chinese Investments in Africa | Stratfor
Oil & Natural Gas account for 19% of Chinese investment in Africa.

–Romeo

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