Posts from — October 2006
Chart of the Week – US Housing Market Continues Decline
Its only Tuesday, but I’m comfortable declaring this to be the chart of the week. From Forbes:
Christopher Cagan of First American Real Estate Solutions calculated what fraction of homeowners who closed mortgages in the first nine months of 2005 were sitting, as of February, on zero or negative equity: 29%. He also calculated that a further decline of 5% in home prices would jack that fraction up to 38%. Aggravating the situation is the fact that paying off principal is now viewed as old-fashioned; a large number of borrowers are paying only interest.
October 31, 2006 No Comments
Best ICBC Analysis Available – A MUST Read
Great analysis on ICBC and Chinas banking industry:
The Industrial and Commercial Bank of China (ICBC) is expected to raise nearly $22 billion in an initial public offering (IPO) — the largest in history — after shares are made available to retail investors Oct. 27. The ICBC offering is the latest in a series of IPOs involving Chinese banks, into which Western investment firms have poured billions since 2005.
What is surprising about the expectations for the ICBC offering is not only the tremendous amount of cash likely to be raised, but the fact that it comes only months after a number of major global accounting firms began taking note of serious structural weaknesses (”An Inflection Point in China’s Banking Problem, Stratfor Article) in China’s financial system. It may be recalled that, in early summer, a series of reports were issued by Ernst & Young, PricewaterhouseCoopers, McKinsey Global Institute and Fitch concerning the problem of nonperforming loans (NPLs) and questioning the long-term stability of the Chinese market.
These reports, we noted, aligned with a long-standing Stratfor forecast as well; the structural weaknesses have been apparent and widely discussed in the Chinese press for years. What is curious, then, is not why mainstream accounting firms and consultancies suddenly began to question the prospects of China’s economy, but rather why foreign investors are continuing to pile into the state’s banking industry regardless.
The simple answer, of course, is “irrational exuberance.” The shine of a market that services 1.3 billion people — and a chance to carve out a piece of that for oneself — is difficult to ignore. But there is more to be considered: China has gone to considerable lengths to generate the impression that the systemic weaknesses are being addressed and to make its banks (and other state industries) appear attractive to foreign investors. It is no accident that a spate of banking IPOs — Bank of Communications ($1.6 billion raised), China Construction Bank ($8 billion), Bank of China ($11.2 billion), China Merchants Bank ($2.6 billion) — have been announced since June 2005. It also is no accident that ICBC, one of China’s “Big Four,” is going public at this time — as the transition period for full World Trade Organization membership is drawing to a close.
October 27, 2006 9 Comments
Communist Camp – Relics of the Dead Economic System are Hip
Amusing article in todays Bloomberg:
Nostalgia has led eastern Europeans to embrace the products they shunned in the 1990s, when the collapse of the Iron Curtain opened borders to goods from the West. From Traubi in Hungary to Inka coffee substitute in Poland and Jar dish soap in the Czech Republic, brands created to replace capitalist products are now attracting consumers with disposable cash and credit cards.
The poor quality goods can be bought for nostaliga value with a wry grin now that the consumers have a choice.
Similar memories led Ildiko Nagy to teach her daughter the Traubi ad tune. “We love nothing but Traubi. We want Traubi,” she sings, mimicking the ad broadcast on Hungarian state television 20 years ago.
“Traubi reminds me of my childhood, and I hope my daughter will remember it with her children one day too,” Nagy said.
Thats scary stuff, but fortunately her daughter won’t have to.
October 26, 2006 No Comments
The next China – Investing in Vietnam
An article in the New York Times today highlights the opportunity available:
It has Asia’s second-fastest-growing economy, with 8.4 percent growth last year, trailing only China’s, and the pace of exports to the United States is rising faster than even China’s.
But US corporate handouts could take some of the momentum out of the Vietnam economy:
But with such growth has come controversy, here and in the United States. Republicans in Congress are divided over a coming vote soon after the midterm elections: Should the United States grant permanent, full trade relations to Vietnam, given the two countries’ history and Vietnam’s current position, where it sells almost nine times as much to Americans as it buys?
October 25, 2006 4 Comments
Is Sri Lanka’s Economy Too Strong for Peace?
Bloomberg speculates that the booming economy has hidden the cracks in society and may be preventing citizens for pushing for a real end to fighting.
After being at each other’s throats for half a century, Sri Lanka’s two main political parties joined forces this week to bring peace to the war-torn island. It may be too early for investors to uncork the champagne.
Solid growth and falling unemployment are creating a false sense of security, though the status quo is as dangerously close to a full-blown war as Sri Lanka has ever been since the February 2002 cease-fire.
October 24, 2006 No Comments
Thais Land Positive Rating From Fitch
Thailand’s debt was placed on a possible downgrade watch following the recent coup. Due to the stability since then it has been removed from consideration:
International rating agency Fitch Ratings on Monday removed Thailand from its “Rating Watch Negative” list following the September 19 military coup and affirmed the country’s BBB+ status for long-term foreign currency Issuer Default rating (IDR).
“The rating affirmations come on the back of the swift resumption of political stability following the military coup on 19 September 2006 as well as continued strength in Thailand’s key credit indicators seen since Fitch’s annual rating review in April 2006,” said Fitch Ratings in a statement made available in Bangkok.
October 23, 2006 No Comments
Industrial and Commercial Bank of China – Worlds Largest IPO
In the face of wild demand, the Chinese bank set its initial public offering price at the top end of the expected range on Friday, a deal that will bring it up to $22 billion, which would set a new world record for an IPO.
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Trading will begin next Friday in Hong Kong and Shanghai.At first glance, it looks like investors can expect big gains at the open. The IPO, even at the high end of the range, was priced at 2.23 times book value, making it relatively cheap when compared with ICBC’s smaller competitors.
Expect a big pop despite the high % of non-performing loans.
October 20, 2006 No Comments
ARM Chickens Come Home to Roost – CA Foreclosures Soar
LA Times article on the sharp increase in foreclosure notices:
Foreclosures also can weaken housing values further as lenders put the foreclosed homes on the market, often at reduced prices in hopes of a quick sale.
A firesale next door, that’s going to make the comps look awful.
Just Wednesday morning, Zhang dealt with a Lancaster resident who had taken out a $310,000 adjustable-rate mortgage with a starter interest rate of 5.4% and a monthly payment of $1,050.
In July, the interest rate climbed to 8.5% and the monthly payment jumped to $2,306. A year-end adjustment will send the monthly payment to $2,744.
“The borrower is totally unprepared for this rate adjustment,” Zhang said.
Read that again. The starting monthly payment was $1,050, by year end it will be $2,744!
The table says it all:
October 19, 2006 No Comments
Currency Arbitrage – Zinc Highs Make Pennies More Valuable
With Zinc prices at record levels the metal in a penny is worth more than the denomination
Zinc passed the $1.80 mark today, that means the current “penny” has a melt value of $0.0101867. All the coins in your penny jar are worth more than their denomination (except for steel cents made during WW2).
One thing that is certain is that Zinc will not rise much above these levels. If it did, there would be a huge supply of the metal could readily be brought to the market like the silver melt of the 80’s.
At the door of the coin shop we had an armed security guard. I wore my .380 Walther on a belt holster on my back under my shirt. We could only permit a dozen or so in the shop at any one time. Outside, at times as many as three or four dozen were lined up waiting their turn to convert their silver to cash money. It was exciting. We all knew we were racing to hyperinflation.
October 18, 2006 No Comments
Germany Recovery Continues Despite ZEW Drop
The ZEW survey of economic sentiment dropped to a 13 year low today in anticipation of higher taxes in Germany.
Despite that, the German economy remains strong:
The German economy is growing at its fastest rate since 2000 and companies have begun to re-hire after five years of downsizing.
The German government will on Friday add just less than a percentage point to its gross domestic product growth estimate for this year, underlining the robustness of the recovery under way in Europe’s largest economy.
The DAX has no direct correllation with the ZEW survey but attention should be paid to such a rapid decline to new lows.
October 17, 2006 No Comments
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