An important interview with Nouriel Roubini - from Bloomberg
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We are about to witness a failure of epic proportions...
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Posted Monday Mar 30, 2009 11:03 #
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From RGE Monitor - on the auto industry.
The Detroit Three: GM's Wagoner Resigns as CEO in Order for GM to Get More Federal Funding
Print
Mar 30: The Obama administration pushed out the chairman of GM and instructed Chrysler to form a partnership with the Italian automaker Fiat within 30 days as conditions for receiving another much-needed round of government aid
cont: The decision to ask GM’s CEO and Chairman, Rick Wagoner, to resign caught many by surprise, and it underscored the Obama administration’s determination to keep a tight rein on the companies it is bailing out — a level of government involvement in business perhaps not seen since the Great Depression. Details of the bailout will be announced by the President later today
Mr. Obama’s auto industry task force, in a report released Sunday night assessing the viability of both companies and detailing the administration’s new plans for them, concluded that Chrysler could not survive as a stand-alone company (NYTimes)
Mar 26: 7,500 of GM's UAW workers signed up for buyouts the company needs as part of cuts to keep $13.4bl in U.S. aid. The retirements and buyouts of 12% of GM’s union workforce open slots for the automaker to hire replacement workers for half the current union rate. Under the federal loans, labor costs must match those of Japanese automakers in the U.S. The company has trimmed about 60,500 jobs in three buyouts since 2005. The latest reduction may save GM about $948ml annually (Bloomberg)
Mar 25: Nardelli --> This is a moment in time when I think we all have to face the reality that the system is broken, that we better all come to the party in a cooperative manner and get on with developing a solution. Because if we are not successful, the result could be cataclysmic. If Chrysler doesn't survive, I'm not sure there isn't a domino effect that will plague the entire country (BW)
Mar 20: Rattner -->GM and Chrysler may need “considerably” more government aid than their request for as much as $21.6bl. U.S. aid sought could rise to $30bl or $40bl (Bloomberg)
Mar 19: The U.S. government moved to stabilize the auto industry by creating a $5bl fund to support troubled parts suppliers. The program would guarantee payments to suppliers for products shipped to ailing car companies. The supplier fund is the first direct action taken by the special auto task force to prop up the auto industry. Altogether, the suppliers employ 500,000 workers in the U.S. (NYTimes)
Mar 16: Nardelli -->I hope I’m wrong, but I don’t have a lot of confidence in today’s environment that we can emerge from bankruptcy. I just don’t see how it could be seen as a benefit to anyone. You’re talking about people putting down money for the second-biggest purchase they ever make and wondering if you’re going to be around (NYTimes)
Mar 09: Union workers at Ford have agreed to sweeping cost-cutting changes in their labor contract. Although the concessions were substantial, the margin for contract ratification wasn't especially close. According to the UAW, 59% of production workers and 58% of skilled-trades workers voted for the agreement (WSJ)
Mar 03: U.S. auto sales fell to 9.1 million in February 2009 (lowest rate since December 1981) from 15.4 million a year ago. GM and Ford reported sharp declines in light-vehicle sales as consumers with record-low confidence remained out of showrooms, extending a sales plunge that began in September 2008 and threatens the viability of multiple automakers. GM's sales fell 53%, Ford's sales dropped 48%
Ford, which has so far sidestepped the need for federal assistance, also said Q2 NA production will be 38% below 2008 levels, reflecting efforts to pare inventory and keep output in line with the sales slump. The company's U.S. inventories are down 32% in light of the production cuts which have already taken place(WSJ)
Feb 26: GM reported a $30.9bl annual loss, the second-biggest in its 100-year history. GM’s cumulative deficit ballooned to $82bl since the end of 2004, when it last had an annual profit. Full year sales fell 17%. Cash and cash equivalents totaled $14bl at the end of 2008, down from $27.3bl at the end of 2007. The company needs $11bl on hand to pay bills (Bloomberg)Posted Monday Mar 30, 2009 11:09 # -
Something heard on NPR today: Barney Frank and Ted Koppel talking, and Koppel reminded everyone about what a trillion is:
If you had opened a business on the day Christ was born, and religiously (my pun!) lost a million dollars every day, you would need to stay open for a thousand more years before you lost a trillion.
There was also a lot of interesting stuff about how Bush was the first President to ever fight a war (Iraq will cost a trillion by the time we finish) without putting it on the budget and raising taxes to pay for it, and other little thngs that people tend to forget, if they ever knew it. Regarding Social Security, Koppel pointed out that the contract people feel they have with the government to receive that is no stronger than the one the AIG Execs have/had, and that the actuarial tables show that when the Baby Boomers start getting their benefits the ratio of earners/workers to receivers will get to 1.8 to 1. Everyone agreed that is not sustainable. Koppel said he thinks people here are really going to have to make a lifestyle adjustment.
Posted Tuesday Mar 31, 2009 18:02 # -
From Bloomberg:
Roubini Says Stocks Will Drop as Banks Go ‘Belly Up’ (Update2)
Share | Email | Print | A A ABy Michael Patterson and Maithreyi Seetharaman
March 26 (Bloomberg) -- U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.
“The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.”
The global equity rebound in March that sent the Standard & Poor’s 500 Index to its best monthly advance in 17 years is a “bear-market rally” and U.S. Treasury yields will “remain relatively low” as investors flock to the safest assets, Roubini said. Treasury Secretary Timothy Geithner’s new plan to remove toxic debt from financial companies won’t be enough for insolvent banks, he said.
Roubini’s outlook contrasts with predictions this week from Templeton Asset Management Ltd.’s Mark Mobius and Traxis Partners LLC’s Barton Biggs, who said that equities are poised to rally as government efforts to revive the economy and banking system begin to work. Investors are “way too optimistic” about the prospects for a recovery in the economy and earnings, Roubini said.
Stress Tests
The S&P 500 surged 7.1 percent on March 23 after Geithner unveiled a plan to finance as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The government is conducting stress tests of banks to determine how much more capital each will need.
Roubini, who predicts loan and securities losses in the U.S. will reach $3.6 trillion, said the stress tests will reveal that some banks need to be taken over and have their good and bad assets separated before being sold to the private sector. He didn’t name which companies he thought would need to be rescued.
Futures on the S&P 500 expiring in June advanced 1.2 percent to 818 as of 8:30 a.m. in New York.
Critics of Geithner’s plan including Nobel laureate Paul Krugman, a professor at Princeton University, say the government should take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities. Sweden adopted the temporary nationalization approach in the 1990s.
‘Deflationary Forces’
“Some banks are going to have to be nationalized,” said Roubini. “It’s going to be bumpy ahead of us.”
Geithner and Federal Reserve Chairman Ben S. Bernanke this week called for new powers to take over and wind down failing financial companies. They said the U.S. also needs stronger regulation to constrain the risks taken by firms that could endanger the financial system.
With “deflationary forces” lingering for as long as three years, Roubini said U.S. government bond yields will remain low and American house prices will fall as much as 20 percent in the next 18 months. While the dollar will initially benefit as investors seek a safe haven in the U.S., the currency will ultimately drop as the nation’s trade deficit shrinks, he said.
Roubini dismissed China’s call for the creation of a new international reserve currency as a “pie in the sky idea” that’s unlikely to gain traction any time soon.
Mobius, Biggs
China’s central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to expand the use of so- called Special Drawing Rights and move toward a “super- sovereign reserve currency.” Geithner sent the dollar tumbling yesterday by saying he would consider China’s idea, only to drive it back up by affirming that the greenback should remain the world’s reserve currency.
“This was a political call and in a nut shell - it ain’t going to happen any time soon,” Roubini said.
Mobius, who helps oversee about $20 billion of emerging- market assets as executive chairman at San Mateo, California- based Templeton, said March 23 the next “bull-market” rally has begun. Biggs, the former chief global strategist for Morgan Stanley who now runs New York-based hedge fund Traxis Partners, predicted the same day the S&P 500 may jump between 30 percent and 50 percent.
The benchmark index for U.S. equities has surged 11 percent in March, poised for its biggest monthly gain since 1991. The MSCI Emerging Markets Index of equities in 23 developing nations is headed for the steepest monthly advance on record after rising 20 percent in March.
To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Maithreyi Seetharaman in London at mseetharaman@bloomberg.net
Posted Wednesday Apr 1, 2009 16:28 #
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