Tuesday, February 23, 2010

Heineken Wants to Be At Least Number Two!

Heineken's buys Femsa's beer unit. The dutch brewer may not be as big as AnheiserBush-InBev, but they know growth is to be found infast-growing emerging markets.

Confidence Down. Stocks Down. Asia Follows.

News galore and look what happened:

Consumer confidence was way down and retailers announced earnings. Not surprisingly, surprises move markets:

Dow Jones Newswires' Puja Rajeev reports that lagging consumer confidence is greeted with gloom in Asian markets:

Meanwhile the gnomes on Barron's MarketWatch discuss a new "Revolution Fund:"

Tuesday, February 16, 2010

Is Our National Defense As Sound as the Dollar?

In the 1950s, Egypt nationalized the Suez Canal.  Britain and France invaded.  America opposed the invasion.  The Eisenhower administration had no need to sent the marines.  It simply threatened to sell sterling bonds and vetoed IMF support for the pound forcing its devaluation. Pecunia was indeed the nervi belli.  Egypt kept the Canal.  One can picture a British gentleman, a veteran of the colonial wars, muttering over his brandy "I could understand superior arms, but the balance of payments?"

Greece, whose debt is owed in euros, a currency it can not print, is facing a major debt crisis.  While the country itself is an experienced deadbeat (Greece spent half its modern independent existence in default), its debt crisis is is putting great strain on the euro and the euro zone governments. 

Yet Greece's fiscal wantonness is not any worse than that of the U.S., which can print the currency it borrows in.  How secure are we in borrowing and borrowing?  Harvard professor Nigel Ferguson is an insightful student of financial history who knows what he is talking about. He warned in the Financial Times last week (2/10/2010) that "A Greek crisis is coming to America.

Surveying the wreckage fiscal stimulus has wrought, Ferguson courts all the popularity of a biblical prophet by warning us "What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch."  I might add Keynes himself would agree. 

Ferguson writes, "On reflection, it is appropriate that the fiscal crisis of the west has begun in Greece, the birthplace of western civilization. Soon it will cross the channel to Britain. But the key question is when that crisis will reach the last bastion of western power, on the other side of the Atlantic."

The bond markets may seem rather remote from our national security, but beware. Great empires require sound money and a good credit rating. Constantine's solidus held its value for 700 years and the Roman empire survived another thousand years in the East. Alexander Hamilton correctly viewed Great Britain's ability to borrow funds as essential to its military success as its navy.  America's currency and its debt earned a reputation worthy of trust which we rode to becoming a superpower.

Yet, sadly, neither a sound dollar nor a triple A credit rating seem high on Mr. Obama's national security agenda.   

Sic transit gloria.

Thursday, February 11, 2010

Greece and the Fed's Exit Strategy Move Bank Stocks

U.S. banks have $176 million dollar exposure to the sovereign debt of the PIGSs (Portugal, Ireland, Greece, and Spain.)

Michael Corkery in the Wall Street Journal's "Deal Journal" asks, "So just what is the exposure of U.S. banks to debt in these four nations? 'Overall, we believe that the direct risk of the large U.S. banks to Ireland, Greece, Portugal and Spain is modest,' writes Barclays analyst Jonathan Glionna in a research note.

"Barclays analysts estimate the 10 largest U.S. financial institutions have a total of $169 billion of their loans tied up in the four troubled Euro nations. That is about about 19% of those banks’ combined Tier 1 capital, or the cash cushion that banks keep to absorb bad loans. Looking at the combined exposure of the 10 largest banks and the other 63 U.S. banking firms that supply cross border information to the Federal Institutions Examination Council, the total exposure is $176 billion. By country, the overall exposure of those 73 banks is $82 billion to Ireland, $68 billion to Spain, $18 billion to Greece and $9 billion to Portugal."

Alistair Barr reports on the effect of this and the Fed's exit stretegy on Market Watch. 

Speaking of PIGS, the UK's debt is starting to smell of bacon to use Ian Bremmer and Nouriel Roubini's phrase. Sara Schaefer Muñoz reports that British banks have a heavy exposure to UK soverign debt.  What about the Yanks?

Tuesday, February 09, 2010

Ford is in the Black

Matthew Dolan and Jeff Bennett reported on January 29th in the Wall Street Journal "Ford Posts First Full-Year Profit Since 2005." Ford earned $2.7 billion in 2009. Any number greater than zero is a miracle in Detroit. This despite the fact that Ford is burdened with a much greater debt burden than Chrysler and GM for whom the federal government rolled its bondholders.

The easy interpretation is that is one for capitalism as opposed to socialism.  Any student of the decline of American car making will realize that Detroit's inward focused culture and its willingness to run to Washington when in trouble are better. A deeper analysis shows that Ford, by bringing in an outsider, Alan Mulally, they committed themselves to remedying the root problem: Detroit's culture.