Archive for June 26th, 2009
To download a Microsoft Excel file containing the full results of the CFO Midcap 1500 Machinery Industry Scorecard, click here.
Hit by a 22 percent drop in first-quarter revenue, the machinery industry provides an example of how corporations are struggling to hold the line on cash in a bad year. But a look at 41 companies out of the CFO Midcap 1500’s machinery segment with first quarters ending March 31 of this year reveals that in some cases, these manufacturers succeeded.
The Machinery of Cash CFO Online
June 26th, 2009
At this gut-check moment for corporate decision-makers, one tactic to boost their confidence is to demand better cash forecasts from their treasury department. How ironic, then, that the same economic instability that’s producing the angst also works against effective forecasting. Knowing what sales will look like next month or whether the credit markets will thaw soon is, for the moment, uncomfortably elusive.
The irony doesn’t end there. Treasury departments haven’t been exempt from the depletion of human and monetary resources that has plagued almost every corporate function. One solution, the consulting firm Treasury Strategies suggests, is to put faith in the 80/20 rule; that is, 20% of a company’s cash-flow line items are likely to be responsible for 80% of the company’s results. So if treasurers focus strictly on the 20% without wasting precious time and effort on the rest, their forecasts may be pretty accurate, according to John Herrick, a principal of the consultancy. And that may be good enough.
For Good Cash Forecasts, Use 80/20 Rule CFO Magazine Online
June 26th, 2009
President Obama’s public health plan, if passed by Congress, would drive America inevitably towards a single-payer system in which all health-care payments are made by “the government,” that is, the taxpayers.
My family and I, originally from England, have experienced the single-payer system first-hand. Our experience teaches that it would radically change the standard of American medicine-for the worse.
National Health Through a Recipient’s Eyes – Diana Furchtgott-Roth, RCM
June 26th, 2009
More than half the investors who go through a Wall Street arbitration get nothing at all, and those who do win get about half what they claim to have lost. Once they are in a hearing room, investors typically face a panel of three judges that includes someone from the very industry that got them into the mess in the first place — Wall Street.
Kangaroo Courts for Investors Continue – Susan Antilla, Bloomberg
June 26th, 2009
Why inflation is around the corner
The government wants inflation to some degree. Congress and the White House have spent nearly $3 trillion recapitalizing U.S. banks, revamping the domestic manufacturing industry and replacing a portion of the consumption spending Americans have not been able to afford. The economy is recovering as a result, but U.S. debts are also ballooning. The nonpartisan Congressional Budget Office projects that the U.S. deficit will exceed $1.8 trillion this year.
The government doesn’t plan on paying off that debt or the interest on it without some help from the Fed. Earlier this year, the central bank announced it would directly purchase $1.75 trillion worth of U.S. debt in the form of mortgage-backed securities, U.S. Treasurys and agency debt. In essence, the Fed’s action “prints” more money and injects it into the economy.
Is Inflation Our Next Big Worry? – Catherine Holahan, MSN Money
June 26th, 2009
Last Tuesday, Brazil, Russia, India, and China–the so-called BRIC nations–met in Yekaterinburg, Russia, for what was supposed to be an anti-American gabfest. The main agenda item for the first formal meeting of the four largest developing economies was the future of the dollar. In recent months, Beijing and Moscow have led a global charge against the greenback, and Brasilia has been a willing co-conspirator in the effort. The BRIC post-summit communiqué referred to the world’s currency problems but, to the surprise of observers, did not attack the dollar head on.
What happened? Beijing, apparently, stopped the other nations cold. The Chinese called the tune at the Moscow meeting–their economy is almost as large as the other three combined–and so the surprisingly nonconfrontational tone of the BRIC official statement mirrored Beijing’s recent climbdown on the currency issue.
The Chinese government in the last few weeks seems to have radically changed its tune on this issue. In March, Zhou Xiaochuan, the head of China’s central bank, called for the replacement of the dollar as the world’s reserve currency in a widely reported text released to the public. In May, however, Beijing officials took a different tack, going out of their way to talk about the dollar’s unique status.
Beijing: The Dollar’s New Best Friend – Gordon Chang, Weekly Standard
UPDATE: 1:28 PM EDT
China Reiterates Call for New World Reserve Currency
FROM BLOOMBERG:
June 26 (Bloomberg) — China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.
“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.
The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.
“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.
President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London. U.S. Treasuries were little changed with the 10-year yield at 3.53 percent.
‘Unlikely’ Shift
“It’s extremely unlikely the dollar will be replaced as the reserve currency,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “A currency needs to be internationalized and that requires a fully convertible capital account, which China doesn’t have. The second is that it needs to be adopted.”
At the end of 2008 the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the IMF in Washington.
On June 13, Russian Finance Minister Alexei Kudrin reassured investors of the country’s confidence in the greenback by saying it was “still early to speak of other reserve currencies.” Brazilian Finance Minister Guido Mantega said on June 10 the government’s decision to switch some reserves into IMF bonds wasn’t aimed at weakening the dollar.
Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show.
Diversifying Holdings
China has started to pare its holdings, trimming them by $4.4 billion to $763.5 billion in April, the first monthly reduction since February 2008, according to U.S. Treasury Department data. Figures for May have yet to be released.
“There may be signs here of tensions mounting between the PBOC’s economic concerns over China’s holdings of dollars and the Chinese government’s diplomatic reasons for doing so,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, wrote in an e-mail.
Russian President Dmitry Medvedev, Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva called for a “more diversified” monetary system to reduce dependency on the greenback at a June 16 meeting in the Russian city of Yekaterinburg. In May, China and Brazil began studying a proposal to move away from the dollar and use yuan and reais to settle trade instead.
Group of 20
Group of 20 leaders on April 2 gave approval for the IMF to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the agency uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest. This month, Russia and Brazil announced plans to buy $20 billion IMF bonds, while China said it is considering purchasing $50 billion.
“Special drawing rights of the IMF should be given full play, and the international body should manage part of its members’ reserves,” the central bank report said.
IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take the “revolutionary” step of making SDRs a reserve currency over time.
SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.
Widening the Basket
The value of SDRs are based on a basket of currencies, shielding them from swings in a single currency. One SDR is valued at $1.54. China is proposing the basket be broadened. The current weighting is: 44 percent for the dollar, 34 percent for the euro and 11 percent each for the yen and the pound. It doesn’t include the yuan.
The dollar’s dominance of global finance buffeted developing nations last year. Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all but the safest, most easily traded assets, such as Treasuries and the dollar. A shortage of the U.S. currency forced central banks to pump reserves into their economies.
“The excessive reliance on the credit of several sovereign currencies have added to the extent of risks and crises,” the central bank report said. “A currency with stable value in the long term is required.”
Last Updated: June 26, 2009 08:35 EDT
June 26th, 2009
THE FEDERAL RESERVE IS NOT PROVIDING HINTS about any exit strategy from its policy easing.
Following its two-day policy meeting, the Federal Open Market Committee Wednesday reaffirmed its rock-bottom 0%-0.25% federal-funds rate target and its plans to purchase up to $1.75 trillion of Treasury, agency and mortgage-backed securities.
But for bond-market vigilantes looking for Bernanke & Co. to set a timetable to begin to reverse their policy of aggressive credit easing, it was a disappointment. Treasury yields ticked higher.
Since the FOMC’s previous meeting on April 29, the Fed’s policy-setting panel noted, “Conditions in financial markets have generally improved in recent months,” a nod to the sharp rallies in the equity and corporate fixed-income markets, both investment-grade and high-yield.
The Committee also noted, “The prices of energy and other commodities have risen of late.” That was a reversal from the observation at previous meetings that “inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.” In other words, the dreaded D word, deflation.
But the FOMC was quick to add this time: “However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.”
Indeed, by pointing out that “economic activity is likely to remain weak for a time,” the monetary authorities clearly signaled their policy stance remains on hold for “an extended period.” The panel’s vote on the policy action was unanimous, as it was at the April meeting.
While the Fed did not lay out any exit strategy for its current program of aggressive easing to combat the worst credit contraction since the Great Depression, it left itself some wiggle room to reassess its program of securities purchases.
“The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted,” a slightly more definite and less-conditional tone than it took in the previous statement.
That could be significant should the central bank decide to alter the mix of its securities purchases, which currently are projected to consist of $1.25 trillion of agency MBS and $200 billion of agency debt purchased by the end of the year and $300 billion by autumn. Given the rise in mortgage rates, the Fed might want to tilt more to MBS purchases to try to bring down the cost of loans for home purchases and refinancings, which have been flagging in recent weeks.
Even with the Fed’s acknowledgement that “the pace of economic contraction is slowing” — a far cry from a recovery — the financial futures markets continue to put better than two-to-one odds on a rate hike by year’s end.
The December fed-funds futures contract puts a 69% probability on a half-point hike in the current funds target at the Dec. 15-16 FOMC meeting, unchanged from Tuesday, Dow Jones Newswires reports. The February 2010 contact fully prices a half-point hike for the Jan. 26-27 meeting.
Yet, the overall outlook for Fed policy remains unchanged among economists.
The Fed Offers No Hints on an Exit Strategy – Randall Forsyth, Barron’s
June 26th, 2009
An analysis of the U.S., the E.U. and Switzerland.
Regulatory Reform: A Primer – Nouriel Roubini & Elisa Parisi-Capone, Forbes
June 26th, 2009
It’s not working. The Bush-Obama strategy of throwing trillions at the banks to solve the mortgage crisis is a huge bust. The financial moguls, while tickled pink to have $1.25 trillion in toxic assets covered by the feds, along with hundreds of billions in direct handouts, are not using that money to turn around the free fall in housing foreclosures.
Foreclosure Fiasco: Obama Does Banks’ Bidding – Robert Scheer, The Nation
June 26th, 2009
Combine Japanese cultural tendencies toward formality, politesse, and indirection with the usual central banker’s love of opacity and econo-jargon, and you’d expect that a meeting with the Deputy Governor of the Bank of Japan would be a one-way trip into a cloud of vagueness. But in a meeting Monday, Kiyohiko Nishimura, Yale-trained economist, former Tokyo University professor and deputy governor of the Bank of Japan, gave one of the most lucid and useful explications of the credit crisis and its aftermath that I’ve heard– and I’ve heard a lot of them. And even more surprisingly, it was pretty optimistic.
A Japanese central banker is well situated to comment on the current global crisis, given Japan’s own sad history of dealing with the overhang of a credit/real estate bubble—or, more accurately, of not dealing with it. The government and private-sector’s uncertain policies condemned Japan to a traumatic lost decade of slow growth.
Nishimura shared a talk he’s been giving—including at a Federal Reserve Bank of Chicago conference in May—about the comparative post-bust experience of Japan in the 1990s and the U.S. today. It’s titled: “The Past Does Not Repeat Itself, But it Rhymes.” The rhyming can clearly be seen in a chart showing what he dubbed a “remarkable resemblance in developments between the U.S. crisis and Japan’s ‘lost decade.’”
The U.S. is experiencing what Japan did in the 1990s, but seven times faster.
U.S. Crisis is Like Japan’s, Only Seven Times Faster – D. Gross, Newsweek
June 26th, 2009
