Sunday, March 29, 2009

Emory memories - Goodbye Omni National

When I was a student at Emory in Atlanta I used to bank with what is now Omni National. What a shock to discover that the FDIC has closed it - the 21st bank to be closed this year.

Am still looking for the upside as a sign to move out of cash and put my 401k to work but so far all I see is false dawns. Am betting Q1 will be worse than Q4 '08. If I take European plane maker EADS as a guide then I have to assume that capital investment has come to a halt - this will hit all those German family companies and US mid-west machine tool manufacturers. My guess is we'll be down 7% and I'm betting equity markets won't like the multiple that the S&P is trading on. Italy's central bank thinks the economy will ease by 2.5% this year - I'm betting 4.2% is more likely as all those sub-component orders from Germany evaporate.

This week all eyes will be on London. The Germans ,French and Italians are coming over all conservative. They haven't yet got the message that if the Brits and Americans aren't buying then there is much worse to come for their economies. Paris may like protectionism but I'm not sure Germany ultimately will.

Remain a bull on Geithner's latest package but he will need to force some of those 'too big to fail' institutions to take the balance sheet hit of selling toxic assets at 50 cents on the $. Too many bankers have their heads in the sand and still think they are worth the full buck. As credit card and commercial real estate defaults start to hit bank balance sheets nationalisation will remain a very real option.

Key issue in London thsi week will be the body language between the Americans and the Chinese. The Chinese need to boost consumption and the Americans need to promise to keep the greenback strong. Europe is a sideshow .What does a strong dollar do to all those commodity and precious metal trades ?.

Friday, March 27, 2009

Still looking for a turnaround- Air France KLM see operating loss

I've always found the airline sector to be a pretty good indicator of what's going on in the real economy encompassing both business and leisure expenditures. What gets me started on this is new data showing thatUS hotel occupancy rates have fallen 4.7% y-o-y to 58.5% with an average daily rate fall of 8% to $99.92. Despite data like this equity markets seem to have shrugged off their concerns and have been posting some healthy gains, however in the real world the turnaround still seems to be some way off.

Air France KLM have said that they expect an operating loss this year. According to IATA February passenger traffic y-o-y was down 10.1% and cargo traffic down 22.1%. IATA says that the priority for airlines is to conserve cash and adjust capacity to match demand ahead of an expected $62 billion fall in industry revenues. The recent rise in oil prices ( Brent is up 3.3% to $54.36 a barrel ) is working its way through to jet fuel prices. If this continues fuel surcharges may make a surprisingly quick come back with a dampening effect on traffic later this year.

For the 3rd consecutive week US seasonally adjusted claims for first-time unemployment benefit rose 8,000 to 652,000 while the number collecting state benefits rose by 122,000 to 5.56 million. The underlying data is even worse with 6.4 million taking state unemployment benefits, 1.4 million on federal benefits, 8.6 million on part time work and a further 2 million unable to find work. Together 15% of the workforce is unemployed or underemployed. Don't look for a turn in consumer sentiment just yet.

Thursday, March 19, 2009

Boeing and Airbus - a difficult choice ahead

Came across this marvellous quote from the Chairman of the aircraft leasing company ILFC talking about the impact of the downturn on the aircraft manufacturers: ' When a bomb explodes,the light travels a lot faster than the sound. The flash occurred in September, but the sound hasn't reached Seattle and Toulouse yet'. The quote relates to a difficult decision that the manufacturers will soon have to face. With many of their customers finding it difficult to arrange the financing for new planes Boeing and Airbus are faced with a stark choice - either cut production back by 25% in mid 2010 or finance the purchasers from their own balance sheets.

Sunday, March 15, 2009

Greece and Ireland the next battleground?

Equity markets seem to be taking the view that the worst of this recession is behind us with four good days of positive trading last week. Let's hope they are right. In the absence of any data showing that things are stabilizing let alone turning around I remain wary. February numbers from Russia's St.Petersburg container terminal show a 27.3% drop in February volumes from the year earlier period. By the same measure Los Angeles cargo traffic is down 35% although some of this decline may be due to the Chinese New Year. This bull market rally will probably last as long as it takes for a fresh wave of money to be drawn into the market and then on swelling volume the traders will reinstate their short positions.

Switzerland decided to intervene in the currency markets last week to reverse the relative strength in the Swiss Franc. An immediate beneficiary of lower interest rates were all those Hungarians and others who had taken out mortgages on the Budapest and Riga villas in Swiss Francs. Elsewhere in the currency universe it's gone very quiet. Chancellor Merkels comments yesterday about the need to see how the existing stimulus measures work before pushing for any additional programmes seems to me to be important. I'm more and more of the view that the ECB is working on a guarantee programme that will bail out Ireland and Greece (possibly Portugal ) but only in return for the imposition of strictly monitored fiscal policies ( higher VAT, lower spending ?) aimed at producing a more balanced budget. The effect of this generosity wedded to a tough dose of fiscal conservatism on the other members of the Eurozone like Italy, Belgium and Spain would be salutary. For Frau Merkel (who will ultimately sign the cheque ) linking the bail out to strict terms will go down well ahead of Septembers elections with a German public that is increasingly dismayed at the cost of Euro membership.The political ramifications of a conservative bailout on a wayward financial centre like Dublin would make life very lonely for Gordon Brown and Sterling - a point which may be viewed positively by the bureaucrats in Berlin and Paris.

Monday, March 9, 2009

Waiting for attractive pricing or for the old car to wear out.

Suddenly we are all saving more. We've been shopping around for new garden furniture but with no discounts available have decided to wait until the sales - why pay 100% of the retail price now when we'll only be paying 75% in a couple of months time? Have thought of replacing the second car but the best discount offered was 10% - for a cash buyer! Will buy new treads and keep it on the road for another year. Our actions are being replicated by millions of consumers across Europe who are happy to hold onto cash while they try to work out where the next body punch is going to come from - deflation, inflation, quantitative easing, devaluation or goodness knows what else? Government statements seem to be ever more doom ridden - this hardly makes for confident, happy consumers.

Have stuck with Euros through the first quarter. For the life of me cannot see why sterling has remained so strong although willing to agree that things are bad on the continent and set to get dire. There seems to be an Anglo-Saxon view that things are worse in Europe than in the UK. Will believe it when Germany starts to print money. The biggest cloud on the horizon would seem to be the likelihood that German banks will have a big hit from Russian corporate defaults but this local difficulty is likely to be pushed to one side until after the national elections.Until then sterling seems set for further weakness - my biggest fear is that with the government borrowing ever larger sums, borrowing costs would rise, currency levels fall and hey presto inflation in the UK might actually start to grow. Stuck between a recession and higher financing costs corporate and personal balance sheets would be in agony.

China told us it was on track for 8% growth this year. For a day markets rallied , until sager counsel reminded them that utility usage is contracting - hardly a sign that all is well. All this patent fear adds up to huge amounts of cash sitting on the sidelines - at some stage there is going to be the mother of all rallies - but what will trigger it? The arrival of better weather , stability in the banking sector, or signs that installed capacity is falling more rapidly than secular demand?

Wednesday, March 4, 2009

Swift Wind Turbines - any thoughts?

We have been left alone while the family goes back to the UK for a few days. Naturally, now that we are here tout seul the weather has deteriorated further. All afternoon a gale has been howling down from the mountains above the house - anything not tied down has gone flying out in to the fields. For a couple of hours we managed to work in the grounds but eventually the boyz signalled from their glum attitude that enough was enough and we've retreated back inside.

A couple of weeks ago I saw an advert for a company called Swift Turbines in Edinburgh. They produce small roof mounted wind turbines that can produce up to 2000 Kwh of power a year. My initial reaction was that the technology might work in a blustery environment like Scotland but never here. However, after the weather of the last few weeks I've had occasion to reassess that opinion. They only seem to sell in the UK but there must be some way of storing the power and using it in the house here. Is anyone out there an expert on wind turbines? Solar power would appear to be the logical solution for alternative power sources here in Italy but the square footage needed to generate a worthwhile amount of power makes me cautious.

Tuesday, March 3, 2009

Airlines as an indicator of the economy

Airline freight revenues continue to contract. IATA has said that its December forecast of a 5% fall in freight volumes and 9% in revenues now appears optimistic. 'Cargo demand has fallen off a cliff . The continued decline in cargo markets is a clear sign that we have not yet seen the bottom of this economic crisis'.

The Association of European Airlines has asked the EU to drop the regulation requiring airlines to use their slots at least 80% of the time so that airlines can suspend services during the downturn without losing their slots.

BA says that it is buring up its cash pile of £1.6 billion at the rate of £2.7 million a day.

Air France has delayed delivery of two Airbus A-380's in order to conserve cash.