Global Investing

from David Gaffen:

Citigroup Is the Economy

It used to be that Citigroup was one of the market's most important stocks, if not the most important. At the nexus of the banking, securities and lending industries that benefited most from the easy-credit boom of the middle of the decade, its success as a stock mirrored the market and the economy.Somewhere around 2006, when people started to call for a breakup of the company, it was supplanted by a company even more tied to the derivative-fueled mess that masked the holes in the economic landscape - Goldman Sachs.

But Goldman continued to earn massive profits while Citigroup nearly died a painful death. Shares eventually fell to less than $1 a share, it was kicked out of the Dow and investors started to view other consumer banks as better indicators of the market's health.

Still, there's a chance that Citigroup may become more important once again, provided it survives (with substantial help from the government). Kevin Depew, recently writing on Minyanville.com, noted that most of Citigroup's short-term debt has returned to spreads present before the blowup of Lehman Brothers, suggesting that bond investors believe the debt crisis has receded. He notes (using a bit of technical analysis) that "Citigroup right now might again be The Most Important Stock in the Universe."

But one could argue it never stopped being important . It's clearer now that those in search of a proxy for the economy, investors should have stuck with Citigroup all along. (Not that they should have stuck with owning the shares.) Its plunge came at a time when many thought a second Great Depression - or something close to it - was on the way, and its status as a ward of the state mirrors the economic situation as well: second-quarter GDP would have been worse had it not been for government spending.

Shares of the stock continue to struggle. It trades at less than $4, but the company recently saw a boost in trading volume as a result of an increase in its influence in the S&P 500. This may increase again if certain preferred shares held by the government are converted to common stock and then end up in the public's hands.

Swine flu shakes Spanish property bargain hunters

It must be tough to be a Spanish homeseller right now.

 

Just as investors pluck up the courage to once again dip a toe in the Mediterranean housing market, along comes a killer flu pandemic that keeps bargain-hunting foreigners thousands of miles from a purchase.

 

Earlier this week, Palma Property Auctions – one of Spain’s biggest holiday home auctioneers – said rising swine flu fears among clients had forced it to shelve its eagerly-awaited summer sale.

 

 “We had nine concrete cases of people who called us to say they wanted to have a look at a property and possibly take part in the auction, but they were not going to because of swine flu,” Daniel Westerlund, a spokesman for Palma Property Auctions, told Reuters.

from MacroScope:

UK heading for second downturn?

MacroScope is pleased to post the following from guest blogger Julian Chillingworth. Chillingworth is chief investment officer of UK investor Rathbones. He questions here whether Britain will face a second downturn shortly after struggling out of recession.

Are we likely to witness a two-tier recession in the UK?  Perhaps not a recession but certainly a secondary downturn. A vast number of people have enjoyed lower mortgage payments and a level of job security, but will this last?

The UK is in somewhat of a unique position in so far as it faces a regime change, with some obvious ramifications for policy.  However, whoever takes the seat (most likely the Tories) must still cut back public expenditure and raise taxation, both within the context of high unemployment.

from David Gaffen:

Goldman Sachs Does Not Consume Diesel Fuel

Sure, things look rosy for Goldman Sachs (GS.N), but the firm hardly represents the broad U.S. economic situation, as investors are looking over a mélange of lousy data, with dribs and drabs of mildly encouraging information in the mix. Goldman Sachs headquarters building in New York. REUTERS/Lucas Jackson Goldman Sachs headquarters building in New York. REUTERS/Lucas Jackson

Tuesday's retail sales figures weren't all that great - the strength comes from auto sales and rising gasoline prices (and rising gas prices aren't exactly great for consumers) - and Wednesday's data on capacity utilization and energy inventories are likely to confirm the ongoing slack in the economy.

So what to make of the statements from CSX Corp. (CSX.N) chief executive Michael Ward, who told Reuters the worst of the recession has been seen? Data on capacity utilization doesn't suggest a pick-up in demand, and the giant inventories of distillate products in various parts of the country also suggest the economy is sputtering, not chugging.

from FaithWorld:

Pope urges bold world economic reform before G8 summit

popePope Benedict issued an ambitious call to reform the way the world works on Tuesday shortly before its most powerful leaders meet at the G8 summit in Italy. His latest encyclical, entitled "Charity in Truth," presents a long list of steps he thinks are needed to overcome the financial crisis and shift economic activity from the profit motive to a goal of solidarity of all people.

Following are some of his proposals. The italics are from the original text. Do you think they are realistic food for thought or idealistic notions with no hope of being put into practice?

    "There is urgent need of a true world political authority. .. to manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result; to bring about integral and timely disarmament, food security and peace; to guarantee the protection of the environment and to regulate migration... such an authority would need to be universally recognized and to be vested with the effective power to ensure security for all, regard for justice, and respect for rights." The economy needs ethics in order to function correctly - not any ethics whatsoever, but an ethics which is people-centred..." "Financiers must rediscover the genuinely ethical foundation of their activity, so as not to abuse the sophisticated instruments which can serve to betray the interests of savers. Right intention, transparency, and the search for positive results are mutually compatible and must never be detached from one another." "Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value... there is nevertheless a growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference... What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise, its benefit to the real economy and attention to the advancement, in suitable and appropriate ways, of further economic initiatives in countries in need of development." "One possible approach to development aid would be to apply effectively what is known as fiscal subsidiarity, allowing citizens to decide how to allocate a portion of the taxes they pay to the State."
(Photo: Pope Bendict, 1 July 2009/Tony Gentile)

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from Global News Journal:

Back to the future in Malaysia with Anwar sodomy trial II

By Barani Krishnan

A decade ago, Malaysia's former deputy prime minister Anwar Ibrahim was on trial for sodomy and corruption in a trial that exposed the seamy side of Malaysian justice and the anxieties of a young country grappling with a crushing financial crisis and civil unrest.

Anwar is Malaysia's best known political figure, courted in the U.S. and Europe and probably the only man who can topple the government that has led this Southeast Asian country for the past 51 years. Photo: Anwar Ibrahim, with a bruised eye, at court on Sept 30, 1998 during his his first trial. REUTERS/David Loh Now the leader of the opposition, will go on trial next week again charged with sodomising a 23-year old male aide. The trial once again looks likely to provide gory evidence and bringing some unwanted attention from the world's media on this Southeast Asian country of 27 million people. It could also embarrass the government and draw international criticism.

Anwar vowed in a recent interview to fight what he says are trumped up charges.

More than a nice-to-have, buy-side considers its actions

More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.

Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.

The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.

from Commodity Corner:

Correlation Between Oil and Equities Markets

oil-vs-stock-market

Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.

But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.

Hook joins the alphabet soup

About a year ago investors hotly debated what would be the shape of a world economic recovery — would it be a steep V? Or could it be moderate U, stagnating L or double-dipping W?

Now ratings agency Moody’s is introducing the new scenario of “hook-shaped” recovery.

This has the steep downturn signalled by the U-shaped scenario, but neither the steep but delayed rebound of the U scenario, nor the flat stagnation of the L-shaped scenario. Instead, the agency says, it has an upward tilt that lies somewhere in between, implying a gradual and painful economic recovery.

“We cannot rule out that the hook-shaped scenario will evolve into an L-shaped scenario — and there is a real risk of this materializing – but it is too early to adopt the latter as our central scenario. This is because the full effect of government stimulus policies has yet to be seen,” Moody’s says.

from MacroScope:

Springing back to life

The steady stream of less-bad-than-expected economic data has evidently been working as a builder of optimism. Confidence in improved economies and financlal market conditions is growing.

One of the biggest surprises has been Germany's ZEW economic sentiment survey -- which polls analysts and economists in Europe's largest economy. Not only did the index jump this month, it entered positive territory for the first time since July 2007. That was before the credit crisis hit.

U.S. financial services firm State Street also reports that the mood among institutional investors in North America, Europe and Asia is at a nine month high. The main point about this survey is that it is extraplolated from the actual buying and selling patterns within $12 trillion that State Street holds for investors as a custodian.