• General Motors Corp. (GM) may drop its Pontiac and GMC brands, as it tries to cut costs before its June 1 deadline to prove profitable or enter bankruptcy protection, sources told Bloomberg. The brands of Chevrolet, Cadillac and Buick are likely safe, the sources said.

• Shares of Rosetta Stone Inc. rose 42% on their first day of trading, as the language-training company’s initial public offering netted $112.5 million, Reuters reported. Rosetta Chief Executive Tom Adams told Reuters it was hard to pick the right share price. “We are a long-term oriented group and we deliberated,” he said.

• Turkey’s central bank lowered its benchmark interest rate by 75 basis points to a record 9.75%, Bloomberg reported. In the past six months, the central bank has chopped seven percentage points from the benchmark rate.

• Zurich Financial Services AG (OTC: ZFSVY) yesterday (Thursday) agreed to buy American International Group Inc.’s (AIG) auto insurance unit for $1.9 billion. The deal marks the biggest divestment by AIG since the U.S. government rescued the insurance company in September, Reuters reported.

• The New York Times Co. (NYT) is cutting several weekly sections and will reduce freelance spending to save millions of dollars in annual costs, according to a memo obtained by Reuters. The paper is cutting pay for non-unionized employees at The Times and other papers and is seeking similar concessions from unionized employees. It also has threatened to shutter The Boston Globe if it cannot find ways to cut millions of dollars in costs at the money-losing paper.

• Canadian factory sales rose 2.2% in February the first time since July, according to a report yesterday (Thursday) that contained other small signs of economic recovery, Reuters reported. Excluding autos, sales slipped 0.2% but the decline was less steep than in the previous six months when the U.S. recession dampened appetite for Canadian goods.

• A pullback in new home construction in the U.S. combined with slower-than-expected economic growth in China pulled the price of copper down yesterday (Thursday).  Copper for three months delivery on the London Metal Exchange closed at $4,729 per metric ton – down $90 from Wednesday’s close, Reuters reported.

• Without enough votes for passage, Senate Democrats are scaling back legislation that would let bankruptcy judges alter mortgages, a spokesman for Senate Majority Leader Richard Durbin (D-IL), told Bloomberg. The main problem is whether the “cram down” provisions in the bill should be limited to certain loans or a specific timeframe, a spokesman for Durbin said. The bill passed the House of Representatives in March.

Source: Global Investment News Briefs Friday, April 17, 2009

Mingchun Sun, chief China economist for Nomura International PLC, said the Chinese government could formally announce the bigger spending plan in March or April.

Since the original stimulus proposal was announced, state and local governments unleashed a long list of projects previously held back because of initial concerns of keeping growth from getting out of control, Sun said. And with a surge in bank lending in January, China is better suited to finance more infrastructure investments.

“Looked at from the perspective of demand and financing capacity, I don’t think it will be a big problem to get to 7-8 trillion yuan,” Sun said in estimating the size of the eventual stimulus, Reuters reported. “It could be even higher.”

So far, several Chinese leaders have hinted that an increase in spending is on the way.

On Monday, the Communist Party’s council said that it would bolster investment to support growth, Reuters reported. A day later, President Hu Jintao said that China would take additional steps to boost domestic demand.

More spending could set off an investment boom similar to that of the early 1990s.

“This may be a harbinger of another investment boom. The only similar big encouragement made by the central government was by the late leader Deng Xiaoping and thanks to that the economic situation took a big turn for the better,” Sun said.

Deng’s decision to push growth also caused inflation to peak at 24.1% in 1994, Bloomberg reported.

Two years ago, Sun forecast that China’s gross domestic product (GDP) growth would slow to 8% in 2009.

Source: Economist: China Stimulus Could Double in Three Years

A nasty day in the currencies yesterday, except Japan of course. The Dow jumped 290 points yesterday, maybe an Obama bounce? You all know that I subscribe to an Obama bounce for stocks and the dollar in the first part of this year… But given what I know about, and what you now know about, after I drew it all out yesterday, the additions to the deficit that Obama will make, the focus on the fundamentals should return by late spring, early summer… That’s my story and I’m stickin’ to it!

Well… As I said in the opening, the currencies led by the Big Dog, euro, suffered through a nasty trading day, with the euro touching below 1.29 for a good part of the day. The risk takers are nowhere to be found. Where have all the risk takers gone… Long time passing… A Reuters reporter asked me yesterday if I was still of the opinion that the yen had more to rally or was it overbought? I said, that as long as the risk takers are nowhere to be found, yen should continue on its path higher VS the dollar, euro and sterling. The RSI (Relative Strength Index) for yen, shows that it is a tad overbought, but that’s not enough to change my mind. Nor is it enough to change the mind of a currency trader at the Bank of New York (BONY), who believes yen may rise to 85 VS the dollar by midyear… Another currency trader at the Royal Bank of Scotland (RBS) believes the Bank of Japan will step in and intervene to stem the yen’s rise….

That may be, but there’s been no sign of the Bank of Japan (BOJ) to date… Of course that could be the kiss of death that I just bestowed on yen… But I somehow doubt it… Yen hasn’t been a moon shot since reaching 88… In fact it has bounced between 88 and 91…

In the overnight markets, the euro rallied all the way up to 1.3080, but since I’ve come in it has been falling and now is barely hanging on to 1.30… The rally just doesn’t seem to have legs and is fizzling out…

OK… Our long time friend, Jim Rogers, was talking again about the currencies… Let’s listen in to see what this very well respected analyst / investor was talking about…

“In a Bloomberg video interview, Jim Rogers said the U.K. is “finished.” According to Rogers, oil sales from the North Sea were the only thing supporting its economy, and the oil is running out. London, a global financial capital, is also a “disaster” because many of the current economic problems originated there. Bankers and money managers left the U.S. to operate with less regulation in London. Rogers has sold all of his pounds sterling.

And with the pound and U.S. dollar under scrutiny, where are currency traders putting their money? In the countries with the largest trade surpluses – Japan, Norway, and Switzerland. European banking giant BNP Paribas forecasts the yen will appreciate about 14% against the dollar by June. Norway’s krone is one of Goldman Sachs’ top picks for 2009 (it’s one of Jim Rogers’ top picks, too). And Bank of America says the Swiss franc will gain against every major currency.

Maybe as speculations, these are good ideas. Me? I prefer gold to any paper currency.”

Yes… Gold… The shiny metal broke its recent trend of rallying along side the dollar yesterday, but the sell off was small… Negligible at best… But a breaking of the trend nevertheless. I believe that Gold will get caught up with the currencies in the Obama bounce, but that will be a temporary thing…

OK… I’ve beaten the pound sterling sufficiently for some time now… But a U.K. reader sent me a note that he saw regarding Barclays Bank… He saw this on CNBC… “The Daily Telegraph and Times newspapers reported on Thursday that any attempt by Barclays to raise extra capital could trigger a clause that would deliver control of the bank to Middle Eastern investors. Barclays opted to raise funds privately last year rather than take part in the British government bailout. Qatar’s sovereign wealth fund and Sheikh Mansour Bin Zayed Al Nahyan, a brother of Abu Dhabi’s ruler, invested up to 5.3 billion pounds in the bank.

According to The Daily Telegraph, a clause in the agreement states that if at any time before the end of June Barclays raised more capital at a price lower than 153.276 pence per share, the Middle Eastern investors could take their stake at that lower level.”

Now that would throw a real spanner in the works for the U.K. if they truly want to go down the nationalization path for their banks… They already own majority stakes in Royal Bank of Scotland, and Lloyds… And they had to take over Northern Rock last year…

I don’t know what nationalizing the banks does to the pound sterling, but the image of this happening can’t be a good thing… Not in my opinion anyway…

So, did you see that China’s 4th QTR GDP grew at a 6.8% clip? Now, compared to the plus 10% growth rates China was posting for the past few years, 6.8% looks pretty measly… But! Let’s look around the world right now and see who has a GDP that even compares? Well, that roster would be pretty small… In fact, I can’t think of anyone other than China that has GDP of 6.8%! This 4th QTR drop puts the annual growth rate in China for 2008 at 9%… Again… I’m from Missouri, you’ll have to show me a country, other than China that posts a figure that strong!

In the whole scheme of things, this is pretty significant for China though. And all the reason I believe the Chinese officials will continue the slow appreciation of the renminbi… This is going to put a lot of people, investors, traders, into a lull regarding renminbi, as everything around the world slows down… But in China, inflation is still a problem, and that can be dealt with by allowing the renminbi to continue its slow appreciation…

Well, I came across something yesterday, I saw it, Kristin sent it to me, and then Chris sent it to me, so it hit a nerve with all three of us… Our friends over at Casey Research, did a chart, that I can’t put in the Pfennig, but I can tell you what is showed us…

Since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 Billion, while their loans and leases have increased by only $325 Billion. So you can imagine the chart with one line for cash position rising, and the other line for loans falling… Here are the people at Casey Research’s thoughts…

“In other words, rather than lending the billions of dollars received from the Treasury’s Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets.

Concurrently, the Federal Reserve is exchanging its excess reserves for toxic waste from the financial institutions.

The combined affect is a “circular bailout” with the Treasury borrowing… in order to lend money to banks… that then lend it back by purchasing more Treasuries. Of course, the expense of this entire bailout scheme ultimately falls onto the back of the tax-paying public.”

>>>> back to me… We finally get a couple of data bones thrown to us today, as the data cupboard gets restocked with Housing Starts, and Building Permits for December, the House Price Index for Nov. and the Weekly Initial Jobless Claims… None of this will be good, bright, or even a warm and fuzzy, so prepare for more rot on the economy’s vine…

And don’t look now, but the price of Oil has pushed higher this week… Now trading at $44.50

Oh, and one more thing… Singapore officials have announced an economic stimulus package, which has been well received by the markets, and has allowed the sing dollar to bounce off the lows we’ve seen this week… Ok! Off to the Big Finish…

Currencies today: A$ .6565, kiwi .5275, C$ .7940, euro 1.30, sterling 1.3785, Swiss .8650, rand 10.0750, krone 6.9625, SEK 8.22, forint 217.85, zloty 3.3390, koruna 21.30, yen 88.80, sing 1.4950, HKD 7.7590, INR 49.16, China 6.8370, pesos 13.79, BRL 2.3190, dollar index 85.77, Oil $44.50, Silver $11.30, and Gold… $850.88.

Source: Euro Rally Fizzles Out

“I think it will take only three to four years for China to overtake Japan as the second-largest economy in the world,” Merrill Lynch economist Ting Lu, told the Associated Press. Catching up with the United States could take decades, he added.

In a complicated recalculation, the Chinese government yesterday (Thursday) revised its growth figures for 2007 from 11.9% to 13%, bringing its estimated gross domestic product (GDP) to $3.4 trillion – about 3% larger than Germany’s $3.3 trillion for the same year, based on World Bank estimates.

The news came sooner than expected, confirming a seismic shift in global economic power. It took just two years to complete the move from fourth to third after China overtook Britain in 2005.

Germany’s per capita GDP, at $38,800, is still far ahead of China’s $2,800 per capita GDP in 2007, as the country has wide disparities of wealth and poverty. Chinese officials say more than 100 other countries have a higher income per person, the Associated Press reported.

China set out on the road from communist central planning to a market-style economy in 1979 when its GDP was just $300 billion – one-tenth of the 2007 level – according to the International Monetary Fund.

Now, it has set its sights on Japan. Although the world’s top economies – the United States and Japan – are suffering through a withering recession, even the most pessimistic growth estimates for China’s GDP in coming years run about 5%.

If China were to maintain its current level of growth, it would overtake Japan – with a current GDP of $4.3 trillion – in just a few short years.

The U.S. economy, the world’s largest, was about $13.8 trillion in 2007. At its current rate, it would take China just 18 years to depose the United States as the world’s No. 1 economy, according to the Washington Post.

However, the question of whether or not China will continue to grow at its current pace has been complicated by the global recession, which has resulted in massive layoffs and waves of factory closures, especially in southeastern China, the center of its export-driven economy.

Michael Santoro, author of the 2008 book “China 2020,” told CNN. China will have other problems to overcome if it is to maintain its rapid expansion.

“It’s no longer sufficient for China to become a manufacturer of sneakers or toys and the like,” Santoro said. “Now they’re looking to become players in the area of pharmaceuticals and foods and other high value-added products, where safety and quality are important characteristics for improving in the global economy.”

Independent economists estimate China’s economy grew by another 9% in 2008 despite the global downturn. Figures for 2008 are expected to be released this month.

But economists have slashed 2009 forecasts to as low as 6%. That would be the highest of all the world’s major economies, but still worries communist leaders who need to satisfy a public already concerned over thousands of recent manufacturing layoffs.

But don’t expect China to sit by twiddling its thumbs while the recession hammers its economy.  In a Money Morning Outlook 2009 report we described how the People’s Republic has already announced a $586 billion (4 trillion yuan) spending package.

To put that in perspective, this plan amounts to a staggering 20% of China’s gross domestic product (GDP). Compare that to the $1 trillion in U.S. bailouts, which equate to about 8% of GDP.

And in further response, China’s State Council on Wednesday laid out a new plan to boost its steel and auto industries – including about $1.5 billion to develop alternative-fuel vehicles.

Source: China Now the World’s No. 3 Economy, Supplanting Germany

According to World Steel Dynamics, a U.S. steel consulting firm, steel production could fall next year by 13.9% compared with this year. This downturn comes after a long period of growth in the steel industry. In fact, output has grown every year since 1998 – soaring from 777 million metric tons a decade ago to 1.34 billion metric tons in 2007.

The catalyst behind the expansion has been a robust world economy and a steep rise in demand in China – by far the world’s biggest steel producing and consuming nation, accounting for more than a third of global steel output.
But the sector has been among those worst hit by this year’s financial storms, with share prices in many steel companies having fallen by more than two-thirds since the middle of 2008.

“The reduction in demand we’ve seen in steel goes beyond typical cyclical downturns given the level of distress in global financial markets and tight credit conditions,” Carol Cowan, a U.S.-based analyst at Moody’s Corp.(MCO)credit rating agency, told the Financial Times.

Steel companies’ share prices have been hit hard. Severstal OAO, Russia’s biggest steelmaker, has seen its shares fall almost 90% since July, ArcelorMittal (MT) has dropped more than 70 per cent; and United States Steel Corp. (X), the United States’ biggest steel company is down 79% over the same period.
Meanwhile, China’s steel industry, the world’s largest, is sitting on a stockpile of 63 million metric tons, or about 13% of annual production.  Baosteel Group Corp. General Manager He Wenbo said in November that his company was facing the “most difficult” period since it was founded 30 years ago.

But China is making noise about a shift in trade policy meant to rekindle its steel mills and keep its economy humming.  The government is considering measures, including buying unsold inventory and raising export rebates, to help steelmakers weather the slowdown, Minister of Industry and Information Li Yizhong told Bloomberg News on Dec. 12.

That represents a dangerous shift in policy that could hinder international trade, according to Myron Brilliant, vice president for Asia at the U.S. Chamber of Commerce in Washington.  The economic crisis has prompted China to turn back to “export-oriented policies that could lead to an increase in the trade imbalance” and new tension with the United States.

Treasury Secretary Henry Paulson has spent more than two years smoothing over U.S.-China trade relations.  Part of those efforts focused on the value of China’s currency, the yuan, to redress what U.S. officials saw as an unfair price advantage for Chinese products.  The yuan rose 21% versus the dollar from 2005, but its steady rise stalled in July, and has barely budged since.

Before leaving for trade talks in Beijing this month, Paulson told business representatives his biggest concern was that China would revise policy and reverse moves it had made during the past year to cut aid to exporters and stimulate domestic consumption.

China’s five-year plan through 2010 aims to rebalance growth away from exports and increase domestic consumption, but so far it has met with dismal results. Household consumption declined to slightly more than 35% of China’s gross domestic product (GDP) last year from 45% in 1993.  By comparison, consumer spending represents almost 70% of the U.S. economy.

“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” Brad Setser, a fellow at the Council on Foreign Relations in Washington, told Bloomberg News. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40% of GDP.”

A shift in Chinese policy is bound to meet with resistance in U.S. business circles, especially among steelmakers.  Lawyers representing Nucor Corp, the second-largest U.S. steelmaker, and smaller steel pipe makers say they are considering new trade complaints against China.

Shift in China Trade Policy Could Accelerate Western Steelmakers’ Slump