China has used depressed commodities prices to stock up on long-term supplies of raw materials such as oil, copper, and iron.  And it’s used structural weakness in the U.S. financial system as justification for replacing the dollar as the world’s main reserve currency.

Now, the Red Dragon is looking to make headway on the highway by winning global market share in the automotive market while U.S. heavyweights spin out.

“We aren’t afraid of the financial crisis,” Zhou Fuquan, vice president of Geely Automobile Holdings Ltd. (PINK: GELYF), told Bloomberg News. “On the contrary, we hope it will penetrate even further as it has provided us with some opportunities.”

Geely is China’s biggest private automaker, but that isn’t exactly saying much. The company’s annual output is just 300,000 units, and its market share in China is a meager 3%. Still, Hangzhou- based Geely is determined to become a global player in the auto industry. It has ambitions to sell 2 million cars a year, including 1.3 million overseas – even though right now the company generates just 5% of its sales from abroad.

Of course, that’s why the financial crisis has been more of a financial opportunity for Geely. In March, Geely bought key assets from bankrupt Australian gearbox maker Drivetrain Systems International – the world’s second-largest maker of automatic transmissions.

“The economic downturn provides us with very good overseas acquisition opportunities,” Daniel Dai, vice president for international business at Geely, told China Daily. “We get the best technology with the best price.”

Geely has also set up a joint venture with Manganese Bronze Holdings PLC (MBH) to produce the TX4 London Taxi in Shanghai. MBH supplies taxis to Saudi Arabia, Turkey, and Spain as well, boosting Geely’s global presence.

For months, analysts have speculated that Geely will continue to its overseas expansion by launching a bid for Ford Motor Co.’s (NYSE: F) Volvo unit. Ford, which is the only “Big Three” auto company to not receive government aid, last December started looking to offload the Swedish car brand in an effort to pay off the debt it accrued when the company borrowed $23.5 billion in 2006.

Geely said on Sept. 9 that it might partner with a state-owned investment company to bid for Volvo. And earlier this week, the company announced that it would raise $334 million in funds from Goldman Sachs Group Inc. (NYSE: GS) through a convertible bond offering to “fund the capital expenditures of the group, potential acquisitions by the group and for general corporate purposes of the group.”

However, some analysts have pointed out that the Goldman capital falls well short of the roughly $2 billion Ford is asking for Volvo. They believe Geely instead will use the money to increase capacity and market the models it already has to buyers outside of its home market.

“The management is planning to expand its distribution channel to foreign countries,” Richard Li, research director at Celestial Asia Securities Holdings, told Forbes magazine. “This deal can provide this company enough funds so that the cash flow will be upgraded long term.”

And if nothing else, Goldman’s investment could be enough to instill investor confidence in the small Chinese carmaker.

Almost a year ago to the day Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) subsidiary MidAmerican Energy Holdings Co. agreed to pay roughly $230 million for a 9.89% stake in Chinese car and battery producer BYD Co. Ltd. Since then, BYD’s shares have jumped more than fivefold in that time.

“A big name investor certainly helps boost stock prices and brand recognition,” Li Lixi, a Northeast Securities Co. analyst in Shanghai, told Bloomberg. “Goldman’s investment in Geely may repeat the impact that [Warren] Buffett had on BYD.”

Geely’s Hong Kong shares yesterday (Wednesday) surged to their highest in more than nine years on the news of Goldman’s investment.

The Race to Build a Competitive Chinese Brand

Geely isn’t the only Chinese companies looking to use the financial crisis as an opportunity to broaden its global reach either. Other Chinese companies, including Beijing Automotive Industry Holdings Co. (BAIC), SAIC Motor Corp. Ltd., and Sichuan Tengzhong Heavy Industrial Machinery Co., are determined take the lead in what has become a race to be the first world-renowned Chinese automotive company.

“It takes decades to establish a recognized, renowned brand,” Jim Hossack, an industry analyst at researcher AutoPacific Inc., told Bloomberg. “China wants to do it much faster, perhaps within as little as five years.”

BAIC on Sept. 9 joined Koenigsegg Group in its bid for GM’s Saab division. Koenigsegg – backed by U.S. and Norwegian investors – in June agreed to buy Saab from GM, but struggled with financing the deal.

SAIC group, the parent of China’s largest automaker, had also considered coming to Koenigsegg’s aid in the Saab bid. But ultimately it was BAIC that came through with the $420 billion in financing needed to close the deal.

“This is a great opportunity for us to partner up with a brand like Saab that we believe has a great future with a new business plan and new ownership,” Wang Dazong, general manager of Beijing Auto, said in a statement posted on its Web site.

Koenigsegg and BAIC will form a joint venture to market Saab cars in China, where the brand has little-to-no presence. BAIC will also gain valuable technology from the Swedish car company.

“Chinese manufacturers are hoping to buy up technology that will help them catch up to world standards on both the product and the development side more quickly than they would on their own,” Christoph Stuermer, automotive analyst at IHS Global Insight Inc., told the Financial Times.

However, not every Chinese endeavor has been greeted with success. Shanghai-based SAIC in 2004 paid $500 million for 49% of Ssangyong Motor Co. just to watch the South Korean carmaker go into receivership in February. And Sichuan Tengzhong Heavy Industrial Machinery’s attempted takeover of GM’s Hummer brand is still being stalled by China’s central government.

“It’s not in coordination with our nation’s industrial policy,” Vice Minister of Commerce Chen Jian said after sending back Sichuan’s application to acquire the Hummer brand for $100 million.

Still, Chinese auto companies won’t be satisfied until they race ahead of their Western counterparts.

“I’m fighting for what’s in overseas automakers’ rice bowls,” Geely founder Li Shufu told Bloomberg. “I want to build Geely into a global first-tier automaker.”

Source: Financial Crisis Gives Chinese Car Companies a Chance to Get Up to Speed

Here in the United States, at a cost of a mere $3 billion, the “Cash-for-Clunkers” program appears to have given new hope to the U.S. auto industry.

But that new hope is destined to be short-lived.

It’s true that – in terms of value delivered for the money invested – “Cash for Clunkers” has eclipsed every other stimulus program that has been tried. But the program has a projected lifespan of only three months, meaning it can’t reverse the powerful global forces that are destined to turn the U.S. auto market from leader to laggard on the global stage.

Financial Crisis Fallout Reshapes Sector

Thanks to the financial crisis whose impact continues to be felt, worldwide automobile demand had dropped on an overall basis since 2008.

But regional differences are already emerging.

In the United States, for instance, the benchmark seasonally adjusted annual sales rate (SAAR) finally jumped up past the 11-million mark in July after failing to eclipse the “breakeven point” of 10 million vehicles in any prior month this year. But the actual year-to-date sales of 5.81 million vehicles through July was still 33% below the 8.55 million that had been sold by that point in 2008, and is 67% below the all-time annual record of 17.4 million achieved in 2000 and 65% below the decade average of 16.4 million.

(Prior to the global financial crisis and accompanying recession – which prompted the U.S. auto industry to restructure and shift its breakeven point down to 10 million vehicles – the breakeven point was actually 16 million vehicle sales in a year. Below that point, several or all of the U.S. “Big Three” would be spinning their wheels in red ink.)

It’s a much different story abroad, however, where several markets are in a long-term growth mode. In India, for example, sales were up 31% on a year-over-year basis, while auto sales in China were an astonishing 70% above those of a year ago. Even if U.S. auto sales continue to improve, China’s automobile market may outsell its U.S. counterpart for a full year for the first time ever.

Granted, India’s auto market – around 2.5 million cars and light trucks a year – is still much smaller than either China or the United States. However, its growth makes it comparable to the Japanese or German markets, the next largest automobile markets after its U.S. and China counterparts.

Thus, global automobile sales are undergoing a major reorientation towards Asia and away from the United States and Europe. This will inevitably have a huge effect on the structure of the sector.

That’s why Asia will become the new Detroit – the future center of the automaking world.

Gone For Good?

In the United States, General Motors Corp. and Chrysler Group LLC have lost market share because of the government takeover. They are unlikely to get it back in spite of the debt costs they have relinquished through bankruptcy.

For Chrysler, the partnership with Fiat SpA (OTC ADR: FIATY) is unlikely to help much. Fiat is among the weakest of the European companies, and has not been competitive in the United States since the 1980s. The U.S. market is undoubtedly moving toward smaller automobiles. That trend is being “fueled” by the new Corporate Average Fuel Economy (CAFE) standards for 2015 and probably by higher fuel taxes for environmental and budget reasons. Nevertheless, it seems unlikely that the Chrysler/Fiat partnership will have the models to compete.

General Motors has the model range to compete in the United States. However, GM is doing much better in China, thanks largely to its joint venture with Shanghai Automotive Industry Corp., which expects to sell 1.4 million vehicles in 2009. Since GM is also selling Opel, its European operation, GM (NYSE:GRM) will find itself driven primarily by the demands of the Chinese market. Given the growth of that market, it will probably make the most economic sense for GM to become Chinese-owned. Politics may delay this, but probably only for a few years.

The United States’ One “Better Idea”

Ford Motor Co. (NYSE: F) has picked up market share in the United States from GM and Chrysler’s problems. It should benefit both from “Cash for Clunkers,” and from the early stages of the U.S. market recovery. If GM and Chrysler continue to have difficulties, Ford may be in a good position here in the large U.S. market – as the most-effective manufacturer of the large automobiles that Americans continue to prefer – no matter what the government tells Ford to do.

Nor is that Ford’s only competitive advantage going forward. Ford Europe is big and viable enough to allow Ford to remain credible as a producer of smaller cars, primarily in the higher price brackets.

Outside the United States, European manufacturers will find themselves increasingly confined to the luxury end of the market. However, as global incomes rise and the newly wealthy become brand-conscious – particularly in the emerging economies of Asia – that upscale portion of the auto market should continue to be strong.

Japanese and Korean manufacturers will continue to dominate their domestic markets. And such companies as Honda Motor Co. Ltd. (NYSE ADR: HMC), Toyota Motor Corp. (NYSE ADR: TM) and Kia Motors Corp., will also do well in the United States and Europe, and in countries where they have been able to establish viable local manufacturing operations, and lower labor costs.

But it will be the players from China and India who are destined to be the big market-share gainers on a global basis.

The New Leaders

For U.S. investors, India’s Tata Motors Ltd. (NYSE ADR: TTM) is the best known of the newly emerging global auto elite. Tata’s $2,500 for-the-masses “Nano” car has been well received. Over the long term, the Nano may expand the entry-level portion of the worldwide auto market, forcing other manufacturers to produce equivalent low-price models.

Indeed, the introduction of $2,500 cars may greatly expand the market’s size in India and other emerging markets, much as Ford’s Model T did after its introduction in 1908, or the Volkswagen AG (OTC ADR: VLKAY) VW Beetle did in the 1950s and 1960s.

Tata looked to be in financial difficulty after it bought the loss-making Jaguar and Land Rover brands in 2008 at the top of the market. However, the $300 million loan for its Jaguar Land Rover Unit announced on Aug. 10 gives Tata the room it needed to maneuver. Market growth in India, combined with the strength of its Tata Group parent now suggest that Tata Motors has the strength to survive without dismemberment.

The bottom line: Tata and its India-based competitors – Maruti Suzuki India Ltd. (Mumbai: MSIL) and Mahindra and Mahindra Ltd. (London: MHID) – as well as such top China carmakers as Chery Automobile Co. Ltd. (still publicly owned), Geely Automobile Holdings Ltd. (OTC: GELYF) and Great Wall Motor Co. (OTC: GWLLF), are thus the companies that will see most growth in the automotive market of the decade to come.

By 2020, the global auto sector will look nothing like it does today. Given that most of the muscle will be in Asia, investors shouldn’t be surprised.

Source: Why Asia Will Supplant Detroit as the Global Center of the Auto Industry

I’ve repeated that warning many times since. Now, it appears that the idea is finally entering mainstream thought. China may well be Detroit’s lifeline. From some – chiefly those who don’t understand that Detroit has largely failed to make a passing grade in an increasingly global economy – my warnings have attracted a lot of criticism.

That’s unfortunate, because by adopting such a defensive posture, these critics have missed the real point I was making: Chinese companies would initially have no interest in taking over Detroit, but over time would likely demonstrate a deep interest in acquiring key parts of the U.S. auto sector “value chain” that could support the expansionist efforts of their domestically produced brands. Distribution channels would be very attractive. And so would auto-parts producers, since they are a key element of such post-purchase “aftercare” initiatives as maintenance and repair.

The only real question, I noted at the time, was how big the lag would be between China’s acquisition of the U.S. auto-parts companies and the international expansion of its own brands. Absent the current financial crisis, I estimated the lag would have been five to 10 years. Now, however, that lag time has dropped to as little as five years. The reason: The financial crisis has eviscerated the market values of so many Western companies, creating bargain-basement opportunities for cash-rich Chinese companies that are so alluring that they were unfathomable a decade ago. Events are playing out just as I predicted.

Enter the (Red) Dragon

Back in November, as GM and Chrysler tottered on the bring of complete collapse – and after Japan’s Toyota Motor Co. (NYSE ADR: TM) had reportedly considered, and ruled out, the purchase of one, or both, of these carmakers – China’s SAIC Motor Co. Ltd. and Dongfeng Automobile Co. Ltd. – were reportedly working on a play to buy the two embattled U.S. firms, Huliq News and the 21st Century Business Herald both reported. Said one China auto-industry executive (who requested anonymity): “We really want to acquire some of our global counterparts’ core technologies now, because prices are so low.”

His sentiment was echoed by Xu Liuping, chairman of Chongqing Changan Automobile Co. Ltd., Mainland China’s fourth-largest automaker, who recently said that “the longer the [global financial] crisis lasts, the bigger the chance of [a] failure or [of] a scale-down of some American and European carmakers.” For the most part, Chinese companies are still learning to do business overseas. They are not yet comfortable leading the charge in overseas markets, which is why so much of their overseas expansion efforts and shopping sprees remain largely confined to natural-resource sectors and, in the auto sector, auto-parts players.

Top-tier managers of China-based companies recognize that the acquisition of overseas assets can strengthen their company’s domestic competitiveness. And with a market as big as Mainland China, that’s logical. But what might not occur to Western business leaders is that Chinese executives don’t yet view themselves has having global-branding expertise, particularly when it comes to the so-called “design elements.”
For instance, as my friend, Kishore K. Sakhrani, director of Hong Kong-based ICS Trust (Asia) Ltd., noted during a presentation to our investment group: “In the past, when a Westerner wanted a product in sea green, you often got something that was lime green. But many Chinese companies are now establishing Western design shops and closely consult [with] Western marketing experts, and the results will be obvious.” Indeed, in a sentiment that closely echoes my own philosophy, Sakhrani said that “there isn’t an industry on the planet that the Chinese won’t dominate – or at least materially affect – in the next 20 years.” My experience suggests that the biggest changes and the most dramatic expansion will occur when Chinese executives become comfortable in assuming leadership roles that push them far beyond the manufacturing stage of the value chain and into product development. And while 10 years ago I thought that process might take another two decades, the financial crisis has dramatically accelerated the timeline. And we’re seeing that now – particularly with China’s automaking industry.

China’s Shopping List

Just this March, Geely Automobile Holdings Ltd. (PINK: GELYF) bought Australia-based Drivetrain System International – a supplier for Ford, Chrysler and Ssangyong Motor Co. Ltd. – for $42.55 million (HK$329.79 million). More recently, the company has denied rumors that it’s ready to purchase Ford’s Volvo passenger car unit for between $1.3 billion and $2 billion, which would represent a catastrophic loss for beleaguered Ford, which paid $6.45 billion to buy Volvo in 1999. Three of the most prominent Chinese car makers – Geely, Dongfeng and Chongqing – are reportedly in the hunt for GM’s Saab and Opel units in deals that could be worth as much as $200 million. Clearly, the Fiat SpA (OTC ADR: FIATY) transaction complicates things a bit, but there’s still plenty of room for surprises. Said another Chinese executive, who also chose to speak anonymously: “We view [buying parts-makers, for now] as a viable alternative to acquiring good brands that have suffered from terrible management. We don’t know enough – yet. We have to build our competency in the meantime.” And you can bet that they’ll do just that – build a world-class “competency” that just adds more muscle to the growing China business juggernaut. My contacts tell me that transmission systems, hybrid technologies and power-gearing systems are at the top of the list in the immediate future. Actual manufacturing plants and assembly lines are running a distant second until Beijing gets comfortable with the suitability of overseas manufacturing as part of China’s business value chain. Many Westerners who recall the Japanese acquisition spree of the 1980s will not react favorably to this. But it’s not a one-way Street. As troubled as Detroit is, it’s clear that their representatives have been working quietly in China for months now, which is entirely logical. Chinese companies remain some of the healthiest on the planet in financial terms, and most continue to demonstrate strong domestic growth despite the softness of the overall global economy. It also doesn’t hurt that the Chinese government is backing many of these initiatives. China has a world record $2 trillion in foreign reserves, which gives it a lot of financial credibility with any deals that country’s companies may wish to pursue. In an interview with the South China Morning Post, Geely Automobile Holdings Executive Director Lawrence Ang said that “we’re constantly approached by bankers about the possibility of mergers and acquisitions [with international auto makers].”

A Long List of Deals

The auto sector has already been bustling with deals. Here are just a few that have transpired in recent years:

• 2004 – SAIC Motor Co. spends $500 million to buy an initial 48.92% stake in South Korea’s Ssangyong Motor Co., and then boosts its stake to a 51.33%.
• 2005 – SAIC purchases the design rights to the super-looking MG Rover 25 and 75 models for $99.97 million (HK$775.33 million) from kaput British carmaker MG Rover.
• 2005 – Competitor Nanjing Automobile Group buys the rest of MG Rover’s assets for $87 million.
• 2007 – Working together, SAIC, Chery Automobile Co. Ltd., and First Automotive Group Corp. (FAW) band together in preliminary buy out talks with Chrysler. No deal.
• 2009 – January – SAIC learns the hard way not to buy brands when Ssangyong goes belly up and files for bankruptcy.
• 2009 – February – Beijing says it will slow down global acquisitions and concentrate on competencies that boost local strength.
• 2009 – March – Geely purchases Australian parts-maker Drivetrain System International for $42.55 million (HK$329.79 million).
• 2009 – April – Chongqing Changan Automobile Co., Geely Automobile Holdings, Dongfeng and Guangzhou Automobile Industry Group Co., Ltd. (GAIG) announce their desire to purchase global assets from international brands in trouble. Geely’s chairman also notes at the much publicized Auto Shanghai 2009 auto show that he sees Geely being a major global brand by 2015.

At the end of the day, many Americans will fear the acceleration in China’s pace of global acquisitions. But there are two key reasons that I’m glad to see this happening. First, history shows that the markets continually weed out the financially weak in a form of financial Darwinism that is as inevitable as the dawn of a new day. And with the financial crisis serving as an extinction-level event, the imminent arrival of Chinese companies on the global scene is an opportunity. It’s also part of the solution however reluctantly people might want to view that. And second, while there will be short-term pain and probably more than a few dented egos in Detroit, I will be glad to see the era of greedy, incompetent and overcompensated executives who summarily fleeced the last of America’s once proud automotive industrial complex for all its worth is coming to an end. It will be nice to see the industry return to doing what it does best – making great cars and great parts even if it ultimately takes on a form that we cannot imagine today

If that happens, we may look back and see that China was, in fact, Detroit’s lifeline.

[Editor's Note: Money MorningInvestment Director Keith Fitz-Gerald has just completed his investing tour of China. His conclusion: Every investor has to have a China strategy. As this essay shows, the global financial crisis has re-written the rules for global investing. It’s also generating a whole host of new profit plays, having created what Fitz-Gerald likes to call "The Golden Age of Wealth Creation." Investors who ignore this "New Reality" will get left behind. But those with the courage and conviction to press ahead could well find this to be the greatest profit opportunity of their lifetime. China’s just one such opportunity. To find out about the others, click here. ]

But there’s now another problem looming – one that could ultimately weigh down the global financial system.

The problem: Europe’s banks.

As economies slow in other parts of the world, rising joblessness and plunging housing prices and escalating loan losses are putting banks under pressure. That’s especially true in Europe, where consumers and companies are continuing to run into trouble.

Royal Bank of Scotland PLC (NYSE ADR: RBS), now 70% state-owned, fell to a loss in the first quarter and wrote down $3.17 billion in risky assets after its bad debts quadrupled to $4.37 billion.

Bank executives “[expect] a slowdown in financial-market activity compared with the very buoyant conditions seen in Q1,” Chief Executive Officer Stephen Hester told Reuters.

In Germany, Commerzbank AG (OTC ADR: CRZBY) had to take a $1.61 billion charge from its investment bank and a $72.38 million charge from commercial real estate initiatives, resulting in a $1.2 billion loss for the quarter.

In late December, the Institute of International Finance released its global economic outlook for 2009, and estimated that banks around the world had collectively lost nearly $1 trillion – $678 billion from U.S. banks and $300 billion from their European counterparts.

That was in December. We know it got worse – a lot worse – for U.S. banks after that point. Thanks to a mix that included lots of government bailout and an injection of new capital from investors, U.S. banks have experienced an improvement in their outlook.

Indeed, U.S. Federal Researve Chairman Ben S. Bernanke stated that the banks tested are all solvent and the results should provide “considerable comfort about the health of the banking system.”

But in the five months since that Institute of International Finance report was issued, it’s  likely that European banks have experienced a major decline in their fortunes.

Last week’s release of the bank stress tests results removed significant uncertainty about the U.S. banks, since it created a blueprint of what the troubled institutions needed to do to stabilize their finances. Morgan Stanley (NYSE: MS) and Wells Fargo & Co. (NYSE: WFC) have announced plans to raise an aggregate $15 billion in capital. Bank of America Corp. (NYSE: BAC) plans to sell assets and issue more common stock after being told by the federal government that it must raise $33.9 billion to adequately guard against “more adverse” economic conditions.

Bank of America was one of 10 banks told by the government to raise more capital following the so-called stress test. The government concluded that BofA faces a potential $136.6 billion in losses from troubled loans and investments in 2009 and 2010. The bank’s $34 billion capital shortfall was more than twice that of Wells Fargo, which had the second greatest capital need.
Are we destined to see this all play out now in Europe?

Market Matters

Shifting back to autos, General Motors Corp. (NYSE: GM) lost $6 billion in the first quarter and is shopping Saturn to Renault SA of France as it moves closer to its restructuring deadline (and potential bankruptcy). China’s Geely Automobile Holdings Ltd. (PINK: GELYF) has interest in GM’s Saab unit, and Fiat SpA (OTC ADR: FIATY) may look to complement its Chrysler LLC line with the German Opel (also late of GM).  Meanwhile, Ford Motor Co. (NYSE: F) claims to be on track with its restructuring plan and still believes it can manage just fine without any government assistance.  On the earnings’ front, The Walt Disney Co. (NYSE: DIS) and Kraft Foods Inc. (NYSE: KFT) bested estimates, while Cisco offered some mixed results as its better than expected numbers actually prompted some profit-taking among techs.

A poorly received 30-year Treasury auction sent bond prices tumbling as fixed income investors focused on the massive programs the government will need to finance over the next few years.  Oil prices surged above $58 a barrel for the first time in six months as traders seemingly failed to consider rising inventory levels and instead bought on signs (feeble as they are) of an economic recovery that would lead to enhanced energy demand.

The Standard & Poor’s 500 Index pushed beyond the crucial 900 level and ended the week in positive territory for the year.  Techs struggled late as investors realized any economic rebound would not translate into capital expenditures overnight.  Still, the Nasdaq Composite Index has outperformed the other indexes on a year-to-date basis.  With stress tests out of the way, where will the next leaks come from?

Economically Speaking

U.S. retailers released same-store sales data for April and the results were actually quite promising.  As usual, Wal-Mart Stores Inc. (NYSE: WMT) led the charge with a 5% increase in activity, while Children’s Place Retail Stores Inc. (Nasdaq: PLCE), Stage Stores Inc. (NYSE: SSI), Gap Inc. (NYSE: GPS), and The TJX Cos. Inc. (NYSE: TJX) were among those stores that posted better-than-expected results and beat analysts’ expectations.  A late-Easter holiday (April instead of March) helped many retailers as consumers waited until the last minute (as has become the norm) for their related holiday shopping.

On the global front, the European Central Bank dropped its key lending rate by 25 bps to 1%, and initiated other monetary moves to stabilize its (16-country) economy.  Likewise, the Bank of England announced a plan to buy up government and corporate bonds, thus, increasing its money supply.

Speaking of the labor market, the U.S. unemployment rate climbed in April to 8.9%; however, only 539,000 jobs were lost from the economy.  The contraction represented the smallest in six months and was below most analysts’ expectations.  Still, since December 2007, about 5.7 million domestic jobs have disappeared and businesses continue to be slow to hire until they see additional signs of greater stability in the economy.

Construction spending climbed in March after five consecutive monthly declines, though the gains were attributed to non-residential activity and the housing sector remains sluggish at best.  In more promising news, the National Association of Realtors reported a 3.2% increase in pending homes sales, the second straight monthly gain.  Because the release is considered a predictive indicator, analysts took it as a favorable sign that sales activity may pick up in the months ahead.

Weekly Economic Calendar

Source: Are Europe’s Banks Next to be Stressed?

• Warren Buffet’s Berkshire Hathaway Inc. (BRK.A, BRK.B) is investing 3 billion Swiss francs ($2.6 billion) in Swiss Reinsurance Co. (ADR: SWCEY ). Swiss Re, which is expecting a net loss, said it is also seeking another 2 billion francs on the capital markets, the Associated Press reported.

• Renowned global investor Jim Rogers said he’s keeping his money out of weakening Russia – saying there is “a good chance Russia will continue to disintegrate into more than one country” in a Bloomberg Television interview. “I am not optimistic about the continuous stability of Russia,” Rogers said.

• Ford Motor Co. (F) is talking with China’s Geely Auto Holdings Ltd. (PINK:GELYF) about unloading its unprofitable Volvo unit, several sources told Bloomberg. Ford has also contacted China’s Chery Automobile Co. and Chongqing Changan Automobile Co. about Volvo, the people said.

• LVMH Moet Hennessy Louis Vuitton SA (ADR:LVMUY) said net income dropped 4.2% to $1.5 billion (1.14 billion euros) in the six months ending in December, missing analysts’estimates for second-half profit, Bloomberg reported.  The world’s largest luxury-goods maker said higher handbag sales failed to offset slumping demand for Hennessey cognac and Moet champagne. The financial crisis has crimped demand for even the most expensive luxury goods, eroding sales in the $230 billion (175 billion-euro) luxury goods market.

• U.K. Prime Minister Gordon Brown signaled he won’t block bonuses to executives at Royal Bank of Scotland Group Plc (ADR: RBS) as lawmakers stepped up pressure to adopt a U.S.-style plan capping pay. While he told reporters he supported President Barack Obama “strongly” on the need to change the way bankers are rewarded, he twice refused to say he’d ban bonuses at RBS, Bloomberg reported.  The U.K. government is taking a 70% stake in RBS after the Edinburgh-based institution tapped part of the Treasury’s 50 billion-pound recapitalization fund.

• U.S. mortgage rates jumped to their highest levels since December this week, frustrating efforts to bring mortgage rates down to levels that will spur demand and help the hard-hit housing market begin to recover, Reuters reported. Interest rates on U.S. 30-year fixed-rate mortgages rose to 5.25% for the week ending February 5, up from the previous week’s 5.10%, according to a survey released Thursday by home funding company Freddie Mac (FRE).

• The National Retail Foundation said current economic stimulus legislation might not do enough to spur consumer spending and repeated its call for a series of temporary sales tax holidays. The retail trade group estimates that the proposed tax holidays would save consumers about $20 billion, or $175 per family, reported. The U.S. government would reimburse states for the lost revenue.  The proposal comes as the NRF forecasts a 2.5% drop in retail sales in the first half of 2009.

Source:  Global Investing News Briefs Friday, February 6th, 2009