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Overnight Open Thread | Main | Top Headline Comments 6-14-10
June 14, 2010

Monday Financial Briefing

Some rare economic good news! Production rises while prices fall, particularly in the American manufacturing sector. Unfortunately, this doesn't help the jobs picture much as the production gains come mostly from automation and efficiency gains in the supply and delivery chains.

Stock futures were up slightly over the weekend, meaning that the markets may be able to consolidate some of the gains from late last week.

More after the jump.

What's it going to be, then, deflation or inflation? Answer: first one, then t'other.

It looks like US companies are taking a page out of the AoSHQ book and building a pirate-hoard of cash. Which is one reason that credit right now is relatively tight: everyone is sitting on their cash rather than lending it out.

The G-20 is due to meet in Toronto later this month, and the forecast is lightning and thunder. The European financial crisis will get most of the attention, but much is expected to be made of China's continuing peg of the Yuan to the US dollar, which is causing "serious imbalances in world trade". US rhetoric against Chinese currency manipulation has been sharpening for months, and could be the opening salvo in a trade war if things continue to deteriorate.

The Chinese have long had an advantage over the west in having a more docile work force, but that might be beginning to change. If the wage-advantage of Chinese businesses begins to erode, then so does the rationale for siting factories in China rather than, say, Vietnam or India. I don't see China's authoritarian rulers letting the workers get too sporty before they crack down.

Spreads on European corporate bonds are at an all-time high versus their American counterparts, reflecting continuing investor concern that the debt crisis will retard European growth in years ahead.

BP will discuss the status of its dividend today. Most observers expect BP to suspend payment of the dividend for this quarter at least. This will hurt some pension funds in the short-term, but the real fear is that ongoing liabilities over the Gulf oil spill will force BP to abandon the dividend entirely, which would blow a huge hole in British pension funds and other investment vehicles. BP's stock did recover a bit of ground at the end of last week, but a suspension of the dividend would likely send share prices down again. The United States is pressing BP to create an escrow fund for the oil-spill cleanup, but there is no consensus on the amount that will be needed. The scope and impact of the spill is still to be assessed, even as oil continues to leak from the broken undersea pipe. (There might be substantial damage to the well below the sea-floor, which could make the leak exponentially more difficult to stop.)

A pilot strike has crippled Spirit Airlines, a regional carrier that operates out of Florida. It is the first strike at a passenger airline carrier in five years. This may only be the leading edge of a wave of union "job actions" in both the public and private sectors as the extended financial downturn forces employers to cut back on work-hours and personnel.

The WSJ reports on the FDIC's efforts to sell the assets of failed banks. Pull quote:

After the savings-and-loan crisis, the Resolution Trust Corp. sold 89% of the $453 billion in assets it got from 747 failed financial institutions in the late 1980s and early 1990s. In comparison, the Federal Deposit Insurance Corp. is selling just 11% of the assets inherited from 246 banks and savings institutions that collapsed amid the industry's current woes.

Foreign-currency swaps might work better than reserves in terms of preventing shortages. Of course this depends on the ability and willingness of the various banks to swap their foreign-currency stock.

Many Germans still pine for the Deutsche Mark. Make of the story what you will.

Oh, and California? Every action they take to un-bone themselves only increases their boned-ness.

This message brought to you by Gold, bitches!

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posted by Monty at 07:06 AM

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