Monday, November 03, 2008

Monday's economic notes

What's on the docket for the start of this week?

We've got: credit card losses at Citigroup, a credit card crisis for America, movers and shakers in the hedge fund world, another deflation scare in a time of likely rising future inflation, a US manufacturing slowdown, an interview with Jim Rogers, and a citywide construction halt in Chicago, my hometown.

Oh, and there's that election that's been attracting some attention...

All this and more, in Monday's economic & market notes.

1. "Citi says credit card losses may rise through 2009" - MarketWatch.

"...Citigroup said that it lost $1.4 billion in the third quarter from credit card securitizations and that it expects such losses will continue, possibly reaching record levels in 2009.

The result compared to a gain of $169 million from credit card securitizations in the year-earlier period.

"Credit card losses may continue to rise well into 2009, and it is possible that the company's loss rates may exceed their historical peaks," the banking giant said in its filing with the Securities and Exchange Commission late Friday..."

This problem is bigger than Citibank; see the next article.

2. "US braces for next crisis: Credit cards" - Domain-b.

"The defaults that started with the sub-prime loans crisis in the US leading to a global $7.7-trillion loss in stock market value since October, are now showing signs of moving into the US credit card industry that will hit the balace sheets of the card issuing banks.

Reports indicate that a substantial portion of of the 158 million US card holders using 1.5 billion cards have started defaulting and banks had to write of approx $21 billion in bad credit loans in the first six months of this year and expect a further loss of $55 billion in the next 12 months.

The mortgage crisis has been the focus of the US public, media and the government alike that no one noticed or too tired to view the oncoming of the next shockwave – credit cards, as the lethal combination of mortgage losses and now the surge in credit card defaults has the potential to bring the entire US economy to its knees."

It's untrue that "no one noticed" this looming problem with credit card debt. I have been reading reports on the looming credit card defaults and the problems that are likely to follow for months now.

Any thoughts from readers on the severity of this latest wrinkle in the US' economic picture?

3. "Embedded inflation reduces deflation threat" - FT.

"The D-word is back. Five years after the last deflation scare, economists are again debating whether the US and other industrialised nations could see sustained declines in consumer prices.

Some go as far as to predict that much of the industrialised world might soon resemble Japan in the 1990s, with interest rates at zero, falling prices and no economic growth."

Yeah, we heard this sort of thing nonstop during 2002 and early 2003. It turned out to be nothing more than a scare-tactic cover for pumping up the nation's money supply, which by the way, helped fuel our now infamous housing boom/bubble and the resulting "bubble economy".

4. Greg Coffey to join Louis Bacon's Moore Capital - FT.

"Greg Coffey, the star hedge fund manager who gave up about $250m (£155m) of bonuses and stock options at GLG Partners to pursue an ambition to set up his own fund, has instead opted to join one of the industry's most successful figures.

After leaving GLG last week, Mr Coffey yesterday announced he was joining Louis Bacon's Moore Capital as co-chief investment officer alongside the American who made his fortune taking big bets on macro-economic trends in the 1990s.

Mr Coffey, 37 and an Australian, announced in April he would leave GLG, one of the biggest hedge fund groups. His decision to join Mr Bacon comes as the hedge fund industry struggles with a combination of market turmoil, increased pressure from lenders and heavy redemption demands from investors."

I was wondering lately what Coffey would wind up doing, given the state of the markets and the current cloud over the hedge fund industry. More on this at the Journal.

5. "Manufacturing screeching to a halt" - MarketWatch

"In the clearest evidence yet that the economy has fallen into a deep recession, U.S. manufacturing firms are offering their grimmest views on the economy since the early 1980s.

Not only is domestic demand still weakening significantly, but export growth has ground to a halt, according to the highly regarded Institute for Supply Management index released Monday."

If hedge funds, financial firms, and manufacturing are all doing this poorly, then you know we are well into a recession.

6. Our skyline on pause - Chicago Tribune.

"In the wake of the global credit crisis, Chicago's once-superheated skyline—radically transformed during the last 10 years by one of the greatest building booms in the city's history—is on the verge of being frozen in place.

With future projects on hold, the construction cranes that symbolize the city's vitality gradually will disappear. There will be less outlandish architecture for the city's boosters to crow about. Chicago, which prides itself on skyscrapers that combine the soaring artistry of the architect and the cunning ambition of the developer, will lose some of its swagger.

How long the freeze will last is hard to predict. But it's clear that a chill has set in. And the trend reaches beyond the halt in construction on two supertall skyscrapers, including the twisting Chicago Spire that promised to soar 2,000 feet above the city's lakefront."

Oh well. The Hancock building is enough for me.

7. Obama, McCain race through swing states - Bloomberg.

8. Crisis creates opening for FDR-like economic overhaul - Bloomberg.

"No matter who wins the election tomorrow, the new president is likely to create a vastly larger economic role for the government. He'll also permanently alter the relationship between financial markets and Washington, finish the job of reshaping the U.S. banking system begun under Bush, and -- like it or not -- will probably go down in history as the biggest deficit spender ever."

This will not be a good thing, despite loud calls for government intervention.

9. Jim Rogers joins Bloomberg TV to talk about markets and the economy.

Watch this clip to understand why the above proposed government "economic overhaul" is the worst idea possible. Plus, a few investment ideas from JR.

You're up to date! Join us tomorrow for more on the elections and the markets.