AnomaLee (29.23)

Crowded Out

March 10, 2009 – Comments (4) | RELATED TICKERS: WAT

I hate crowds. Unless, they're like the one above from the Liverpool Street Station in London.

1. Crowded Out - Credit Conundrum
2. Libor Paints a Different Picture
3. Where's the Water?
4. Japan and The 30 Year Reversal
5. Weighed Down

1. Crowded Out - Credit Conundrum

Unlike the video above the only ones in the crowd that are dancing are the government. Purchases of treasuries over agency and private debt has continued to accelerate over the past three months. 

Central Banks Are Still Buying Large Quanitites of Treasuries (Link) - Brad Setser

Junk Bonds Selling Accelerates

Anomalee: Do not be head faked by the stock market when the bond market and credit market remain dysfunctional

2. Libor Paints a Different Picture

Three-Month Libor for Dollars Increases for 11th Day
March 10 (Bloomberg) -- The cost of borrowing in dollars for three months in London rose for an 11th day as banks sought cash to cover their commitments through the end of the first quarter.

The London interbank offered rate, or Libor, that banks say they charge each other for such loans climbed two basis points to 1.33 percent, the highest level since Jan. 8, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, increased to the most since Jan. 9.

Banks are balking at lending amid a squeeze on cash toward the end of March on concern more financial institutions will need to be rescued by governments following almost $1.2 trillion of writedowns and losses since the start of 2007. Italy’s Banco Popolare SC today became the nation’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7 in return for state-asset guarantees.

Anomalee: Again, do not be head faked by the stock market when the bond market and credit market remain dysfunctional 

3. Where's the Water?

Water in California - Dust to dust
The trouble is that there is not enough water to go round. Snow levels in the Sierra Nevada mountains are below normal for the third year in a row. Judges have curtailed pumping in order to protect the delta smelt, a small, endangered fish. Last month Westlands Water District, in which two-fifths of Mr Errotabere’s land lies, learnt that it would get no water from the federal canal this year. (The district may get a trickle if the rain is good in March.)

This would be an economic catastrophe even if California were not already mired in a deep recession. As farmers take land out of production, employment falls and the price of some crops is likely to rise. Small farming towns like Huron, which appear rickety at the best of times, are now desperate. Crowds of young Hispanic men loiter on street corners in the middle of the day. But the drought is also forcing changes that will help agriculture in the long run.

Farmers like Mr Errotabere have begun to use water more efficiently, dripping it through perforated hoses rather than flooding fields. There is a growing market in water trades between farmers. Most important, the state has set up a water bank. Farmers north of the Sacramento delta, many of whom grow rice, can offer to keep fallow their least productive lands and sell water to cities and needy farmers farther south. The contracts are still being negotiated, but the price to farmers in the Westlands Water District is likely to be close to $500 per acre-foot—that is, the amount that it takes to flood an acre of land a foot (30 cm) deep. It is more than three times the sum that farmers paid last year.

Anomalee: One of my favorite businesses is Ameron International(NYSE: AMN)
I haven't done a thorough report on the company since early last year, but I intend to post a review of their annual report, finanical standing, and a little SWOT analysis very soon.

4. Japan and The 30 Year Reversal

Rebalancing act - A long era of current-account surpluses may be ending
JAPANESE households used to be among the world’s biggest savers and, as a result, the country ran a massive trade surplus. But no longer. They now save less of their income than American households, and Japan’s trade balance moved into deficit last year (see top chart). A long-overdue—and painful—economic rebalancing is under way.

Japan has had a current-account surplus in every year since 1981, because of a surfeit of domestic saving over investment. However, the saving rate of households has fallen from 18% of income in 1980 to an estimated 1% last year (see bottom chart). It may have edged up slightly over the past few months, but it is almost certainly lower than in America, where the saving rate jumped to 5% in January as falling wealth and tighter credit caused consumers to pull back.

The fall in saving is exactly what the “life-cycle hypothesis” would predict. People like to smooth consumption over their lifetimes, so during their working years they spend less than they earn and accumulate wealth, which they then draw down once they retire. The more retired folk there are relative to the number of workers, the lower the saving rate will be. The ratio of Japanese aged over 65 to those of working age rose from 14% in 1980 to an estimated 34% in 2008. It is forecast to increase to 49% by 2020.

Anomalee: It's very obvious that a long ~30 year cycle that coincides with the destruction of the Bretton Woods system is now ending. Japan has been reducing its purchases of U.S. debt for several years now. China has surpassed Japan. Contrary to many theories I believe that Japan poses a greater risk over China of dumping U.S. assets

5. Weighed Down

Government Debt
AMERICA, Britain and China are among the many countries that have adopted spend-now-pay-later policies to stave off economic disaster. But giant fiscal stimuluses, tax cuts and bail-outs are weighing heavily on public finances. In a paper prepared for the forthcoming G20 summit, the IMF sets out new forecasts for government debt. Japan's debt burden, which is already the largest of the world's big economies, will reach a sumo-sized 225% of GDP in 2010. Rich countries' debt is set to grow from 83.3% of GDP in 2008 to almost 100% in 2010. Developing economies will see much smaller growth from 35.7% to 37.8% in two years, but these countries also have lower debt tolerance than rich ones.