Let's face it; the data in the last 2 months have been terrible. Housing starts collapsed in the US, retail sales down, consumer confidence down. In China, 60 million houses do not have electricity bills. In the EU, austerity measures are being implemented at a time when we need more fiscal stimulus.
Here are the scenarios: If the governments of the US, EU and China implement another stimulus, we might avoid a second dip and then face slow GDP growth in 2011. Perhaps 2 - 3% GDP growth in the US, 1 - 2.5% in the EU and 5% in most of Asia. But if the much needed stimulus is not implemented, we can face 1 - 2% in the US, -1 to 1% in the EU and 3% in most of Asia.
The asset classes most able to shelter us from major upheavel are volatility funds like the Amundi Volatility World, emerging market debt funds like Schroder Emerging Market Debt and Templeton Global Total Return funds.
Senate Democrats Set to Pass Extension of Unemployment Benefits
July 20 (Bloomberg) -- Senate Democrats are poised today to break an impasse over financing unemployment benefits that has resulted in aid being cut off to more than 2 million Americans.
With the seating of Carte Goodwin, the successor to the late Senator Robert Byrd, Democrats say they will have the 60 votes needed to overcome stalling tactics of Republicans, who have demanded that Democrats find savings elsewhere in the federal budget to pay for the bill and avoid adding to the deficit.
Democrats, who came up one vote short in their latest bid to extend aid, opted to wait for Goodwin to give them the clinching vote. Senate leaders have scheduled a procedural vote this afternoon to bring debate on the matter to a close, immediately after Goodwin’s seating.
Along with Goodwin, Maine Republicans Susan Collins and Olympia Snowe are expected to vote with the Democrats to end the Republican filibuster.
The legislation, already approved by the House, could clear the Senate today. It would extend through November a program offering the long-term unemployed up to 99 weeks of assistance.
Democrats dropped several other pieces of unemployment assistance amid complaints over the cost, so even with passage of this measure, the unemployed will receive less benefits.
Benefit Reduced
A 65 percent subsidy created last year to help the jobless buy health insurance through their former employers will be allowed to lapse. It benefited 2 million households, according to the Treasury Department.
The measure also would not renew a provision boosting unemployment checks by $25 that was part of last year’s economic stimulus package. Nor would it extend provisions exempting the first $2400 in unemployment aid from taxation. In addition, Democrats have no plan to extend aid to the growing number of Americans who already have received the maximum amount of allowable aid.
The bill comes amid a growing debate over whether the aid extensions are contributing to the jobless rate.
An April report by a pair of economists at the Federal Reserve Bank of San Francisco found that extensions have had a “relatively modest effect” on the unemployment rate, estimating the figure would have been 9.6 percent at the end of last year rather than 10.0 percent without the aid. The unemployment rate in June was 9.5 percent.
White House spokesman Robert Gibbs said yesterday the extension probably won’t be the last. “I think it is fair and safe to assume that we are not going to wake up at the end of November and find ourselves at a rate of employment that one would consider not to be still in an emergency,” he told reporters.
To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net
Last Updated: July 20, 2010 08:49 EDT
Tuesday 20 July 2010
Which Way Forward for BP?
http://www.bbc.co.uk/news/10520619
6 July 2010 Which way forward for BP?
By Laurence Knight
Business reporter, BBC News
BP want some way to draw a line under the Gulf of Mexico disaster and move on
In June, financial markets were briefly pricing a bankruptcy of BP in the next five years as an odds-on probability as a result of the ongoing oil spill in the Gulf of Mexico.
Things are not so bad now.
BP's share price - which had more than halved since the Deepwater Horizon oil rig explosion in April first triggered the company's woes - has staged an impressive recovery in recent weeks.
Yet talk continues to circulate of a possible strategic investor in BP - either as a welcome provider of fresh capital to the company, or an unwelcome opportunist sniffing a bargain.
So what are the options now for BP?
Bankruptcy
On 16 June, the cost of buying financial protection for one year against a possible debt default by BP reached a staggering 10%.
Continue reading the main story “
Start Quote
I think markets are [pricing in] a scenario considerably bleaker than will prove to be the case.”
End Quote
Alan Sinclair
Oil and gas analyst, Seymour Pierce
During those panicky days, credit markets were in effect saying that a BP bankruptcy in the next few years was more likely than not.
Things have calmed down since then, although the oil giant's bonds still trade at prices comparable with companies rated "junk", even though the credit rating agencies have yet to actually stick that ignominious label on BP.
The about turn has been extraordinary. Before its money and reputation began bleeding away in the Gulf of Mexico, the oil giant was considered the safest of blue chip companies, because its debts were so low and its income so high.
"I think markets are [pricing in] a scenario considerably bleaker than will prove to be the case," says Alan Sinclair, oil and gas analyst at stock brokers Seymour Pierce.
He points out that just by cancelling its remaining dividends this year, the company should already have enough money in hand to cover what he expects to be the $6bn (£4bn) direct cost of the clean-up.
That is about double what the company has already forked out to date.
"If you add in all the civil liabilities... I would be surprised if it comes to more than the $20bn they already agreed to set aside," Mr Sinclair adds, on the assumption that the relief wells currently being drilled succeed in stopping the leak in August.
Limited liability
The company could seek ways to limit its liability to the oil spill.
BP
Last Updated at 20 Jul 2010, 07:01 GMT
price change %
396.00 p + +8.15 + +2.10
More data on this share price
There is already a statutory limit under US law for oil spill costs of a mere $75m, but BP long ago waived this limit, as hiding behind it would have been politically untenable.
However, BP had two co-investors in the Deepwater Horizon well - Anadarko of the US and Mitsui of Japan - who together own 35% of the project.
The UK company has called on its partners to pay their share of the spiralling costs, and Mr Sinclair thinks that if it comes to a legal fight, BP would prevail.
The oil firm could also take more active steps to limit its liability, for instance through a selective bankruptcy of its US business.
But this would almost certainly be unpalatable to the company's board, as it would enrage US politicians, including President Barack Obama, and probably cut off the entire US market to BP.
So the political reality is that BP's liability in the Gulf of Mexico remains unlimited, and this continues to weigh down the company's share price.
Strategic investor or acquisition target?
In this context, speculation has arisen that BP may look to an outside investor to provide a capital injection to help cover these costs.
BP Facts
Continue reading the main story Clean-up:
Cost to date: $3.1bn approx
Escrow account promise: $20bn
Shares:
Share price on 20 April (before leak began): 656p
Share price lowest point (on 25 June): 296p (55% fall)
2009 profits: £10bn
2010 dividend: £1.8bn in Q1; Q2-4 cancelled, saving £5.4bn
Debt:
Total debts: £17bn, of which £4.9 due by end-2011
2009 cashflow: £21bn
Credit ratings: A2/A (Moodys/S&P)
Credit default swap spread (5 years): 4.1% per annum
Strategic investors:
Market capitalisation: £65bn (at 345p current share price)
Kuwait shareholding: 1.75%
China shareholding: 1.1%
Data: Bloomberg as of 6 July 2010
Or alternatively it could fall victim to an unwanted suitor looking to buy up the company cheaply on the stock market.
Kuwait is high on the list. It has had a relationship with the company ever since the UK government sold British Petroleum on the stock exchange in 1987.
But Kuwait's involvement in that flotation serves as a useful case study in the politics of such investments.
The Kuwait Investment Authority helpfully bought almost 30% of the company after the sale was almost derailed by the stock market crash.
But the Arabs later came under pressure from Downing Street to give up hopes of a takeover and scale back their investment.
Yet today Kuwait may be the most attractive suitor.
On Monday, Libya voiced interest in making a grab for the company.
Resource-hungry China is also mentioned as a possibility. Its national oil company attempted to buy California's Unocal in 2005, only to be blocked by the White House on national security grounds.
Among fellow oil companies, the names of Exxon Mobil and Shell are also being bandied about.
But the resulting company might be unacceptably big and powerful for US and European anti-trust authorities.
"Even in Europe, the EU would have a fit about the anti-trust implications," says Mr Sinclair of Seymour Pierce.
Asset sales
Indeed, he thinks the entire idea of an investor buying BP itself is questionable.
Libya may be one of the less welcome suitors "Why take on a company that is about to undertake several years of litigation... [with] unquantifiable potential civil penalties?" he asks.
Instead, he points to asset sales by BP as the likely way forwards.
BP could for example spin off US subsidiary Atlantic Richfield to one of its rivals.
Or it could sell individual wells and exploration rights to the Chinese.
This would minimise both political and anti-trust issues, and allow BP's existing management to keep control.
"BP can afford to fork out $4bn a year by selling assets... and being flexible about [capital expenditure]," notes Mr Sinclair.
Phoenix from the ashes?
The last possibility, and one that some market participants may be considering seriously again, is that BP will recover fully from its current debacle.
Having promised to set aside $20bn in a dedicated "escrow" account, some are hopeful there may be a tacit agreement with the White House that this figure will represent a cap on the company's liabilities.
Only time will tell.
6 July 2010 Which way forward for BP?
By Laurence Knight
Business reporter, BBC News
BP want some way to draw a line under the Gulf of Mexico disaster and move on
In June, financial markets were briefly pricing a bankruptcy of BP in the next five years as an odds-on probability as a result of the ongoing oil spill in the Gulf of Mexico.
Things are not so bad now.
BP's share price - which had more than halved since the Deepwater Horizon oil rig explosion in April first triggered the company's woes - has staged an impressive recovery in recent weeks.
Yet talk continues to circulate of a possible strategic investor in BP - either as a welcome provider of fresh capital to the company, or an unwelcome opportunist sniffing a bargain.
So what are the options now for BP?
Bankruptcy
On 16 June, the cost of buying financial protection for one year against a possible debt default by BP reached a staggering 10%.
Continue reading the main story “
Start Quote
I think markets are [pricing in] a scenario considerably bleaker than will prove to be the case.”
End Quote
Alan Sinclair
Oil and gas analyst, Seymour Pierce
During those panicky days, credit markets were in effect saying that a BP bankruptcy in the next few years was more likely than not.
Things have calmed down since then, although the oil giant's bonds still trade at prices comparable with companies rated "junk", even though the credit rating agencies have yet to actually stick that ignominious label on BP.
The about turn has been extraordinary. Before its money and reputation began bleeding away in the Gulf of Mexico, the oil giant was considered the safest of blue chip companies, because its debts were so low and its income so high.
"I think markets are [pricing in] a scenario considerably bleaker than will prove to be the case," says Alan Sinclair, oil and gas analyst at stock brokers Seymour Pierce.
He points out that just by cancelling its remaining dividends this year, the company should already have enough money in hand to cover what he expects to be the $6bn (£4bn) direct cost of the clean-up.
That is about double what the company has already forked out to date.
"If you add in all the civil liabilities... I would be surprised if it comes to more than the $20bn they already agreed to set aside," Mr Sinclair adds, on the assumption that the relief wells currently being drilled succeed in stopping the leak in August.
Limited liability
The company could seek ways to limit its liability to the oil spill.
BP
Last Updated at 20 Jul 2010, 07:01 GMT
price change %
396.00 p + +8.15 + +2.10
More data on this share price
There is already a statutory limit under US law for oil spill costs of a mere $75m, but BP long ago waived this limit, as hiding behind it would have been politically untenable.
However, BP had two co-investors in the Deepwater Horizon well - Anadarko of the US and Mitsui of Japan - who together own 35% of the project.
The UK company has called on its partners to pay their share of the spiralling costs, and Mr Sinclair thinks that if it comes to a legal fight, BP would prevail.
The oil firm could also take more active steps to limit its liability, for instance through a selective bankruptcy of its US business.
But this would almost certainly be unpalatable to the company's board, as it would enrage US politicians, including President Barack Obama, and probably cut off the entire US market to BP.
So the political reality is that BP's liability in the Gulf of Mexico remains unlimited, and this continues to weigh down the company's share price.
Strategic investor or acquisition target?
In this context, speculation has arisen that BP may look to an outside investor to provide a capital injection to help cover these costs.
BP Facts
Continue reading the main story Clean-up:
Cost to date: $3.1bn approx
Escrow account promise: $20bn
Shares:
Share price on 20 April (before leak began): 656p
Share price lowest point (on 25 June): 296p (55% fall)
2009 profits: £10bn
2010 dividend: £1.8bn in Q1; Q2-4 cancelled, saving £5.4bn
Debt:
Total debts: £17bn, of which £4.9 due by end-2011
2009 cashflow: £21bn
Credit ratings: A2/A (Moodys/S&P)
Credit default swap spread (5 years): 4.1% per annum
Strategic investors:
Market capitalisation: £65bn (at 345p current share price)
Kuwait shareholding: 1.75%
China shareholding: 1.1%
Data: Bloomberg as of 6 July 2010
Or alternatively it could fall victim to an unwanted suitor looking to buy up the company cheaply on the stock market.
Kuwait is high on the list. It has had a relationship with the company ever since the UK government sold British Petroleum on the stock exchange in 1987.
But Kuwait's involvement in that flotation serves as a useful case study in the politics of such investments.
The Kuwait Investment Authority helpfully bought almost 30% of the company after the sale was almost derailed by the stock market crash.
But the Arabs later came under pressure from Downing Street to give up hopes of a takeover and scale back their investment.
Yet today Kuwait may be the most attractive suitor.
On Monday, Libya voiced interest in making a grab for the company.
Resource-hungry China is also mentioned as a possibility. Its national oil company attempted to buy California's Unocal in 2005, only to be blocked by the White House on national security grounds.
Among fellow oil companies, the names of Exxon Mobil and Shell are also being bandied about.
But the resulting company might be unacceptably big and powerful for US and European anti-trust authorities.
"Even in Europe, the EU would have a fit about the anti-trust implications," says Mr Sinclair of Seymour Pierce.
Asset sales
Indeed, he thinks the entire idea of an investor buying BP itself is questionable.
Libya may be one of the less welcome suitors "Why take on a company that is about to undertake several years of litigation... [with] unquantifiable potential civil penalties?" he asks.
Instead, he points to asset sales by BP as the likely way forwards.
BP could for example spin off US subsidiary Atlantic Richfield to one of its rivals.
Or it could sell individual wells and exploration rights to the Chinese.
This would minimise both political and anti-trust issues, and allow BP's existing management to keep control.
"BP can afford to fork out $4bn a year by selling assets... and being flexible about [capital expenditure]," notes Mr Sinclair.
Phoenix from the ashes?
The last possibility, and one that some market participants may be considering seriously again, is that BP will recover fully from its current debacle.
Having promised to set aside $20bn in a dedicated "escrow" account, some are hopeful there may be a tacit agreement with the White House that this figure will represent a cap on the company's liabilities.
Only time will tell.
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