News Review

In these consequential times, there continue to be any number of reports comments from across the Web upon which to report.  These are predominantly from yesterday.  

First, from a Japan the stock market of which is surging, some record-low business readings (from RGE Monitor, subscription required):

• The closely-watched quarterly Tankan survey (Japan business outlook), released in March, showed sentiment among Japan’s largest manufacturers fell to a record-low
• The BoJ index gauging sentiment among big manufacturers slid to minus-58, more than double the minus-24 in the previous quarterly survey 
  
• This signaled companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession
• Development in Tankan survey is consistent with a sharp contraction in the Japanese economy driven mainly by weak exports and corporate capital expenditures
• Big manufacturers expect to slash their capital spending by 13.2% in the year to next March, a much bigger drop than the previous year’s 2.4%
• Tankan suggests GDP will contract sharply in Q1.

Next, some disquieting commentary from the Online WSJ re the PPIP:

Treasury's Very Private Asset Fund

The investment community was already suspicious last week when Secretary Timothy Geithner unveiled his plan, announcing that Treasury would select four or five companies as "fund managers" to purchase toxic securities. Given that the whole idea is to create a liquid market for these assets, we'd have thought Treasury would encourage as many players as possible.

But the bigger shock was when Treasury released its application to become a fund manager, a main rule of which is that only firms that already have a minimum of $10 billion in toxic securities under management can apply. Few hedge funds, private equity players or sovereign wealth funds come near this number. The hurdle would bar many who specialize in the very distressed assets that the Obama Administration is trying to offload from banks. . .

"This is ugly," says Joshua Rosner, the managing director of Graham, Fisher & Co., an independent research firm. "As long as they are experienced, there is no rational reason for creating limitations on who becomes a bidder and manager of assets. It doesn't serve the public good, though it may serve those few large firms that appear to have a privileged relationship with Treasury."

We have no idea if Treasury is playing favorites, but it certainly doesn't look good. All the more so given that some of these big players may have consulted informally with the Obama Administration as it was writing the plan. Not to mention that the big asset management companies that are most likely to land plum fund-management jobs are also the ones that have been most vocally praising the Treasury plan. (Treasury declined to comment.)

None of this bodes well for the bank rescue.

The banksters appear ready to party again.  Bankster-in-chief Geithner already has had enough of conservatism:

Geithner’s remarks reflect the view of some analysts that the worst of the economic downturn may be past, even as some banks are likely to fail and unemployment is set to worsen. The Treasury chief said the main danger is that banks and investors take too little risk and refrain from betting on a recovery.

One wonders if this is prudent advice.  Outside of a truly innovative product, what is in short supply that requires "betting"?  What about old-fashioned investing rather than gambling?

Meanwhile, Bloomberg.com had an interesting slant re the old debate about how much did Greeenspan mess things up while running the Fed, in (title misleading; Hitler of no real relevance to the article):

Hitler’s Specter Inspires Bill White to Battle With Greenspan

April 1 (Bloomberg) -- William White’s tussle with Alan Greenspan is spilling into their retirements as world leaders meet in London to try to prevent the next financial meltdown.

White challenged the former Federal Reserve chairman’s mantra that central bankers can’t effectively slow the causes of asset bubbles when he was chief economist at the Bank for International Settlements.

As heads of state gather for tomorrow’s Group of 20 summit, several former central bankers and regulators are advising them to advance the same arguments White has made for more than a decade: raise interest rates when credit expands too fast and force banks to build up cash cushions in fat times to use in lean years.

“We started worrying about this at the same time that Alan Greenspan started worrying about irrational exuberance” in 1996, said White, a Canadian who has remained in Basel, Switzerland, since retiring from the BIS in June. “The difference was he stopped worrying about it, or at least he stopped worrying about it publicly, and we didn’t.” . . .

“There has never been an instance, of which I’m aware, that leaning against the wind was successfully done,” Greenspan, 83, said in a Feb. 27 telephone interview. He added that spotting a bubble is easy. What’s hard is predicting when it will pop.

In fact, Greenspan used to say that bubbles could only be recognized in hindsight.  The old Fed from the 1950s used to stop bubbles from forming and popping by famously taking away the punch-bowl before partiers got drunk.  But that was when America was an exporting power, both in terms of capital and physical products; in other words, financial engineering had been deemed a failure given the Depression experience.  Given the obvious incorrectness of what Sir Alan is reported above to have said that leaning against the wind has never been successfully done by the Fed, we can only hope that he is not suffering from the early stages of dementia.

  Meanwhile, back on the home front, not all is going as advertised with the administration's plans to prop up the economy:

Federal Plan to Aid Small Businesses Is Flawed, Lenders Say

Officials Call It a Work in Progress

Two weeks after President Obama announced a $15 billion initiative to spark lending for small businesses, every major provider of these kinds of loans says the plan will not work as designed.

The conditions attached to the program, which require these financial firms to surrender ownership stakes to the government and limit executive pay, are so off-putting that these companies say they will not participate.

Industry officials and congressional sources said these issues were raised with the administration before the small-business initiative was unveiled. Nonetheless, administration officials accelerated the announcement, moving quickly to show they were using financial rescue funds to aid not only big Wall Street firms but Main Street businesses as well, sources familiar with the matter said.

Administration officials acknowledge the initiative is not yet ready and say they are reworking the proposal.

On the day of the unveiling, Obama said: "We will immediately unfreeze the secondary market for SBA [Small Business Administration] loans and increase the liquidity of community banks."

Oh well.  Just so Big Finance gets its gifts.  

While some stabilization at very low levels of production is occurring in auto and home sales, this is at an amazing cost to the Feds re Fannie/Freddie subsidies and from auto makers and dealers, using our money as well:  (from a Bloomberg.com article today) -

Annualized industry sales of cars and light trucks in the U.S. are forecast to fall below nine million in March, compared with 9.12 million in February, which was the lowest sales figure since 1981.

To jump-start sales, U.S. auto makers offered, on average, a record $3,169 in incentives on each vehicle sold in March, said car-shopping Web site Edmunds.com. The figure represents a jump of $733, or 30.1%, from a year earlier and $171, or 5.7%, from February.

Meanwhile, it is harder and harder to find a bear remaining, now that Doug Kass has grown horns and is snorting away.  

Many is the earnings season that has disappointed the bulls.  One would want to think that all the bad news is priced into stock prices.  On that front, there will be greater clarity in the very near future.

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