Car sales are generally a good indicator of whether people are hanging on to their money; In the fourth quarter of 2008 car sales dropped no less than 23.8 percent. Other goods dropped 1.1 percent.
The new figures come the day after new unemployment figures showed an increase for the fourth month in a row. January jobless figures showed an increase of 5,000 with unemployment now at 2.3 percent.

The Danish GDP for the year 2008 as a whole is negative. And, as yet, there a few signs that the drop in the Danish economy is declining.

©2010 from the hip. All Rights Reserved.

Private and business car sales in November 2008 were halved compared to the same month in 2007, according to the latest report from Statistics Denmark.
Businesses purchased some 3,600 vehicles in November 2008 – 2,200 fewer than in the same month last year. Private purchases also dropped dramatically – from 9,300 vehicles last November to 4,700 cars this year.
The biggest drop has been in vans and heavy vehicles. Sales of vans of between 3 and 3.5 tonnes have dropped by 60 percent compared with November last year.

It is hard to interpret this as caused by anything else than the financial crisis.

©2010 from the hip. All Rights Reserved.

Anyway, here is what Times writes about this issue today:

OFFICIAL figures this week will confirm that the economy has been sliding into recession for months and could show that the downturn is deeper and started earlier than first thought.

Revised figures for gross domestic product (GDP) in the third quarter are set to show a fall of at least 0.5%. Several analysts believe that subsequent information, particularly on the dire performance of manufacturing, will see a sharper quarterly fall of 0.6%.

Whitehall officials are also braced for a revision of earlier data, which could change the timing of the recession.

Economists are getting gloomier about the outlook. The Centre for Economics and Business Research, a consultancy, predicts that Britain will contract by 3% in 2009 and a further 0.7% in 2010, implying a long, deep recession.

Capital Economics, another consultancy, now predicts a fall of 2.5% in GDP next year, with a further drop of 1% during 2010.

This compares with the Treasury’s prediction of a decline in GDP of between 0.7% and 1.25% next year, followed by a recovery in 2010, when it expects to see the economy grow by between 1.5% and 2%.

As you can see, the new figures, as well as the updated outlooks, point in the direction of a recession that is both deeper and of longer duration than has so far been indicated by official sources.

©2010 from the hip. All Rights Reserved.

Statistics Denmark 2007 figures show Denmark to have the highest consumer prices for goods and services in the 27 European Union countries – 38 percent above the EU average.

Number two on the list is Ireland with 25 percent above the average. The lowest consumer prices among the old EU countries are to be found in Greece and Portugal where prices are 11-15 percent below the average.

The lowest prices are to be found in the new EU countries, with Bulgaria coming in at 53 percent below the EU average.

Denmark is also the most expensive country in the EU for foodstuffs and non-alcoholic beverages where Danish price levels are 43 percent above the EU average.

I am sure those numbers are correct. The only country in Europe more expensive than Denmark is Norway, which is not a member of the EU and thus not included in these statistics.

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Wells Fargo will take a $40 billion charge in the fourth quarter for the Wachovia purchase, according to a report from Richard Bove, an analyst in Lutz, Fla., for Ladenburg Thalmann.

Wells Fargo is planning to take care of this by some smart balance sheet adjustments. However, Wells Fargo also has another $10-11 billion in charge due to write downs. That essentially means losses on their own load portfolio.

To fix the capitalization problem that arises, Wells Fargo intends to do a $12.6 billion equity offering and take $25 billion from the government’s troubled assets relief program, among other benefits. However, Wells Fargo is also required to close the $ 15.1 Wachovia deal by the end of the year.

I have a strong feeling Wells Fargo is entering a rough week with on Wall Street!

Also, I am certain there are more skeletons still hiding in the banks’ closets.

©2010 from the hip. All Rights Reserved.

The Fredriksen controlled oil drilling company Seadrill is also negotiating cancellation of four floating oil rigs, valued at 850 million dollars, with the Keppel Fels & PPL yards in Singapore. As well, Fredriksen’s Golden Ocean is negotiating cancellations of some of its ordered ships at yards in China and South Korea.

There is no indication that Fredriksen’s businesses is suffering more than other businesses due to the current crisis. Rather it is assumed that the cancellations reflect Fredriksen’s view that the next few years may be somewhat tougher than the previous years in shipping.

©2010 from the hip. All Rights Reserved.

In one instance, a bank is more or less given to another bank (Lehman), with a promise of public money if the deal is bad. In another case, the government hands out tax payers’ money, but takes a dominant position, so that the tax payers at least get stock in return (AIG). In a third instance, a badly performing bank (in reality, its stockholders) is given a huge cash gift, again from the taxpayers, but with little to show for it in terms of stocks (Citigroup).

Now the new head of the Congressional panel monitoring the bailouts, expresses concerns about the bailouts as well. Lacking strategy is the major concern. New York Times writes:

The head of a new Congressional panel set up to monitor the gigantic federal bailout says the government still does not seem to have a coherent strategy for easing the financial crisis, despite the billions it has already spent in that effort.

Elizabeth Warren, the chairwoman of the oversight panel, said in an interview Monday that the government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan.

“You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.”

It is surprising that more critical questions have not been raised so far. There ought to be a set of principles guiding the handing over of public money to the private sector. Those principles ought to say something about when to do it, what the government should get in return, how assets acquired this way is to be handled, and so forth. As well, there must be consistency from case to case. If these two elements are lacking, government bailouts will sooner or later be challenged, and many will view then as illegitimate. Handing over public funds, giving some companies competitive advantages over others, and so forth, can easily be viewed as highly unfair and inequitable – both by voters and tax payers, as well as by competitors in business – unless the underlying principles are widely accepted and the actions taken are  viewed as being according to and consistent with the principles.

As well, unless the US government figures it has unlimited funds – which is not a reasonable assumption given its staggering debt – there ought to be a larger plan, a strategy, behind the interventions. Even the government may not be able to fill all the holes that needs filling in the next year or two.

So far, the bailouts have some pretty serious shortcomings from these points of view. In my opinion, that is.

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My understanding is that the government has agreed to pump 20 billion US dollars into a company that that had a market cap of less than $21b on the Friday before the deal, and then only getting a single digit share of its stocks? That really has to be the worst deal for the taxpayers ever, and a clean gift of tax money to Citigroup’s shareholders? I mean, they could have bought a larger share cheaper on the market? At least 5 times bigger?

Second, for guaranteeing $250 billion of risky assets the government acquired the right to buy C stocks – that is, warranties – for 280 mill dollars at a price of USD 10.64. But the stock price was 4 dollars. Who else would want to buy warranties, linked, as in this case, with the risks associated with 250 billion of bad loans, at a strike price 2.5 times the price of the stocks in the free market? That, to me, seems simply wild. It really means the bad loan insurance if for free, and that the government has acquired some badly priced warranties.

Thirdly, by insuring the bad debt of Citigroup, the government also has created a competitive situation where C can now borrow money at lower rates than its competitors. That is, in competitive terms, the better performing banks have been twice punished – first by not getting the same gift and then by having to compete unfavorably by a bank they outperform every day of the week.

All this seems to me to indicate a level of unprincipled thinking by the government and its negotiators almost beyond my grasp. I totally understand Citigroup. They mucked it up, but then made a good save. Well done boys, I say to them! You rock! But the government, they are harder to understand. Their solution is bad and does not follow the pattern of earlier bailouts. And clearly, this also is a type of operation that can’t be repeated over and over, which means others can’t expect similar treatment in the future. So, we can’t expect this to be a new type solution that will be followed consistently in future cases.

So – lack of principled thinking and consistency in the government’s policies (compare it to the AIG bailout), giving tax money to shareholders, creating a competitive advantage for a bank that frankly has performed among the worst in its class, and giving one bank among the thousands of US banks something others do not get.

Spending tens of billions of taxpayer money and seemingly giving it away, and without any tracy of consistency in the behavior underlying the actions nor any traces or principled thinking. That is a tall order. And yet – there is hardly one – I repeat ONE – critical voice in the media. Not in Wall Street Journal, not in New York Times, not in Washington Post. So what is happening? All they all scared stiff by the recession? They too?

PS (12/04/08): New York Times today  wrote an article entitled Vikram Pandit Scores a Great Deal for Citigroup. They write:

as further details emerge on Citi’s government bailout, Mr. Pandit seems to have pulled off a truly fantastic deal.

Some details still haven’t been disclosed, and some haven’t even been entirely nailed down. So piecing together what is going on is a bit like solving a Rubik’s cube with some squares missing, Breakingviews notes. But judging from what has been made public, Mr. Pandit has shuffled off to Uncle Sam much of the downside in Citigroup’s $306 billion portfolio of riskier assets for what looks to be a low insurance premium, according to the publication.

See the story at The Daily Beast! It is pretty outrageous, actually. A commenter on the NYT article writes:

Inside sources have the value of Citi’s $306 billion portfolio at closer to $230 billion. That means taxpayers are locked in for a transfer of wealth of (306-230) x 90% (Citi takes 10% haircut – $29 (Citi takes first $29bn) = $42.3 billion. Taxpayers because of the incestuous Goldman Sachs relationship between Paulson and Rubin have forked over $42.3bn!!! to Citi shareholders. This is highway robbery and should be investigated at the highest authorities and be ultimately rescinded.

See also: Time Magazine: Why Government Intervention Won’t Last

©2010 from the hip. All Rights Reserved.

Citigroup was the world’s biggest bank until February, when it was overtaken by the Industrial and Commercial Bank of China. Citigroup is now only the fifth-biggest in America, after falling behind US Bancorp, a Midwestern commercial bank, this week. Bank of America is the largest bank in the United States.

By now, this kind of rapid decline in value is a story we have seen before. We saw it with Lehman Brothers. We’re seeing it with GM and Chrysler. And others. in fact, in quite a few other cases.

And now the question is: Should government bail out Citibank or let it slide? The proponents of a rescue operation say that Citibank it too big, one can not let it fall. And they point out that if Citibank goes, the banking system will fall. And we have heard all those arguments before. We have, in fact, heard them every time there is a government bailout. As well, we have heard them repeated over and over by lobbyists for all those industries allegedly needing a bailout. (Just so that it is said, I have nothing against Citigroup, nor do I own or have traded its stock. And the argument I am trying to make is more general and applied to a large number of corporations, and not only to Citibank.)

But does that make the statement true? I think not. First, there is a difference between a bank and a system of banks. Letting a bank fail (Citibank has a positive cash flow, so it may not fall, but that’s not the point here) may actually strengthen the system of banks, as the bankruptcy process will weed out the gold from the dirt and clean the system of debris. As well, three Detroit car manufacturers, unable to cope with competition and having lost marked shares for 20 years, do not constitute the car industry – not in the world, not in America.

All those attempts to equate individual members of industries with the industries themselves are seeking to establish false identities between entities that simply are not identical.

The real question, to my mind is: If this depression is as deep as or deeper than the crisis in 1929, does the American government – or any government for that matter – really have the resources it takes to bail out every business deemed to be strategically important over the duration of this crisis? I think not. Not if government is also to continue to attend to its (their) core business – to provide regulation, defense, social services, health care, and all those other businesses.

This, I think, is likely to be the right perspective in which to view government intervention at this stage. And, if I am right, shelling out huge sums on failing businesses may reduce the ability to act in the future, possibly for greater benefits and facing even tougher challenges. And maybe, just maybe, the crisis is as much a political crisis – involving politicians and regulators in panic, deepening the crisis with every move they make – as a financial and banking crisis.

©2010 from the hip. All Rights Reserved.

The drop in prices comes as stock and bond markets fell because of fears about the health of the financial system, and a flurry of new indicators showed how badly the economy was faring.

Just as a booming global economy had steadily driven up commodity prices for six years, the current meltdown means the world needs less oil, and is sharply driving down prices.

It is a stunning — and sudden — reversal that has taken aback many experts. Oil futures on the New York Mercantile Exchange fell $3.04 to $50.58 a barrel in morning trading. At one point, crude oil was down $3.71, to $49.91 a barrel. Oil futures have lost more than two-thirds of their value after settling at a peak of about $145 a barrel in July.

Some analysts predict oil could fall to $30 to 40 a barrel as the world economy worsens.

Also, the dollar is for the moment strengthening in international markets.
Another sign of the strength of the oncoming depression?

See also: Times: Shares fall as US jobless adds another 542,000

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