Thursday, April 6, 2017

L Brands Report Seen as Reason for Hope

Stock traders are so discouraged about U.S. retail that a report from Victoria’s Secret parent company L Brands pointing to a 7 percent decline from the year before was strong enough to lift the whole sector. L Brands stock is down 28 percent from the start of the year and the news was not quite as bad as that. The L Brands report came days after trade reports from the U.S. and China showed a sharp drop in exports from China to the United States. It is a metric of significance to both countries. China is the largest supplier of manufactured goods to the United States. The United States is the largest buyer of exports from China.

Wednesday, January 11, 2017

Bitcoin Declines on Central Bank Scrutiny

China’s central bank is talking about heightened scrutiny of bitcoin exchanges. Just the mention of regulatory oversight was enough to send the value if bitcoin tumbling. Compared to the U.S. dollar, bitcoin fell 12 percent in about one day. The 12 percent move is not the crisis that a comparable move would represent in a national currency — bitcoin is more volatile by nature — but it is an indication of how much of bitcoin activity involves businesses that want their dealings to go unnoticed.

Thursday, January 5, 2017


Smog is the story of this month in China, with a “fog alert” in the early days of the month worsening to the point that the government issued a national air pollution alert. The smog was already so bad two weeks ago that some airplanes couldn’t land. By yesterday visibility was bad enough to disorient pedestrians in multiple northern cities. The pollution problems come in spite of a well-publicized central government initiative to reduce industrial coal use by one third. Eventually the wind will change direction, but the persistent pollution problem makes me wonder if China’s level of manufacturing activity already exceeds what the land area can properly support.

Tuesday, January 3, 2017

Ford Cuts Capacity

Ford has decided not to build a new $2 billion factory in Mexico. This is not merely a question of location but has more to do with the question of manufacturing capacity. The U.S. auto industry got burned nine years ago by building too much capacity for anticipated demand that never materialized. Now they are doing the same thing again — but the furloughs that cut across the industry starting last month are making them wonder if they have made a wrong turn. By not building too much unneeded capacity in 2006 and 2007, Ford weathered the crisis of 2008–2009 without the need for bankruptcy. The decision not to build a whole new facility this year will surely look like a smart decision by the time the year is over.

Sunday, December 25, 2016

Avoiding a Cash Crunch

China’s central bank said the country needs to be careful to avoid creating an artificial liquidity crisis. Regulation is needed to avoid excessive borrowing and lending and the speculative bubbles that can result. Rules that were too broad, though, could cut off legitimate lending forcing businesses to slow down operations in a cash crunch. The comments came in an op-ed published today.

Wednesday, December 21, 2016

US Auto Furloughs

A slowdown in US auto sales is another sign of decline in global manufacturing. US automakers are furloughing thousands of workers for the next few weeks as they face 2017 with excess inventories not seen since the bankruptcy year of 2009. Auto sales are down from 2015 in most of the world, but spiking in China as consumers buy before the expiration of a tax incentive.

Thursday, December 8, 2016

Shadow Banking Hides Bank Loans

Shadow banking is in focus again as banks try to hide loans from regulators. Large business and real estate loans by Chinese banks have come under heightened scrutiny with regulators and central planners trying to rein in a two-year credit binge. Banks have responded by setting up shadow companies in order to disguise some $2 trillion in loans as investments. In this scheme, the bank records its interest as an investment in a shadow banking fund or company. The fund, in turn, holds the loans to real estate developers, factories, importers, and other borrowers. It’s a mechanism for banks to get around reserve requirements by reclassifying loans as investments. This is laid out in detail in the Fortune story “China’s Credit Binge Has Driven Its Banks to Hide $2 Trillion in Loans” [ ]. The off-balance-sheet risks make the financial system more brittle at a time when the central bank has promised there won’t be any bailouts.