TFN eNews 11/25/2009: “Reverse strike” — The new labor paradigm?
Published via e-mail broadcast on November 25, 2009
In today’s TFN eNews:
* The Chinese banking bubble
* Washington vs. Wall Street
* Reverse strike
Dear TFN eNews reader,
The China Banking Regulatory Commission again reminded banks to set aside money to meet a capital adequacy ratio of 10% and to cover 150% of non-performing loans (NPL).
A timely reminder, if you ask me. Beijing has pumped billions in new, government-subsidized loans into the economy in the first 9 months of the year alone. That may seem like chump change compared to the tally the Zinfandel socialists in Washington are running up. But consider that the average annual per capita income is less than $2,000 for urban Chinese — and less than $500 for those in rural areas.
So who is receiving the billion ins in new loans?
Businesses, for the most part. Especially those with good connections to the government and the government-run banks. Even in today’s mercantilist China, this means people with good connections to the Communist Party nomenklatura.
A lot of this money has gone into pushing up domestic demand. Large chunks are being used to buy assets from abroad — both resources and businesses. But untold billions have leaked into speculation on property and stock markets.
This is nothing new. As far back as 2005, I’ve been warning against the brewing NPL crisis in China. In fact, I calculated the whole mess would collapse in the summer of 2009. The U.S. subprime-triggered collapse beat me to the punch. But Beijing’s stimulus generosity has made things more precarious than they were even a year ago.
Officials are now joining the dawn chorus of croakers warning that asset markets are spiraling out of control, creating dangerous bubbles.
The four largest Chinese banks — in fact, ICBC is now the world’s single biggest bank! — are looking at ways to rebuild their capital base.
For the time being this may put a lid on Shanghai’s stock market leaps and bounds. We may be seeing a large number of additional share offerings originating in China as early as spring 2010.
*** A number of Washington’s “economic recovery” programs are up for renewal these days. Since the last round worked gangbusters, what could possibly go wrong?
TARP, the housing stimulus, and all sorts of unemployment benefits have been or will be extended. I’m surprised we haven’t seen the resurgence in Cash for Clunkers yet. To pay for it, our resident geniuses in Congress have thought up a new scheme: Make it more costly for businesses to raise capital in the markets by taxing Wall Street to the tune of $150 billion annually.
Here’s the punch line: Making investing less attractive by increasing cost is supposed to ‘help create new jobs’. That’s why it’s called, get this, ‘Let Wall Street Pay for the Restoration of Main Street Act of 2009.’
Cynics might say that all these extensions and new programs are a surefire signal that all is not well in the economic world. And that Washington had absolutely no idea what it was getting itself into as it spent nearly three trillion dollars to supposedly ‘rescue’ the nation’s economy. No wonder gold prices are hitting new records day after day. By the time Washington is done, nothing “American” will have any intrinsic value left.
No wonder gold prices are setting new records every day!
*** No surprise here: “I’m no fan of unions,” writes TFN’s Andrew Snyder. “They had their time and place, but now that America’s economy is about as robust as Mark Sanford’s political career, it’s time for them to find a comfortable spot amongst the history books.
“But sometimes organized labor does something right. It doesn’t happen very often. For Harley Davidson (NYSE:HOG), unions have been a thorn in its side. The problems are almost mirror images of the woes in Detroit: Not enough flexibility, high wages, top-notch benefits, and a constant threat of a strike.
“This economic downturn is just what the motorcycle maker was prayer for. It gave the company all the leverage to say shut up or get out. More specifically, Harley told the union ‘Shut up or we’ll get out’.
“The company’s largest manufacturing facility is located in York, Pennsylvania. The union’s current labor contract is set to expire early next year. Knowing the company had a major battle brewing, executives went proactive. They started a search for a replacement factory, one with better technology and, more importantly, a cheaper workforce.Call it a reverse strike: Sign the contract or the factory walks.
“Nothing has been signed just yet, but there’s a very good chance York’s union will vote in favor of ratification on December 2. When it does, Harley shareholders will be in a good spot.
“I got a peek at the contract last week. It gives the company just what it needs… flexibility. While pay remains an issue, Harley has no problem paying top dollar if it means high-quality workers. Harley will be able to cut the factory’s headcount nearly in half, saving massive annual labor expenses. The new contract also calls for Harley to put about $90 million into modernizing the current facility. While it will be an added line on the expense sheet, you can bet executives are counting on a quick payback.
“I wish I could claim to be the only investor watching the action unfold, but I’m not. Over the last few days, shares of Harley have climbed steadily, sending shares to new 52-week highs. Over at TFN Strategic Trader, we took full advantage of the action. Last Friday, we entered a set of the company’s December call options.
“And yesterday, we sold them for quick-and-easy gains of 60%.”
I have a feeling we’ll be seeing more opportunities like this in the next few months.
Happy Thanksgiving to all who will celebrate this holiday tomorrow. We’ll be back with the TFN eNews this Friday!
*** SPECIAL OFFER: Northeastern University’s Master of Science in Finance:
Fully online, 16 months, AACSB accredited. Visit: http://onlinemsf.neu.edu/finance-online
*** TFN Insider Report:
TFN eNews readers report on the actualities of their economic environment:
“Here in Gainesville, FL, it’s all about the University of Florida. We were hit by the housing slump that of course hit all of Florida. In my neighborhood, we had friends that went bankrupt and foreclosed due to the dire construction industry. Plenty of For Sale and For Rent signs all around. A lot of fellows I know were self-employed construction contractors — now unemployed contractors — can’t find any work. Also, the University went through several rounds of layoffs which somehow I did not get caught in. The state’s budget is a total mess so the University’s budget was cut pretty hard. One positive sign: Entrepreneurs are starting-up biotech companies that are spin-offs from the University so it’s becoming a good place for incubation.” — TFN eNews reader Paul McN.
Become a TFN eNews contributor! Please send us your own update of how reality looks like where you live: Email me at support [at] todaysfinancialnews [dot] com!
*** Members’ Only Update: Play Volatility at a 30% “Discount”
After bagging 40% gains in 3 trading days on Harley, TFN’s Andrew Snyder issued a new options play for members of TFN Strategic Trader:
“With the markets closed Thursday and an abbreviated session on Friday, your weekly recommendation is here a few days early, while we still have some market liquidity. This week’s play bets on volatility. With a virtual four-day weekend for the markets just hours away and volatility dipping to recent lows, we have a shot at taking advantage of any near-term spikes in uncertainty.
“There have been plenty of them lately. Over the past week, shares of one particular company have been all over the place. After investors found out the company swung to a quarterly loss over the past three months, shares are trading down by about 4% so far today — well below 52-week highs reached just a month ago.
“As options investors, this is the kind of action we want to see as we enter a volatility play. With the VIX dropping close to the 20 level this morning, partly because of the holiday weekend, options are relatively cheap. In fact, right now we can get specific call options at a 30% discount to yesterday’s closing price. As volatility and volume rises over the next few weeks, the price will go higher and we’ll be sitting on hefty gains.
“If history is any indication, this thing is going to bounce all over the place between now and Christmas. That means the calls will surge in value as expectations wax and wane. We will have to time our moves wisely, but we should be able to take significant advantage of any upswings!”
Become a TFN Strategic Trader to participate in this play!
*** Quote of the Day:
“Both oligarch and tyrant mistrust the people, and therefore deprive them of their arms.” — Aristotle
Recommended Reading:
Snyder: Today’s winners point the way forward
What’s better than gold? Anything!
Linn Energy (LINE) is one of HSC’s Top 3 Dividend Stocks
Today’s Top 3 Financial News Stories:
MoneyNews.com – Rosenberg: Depression, Not Recession “Economist David Rosenberg isn’t worried about when the recession will end: He’s worried about when the depression will end. That’s right, the ‘d’ word, which nearly all economists have declined to attached to the current global malaise.”
Telegraph.co.uk — Chinese credit tightening chills Asian markets “China has stepped up efforts to halt the explosive growth in credit, ordering the country’s five top banks to raise capital over coming weeks or face lending sanctions.”
Bloomberg.com — Russia to Buy Canadian Dollars, Mulls More Currencies “Russia’s central bank will add Canadian dollars to its reserves and may include more currencies as it seeks to reduce its dependence on the U.S. dollar.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
P. S. *** Commodities shocker: 3 ways to gain as this energy resource collapses! Read on here… http://www.todaysfinancialnews.com/TST/GAS/ETSTKA02.html
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