Busch: You Know Things Are Bad When....
In the UK, the government released their GDP numbers for Q4 and they worse than expected at -1.5% ve 1-1.2%. The UK did surprise with much better than expected retail sales at +3.9% ve +1.5%.
Guess what the FX market did? It aggressively sold the British pound as the market ignored good news and focused on the negative as major questions remain over the viability of the UK financial system.
The words nationalization and additional capital seem to accompany any story on Barclays , RBS , and Lloyds.
However, my favorite stories comes from the political side. First, the former CEO of RBS will be cross-examined about his role in the financial crisis by MPs from the Treasury select committee's hearing into the banking crisis. It will be televised.
Next, the Tory leader David Cameroon has stated that Britain risks bankruptcy and a humiliating bailout by the IMF due to the UK's borrowing. "We are borrowing, according to the Government's current estimates, 8 per cent of our GDP in the next financial year. That is the same percentage that Denis Healey [the then chancellor] was borrowing when he went to the IMF in 1976."
Then we have the sunny predictions by Nouriel Roubini stating that stocks around the globe will sink due to shrinking demand from China. "Demand is falling in China, they're over-invested in capacity and there's a global supply glut. It has very, very important implications," according to Bloomberg. Roubini predicts that global equities will fall 20% from current levels as China, which contributed 19.5% to total growth in 2007, contends with its slowest expansion in seven years. (I'm not sure how this jibes with his BusinessWeek interview in which he said he expected growth to pick up in the US in the second half of the year.)
With rumors swirling over a nationalization of Citigroup and serious questions being raised about the Geithner nomination, the US is in for a tough weekend. The nationalization talk started last week with the NY Times article on Citi and we discussed it on Closing Bell last Friday. The only thing I can see happening is the FDIC taking it over similar to what they did with Indy Mac. Otherwise, I'm not sure they have either the legal authority or the skill set to "nationalize" the bank. It may be kinda tough to do without a Treasury Secretary.
The Geithner nomination has now entered the realm of the surreal. Geithner nomination in question due to the Leno Factor: any nominee that gets made fun of by the comedian is in trouble. Republicans finally standing up to the Geithner cram down with 5 on the finance committee voting against him. Reid says he'll pass next week, but this nomination will be kicked hard in the weekend political talk shows.
Here's a toughie for Democrats: If you criticized TARP, how can you vote for Geithner? If you vote for him you'll run the risk that if things don't go so well, the Republicans will light you up in 2010. Already, the Obama/Geithner comment on China (right before their big holidays) is either a huge shift in tactics or a huge blunder. Bond yields have risen on the news and reports are already out that China is going to shift their bond portfolio out of long term US Treasuries.
Finally, there is growing Congressional opposition to President Obama's stimulus plan.
Republicans are questioning spending by the Democrats that contributes very little to economic growth and accused the Democrats of shutting them out of the negotiating process. House Democratic Speaker Nancy Pelosi states, "Yes, we wrote the bill. Yes, we won the election." Not exactly a way to win votes. However, Obama's goal is to have the legislation signed by President's Day (Feb 16th) and probably have it in the bag before he goes the Valentine's Day G7 meeting. (Remember, there's a Feb 17th date for autos as well.) Obama now receives a daily briefing on the economy similar to his daily security briefing.
I'm sure what he's getting is not appetizing and should ensure some compromise to get a deal done.