Recession watch: May

[really]

What is that as a % of GDP?

 

[Snorrius]

As I told long ago, GM is on the verge of bankruptcy.

From Yahoo News

Spoiler :

Experts say GM bankruptcy is almost inevitable

DETROIT – For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable.

To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business — all in three weeks.

"I just don't see how it's possible, given all of the pieces," said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.

GM, which has received $15.4 billion in federal aid, faces a June 1 government deadline to complete its restructuring plan. If it can't finish in time, the company will follow Detroit competitor Chrysler LLC into bankruptcy protection.

Although company executives said last week they would still prefer to restructure out of court, experts say all GM is doing now is lining up majorities of stakeholders to make its court-supervised reorganization move more quickly.

"If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion. The exact strategies I'm not getting into today, but we'll be ready to go if that's required," Chief Executive Fritz Henderson said last week.

The threat of bankruptcy, however, may be just a negotiating ploy to pull reluctant bondholders into the equity swap deal. In Chrysler's case, some secured debtholders resisted taking roughly 30 cents on the dollar for what they were owed, but most gave in after they were identified in court documents.

Henderson, who took over in March when the government ousted Rick Wagoner, said last week there's still time to get everything done by the deadline, although he conceded it will be difficult to meet a government requirement that 90 percent of its thousands of bondholders agree to the stock swap.

The biggest obstacle to GM restructuring out of court appears to be its bondholders, who have been reluctant to sign on to the stock swap when the government and United Auto Workers union would get far more stock in exchange for debts owed by GM.

GM has proposed issuing 62 billion new shares, 100 times more than the 611 million now offered publicly.

Even though the U.S. government has agreed to back up GM and Chrysler new-car warranties, potential car buyers already view GM as if it's in bankruptcy, reflected by the company's steep revenue drop in the latest quarter, Lubben said. On Thursday, GM posted a $6 billion first-quarter loss and said its revenue dropped plunged by nearly half, largely because bankruptcy fears scared customers away from showrooms.

"I don't think anyone is buying cars from a company who is wringing their hands about a potential bankruptcy for the past year or so," he said.

Under Chapter 11, a company can stay in operation under court protection while sheds debts and unprofitable assets to emerge in a stronger financial position.

At this point, GM needs to resolve the uncertainty and get in and out of bankruptcy as quickly as possible, Lubben said.

The company is talking with the UAW and Canadian auto workers unions about concessions, including getting the UAW to take roughly 39 percent of its stock in exchange for half of the $20 billion GM must pay into a union-run trust that will take over retiree health care payments next year.

About 50 percent of the stock would go to the government for its loans. GM said last week it would need another $2.6 billion in May and $9 billion more for the rest of the year, bringing the total to $27 billion.

One percent would go to current shareholders, with bondholders getting the other 10 percent.

Bondholders are reluctant to take the deal because the government and UAW are getting far bigger stakes in the company, said Kevin Tynan, an industry analyst for Argus Research in New York.

"When you look across at what the union is getting and what the government is getting, to expect them to take 10 percent is just unrealistic," he said.

Cutting dealers also remains a huge hurdle, with GM hoping to shed 2,600 of its 6,246 dealerships by 2010.

But dealers are protected by state franchise laws, and trying to shed them outside of bankruptcy would result in either millions of dollars in payments or multiple lengthy lawsuits, Lubben said.

"That means you've got to negotiate with each one of those dealers individually."

Also, GM on Friday told its major parts suppliers that it would move up payments due on June 2 to May 28.

Company spokesman Dan Flores said it was being done to help the suppliers at a critical time, but he denied that the payments were pulled ahead of a potential June 1 bankruptcy filing.

GM has begun to temporarily close 13 assembly plants for up to 11 weeks through mid-July in an effort to control inventory. With Chrysler plants also shut down during its bankruptcy proceedings, parts suppliers will soon have no income and could go under.

It would help speed up GM's stay in bankruptcy court if it could pull together big blocks of stakeholders to agree on reducing debt or changing other stakes, said Robert Gordon, head of the corporate restructuring and bankruptcy group at the Clark Hill PLC law firm in Detroit.

During its quest for government aid, GM executives said bankruptcy would severely cut their sales, with research showing that people would shy away from GM vehicles for fear that warranties would not be backed and parts would not be available.

Tynan said the executives now can't change their story, even though they likely know that bankruptcy is inevitable.

"They're sort of morally obligated to say 'we're intent on doing this outside of bankruptcy,'" he said. "But at the end of the day, they just want the magnitude of the restructuring to get done."

 

[mrt144]

The GM bankruptcy is going to be bad news bears for quite a few people. Green shoots just got a spritz of weed killer.

I wonder what will happen if the S&P breaks above ~940...Theres a resistance line heading back to Jan 6th there.

 

[Integral]

Treasury is posting a fiscal-year-to-date deficit of $802 billion.

Lovely. Here's hoping it works...

 

[mrt144]

Treasury is posting a fiscal-year-to-date deficit of $802 billion.

Lovely. Here's hoping it works...

I hope it works only after they find the 9 trillion that the Fed can't account for.

 

[PiMan]

What is that as a % of GDP?

GDP is roughly 1.32 trillion, so that makes the deficit 4.4% of GDP

 

[RedRalph]

From BBC

Retail sales in the US fell 0.4% in April, according to official figures from the Commerce Department, which were much worse than had been expected.

March's sales fall was also revised from a 1.2% drop to a 1.3% decline.

Slowing sales of gasoline and electronic goods were a particular drag on the figures.

Retail sales had risen in January and February following six straight months of declines, which had raised hopes of growing confidence among consumers.

The eight months of declines are reflected in the annual figures - retail sales in April were 10.1% below the level in April 2008.

"I'm surprised at the declines and the downward revision to last month," said David Resler, chief economist at Nomura Securities in New York.

"These numbers are certainly discouraging - a bit disheartening," he added.

Gasoline sales were down 36.4% compared with the same month of 2008, while motor vehicle and parts sales were down 20.7%.

BTW, has JerichoHill left OT altogether?

 

[Integral]

US retail sales down 10% y-o-y and 0.4% from last month.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $337.7 billion, a decrease of 0.4 percent (±0.5%)* from the previous month and 10.1 percent (±0.7%) below April 2008. Total sales for the February through April 2009 period were down 9.2 percent (±0.5%) from the same period a year ago. The February to March 2009 percent change was revised from -1.2 percent (±0.5%) to -1.3 percent (±0.3%).

BTW, has JerichoHill left OT altogether?

He's been busy recently.

 

[mrt144]

US retail sales down 10% y-o-y and 0.4% from last month.







He's been busy recently.

 

[Integral]

Reminds me of 'green shoots', which is apparently the new catchphrase for 'things are still going bad, but not as bad as last month'...

New trade figures are out (which i seem to have missed yesterday), and the trade deficit's about the only line going up in the past eighteen months. Unfortunately, it's part of the general collapse of world trade in the past year.

Spoiler large graph :

Hopefully the graphic shows up....

 

[Merkinball]

Yeah, I loved it around here when growth slowed from 5% to 4%. We were in a recession because we weren't growing as fast. We lost 500,000 jobs last month, but it wasn't 600,000, so that's totally awesome. All hail Obama and his economic genius.

 

[Fugitive Sisyphus]

Australia's federal budget for the financial year starting mid-year has been released.

Deficit will be the highest it has ever been $58 billion, and debt will rise to roughly $220 billion over the next few years.

The United States should give $58 billion to Australia. $58 billion to Australia wipes out their deficit. $58 billion from the United States is too little to be noticed.

 

[RedRalph]

From BBC

The economies of the 16 countries that make up the eurozone declined by 2.5% in the first three months of 2009, the EU's statistics agency Eurostat said.

Analysts had forecast a drop of only 2%. A sharp fall in German exports was a key factor in the decline.

The German economy suffered its largest contraction since reunification, falling 3.8% in the first quarter.

Eurostat also said that consumer price inflation in the eurozone remained steady at 0.6% in April.

GDP in the eurozone fell 4.6% on a year-on-year basis.

GDP measures the value of all goods and services produced in a country.

GDP also fell 2.5% in the wider EU. About 60% of the UK's exports go to the 27 countries in the EU.

'Uncertainty shock'

The record decline in German GDP was led by falls in exports and investments, the Statistics Office said.

Year-on-year the German economy shrank by 6.7%.

EUROZONE v EU
The 16 eurozone countries are: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain
The European Union is made up of those countries in the eurozone plus: Bulgaria, the Czech Republic, Denmark, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and the UK


European economy 'will shrink 4%'
The German government has predicted the economy will shrink 6% in 2009.

That is a more downbeat forecast than the European Commission's.

The Commission expects Germany, Europe's biggest economy, to contract 5.4% this year. It predicts a contraction of 4% across the eurozone.

The severity of the contraction surprised economists.

"The figures came in a bit worse than even we had expected and are significantly worse than the consensus," said Joerg Kraemer from Commerzbank.

"In the first quarter, the German economy fell victim to the 'uncertainty shock', which has gripped the world economy since the collapse of Lehman Brothers."

The fourth quarter of 2008 had previously been the worst on record, with GDP falling by a revised 2.2%.

Shrinking economies

Also on Friday, provisional data showed the French economy contracted 1.2% in the first quarter, in line with forecasts.

The fall in French GDP, reported by the statistics office Insee, was smaller than the 1.5% drop seen in the previous quarter.

In a statement, the Economy Ministry said it expected the French economy to contract by 3% in 2009.

Meanwhile Italy's GDP declined 2.4% in the first quarter - the largest fall since records began in 1980, statistics agency ISTAT said.

On Thursday, the National Statistics Institute in Spain said the Spanish economy suffered its largest contraction in 50 years. GDP fell 1.8% in the first quarter.

I said myself only last week that we may have seen the peak, but I'm beginning to wonder... almost every figure this week has been quite a bit worse than expected

 

[kronic]

We should not only look at the GDP decline over the past 12 or 18 months but put it in a broader perspective. As I said before, 3 years of good growth eradicated within just 12 months in Germany. Growth over the decade will be 0 % or even negative over the whole decade at the end of this crisis. Even most of the worst hit countries (Ireland et al.) will have fared a lot better over the decade, at least GDP wise.

That should people make think about the usfelulness of the reforms implemented some years ago and about the general macrooeconomic path in Germany. Hopefully, policy makers will wake up and realise how wrong they were in the past 20 or 30 years about the economy. It's not only the Anglosaxon model of liberalisation and privatisation but also the German model of competitive wage deflation that is going to be destroyed in this crisis.

 

[JerichoHill]

Most of what I've seen deals with the confidence side of the economy, we're in a certainty recession instead of an uncertainty one. The latter is more prone to panic and brings out the DOW 500 folks.

The expectation was that this year we would hit bottom (Artificially pegged as DOW 7-8K, SP750, U3 10%). Remember that unemployment is a lagging indicator. We need to look at leading indicators to see where we are going to be next quarter/next year.

Signs currently point to a bottom being reached, and we now in a steady period of fluctuating w/ a range. There will be no uptick this year.

And yes, I am glad to be back.

 

[RedRalph]

Glad to have you back.

 

[JerichoHill]

Course, I am back for 1 week, and then im in St. Maarten for 2 weeks

 

[mrt144]

Most of what I've seen deals with the confidence side of the economy, we're in a certainty recession instead of an uncertainty one. The latter is more prone to panic and brings out the DOW 500 folks.

The expectation was that this year we would hit bottom (Artificially pegged as DOW 7-8K, SP750, U3 10%). Remember that unemployment is a lagging indicator. We need to look at leading indicators to see where we are going to be next quarter/next year.

Signs currently point to a bottom being reached, and we now in a steady period of fluctuating w/ a range. There will be no uptick this year.

And yes, I am glad to be back.

The bottom isn't based on second derivatives is it?

 

[Merkinball]

JH - Thoughts on another wave bank collapses in Europe? I keep hearing more and more that there's going to be a second wave of financial collapse in other parts of the world. What say you?

 

[kronic]

Holy crap! According to Eurostat, Slovakian GDP declined in just one quarter by 11.2 %. That must be the steepest decline recorded so far for any country in this crisis.
And remember, Slovakia is in the Eurozone and one of Europe's most open economies.