Those unfamiliar with Australia Inc. might not have stumbled across Fortescue Metals Ltd. It’s worth a look, if only because this mining company’s travails speak volumes about the emerging dynamics of the global economy circa February 2009: Having fallen on hard times (like everyone else), Fortescue is short of capital; among other things, it has had to walk away from shipping contracts whose agreed prices – set in rosier times – are now unaffordable. Naturally, this has had a ripple effect through the shipping industry, but that’s a yarn for another day. As it happens, Fortescue has the good fortune of being in vogue – if you’re a Chinese sovereign wealth fund with a cash pile burning a hole in your pocket, or a Chinese steel mill with a serious need for iron ore. And so Tuesday afternoon, Australia time, is full of Fortescue news, including some exclusive nuggets from Dow Jones Newswires such as a proposed A$1 billion (1 AUD=.64 USD) capital-raising exercise that could include a chunk of funding from China Investment Corp. (Beijing’s SWF) and an investment by Hunan Valin Iron & Steel. If it sounds familiar, it’s Rio Tinto-Chinalco redux (Note: Fortescue’s a lot smaller and less diversified than Rio.) One’s thoughts turn to U.S. Secretary of State Hillary Clinton’s just-ended trip to China and a Wall Street Journal report that she avoided talking about Beijing’s awful human rights record. Whether scoping out opportunities in Australia or America, China has the money and the mettle to absorb mountains of U.S. Treasurys, much less rescue firms like Fortescue and Rio. When it comes to dealing with Beijing, the rest-of-the-world’s leverage has shriveled faster than stock market valuations the world over. Will Australians stand up and demand their government resist China’s takeover of Aussie resources companies? Nah. They know who’s controlling the purse strings in 2009. UPDATE: It’s official. Hunan Valin is taking a 16.5% stake in Fortescue as part of a deal that includes an iron ore joint venture.
Archive for February 23rd, 2009
Housing / Comments Off
Uncategorized / Comments Off
Already deeply thrifty, my family is cutting back even further because of the economic uncertainty. At the same time, we’re adamant about preserving certain types of expenditures: Specifically, those which sustain individual entrepreneurs and small local businesses in Singapore, which is where we live. If, for instance, we terminated the services of a woman who cleans our apartment two mornings a week, her extended family back home in the Philippines would receive less money. As Dow Jones Newswires recently wrote, the Philippines is one of a few countries that are highly dependent on remittance funds from citizens working and living abroad. All eyes are on whether migrant workers keep their jobs as the world’s economies collapse; so far remittances are holding up. Likewise, if I start coloring my graying hair at home, the two women who work at the salon across the street will have less money to show for their labors and their employment could be at risk as Singapore slides deeper into recession. Ditto the food we buy at the hawker stalls: For 2.50 Singapore dollars (1 U.S. dollar buys about 1.52 Singapore dollars) we get a heaping mound of seasoned rice, freshly sliced roasted chicken breast, sliced cucumber garnish and a dollop of grated ginger. Our family of four could cut these costs, and more. The cumulative savings would add up to a tidy sum. But it doesn’t feel quite right to target these livelihoods. We’ll have to search elsewhere for ways to economize.
Stock Market / Comments Off
Remember last year all the talk about “capitulation,” the legendary selling frenzy that is supposed to mark a stock market bottom. Everyone kept looking for it but “capitulation” never felt real. The here-and-now severe problems of the global economy and U.S. equities markets make the search for capitulation seem quaint and irrelevant.
The Dow Jones Industrial Average closed today at its lowest point since May 1997. That’s just about 12 years of price gains wiped out. And the banking sector’s still in disarray and no one is talking about capitulation.
Ironically, we are starting to enter the DJIA price neighborhood where things stood in 1996 when then-Federal Reserve Chairman Alan Greenspan made his famous musings about “irrational exuberance.” What’s the opposite of exuberance? That’s what we have now. And no one knows if it’s rational or not.
Retailing / Comments Off
Nordstrom’s reported weak 4Q financial results but some of the real interesting numbers are what’s in between the top and bottom lines. Inventory per square foot down by 12%. In order to get that inventory down, they had to move product through markdowns. And those markdowns resulted in a 561 basis point decline in gross profit (as a percentage of sales). Nordstrom’s noted it had been defending market share and will continue to fight for it – It sees that gross profit declining by another 150 to 250 basis points this year. It sees same-store sales off 10% to 15%. Inventories remain fairly high – at $900 million at the end of January 2009 versus $956 million a year ago. Cash is down to $72 million versus from $358 million a year ago. Tough times remain.
Uncategorized / Comments Off
US Airways says it was America’s number one on-time airline in 2008 when you look at the Big Six hub-and-spoke airlines. But still, there was something going on that “was distracting from the outstanding improvements in on-time performance and baggage handling US Airways 34,000 employees worked so hard to achieve last year,” the air carrier says in a press release today. And, that same “something” also “put us at a disadvantage” versus competitors. You see, in order to save money, US Airways last year started charging for drinks in the cabin. Passengers and employees alike apparently didn’t like the fact the airline was making riders pony up money for a cup of coffee or juice in economy class (and probably liked the idea even less that they would have to pay with exact change, when possible). So, starting March 1, soft drinks are on the house, or rather the cabin. But the harder stuff (beer, wine and cocktails) will still put you back $7. And yes, exact change if possible.
A lot of talk today about discussions between Citigroup and the U.S. Government on turning a big chunk of the $45 billion preferred stock stake the U.S. has in Citi into a straight forward equity stake – in other words, convert the preferred into common stock. No additional capital would directly flow into Citi’s coffers from such a move. But the bank would save money by not having to pay the 8% preferred dividends. If all $45 billion was converted, the bank would save $3.6 billion a year. Not chump change for a bank that hasn’t earned money for awhile. Would be another way for the government to add capital to Citi (by not taking a dividend). But on the other hand, taxpayers would be giving up some juicy returns.