Prior to this week’s G20 meeting analysts are reported as saying more than ‘ritual support’ for open markets may be needed to steady a ‘teetering economy’, and to avoid a ‘damaging retreat to protectionism’ – see article. Some economists are reported as saying that without a concerted strategy for a revival, a rash of go-it-alone stimulus packages and industry bailouts could lead to trade wars. The World Bank is reported as saying that 17 of the G20 countries – including most of the major powers – have resorted to protectionist measures since declaring their opposition to such action during a November conference in Washington.

I have been saying on this blog for some time that countries will invoke ‘protectionist measures’ in circumstances where they believe they must do that to protect the well-being of their citizens. It will surprise me if things turn out otherwise. Simply put, I think that like individual people, in the end countries ‘have to do what they have to do’ to survive in the first instance, and enhance and protect as best they can the lifestyles of their citizens in the second instance. I think it naïve to think otherwise, and look forward with interest to what is said at, and develops out of, the upcoming G20 conference. I think that following the conference proceedings closely is critically important in the current economic environment.

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I love reading headlines – and then comparing them to the content that follows. This morning an article proclaims ‘Global stocks set for best month in over 6 years’ and then quotes % increases in world stock market indexes. The article reports that the MSCI World index strengthened 0.6% and was on course to record its biggest monthly rise since October 2002. But the global stock index is still down more than 12% in Q1 2009 after losing 22.7% in Q4 2008.

The only reason I made this brief post is to once again suggest readers not focus on % changes in this environment, but to focus on absolute numbers. Percentage changes can make things appear much better than they really are when the base from which the percentage is measured has deteriorated significantly in a short period of time. Accordingly, I suggest you read percentage change statistics with caution - and always consider changes (up or down) in the context of absolutes.

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Please help me by commenting on this post if you have a rational answer as to why the U.S.$ is stronger today in the face of The White House’s apparent position vis a vis Chrysler and GM – see my post earlier this morning. An article in the last few minutes titled ‘Gold falls as stronger dollar reduces metal’s appeal’ suggests that gold’s appeal as an investment alternative was reduced today as the U.S.$ rose on currency exchange markets “as investors fled equity markets amid renewed fears over the auto sector”.

I have great trouble following the logic. I would have thought – setting gold and its pricing aside – how the failure of either Chrysler or GM could be other than negative for the U.S.$. I have concluded that the people who write about these things must think in terms of ‘hour to hour’, may not know who Warren Buffett is, and certainly don’t understand his investment philosophy.

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World stock markets dropped significantly overnight, with the decline being attributed to G20 meeting pessimism, global banking sector news, and renewed U.S. auto industry concerns – see article. European markets (France, Germany and London) were off between 2% - 4%, while overnight Asian markets (Hong Kong, Japan) were both off by about 4.5%. The reasons given for this were:

• skepticism by many European participants in the G20 meeting that begins Thursday that the meeting will result in a coordinated incremental financial stimulus has been reported;

• the CEO’s of both Bank of America and JP Morgan Chase are reported to have said business conditions had become more difficult since they reported being profitable for January and February. Concurrently Spain announced it was bailing out Caja Castilla-La Mancha (its first bank rescue in 16 years), and there were reports UBS is terminating another 8,000 jobs;

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According to an article today The White house forced GM CEO Rick Wagoner to resign yesterday which he did – and is expected to announce new aid for GM and a 60-day deadline to restructure. At the same time Chrysler LLC apparently will get up to U.S.$6 billion and 30 days to complete an alliance with Italian automaker Fiat SpA. Persons familiar with the plan said Sunday the U.S. Administration will demand further sacrifices from the automakers and bankruptcy would be possible if they fail to restructure. The article reports the plan that will be presented includes government backing of warranties for Chrysler and GM vehicles to give consumers confidence, and that the administration did not view Chrysler to be viable as a standalone company.

I am surprised that the U.S. Administration is taking the position it is with Chrysler, am surprised with its demand that Wagoner resign, but otherwise am not surprised with the position it is taking with GM. Assuming President Obama’s announcement today parrots what has been reported, I am sure the U.S. Administration realizes that from a business point of view it puts it between a rock and a hard place in the context of the decisions it must make in the self-imposed deadlines of 30 days (Chrysler) 60 days (GM) it may proclaim. If a merger is not struck between Chrysler and Fiat within 30 days, or if GM is given a further extension on the its restructuring plan after 60 days the U.S. Administration will – at least in my view – lose credibility with respect to the positions it takes on the economy generally. I think saving both these companies is of huge importance to U.S. (and for that matter Ontario and Quebec) employment – both direct and indirect, and in my view if many of those jobs are lost that will exacerbate the current U.S. (and world) economic problems.

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An article titled ‘Geithner won’t say if more bailout money needed’ says “U.S. Treasury Secretary Timothy Geithner said Sunday the government will have about $135 billion left (of the $700 billion approved last October) after banks give back some bailout money and declined to say whether he will ask Congress for more”, and the “Treasury expects the banks this year to return about $25 billion of money that they received from the government, because they were able to replace it with private capital or decided that they do not want money with strings attached”. However, Geithner is reported as having said the banks still need help and that “A core part of our plan involves making sure banks have enough capital to provide the lending we’re going to need to get recovery back on track”.

I love this: the article says that “A few banks, unhappy at limits on executive pay and other government scrutiny that has accompanied the bailout money, have said they intend to return the money to the Treasury”. That these banks ask for and took the money in the first place, and now are reported to be returning the money for the reasons stated seem so absurd to me that I can’t believe it to be true.

On a separate note, the article says President Obama and Geithner are traveling to London to attend a one-day G-20 session on Thursday where a commitment for increased funding for the IMF is widely seen as likely to be agreed.

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An article today titled ‘The Dollar’s Tipping Point’ questions whether the Fed’s March 18 move to buy up to U.S.$300 billion in long term treasuries and bonds will “change the world as we know it”. While I seriously doubt any one event will do that, it is in my view a ‘directional move’ that has been done for reasons I don’t fully understand and with consequences I can only speculate on (I expand on this later in this post). The article’s author, Jennifer Bawden (Bawden Capital, a the technology and private equity consulting firm) says – based on data taken from Martin Weiss (Money and Markets) – government funds committed to economic ‘rescue’ plans by world governments so far is close to U.S.$13 trillion, and credit default swaps total over U.S.$57 trillion. Ms. Bawden, assuming I have interpreted her comments correctly, in the recent past has thought:

• (paraphrased) “the thought that you will not even hear whispered is that an unhinging of the reserve currency could happen and that would cause financial panic, plummeting stock markets, oil to rise way over U.S.$100 a barrel and the gold price to quickly jump over $1000 an ounce as investors seek protection in safe havens”;

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An article today titled ‘White House planning more auto financial aid’ says the Obama administration is completing a plan to give more financial aid to Chrysler and GM in return for tough cost-cutting measures ‘that will ensure the companies’ survival’ – this as the article reports the companies are running out of money headed into April, and that Task force members have said bankruptcy could still be an option if the management, workers, creditors and shareholders of the two companies fail to make sacrifices (presumably satisfactory to the Administration). Chrysler and GM are reported to employ about 140,000 workers in the U.S., to have already received $17.4 billion in government loans, and to be seeking a further $21.5 billion (GM $16.6 billion and Chrysler $5 billion). President Obama is scheduled to make an announcement tomorrow.

Those of you who visit this blog on a regular basis will know this comes as no surprise to me. I have repeatedly said on this blog that I will be astonished if the U.S. Administration to say ‘no’ to the auto industry. Again, it is not just the aforementioned 140,000 Chrysler/GM jobs that are at stake, but all the other auto industry and ancillary jobs (suppliers, car dealership, and backlash into retail and other jobs supported by wages earned by direct and indirect auto workers) that are at stake here. I think it likely there are other ‘auto industry related’ problems looming on the horizon, not the least of which is the significant drop (as I understand it) in trade-in values that have made the ‘trade difference’ experienced when buying a new car ‘off the lot’ greater in some/many instances than it historically has been. I also think there are a number of chapters yet to be written before the U.S. auto industry ‘story’ is complete, and that the multiple authors of that story (the U.S. Administration, the auto companies, the auto parts suppliers, the auto dealers, and U.S. consumers) themselves don’t know how the story is going to end – stay tuned.

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An article titled ‘U.S. consumer spending, sentiment edge up’ says the U.S. Commerce Department reported Friday that U.S. consumer spending increased by 0.2% in February following an upwardly revised 1.0% increase in January – and that consumer sentiment also improved somewhat in March. This is continued good news, although recalling that U.S. consumer spending fell at a 4.3% annual rate in Q4 2008 leads me to conclude the article’s statement that these January and February numbers “backed views that the worst of the recession may be over” is far too strong at this point in time.

Nigel Gault, chief U.S. economist at IHS Global Insight is quoted as saying “It is too early to bet on a consumer renaissance, because consumers are still facing severe headwinds from declining employment and reduced wealth. But the worst appears to be behind us”. I think an important upcoming number to watch is March U.S. job losses. Early indications apparently suggest non-farm payrolls data out next Friday could show the U.S. economy shed 654,000 jobs in March, following February’s loss (yet to be adjusted) of 651,000 jobs. The article says companies are expected to continue laying off workers well into 2010 even as the economy recovers. Continued job losses and concurrent increases in consumer spending seem oxymoronic to me and so, while I hope Mr. Gault and his like-minded colleagues are right in their observations that “the worst is behind us’ I am not counting on it.

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An article titled ‘Talking with the ‘King of Copper‘’ reproduces an interview with Juan Villarzu, former head of world’s largest copper company, Corporacion Nacional del Cobre de Chile and now head of Apoqunido Minerals (TSXV:AQM) recently conducted by Andrew Mickey, Q1 Publishing’s Chief Investment Strategist. The article says copper prices currently are in the order of U.S.$1.86/pound, up over 40% from December lows. During the interview Villarzu’s said (among other things):

• he was bullish on copper as early as last November because he then thought China would continue to grow at a 7% - 8% rate even if the rest of the world experienced 0% growth, and that producers would decrease production after November;

• with respect to China’s importation of a record amount of copper in February (see earlier post on this blog) the Chinese believe there will be an increase in copper consumption over time, and are accumulating stock because the price is attractive and because they expect the price of copper to rise;

• there is little information regarding the scrap market, but that it has not been a decisive factor on either the demand or supply side of the copper market;

• there is not a large quantity of copper stocks, that recently copper stockpiles have resumed their decline, and that copper inventory is limited;

• the type of development that China is experiencing is very copper intensive. This results from urban construction required to respond to the immigration from rural centers, and from more Chinese people requiring durable goods; and,

• he thinks copper will be at $2 by the end of the year, and will be above $2 next year. He does not expect the price to return to $4 but thinks the price could be in the order of $3 in 2011 or 2012.

I suggest anyone invested in, or interested in, copper explorers and producers click here and read the entire interview in context.

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