Crisis is far from over - Will China be the next?

An investor watches a market board indicating
the Chinese stock market index in a trading house in central Beijing
November 3, 2008. China stocks were still down slightly Monday
after a third rate cut in six weeks and a barrage of initiatives to
shore up banks and prime-pump sputtering economies,
after world stock markets had their worst month ever falling
20 percent in October alone. A measure of Chinese manufacturing
activity released Monday showed factory output shrank sharply
in October in the face of waning orders, while officials
pledged further steps to boost domestic demand to keep
the economy from slowing too much. REUTERS/David Gray (CHINA)

From StockTube Blog
November9, 2008

No doubt China registered mind-boggling annual economic growth but that’s because U.S. allows it. The United States and China symbiosis relationship was a unique one really.

Click the image to enlarge
United States is world’s largest economy while China is the world’s fastest growing economy and there’s a difference between them.

China totally depends on U.S. export market to generate jobs for its huge pool of workers while U.S. investors in China depend on continued Chinese economic growth and cheap labor. China’s economic growth was at the rate of 10% per annum during the period 1990-2004 – the highest growth rate in the world. Annually China needs to generate about 15 million new jobs to its huge population. Even during 1997 Asia Economic Crisis the dragon was growing at 8.9%, 7% and 7.1% in 1997, 1998 and 1999 respectively. As a consequence of China artificial low currency, the trade surplus jumped from $57 billion in 1998 to $256 billion in 2007 in favor of China.

Click the image to enlarge

Already many China factories are closing putting tens of thousands of workers speechless and out of job. In fact every sector of the Chinese economy is slowing and credit is tightening. From annual economic growth of 11 percent in 2007 the Chinese economic muscle is expected to shrink to 5.8 percent – a level that worries Beijing because anything less than 8 percent means many more will lose their jobs. Speculators, punters and gamblers whose job were to bet on the stock market and nothing else to make a living were watching with horror their invincible Shanghai composite index fall more than 60 percent this year alone.

ETFs/Stocks :

UltraShort FTSE/Xinhua China 25 ProShares  FXP $76.32  -25.67 (-25.17%)

Related Posts :

China publicly revealed its worries about a liquidity crunch
Nouriel Roubini: The Rising Risk of a Hard Landing in China

Sources :

StockTube Blog: It Ain’t Over Yet – China and Unemployment are Next, November 9, 2008

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

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Berkshire Hathaway Profit Falls 77%

Warren Buffet, chairman of Berkshire Hathaway,
looks towards photographers after lunch at the 26th annual
Allen & Co conference in Sun Valley, Idaho July 9, 2008.
REUTERS/Rick Wilking
Berkshire Hathaway Inc., A Warren Buffett's Investment Company, posted a fourth straight profit drop, the longest streak of quarterly declines in more than a decade, as hurricanes hurt returns at insurance operations and investments lost value.

Third-quarter net income decreased 77 percent to $1.06 billion, or $682 a share, from $4.55 billion, or $2,942, a year earlier, the Omaha, Nebraska-based company said yesterday. Further declines in debt and equity markets reduced shareholders equity, a measure of assets minus liabilities, by $9 billion in October, after the quarter ended.

Here are list of Berkshire’s losses and assets decline:

1. Underwriting insurance fell 83 percent to $81 million amid the most costly hurricane season since the record storms of 2005.


2. Profit from selling policies at car insurer Geico Corp. fell 27 percent to $246 million. Berkshire typically gets about half its revenue from insurance.


3. Hurricanes Ike and Gustav cost insurers a combined $10 billion when they struck the Gulf Coast in September, according to preliminary data from Insurance Services Office Inc.


4. Decreases in the value of some holdings and derivatives lowered earnings by $1.01 billion in the period ended Sept. 30, compared with a $1.99 billion gain in the year-earlier quarter when Berkshire booked profits from selling a stake in energy firm PetroChina Inc.


5. Losses from derivatives result in part from accounting rules related to bets Buffett made on four stock indexes, including the Standard & Poor's 500. If the indexes fall below contractually agreed-upon levels at expiration dates beginning in 2019, Berkshire will lose the bets. Berkshire has collected $4.85 billion on the contracts and can profit from investing the funds, the firm said.


6. Some of the firm's largest stock investments slumped. American Express Co. has plunged 51 percent this year and Coca-Cola Co. dropped 25 percent.


7. The worst housing slump since the Great Depression hurt building-related units including Acme Brick, Benjamin Moore paints and Shaw Industries. Profit at Shaw, the world's largest carpet manufacturer, fell 61 percent to $49 million.


8. Profit at furniture stores, jewelry shops and the candy business declined 67 percent to $11 million.


9. Earnings from Berkshire's energy and utilities unit dropped 8.5 percent to $324 million.

Related Posts :

Cash Crunch At New York Times (NYT)

Sources :

Bloomberg: Berkshire Hathaway Profit Falls 77% on Investments, Insurance, November 8, 2008 00:01 EST

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

BitTorrent Cuts Half Its Team, Replaces CEO

BitTorrent Inc., The company, which develops technology for transferring media files over the Internet, cut an additional 20% of its team in August. The recent layoffs account for about 18 employees. Restructuring the company includes a new chief executive and a co-founder's departure.

Eric Klinker, who previously served as chief technology officer, has stepped into the CEO role. He replaces Douglas Walker, who took over the position a year ago. Mr. Klinker was also appointed to BitTorrent's board of directors.

The layoffs and management shakeup come a day after co-founder and President Ashwin Navin announced his resignation and intentions to focus on a new venture. Mr. Navin plans to partner with a group of other tech executives that includes YouTube co-founder Steve Chen. Mr. Navin said the group has secured a location in San Francisco that will serve as a sort of clubhouse for entrepreneurs. The location will offer meeting space, working space and a café-style common area for entrepreneurs to network.

BitTorrent's technology has faced legal questions for years. Based in San Francisco, the company was one of the early leaders in distributing videos online. Its software uses an open-source file-sharing protocol, designed in-house, to divide a film into pieces and send them to multiple sources. In turn, the sources work cooperatively to quickly reassemble video files on users' computers.

After a wave of copy infringement lawsuits by movie studios against file-sharing services, BitTorrent began working to legitimize its business and earned the trust of several big content providers like Warner Brothers, Paramount Pictures, MGM and 20th Century Fox, among others.

Mr. Navin, who remains on the company's board, said BitTorrent plans to go back to its roots and focus more on technology, rather than content deals. He declined to comment on the layoffs.

Founded in 2004, BitTorrent has raised $45.75 million from investors including Accel Partners, DCM and Duff Ackerman & Goodrich.

Sources :

The Wall Street Journal: BitTorrent Cuts Half Its Team, Replaces CEO, November 7, 2008, 8:47 P.M. ET

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Cash Crunch At New York Times (NYT)

The Silicon Alley Insider
Henry Blodget
November 8, 2008 6:50 AM

The New York Times Company's 10Q (NYT) contains more details on the company's cash crunch.

Specifically, the company must deliver $400 million to lenders in May of 2009, six months from now. The company has only $46 million of cash on hand, and its operations will likely begin consuming this meager balance this quarter or next. The company has been shut out of the commercial paper market, but has a $366 million short-term credit line remaining that it entered into several years ago, when the industry was strong. It has not yet drawn this cash down, and given the current environment and the trends at the company, we would not take for granted that it will be able to do so.

The New York Times is in discussions with its lenders about the May payment, and management thinks it will be able to work something out ("We expect that we will be able to manage our debt and credit obligations as they mature." Note the use of the word "manage" as opposed to "meet.") The company does not provide details as to what this managed solution might look like, so here are some possibilities.

1. Sell assets. This is a must. It is also likely to be difficult and painful in the current environment. As we noted in "New York Times Running On Fumes", the New York Times has gotten itself in a situation where it will be forced to choose among multiple bad options just to pay its bills. A fire sale of the building, the Boston Globe, the Red Sox, and/or other assets is one of them.



2. Draw down the $366 million remaining on the second credit line immediately. This option, too, unfortunately, is problematic (if it weren't, the NYT would almost certainly have already drawn this money down). What is a "credit line"? It is a promise, on paper, that a bank will lend NYTCO money when it wants it. This promise was made several years ago, when the New York Times and the rest of the newspaper industry were undefeated heavyweight fighters in perfect physical shape. Now, it's the 11th round, and they're battered and bloody and slumped on the ropes.
   
   Doesn't the bank that signed that credit line have to give NYTCO the money? Not necessarily. The bank is contractually obligated to give NYTCO the money, but some contracts, obviously, are barely worth the paper they're printed on. Given the current circumstances, if we were that bank, and we were as strapped and scared as most banks are these days, we would certainly be reading the fine print to see what sort of "material adverse change" clauses the contract might include. Even if NYTCO could persuade us that early 2009 is not going to be as bad as it seems like it will be, the money will be due in two years, in 2011, and 2011 just isn't that far away.



3. Make major cash-saving cost cuts, including eliminating (or severely cutting) the dividend. This won't conjure up $400 million by May, but it might convince a lender that NYTCO understands what it is up against and is committed to taking the tough steps necessary to deal with it. It would also allow the company to keep generating cash through 2009, which would obviously help.

Can't NYTCO just borrow more money from someone else or issue some commercial paper or something? This will be tough. The reason the company has drawn down its first short-term credit line is that it got shut out of the commercial paper market. On getting another loan from someone else...would you lend NYTCO more money right now? (There are certainly terms under which we would, but they are not terms that NYTCO would like very much.)

Conclusion

Will this cash crunch force the New York Times into bankruptcy? No. (Or at least not yet.) The company still has assets, and it is not yet burning so much cash that it can't take steps to save itself.

Those steps are likely to be unpleasant, though. And they will be taken at gunpoint.

Related Posts :

GM & Ford are running out of cash as liquidity worsens

Sources :

The Silicon Alley Insider: Cash Crunch At New York Times (NYT): $400 Million Due In May, November 8, 2008 6:50 AM

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.