Helping you navigate the new normal since 2001
The seeming genius of many private equity funds in recent years has been based on this ability to borrow at cheap rates during the ‘up’ part of the business cycle. Now we are heading into the ‘down’ cycle. And the central banks have abandoned Bernanke Theory and are back to worrying about inflation. So today’s excess leverage means many over-leveraged companies will go bust.
Evergrande’s default will only be the first of many. Companies and countries that have “bet the ranch” on China’s “perpetual motion machine” need to urgently decide how to minimise their potential losses, whilst there is still time
China’s ‘perpetual motion’ housing machine is starting to slow Read More
Chemicals are easily the best leading indicator for the global economy. And if the global economy was really in recovery mode, as policymakers believe, then the chemical industry would be the first to know – because of its early position in the value chain. Instead, it has a different message as the chart confirms: It […]
The post Chemicals flag rising risk of synchronised global slowdown appeared first on Chemicals & The Economy.
Chemicals flag rising risk of synchronised global slowdown Read More
The results of the central bankers’ great experiment with money printing are now in, and they are fairly depressing, as the charts above confirm: On the left are the IMF’s annual forecasts from 2010 – 2018 (dotted lines) and the actual result (black) Until recently, the Fund was convinced the world would soon see 5% […]
The post The tide of global debt has peaked: 8 charts suggest what may happen next, as the tide retreats appeared first on Chemicals & The Economy.
First, the good news. It has long been recognised that the UK economy is over-dependent on financial services, and that its housing market – particularly in London – is wildly over-priced in relation to earnings. The Brexit vote should ensure that both these problems are solved: Many banks and financial institutions are already planning to […]
Brexit a disaster for the UK, Europe and the world Read More
Over the past 20 years, the financial sector has captured an increasing share of the wealth created by the rest of the economy. At its peak before the Crisis, it accounted for 40% of all profits in the US corporate sector, allowing financiers to claim…
It is 5 months since the blog launched its IeC Downturn Alert, using prices from 29 April. It wrote then that:
“They don’t ring bells at market turning points. Otherwise, we could all retire to the Bahamas.”
But its argument was that a peak was li…
Financial markets have become increasingly nervous in recent weeks, since the blog last reviewed developments in global bond markets.
Its conclusion then was that investors are worrying more about return of capital, than return on capital, as we trans…
Last week’s New Normal seminar in Houston continued the success of the Singapore and Frankfurt events. It sparked lively debate about the major opportunities for future growth in the New Normal. These include:
• The over-55 age group in the West …
Political, Social concerns drive non-Western companies Read More
The brave new world of modern finance continues to amaze the blog.
It still has problems with the idea that the answer to having too much debt is to borrow some more. But last week’s Eurozone summit not only did this (as noted by the German central b…
The great film comedy Groundhog Day saw Bill Murray doomed to repeat the same day in his life, until he learnt to become a better person. Sadly, financial markets have yet to learn from his example.
Every quarter, the investment banks produce new sto…
Yesterday’s Scenarios hopefully provided valuable insight into the challenges ahead for companies and individuals. They also suggest some Critical Success Factors for achieving a successful transition to the New Normal, as set out in the chart above:
…
The transition to the new Normal is likely to be painful and long-lasting.
Future demand growth will be slower as the ageing Boomers spend less and save more.
More regular and deeper recessions are likely to become a feature of the global economy o…
Today’s economic situation is getting worse, not better. The blog believes this is because most policymakers still refuse to accept the wisdom contained in the Beatles’ ‘When I’m Sixty-Four’ song on their iconic Sgt Pepper album.
The Western BabyBoo…
US subprime lending was the starting point for the economic crisis now spreading around the world. The blog believes a key cause was policymakers refusal to accept that the ageing of the BabyBoomers (those born between 1946-70) would cause a major cha…
US housing starts fall as the BabyBoomers get older Read More
The chemical industry has a turnover of $3.4trn, and is the world’s 3rd largest industry. It matters to the global economy.
Many of its leaders are about to meet next weekend in Berlin for the annual European Petrochemical Association (EPCA) meeting….
Financial bubbles are like balloons. Only instead of air, they need to be constantly pumped up with new lending. Otherwise they begin to deflate, and the Minsky Moment occurs.
The above chart of China’s bank lending shows, as discussed last month, t…
The blog’s Boom, Gloom and the New Normal eBook highlights the impact of the ageing Western babyboomers on future demand patterns.
Yet central banks such as the US Federal Reserve and the European Central Bank believe demographics have nothing to do…
Many readers have been taking a well-earned break over the past few weeks. The blog also continues to gain large numbers of new readers, as the financial crisis intensifies. As usual, therefore, it is highlighting key posts during August, to help you…
All of us would love to be able to see into the future.
Chapter 4 of our new free eBook, ‘Boom, Gloom and the New Normal’, does just this.
It offers 10 predictions about how the world will look in 2021:
1. Young and old will be focused on ‘needs’…
The blog was in a minority of one when it launched its IeC Downturn Alert at the end of April.
But today, only a very few diehard optimists are still arguing the issue. GDP reports in Europe and the USA have shown virtually no growth in Q2, whilst Ch…
The blog is a great believer in the predictive power of the retail sector.
Wal-Mart and Tesco were the first to spot the downturn in the summer of 2007, a year before it became obvious to everyone else.
Now Wal-Mart’s problems are providing some impo…
China’s credit bubble is one of the largest the world has ever seen. This is true not only of its total size, but also in relation to GDP.
The history of credit bubbles is very clear about what happens next. Anyone who has followed the US subprime l…
Greece is about to become the first developed country to default on its debts since 1964. On Thursday night, Eurozone leaders finally agreed to reduce Greece’s €350bn debts, if only by 21%. They also agreed to take the first steps
Speculators, assisted by the US Federal Reserve, have driven crude oil prices to unsustainable levels over the past year. Now, the Fed is withdrawing the liquidity that has financed this rise. The above chart from Petromatrix shows the surge in
The chairman of the US Federal Reserve, Ben Bernanke, has issued a sober update on the current state of the US economy. Expressing his disappointment that growth this year “has been somewhat slower than expected“, he then listed a number
The blog is excited about its first New Normal seminar in Frankfurt, Germany next month. It follows February’s successful launch in Singapore, and is being held in association with ICIS, on 16-17 June. The Workshop aims to provide a comprehensive
Today, the blog is proud to publish the first Chapter of its new eBook: ‘Boom, Gloom and the New Normal: how Western BabyBoomers are changing global chemical demand patterns, again’ It is co-authored with ICIS’ John Richardson of Asian Chemical
The blog is delighted to announce the title of its new eBook, jointly authored with fellow blogger, John Richardson. It explains how Western BabyBoomers are changing chemical demand patterns, again. We believe it will become vital reading for all those
There has been a dramatic shift in cracker feedstocks in the USA over the past 2 years, as crude oil prices have risen. Many US producers have been able to switch to ethane feed, and as a result have become
The blog spent much of 2007/8 warning of the likely impact of high oil prices on chemical demand. It was then renamed ‘The Crystal Blog’ in November 2008, as the full extent of the problems finally became clear. Today we
The blog has an incredibly loyal following around the world. 24% of its readers visit twice a week, or more. They also recommend it to colleagues. Visitor numbers jumped 50% last month. The issue is the rising uncertainty over the
Crude oil has been a speculators’ paradise for the past 9 months. Central banks have been making large amounts of cash available at 0% interest. In turn, this has funded larger and larger speculative positions in financial and commodity markets.
The blog’s recent Asian visit revealed considerable anxiety about the state of demand in China. As its blogging colleague, John Richardson, has also described, the country’s lending cutbacks may finally be taking effect. New official figures for lending and electricity
The Financial Times reports two interesting facts: • Japan’s leading seismologist warned Tokyo Electric Power in June 2009 that “tsunamis of a completely different scale have come before” in the region of the Fukushima Daiichi nuclear plant. One, in 869,
The blog has built great loyalty amongst its readers. 24% visit it twice a week. Recently, as during the 2008 financial Crisis, it has gained many new readers. They also want to better understand developments in the Middle East/N Africa
China’s housing market seems to be facing the threat of a major downturn. That is the only conclusion to be drawn from the rising sense of concern being expressed by policymakers and the official media. Last year, China’s Academy of
February’s data on US auto sales contained good news, and not such good news, for the chemical industry. • The good news was that sales were relatively strong, as the chart shows (red line), although still below levels seen in
2010 was a remarkable year for chemical company profitability. Back in Q1, BASF’s Jürgen Hambrecht suggested that “the worst is behind us, even though dark clouds remain“. Results continued to improve in Q2, with Sinopec highlighting the importance of “state
Super-fast computers continue to increase their role in financial markets. They first came into prominence in H2 2009, when the ‘correlation trade’ began. Their role is nothing to do with price discovery, the traditional market function. Instead, they trade on
Super-fast computers lead financial markets under QE2 Read More
Recent days have seen some signs that the tectonic plates under current chemical and polymer markets may be starting to shift. The most important has been the rapid rise in inter-bank lending rates in Shanghai. As the chart shows from
In October 2008, the blog featured the US Treasury official responsible for running the $700bn TARP rescue fund. He was 35 years old, and just 6 years out of business school. Apparently there was nobody available with more experience to
Crude oil prices are now up 18% since the US Fed announced its QE2 Lifeboat policy at the end of August. This clearly justifies the blog’s faith in the ‘triangle pattern’ in September. The rise is mainly due to financial
China’s government tends not to like surprises. Its usual tactic is therefore to talk about policy changes well in advance. And this is what seems to be happening with regard to the real estate bubble. Back in September, premier Wen
The UK housing market has presented a confusing picture over the past 2 years. Unlike Spain, Ireland, or the USA, the lax lending conditions of the Boom years did not seem to lead to major price falls. In fact, along
US Fed Governor Kevin Warsh is one of the few policymakers to focus on reality rather than wishful thinking. He pointed out nearly 3 years ago that liquidity should not be mistaken for capital, although others continue to ignore this
So now its official. This week, the US Federal Reserve confirmed it was launching its ‘QE2 Lifeboat’. It will inject $600bn into the US economy, in yet another bid to kick-start full economic recovery. Clearly, this is a major initiative
As promised, the blog is today looking at a key European consumer trend, as part of its Budget Outlook week. 70% of chemical sales are consumer-related, so changes in these trends are very important. Earlier this month, it shared a
This is Budget Outlook week in the blog. And for the rest of the week, it is looking at a key issue in a major Region. Today, it highlights the US housing market. This used to be a $35bn market
When elephants fight, those around them need to be cautious. And this is the prospect for 2011-13, as the Western countries try to force the BRICs (Brazil, Russia, India and China) to export less and import more, the so-called ‘rebalancing’
If you only read one newspaper article this year on the economic outlook, then the blog would recommend Martin Wolf’s recent analysis ‘Why America is going to win the global currency battle’. Wolf is a former EPCA speaker, and he
Natural gas markets, so important in relation to chemical feedstock availability and pricing, are undergoing major change as we transition to the New Normal. The Middle East, which had been in surplus, is now moving to a more balanced position
The blog’s former ICI colleague, Tom Crotty, aptly summarised the mood of most petchem players at this week’s meeting in Budapest, Hungary, when telling ICIS’ Nigel Davis that “2011 is a very tough call to forecast”. Crotty is this year’s
Investors on Wall Street are no longer bothering with the boring detail of company performance. That’s the conclusion from a new study by Barclays Capital, on the correlation between movements in the S&P 500 and individual stocks. Instead, they are
The blog remains very concerned that, overall, the economic policies adopted during the current Crisis are leading the world economy to the worst possible outcome. This outcome is totally predictable. Indeed it has been predicted by reputable experts for some
Oil markets are now in their longest-ever period of contango. This is when prices for future months are higher than current levels. According to Bloomberg, they have now been in contango for a record 656 days. Keeping a barrel of
Anyone running a chemical company knows that the benefits of certain key decisions can take years to develop. Many companies had to support their nascent pharma businesses for 20 years, before steady profits began to flow. Whilst major complexes can
Many readers have been taking a well-deserved break over the past few weeks. As usual, therefore, the blog is highlighting key posts during August, to help you catch up as you return to the office. August has been surprisingly busy:
With the Chairman of the US Federal Reserve saying the outlook is “unusually uncertain“, its time to summon the chemical market genie. Of course, rubbing the lamp is not always successful. And if the genie does arrive, one can only
The blog has had a letter published in the FT this morning, which readers might like to see. It focuses on the problem of using EBITDA measures when analysing a company’s performance. It suggests that analysts should move away from
High quality 3 year government bond yields are now less than 1%, as shown in the above chart from thechartstore.com of the US Treasury market. US rates have not been this low since the 1940’s and 1950’s. This has also
“Humankind cannot bear very much reality” TS Eliot, 4 Quartets, 1936 Who now remembers the stock market rally that followed 1929’s initial collapse? By November 1929, the US Dow Jones Index had fallen to 195 from its September high of
The Drawn-Out Downtrend phase of the Crisis begins Read More
As noted by a blog reader last week, retail investors are throwing caution to the winds. Unwilling, or unable, to adjust their lifestyles to cope with lower interest rates on government bonds, they have rushed to instead buy higher-yielding ‘junk
Following on from the blog’s note yesterday, an investment banker reader passed on a similar insight from the high yield sector of the bond market. Currently, retail investors are desperate for income-producing assets, with global interest rates very low by
The blog is a great fan of Pimco, the world’s largest bond fund managers. They were the first people to spot the housing bust developing in the USA, and to suggest the scale of the damage it might cause. More
In business, as in war, defence can often be the best form of attack. This seems to be the principle behind Ineos’s announcement that they intend to build a 1 million tonne deep-sea ethylene terminal to feed their 340KT ethylene
Ineos’ Antwerp ethylene terminal a game-changer for Europe’s C2 business Read More
Force majeures can be very costly in a downturn, as they enable competitors to gain market share, whilst the business suffers a loss of revenue and earnings. Yet maintenance spend on plant and equipment, and training, is always a soft
The blog is awarding itself a pat on the back this morning. Last December, it made the bold forecast (given the widespread gloom at the time), that chemical companies would see “a strong H1“. Today’s regular snapshot of Q2 chemical
The US Federal Reserve and the American Chemistry Council (ACC) have joined the blog in expressing concern about the outlook for the US economy. And as the chart above of the US S&P 500 shows, financial markets have continued to
Fed, American Chemistry Council, worry about US economy Read More
Two months ago, on 8 May, the blog suggested that ‘Sell in May and Go Away” was likely to prove good advice this year. Since then, most major stock markets have fallen dramatically, with the S&P 500 down by 9%.
“Money makes the world go round” as the song from the musical Cabaret tells us. But the chart above, from BofA Merrill Lynch, suggests there isn’t too much money circulating in the world’s largest economy today. It shows M3 (the
A year ago, the blog launched its IeC Boom/Gloom Index. This was based on the concept that markets are driven by both sentiment and fundamentals. And whilst fundamentals can be understood by analysing hard data (eg auto sales, housing starts),
The blog’s White Paper, ‘Budgeting for a New Normal’, proved enormously popular when it was published earlier this year. ICIS therefore suggested that it would be useful to update it, 6 months later. This Update is now published. It looks
Its bad enough that many of the world’s major banks collectively lost $4 trn, whilst continuing to pay themselves $bns in bonuses. Equally sad was the fact that the heads of these banks seemed unable to understand the simple principle
The problems in US housing remain a major cause of concern for global chemical markets. As the above chart shows – from the American Chemistry Council (ACC) weekly report – housing starts (blue line) and building permits (red) are still
The blog has sometimes despaired of the cheer-leading and wishful thinking of too many leading policy-makers. As I argued in the Financial Times in March 2007, before the Crisis began, “they seem to confuse being market-friendly with being friendly to
Preparing for an Age of Austerity in public spending Read More
On 6 May, the blog warned that “it would be very nervous indeed about holding a long position” in crude oil. And as the chart shows, its fears were well-founded. Since 4 May: • WTI has fallen 19%, and $16/bbl,
Crude oil falls as markets reassess economic outlook Read More
The global economy and the chemical industry have been boosted, since the Crisis began in 2008, by massive government stimulus programmes in areas such as autos and housing. Now the International Monetary Fund (IMF) has released a new report, focusing
Paul McCulley of Pimco, the world’s largest bond fund managers, has been continually insightful about the lead-up to the current Crisis and its fall-out. He first alerted the blog to the work of Hyman Minsky, which is the best (and
Sell in May and Go Away” is the oldest rule in stock market investment. This week has certainly provided further support for it: • The major Western stock markets are down c8% • The major emerging markets are down between
Markets approach the “drawn-out fundamental downtrend” phase Read More
February was a milestone in US house markets. For the first time since December 2006, prices were higher than a year ago, according to today’s authoritative S&P/Case Shiller Index. But the rise in the 10 City and 20 City indices
INEOS CEO Jim Ratcliffe has told the Sunday Times that the UK government “refused financial help” last year, when sales collapsed. He revealed that: • The company had approached the UK government for help with liquidity, including deferral of VAT
The political firestorm inspired by the SEC’s citing of Goldman Sachs for fraud shows no sign of dying down. It has even inspired a Broadway song that describes how another hedge fund, Magnetar, allegedly made money out of betting against
LyondellBasell (LBI) is to exit from Chapter 11 bankruptcy on 30 April, 15 months after entering it in January 2009. The past 15 months have been an expensive lesson for those debt-holders who financed Basell’s purchase of Lyondell in July
We are often told that investment bankers are much cleverer than the rest of us. But sometimes, they do seem to lack common sense. Their behaviour since the Crisis, in paying out $bns in bonuses to the lucky few, seems
Every now and then, a single quotation summarises a complex situation. In August 2007, CitiGroup CEO, Chuck Prince, described their blindness to the financial crisis about to unfold. “We see a lot of people on the Street who are scared.
China’s demand has been the main driver for the global chemical industry over the past year. And prices on China’s Dalian polymers futures exchange have been a key indicator of the boom. But now, the rally seems to be running
Asian PE margins under pressure as oil prices rise Read More
A week ago, the BBC carried a report that PetroChina had completed “preliminary work” on a possible bid to buy a stake in Ineos’ Grangemouth refinery. The BBC quoted Ineos as confirming it was in talks with “a number of
UK media speculate over Ineos asset deals as EBITDA doubles Read More
By coincidence, the blog’s 6-monthly review of global stock markets takes place in March/September, so its review last March took place just as the market rally began. This week is therefore a good time to review developments since then. Russia
Further evidence that the West is moving into a ‘new normal’ can be seen in the rising number of Napa Valley wineries facing foreclosures. The concept, adopted by the blog for its recent 2010 Outlook White Paper, suggests that the
More evidence is emerging of the real estate bubble that China’s easy money policy has created over the past year. Wen Jiabao, China’s premier, has described property markets in some cities as now being like a “wild tiger“. And new
A year ago, the Dow Chemical stock price was below $6, giving the company a total market capitalisation of just c$7bn. Since then, Dow has regained the initiative in a very focused way. First, it sold Morton Salt for $1.7bn,
15% of Americans were either in foreclosure, or at least one payment overdue, according to the Q4 Mortgage Bankers Association survey. This is a record high, but the MBA sees some signs that the numbers may have peaked. It is
No wonder alarm bells were ringing in China’s central bank last week. The above chart (from China Daily) shows how total lending rebounded to $204bn in January, only 14% below the 2009 level. Total lending doubled during 2009 to $1.4bn,
One can only feel sorry for China’s government leaders. A year ago, they faced 23m unemployed, as their export markets collapsed in the West. In order to avoid major social unrest, they opted to unleash what the Wall Street Journal
SOURCE: WWW.CHARTOFTHEDAY.COMUS consumers were responsible for 16% of total world GDP in 2008. But their spending is taking a battering from the combination of high unemployment and high oil prices. Both are reducing end-user demand for chemical products. New government
The US government used to depend on China to fund its deficit. In 2006, China bought 47.4% of all US bonds issued. But last year, as the chart from the NY Times shows, China bought just 4.6%, leaving US investors
US housing is still limping along the bottom. December’s housing starts were only 0.2% above 2008 levels. Overall, 2009 saw just 554k starts, the lowest level for 50 years, despite the support of the $8k tax credit. During the Boom
Sometimes, a picture is worth 1000 words. That’s the case with this photo (used by most of the world’s major news media), showing President Obama with former US Fed Governor Paul Volcker by his side. Volcker’s re-emergence is the first
Will Beacham of ICIS interviewed me yesterday in London’s Trafalgar Square. Please click above if you would like to see the discussion. Or click here if you would like to see Will’s summary on ICIS news.
The downside of the credit bubble continues to impact the UK’s Premier League, and the blog’s own soccer club, Manchester United. Today’s Guardian notes that United were bought by the US Glazer family for £810m ($1.3bn) in 2005, using £540m
One by one, Western political leaders are coming to the conclusion that taxes on the banks need to rise. Last month, the UK proposed a 50% ‘super-tax’ on bonuses, on the grounds that “investment banks are making exceptional profits as
The Dalian polymers future market had a strong end to 2009. As the chart shows, Linear Low Density Polymer volumes (blue line) jumped to 44 million tonnes. The new PVC contract saw the same volume. But there are growing signs
Iceland, “the first country to be run like a hedge fund“, was the original warning sign of the current financial crisis. Today’s chaos in the country, following its rejection of the €4bn bank compensation deal agreed with the UK and
Anger takes centre stage at bankers’ $65bn bonuses Read More
Pity your poor Purchasing Director this week. They know the West is having a cold winter, but they have done their analysis and can show you slides, such as the one above from Petromatrix, that indicate the US has the
Chemical company CEOs need to act on high oil prices Read More
Blog readers have a wide range of interests. That is clear from the list below of the Top 10 posts in 2009. It also confirms the complexity of the chemical industry, and its fascination. In alphabetical order, it is as
The Financial Times reports today that Ineos has postponed plans for an initial public offering. It says this “was one of a range of options that had been considered by the company to strengthen its balance sheet, which was burdened
US auto sales last year at 10.4 million were the worst since 1982. Even this figure was slightly artificial, due to the support provided by the $3bn ‘cash for clunkers’ programme in the summer. This impact can be seen in
Extended downturns, of the type that we are now suffering, generally mark a transition period from one set of business conditions to another. I look at what might be in store for us during this transition, in this week’s edition
The blog is now 2.5 years old. Readership continues to grow, both within the chemical industry and its investment community. It is now read in 121 countries, and 2735 cities, versus 89 countries and 1244 cities a year ago. Readers
Paul Volcker was the last US Federal Reserve chairman who believed that a key part of its role was “to take away the punchbowl just when the party starts getting interesting“. He successfully brought inflation back to single figures during
“The more things change, the more they stay the same“. Or, as the blog’s French-speaking readership might say, “plus ça change, plus c’est la même chose“. When the blog started work in the chemical industry, in 1978, it was possible
UK Finance Minister Alistair Darling is widely reported today as being about to announce a ‘super-tax’ on bonuses paid to bankers working in the UK. The government’s argument, notes the BBC’s Robert Peston, is that “Investment banks are making exceptional
The blog has recently noted a major change of mindset in the financial community. As the Financial Times commented this week: “For the first time in a long time, banks seem to be in control of their lending policies. During
INEOS considers asset sale as it continues to re-shape its business Read More
The irresponsibility of some parts of the global banking system continues to upset the blog. First, there was news that several banks are planning to award themselves huge ‘bonuses’, based largely on their trading success. Yet the money they are
The US accounts for 23% of global GDP. Its economy is 3 times larger than the No 2 country, Japan. And most critically for the chemical industry, 70% of US GDP is consumer-based. Developments in US housing/construction, auto and electronics
The purpose of liquidity in financial markets is to enable price discovery. But when super-fast computers take over the trading, that purpose disappears. Instead, we have today’s “correlation trading“. Olivier Jakob of PetroMatrix demonstrates this with the above chart, which
Over the past year, much of the Western financial system has been on life support. Now the European Central Bank (ECB), like its peers, is grappling with the question of ‘What happens next?’ ECB Board member Lorenzo Smaghi set out
Gillian Tett, the blog’s favourite financial journalist, highlights today the rampant speculative behaviour in financial markets around the world. Quoting a senior banker, she notes that “highly leveraged short-term trades are back in vogue“. She adds that “traders feel stupid
“Never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.” Bank of England Governor, Mervyn King, proposing that banks should be
2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP. But a quick V-shaped return to the 2003-7 Boom years in terms of volumes/margins seems unlikely. Governments will worry
The blog has argued for some time that the chemical industry is facing a “new normal” as growth returns to the economy. Now US Federal Reserve Governor Dan Tarullo has helpfully spelt out some important changes that he expects to
Coal miners used to take a canary with them, to help detect poisonous fumes. If the canary stopped singing, then they knew there was a problem. This led to the concept of “the canary in the coalmine acting as a
The good news is that the IMF thinks that the economy may have stopped getting worse. The bad news is that it thinks it may be a long time before we get back to earlier levels of demand. The main
Recovery to be “weak by historical standards” – IMF Read More
When the G-20 met last April, it issued a Communiqué containing just 688 words. Its Pittsburgh meeting over the weekend produced a Leader’s Statement containing 9292 words. “More” does generally not mean “better” when it comes to writing action plans.
The blog believes that the landscape has changed during the current downturn. We came into it on the back of a major boom in consumption, supported by reckless lending and borrowing. This mind-set seems unlikely to return quickly. Instead, as
Some readers may remember the 2007 and 2008 reports from the Bank of International Settlements (the central bankers’ bank). In July 2007 the blog titled its summary ‘4 risks to the world economy’, and July 2008’s was titled ‘The difficult
Coincidentally, both the US Federal Reserve and the Bank of England yesterday signalled the probable end of the ‘the recession’ yesterday. But as the blog noted last month, statistics don’t tell the whole story. The issue is that economists usually
Last April’s G-20 Summit brought together the leaders of the major world economies. Yet in terms of their announced goals for the Summit, financial regulation seemed to be the only one that gained traction. That impression is confirmed by the
The US housing crisis is still getting worse, causing the weekend collapse of Guaranty Bank, the 11th largest US bank failure. As the Wall Street Journal notes, this marks a “new stage” in the banking crisis. Guaranty Financial had bought
The blog is very interested to see the different outlooks being proposed by central bank heads. US Fed Chairman Ben Bernanke claimed Friday that the financial crisis was due to “panic”, rather than fundamental problems such as reckless lending. As
Cerberus’ timing was clearly not very good with its Chrysler acquisition in Q3 2007. And Steve Feinberg, Cerberus co-founder, admitted this when he told the New York Times “we were too optimistic on timing. Maybe what we should have done
The blog’s favourite financial journalist, Gillian Tett, has written an excellent article summarising the similarities between today’s problems in the western banking system, and those of Japan’s during the ‘lost decade’ of the 1990’s. Her point is that although central
This year, China has been the one place in the world where almost anyone can get a loan. But now, it seems policy is about to change. Zhang Jianguo, president of the 2nd largest bank, China Construction, has announced a
Its not only the blog (and fellow blogger John Richardson), who worry about the speculative frenzy underway in China, and its impact on global polymer and chemical markets. Wu Xiaoling, former deputy governor of the central bank, has called the
Source: Chartoftheday.com There are “lies, damn lies, and statistics” according to Mark Twain, the famous American humorist. His argument was that statistics are often (a) untrue* and (b) used without the necessary context. Last week provided a perfect example of
The excellent weekly report from the American Chemistry Council (ACC) has a number of interesting insights: • As the chart shows, global chemical production seems to have bottomed. All regions are, however, now showing a decline versus 2008. • Separately,
There are two main views on the financial crisis that began last September. The mainstream view, as expressed by the US Federal Reserve, is that it was a problem of liquidity. Banks became frightened to lend, and so the Fed
As expected, Ineos have today confirmed that their proposed new covenants have now been accepted by their lenders. For those unfamiliar with the mechanisms used in the world of high-yield debt, this does not involve any new money, or a
In 2007, Sweden was the largest private equity market in Europe, as a percentage of the country’s GDP. And the local banks lent freely, as elsewhere, to fund investments. Now they, and other Nordic banks, are struggling to minimise their
Swedish bank takes over Top 50 European automotive supplier from private equity Read More
If you want a loan, go to China. That’s the message from the chart, courtesy of Credit Suisse, which shows the staggering growth in bank lending since the start of the year. Now, even the People’s Bank of China is
Source: Wall Street Journal Everybody’s favourite Christmas film is ‘Its a Wonderful Life’, in which the hero rescues a failing US bank during the Depression. But until today, the blog had never realised that a major role model for the
The chemical industry has benefited from a benign paradigm over the past 25 years: • Demographics in the west have encouraged consumption, as the baby-boom generation reached middle age • Globalisation meant this could be achieved at lower cost, by
Global downsizing needed to rebalance supply and demand Read More
Last month, the blog introduced its new Boom/Gloom Index, designed to track sentiment in financial markets. The chart above now updates it to reflect the whole of June. The Index has continued to move up, and is close to the
The blog is now 2 years old. Its readership is very loyal, and continues to grow. 64% of current readers bookmark the blog, and read it regularly. And it is now being read in 2088 cities and 111 countries –
Economic recovery can’t come soon enough for Ineos. After 7 months of negotiation, it has finally agreed new covenants for its €7.3bn of debt with its major lenders. These will now be put to all 230 lenders for approval by
The chemical industry is always a leading indicator of the global economy. One of the blog’s oldest friends used to be a central banker, and he made no secret of the fact that our discussions about demand levels were often
The great wave of destocking is finally coming to an end. And it is clear that underlying global demand is well below previous “normal” levels. The evidence for this can be seen in the above chart, based on American Chemistry
After destocking, chemical volumes still down 15-20% Read More
The blog’s close eye on Scotland’s media has again been rewarded this morning, as ‘The Scotsman’ reveals that Ineos have appointed Morgan Stanley, the investment bank, to advise on the sale of Grangemouth. It suggests that a company such as
The ‘Falkirk Herald’, based close to Ineos’s Grangemouth facility in Scotland, is not normally the place that the blog would look for news of the potential sale of a major part of the world’s 4th largest chemical company. However, that
Sweden is an influential adviser on credit crunch issues. This is because of the lessons it learned during its own major banking collapse in the early 1990’s, which has close parallels with today’s global crisis. Its central bank argues that
Industrial output decline follows Depression trend Read More
The European soccer transfer market is a good example of a market where sentiment often outweighs fundamentals. Research by London’s Cass Business School shows that transfer fees have only a 16% correlation with success on the pitch. They found that
Picture: www.businessoffashion.com A senior figure in the investment community told the blog recently that companies’ views on the outlook for the economy seemed to vary according to their own financial position: “the stronger the balance sheet, the more realistic (and
During the growth years, it became fashionable for politicians to claim that central banks were “independent”. But as the current crisis has grown, this has been increasingly exposed as a myth. As the blog noted back in September 2007, Alan
By the end of May last year, 6.2m autos had been sold in the US market, each containing $2700 of chemicals (according to the ACC). The total sales value to the chemical industry was $16.8bn. So far this year, just
Picture: www.amazon.com “Sometimes, I’ve believed as many as six impossible things before breakfast” said the Queen in Lewis Carroll’s famous book, ‘Alice in Wonderland’. Today would have been a good day for her to practise this ability, as she read
The 3 most popular posts in May were: Dow, Ineos focus on debt issues Rotterdam oil storage running out of space Green shoots likely to be yellow weeds The blog will be celebrating its 2nd birthday at the end of
My fellow-blogger, Barbara, cleverly spotted this week’s ‘Global Traders Summit’ in Singapore. Had this blog been there, it would have mentioned the latest, apparently fool-proof, way to determine stock market turning points, based on bankers’ interest in adultery. According to
Back in December, the blog analysed statements by King Abdullah, and concluded that Saudi Arabia had a ‘target range’ for oil prices of $75 – 100/bbl. Yesterday, this analysis was confirmed by Saudi Oil Minister, Ali Naimi, who said the
The Financial Times today highlights the overwhelming importance of falling US house prices to the outlook for the global economy. It notes that prices are now falling by 2.2%/month, causing a $380bn wealth loss in March alone. It adds that
US house prices are still seeing “record declines” according to today’s Case-Shiller home price index. The national price was down 19.1% from March 2008, and 32% from the Q2 2006 peak. As before, the over-built Sunbelt led the way, with
US house prices, building permits, see record declines Read More
Dow and Ineos are two of the world’s largest chemical companies. Both found themselves in tight financial situations at the start of the year. Dow’s debt rating was cut to just above junk, whilst Ineos had to ask for covenant
The full extent of the recent damage to chemical industry output can be seen in the above chart, based on new figures from the American Chemistry Council. The story is stark: • Global chemical output was down 14% in March,
It is now generally accepted that reckless lending has helped cause the greatest collapse in the global economy since the Depression years of the 1930’s. Yet many bankers still maintain it is vital they continue to pursue “innovation” of the
The high level of speculation accompanying China’s apparent economic revival worries the World Bank. “Until we see a recovery in private investment, it’s hard to get too excited about the future,” according to David Dollar, the Bank’s country director for
Back in April, the blog noted that stock markets had embarked on “their 7th bear market rally since October 2007”. So far, it has been the most impressive of them all, with the S&P 500 rising 40% between 6 March
Only 8 countries saw house prices rise, adjusted for inflation, in 2008, out of 32 major property markets. And according to Global Property Guide, “downward price momentum significantly accelerated” in Q4, with 9 countries seeing 5% price falls. As the
More details are now emerging of the US government’s plans for Chrysler. Initially President Obama said he hoped the bankruptcy process would only last 60 days. But according to Bloomberg, the administration now accepts that this period will just cover
In July 2007, the US Federal Reserve warned that “credit concerns were spreading” and estimated that total bank losses due to US sub-prime loans could reach $100bn. Yet now, after the conclusion of its “stress tests”, the Fed says total
US Fed supports Wall Street earnings, ignores corporate sector risks Read More
The European Commission has again reduced its growth forecast for the EU. It now sees a 4% decline in GDP this year, and for the first time is suggesting that recovery will be delayed until mid-2010. As a result, it
EU sees 11% jobless; US banks raise interest rates Read More
The International eChem team are very experienced in turnarounds and restructurings. We have undertaken these both as employees within our former companies, and then as advisers. This has taught us to be alert for the ‘tipping point’, when a situation
Chrysler. Yesterday, Chrysler entered bankruptcy. It will idle most of its US plants during the court proceedings. The government hopes the bankruptcy can be finalised in a “quick visit” of just 30-60 days. But even if this can be achieved,
BASF, the world’s largest chemical company, said today that they see “weak demand for chemical products” continuing through 2009. In response, plants and sites “will be closed or sold where necessary”. These are clear statements about the outlook, backed up
It seems highly likely that GM, the largest US car manufacturer, will enter Chapter 11 bankruptcy proceedings in the next few weeks. Chrysler, the 4th largest US company, may well follow them. Even if it avoids bankruptcy, GM’s own restructuring
Stock markets may have rallied over the past month. But the International Monetary Fund (IMF) sees no cause for optimism. In March, it thought the economy would contract by 0.5% – 1.0%. Now, it is forecasting a contraction of -1.3%
The blog’s chemical career began with selling raw materials to the paint industry during the recession of the early 1980’s. Since then, it has always regarded the decorative paint sector as an excellent real-time indicator of underlying economic conditions. Today’s
The prospect of bankruptcy is finally sharpening the knife at GM. As the blog noted last month, inventories are at astronomical levels. 781000 vehicles were in stock at the end of February, and this figure had only dropped by 15000
Parts of Europe are now following the US lead and seeing deflation. Spain saw prices fell 0.1% last month, for the first time since records began in 1961. In the UK, the retail prices index fell 0.4%, to register the
The blog was never convinced by US Treasury Secretary Paulson’s efforts to manage the financial crisis. Its view was that Paulson avoided the real issues, and focused instead on trying to boost market sentiment. Worryingly his successor, Tim Geithner, seems
The above chart is a real ‘labour of love’ by the American Chemistry Council. It represents their best statistical effort to model: • Change in inventories for the major thermoplastics • Change in underlying demand for them, down the value
US thermoplastic stocks fell 31% from 2008 peak, demand fell 17% Read More
The last 6 months have been traumatic for many parts of the chemical industry. The next 2 or 3 years may well continue to be very difficult. How should your company best position itself to survive? That is the key
Downturns are difficult times. There is always the hope that markets might improve, and this can delay the implementation of tough decisions on plant closures. Nobody wants to shut down, and then see a competitor benefit from an improving market.
CLICK HERE FOR PDF VERSION Recently the blog has identified a number of signs that US housing and auto markets are stabilising, at least temporarily. This should feed through into chemical demand during Q2, and enable production volumes to show
To misquote the famous HL Mencken phrase, “nobody ever went broke under-estimating the losses caused by the credit crisis”. Initially, Fed chairman Ben Bernanke estimated the losses at just $100bn. Then, a year ago, the IMF said its estimate was
Benzene is the blog’s favourite leading indicator of chemical industry demand. It is one of the most widely used products and, as a liquid, it is also widely traded. Its recent successes as an indicator include calling a peak on
Tom Hicks was a major player in private equity, but then moved on to sports investment via his Hicks Sports Group (HSG). He owns the US Texas Rangers baseball and Dallas Stars ice hockey franchises, as well as a 50%
The blog is delighted that the Financial Times’ Gillian Tett has been named Journalist of the Year, in the annual UK awards. She was the first journalist to call attention to the dangers developing in financial markets, and has been
The blog has been reading the G-20 communiqué, and various news reports, to understand whether the London summit answered the 5 key questions it raised in advance of the meeting. Reuters provides a good summary of the outcome in terms
The blog still finds it hard to adjust to Dow Chemical’s current financial status, following the K-Dow/Rohm & Haas episode. But facts speak for themselves. Earlier this week, S&P lowered Dow’s debt rating to just above junk grade, on completion
Leaders of the G-20 represent 85% of the global economy, and 65% of world population. Set up by Finance Ministers after the Asian crisis in 1997/8, they first met at Heads of Government level in the USA last November. Sadly,
Source: Chartoftheday.comUS house prices remain on a “downward path” according to today’s latest S&P Case-Shiller house price index. S&P report that in terms of nominal prices (including inflation), “average home prices across the US are now at similar levels to
There had been speculation that President Obama’s mid-West background might tempt him to take a soft line on the troubled automotive industry. But his comments on Thursday that there has been “a lot of mismanagement of the auto industry over
US new home sales began falling in 2005, when they peaked at 1.4 million a month. Last month, as the above chart from the ACC weekly report shows, they were down to just 337,000. Similarly, new home inventory has risen
Last month, the blog supported former US Treasury Secretary Brady’s argument that ‘mark to market’ accounting rules were helping to worsen the current financial crisis. It therefore welcomes the decision by the US Financial Accounting Standards Board to revise its
ICIS Chemical Business has just published my article, ‘Low-cost operation key to survival’, which discusses business strategies for surviving the downturn. Please click here if you would like a copy. You can also hear a radio interview with ICB Deputy
Human beings go through a number of stages when confronted by major change. As first described by Elisabeth Kübler Ross, the process starts with: • Denial that any change is taking place • Then anger at the implications of the
Anger replaces Denial, as financial crisis evolves Read More
The G20 represents over 85% of the world’s economy. And there is certainly no shortage of major issues for government leaders to discuss when the G20 meets next month in London. But the blog is not over-hopeful about their ability
The blog has always had enormous respect for Dow. This was due to their ability to manage unconventional risks, in a way that other chemical companies (such as the blog’s former employer, ICI), found impossible. Even when things went wrong,
The world’s major financial institutions become more pessimistic each time they report on the economic outlook. 6 weeks ago, the blog noted that the IMF expected “the global economy to come to a virtual standstill in 2009”. Today, the World
The chart above represents a sad story, with all major stock markets now down at least 48% since their peaks in 2007/8. When the blog last reviewed performance in September, Shanghai had been the worst performer, down 69% from its