P&G, Big Companies Pinch Suppliers on Payments

April 16, 2013, 10:55 p.m. ET

P&G, Big Companies Pinch Suppliers on Payments

By SERENA NG

Procter & Gamble Co. PG -1.30% is planning to add weeks to the amount of time it takes to pay its suppliers, a shift that could free up as much as $2 billion in cash for the consumer products giant, people familiar with the matter said. P&G could use that cash to fund investments in new factories overseas or to help pay for stock buybacks. That added flexibility, however, will come at the expense of the companies that supply P&G with materials or services. The suppliers will have to tie up more of their own cash in receivables or eat the interest costs charged by banks to bridge the gap until P&G pays its bills.

The move highlights how America’s biggest companies continue to build on the aggressive cash management practices they adopted in the wake of the credit crisis. What began as a way to preserve cash when markets dried up a few years ago has become a means of freeing up money to fund expansions, buy back stock and support dividend payouts at a time of lackluster sales growth and shrinking profit margins. Read more of this post

Heading off a China-style Subprime Mortgage Crisis; This debt is worrying not only because of its size. Worse, it is not transparent and we don’t know how it will be handled.

04.17.2013 18:27

Heading off a China-style Subprime Mortgage Crisis

The risk from ballooning local government debt is enormous, and to address this problem the government must learn to play its proper role

Warning of local governments’ high exposure to bad debts, the credit agency Fitch recently downgraded China’s long-term local-currency rating from AA– to A+. Officials should take note: the downgrade underlines how closely international markets are watching developments in the country.

Local government debt is nothing new, but the amount has been modest – until recently. The government’s pursuit in 2008 of a 4 trillion yuan stimulus package has pushed debt levels sky-high. The continuing growth of the shadow banking system is also a source of hidden risk.

Just how big is the debt? The National Audit Office says local governments had 10.7 trillion yuan of debt at the end of 2010. The National People’s Congress budget report, meanwhile, said principal repayment of local government bonds last year totaled 200 billion yuan. Some experts estimated a rise last year of 1 to 2 trillion yuan. Even based on conservative estimates, local government debt may now exceed 12 trillion yuan.

This debt is worrying not only because of its size. Worse, it is not transparent and we don’t know how it will be handled. Particularly of concern is the tendency of Chinese officials to let political expediency override economic sense. Read more of this post

China CITIC Bank Caught Up in Financial Fraud Case Over Wealth Management Product (WMP) Sold By Bank Employee

CITIC Caught Up in Financial Fraud Case – Economic Observer Online – In-depth and Independent

Photo: Protestors hold up a banner calling for the return of their money 
Source: China Internet Information Center
Apr 17, 2013
Translated by Liu Jingyue

Frustrated customers recently protested in front of a branch of China CITIC Bank in Zhengzhou. The protestors were calling for the return of a total of 40 million yuan that they had invested in a wealth management product (WMP) that they say was sold by an employee of the bank in 2011. Details of the case were reported by China Internet Information Center (中国网) yesterday. According to the report, employees at a branch of China CITIC Bank in Zhengzhou, the largest city in the central province of Henan, sold unauthorized financial products without the permission of the bank to 110 customers. Guo Wenya (郭文雅), the former vice director at the branch sold the WMP to several customers in 2011, promising returns that were 10 times what customers would earn if they parked their money in ordinary deposit accounts. Guo is reported to have used the money to make high-interest rate loans that were not paid back. Read more of this post

A Closer Look At Today’s German Stock Market Flash Crash; Egan-Jones Downgrades Germany From A+ To A, Outlook Negative

A Closer Look At Today’s German Stock Market Flash Crash

Tyler Durden on 04/17/2013 19:46 -0400

While most of the US was in deep REM sleep, the Germany stock index, the DAX, had a flashback to May 2010: starting at 3:44 am EDT, in the span of 6 minutes or much faster than the gradual drop that led to the US flash crash from three years ago, the DAX went from well and solidly-bid to having zero liquidity… and dumping nearly 200 points in the process. Whether it was rumors of a (subsequently validated) rating agency downgrade, or just an algo testing its quote stuffing ability, the moves showed vividly that when the current rosy paradigm shifts abruptly and violently, all those hoping to be the first out of the door and hit the sell button, simply won’t be able to do so. Because sadly there is no such thing as a free “4 year long zero volume levitation” – one must always pay the piper in the end.

Charts below from Nanex: June 2013 DAX Futures Depth of Book. Shouldn’t demand increase as prices drop? Only if it is demand for physical gold it seems.

Egan-Jones Downgrades Germany From A+ To A, Outlook Negative

Tyler Durden on 04/17/2013 15:41 -0400

4/17/2013: Federal Republic Of Germany: EJR lowered A+ to A (Neg.) (S&P: AAA) (3413Z GR)

Although Germany’s credit metrics are respectable, the country has exposure to its banks and the weaker EU members. Deutche Bank has adjusted shareholders’ equity to asset near 2% and might need EUR 100B of support. Via the ECB’s Target 2, Germany is owed EUR700B of which perhaps 50% is collectible and then there is the banks’ southern EMU exposures. Germany’s debt to GDP was 80.6% as of 2011. However, increasing Germany’s debt by EUR500B raises the adjusted debt to GDP to 100%. The deficit to GDP of .8% is reasonably strong. Unemployment is 6.9% but will probably rise as global economies continue to show weakness. The positive (EUR16.8B) balance of trade (per GFSO) and the positive EUR5.59B current account (per the OECD) help. Inflation has been moderate at 1.4% (per GFSO). Chancellor Merkel continues to resist calls for EU bonds (shared liabs.) and money printing and is pushing for fiscal controls and the seniority of bailout funding. Germany is likely to be outvoted by other ECB members and therefore will have greater prospective exposure. Watch for the EFSF and the ESM morphing into banks (thereby depressing eventual recoveries) and a rise in the number of euros. Watch progress on the EU banking union. We used the IMF’s data for Germany’s debt which is greater than Eurostat’s data.Downgrading.

China’s Animal Apocalypse Spreads To Dogs

China’s Animal Apocalypse Spreads To Dogs

Tyler Durden on 04/17/2013 15:24 -0400

First it was floating dead pigs, then ducks, then black swans, then mass chicken exterminations, then fish, and now more pigs and also a brand new entrant to the Chinese animal apocalypse: dogs. AP reports that hundreds more pigs have been found dead in China – this time together with dozens of dogs. “A total of 410 pigs and 122 dogs were discovered in homes and at farms earlier this week in a village that comes under Yanshi city’s jurisdiction in central Henan province, authorities said Wednesday. The city’s propaganda office said that the deaths were being investigated but that they suspected they had to do with nearby chemical factories. The factories have been ordered to suspend production and help police with a criminal investigation into the incident, according to a report on a Henan provincial news website.” One would assume that something is responsible for these mass animal  deaths, and one of these years, not the propaganda office, but someone actually accountable (so not CNN) will report what it is. Although we are not holding our breath, which if one were to live in Beijing, would not be a bad idea.

No poisonous gases have been found in tests on the air around the village and its drinking water has met quality standards, said the report, which the propaganda office confirmed. Local authorities said the deaths have nothing to do with any epidemic or the H7N9 bird flu virus that has recently spread to humans. Last month, more than 16,000 dead pigs were found in rivers that supply water to Shanghai. The dumping has not been explained, though police had been cracking down on the illegal sale of pork products made from dead, diseased pigs.  Read more of this post

Buffett Mocking Gold Sidesteps Slump As He Bets on Stocks

Buffett Mocking Gold Sidesteps Slump As He Bets on Stocks

Investors including hedge-fund manager John Paulson faced losses this week as gold suffered its biggest rout in three decades. Warren Buffett told them there were better places to put their money.

The billionaire chairman of Berkshire Hathaway Inc. (BRK/A) cautioned against investing in the metal in February 2012, when an ounce sold for more than $1,700, because it’s not productive like a farm or company. Gold fell 14 percent to $1,348.21 in the two trading days through April 15, the biggest decline since 1983, and wiped out almost $1 billion in Paulson’s wealth. Prices rebounded to $1,384.71 at 10:51 a.m. in New York today.

“What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” Buffett wrote last year in a letter to shareholders. “During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth — for a while.”

Buffett, 82, has said his preference is to build Omaha, Nebraska-based Berkshire by investing in companies, such as chemical maker Lubrizol Corp., which he bought in 2011. Since his comments about gold, his firm has struck a deal with Jorge Paulo Lemann’s 3G Capital to take HJ Heinz Co. private, acquired more than two dozen daily newspapers, bought retailer Oriental Trading and added to its $87.7 billion stock portfolio. Read more of this post

IMF Sees Some Corporate Debt Unsustainable in Parts of EU

IMF Sees Some Corporate Debt Unsustainable in Parts of EU

As much as 20 percent of non-bank corporate debt in the weakest euro-area economies is unsustainable and may force companies to cut dividends and sell assets, dealing further blows to investor confidence, the International Monetary Fund said.

Businesses (SXXP) in Italy, Spain and Portugal have the largest “debt overhang,” according to the IMF’s Global Financial Stability Report released today, which analyzed 1,500 publicly traded non-financial European firms. Strains in the corporate sector may in turn hurt banks’ asset quality, the report showed.

“Firms in the euro-area periphery have built a sizable debt overhang during the credit boom, on the back of high profit expectations and easy credit conditions,” the IMF said. Now they “face the challenge of reducing the debt overhang in an environment of lower growth and higher interest rates, in part related to financial fragmentation in the euro area.”

European policy makers are struggling for ways to give companies in the so-called periphery access to affordable credit even after the European Central Bank’s plan to purchase bonds of debt-burdened countries. The IMF report defined the periphery as Cyprus, Greece, Ireland, Italy, Portugal and Spain. Read more of this post

Mongolia Says Rio Mine Audit Seeks Answers on $2 Billion Cost Overrun

Mongolia Says Rio Mine Audit Seeks Answers on $2 Billion Overrun

Mongolia said it’s undertaking an audit of Rio Tinto Group (RIO)’s Oyu Tolgoi operation as it seeks to understand the reasons for an alleged $2 billion cost overrun at the mine where output is due to start in June.

“We are checking procurement documents and expenditures,” Finance Minister Chultem Ulaan told reporters yesterday in the capital Ulaanbaatar. “No one understands why the project has gone $2 billion over budget, so we are checking this.”

The $6.6 billion Oyu Tolgoi mine will be the largest contributor to Mongolia’s economy and is estimated to account for one-third of the nation’s gross domestic product by 2020. The government’s audit team is studying what equipment was bought for the mine and its cost, said Ulaan. The operators of Oyu Tolgoi have brought in a foreign auditor, he said. Read more of this post

The Cypriot government plans to sell part of its gold reserves within the next months, Finance Minister Haris Georgiades said

Cyprus Central Bank Must Approve Gold Sale, Finance Chief Says

The Cypriot government plans to sell part of its gold reserves within the next months, a decision that needs to be approved by the country’s central bank, Finance Minister Haris Georgiadessaid.

“The exact details of it will be formulated in due course primarily by the board of the central bank,” Georgiades, 41, told Bloomberg TV’s Ryan Chilcote in an interview in Nicosia. “Obviously it’s a big decision.”

Cypriot President Nicos Anastasiades is trying to unlock 10 billion euros ($13.2 billion) of loans from the euro area and the International Monetary Fund. To do so, he must come up with a further 11 billion euros through measures including a tax on bank deposits of more than 100,000 euros at the country’s two biggest banks and the sale of assets and gold.

An April 9 debt assessment by the European Commission said Cyprus had committed to selling about 400 million euros of “excess” gold reserves, prompting gold futures to fall the most in five months. In response to the disclosure, the Central Bank of Cyprus said it wasn’t considering a sale. Read more of this post

Minxin Pei: China’s Dream World; Political slogans, however high-sounding, become stale when their purveyors fail to make good on their promises

China’s Dream World

Minxin Pei is Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States.

16 April 2013

CLAREMONT, CALIFORNIA – Ruling elites almost everywhere – whether in democracies or in authoritarian regimes – believe that clever sloganeering can inspire their people and legitimize their power. There are, of course, crucial differences. In functioning democracies, government leaders can be held accountable for their promises: the press can scrutinize their policies, opposition parties are motivated to show that the party in power lies and cheats. As a result, incumbents are frequently forced to carry out at least some of their promises.

Autocratic rulers, by contrast, face no such pressures. Press censorship, repression of dissent, and the absence of organized opposition allow rulers the luxury of promising whatever they want, with no political consequences for failing to deliver. The result is government of the sloganeers, by the sloganeers, and for the sloganeers. Read more of this post

China has over-invested in itself: IMF official; The government has extracted money from the population to help pay the huge cost of maintaining its rapid growth

China has over-invested in itself: IMF official

Staff Reporter, 2013-04-17

China has over-invested its resources domestically, according to a report by Li Yiheng, chief representative of the International Monetary Fund in the country.

Domestic investment has accounted for about 50% of China’s GDP, which is far higher than the 12%-20% average found around the globe, said the report. The situation is primarily due to large investments by the government to try to overcome the negative effect of the global financial crisis during the period 2007-2011.

Though the over-investment will not immediately cause a crisis, the government should keep an eye on the possible negative effects, said Li, adding that loans made for the purpose of investment projects will become a burden on the nation’s population.

The country’s outstanding economic growth was the result of long-term large-scale investment over the past 20 years, said Li. The government has extracted money from the population to help pay the huge cost of maintaining its rapid growth and has only recently tried to slow down investments and promote local consumption, said Li. Read more of this post

Asia slowly losing its luster – Nomura

Asia slowly losing its luster – Nomura

By Prinz P. Magtulis (The Philippine Star) | Updated April 15, 2013 – 12:00am

MANILA, Philippines – Strong economies in the Asian region are slowly losing their luster as the low interest environment here and abroad is beginning to cause some problems, an investment bank said.

“We are becoming more concerned that Asia’s once solid economic fundamentals are deteriorating,” Nomura economist Rob Subbaraman said in the bank’s Asia Economic Monthly report. Read more of this post