Archive for July 2015

The emerging nation financing organization have been unrealistic in their economic loan assumptions? // True or False?

A Bloomberg report shows that the organizations that finance these huge emerging nation loans have badly miscalculated the economic prospects.

Unrealistic due diligence is a part of the reasons for failures like with Greece.

The organizations that finance should have relied on others for growth projections.

Having the people that write the loan checks make the assumptions is probably a bad idea.

Lesson learned is that they need a Plan B due diligence approach.

What do you think?

For example, in 2010, as Greece signed a bailout deal with the International Monetary Fund, who projected ability to pay and how.  Many of these forecasts of supporting loan growth and the future ability to repay were made by the IMF and the European Commission.

Reports suggest that the projections assumed such things as Greece’s debt-to-GDP ratio would peak below 150 percent of gross domestic product in 2012. Their forecasts also projected that Greek GDP in 2015 would be 8 percent larger than in 2011. T

his optimistic vision of the future was based on underlying assumptions that Greece would go from having the lowest productivity growth in the euro zone to instead having an improvement to becoming among the highest. That means becoming relatively as strong in some metrics as the productivity of Germany!

That’s incredible. Greece probably never had a chance.

Are the new 2015 assumptions going forward any better? Are the same rosy colored economic improvement forecast being made for loans elsewhere from Mongolia to Africa?

To read the entire article, go to http://bloom.bg/1gnRs2x Sent from the Bloomberg iPhone application. Download the free application at http://itunes.apple.com/us/app/bloomberg/id281941097?mt=8

Bloomberg report reveals how the middle class global growth is quite different then most interpret it to have been

From a Bloomberg report

How does that growing global middle class progress really stack up?

The first decade of the 21st century saw global poverty halved and the size of the global middle class nearly doubled. But don’t get too excited about the coming of a new engine of growth. Why not?

The “middle class” is a matter of thresholds, and they’re all relative.

MISLEADING STATISTICAL REPORTS in the past about the Growing Middle Class revealed in new report.

To read the entire article, go to http://bloom.bg/1CpdqM9 Sent from the Bloomberg iPhone application.

Here are a few highlights.

During the last measured decade, nearly 700 million people stepped out of poverty. What does that mean?

It means in part that the share of the world’s people living on $2 or less per day declined from 29 percent to 15 percent.

However, the majority of those people “took only a moderate step up the income ladder, changing their status from poor to low income”. That according to a Pew report.

Here is the new analysis of what occurred.

In 2011, more than 56% of the world’s population lived on $2-$10 a day.

Pew says that is why it has modified the definition of the middle class as those who live on $10-$20 a day. That would be about $14,600-$29,200 a year for a family of four.

The share of people within this redefined  income range rose from 7% in 2001 to 13% of the global population in 2011.

Was that the image of change you had?

CAT sees continuing slow economic market growth as of mid year 2015

Caterpillar continues to grapple with a slowdown in demand from mining companies.

On Thursday the Peoria, Illinois-based company reported lower second-quarter sales and profit.

It reported that it doesn’t see “sustained signs of improvement” in some important markets.

Its shares fell the most in almost six months.

What is your growth forecast?

Excellant due diligence analysis of changing rail values as companies by William Greenfield

This Is pretty thought provoking from an economics view of how railway operating companies can be valued as by investors in these changing times.

The logic is written by William Greenfield . Remember. This is just one benchmark approach.

WHY ARE most profitable railroad railroad company stocks down in mid year 2015 so far? Mr Greenfield points out that Railroads are in the transportation industry and for the last 15-20 years they have enjoyed one major advantage over all other forms of transportation – expensive oil. Other forms of land transportation, such as trucking, use more oil per ton-mile then a train. Therefore, when setting up a supply chain for distribution, an enterprise was willing to look at rails even though they aren’t the fastest or the most convenient (the train can’t go where the tracks aren’t laid).

Once you understand this connection he argues that you begin to see that railroads benefit from high oil prices. The senior railroad company managers know this.

He points to the commercials from rail companies like CSX Transportation (NYSE:CSX) that tell the listener how a train uses only 1 gallon of fuel to move 1 ton of goods over 480 miles.

While these commercials are telling you how great trains are for the environment relative to, say, trucks, they are also telling you their greatest economical advantage – not having to pay for a lot oil.

This of course also tells us that their greatest weakness. The weakness is cheap oil.

Due Diligence as an investor in rail companies.

In order to really get an idea of what we can expect from NSC, and really from any railroad going forward, Greenfield argues that we need to go back to a time when oil was last at ~$50/barrel (or lower) after adjusting for inflation.

Check the Seeking Alpha web site for his historical chart to see the detailed logic as his evidence.   (WTI Inflation-Adjusted (Chart from Macrotrends)

Log onto http://m.seekingalpha.com/article/3345245-norfolk-southern-6-degrees-of-oil?app=1&auth_param=d2tlu:1aqv27c:d0ceb761aa628f5514860c9326cfc30d&uprof=44

Brazil Development BNDES Bank // Did it loss 2 Billion Financing Junk-Rated Nations?

From a Bloomberg report… Jul 21, 2015

A Brazilian prosecutor investigating the national development bank’s deals abroad said he estimates more than $2 billion in losses because of loans to junk-rated countries…

The prosecutor, who is assigned to Brazil’s budget watchdog, said the losses are tied to $12 billion of loans from a workers fund that the BNDES state bank shouldn’t have been made because they were too risky and rates were too low. More than two-thirds of that cash funded projects from Angola to Venezuela by builder Odebrecht SA… …

Reports Bloomberg. “We’re questioning the real social benefits of these loans,” says federal prosecutor Marinus Marsico, who led the nine-month preliminary investigation.

“If BNDES’s goal is to promote national development, why was the bank allocating scarce funds to a couple of private companies overseas?”

As an example, political policy announcements of pending Brazilian funding for projects like railways in Ethiopia were being floated over the past two years.  It seemed odd to hear at the time.  Now we can speculate as to why.

To read the entire article, go to http://bloom.bg/1SzV1P8 Sent from the Bloomberg iPad application.

Download the free application at http://itunes.apple.com/us/app/bloomberg-for-ipad/id364304764?mt=8

A railway freight traffic rally? // Not with this 13 year record drop in Commodity Prices

Published by Bloomberg, Jul 20, 2015

Oil has been reeling for about a year; now gold is getting slammed—

Commodities are at a 13-year low.

How will this affect your strategic plans?

To read the entire article, go to http://bloom.bg/1MDRHk3

The Bloomberg Commodities Index dropped to a 13-year low Monday…

That is weaker than after the banking meltdown of 2008 and the euro-zone crisis of 2012.

From wheat, to copper, to natural gas, little has escaped the rout.

If your waiting to start your new commodities based railway, it is time to review your strategic assumptions..

China May Tip World Into Recession suggests a report by Morgan Stanley in Bloomberg

From Bloomberg, Jul 13, 2015

Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession.

True or False?  Do we have sufficient evidence of this argument?

To read the entire article, go to http://bloom.bg/1Gi6POT

The China stimulated recession is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 percent.

That 2 percent is a threshold he views as equivalent to a world recession.

If true, it would be the first global slump over the past 50 year without the U.S. economy also contracting.

China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley.

China is the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa.

China’s economic slowdown will thus have an enormous global impact from mines to railways and to ports.

The Latest Sign That Coal Is Getting Killed // What is rail freight impact?

From Bloomberg, Jul 13, 2015

Coal is having a hard time lately. U.S. power plants are switching to natural gas, environmental restrictions are kicking in.. Prices have crashed, sure,. But for a real sense of coal’s diminishing prospects, check out what’s happening in the coal bond market.

Bonds are where coal companies turn to raise money for such things as new mines and environmental cleanups. But investors are increasingly reluctant to lend to them. Coal bond prices tumbled 17 percent in the second quarter, according to an analysis by Bloomberg Intelligence.

It’s the fourth consecutive quarter of price declines and the worst performance of any industry group by a long shot. Bonds fluctuate less than stocks, because the payoff is fixed and pretty much guaranteed as long as the borrower remains solvent.

A 17 percent decline is huge, and it happened at a time when other energy bonds—oil and gas—were rising.

Three of America’s biggest coal producers had the worst-performing bonds for the quarter:

Alpha Natural Resources: -70 percent

Peabody: -40 percent

Arch: -30 percent

To read the entire article, go to http://bloom.bg/1Hq3RK3

About 17 percent of U.S. coal-fired power generation will disappear over the next few years, according to an analysis by Bloomberg New Energy Finance.

Railway coal traffic loss will hurt rail profits somehow. As the markets shifts, how will rail companies respond?

US Shale Oil Output Heads for Record Drop

From Bloomberg, Jul 13, 2015

Shale fields that powered the U.S. energy renaissance will suffer the biggest drop in output since the boom began after companies idled more than half their drilling rigs.

How many crude oil train sets may be stored?

To read the entire news report, go to http://bloom.bg/1DcEfyt

Production from the prolific tight-rock formations such as the Eagle Ford in southern Texas will decline 91,000 barrels a day in August  the Energy Information Administration said Monday.

About 645 rigs were drilling for oil last week, down from 1,609 in October, according to oil-field service company Baker Hughes Inc.

China May Tip World Into Recession // True or False?

Possibly correct.

Time will tell.

The bold  prediction is by Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 percent, a threshold he views as equivalent to a world recession.

If true, it would be the first global slump over the past 50 year without the U.S. economy contracting.

“The next global recession will be made by China,” Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters

“Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.” China accounted for 38 percent of the global growth last year, up from 23 percent in 2010, according to Morgan Stanley.

China is the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa.