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GM’s Widening Truck Inventories Risk Return to ‘Bad Habits’ of 2008 - (www.bloomberg.com) General Motors Co. (GM) stocked Jim Ellis Chevrolet in Atlanta with plenty of Silverado full-size pickups in early 2011, part of a wager on a strong economic recovery. The strategy is backfiring. “We thought that this year would bring back the kind of economic activity that would translate into us selling more trucks,” Mark Frost, the dealership’s general manager, said in a phone interview. “It’s not happening.” Supply of Silverado has ballooned to 6 1/2 months worth at the dealership, a figure Frost, 52, calls “a little scary.” The Detroit-based automaker, 33 percent owned by the U.S. after its 2009 bankruptcy, has 280,000 Silverado and GMC Sierra pickups on dealers’ lots around the country. If sales continue at June’s rate, that would be enough to last until November. After GM’s truck inventory swelled to 122 days worth of average sales, the company said 100 to 110 will be normal going forward for such a large and complex line of vehicles, compared with 60 to 70 days for most models. Peter Nesvold, a Jefferies & Co. analyst, isn’t convinced. Ford Motor Co. (F), which makes similar trucks, is running at 79 days, and Nesvold says GM averaged 78 days on hand at year end from 2002 to 2010.
U.S. State Cuts Hit Health Care and Education, Help Bondholders - (www.bloomberg.com) Florida is firing 1,300 workers. New York is cutting education funding and freezing public employee wages for three years. Arizona is slashing Medicaid coverage. And municipal bondholders are having their best year since President George H.W. Bush was in the White House. Over the past six months, governors and lawmakers balanced their fiscal 2012 budgets and protected their credit ratings on the backs of public employees, school districts, cities and Medicaid recipients, all of whom bore the collective brunt of budget-cutting in states from New Jersey to Wisconsin to California. While deficit pressure produced deep cuts in services to taxpayers, bondholders who placed their bets on municipal debt reaped the benefits of the market’s best second-quarter performance since 1992, even after analyst Meredith Whitney predicted as many as 100 municipal defaults valued in the “hundreds of billions of dollars.”
China’s Local Government Lending Understated by $540 Billion, Moody’s Says - (www.bloomberg.com) Chinese banks’ loans to local governments are about 3.5 trillion yuan ($540 billion) more than the national auditor’s estimate, and the industry’s credit outlook could decline, Moody’s Investors Service said. “The Chinese audit agency could be understating banks’ exposure to local governments,” Yvonne Zhang, a Moody’s analyst in Beijing, said in the report today. The “apparent absence of a clear master plan to deal with this issue” is likely to exacerbate problems and lenders may be left to manage a portion of the souring loans on their own, it said. Bank shares fell and bond risk rose on concern that the banks will be unable to absorb losses on defaults should property prices drop. Moody’s estimates that local governments’ debt is about a third more than the audit office’s findings last week of 10.7 trillion yuan. Non-performing loans could reach as much as 12 percent of total credit, it said.
Could Italy Be Next European Domino to Fall? - (www.bloomberg.com) In recent days, Greece’s parliament adopted new austerity measures and Europe’s finance ministers approved another round of Greek loans. So the European debt crisis is under control, right? Probably not. One obvious reason is Standard & Poor’s July 4 threat to declare a default if banks roll over Greek government bonds coming due over the next year. That could force everyone back to the drawing board. Less obvious, but no less worrisome, is Italy. With a precarious fiscal picture, it could be the next to come under pressure. And this time, U.S. banks are in the line of fire, with about $35 billion in loans to Italy and potentially more exposure to risk through derivatives markets. U.S. regulators should call for a new round of stress tests that assume sovereign-debt restructurings in Europe and take a realistic view of counter-party risks in opaque markets such as foreign exchange swaps. Based on those tests, the biggest banks probably need to suspend dividends and raise more capital as a buffer against losses.
Dick Bove: NYC Politicians Want To Completely Eradicate Wall Street From The City - (www.businessinsider.com) New York politicians know what their constituents want. They want the financial industry punished. They want Wall Street moguls punished. They want the CEO of the largest financial companies in the world to make less money than the third baseman of the New York Yankees. The hue and cry to get those rich bankers will never die in old New York. It will not die until there are no bankers left on Wall Street. There are no major banking firms headquartered on the physical location known as Wall Street. The two major brokerage firms left in New York have indicated that they intend to cut their costs by a billion dollars apiece in the next three years. To do this they will reduce employment in New York. They will move functions to India, China, and Japan. The fact that the physical place known as Wall Street is no longer the conceptual place known as Wall Street is significant.
OTHER STORIES:
Funds Cut Commodity Bets to One-Year Low on Growth Outlook - (www.bloomberg.com)
Spanish, Italian Bonds Decline, Widening Yield Spread to German Bunds - (www.bloomberg.com)
Analysis: China tries to shine a light on "shadow" loans - (www.reuters.com)
Euro Trades Near Three-Week High as ECB Seen Tightening Faster Than Fed- (www.bloomberg.com)
German Bonds Rise; Spanish, Italian Bonds Decline on Greek Default Concern - (www.bloomberg.com)
China Banks’ Outlook May Be Souring on Loans - (www.bloomberg.com)
Greece’s First Bailout Faces Scrutiny From Germany’s Top Judges Tomorrow - (www.bloomberg.com)
China Still Faces Inflationary Pressure, Central Bank Says - (www.bloomberg.com)
China central bank says to stick to prudent monetary policy - (www.reuters.com)
Europe Faces Tough Road on Effort to Ease Greek Debt - (www.nytimes.com)
Wal-Mart, Ikea Lead Retailers’ China Land Buying - (www.bloomberg.com)
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