US homes, autos, decline and decay all around I see - as Paulson sprinkles more money dust on GMAC

Key US indicator Home the S&P/Case-Shiller Home Price Index through to end October 2008 was published today - showing house price declines of existing single family homes across the United States, worsened in 4th Quarter 2008.

The standard 10-City and 20-City Composites set new records, with annual declines of 19.1% and 18.0%, respectively this brings prices back to their March, 2004 levels.” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s

Manufacturing declines in Mid - West 10% Year on Year

The federal reserve Bank also published their Chicago Fed Midwest Manufacturing Index (CFMMI) covering manufacturing activity in lllinois, Indiana, Iowa, Michigan, and Wisconsin.

The Index decreased 1.6% in November, to a seasonally adjusted level of 96.4 (2002 = 100). . Regional output in November was down 10.8% from a year earlier.

Three of the four regional industry sectors decreased in November:
* Regional steel sector output declined 4.3%;
* Regional machinery sector output moved down 2.0%;
* Regional resource sector output decreased 1.9%; and
* Regional auto sector production increased 1.1%. - however The Midwest’s automotive output was down 24.0% in November relative to its year-ago value, and the nation’s auto output was down 15.7%.

Kerkorian pulls out of Ford - Finally

Billionaire investor Kirk Kerkorian's Tracinda Corp. held a 6.5% stake in Ford earlier this year (bought at average of US$7.10) and he has sold the lot - Ford closed at US $2.22 on Monday.

Meanwhile the US Treasury continued to pursue it's insane plan to extend consumer credit by shoring up GMAC LLC the financing arm of General Motors Corp., with US$6 billion in their continued and wasteful effort to keep the largest U.S. automaker out of bankruptcy.

Under the stupid plan The Treasury will purchase a $5 billion stake in GMAC and lend $1 billion to GM so the automaker can contribute to the lender’s reorganization as a bank holding company.

This loan money sprinkle is in addition to US$13.4 billion the Treasury agreed (after CONgress refused to pony up) earlier this month to lend to GM and Chrysler LLC.

The theory is that this will expand lending to car buyers (ie increase their debt) and help save GM. GM's domestic sales plunged 22 % through to November as GMAC ran short on cash and limited loans to people with only the best credit. (US Treasury Press release)

Delphi starts pulling out of China

Meanwhile the Hong Kong’s South China Morning Post reports that bankrupt car parts maker Delphi has decided to temporarily close a plant in China’s Suzhou, near Shanghai . Delphi was spun off from GM, as Visteon was from Ford, and Denso from Toyota - with the inention to use them as a worldwide supplier to the global auto industry.

GM in the US said about closing the Suzhou plant - opened in October 2007: “The sudden and unprecedented decline in car sales globally has resulted in our only customer, GM North America, announcing plant closures and plant stoppages.” Reuters said at the time that Delphi opened the Suzhou plant that GM had “invested more than $500 million in China, where it currently has nine joint ventures and four wholly owned factories.”..."Delphi is one of the leading foreign-invested automotive suppliers in China, the world's fastest-growing vehicle market."

GM set up Delphi in 1999 and they filed for Chapter 11 bankruptcy protection in 2005 and closed 24 of their 29 plants in the U.S. and moved a chunk of manufacturing to the Chinese mainland ( called disembowelling America). Delphi operates 15 joint ventures and wholly-owned foreign enterprises, including the Suzhou site, 11 other manufacturing operations, and training and technical centers.

Jon Moulton of Alchemy warned us earlier of a mortgage famine - Citigroup put a possible value on Northern Wreck shares of 6p.

After an interesting day in the City , Tom Rayner of Citigroup tells us he has cut his target price for Northern Wreck's shares to 150p although he thinks 220p a share if a buyer emerged, but thinks this is unlikely. Wound-down in an orderly fashion, investors could get around 130p a share, he calculates.

Worst-case - savers withdraw all their deposits - Northern relies on the Bank of England for expensive emergency funding on a long-term basis, the shares would be worth just 6p - £25 Mn for the whole company. ...which the FSA said last week was solvent. Ho.Ho.Ho.

"An aggressive assumption, highly unlikely to play out," he laughs," but we believe it provides a useful base valuation," he said and put the phone down

So it was useful to listen to Peter Day's "In Business" which included discussion with Jon Moulton and his previous warnings about parcelling debts, collateralised loan obligations CLO's , bubbles, etc., ... It can be heard again here (best with Real Player) for 7 days or repeated on Radio 4 on Sunday 9.30-10.00pm .

Alchemy head warns of grim times , Martin Arnold ,Financial Times 25th August 2007
Published: August 25 2007

Jon Moulton, the British private equity veteran, has warned that the buy-out industry is heading for a dramatic drop in the returns it generates for investors as the credit crunch hits the value of companies acquired at the top of the market.

The boss of Alchemy Partners, a mid-market buy-out and distressed debt investor, predicted that large private equity firms would need to write down the value of the companies they own and consider selling subsidiaries to raise cash.

The outspoken buy-out boss also forecast an increase in debt-for-equity swaps by companies acquired with high levels of debt that are unable to refinance their loans, forcing them to hand over ownership to creditors.

“There are companies out there that I would be personally willing to take 10-to-one odds on them needing debt-for-equity swaps, because they are over-levered to any reasonable base and cannot possibly be refinanced,” he told the Financial Times.

He said that “in many cases” this trend would be “precipitated if a company needs more cash”.
“The large private equity funds have been booking very large stated rates of return for a long time and they are now going to have unrealised write-downs.”

Predicting a long grim period for buy-out firms, Mr Moulton said the UK seemed on the brink of a “mortgage famine” that could erode house prices, eat into consumer confidence and hurt economic growth.

“A mortgage famine is, I think, one of the most likely events. It will have an impact on the economy. It will hit house prices, and they are such an important factor in consumer psychology that it will feed through into the economy.”

Mr Moulton owns stakes in several mortgage and loan companies, including mortgage broker John Charcol, Swift Advances, the consumer loan and mortgage business, and Everyday Loans, the subprime lender.

Mr Moulton said his distressed debt team was “working long, hard hours”.
He said about €4bn ($5.5bn) of leveraged loans had been refinanced in the second quarter that would not have been completed in current market conditions.

“This gives you some idea of the magnitude. It doesn’t mean there is a €4bn write-off, it means that €4bn could probably be replaced with €3bn, not €4bn,” he said.

“That number will go up now every quarter, because of the growth that occurred years back in those highly leveraged loans. So it is a big market coming.”

This is what he said in the Independent in October last year .
"Dicing with the debt meister", by Maggie Lee 29/10/06

"Jon Moulton, founder and managing partner of the private-equity firm Alchemy, has never shied from speaking his mind. "We're looking at an overheated market right now," he says, "and we'll see some spectacular falls in the next year or two. It's just a matter of time."