The dismal Q2 2009 results for auto companies

The quarter results of most auto companies may have bettered the forecasts but they are still dismal.

General Motors made a quarterly loss of $6bn. Ford motors declared that it will be profitable by the year 2011 after posting a loss of $1.4 million last year. The sale of Daimler Chrysler has also deteriorated.

Auto companies across the world have posted substantial losses for Q2. All this suggests that the talks about revival of economy are still a myth. The bailout packages across the globe have only ensured that the major players have continued to remain operational instead of shutting shop. The global car market is largely dominated by a few key players like – General Motors, Ford, Toyota, Honda, Volkswagen and Daimler Chrysler

In USA the car industry developed a great deal during the 1990′s mainly due to consolidation by the large giant multinational automakers using mergers. The U.S. is the world’s largest producer and consumer of motor vehicles with production increasing year on year till the recession took its toll on the economy. The U.S. auto trade relies mostly on its own domestic market, and to some degree on the Canadian market. But the entry of the Japanese carmakers has fast eroded the market share of the companies like GM, Ford and Chrysler. The big three in Detroit are in trouble and require a bailout soon else they will be fast wiped out from the face of Earth.

With growing concerns for the environment on all fronts the next generation of cars will be eco-friendly and promote the “Go Green” concept. Who will survive this downturn and turn the tables around? The coming years will unlock the answer.

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Why has the price of oil hit a 10 month high?

The price of a barrel of oil has hit 74.36 USD which is the highest since October 15 2008.

The weakening of the dollar has also led to the higher run up of crude oil prices. As oil barrels around the world trade in dollars, the weakening dollar implies that oil prices are cheaper for traders having stronger currencies.

The main reason for price fluctuation in the commodity market is speculation. In present day world speculators purchase nearly 66% of oil future contracts that has led to huge fluctuations based on gut feel of investors. These speculators purchase huge amounts of oil and this commodity exchanges hands a number of times before it is delivered.

The cause of high price of oil is the presence of positive expectation in the mind of speculators. When the future prices of a particular commodity is higher than the current price than the owners tend to hoard a particular commodity thus bringing down the supply which pushes the demand thus increasing the current prices.

But analysts predict that it will be difficult for a barrel of oil to maintain the current highs. The major reason for this is the fact that the dollar is slowly but surely recovering from the lows it hit a year ago. There are already signs of the economy recovering from the recession which is reflected in the quarter results that have announced by Multinational companies. Also the manufacturing output across the globe is improving and hence there is every chance that the price of a barrel of oil may come down in the near future.

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Bejing’s worry about the next stock market crash in 2009

The investors in China are worried about the speculative stock market bubble that is being formed. Like all other countries around the world China is also planning to spend around $585 billion on stimulus packages, in order to recover its realty sector. The liquidity is tightening in these emerging markets with the world’s largest IPO of $7.3 billion by China State Construction Engineering Corp‘s witnessing an excellent response. With an avalanche of IPO lined up in this market the liquidity in the market would be fast sucked out.

China is also heading the US way into a credit trap as the lending has increased to more than 6 trillion Yuan since the beginning of this year. Most of this lending has gone to asset the markets driving up the valuations in these markets. Most of the stocks in the Chinese market are overvalued and investors are looking to exit from the market at every opportunity possible.

The tightening of credit policy for the banks is also not good signs for the economy. The ever increasing commodity prices, increased speculation and overvaluation of stocks have led to the fear of another stock market bubble that may crash. This crash could have far reaching effects on the global economy.

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The World Economy is Stabilizing – How is U.S. Economy?

The United States of America is the world’s largest economy. The health of the U.S economy is determined by the number of unemployed and their productivity. The factors such as growth prospects, business environments, and infrastructure, educational levels of the citizens, and governmental policies and institutions etc determine the world’s top economies.

During these tough times of recession, the economies of other countries such as the Chinese and Indian economy are progressing better than the U.S. For instance the economies of China and India may be important players but these economic giants alone cannot drag the global economy out of this recession. China which is the world’s third largest economy after the United States and Japan grew 7.9% in the Q2 this year while India expanded 5.8% in the three months to March. These figures may not sound so great but has out beaten the economies of the U.S and the other European countries. More or less United States, Japan and Europe are all mired in deep recession. The US stimulus package was designed to phase in spending, so its effects are just now being felt. This stimulus may however continue to help the U.S economy for some more time.

Nevertheless these tough times of recession questions to how the U.S. economy interacts with the World economy and how other countries’ economies affect the U.S.

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Where are the global equity markets headed?

There has been a growing concern over the pricey valuations of the stock markets around the world. Asian markets around the world suffered losses on the back of China’s major index Shangai Composite ending 5% lower. The major reason behind this was the banks being capped on their lending targets. This could lead to liquidity problem in future and this concern led to a ripple effect on other equity markets around the world.

The FII’s will be cautious over the next couple of weeks and think twice before they pump in more money. The indicators like prices of commodities, the listings of IPO’s and currency movements will set the trend over the next couple of weeks.

One school of thought suggests that a major chunk of the money has been fueled through the stimulus packages which are declared across the globe owning to the recession. Also investors believe that the bubble may burst anytime leading to the bears dominating the equity market across the world for sometime. People are looking at every opportunity to sell sooner or later as the markets could witness huge corrections from the current levels

Also the world’s biggest IPO launched by China State Construction Engineering (company responsible for Olympics aquatic centre) group had sparkling success with a surge of nearly 60%. With a number of IPO’s lined over the next couple of months liquidity would be fast sucked out of most markets.

The recent rally has been mainly due to speculative funds and a rational explanation is hard to come by. Most markets in the world have lost touch with the fundamentals. People are hoping that the bubble does not burst soon and the rally continues.

It will be interesting to watch the financial markets over the next couple of months this may set the trend for the next couple of years.

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