Labor Cost Arbitrage – Applied Materials moves to Asia

1 May, 2010
Applied Materials,Asia,Solar Energy,USA

One of my pet theories is that they we see a lot of distortions and oppurtunities for arbitrage is because labor is not globalized while capital and trade are . When capital and goods/services with some restrictions can move freely around the globe , there are innumerable restrictions on movement of labor leading to outsourcing. The MNCs with sprawling global structures are able to best exploit this situation by moving most of their labor requirements to low cost locations in Asia. It is not only manufacturing and low valued added work that they are moving but their entire R&D capabilities. Applied Materials , one of the world’s largest semiconductor has moved and is in the process of moving the rest of its manufacturing and R&D capabilities to Asia. This is leading to mass layoffs in its US operations.

Rumor mill: Layoffs seen at Applied - EETimes

More rumors at Applied Materials Inc.: The fab tool giant is expected to have a layoff between May 10 to May 12, according to sources.

The layoff will involve an undisclosed number of employees in the solar and other groups around the company, sources said. There will be layoffs almost once a month over the summer, sources said. All cutbacks will be in the United States.

For some time, Applied has been reducing its headcount. The last layoff was small and happened at the end of March, sources said.

Markets think we have got past European debt worries, but have we?

30 Apr, 2010
World Economy and Markets

Markets were back up to previous levels after a bailout package for Greece got an assent from the Germans and the IMF.But the condition of southern Europe continues to be precarious as unemployment continues to be high and the health of the whole European financial sector remains in a critical state.

Spanish unemployment tops 20% in first quarter – MarketWatch

It hasn’t exactly been a bumper week of good news for the Spanish economy.

On Friday, data that showed Spain’s jobless figure topped 20% in the first quarter of 2010 — 20.5% to be exact — served to highlight the tough job the government here is facing in trying to get its finances under control and light a fire under the economy. It marks the worst unemployment rate since 1997.

The total number of jobless in Spain now stands at 4.6 million, which was a gain of 286,200 on the fourth quarter of 2009, when the rate stood at 18.83%, according to Spain’s Office of National Statistics, or INE by its local acronym. Over the last 12 months, unemployment has increased by 602,000, the statistics office said

Moody’s downgrades nine Greek banks – MarketWatch

Ratings agency Moody’s Investors Service on Friday downgraded the bank financial strength ratings and the deposit and debt ratings of nine Greek banks. The move reflects “their weakening stand-alone financial strength and the anticipated additional pressures stemming from the country’s challenged economic prospects,” the agency said.

Not that I have a very high opinion on the rating agency’s  rating of US mortgages but a ratings downgrade will cause more stress for banks because of their “official” status

Lack of Global Agreement on Climate Change will lead to Trade Friction

30 Apr, 2010
Climate Change,Renewable Energy,World Economy and Markets

Copenhagen was a disaster and there has been no agreement on how to proceed with policies on a global basis to deal with the ever growing problem of climate change and global warming. Its each country adopting its own policies and targets with reducing carbon emissions, which can only work on a local or at best a regional level not at a global level. There are some countries going ahead with their own carbon reduction policies which will lead to conflict with trade partners . Domestic goods/services with carbon mitigation costs will have a disadvantage with imported good with no such problems.

Carbon tariffs on imports risk trade war – EU study — Reuters

The European Union is considering border tariffs on imports from more polluting countries, but an initial assessment shows such levies could risk sparking trade wars, draft documents show.

“Border measures risk clashing with the obligations under the WTO (World Trade Organization),” said a draft European Commission study looking at the cost of increasing EU curbs on climate-warming emissions.

The Commission, the 27-country EU’s executive, said it would continue to look at how imports might be included in the Emissions Trading Scheme, the EU’s carbon market and its main tool against climate-warming emissions.

But the initial assessment was that such measures would be fiendishly complex to calculate fairly, create a huge administrative burden and risk a trade conflict.

“The introduction of border measures may also trigger retaliatory measures and even hinder international negotiations,” added the document, seen by Reuters. “The system could at best only be envisaged for a very limited number of standardized commodities, such as steel or cement.”

Border tariffs on countries that do not play their part in fighting climate change are a hot topic in the United States, as it negotiates its own climate laws.

“Similar proposals are also being discussed in the U.S., and obviously any further political and operational steps taken in this direction should be taken together,” said a related EU draft.

Why First Solar might be loser in the long term

30 Apr, 2010
China,First Solar,Solar Energy,Suntech,Trina Solar,World Economy and Markets

First Solar beat the estimates and the gudiance soundly as it prone to do leading to a major stock rally . The stock went up due to the bearish sentiment plus the large short interest on the stock.However there might be some reasons that the stock might be a relative loser  in the long term

1) Its inability to add capacity quickly – While c-Si companies can add capacity in as short a time as one quarter, it takes at least 1 year for First Solar to add its thin film lines.In the volatile sector this is a crucial part of

2) Slowing down in efficiency improvements – First Solar has cost cutting over the last year has been very slow compared to Chinese competitors like Trina Solar

3) High Operating Expenses and Stock compensation – Chinese companies have very low operating expenses in the range of 10% while First Solar with its US management employees has typically  in the range of 20%. In the cut throat business , you have to cut that cost to remain competitive.Also paying $90-100 mm a year in stock compensation is a privilege for companies like Apple and Google in quasi monopolistic markets.

2 dominoes falling – Spain and Portugal

28 Apr, 2010
Spain

I was wondering in my last post that Which will be the next domino to fall after Greece? I had my answer much earlier than thought and in plural.Earlier in the day Portugal shares were down on 6% on its debt being downgrade by S&P. The ratings agency which has been ranked as one of the main culprits of the credit crisis routinely labeling subprime debt issues to much higher grades is seemingly on a mission to exonerate itself by zealously downgrading countries in the last 2 days.The US markets are still slightly down as the market continues to think that this European problem will be contained. I can think of at least 5 problems that should make the markets go down more

1. Lower US exports to Europe because of a lower  Euro
2. No potential appreciation of the yuan to the dollar
3. Lower European demand because of even weaker European growth making for a case for even weaker US exports
4. Potential risk of similar debt downgrades for other countries like Italy,UK and Japan
5. Potential debt downgrade of US itself

S&P cuts Spain to ‘AA’ on weak economic growth – Marketwatch

Standard & Poor’s Ratings Services on Wednesday lowered Spain’s long-term sovereign credit rating to AA from AA+. “We now believe that the Spanish economy’s shift away from credit-fuelled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed,” said Marko Mrsnik, an S&P credit analyst. “We now project that real GDP growth will average 0.7% annually in 2010-2016, versus our previous expectations of above 1% annually over this period,” he added. Private sector debt, which is at 178% of GDP, and an inflexible labor market as well as low export capacity are all burdening Spain’s economic growth, according to the ratings agency. The outlook is negative

Greece does a Replay of USA in 2008 by Banning Short Selling

28 Apr, 2010
Europe,USA

To stem the stock market rout,the Greek Authorities have banned short selling as if that will resolve their economic and associated stock market problems.Does nothing but introduce regulatory uncertainties on top of others

From MarketWatch

Greek regulator bans short-selling for two months

The Hellenic Capital Market Commission said Wednesday it has banned the short-selling of shares listed on the Athens Stock Exchange “after taking into account the conditions prevailing in the Greek market.” The ban became effective on Wednesday and will remain in force until June 28. The ban comes after Greek stocks have been falling sharply in recent weeks amid concerns over the country’s debt crisis.

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