Wednesday, April 12, 2017

Saudis In Deep Doo-Doo; Making America Great Again; And How To Take On Tesla -- April 12, 2017


April 14, 2017: Saudi DEBT BINGE amid oil gains eases bank liquidity drought. It still begs the question: why does a country with almost $600 billion in foreign reserve assets and improving oil prices need to raise $9 billion in a bond issue? From Bloomberg:
As the country finalized its first issue of dollar-denominated Islamic notes, six months after selling the biggest ever bond by an emerging market country, an interest rate used by Saudi banks to price loans stood at its lowest level in almost 14 months.
That rate, known as Saibor, will probably fall further after the latest sukuk issue.
Saibor has been falling since reaching a seven-year peak of 2.386 percent on October 17, immediately before the country’s debut dollar-bond sale, as oil export revenue dwindled, sending the state budget into deficit. Cost cutting by a government usually associated with vast reserves of petrodollars, and a drawing down of its bank deposits to prop up spending, prompted a cash squeeze in the economy, helping drive Saibor higher.
Original Post
For background to this article, newbies may want to follow the "SaudiReserveAssets" tag at the bottom of the blog. From The Wall Street Journal today: Saudi Arabia raises $9 billion in first international "sukuk" issuance. The "sukuk" (bond) sale comes as the kingdom pursues an ambitious plan to reshape its oil-focused economy. Wow, talk about a lot of story lines:
  • for me, although it was not the theme of the article, the key takeaway was the desperate straits in which the Saudis seem to find themselves
  • it was my understanding that the Muslim religion did not allow borrowing (at the end of the article the writer explains how the Saudis moved this camel through the eye of the needle) and the Saudis are among the most conservative / fundamental of the various Muslim sects
  • Saudi's foreign reserves have declined from almost $750 billion to nearly $500 billion in less than three years; that's a $250 billion -- with a "b" -- decrease
  • a $9 billion loan is trivial against their current reserves ($514 billion) and when compared to their $250 billion "loss" over the last three years
  • in fact, as soon as I read the story, my first question was why would a country with over $500 billion in reserve assets need to borrow $9 billion?
  • after all, the Saudis tell us that the OPEC cut in production in working to "re-balance" global supply/demand for crude oil and the price of oil is trending higher
Other data points from the article:
  • this is the first international sale of Islamic bonds or "sukuk"
  • Saudi Arabia rolling out an ambitious plan to reshape its oil-dependent economy
  • the "sukuk" should cover about one-fifth of the expected deficit
  • Saudi Arabia issued bonds worth about $20 billion in 2016, tapping for the first time the international markets in the largest-ever debt sale by a developing country
  • Saudi said it would continue tapping the financial markets to finance its plan to diversity its economy
From the article, some numbers rounded:
  • the kingdom's deficit has ballooned 
  • the kingdom has cut spending and subsidies to rein in this budget deficit
  • 2015: a record deficity of $100 billioin
  • 2016: the deficit shrunk to $80 billion following austerity measures
  • 2017: deficit is forecast to be about $50 billion
  • 2020: the kingdom hopes to have its finances balanced by 2020
  • again, the "sukuk" should cover about 20% of the expected fiscal deficit
Most interesting:
  • not one mention of "the plan" that the Saudis have for diversifying their economy
Meanwhile, Making America Great Again

Also, from The Wall Street Journal: Volkswagen is adding another SUV in Tennessee. The German auto maker will build a five-seat SUV at its Chattanooga factory in addition to the larger seven-seat Atlas.
Volkswagen in 2014 disclosed its decision to build the seven-seat model at the Chattanooga factory, investing $900 million and adding 2,000 jobs. The unnamed SUV that Mr. Woebcken described on Wednesday has manufacturing characteristics similar to the Atlas, leading Volkswagen to steer its production toward the U.S.
“Since it shares the same architecture, the same supply chain, the natural harbor for this product is Chattanooga, ” Mr. Woebcken said.
How To Take On Tesla

Speaking of cars, the first thing I thought of when I read this article -- "This is how one takes on Tesla."

From Fox News, the 2018 Dodge Challenger SRT Demon is an absolute beast. Data points:
  • barely street legal
  • V8
  • 840 HP and 770 pound-feet of torque
  • most powerful American car ever
  • also the quickest car IN THE WORLD, with an NHRA-certified 0-60 mph time of 2.3 second and a quarter-mile time of 965 seconds at 140 mphs
  • the performance is so quick that it cannot be entered into an NHRA-sanctioned event without installing a roll cage
Much more at the link. But this is how you take on Tesla. 

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