Auto Industry

- Michigan and Ohio produce 38% of all cars and trucks in the US in 2007
- 12 foreign auto producers make 54% of cars Americans buy and employ 113,000 Americans compared to 239,000 at US owned car makers
- Take home wages at US Carmakers average $28.42/hr: $26 at Toyota, $24 at Honda, $21 at Hyundai — w/ benefits hourly labor costs average $44.20 for non-Detroit producers & $73.21 for Detroit
- In 1995 a car took GM 46 hours to make, Chrysler 43, and Toyota 29.4; In 2006 a car takes GM 32.4 hours, Chrysler 32.9, and Toyota 29.9 (Harbour Consulting)
- For every UAW member working at a US carmaker today, three retirees collect benefits — at GM the ratio is 4.6:1
Emerging Nations
- China consumes 1/4 as much copper per capita as Germany
- China accounts for 10% of the global economy; 1.3B people collectively consumed $1.2T last year, Americas 300M consumed $9.7T

Energy Markets – Oil
- In 2007, Profit per Barrel was $17 for XOM, $12 for BP, $14 for Shell, and $16 for CVX
- OPEC basket price trades at a discount to NYMEX crude by $5-$10
- Canada Oil Sands: Costs $20-$25 Canadian ($18-$22 US) for each Barrel which sell for $60/each — Production: 1M barrels/day … 3.5M b/day by 2015
- Revenue (Est. Net Oil Export Jan-Oct ’08 in billions): Saudi Arabia $262, UAE $84, Iran $75, Kuwait $74, Algeria $64, Nigeria $63, Angola $62, Venezuela $56, Iraq $54, Libya $51, Qatar $34, Ecuador $10, Indonesia -$5
- IMF (10.20.08): Iran needs $90/b, Bahrain $75/b, Oman $77/b, Iraq $111/b to balance budget-avoid deficit spending
- Saudi Arabia current output quota is 8.5Mb/day; domestic use is 1.5Mb/day (so 7Mb/day for export) — Need oil at $38 barrel to balance its budget (12/08)
- 60% of Saudi Arabia crude-oil (4.5M barrels/day) go east to South and East Asia
- Nigeria produces 2.5M barrels/day – 3% global consumption – ‘high-quality, light, low-sulfur grade – high gasoline content, low processing costs’
1/5 of Nigeria’s oil output located in Niger Delta in the South
- Reserves (in billions of barrels): Canada 179.2, Venezuela 80, Libya 41.5, Nigeria 36.2, Saudi Arabia 262.3, Iraq 115, Iran 136.3, Kuwait 101.5, UAE 97.8, Russia 60 (2007, UEIA)
- Producers (Mb/day, 2007): Saudi Arabia 10.2, Russia 9.9, US 8.5, Iran 4, China 3.9, Mexico 3.5, Canada 3.4, UAE 2.9, Venezuela 2.7, Kuwait 2.6
- Consumers (Mb/day, 2007): US 20.7, China 7.6, Japan 5, Russia 2.9, India 2.7, Germany 2.5, Brazil 2.4, Canada 2.4, Saudi Arabia 2.3, South Korea 2.2
- Middle East: 60% of oils reserves & produces 25M barrels/day (sour crude – acidity)
- WTI: 500,000 barrels per day
- Canada: Worlds second largest oil reserve behind Saudi Arabia
- Cushing, OK is the delivery point for West Texas Crude
- NYMEX: Financials account for up to 70% of trading; oil producers & companies the remainder (mostly spot demand for crude)
- Speculators account for 42% of all oil trading on Nymex, index investors 11%, oil producers & other companies the rest (Goldman, 6/08)

- Crude oil historically trades 6-12x Natural Gas

Energy Markets – Natural Gas
- 42% of EU Natural Gas imports come from Russia; bloc relies on imports for 60% of all gas needs (Eurstat)
- 80% of EU natural gas imports (from Russia) goes thru Ukraine
- Takes 36 hours for gas to get from transit point in Ukraine to the EU borders
- 36% of natural gas that Germany uses come from Russia

Tech Industry
- Tech companies account for 4% of nations employment

Commodity Markets
- Costs steelmakers $650 to make a metric ton of steel
- CBOT: Treasury notes, Soybeans, Wheat, Corn
- Chicago Merc: Interest-Rates, Stock-Index, Livestock
- ICE: Natural Gas, Oil, Sugar
- US imports from Argentina were 1.2% of all fresh beef imported thru Sept 2008 (US Agriculture Department)

Economic Indices
- Dollar Weakens = Exports Rise
- Core PCe: 2.4%
- Dow Theory: Industrial & Transports hit highs, a bullish sign for stocks / economy – strength in one confirms strength in the other
- When interest rates in Europe rise faster than in the US, European currencies tend to rise against the dollar
- Widening trade deficit leads to a weaker dollar
- Modest inflation helps economy run smoothly: companies expect increasing revenues, while costs such as wages are fixed for several years
- Central banks aim for annual price rises of 1-2%
- Consumer spending accounts for 70% of all spending
- Don’t buy ETFs with assets less than $200M
- UK: Household debt as % of Annual disposable income is 159% in 2005 (135% in US); Ratio of Avg Home Price to Mean Income: 6.1
- US consumers drive 70% of all US economic activity

Tax Policies
- $1 additional tax revenue costs economy $1 of tax + $1-$2 in lost income
$1 tax cut on dividend reduces revenue collection by .50 because of taxes on $2 additional economic growth
$1 tax cut ATB rate costs .77 after account taxes on .95 additional economic growth
$1 tax increase on dividends gets .50 to gov but costs $2 in lost income + 50 cents in tax to Americans
$1 tax increase ATB gets .77 but costs .95 in lost income + .77 in tax

Bond Markets
- Fall on yield can represent a flight to quality
- Credit Default (CD) Swaps: If spread is .70 percentage point, then takes $70,000 to insure $10M in speculative-grade bonds
- Long term yields are higher partly in anticipation of a government borrowing spree. short term treasury rates are low because investors are hoarding them as a safe haven
- Gap between yield of 2 year and 10 year treasury is the yield curve — when short term rates are higher than long term rates economic downturn follows; when the curve is steep expansion follows bringing along higher prices
- Economy slows, investors bid up prices of treasury bonds sending yields lower; economy heats up, investors sell bonds sending yields higher
- S&P should yield 85% of Baa-rated corporate bonds – currently (Nov 2008) S&P yields 10% compared to 9.5% for Baa-rated corporate bonds
- Credit Default Swaps: A lends $10M to B, A pays premium to C for protection on the $10M, A asks C for collateral to ensure it’s good for the debt it’s paying premium on
C hedges exposure by entering into swap with D – which then hedges through E: $10M in underlying equals $30M in in total swaps

Buy Outs
- Buy-out Targets: Smaller Market Caps, Low Debt Levels, Hefty Cash Flows
- LBO: Companies Sales, Profits, Cash Flows, and Breakup Value (units); Look at other companies that have been taken private and find similar

Other
- Germany accounts for nearly 30% of all output in the 15-nation euro currency zone
- In Japan the top 5 steel companies account for 80% of the nations steel output; in China the top 66 companies account for 80% of the market
- Private prisons housed 7.4% country’s 1.59M inmates (mid-2007) up from 1.57M in 2006
- November and December sales make up 25-40% of many retailers annual sales (National Retail Federation)