Investment News: Money Morning » Jason Simpkins http://www.moneymorning.com Investment News Provider Sat, 21 Nov 2009 18:52:59 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 Why Gold Will Reach a Record $2,000 in 2010 http://www.moneymorning.com/2009/11/19/gold-prices-8/ http://www.moneymorning.com/2009/11/19/gold-prices-8/#comments Thu, 19 Nov 2009 08:31:03 +0000 Jason Simpkins http://www.moneymorning.com/?p=10104 [Editor's Note: This gold-price report is part of our “Outlook 2010” series, which will chronicle the global-investing outlook for the New Year.]

By Jason Simpkins
Managing Editor
Money Morning

Gold has surged 60% in the past 12months and it’s not letting up. The “yellow metal” is continuing that scorching surge into the last part of the year, establishing new highs on a near-daily basis. In fact, gold established yet another record price yesterday (Wednesday) when it peaked at $1,153.40 an ounce on the New York Mercantile Exchange (NYMEX).

And the records are going to keep on coming.

With the U.S. dollar in a freefall and global gold demand rising, analysts say the precious metal will likely continue its bullish trend through at least the first half of 2010. It could rise as high as $2,000 an ounce, which would represent a 73% gain from current record levels.

“Everything is pointing to the price of gold going higher,” Mike Sander, an investment adviser at Seattle-based Sander Capital Advisors, wrote in an e-mailed report.

And “a whopping budget deficit continuing to balloon, a Federal Reserve in no place of raising rates, and central banks all over the world diversifying away from the dollar,” will be the main catalysts for gold’s continued rise, he said.

Indeed, the U.S. Federal Reserve’s loose monetary policy has put the dollar under duress. The central bank has pumped more than $2 trillion into the U.S. economy since the financial crisis began more than two years ago. It has lowered its benchmark Federal Funds rate to a record-low range of 0%-0.25% and it has stepped up purchases of U.S. Treasuries and mortgage-backed securities.

More recently, the return of investor risk appetite and the widespread belief that the Fed will have to keep its stimulus measures in place as the U.S. economy struggles out of a long and deep recession have put downward pressure on the greenback.

The dollar tumbled about 20% against the euro in the past year, and the Dollar Index – which measures the greenback against the euro and five other currencies – fell to a 15-month low of 74.679 on Monday and was retesting that low as of Wednesday.

With the dollar in freefall, central banks and hedge funds have sought shelter in hard assets, particularly gold. That’s a big reason why gold has experienced such a remarkable run this year.

“You have to consider the amount of money sloshing around the world right now – China’s $2.2 trillion in reserves, India’s $285 billion in reserves, all of the money in central banks throughout the Middle East,” said Martin Hutchinson, a contributing editor for Money Morning and a veteran banker with more than two decades experience in the international marketplace. “If all of the serious money charges into gold and gold really gets going, you’ll see a tremendous spike in prices.”

Concludes Hutchinson: “I believe the price of gold will hit $2,000 an ounce next year.”

Such steep run-ups have happened before. From 1978 to 1980, for instance, gold soared from $185 an ounce to $850 an ounce, Hutchinson recalls. Interest rates were about 10% at that time. Credit is much easier to get today.

“Right now, the cost of borrowing money and investing in gold is virtually zero,” Hutchinson said.

How Global Demand Will Drive Gold to $2,000

Indeed, the bull-run in gold is already well underway, and it’s picking up steam.

Prices actually began their most recent rally when the International Monetary Fund (IMF) earlier this month revealed that it sold 200 metric tons of gold to the Reserve Bank of India (RBI) from Oct. 19 to Oct. 30.

The RBI paid $6.7 billion for the 200 metric tons of the yellow metal – the equivalent of about 8% of the world’s annual mine production.

The move surprised many analysts, as India for the past 15 years had largely neglected its gold reserves.

India’s gold holdings peaked at 20% of its foreign exchange reserves – all the way back in 1994. Since that time, India’s gold holdings had fallen:
Indeed, prior to the central bank purchase, India’s gold holdings had dropped to just 3.6% of the nation’s estimated $285.5 billion in foreign reserves.

Little wonder that last month’s gold purchase nearly doubled India’s holdings, which now stand at 558 metric tons, or 6.2% of the nation’s forex reserves.

India’s gold holdings as a percentage of foreign reserves are now higher than even China’s. The People’s Bank of China (BOC) holds about 1,054 metric tons of gold, equal to roughly 2% of its $2.3 trillion in foreign currency reserves.

Asia’s third-largest economy now has the world’s 10th-largest gold reserve, behind Russia, which has about 568 metric tons.

“Our Reserve Bank decided to buy some gold. I think about 400 tonnes. That’s normally something we do from time to time. The IMF wanted to sell gold and we wanted to buy gold,” Pranab Mukherjee, India’s finance minister, said in an interview with the Financial Times.

However, analysts have been far less flippant about the purchase.

Timothy Green, the author of “The Ages of Gold,” described India’s purchase to Bloomberg News as “the biggest single central-bank purchase that we know about for at least 30 years in such a short period.”

“The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s,” he said.

Analysts believe India’s highly publicized purchase – which was made when prices were near record highs – will spawn a chain reaction in which other countries and investors ramp up their gold purchases.

“This is a landmark trade,” Jonathan Spall, a director at Barclays Capital (NYSE ADR: BCS) and a gold specialist, told the FT. “Central banks are conservative institutions and India’s move is a sign for other central banks and sovereign wealth funds that were contemplating buying gold.”

The IMF said in September that it would sell 403.3 metric tons of the metal to shore up its finances and increase its ability to lend at reduced rates to low-income countries.

And with 203.3 metric tons still on sale at the IMF, don’t be surprised if China decides to bulk up on gold, too. China, the world’s sixth-largest holder of gold, has increased its yellow-metal reserves by 76% since 2003. But the 1,054 metric tons it now holds is equal in value to just 2% of its world-record $2.3 trillion in total reserves.

“It is but a matter of time until China and the IMF announce much of the same,” Dennis Gartman, an economist and the editor of The Gartman Letter, told Bloomberg.

Worldwide demand for gold is clearly on the upswing. However, just as that’s happening, supply and production of the precious metal are falling.

Annual worldwide mine production of gold has decreased by nearly 8% since 2001, even as the price of gold has tripled.

Meanwhile, investment demand for gold remained very strong – surging 46% in the second quarter of 2009 from a year ago, according to the World Gold Council.

“Everyone who says that gold will hit $2,000 in five years is wrong,” said Money Morning’s Hutchinson. “It will be back down in 5 years. If it’s going to $2,000 it will get there next year.”

“It will turn around when [central banks] start taking monetary policy seriously, and they won’t do that in a hurry,” he added. “Gold’s bull run is a bubble, just like all the other bubbles.  Except this is more of a bang than a bubble, because it’s taking place so quickly.”

Four Ways to Play Gold

  1. Market Vectors Gold Miners ETF (NYSE: GDX): Gold miners benefit disproportionately from a rise in the price of gold, because their production costs are fixed. This means that miners are a more-leveraged way to play gold than the metal itself, particularly since surging speculative demand can increase mining companies’ Price/Earnings (P/E) ratios.
  2. SPDR Gold Shares ETF (NYSE: GLD): GLD holds more than 1,000 ounces of gold, and has a market capitalization of $39 billion. As an investment, GLD is more convenient than buying gold bars directly. The fund’s share price fluctuates in concert with the price of gold.
  3. Barrick Gold Corp. (NYSE: ABX): Barrick is the largest and financially strongest gold producer, with a market capitalization of $43 billion, reserves of 124.6 million ounces of gold (plus copper and silver), and operations in North America, South America, Australasia and Africa.
  4. Yamana Gold Inc. (NYSE: AUY): A growing gold producer with a $6.8 billion market capitalization that made an unexpectedly good profit in the fourth quarter of 2008, Yamana is expanding both production and reserves (currently 19.4 million ounces) with operations in Canada and Latin America. Its expansion magnifies the likely potential benefit from an increase in gold prices.

[Editor’s Note: Money Morning’s “Outlook 2010” series has already provided readers with a forecast for the U.S. economy in the New Year. Coming up next week will be a report on the outlook for the banking sector. Watch for future installments addressing the economic outlook for oil prices, the high-tech sector, retailing, foreign investments and other key topics.]

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]]> http://www.moneymorning.com/2009/11/19/gold-prices-8/feed/ 1 U.S. Sen. Christopher Dodd’s Plan for Financial Reform as Ambitious as it is Antagonistic http://www.moneymorning.com/2009/11/12/dodd-financial-reform/ http://www.moneymorning.com/2009/11/12/dodd-financial-reform/#comments Thu, 12 Nov 2009 09:00:14 +0000 Jason Simpkins http://www.moneymorning.com/?p=9906 By Jason Simpkins
Managing Editor
Money Morning

U.S. Sen. Christopher Dodd, D-CT, on Tuesday released an 1,136-page draft bill for sweeping financial regulatory reform that will create several new protection agencies, increase regulation of credit agencies and derivatives, and alter the role played by the U.S. Federal Reserve in the financial system.

And that’s just the beginning what will be a long and contentious battle to get the bill past the Senate, the House of Representatives and the Obama administration. Lobbyists, large banks, and the heads of government regulators, such as the Federal Deposit Insurance Corp. (FDIC) Chairwoman Sheila Bair, will have their say on the proposal as well.

Still, Dodd’s bill, which he worked closely with U.S. Rep. and Chairman of the House Financial Services Committee Barney Frank, D-MA, to draft, is an important first step in the push for financial regulatory reform, which in recent months had been overshadowed by the Obama administration’s push for healthcare reform.

Among the most controversial elements of Dodd’s bill are four new, independent regulatory agencies that would combine the powers of certain regulators, particularly the U.S. Federal Reserve.

  • The Financial Institutions Regulatory Administration: Perhaps the most controversial fixture of Dodd’s proposal is this “super-cop” of a regulatory agency that would combine parts of the Fed, FDIC, the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) to oversee all of the nation’s banks – large and small.
  • Agency for Financial Stability: This agency would be headed by a nine-member board that includes financial regulators and an independent chairman appointed by the president. It would be responsible to identifying and addressing systemic risks throughout the financial system. It would aim to discourage firms from growing so large and complex that a breakdown in operations would pose a threat to the nation’s financial stability.
  • Consumer Financial Protection Agency (CFPA): A favorite of the Obama administration, this new, independent agency would oversee loans made directly to American consumers, such as mortgages and credit cards.
  • National Insurance Office: This office would be created within the U.S. Treasury Department to oversee the insurance industry. This would be the first attempt by the federal government to regulate an industry that has traditionally been monitored by state authorities.

The bill also aims to create a safe way to shut down companies that are “too big to fail” by imposing tough new capital and leverage requirements and requiring they write their own “funeral plans.” There also would be changes made at the Securities and Exchange Commission (SEC).

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The SEC would be self-funded through registration fees paid by companies. And a new office would be created to monitor credit ratings agencies. The SEC, along with the Commodities Futures Trading Commission (CFTC), would also gain the authority to regulate over-the-counter derivatives.

Meanwhile, hedge funds worth more than $100 million would be required to register with SEC as investment advisers and to disclose certain data. Companies that sell securitized products would be required to retain a part of the risk. And executive compensation would be subject to a nonbinding shareholders vote.

It’s unlikely that all of these reforms will find their way into the final legislation. A regulatory reform bill that is as large and ambitious as Dodd’s will draw fire from many different angles. But the Connecticut senator was determined to make the most of his opportunity to revolutionize finance regulation

“I could have tried to draft something that was already a compromise of ideas in a sense, but I think you make a huge mistake by doing that,” Dodd said. “You’re given very few moments in history to make this kind of a difference. We’re trying to do that and I think this is important,” he said.

Financial Reform in for a Fight

The scope and complexity of Dodd’s bill make it unlikely the proposal will pass the Senate by year’s end. But it will force opponents to pick their battles and it’s clear that Dodd adopted a number of his colleagues’ suggestions – either to garner early support or because he thought they were good ideas.

U.S. Sen. Charles Schumer, D-NY, had requested the bill give shareholders more say over executive pay. Hence, the “say-on-pay” portion of the bill that forces executives to be susceptible to shareholder vote. Schumer also advocated financing the SEC with registration fees.

The bill also included ideas from U.S. Sens. Jack Reed, D-RI, and Mark Werner, D-VA. Werner had previously introduced a bill that would give the government greater resolution powers over firms deemed “too big to fail.”

Of course, that doesn’t mean Democratic support is a lock. Democratic representatives have said they stand behind Dodd, but even Werner said he had “some concerns” and that there are aspects of the bill he’s hoping to change.

There so far have been no signs of Republican support for the bill, and it will almost certainly take flak from the Federal Reserve and FDIC, which would be stripped of their supervisory powers.

The Fed faces the biggest disintegration of authority. It would lose its role as a supervisor of banks to the new Financial Institutions Regulatory Administration and its consumer protection duties to the Consumer Financial Protection Agency. Meanwhile, the Agency for Financial Stability would be responsible for snuffing out systemic risks to the financial system, with the Fed holding just one of its nine seats.

That ultimately leaves the Fed with the responsibility of setting monetary policy and little else. The move reflects the opinion of Dodd and others that the central bank – which failed to recognize, much less prevent, the onset of the financial crisis – already has too much responsibility.

“We saw over the last number of years when they took on consumer protection responsibilities and the regulation of bank holdings companies, it was an abysmal failure,” Dodd said.

However, Fed Chairman Ben S. Bernanke, who Dodd said is “doing a terrific job,” has argued that the central bank’s regulatory duties are essential if it is to have the information, expertise and authority to promote stability and regulate monetary policy.

“It’s hard to imagine monetary policy being conducted effectively in an environment where financial stability is lacking from the Fed’s mandate,” J. Alfred Broaddus Jr., a former president of the Richmond Fed, told Bloomberg News.

It also runs counter to the proposals of the Obama administration, which suggested expanding the Fed’s power.

“Dodd is basically starting out by out-reforming the administration,” a senior congressional staff member told The Washington Post.

The Financial Institutions Regulatory Administration and the Agency for Financial Stability could be the two biggest sticking points for the Obama administration.

“The biggest thing that jumps out is the consolidation of the bank regulators from four down to one. There doesn’t seem to be that much support for it politically,” Douglas Elliott, a fellow with the Brookings Institution, told American Banker. “The administration has not proposed it. I don’t know that they have a big problem with it, but they had certainly concluded it was not worth the political pain that it would require. This wasn’t a fight that the administration wanted to pick.”

Indeed, Dodd’s proposal goes a step further than the House bill, which simply sought to combine the OCC and OTS. And some lawmakers and industry groups are already skeptical of creating such a large bureaucracy to oversee all of America’s banks.

While Dodd’s plan requires the new agency to have a division explicitly devoted to community banks, some worry that the needs of smaller banks will be overshadowed by the demands of larger institutions.

“We are adamantly opposed to a single regulator,” Camden Fine, president of the Independent Community Bankers of America, told American Banker. “The 15 or 20 largest banks will soon dominate that regulatory agency. … There will be no counter voice.”

There could also be strife over Dodd’s systemic risk agency. Treasury Secretary Timothy Geithner already has warned that a regulatory council will lack accountability. And again, the Fed will fight to keep its role as arbiter of systemic risks.

“The Fed should have a particularly important role in supervising institutions that create a systemic risk,” said Janet Yellen, president of the Reserve Bank of San Francisco.

And even the proposed CFPA, which has been advocated by the Obama administration, will be contested.

“We’re against creating a separate agency to protect consumers,” Scott Talbott, chief lobbyist for the Financial Services Roundtable, an industry group that represents big financial institutions, told NPR. “We think you can protect consumers a more effective way by strengthening the existing regulators rather than creating a separate agency.”

Regardless of the fight Dodd is in for, however, analysts and lawmakers alike agree that it is an important first step on the long way to necessary reform.

“Chairman Dodd’s draft bill moves us one step closer toward comprehensive financial reform,” said Geithner. “We look forward to working with the chairman and his committee in the coming weeks on a set of strong reforms to strengthen consumer protection, crack down on excessive risk-taking, and stabilize the financial system while protecting the taxpayer.”

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]]> http://www.moneymorning.com/2009/11/12/dodd-financial-reform/feed/ 2 IEA World Energy Outlook: Declining Investment Threatens Recovery http://www.moneymorning.com/2009/11/10/iea-world-energy-outlook/ http://www.moneymorning.com/2009/11/10/iea-world-energy-outlook/#comments Tue, 10 Nov 2009 21:58:38 +0000 Jason Simpkins http://www.moneymorning.com/?p=9856 By Jason Simpkins
Managing Editor
Money Morning

Declining investment and a lack of progress on alternative energy development could lead to sharply higher oil prices in the decades ahead, the International Energy Agency (IEA) said in its 2009 World Energy Outlook.

The IEA for the past year has warned that the financial crisis was undermining investment in energy development. The advisor to 28 developed nations says the financial crisis is already responsible for a $90 billion drop in worldwide oil and natural gas investment, which is 19% below last year’s levels.

“Falling energy investment will have far-reaching and, depending on how governments respond, potentially serious consequences for energy security, climate change and energy poverty,” said the IEA.

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The decline in energy supplies combined with a sharp rise in prices could “undermine the stability of the economic recovery,” it added.

Investment in alternative energy has been particularly hard hit and the failure of governments to make progress on a comprehensive plan to cut global carbon emissions could exacerbate demand for traditional fuels.

Investment in renewable resources has fallen by about one-fifth this year, compared to 2008, the IEA said. Investment would have fallen as much as 30% had it not been propped up by government stimulus plans.

Officials from about 190 countries around the world are scheduled to meet in Copenhagen in December to discuss restrictions on carbon emissions in a deal that will succeed the Kyoto Protocol, which expires in 2012. However, developed and developing nations have routinely clashed over such regulations and little progress was made in last weekend’s Group of 20 (G20) summit leading up to the meeting in Copenhagen.

“The meeting turned out to be a mostly irrelevant sideshow on the way to the Copenhagen talks,” Richard Dixon, a director of environmental group WWF Scotland, told Bloomberg News.

The IEA estimates that $1.1 trillion needs to be invested each year from now until 2030, for a total of $26 trillion, just to meet energy demand on current growth trends. If governments adopt plans to limit greenhouse gas concentrations in the atmosphere to 450 parts per million of carbon dioxide (CO2) equivalent, an additional $10.5 trillion needs to be invested over that time period.

Without that added investment, energy needs won’t be met and energy prices will subsequently rise.

The IEA expects oil prices to average $100 a barrel by 2020 and $115 a barrel by 2030.

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]]> http://www.moneymorning.com/2009/11/10/iea-world-energy-outlook/feed/ 0 G20 Fizzles as China-Africa Summit Leads to a $10 Billion Loan http://www.moneymorning.com/2009/11/10/g20-summit-2/ http://www.moneymorning.com/2009/11/10/g20-summit-2/#comments Tue, 10 Nov 2009 09:00:21 +0000 Jason Simpkins http://www.moneymorning.com/?p=9846 By Jason Simpkins
Managing Editor
Money Morning

While U.S. and European officials this weekend squabbled over the specifics of an economic recovery plan, China took another step to ensure long-term economic growth by inking another multibillion-dollar deal with Africa.

Finance ministers from the Group of 20 (G20) met over the weekend to discuss the ongoing healing process taking place in the world’s financial system. Officials agreed that stimulus measures should remain in place, as the global economic recovery is still vulnerable. They also acknowledged that while the dollar is weakening, its downside risk is outweighed by the need to “continue to provide support for the economy until the recovery is assured.”

Analysts say that the dollar’s decline will take a back seat to the economic recovery so long as it remains orderly.

“With that, the dollar is going to remain in a structural downturn,” Paul Mackel, senior currency strategist at HSBC Holdings PLC (NYSE ADR: HBC), told Reuters. “But it’s orderly, and that’s the key thing. The dollar’s going to remain a sell on rallies.”

The euro has risen more than 11% against the dollar this year, and yesterday (Monday) it again broke the psychologically important $1.50 level. Many investors have also sought the shelter of hard assets, with the price of gold breaching new record highs on a fairly routine basis over the past week. Gold gained as much as 1.3% on the Comex division of the New York Mercantile Exchange (NYMEX) yesterday, hitting another fresh record of $1,109.50 an ounce.

The International Monetary Fund (IMF) added to the dollar’s woes by saying in its note to the G20 that the U.S. currency was still “on the strong side” in terms of its trade-weighted basis.

But while international policymakers have agreed that stimulus should be employed until the global economy firms, they failed to reach a consensus on much else. Officials agreed the global economy needs more balance. For instance, the United States needs to reduce its trade deficit, while other countries – such as China and Germany – must become less dependent on exports. But a specific strategy aimed at solving the shortcomings that currently exist was lacking.

“The G20 meeting failed to deliver any real specifics as to how it intended to rebalance the global economy, suggesting the drift in the dollar is not likely to be addressed on a coordinated basis,” Daragh Maher, deputy head of global foreign exchange strategy at Calyon Credit Agricole, told The Associated Press.

G20 finance ministers also offered no details on how they plan to limit bonuses at financial firms, to what extent they will force banks to accumulate more cash reserves, and how they will finance a new climate change agreement ahead of a crucial meeting in Copenhagen next month.

“The meeting turned out to be a mostly irrelevant sideshow on the way to the Copenhagen talks,” Richard Dixon, a director of environmental group WWF Scotland, told Bloomberg News.

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The United States and Britain, two historically close allies, even clashed over the application of a so-called Tobin tax. British Prime Minister Gordon Brown advocated the tax on financial transactions to support future bank rescues.

“It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Prime Minister Brown said. There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards.”

France and Germany have advocated such a tax in the past, but U.S. Treasury Secretary Timothy F. Geithner opposed the idea.

“A day-by-day financial transaction tax is not something we’re prepared to support,” he told Sky News.

Analysts have pointed out that as the recovery gathers steam, the opportunity for real change fades.

“Each day the crisis recedes, the old battle-lines reemerge and it gets tougher to find common conclusions,” Tim Adams, a former U.S. Treasury official who is now managing director at The Lindsey Group, told Bloomberg.

China’s $10 Billion Loan Lands Under the Radar

While finance ministers and central bankers of the world’s 20 most developed nations conferred in Scotland, another, less publicized meeting – the fourth ministerial Forum on China-Africa Cooperation (FOCAC) – was taking place in Sharm el-Sheikh, Egypt.

There, Chinese Premier Wen Jiabao and Chinese President Hu Jintao unveiled eight measures on bilateral cooperation, as well as $10 billion of low-interest loans to African nations over three years.

“The Chinese people cherish sincere friendship toward the African people, and China’s support to Africa’s development is concrete and real,” said Premier Wen. “We will help Africa build financing capabilities. We will provide $10-billion for Africa in concessional loans.”

Indeed, China has found exceptional economic growth at a time when most of the Western world is struggling back from the brink. A continent rich in commodities, which have been skyrocketing in value, Africa is integral to China’s plans for sustained growth.

Chinese oil companies alone have announced plans to spend at least $16 billion to gain access to the continent’s energy assets.

For instance, it was revealed in September that China’s state-owned CNOOC Ltd. (NYSE ADR: CEO) is in talks with Nigeria to buy 6 billion barrels of oil – equivalent to one-sixth of the country’s total reserves.

Acquiring one out of every six barrels of Nigerian oil equivalent could cost between $30 billion and $50 billion. China has made huge investments in Africa in exchange for large supplies of iron ore, nickel, copper, cobalt, bauxite, silver and gold.

Last year, China vaulted over the United States to become Africa’s largest trading partner, as two-way trade between the two parties totaled $107 billion. In fact, trade between the two regions has surged tenfold in the past eight years, to almost $107 billion in 2008.

However, several Western authorities – some of which are concerned about the security of their own operations – have accused China of plundering the continent for its resources with little or no concern its citizens.

For instance, China’s friends in Africa include President Omar Bashir of Sudan – who is currently wanted by the International Criminal Court for war crimes – and Zimbabwe President Robert Mugabe – who has been accused of driving his country into economic ruin and starvation and is heavily sanctioned by the United States and European Union.

“The People’s Republic of China (PRC) aids and abets oppressive and destitute African dictatorships by legit­imizing their misguided policies and praising their development models as suited to individual national conditions,” said a report from the Heritage Foundation. “Moreover, China rewards its African friends with diplomatic attention and financial and military assis­tance, exacerbating existing forced dislocations of populations and abetting massive human rights abuses in troubled countries such as Sudan and Zimbabwe.”

China is the largest supplier of arms to Sudan, which received $7 billion of Chinese defense exports between 2003 and 2007, according to the U.S. Department of Defense.

Both Sudan’s al-Bashir and Zimbabwe’s Mugabe were present for Wen’s speech.

Still, the Chinese Premier was at a loss in understanding criticism from the West.

China’s imports of African mineral resources and energy account for only 13% of the continent’s total exports and its investments in Africa’s oil and gas sector were only one-sixteenth of the total investments in the continent, Wen told reporters at the FOCAC.

Chinese investments in Africa were up 77% in the first three quarters of 2009.

“So, why do some people only criticize China?” he asked.

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]]> http://www.moneymorning.com/2009/11/10/g20-summit-2/feed/ 2 Western Oil Majors Reluctantly Return to Iraq http://www.moneymorning.com/2009/11/07/iraq-oil/ http://www.moneymorning.com/2009/11/07/iraq-oil/#comments Sat, 07 Nov 2009 12:00:44 +0000 Jason Simpkins http://www.moneymorning.com/?p=9821 By Jason Simpkins
Managing Editor
Money Morning

Exxon Mobil Corp. (NYSE: XOM) and Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) on Thursday won the right to develop Iraq’s West Qurna-1 oilfield.

The agreement is the third such deal this year, which means Iraqi oil production could increase at a faster pace than previously expected and potentially lead to a drop in oil prices.

Iraqi officials earlier this week finalized an agreement with BP PLC (NYSE ADR: BP) and China National Petroleum Corp. (CNPC). Policymakers also reached an initial agreement with a consortium led by Italy’s Eni SpA (NYSE ADR: E) that will develop the Zubair oil field.

The latest deal gives Exxon and Shell the right to increase production at Iraq’s West Qurna-1 oilfield, which is believed to hold about 8.7 billion barrels of oil reserves. The field is already producing about 279,000 barrels per day (bpd), and Exxon and Shell will be paid $1.90 for every additional barrel of oil they can produce from the field.

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Many Western oil producers – including Exxon, Shell, and Eni – walked away from bidding on Iraq’s oilfields in June dissatisfied with the terms that were being offered. Exxon had originally asked for $4 for every extra barrel of oil produced, while a consortium led by Russia’s OAO Lukoil wanted $6.49 a barrel. Even CNPC proposed $2.60 a barrel.

However, all of these companies have resumed bidding on Iraq’s unstinted fields, and most are agreeing to terms below $2 per incremental barrel, which was the benchmark set by BP and CNPC in their bid for the Rumaila field.

Rumaila is the largest of Iraq’s six oil fields on offer to foreign and state-owned companies with 17.7 billion barrels of proven reserves. Under terms of the 20-year contract, BP and CNPC have six years to boost the field’s production to 2.85 billion bpd.

Eni, and its partners, Occidental Petroleum Corp. (NYSE: OXY) and Korea Gas Corp., have agreed to increase production at Zubair from its current level of 190,000 bpd to 1.125 million bpd within seven years. They also will be paid $2 a barrel for the extra oil they produce, after insisting on $4.80 a barrel as recently as June.

Iraq’s enormous potential and rising oil prices – which have surged more than 12% since June 1 – are most likely the reasons behind Big Oil’s change of heart. At some 115 billion barrels, Iraq’s reserves are the third largest in the world.

Rumaila, Zubair, and West Qurna alone could triple Iraqi production from the current level of 2.5 million bpd  in less than a decade, according to Iraqi officials. Analsyst believe that added production could lead to a dip in oil prices.

“If Iraq and the international oil companies are able to bring these projects on,”

David Kirsch, an analyst with Washington consultancy PFC Energy told BusinessWeek, “it certainly would eliminate concerns that global production is going to peak any time soon.”

It could also put the Organization of Petroleum Exporting Countries (OPEC) in a difficult situation. Iraq is a member of OPEC but has been exempted from quotas as it attempts to recover from the United States’ 2003 invasion. Crude oil export revenue represents about 60% of Iraq’s gross domestic product (GDP) and 89% of government revenue, according to the International Monetary Fund (IMF).

As Iraq’s oil producution increases, members will start to call for that exemption to be withdrawn.

“As prospects increase for Iraq to approach prewar [oil production] levels … the issue of reincorporating Iraq into OPEC’s system of production targets will quickly re-emerge as a topic for negotiations,” PFC said in a report. “The process of reaching a negotiated settlement could add further friction to what will already be a difficult process of managing oil markets during the global economy’s weak recovery.”

At its December 2008 meeting in Algeria, OPEC agreed to reduce production by 4.2 million bpd to put a floor under plunging prices. While some member nations — notably Iran and Venezuela — have allegedly violated that limit, it has generally been adhered to.

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]]> http://www.moneymorning.com/2009/11/07/iraq-oil/feed/ 0 China Fuming Over the Latest U.S. Trade Complaint http://www.moneymorning.com/2009/11/05/china-us-trade/ http://www.moneymorning.com/2009/11/05/china-us-trade/#comments Thu, 05 Nov 2009 21:11:56 +0000 Jason Simpkins http://www.moneymorning.com/?p=9806 By Jason Simpkins
Managing Editor
Money Morning

There has been a spate of trade tiffs over the past few months, but relations appeared to be on the mend after a high-level meeting between trade officials at the Chinese city of Hangzhou. Now, as President Obama prepares to make his first official trip to China, tempers are again flaring.

The United States, Europe, and Mexico have asked the World Trade Organization (WTO) to arrange a dispute settlement panel to investigate Chinese restrictions on exports of certain industrial metals. The WTO complaint claims that Chinese restrictions on exports such as bauxite and magnesium are driving up the prices of steel, aluminum, and chemical products.

“China’s restrictions on raw materials continue to distort competition and increase global prices, making conditions for our companies even more difficult in this economic climate,” said Catherine Ashton, the European Union’s (EU) trade commissioner.

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Beijing applies an export duty of as high as 15% on some of its materials. However, China’s Ministry of Commerce contends that those duties are in place to protect the environment by increasing the cost of extraction. The ministry also disputed Ashton’s claim that such taxes are making it harder for Western companies to emerge from the recession.

“The overseas demand for those products has been shrinking, so it is an exaggeration to say that China’s measure would affect the EU or U.S. steel industry’s recovery from the financial crisis,” it said.

Dustups like these have become commonplace between China and its Western consumers, who continue to accuse Beijing of keeping its currency artificially undervalued to favor its exports. But with the economy still under duress from the weight of the financial collapse, talks have taken on a new sense of urgency and led to more direct action.

President Obama in September imposed a 35% tariff – on top of the existing 4% duty – on Chinese tires coming into the United States. That order came mainly at the behest of the United Steelworkers union, which says 5,000 union jobs have been lost since 2004 because low-cost Chinese tires are flooding the market. From 2004 to 2008, the number of tire imports from China has tripled.

That was followed in October by a U.S. investigation into seamless steel pipe imports from China. The government agency will make a decision on preliminary anti-dumping duties in December and could impose new duties of almost 100% on imports of steel pipes from China as soon as February.

China responded with an “anti-dumping” probe into U.S. auto parts and chicken meat imports. Beijing is also investigating Detroit’s “Big Three” automakers to determine whether or not they are receiving U.S. government subsidies, or selling their products in China below market costs.

It looked as though tensions between the two nations had cooled last week at the culmination of the Joint Commission on Commerce and Trade (JCCT), when China said it would lift a ban on U.S. pork imports that it imposed last spring because of fears about swine flu.

“China’s intent to remove its H1N1-related bank on U.S. pork marks an important step forward in cooperation between the countries on agriculture issues,” Agriculture Secretary Tom Vilsack said in a statement.

But with the United States’ latest appeal to the WTO, China is again fuming.

“Once again, ‘made-in-China’ has fallen victim to U.S. trade protectionist measures,” lamented article in Xinhua, China’s state-run newspaper. “And it is hardly a week after Washington pledged actions against trade and investment protectionism at the 20th China-U.S. Joint Commission on Commerce and Trade (JCCT) talks in China’s eastern city of Hangzhou.”

The paper also took direct aim at President Obama who will visit China from Nov. 15-18.

“Recent protectionist moves in the United States are closely linked to its sluggish economic growth and domestic political tussles, but a strong leader should have the guts to be more far-sighted and deliver the pledge he or she has made,” the paper said.

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]]> http://www.moneymorning.com/2009/11/05/china-us-trade/feed/ 2 Gold to Continue its Record Run as Central Banks Stock Up http://www.moneymorning.com/2009/11/05/gold-central-banks/ http://www.moneymorning.com/2009/11/05/gold-central-banks/#comments Thu, 05 Nov 2009 09:00:51 +0000 Jason Simpkins http://www.moneymorning.com/?p=9797 By Jason Simpkins
Managing Editor
Money Morning

Gold prices soared to another fresh record yesterday (Wednesday), driven mainly by speculation that central banks would continue to ramp up purchases of the precious metal.

Gold futures jumped as high as $11.30, or 1%, to $1,096.20 an ounce in morning trading on the New York Mercantile Exchange (NYMEX). And most analysts believe gold prices are bound to shoot even higher.

“Everything is pointing to the price of gold going higher,” Mike Sander, an investment adviser at Seattle-based Sander Capital Advisors, wrote in an e-mailed report.

And “a whopping budget deficit continuing to balloon, a Federal Reserve in no place of raising rates, and central banks all over the world diversifying away from the dollar,” will be the main catalysts for gold’s continued rise, he said.

The U.S. Federal Reserve’s loose monetary policy has put the dollar under duress. The Fed has pumped more than $2 trillion into the U.S. economy since the financial crisis began more than two years ago. It has lowered its benchmark federal funds rate to near zero and stepped up purchases of U.S. Treasuries and mortgage-backed securities.

More recently, the return of investor risk appetite and the widespread belief that the Fed will have to keep its stimulus measures in place as the U.S. economy struggles out of a long and deep recession have put downward pressure on the greenback.

The dollar has tumbled by more than 17% against the euro since early March, and the Dollar Index – which measures the greenback against the euro and five other currencies – is down 6.4% this year.

With the dollar in freefall, central banks and hedge funds have sought shelter in hard assets, particularly gold.

Indeed, this week’s record rally began Tuesday, when the International Monetary Fund (IMF) said it sold 200 metric tons of gold to the Reserve Bank of India (RBI) from Oct. 19 to Oct. 30.

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The IMF said in September that it would sell 403.3 metric tons of the metal to shore up its finances and lend at reduced rates to low-income countries. That announcement led some analysts, who worried the market might be flooded, to turn bearish on gold. But now there’s a question of whether or not there will be enough gold to go around – even with the IMF sale.

Investors around the world are betting that purchases such as this mark a new era for central banks around the world, one in which they will seek greater diversification from the U.S. dollar.

“The market realized…that there are enough central banks which are looking to buy the gold from the IMF direct and so it is not coming into the market, so the shorts had to cover,” Michael Kempinski a senior trader at Commerzbank told Reuters. “We should see $1,100 soon.”

Central Banks Driving the Gold Bull

The RBI paid $6.7 billion for the 200 metric tons of metal, or about 8% of the world’s annual mine production.

The move surprised many analysts, as India, for the past 15 years, had largely neglected its gold reserves. India’s gold holdings peaked in 1994 at 20% of its foreign exchange reserves. But up until Tuesday, those holdings had dropped to just 3.6% of the nation’s estimated $285.5 billion in foreign reserves.

Last month’s purchase nearly doubled India’s gold holdings, which now stand at 558 metric tons, or 6.2% of the nation’s foreign exchange reserves.

Asia’s third-largest economy now has the world’s 10th-largest gold reserve, behind Russia, which has about 568 metric tons.

India’s gold holdings as a percentage of foreign reserves are now higher than even China’s. The People’s Bank of China holds about 1,054 metric tons of gold, equal to roughly 2% of its $2.3 trillion in foreign currency reserves.

“Our Reserve Bank decided to buy some gold. I think about 400 tonnes. That’s normally something we do from time to time. The IMF wanted to sell gold and we wanted to buy gold,” Pranab Mukherjee, India’s finance minister, said in an interview with the Financial Times.

However, analysts have been far less flippant about the purchase.

Timothy Green, the author of “The Ages of Gold,” described India’s purchase to Bloomberg News as “the biggest single central-bank purchase that we know about for at least 30 years in such a short period.”

“The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s,” he said.

“This is a landmark trade,” Jonathan Spall, a director at Barclays Capital and a gold specialist, told the FT. “Central banks are conservative institutions and India’s move is a sign for other central banks and sovereign wealth funds that were contemplating buying gold.”

Analysts believe India’s highly publicized purchase – which was made when prices were near record highs – will spawn a chain reaction in which other countries and investors ramp up their gold purchases.

And with 203.3 metric tons still on sale at the IMF, it wouldn’t come as a surprise if China wanted to build on its gold holdings. China, the sixth-largest holder of gold, has increased its gold reserves by 76% since 2003. But as stated earlier, its 1,054 metric tons equal just 2% of its massive reserve holdings.

“It is but a matter of time until China and the IMF announce much of the same,” said Dennis Gartman, an economist and the editor of The Gartman Letter told Bloomberg.

Gold prices may average $1,125 an ounce in 2010, “with strong investment demand anchored by a negative real interest-rate environment and probable central bank purchases,” analysts at Desjardins Securities Inc. said in a report.

Got the Gold Bug?

There are a number of ways an investor could profit from gold’s record-breaking run.

In a September “Buy, Sell or Hold” column, Money Morning Contributing Editor Horacio Marquez reiterated his suggestion that investors buy the SPDR Gold Trust ETF (NYSE: GLD) – an exchange-traded fund that mimics gold’s price movement.

Holdings in the SPDR Gold Trust increased 4.88 tons – the most in nearly a month – to 1,108.4 tons Tuesday after India revealed its massive purchase.

Meanwhile, another Money Morning contributor, Martin Hutchinson, suggested the iShares Silver Trust (NYSE: SLV).

“This fund invests directly in silver bullion, which has been left behind somewhat in its relationship to gold’s price rise – and which can be expected to move up as gold does, possibly by an even greater percentage,” he said.

Hutchinson also advised investors to look at the Market Vectors Gold Miners ETF (NYSE: GDX).

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]]> http://www.moneymorning.com/2009/11/05/gold-central-banks/feed/ 2 Bondholders the Big Winners as CIT Files for Bankruptcy http://www.moneymorning.com/2009/11/02/cit-bankruptcy-2/ http://www.moneymorning.com/2009/11/02/cit-bankruptcy-2/#comments Mon, 02 Nov 2009 22:01:10 +0000 Jason Simpkins http://www.moneymorning.com/?p=9751 By Jason Simpkins
Managing Editor
Money Morning

CIT Group Inc. (NYSE: CIT) on Sunday filed for Chapter 11 bankruptcy protection. CIT’s filing is the fifth largest bankruptcy in U.S. history, behind Lehman Brothers Holdings Inc. (OTC: LEHMQ), Washington Mutual Inc. (OTC: WAMUQ), WorldCom Inc., and General Motors Corp.

But unlike Lehman Bros. and Washington Mutual, which were completely broken apart and branches of their businesses sold off, CIT expects to wipe out $10 billion in unsecured debt and emerge from its bankruptcy with its core business intact.

“None of CIT’s operating subsidiaries, including CIT bank, will be
included in the filings,” the company said in a statement. “As a result, all
operating entities are expected to continue normal operations during the pendency cases.”

Still, it’s likely that all of CIT’s common shareholders will be wiped
out and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money it lent the lender through the Troubled Asset Relief Program (TARP). The company said in an Oct. 2 regulatory filing that common shareholders would own just 2.5% of the reorganized company.

CIT’s bondholders will be the biggest beneficiaries of the bankruptcy.
It’s possible that they will receive new notes at 70 cents on the dollar, as well as new common stock, according to CIT Chief Executive Officer Jeffrey Peek. The bankruptcy filing had the support of 90% of creditors who voted on it.

Those bondholders include Oaktree Capital, Centerbridge, Silver Point Capital, Capital Research and Management, and Pacific Management Company, who in July came through with $3 billion in financing to keep prop up CIT, which was edging toward bankruptcy at the time.

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After the Treasury Department refused the company’s pleas for another capital infusion, CIT attempted to circumvent bankruptcy by arranging a bond exchange offer. However,
the company failed to persuade its bondholders to swap $30 billion in debt.

Following that effort, billionaire investor Carl Icahn attempted to drive the company
into liquidation with a bond exchange offer of his own. But on Friday, CIT announced Icahn would support its reorganization plan with $1 billion in secured financing.

Icahn’s contribution will help CIT continue lending to its clients, which
include Dunkin Brands Inc. and Eddie Bauer Holdings Inc. (OTC: EBHIQ).  These companies and as many as 2,000 vendors supplying 300,000 retailers would have been negatively affected by a total collapse of CIT.

CIT listed $71 billion of assets and $65 billion of liabilities in its bankruptcy filing. The company expects to emerge from bankruptcy in about two months.

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]]> http://www.moneymorning.com/2009/11/02/cit-bankruptcy-2/feed/ 0 Gambling on Casino Stocks: Where Should Investors Place Their Bets? http://www.moneymorning.com/2009/11/02/casino-stocks/ http://www.moneymorning.com/2009/11/02/casino-stocks/#comments Mon, 02 Nov 2009 09:00:51 +0000 Jason Simpkins http://www.moneymorning.com/?p=9725 By Jason Simpkins
Managing Editor
Money Morning

Casino stocks lost big last month as weak earnings and new gambling restrictions in Macao drove investors away from the highly cyclical sector. But the future may not be as bleak as many investors fear, which means casinos could be building towards a big payout.

Shares of both Wynn Resorts Ltd. (Nasdaq: WYNN) and MGM Mirage (NYSE: MGM) are down more than 20% this month, while Las Vegas Sands Corp. (NYSE: LVS) stock has tumbled 15%.

“Casino stocks were so badly beaten during the crisis last year, they were probably only second to banking stocks,” Lawrence Ho, who owns Macao’s City of Dreams casino, told MarketWatch. “They were so beaten that even after the run they’ve had this year they’re nowhere near the valuations they were at in 2007 or early 2008.”

Lawrence Ho is the son of the 87-year old Stanley Ho, who controlled Macau’s gambling business for 40 years before China took it over in 1999 and deregulated gambling in 2002. And Macao – a former Portuguese colony that is now a special administrative region under Chinese rule – is the new center of the gambling universe.

Macao’s Cotai Strip generated $13.5 billion in gross gaming revenue last year, up 31% from 2007. The Las Vegas Strip raked in less than half that, with $6 billion in 2008 gaming revenue.

However, Macau is the only city in China where gambling is legal, and as such, it is subjected to tight government regulation. That means investor profits are often subject to the whim of Beijing’s central government, but it also means the region will be protected from problems such as overexpansion, which has become a problem for Las Vegas.

And in some cases, government restrictions provide buying opportunities by driving more timid investors out of the market. That has been the case this month.

Bright Lights, Big City… Cash Cow

About 65% of the Macau’s casino visitors come from Mainland China, particularly the neighboring Guangdong province. Hoping to keep more money on the Mainland to bolster its economic recovery, China tightened travel restrictions on Guangdong residents, limiting them to just two trips into the region each year. The result was a 12.5% drop in gaming revenue over the first half of the year.

However, authorities began easing visa restrictions in July, making it possible for Chinese residents to visit Macau once a month. The effects were noticeable immediately.

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Macau casino revenue surged 22.3% in the July-September quarter to a record $3.81 billion. September revenue doubled from a year ago but analysts expect October will be the best month on record.

But now that money is rushing back into Macau at an unprecedented pace, Beijing is pondering restrictions to rein in the region’s growth. For instance, the travel restrictions that were eased in July have again been tightened. Residents may now only make one trip to the city every two months. Officials are also considering limiting the number of table games a casino can offer, and raising the gambling age to 21 from 18.

The news that such restrictions were on table sent casino stocks diving in October. But what investors didn’t realize was that such restrictions would actually benefit the six major casino companies already operating in Macao – Wynn Resorts, Las Vegas Sands, MGM Mirage, Galaxy Entertainment Group Ltd. (OTC: GXYEY), SJM Holdings Ltd., and Melco Crown Entertainment Ltd. (Nasdaq: MPEL) – by keeping new competition out of the region.

“It’s more psychological,” Francis Lun, a general manager at Fulbright Securities, told Reuters, referring to the plunge in casino stock valuations following the decision. “The problem of Macao now is oversupply, so if the government restricts the supply, it is good for the existing players.”

Macau’s casino operators agree.

“We’re very much in favor of [the restrictions],” Wynn, whose company operates a luxury casino hotel in Macau and will open a second next April, said in an interview with Reuters. “The government wants to keep people calm while they provide jobs and industrialize the country.”

Wynn pointed out that Macau’s jobs sector is of particular concern to Beijing.

“If you allow people to spread games without any control then what happens is they get overzealous – as you’ve seen here in Las Vegas -… they hire people and fire them,” he said.

Macau officials have asked casino operators to return workers to a 48-hour workweek, up from the 40-hour week four of the city’s major casino operators have implemented, according to Wynn.

“The six operators understand that paying higher commissions and opening more gaming tables than others might win them short-term market share, but is not a sustainable competitive strategy,” a Citigroup Inc. (NYSE: C) report said. “They realize that they have to foster a less hostile environment so that the industry as a whole can be more profitable.”

Betting On Macau

Of the six gaming companies operating in Macau, Wynn Resorts may be investors’ best bet.

“If we were going to pick one stock among the gaming sector, we would prefer Wynn,” Belle Yang, Core Pacific-Yamaichi’s Hong Kong-based head of research, told MarketWatch. “The profitability is higher, and they have some more international background and management experience.”

Third-quarter net income at Wynn Resorts fell 33% to $34.2 million, or 28 cents a share, from $51.2 billion, or 49 cents a share a year earlier. Revenue rose to $773.1 million from $769.2 million.

“In the summer, things started to change,” Wynn said on a conference call to investors. “I’m spilling over into October a little bit, but to give you a general impression, if things continue the way they are, we are going to equal or beat 2008 in Las Vegas and we are going to equal or beat last year in Macau.”

Wynn Resorts also priced an initial public offering (IPO) of 1.25 billion shares on the Hong Kong market at $1.30 per share. The shares – which represent a 25% stake in the company’s Macau operations – raised $1.63 billion and jumped 7% Oct. 9, the first day they were traded.

Wynn’s operating income in Macau was $83.2 million for the third quarter, compared with $59.6 million a year earlier. Revenue from operations in Macau surged to about $4 billion – almost ten times the $410 million in the casino earned in the second quarter. Wynn Resorts is Macau’s No. 4 operator, with about 14% of the local gambling market.

Las Vegas Sands on Friday won approval from the Hong Kong stock exchange for more than $6 billion in combined initial public offerings. The company hopes to piggyback on strong investor sentiment the way Wynn did. Analysts expect the company will raise $2 billion or more.

However, the world’s most valuable casino operator is struggling with debt and needs the money to complete its two suspended projects in Macau

Las Vegas Sands third-quarter revenue climbed 3.2% to $1.14 billion. However, the company reported a net loss of $76.5 million, or 19 cents a share, compared to a loss of $32.2 million, or 9 cents a share the year prior.

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]]> http://www.moneymorning.com/2009/11/02/casino-stocks/feed/ 1 GMAC Appeals to Treasury for Its Third Taxpayer Bailout http://www.moneymorning.com/2009/10/28/gmac-appeal/ http://www.moneymorning.com/2009/10/28/gmac-appeal/#comments Wed, 28 Oct 2009 19:23:23 +0000 Jason Simpkins http://www.moneymorning.com/?p=9689 By Jason Simpkins
Managing Editor
Money Morning

GMAC LLC (NYSE: GMA) is currently discussing a third taxpayer-funded bailout with the Treasury Department, according to a report in The Wall Street Journal. The news comes as a stark reminder amid talk of a recovery that many financial institutions are still overwhelmingly dependent on government support.

The Treasury will reportedly give General Motors Corp.’s (NYSE: GRM) financing arm between $2.8 billion and $5.6 billion in capital to shore up its balance sheet and provide wholesale financing to GM and Chrysler car dealerships. 

The infusion will likely come in the form of preferred stock, The Journal reported. That means the government’s 35.4% stake in the company could increase if existing shares are converted into common stock.

Additionally, the Federal Deposit Insurance Corp. (FDIC) will guarantee $2.9 billion in GMAC debt. That will help GMAC fund its daily operations by making its debt more appealing to investors. Moody’s Investors Service (NYSE: MCO) rates GMAC at Ca – two notches above default. But the FDIC backing means these bonds will be rated triple-A.

The FDIC backed $4.5 billion in GMAC debt earlier this year. However, this will be the third time the Treasury has intervened to prop up the company. The Treasury has injected GMAC with a total of $12.5 billion since December 2008. The most recent infusion came on May 21, after GMAC failed to pass the government’s stress test.

GMAC received $7.5 billion after the government concluded the financer needed $11.5 billion in common equity. Ten of America’s largest lenders were determined to need more capital after the government’s examination. Of those banks, GMAC is the only company that has failed to meet its new capital requirement. 

“It’s outrageous that the taxpayers are being asked yet again to support a troubled enterprise,” Sean Egan, president of Egan-Jones Ratings Co. told Bloomberg News. “When will it end?”

Of the $204.64 billion in aid banks got from the Troubled Asset Relief Program (TARP), just one-third of the capital has been paid back.

GMAC has $181 billion in assets and is a major financier for 15 million borrowers and thousands of car dealerships across the country. The company reported a second-quarter loss of $3.9 billion, including a $727 million deficit in the auto-finance unit. GMAC is scheduled to report its third-quarter earnings on Nov. 4.

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