Citigroup Inc. (C) could be compelled to sell its profitable and highly rated Mexican subsidiary Banamex due to a probe expected this week by Mexico’s Supreme Court. A group of senators has objected that Citigroup’s Mexican subsidiary is in breach of national law since the US government bail-out of the company. National law of Mexico bans foreign governments from owning a stake in domestic banks. Banamex, or Banco Nacional de Mexico, is one of Citigroup's brightest jewels, and accounts for over $20 billion, or 15% of its global profits. A number of other foreign-dominated banks operating in Mexico also remain exposed to the same risk, as many foreign governments own stake in them following the global financial crisis. These banks include American International Group, Inc. (AIG), Bank of America Corporation (BAC) and Bank of New York Mellon Corporation (BK), as well as ...

Much pomp and circumstance was certainly made in relation to the fact that Japan actually grew in the second quarter at a full annualized 3.7 percent in the second quarter of 2009. Yet, the underlying numbers to suggest a recovery are still sorely missing. Deflation now seem to have taken hold, unemployment is rising fast and although the recent manufacturing PMI provided us with an upbeat signal, the underlying trend still is still that of a very tepid recover, if at all, or just a plain slump.

(quote Bloomberg)

Japanese businesses cut spending for a ninth quarter as the global recession squeezed profits, underscoring the challenge for the incoming government to sustain a recovery from the country’s worst postwar slump. Capital spending excluding software fell 22.2 percent in the three months ended June 30 from a year earlier, after dropping a record 25.4

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European shares touched a 10-month high on Friday on optimism for a global economic recovery and with Nokia and results from U.S. bellwethers boosting the technology sector.

The FTSEurofirst 300 <.FTEU3> index of top European shares rose 1 percent to 978.34 points. Over the week, the index climbed 1.2 percent, its sixth weekly gain in the last seven weeks.

The European benchmark index is up more than 51 percent from its lifetime low of March 9, as investors have become more confident on the prospects of economic recovery.

“Things look good for the time being, but the higher we go the more we could be setting ourselves up for a disappointment,” said Andy Lynch, a fund manager at Schroders.

“The world economy is doing well, French and German GDP are positive, but that’s not surprising given the amount of stimulus being pumped into the market. I have a concern about what happens when the sugar

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After a long struggle with local authorities, Ikea will resume its Russia expansion as local officials are beginning 'to follow the different laws that exist' said the Swedish giant's Russia chief.  X5 Retail group has showed that net income has increased by 87% in the second quarter from a year earlier.  The Central Bank says that it may cut interest rates again after inflation remained unchanged last week.  Putin has said that an extra $4.6 billion will be raised for the state budget in 2010.  The Finance Ministry may reduce the amount of state capital that it had planned to issue in OFZ bonds this year.  Peter Hambro Mining, which plans to change its name to Petropavlovsk, increased its first-half profit more than fivefold following rising production.  The Central Bank appears to be tentatively optimistic ...

The Interior Ministry's $755,900 tender for luxury furniture including a 24-carat gold painted bed has raised outcry among ordinary Russians losing sleep over money worries.  The bond is apparently part of a cost-crunching drive, to save money on hotels when foreign officials come to stay.  Aeroflot has become a Tier One sponsor of the 2014 Sochi Winter Olympics, having signed a $100 million deal with the Black Sea city.  Diamond giant Alrosa will invest $500 million for developing homes, schools, and dams in Angola, where it has two mines.  The Finance Ministry has suggested that its plan to sell $58.5 billion of bonds in the next three years may be hindered by competition between the state and the private sector. Germany's economy ministry is reportedly prepared to make €4.5 billion in credit available to Magna-Sberbank to ...

At Casey Research, they have been watching the actions of foreign holders of U.S. dollars as closely as a Las Vegas pit boss watches a card player on a $1 million winning streak. Many of those in the deflation camp largely, or entirely, ignore the potential role these foreign holders may play in the drama now unfolding. But in fact, foreigners have, over the last decade, been by far the single most important source of buying for U.S. Treasuries.

Given the Treasury’s need to flog on the order of $3 trillion worth of its unbacked paper this year just to keep the government’s doors open – and that is a four- or fivefold increase over 2008 – the foreign buyers not only have to show up for the Treasury auctions, they have to show up in droves.

In mid-July, the Associated Press reported that “Foreign demand for long-term U.S. financial assets dropped

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In the New York Times, a special report examines the motivations behind the closure of the 'hell-hole', as one official described Cherkizovsky market: health and safety regulations, a crackdown on vice or revenge for owner Telman Ismailov's lavish opening of the Mardan Palace hotel?  An op-ed piece in the Moscow Times suggests that of the 'conflicting interpretations', the threat the market posed to Russia's light industry is the most convincing.  The Central Bank is considering closing non-bank office located currency exchanges, as an attempt to reduce fraud in independent kiosks.  Moscow real estate prices have continued to plummet, to less than $4,000 a square meter last week. The Finance Ministry says it will sell $20 billion of eurobonds in 2010 in its first international sale since 1998.  The world's largest construction company, Vinci, has signed a $2 billion deal ...

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of

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Top Stories     

Sources: Treasury considers more mortgage-modification incentives Providing cash payments to holders of second-mortgage liens is among the options being considered by the U.S. Treasury to encourage lenders to modify mortgages as an alternative to foreclosure, sources said. Incentives for “short sales,” in which the lender gets some money but less than the full amount due under the loan, are also being discussed, the sources said. Reuters (21 Apr.)

European, U.S. banks face steep funding needs, IMF says To return to capital levels similar to those immediately before the financial crisis, banks in Europe and the U.S. must raise $875 billion in equity, the International Monetary Fund said. The IMF’s Global Financial Stability Report delves ...

Today we take a closer look at the economic outlook for China, a preview of our global economic outlook which will be made available to advisory level clients in the coming weeks. China, the world’s second largest economy by purchasing power parity, contributed over 10% to global economic output in 2007 and 2008 and is thus a key part of any recovery of the global economy.

As Nouriel Roubini notes in a recent report following a mid-March trip to China, it is clear that China faced a severe deceleration of growth in H2 2008 based on a number of indicators: GDP which was close to zero on a q/q basis, industrial production, production of electricity, PMI, weakness of auto sales, fall in residential

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