Greetings!
The week began with one eye focused on the latest treasury bond auction and the other on Washington as Obama and Co. hosted members of the Chinese government. With that as a backdrop the Market decided to take a few days off with volume light and not much stock price movement.
This weeks treasury auction was large; the U.S. sold $39 billion of five-year notes, $42 billion of two-year debt, and $6 billion of 20-year Treasury Inflation Protected Securities as well as a slew of seven year notes. In all, the government sold a record $115 billion of notes this week.
For the year, the U.S. raised $1.02 trillion selling Treasury securities in its effort to help finance a recovery, while also servicing existing debt encompassing a record budget deficit. The budget deficit for 2009 is projected to reach $1.85 trillion. Some peg this to be equivalent to 13 percent of the nation's economy.
One of the major concerns for the Chinese delegation is the US deficit and extensive debt load. In line with what we have been reporting in this newsletter, the discussions in Washington this week focused primarily on US officials trying to calm Chinese anxiety over the increased risk of inflation and the devaluation of the dollar. As the largest investor in US Treasuries, China is peculiarly interested in US monetary policy and US fiscal policy. So what came out of these very important discussions? None of us really know!
Certainly much was diagnosed and reported by al the papers and media outlets, but really, how much truth is in all that? The fact of the matter is that while these meetings were clearly significant to both the US and China, we should not delude ourselves into thinking that we will actually know what was said and agreed upon. In fact much of what transpires in the world of politics and finance is secretive and not available for public consideration. Whether or not we know of them, it is people in power who make the decisions that affect the rest of us.
Here is an example:
Well hidden in the pine forests of rural Quebec lies a private estate the size of Manhattan. A refuge where people of power only tread. People like French President
Nicolas Sarkozy, Bill Clinton, and others. A place where the holders of power can play golf on 18 meticulously groomed holes with a bright-yellow cottage for respite at the 13th tee. Where pheasant shoots are orchestrated from the hunting lodge; opera is performed in the music pavilion. Where an original of Auguste Rodin's The Thinker and a statue of Thomas Jefferson adorn the rough, granite hills.
At the heart of the property is a grand residence modeled on a 16th-century Palladian villa. This is the home of Paul Desmarais Sr. Who is he you ask? Precisely the point. This white-haired, Canadian billionaire lives a very secretive life. Yet, his relative obscurity outside Quebec actually masks his family's vast connections and influence in global business and politics.
"They keep a very low profile," says Brian Mulroney, who met Desmarais in 1965. "That's the way they like it."
Desmarais, 82, started out with a backwoods Ontario bus line in 1951. Now, he and his family control Power Corporation of Canada, a holding company headquartered in an unmarked, eight-story building on Montreal's leafy Victoria Square. Paul Sr. has two sons, Paul Jr., 54, and Andre, 52, who together are co-chief executive officers. Together, the brothers govern a labyrinthine business empire that extends from Denver to Geneva to Hong Kong, with seats on 38 related corporate boards.
Power Corp. owns 66 percent of Power Financial Corp., a web of North American insurance and asset management companies with 2008 revenue of $32.7 billion. In 2007, the Desmarais bought Putnam Investments, a once mighty, Boston-based mutual fund company that fell on hard times due to a trading scandal and weak fund performance. The price tag was $3.9 billion.
In Europe, the Desmarais have been partners with Albert Frere, one of Belgium's richest men. They hold interests in Total SA, Europe's third-biggest oil and gas company, Paris-based Lafarge SA, the world's biggest cement maker; and Paris-based GDF Suez SA, the world's second-biggest utility. Paul Desmarais Jr. is a director of all three.
They even have a significant position in China, where the Desmarais family own 4.3 percent of Hong Kong-based Citic Pacific Ltd., a steel, mining and real estate development company with a market value of $7.2 billion.. Andre Desmarais joined the board in 1997. His father first ventured into China in the 1970s.
It is people like these that make Markets move and more importantly, make politicians shake in their presence. Now multiply this one family thousands of times to cover the rest of the world's billionaires whom we never see or hear about, but who behind the scenes affectuate major movement in finance and politics.
As for the Market itself this week, while it began slow it then ended with significant volume to the upside pushing stocks and the major indexes at or near highs not seen in some time. Again, while it may be curious why the market is moving up in light of continued bad news, I could not help but notice this recent blurb on one of the wire services regarding Thursday's market action:
A positive tone governed action for the entire session, due largely to a flood of upside earnings surprises from an array of industry players. What's more, the gains that followed came in the face of ongoing calls for a pullback from market pundits, which has encouraged short sellers to bet that the stock market's recent run will falter. However, stocks continue to be supported by those looking to put idle money into play.
In last weeks newsletter we posed the dilemma of who would win the war of the market; will it be bad news to the downside, or will it be pent up trillions waiting to get in to the upside. This week may have given us an indication of the answer.
Have a great weekend!
