20 Things to Stop Doing to Others, and other Weekend Reads

Friday, July 29th, 2011

Here are this weekend's read­ing diver­sions for your per­sonal enlighte­ment. Have a ter­rific long (Civic Hol­i­day) weekend!

Mar­garet Cochran, Ph.D.: The Ennea­gram: A Guide to Under­stand­ing Your­self and The Peo­ple Around You

It is impor­tant to under­stand, as you explore this sys­tem, that we each pos­sess all of the nine types of Ennea­gram energy within us. How­ever, there is one "home point" in which we spend the major­ity of our "psy­cho­log­i­cal time."

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Eat­ing Meat Linked To Dis­ease, Report Says

"If you focus on fill­ing up on fruits and veg­gies, so they're at least half your plate, you're not going to have a lot of room left to even eat all that meat," said Joan Salge Blake, R.D., a spokesper­son for the Amer­i­can Dietetic Asso­ci­a­tion. "The biggest thing is just get­ting down the amount we eat."

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Study Sug­gests That Onion Skin Manip­u­la­tion Could Pro­duce A New 'Super­food'

The fruits and veg­eta­bles that have been dubbed "super­foods" over the past few years have a few things in com­mon. They're almost all dark-colored. Many of them are strong-tasting, either bit­ter or sweet. More than a few have been berries (blue­ber­ries, cran­ber­ries, goji berries, açai berries) and green leafy veg­eta­bles (kale, col­lard greens, spir­ulina, wheat­grass). Onion skins are none of these things. They are papery, beige and gross.

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How to Pre­vent Crohn's Dis­ease | eHow.com

There is cur­rently no med­ically doc­u­mented way to pre­vent Crohn's dis­ease. How­ever, you may be able to reduce the like­li­hood of devel­op­ing Crohn's dis­ease through your lifestyle and diet. Here are some tips to help you lessen your chances of devel­op­ing Crohn's dis­ease.

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Pred­nisone Vs. Diet to Treat Crohn's Dis­ease Flare-Ups | eHow.com

Although pred­nisone can be suc­cess­ful in bring­ing about remis­sion, accord­ing to the Uni­ver­sity of Mary­land Med­ical Cen­ter, it has numer­ous side effects includ­ing infec­tion, meta­bolic bone dis­ease, hyper­ten­sion, dia­betes, glau­coma and cataracts. If your con­di­tion requires a high-dose reg­i­men of this med­ica­tion, your doc­tor may sug­gest alter­na­tive pro­ce­dures that elim­i­nate these risks.

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Is It Safe To Pee In The Pool ... And Other Water Safety Ques­tions

But while swim­ming can cer­tainly be a healthy pas­time, allow­ing you to burn calo­ries while stay­ing cool out­doors, the num­ber of recre­ational water ill­nesses (RWIs) has been on the rise over the past few years, accord­ing to the Water Qual­ity And Health Coun­cil. And though we right­fully tend to worry about tak­ing pre­cau­tions against sun­burn and drown­ing acci­dents, it's also impor­tant to keep an eye out for pool water safety.

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Have Rheuma­toid Arthri­tis? 10 Ways To Pro­tect Your Heart

If you have rheuma­toid arthri­tis (RA), you also have dou­ble the risk for heart dis­ease and heart attack.

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Leo Gal­land, M.D.: Slim­ming Straw­ber­ries For Weight Loss

Peak straw­berry sea­son is just around the cor­ner, so now is the per­fect time to add straw­ber­ries to your menu for sum­mer weight loss. From farm stands to your local super­mar­ket, these lus­cious berries are sure to turn up just about every­where.

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20 Things to Stop Doing to Oth­ers

There is one key fac­tor that can either dam­age your rela­tion­ships or deepen them. That fac­tor is your atti­tude. If you're hop­ing to grow and main­tain pos­i­tive rela­tion­ships in your life, read on. Below you will find a 20 step atti­tude adjust­ment guar­an­teed to help you do just that.

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Ten Health­i­est Foods For Under $1 | Food & Drink | Liv­ing Fru­gally | Learn­Vest — Where life gets richer

Fresh fruits, veg­eta­bles and whole grains are vital com­po­nents to any healthy diet. For­tu­nately, many of these nutri­tious foods can often be found in your local super­mar­ket for less than a dol­lar, though prices vary depend­ing on the sea­son as well as where you live

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The Health Risks You Face after Forty — Menopause

Intro­duc­ing you to health risks is not say­ing that turn­ing forty some­how sig­nals an onslaught of dis­eases and dis­abil­i­ties. Many women are health­ier than they've ever been as they approach midlife. But a well-thought-out approach to health main­te­nance is smart at any age, and it becomes more impor­tant as each year passes. Don't think of your health care efforts as part of enter­ing old age; think of them as a sim­ple, basic plan to pre­serve and extend your energy and qual­ity of life.

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Crohn's Dis­ease FAQ

The cause of Crohn's dis­ease is unknown. Some sci­en­tists sus­pect that infec­tion by cer­tain bac­te­ria, such as strains of mycobac­terium, may be the cause of Crohn's dis­ease. To date, there has been no con­vinc­ing evi­dence that the dis­ease is caused by infec­tion. Crohn's dis­ease is not con­ta­gious. Although diet may affect the symp­toms in patients with Crohn's dis­ease, it appears unlikely that diet is respon­si­ble for the onset of the disease

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Crohn's dis­ease: Lifestyle and home reme­dies — MayoClinic.com

Avoid prob­lem foods. Elim­i­nate any other foods that seem to make your signs and symp­toms worse. These may include "gassy" foods such as beans, cab­bage and broc­coli, raw fruit juices and fruits — espe­cially cit­rus fruits, spicy food, pop­corn, alco­hol, and foods and drinks that con­tain caf­feine, such as choco­late and soda.

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10 quick and healthy snacks to stash at work | Healthy Eat­ing | Eat Well | Best Health

Keep these 10 snack options in your desk drawer or office fridge for quick, healthy alter­na­tives to vend­ing machine fare

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Depres­sion Around The World: How Do Coun­tries Stack Up?

So what's caus­ing this cross-national divide in depres­sion lev­els? The study's researchers spec­u­late that one rea­son could be the sharp income inequal­ity in wealthy nations. Any other pos­si­ble rea­son is the low level of aware­ness about men­tal ill­ness in poorer coun­tries. Or, say the researchers, it could be per­haps just be that depres­sion is an ill­ness of afflu­ence.

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20 Tips for Weight Loss This Sum­mer

If you'd like to lose 10 pounds or more this sum­mer, check out these 20 tips. Three nutri­tion experts share their best advice on los­ing weight this sum­mer and keep­ing it off for good.

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Tags: American Dietetic Association, Civic Holiday Weekend, Crohn S Disease, Eating Meat, Enlightement, Enneagram, Flare Ups, Fruits And Vegetables, Fruits And Veggies, Goji Berries, Green Leafy Vegetables, Joan Salge Blake, Margaret Cochran, Maryland Medical Center, Metabolic Bone Disease, Onion Skin, Onion Skins, Psychological Time, Superfood, University Of Maryland Medical Center
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Are Emerging Markets Ready to Lead the Global Economy?

Friday, July 29th, 2011

by Lupin Rah­man, PIMCO

• We fore­cast emerg­ing economies will expand at a faster pace than advanced economies over the sec­u­lar horizon.
• The chal­lenge for emerg­ing mar­ket cen­tral bankers is to remain ahead of infla­tion expec­ta­tions and retain cred­i­bil­ity on infla­tion tar­get­ing. We feel they are well posi­tioned for this.
• We believe global investors remain sig­nif­i­cantly under­weight emerg­ing mar­ket assets. We expect this under­al­lo­ca­tion to decrease, pro­vid­ing mul­ti­year sup­port for the asset class.

Emerg­ing mar­kets are increas­ingly impor­tant dri­vers of growth for the global econ­omy, though they face chal­lenges to reach­ing par­ity with, or even sur­pass­ing, today’s devel­oped nations.

In the final of a series of Q&A arti­cles accom­pa­ny­ing the recent release of PIMCO’s Sec­u­lar Out­look, port­fo­lio man­ager Lupin Rah­man dis­cusses growth dynam­ics, infla­tion and struc­tural change in emerg­ing mar­kets (EM) as well as what all of this means for the global economy.

Q. Could you dis­cuss growth dynam­ics in emerg­ing mar­kets and their share of the global econ­omy?

Rah­man: We fore­cast emerg­ing mar­kets to out­per­form advanced economies over the sec­u­lar hori­zon (next three to five years) with growth aver­ag­ing 6% vs. 2% in advanced economies. Sig­nif­i­cant tran­si­tions already under­way in the global econ­omy under­pin this trend. Essen­tially we are see­ing a shift from a unipo­lar world anchored by advanced economies toward a mul­ti­po­lar world with large emerg­ing economies play­ing an increas­ingly larger role in the global economy.

Within EM we expect to see dif­fer­en­ti­a­tion across economies. In Latin Amer­ica and emerg­ing Asia we fore­cast growth in the 6% to 7% range to be anchored by low lever­age, strong struc­tural demand for com­modi­ties and a soft land­ing in China. Mean­while, coun­tries in emerg­ing Europe, and in par­tic­u­lar those economies with high lev­els of lever­age, are likely to expe­ri­ence a period of mod­est growth in the 4% range.

The rel­e­vance of this increas­ing impor­tance of EM for investors lies in the remark­able diver­gence between cur­rent investor posi­tion­ing and the eco­nomic real­i­ties of the post­cri­sis world. Specif­i­cally, we believe global investors remain sig­nif­i­cantly under­weight emerg­ing mar­ket assets in rela­tion to both their cur­rent and future share of the world econ­omy, as well as in rela­tion to the trends in their rel­a­tive credit fun­da­men­tals. We believe that as mar­kets reori­ent to our New Nor­mal view of the world this under­al­lo­ca­tion to EM will decrease, pro­vid­ing mul­ti­year sup­port for the asset class.

Q. How does the mid­dle class in emerg­ing mar­kets com­pare to the devel­oped world? And what are
cur­rent and antic­i­pated domes­tic con­sump­tion pat­terns in EM?

Rah­man: The growth of the emerg­ing mid­dle class is an impor­tant aspect of the EM growth story, par­tic­u­larly in the con­text of a delever­ag­ing con­sumer base in advanced economies. If we take the World Bank’s def­i­n­i­tion, the global mid­dle class is fore­cast to triple from 400 mil­lion in 2000 to 1.2 bil­lion in 2030, with China and India account­ing for most of this expan­sion, accord­ing to a Decem­ber 2006 report. To put this into per­spec­tive, this means that by 2030 a sig­nif­i­cant major­ity of the global mid­dle class will be from EM.

In addi­tion to impor­tant strides in po verty reduc­tion, this shift rep­re­sents tremen­dous oppor­tu­ni­ties in new global con­sumer mar­kets as EM con­sump­tion expands beyond food and shel­ter and towards con­sumer durables and ser­vices. In fact we are already see­ing this trend with spend­ing on auto­mo­biles, refrig­er­a­tors and enter­tain­ment show­ing robust growth. We expect this to con­tinue in the next decade and be under­pinned by gains in real EM con­sump­tion growth which we esti­mate will increase by 50% in real terms.

Q. Shift­ing gears, could infla­tion cloud the out­look for emerg­ing markets?

Rah­man: There have been two impor­tant shifts in EM infla­tion dynam­ics over the past decade under­pinned by more inde­pen­dent cen­tral banks, a reduc­tion of fis­cal dom­i­nance and a reduc­tion in wage index­a­tion. First, the lev­els of infla­tion in emerg­ing mar­kets have dropped from double-digit increases being the norm to head­line infla­tion decreas­ing to the mid-single dig­its. Sec­ond, infla­tion volatil­ity has decreased as a result of more anchored infla­tion expectations.

Look­ing ahead, the cur­rent 2 to 3 per­cent­age point dif­fer­en­tial between emerg­ing mar­ket and advanced
econ­omy infla­tion will likely per­sist given our fore­cast of robust EM growth and debt delever­ag­ing in advanced
economies. But impor­tantly, we do not see a sharp sec­u­lar increase in this dif­fer­en­tial. Of course there are risks to this base­line view from poten­tial spikes in com­mod­ity prices and asset-market bub­bles, but the fun­da­men­tal shifts in infla­tion expec­ta­tions men­tioned before pro­vide EM pol­i­cy­mak­ers room to maneu­ver in tack­ling these shocks.

Q. What are cen­tral bankers in those coun­tries doing to con­tain infla­tion, and what are the impli­ca­tions of
their poli­cies?

Tags: asset class, Brazil, Commodities, Credibility, Differentiation, Emerging Asia, Emerging Economies, Emerging Europe, Emerging Market, Emerging Markets, Global Economy, Global Investors, Growth Dynamics, India, Inflation Expectations, Latin America, Leverage, Market Assets, Multipolar World, Parity, Portfolio Manager, Unipolar World
Posted in Brazil, Commodities, India, Markets | Comments Off

Rev Up for Resources Boom in China

Friday, July 29th, 2011

Last week I sat down with Laura Man­daro from Mar­ket­watch to dis­cuss what’s cur­rently dri­ving com­mod­ity mar­kets. One of the key dri­vers today is the robust eco­nomic activ­ity and com­mod­ity demand tak­ing place in Asia.

Fre­quent Frank Talk read­ers know there is some­thing pro­found and sig­nif­i­cant hap­pen­ing in China—the build­ing of a mas­sive high speed rail net­work. It’s a $300 bil­lion project that will con­nect more than 250 Chi­nese cities, span 18,461 miles and reach roughly 700 mil­lion peo­ple. This is going to cre­ate mas­sive demand for com­modi­ties and a wave of invest­ment into the sec­tor. We believe that resource com­pa­nies asso­ci­ated with coal, iron ore and steel are well posi­tioned to ben­e­fit from China’s long-term sus­tain­able bull market.

I also dis­cuss a few indi­vid­ual stocks I think are struc­turally sound as well as talk about a mar­ket ready to take off and The Fear and Love Trade.

Tags: Asia, Boom, China, Chinese Cities, Coal, Commodities, Commodity Markets, Economic Activity, Fear, High Speed Rail, Iron Ore, Love, Marketwatch, Massive Demand, Resource Companies, Stocks
Posted in Commodities, Markets | Comments Off

Dennis Stattman: Stocks are the Best Game in Town — "Invest in Real Businesses"

Friday, July 29th, 2011

Here is the com­plete tran­script of this interview:

CONSUELO MACK: This week on Wealth­Track, how Great Investor Den­nis Stattman is nav­i­gat­ing the great divide between the slow grow­ing devel­oped world and the fast grow­ing devel­op­ing one; paper based assets and hard real assets; bonds and stocks. Black­Rock Global Allo­ca­tion Fund’s Den­nis Stattman on man­ag­ing a bifur­cated invest­ment world is next on Con­suelo Mack WealthTrack.

Hello and wel­come to this edi­tion of Wealth­Track. I’m Con­suelo Mack. We have said many times in the past that in this global and inter­con­nected world we live in, money will flow to where the growth is and will leave where growth is lag­ging. The devel­oped world– Europe, the U.S., and Japan– are all in the lag­ging col­umn right now. Accord­ing to inde­pen­dent research firm ISI Group, over the past 8 years China’s nom­i­nal GDP, that’s with infla­tion included, has accel­er­ated 250%. In con­trast, U.S. GDP has expanded only 40%, the Eurozone’s a mere 25% and Japan’s nom­i­nal GDP has actu­ally con­tracted 5%.

Recent fig­ures show China’s econ­omy is still boom­ing as are many other devel­op­ing nation’s, whereas the mature economies of the West and Japan– with their heavy lev­els of gov­ern­ment debt, unem­ploy­ment, aging pop­u­la­tions and slow recov­ery from a series of real estate, bank­ing and credit bub­bles– are labor­ing. Accord­ing to many econ­o­mists, the debt reduc­tion, or delever­ag­ing process as it is known in the trade, will be par­tic­u­larly painful and lengthy, tak­ing sev­eral more years. As a recent arti­cle in The Econ­o­mist put it, “get used to it!” What’s an investor to do?

That’s where this week’s Great Investor guest comes in. We last talked to Den­nis Stattman, lead port­fo­lio man­ager of BlackRock’s Global Allo­ca­tion Fund at the begin­ning of this year. Given the rapid esca­la­tion of world events, we decided we bet­ter get an update. Stattman, who once worked at the World Bank, had the pre­science to join the now $55 bil­lion plus fund at its incep­tion, way back in 1989. Since then, the fund has had only three down years and has out­per­formed most stock and bond mar­kets, as well as the major­ity of its peers, with less than stock mar­ket volatil­ity, achiev­ing a pri­mary goal. It’s done it with a broadly diver­si­fied port­fo­lio of 700 plus indi­vid­ual stocks, bonds, alter­na­tive invest­ments and cash invested around the world. I began my visit with Stattman by ask­ing him why he thinks there is some­thing arti­fi­cial about the cur­rent mar­ket environment.

DENNIS STATTMAN: Trea­sury bond prices have been heav­ily influ­enced by the pur­chases that the Fed­eral Reserve has been mak­ing, and they’ve been quite explicit about this. They want Trea­sury bond prices higher and yields lower than they oth­er­wise would be. And in the end, all fixed income prices and yields are influ­enced by the Trea­sury mar­ket; and so when the Trea­sury mar­ket is arti­fi­cially high in terms of price and low in terms of yield, that tends to influ­ence all fixed income secu­rity prices. And in fact, since fixed income secu­ri­ties com­pete with other assets, that tends to influ­ence all asset prices. And we believe that asset prices have been held higher than they oth­er­wise would have been because of the Fed’s purchases.

CONSUELO MACK: So there­fore the rally that we’ve seen in what we now call ‘risk assets’ that Ben Bernanke has said was one of the rea­sons that he did the QE1 and QE2, so in fact, you’re say­ing the risk assets are arti­fi­cially inflated.

DENNIS STATTMAN: They could well be. Now, to dif­fer­ent degrees, and we hap­pen to think that the Trea­sury bond mar­ket is the most inflated, and the stock mar­ket has a more ques­tion­able amount of infla­tion in its prices.

CONSUELO MACK: So what hap­pens now that the Fed at least will not be actively buy­ing Trea­sury secu­ri­ties, at least the new issues, that they’re going to be turn­ing over their port­fo­lio, right? And replac­ing, as the Trea­suries that they hold on their bal­ance sheet mature, they’re going to con­tinue to buy, to replace those with Trea­suries, is that cor­rect? So we’ve still got some stim­u­lus going on, even though the QE2 offi­cially ended?

DENNIS STATTMAN: They’re main­tain­ing, we believe, the size of their port­fo­lio, but they’ve told us they’re not going to be increas­ing the size of it. So our sense is that hav­ing been through a pro­gram where they were buy­ing approx­i­mately one-tenth of a tril­lion dol­lars worth of per month, that when you take away the growth in demand that they’ve been pro­vid­ing, that the Trea­sury market’s going to have to find another buyer. And if it’s not a for­eign buyer, then it’s going to need to be a domes­tic buyer. And we have not, for some time now in this coun­try, been self-financing. And it might take higher inter­est rates to do that.

CONSUELO MACK: And when do we start to see that pres­sure building?

DENNIS STATTMAN: Well, I cer­tainly hope rates are going to go higher, not just in order to reward savers. But if rates don’t go higher, that would prob­a­bly be asso­ci­ated with a very weak econ­omy, and per­haps even finan­cial trou­ble again, some place in the world; for exam­ple, in Europe. So our hope is that higher rates would be accom­pa­nied by at least a decent econ­omy. And I think if we have a decent econ­omy, we will have higher inter­est rates.

CONSUELO MACK: Okay, so let’s talk about a decent econ­omy. Are we going to have a decent econ­omy, and if so, when?

DENNIS STATTMAN: We’d love to see some­thing far more dynamic than we’re see­ing. But so far, we haven’t seen employ­ment strengthen enough to, for exam­ple, reduce the aver­age length of unem­ploy­ment, which is dis­tress­ingly high. So what we think we will con­tinue to see is a world in which the devel­op­ing economies out­grow the devel­oped economies, and where the devel­oped economies strug­gle to get back to trend growth.

CONSUELO MACK: But the theme is that you felt that we’ve got a bifur­cated world, essen­tially; that they’re not the haves and the have-nots, but the rise of the rest. Where are you see­ing the rise of the rest, that’s most notice­able, and what are the areas that you think that we should be pay­ing par­tic­u­lar atten­tion to, as investors?

DENNIS STATTMAN: Well, clearly China, India, Brazil. And those are very well-known sto­ries, but they’re pow­er­ful sto­ries. And these are not sto­ries that are going to change every three or six months. These are decade or multi-decade-long sto­ries.  It’s sim­ply a case that pro­duc­tion, jobs, income and wealth are spread­ing much more broadly around the world. And in fact, what’s gen­er­at­ing those jobs and income and wealth growth is increas­ingly domes­tic con­sump­tion in some of those coun­tries, espe­cially China.

CONSUELO MACK: How risky is the China story, and the fact that so many of us seem to be bank­ing on China as kind of the dri­ver of world growth in the 21st cen­tury?  And what are the risks to that scenario?

DENNIS STATTMAN: Surely when loan growth is as robust as it has been, in China, and where lend­ing poli­cies are influ­enced by many dif­fer­ent lev­els of gov­ern­ment, you’re going to have some very ques­tion­able sorts of loans cre­ated. But at the same time, the growth of the banks’ assets, to some degree, means that the por­tion of them that are trou­bled from a year or two years ago, is not as over­whelm­ing as it oth­er­wise would be. We should also keep in mind that China is a coun­try of finan­cial sur­pluses, and sur­pluses on the one hand are asso­ci­ated some­times with growth that is so fast that there are prob­lems cre­ated. But at the same time, sur­pluses are sur­pluses, and they can absorb losses.

CONSUELO MACK: What are the sur­pluses that you’re talk­ing about that you think can pro­vide a cush­ion to China, even in the case of some sort of a down­turn, or at least a slowdown?

DENNIS STATTMAN: Well, let’s keep in mind that China gen­er­ates a high level of sav­ings, a high level of trade sur­plus. It has the world’s high­est for­eign exchange reserves, by far. And it’s in a posi­tion to use some of those reserves, and that power to gen­er­ate finan­cial assets to repair, when there’s some prob­lems. And also if a growth rate of 10 or 11% turns into a growth rate of 7 or 8%, it’s still a growth rate.

CONSUELO MACK: Let’s talk about another con­tro­ver­sial state­ment that you made, and that is that gov­ern­ment bonds are not safe. Whose gov­ern­ment bonds are not safe, and why are they not safe?

DENNIS STATTMAN: Well, we believe that most gov­ern­ment bonds are safe in terms of the nom­i­nal value of them– in other words, that most of them will pay their inter­est and pay their coupons on time. Might not be every sin­gle one of them, and we can think of some coun­tries in Europe that are very ques­tion­able at this point.

CONSUELO MACK: So Greece and Spain and Por­tu­gal and Ire­land are?

DENNIS STATTMAN: I would say at least Greece and Por­tu­gal are in seri­ous ques­tion, and of course, they’re small enough to be man­age­able. The big ques­tion is prob­a­bly Spain. And if Spain were to get into trou­ble, peo­ple would look around for the next coun­try to worry about. And let’s hope that the trou­ble stops before it gets to Spain not being able to meet its oblig­a­tions.
But I think more to the point is sim­ply some­thing like U.S. Trea­sury bonds. A 10-year Trea­sury yields a lit­tle over three per­cent these days. And what that really means is that’s like a stock that sells at a PE ratio in the thir­ties, but has no growth. And this is before infla­tion and before taxes. And we are right now, as a nation, fac­ing a big deficit that has a large cycli­cal com­po­nent. And that cycli­cal com­po­nent is also occur­ring at the same time there is a tidal wave of demographic-related spend­ing that is just start­ing to hap­pen and will grow and grow and grow.

CONSUELO MACK: The Baby Boomers, social secu­rity, Medicare.

DENNIS STATTMAN: Exactly. That will grow for the rest of our life­times, and we don’t, as a nation, yet have much of a plan about how to pay for it. And given that we’re start­ing with very low inter­est rates, a low but ris­ing rate of infla­tion, very low real inter­est rates. The real inter­est rates on a Trea­sury inflation-protected secu­rity with a matu­rity of ten years are less than one per­cent. It seems that there are risks of infla­tion and risks of higher inter­est rates that one is not really com­pen­sated for today.

CONSUELO MACK: Now, the Chi­nese, for instance, hold a lot of Trea­sury securities.

DENNIS STATTMAN: Yes.

CONSUELO MACK: U.S. Trea­sury secu­ri­ties. And even though they’re diver­si­fy­ing, sup­pos­edly, into some sov­er­eign debt of Euro­pean coun­tries and what­ever, but good luck to them in that area, so you know, I mean, what’s the alter­na­tive? If, as far as kind of the tra­di­tional use of Trea­suries in port­fo­lios has been for liq­uid­ity rea­sons and also a defen­sive, kind of a non-correlated asset, what do you sub­sti­tute for the tra­di­tional role that Trea­suries have played in most of our portfolios?

Tags: 8 Years, Best Game, Brazil, Commodities, Consuelo Mack, Debt Reduction, Economists, Eurozone, Global Allocation, Government Debt, Great Divide, Independent Research Firm, India, Investment World, Isi Group, Levels Of Government, Nominal Gdp, Portfolio Manager, Rapid Escalation, Real Assets, Recent Article, Wealthtrack, World Europe
Posted in Brazil, Commodities, ETFs, India, Markets | Comments Off

Weak Market Breadth (Bespoke)

Friday, July 29th, 2011

Tags: Stocks
Posted in Markets | Comments Off

News That Matters (July 29, 2011)

Friday, July 29th, 2011

from http://thetrader.se

MOODY’S PLACES SPAINS AA2 RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE fur­ther read­ing click here

For all news con­tinue below,

FT.com

Nerves are fray­ing among hold­ers of Trea­sury bills matur­ing on August 4, which bond­hold­ers fear could be a prime can­di­date for a default. One trader told the FT he had dumped all his bills matur­ing on August 4 http://ftalphaville.ft.com/thecut/2011/07/29/637521/short-term-treasury-owners-on-edge-as-yields-rise/

Money mar­ket funds con­tin­ued to pull bil­lions of dol­lars worth of cash out of the mar­ket on Thurs­day. Nomura says investors took $9bn a day out of money funds this week, while the Invest­ment Com­pany Insti­tute says $62bn has left the funds in the past two weeks http://ftalphaville.ft.com/thecut/2011/07/29/637486/money-markets-repos-suffer/

The United States and North Korea on Thurs­day began dis­cus­sions on whether to reopen talks on the latter’s nuclear weapon pro­gramme. Two years after the coun­tries’ last diplo­matic exchange, the US spe­cial envoy for North Korea, http://ftalphaville.ft.com/thecut/2011/07/28/637421/us-and-north-korea-begin-nuclear-talks/

Chi­nese Pre­mier Wen Jiabao has tried to quell ris­ing pub­lic anger by vis­it­ing the scene of last weekend’s high-speed rail crash and vow­ing to “severely pun­ish” those respon­si­ble for the acci­dent that killed 39 peo­ple and has fuelled con­cerns about the safety of the country’s bul­let train sys­tem http://ftalphaville.ft.com/thecut/2011/07/28/637381/china-blames-signalling-error-for-crash/

Credit Suisse will cut 2,000 jobs after becom­ing the lat­est bank to announce weak trad­ing in the sec­ond quar­ter, Reuters reports. Net profit fell to SFr 768m ($959m), below the SFr 1bn esti­mates of ana­lysts and down 52 per cent on the year. Net fixed income sales and trad­ing rev­enues plunged by 59 per cent, http://ftalphaville.ft.com/thecut/2011/07/28/636986/credit-suisse-trading-revenues-plunge/

Brazil has announced a harsh tax on cur­rency deriv­a­tives, send­ing the Real tum­bling against the dol­lar from its 12-year high, the FT reports. The government’s 1 per cent trans­ac­tions tax could be increased to up to 25 per cent and carry require­ments for both reg­is­tra­tion of over the counter trades and min­i­mum trad­ing mar­gins, http://ftalphaville.ft.com/thecut/2011/07/28/636971/brazil-clamps-down-on-real-speculation/

The UK’s bench­mark bor­row­ing costs have fallen below those of the US for the first time in 15 months as mar­kets con­tinue to fret about the risk of a US default. Yields on 10-year gilts, which move inversely to prices, were at 2.95 per cent at about mid­day in Lon­don on Thurs­day, two basis points below Trea­sury yields. Gilt yields were last lower than Trea­suries briefly in 2009 and April 2010 and before that through­out most of 2006. http://www.ft.com/intl/cms/s/0/b1916334-b907-11e0-bd87-00144feabdc0.html#axzz1TBR7mQo3

WSJ.com
Asian mar­kets were mixed in choppy trade Fri­day amid con­tin­ued con­cern over the stalled nego­ti­a­tions on rais­ing the U.S. debt ceil­ing, with a key House vote delayed Thurs­day night, while key Japan­ese tech plays dropped on poor earn­ings reports.  Japan’s Nikkei Stock Aver­age edged up 0.1%, Australia’s S&P/ASX 200 was down 0.1%, South Korea’s Kospi Com­pos­ite fell 0.2% and New Zealand’s NZX-50 tacked on 0.4%.  Dow Jones Indus­trial Aver­age futures were eight points higher in screen trade. http://online.wsj.com/article/SB10001424053111904800304576474993815099076.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

As China crit­i­cized U.S. lead­ers over their debt wran­gling, a U.S. offi­cial said the U.S. doesn’t see any sig­nif­i­cant change in the pat­tern of Chi­nese bond pur­chases, reflect­ing the lim­ited choices Bei­jing has in man­ag­ing its money. With over $1 tril­lion in U.S. Trea­surys, China is among those that could be most imme­di­ately affected by any U.S. default or down­grad­ing. While Chi­nese offi­cials talk about diver­si­fy­ing the country’s foreign-exchange reserve hold­ings of $3.2 tril­lion, mar­ket ana­lysts say China’s options are lim­ited because there are few mar­kets in the world out­side the U.S. that are deep or liq­uid enough to han­dle China’s mas­sive foreign-exchange pur­chases. http://online.wsj.com/article/SB10001424053111904888304576473540495283566.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Ris­ing signs of strain emerged across finan­cial mar­kets on Thurs­day as investors pulled out bil­lions of cash out of money-market funds, in turn dri­ving the funds to rein in lend­ing in short-term mar­kets. Finan­cial mar­kets have become increas­ingly alarmed at the deep­en­ing divide in Wash­ing­ton and the poten­tial that the U.S. could be down­graded by credit-rating agen­cies or, worse, default on its debt. http://online.wsj.com/article/SB10001424053111903635604576474580203604662.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

The House post­poned a Thurs­day night vote on Speaker John Boehner’s plan to raise the fed­eral bor­row­ing limit after he failed to stem a revolt by con­ser­v­a­tive GOP mem­bers. The delay leaves the credit sta­tus of the U.S. gov­ern­ment in jeop­ardy with five days remain­ing before it begins run­ning out of money to pay all its bills. The devel­op­ment came after a two-hour debate on the bill was abruptly ended ear­lier in the evening. Mr. Boehner, know­ing that a rejec­tion could under­mine his speak­er­ship, then joined other House GOP lead­ers in try­ing to pres­sure party mem­bers to recon­sider their oppo­si­tion.http://online.wsj.com/article/SB10001424053111904800304576474072808358338.html?mod=WSJ_hp_LEFTTopStories

Marketwatch.com
Friday’s report on the pace of eco­nomic growth may be so weak as to spur talk of stagfla­tion. Econ­o­mists polled by Mar­ket­Watch expect the econ­omy slowed in the sec­ond quar­ter to a 1.6% annual rate from a already dis­ap­point­ing 1.9% rate in the first three months of the year.  Growth is nowhere near the pace that would make a dent in the 9.2% unem­ploy­ment rate http://www.marketwatch.com/story/whiff-of-stagflation-may-come-in-q2-gdp-report-2011–07-28

Reuters.com
Gold held steady on Fri­day, head­ing for its fourth straight week of gains, as investors watched U.S. debt ceil­ing talks after Repub­li­cans delayed a vote on the debt plan. Spot gold was flat at $1,615.99 an ounce by 0346 GMT, on course for a weekly rise of 1.2 per­cent. It was headed for a monthly gain of nearly 8 per­cent, its sec­ond best month of this year after April. U.S. gold edged up 0.2 per­cent to $1,615.90. http://www.reuters.com/article/2011/07/29/us-markets-precious-idUSTRE7592IU20110729

Oil was head­ing on Fri­day for its first rise in three months as investors focused on fore­casts of improved demand despite jit­ters over an elu­sive debt deal in the United States to avert a default and a credit down­grade. Brent crude for Sep­tem­ber rose 6 cents to $117.42 a bar­rel by 0151 GMT after clos­ing down 7 cents at $117.36 a bar­rel on Thurs­day. U.S. crude for Sep­tem­ber was down 24 cents at $97.20 a bar­rel, but was on track to rise 1.8 per­cent on the month, its first increase in three months. http://www.reuters.com/article/2011/07/29/us-markets-oil-idUSTRE7592LE20110729

The num­ber of Amer­i­cans claim­ing new job­less ben­e­fits hit a three-month low last week and con­tracts to buy exist­ing homes rose in June, hope­ful signs for an econ­omy that has strug­gled to regain momen­tum. Ini­tial claims for state unem­ploy­ment ben­e­fits dropped 24,000 to 398,000, the Labor Depart­ment said on Thurs­day, below econ­o­mists’ expec­ta­tions for a fall to 415,000. A sep­a­rate report from the National Asso­ci­a­tion of Real­tors showed pend­ing home sales rose 2.4 per­cent in June, the sec­ond straight monthly increase. Con­tracts usu­ally lead sales by a month or two.http://www.reuters.com/article/2011/07/28/us-usa-economy-idUSTRE7662I420110728

Exxon Mobil Corp reported a higher quar­terly profit that missed Wall Street esti­mates as main­te­nance slowed its inter­na­tional refin­ing and pro­duc­tion, and its shares closed down 2 per­cent. Some of Exxon’s refiner­ies in Asia-Pacific and its inter­na­tional oil and nat­ural gas pro­duc­tion — includ­ing from its liq­ue­fied nat­ural gas project in Qatar — were affected by down­time, the world’s largest pub­licly traded oil com­pany said. http://www.reuters.com/article/2011/07/28/us-exxonmobil-idUSTRE76R2OT20110728

Bank­ing group HSBC Hold­ings Plc may cut more than 10,000 jobs as part of its plan to slash costs by up to $3.5 bil­lion a year, Sky News reported Thurs­day. New HSBC Chief Exec­u­tive Stu­art Gul­liver in May announced a far-reaching plan to cut costs and revive flag­ging prof­its by exit­ing dozens of coun­tries and refo­cus­ing on its areas of strength. http://www.reuters.com/article/2011/07/28/us-hsbc-idUSTRE76R0L620110728

Bloomberg.com
China should buy U.S. stocks instead of Trea­suries as they may be safer invest­ments amid con­cerns about a U.S. debt default or credit-rating down­grades, accord­ing to Andy Xie, an inde­pen­dent econ­o­mist.  “The U.S. stock mar­ket can be a cred­i­ble alter­na­tive,” Xie, 50, for­merly Mor­gan Stanley’s chief Asia econ­o­mist in Hong Kong, said in an inter­view in Bloomberg’s Shang­hai office yes­ter­day. “U.S. com­pa­nies are report­ing strong earn­ings and they are sell­ing a lot to emerg­ing mar­kets. Even though U.S. stocks aren’t cheap by his­tor­i­cal stan­dards, they are a bet­ter invest­ment rel­a­tive to Trea­suries.” http://www.bloomberg.com/news/2011–07-29/china-should-favor-u-s-stocks-over-treasuries-as-default-looms-xie-says.html

Demand for phys­i­cal gold in China may exceed con­sump­tion in India by the end of this year, said Chuck Jeannes, chief exec­u­tive offi­cer of Gold­corp Inc. (G), the world’s No. 2 pro­ducer of the metal by mar­ket value.  “Three or four years ago there was no one who would have expected Chi­nese phys­i­cal demand for gold to sur­pass India,” Jeannes said yes­ter­day in a tele­phone inter­view from New York. “Now it looks like that could hap­pen as early as the end of this year. And that’s while Indian demand is increas­ing.” http://www.bloomberg.com/news/2011–07-28/goldcorp-ceo-sees-gold-price-at-1–700-an-ounce-by-end-of-year.html

Japan’s indus­trial pro­duc­tion rose less than expected as com­pa­nies from Nis­san Motor Co. to Toy­ota Motor Corp. warned that a yen close to a post World War II high threat­ens to drag down exports.  Fac­tory out­put increased 3.9 per­cent in June from May, when it rose 6.2 per­cent, the biggest gain since 1953, the Trade Min­istry said in Tokyo today. The median esti­mate of 31 econ­o­mists sur­veyed by Bloomberg News was for a 4.5 per­cent gain. http://www.bloomberg.com/news/2011–07-29/japan-s-june-industrial-output-expands-less-than-forecast-3–9-from-may.html

The world’s 7-billionth per­son will be born Oct. 31 in India, accord­ing to a pro­jec­tion by researchers work­ing with data from the United Nations. Med­ical advances, more effec­tive vac­cines, antibi­otics and improve­ments in public-health con­di­tions has boosted life expectancy in devel­op­ing coun­tries, where most of the pop­u­la­tion growth is tak­ing place, accord­ing to the UN data reported tomor­row in the jour­nal Sci­ence. The num­ber of peo­ple glob­ally reached 1 bil­lion in 1800, then 2 bil­lion in 1925, the report said. Within the last half cen­tury, the pop­u­la­tion boomed to just under 7 bil­lion from 3 bil­lion. By 2050, the pop­u­la­tion will reach 9.3 bil­lion, and 97 per­cent of the growth will be in less devel­oped regions, http://www.bloomberg.com/news/2011–07-28/world-population-hits-7-billion-after-boom-in-developing-world.html

CNBC.com
In the very unlikely event that the United States defaults on its debt oblig­a­tions, the country’s econ­omy would con­tract by 5 per­cent and stocks would fall by nearly a third, accord­ing to Credit Suisse. While Andrew Garth­waite and the global strat­egy team at the Swiss bank see a 50–50 chance of a rat­ings down­grade of U.S. debt by the major rat­ings agen­cies, they remain con­fi­dent such an out­come would not lead to dis­as­ter. “We think there is a 50 per­cent chance of a rat­ings down­grade on U.S. sov­er­eign debt. http://www.cnbc.com/id/43907446

NYTimes.com
Under­whelm­ing earn­ings reports Thurs­day from sev­eral of Germany’s largest com­pa­nies, along with a report show­ing a slump in con­fi­dence among Euro­pean busi­ness and con­sumers, raised con­cerns that growth could be slow­ing even in the Continent’s strongest economies. Mean­while, the Euro­pean Union’s eco­nomic sen­ti­ment indi­ca­tor fell by 2.2 points to 103.2 in the euro area, as both busi­ness peo­ple and con­sumers became less opti­mistic about their prospects. The read­ing, the low­est in almost a year, indi­cates that growth is likely to con­tinue, but at a slower pace. http://www.nytimes.com/2011/07/29/business/global/reports-heighten-concerns-about-german-economy.html?_r=1&ref=global

Foxbusiness.com
Japan’s job­less rate ticked higher in June, while con­sumer prices rose slightly slower than expected. The sea­son­ally adjusted June unem­ploy­ment rate was 4.6%, the Min­istry of Inter­nal Affairs said Fri­day. The read­ing was up from May’s 4.5%, with econ­o­mists sur­veyed by Dow Jones Newswires hav­ing expected on aver­age that the rate to hold steady. As in recent months, the data excluded three pre­fec­tures worst-hit by the March 11 earth­quake and tsunami. The June core con­sumer price index, which excludes volatile fresh food prices, was 0.4% higher than in June 2010, eas­ing from May’s 0.6% rise, though the index was down 0.2% on a month-on-month basis. http://www.foxbusiness.com/2011/07/28/japans-jobless-rate-edges-higher-in-june-to-46/#ixzz1TT4bVn00

Washingtonpost.com
Oil & Nat­ural Gas Corp., India’s biggest energy explorer, is bet­ting higher local fuel prices will reduce dis­counts given to state-run refin­ers and help to boost profit. The company’s sub­sidy bill has dropped by about 500 mil­lion rupees ($11.3 mil­lion) daily after the gov­ern­ment raised fuel prices and cut taxes on crude last month, Finance Directo r D.K. Sar­raf said yes­ter­day after ONGC posted first-quarter earn­ings that missed ana­lyst esti­mates. “The pos­i­tive impact of higher fuel prices will be felt from this quar­ter,” said Arindam Pal, a Mumbai-based senior research ana­lyst at Asian Mar­ket Secu­ri­ties Pvt. “The impact could increase ONGC’s oil sell­ing price about 10 per­cent.” http://washpost.bloomberg.com/story?docId=1376-LOZP7I0D9L3501-4VDT1I2L3KF1QIJ4HSS2UD1DOS

USAtoday.com
The num­ber of Amer­i­cans who signed con­tracts to buy homes rose for a sec­ond month in June. But the gain was not enough to sig­nal a rebound in the weak hous­ing mar­ket. The National Asso­ci­a­tion of Real­tors reported Wednes­day that its index of sales agree­ments for pre­vi­ously occu­pied homes rose 2.4% in June to a read­ing of 90.9. A read­ing of 100 is con­sid­ered healthy by econ­o­mists. The last time the index reached that level was in April 2010, the final month when buy­ers could qual­ify for a fed­eral tax credit. http://www.usatoday.com/money/economy/housing/2011–07-28-home-sales-june_n.htm

Most of the nation’s largest met­ro­pol­i­tan areas are see­ing a sharp drop in fore­clo­sure activ­ity as banks take longer to move against home­own­ers who are behind on their mort­gage pay­ments. In the first half of this year, 84% of met­ro­pol­i­tan areas with a pop­u­la­tion of at least 200,000 saw their fore­clo­sure rate drop ver­sus the same period last year, fore­clo­sure list­ing firm Real­ty­Trac said Thurs­day.http://www.usatoday.com/money/economy/housing/2011–07-28-foreclosure-rates_n.htm

Telegraph.co.uk
A cho­rus of global banks has warned that Wash­ing­ton risks trig­ger­ing a global slump and may suf­fer per­ma­nent loss of cred­i­bil­ity by flirt­ing with default on America’s $14.3 tril­lion (£8.8 tril­lion) fed­eral debt. http://www.telegraph.co.uk/finance/financialcrisis/8669352/Global-slump-warnings-if-US-triggers-insane-default.html

The Ital­ian gov­ern­ment was forced to pay the high­est bor­row­ing costs for 11 years in a bond auc­tion that under­scored mar­ket fears that a new phase of the Euro­pean debt cri­sis is set to be unleashed.http://www.telegraph.co.uk/finance/financialcrisis/8667986/Eurozone-crisis-fears-continue-as-Italy-forced-to-pay-higher-rates-to-borrow.html

July has been the tough­est month of trad­ing faced by retail­ers in more than a year, accord­ing to the Con­fed­er­a­tion of British Indus­try (CBI), as wor­ried con­sumers baulked at ris­ing prices. Just one in three retail­ers (33pc) polled in the weeks to mid-July said sales vol­umes were up on a year ago, with more (38pc) report­ing a fall. The result­ing neg­a­tive bal­ance of minus 5pc was the worst seen since June 2010.http://www.telegraph.co.uk/finance/economics/8668781/July-is-cruellest-month-for-UK-retailers.html

Largely invis­i­ble on a radar screen dom­i­nated by con­cerns over the US and euro­zone debt crises, the Chi­nese eco­nomic mir­a­cle, one of the few appar­ent bright spots that remains in a world beset by trou­ble, has in recent weeks also been show­ing unnerv­ing signs of strain. Indeed, it may even be about to come off the rails entirely – quite lit­er­ally. http://www.telegraph.co.uk/finance/comment/jeremy-warner/8669207/Chinas-economic-miracle-may-be-about-to-come-off-the-rails.html

Guardian.co.uk
Con­sumer con­fi­dence took a dive last month, tak­ing the GfK NOP poll to –30 and eras­ing a bounce in May for the Royal Wed­ding. The sur­vey found that peo­ple held largely neg­a­tive views on the gen­eral eco­nomic sit­u­a­tion and their own per­sonal finances in July, adding to a renewed sense of gloom in the June poll. http://www.guardian.co.uk/business/2011/jul/29/uk-economic-gloom-in-june

Smh.com.au
Econ­o­mists are lin­ing up to make their call on whether the Reserve Bank will hike offi­cial cash rates at its board meet­ing next week, even amid signs that busi­nesses and house­holds are cut­ting back on bor­row­ing. Any 25 basis point hike at its Tues­day meet­ing could see mort­gage rates offered by some big banks push above the 8 per cent mark. This would be the high­est level since Novem­ber 2008.http://www.smh.com.au/business/interest-rates-will-they-or-wont-they-20110729-1i3es.html#ixzz1TT7YxnKg

Home val­ues con­tin­ued to drop in June as con­sumers wor­ried about ris­ing inter­est rates and the state of the global econ­omy. RP Data-Rismark Hedonic’s lat­est home value index for cap­i­tal cities fell by 0.2 per cent in June, the sixth straight monthly fall in cap­i­tal city home val­ues. Homes in Syd­ney dropped 0.2 per cent in June, but posted a 0.5 per cent gain for the 12 months to the end of June, while houses in Mel­bourne dipped 0.1 per cent for the month, push­ing the decline for the year ended June 30 to 2 per cent. http://www.smh.com.au/business/house-prices-post-sixth-straight-monthly-fall-20110729-1i35g.html#ixzz1TT7dCtUO

Greek offi­cials have launched talks with inter­na­tional bankers on the details of a com­plex plan to restruc­ture the loan-dependent country’s pri­vately held debt under a new bailout deal. Finance Min­is­ter Evan­ge­los Venize­los said the Athens nego­ti­a­tions started “in a most encour­ag­ing man­ner”. “We have started (the talks) and will con­clude very soon because we face spe­cific bonds matur­ing in August and Sep­tem­ber and want either to have fin­ished before that or to have for­mu­lated a tran­si­tional frame­work until we have fin­ished,” Venize­los told par­lia­ment. http://www.smh.com.au/business/world-business/greece-launches-debt-restructure-talks-20110729-1i2wh.html#ixzz1TT7izWSH

Theglobeandmail.com
Moody’s Investors Ser­vice Inc. has renewed Canada’s triple-A credit rat­ing, cit­ing the fac­tors that helped the coun­try emerge from the global finan­cial cri­sis rel­a­tively unscathed, such as its “eco­nomic resiliency, very high gov­ern­ment finan­cial strength, and a low sus­cep­ti­bil­ity to event risk. http://www.theglobeandmail.com/report-on-business/economy/moodys-renews-canadas-triple-a-credit-rating/article2112783/

Xinhuanet.com
Eco­nomic and social experts pre­dict that the Indone­sian econ­omy would be able to equal those of Asian giants Japan and South Korea in the next 20 years if its cur­rent polit­i­cal and finan­cial sta­bil­ity con­tin­ued, local media reported on Fri­day. Noted Amer­i­can polit­i­cal sci­en­tist George Fried­man said on Thurs­day that Indone­sia had a unique place as an emerg­ing econ­omy with a huge mar­ket poten­tial for inter­na­tional com­pa­nies. “As coun­tries like the Philip­pines and oth­ers have trou­ble accom­mo­dat­ing invest­ments, Indone­sia has become a sta­ble plat­form for inter­na­tional cor­po­ra­tions to grow,” Fried­man said at an inter­na­tional con­fer­ence on futur­ol­ogy held here. http://news.xinhuanet.com/english2010/business/2011–07/29/c_131017579.htm

The Asian Devel­op­ment Bank (ADB) main­tained its five per­cent growth fore­cast for the Philip­pines this year on back of slower demand for its export prod­ucts as well as higher com­mod­ity prices. In its lat­est Asia Eco­nomic Mon­i­tor released Thurs­day, the Manila-based lender said the Philip­pines, along with Thai­land and Malaysia will see eco­nomic growth taper off this yearhttp://news.xinhuanet.com/english2010/business/2011–07/28/c_131015944.htm

Cs.com.cn

China`s provin­cial gov­ern­ment had released the data of Gross Domes­tic Prod­uct (GDP) by the date of July 27. There are only two munic­i­pal­i­ties like Bei­jing and Shang­hai, which reports GDP rise less than 9.6 per­cent among the 31 provinces. Econ­o­mists said, the GDP sum­ma­tion of the 31 provinces shows 2 tril­lion yuan higher than the data pre­sented by the National Bureau of Sta­tis­tics of China. It shows that most provinces still pay much atten­tion to the data of GDP, and invest­ment is the main mea­sure for the provin­cial gov­ern­ments to drive the econ­omy devel­op­ment. http://www.cs.com.cn/english/ei/201107/t20110729_2985533.html

China`s infla­tion are affected by var­i­ous fac­tors and the mounting-up of for­eign exchange reserve is not direc­tive or main dynamic to the ris­ing of infla­tion, the State Admin­is­tra­tion of For­eign Exchange (SAFE) said on Thurs­day. The SAFE said the rapid build-up of China’s reserves, the world’s largest that swelled by $152.8 bil­lion in the sec­ond quar­ter, was “not a direct” cause of infla­tion, which hit a three-year high of 6.4 per­cent in June. http://www.cs.com.cn/english/ei/201107/t20110729_2985532.html

Economictimes.com
The Indi­an­media and enter­tain­ment indus­try is expected to grow at a com­pounded annual growth rate of 13.2% to reach a size of Rs 1.19 lakh crore by 2015, said con­sult­ing firm­Price­wa­ter­house­C­oop­ers (PwC) in a media out­look report released on Thurs­day.  The Indian indus­try grew by 11.2%, one of the high­est growth rates in the world, in 2010 on the back of improved eco­nomic con­di­tions and rebound in adver­tis­ing. http://economictimes.indiatimes.com/news/news-by-industry/media/entertainment-/media/indian-media-and-entertainment-industry-to-grow-at-over-13-pwc/articleshow/9403557.cms

Mon­soon slipped into the worry zone with vast regions get­ting defi­cien­train­fall in the week to July 27, a period which is cru­cial with­Kharif sow­ing peak­ing in many parts of the coun­try.  The drop in the rain­fall dur­ing the week widened the deficit for the entire mon­soon sea­son (June-September) to 4% below nor­mal, from 1% below nor­mal at the begin­ning of the week. About 155 lakh hectare of paddy had been sown by July 22, which is less than half the acreage last year. The defi­cient rain­fall in the peak sow­ing time can affect farm per­for­mance. http://economictimes.indiatimes.com/news/economy/agriculture/deficit-in-rainfall-rises-to-4-fuels-kharif-sowing-fears/articleshow/9402534.cms

Yohnapnews.co.kr
South Korean banks’ lend­ing rates climbed in June from a month ear­lier due mainly to the ris­ing costs of cor­po­rate lend­ing, the cen­tral bank said Fri­day. The aver­age rate for new loans extended to house­holds and com­pa­nies stood at 5.8 per­cent in June, up 0.04 per­cent­age point from the pre­vi­ous month, accord­ing to the Bank of Korea (BOK). The June rate marked the sec­ond straight monthly gain. Accord­ing to the BOK, the aver­age rate for house­hold loans slipped 0.02 per­cent­age point, while the rate for cor­po­rate loans jumped 0.06 per­cent­age point.http://english.yonhapnews.co.kr/business/2011/07/29/55/0503000000AEN20110729003500320F.HTML

TheMoscowTimes.com
Pres­i­dent Dmitry Medvedev‘s exit from the Krem­lin would trig­ger a share sell-off as well as accel­er­ated cap­i­tal flight and emi­gra­tion, a pres­i­den­tial adviser said. If Medvedev isn’t able to run for a sec­ond term next March, the July 2008 decline in Russ­ian stock prices after Prime Min­is­ter Vladimir Putin pub­licly attacked coal miner Mechel will seem like a “minor event,” Igor Yur­gens, who heads a research insti­tute set up by Medvedev, said in a co-authored com­men­tary pub­lished Wednes­day in Vedo­mosti. “That will be in addi tion to a rapid accel­er­a­tion in already seri­ous cap­i­tal flight and emi­gra­tion from Rus­sia.” Putin rebuked Mechel owner Igor Zyuzin at a metals-industry meet­ing July 24, 2008. Russia’s bench­mark MICEX share index fell 5.5 per­cent dur­ing the next trad­ing ses­sion, while Mechel’s stock lost 50 per­cent of its value over a one-week period that month. http://www.themoscowtimes.com/business/article/yurgens-sees-fallout-from-the-election/441305.html#ixzz1TTAeGvAg

Tags: Bondholders, Brazil, Bullet Train, Canadian Market, Chinese Premier Wen Jiabao, Credit Suisse, Crude Oil, Currency Derivatives, Diplomatic Exchange, High Speed Rail, India, Investment Company Institute, Money Funds, Money Market Funds, Money Markets, News That Matters, Nuclear Talks, Premier Wen Jiabao, Prime Candidate, Public Anger, Rail Crash, Thetrader, Train System, Treasury Bills
Posted in Brazil, Canadian Market, India, Markets, Oil and Gas | Comments Off

ECRI's Lackshman Achuthan Continues to be Bearish on Economic Conditions as Longer Term Indicators Remain Negative

Friday, July 29th, 2011

by Trader Mark, Fund My Mutual Fund

I'm watch­ing the ECRI inter­views very closely since they have had a far bet­ter track record than any Wall Street strate­gist or econ­o­mist the past half decade.

About 4–5 months ago ECRI said their long term indi­ca­tors were turn­ing down, and sure enough we've hit (at best) a 'soft patch'.   Appar­ently there has been no improve­ment in said indi­ca­tors (not turn­ing back pos­i­tive) so the inter­me­diae term still looks soggy.

Very inter­est­ingly, when asked about the dichotomy between eco­nomic fig­ures and cor­po­rate prof­its, Achuthan believes prof­its will mean revert to the econ­omy and not vice versa.  If accu­rate, the mar­ket will be in for a bit of a sur­prise as that is cer­tainly not banked into the cake.

7 minute video — email read­ers will need to come to site to view.

Copy­right © Trader Mark, Fund My Mutual Fund

Tags: 5 Months, Copyright, Corporate Profits, Decade, Dichotomy, Economic Conditions, Economic Figures, Economic Indicators, Economist, Economy, Ecri, Interviews, Mutual Fund, Soft Patch, Strategist, Surprise, Term Indicators, Video Email, Wall Street
Posted in ETFs, Markets | Comments Off

The World's Biggest Central Bank Has Private Shareholders

Friday, July 29th, 2011

By Washington’s Blog

As I've pointed out for years, the Bank for Inter­na­tional Set­tle­ments (BIS) is owned by the world's cen­tral banks, which are in turn owned by the big banks. See this and this.

It turns out there may be a very inter­est­ing wrin­kle to pri­vate own­er­ship issue.

By way of back­ground, BIS is often called the "cen­tral banks' cen­tral bank", as it coor­di­nates trans­ac­tions between cen­tral banks, and which is the entity deter­min­ing the level of reserves banks are required to keep worldwide.

As Spiegel reported in 2009:

The BIS is a closed orga­ni­za­tion owned by the 55 cen­tral banks. The heads of these cen­tral banks travel to the Basel head­quar­ters once every two months, and the Gen­eral Meet­ing, the BIS's supreme exec­u­tive body, takes place once a year.

But the New York Fed­eral Reserve Bank cur­rently states on its website:

As of March 2006, the BIS had 55 share­hold­ing cen­tral banks from around the world. As of March 2006, the Bank’s assets were approx­i­mately $221 bil­lion, includ­ing $5.8 bil­lion of its own funds.

 

When the BIS ini­tially raised cap­i­tal, par­tic­i­pat­ing banks were given the option to buy BIS shares or arrange for those shares to be bought by the pub­lic. Cur­rently, 86 per­cent of the shares of the BIS are reg­is­tered in the names of cen­tral banks, and 14 per­cent are held by pri­vate share­hold­ers. The shares owned by pri­vate share­hold­ers con­sist of part of the French and Bel­gian issues and all of the shares that were in the orig­i­nal U.S. issue in 1930.

So the pri­vate banks own the Fed (and most other cen­tral banks), and the cen­tral banks — and pri­vate share­hold­ers — in turn own BIS, the global bank regulator.

It would obvi­ously be very inter­est­ing to find out who these pri­vate share­hold­ers are.

And to find out if the share­hold­ers enjoy any spe­cial ben­e­fits. As Spiegel notes:

For­mally reg­is­tered as a stock cor­po­ra­tion, it is rec­og­nized as an inter­na­tional orga­ni­za­tion and, there­fore, is not sub­ject to any juris­dic­tion other than inter­na­tional law.

 

It does not need to pay tax, and its mem­bers and employ­ees enjoy exten­sive immu­nity. No other insti­tu­tion reg­u­lates the BIS, despite the fact that it man­ages about 4 per­cent of the world's total cur­rency reserves, or €217 tril­lion ($304 tril­lion), as well as 120 tons of gold...

 

Cen­tral bankers are not elected by the peo­ple but are appointed by their gov­ern­ments. Nev­er­the­less, they wield power that exceeds that of many polit­i­cal lead­ers. Their deci­sions affect entire economies, and a sin­gle word from their lips is capa­ble of mov­ing finan­cial mar­kets. They set inter­est rates, thereby deter­min­ing the cost of bor­row­ing and the speed of global finan­cial currents.

Could that mean that the pri­vate share­hold­ers own­ing 14% of the world's cen­tral bank have some­how been "grand­fa­thered in", and are immune from taxes and other national rules? Wouldn't it be inter­est­ing to find out?

The New York Fed claims that the pri­vate BIS share­hold­ers don't have vot­ing rights:

All share­hold­ers receive the Bank’s div­i­dends. How­ever, pri­vate share­hold­ers do not have vot­ing rights or rep­re­sen­ta­tion at the BIS annual meet­ings. Only a country's cen­tral bank or its nom­i­nee may exer­cise the rights of rep­re­sen­ta­tion and voting.

This may or may not be true. It is com­mon for pow­er­ful and wealthy peo­ple infor­mally influ­ence agency deci­sions. Just look at every cap­tured finan­cial reg­u­la­tor in the United States.

But whether or not the share­hold­ers get spe­cial treat­ment or influ­ence the deci­sions of the world's most pow­er­ful bank­ing insti­tu­tion, it is still news­wor­thy that there are pri­vate par­ties with not insignif­i­cant own­er­ship interests.

Copy­right © Washington’s Blog

Tags: Assets, Bank For International Settlements, Bank For International Settlements Bis, Bank Regulator, Central Banks, Executive Body, Federal Reserve, Federal Reserve Bank, General Meeting, Global Bank, International Organization, Juri, New York Federal Reserve, Private Banks, Private Ownership, Private Shareholders, Shareholding, Spiegel, Stock Corporation, World Banks
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Boehner Humiliated, Cancels Vote, Stock Futures Tank; Stocks and Treasuries Unusually Correlated

Friday, July 29th, 2011

by Michael 'Mish' Shed­lock, Global Eco­nomic Trends Analysis

Thurs­day morn­ing Bloomberg reported House Major­ity Leader Can­tor Pre­dicts House Repub­li­cans Will Pass Debt Plan Today

House Major­ity Leader Eric Can­tor pre­dicted Repub­li­cans would pass a debt-limit increase plan today as some fresh­man law­mak­ers pledged sup­port for the mea­sure in the face of uni­fied Demo­c­ra­tic oppo­si­tion in the Senate.

Vote Can­celled

Kiss that pre­dic­tion of Can­tor good­bye. Thurs­day evening Repub­li­cans put off vote on debt limit because Boehner clearly lacks the votes.

An inten­sive endgame at hand, Repub­li­can lead­ers abruptly post­poned a vote Thurs­day night on leg­is­la­tion to avert a threat­ened gov­ern­ment default and slice fed­eral spend­ing by nearly $1 trillion.

"The votes obvi­ously were not there," con­ceded Rep. David Dreier, R-Calif., after Speaker John Boehner and the lead­er­ship had spent hours try­ing to cor­ral the sup­port of rebel­lious conservatives.

The deci­sion cre­ated fresh tur­moil as divided gov­ern­ment strug­gled to head off an unprece­dented default that would leave the Trea­sury with­out the funds needed to pay all its bills. Admin­is­tra­tion offi­cials say Tues­day is the dead­line for Con­gress to act.

Sen­ate Democ­rats stood by to scut­tle the bill — if it ever got them — as a way of forc­ing Repub­li­cans to accept changes sought by Obama.

Based on pub­lic state­ments by law­mak­ers them­selves, it appeared that five of some two dozen hold­outs were from South Car­olina. The state is also rep­re­sented by Sen. Jim DeMint, who has solid ties to tea party groups and is a strong critic of com­pro­mis­ing on the debt issue.

Oth­ers said con­ser­v­a­tives wanted addi­tional steps taken to try to ensure that a con­sti­tu­tional balanced-budget amend­ment would be sent to the states for rat­i­fi­ca­tion. As drafted, the leg­is­la­tion merely requires both houses of Con­gress to vote on the issue.

Even before the House voted, Reid served notice he would stage a vote to kill the leg­is­la­tion almost instantly.

"No Demo­c­rat will vote for a short-term Band-Aid that would put our econ­omy at risk and put the nation back in this unten­able sit­u­a­tion a few short months from now," he said.

Boehner Humil­i­ated

Boehner was humil­i­ated and jus­ti­fi­ably so. He had noth­ing to gain and every­thing to lose by attempt­ing to ram-rod a gaseous bill through the House that was guar­an­teed dead-on-arrival in the Senate.

Major­ity leader Can­tor made mat­ters worse by pre­dict­ing passage.

Stock Futures Tank in Unusual Cor­re­la­tion with Treasuries

Please con­sider U.S. S&P 500 Futures Retreat as McCarthy Says No Vote on Debt Plan Tonight

Futures on the Stan­dard & Poor’s 500 Index fell after the U.S. House of Rep­re­sen­ta­tives post­poned a vote to increase the nation’s debt limit, boost­ing con­cern that the law­mak­ers are far from an agree­ment to avoid default.

S&P 500 futures expir­ing in Sep­tem­ber lost 0.8 per­cent to 1,286.9 at 12:28 p.m. in Tokyo. The decline sug­gests the U.S. equity bench­mark may extend its 3.3 per­cent slump from the past four days when mar­kets open in New York.

Stocks and Trea­suries are mov­ing in tan­dem twice as often as they nor­mally do, a sign investors are grow­ing con­vinced the U.S. will lose its AAA credit rat­ing and that an impasse among law­mak­ers may spur losses in both mar­kets. The S&P 500 has risen or fallen together with 10-year Trea­sury notes 80 per­cent of the time in the last 10 days, com­pared with the aver­age since 2000 of 41 per­cent, accord­ing to data com­piled by Bloomberg.

Not Rais­ing the Debt Ceil­ing Would be Blessing

I am stick­ing to what I said in Not Rais­ing the Debt Ceil­ing Would be Bless­ing; Debt Limit Analy­sis; Inter­ac­tive Map, You Decide What Not To Pay

All things con­sid­ered, espe­cially since Boehner's cred­i­bil­ity is gone in his lat­est gaseous pro­posal, the best thing for Con­gress to do would be to NOT hike the debt ceil­ing and work out a cred­i­ble plan over the next month.

Is Mish a "closet Liberal-humanist?"

In response to that post I received a humor­ous email from "BC" who wrote...

Mish, your choices reveal your empa­thy! Are you a closet Liberal-humanist?!

Your choices favor the elder work­ing class, the working-class and poor ill, unem­ployed, poor and "food chal­lenged", and impe­r­ial legionar­ies and aux­il­iaries against the corporate-statists!!!

Are you one of those mal­ad­justed working-class types who just doesn't "get it"?!

Wink , wink ;-) ;-).

To see my choices as to what I would cut and to make your own choices about what to do if the debt ceil­ing is not raised, click on the above link for an inter­ac­tive map.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com

Copy­right © Michael 'Mish' Shed­lock, Global Eco­nomic Trends Analysis

Tags: Balanced Budget Amendment, Bloomberg, David Dreier, Debt Issue, Debt Limit, Debt Plan, Democratic Opposition, Eric Cantor, Federal Spending, Global Economic Trends, Holdouts, Jim Demint, John Boehner, Michael Mish, Mish Shedlock, Party Groups, Republican Leaders, Senate Democrats, Senate Vote, Stock Futures
Posted in Markets | Comments Off

News That Matters (July 28, 2011)

Thursday, July 28th, 2011

by The Trader, thetrader.se

For all news con­tinue below,

FT.com
Dia­geo, the world’s largest spir­its com­pany, has agreed to pay $16m to resolve US alle­ga­tions that it bribed gov­ern­ment offi­cials in India, Thai­land and South Korea to boost sales and receive favourable tax treat­ment. http://ftalphaville.ft.com/thecut/2011/07/28/636686/diageo-to-settle-with-sec-over-bribery/

Ford plans to invest $1bn to build a fac­tory in west­ern India in a drive to gain a greater share of one of the fastest-growing car mar­kets, the FT reports. The fac­tory in Gujarat, which should be in pro­duc­tion by 2014 employ­ing 5,000 peo­ple, http://ftalphaville.ft.com/thecut/2011/07/28/636671/ford-to-build-1bn-indian-factory/

Visa, the world’s largest elec­tronic pay­ments com­pany, exceeded Wall Street’s expec­ta­tions by report­ing a 40 per cent surge in quar­terly profit as more con­sumers turned to credit cards and other forms of elec­tronic trans­ac­tion, http://ftalphaville.ft.com/thecut/2011/07/28/636646/visa-results-beat-expectations/

Royal Bank of Scot­land has been ordered by the US Fed­eral Reserve board to improve com­pli­ance and gov­er­nance in its US oper­a­tions, the WSJ reports. The Fed issued sim­i­lar cease-and-desist orders to HSBC and Bar­clays in 2010. http://ftalphaville.ft.com/thecut/2011/07/28/636566/fed-demands-rbs-improve-compliance/

Stan­dard & Poor’s pres­i­dent told a US House of Rep­re­sen­ta­tives panel that the coun­try is unlikely to default on its debt oblig­a­tions but its credit rat­ing could still be low­ered if it doesn’t come up with an ade­quate plan to address spend­ing and its soar­ing bud­get deficit Rep­re­sen­ta­tives of lead­ing emerg­ing mar­ket coun­tries at the Inter­na­tional Mon­e­tary Fund have warned the fund’s man­age­ment against pour­ing more large sums of money into another Greek bail-out with uncer­tain prospects http://ftalphaville.ft.com/thecut/2011/07/28/636591/emerging-markets-warn-imf-over-greek-loan/

The cost of buy­ing insur­ance against a default by the US rose to a record on Wednes­day, the FT reports, in a sign of grow­ing unease that grid­lock in Wash­ing­ton over rais­ing the fed­eral debt ceil­ing may result in the Trea­sury fail­ing to pay inter­est to bond­hold­ers. Pre­mi­ums for one-year US sov­er­eign CDS rose sharply this week and traded at about 90 basis points in Lon­don on Wednes­day, http://ftalphaville.ft.com/thecut/2011/07/28/636576/treasury-cds-reach-record-highs/

The Brazil­ian real tum­bled on Wednes­day after the coun­try intro­duced mea­sures to curb for­eign exchange spec­u­la­tion in a bid to bring down the cur­rency from a 12-year high against the dol­lar and pro­tect its man­u­fac­tur­ers http://ftalphaville.ft.com/thecut/2011/07/27/636521/real-tumbles-as-brazil-imposes-fx-curbs/

As much as half US com­pa­nies’ record $1,240bn in cash bal­ances is being held over­seas, accord­ing to Moody’s research, with groups wary of incur­ring a 35 per cent repa­tri­a­tion tax, writes the FT. While debates rages in Wash­ing­ton about the state of pub­lic finances, http://ftalphaville.ft.com/thecut/2011/07/27/636511/us-firms-keep-cash-abroad-away-from-tax/

Wall Street bankers, from senior exec­u­tives to traders, are com­plain­ing that the Fed­eral Reserve is refus­ing to engage in sce­nario plan­ning for a US down­grade or default. With days until the Treasury’s August 2 dead­line to raise the debt ceil­ing, bankers say they are not get­ting a response to efforts to dis­cuss the mar­ket impact of a fail­ure to reach a deal in Wash­ing­ton or if credit rat­ings agen­cies cut the US triple A rat­ing. http://www.ft.com/intl/cms/s/0/6aed9f82-b85e-11e0-8d23-00144feabdc0.html#axzz1TBR7mQo3

WSJ.com
Asian stock mar­kets were lower Thurs­day as uncer­tainty over the U.S. debt ceil­ing debate con­tin­ued to weigh mar­ket sen­ti­ment, while con­cerns over a stronger yen dragged exporters in Tokyo.  Japan’s Nikkei Stock Aver­age fell 1.1%, Australia’s S&P/ASX 200 slid 1.2%, South Korea’s Kospi Com­pos­ite lost 0.8% and New Zealand’s NZX-50 fell 0.5%. Dow Jones Indus­trial Aver­age futures were up 19 points in screen trade. http://online.wsj.com/article/SB10001424053111904800304576472903501102840.html?mod=WSJ_hp_LEFTWhatsNewsCollection

The Inter­na­tional Mon­e­tary Fund, con­cerned about its enor­mous long-term expo­sure to the euro zone, is likely to con­tribute a smaller share of offi­cial financ­ing in the new Greek aid pack­age than it did for the Por­tuguese and Irish res­cue pro­grams, accord­ing to peo­ple famil­iar with the sit­u­a­tion. The IMF has pledged to lend €78.5 bil­lion ($113.91 bil­lion) to Greece, Ire­land and Por­tu­gal through 2014. That amount is many times the IMF share­hold­ing of these three coun­tries, a grow­ing source of worry to fund offi­cials. http://online.wsj.com/article/SB10001424053111904888304576471812186354764.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Finan­cial investors grew increas­ingly wor­ried Wednes­day about law­mak­ers’ fail­ure to reach accord on rais­ing the debt ceil­ing, push­ing U.S. stocks to their worst one-day drop in two months and weak­en­ing the demand for Trea­sury secu­ri­ties. The Dow Jones Indus­trial Aver­age fell 198.75 points, or 1.6%, to 12302.55. The daily decline was the fourth straight, leav­ing the Dow down 3.3% in that period and on pace for its worst week since August 2010. Risk-averse investors began sell­ing Trea­sury bills matur­ing in com­ing weeks, and an auc­tion for Trea­sury debt drew lack­lus­ter inter­est. Asian mar­kets opened lower on Thurs­day morn­ing, with the http://online.wsj.com/article/SB10001424053111904888304576472580028486102.html?mod=WSJEurope_hpp_LEFTTopStories

Banco San­tander SA reported a 38% slump in second-quarter net profit, after the Span­ish bank set aside €620 mil­lion ($899.7 mil­lion) to cover poten­tial claims for payment-protection insur­ance poli­cies sold to U.K. cus­tomers. San­tander, the largest bank in the bloc of euro-using nations by mar­ket value, said net fell to €1.39 bil­lion from €2.23 bil­lion a year ear­lier. Net inter­est income, Santander’s main income stream, rose 3.5% to €7.64 bil­lion, just ahead of mar­ket expec­ta­tions of €7.59 bil­lion. Fee income jumped 9.9% to €2.73 bil­lion. http://online.wsj.com/article/SB10001424053111904800304576471360038647984.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Most steel­mak­ers are gloomy about the third quar­ter as steel prices sag and raw mate­r­ial costs rise. But the world’s biggest steel­maker, Arcelor­Mit­tal, raised its fore­cast for global steel demand on Wednes­day and said it expects a strong quar­ter, partly because of its geo­graphic diver­sity and ris­ing demand from auto mak­ers. Luxembourg-based Arcelor­Mit­tal reported an 11% fall in second-quarter profit to $1.54 bil­lion from $1.71 bil­lion a year ear­lier, when the com­pany ben­e­fited from a one-time gain. But Arcelor­Mit­tal said sales jumped 25% to $25.13 bil­lion.http://online.wsj.com/article/SB10001424053111904888304576472102814348190.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Sober warn­ings that the Euro­pean debt cri­sis didn’t end with last week’s sum­mit of Euro­pean Union lead­ers reignited con­cerns of con­ta­gion risks on Wednes­day, boost­ing bor­row­ing costs for high-debt gov­ern­ments and pres­sur­ing the euro. Ger­man Finance Min­is­ter Wolf­gang Schäu­ble said Wednes­day in an open let­ter to law­mak­ers belong­ing to his Chris­t­ian Demo­c­ra­tic Party that the euro-zone debt cri­sis isn’t over and that more dis­ci­pline is needed. http://online.wsj.com/article/SB10001424053111904800304576471501119691290.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

The debt stale­mate in Wash­ing­ton is cre­at­ing stress in a little-known but vital cor­ner of the bond mar­ket, increas­ing the risk that banks, hedge funds and other investors will have to pay bil­lions of dol­lars in addi­tional costs if the U.S. defaults or is down­graded. Rates are ris­ing for repur­chase agree­ments, or repos—a roughly $4 tril­lion mar­ket that greases the wheels of the U.S. finan­cial system—as offi­cials in Wash­ing­ton feud over how to bring down the nation’s debt. And Wall Street is now cal­cu­lat­ing the dam­age that could ensue if the nation was forced to default on its debt earlyhttp://online.wsj.com/article/SB10001424053111903635604576472600045259640.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Marketwatch.com
Japan­ese retail sales rose 1.1% in June from a year ear­lier, accord­ing to gov­ern­ment data released Thurs­day, rebound­ing from a 1.3% drop in May. The result exceeded mar­ket fore­casts for a 0.5% year-on-year decline, accord­ing to a poll of econ­o­mists by Reuters. Part of the rise was attrib­uted to an increase in machine sales. Apparel and food and bev­er­age sales also rose dur­ing the period, while car and gen­eral mer­chan­dise sales declined. http://www.marketwatch.com/story/japan-june-retail-sales-rise-11–2011-07–27

China’s trade sur­plus is likely to nar­row 14% to $157 bil­lion in 2011 from a year ear­lier, a gov­ern­ment think tank said Thurs­day. The country’s exports are likely to rise 20% this year, while its imports are likely to increase 24.5%, the State Infor­ma­tion Cen­ter said in a research note pub­lished on the China Secu­ri­ties Jour­nal. In the first half of the year, China’s exports rose 24% to $874.3 bil­lion and imports grew 28% to $829.4 bil­lion, result­ing in a $44.9 bil­lion trade sur­plus, down 18.2% from the same period a year ear­lier. http://www.marketwatch.com/story/china-2011-trade-surplus-may-fall-14-economists-2011–07-27

House Speaker John Boehner and Sen­ate Major­ity Leader Harry Reid were build­ing sup­port for their reworked deficit-cutting plans Wednes­day, after con­gres­sional ana­lysts said the rivals’ orig­i­nal pro­pos­als didn’t cut deficits as much as esti­mated. Boehner’s plan report­edly was gain­ing ground with Repub­li­cans. Reid insisted his plan was a true com­pro­mise with his polit­i­cal rivals, but tweaked it to get more sav­ings. http://www.marketwatch.com/story/boehner-debt-plan-finds-legs-after-rewrite-2011–07-27

Soft labor mar­kets and weak real estate off­set a slight boost to con­sumer spend­ing and an encour­ag­ing start to the tourism sea­son, the Fed­eral Reserve reported Wednes­day in its Beige Book of anec­do­tal evi­dence on the U.S. econ­omy.  The Beige Book, which is based on infor­ma­tion col­lected on or before July 15, said growth has slowed in the major­ity of dis­tricts, par­tic­u­larly those near­est the Atlantic seaboard, with the Min­neapo­lis dis­trict hurt by the now-concluded state gov­ern­ment shut­down. http://www.marketwatch.com/story/growth-slows-as-labor-markets-soft-beige-book-2011–07-27–149390

Weaker orders for air­planes and auto­mo­biles trans­lated into a steeper-than-forecast 2.1% decline in durable-goods orders in June, the Com­merce Depart­ment esti­mated Wednes­day. It was the sec­ond large drop in the past three months for durable-goods orders, rais­ing fears that man­u­fac­tur­ing is run­ning out of steam after lead­ing a tepid recov­ery over the past two years. With­out a strong man­u­fac­tur­ing sec­tor, it is hard to see how fore­casts of a strong second-half recov­ery can be real­ized. http://www.marketwatch.com/story/us-durable-goods-orders-fall-21-in-june-2011–07-27

Reuters.com
Spot gold edged up 0.1 per­cent to $1,614.86 an ounce by 0219 GMT, off an all-time high of $1,628 set on Wednes­day. U.S. gold was flat at $1,615.50. Adding to the safe haven demand, Stan­dard & Poor’s cut Greece’s sov­er­eign credit rat­ing fur­ther into junk ter­ri­tory, say­ing the Euro­pean Union’s pro­posed debt restruc­tur­ing would put the coun­try into “selec­tive default.” http://www.reuters.com/article/2011/07/28/us-markets-precious-idUSTRE7592IU20110728

U.S. crude for Sep­tem­ber fell 16 cents to $97.24 a bar­rel by 0353 GMT, hit­ting a 7-session low of $96.51 ear­lier. It set­tled down $2.19 at $97.40 a bar­rel on Wednes­day. Brent Sep­tem­ber crude rose 41 cents to $117.84 a bar­rel. Oil is unlikely to slide much fur­ther even with the eco­nomic uncer­tainty sur­round­ing the U.S. and Europe as demand is expected to grow steadily amid reduced global out­put, ana­lysts said. The U.S. hur­ri­cane sea­son may also put a floor on prices over con­cerns of dis­rup­tion in out­put. http://www.reuters.com/article/2011/07/28/businesspro-us-markets-oil-idUSTRE7592LE20110728

Russ­ian Prime Min­is­ter Vladimir Putin is close to a deci­sion to bid for the pres­i­dency in an elec­tion next year because he has doubts about his pro­tégé, Pres­i­dent Dmitry Medvedev, senior polit­i­cal sources say. Putin ruled as pres­i­dent from 2000 to 2008 before hand­ing over to Medvedev to com­ply with a con­sti­tu­tional ban on a third con­sec­u­tive term. He will be free to run in the March pres­i­den­tial elec­tion.http://www.reuters.com/article/2011/07/27/us-russia-election-idUSTRE76Q2M320110727

Japan­ese Eco­nom­ics Min­is­ter Kaoru Yosano, under pres­sure to curb the yen’s lat­est spike in value, said cur­rency inter­ven­tion as big as 1 to 2 tril­lion yen ($13–26 bil­lion) would be quite dif­fi­cult, Jiji news agency reported on Thurs­day. Japan is faced with the prospect of act­ing alone to hold down its cur­rency, with mar­kets see­ing lit­tle chance of a repeat of the Group of Seven’s coör­di­nated action to hold down the yen in the after­math of the March 11 earth­quake. Last time Japan inter­vened alone, in Sep­tem­ber last year, it spent around 2 tril­lion yen. http://www.reuters.com/article/2011/07/28/japan-economy-yosano-idUSL3E7IS0IC20110728

Employ­ment in the retail sec­tor fell in the sec­ond quar­ter com­pared to last year, the British Retail Con­sor­tium and busi­ness law firm Bond Pearce said Thurs­day, and weak­en­ing sen­ti­ment among retail­ers pointed to fur­ther job losses. The num­ber of employ­ees in the retail sec­tor fell by 0.4 per­cent com­pared to the sec­ond quar­ter of last year and was down 0.7 per­cent in June, the BRC said. Staff num­bers were below the year-ago level for three con­sec­u­tive months for the first time since the BRC launched its employ­ment sur­vey in Octo­ber 2008, the indus­try body said. http://uk.reuters.com/article/2011/07/27/uk-britain-retail-embargo-idUKTRE76Q7G320110727

Con­trast­ing state­ments by euro zone politi­cians to domes­tic audi­ences have under­lined the fragility of last week’s deal to res­cue Greece and unset­tled finan­cial mar­kets already on edge because of the U.S. debt impasse. Greek Prime Min­is­ter George Papan­dreou told law­mak­ers from his Pasok social­ist party on Wednes­day that debt-stricken Athens will effec­tively receive the first joint eurobonds in the form of loans at close to cost price from the euro zone’s res­cue fund.The deci­sion of our Euro­pean part­ners to lend us at 3.5 per­cent, an inter­est rate just above the one at which Ger­many itself is bor­row­ing, is in essence tan­ta­mount to intro­duc­ing a Euro­pean bond, regard­less of the fact that this sys­tem has not been com­pleted yet,” he said. http://uk.reuters.com/article/2011/07/27/uk-eurozone-idUKTRE76Q1G920110727

The Inter­na­tional Mon­e­tary Fund warned France on Wednes­day it would miss its 3 per­cent deficit tar­get for 2013 unless it took fur­ther steps to cut medium-term spend­ing, which were needed to safe­guard its AAA credit rat­ing. With France gear­ing up for pres­i­den­tial elec­tions in April, the Fund backed Pres­i­dent Nico­las Sarkozy’s pro­posal to write bal­anc­ing the bud­get into the con­sti­tu­tion — a move bit­terly opposed by the oppo­si­tion Social­ist Party. Sarkozy has staked his rep­u­ta­tion on cut­ting France’s deficit from 7.1 per­cent of GDP last year to the limit of 3 per­cent under the euro zone’s Sta­bil­ity and Growth Pact by 2013. http://uk.reuters.com/article/2011/07/27/uk-imf-france-idUKTRE76Q2VW20110727

Bloomberg.com
Asian pol­icy mak­ers need to tackle ris­ing infla­tion­ary pres­sures in their economies even as global growth weak­ens, the Asian Devel­op­ment Bank said. The region can use mon­e­tary and fis­cal poli­cies as well as exchange rates to ease price pres­sure, the Manila-based lender said in its Asia Eco­nomic Mon­i­tor report today. Asian economies also face the risk of increased finan­cial mar­ket volatil­ity and desta­bi­liz­ing cap­i­tal flows, the ADB said. http://www.bloomberg.com/news/2011–07-28/asia-faces-rising-price-pressures-adb.html

Fore­clo­sure fil­ings dropped in 84 per­cent of the largest U.S. cities in the first half of the year as paper­work delays and a glut of seized prop­er­ties slowed the repos­ses­sion of homes, accord­ing to Real­ty­Trac Inc. Notices of default, auc­tion and home seizure fell in 178 of the nation’s 211 biggest met­ro­pol­i­tan areas, the Irvine, California-based data seller said today in a report. Cities in judi­cial states, where courts super­vise the fore­clo­sure process, showed the biggest declines from a year ear­lier. http://www.bloomberg.com/news/2011–07-28/foreclosure-filings-decline-in-84-of-u-s-cities-after-paperwork-backups.html

South Amer­ica is the next retail fron­tier as Brazil, Uruguay and Chile top China and India for new expan­sion oppor­tu­ni­ties. The region made the biggest gains in an annual rank­ing of the top 30 emerg­ing coun­tries for retail devel­op­ment, accord­ing to a report by man­age­ment con­sult­ing firm A.T. Kear­ney. That improve­ment puts four South Amer­i­can coun­tries in the top 10 for the first time, said Hana Ben-Shabat, a New York-based part­ner at A.T. Kear­ney who started the rank­ing 10 years ago. http://www.bloomberg.com/news/2011–07-28/chile-behind-uruguay-converge-on-brazil-for-world-best-expanding-retailers.html

South Korea’s current-account sur­plus rose to an eight-month high in June as global demand for cars and steel bol­stered exports, putting pres­sure on the won to strengthen fur­ther. The sur­plus was $2.99 bil­lion, com­pared with a revised $2.18 bil­lion in May, the Bank of Korea said in a state­ment in Seoul today. The cur­rent account is the broad­est mea­sure of trade, track­ing goods, ser­vices and invest­ment income. http://www.bloomberg.com/news/2011–07-27/south-korea-s-current-account-surplus-widened-to-2–99-billion-in-may.html

Dailyfinance.com
Surg­ing infla­tion, a weak post-tsunami eco­nomic recov­ery in Japan and debt woes in the U.S. and Europe threaten East Asia’s eco­nomic out­look, the Asian Devel­op­ment Bank said Thurs­day. The Manila-based lender main­tained its eco­nomic growth fore­casts for 14 emerg­ing and newly indus­tri­al­iz­ing East Asian coun­tries in 2011 and 2012. But it said the region faces risks that also include more volatile finan­cial mar­kets and desta­bi­liz­ing inflows of short term cap­i­tal, also known as “hot money.” http://www.aolnews.com/story/adb-inflation-threatens-east-asian/1889470/

Foxbusiness.com
We will con­tinue to diver­sify the asset allo­ca­tion of our reserve assets and con­tinue to opti­mize the hold­ings based on mar­ket con­di­tions,” the for­eign exchange reg­u­la­tor said in a state­ment, respond­ing to ques­tions from the pub­lic. The SAFE said the rapid build-up of China’s reserves, the world’s largest that swelled by $152.8 bil­lion in the sec­ond quar­ter, was “not a direct” cause of infla­tion, which hit a three-year high of 6.4 per­cent in June http://www.foxbusiness.com/markets/2011/07/27/china-says-to-press-ahead-with-fx-reserves/#ixzz1TNEJYsqa

Washingtonpost.com
Plung­ing rates for char­ter­ing con­tainer ves­sels that carry sneak­ers, fur­ni­ture and flat-screen TVs may sig­nal a U.S. con­sumer slow­down and losses for ship­ping lines in what is tra­di­tion­ally their busiest time of the year. Fees for hir­ing ves­sels have fallen 9.3 per­cent since the end of April, accord­ing to the Howe Robin­son Con­tainer Index, which tracks char­ter rates for a range of ves­sels. Last year, the index surged 56 per­cent in the period, as lines added ships on demand from U.S. and Euro­pean retail­ers restock­ing for the back-to-school and hol­i­day shop­ping peri­ods. http://washpost.bloomberg.com/story?docId=1376-LOZHXM0UQVI901-6MJLCM7QSV4C5BOEVU480VI7UF

BBC.co.uk
Cyprus may be the lat­est EU coun­try to find it harder to bor­row money after its credit rat­ing was cut. Moody’s said it had cut Cyprus’s credit rat­ing by two notches, from A2 to Baa1, and warned it may down­grade it fur­ther. It increases the chance that Cyprus may become the lat­est coun­try to require an EU bailout. http://www.bbc.co.uk/news/business-14309971

Telegraph.co.uk
The Ger­man finance min­is­ter has warned that he will not bail out every trou­bled euro­zone coun­try in a move that rat­tled con­fi­dence in Europe’s response to the debt cri­sis. In a strongly worded report to Ger­man par­lia­men­tar­i­ans, Wolf­gang Schaeu­ble explained that the €159bn Greek bail-out was a one-off. He said: “In the future such pur­chases must only take place under very tight con­di­tions, when the Euro­pean Cen­tral Bank estab­lishes that there are extra­or­di­nary cir­cum­stances in finan­cial mar­kets and dan­gers to finan­cial sta­bil­ity.” http://www.telegraph.co.uk/finance/financialcrisis/8666789/Greek-bail-out-was-a-one-off-says-German-finance-minister-Wolfgang-Schaeuble.html

Higher bank cap­i­tal ‘would not hit recov­ery’, says Bank of England’s David Miles. A lead­ing Bank of Eng­land pol­i­cy­maker has rub­bished banks’ claims that forc­ing them to hold sig­nif­i­cantly more equity cap­i­tal will dam­age the recov­ery and inhibit future growth. If lenders are given time to adjust, David Miles told the Lon­don School of Eco­nom­ics, they could dou­ble cap­i­tal ratios to around 20pc with­out hurt­ing the sup­ply of credit to house­holds and busi­nesses. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8666301/Higher-bank-capital-would-not-hit-recovery-says-Bank-of-Englands-David-Miles.html

Xinhuanet.com
Prof­its for China’s indus­trial busi­nesses rose 28.7 per­cent year-on-year to 2.41 tril­lion yuan (374 bil­lion U.S. dol­lars) in the first half of this year, the National Bureau of Sta­tis­tics (NBS) announced Wednes­day. The NBS fig­ures showed that com­bined rev­enues for the country’s indus­trial firms rose by 29.7 per­cent from a year ear­lier to reach 38.86 tril­lion yuan from Jan­u­ary to June. The report was based on a sur­vey of indus­trial com­pa­nies with annual sales exceed­ing 20 mil­lion yuan each. Sur­veys of indus­trial com­pa­nies con­ducted before 2011 used a sales thresh­old of 5 mil­lion yuan.http://news.xinhuanet.com/english2010/china/2011–07/27/c_131013516.htm

The Indone­sia gov­ern­ment has unveiled steps to ease infla­tion pres­sures in the sec­ond half of this year which sea­son­ally higher than in the first six months. The Mus­lim dom­i­nated coun­try with over 240 mil­lion pop­u­la­tion is to face fast­ing month of Ramad­han which falls in August and will be fol­lowed by Islamic fes­tiv­ity. At the end of this yea r the coun­try is to cel­e­brate Christ­mas and New Year. Weather phe­nom­e­non, which dis­turbed foods sup­ply and trig­gered infla­tion to a 21-month high to 7.02 per­cent in Jan­u­ary, is still threat­en­ing. http://news.xinhuanet.com/english2010/business/2011–07/28/c_131015106.htm

Thehindu.com
In an effort to pro­mote cross-Line of Con­trol (LoC) trade, India and Pak­istan have dou­bled the trad­ing days between them to four in an effort to pro­mote LoC trade.  Truck move­ment will take place on Tues­days, Wednes­days, Thurs­day and Fri­day both on Srinagar-Muzaffarabad and Poonch-Rawalakot routes. http://www.thehindubusinessline.com/industry-and-economy/economy/article2298291.ece?homepage=true

Finance Min­is­ter Pranab Mukher­jee on Wednes­day cau­tioned that year-end infla­tion may not be less than 6–7 per cent even as the gov­ern­ment and the RBI are mak­ing sus­tained efforts to fight price rise. “We are fight­ing against inflation…increase in repo and reverse repo by the RBI on Tues­day con­veys a strong sig­nal… (but) we shall have to keep in mind that year-end infla­tion may not be less than 6–7 per cent,” Mr. Mukher­jee told reporters here. http://www.thehindu.com/business/Economy/article2298747.ece

Economictimes.com
From next year, atta,bread,biscuits ,snacks and every­thing made from­maida and­sooji will become seri­ously more expen­sive. Even after a bumper crop, there just won’t be enough­wheat for us. ET helps you join the dots. The trig­ger for wheat infla­tion that will hit each one of us is the Food Secu­rity Act, which kick­starts next year. The Food Cor­po­ra­tion of India (FCI) will need sub­stan­tially more wheat to sup­ply three out of four Indian house­holds, meet the new buffer stock­ing norms that stip­u­late larger quan­ti­ties, and also keep aside a strate­gic reserve for emer­gen­cies. http://economictimes.indiatimes.com/policy/food-security-to-create-permanent-wheat-shortage/articleshow/9391239.cms

Yohnapnews.co.uk
The South Korean econ­omy is expected to expand 4.1 per­cent in the sec­ond half of the year in the face of ris­ing global and domes­tic uncer­tain­ties, a pri­vate think tank said Thurs­day. The growth fore­cast marks a mod­est gain from 3.8 per­cent growth in the first half, the Korea Eco­nomic Research Insti­tute (KERI) said, adding Asia’s fourth-largest econ­omy is likely to grow 3.9 per­cent for all of 2011. The full-year pro­jec­tion is well below the 6.2 per­cent increase reached in 2010 when the econ­omy was able to make a come­back from the global finan­cial cri­sis trig­gered by the col­lapse of U.S. invest­ment giant Lehman Broth­ers in late 2008. http://english.yonhapnews.co.kr/business/2011/07/28/50/0502000000AEN20110728005000320F.HTML

Tags: Adequate Plan, Bank Of Scotland, Brazil, Budget Deficit, Buying Insurance, Car Markets, Cease And Desist Orders, Crude Oil, Debt Obligations, Diageo, Electronic Payments, Electronic Transaction, Emerging Market Countries, Federal Reserve Board, India, International Monetary Fund, News That Matters, Quarterly Profit, Royal Bank Of Scotland, Us Federal Reserve Board, Us House Of Representatives, Western India, Wsj
Posted in Brazil, India, Markets, Oil and Gas | Comments Off

2007, Déja Vu?

Thursday, July 28th, 2011

by The Trader, thetrader.se

Have we learnt any­thing from last cri­sis, or is it merely another same same sit­u­a­tion set­ting up like 07/08? People’s psy­chol­ogy, and stu­pid­ity, remains the same. With lever­age once again at high lev­els, the mar­ket could be up for some rock and roll if 1295 is taken out on the SPX.

Although we are long term bear­ish, we expect the mar­ket to hold these lev­els and expect the big drop later this autumn. For the big move down, every­body needs to be long, and wrong…..

Charts, Macro Story

Copy­right © The Trader, thetrader.se

Tags: Autumn, Leverage, Move Down, Psychology, Rock And Roll, Spx, Stupidity
Posted in Markets | Comments Off

What a (Cash) Drag: Institutional Investors and ETF Cash Equitization

Thursday, July 28th, 2011

By Kevin Feld­man, CFP, iShares

How insti­tu­tional investors han­dle “cash drag”- and how you can, too.

I recently blogged about a report from Green­wich Asso­ciates that showed insti­tu­tional ETF usage is on the rise.  One of the pri­mary ETF strate­gies in that space?  Cash equi­ti­za­tion, an approach that’s little-used (and per­haps even little-known) in the indi­vid­ual investor realm.  Read­ing through the report and all the sub­se­quent media cov­er­age got me think­ing – why aren’t more retail investors using ETFs to equi­tize their cash?

At first glance, cash equi­ti­za­tion using an ETF is pretty straight­for­ward.  As opposed to car­ry­ing a sig­nif­i­cant cash posi­tion, an investor sim­ply selects an ETF that closely approx­i­mates their tar­get risk and asset class expo­sure to remain invested in the mar­ket. Typ­i­cally insti­tu­tional investors will imple­ment a cash equi­ti­za­tion strat­egy when cash is on the side­lines and wait­ing to be put to work. For exam­ple, at times large insti­tu­tional clients are tran­si­tion­ing between man­agers or doing a search for a new man­ager in a par­tic­u­lar asset class.  Rather than risk­ing under­per­for­mance through “cash drag” (devi­a­tion of returns from a benchmark’s returns due to cash hold­ings), the insti­tu­tion will invest in an ETF with sim­i­lar asset class expo­sure as an interim solution.

Insti­tu­tions have been using ETFs for cash equi­ti­za­tion since, well, the begin­ning.  In fact, when ETFs first came on the scene, they were mostly per­ceived as insti­tu­tional prod­ucts – and some of those insti­tu­tions were get­ting their feet wet with the prod­ucts by using them for cash equi­ti­za­tion.  The largest and most liq­uid ETFs lend them­selves to this prac­tice because there’s now a wide vari­ety to choose from, total costs are gen­er­ally very low for short hold­ing peri­ods, and typ­i­cally they’re eas­ily traded through­out the day.

So why do insti­tu­tions want to avoid cash drag, and how does their rea­son­ing apply to indi­vid­ual investors?  Likely one of the biggest rea­sons an insti­tu­tion would choose equi­ti­za­tion over hold­ing cash is that they believe mar­ket returns will be pos­i­tive over time (that’s why we invest, right?).  Both equi­ties and bonds have expe­ri­enced strong per­for­mance as of late (the S&P 500 Index was up 30% over the past year as of 6/30/2011).  Con­versely, inter­est rates on many cash vehi­cles are near 0% at the moment, so port­fo­lio cash may actu­ally be earn­ing neg­a­tive real returns after infla­tion is taken into account.  And although cash hold­ings can reduce risk in the form of port­fo­lio volatil­ity, they can “drag” on returns in up markets.

In addi­tion, the case for cash equi­ti­za­tion can be even stronger in an insti­tu­tional bond port­fo­lio than in its equity coun­ter­part.  For one thing, income from bond hold­ings nat­u­rally increases cash lev­els more than in an equity port­fo­lio, mak­ing the port­fo­lio more sus­cep­ti­ble to cash drag.  And since a key com­po­nent of a fixed income port­fo­lio is often to invest in income-generating secu­ri­ties, the low yields on cash can work against that strat­egy.  When an insti­tu­tional bond fund wishes to reduce its cash hold­ings and employ a cash equi­ti­za­tion strat­egy, ETFs offer a com­pelling solu­tion with an assort­ment of cri­te­ria to choose from such as yield, matu­rity, credit qual­ity, and sec­tor in order to match spe­cific invest­ment objec­tives and risk tol­er­ance levels.

How does this apply to indi­vid­ual investors?  Well, they might have a cer­tain amount in cash that they already know is even­tu­ally des­tined for the mar­ket, but that they just haven’t got­ten around to invest­ing yet (this is obvi­ously much dif­fer­ent than cash that’s been ear­marked for sav­ings or expen­di­tures).  The “insti­tu­tional approach” might be to con­sider using an ETF to get that cash off the side­lines and out of its zero– or near-zero-yielding account and into the mar­ket (if that’s where it’s headed even­tu­ally) to man­age your own per­sonal cash drag.  Keep in mind that invest­ing in an ETF has much higher risks asso­ci­ated with it than invest­ing in cash, so investors should con­sider their own risk tol­er­ance and return objec­tives before enter­ing the mar­ket.  Addi­tion­ally, investors should work with their finan­cial advi­sor and tax plan­ner to deter­mine if the costs of mov­ing in and out of an ETF posi­tion and pos­si­ble tax con­se­quences out­weigh the over­all cash drag on their portfolio.

Past per­for­mance does not guar­an­tee future results.

Buy­ing and sell­ing shares of ETFs will result in bro­ker­age com­mis­sions.  There can be no assur­ance that an active trad­ing mar­ket for shares of an ETF will develop or be maintained.

Bonds and bond funds will decrease in value as inter­est rates rise.

Copy­right © iShares Blog

Tags: asset class, Benchmark, Cash Equitization, Cash Position, Cfp, ETFs, First Glance, Greenwich Associates, Holding Periods, Individual Investor, Institutional Clients, Institutional Investors, Institutional Products, Institutions, Interim Solution, Ishares, Media Coverage, Retail Investors, Sidelines, Target Risk
Posted in ETFs, Markets | Comments Off

Please Apply Within... but Only if You Already Are Employed

Thursday, July 28th, 2011

by Trader Mark, Fund My Mutual Fund

Inter­est­ing piece in the New York Times, on how the unem­ployed are appar­ently being shunned.  If accu­rate, this is going to be a big prob­lem as we move for­ward since we are at his­tor­i­cal lev­els of long term unemployed.

[click to enlarge graphics]

• The unem­ployed need not apply. That is the mes­sage being broad­cast by many of the nation’s employ­ers, mak­ing it even more dif­fi­cult for 14 mil­lion job­less Amer­i­cans to get back to work.
• A recent review of job vacancy post­ings on pop­u­lar sites like Monster.com, Career­Builder and Craigslist revealed hun­dreds that said employ­ers would con­sider (or at least “strongly pre­fer”) only peo­ple cur­rently employed or just recently laid off.
• “I feel like I am being shunned by our entire soci­ety,” said Kelly Wiede­mer, 45, an infor­ma­tion tech­nol­ogy oper­a­tions ana­lyst who said a recruiter had told her that despite her skill set she would be a “hard sell” because she had been out of work for more than six months.
• Legal experts say that the prac­tice prob­a­bly does not vio­late dis­crim­i­na­tion laws because unem­ploy­ment is not a pro­tected sta­tus, like age or race. The Equal Employ­ment Oppor­tu­nity Com­mis­sion recently held a hear­ing, though, on whether dis­crim­i­nat­ing against the job­less might be ille­gal because it dis­pro­por­tion­ately hurts older peo­ple and blacks.
• The prac­tice is com­mon enough that New Jer­sey recently passed a law out­law­ing job ads that bar unem­ployed work­ers from apply­ing. New York and Michi­gan are con­sid­er­ing the idea, and sim­i­lar leg­is­la­tion has been intro­duced in Congress.
• Given that the aver­age dura­tion of unem­ploy­ment today is nine months — a record high — lim­it­ing a search to the “recently employed,” much less the cur­rently employed, dis­qual­i­fies mil­lions.
• The posi­tions adver­tised ... cover jobs at all skill lev­els, includ­ing hotel concierges, restau­rant man­agers, teach­ers, I.T. spe­cial­ists, busi­ness ana­lysts, sales direc­tors, account exec­u­tives, ortho­pe­dics device sales­men, audi­tors and air-conditioning technicians.
• One con­se­quence is that the long-term unem­ployed will rack up even more weeks of unem­ploy­ment, Mr. Holzer said, and will find it harder to make the tran­si­tion back to work.
• Even if Con­gress passed a mea­sure for­bid­ding com­pa­nies from mak­ing cur­rent employ­ment a require­ment for job appli­cants, com­pa­nies could still sim­ply decide not to hire peo­ple who are out of work. Dis­crim­i­na­tion would be dif­fi­cult to prove.
• Idle work­ers’ skills may atro­phy, par­tic­u­larly in dynamic indus­tries like tech­nol­ogy. They may lose touch with their net­work of con­tacts, which is impor­tant for peo­ple in sales. Beaten down by months of rejec­tion and idle­ness, they may not inter­view well or eas­ily return to a 9-to-5 schedule.
• Employ­ers receive so many appli­ca­tions for each open­ing that some may use cur­rent employ­ment sta­tus as an easy fil­ter. In some cases — as with Ms. Wiede­mer, of West­min­ster, Colo. — recruiters merely assume employ­ers do not want job­less workers.

• “Clients don’t always tell us ‘we don’t want to see résumés from unem­ployed work­ers,’ but we can sense from what peo­ple have inter­ested them in the past that they’re prob­a­bly look­ing for some­body who’s gain­fully employed, who’s closer to the action,” said Den­nis Pradarelli, a tal­ent acqui­si­tion man­ager for Marbl, a recruit­ing firm in Brook­field, Wis. Many of the job ads posted by his firm seek work­ers who are “cur­rently employed or only recently unemployed.”
• Job coun­selors often encour­age the long-term unem­ployed to go back to school or vol­un­teer to demon­strate that they are still pro­duc­tive, engaged mem­bers of soci­ety. But absent the actual acqui­si­tion of mar­ketable skills — which many retrain­ing pro­grams do not pro­vide — it’s not clear such efforts improve the chances of being hired.
• In the mean­time, peo­ple like Ms. Wiede­mer — who has been out of work for three years — are exhaust­ing their ben­e­fits and piec­ing together what sup­port they can from food stamps and fam­ily mem­bers. And they are stuck hop­ing that eco­nomic growth man­ages to out­pace their own descent into per­ma­nent eco­nomic exile.

Copy­right © Trader Mark, Fund My Mutual Fund

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New Fall Looks For The Dollar: The Debt Ceiling Collection

Thursday, July 28th, 2011

By Econ­Mat­ters

After House Speaker John Boehner (R-Ohio) abruptly with­drew from the debt talks with the White House last Fri­day, the lat­est devel­op­ment is the duel­ing pro­pos­als from the Repub­li­can leader in the House and Demo­c­ra­tic leader of the Sen­ate to hope­fully get the fed­eral $14.3-trillion debt ceil­ing lifted.

Nev­er­the­less, Law­mak­ers remain at odds over how to avoid a debt default. With a fast approach­ing Aug. 2 dead­line, the impasse saga at Wash­ing­ton only serves to sharpen the image of an unprece­dented U.S. sov­er­eign default into HD 3D.

Investors' fear and wor­ries over the poten­tially dev­as­tat­ing default have tanked the equi­ties and com­modi­ties, while gold hit a record of almost $1,620/oz. Rather than the con­ven­tional risk-off trade–"sell com­modi­ties, buy the dol­lar"– investors threshed the dol­lar, but still have faith in the U.S Trea­sury. The U.S. dol­lar has lost 7% year-to-date, while Trea­sury has not seen as much pres­sure, con­sid­er­ing the debt fiasco (See Charts Below) Typ­i­cally, when investors sell the dol­lar, it pres­sures the U.S. bond mar­ket as well.

Part of the dol­lar weak­ness has to do with lots of forex play­ers com­ing into the mar­ket just to short the dol­lar. Another fac­tor in the diverg­ing behav­iors between the cur­rency and bond mar­kets is that more and more peo­ple believe the prob­a­bil­ity of a U.S. sov­er­eign credit down­grade is a lot greater than that of a total debt default.  The resilience of the U.S. trea­sury is also is a clear indi­ca­tion that the bond mar­ket expects the debt ceil­ing will be raised before the August 2 deadline.

Major rat­ing agencies, including Moody's, S&P and Fitch, have warned of an immi­nent down­grade if Wash­ing­ton fails to pass the debt ceil­ing, which could result in an inter­est rate spike for the fed­eral and state gov­ern­ments, cor­po­ra­tions, and individuals.

JP Mor­gan esti­mated that a U.S. credit-rating cut would likely raise the nation’s bor­row­ing costs by increas­ing Trea­sury yields by 60 to 70 bps over the “medium term,” adding $100 bil­lion a year to gov­ern­ment costs while drag­ging down eco­nomic growth.

At the same time, despite a long-term debt and deficit prob­lem, fun­da­men­tally, the United States cur­rently does not have an imme­di­ate sol­vency issue.  When push comes to shove, peo­ple still flock to the U.S. Trea­sury for safety.  So it is really of grave con­cern that the gov­ern­ment of the world's largest econ­omy would let a polit­i­cal soap opera become a short-term cri­sis to its cur­rency, mar­kets and not to men­tion the nation's image and reputation.

Some have said that the Fed and Wash­ing­ton want the value of the dol­lar to plum­met so the nation’s debt may be repaid in cheaper dol­lars. Per­haps all this debt ceil­ing mess is just part of the grand design?  If so, then pretty soon, these Art of Defaced US Dol­lars would be worth more than the real dollar.

Econ­Mat­ters, July 28, 2011

Tags: Aug 2, Bond Market, Bond Markets, Commodities, Debt Ceiling, Debt Default, Democratic Leader, Dollar Weakness, Fiasco, House Speaker, Impasse, John Boehner, Jp Morgan, Last Friday, Leader Of The Senate, Republican Leader, Resilience, State Governments, U S Treasury, Year To Date, Yie
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Eurozone Bailout: Taxpayer Transfer to the Wealthy?

Thursday, July 28th, 2011

Euro­zone Bailout: Tax­payer Trans­fer to the Wealthy?
Europe's €200 bil­lion reverse wealth tax explained

by Har­ald Hau, via VoxEU.org

Last week, the Euro­pean heads of gov­ern­ment added €109 bil­lion to the exist­ing €110 bil­lion res­cue plan for Greece. As Europe’s finan­cial sec­tor would have oth­er­wise taken a huge hit, this col­umn address the ques­tion: How did the finan­cial sec­tor man­age to nego­ti­ate such a gigan­tic wealth trans­fer from the Euro­zone tax­payer and the IMF to the rich­est 5% of peo­ple in the world?

When the deal was announced, Ger­man Chan­cel­lor Merkel high­lighted the private-sector involve­ment. She stressed that this was the result of Ger­man intran­si­gence. Accord­ing to the spin, pri­vate cred­i­tors have to accept a 21% write-down on their claims. This amounts to a €37 bil­lion private-sector con­tri­bu­tion. They also pro­vide €12.8 bil­lion in new loans for debt buy­back. This buy­back, how­ever, should not count as a private-sector con­tri­bu­tion as it amounts to an exchange of one debt for another.

The pri­vate cred­i­tors’ con­tri­bu­tion is there­fore extremely mod­est com­pared to the €109 bil­lion in new pub­lic com­mit­ments. Espe­cially given that pri­vate cred­i­tors had the most to lose. Given that the mar­ket dis­count was already 50% for Greek debt, giv­ing up 21% could be viewed as a gain. This has to be qual­i­fied as a very bad nego­ti­a­tion out­come for the Euro­zone taxpayer.

A closer look shows the deal is much worse for taxpayers

The new plan fore­sees so-called credit enhance­ment for the new debt, which means that the new Greek debt is mostly guar­an­teed by the Euro­pean Finan­cial Sta­bil­ity Facil­ity (EFSF) – and thus by the tax­pay­ers. Now, in the finan­cial world, a guar­an­tee is worth hard cash – it’s like get­ting auto­mo­bile insur­ance for free.

This is no small con­ces­sion given that a suc­cess­ful turn­around for Greece is highly uncer­tain. The econ­omy still is bur­dened with an exces­sive debt of around 132% of GDP; large struc­tural pol­icy reforms have not yet begun and may well fail. Most cred­i­tors can fore­see this and are happy to accept the pub­lic guar­an­tees for their debt before the next and much big­ger hair­cut comes.

We can there­fore expect that they take up the debt exchange offer "vol­un­tar­ily", since it is effec­tively a gift to sov­er­eign cred­i­tors and not a bailout contribution.

What about Egal­ité? Tax for wealth, or on wealth?

More sur­pris­ing is Sarkozy's spin on these events. He inter­preted the new deal as an impor­tant step towards Europe's eco­nomic gov­er­nance. But before tak­ing too much pride, Sarkozy should remem­ber that a €200 bil­lion sub­sidy to sov­er­eign cred­i­tors is a gigan­tic wealth trans­fer from the tax­payer to essen­tially the rich­est 5% of the world. In the US, the 5% rich­est house­holds con­trol roughly 70% of all finan­cial wealth, and this per­cent­age is not much dif­fer­ent in the rest of the world. Ulti­mate own­er­ship of bank cap­i­tal and sov­er­eign debt is so con­cen­trated among high-wealth indi­vid­u­als that we should char­ac­terise the bailout sub­sidy as an "impôt pour la for­tune" (“a tax for wealth”) – a wealth tax sup­port­ing the rich.

This should be prob­lem­atic in a coun­try like France which has been fight­ing bit­terly over the so-called "impôt sur la for­tune" (a wealth tax on the rich). This lat­ter wealth tax amounts to a mere €4 bil­lion annu­ally in state revenue.

Why are the French not at the bar­ri­cades over the struc­ture of the Greek bailout?

This is a dif­fi­cult ques­tion. Self-censorship by the main­stream French media might play a role, which – mostly left-leaning – does not want to pro­vide ammu­ni­tion to Euroscep­tics like Marine le Pen before next year's pres­i­den­tial elec­tions. But even in France it will not remain unno­ticed that almost all of the pub­lic funds go to cred­i­tors and hardly ben­e­fit the ordi­nary Greek citizen.

Why did tax­pay­ers get such a bad deal?

In prin­ci­ple, gov­ern­ments should have been in a very strong posi­tion. Pri­vate default can end in the liq­ui­da­tion of a com­pany, but a coun­try can­not be liq­ui­dated. This puts pri­vate cred­i­tors in a very weak posi­tion when it comes to nego­ti­at­ing with a gov­ern­ment and empow­ers the lat­ter. But why was this not the case in the cur­rent debt crisis?

• Bankers and many jour­nal­ists con­vey the impres­sion that we face a choice between a full sov­er­eign bailout and a cat­a­strophic bank­ing crisis.
• ECB exec­u­tive board mem­ber Lorenzo Bin Smaghi even sug­gested that any talk about pri­vate bail-ins would increase the costs for the taxpayer.

Such asser­tions con­fuse more than they clar­ify, because they (falsely) sug­gest that there was no alternative.

Tags: Automobile Insurance, Bailout, Closer Look, Column Address, Concession, Credit Enhancement, Debt Buyback, Efsf, Excessive Debt, Financial Sector, Financial Stability, German Chancellor Merkel, Heads Of Government, Imf, Intransigence, Private Creditors, Private Sector Involvement, Public Commitments, Wealth Tax, Wealth Transfer
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Read China's Lips

Thursday, July 28th, 2011

by Stephen S. Roach, via Project Syn­di­cate

NEW HAVEN – The Chi­nese have long admired America’s eco­nomic dynamism. But they have lost con­fi­dence in America’s gov­ern­ment and its dys­func­tional eco­nomic stew­ard­ship. That mes­sage came through loud and clear in my recent trav­els to Bei­jing, Shang­hai, Chongqing, and Hong Kong.

Com­ing so shortly on the heels of the sub­prime cri­sis, the debate over the debt ceil­ing and the bud­get deficit is the last straw. Senior Chi­nese offi­cials are appalled at how the United States allows pol­i­tics to trump finan­cial sta­bil­ity. One high-ranking pol­i­cy­maker noted in mid-July, “This is truly shock­ing… We under­stand pol­i­tics, but your government’s con­tin­ued reck­less­ness is astonishing.”

China is no inno­cent bystander in America’s race to the abyss. In the after­math of the Asian finan­cial cri­sis of the late 1990’s, China amassed some $3.2 tril­lion in foreign-exchange reserves in order to insu­late its sys­tem from exter­nal shocks. Fully two-thirds of that total – around $2 tril­lion – is invested in dollar-based assets, largely US Trea­suries and agency secu­ri­ties (i.e., Fan­nie Mae and Fred­die Mac). As a result, China sur­passed Japan in late 2008 as the largest for­eign holder of US finan­cial assets.

Read on ...

Copy­right © 2011 Project Syn­di­cate

Tags: Agency Securities, Asian Financial Crisis, Budget Deficit, chinese officials, Chongqing, Debt Ceiling, Economic Dynamism, Economic Stewardship, External Shocks, Fannie Mae, Fannie Mae And Freddie Mac, Financial Assets, Financial Stability, Foreign Exchange Reserves, Freddie Mac, Innocent Bystander, Policymaker, Project Syndicate, Recklessness, Treasuries
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News That Matters (July 27, 2011)

Wednesday, July 27th, 2011

via thetrader.se

FT.com
The vol­ume of bonds sold to finance lever­aged buy-outs has reached $16.6bn this year, four times the amount raised over the same period in 2010, as con­strained loan mar­kets force pri­vate equity firms to rely increas­ingly on cap­i­tal mar­kets to fund acqui­si­tions. The FT says shift from loan to bond LBO financ­ing has been par­tic­u­larly sharp in Europe, http://ftalphaville.ft.com/thecut/2011/07/27/635641/buy-out-bond-deals-at-europe-high/

Over­seas lend­ing to euro­zone coun­tries fell in the first quar­ter of this year amid wor­ries about the health of Greece and other periph­eral coun­tries, reports Reuters, in con­trast to a rebound in bank lend­ing across the rest of the world. Lend­ing to euro­zone coun­tries dipped by $77 bil­lion, http://ftalphaville.ft.com/thecut/2011/07/27/635621/foreign-banks-cut-lending-to-eurozone/

The fam­ily behind Thom­son Reuters is push­ing for faster results from the three-year-old merger of Thom­son Cor­po­ra­tion and Reuters, the FT says. The com­pany ini­tially exceeded promises of inte­gra­tion ben­e­fits,http://ftalphaville.ft.com/thecut/2011/07/27/635561/thomsons-grow-restless-over-reuters-venture/

US money mar­ket funds are stock­pil­ing cash in case Con­gress fails to raise the debt ceil­ing, dis­tort­ing the short-term mar­ket for US gov­ern­ment debt and rais­ing bor­row­ing costs for banks and other finan­cial insti­tu­tions http://ftalphaville.ft.com/thecut/2011/07/27/635486/us-money-market-funds-build-liquidity/

Reg­u­la­tors prob­ing alleged manip­u­la­tion of inter­bank lend­ing rates have expanded their inves­ti­ga­tion into yen rates in Lon­don and a sep­a­rate rate-setting process in Tokyo, the FT reports. In the finehttp://ftalphaville.ft.com/thecut/2011/07/27/635491/interbank-loan-probe-widens-to-yen-rates/

At first glance, it looks like the mar­ket has become bored with the US debt ceil­ing game of chicken, with under­ly­ing hopes for a busy and pos­i­tive week of cor­po­rate earn­ings from global com­pa­nies help­ing to sta­bilise equity bench­marks and sup­port com­modi­ties http://ftalphaville.ft.com/thecut/2011/07/26/635456/dollar-takes-brunt-of-washington-debt-deal-battle/

The pres­i­dent of the Boston Fed has out­lined poten­tial reforms to the money mar­ket fund indus­try in new detail, Reuters reports. ”While sev­eral pro­pos­als have been sug­gested, some com­bi­na­tion of cap­i­tal buffershttp://ftalphaville.ft.com/thecut/2011/07/26/634771/fed-signals-money-market-fund-reform/

Fresh for­eign invest­ment in Brazil­ian stocks plunged 70 per cent in the first half of 2011, drag­ging down a mar­ket that had been one of the hottest last year.  Ris­ing infla­tion, polit­i­cal inter­fer­ence in key sec­tors and mea­sures to slow credit growth have all damped for­eign investor sen­ti­ment towards Brazil’s equity mar­ket, forc­ing some com­pa­nies to scrap pub­lic offer­ings despite the strength of the country’s econ­omy.http://www.ft.com/intl/cms/s/0/b00e9644-b79f-11e0-8523-00144feabdc0.html#axzz1TBR7mQo3

The lat­est euro­zone res­cue deal will save Ire­land almost a bil­lion euros a year in inter­est pay­ments, but ana­lysts and politi­cians say the great­est impact may in fact be psy­cho­log­i­cal – pro­vid­ing a bat­tered econ­omy with a much-needed shot of opti­mism.  Euro­zone lead­ers, who met last week to dis­cuss the Greek cri­sis, cut the inter­est rate on Euro­pean bail-out funds, thereby eas­ing the fis­cal plight of Ire­land which – before its bank and hous­ing mar­ket crises forced it last year to accept a €85bn inter­na­tional bail-out – was among the eurozone’s top eco­nomic per­form­ers. http://www.ft.com/intl/cms/s/0/60589b6e-b799-11e0-8523-00144feabdc0.html?ftcamp=rss#axzz1TBR7mQo3

WSJ.com
Asian shares were down Wednes­day, track­ing Wall Street’s declines Tues­day, weighed by the con­tin­u­ing stale­mate over rais­ing the U.S. debt ceil­ing, while earn­ings reports swayed Tokyo shares. “While mar­kets have drifted lower, peo­ple do think that san­ity will pre­vail in regard to the U.S. debt ceil­ing. That said, there seems to be more con­cern each day that the U.S. could do some­thing com­pletely stu­pid,” said Justin Gal­lagher, RBS head of domes­tic sales trad­ing in Aus­tralia. Japan’s Nikkei Stock Aver­age fell 0.7%, Australia’s S&P/ASX 200 edged down 0.1%, South Korea’s Kospi Com­pos­ite fell 0.2% and New Zealand’s NZX-50 shed 0.4%.  Dow Jones Indus­trial Aver­age futures were down 12 points in screen trade. http://online.wsj.com/article/SB10001424053111903591104576470892199103126.html?mod=WSJ_hp_LEFTWhatsNewsCollection

House Speaker John Boehner, fac­ing a rebel­lion among con­ser­v­a­tive Repub­li­cans and ques­tions about the amount of spend­ing cuts in his plan for rais­ing the bor­row­ing limit, abruptly post­poned a vote on the mea­sure sched­uled for Wednes­day. The delay added fur­ther con­fu­sion less than a week before a pos­si­ble gov­ern­ment default. It was a set­back for GOP lead­ers who had pro­moted Mr. Boehner’s plan as the best way to raise the debt ceil­ing while cut­ting the deficit. http://online.wsj.com/article/SB10001424053111903999904576470083852743922.html?mod=WSJ_hp_LEFTTopStories

Iran’s Islamist gov­ern­ment may be pub­lic enemy No. 1 at the White House. But in the halls of the Inter­na­tional Mon­e­tary Fund a few blocks away, Pres­i­dent Mah­moud Ahmadine­jad is being hailed as an eco­nomic reformer. In the face of mount­ing inter­na­tional sanc­tions, his gov­ern­ment has embraced over the past seven months what the IMF calls one of the bold­est eco­nomic makeovers ever attempted in the oil-rich Mid­dle East. http://online.wsj.com/article/SB10001424052702304223804576448203609699930.html?mod=WSJ_hp_LEFTTopStories

Over the past 10 years: • The U.S. economy’s out­put of goods and ser­vices has expanded 19%. • Non­fi­nan­cial cor­po­rate prof­its have risen 85%. • The labor force has grown by 10.1 mil­lion. • But the num­ber of private-sector jobs has fallen by nearly two mil­lion. • And the per­cent­age of Amer­i­can adults at work has dropped to 58.2%, a low not seen since 1983. What’s wrong with the Amer­i­can job engine? As United Tech­nolo­gies Corp. Chief Finan­cial Offi­cer Greg Hayes put it recently: “Sales have come back, but peo­ple have not.” That’s largely because the econ­omy is grow­ing much too slowly to absorb the avail­able work force, and indus­tries that usu­ally hire early in a recovery—construction and small businesses—were crip­pled by the credit bust. http://online.wsj.com/article/SB10001424053111904772304576468820582615858.html?mod=WSJ_hp_LEFTWhatsNewsCollection

George Soros is turn­ing his leg­endary hedge-fund firm into a $24.5 bil­lion “fam­ily office,” a move that allows it to avoid a new level of reg­u­la­tory over­sight fac­ing many hedge funds. Mr. Soros helped pio­neer the mod­ern hedge fund and became one of the world’s best known investors. His firm, Soros Fund Man­age­ment LLC, told clients it will no longer man­age out­side investors’ money. It will return less than $1 bil­lion to investors and man­age the remain­ing approx­i­mately $24.5 billion—including funds owned by Mr. Soros, his fam­ily and their foundations—through a fam­ily office.http://online.wsj.com/article/SB10001424053111903999904576469761599552864.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Euro­pean banks are cut­ting jobs to save on costs, as weaker earn­ings in key busi­ness lines and com­ing reg­u­la­tions bite into their prof­its. UBS AG on Tues­day said it would reduce its work­force by an undis­closed amount as part of a plan to reduce costs by up to 2 bil­lion Swiss francs ($2.48billion). The move came as it reported a near-halving in second-quarter net profit, to 1.02 bil­lion francs, in part from a sharp drop in fixed-income rev­enue. Rival Credit Suisse Group is likely to announce that it is lay­ing off as many as 1,600 peo­ple when it reports on http://online.wsj.com/article/SB10001424053111903591104576469843142732536.html?mod=WSJASIA_hpp_LEFTTopWhatNews

Aus­tralia con­tin­ued to have an infla­tion prob­lem in the sec­ond quar­ter as prices jumped for a broad range of basic items such as food, cloth­ing, health and house­hold ser­vices, sharply increas­ing the prob­a­bil­ity of a near-term inter­est rate rise and dri­ving the Aus­tralian dol­lar to a 30-year high. Finan­cial mar­kets were stunned by the data, with many say­ing recent signs of a cool­ing in key sec­tors of the econ­omy like retail sales were a clear sig­nal that momen­tum had slowed over recent months, giv­ing the cen­tral bank more time to pon­der its next move. The http://online.wsj.com/article/SB10001424053111903999904576471021557733848.html?mod=WSJASIA_hpp_LEFTTopWhatNews

Marketwatch.com
Gold futures con­tin­ued to rise Wednes­day as a pro­longed stand­off in Wash­ing­ton over hik­ing the U.S. debt ceil­ing con­tin­ued. Gold for August deliv­ery , the con­tract with the most vol­ume, rose $5.30, or 0.3% to $1,622.00 an ounce in elec­tronic trad­ing. The Decem­ber con­tract, which has the most open inter­est, was at $1,623.90 an ounce, up $4.50, or 0.3%, after ear­lier ris­ing to a fresh peak of $1,626.90. http://www.marketwatch.com/story/gold-rises-as-us-debt-impasse-continues-2011–07-27

South Korea’s second-quarter gross domes­tic prod­uct growth eased to 0.8% from the pre­vi­ous quar­ter, the Bank of Korea reported Wednes­day. It com­pared with a 1.3% expan­sion in the first-quarter, and a 0.9% con­sen­sus esti­mate from econ­o­mists sur­veyed by Dow Jones Newswires. Export growth slowed to 1.8% dur­ing the period, against 3.3% in the pre­vi­ous quar­ter. Imports rose to 2.8%, com­pared to 1.2% in the pre­vi­ous quar­ter, the Bank of Korea reported. Pri­vate con­sump­tion increased to 1.0%, from 0.4%, the report said. http://www.marketwatch.com/story/south-koreas-second-quarter-gdp-expands-08–2011-07–26

China is unlikely to hike banks’ reserve require­ment ratio this month or in August, partly because spec­u­la­tive fund flows have fallen, a reporter for the state-run China Secu­ri­ties Jour­nal wrote in an opin­ion piece pub­lished Wednes­day. China raised banks’ reserve require­ment ratio in each month between Jan­u­ary and June this year as part of its efforts to mop up excess liq­uid­ity amid con­cerns over infla­tion.http://www.marketwatch.com/story/china-unlikely-to-hike-reserve-ratio-soon-report-2011–07-27

Reuters.com
Oil fell on Wednes­day as a stale­mate in the United States over rais­ing the debt ceil­ing dragged on, with ana­lysts say­ing the wran­gling had already dam­aged the econ­omy. Law­mak­ers have one week left to hash out a deficit-cutting plan with­out which Repub­li­cans in Con­gress have said they will not raise the legal $14.3 tril­lion debt limit. That uncer­tainty helped drive gold to an all-time high for the sixth time in two weeks on Wednes­day, while stock mar­kets and base met­als fell. Brent slipped 4 cents to $118.24 a bar­rel by 0238 GMT, after set­tling 34 cents higher on Tues­day. U.S. oil slumped 33 cents to $99.25, as an indus­try report showed crude stocks in the coun­try rose unex­pect­edly. http://www.reuters.com/article/2011/07/27/businesspro-us-markets-oil-idUSTRE7592LE20110727

Greece wants a vol­un­tary swap of gov­ern­ment bonds for longer matu­rity paper to start in August and be com­pleted fast to emerge rapidly from an expected default rat­ing, its deputy finance min­is­ter said on Tues­day. Greece’s pri­vate sec­tor cred­i­tors will take a 21 per­cent loss on their bond hold­ings as part of a 37 bil­lion euro ($53 bil­lion) con­tri­bu­tion to the country’s lat­est bailout plan, agreed at a euro zone sum­mit last week.http://www.reuters.com/article/2011/07/26/us-greece-debt-idUSTRE76P0XQ20110726

New single-family home sales unex­pect­edly fell in June, but a sharp rise in prices and declin­ing sup­ply sug­gested the mar­ket for new houses was start­ing to sta­bi­lize, a gov­ern­ment report showed on Tues­day. The Com­merce Depart­ment said sales fell 1.0 per­cent to a sea­son­ally adjusted 312,000-unit annual rate as sales in the North­east tum­bled to a record low. Sales were also pulled down by a sharp drop in the West. May’s sales pace was revised down to 315,000 units from the pre­vi­ously reported 319,000 units. http://www.reuters.com/article/2011/07/26/us-usa-economy-home-idUSTRE76P3N420110726

Bloomberg.com
Polit­i­cal wran­gling over a plan to reduce the deficit may cost the U.S. its AAA rat­ing, adding $100 bil­lion a year to gov­ern­ment costs while drag­ging down eco­nomic growth, accord­ing to Wall Street bond deal­ers. A U.S. credit-rating cut would likely raise the nation’s bor­row­ing costs by increas­ing Trea­sury yields by 60 to 70 basis points over the “medium term,” JPMor­gan Chase & Co.’s Terry Bel­ton said today on a con­fer­ence call hosted by the Secu­ri­ties Indus­try and Finan­cial Mar­kets Asso­ci­a­tion. Stan­dard & Poor’s, which has given the U.S. a top rank­ing since 1941, reit­er­ated on July 21 that the chance of a down­grade is 50 per­cent in the next three months and may cut the nation as soon as August. http://www.bloomberg.com/news/2011–07-26/u-s-downgrade-may-raise-interest-cost-by-100-billion-jpmorgan-says.html

Shang­hai’s gov­ern­ment will step up inspec­tions on the pric­ing of new homes to ensure that they aren’t set at “unrea­son­ably” high prices, as part of a nation­wide effort to curb exces­sive gains. The city will seek out devel­op­ers which vio­late the rules and with­hold the approvals for them to sell homes, the Shang­hai Munic­i­pal Hous­ing Sup­port and Build­ing Admin­is­tra­tion Bureau said in a state­ment on its web­site late yes­ter­day.http://www.bloomberg.com/news/2011–07-27/shanghai-to-step-up-probe-of-home-prices.html

Chi­nese indus­trial com­pa­nies’ prof­its grew at a faster pace even after the gov­ern­ment raised inter­est rates and tight­ened credit to counter infla­tion. Net income climbed 28.7 per­cent in the first six months to 2.41 tril­lion yuan ($374 bil­lion) from a year ear­lier, the National Bureau of Sta­tis­tics said today. That com­pares with a 27.9 per­cent gain in Jan­u­ary through May. Climb­ing prof­its for com­pa­nies such as Anhui Conch Cement Co., the nation’s biggest cement pro­ducer, fuel invest­ment that is under­pin­ning the expan­sion of the fastest-growing major econ­omy. http://www.bloomberg.com/news/2011–07-27/china-s-29-jump-in-industrial-profit-to-spur-growth-by-fueling-investment.html

Spain and Italy paid a high price to sell short-term debt on Tues­day, com­pound­ing investors’ con­cern that last week’s bailout pack­age for Greece left the euro zone’s debt cri­sis unre­solved. Spain’s short-term cost of bor­row­ing hit three-year highs and demand fell at its Trea­sury bills auc­tion while yields at a sale of six-month Ital­ian paper hit their high­est since Novem­ber 2008. http://uk.reuters.com/article/2011/07/26/uk-eurozone-idUKTRE76P30A20110726

CNBC.com
Japan’s pol­i­cy­mak­ers, alarmed that the yen’s per­sis­tent climb could derail the nation’s eco­nomic recov­ery, see solo mar­ket inter­ven­tion as an increas­ingly viable option, sources famil­iar with the mat­ter said. Finance Min­is­ter Yoshi­hiko Noda on Tues­day repeated his mantra about closely watch­ing “one-sided” moves, and other min­is­ters chimed in with warn­ings about the risk of the cur­rency ris­ing too far and too fast.http://www.cnbc.com/id/43903102

A U.S. debt default could send the deriv­a­tives mar­ket designed to pro­tect bond investors into con­fu­sion because a missed Trea­sury pay­ment may have been deemed too unlikely to be fully planned for in the con­tracts. If the United States does default, investors that sold pro­tec­tion in the form of credit default swaps would the­o­ret­i­cally need to pay out around $4.77 bil­lion to buy­ers, based on out­stand­ing net vol­umes from the Depos­i­tory Trust & Clear­ing. http://www.cnbc.com/id/43895173

NYTimes.com
The wave of relief in Euro­pean mar­kets that accom­pa­nied a new res­cue plan for embat­tled euro zone gov­ern­ments appears to have mostly run its course, sug­gest­ing that investors are becom­ing more skep­ti­cal about the plan’s prospects for suc­cess. http://www.nytimes.com/2011/07/27/business/global/euro-zone-rescue-effect-appears-to-peter-out.html?_r=1&ref=global

Foxbusiness.com
A new and big­ger restruc­tur­ing of Greek debt is likely within the next two years, an offi­cial from credit rat­ings agency Stan­dard & Poor’s said on Tues­day, adding a fur­ther down­grade of Greece’s sov­er­eign debt rat­ing was “pretty cer­tain.” Greece became the lowest-rated coun­try in the world by Stan­dard & Poor’s, which down­graded it 8 notches June 13. “We’ve also expressed the opin­ion before that we think that any near-term restruc­tur­ing is prob­a­bly not the end of the story. There may be another big­ger restruc­tur­ing down the road,” Beers said in an inter­view. Asked when the new restruc­tur­ing might occur, Beers said: “That’s partly in the hands of Greek pol­i­tics. But it wouldn’t sur­prise us if a sec­ond restruc­tur­ing had to be looked at over the next cou­ple of years.” http://www.foxbusiness.com/markets/2011/07/27/sp-sees-2nd-greek-debt-haircut-new-downgrade-report/#ixzz1THNsEP1V

CNN.com
Cal­i­for­nia secured a $5.4 bil­lion loan to see it through the finan­cial mar­ket tur­bu­lence that could hit if fed­eral pol­i­cy­mak­ers don’t solve the debt ceil­ing impasse by Aug. 2. Eight major finan­cial insti­tu­tions, includ­ing Gold­man Sachs (GS, For­tune 500) and Wells Fargo (WFC, For­tune 500), put up the funds, which will help the state with its daily cash flow needs. Also, the money will cover Cal­i­for­nia in case the fed­eral gov­ern­ment delays pay­ments for ser­vices such as health care and trans­porta­tion. (States brace for U.S. default) http://money.cnn.com/2011/07/26/news/economy/debt_ceiling_california/index.htm?cnn=yes

BBC.co.uk
Growth in the UK econ­omy slowed in the three months to 30 June, partly because of the extra bank hol­i­day in April. Gross Domes­tic Prod­uct (GDP) grew by 0.2% in the sec­ond quar­ter, accord­ing to the Office for National Sta­tis­tics, down from 0.5% in the pre­vi­ous quar­ter. The ONS said growth had also been slowed by some other one-off fac­tors, includ­ing the Japan­ese tsunami. Chan­cel­lor George Osborne said the growth was good news, but Ed Balls accused him of chok­ing the recov­ery. http://www.bbc.co.uk/news/business-14288348

LVMH has reported a big jump in prof­its as demand for lux­ury goods shows no signs of slow­ing despite con­cerns over the strength of the global econ­omy. Net profit for the first half of the year came in at 1.31bn euros ($1.9bn; £1.16bn), up 25% on a year ear­lier. Rev­enue rose 13% to 10.3bn euros.  The owner of Louis Vuit­ton and Moet & Chan­don said it was approach­ing the sec­ond half year “with con­fi­dence”. LVMH agreed a deal in March to take over Bul­gari for 3.7bn euros. http://www.bbc.co.uk/news/business-14301013

Telegraph.co.uk
George Osborne has vowed to stay the course and deliver the Government’s £110bn of aus­ter­ity mea­sures, despite claims he is “in total denial” over the economy’s fail­ure to gather momen­tum. Speak­ing to the BBC, the Chan­cel­lor stressed there would be no com­pro­mise and no tax give­aways. “The absolutely fun­da­men­tal require­ment is eco­nomic sta­bil­ity. With­out that you have noth­ing,” he said. “Would we really take the risk of yet more debt? Would we risk the sky-high inter­est rates, the eco­nomic insta­bil­ity? I think most peo­ple would think that is an absolutely mad course for us to head down. “Aban­don­ing that now would only risk British jobs and growth.” http://www.telegraph.co.uk/finance/economics/8663991/Chancellor-vows-no-compromise-on-cuts-despite-weak-growth.html

It is just over a year since the Coalition’s emer­gency Bud­get out­lined £110bn of aus­ter­ity cuts and began reshap­ing Britain’s debt-fuelled econ­omy. But the recov­ery has since slowed as both the con­sumer and the UK’s pro­duc­tion indus­tries slipped into tech­ni­cal reces­sions. Employ­ment has con­tin­ued to rise and the deficit reduc­tion plan is largely on tar­get. So just how healthy is the UK recov­ery?http://www.telegraph.co.uk/finance/economics/8663795/Is-austerity-working-for-Britain.html

Guardian.co.uk
For­eign direct invest­ment into Britain halved to £46bn in 2010. Britain has lost its sta­tus as the invest­ment cap­i­tal of Europe with flows of cap­i­tal into and out of the coun­try plung­ing since the crash of 2007, it was revealed on Tues­day. Data pub­lished by the United Nations showed that for­eign direct invest­ment into the UK has fallen by more than three quar­ters since the finan­cial cri­sis began. At its peak in 2007, the boom in the City meant for­eign direct invest­ment into Britain stood at just over £196bn, but this halved in 2008 when the global bank­ing teetered on the brink of col­lapse and has since halved again to stand at £46bn in 2010. http://www.guardian.co.uk/business/2011/jul/26/unctad-world-investment-report

Smh.com.au
THE risk of a break-up in the euro area is lower than a year ago, says Nouriel Roubini, the econ­o­mist who pre­dicted the global finan­cial cri­sis. The risk of defla­tion in advanced economies has also fallen, Pro­fes­sor Roubini, the co-founder and chair­man of New York-based Roubini Global Eco­nom­ics, told a con­fer­ence in Shang­hai yes­ter­day http://www.smh.com.au/business/less-risk-of-euro-area-breakup-20110726-1hyh1.html#ixzz1THQivYyf

Theglobeandmail.com
Finance Min­is­ter Jim Fla­herty says he is “rel­a­tively con­fi­dent” that the United States will reach a debt ceil­ing solu­tion in the next few days. Mr. Fla­herty called the U.S. debt sit­u­a­tion “very wor­ri­some” but he remained tight-lipped about any con­tin­gency plans for Canada in the case of a U.S. default. He was in the pic­turesque city to host a round­table with a num­ber of small-business lead­ers to gauge their views on the econ­omy http://www.theglobeandmail.com/report-on-business/economy/us-debt-situation-very-worrisome-flaherty/article2110241/

CS.com.cn
Brazil­ian Finance Min­is­ter Guido Man­tega said Tues­day that the country’s annual infla­tion tar­get of 4.5 per­cent won’t be exceeded.  “The infla­tion rate is under con­trol, and the gov­ern­ment will remain vig­i­lant,” he said, deny­ing pre­vi­ous wor­ries that the South Amer­i­can country’s econ­omy is over­heat­ing.  The infla­tion rate was 3.87 per­cent for the first half of the year, accord­ing to the min­is­ter.http://www.cs.com.cn/english/ei/201107/t20110727_2982006.html

Global for­eign direct invest­ment (FDI) rose 5 per­cent to 1.24 tril­lion U.S. dol­lars in 2010, while those to devel­op­ing economies and tran­si­tion economies– – for the first time — sur­passed the 50 per­cent mark of global FDI flows, United Nations Con­fer­ence on Trade and Devel­op­ment (UNCTAD)’s annual report said on Tues­day. The World Invest­ment Report 2011, sub­ti­tled “Non-equity modes of inter­na­tional pro­duc­tion and devel­op­ment”, was released in Johan­nes­burg, the eco­nomic cen­ter of South Africa. http://www.cs.com.cn/english/ei/201107/t20110727_2982001.html

China’s fis­cal rev­enue will increase at a slower pace in the sec­ond half of this year, fol­low­ing an array of tax cuts, the Min­istry of Finance (MOF) said on Tues­day. Reduc­tions in per­sonal income tax, value-added tax, sales tax, and small busi­ness tax will lead to slow­ing growth, the min­istry said in a state­ment on its web­site. Fis­cal rev­enue rose 31.2 per­cent year-on-year to 5.69 tril­lion yuan (875.5 bil­lion U.S. dol­lars) in the first half of this year, boosted by the country’s fast eco­nomic growth and ris­ing con­sumer prices, it said. http://www.cs.com.cn/english/ei/201107/t20110727_2981997.html

Russia’s gross domes­tic prod­uct (GDP) has grown 3.9 per­cent in the first half of 2011, the Eco­nomic Devel­op­ment Min­istry said on Tues­day. Accord­ing to the min­istry, Russia’s for­eign trade enlarged by 35.2 per­cent in the first six months to 397.3 U.S. bil­lion dol­lars com­pared with the same period last year. Russia’s exports grew by 31.4 per­cent year-on-year to 249.5 bil­lion dol­lars, while imports grew by 42.3 per­cent to 147.8 bil­lion dol­lars. http://www.cs.com.cn/english/ei/201107/t20110727_2981994.html

China’s fis­cal rev­enue will increase at a slower pace in the sec­ond half of this year, fol­low­ing an array of tax cuts, the Min­istry of Finance (MOF) said on Tues­day. Reduc­tions in per­sonal income tax, value-added tax, sales tax, and small busi­ness tax will lead to slow­ing growth, the min­istry said in a state­ment on its web­site. Fis­cal rev­enue rose 31.2 per­cent year-on-year to 5.69 tril­lion yuan (875.5 bil­lion U.S. dol­lars) in the first half of this year, boosted by the country’s fast eco­nomic growth and ris­ing con­sumer prices, it said. http://www.cs.com.cn/english/ei/201107/t20110727_2981971.html

China`s econ­omy would not see hard land­ing before 2013, it is mostly pos­si­ble to soft land­ing at 85 per­cent, Nouriel Roubini, the econ­o­mist who pre­dicted the global finan­cial cri­sis, said at a con­fer­ence in Shang­hai yes­ter­day. Any­way, Nouriel Roubini showed his worry about hard land­ing con­cern­ing China econ­omy after 2013. He said, China should alter the pre­vail­ing econ­omy growth model to avoid the poten­tial risks of hard land­ing. China should not rely on the fixed assets invest­ment to drive the econ­omy, and should improve the domes­tic con­sump­tion, reduce exces­sive sav­ing, Roubini, the co-founder and chair­man of New York-based Roubini Global Eco­nom­ics LLC. http://www.cs.com.cn/english/ei/201107/t20110727_2981968.html

TheHindu.com
India and U.K. on Tues­day expressed com­mit­ment to con­clude the broad­based India-EU Free Trade Agree­ment (FTA) by the end of the year. “Both economies are shar­ing the gains from increased trade and invest­ment flows. Both sides are fully com­mit­ted to ensure the con­clu­sion of an ambi­tious and bal­anced broad-based EU-India FTA by the end of the year,” said the joint com­mu­niqué issued after a meet­ing between Finance Min­is­ter Pranab Mukher­jee and Britain’s Chan­cel­lor of Exche­quer George Osborne. http://www.thehindu.com/business/Economy/article2296389.ece

Economictimes.com
TheRe­serve Bank of India shocked mar­kets with a higher-than-expected increase in inter­est rates. But the cen­tral bank, which was blamed in the past for falling behind the curve, jus­ti­fies the pol­icy action by say­ing that­in­fla­tion is still a threat that could destroy the long-term poten­tial of the econ­omy if allowed to per­sist. Subir Gokarn , deputy gov­er­nor, explains why RBI did what it did in an inter­view with ET . Excerpts: http://economictimes.indiatimes.com/opinion/interviews/containing-inflation-is-critical-to-growth-subir-gokarn-rbi-deputy-governor/articleshow/9378321.cms

Fin24.com
Harare – Zimbabwe’s econ­omy is on course to grow by 9.3% in 2011, up from 8.1% per­cent last year, mainly due to a recov­ery in the impov­er­ished state’s key min­ing and agri­cul­ture sec­tors, Finance Min­is­ter Tendai Biti said on Tues­day.  “We are still on course to achieve our GDP growth rate of 9.3%. Agri­cul­ture and min­ing, with 19.3% and 44% growth respec­tively, are at the epi­cen­tre of this growth,” Biti said in a half-year bud­get review state­ment. http://www.fin24.com/Economy/Zimbabwe-expects-93-growth-20110726

Tags: Brazil, Canadian Market, Capital Markets, Commodities, Corporate Earnings, Crude Oil, Debt Ceiling, Eurozone Countries, Financial Institutions, First Glance, Foreign Banks, Ft Reports, Global Companies, Government Debt, India, Interbank, Lbo Financing, Leveraged Buy Outs, Money Market Funds, News That Matters, Private Equity Firms, Reuters, Thecut, Thomson Corporation, Yen Rates
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No Guidance is Better Than Bad Guidance (Bespoke)

Wednesday, July 27th, 2011

by Bespoke Invest­ment Group

When a com­pany releases quar­terly earn­ings fig­ures, any guid­ance that is issued is ana­lyzed just as closely as the EPS and rev­enue num­bers.  But com­pa­nies aren't required to issue guid­ance, and it's inter­est­ing to track the per­cent­age of com­pa­nies that do so each earn­ings season.  We can think of two obvi­ous rea­sons why a com­pany wouldn't issue guid­ance  — 1) if there is sim­ply too much uncer­tainty about the busi­ness envi­ron­ment and 2) if expec­ta­tions are poor and the com­pany wants to wait it out to see if it can turn things around before its next release.

Below we high­light the per­cent­age of com­pa­nies that have issued no guid­ance on a quar­terly basis since 2002.  As shown, when the mar­ket was in bull mar­ket mode dur­ing the mid-2000s, a lot of times less than 50% of com­pa­nies would issue no guidance.  When the finan­cial cri­sis began in late 2007, the per­cent­age began to steadily increase each quar­ter until it peaked in the same quar­ter that the mar­ket bot­tomed in Q1 '09.  As the cur­rent bull mar­ket has progressed, more and more com­pa­nies have begun to issue guid­ance, but this earn­ings sea­son we have seen a huge spike in com­pa­nies that haven't issued any guid­ance once again.  Since earn­ings sea­son began on July 11th, 412 com­pa­nies have released num­bers, and 65.8% of them haven't issued any guid­ance.  This is actu­ally .2% above the peak read­ing of 65.6% seen at the depths of the finan­cial cri­sis.  For those look­ing for proof that uncer­tainty abounds in the busi­ness world right now, there you have it.

Copy­right © Bespoke Invest­ment Group

Tags: Business Environment, Business World, Copyright, Earnings Season, Eps, Financial Crisis, Guidance, Investment Group, Proof, Quarterly Basis, Quarterly Earnings, Revenue Numbers, Spike, Uncertainty
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Dow 30 Trading Range Screen (Bespoke)

Wednesday, July 27th, 2011

Tags: Bac, Copyright, Dow 30, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Dow Stocks, Investment Group, Lockstep, Major Indices, Money Managers, Moving Averages, Neutral Territory, S Market, Same Direction, Standard Deviation, Stock Picker, Stocks In The Dow
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Underweight REITs Relative to the Financial Sector (iShares)

Wednesday, July 27th, 2011

Call #1: Under­weight REITs Rel­a­tive to the Finan­cial Sector

by Russ Koes­terich, iShares

This week, my call focuses on REITs. With yields low and likely to stay that way for the fore­see­able future, every­one is search­ing for income wher­ever they can find it. One of the biggest ben­e­fi­cia­ries of this “stretch-for-yield” has been the REIT industry.

Since its 2009 lows, the S&P REIT indus­try has gained roughly 220%, more than twice the gain for the broader US equity mar­ket. This out­per­for­mance has con­tin­ued in recent months. Dur­ing the first six months of 2011, REITs gained around 11%, about dou­ble the S&P 500’s advance.

The rally has left REITs look­ing expen­sive by vir­tu­ally every met­ric. Based on price-to-book, the indus­try trades at a pre­mium to the broader mar­ket, while his­tor­i­cally it has traded at a 10% dis­count (dur­ing the lows in 2009, it was trad­ing at a 40% discount!).

REITs look par­tic­u­larly expen­sive com­pared to other finan­cial com­pa­nies. In the past, REITs have aver­aged a 45% pre­mium to other finan­cial stocks. Today, REIT val­u­a­tions are around dou­ble those of the broader finan­cial sec­tor. While some would sug­gest that declin­ing return on earn­ings (ROE) at many banks argues for a big­ger pre­mium for REITs, it is worth high­light­ing that as recently as the sum­mer of 2009, the REIT industry’s pre­mium to the finan­cial sec­tor was roughly half of where it stands today.

Nor is it the case that the REIT pre­mium is being dri­ven by a sig­nif­i­cant improve­ment in prof­itabil­ity. ROE for REITs is around 9.25%. While this is a big improve­ment from the industry’s 2010 lows, it is still below the five-year average.

What does appear to be dri­ving the cur­rent pre­mium is the search for income at any price. As investors stretch for yield, REITs are a nat­ural ben­e­fi­ciary. Yet even on this mea­sure, the indus­try looks expen­sive. The 12-month trail­ing div­i­dend yield on US REITs was 3.38% at the end of June, well below its 10-year aver­age of 4.75%. Even com­pared to Trea­suries, REIT’s yield does not look par­tic­u­larly attrac­tive. His­tor­i­cally, the REIT indus­try has yielded around 70 basis points (bps) more than the 10-year Trea­sury note; as of the end of June, the pre­mium was less than 40 bps.

Today, investors appear to be pay­ing too much for too lit­tle income in a num­ber of asset classes, includ­ing REITs. As such, I would favor under­weight­ing REITs rel­a­tive to other finan­cial stocks. For investors still strug­gling for yield in today’s low-rate envi­ron­ment, I believe there are bet­ter options, includ­ing US munic­i­pals and cor­po­rate bonds in the fixed-income mar­ket, and mega caps in the equity space.  All of these options offer the poten­tial for a sim­i­lar yield at a more rea­son­able price (Pos­si­ble iShares solu­tions: ICF, IYR).

Source: Bloomberg

Past per­for­mance does not guar­an­tee future results.

In addi­tion to the nor­mal risks asso­ci­ated with invest­ing, nar­rowly focused invest­ments typ­i­cally exhibit higher volatil­ity. REIT invest­ments are sub­ject to changes in eco­nomic con­di­tions, credit risk and inter­est rate fluc­tu­a­tions. Bonds and bond funds will decrease in value as inter­est rates rise. An invest­ment in the Fund(s) is not insured or guar­an­teed by the Fed­eral Deposit Insur­ance Cor­po­ra­tion or any other gov­ern­ment agency. A por­tion of a munic­i­pal bond fund’s income may be sub­ject to fed­eral or state income taxes or the alter­na­tive min­i­mum tax. Cap­i­tal gains, if any, are sub­ject to cap­i­tal gains tax.

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Tags: Stocks
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