30 Truths I’ve Learned In 30 Years, and other Weekend Reads

Friday, September 30th, 2011

Here are this week's read­ing diver­sions for your per­sonal enlight­en­ment. Have an inspir­ing and rest­ful weekend!

30 Truths I’ve Learned In 30 Years
Since today is my 30th birth­day I thought it fit­ting to share 30 things I under­stand now that were com­plete mys­ter­ies to me just a few short years ago.  These are sim­ple lessons about life in gen­eral that I picked up while traveling

****

10 Foods To Pre­vent Osteo­poro­sis
Although the dairy indus­try have done a great job in con­vinc­ing every­one that they need to con­sume dairy prod­ucts to avoid osteo­poro­sis, the ...

****

10 Foods For Healthy, Glow­ing Skin
2 days ago ... Skin health is almost always approached from an outside-in per­spec­tive. With all the creams, mois­tur­iz­ers, sun­screens and cos­met­ics out there,

****

6 Ways To Avoid Overeat­ing
Sep 18, 2011 ... By Tina Hau­per­tIn my book, "Car­rots 'N' Cake: Healthy Liv­ing One Car­rot and Cup­cake at a Time," I share my expe­ri­ences and advice on how ...

****

Why You Yawn
A study found that yawn­ing may, at least to some extent, be linked to exte­rior tem­per­a­ture. The authors’ research indi­cates one func­tion of yawn­ing may be to cool the brain.

****

Truly Mag­i­cal Mush­rooms
The hal­lu­cino­genic com­pound in ille­gal “magic” mush­rooms was shown to cause per­ma­nent per­son­al­ity changes among 51 par­tic­i­pants in a recent Johns Hop­kins Uni­ver­sity study.

****

Can­cer Truths and Myths
Peo­ple still don’t rec­og­nize the cancer-causing effects of an unhealthy diet or lack of exer­cise, and mis­tak­enly focus too much on pol­lu­tion or stress, a new study finds.

****

China Launches Its First Space Sta­tion Mod­ule Into Orbit
At 9:16 p.m. local time–that was at 9:16 a.m. east­ern time here in the U.S.–China suc­cess­fully lofted its first inhab­it­able space sta­tion mod­ule into orbit on the back of a Long March 2F launch vehi­cle, mark­ing a mile­stone for both the People’s space pro­gram and for the Party’s geopolitical

****

The Future of the Book
Writ­ers, artists, and pub­lic intel­lec­tu­als are near­ing some sort of precipice: Their audi­ences increas­ingly expect dig­i­tal con­tent to be free. Jaron Lanier has writ­ten and spo­ken about this issue with great sagacity.

****

Saw Pal­metto No Bet­ter Than Placebo for Prostate Prob­lems
The mil­lions of middle-aged men who take saw-palmetto sup­ple­ments to cope with the symp­toms of an enlarged prostate might as well be pop­ping sugar pills.

****

Tags: 30th Birthday, Book Writers, Cupcake, Dairy Industry, Few Short Years, First Space Station, Glowing Skin, Johns Hopkins University, Lack Of Exercise, Launch Vehicle, Long March 2f, Magic Mushrooms, Magical Mushrooms, Personal Enlightenment, Personality Changes, Restful Weekend, Skin 2, Space Station Module, Study Cancer, Unhealthy Diet
Posted in Markets | Comments Off

Goldman Sachs: 40% Chance of "Great Stagnation" in Developed Markets

Friday, September 30th, 2011

Inter­est­ing tid­bit on the CNBC site:

• Hav­ing ana­lyzed 150 years of macro­eco­nomic data, Gold­man has found 20 exam­ples of stag­na­tion sim­i­lar to those expe­ri­enced by Japan in the 1990’s, most of which occurred dur­ing the last 60 years in devel­oped economies.
• “Dur­ing these episodes, GDP per capita growth hov­ers below 1 per­cent and is less volatile than usual. They are also char­ac­ter­ized by low infla­tion, ris­ing and sticky unem­ploy­ment, stag­nant home prices, and lower stock returns,” Jose Ursua, an econ­o­mist at Gold­man Sachs, said in a research note on Thursday.
• He pre­dicts a 40 per­cent chance of stag­na­tion in the world's devel­oped mar­kets.
• “Stag­na­tions are more likely than you would like. Because these events are cor­re­lated with finan­cial crises, the con­di­tional prob­a­bil­ity of stag­na­tion in the cur­rent envi­ron­ment is higher than nor­mal," he said. “Trends in Europe and the US are so far still fol­low­ing growth paths typ­i­cal of stag­na­tions.”
• In order to avoid such an out­come, Ursua said, requires gov­ern­men­tal pol­icy that restores con­fi­dence and growth.  “Whether these coun­tries man­age to avoid a ‘Great Stag­na­tion’ by a pick-up in the recov­ery is likely to depend on pol­icy being able to restore con­fi­dence and putting in place reforms that can deci­sively jolt growth,” he said.
• A lack of reli­able data makes it dif­fi­cult to know what sorts of pol­icy reme­dies have helped pull economies out of stag­na­tion in the past, he said, but there is a clear cor­re­la­tion on what causes stag­na­tion.  “Stock-market crashes, cur­rency crises, exter­nal debt crises and a higher income level raise that prob­a­bil­ity. Twin crises, higher growth or higher volatil­ity lower that prob­a­bil­ity, either because they sig­nal a worse out­come or a bet­ter out­come, not a stag­na­tion,” Ursua said.
• “The good news is that pol­i­cy­mak­ers are more aware—thanks to Japan’s experience—of at least a part of that his­tor­i­cal expe­ri­ence, if not all that we present here," he said. “The bad news is that it is still far from clear whether enough has been done to jolt eco­nomic growth upwards and out­side the zone where pro­longed stag­na­tion is a seri­ous risk."

Tags: Cnbc, Conditional Probability, Correlation, Currency Crises, Economist, External Debt, Financial Crises, GDP, Gold, Goldman Sachs, Governmental Policy, Growth Paths, inflation, Interesting Tidbit, Macroeconomic Data, Sorts, Stagnation, Stock Market Crashes, Stock Returns, Twin Crises, Volatility
Posted in Gold, Markets | Comments Off

QE and the “Crowding Out” of the Bond Market Vigilante

Friday, September 30th, 2011

Sub­mit­ted by Global Macro Monitor

QE and the “Crowd­ing Out” of the Bond Mar­ket Vigilante

We’ve updated our chart of the sources of financ­ing of the U.S. bud­get deficit from the Fed’s Flow of Funds data released on Sep­tem­ber 16th.   The chart illus­trates how the Fed and for­eign cen­tral banks have been indi­rectly fully fund­ing the  mas­sive U.S. bud­get deficit for the last three quar­ters.   It will be inter­est­ing to see the data for the quar­ter end­ing today as no doubt there will be less yel­low with the end of Q2 on June 30 and more “flight to qual­ity” blue (domes­tic) and red (rest of world).

Ronald McK­in­non, pro­fes­sor of inter­na­tional finance at Stan­ford Uni­ver­sity, has an excel­lent piece in today’s Wall Street Jour­nal about the dam­age the Fed’s zero inter­est rate pol­icy (ZIRP) is doing to the U.S. and global econ­omy.  One of his main points is the Fed and other cen­tral banks, who are not yield sen­si­tive,  have been financ­ing the U.S. bud­get deficit and crowd­ing out the now extinct U.S. bond mar­ket vigilante.

As you know the Global Macro Mon­i­tor is not a fan of ZIRP and believes it one fac­tor that ails the econ­omy not what will cure it.  We take com­fort to be the same com­pany of such an intel­lec­tual heavy­weight as Pro­fes­sor McKinnon.

The pro­fes­sor makes sev­eral excel­lent points in his piece,

With­out the [bond mar­ket] vig­i­lantes in 2011, the fed­eral gov­ern­ment faces no imme­di­ate mar­ket dis­ci­pline for bal­anc­ing its run­away fis­cal deficits.

 

…the vig­i­lantes have been crowded out by cen­tral banks the world over.  [see the yellow/red bars in the chart]

 

Cen­tral banks gen­er­ally are not yield-sensitive.

 

True, in the last two months, this “bub­ble” of hot money into emerg­ing mar­kets and into pri­mary com­modi­ties has sud­denly burst with falls in their exchange rates and metal prices. But this bubble-like behav­ior can be traced to the Fed’s zero inter­est rates.

 

Beyond just under­min­ing polit­i­cal dis­ci­pline and cre­at­ing bub­bles, what fur­ther eco­nomic dam­age does the Fed’s pol­icy of ultra-low inter­est rates por­tend for the Amer­i­can economy?

 

First, the counter-cyclical effect of reduc­ing inter­est rates in reces­sions is dampened…

 

Sec­ond, finan­cial inter­me­di­a­tion within the bank­ing sys­tem is disrupted…

 

Third, a pro­longed period of very low inter­est rates will decap­i­tal­ize defined-benefit pen­sion funds—both pri­vate and public—throughout the country…

 

Per­haps Fed Chair­man Ben Bernanke should think more about how the Fed’s near-zero inter­est rate pol­icy has under­mined fis­cal dis­ci­pline while cor­rupt­ing the oper­a­tion of the nation’s finan­cial markets.

Amen!

(click here if chart is not observ­able)

Tags: Ails, Bond Market, Budget Deficit, Central Banks, Commodities, Fiscal Deficits, Global Economy, Global Macro, Hot Money, Interest Rate Policy, International Finance, Last Two Months, Market Discipline, Qe, Ronald Mckinnon, Stanford University, Three Quarters, Vigilantes, Wall Street Journal, Zero Interest, Zirp
Posted in Commodities, Markets | Comments Off

China — The Great Stabilizer

Friday, September 30th, 2011

For the past ten years, when­ever global base met­als demand dis­si­pated, China’s vora­cious appetite stepped in to gob­ble up the left­overs. Since 2001, China has increased the country’s share of total global demand for base met­als from about 15 per­cent to over 40 per­cent in 2011, as shown in the yel­low line. This has made China more impor­tant to com­modi­ties than ever before, accord­ing to Macquarie.

Mac­quarie says China has been a “great sta­bi­lizer” for com­modi­ties: “As growth else­where in the world tends to weaken, Chi­nese call on sup­ply from the rest of the world tends to rise and visa versa when demand weakens.”

As global demand declines, the world “exports dis­in­fla­tion­ary pres­sures to China in the form of lower Chi­nese export demand and also lower energy and other com­mod­ity prices. When infla­tion­ary pres­sures ease in China, the Chi­nese author­i­ties have gen­er­ally eased mon­e­tary and fis­cal poli­cies, lead­ing to a strong restock­ing and domes­tic demand recov­ery,” says Macquarie.

The sta­bi­liz­ing effect we’ve seen over the past decade could be in dan­ger if Chi­nese demand con­tin­ues to weaken. So far this year, China’s met­als demand has slowed despite con­tin­ued growth in indus­trial pro­duc­tion and construction.

Mac­quarie thinks there are near-term down­side risks in prices due to weak finan­cial mar­kets but things look rosier far­ther out on the time hori­zon. The firm says demand for base met­als will be weak but not “dis­as­trously” so. Indus­trial growth in many devel­oped economies has mostly recov­ered from the Japan earth­quake in March and Chi­nese indus­trial pro­duc­tion growth will likely remain strong around 12 per­cent on a year-over-year basis in 2012.

All opin­ions expressed and data pro­vided are sub­ject to change with­out notice. Some of these opin­ions may not be appro­pri­ate to every investor.

Tags: Base Metals, Chinese Authorities, Chinese Demand, Chinese Export, Commodities, Commodity Prices, Downside Risks, Export Demand, Financial Markets, Fiscal Policies, Global Base, Global Demand, Inflationary Pressures, Japan Earthquake, Leftovers, Rest Of The World, Stabilizer, Time Horizon, Voracious Appetite, World Exports
Posted in Commodities, Markets | Comments Off

Not All Interest Rates Are Falling (Bespoke)

Friday, September 30th, 2011

by Bespoke Invest­ment Group

While the pur­pose of the Fed's Oper­a­tion Twist pro­gram is to lower long term inter­est rates, the real­ity is that the only long-term rates that are falling are Trea­sury rates.  In the chart below, we com­pare the change in the yield on the 10-year US Trea­sury to the change in High Yield Credit Spreads (spread between junk rated bond yields and 10-year US Trea­sury).  As shown in the chart, although Trea­sury yields are falling, spreads on high yield debt are ris­ing at just as fast, if not a faster, rate.

In order to get an idea of how high yield bonds are trad­ing, in the chart below we have added the spread on high yield bonds to the yield of 10-year US Treasuries.  In early August, spreads blew out just as the US saw its AAA credit rat­ing cut by S&P.  Since then, spreads have been essen­tially range bound at around 9.5%.  That is until the last week.  Coin­ci­den­tally, just as Oper­a­tion Twist was for­mally announced, yields on high yield debt actu­ally broke out of their recent range and are now approach­ing 10%.  If the Fed's inten­tion is to lower over­all long-term inter­est rates instead of just Trea­sury yields, as of now, it isn't working.

Tags: Stocks
Posted in Bonds, Brazil, Markets | Comments Off

ECRI's Lakshman Achuthan Makes the Call: Recession

Friday, September 30th, 2011

Two weeks ago ECRI's Lak­sh­man Achuthan told NPR he would be able to make a defin­i­tive call on if we face reces­sion within 75 days.  It didn't take that long.  ECRI's indi­ca­tors now point to reces­sion, per a CNBC inter­view this morn­ing.  Clients were actu­ally told last week, but this is their first pub­lic acknowl­edge­ment.  This would con­firm what cop­per has been 'telling' us.  Based on their track record, it's essen­tially now in the bag.  Or what gov­ern­ment sta­tis­tics (always biased to sunny side up due to 'sta­tis­ti­cal adjust­ments' over the past few decades) say.  As to depths of the reces­sion — he says it is too soon to say.

6 minute video:

Tags: Cnbc, Cnbc Interview, Copper, Decades, Ecri, Face, Government Statistics, Lakshman, Lakshman Achuthan, Public Acknowledgement, Recession, Statistical Adjustments, Sunny Side
Posted in ETFs, Markets | Comments Off

Jeffrey Gundlach: ‘We’re in a Recession Right Now’

Friday, September 30th, 2011

by Trader Mark, Fund My Mutual Fund

My posts today seem to have a Neg­a­tive Nelly tone — I am look­ing very hard for some pos­i­tive sto­ries to off­set what I'm posting. ;)

WSJ's Deal­book has an inter­view with one of the smartest men in the room — Doubeline's Jef­frey Gund­lach.  Many would con­sider this guy the best bond investor on planet Earth, alough PIMCO's Bill Gross gets all the press.  His Total Return Fund is once again smack­ing its index year to date.

Gund­lach believes the U.S. is in reces­sion right now — I'll wait for the ECRI to con­firm, but the big­ger pic­ture is, no mat­ter if 'offi­cial' GDP is –1% or +1%, that does not mat­ter much for eco­nomic prospects.  This econ­omy needs to be mov­ing at 3%+ for quar­ters on end to truly have any seri­ous impact on the lives of most Amer­i­cans.  At best we're at mud­dle through speed, despite mas­sive stimuli.

More from Gund­lach:

• The coun­try is already in a reces­sion, accord­ing to bond man­ager Jef­frey Gund­lach, who pre­dicted “there’s going to be a big loss in Europe.”  The much-watched head of Los Angeles-based Dou­ble­Line Cap­i­tal addressed a crowd of roughly 100 financiers and reporters at the New York Yacht Club this afternoon.
• Gund­lach rein­forced his often dark views about the sta­tus of the U.S. econ­omy and future for Europe. “We’re in a reces­sion right now,” Gund­lach said, as he reviewed a hefty deck of slides with dreary data. Sta­tis­tics on the polar­iza­tion of wealth in the U.S., dim head­lines about sen­ti­ment in locales abroad and the Euro­pean bond mar­ket were among the rea­sons Gund­lach cited for his dour fore­casts.
• Echo­ing the sen­ti­ments of many money-managers, Gund­lach said that the Euro­zone is bound for prob­lems. “I don’t know what is going to hap­pen,” he said. “But I think there is going to be a big loss in Europe.” Dou­ble­Line has no invest­ments in Europe, he said.
• He then flashed a chart of 10-year sov­er­eign debt spreads for the so-called “PIIGS” (Por­tu­gal, Italy, Ire­land, Greece, Spain) and cir­cled their recent spike in red. Next to the spike he wrote “These are crashes, why no under­stand­ing of that?” in red ink. Greece’s spreads showed signs of woe as far back as Feb­ru­ary 2010, he said.
• As for what’s ahead in the United States, Gund­lach pointed out that the rally in the munic­i­pal bond mar­ket was helped by many states not hav­ing a choice but to bal­ance their bud­gets.  How­ever, that may mean that “the man on the street thinks it’s a depres­sion,” he says, as many local gov­ern­ments have slashed jobs, cut down hours for pub­lic resources and stalled projects.  He pointed to the clos­ing of bath­rooms near his home in South­ern Cal­i­for­nia as an exam­ple. “You can’t go to the beach and drink your lemon­ade because there’s no bath­room,” he says.
• DoubleLine’s strat­egy has no expo­sure to Europe, Gund­lach says, and is entirely denom­i­nated in dollars.
• The bets have paid off so far. The Dou­ble­Line Total Return Fund is up 8.76% year to date, accord­ing to Morn­ingstar Inc., com­pared to a 2.52% increase in the Bar­clays Aggre­gate index.

Tags: Bill Gross, Bond Manager, Bond Market, Dealbook, Economic Prospects, Ecri, Eurozone, Financiers, Money Managers, Muddle, New York Yacht Club, PIMCO, Planet Earth, Polarization, Recession, Smartest Men In The Room, Sovereign Debt, Stimuli, Wsj, York Yacht Club
Posted in Markets | Comments Off

Wall Street Week Retrospective — Tracking the Dow & Predicting the Future

Friday, September 30th, 2011

From WSW 30 years Ret­ro­spec­tive — Must See

Track­ing the Dow & Pre­dict­ing the Future

Hat Tip: Doug Kass

Source: Barry Ritholtz, The Big Picture

Tags: Barry Ritholtz The Big Picture, Doug Kass, Dow 30, Hat Tip, Predicting The Future, Retrospective, Wall Street, Wall Street Week
Posted in Markets | Comments Off

Shilling Sees Evidence of Deflation in 5 of 7 Key Areas; Bernanke Begs Congress for Fiscal Stimulus, Admits Fed is Out of Bullets

Friday, September 30th, 2011

by Michael 'Mish' Shed­lock, Global Eco­nomic Trends Analysis

Shilling Sees Evi­dence of Defla­tion in Finan­cial Assets, Tan­gi­ble Assets, Median Income, Com­modi­ties, Currencies

Shilling says "Forces of delever­ag­ing and defla­tion are greater than the Fed can handle."

I cer­tainly agree and have been say­ing the same thing (cor­rectly I might add) for sev­eral years. All the Fed has ever man­aged to do is slow the defla­tion­ary out­come and that is in spite of $tril­lions in both mon­e­tary stim­u­lus from the Fed and fis­cal stim­u­lus from Congress.

Once again, if you mis­tak­enly think infla­tion and defla­tion are about con­sumer prices instead of vastly more impor­tant credit, you will come to a dif­fer­ent conclusion.

For fur­ther dis­cus­sion as to what defla­tion is all about, please see

• Yes Vir­ginia, U.S. Back in Defla­tion; Infla­tion Scare Ends; Hyper­in­fla­tion­ists Wrong Twice Over
• Bizarro World Infla­tion; About that 2011 Hyper­in­fla­tion Call ...

Fed Out of Bullets

In spite of what the Fed says and wants every­one to believe the Fed is Out of Bullets

Let's Twist Again (and Not Much More) as I expected

There were a lot of expec­ta­tions regard­ing numer­ous options the Fed might take today. I did not expect the Fed would risk try­ing them.

See Six Things the Fed May Announce Tomor­row (But Likely Won't); Would Any of Them Mat­ter? Gam­ing the Reac­tion for details.

The Fed said "Let's Twist Again" and not much more other than throw­ing a bone at mort­gages. Nei­ther will work and the Fed is out of bullets.

Bernanke Begs Con­gress for Fis­cal Stimulus

In a ques­tion ses­sion fol­low­ing Bernanke's speech Lessons from Emerg­ing Mar­ket Economies on the Sources of Sus­tained Growth (in which Bernanke proves he does not really under­stand what is really hap­pen­ing in China), Bernanke begged Con­gress for help and admit­ted the Fed is out of bullets.

Yahoo Finance reports Bernanke: Long-term unem­ploy­ment a national crisis

Fed­eral Reserve Chair­man Ben Bernanke said Wednes­day that long-term unem­ploy­ment is a "national cri­sis" and sug­gested that Con­gress should take fur­ther action to com­bat it. He also said law­mak­ers should pro­vide more help to the bat­tered hous­ing industry.

Bernanke said the gov­ern­ment needs to pro­vide sup­port to help the long-term unem­ployed retrain for jobs and find work. And he sug­gested that Con­gress should take more responsibility.

In the question-and-answer period, Bernanke cau­tioned U.S. law­mak­ers against cut­ting deficits too quickly to reduce bud­get deficits. He has said that could put the frag­ile econ­omy at risk.

In prac­ti­cal terms, Bernanke was beg­ging Con­gress for help, and in the Q&A ses­sion, Bernanke went even farther.

Please con­sider Every­one Missed It, But Ben Bernanke Peed On The Fed Again Last Night by Joe Weisenthal.

We've talked about this before, the fact that Ben Bernanke is grow­ing increas­ingly vocal about his skep­ti­cism that mon­e­tary pol­icy can do much to save this economy.

This is a HUGE change from some­one who once said that the Great Depres­sion was entirely the Fed's fault, and that the Fed would never let that hap­pen again!

In his daily note, Art Cashin caught a key bit from a Ben Bernanke Q&A last night after he gave a speech, fur­ther empha­siz­ing that Bernanke has rad­i­cally changed his views.

"Mon­e­tary pol­icy can do a lot, but mon­e­tary pol­icy is not a panacea," Bernanke said.

That is a close an admis­sion that the "Fed is out of Bul­lets" that you are ever going to see.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com

Tags: Bullets, Commodities, Deflation, Emerging Market Economies, Financial Assets, Fiscal Stimulus, Global Economic Trends, Hyperinflation, inflation, Key Areas, Long Term Unemployment, Median Income, Michael Mish, Mish Shedlock, National Cris, Question Session, Shilling, Spite, Tangible Assets, Trillions
Posted in Commodities, Markets | Comments Off

Currency/Trade Wars, They Have Begun ...

Thursday, September 29th, 2011

We have writ­ten exten­sively over the course of the last few weeks on the increas­ing rhetoric from Asia over cur­rency fluc­tu­a­tions and fur­ther­more how China was play­ing the US and Europe off against one another in a quasi-trade-war gam­bit. A flurry of head­lines today/tonight via Bloomberg reminded us to revisit what is also a very wor­ry­ing trend in Chi­nese CDS (and more broadly Asian sov­er­eigns), as per­haps sophis­ti­cated investors look for the cheap­est low cost long vol trades on a non-decoupled world devolv­ing to its low­est com­mon denominator.

Between Carney's 'sub­stan­tially under­val­ued Yuan' com­ments, record slides in Dim Sum Bonds, grow­ing con­cerns over growth longevity, Japan­ese retail sales, Aussie home prices, Sony's trou­bles in currency-land, and Barclay's warn­ing of a restart to the Yuan peg in the case of global reces­sion — con­ta­gion and trans­mis­sion chan­nels appear alive and well in global trade.

Via Bloomberg, this morning:

*CARNEY SAYS ADMINISTRATION `REVIEWING' CHINA CURRENCY BILL

*CARNEY SAYS CHINA CURRENCY `SUBSTANTIALLY UNDERVALUED'

fol­lowed quickly by:

Yuan Drop Spurs Record Slide in Dim Sum Bonds: China Credit

Yuan-denominated (Dim-Sum) bonds in Hong Kong are headed for record monthly loss, eras­ing gains for the year, as wors­en­ing out­look for global econ­omy fuels con­cern China will slow pace of its currency’s appreciation.

which was 'helped' by this evening's comments:

*CHINA MAY RESTART YUAN PEG IN GLOBAL RECESSION, BARCLAYS SAYS

*STRONG CASE TO PEG YUAN TO BASKET OF CURRENCIES, BARCLAYS SAYS

And grow­ing con­cen­sus that growth in China will slow significantly:

In the lat­est Bloomberg Global Poll of investors, most global investors and ana­lysts, or 59 per­cent, fore­see China will reg­is­ter eco­nomic gains of less than 5 per­cent annu­ally by 2016.

that were around the same time as Sony's head­lines hit:

*SONY SAYS EURO WEAKNESS TO HAVE `HUGE IMPACT' ON EARNINGS

*SONY SAYS IT HAS NO COUNTERMEASURES AGAINST WEAK EURO  :6758 JP

...not­ing that "Sony doesn’t buy many com­po­nents from Europe, lim­it­ing its abil­ity to ben­e­fit from euro weakness"

Which leaves Chi­nese CDS (denom­i­nated in USD remem­ber) hit­ting their high­est lev­els since early March 2009 as the spread between 5y and 10Y Chi­nese CDS rises to record wides of 74bps

While we sus­pect much of the steep­en­ing and widen­ing of China sov­er­eign CDS is spec­u­la­tive revaluation/global-recession bets, Chi­nese CDS still has a long way to go to meet up with the other global majors in terms of its risk rel­a­tive to gov­ern­ment bonds (since CDS have the implicit currency/devaluation pre­mium and not just tech­ni­cal default).

Charts: Bloomberg

Tags: Barclays, Bill Carney, Bonds, China Currency, Chinese Cds, Contagion, Currency Fluctuations, Currency Trade, Dim Sum, Economic Gains, Gambit, Global Economy, Global Investors, Global Poll, Global Recession, Lowest Common Denominator, Outlook, Sophisticated Investors, Sovereigns, Trade War, Transmission Channels, Yuan
Posted in Bonds, Brazil, Markets, Outlook | Comments Off

Gary Shilling: Bearish-er... Still

Thursday, September 29th, 2011

via Paul Kedrosky, Infec­tious Greed

Chan­nel­ing a decent num­ber of my views, here is Gary Shilling on Bloomberg TV today:

Schilling on how much fur­ther the 30-year Trea­sury bond yield could fall:

“I think [the 3-year Trea­sury bond yield] might go back to 2.5%. That’s where it was at the end of 2008 in the after­math of the Lehman Broth­ers melt­down. That’s my tar­get for now. I think we are look­ing at defla­tion. As I said back then, I think that will be the media chat­ter by the end of the year. Plus, the weak­en­ing econ­omy here and abroad. The long bond, the 30-year Trea­sury, is the ulti­mate safe haven in the world.”

On why Schilling sees defla­tion on the horizon:

“In my new book, I iden­tify seven dif­fer­ent types of defla­tion. Now five of those are already in place — we’re hav­ing finan­cial asset defla­tion, tan­gi­ble asset defla­tion, com­modi­ties are com­ing down, wages are com­ing down. The one that hasn’t kicked in yet is goods and ser­vices defla­tion. The point is that the whole world is really mark­ing down assets. It’s mark­ing down the whole spec­trum. I don’t think goods and ser­vices are going to hold up in terms of infla­tion. I think that will move to defla­tion fairly soon.”

On whether the Fed will decide to try to accel­er­ate inflation:

“In effect, [the Fed] tried to do that with QE2. Because you remem­ber at the time they were wor­ried about defla­tion… That was one of the objec­tives. Of course, they spurred com­modi­ties, they spurred stocks and they got a tem­po­rary off­set. But I think the forces of delever­ag­ing in the world are greater than the Fed can han­dle. We’re mark­ing things down to equi­lib­rium. Look at gov­ern­ment sov­er­eign debts around the world. They’re much greater than tax­pay­ers can han­dle. You either have to mark them down or get some­body else to han­dle them, like the Ger­mans, or try to inflate them away. Inflat­ing away is an excess sup­ply world is almost impos­si­ble, even for the Fed.”

On volatil­ity in the bond market:

“In the port­fo­lios I man­age, we’ve main­tained our 30-year bond posi­tions. We haven’t really changed them. We’ve changed them a lit­tle bit over time. When they got to 2.5% at the end of 2008, I said, we’ve got­ten every pullback….It is awfully tricky to do this on a daily basis. At this point, I don’t see any­thing that has fun­da­men­tally changed either in stocks or bonds. You have this volatil­ity, this event-driven mar­ket. It’s great for the lat­est news. Is Greece like to pass a law to tax itself or not? Mar­kets jump up and down 100 points on the Dow. That is ridicu­lous. That is whip­saw. It shows a lot of day trad­ing. It shows a lot of pro­gram trad­ing. It doesn’t show a lot of investing.”

On other places to see a safe haven out­side the Trea­sury market:

“There are some [safe havens] in the real estate area. We like med­ical office build­ings. That’s because of aging pop­u­la­tions, the new med­ical health care bill, and improv­ing tech­nol­ogy. Also, 55% of physi­cians work for hos­pi­tals. Pri­vate prac­tices with a store­front are dis­ap­pear­ing. They’re mov­ing into cam­puses… Another one is rental apart­ments. Peo­ple are decid­ing a house is no longer a sure shot invest­ment. Prices can and do fall. They have, for the first time since the 30′s…Rental apart­ments will con­tinue to be very attractive.”

On met­als like gold, sil­ver and copper:

“I’m agnos­tic on the pre­cious met­als. We have in our port­fo­lios been short cop­per. Cop­per peaked out in Feb­ru­ary and it’s down about 25% from its peak. I think it will go a lot lower. As you pointed out, cop­per goes into almost any­thing man­u­fac­tured. It’s a great indi­ca­tor of global indus­trial pro­duc­tion. What I think will really knock the pin­nings out from under all com­modi­ties is a hard land­ing in China, which is what we’re forecasting.”

“[The Chi­nese] are try­ing to cool off a red-hot econ­omy. They’re wor­ried about the prop­erty bub­ble and the high infla­tion rate. They are affect­ing a soft land­ing and with their crude eco­nomic tools it’s tough. Bear in mind, the Fed, with more sophis­ti­cated tools, tried, by my reck­on­ing, 12 times in the post World War II era to cool off the econ­omy with­out pre­cip­i­tat­ing a reces­sion. They only suc­ceeded once. What are the chances for China?”

On whether the stock mar­ket will go down:

“I think it prob­a­bly is [headed back down] because the econ­omy here is slow­ing, and it’s global and of course a lot of the S&P 500 com­pa­nies have their earn­ings pre­dom­i­nantly over­seas. In that kind of envi­ron­ment, we’re going to see dis­ap­point­ing earn­ings. The Wall Street ana­lysts always opti­mistic, of course, crank down their numbers….If you put a ten mul­ti­ple on it, we’d be at S&P 800.”

“We had a big sell-off but I really sus­pect that this is a pause before things drop further.”

Tags: 30 Year Treasury, 30 Year Treasury Bond, 30 Year Treasury Bond Yield, Bloomberg Tv, Bond Market, Bonds, Commodities, Decent Number, Deflation, Excess Supply, Financial Asset, Gary Shilling, Gold, Infectious Greed, Lehman Brothers, Media Chatter, Qe2, Safe Haven, Schilling, Target, Treasury Bond Yield, Tv Today, Year Treasury Bond
Posted in Bonds, Brazil, Commodities, Gold, Markets | Comments Off

Fairholme's Bruce Berkowitz discusses His Large Investments in Beaten Down Financial Stocks

Thursday, September 29th, 2011

A rare tele­vi­sion inter­view with Morningstar’s Fund Man­ager of the Decade. Con­suelo talks to Fairholme Fund’s Bruce Berkowitz about his large and con­tro­ver­sial invest­ments in beaten down finan­cial stocks.

Full Tran­script:

Con­suelo Mack Wealth­Track — Sep­tem­ber 16, 2011

CONSUELO MACK: This week on Wealth­Track, a Great Investor who has taken a plunge invest­ing in bat­tered finan­cial stocks. In a rare inter­view, Fairholme Fund’s Bruce Berkowitz, Morningstar’s Fund Man­ager of the Decade dis­cusses why he sees trea­sure where oth­ers see a trap. Fairholme Fund’s Bruce Berkowitz is next on Con­suelo Mack WealthTrack.

Hello and wel­come to this edi­tion of Wealth­Track. I’m Con­suelo Mack. One of the hall­marks of the Great Investors who have appeared on Wealth­Track has been their will­ing­ness to go against the crowd, to invest in places oth­ers shun. That strat­egy puts them into uncom­fort­able, unpop­u­lar and fre­quently unprof­itable posi­tions for peri­ods of time, some extended, some not.

This week’s Great Investor guest is no excep­tion. As a mat­ter of fact, he exem­pli­fies the haz­ards and what he hopes will once again be the vin­di­ca­tion of con­trar­ian invest­ing. He is Bruce Berkowitz, founder and chief invest­ment offi­cer of Fairholme Cap­i­tal Man­age­ment, whose tag line is “Ignore the crowd.” He man­ages three mutual funds, includ­ing his flag­ship Fairholme Fund whose out­stand­ing long term track record earned him Morningstar’s first Domes­tic Equity Fund Man­ager of the Decade award in 2010. At the end of the last decade, the value fund had deliv­ered aver­age annu­al­ized returns of 13.2%, putting it in the top one per­cent of Morningstar’s large blend cat­e­gory– out­dis­tanc­ing the S&P 500 by 13 per­cent­age points a year and expand­ing to nearly $20 bil­lion dol­lars in assets.

Fast for­ward to today and the fund’s ten year track record is still beat­ing the mar­ket, albeit by a much smaller mar­gin, and is in the top one per­cent of its cat­e­gory, but its dropped to eight per­cent annu­al­ized returns and it is trail­ing the over­all mar­ket in the last three and one year peri­ods; plus its assets are now approach­ing half of what they were.

What’s changed? Over the last cou­ple of years Berkowitz, who has always run a very con­cen­trated stock port­fo­lio, has loaded up on finan­cials– to the tune of more than 75% of the port­fo­lio. The group sky­rock­eted off the mar­ket bot­tom in 2009, but has been by far the worst per­form­ing sec­tor year to date. Among Fairholme’s largest posi­tions are bat­tered names such as Amer­i­can Inter­na­tional Group, Bank of Amer­ica, Cit­i­group, and yes, the more lightly bruised Berk­shire Hath­away, a long time holding.

I began the inter­view by ask­ing Berkowitz why with all of the legal, reg­u­la­tory, eco­nomic, and mar­ket uncer­tain­ties sur­round­ing finan­cials he was stick­ing with them.

BRUCE BERKOWITZ: The neg­a­tives are all uncer­tainty about the future. And what I try and do is focus on the facts of today. So, when you look at the income state­ments, they’re mak­ing huge cash flows, a lot of it being paid for the fool­ish­ness of 2007 and 2008, which even­tu­ally will burn off and those huge cash flows will show. If you look at the bal­ance sheets of the com­pany, they have– banks, for exam­ple, they have the strongest bal­ance sheets that they’ve had prob­a­bly in a his­tory of their his­to­ries. If you look at reserv­ing, it’s stronger than at any time. If you look at the trends, the trends are turn­ing favor­able. If you under­stand the nature of loans and the aver­age life of five to seven years, and your trou­bles in 2007, 2008, you’ve already had a good– you’ve had a three, four year look at how the loans pro­gressed. You know how they’re going to turn out. Credit cards, other types of loans are much shorter. They’ve already burnt through all that. The case of Bank of Amer­ica, they have five dif­fer­ent busi­nesses, four of which are quite prof­itable, but there’s this one busi­ness, res­i­den­tial mort­gages, which are still giv­ing a lot of trou­ble, and they just took a $20 bil­lion hit in one quar­ter as their esti­mate of what all the costs are going to be, includ­ing non-cash cost, you know, reduc­tion of good­will and other intan­gi­bles. And peo­ple believe that that can keep going like that. It can’t. It’s like insur­ance reserv­ing. When we change your esti­mate, you change the num­ber in one quar­ter for all the past and all your beliefs about the future.

So there’s a lot of fear in the mar­ket­place right now, which I take as a pos­i­tive because the finan­cials are priced for fail­ure, and that’s how you want to buy them, to be priced for fail­ure, because the pes­simism is intense and the mar­ket price reflects the pes­simism, and then you could pair the mar­ket price to what you believe the com­pany will earn in a more nor­mal envi­ron­ment, and let’s say you take that with the funds. I take every one of our com­pa­nies, and I look through; I take the earn­ings of the com­pa­nies and I trans­late that into what it’s going to be in earn­ings per share of the Fairholme Fund. And I think that the com­pa­nies have an earn­ings power of $4 per share for the Fairholme Fund, and the Fairholme Fund is $27 or what­ever it may be per share, and I think, well, what’s that earn­ings? And what does that mean? And if I’m right, even­tu­ally, price fol­lows true earn­ings, and hope­fully, the mania that we’re in right now and the intense mad­ness of the crowd will allow me, allow the fund to buy more, allow me to buy more, to take advan­tage of a cheaper price, the same way, you know, your favorite food group is on sale at the gro­cery store. It shouldn’t be much dif­fer­ent than that.

CONSUELO MACK: But when you talk about the mania that is sur­round­ing the finan­cial stocks right now, have you ever seen the kind of mania, mad­ness, crazi­ness in any group that you’ve been so focused on before, in your expe­ri­ence as a money manager?

BRUCE BERKOWITZ: In my career, every day is rem­i­nis­cent of the early ‘90s, with the finan­cial insti­tu­tions of that time. Wells Fargo was sup­posed to go bank­rupt and there were a cou­ple of investors, I believe that they were Buf­fett busters. They thought Buf­fett was going to lose his shirt on Wells Fargo, and I looked at Wells Fargo and I saw that even their bad assets were earn­ing an income, which is the case with banks today. And how can bad be earn­ing an income? So it was an over­re­ac­tion. You know, our brains are wired for over­re­ac­tion and momen­tum, and fol­low the crowd. So, Fairholme, our tagline is, “Ignore the crowd.” And another one of our lines is, you know, “Count what mat­ters.” So we count the cash.

So when I see com­pa­nies sell­ing for below liq­ui­da­tion value, for below the cash that they own, that they had in their own bank and in other banks, and I look at the reserves and the strengths and the trends, I keep try­ing to pick away at them and kill them and chomp them, and what if the reces­sion keeps going, and what if there’s a dou­ble dip? And what if house prices con­tinue to go down? And what if they don’t know what they’re doing and they haven’t reserved prop­erly? I mean you ask all those ques­tions and the answer is, they sur­vive. What investors are not focus­ing on is the inher­ent earn­ings power of the insti­tu­tions. Bank of Amer­ica, today, in this envi­ron­ment, makes $36 bil­lion a year of pre­tax, pre-provision, so $36 bil­lion before they have to pay taxes, which they won’t be pay­ing for many years because of the last few years, and before they allo­cate money to bad loans, reserves, for what­ever. So that’s $36 bil­lion a year to add to any prob­lems or issues. I talk to guys who get divorced, they feel like half their money is gone. I say it’s just a delay of game.

CONSUELO MACK: I’m sure they take that advice with a grain of salt. But let me ask you, because the last time I talked to you about your invest­ments in finan­cials, over a year ago, you said that the biggest risk to your posi­tion, and you just men­tioned it, would be the cor­re­la­tion risk, and that they all don’t do well because of, let’s say, a dou­ble dip in the U.S. Now, we have peo­ple like Mar­tin Feld­stein say­ing that we’re going into a reces­sion. We have the Chair­man of a major bank in Ger­many say­ing basi­cally that the Euro­pean debt cri­sis essen­tially rep­re­sents the equiv­a­lent of a Lehman Broth­ers. How do you assess the cor­re­la­tion risk now?

BRUCE BERKOWITZ: In really tough times, everything’s cor­re­lated except for cash, one. Two, everyone’s already assumed that we’re back in a reces­sion. The price reflects it. I mean, lit­er­ally the banks can shut their doors, stop doing busi­ness, run off the busi­ness that they have, and make more money than the stock price. So, and that can hap­pen in a reces­sion. And if you think about the human nature, after you– banks made so many bad loans in 2007, 2008; the loans that they’ve made in 2009, 2010, this year, it’s unbe­liev­able. Every­one com­plains on how tough it is to get a loan because they’ve gone from no doc­u­men­ta­tion to unbe­liev­able doc­u­men­ta­tion. But it’s the nature. And if you stop grow­ing, the finan­cial insti­tu­tion stops grow­ing, the cash comes pil­ing in the front door. So these fears about not hav­ing enough cap­i­tal, aren’t able to– not have the reserves to pay for the past, they’re just, they’re unfounded. And even if times stretch out and get worse, the earn­ings power, a fun­da­men­tal earn­ings power of the insti­tu­tions, which will allow them to more than just survive.

CONSUELO MACK: There’s been a change in your port­fo­lio mix, again, since I talked to you over a year ago. And one of the biggest changes is that in your asset mix, a year ago you had a sixth of the Fairholme Fund was in cash equiv­a­lents. Now it’s down to under two percent.

BRUCE BERKOWITZ: It’s not two per­cent, but it’s sin­gle digits.

CONSUELO MACK: It’s sin­gle digits.

BRUCE BERKOWITZ: Yeah, mid-single digits.

CONSUELO MACK: But you also had, I guess, about a sixth was in fixed income secu­ri­ties as well. So, at that time you told me, you know, we have bil­lions of dol­lars in cash in the Fairholme Fund, ready to take advan­tage of what­ever fur­ther stresses may come our way. So what hap­pened to all of that cash, num­ber one, in the last year?

BRUCE BERKOWITZ: Well, we’ve used it for fur­ther invest­ments in AIG, and oth­ers. And we used it for redemptions.

CONSUELO MACK: You’ve always talked about cash as being your finan­cial valium.

BRUCE BERKOWITZ: Right.

CONSUELO MACK: And that it gives you the kind of flex­i­bil­ity. So you have less finan­cial val­ium now.

BRUCE BERKOWITZ: Cor­rect. But at some point in a busi­ness cycle, one has to get greedy. And the time to get greedy is when everybody’s run­ning for the hills with fear, that usu­ally is a great time to get the greed going. And we’ve become greedy– less cash, more con­cen­trated invest­ments, big­ger per­cent­age of invest­ments. Because my def­i­n­i­tion of skill is know­ing when you’re lucky and tak­ing advan­tage of that luck, and we’re very lucky right now.  We have finan­cial insti­tu­tions that are so cheap I would not, I did not think I would see again in my life­time, since the early 1990s. They have stronger bal­ance sheets than they’ve ever had.

CONSUELO MACK: When you see stocks that you hold, the Bank of Amer­i­cas, the Cit­i­groups, the Gold­man Sachs, what­ever, AIGs that are down, you know, 30, 40%, you know, and I’m just talk­ing about year to date. That, to you, is an oppor­tu­nity to get greedy. It’s not a rea­son to flee, sell–

BRUCE BERKOWITZ: Yes, right. No, you don’t want to be in denial so you take out your check­list of the 500 aspects you look at with a com­pany and try and under­stand, you know, you go through it all again and then you try and under­stand why the mar­ket is behav­ing the way it is, try­ing to find out where the dif­fer­ences are between per­cep­tion and real­ity. You go through it all again, so you don’t want to go into denial, so you want to recheck all of your work. But at that point, if you can’t kill it, you have to have the courage of your con­vic­tion. That’s what you’re get­ting paid for. This is the time when I really earn my money.

CONSUELO MACK: But one of the things that you told me a year ago, and this is a quote, you know, the worst sit­u­a­tion is if you’re backed into a cor­ner and you can’t get out of it, whether for illiq­uid­ity rea­sons, share­hold­ers may need money, we’re talk­ing about redemp­tions; if you have an invest­ment that is usual, you’re a lit­tle early and you are early in the finan­cial stocks, I think …

BRUCE BERKOWITZ: A lit­tle early, that’s kind of you.

CONSUELO MACK: And you don’t have the money to buy more or you don’t have the flex­i­bil­ity, that’s a night­mare sce­nario. Great investors never run out of cash. We always want to have a lot of cash. So, you know, how close are you to your night­mare sce­nario? That’s my question.

BRUCE BERKOWITZ: About five per­cent from the night­mare sce­nario of not hav­ing the cash for redemp­tions. But you change. You look at your posi­tions, you want to be in liq­uid posi­tions, that high trad­ing, where if you need it to cut some of your posi­tions, you would have the liq­uid­ity to do it. And it changes. There are cor­re­la­tions between the size of the port­fo­lio, the value port­fo­lio and the cash you need, and where you believe you are in the cycle. If you think you’re bounc­ing around the bot­tom, and you’ve already paid the price for hav­ing courage of your con­vic­tions, then I don’t think we need to have the cash around that we do and–

CONSUELO MACK: So do you think that we are bounc­ing around the bot­tom and that you have paid the price, essen­tially, for the courage of your con­vic­tions? And it takes a lot of courage.

BRUCE BERKOWITZ: Well, if I’m wrong, I don’t deserve to be in busi­ness, in this busi­ness, because every­thing I look at tells me that the finan­cial com­pa­nies that we’ve invested in are extremely cheap, below their book val­ues, below their tan­gi­ble book val­ues, below their liq­ui­da­tion val­ues. The trends are get­ting bet­ter. The bal­ance sheets are strong. I don’t know what more investors want. There’s a fear of the future, but I don’t under­stand the math that’s being applied to the fore­cast of the future. I’ve never been that good at the future, but I do know that that fear is reflected in what you’re pay­ing for a share of Bank of Amer­ica or Cit­i­group or whatever.

CONSUELO MACK: So let me ask you about some of your major hold­ings, because in a let­ter dated Feb­ru­ary of 2000, that you recently resent to clients, you said, “Con­cen­trated invest­ing implies less risk of per­ma­nent loss as long as you main­tain supe­rior knowl­edge about the com­pa­nies you own.” So, among the most con­tro­ver­sial posi­tions that you own, Bank of Amer­ica, for instance, which has been very much in the news, what don’t the naysay­ers under­stand about Bank of Amer­ica that you and War­ren Buf­fett do?

BRUCE BERKOWITZ: I think the naysay­ers just don’t believe what Bank of Amer­ica is say­ing. They believe that Bank of Amer­ica is fib­bing about the num­bers, about the trends, about the strat­egy, about the model, about their abil­ity to– I don’t know. It’s ask­ing me to ana­lyze some­thing which doesn’t exist, which is very tough, and that can take on a whole life of its own. But the good news about that is that’s what gives you a price of around $7 a share for a com­pany that could poten­tially earn $3 a share. Now, there aren’t many times in life you can buy a sto­ried fran­chise that touches one out of every two peo­ple in the United States at two and a half times what you expect their earn­ings are going to be in a more nor­mal time. Now, I don’t know how it gets bet­ter than that.

CONSUELO MACK: So let’s talk about AIG.

BRUCE BERKOWITZ: I mean AIG was roughly treated, where the gov­ern­ment took 87%. They didn’t take 87% of other finan­cial institutions.

CONSUELO MACK: And they still own …

BRUCE BERKOWITZ: And owns 77% and they’ll make money and their cost– they’re a lit­tle under­wa­ter, but AIG’s tan­gi­ble book value, and if you want to think about tan­gi­ble book as a liq­ui­da­tion value, espe­cially with an insur­ance com­pany, it’s less than 50 cents on the dol­lar, so you’re pick­ing up dol­lar bills for less than 50 cents. Sto­ried fran­chise– I mean AIG still has a great name around the world and peo­ple may be dis­gusted with it to some extent. Investors have lost money. But with a one for 20 reverse split, you know, in the old days AIG hit over $100 a share and the equiv­a­lent today, it’s trad­ing about $1.25. So it’s 98% plus down. Yes, they’ve had to sell some bits and pieces, but the bal­ance sheet is stronger. The two busi­nesses that caused the issues were rel­a­tively small part of the com­pany. They’re closed out.

CONSUELO MACK: And so your sense of AIG’s posi­tion today is what?

BRUCE BERKOWITZ: I think it’s much stronger lead­er­ship with Bob Ben­mosche, new lead­er­ship at Char­tis, a much stronger bal­ance sheet, huge assets, great tan­gi­ble book value, great equity, huge deferred tax asset, which isn’t even on their books. I mean like Cit­i­group, this is the case with Bank of Amer­ica, AIG will not be pay­ing taxes for many years given the pre­vi­ous losses. So, nope, past share­hold­ers have paid the price. They’ll never recover from where they bought stock; new man­age­ment, com­pany has paid the prices. So there is a 70% over­hang and a lot of investors won’t go near the stock until that over­hang dis­ap­pears, wait­ing for the gov­ern­ment to get out, think­ing that the gov­ern­ment will make a very bad deal. But, you know, you take that to an illog­i­cal extreme. Does that mean you wouldn’t buy the stock at 20 or ten? Five? A dol­lar? You still wait for the gov­ern­ment to get out? So at some point, not know­ing exactly how the gov­ern­ment is going to get out and what’s going to hap­pen to those shares, I have to look at the bal­ance sheet of the com­pany, the earn­ings power of the com­pany, what I believe the com­pany is capa­ble of earn­ing or grow­ing, and what they’re doing and what they’re sell­ing and put it all together– the good, the bad, the ugly– and then look at the price where the com­pany is trad­ing and make a deci­sion as to whether or not this insti­tu­tion can be per­ma­nently killed, which the case is no, and whether or not at that price, there’s a suf­fi­cient mar­gin of safety to not loose any money and hope­fully make a rea­son­able return for shareholders.

CONSUELO MACK: One Invest­ment for long-term diver­si­fied port­fo­lio that all of us should own some of?

BRUCE BERKOWITZ: It has to be Bank of America.

CONSUELO MACK: It does?

BRUCE BERKOWITZ: Every­body can read all about it in the news­pa­pers every­day on TV. You can read every known con­ceiv­able neg­a­tive known to mankind and press all around the world and blogs and what­ever you want to read, the most extreme neg­a­tives. But you have to bal­ance the pos­i­tives, as we have dis­cussed. And if I’m right, Bank of Amer­ica has a $20 book value. In the next ten years I could see them eas­ily dou­bling their book to $40 and pay­ing out a very nice div­i­dend yield, so you would even­tu­ally have, in my opin­ion, a double-digit div­i­dend yield, fab­u­lous appre­ci­a­tion in a bank that will be con­sid­ered an extremely safe investment.

CONSUELO MACK: So Bruce, one other ques­tion: last time you were on Wealth­Track, again– after win­ning Morningstar’s Fund Manger of the Decade Award, I might add– I’m going to quote you. You told me that: “What wor­ries me is know­ing that it is usu­ally a person’s last invest­ment idea that kills them. As you get big­ger you put more into your invest­ments and that last idea, which may be bad, will end up los­ing more than you’ve made over a decade. That is why, if you look at the fund today, to me…” this was over a year ago …

BRUCE BERKOWITZ: Right.

CONSUELO MACK:  “…it looks more con­ser­v­a­tively posi­tioned than it’s ever been. We’re two thirds invested in equi­ties today, not a kamikaze strat­egy.” You are no longer two thirds invested in equi­ties. You’ve got a much higher per­cent­age of equi­ties, a much smaller per­cent­age of cash. So, I mean is this not a kamikaze strat­egy? I mean what, if the finan­cials fail, or if this strat­egy does not work out, haven’t you really bet it all, bet the ranch?

BRUCE BERKOWITZ: I think you have to– it’s a ques­tion on how you posi­tion the argu­ment. If the finan­cials fail, the United States’ finan­cial sys­tem has failed, and cap­i­tal­ism as we know it has failed, and we have a lot of big­ger issues, and I don’t see that hap­pen­ing. We’re not a lever­aged insti­tu­tion. We still have cash. We’re not depen­dent upon any­one for money. Our biggest risk in terms of that cash would be if share­hold­ers can con­tinue to leave, take money out. If they do, we have sig­nif­i­cant posi­tions that can be trimmed down on a pro-rata basis so that the remain­ing share­hold­ers do not get affected. And it’s just a ques­tion of time, and we want to try and posi­tion the port­fo­lio so the longer it takes, the more the remain­ing share­hold­ers will prosper.

CONSUELO MACK: And the remain­ing share­hold­ers include the Berkowitz fam­ily, because you are invested heav­ily in your funds.

BRUCE BERKOWITZ: Right. You can’t be 100 per­cent pos­i­tive about any­thing. That’s– to have a fanat­i­cal belief would be a mis­take. So, by hav­ing all the fam­ily money into these posi­tions, it’s a safety check. No one wants to throw out 30 years of hard work, so why would you pos­si­bly want to risk that which you may need for that which you don’t need? So it’s a safety check and puts me squarely in the shoes of share­hold­ers, and it allows me to feel the joy and pain of our share­hold­ers. And it’s been six months. In Feb­ru­ary I was a hero, now I’m a bum. So, we’ll see six months from now. Revenge should be sweet.

CONSUELO MACK: I’m sure you can hardly wait for that revenge.

BRUCE BERKOWITZ: Then I’ll be upset that I didn’t buy more at such low prices and how could I have been so stupid?

CONSUELO MACK: So Bruce Berkowitz, Fairholme Fund, who con­tin­ues to ignore the crowd, for bet­ter or for worse short term at any rate, and hope­fully, long term it will turn out to be for the bet­ter. Thanks very much for join­ing us.

BRUCE BERKOWITZ: Thank you.

CONSUELO MACK: The motto, “ignore the crowd” isn’t just for pro­fes­sional value investors like Bruce Berkowitz. It also applies to indi­vid­ual investors in mutual funds, which leads me to this week’s Action Point. It is: stay with your favorite mutual funds dur­ing down peri­ods. Third gen­er­a­tion value fund investor Chris Davis of the Davis Funds sent me this graphic. It shows that under­per­for­mance is inevitable, even from top per­form­ing man­agers. Dur­ing the last decade, 94% of the top quar­ter of large cap equity fund man­agers have fallen into the bot­tom half of their peers at least once dur­ing the decade for a three year period; 63% hit the bot­tom quar­ter for three years; and 30% the bot­tom ten per­cent. As we have said many times on Wealth­Track, there is a rea­son indi­vid­ual investors con­sis­tently under­per­form the mutual funds they invest in. They buy high, when per­for­mance is great, and sell low, when per­for­mance is poor.

Next week, we’re going to bring you a rare inter­view with a Finan­cial Thought Leader and one of Wall Street’s top ranked strate­gists– Fran­cois Tra­han will explain why he believes the old eco­nomic mod­els are bro­ken and why safety is the best strat­egy for investors for the rest of the year.
We also want to let you know about a new oppor­tu­nity for those of you who watch Wealth­Track on TV or on the web. We now offer sub­scribers the chance to see our pro­gram as early as Thurs­day morn­ing, along with timely inter­views exclu­sive to Wealth­Track sub­scribers. For more infor­ma­tion, check out our web­site, wealthtrack.com. And while you’re there, do us a favor if you haven’t done so already, and many of you have– please fill out our con­fi­den­tial and brief sur­vey for Wealth­Track view­ers. Thank you for watch­ing and make the week ahead a prof­itable and a pro­duc­tive one.

Copy­right © Con­suelo Mack, Wealthtrack.com

Tags: Bruce Berkowitz, Capital Management, Chief Investment Officer, Consuelo Mack, Contrarian Investing, Decade Award, Domestic Equity, Equity Fund, Fairholme Fund, financial stocks, Full Transcript, Gold, Hallmarks, Large Blend, Last Decade, Morningstar, Rare Interview, Tag Line, Television Interview, Vindication, Wealthtrack
Posted in Gold, Markets | Comments Off

Weeden's Charles Maxwell: Where to Invest for Secure Energy Returns

Thursday, September 29th, 2011

The man Barron’s calls the Dean of Energy Ana­lysts dis­cusses the out­look for oil prices, sup­plies and stocks. Wee­den & Company’s Charles Maxwell talks about where to invest for secure energy returns in an uncer­tain world.

Maxwell's Top Picks:

"IMMENSE GROWTH POTENTIAL"

Sun­cor Energy Inc. (SU)
Price: $29.58 on 9/9/11
52-week range: $29.00 — $48.53

Cen­ovus Energy Inc. (CVE)
Price: $31.96 on 9/9/11
52-week range: $26.66 — $40.73

Tags: Barron, Charles Maxwell, Cve, Dean, Energy Analysts, Immense Growth, Invest, Oil Prices, Outlook, Potential Energy, Secure Energy, Stocks, Suncor Energy Inc, Weeden
Posted in Markets, Outlook | Comments Off

News That Matters (September 29, 2011)

Thursday, September 29th, 2011

via The Trader, thetrader.se

Ft.com
Asian shares and com­modi­ties fell on Thurs­day, Reuters reports, on grow­ing wor­ries that Europe’s intractable debt prob­lems will plunge the world into a sec­ond global finan­cial cri­sis. Cop­per fell 3 per centhttp://ftalphaville.ft.com/thecut/2011/09/29/688436/slide-continues-in-asian-markets/

Citigroup’s chief exec­u­tive Vikram Pan­dit says he expects the com­pany will return sig­nif­i­cant amounts of cap­i­tal to share­hold­ers from 2012, the WSJ says. Mr Pan­dit said the bank is still on track to return cap­i­tal to investors next year, http://ftalphaville.ft.com/thecut/2011/09/29/688421/citi-to-return-capital-to-shareholders-in-coming-years/

Spain, Italy and France have extended bans on the short sell­ing of select banks and other finan­cial stocks, the FT reports. The French and Ital­ian pro­hi­bi­tions are slated to last until Novem­ber 11, while the Span­ish rule remains in force until “mar­ket con­di­tions allow” it to be lifted. http://ftalphaville.ft.com/thecut/2011/09/29/688406/spain-italy-and-france-extend-shorting-bans/

ING is sell­ing its stake in Brazil’s insur­ance group SulAmer­ica in a deal that is likely to be worth at least $1bn, spark­ing a fierce bid­ding war in the fast-growing Brazil­ian mar­ket, the FT says, cit­ing peo­ple close to the trans­ac­tion. French insurer Axa and Japan’s Tokio Marine have so far emerged as the top bid­ders for ING’s 36 per cent stake in SulAmer­ica, http://ftalphaville.ft.com/thecut/2011/09/29/688366/bidders-vie-for-ings-brazilian-group-stake

Spain has scrapped the €7bn pri­vati­sa­tion of its state lot­tery in the face of tur­bu­lent mar­kets and mount­ing domes­tic polit­i­cal oppo­si­tion to what would have been Spain’s largest stock mar­ket flota­tion,http://ftalphaville.ft.com/thecut/2011/09/29/688351/spain-pulls-lottery-ipo/

Europe’s top exec­u­tives have expe­ri­enced a third year of base pay freezes, with pay con­sul­tants warn­ing them to expect the same again in 2012 in the new era of aus­ter­ity, the FT reports. “Until we see a more upbeat macro­eco­nomic and polit­i­cal cli­mate, http://ftalphaville.ft.com/thecut/2011/09/29/688341/executives-see-salaries-frozen-for-third-year/

Mort­gage fraud reports by banks rose 88 per cent last quar­ter as lenders were asked to take back bad home loans sold to investors, the FT reports. A US Trea­sury Depart­ment report released Wednes­day says dur­ing the three-month period end­ing in June, http://ftalphaville.ft.com/thecut/2011/09/29/688301/us-mortgage-fraud-reports-surge-by-88/

UK banks should cut bonuses and div­i­dends rather than reduce lend­ing to cus­tomers as they try to strengthen their bal­ance sheets and cope with falling prof­its, the Bank of England’s finan­cial pol­icy com­mit­tee has warned. The com­mit­tee, http://ftalphaville.ft.com/thecut/2011/09/29/688271/banks-warned-not-to-cut-lending/

The Secu­ri­ties and Exchange Com­mis­sion is inves­ti­gat­ing Royal Bank of Scot­land, Credit Suisse and other finan­cial insti­tu­tions for their han­dling of prob­lem mort­gage loans, the FT reports, cit­ing pub­lichttp://ftalphaville.ft.com/thecut/2011/09/29/688276/rbs-credit-suisse-among-banks-under-sec-mortgage-scrutiny/

A Euro­pean Union pro­posal to impose a tax on finan­cial trans­ac­tions has been attacked by finan­cial and busi­ness groups as an assault on the City of Lon­don and com­pa­nies seek­ing to pro­tect them­selves against mar­ket uncer­tainty, http://ftalphaville.ft.com/thecut/2011/09/29/688256/businesses-and-uk-government-attack-transaction-tax/

Fed­eral Reserve chair­man Ben Bernanke said on Wednes­day the cen­tral bank might need to ease mon­e­tary pol­icy fur­ther if infla­tion or infla­tion expec­ta­tions fall sig­nif­i­cantly, Reuters reports. In his first pub­lic remarks since the Fed launched ‘Oper­a­tion Twist’, http://ftalphaville.ft.com/thecut/2011/09/29/688241/bernanke-tells-us-to-heed-emerging-economies/

Greece’s pri­vate cred­i­tors have reacted angrily to sug­ges­tions that some euro­zone coun­tries want bond­hold­ers to suf­fer big­ger losses than those agreed in the sec­ond bail-out of Athens. Banks and other bond­hold­ers are resist­ing the idea by lob­by­ing coun­tries such as Ger­many and the Nether­lands, where hard­lin­ers are push­ing for pri­vate cred­i­tors to write down more than the cur­rent 21 per cent agreed in July’s €109bn Greek res­cue, accord­ing to peo­ple close to the deal. http://www.ft.com/intl/cms/s/0/c2636c16-e9f4-11e0-b997-00144feab49a.html#axzz1ZJWwrpfw

Brazil’s gov­ern­ment has been forced to cut taxes on petrol imports as the coun­try strug­gles to keep a lid on infla­tion, with national strikes over pay threat­en­ing to boost prices even higher in Latin America’s biggest econ­omy. The gov­ern­ment announced on Tues­day that it would reduce the so-called CIDE tax, which applies to imports and sales of petrol to dis­trib­u­tors, by 16 per cent – a move that will allow the coun­try to main­tain vital gov­ern­ment price con­trols at the pumps. http://www.ft.com/intl/cms/s/0/77080a64-e928-11e0-af7b-00144feab49a.html#axzz1ZJWwrpfw

China has warned Asian coun­tries against pro­vok­ing it under the cover of US mil­i­tary power, high­light­ing Beijing’s con­cern over moves from its neigh­bours and the US to con­tain its rise.  “Cer­tain coun­tries think as long as they can bal­ance China with the help of US mil­i­tary power, they are free to do what­ever they want,” said the People’s Daily, the mouth­piece of the rul­ing Com­mu­nist party, in an edi­to­r­ial on Wednes­day. http://www.ft.com/intl/cms/s/0/873843be-e9bd-11e0-bb3e-00144feab49a.html#axzz1ZJWwrpfw

Wsj.com
With Wall Street snap­ping a three-session win­ning streak on Wednes­day, Japan’s Nikkei Stock Aver­age lost 1.0%, Australia’s S&P/ASX 200 fell 1.5%, South Korea’s Kospi Com­pos­ite lost 0.5% and New Zealand’s NZX-50 dropped 0.4%. Dow Jones Indus­trial Aver­age futures fell 62 points in screen trade. Stocks exposed to the com­modi­ties and oil sec­tors slid after Thursday’s sharp sell­off in this space. http://online.wsj.com/article/SB10001424052970204138204576599611944153404.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Germany—As Angela Merkel races to con­vince Ger­mans that their con­tin­ued pros­per­ity rests on pre­serv­ing the euro, she is encoun­ter­ing strong resis­tance even from those in her own party who have been tra­di­tion­ally among the country’s most pro-European politi­cians. When Ger­man law­mak­ers vote Thurs­day on whether to put more money into Europe’s bailout fund—a step many investors see as essen­tial to pre­vent a mar­ket panic—several con­ser­v­a­tive deputies, includ­ing Wolf­gang Bos­bach, a promi­nent cham­pion of Euro­pean inte­gra­tion, are expected to vote “no.” Mr. Bos­bach, a high-ranking con­ser­v­a­tive in Ms. Merkel’s Chris­t­ian Demo­c­ra­tic Union, has recently become an out­spo­ken critic of the bailout strat­egy. http://online.wsj.com/article/SB10001424052970204138204576598643746175236.html?mod=WSJEurope_hpp_LEFTTopStories

Syr­ian oppo­si­tion groups are call­ing for the first time for an inter­na­tional inter­ven­tion to pro­tect civil­ians from the Assad régime’s ongo­ing mil­i­tary onslaught, includ­ing the estab­lish­ment of a United Nations-backed no-fly zone. The opposition’s for­mal calls drew a tepid response Wednes­day from the Obama admin­is­tra­tion and Euro­pean gov­ern­ments, who said there is cur­rently lit­tle appetite to reprise the type of air cam­paign that helped dis­lodge long-serving Libyan strong­man Moam­mar Gad­hafi last month. http://online.wsj.com/article/SB10001424052970203405504576599150728062020.html?mod=WSJEUROPE_hpp_MIDDLETopNews

In lit­tle more than a month, cop­per has careened into a bear mar­ket, catch­ing com­modi­ties traders off guard and trig­ger­ing alarm bells across finan­cial mar­kets. Cop­per prices have plunged 23% this month—a decline of 20% or more is com­monly con­sid­ered a bear mar­ket. The declines have far exceeded the slide in the stock mar­ket, where the Stan­dard & Poor’s 500-stock index has lost 5.6%. The fall in cop­per is seen as par­tic­u­larly sig­nif­i­cant because the metal is used in every­thing from Apple Inc.’s iPads to indoor plumb­ing and elec­tri­cal wires, mak­ing it a good lead­ing indi­ca­tor for the global econ­omyhttp://online.wsj.com/article/SB10001424052970204226204576598683620744892.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Marketwatch.com
Japan­ese retail sales declined 2.6% in August com­pared to the year-ago period, accord­ing to gov­ern­ment sta­tis­tics released Thurs­day. Sales rose 0.6% in July. http://www.marketwatch.com/story/japanese-aug-retail-sales-decline-26-vs-year-ago-2011–09-28

The nation’s weak labor mar­ket was “a national cri­sis” that required atten­tion from the White House and Con­gress, Fed­eral Reserve Chair­man Ben Bernanke said Wednes­day. “We’ve had close to 10% unem­ploy­ment now for a num­ber of years, and of the peo­ple who are unem­ployed, about 45% have been unem­ployed for six months or more. This is unheard of,” Bernanke said in a question-and-answer ses­sion fol­low­ing a speech in Cleve­land. He called for poli­cies “that could help them find work, train for work and retain their skills.” http://www.marketwatch.com/story/bernanke-calls-unemployment-a-national-crisis-2011–09-28

Reuters.com
Gold extended losses and dropped more than 1 per­cent on Thurs­day as investors turned to the safety of the U.S. dol­lar on uncer­tainty about a res­o­lu­tion of Europe’s debt cri­sis that has stirred up fears for global growth. Spot gold lost $3.55 an ounce to $1,604.35 by 0221 GMT (8:21 a.m. EDT), hav­ing fallen to a low around $1,582. It had plunged to a two-month low of $1,534.49 on Mon­day — down from a life­time high around $1,920 an ounce struck in early Sep­tem­ber. http://www.reuters.com/article/2011/09/29/us-markets-precious-idUSTRE78M11C20110929

The yield on U.S. five-year Trea­sury notes briefly touched 1 per­cent on Wednes­day, as deal­ers cleared room ahead of a $35 bil­lion auc­tion of new five-year debt. In the open mar­ket, the five-year gov­ern­ment notes last traded down 8/32 in price for a yield of 0.99 per­cent, up nearly 5 basis points from late Tues­day. The result of the five-year Trea­suries http://www.reuters.com/article/2011/09/28/us-markets-bonds-idUSTRE78Q1QF20110928

U.S. busi­nesses stepped up invest­ment spend­ing in August despite the upheaval caused by bit­ter polit­i­cal fight­ing in Wash­ing­ton, and some econ­o­mists raised their fore­cast for eco­nomic growth for this quar­ter. The Com­merce Depart­ment said on Wednes­day that non-defense cap­i­tal goods orders exclud­ing air­craft, a closely watched proxy for busi­ness spend­ing, increased 1.1 per­cent after falling 0.2 per­cent in July. http://www.reuters.com/article/2011/09/29/us-usa-economy-idUSTRE78C33C20110929

Lehman Broth­ers Hold­ings Inc unveiled the lat­est in a string of set­tle­ments with major finan­cial cred­i­tors, reach­ing deals with Bank of Amer­ica Corp (BAC.N) and Mer­rill Lynch that will reduce the banks’ claims against Lehman by a com­bined $7.5 bil­lion. As part of the set­tle­ment, the banks have pledged sup­port for Lehman’s $65 bil­lion bank­ruptcy exit plan, accord­ing to court papers filed late on Wednes­day in U.S. Bank­ruptcy Court in Man­hat­tan. Bank of Amer­ica will reduce its deriv­a­tives claims against Lehman enti­ties by $4.5 bil­lion, Lehman said. Mer­rill Lynch, a Bank of Amer­ica sub­sidiary since 2008, will lower its claims by an addi­tional $3 bil­lion, court papers show. http://www.reuters.com/article/2011/09/29/us-lehman-idUSTRE78S08M20110929

Bloomberg.com
Global investors antic­i­pate Europe’s debt cri­sis lead­ing to an eco­nomic slump, a finan­cial melt­down and social unrest in the next year with 72 per­cent pre­dict­ing a coun­try aban­don­ing the euro as a shared cur­rency within five years, a Bloomberg sur­vey found. About three-quarters of those ques­tioned this week said the euro-area econ­omy will fall into reces­sion dur­ing the next 12 months and 53 per­cent said tur­moil will worsen in a bank­ing sec­tor laden with gov­ern­ment bonds, accord­ing to the quar­terly Global Poll of 1,031 investors, ana­lysts and traders who are Bloomberg sub­scribers. Forty per­cent see the 17-nation cur­rency bloc los­ing at least one mem­ber in the next year. http://www.bloomberg.com/news/2011–09-29/world-recession-seen-triggered-by-europe-breakdown-in-global-investor-poll.html

Most global investors pre­dict Chi­nese growth will slow to less than half the pace sus­tained since the gov­ern­ment began dis­man­tling Mao Zedong’s com­mu­nist econ­omy three decades ago, a Bloomberg poll indi­cated. Fifty-nine per­cent of respon­dents said China’s gross domes­tic prod­uct, which rose 9.5 per­cent last quar­ter, will gain less than 5 per­cent annu­ally by 2016. Twelve per­cent see such a slow­down within a year, and 47 per­cent said it will occur in two to five years, the quar­terly Bloomberg Global Poll of investors, ana­lysts and traders who are Bloomberg sub­scribers showed.http://www.bloomberg.com/news/2011–09-28/china-economy-slowing-to-5-annual-growth-by-2016-in-global-investors-poll.html

Pres­i­dent Barack Obama for the sec­ond time this week crit­i­cized the response of Euro­pean gov­ern­ments to the continent’s debt cri­sis, say­ing the tur­moil con­tin­ues to be a drag on the U.S. econ­omy. “Some of the chal­lenges that we’ve had over the last sev­eral months actu­ally have to do with the fact that, in Europe, we haven’t seen them deal with their bank­ing sys­tem and their finan­cial sys­tem as effec­tively as they needed to,” Obama said yes­ter­day in response to a ques­tion about U.S. eco­nomic growth at a round­table dis­cus­sion on His­panic issues at the White House. http://www.bloomberg.com/news/2011–09-28/obama-says-europe-s-debt-response-not-effective-enough-as-it-drags-on-u-s-.html

Sony Corp. (6758), Japan’s largest exporter of con­sumer elec­tron­ics, said it expects a “huge impact” on earn­ings from the weaker euro, under­scor­ing the company’s vul­ner­a­bil­ity to the Euro­pean debt cri­sis. Sony doesn’t buy many com­po­nents from Europe while its Asian sup­pli­ers set­tle in dol­lars, lim­it­ing its abil­ity to hedge against the euro’s decline, Hiroshi Kuri­hara, cor­po­rate trea­surer at Sony, said in an inter­view in Tokyo yes­ter­day. “There are no coun­ter­mea­sures that we can take for the moment,” he said. “There is a huge impact on our earn­ings.” http://www.bloomberg.com/news/2011–09-29/sony-expects-huge-impact-on-earnings-on-euro.html

Cnbc.com
Sov­er­eign wealth funds may be shift­ing towards alter­na­tive invest­ments such as infra­struc­ture and prop­erty as they recon­sider their invest­ment strate­gies after a decade of equity under­per­for­mance against low-yielding fixed income. That means the $4 tril­lion sec­tor is unlikely to play white knight to hob­bled euro zone banks as it did in 2008, when state-owned invest­ment vehi­cles ploughed $80 bil­lion into trou­bled West­ern lenders. http://www.cnbc.com/id/44710081

The U.S. can learn how to boost long-run growth from suc­cess­ful emerg­ing economies, U.S. Fed­eral Reserve chair­man Ben Bernanke said in a speech on Wednes­day that will delight devel­op­ing coun­tries more used to admon­ish­ment than admi­ra­tion from Washington.“Advanced economies like the U.S. would do well to relearn some of the lessons from the expe­ri­ences of the emerg­ing mar­ket economies,” said Mr Bernanke. http://www.cnbc.com/id/44710677

Nytimes.com
Greece may never be able to pay off its huge debts, but its bonds, long scorned by investors, are sud­denly being gob­bled up by hedge funds.  After a num­ber of investors struck gold by bet­ting against French banks, many have turned their atten­tion to the hot yet risky euro zone trade of the moment: buy­ing Greek gov­ern­ment bonds that traders say are chang­ing hands for as lit­tle as 36 cents for each euro of face value.  The investors hope to book a fat profit on the expec­ta­tion that the Euro­pean Union and the Inter­na­tional Mon­e­tary Fund will once again bail out Greece, fear­ing a global finan­cial dis­as­ter if they do not. http://www.nytimes.com/2011/09/29/business/global/hedge-funds-betting-on-lowly-greek-bonds.html?_r=1&ref=business

Cnn.com
Chile and Venezuela, two coun­tries in the oppo­site of the South Amer­i­can polit­i­cal spec­trum, have some­thing in com­mon: both are inter­ested in the Chi­nese yuan, or ren­minbi. With the grow­ing clout of the world’s sec­ond largest econ­omy and the slow but con­stant strength­en­ing of its cur­rency, the yuan is an increas­ingly attrac­tive choice for reserve cur­rency. While there cur­rently are restric­tions in its trans­ac­tions, the two South Amer­i­can coun­tries lead the flight from the U.S. dol­lar in the region. http://business.blogs.cnn.com/2011/09/29/china-yuan-moving-toward-global-currency/?hpt=ibu_c2

USAtoday.com
Con­sumers earned less and spent less for a sec­ond straight year in 2010. The gov­ern­ment data shows how Amer­i­cans are strug­gling after the worst reces­sion since the Great Depres­sion. The Labor Depart­ment says in its annual sur­vey of con­sumer behav­ior that spend­ing fell 2% last year, only the sec­ond decrease since the gov­ern­ment began the sur­vey in 1984. http://www.usatoday.com/money/economy/story/2011–09-27/consumer-spending/50567312/1

BBC.co.uk
Telegraph.co.uk
Europe’s bank­ing woes have begun to set off a fund­ing crunch in the emerg­ing mar­kets of Asia, Latin Amer­ica, and East­ern Europe, leav­ing them nakedly exposed as the rich world slides into a double-dip down­turn. Cor­po­rate bond issuance has col­lapsed by three-quarters over the past three months in these regions, touch­ing the low­est level since depths of the Great Reces­sion in early 2009, accord­ing to Bloomberg data. http://www.telegraph.co.uk/finance/financialcrisis/8795416/Debt-crunch-threatens-China-and-emerging-markets.html

Rents have increased for the third con­sec­u­tive quar­ter, accord­ing to research by Paragon, the buy to let lender. But ris­ing rents appear to be caus­ing prob­lems for many ten­ants. Accord­ing to new research from the Money Advice Trust, the num­ber of calls it receives about rent arrears has risen by 84pc in recent years. A spokesman said: “Many first time buy­ers can­not get a mort­gage so demand for rented prop­erty have risen. But with land­lords push­ing up rents this has left some peo­ple strug­gling to meet bills, par­tic­u­larly as this has coin­cided with a rise in infla­tion, par­tic­u­larly of food and fuel costs.”http://www.telegraph.co.uk/finance/personalfinance/investing/8794511/Buy-to-let-rising-rents-cause-problems-for-tenants.html

Credit con­di­tions among UK house­holds have eased in recent months, accord­ing to the lat­est snap­shot from the Bank of Eng­land. The Bank’s Credit Con­di­tions Sur­vey indi­cated that both secured and unse­cured credit became more avail­able to house­holds in the third quar­ter. There was a rise in the avail­abil­ity of loans with high loan-to-value ratios, defined as those greater than 75pc.http://www.telegraph.co.uk/finance/personalfinance/borrowing/8794819/Household-lending-improves-but-small-businesses-under-pressure.html

Independent.co.uk
Top earn­ers in Britain face the fourth-highest rate of per­sonal income tax in the EU, with only Swe­den, Den­mark and the Nether­lands ask­ing for more, accord­ing to fig­ures from the accoun­tancy firm KPMG. The 50p top rate intro­duced by the last Labour Gov­ern­ment kicks in at incomes above £150,000, and places the UK at joint No. 4 in the Euro­pean high tax league, along­side Bel­gium and Aus­tria. With­drawal of the per­sonal allowance on incomes over £100,000 means the mar­ginal rate of tax is even higher, at 60 per cent, KPMG said. http://www.independent.co.uk/news/business/news/britains-50p-tax-rate-is-fourthhighest-in-europe-2362605.html

Smh.com.au
Job vacan­cies in Aus­tralia rose 3.3 per cent to 187,100 in sea­son­ally adjusted terms in the three months to end August, sug­gest­ing employ­ment growth could start to pick up after sev­eral months of slow­down. Data from the Aus­tralian Bureau of Sta­tis­tics out today showed vacan­cies for the three months to August were 2.9 per cent above the same period in 2010. Job vacan­cies in the pri­vate sec­tor rose an adjusted 4.1 per cent in the August quar­ter to 170,000, to be 3.8 per cent higher than the same period last year. http://www.smh.com.au/business/job-vacancies-rise-in-august-quarter-20110929-1kyei.html#ixzz1ZJfCboii

Global cred­i­tors announced Wednes­day the return of audi­tors to Greece in a bid to break an impasse over bil­lions of euros in blocked bailout loans Athens needs to avoid default. Nearly four weeks after abruptly leav­ing the city, EU and IMF nego­tia­tors will restart tough num­ber crunch­ing from Thurs­day amid mount­ing social ten­sion and what the Euro­pean Union describes as the biggest chal­lenge of its his­tory. http://www.smh.com.au/business/world-business/auditors-back-to-numbercrunching-in-greece-20110929-1kxva.html#ixzz1ZJfKgZGq

Straitstimes.com
British For­eign Sec­re­tary William Hague said on Wednes­day that his asser­tion more than a decade ago that the euro zone was a ‘burn­ing build­ing with no exits’ had been proved right by the debt cri­sis. Mr Hague, one of the most euroscep­tic mem­bers of Con­ser­v­a­tive Prime Min­is­ter David Cameron’s gov­ern­ment, added that coun­tries using the sin­gle cur­rency would feel the ram­i­fi­ca­tions of the cri­sis for decades to come. http://www.straitstimes.com/The-Big-Story/The-Big-Story-2/Story/STIStory_717905.html

Xinhuanet.com
GDP growth is pre­dicted to remain above 9 per­cent this year amid grow­ing fears over a global eco­nomic melt­down due to evolv­ing debt crises in both Europe and the United States, a senior gov­ern­ment think-tank econ­o­mist said on Wednes­day. How­ever, the world’s second-largest econ­omy may see declin­ing GDP growth in the longer term, due to global con­di­tions, said Lu Zhongyuan, deputy head of the Devel­op­ment Research Cen­ter of the State Coun­cil. http://news.xinhuanet.com/english2010/china/2011–09/29/c_131166290.htm

China will see a bumper har­vest of grain this year, with grain out­put expected to jump to a record high of more than 550 mil­lion met­ric tons, Vice Min­is­ter of Agri­cul­ture Chen Xiao­hua said Thurs­day. The strong har­vest will mark eight con­sec­u­tive years of growth for China’s grain out­put. The sound devel­op­ment of the agri­cul­tural indus­try has sup­ported China’s efforts to man­age infla­tion­ary expec­ta­tions, improve liveli­hoods and main­tain steady eco­nomic growth, Chen said at a press con­fer­ence. http://news.xinhuanet.com/english2010/china/2011–09/29/c_131166969.htm

Chi­nese banks have extended more loans to small firms to ease their finan­cial predica­ments as the gov­ern­ment tight­ens mon­e­tary sup­ply, a bank­ing reg­u­la­tor said Wednes­day. Out­stand­ing loans to small firms grew 26.6 per­cent year-on-year to hit 9.85 tril­lion yuan (1.55 tril­lion U.S. dol­lars) at the end of July, said Xiao Yuanqi, an offi­cial in charge of finan­cial ser­vices for small enter­prises at the China Bank­ing Reg­u­la­tory Com­mis­sion. The growth was 10 per­cent­age points higher than that of the banks’ total out­stand­ing loans, Xiao told Xin­hua. http://news.xinhuanet.com/english2010/china/2011–09/29/c_131165837.htm

China’s Vice Pre­mier Zhang Dejiang on Wednes­day called for inten­si­fied efforts in pro­mot­ing the “three net­works inte­gra­tion” pro­gram and push­ing for­ward the devel­op­ment of the new gen­er­a­tion of the infor­ma­tion tech­nol­ogy (IT) indus­try. Zhang made the remarks dur­ing his visit to the PT/Expo Comm China 2011, which runs from Mon­day to Fri­day. The IT indus­try is one of the country’s strate­gic emerg­ing indus­tries. The gov­ern­ment will increase sup­port for the sec­tor, and com­mu­ni­ca­tions com­pa­nies should enhance their abil­i­ties to self-innovate and strive to make new break­throughs in key tech­nolo­gies, Zhang said. http://news.xinhuanet.com/english2010/china/2011–09/28/c_131165606.htm

New Zealand invest­ment in Aus­tralia rose by 23 per­cent to 51 bil­lion NZ dol­lars (39.6 bil­lion U.S. dol­lars) at the end of March, the gov­ern­ment sta­tis­tics agency announced Thurs­day. Banks increased lend­ing to their Aus­tralian par­ents, New Zealand investors pur­chased shares in Aus­tralia, and the value of New Zealand-owned com­pa­nies in Aus­tralia increased, said Sta­tis­tics New Zealand bal­ance of pay­ments man­ager John Mor­ris. http://news.xinhuanet.com/english2010/business/2011–09/29/c_131167006.htm

Brazil’s Cen­tral Bank on Tues­day warned that the plight in the world’s debt-ridden economies may linger for years and said sus­tained eco­nomic growth is the best solu­tion. Cen­tral Bank Pres­i­dent Alexan­dre Tombini told mem­bers of the Sen­ate that the United States, the Euro­pean Union and Japan will con­tinue to face dif­fi­cul­ties in reduc­ing their mas­sive pub­lic debt for the next five years.http://news.xinhuanet.com/english2010/business/2011–09/28/c_131164990.htm

Cs.com.cn
Exports of China’s auto­mo­biles and auto­mo­tive acces­sories have flour­ished since 2010 as the global econ­omy started to recover in late 2009, a Chi­nese trade offi­cial said dur­ing a car export con­fer­ence Tues­day. Auto­mo­bile exports reached 465,000 units in the first seven months of 2011, up 53.3 per­cent year-on-year, accord­ing to sta­tis­tics pro­vided by the Gen­eral Admin­is­tra­tion of Cus­toms of the People’s Repub­lic of China. From Jan­u­ary to July, China exported cars and car acces­sories worth 22.86 bil­lion U.S. dol­lars, up 33.3 per­cent from last year, the data showed.http://www.cs.com.cn/english/ei/201109/t20110928_3074662.html

Thehindu.com
Tak­ing his cue from Europe, where the rich have offered to be taxed more to res­cue economies out of the ongo­ing cri­sis, Home Min­is­ter P. Chi­dambaram on Wednes­day made out a case for higher taxes for the wealthy, even while admit­ting that “many peo­ple” would not like his idea.  “We must raise the tax rev­enue to defend [the expected aggre­gate decline of resources]. I know many peo­ple won’t like this. But, I think, I can sum­mon up the courage to make the state­ment,” he said in his address on ‘Inclu­sive growth: A chal­leng­ing oppor­tu­nity’ organ­ised by the All India Man­age­ment Asso­ci­a­tion (AIMA) herehttp://www.thehindu.com/news/national/article2493199.ece

Yonhapnews.co.kr
More than one out of 10 peo­ple in South Korea were aged 65 or older last year, data showed Thurs­day, indi­cat­ing the nation is aging at a faster pace than other major advanced nations. Accord­ing to the data pro­vided by Sta­tis­tics Korea, the num­ber of peo­ple in the senior age group came to 5.36 mil­lion last year, account­ing for 11 per­cent of the nation’s total pop­u­la­tion. The ratio is up from the pre­vi­ous year’s 10.7 per­cent and much higher than 7.2 per­cent tal­lied in 2000. http://english.yonhapnews.co.kr/business/2011/09/29/42/0503000000AEN20110929003400320F.HTML

South Korea’s cen­tral bank said Thurs­day it plans to take a cau­tious approach to man­ag­ing rate pol­icy by con­sid­er­ing risk fac­tors at home and abroad due to greater eco­nomic uncer­tainty. The Bank of Korea (BOK) said in a mon­e­tary pol­icy report that it will focus its mon­e­tary pol­icy on fur­ther sta­bi­liz­ing prices while sus­tain­ing eco­nomic growth.http://english.yonhapnews.co.kr/business/2011/09/29/63/0503000000AEN20110929005100320F.HTML

Fin24.com
Pre­to­ria — The gov­ern­ment is scratch­ing its head about how to sta­bilise the volatile rand, whose depre­ci­a­tion ben­e­fits sec­tors such as man­u­fac­tur­ing but also trig­gers infla­tion, Finance Min­is­ter Pravin Gord­han said on Wednes­day. Brief­ing jour­nal­ists after last week’s annual World Bank and Inter­na­tional Mon­e­tary Fund (IMF) meet­ings, Gord­han said he was not sure how South Africa could man­age fis­cal cred­i­bil­ity and grow the econ­omy at the same time http://www.fin24.com/Markets/Currencies/SA-scratching-head-on-stabilising-rand-20110928

About 395 000 jobs were lost in 2010 com­pared to the pre­vi­ous year, Sta­tis­tics SA said on Wednes­day. Around 13.1 mil­lion peo­ple were employed in 2010 com­pared to 13.5 mil­lion in 2009. “This indi­cates the coun­try has not yet fully recov­ered from the eco­nomic down­turn in 2009,” Stats SA deputy direc­tor gen­eral for pop­u­la­tion and social sta­tis­tics Kefiloe Masiteng told reporters. http://www.fin24.com/Economy/SA-shed-395–000-jobs-in-2010–20110928

Tehrantimes.com
Iran’s Oil Min­is­ter Ros­tam Qasemi, who is not any­more in the sanc­tions list of some West­ern coun­tries, is set to chair the upcom­ing meet­ing of the OPEC in Vienna. Qasemi is sched­uled to attend the meet­ing on Decem­ber 14 after his name was “removed from the sanc­tions list of the West­ern coun­tries” due to the efforts of the min­istries of oil and for­eign affairs, MEHR news agency reported on Wednes­day.  The EU put Qasemi on a sanc­tions list in July 2010, pre­vent­ing him from trav­el­ling or hold­ing assets in the EU – echo­ing a sim­i­lar US mea­sure five months ear­lier. http://tehrantimes.com/index.php/economy-and-business/3003-iran-oil-minister-to-chair-140th-opec-meeting

Iran is ready to help Turkey in repair­ing on a nat­ural gas trans­mis­sion pipeline and to resume the flow of its gas export to neigh­bor­ing Turkey within less than a week, an offi­cial said here on Wednes­day. The speaker of National Iran­ian Gas Com­pany (NIGC) told the Mehr news agency that NIGC has expressed its readi­ness to send Iran­ian tech­ni­cians and spe­cial­ists for help­ing Turkey to repair the nat­ural gas trans­mis­sion pipeline which was dam­aged in Turk­ish ter­ri­tory. While repair­ing and resum­ing the pipeline usu­ally takes one week long, but it is expected that by help­ing of the experts and tech­ni­cal agents of the National Iran­ian Gas Com­pany, they suc­ceed to repair the pipeline in the short­est time, Majid Bojarzadeh added. http://tehrantimes.com/index.php/economy-and-business/3002-iran-ready-to-resume-gas-exports-to-turkey-soon

Khaleejtimes.com
Dubai’s exports and re-exports recorded a 17 per cent growth dur­ing the first eight months of 2011, a top offi­cial said on Wednes­day. “The emirate’s exports and re-exports rose to Dh162 bil­lion dur­ing the Jan­u­ary to August period from Dh138 bil­lion in the same period last year,” said Abdul Rah­man Saif Al Ghu­rair, Chair­man of the Dubai Cham­ber of Com­merce and Indus­try. Dubai also con­tin­ues to cement its posi­tion as a major hub espe­cially for the re-export of auto parts, with a strong and well-developed re-export sec­tor, espe­cially in auto parts due in part to the lack of an auto­mo­tive man­u­fac­tur­ing indus­try.http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/business/2011/September/business_September416.xml&section=business

Thetrader.se
Great piece on the ever increas­ing stu­pid­ity of HFT Machines. No, HFT does not pro­vide liq­uid­ity, effi­ciency, vol­ume etc, but now pro­vides fake trades, that the investor does not see. If any­body can explain the Eco­nomic Pos­i­tive of the below trades, please send us a mail. As usual, great work by Nanex. Usu­ally when algo­rithms go hay­wire in the mar­kets, they exe­cute trades at wild prices; many of which will later be can­celed. ‘Pre­tend it didn’t hap­pen‘ is the cur­rent mantra of our reg­u­la­tory agen­cies. The reg­u­la­tors would also appre­ci­ate it if you didn’t talk about these events as they could harm investor con­fi­dence. What coun­try are we in? http://www.thetrader.se/2011/09/28/pretend-it-never-happened-hft-rulezzzz/

While the Equi­ties mar­ket con­tinue the HFT Dom­i­na­tion, where now the lat­est is RumorAlgo HFT, the Credit Mar­kets imply a much worse out­look of the Econ­omy. Credit Mar­kets actu­ally do mea­sure the Econ­omy, while Equi­ties Mar­ket more resem­ble a trip to Dis­ney­land. Despite the many wishes out of Euro­pean politi­cians, where we get mixed sig­nals on a real time basis, Credit Mar­kets are sug­gest­ing trou­ble ahead. Credit Mar­kets are in a free fall mood. What Mar­kets to trust, is up to the indi­vid­ual investor. We know our pref­er­ence. Some Credit Mar­kets Charts Update below, cour­tesy Macro Story.http://www.thetrader.se/2011/09/28/credit-markets-vs-equities-markets/

Tags: Asian Markets, Asian Shares, Austerity, Bidding War, Bonds, Brazil, Brazilian Group, Brazilian Market, Commodities, Debt Problems, Domestic Political Opposition, financial stocks, Global Financial Crisis, Gold, India, Infrastructure, Insurance Group, Italy And France, News That Matters, Outlook, Reuters Reports, Spanish Rule, State Lottery, Sulamerica, Tokio Marine, Turbulent Markets, Wsj
Posted in Bonds, Brazil, Commodities, Gold, India, Infrastructure, Markets, Outlook | Comments Off

Citi Downgrades Global Growth And Expects EFSF 'Grand Plan' Disappointment

Thursday, September 29th, 2011

Citi's Eco­nom­ics team down­graded global growth expec­ta­tions once again, expect­ing 3.0% this year (ver­sus 4.0% last year) with more aggres­sive down­grades next year to only 2.9% (from 3.2% expec­ta­tions last month and 3.7% two months ago). Growth revi­sions were down­graded for every major global econ­omy as expec­ta­tions move with Goldman's coincidentally-timed dis­cus­sion of stag­na­tion (also tonight) with advanced economies cut more than devel­oped though East­ern Europe saw the most sig­nif­i­cant reduc­tions. They note that 'the recent pace of GDP fore­cast down­grades is among the great­est of the last ten years' and extends the recent run of lower fore­casts to four months-in-a-row. In a sec­ondary note, Willem Buiter and team also pour cold water on mar­ket expec­ta­tions for the EFSF point­ing out, as we have done for a few weeks now at every sug­ges­tion, that all the dif­fer­ent options have their short­com­ings and are unlikely to be imple­mented quickly.

From Citi's Sep­tem­ber 2011 Global Eco­nomic Out­look and Strategy:

Global growth prospects con­tinue to dete­ri­o­rate quickly, both for advanced economies and emerg­ing markets.

 

This month, we are again cut­ting our 2011-12 GDP growth fore­casts for many coun­tries, includ­ing the Euro Area, UK, Japan, US and Canada, with a mod­est down­grade for China and sharper cuts for East­ern Europe, Sin­ga­pore, Hong Kong and South Africa.

 

 

We expect early sov­er­eign debt restruc­tur­ing in the Euro Area, and for the Euro Area over­all to slip back into reces­sion in com­ing quar­ters. The fol­low­ing table out­lines progress so far on the ini­tial increase:

 

 

Against this back­drop, Citi’s Macro Strat­egy team are cau­tious on risk
assets and bull­ish core fixed income. Citi equity strate­gists believe
that mar­kets are over­sold, but that stock prices are unlikely to move
con­vinc­ingly higher until there are clearer signs of sta­bil­ity in
eco­nomic activ­ity and prof­its growth. Citi rate strate­gists expect lower
yields and flat­ter curves in core EMU mar­kets and the UK. Citi FX
strate­gists expect the USD and JPY to gain.

Source: Citi

Tags: Buiter, Canadian Market, Downgrades, Economics Team, Efsf, Gdp Forecast, GDP Growth, Global Economic Outlook, Global Economy, Global Growth, Gold, Growth Expectations, Growth Forecasts, Growth Prospects, Initial Increase, Market Expectations, Outlook, Singapore Hong Kong, Sovereign Debt Restructuring, Stock Prices, Strategists, Strategy Team, Table Outlines
Posted in Canadian Market, Gold, Markets, Outlook | Comments Off

Canadian Energy Firms Trading at Crisis Prices

Wednesday, September 28th, 2011

This Week: iShares S&P TSX Capped Energy  ( Ticker: XEG.TO )

by Vikash Jain, ArcherETF

Cana­dian energy com­pany shares are trad­ing at lev­els not seen since the depths of the 2008 cri­sis, lev­els that can only be jus­ti­fied if the global econ­omy falls into another reces­sion and oil prices drop by half.  Any out­come bet­ter than such a sce­nario and the sec­tor will rally.

The entire Cana­dian equity mar­ket has been hit hard this year. The iShares S&P TSX 60 ETF (XIU-TO) is down 8% year to date and down 14% from its March high. But energy firms have been hit harder. The iShares TSX Capped Energy ETF (XEG-TO) is down 18% year-to-date and 27% since March, bring­ing its price, at just over $16, down to Octo­ber 2008 levels.

Indi­vid­ual firms are even worse off. Year-to-date, Sun­cor (SU-TO) and Cana­dian Nat­ural Resources (CNQ-TO) are down about 25%, and Tal­is­man (TLM-TO) a gut-wrenching 37%. The one major excep­tion is Cen­ovus: born after the cri­sis, it has stayed in the black for the year to date.

On a val­u­a­tion basis, these stocks, and by exten­sion, XEG, are cheap. For­ward price-to-earnings ratios are in the 8 to 9 times range for all of them except Cen­ovus at 13.6 times. The same ratios were around 8 times in the autumn of 2008. They all have debt to equity ratios of less than 50%, a good thing if a reces­sion does occur.

Their prices are so low, in fact, that one firm, Sun­cor recently said it would buy back up to $500 mil­lion worth of its shares or about 1.1% of out­stand­ing issuance by next September.

One rea­son they are cheap is polit­i­cal and envi­ron­men­tal risk. “Your oil is really dirty”, they say, flash­ing National Geo­graphic pho­tographs of birds and bitumen-filled tail­ings ponds.  “But it is more eth­i­cal than oil from some misog­y­nis­tic medieval king­dom,” we reply.

Uncon­vinced, envi­ron­men­tal­ists in the United States, our main oil buyer, are work­ing to block Cana­dian oil-sands oil.  In August, 1,200 pro­test­ers at the White House con­demned TransCanada’s (TRP-TO) pro­posed Key­stone Pipeline. Two weeks ago, a list of Nobel Prize win­ners added their names to the protest. If the $7 bil­lion pipe is built, which is likely, it will trans­port oil from Alberta nearly 3,000 km to refiner­ies on the U.S. Gulf Coast.

How­ever, even in the unlikely event that the United States does close its doors, I sus­pect there would be no short­age of demand from less finicky buy­ers just as lum­ber from British Colum­bia, rejected by the United States sev­eral years ago, has found will­ing Asian buyers.

How­ever, most of the price decline is attrib­ut­able to reces­sion fears, in Canada and glob­ally. Here at home, expec­ta­tions for eco­nomic growth have been cut. The Inter­na­tional Mon­e­tary Fund now expects Canada to grow at about 2% this year and next, down from its ear­lier expec­ta­tion of about 2.8%. The lat­est data shows job growth stalled this sum­mer, with unem­ploy­ment stuck at just over 7%.

The IMF also revised its expec­ta­tions for global growth for 2011 and 2012 down to about 4.0% from about 4.3% earlier.

How­ever, even with the slower growth, oil con­sump­tion is expected to grow and prices, accord­ing to the U.S. Energy Infor­ma­tion Admin­is­tra­tion, are expected to remain in the mid-$90s per bar­rel into 2012 despite the slower eco­nomic growth. The price has ranged between $80 and $110 for the last year.

That is a far cry from late 2008, when prices for WTI crude fell to about $40 a bar­rel before recov­er­ing to the mid-$70 range 8 months later. The dif­fer­ence back then was the world was on the edge of a finan­cial precipice.

And while we are cer­tainly fac­ing eco­nomic prob­lems today – Euro debt, U.S. job­less­ness – they are not of the same mag­ni­tude as in 2008. If this view is cor­rect, then the energy sec­tor is an attrac­tive investment.

The dom­i­nant Cana­dian energy ETF is iShares’ XEG with nearly $800 mil­lion in assets. It holds 55 com­pa­nies, mainly oil but Encana rep­re­sents the gas sec­tor with a 5.7% weight. Sun­cor and CNR are the biggest hold­ings with about 15.7% and 12.4% of the allo­ca­tion. XEG’s div­i­dend yield, at about 2.2%, is lower than the broad mar­ket, but XEG will likely out­per­form the TSX 60 once it rebounds.

Dis­clo­sure: We may hold posi­tions in any and all secu­ri­ties men­tioned in this report.

The archerETF Global Tac­ti­cal Portfolio

archerETF offers Global Tac­ti­cal Port­fo­lio Management.

Our out­look is Global: we invest across coun­tries, sec­tors, com­modi­ties and other asset classes to improve returns. Our man­age­ment is Tac­ti­cal: we strive to select the right oppor­tu­ni­ties at the right times in response to chang­ing mar­ket con­di­tions to man­age and min­i­mize port­fo­lio risk.

Please call us at TF 1–866-469‑7990 for more information.

Tags: Bitumen, Canadian, Canadian Energy, Canadian Equity, Canadian Market, Canadian Natural Resources, Canadian Oil Sands, Commodities, Company Shares, Crisis Levels, Crude Oil, Debt To Equity Ratios, Energy Company, Energy Firms, ETF, Forward Price, Global Economy, Medieval Kingdom, Outlook, Photographs Of Birds, Suncor, Tlm, TSX 60, Vikash, Year To Date
Posted in Canadian Market, Commodities, ETFs, Markets, Oil and Gas, Outlook | Comments Off

Richard Koo: Are We the Next Japan?

Wednesday, September 28th, 2011

Tags: Bank Of New York, Bonds, Business Cycles, Chief Economist, Commodities, Debt Crisis, Definitive Analysis, Federal Reserve Bank, Federal Reserve Bank Of New York, First Glance, Foremost Expert, government spending, Holy Grail, Kim Clark, Money Magazine, Nomura Research Institute, Obama, Rare Type, Real Estate Bubble, Recessions, Richard Koo, Stimulus Package
Posted in Bonds, Brazil, Commodities, Markets | Comments Off

The Fed Twists and the Market Turns (Sonders)

Wednesday, September 28th, 2011

The Fed Twists and the Mar­ket Turns

Liz Ann Son­ders, Senior Vice Pres­i­dent, Chief Invest­ment Strate­gist, Charles Schwab & Co., Inc.
Sep­tem­ber 22, 2011

Key points

• The Fed­eral Reserve announced "Oper­a­tion Twist," which was largely expected, but did lit­tle to calm markets.
• The goal is to fur­ther reduce bor­row­ing costs and push money via lend­ing out into the real economy.
• Whether it will work is the big ques­tion … because high inter­est rates are not the economy's problem.

(The bulk of the arti­cle below was penned imme­di­ately after the Fed's announce­ment of "Oper­a­tion Twist" on Sep­tem­ber 21, but the fol­low­ing 11 para­graphs add fresh per­spec­tive on the recent mar­ket action.)

Stocks, com­modi­ties and even gold prices tanked the day after the Fed­eral Open Mar­ket Committee's lat­est pol­icy meet­ing con­cluded, adding fuel to the notion that the con­fi­dence cri­sis is reach­ing new heights. Often the goal of a Fed that's eas­ing mon­e­tary pol­icy is to stir up ani­mal spir­its, but instead its move and more pes­simistic out­look only added to the lack of con­fi­dence about the future health of the economy.

Adding to the woes is the con­tin­ued melt­down in the euro­zone, lead­ing investors to exit all forms of risk and head to the safety of cash and US Trea­suries. This has spurred a rally in the US dol­lar, which, given the recent inverse cor­re­la­tion between the dol­lar and stocks, has also exac­er­bated the mar­ket sell-off (in com­modi­ties, too). In short, the mar­ket is com­ing to the real­iza­tion that there’s only so much the Fed can do.

Not help­ing mat­ters were com­ments from Mohamed El-Erian of PIMCO, speak­ing at an event in Wash­ing­ton, DC today: He sug­gested that the world was on the eve of the next finan­cial cri­sis with sov­er­eign debt its epi­cen­ter, and that the Euro­pean Cen­tral Bank hasn’t put in place a "cir­cuit breaker" to con­tain the region’s debt cri­sis. This has been our con­cern for some time now as well, believ­ing a default by Greece is inevitable. Michelle Gib­ley and I addressed the euro­zone cri­sis in our report last week titled "The End of the Line."

Lend­ing some cre­dence to the view that the euro­zone cri­sis has become the market's biggest dri­ver is an analy­sis of daily trad­ing activ­ity. Based on a study by Birinyi Asso­ciates, for the first seven months of this year the pri­mary focus of the US stock mar­ket appeared to be the domes­tic econ­omy, but since August atten­tion has shifted toward for­eign concerns.

Through July, the first half hour of trading—when US mar­kets are often react­ing to overnight trad­ing in for­eign markets—had lit­tle effect on the over­all returns of the S&P 500. How­ever, since the end of July, if you exclude the first half hour of trad­ing from the S&P 500's return, the mar­ket would be 9% higher than it is now, sug­gest­ing the mar­ket has become more reac­tionary to global events and trading.

Even an on-the-surface strong read­ing in the lead­ing eco­nomic indi­ca­tors out today didn't ease con­cerns. Although the LEI was up more than expected, it was dri­ven by the wide yield spread and ris­ing money sup­ply. Both of these finan­cial indi­ca­tors may be less rel­e­vant to growth than in the past: Indeed, every reces­sion in the past 60 years has been pre­ceded by an inverted yield curve (when short-term inter­est rates are higher than long-term rates); but with short rates pegged at zero, that’s not going to hap­pen. As for money sup­ply, it's been boosted by fear and lack of con­fi­dence as investors of every vari­ety have sold riskier assets in favor of cash holdings—not presently a pos­i­tive sign.

The strong LEI but weak mar­ket action is char­ac­ter­is­tic of what still remains a some­what mixed set of indi­ca­tors. Cor­po­rate prof­its have remained healthy, though earn­ings esti­mates have been trend­ing lower. Indus­trial pro­duc­tion and durable goods orders have remained healthy. But macro con­cerns have taken prece­dence over some micro pos­i­tives. And weaker man­u­fac­tur­ing growth reported in China yes­ter­day only added fuel to the global slow­down fire.

Finally, there may be another gov­ern­ment shut­down pend­ing given the inabil­ity to pass a stop­gap bud­get mea­sure that would keep the gov­ern­ment run­ning into next month. Just what mar­kets didn’t need is fur­ther lack of con­fi­dence in polit­i­cal lead­er­ship in Wash­ing­ton DC.

We’ve received a lot of ques­tions about the like­li­hood of a double-dip reces­sion and what the stock market's say­ing about the econ­omy. As we've often noted, the risk of another reces­sion is cer­tainly ele­vated, but it's not yet con­clu­sive. Part of why we think another offi­cial reces­sion might be avoided is actu­ally not great news: Many seg­ments of the econ­omy, includ­ing small busi­ness and hous­ing, never came out of the 2007–2009 reces­sion to begin with, so they may not drop from recent lev­els suf­fi­ciently enough to hurl the econ­omy into another offi­cial contraction.

Reces­sions are defined as sharp declines in activ­ity, but the rebound from the last reces­sion was rel­a­tively ane­mic, sug­gest­ing that a sharp decline from these lev­els is less of a risk. In addi­tion, his­tor­i­cally there's not much dif­fer­ence between the depth of a cycli­cal bear mar­ket that's accom­pa­nied by a reces­sion and one that isn't fol­lowed by a recession.

More trou­bling is the poten­tially unique rela­tion­ship we're see­ing between stocks and the econ­omy. Nor­mally the stock mar­ket is a dis­count­ing mech­a­nism, and its weak­ness could indeed be send­ing a mes­sage about future eco­nomic growth. But the stock mar­ket has also become a cat­a­lyst, and its weak­ness (and the atten­dant weak­ness in con­fi­dence) could actu­ally be the trig­ger for another reces­sion … the "self-fulfilling prophecy" con­cept pos­si­bly in play about which we've writ­ten and spo­ken, most recently in the lat­est Schwab Mar­ket Per­spec­tive.

(Post-Fed meet­ing com­ments from Sep­tem­ber 21):

No doubt in reac­tion to the sig­nif­i­cant weak­en­ing of the econ­omy over the past sev­eral months, the Fed­eral Reserve acted as expected and announced what's known as "Oper­a­tion Twist" (OT). The goal of this pro­gram, first insti­tuted in 1961 and indeed named after the dance pop­u­lar at the time, is to lengthen the aver­age matu­rity of the Fed's bal­ance sheet. The result, osten­si­bly, will be to lower longer-term bor­row­ing rates, includ­ing mort­gage rates.

The details
Specif­i­cally, the Fed will buy $400 bil­lion of US Trea­sury bonds with matu­ri­ties of six to 30 years through next June. Over the same span, the Fed will sell an equal amount of shorter-term Trea­suries, with matu­ri­ties of three years and less. The Fed also announced that it will rein­vest matur­ing mort­gage debt into mortgage-backed secu­ri­ties (MBS) instead of Trea­suries. This is intended to help reduce mort­gage bor­row­ing costs and stim­u­late addi­tional mort­gage refi­nanc­ings and demand for new mortgages.

Over the past three months, the value of gov­ern­ment agency secu­ri­ties and mort­gages on the Fed's bal­ance sheet has con­tracted by nearly $40 bil­lion, and the move to rein­vest into MBS is to pre­vent a shrink­ing of its bal­ance sheet.

My office is adja­cent to that of Kathy Jones, our fixed income strate­gist. We lis­tened to the announce­ment together, and she had this to say: "The only sur­prise was that the Fed will shift nearly 30% of its $400 bil­lion in bond hold­ings into 30-year Trea­suries, which is more than most thought would occur at the very long end of the yield curve. This will flat­ten the yield curve even fur­ther. We've been using the mantra 'lower for longer' … now I guess we'll have to say 'lower and flat­ter for a lot longer'."

Not everyone's a fan
As has been the case recently, there were three dis­senters on the Fed­eral Open Mar­ket Com­mit­tee (FOMC): Dal­las Fed Pres­i­dent Richard Fisher, Min­neapo­lis Fed Pres­i­dent Narayana Kocher­lakota and Philadel­phia Fed Pres­i­dent Charles Plosser. They've been more "hawk­ish" on recent Fed deci­sions, con­cerned about the unin­tended con­se­quences of extremely easy mon­e­tary pol­icy, includ­ing inflation.

That said, the state­ment accom­pa­ny­ing the FOMC's deci­sion did note that "infla­tion appears to have mod­er­ated since ear­lier in the year as prices of energy and some com­modi­ties have declined from their peaks." The state­ment did note addi­tional down­side eco­nomic risks though, specif­i­cally men­tion­ing "strains in global finan­cial markets."

50 years later
Today's OT has the same ratio­nale as that of 1961—to stim­u­late a very weak econ­omy while try­ing to keep infla­tion at bay. The deci­sion to "ster­il­ize" the pur­chases of longer-dated Trea­suries with sales of shorter-dated Trea­suries, thereby keep­ing the bal­ance sheet at its cur­rent size, is an attempt to keep infla­tion at bay. Recall that both rounds of quan­ti­ta­tive eas­ing, QE1 and QE2, did expand the bal­ance sheet and helped unleash a rapid accel­er­a­tion of com­mod­ity infla­tion. The Fed had been very trans­par­ent about its desire to pre­vent the unin­tended con­se­quences of more quan­ti­ta­tive easing.

What dif­fer­en­ti­ates QE from OT is that OT does not impact the amount of money sup­ply in the mar­kets and there­fore the effect on the dol­lar, and in turn com­mod­ity prices/inflation, is more lim­ited. By adding liq­uid­ity at the longer end of the Trea­sury curve and pump­ing up the sup­ply of Trea­suries at the shorter end of the curve, the Fed is hop­ing that cash will ven­ture into the real economy.

Will it work?
There are risks that the money won't find its way into the econ­omy and cre­ate jobs, as intended by the Fed. Remem­ber, full employ­ment and sta­ble prices are the Fed's dual man­dates. There's legit­i­mate fear that the Fed's siphon­ing of liq­uid­ity at the short end of the curve won't actu­ally lead to increased lend­ing in the real econ­omy. Instead, the move could destroy yields on sav­ings with­out the ben­e­fi­cial effect on growth, lead­ing to a form of liq­uid­ity trap.

We've con­sis­tently expressed con­cern that the Fed is unable to cure what ails the econ­omy. The prob­lem is not that inter­est rates are too high, but that we're in a debt-deleveraging cycle that started three years ago in the pri­vate sec­tor and is only just begin­ning in the pub­lic sec­tor. This will take time—a lot of it—and although the Fed is not impo­tent, it does not pos­sess the Holy Grail for the economy.

As for hous­ing and mort­gage rates, we're also still in a mort­gage delever­ag­ing and fore­clo­sure cycle, and frankly, pol­icy mak­ers may be miss­ing what ails the hous­ing mar­ket. The focus has been on get­ting mort­gage rates down fur­ther in order to stim­u­late refi­nanc­ings and new bor­row­ing. But as I've noted many times, it's the "real" mort­gage rate that mat­ters to prospec­tive bor­row­ers, not the "nom­i­nal" mort­gage rate. What do I mean by that?

The math of "real mort­gage rates"
Back at the peak of the hous­ing bub­ble in 2005, the 30-year fixed mort­gage rate (the nom­i­nal rate) was about 6%. To get the "real" mort­gage rate, you have to sub­tract the appre­ci­a­tion in home prices (the "defla­tor"). Home prices were appre­ci­at­ing at a 17% annual rate at the bubble's peak. So, the real mort­gage rate was actu­ally –11%: 6% — 17% = (11%). No won­der we had a bub­ble … who wouldn't want to bor­row at neg­a­tive rates? You could bor­row at 6% to buy an asset appre­ci­at­ing at 17% per year.

Fast-forward to the trough in hous­ing in 2009. The nom­i­nal 30-year fixed mort­gage rate had dropped to 5%, but home price appre­ci­a­tion became depre­ci­a­tion at an ironic 17% rate. So, the real mort­gage rate was actu­ally +22%: 5% — (17%) = 22%. Who wants to bor­row at any rate to buy a rapidly depre­ci­at­ing asset?

I think this is what many pol­icy mak­ers are miss­ing. It's the "rapidly depre­ci­at­ing" part of the equa­tion that needs to heal. If home prices are still declin­ing, even with rates low, there's likely to be lim­ited demand to bor­row. I do think mort­gage refi­nanc­ings could get at least a mar­ginal lift from OT if rates go lower, but we need to be real­is­tic about the over­all affect on housing.

Con­fi­dence is key
Ulti­mately, con­fi­dence has to improve before we're likely to enjoy any rea­son­able pace of eco­nomic growth. Whether this move by the Fed starts the confidence-healing process remains to be seen. But we sug­gest you keep your expec­ta­tions rel­a­tively low.

Impor­tant Disclosures

The infor­ma­tion pro­vided here is for gen­eral infor­ma­tional pur­poses only and should not be con­sid­ered an indi­vid­u­al­ized rec­om­men­da­tion or per­son­al­ized invest­ment advice. The invest­ment strate­gies men­tioned here may not be suit­able for every­one. Each investor needs to review an invest­ment strat­egy for his or her own par­tic­u­lar sit­u­a­tion before mak­ing any invest­ment decision.

All expres­sions of opin­ion are sub­ject to change with­out notice in reac­tion to shift­ing mar­ket con­di­tions. Data con­tained herein from third party providers is obtained from what are con­sid­ered reli­able sources. How­ever, its accu­racy, com­plete­ness or reli­a­bil­ity can­not be guaranteed.

Exam­ples pro­vided are for illus­tra­tive pur­poses only and not intended to be reflec­tive of results you can expect to achieve.

Copy­right © Charles Schwab and Com­pany Inc.

Tags: Animal Spirits, Bonds, Charles Schwab, Chief Investment Strategist, Commodities, Confidence Crisis, Debt Crisis, Eurozone, Federal Open Market Committee, Future Health, Gold, Gold Prices, High Interest Rates, Inverse Correlation, Lack Of Confidence, Liz Ann, Mohamed El Erian, Open Market Committee, Outlook, Pessimistic Outlook, PIMCO, Reaching New Heights, Senior Vice President, Sovereign Debt
Posted in Bonds, Brazil, Commodities, Gold, Markets, Outlook | Comments Off

Arnott: Look Outside Mainstream Stocks and Bonds (Morningstar)

Wednesday, September 28th, 2011

Arnott: Look Out­side Main­stream Stocks and Bonds
Investors need to broaden their hori­zons and con­sider alter­na­tives and tac­ti­cal bets if they want to achieve respectable returns in the com­ing years, says Research Affil­i­ates' Rob Arnott.

Transcript

The 3-D Hur­ri­cane Hurtling Toward the Econ­omy
A com­bi­na­tion of deficits, debt, and demo­graph­ics will weigh on the U.S. econ­omy for the next 10–15 years, says Research Affil­i­ates' Rob Arnott.

Tran­script

Arnott: Apple Pretty Darn Expen­sive
Research Affil­i­ates' Rob Arnott thinks it is unlikely Apple deserves it's place as the largest market-capitalization com­pany in the coun­try and that investors shouldn't expect out­sized returns.

Tran­script

Tags: Apple, Bets, Bonds, Demographics, Economy, Horizons, Hurricane, Investors, Largest Market Capitalization, Mainstream, Morningstar, Research Affiliates, Rob Arnott, Stocks And Bonds, Stocks Bonds
Posted in Bonds, Brazil, Markets | Comments Off

Squeeze continues, but don’t get carried away…..

Tuesday, September 27th, 2011

by The Trader, trader.se

Mar­kets are mov­ing very fast. Yes­ter­day Euro­pean morn­ing we wrote of big squeeze set ups, in both met­als and equi­ties (mainly Euro­pean equi­ties). We have had a bru­tal squeeze to the upside since then (Squeeze Sign, Char­tol­ogy). With every­thing hav­ing surged, even beyond our sce­nario, in a very fast move, we would be tak­ing some chips off the table. Things haven’t changed fun­da­men­tally, but the extreme bear­ish­ness among inbvestors, had to cre­ate this move to the upside. We still believe the squeeze will con­tinue, but at a “cooler” pace. With Roubini scream­ing Europe to go bust on a daily basis, and Bar­ton Biggs dream­ing of a ultra­short posi­tion at the bot­tom, we had the very much antic­i­pated bounce. Now we need to wait for the pun­dits to become bull­ish and dream­ing of being ultra­long, before we start short­ing the mar­kets, once again.

SPX short term chart, soon to hit the first resis­tance levels.

Stoxx vs SPX 3 day chart below. For the brave, buy SPX vs short Stoxx set up com­ing up on a short term basis only though (not cur­rency adjusted).

Sil­ver has had a tremen­dous 24 hours….

Tags: Bounce, Bust, Chips, Daily Basis, Europe, European Equities, Extreme Bearishness, Metals, Pace, Pundits, Resistance Levels, Set Ups, Spx, Squeeze, Stoxx, Term Basis, Ups
Posted in Markets | Comments Off