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Monthly Archives: May 2011

Nikkei Fails to Participate in Asian Market Rally on Slower U.S. Growth and a Weaker Yen

“Japanese stocks fell, sending the Nikkei 225 Stock Average to a third straight weekly decline, as reports showed the U.S. economy grew at a slower than estimated rate, reducing the earnings outlook for Japanese exporters.

Canon Inc. (7751), the world’s largest camera maker that gets more than 80 percent of its revenue outside Japan, slid 0.4 percent. Toyota Motor Corp. (7203), the world’s largest carmaker, lost 0.6 percent after the company said its production in Japan declined the most in 35 years in April after the nation’s record earthquake disrupted output. Sony Corp. (6758), Japan’s largest exporter of consumer electronics, retreated 3.2 percent after forecasting profit that missed analysts’ estimates.

The Nikkei 225 fell 0.4 percent to 9,521.94 at the 3 p.m. close in Tokyo. The broader Topix index dropped 0.3 percent to 824.90 with seven stocks retreating for every four that rose. For the week, the Nikkei has lost 0.9 percent, completing its longest streak of weekly losses since October, while the Topix is down 0.4 percent.”

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Fitch Lowers Ratings on Japan to Negative

Japan had its outlook lowered to negative from stable by Fitch Ratings.

“Japan’s sovereign credit-worthiness is under negative pressure from rising government indebtedness,” saidAndrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team, in a statement today. “A stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population ageing.”

Japan’s gross government debt reached 210 percent of GDP by end-2010, by far the highest ratio for any Fitch-rated sovereign, the ratings company said.”

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Japan Still Tight Lipped Over Radiation Leaks at Fukushima; Japan Faces Serious Contamination of Water

“As a team from the International Atomic Energy Agency visits TokyoElectric Power Co.’s crippled nuclear plant today, academics warn the company has failed to disclose the scale of radiation leaks and faces a “massive problem” with contaminated water.

The utility known as Tepco has been pumping cooling water into the three reactors that melted down after the March 11 earthquake and tsunami. By May 18, almost 100,000 tons of radioactive water had leaked into basements and other areas of the Fukushima Dai-Ichi plant. The volume of radiated water may double by the end of December and will cost 42 billion yen ($518 million) to decontaminate, according to Tepco’s estimates.

“Contaminated water is increasing and this is a massive problem,” Tetsuo Iguchi, a specialist in isotope analysis and radiation detection at Nagoya University, said by phone. “They need to find a place to store the contaminated water and they need to guarantee it won’t go into the soil.”

The 18-member IAEA team, led by the U.K.’s head nuclear safety inspector, Mike Weightman, is visiting the Fukushima reactors to investigate the accident and the response. Tepco andJapan’s nuclear regulators haven’t updated the total radiation leakage from the plant since April 12.

Tepco has been withholding data on radiation from Dai-Ichi, Goshi Hosono, an adviser to Japan’s prime minister, said at a press briefing today. Hosono said he ordered the utility to check for any data it hasn’t disclosed and release the material as soon as possible.”

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M3 Slows in Europe as Loan Growth Ticks Higher

Money-supply growth, which the European Central Bank uses as a gauge of future inflation, weakened in April as the region grappled with a debt crisis.

M3 money supply rose 2 percent from a year earlier, after increasing 2.3 percent in the previous month, the Frankfurt- based central bank said today. Loans to the private sector rose 2.6 percent from a year earlier.

The euro-region economy may struggle to gather strength as governments step up spending cuts to lower budget gaps and investors grow increasingly concerned that Greece may have to restructure its debt. ECB Executive Board member Jose Manuel Gonzalez-Paramo said yesterday that the financial environment remains “fragile,” calling some euro-region banks’ reliance on ECB liquidity measures “not sustainable.”

“There is a strong and growing divergence between core and periphery countries,” said Frederik Ducrozet, an economist at Credit Agricole SA (ACA) in Paris. “Interest rates are still very very low in real terms.”

M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings. In the three months through April, M3 increased 2.1 percent from a year earlier. The annual rate of M1 money-supply growth slowed to 1.7 percent in April from 3 percent in March.”

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Finance Minister of New Zealand: China Has a Interest to Buy Kiwi Bonds

New Zealand Finance Minister Bill English said that China Investment Corp., a sovereign wealth fund, has expressed interest in buying his country’s government bonds at auction.

SingaporeHong Kong and Malaysia also are interested in buying New Zealand debt as Asian governments seek to reduce their reliance on U.S. dollar assets when investing their reserves, English was cited as saying by the Marlborough Express, a newspaper based on New Zealand’s South Island. English’s comments were accurately reported by the newspaper, Craig Howie, a spokesman for the minister, said by phone from Wellington.

New Zealand’s dollar climbed to the highest level since March 2008 on speculation China will buy the nation’s assets to diversify the world’s largest holdings of foreign reserves. Asian nations are seeking to reduce their reliance on U.S. dollar assets as the greenback’s decline threatens to erode returns. CIC, a $300 billion fund, may have set aside 1.5 percent, or about NZ$6 billion ($4.9 billion), of its reserves to invest in New Zealand, interest.co.nz reported yesterday, citing an unidentified person.”

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Profits For Industrial Companies in China Decreased in Q1

“China’s industrial companies’ profit- growth slowed after the government raised interest rates and curbed lending to rein in inflation and limit asset bubble risks.

Profit rose 29.7 percent in the first four months to 1.49 trillion yuan ($230 billion) from a year earlier, the National Bureau of Statistics said on its website today. That compared with a 32 percent gain in the first quarter of this year.

Premier Wen Jiabao is seeking to sustain growth in the world’s second-biggest economy to create jobs and maintain social stability while curbing inflation that has exceeded his target every month this year. The central bank has raised interest rates twice this year and the government has intensified its crack-down on speculation in theproperty market by introducing purchase limits in some cities.

“Profit growth is expected to slow because their revenue will not grow as fast as before as the economy cools down due to the tightening,” Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said before today’s release. “Manufactures will be facing higher costs of power as they have to generate electricity themselves due to the power shortage.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped for a seventh day, falling 0.1 percent by the break at 11:30 a.m. local time. It has slid 4.4 percent this week.”

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Asian Markets Rise on Commodities and a Weak Dollar

“Stocks advanced, helping the MSCI All-Country World Index pare its weekly loss, and commodities climbed after leaders of the Group of Eight said the global economy is gaining strength. The dollar weakened, and U.S. index futures were little changed.

The MSCI equity index rose 0.6 percent at 6:15 a.m. in New York, leaving the gauge little changed after three weeks of declines. Standard & Poor’s 500 Index futures swung between gains and losses. The S&P GSCI index of 24 commodities increased 0.2 percent as silver and copper advanced. The dollar slid against all 16 of its major peers, while the Swiss franc rose to records against the euro, the pound and the U.S. currency.

The strengthening world economy will pave the way for reductions in debt, G-8 leaders said before the end of their two-day summit, according to a draft statement. Confidence in the recovery may be hurt by reports today that will probably show U.S. personal spending and home sales weakened, following data yesterday that indicated slower growth in the world’s largest economy.”

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European Stocks Traded Higher Eliminating the Week’s Losses

“European stocks climbed, with the benchmark Stoxx Europe 600 Index paring this week’s drop, as the Group of Eight said the global economy is strengthening. Asian shares rose and U.S. index futures were little changed.

Banking shares gained 0.9 percent as a group after Citigroup Inc. raised its recommendation on the sector to “overweight.” Lloyds Banking Group Plc jumped 2.8 percent, while BNP Paribas (BNP) SA rose 1.9 percent. Xstrata Plc, the largest exporter of coal used by power stations, and Rio Tinto Group, the third-biggest mining company, led gains in basic-resource companies as metal prices rallied in London.

The Stoxx 600 increased 0.6 percent to 278.73 at 11:45 a.m. in London, trimming this week’s decline to 0.3 percent. The gauge has risen 6.3 percent from this year’s low on March 16 amid optimism that company profits and government stimulus measures will sustain the economic recovery. Standard & Poor’s 500 Index futures expiring in June advanced 0.1 percent, while the MSCI Asia Pacific Index climbed 0.7 percent.”

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G8 States World Economy is Gaining Strength; That Helped to Weakene the Dollar and Bolstered Oil Overnight

“Oil headed for a weekly gain in New York on speculation that the global economic recovery will sustain demand for fuel.

Crude rose as much as 0.8 percent after Group of Eight leaders said the world economy is gaining strength and as a weakening dollar boosted the appeal of commodities. The Organization of Petroleum Exporting Countries may raise output quotas to meet global demand, according to JPMorgan Chase & Co.

“Demand data continues to be reasonably robust,” Amrita Sen, a London-based analyst at Barclays Plc, said in an e-mail today. “Given that the upside risks are higher than the downside risks, prices are edging higher.””

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Bernanke’s big gamble on the oil shock

Soaring food and fuel prices have become a substantial burden on households in the United States, the United Kingdom and other economies since September 2010, and may have contributed to a slowdown in growth recently.

The International Energy Agency has warned “additional increases in (oil) prices at this stage of the economic cycle risk derailing the global economic recovery” and called on producing countries to raise the supply of crude.

But leading oil forecasters are divided over whether prices have yet risen far enough to ration demand — via direct effects (substitution, conservation) and indirect ones (falling incomes, slowing growth) — or need to rise further before the market finds a fundamental and geopolitical equilibrium.


Three questions are critical for both the global economic outlook and prospects for the oil market:

• Does the sharp rise in oil prices since September 2010 qualify as an oil shock?

• How do oil shocks affect economic performance in the United States and elsewhere?

• How do policymakers understand oil shocks and how will that shape their response?


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Study finds “tantalizing insight into how hedge funds funds generate alpha.” And it’s not how you think…

For much of the second half of the 20th century, critics of Wall Street charged that brokerage research was tainted by the tight relationship between analysts and investment bankers.  These well documented “agency” issues remained until April 2003 when leading financial institutions signed a deal with the SEC to reimburse investors and put an end to the cozy relationship between the research departments and i-banking departments of major US financial institutions.  Many thought this put an end to the conflicts of interest that had plagued the industry.  But, apparently, they may have been wrong.

A recent study by Sung-Gon Chung and Melvyn Teo of Singapore Management University provides evidence that analysts have run from the arms of the i-bankers and into the arms of the hedge fund managers.  Write Chung and Teo:

[S]ell-side analysts tend to issue buy and strong buy recommendations on stocks  predominantly held by hedge funds… in a post-Spitzer era, Wall Street research departments having been forcibly weaned off  investment banking revenues now contend with new hedge fund-induced conflicts of interests.


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South China Sea Oil Rush Heightens Conflict Risk as U.S. Emboldens Vietnam

Vietnam and the Philippines are pushing forward oil and gas exploration projects in areas of the South China Sea claimed by China, risking clashes in one of the world’s busiest shipping corridors.

State-owned PetroVietnam’s partner Talisman Energy Inc. (TLM) aims to begin drilling next year in a block that China awarded to a U.S. rival and has protected with gunboats. Ricky Carandang, a spokesman for President Benigno Aquino, said the Philippines plans to exploit a field in an area of the sea where Chinese patrol boats harassed a survey vessel in March.

The neighbors of China, which has Asia’s largest military, were emboldened after the U.S. asserted interest in the waters last year, said James A. Lyons Jr., a former U.S. Pacific Fleet commander. A surge in crude prices to near $100 a barrel also spurred Vietnam and the Philippines to pursue the oil needed to meet economic growth targets of at least 7 percent this year.


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Bullish Sentiment Survey Falls 1.1% to 25.6%; Average Reading is 39%

“Bullish sentiment fell 1.1 percentage points to 25.6% in the latest AAII Sentiment Survey. Expectations that stockprices will rise over the next six months remained at the lowest level registered since August 26, 2010. The historical average is 39%.

Neutral sentiment, expectations that stock prices will essentially be unchanged over the next six months, rose 0.9 percentage points to 33.0%. This is the sixth consecutive week that neutral sentiment has been above its historical average of 31%.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged up 0.1 percentage points to 41.4%. Pessimism was last higher on September 2, 2010. Bearish sentiment has now been above its historical average of 30% for 13 out of the last 14 weeks.

The continuing volatility in the markets is dampening individual investors’ enthusiasm for stocks. (The uneven pace of the economic recovery, still high gas prices and European sovereign debt issues are not helping either.) This can be seen in the bullish sentiment readings, which have fallen for four consecutive weeks and have been below average for six consecutive weeks. Even with the decline, bullish sentiment is just slightly beyond one standard deviation of its historical norm, making the current reading atypical, but still not an outlier.

This week’s special question asked AAII members which sectors and industries they like right now. Energy was named by the largest number of respondents, followed by health care and technology. When the same question was asked in February, AAII members said they liked energy, technology and commodities/basic materials.

This week’s sentiment survey results:

  • Bullish: 25.6%, down 1.1 percentage points
  • Neutral: 33.0%, up 0.9 percentage points
  • Bearish: 41.4%, up 0.1 percentage points

Historical averages:

  • Bullish: 39%
  • Neutral: 31%
  • Bearish: 30%…..”

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Rail Traffic Indicator

“Rail traffic growth remains a bit mixed, but is still logging year over year growth.  Carloads remain tepid at 2.3% while intermodal is a more healthy 8.3%.  The AAR has the details on this week’s data:

“The Association of American Railroads (AAR) today reported steady results in weekly rail traffic with U.S. railroads originating 295,148 carloads for the week ending May 21, 2011, up 2.3 percent compared with the same week last year. Intermodal volume for the week totaled 234,235 trailers and containers, up 8.7 percent compared with the same week in 2010.

Twelve of the 20 carload commodity groups posted increases from the comparable week in 2010. Commodity groups posting significant increases were grain, up 12.9 percent, and metallic ores, up 11.5 percent. Groups posting a notable decrease were waste and nonferrous scrap, down 17.2 percent, and primary forest products, down 10.1 percent.

Weekly carload volume on Eastern railroads was up 0.9 percent compared with the same week last year. In the West, weekly carload volume was up 3.3 percent compared with the same week in 2010.

For the first 20 weeks of 2011, U.S. railroads reported cumulative volume of 5,822,505 carloads, up 3.3 percent from last year, and 4,469,033 trailers and containers, up 8.8 percent from the same point in 2010.””

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Bond King Jeffrey Gundlach: The housing meltdown hasn’t ended yet, and it could ultimately spark another financial crisis

“The housing meltdown hasn’t ended yet, and it could ultimately spark another financial crisis, says renowned bond fund manager Jeffrey Gundlach, CEO of DoubleLine Capital.

“The housing market is dropping . . . and about to go to a new low,” he tells CNBC. “I think we’re looking at some type of echo in the credit crisis coming up here. That’s what I’m afraid of.”

He notes that the S&P/Case-Shiller Home Price Index is approaching a new trough. The index measuring prices in 20 major cities dropped 3.3 percent in February from a year earlier, the biggest decline since November 2009.

At 139.27, the index has almost reached its six-year low of 139.26 set in April 2009. And Gundlach isn’t the only one worried about that development.

“There is very little, if any, good news about housing,” David Blitzer, chairman of the Case-Shiller index committee at S&P, said in a statement accompanying the latest report. “The 20-city composite is within a hair’s breadth of a double-dip.”

Another ominous sign: the ABX Index of subprime mortgage securities has slid about 20 percent in the past few months, with most of the drop coming in the last three months, Gundlach says.

In addition to falling prices, the amount of time it takes to sell a foreclosed property has ballooned to 26 months, Gundlach says. That means it will take longer to get out of the mess, he and others point out.

“Housing will continue to lag the recovery until foreclosures abate,” Sal Guatieri, a senior economist at BMO Capital Markets, tells Bloomberg.”

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Heinz Raises Dividend and Slashes 1000 Jobs

“H.J. Heinz Co., the world’s biggest ketchup maker, raised its dividend and profit forecast as it plans to slash as many as 1,000 jobs worldwide.

The cuts amount to about 3 percent of its workforce, according to data compiled by Bloomberg. Five factories will close as part of the plan, the Pittsburgh-based company said today in a statement.

Chief Executive Officer William Johnson said today that the cutbacks will help improve efficiency and productivity. Heinz, whose products include Ore-Ida french fries and Lea & Perrins sauces, also raised its long-term outlook for per-share earnings growth to as much as 10 percent in constant currency, from a previous target of up to 9 percent.”

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Google Debuts Smart Wallet; Mobile Payment System

“NEW YORK — Tech juggernaut Google rolled out its highly anticipated mobile payments system on Thursday, with company officials unabashedly declaring the advent of “a new-era of commerce.” Dubbed Google Wallet, the new product launched with a closely-related initiative: Google Offers, a targeted daily-deal service that will compete with the first-mover likes of Groupon and LivingSocial.

Google’s move instantly accelerates the booming point-of-sale digital payments arms race, and represents the most comprehensive and ambitious foray into mobile payments by any of the large players jockeying for position in the nascent but already-booming space that Google says it believes will quadruple over the next four years.

“We believe the shopping space has not yet been fully transformed by technology,” Stephanie Tilenius, Google’s Vice President of Commerce, told a packed press conference at its New York City headquarters.

Although Google’s digital wallet news was expected, Google Offers had not been on the press tech’s radar for today’s event — though it has been taken for granted that Google would build what it could not buy after Groupon reportedly spurned a $6 billion offer.”

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Recent Poll Suggest Many Americans are Losing Faith in a Free Market System

“The number of Americans who feel the free market system is best for the global economy is dropping off sharply.

In results recently published, 59 percent of Americans asked in 2010 by GlobeScan, a polling firm, agreed “strongly” or “somewhat” that the free market was the best system for the world’s future, down quite a bit from 80 percent when the question was first asked in 2002.

Across the globe, results were mixed.”

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