Monthly Archives: March 2012
FedEx Profits Beat; Slight Miss on Revenues
Initial Claims: Prior 351k, Market Expects 355k, Actual 348k
Continuing claims: Prior 3.343 million, market expects 3.363 million, actual 3.252 million
Comments »CITI: We’re At The End Of The Commodity Supercycle
“As if we haven’t head enough of this commodity/ iron ore/ steel super-cycle thing in the past few days, Citi is acknowledging that the end will come.
While some point to the fact that the apparent intensity of use for steel (in terms of kg per capita) for China is still well below some of other countries at their peak, Citi reckons that in terms of “value in use”, China has already above most of the developed world. In other words, while consumption of commodities in terms of volume still lags behind many countries, the value of the commodities China is consuming has already been higher than most countries.
The structural story — The bulls on the sector point to intensity of use charts for commodities on a kg/capita basis and extrapolate this into the future. This ignores one vital component which is price, as it assumes that developing economies will continue to consume ever increasing quantities of commodities regardless of the price. If we look at value in use rather than intensity of use this changes the argument and suggests China has already overtaken most of the developed world. Arguably for commodity consumption to increase globally then prices need to come down.
Margins have peaked — Mining margins peaked around 2007 and since then the industry has faced higher depreciation costs, higher operating costs, higher oil prices, higher exchange rates, higher capex costs and higher salaries – all these factors are continuing and margins will continue to come under pressure.
Returns have peaked —On an EVA basis (ROIC – WACC) the peak returns for the sector occurred in 2006, yet earnings momentum peaked two years later in 2008 and has subsequently moved higher. In our view the mining sector bought earnings momentum through M&A, and the mining sector is now buying earnings momentum through unprecedented capex spend. Importantly ROIIC is falling.
And arguably, China’s investment boom in the recent years have been getting less and less efficient.
Comments »The Always Cheerful ROSENBERG: ‘Over 40% Of Job Growth In January And February Was Weather-Related’
“Gluskin Sheff + Associates’ chief economist and strategist David Rosenberg doubled down on his bearish call for the U.S. economy in an interview with CNBC today.
He even asserted that “over 40 percent of the job growth in January and February was weather-related.”
That would mean that more than 193,802 of the 484,504 jobs added over this time period were simply due to nice weather.
“What happens in January and February is you get a bell curve on the data because half the country is normally snowed under,” Rosenberg explained. He estimated that the household sector had saved $30 billion in lower utility bills, and that this created unusual strength in the household sector.
Without such a mild winter, he suggests, the data would have continued to illustrate what has been a deeply dismal recovery.
With all the stimulus being provided by the federal government and the Federal Reserve, “of course you’re going to have some growth,” Rosenberg admits. Even so, “this goes down as the weakest economic recovery ever, despite the government stimulus—and that tells you something.”
HIs assertion that “we’re basically reliving what happened last [year]” proved the icing on the cake to his bearish call.
Even so, Rosenberg thinks there might be some bright spots for investors in the stock market. “Corporate balance sheets we know are in great shape,” he said, but “you’re really not buying GDP when you’re buying the stock market.” He pointed out that the high yield market is “still a pretty good place to put your money” given its return over Treasuries.”
Comments »Ireland Said to Ready Bank-Debt Proposal for ECB Review
Masters of the Universe Start to Challenge Ben Bernanke
“It started subtly, about a month ago, in the fed funds futures market, where investors had come to view Federal Reserve Chairman Ben Bernanke’s word as deed: first, the August pledge to hold the benchmark rate near zero until mid-2013; then, on Jan. 25, the extension of that target date to late 2014.
Investors priced fed funds futures contracts accordingly. At least they did until early February, when traders started to challenge the Fed’s forecast ever so slightly. (The contracts are cash-settled against the effective federal funds rate for the particular delivery month.)
The March 2014 contract, for example, peaked at a high of 99.77 on Jan. 30, an implied yield of 0.23 percent, within the Fed’s current 0 to 0.25 percent target. The yield rose to 0.65 percent earlier this week. Volume and open interest shot up, as well. Even the late-2013 contracts are starting to suggest zero isn’t a sustainable equilibrium.
Last week, the unthinkable happened: Long-term notes and bonds took a shellacking even as the Fed gobbles up the equivalent of the Treasury’s long-term issuance.
Not content merely to project a path for overnight rates, the Fed has engaged in several rounds of bond buying since 2009 — more than $2 trillion of Treasuries and agency mortgage- backed securities — to ensure that long rates don’t start thinking independently. A manipulated market leaves little room for self-expression, even among those gun-slinging Masters of the Universe….”
Comments »Draghi Says Worst of Debt Crisis ‘Is Over,’ Bild Reports
S&P’s Kraemer Says Italy Risks Are Main Focus for Policy Makers
Europe Suffered a Winter Freeze; Now Damaged Crops Face Drought
“European wheat and rapeseed crops are at risk of drought that may further hurt yields after freezing weather last month destroyed some fields, analysts and forecasters said.
France, Spain, England and northern Italy got less rain than normal since the start of January, European Union weather data show. They will probably stay drier and warmer than usual in the next 30 days, said Joel Burgio, an agricultural meteorologist at Telvent DTN.
The 27-nation EU typically grows about 20 percent of the world’s soft wheat. A cold wave in February may have lopped 5 million metric tons off this year’s harvest, and a lack of rain might further harm EU output, according to Alexandre Marie, an analyst at French farm adviser Offre et Demande Agricole.
“The situation in Europe is alarming,” Marie said by phone yesterday from Bourges, west of Paris. “That will remain a factor of support for the market in coming weeks.”
Paris-traded milling wheat for November delivery was priced above the grain for December delivery in Chicago for the first time in the contracts’ lifetime on Feb. 7. Buyers now need to pay $14.29 a ton more for French wheat.
“We’re already starting to see a market reaction,” Marie said. European wheat has gained on U.S. grain because of concern about frost damage to the crop, and drought is an additional risk, he said.
Less Than Average
Rainfall in northern France, England and the north of Italy this year was 23 percent to 47 percent below the long-term average, data from the EU’s Monitoring Agricultural Resources unit show. In Spain and France’s Mediterranean region, amounts were 59 percent to 78 percent lower….”
Comments »Russia Moves to Lower State Ownership in Bank Stocks Below 50%
“Russian President Dmitry Medvedev ordered the government and the central bank to prepare proposals on lowering the state’s share in lenders to less than 50 percent, the Kremlin said.
Medvedev instructed Prime Minister and President-elect Vladimir Putin and Bank Rossii Chairman Sergey Ignatiev to submit the proposals by Sept. 1, according to a statementpublished on the Kremlin’s website today. OAO Sberbank (SBER) and VTB Group, the two biggest lenders, are run by the government.
The outgoing Russian leader promised to relinquish control of some of the biggest state companies at the St. Petersburg International Economic Forum last June, saying it was time to reverse the policy of strengthening the government’s presence. The authorities plan to raise more than 1 trillion rubles ($34 billion) from state asset sales from 2012 to 2014, the Economy Ministry said in September. Lenders run or part-owned by the state control more than half of the financial industry’s assets, the Deposit Insurance Agency estimated last year.
“This is just posturing and part of the jockeying for position in the new government,” Bruce Bower, a partner at Moscow-based hedge fund Verno Capital, which owns shares in Sberbank and VTB, said by phone. “It doesn’t necessarily mean it will happen, and the proposal may just be dropped.”
Sberbank, Russia’s largest lender, plans on April 16 to start marketing a 7.6 percent stake held by the central bank, people with knowledge of the matter said last week. VTB, which raised $3.3 billion from a secondary public offering in February last year, may sell additional shares, Interfax reported on Jan. 26, citing Chief Executive Officer Andrey Kostin….”
Comments »Crude Gives Back a Dollar as Stockpiles and Global Slowdown Weigh Heavy
“Oil in New York for the second time in three days after France said industrialized nations are considering a release from strategic stockpiles and a report showed Chinese manufacturing may contract.
Futures dropped as much as 1.5 percent after French Industry Minister Eric Besson said the country is “studying with its partners all possible options,” including the supply of oil from emergency reserves. Manufacturing in China, the world’s second-largest oil consumer, may decline for a fifth month in March, according to a report today from HSBC Holdings Plc and Markit Economics.
“There is no motivation for buying,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “People are becoming a bit cautious because it is more or less clear that Iran doesn’t want to get into war with anyone, and talk of releasing strategic stocks is bearish.”
Crude for May delivery slid as much as $1.60 to $105.67 a barrel in electronic trading on the New York Mercantile Exchange. It was at $106.04 at 11:21 a.m. London time. The contract gained $1.20 yesterday to $107.27, the highest close since March 19. Prices are 7.3 percent higher this year.
Brent oil for May settlement on the London-based ICE Futures Europe exchange declined as much as $1.22, or 1 percent, to $122.98 a barrel. The European benchmark contract was at apremium of $17.25 to New York futures. The difference was $16.93 at yesterday’s close, the smallest in three weeks….”
Comments »A Strong Dollar and Poor Global Economic Data Takes Gold Down to its Lowest Price Since January
“Gold dropped to the lowest price since January in London after reports showed manufacturing may contract from China to Germany and a stronger dollar curbed demand.
China’s manufacturing may contract for a fifth straight month in March, a report showed, hurting the outlook for commodities and sending the Standard & Poor’s GSCI Index of 24 raw materials to a one-week low. The U.S. dollar rose to the highest level in almost a week against a six-currency basket including the euro and the yen. About half of jewelry stores in India remain closed as owners protest against higher taxes.
“At the moment gold is looking weak, investors are coming out of it,” David Govett, head of precious metals at Marex Spectron Group, said today by phone from London. “Data out of Chinais weaker, so you are going to look for gold imports there to drop. And with the Indian tax increase, the two major buyers of gold got reasons not to buy it. With the stronger dollar and everything else that’s going on in the world, why buy gold at this moment in time?”
Gold for immediate delivery fell 0.8 percent to $1,636.88 an ounce by 10:05 a.m. in London. It fell as much as 1.1 percent to $1,632.45, the lowest price since Jan. 16. The April-delivery contract dropped 0.8 percent to $1,636.50 an ounce on the Comex in New York….”
Comments »New Zealand Growth Slows to Half the Estimated Consensus
“New Zealand’s economic growth slowed to half the pace economists predicted in the fourth quarter as manufacturing fell, adding to the case for no change in interest rates until next year.
Gross domestic product rose 0.3 percent in the three months ended Dec. 31 from the previous quarter, when it increased a revised 0.7 percent, Statistics New Zealand said in a report released today in Wellington. The result compares with the 0.6 percent median projection in a Bloomberg News survey of 16 economists….”
Comments »Japan Trade Surplus Sparks Confirmation of a China Slowdown; Dovish Action Expected
“Asian stocks rose after Japan posted an unexpected trade surplus and as a survey that showedChina’s manufacturing may contract this month stoked speculation the government may introduce more measures to bolster growth.
First Tractor Co., a Chinese maker of farm equipment, jumped 7.6 percent in Hong Kong after the mainland’s central bank cut reserve requirements to more branches of Agricultural Bank of China Ltd. Samsung Electronics Co. (005930), Asia’s No.1 consumer-electronics maker that counts China as its biggest market, gained 1.3 percent in Seoul. Honda Motor Co., Japan’s second-largest carmaker, added 1.7 percent in Tokyo.
“I don’t see a hard landing happening in China this year because of the policy offsets that can be put in place,” saidAndrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages about $150 billion. “China’s housing sector remains a key concern. The anecdotes coming out of the housing market suggest the weakness is quite pronounced.”
Comments »Retail Sales Fall More Than Expected in the U.K.
“U.K. retail sales fell more than economists forecast in February as households curtailed spending after a weaker-than-estimated increase the previous month.
Sales including fuel fell 0.8 percent from January, the most in nine months, the Office for National Statistics said today in London. Economists forecast a 0.5 percent decline, according to the median of 23 estimates in a Bloomberg News survey. The increase in January was revised to 0.3 percent from 0.9 percent….”
Comments »EU Service Manufacturing Falls More Than Expected
“Euro-area services and manufacturing output contracted more than economists forecast in March on declining domestic demand, adding to signs that the region’s economy is sliding into recession.
A euro-area composite index based on a survey of purchasing managers in both industries dropped to 48.7 from 49.3 in February, London-based Markit Economics said in an initial estimate today. Economists forecast a gain to 49.6, according to the median of 21 estimates in a Bloomberg News survey. A reading below 50 indicates contraction….”
Comments »Asia Trades Mixed at Best While Europe and U.S. Futures Fall Between 0.6% – 1.6%
Prisoner’s Dilemma–The Connection Between Sports Fans and Inmate Behavior
via Bill James @ grantland.com
There are three stages in the history of baseball. In the first stage, which ended about 1920, if you stood up in the front row and bellowed, “Hey, Cobb, I hear your mudder used to work bachelor parties,” Ty Cobb would come over to your seat and personally introduce you to his knuckles. In the third stage, which began about 1983, if you stand up and scream, “Hey, Pujols, I hear your mommy used to work bachelor parties,” three men with walkie-talkies will immediately surround you and escort you off the premises. But in the intermediate stage, you could take off your shirt, stand on your seat, and yell any goddamned idiotic thing you wanted to, and nobody would do anything except the beer vendors, who would come by your seat every inning to sell you as many cold ones as you wanted to buy.
Ah, those were the days; syphilis could be cured and AIDS hadn’t started yet. Boobies could be assumed to be natural, and condoms were only sold in the bathrooms of service stations. You could walk up to the gate of Fenway Park 10 minutes before game time and buy a ticket behind the dugout, where you were guaranteed to be seated next to some loud, drunken idiot screaming at Carlton Fisk about his mother. You think I’m exaggerating, but I’m not; I went to 40 major league games in 1982, and I was seated within 15 feet of a loud, drunken fan every game — even when I didn’t go with Neyer. (I’m joking; Neyer was a little kid then, and he doesn’t have to drink to start screaming at players. He doesn’t even have to be seated where a player can hear him. I’ve known him to do it through his television set, cold sober.)
The Internet is still in Stage One; we have loud drunks who feel the need “comment” on everything, but nobody knows what to do about them except to scream back at them, which doesn’t really seem to help. They’re called “trolls” now. I used to be kind of a troll myself, I think. I have sympathy for them, philosophically, and I haven’t shot any of them because they won’t let you bring your gun to the ballpark anymore. Oh, yes; you could; you could carry anything into a game in 1980 — backpacks, firecrackers, plastic explosives. Rick Monday became a national hero in 1976 by rescuing an American flag from a couple of trolls who had jumped the fence and were pouring gasoline on the flag. Think about it: You could bring a gasoline canister into a ballpark, and nobody would say anything about it. Those were the days, man; ah, the stuff I wish I had thought of doing when I still had the chance. Vince Coleman once threw a cherry bomb at a group of fans. His reputation suffered, but I understood what he was thinking. It was just his way of getting even with us.
The second stage of baseball history ended in the early 1980s after an incident in Houston not directly involving the Bush family. Cesar Cedeno had been involved in an unfortunate event involving the death of a young woman in his hotel room, and a distinguished gentleman was screaming at him for three days, yelling things like “Murderer” and the N-word, and also berating Cedeno’s wife, who was seated nearby. Finally Cedeno had had as much of that as he was going to take, and he went Ty Cobb all over the guy — not that I should pick on Cobb; Ruth, Anson, Joe Tinker, and most of the other superstars of that era also dealt with their detractors in a direct, personal manner. Cedeno was suspended for five games, but after a while baseball thought about it and said, “You know, maybe we should have done something about that situation there before Cedeno did.”
That’s the thing about regulating conduct; there is always some conduct that doesn’t get policed. When baseball effectively prohibited its players from defending their good names with physical threats and small weapons, this in essence required the players to put up with verbal abuse from fat, pimply guys whom they could have very easily beaten the grits out of. People say things in public all the time now for which, if you had said them 40 years ago, somebody would have kicked your ass. We’ve regulated the ass-kicking, so the rudeness is out of control, and we wind up with Keith Olbermann and Rush Limbaugh doing political commentary that falls in the same general class as drunken, shirtless bellowing.
I used to know both of those guys. Limbaugh used to work for the Royals. I didn’t really know him, but I bumped into him a couple of times. Olbermann used to be a broadcaster; funny, funny guy. They’re good guys; I wouldn’t have any trouble playing poker with either one of them, but I’m not sure what moron gave either one of them a microphone.
Which is an unfair thing to say; they have complex political philosophies, both of them, and they have microphones because somebody figured out that you could make a lot of money by combining a sophisticated political philosophy with oral flatulence. But I was reminiscing about the good old days, when men were men and high school girls didn’t have nipple rings, and you knew who the heavyweight boxing champion of the world was — even the high school girls did — because there was only one at a time and he was a big deal.
In his 1929 book 20,000 Years in Sing Sing, Warden Lewis E. Lawes says that his young daughter, who was born inside the prison, knew all of the prisoners and was allowed to wander freely around the prison, with a few obvious out-of-bounds penalties. Think about what a different world that is from a modern prison. If I could divert your attention for just a second with a serious question: How did we slip backward like that? How did prisons become these violent hellholes that they now are, so that it is unimaginable to have an 8-year-old girl wandering the hallways of a maximum-security lockup?
It has to do with the three stages I was talking about before. Prisons in that era were in Stage One: If a prisoner acted belligerently toward the guards, the guards would pull out the rubber hoses. The Warren Court put an end to that era, which was a good idea, I suppose, but that pushed us into Stage Two, during which baseball fans would scream at the players and nobody would do anything about it. The inmates now can abuse the guards, and the guards don’t really know what to do about it other than to transfer the offender to an isolation unit when it gets too bad. What is really needed is not a program of reacting to the worst abuse the prisoners can come up with, but a program of reacting swiftly to small infractions. But prisons have pushed the living conditions of the convicts down as far as the courts will allow them to be pushed, so the wardens have little operating margin to react to small infractions.
Isaac Newton’s Third Law of Crowd Control: For every problem you solve, there is an equal and opposite problem that you’ll get around to in about 60 years. Warden Lawes created sports teams for the inmates, to give them something worthwhile to do; this became a popular idea, and for 50 years almost all prisons had sports teams. These can still be seen in a few old movies like The Longest Yard. If wardens now would create sports teams or, for example, let the prisoners play video games, this would create an operating margin for the authorities, something that could be easily taken away if the prisoner misbehaved. But if the courts required that prisoners had a right to play video games, that would just make the problem worse, since that would mean, in essence, that the prisoners could play video games and throw urine at the guards — the best of both worlds.
I’m in Florida right now. Florida — which has an appalling crime rate — has lots of “security” provided by old men in golf carts. Every hotel, strip mall, ballpark, and shoeshine parlor is patrolled by two septuagenarians in a golf cart. We make fun of them, but the fact is that they do provide a good deal of security, by the simple actions of regular crowd control. Crowd control makes the really bad guys stand out from the masses of people milling around, which makes the bad guys go off somewhere else, where they’re not so conspicuous.
Baseball games have crowd control pretty well figured out by this time; the prisons, not so much, while the Internet and reasoned political debate have met at the intersection of screaming and deceit. It’s a truism that people act worse in groups than they do as individuals. In my experience this truism is mostly untrue. Most of the time people actbetter in crowds than they do as individuals; it’s just that when this is true, we take it for granted, and when it is not true, we notice it. People act as they are expected to act, plus every crowd creates an ethic of conduct that is, to an extent, inexplicable. You can see a movie with one audience and they’ll be roaring at the jokes; you can see the same movie at the same time in the same theater the next day and people will be sitting there snarling like Carlos Zambrano in a room full of umpires. Thirty years ago people expected to go to a baseball game, get drunk, and act stupid; now, no one expects to be able to do that, so the issue doesn’t really come up. Crowd control — like prison control and standing up a democracy — is mostly a matter of managing expectations.
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