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Monthly Archives: March 2013

$MS Expects Iron Ore Shipments Will Decline as China Has Already Restocked

“Iron ore will decline over the rest of the year as global supply increases and a rally spurred by restocking in leading global importer China ends, according to Morgan Stanley.

The price probably peaked at about $159 a metric ton last month and will average $133 this year, analysts Joel Crane and Peter Richardson said in a report today. The consensus forecast for 2013 is $121, a figure that’s “overly negative,” they wrote. Global seaborne supply will rise 9.1 percent this year, topping an 8.3 percent gain in demand, Morgan Stanley estimates.

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The Aussie Dollar Bounces as Trade Deficit Data Leans Towards Not Easing for the Moment

Australia’s dollar rebounded from its biggest decline in a week on speculation that a wider-than- expected trade deficit reported today won’t be enough to prompt the Reserve Bank to cutinterest rates.

The so-called Aussie rose against most major peers as traders stuck with bets that policy makers will keep the benchmark interest rate unchanged at a meeting next month. New Zealand’s currency, known as the kiwi, slid for a second day versus the greenback after gauges of Asian stocks and raw materials declined.

“The RBA has taken the view that the easing they’ve done so far has yet to work its way into the economy,” said Gareth Berry, a currency strategist at UBS AG in Singapore. “If they do cut at all this year, it’s not going to be immediate. Some bearishness on the Aussie is justified, but overbearishness is not.”

The Australian dollar added 0.2 percent to $1.0248 as of 4:45 p.m. in Sydney from yesterday when it dropped 0.2 percent, the most since Feb. 26. It was little changed at 96.25 yen.

The New Zealand dollar dipped 0.1 percent to 82.80 U.S. cents from 82.84. It weakened 0.2 percent to 77.76 yen.

Interest-rate swaps data compiled by Bloomberg show traders see a 77 percent chance theReserve Bank of Australia will keep the overnight cash rate target at 3 percent when policy makers next meet on April 2. UBS predicts no interest rate cuts for the rest of this year.

Trade Deficit….”

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The BoJ Will Wait for New Leadership to Create Open Asset Purchases

“The Bank of Japan (8301) rejected a call for an immediate start to open-ended asset purchases in Governor Masaaki Shirakawa’s final meeting before a new leadership takes over at the central bank.

The board voted eight-to-one against the proposal by member Sayuri Shirai, the BOJ said in a statement in Tokyo today after a two-day meeting. Policy makers left an asset-purchase fund unchanged at 76 trillion yen ($810 billion) as forecast by all 23 analysts in a Bloomberg News survey….”

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Asian Markets Pare Gains and Losses

Asian shares dropped, with the regional benchmark index snapping two days of gains, led by Samsung Electronics Co. and Australian banks. The Nikkei 225 Stock Average pared gains after the Bank of Japan rejected a call for an immediate start to open-ended asset purchases.

Samsung, which yesterday announced it will invest 10.4 billion yen ($111 million) in troubled Japanese electronics maker Sharp Corp., fell 2.6 percent in Seoul. Sharp tumbled 7.9 percent.Australia & New Zealand Banking Group Ltd., Australia’s No. 3 lender by market value, slid 0.8 percent after announcing plans to cut jobs and as the nation reported a bigger-than- expected trade deficit. Honda Motor Co. (7267), Japan’s second-biggest automaker by market value, pared gains to 0.6 percent in Tokyo.

The MSCI Asia Pacific Index slipped 0.3 percent to 135.44 as of 7:38 p.m. in Tokyo, erasing a gain of less than 0.1 percent. About the same number of shares rose as fell the index, which capped a four-month advance in February, the longest such winning streak since September 2009, as central banks maintained loose monetary policy to support economic growth.

“The market is certainly not as cheap, but we don’t think it’s overpriced,” said Angus Gluskie, managing director at Sydney-based White Funds Management, which oversees more than $350 million. “Most investors believe the growth upside outweighs the risks.”

Shares on the MSCI Asia-Pacific Index traded at 14.9 times estimated earnings compared with 13.9 for the Standard & Poor’s 500 Index and 12.6 for the Stoxx Europe 600, according to data compiled by Bloomberg.

Australian Trade

Australia’s S&P/ASX 200 Index slipped 0.2 percent. The nation’s trade deficit was twice as wide as economists forecast in January as floods in the northeastern state of Queensland disrupted coal exports and telecommunications equipment imports surged.

South Korea’s Kospi Index declined 0.8 percent. Hong Kong’s Hang Seng Index was little changed. China’s Shanghai Composite Index slid 1 percent, while Taiwan’s Taiex Index increased 0.1 percent.

Japan’s Nikkei 225 rose 0.3 percent, paring a gain of as much as 1.2 percent.

Futures on the Standard & Poor’s 500 Index climbed 0.2 percent today. The U.S. equity gauge gained 0.1 percent yesterday and the Dow Jones Industrial Average extended its record high after a report by the ADP Research Institute Research Institute showed companies added more workers than expected in February.

Factory Orders…”

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Carl I Want 3 Seats on Your Board Ichan Takes a 6% Stake in $DELL

“Carl Icahn appears set to enter the fray over the leveraged buyout of Dell. Trading sources say they are confident that Icahn has amassed a position in Dell that may approach 100 million shares, and would bring him to a roughly 6 percent ownership. Icahn is expected to file a 13D on Dell very soon and has purchased control of his shares over the last two weeks as Dell’s shares have traded near $14.

When reached for comment, Icahn said he wouldn’t discuss Dell or any rationale he had for the investment. However, people familiar with the situation, said Icahn has met with advisors for Dell’s special Committee and urged them to pursue a leveraged recap of the computer maker—rather than the $13.65 a share leveraged buyout by Michael Dell and Silverlake that has been agreed to. Advisors to the special committee asked Icahn to sign a confidentiality agreement and join the go-shop process now being conducted by the special committee, but has yet to do so…..”

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Guest of Honor: Major Gen. Zhu Chenghu

“A Chinese general who once threatened to nuke the US is visiting Washington this week as part of a military exchange program with the Pentagon.

The Pentagon’s collaboration with Major Gen. Zhu Chenghu, head of China’s National Defense University, is surprising considering the threats the general made against the US in 2005.


“If the Americans draw their missiles and position-guided ammunition on the target zone on China’s territory, I think we will have to respond with nuclear weapons,” Zhu told a Financial Times reporter in 2005, describing his country’s predicted reaction if the US were to conflict with China over Taiwan.


A State Department official called the comment “highly irresponsible”. The comment closely reiterated similar statements Zhu had made in the past, describing his intentions to nuke the US if the US were to defend Taiwan in a conflict.


We Chinese will prepare ourselves for the destruction of all of the cities east of Xian,” he said in 1995. “Of course, the Americans will have to be prepared that hundreds of cities will be destroyed by the Chinese.” …”

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Your Tax Dollars at Work

“In spending $60 billion to rebuild Iraq, the US has wasted more than $9 billion in taxpayer funds, only to find that Iraq is just as wrecked and unstable as before.

One decade after the US invaded Iraq, the reconstruction effort has been largely deemed a failure. In his final report to Congress, a 171-page assessment titled “Learning from Iraq”, Special Inspector General for Iraq Reconstruction Stuart Bowen concluded that the costs of the war far surpassed the results.


“You think if you throw money at a problem, you can fix it. It was just not strategic thinking,” Kurdish government official Qubad Talabani, son of Iraqi president Jalal Talabani, told auditors of the report.


“You can fly in a helicopter around Baghdad or other cities, but you cannot point a finger at a single project that was built and completed by the United States,” Iraq’s acting interior minister told Bowen, who said that dumping so much money into a warzone simply created a “triangle of political patronage” that instigated further corruption.


Bowen interviewed numerous American and Iraqi officials, many of whom criticized the US for taking on too many large projects without consulting Iraqis. When American troops withdrew, many of these projects were largely abandoned and Iraq continues to look as broken as before.


Additionally, Americans “wore out [their] welcome” by planning to “do it all and do it our way” – all while wasting taxpayer dollars, Deputy Secretary of State William J. Burns told the inspector general.


The US has spent more than $60 billion in reconstruction grants, which comes out to about $15 million for each day of the conflict. A $2.4 billion fund set up by Congress to rebuild Iraq’s water and electricity systems and to provide food, healthcare and governance was largely wasted. President George W. Bush asked for $20 billion more just a few months after the March 2003 invasion to accomplish these goals.


Abandoned projects include a 3,6000-bed prison that cost $40 million but was never finished or used and a $108 million wastewater treatment center that still remains unfinished. The US also spent millions repairing infrastructure they blew up, including a $75 million pipeline and a $29 million bridge in north-central Iraq. Contractors were also found to have overcharged the US government for supplies, with one contractor charging the Pentagon $900 for a $7 control switch.


“Waste and fraud at the levels we saw are a symptom of a failure to have a structure in place to effectively plan for stabilization and reconstruction operations, execute such operations and be held accountable for them,” Bowen said in an interview with Business Week….”

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The Hollowing Out of Private-Sector Employment

“The financial and political Aristocracy will continue to do more of what’s failed because they have no alternative model that leaves their power and wealth intact.

Frequent contributor B.C. has provided five charts that reflect the hollowing out of the private-sector employment. This has profound implications for education, taxes, housing and inequality.

Many people point to offshoring/global wage arbitrage as the key driver of stagnant wages and employment in the U.S., and this is certainly a factor. But we would be remiss not to note the other equally important drivers:

1. A system in which inefficient quasi-monopolies/cartels (defense, healthcare, education) are protected by a debt-based, expansionist Central State.

2. The exhaustion of the consumption/debt-based economic model.

What no one dares admit is that the U.S. economy is burdened by overcapacity(too many malls, restaurants, MRI machines, etc.) and too much debt, much of which was taken on to fund mal-investments (McMansions in the middle of nowhere, duplicate medical tests, costly weapons systems the Pentagon doesn’t even want, etc.)

Consider this thought experiment. Suppose the offshoring of jobs was suddenly banned; only U.S. workers could be hired (setting aside that this is impossible in an economy where 50%-60% of U.S. corporate sales, profits and labor are non-U.S.; how are corporations supposed to compete in markets that generate 60% of their sales/profits if they can’t hire local workers?)

Does a ban on offshoring suddenly make it profitable to hire more employees in the U.S.? No, it doesn’t. Healthcare costs are still double those of our global competitors America’s Hidden 8% VAT: Sickcare (May 10, 2012), and stagnant wages and high debt levels leave few opportunities for big profits.

Instead of developing new products and services, corporations either slash labor costs or belly up to the State trough of favored cartels: defense, healthcare and education. It is no mystery why these three State-protected sectors have seen costs skyrocket in a low-inflation, low-growth economy: college tuition has leaped by 1,100% above inflation and healthcare has risen 600% above the CPI (consumer price index).

Once the State enforces quasi-monopolies and cartels, inefficiencies rise because the feedback from reality (i.e. price) has been severed. This is how you get an economy where a biopsy costs $70,000, new fighter aircraft cost $200+ million each (six times the previous top-of-the-line fighter) and a conventional (i.e. non-Ivy League) college education costs $120,000 – $200,000…..”

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Fed’s Beige Book Sales Growth is Moderate With a Small Expansion in Consumer Spending

“Consumer spending expanded in most Districts, but several Districts reported mixed or lower activity among non-auto retailers. Sales strengthened in the Philadelphia and Richmond Districts, and retail sales were higher than a year ago in the Boston, St. Louis, and Minneapolis Districts.

San Francisco reported modest growth in sales, Dallas noted flat to slightly higher sales activity, and New York said retail sales were strong in January but slowed in February primarily due to weather. The Chicago District said consumer spending increased at a slower rate, while Cleveland and Atlanta noted mixed sales activity.

Kansas City said retail sales decreased since the previous survey period and were expected to remain flat in the months ahead. Many District contacts commented on the expired payroll tax holiday and the Affordable Care Act as having restrained sales growth.

Many Districts noted rising gasoline prices and fiscal policy as having a negative effect on consumer sales, and contacts in the Boston, New York, and Minneapolis Districts said severe weather depressed sales somewhat.

Contacts in several Districts reported a shift in sales activity from local malls to the Internet and indicated deep discounting among retailers was becoming increasingly common. San Francisco noted somewhat soft sales for traditional retail grocers, whose competition has increased from discount and online retailers….”

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Lessons From Past Dow Milestones

“While that new all-time high may just be a number — the market didn’t undergo a magical transformation upon hitting pre-crisis levels — experts say such milestones can have a psychological impact on investors. As the Dow reclaims lost ground, some investors are reflecting on how far they’ve come since the financial crisis. Some are still trying to bounce back, but many have recovered what they lost in the crash of 2008. The average participant in a 401(k) plan broke even between 2007 and 2010, and many savers are now better off than they were in 2007, according to Vanguard. The average account balance was $86,000 at the end of 2012, 10% more than the average balance at the end of 2007. (Of course, those higher balances include investor contributions, not just market gains.) See: What’s the big deal about the 2007 highs?

But for all the investor excitement around market milestones, investing pros say these thresholds don’t really move markets too much up or down. While investors often get swept away when the market is near key thresholds — causing them to ignore important factors like stock valuations — analysts say monetary policy and economic growth drive markets. Indeed, some investing pros are skeptical about how long the run will last. See: Druckenmiller says ‘it’s going to end very badly.’

Here’s a look back at some of the Dow’s biggest milestones, what happened next — and what lessons were learned…”

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DOW Still 11% Away From All Time Highs Adjusted for Inflation

“The Dow Jones industrial average rose to a new all-time high Tuesday … sort of.

The record that everyone is talking about is in nominal terms and doesn’t take into account the impact of inflation, which has increased more than 10% during the past five years, according to the government’s Consumer Price Index (CPI).

If you factor that in, the blue chip index is actually still about 11% below its all-time inflation adjusted high, which was set in January 2000, according to data from Ned Davis Research. And it’s still about 9% below the level it was at in October 2007….”

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Charles Nenner: Dow Will Fall to 5,000 by 2017 or 2018

“While the Dow Jones Industrial Average closed at an all-time high Tuesday, at 14,253.77, Charles Nenner, founder and head of research at the Charles Nenner Research Center, says the Dow will plunge to 5,000 by 2017 or 2018.

“We’re in an inflationary period and it’s very difficult to make money,” he told CNBC. “I still have a target of 5,000 for the Dow that we should reach in 2017 or 2018, and then we’ll get a huge bull market so it’s best just to go to sleep with your money until then.”

Instead of wondering how much they can make, investors should be asking, “How much can I lose?”

Nenner predicts a “catastrophe” not only for equities, but for bonds and the pound as well. He warned that there were hardly “any bright spots” in asset markets, until 2018.

His description of the U.K. currency was as of one of the worst performers of 2013 as it dropped below $1.50 on March 1, with the slump expected to continue into the summer.

“We’ve hit $1.50, and if we get close to $1.49, then we’ll go to $1.44, and if we get to that point before July, it could go even lower,” he said. “Austerity is not going to work in Britain.”

He added that even if the Bank of England introduces further quantitative easing this week, it would not support the currency.

Nenner also said that European stocks would fall this year. “You should take chips off the table. … The [market] insiders were buying [in 2012] and now the insiders are selling.”

Gold also doesn’t escape Nenner’s scrutiny.

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Plosser: Fed Should Taper QE as Costs Outweigh Benefits

“Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank should slow the pace of its bond purchases because the potential costs from more stimulus outweigh the benefits.

“We should begin to taper our asset purchases with an aim of ending them before year-end,” Plosser said in a speech prepared for delivery in Lancaster, Pennsylvania. “With interest rates already extremely low and the Fed’s balance sheet large and growing, monetary policy is posing risks to the economy in terms of financial stability, market functioning and price stability.”

The Federal Open Market Committee is debating how long it should continue $85 billion in monthly purchases of Treasurys and mortgage bonds aimed at boosting economic growth and reducing 7.9 percent unemployment. Chairman Ben S. Bernanke and Vice Chairman Janet Yellen in speeches this month affirmed a commitment to record stimulus pushing the central bank’s balance sheet beyond $3 trillion.


Even with the easing, the economy expanded just 0.1 percent in the fourth quarter amid the biggest drop in defense spending since the closing years of the Vietnam War.

“Beneath the very weak headline number, there were some signs of improvement in consumption, business investments and residential investments,” Plosser said. “Thus, there is reason to be somewhat optimistic for the coming quarters.”

Growth Accelerates…”

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China’s Sovereign Wealth Fund Warns Japan Not to Use China as a “Garbage Bin” for Yen Devaluation

“BEIJING—The president of China’s giant sovereign-wealth fund warned Japan against using its neighbors as a “garbage bin” by deliberately devaluing the yen, joining a growing number of Chinese officials sounding alarms about a potential currency war.

“I would hope that it doesn’t do that as a responsible government,” Gao Xiqing, president of China Investment Corp., said in an interview with The Wall Street Journal on Wednesday. He was responding to questions about worries among some finance ministers and central bankers that the new Japanese government would devalue its currency to boost exports at other countries’ expense.

“Treating the neighbors as your garbage bin and starting a currency war would not only be dangerous for others but eventually be bad for yourself,” Mr. Gao said on the sidelines of the annual meeting of China’s parliament, the National People’s Congress.

Japanese policy makers, including Prime Minister Shinzo Abe, have stressed that the Bank of Japan’s monetary easing measures are aimed at beating deflation, not weakening its currency.

“BOJ’s monetary policy is not at all targeted at pushing down the currency,” Mr. Abe’s pick for the new BOJ governor, Haruhiko Kuroda, said on Monday at a parliamentary confirmation hearing. “By taking a bold monetary easing policy and exiting deflation as soon as possible, that’s something good not only for Japan, but for the economies of Asia and the rest of the world.” …”

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Boehner Wants Budget Deals ‘Out in the Open’

“House Speaker John Boehner told CNBC’sLarry Kudlow on Wednesday that a long-term deal on entitlements is possible, and there’s no good reason for the Obama team to have shut down the White House tour.

As the mandatory budget cuts continue to take effect, Boehner said in the exclusive interview, he believes the American people still know that Washington primarily has a spending problem.

While Boehner insisted that President Barack Obama still doesn’t understand that spending is the real issue, he was more optimistic about the President’s offers to reform entitlements. Boehner says he believes talk of limiting Social Security benefit increases and “means testing” Medicare to disqualify the wealthiest seniors, is for real and they could be a basis for a “grand bargain” with the President…..”


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Banks and Traders Wait Nervously for Stress Test Results

“Investors in U.S. bank stocks may be in for a volatile ride over the next two weeks as the Federal Reserve releases results of its annual stress tests of bank capital in two steps.

Late on Thursday, the agency is expected to reveal how much capital 18 large banks would maintain under a hypothetical severe economic downturn. A week later, the Fed plans to disclose how the banks would have fared if they had first spent some of their capital buying back shares or paying higher dividends.

Among the banks that will be closely watched are Bank of America and Citigroup, which have stumbled in past tests and have had quarterly dividends stuck at a penny per share since the financial crisis.

If banks pass Fed muster, they will be allowed to go ahead with plans to increase payouts and repurchase more shares. Last year, the Fed disclosed all of the information on the same day.

During this year’s one-week gap, bankers are worried that their stocks could face volatile swings as analysts and investors try to guess how much capital banks will be able to return to shareholders over the next year. Stocks could also fluctuate if banks exceed or miss expectations for how they will score in the first phase of the test, the bankers said.

“I’d much rather get all the information in one fell swoop,” said Frank Barkocy, director of research at Mendon Capital Advisors, which invests in bank stocks. “It does create some air of uncertainty, and uncertainty usually results in volatility.”

Barkocy said it’s also possible that information could leak out during the interim week. The Fed will provide banks with preliminary information about their capital plans this week, but it’s considered confidential supervisory information….”

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$BAC Says Margin Debt is Signalling a Sell Signal

“We’ve noted that margin debt at the NYSE has been rising steadily as stocks have advanced in recent months. Like the stock market, total margin is close to all-time highs.

BofA Merrill Lynch technical analyst Mary Ann Bartels writes in a note to clients that cash balances in those margin accounts have fallen to such a low level that they are now generating a sell signal not seen in three years.

Here is Bartels:

Net Free Credits from the NYSE Margin Debt data shown in the chart below is essentially a measure of cash levels in margin accounts. Current levels have fallen to levels that have generated a tactical sell signal based on a 2-standard deviation Z-Score reading….”

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