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Monthly Archives: March 2013

Bond Yields Spike in Slovenia Despite Continued Pledge to Austerity

“Slovenia’s pledge to continue austerity measures failed to stem a rise in bond yields to record highs as investors worry the Alpine nation will follow Cyprus as the next euro-region member requiring a bailout.

Prime Minister Alenka Bratusek, in her first major policy speech since taking office, told Parliament yesterday that her week-old government would rebuild ailing banks and improve state finances that are in “bad shape” so the country won’t become the sixth euro member to need aid.

European Union officials are striving to contain a debt crisis that prompted Cyprus to joinGreecePortugal, Ireland and Spain in agreeing on a bailout. Bratusek’s lack of specifics on how to avoid foreign support helped push the country’s benchmark dollar-denominated bonds to an all-time high at a time when Slovenia is looking to tap bond markets.

“Developments in Cyprus have translated into concerns that Slovenia will struggle to access the Eurobond market over the coming months as it moves to recapitalize its banking sector and shift reliance for budget financing away from the domestic banking sector, with an increased risk of a haircut in deposits,” Gillian Edgeworth, chief economist at UniCredit SpA (UCG) in London, wrote in a note to clients yesterday.

The yield on Slovenia’s dollar-denominated bonds maturing in 2022 rose a record 6.382 percent yesterday and dropped 4 basis points today to 6.34 percent at 9:20 a.m. in Ljubljana, data compiled by Bloomberg show. The cost of protecting Slovenian bonds with credit-default swaps surged 66 basis points today to 384, according to data compiled by Bloomberg.

Different Circumstances…”

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Banking Regulators Limit Non Publicly Traded Investments in Shanghai and Hong Kong, Banks Fall on the Rule

“Chinese bank shares tumbled in Shanghai and Hong Kong after the banking regulator tightened rules on wealth-management products and the cabinet called for new measures to deregulate interest rates.

China Citic Bank Corp. (998) fell 6.8 percent to 4.91 yuan as of 1:21 p.m. in Shanghai after dropping by its 10 percent daily limit, and lost 4.7 percent in Hong Kong. China Minsheng Banking Corp. (600016) dropped 7.9 percent in Shanghai and Huaxia Bank Co., which faced customer protests in December, plunged by as much as 10 percent.

The regulator told banks to limit investments of client funds in credit assets that aren’t publicly traded, and to isolate the risks from their operations. Wealth management products increased 56 percent to 7.1 trillion yuan ($1.1 trillion) last year, equivalent to 7.6 percent of total deposits, according to Standard & Poor’s, prompting warnings from regulators and ratings firms that credit risks are rising.

“This is so far the harshest and most concrete tightening measures regarding WMPs,” Yao Wei, Hong Kong-basedChina economist at Societe Generale SA, said in a note. “However, the immediate impact should be manageable to banks, as the banking regulator has been communicating with the major banks about (potential) rule changes for some time.”

Customer Retention..”

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Slowing Dry Bulk Shipments and Rates Hurt Earnings for China’s Largest Shipping Company

China Cosco Holdings Co. (1919), the nation’s biggest shipping company, reported a wider-than- expected annual loss as dry-bulk rates slumped.

The net loss was 9.56 billion yuan ($1.54 billion), compared with 10.5 billion yuan a year earlier, under international accounting standards, the Tianjin-based company said in a Hong Kong stock exchange filing yesterday. That is wider than the 7.53 billion-yuan average loss of 22 analysts’ estimates compiled by Bloomberg. Sales rose 4.4 percent to 88.3 billion yuan.

Chairman Wei Jiafu is restructuring the company’s assets in a bid to return to profitability as a third straight annual loss may result in shares being delisted in Shanghai. The company has unveiled a plan to sell its logistics unit. It may raise as much as 27 billion yuan selling assets to its parent, said two people with knowledge of the matter this month.

“The outlook remains challenging,” Vivian Tao, an analyst at Citigroup Inc., said in a note to clients today. The logistics unit sale “is far from enough” to turn China Cosco profitable this year and further restructuring can be expected, she said.

China Cosco fell 4.2 percent to HK$3.66 at the close in Hong Kong trading. The city’s benchmark Hang Seng Index fell 0.7 percent.

China Cosco plans to sell Cosco Logistics Co. to state- backed parent company China Ocean Shipping (Group) Co. for 6.74 billion yuan, the company said in a separate statement. The sale will give China Cosco a pretax gain of about 1.96 billion in 2013, the company said.

Rates, Costs…”

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South Korea Announces Stimulus Measures Given a Slowing Economy

“South Korea announced it will unveil a stimulus package in April to spur the property market and revive the economy after cutting its growth forecast for the second time in four months.

A supplementary budget and details of the measures to encourage property sales will be released over time, the Finance Ministry said in a statement in Sejong today. The economy will expand 2.3 percent this year, down from a 3 percent growth forecast made in December, it said.

The new forecast is more pessimistic than the central bank’s outlook for 2.8 percent growth and compounds concern that expansion in Asia’s fourth-largest economy will stall after slowing to the weakest in three years. Facing a stagnant property market and weaker yen, the Bank of Korea may come under pressure to lower the benchmark interest rate next month.

“This is a major cut, and marks a shift from a government that prioritized fiscal soundness to one that takes a more realistic view of the economy that needs a policy boost,” Lee Chul Hee, a Seoul-based economist at Tongyang Securities Inc. (003470), said by phone today. “The Bank of Korea will need to make a strong case that the economic recovery is on track not to make the interest-rate cut in April.”

Today’s revision was the second time the government has lowered its growth forecast since President Park Geun Hye was elected in December. The new forecast doesn’t factor in the coming stimulus package, Choi Sang Mok, a director general at the Finance Ministry, told reporters today.

Bonds Rise….”

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The Yen Climbs on Safe Haven Bets

“The yen rose versus a majority of its 16 most-traded counterparts as Cyprus’s banks reopened for the first time since striking a bailout deal that forced losses on some depositors, spurring demand for the safest assets.

Japan’s currency strengthened as the Bank of Japan (8301) reiterated its policy-easing options, damping speculation for additional novel measures to boost the economy. The euro rose against the dollar.

“The yen is stronger partly because of the safety principle,” said Steven Barrow, head of Group of 10 research at Standard Bank Plc in London. “The markets may be sensitive to the news around the reopening of banks in Cyprus. The market is well set up for something reasonably aggressive from the BOJ so the downside risks for the yen against the dollar are limited.”

The yen fell 0.1 percent to 120.86 per euro at 7:43 a.m. New York time, after reaching 119.75, the strongest level since Feb. 27. Japan’s currency gained 0.1 percent to 94.33 per dollar. The 17-nation euro rose 0.3 percent to $1.2815. It touched $1.2751 yesterday, the lowest level since Nov. 21.

The Central Bank of Cyprus’s capital controls will include a 300-euro daily limit on withdrawals and restrictions on transfers to accounts outside the country. Banks opened at midday. They will close at 6 p.m. local time, Yiangos Dimitriou, head of the central bank’s audit department, said yesterday in comments broadcast on state-run CyBC television.

Capital Movements…”

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U.S. equities opened the day to the downside. The DOW was off as much as 128 bones. Slowly, but surely U.S. equities climbed out of a hole to earn the coveted title of the Teflon Don. Within 15 minutes to the close the NASDAQ was positive, despite $AAPL being down, the DOW was nearly flat, and the S&P was one or two ticks away from unch.

Unfortunately, a sell side imbalance coupled with all eyes on Cyprus took the markets down in the last 8 minutes of trade.

DOW down 33

S&P down  0.86


WTI up $0.14

Gold up $9.3

The Fed has ‘All the Money in the World.’ They do what they want with it and you must grin an bear it.

[youtube://http://www.youtube.com/watch?v=GvCi4eU1C8o 450 300]



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The Things People Say

I’m definitely bored when posting this……

[youtube://http://www.youtube.comwatch?v=VS3IJmVXkBA 450 300]

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A Closer Look at the Recent Strength of the Dollar

“I can’t tell you how many talking heads I’ve watched in the media recently touting the strong dollar. Sometimes I really wonder whether Homo sapiens are an intelligent life form. Remember, this is the same species that created the Tulip mania … and the tech, and real estate bubble.

Folks, in the real world it just isn’t possible to have a strong dollar if you are counterfeiting 85 billion of them a month. That’s just basic common sense, which seems to be an extremely rare commodity in the world today.

Yes, markets can be irrational because humans are driven by emotions. When something goes up or down for a long period of time, our emotions invent reasons for why it’s happening. We convince ourselves that a tulip bulb really is worth more than a house. We justify skyrocketing housing prices far above average income levels by inventing a fantasy that we are running out of land. Of course no amount of fantasy means we can escape reality, just that the longer the illusion extends the bigger the bubble grows before is pops. But there is never any doubt it is going to pop.

There is one reason and one reason only why the dollar index has the illusion of being strong (let’s face it, at 82 the dollar is hardly strong. In 2000 the dollar index was at 120).

The dollar is strong lately because the yen, pound, euro and Canadian dollar have all been dropping sharply into major intermediate and yearly cycle lows.

This is pushing the dollar index up. It doesn’t mean the dollar is strong, just that most of the currencies that the dollar index is measured against are exceptionally weak at the moment. But that may be changing.

On Friday, the dollar broke down and breached the intermediate trend line. This is often the first warning sign that an intermediate cycle has topped.

If the last daily cycle pivot is broken (lower low) it will almost certainly confirm that the dollar has begun an intermediate decline.

There is now extreme risk that the second daily cycle has topped on day 2. That is one of, if not the most extreme left translations I can remember, and is likely to lead to a very large decline over the duration of this daily cycle. Keep in mind there should be another 2 or 3 daily cycles down after this one before the final yearly cycle low sometime in June or early July.

If the dollar daily cycle has topped on day two, then the dollar is setting up to take a real beating over the next couple of months. I’m afraid reality is about to return to the dollar, and the consequences of printing a trillion dollars a year are about to be begin.

Next I want to discuss another subject that should be easily visible, but again a lack of basic common sense prevents most people from seeing what’s right in front of them….”

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“All Aboard…Next Stop Crazy Town”

“…….And what effect did this fast-and-loose money-printing bonanza have? The big banks were able to recapitalize their damaged balance sheets while continuing to pay themselves record bonuses. Commodities, priced around the globe in U.S. dollars, became much more costly as many more dollars competed for the same amount of real assets. And financial assets, like stocks and bonds, marched upwards, raised by the unrelenting rising tide of Fed liquidity.

Notice however, that the economy itself did not fundamentally improve in the way the Fed had hoped it would. While a collapse of the system was averted (delayed?), economic growth has remained sluggish, unemployment high, and real wages stagnant or worse.

Of course, the reason for this is simple. Money is not wealth. It is merely a claim on wealth.

You can’t print your way to prosperity. History is abundantly clear on that.

With the clarity of hindsight, it’s now obvious how the Fed has now painted itself into a corner. Here’s how the stock market has fared during the Fed’s rescue efforts:

They say a picture is worth a thousand words. In this case, the picture above is worth several trillion dollars (some would argue as much as $9 trillion).

The financial markets have become dependent on new Fed dollars. If you look at the few gray segments of the chart, the stock market swoons nearly immediately once the Fed halts its balance-sheet expansion.

For whatever reason (perhaps because it’s owned by banks?), the Federal Reserve has chosen to use the price of financial securities as the signaling device that its efforts are yielding results. But the markets, like any junkie, demand greater and more frequent infusions to reach new highs. Note how the trend of successive Fed programs yields smaller and shorter-lived boosts.

The Fed lives in fear of re-entering recession while unemployment and wealth inequality remain stubbornly elevated. With so many families teetering at the edge, things could get ugly very quickly if a fall in asset prices were to create a “reverse wealth effect” that triggered another recessionary slowdown. So as long as low single-digit GDP growth persists, the Fed’s hands are tied. It must continue to print.

No matter that the rising price of financial assets grossly benefits the top classes  namely the 1% who on 40% of the entire nation’s wealth. In stark contrast, the bottom 80% of Americans own only 7%.

No matter that the Fed’s money tsunami is creating asset bubbles (again) in stocks, bonds, college tuition, housing, commodities, etc.  further eroding that bottom eighty percent’s ability to form capital to fund its future.

The Fed has gone “all in” here. There is no Plan B…..”

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Fred Hickey a Tech Guru Analyst Says Techs Have Rolled Over and He is Going Short

“Fred Hickey, the tech stock guru who runs The High-Tech Strategist newsletter, just made a rare bearish call on Twitter.

“For the 1st time in a long time I have begun to short big-cap tech stocks,” he said. “Despite money-printing rally, techs have rolled over – for good reasons.”

Unfortunately, he won’t be providing further details until some time next week.

Hickey is a regular on Barron’s exclusive Roundtable.

Here are his tweets….”
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Market Update

U.S. equities have managed to pare half their losses from this morning’s session. Lead the way higher is technology while the banking sector is trying to get out of reverse.

Essentially markets are waiting to see what happens in Cyprus tomorrow when banks finally open up for potential bank runs. Currently the ECB is trying to provide liquidity for depositors expected to remove some cash from the system.

European markets managed to not close on their lows.

Oil remains lower while gold has gone into green territory.

Market update 

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[youtube://http://www.youtube.com/watch?v=3jF9ZFDLvm8 450 300]

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Taibbi: $JPM Hearings Show That Nobody Knows What is Going on Within Big Banks

“If there’s been one positive result of the largest U.S. bank grappling with $6.2 billion in trading losses, perhaps it’s everyone else learning how little we truly know about these massive institutions.

Matt Taibbi recently told Sam Seder’s Majority Report that a Senate committee’s recent grilling of former JPMorgan Chase executives over the London Whale scandalwas a pivotal moment for those hoping to hold banks more accountable.

Some suggest that the report, which found that JPMorgan executives consistently disregarded or covered up red flags, shows that big banks have become too big to manage…”

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$JPM Braces to Get Grilled

“As the nation’s strongest bank, JPMorgan Chase used to be known for carrying special sway with regulators. Now it increasingly finds itself in the cross hairs of federal authorities.

At least two board members are worried about the mounting problems, and some top executives fear that the bank’s relationships in Washington have frayed as JPMorgan becomes a focus of federal investigations.

In a previously undisclosed case, prosecutors are examining whether JPMorgan failed to fully alert authorities to suspicions about Bernard L. Madoff, according to several people with direct knowledge of the matter. And nearly a year after reporting a multibillion-dollar trading loss, JPMorgan is facing a criminal inquiry over whether it lied to investors and regulators about the risky wagers, a case that could accelerate when the Federal Bureau of Investigation and other authorities interview top JPMorgan executives in coming weeks.

All told, at least eight federal agencies are investigating the bank, including the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission. Federal prosecutors and the F.B.I. in New York are also examining potential wrongdoing at JPMorgan.

A recent misstep points to the growing friction between JPMorgan and regulators as well as to the concerns within the bank. JPMorgan misstated how the bank may have harmed more than 5,000 homeowners in foreclosure, according to several people briefed on the matter. The bank’s primary regulator, the Office of the Comptroller of the Currency, is expected to collect a cash payment from the bank to remedy the flawed review of loans, these people say…..”

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David Kotok Wants You to be Mindful of “What We Don’t Know”

“Central banks around the world have pursued unusually aggressive monetary policies in their efforts to stimulate their local economies.

The word “unprecedented” gets thrown around a lot.  But despite the cliche, it’s true. “We do not know how long this game of monetary quantitative easing will continue in the world,” says David Kotok of Cumberland Advisors, “We do not know when it will stabilize.We do not know what will happen after that period, and we do not know how extraction will occur.

“What we do know is that world monetary affairs have never been in a situation like this before.”

At the Global Interdependence Center conference in Dubai on Tuesday, Kotok gave a presentation outlining what we’ve witnessed in the recent history of global central banking…..”

Full article and slide presentation

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Massive Cyber Attack Slows Down the Interwebs Worldwide

“Internet speeds around the world have noticeably slowed down due to a massive “distributed denial of service” attack, reports the BBC.

These DDoS attacks bombard targeted web servers with so much dummy traffic that people trying to access a site for legitimate purposes are unable to do so. It’s most analogous to a traffic jam on a highway with no one able to move.

The BBC says that security experts are describing it as “the biggest cyber-attack in history.”

The attacks were focused on a company called Spamhaus, which maintains a “domain name system” to connect a typed-in URL to the correct server hosting the appropriate content. With this company’s services compromised, large portions of the web became less stable….”

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$WMT Expects More Costs in Relation to Bribery Probes

Wal-Mart Stores Inc. (WMT), the world’s largest retailer, said it expects to continue incurring costs related to its investigations of possible bribery in its international operations.

The cost related to the probes was $157 million in the year ended Jan. 31, the Bentonville, Arkansas-based company said yesterday in a filing with the U.S. Securities and Exchange Commission….”

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Pending Home Sales Fall in February Due to Low Inventory

“WASHINGTON (Reuters) – Contracts to buy previously owned homes fell in February, held back by a shortage of properties, but there is little to suggest that the housing market recovery is stalling.

The National Association of Realtors said on Wednesday its Pending Home Sales Index, based on contracts signed last month, slipped 0.4 percent to 104.8. Still, contracts last month remained at the second highest level in nearly three years.

Economists polled by Reuters had expected signed contracts, which become sales after a month or two, to dip 0.2 percent after a previously reported 4.5 percent jump in January.

The Realtors group blamed the pullback to a shortage of homes for sale. The supply squeeze is helping to push up home prices, putting a solid foundation under the housing recovery….”

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SocGen Provides a Road Map of How to Invest as the Fed Makes its Easing Exit

“Here are a couple of trading ideas from Societe Generale analysts who believe that the USA could be on the verge of a sustained recovery.  If the positive economic environment persists the Fed could be forced to act.  This could bring lots of moving parts together as Fed tightening and a better economic environment impact asset prices.  SocGen says the way to play it is to short hold, short silver, long USD, curve steepeners and a long short global play on consumer cyclicals and non-cyclicals:

We expect the Fed to begin tapering asset purchases in Q3 and to fully stop asset purchases by the turn of the year. The rise in bond yields should be positive for the US dollar, while precious metals are the most exposed to any rise in real interest rates….”

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