Sub-par Income Can Not Cap Spending, Savings Rate Near 5 Year Lows

“Despite expectations that following several months of subpar income growth offset by rampaging spending and thus a plunging savings rate, March incomes would rise by 0.4%, while spending would be flat, this did not happen, and instead both spending and incomes rose by the same amount, or 0.2% in the past month. Worse, when adjusting for inflation, real disposable income rose just 1.1% compared to last March, and just barely above the 0% breakeven. On the other side, real spending was up 2.2% Y/Y just barely above the 2% recessionary threshold. And even that number is misleading as spending on Total Goods (including durable, already known as being quite abysmal, and non-durable), dropped by $32.8 billion in nominal dollars. What was the offset? Why a massive surge in consumption expenditures on services, which rose by $53.8 billion, which absent the spending aberation for September 11, 2001, which was reversed in the following month, was the biggest monthly increase on record! What drove this record services spending spree is anyone’s guess.

Durable Goods spending- down:

Non-Durable spending- also down:

… but Services Spending- up, up, up… Record up in fact:

Real disposable income: oops.

Finally…”

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“The March reading of pending home sales is out.

Sales jumped 1.5% from last month.  Economists were looking for a 1.0% gain.

However, February’s reading was revised down to -1.0% from an initial reading of -0.4%…”

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“MADRID—Banco Santander SA SAN.MC +1.92% announced the resignation of Chief Executive Alfredo Sáenz, following a wave of criticism of a recent move by the Spanish government to relax its standards of conduct for bankers to allow Mr. Sáenz to keep his job despite a criminal conviction.

A spokesman for Spain’s central bank, the Bank of Spain, said the announcement Monday was a “positive step” that should have a “favorable effect on the stability of Spain’s financial sector,” but didn’t amplify on the reasons for the resignation of the 70-year-old banker. Mr. Sáenz will be replaced as CEO by Javier Marín, until now managing director of the bank.

Santander’s shares rose Monday following news of Mr. Sáenz’s resignation.

The decision followed discussions between Mr. Sáenz and officials at the central bank, according to people familiar with the talks. At least one person said the central bank had indicated to Mr. Sáenz that it was likely to conclude that he didn’t belong in a senior role at the bank, suggesting that the central bank had a sterner view of Mr. Sáenz’s case than the government of Prime Minister Mariano Rajoy….”

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“…..”Our global economy, reckless in its use of all resources and natural systems, shows many of the indicators of potential failure that brought down so many civilizations before ours,” writes Grantham in his new quarterly letter titled “The Race Of Our Lives.”

In 10 pages, he compiles some key points we’ve heard him discuss at length in his recent media tour.  He spends most of his message on what makes him optimistic.  We summarize is letter here.

Civilizations Fall

Even the greatest civilizations like Rome eventually fell.  Citing research, Grantham told Charlie Rose that civilizations have an average lifespan of around 250.

He hammers on this topic at length in his letter.

“Probably the greatest agreement among scholars, though, is that the failing civilizations suffered from growing hubris and overconfidence: the belief that their capabilities after many earlier tests would always rise to the occasion and that growing signs of weakness could be ignored as pessimistic,” he writes.

Fortunately, we might not be doomed.  Grantham sees two things that might save us.

Declining Fertility

Economist Thomas Malthus warned us that the growing population would eventually outpace the earth’s ability to feed it.

“Malthus, however, completely missed declining fertility, a potentially very long-term and hence much more critical factor to the survival of our species,” writes Grantham. “Neither he nor anyone else before 1960 even dreamed that we would voluntarily decide to have fewer children even as we became richer. In his day and until the early twentieth century, rich families routinely had eight or more children.”

In nearly every major economy, fertility rates have been falling.  He includes five charts showing this, including one that stood out.

GMO

Here’s Grantham…”

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“….In his weekly ‘Sunday Start’ letter, Morgan Stanley‘s Joachim Fels presents the other side of the commodity collapse, and a reason to be optimistic:

Somehow the proverbial American optimism must have affected me also when it comes to the cyclical outlook. What I’ve been telling investors on my trip is that despite the soft patch in the US economic data, the wobbly recovery in China and what looks like a deepening recession in the euro area following this past week’s PMI, Ifo and INSEE business surveys, my confidence in our ‘twilight to daylight’ saga of a second-half global rebound is actually even stronger now. Why? One reason is the much-discussed drop in commodity prices. My sense is that this is not just a reflection of recently weaker global growth data. I rather suspect it is also due to the supply response in many commodity markets that has been elicited by years and years of elevated prices, and to a growing realization by investors that global money-printing does not necessarily lead to high inflation, which has probably reduced the demand for commodities such as gold and oil as inflation hedges. In any case, lower commodity prices lead to what I call ‘good disinflation’ as consumers’ real disposable incomes benefit from lower energy and food prices. Hence, I expect the global soft patch to give way to a consumer-led re-acceleration in the next couple of months.

The second half of the explanation, that there’s been a sea-change in thinking among investors about the relationship between “money printing” and high inflation is an important one….”

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NYSE

NASDAQ

AMEX 

Upgrades  – ANF, FLIR, LPNT, MSG, PBR, PVH, STI, THC, DIS

Downgrades  – BBEP, ECL, GCI, GFI, JBLU, LEAP, NGL, RSG, NGLS, UNP

In Play ,

On the Wires 

“(Reuters) – Sina Corp, China’s largest Internet portal and media website, said e-commerce company Alibaba Group has bought an 18 percent stake in its microblogging service Weibo for about $586 million, valuing Weibo at more than $3 billion.

The company has also granted Alibaba the option to increase its stake in Weibo to 30 percent within a stipulated time, which it did not specify.

Sina’s U.S.-listed shares jumped 17 percent to $58.85 in premarket trade on Monday…..”

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“$FB has lost millions of users per month in its biggest markets, independent data suggests, as alternative social networks attract the attention of those looking for fresh online playgrounds.

As Facebook prepares to update investors on its performance in the first three months of the year, with analysts forecasting revenues up 36% on last year, studies suggest that its expansion in the US, UK and other major European countries has peaked.

In the last month, the world’s largest social network has lost 6m US visitors, a 4% fall, according to analysis firm SocialBakers. In the UK, 1.4m fewer users checked in last month, a fall of 4.5%. The declines are sustained. In the last six months, Facebook has lost nearly 9m monthly visitors in the US and 2m in the UK.

Users are also switching off in Canada, Spain, France, Germany and Japan, where Facebook has some of its biggest followings. A spokeswoman for Facebook declined to comment.

“The problem is that, in the US and UK, most people who want to sign up for Facebook have already done it,” said new media specialist Ian Maude at Enders Analysis. “There is a boredom factor where people like to try something new. Is Facebook going to go the way of Myspace? The risk is relatively small, but that is not to say it isn’t there.”

Alternative social networks such as Instagram, the photo sharing site that won 30m users in 18 months before Facebook acquired the business a year ago, have seen surges in popularity with younger age groups.

Path, the mobile phone-based social network founded by former Facebook employee Dave Morin, which restricts its users to 150 friends, is gaining 1m users a week and has recently topped 9m, with 500,000 Venezuelans downloading the app in a single weekend.

Facebook is still growing fast in South America: monthly visitors in Brazil were up 6% in the last month to 70m , according to SocialBakers, whose information is used by Facebook advertisers, while India has seen a 4% rise to 64m – still a fraction of the country’s population, leaving room for further growth.

But in developed markets….”

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“FRANKFURT (Reuters) – Germany’s Bayer AG has agreed to buy U.S. contraceptive devices makerConceptus for $1.1 billion, aiming to underpin its position as the world’s largest women’s healthcare provider,

Bayer, whose shares were down 2.3 percent by 0823 GMT, will launch a public tender offer to acquire all Conceptus shares for $31.00 each in cash, in an offer agreed with Conceptus’s management, Bayer said on Monday.

That is a premium of 19.7 percent over the stock’s closing price on Friday and a multiple of about 30 times the adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) that Conceptus is targeting for this year.

Shares in global healthcare equipment and services companies on average trade at 9 times annual EBITDA, according to Thomson Reuters StarMine…..”

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Nissan recall

Honda recall

“Gold advanced in New York, trimming the worst monthly loss since December 2011, as demand for physical metal countered outflows from bullion-backed exchange- traded products and the dollar weakened. Silver also gained.

Gold climbed 4.2 percent last week, the best showing since January 2012, as coin and jewelry demand expanded from the U.S. to China and India. The volume for the benchmark contract on the Shanghai Gold Exchange surged to a record last week, while premiums to secure supplies in India jumped to five times the level before the slump. Coin sales by the U.S. Mint are set for the highest since December 2009, while inventories monitored by the Comex tumbled last week to the lowest level since July 2008.

“The key question in the near term is whether retail and jewellery demand can continue to counter ETP outflows and the rise in gross shorts,” Barclays Plc analysts Suki Cooper, Lynnden Branigan and Christoper Louney wrote in a note today. “In our view, the vulnerability of further ETP outflows subsides should prices recover to above the $1,500/ounce level or equity markets underperform, given the stronger correlation between the two.”

Gold for June delivery rose as much as 1.7 percent to $1,478.30 an ounce on the Comex in New York and traded at $1,476 by 7:35 a.m. The metal is heading for a 7.5 percent drop in April after the metal plunged into a bear market this month. Bullion for immediate delivery rose 0.9 percent to $1,475.68 an ounce in London.

Hong Kong Buying…”

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“LONDON (AP) — Italy’s stock market was the big gainer Monday at the start of an action-packed week in financial markets, as investors cheered the news that a new government was ready to take the helm after two months of political deadlock.

Italy’s new coalition government led by Premier Enrico Letta brings together forces from both the left and the right and will begin its work after a confidence vote later Monday in Parliament.

As the third-biggest economy among the 17 European Union countries that use the euro, Italy is hugely important to the future of the single currency. It has the second-highest debt burden in the eurozone after Greece so remains under market pressure to keep a lid on its borrowings. Over the past couple of years, Italy has done a lot to bring its debt down but at a high cost, with the economy back in recession and unemployment on the rise.

“Given the fractious nature of Italian politics, the new government headed by Enrico Letta is indeed progress,” said Michael Hewson, senior markets analyst at CMC Markets.

“However it was done without any of the protagonists who had led Italy’s main political parties in the original election campaign, which could bring into question the democratic legitimacy of the entire process with technocrats in a number of key positions,” he added.

Despite those worries, Italy’s FTSE MIB index was outperforming all its peers, and some. It was trading 1.7 percent higher at 16,839. And in another sign of optimism, the yield on the country’s benchmark 10-year bond dropped around 0.10 percentage point to 3.93 percent. That’s the first time it has dropped below 4 percent since November, 2010.

The euro was also solid, trading 0.4 percent higher at $1.3078….”

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Personal Income: Prior 1.1%, Market expects 0.3%, Actual +0.2%

Spending: Prior 0.7%, Market Expects 0.1%, Actual 0.2%

PCE: -0.1%

“At a time when politicians are squeezing budgets to cut borrowing, the bond market is clamoring for more debt, pushing yields on almost $20 trillion of government securities to less than 1 percent.

The average yield to maturity for the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index fell to a record-low 1.34 percent last week from 3.28 percent five years ago. Even though the amount of bonds in the index has more than doubled to $23 trillion — bigger than the gross domestic product of the U.S. and China combined — countries from Germany to Rwanda sold debt in the past month at their lowest yields….”

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“Economic confidence in the euro area decreased more than economists forecast in April as the 17- nation currency bloc struggled to emerge from a recession and the bailout of Cyprus renewed debt-crisis concerns.

An index of executive and consumer sentiment dropped to 88.6 from a revised 90.1 in March, the European Commission in Brussels said today. That’s the lowest since December. Economists had forecast a decline to 89.3, according to the median of 26 estimates in aBloomberg News survey.

Business confidence and investor sentiment in Germany, Europe’s largest economy, dropped more than expected in April. European Central Bank President Mario Draghi said on April 19 that the economic situation in the bloc hadn’t improved since the beginning of the month. At the same time, Draghi expects the economy to recover from a recession later this year and economists forecast growth in the second quarter, a separate Bloomberg survey shows.

Today’s survey “supports other evidence that the euro zone is experiencing its longest recession on record,” said Jennifer McKeown, senior European economist at Capital Economics in London….”

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“Sohu.com Inc. (SOHU), owner of China’s third-largest search engine, posted first-quarter profit that beat analyst estimates on higher online advertising sales.

Net income rose 14 percent to $23 million, the Beijing- based company said in a statement today. That beat the $18.8 million average of six analysts’ estimates compiled by Bloomberg. Sales rose 36 percent to $308 million, compared with the average of analysts’ estimate of $296 million.

Sohu has expanded into online videos and search in competition with Baidu Inc. (BIDU) to diversify its sales channels and depend less on its Web portal business in China, which has more Internet users than the population of any country except India. Revenue from online advertisements rose 41 percent from a year earlier to $116 million, it said.

“Online advertising was better than expected,” Eric Qiu, an analyst at Guosen Securities Co. in Hong Kong, said by telephone before the results. “Most of the ad growth is coming from its portal website and search business,” said Qiu, who recommends buying the stock….”

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“Growth in Chinese industrial companies’ profits slowed in March, adding to evidence the nation’s economic recovery is losing steam.

Net income increased 5.3 percent from a year earlier to 464.9 billion yuan ($75 billion), down from a 17.2 percent pace in the first two months, the National Bureau of Statistics said on itswebsite on April 27. Profit in the first quarter rose 12.1 percent to 1.17 trillion yuan, it said.

China’s stocks fell for a third straight month in April amid investor concern that the recovery in the country’s economic expansion is losing momentum and will hurt corporate earnings. The benchmark Shanghai Composite Index (SHCOMP) closed 1 percent lower on April 26, the last trading day before a three- day holiday ending May 1.

“Profits are only growing in line with sales and with problems of overcapacity and the sluggish global picture, it doesn’t bode well for a speedy return to higher profit margins,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong. “Heavy industries especially still face destocking and higher costs, but if there is a silver lining, industries catering to the consumer, like textiles, food and beverages, seem to be doing much better.”

Inner Mongolia Yili Industrial Group Co., a producer of dairy products, reported an 18.6 percent rise in first-quarter net income, according to an April 26 statement to the Shanghai Stock Exchange.

Industrial companies’ revenue rose 11.9 percent in the first three months to 22.2 trillion yuan, according to the statistics bureau statement. That’s down from 13.1 percent in the first two months. The bureau doesn’t break down January and February data due to distortions caused by the timing of the Lunar New Year holiday. No figure was given for March sales.

Lower Estimates…”

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“Capstone Mining Corp. (CS), the owner of copper mines in Mexico and Canada, agreed to buyBHP Billiton Ltd. (BHP)’s Pinto Valley mine and railroad in the U.S. for $650 million in cash, marking its biggest acquisition.

Vancouver-based Capstone is expected to complete the purchase of the Pinto Valley copper mine in Arizona and the related San Manuel Arizona Railroad Co. in the second half of 2013, Melbourne-based BHP said today in a statement.

The deal comes as Capstone scouts for producing copper mines in the Americas to add about 100 million pounds of copper. BHP and Rio Tinto Group are among mining companies selling assets to shore up earnings and cut costs after more than $60 billion of writedowns in the industry. The agreement takes BHP’s divestments to $5 billion over the last 12 months, according to the BHP statement today.

BHP shareholders are likely to respond well to the company disposing of smaller assets like Pinto Valley, which have been taking up “too much management time and too much peripheral capital,” said Vincent Pisani, an analyst at Shaw Stockbroking Ltd. “It’s taken some time, but I think BHP are finally getting it,” he said.

BHP suspended mining operations at Pinto Valley in Feb. 2009 and said mining began again during the last quarter of 2012. Capstone said BHP had spent $194 million on equipment and infrastructure to enable operations to resume.

Cash Cost…”

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