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Monthly Archives: September 2011

The Trokia Will Return to Greece This Week; Angela Markel Tries to Calm Markets Until Then

Don’t ask me who the trokia is, but this band of three, I’m guessing here, are either interested in new Greek developments or are returning from vacation to be involved with ongoing discussions over Greek debt refinancing.

Angela Merkel gave a speech today that seems to reflect the inadequacy of the Trichet legacy….in other words more smoke up your…Full article

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BREAKING: Angela Merkel Now Has Every Reason to Put on Her Trademark “Sad Face”

BERLIN — As Europe struggles to reverse a plunge in financial confidence, the world waits for Germany’s chancellor, Angela Merkel, to make a fundamental choice. She, more than any European politician, will have to either summon the leadership to rescue the euro or concede that the political will is not there.

Odd Andersen/Agence France-Presse — Getty Images/ German Chancellor Angela Merkel speaking in Berlin.
 Mrs. Merkel, 57, faces far-reaching decisions about how to deal definitively with the debt crisis in Europe and, more immediately, whether to allow Greece to default or even to leave the currency union. American officials fear that if she does not act more decisively, bank lending could freeze up and the result would be another sharp financial downturn on both sides of the Atlantic.

Fears of a worsening debt crisis slammed European stocks on Monday, especially shares of French banks, forcing the French government to declare its support for its three largest financial institutions. The turmoil added to worries that the Greek crisis would prove difficult to contain without more robust action from Germany and, ultimately, its taxpayers.

The project of European integration, which began in the difficult years after World War II, is also on the line. If Greece were forced to abandon the euro, as more and more voices on the German right are demanding, it would be a jarring setback for solidarity on the Continent.

Critics say Mrs. Merkel has focused too much on protecting her political standing inside Germany, placing her position as chancellor above the need for bold, risk-taking leadership to rescue the European currency zone. But that would mean sinking more German money into an ever-deepening economic union that voters have shown an antipathy for.

Her governing coalition is already splintering over the Greece bailout, and her party, the Christian Democratic Union, has suffered setbacks in state elections, including this month in the state of Mecklenburg-West Pomerania, where her parliamentary home district is located. Her father died in the stretch run heading into that election, adding personal anguish to a politically fraught moment.

Mrs. Merkel’s efforts to please both sides on the question of the debt crisis — through stern talk about Greece’s failure and profligacy on the one hand and a series of conditional debt guarantees to prop up Europe’s problem child on the other — have succeeded in ultimately pleasing neither.

Supporters argue that Mrs. Merkel has worked in a typically low-profile, methodical fashion to make the best of a difficult situation, winning passage for unpopular bailouts while wringing greater fiscal responsibility from the most heavily indebted nations.

The resignation Friday of Jürgen Stark, a German member of the executive board of theEuropean Central Bank, and the second significant German figure at the bank to leave its governing council this year, offered a window into the intensity of German opposition to the steps Germany and the central bank have already taken in bailing out the weaker southern nations.

“The chasm between what is needed in terms of economic policy and what is possible in terms of domestic politics and party politics has widened,” said Cornelius Adebahr, a Europe expert at the German Council on Foreign Relations in Berlin. “She needs to show stronger leadership, but so far she hasn’t even revealed in what direction she really wants to move.”

READ THE REST AT THE NEW YORK TIMES 

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S&P 500 Estimates Lowered by Wells Fargo and Barclays

From Bloomberg

Wells Fargo & Co.’s Gina Martin Adams and Barclays Plc’s Barry Knapp cut their forecasts for the Standard & Poor’s 500 Index this year, citing economic uncertainty and a potential decline in earnings estimates.

Adams, the New York-based equity strategist at Wells Fargo, reduced her year-end price forecast for the S&P 500 by 10 percent to 1,250. Knapp, the head of U.S. equity strategy, lowered his to 1,325 from 1,450. Adams also cut her projection for combined profit by companies in the benchmark equity measure in 2011 and 2012.

The combination of Europe’s sovereign debt crisis and weakening U.S. economic data has pushed the S&P 500 down as much as 18 percent from its high this year in April. Strategists at Wall Street firms from UBS AG to Goldman Sachs Group Inc. have slashed their forecasts for the benchmark U.S. equity measure since the beginning of August. In the same period, analysts that cover stocks in the S&P 500 have lifted their profit estimates 0.4 percent to $99.88 a share.

“Micro profit forecasts are likely to play catch-up to soured macro data in coming weeks,” Adams and Peter Chung, an analyst at the firm, said in the note. “While bottom-up forecasters are holding relatively strong to their convictions for strong profits growth to continue, our models suggest earnings growth is likely to reflect the recent economic slowdown over the next few quarters.”

Weekly Losses

The S&P 500 rose 0.7 percent to 1,162.27 at 4 p.m. in New York. The index lost 1.7 percent last week, its sixth drop in the past seven weeks.

Combined earnings by companies in the equity measure will be $93.50 a share in 2011, down from an earlier estimate of $94.40, Adams said in a note dated today. She also lowered her estimate for profit in 2012 to $98.70 a share from $103.50. Knapp kept his predictions for profit by S&P 500 companies at $96 a share in 2011 and $105 in 2012.

“With roughly three quarters behind us, the risks to 2011 earnings are somewhat limited and we’re comfortable with our forecast,” Knapp wrote in a note dated Sept. 9. “However, 2012 is a different story.”

While Knapp still says S&P 500 profit will increase 9.4 percent in 2012 from the prior year, analysts’ expectations for growth have slowed. Financial companies are among the biggest risks to the Barclays earnings estimate for 2012, he said.

Public Policy

“We remain bullish,” he wrote. “Continued public policy uncertainty and the impact of slowing earnings momentum were significant factors in our decision to cut our 2011 year-end price target to a still optimistic 1,325.”

Technology, industrials, materials and consumer- discretionary stocks will lead the 15 percent rally from the S&P 500’s close on Sept. 9 to Barclays’s year-end forecast, Knapp said. Consumer staples and utility companies will lag behind, he said.

Adams said her profit forecasts for financials and energy companies diverged the most from the average estimate of company analysts. She raised her recommendation for consumer staples and consumer-discretionary stocks to “overweight” and utility stocks to “market weight.” She lowered her ratings for technology companies to “market weight,” while also downgrading industrial, energy and material companies to “underweight.”

Recommended Shift

“We are recommending a shift to a more defensive asset allocation,” Adams wrote. Declining commodity prices have allayed concerns that consumer companies will face margin pressures due to higher input costs, she said.

While the move to “overweight” on discretionary stocks may seem contrary to Wells Fargo’s shift to recommending defensive groups, the group won’t suffer as much as other industries in an economic slowdown, Adams said. Industrial and commodity companies would be vulnerable to a slowdown, according to San Francisco-based Wells Fargo.

“Energy, materials, and industrials nonetheless have among the most difficult earnings comparisons but highest expectations for growth over the next several quarters,” Adams wrote. “As the consensus works to catch up to the economic reality, we expect earnings downgrades are likely to weigh on these segments.”

To contact the reporter on this story: Inyoung Hwang in New York at [email protected]

To contact the editor responsible for this story: Nick Baker at [email protected]

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FLASH: Fairholme Disloses 24.8% Stake in MBI

Bruce Berkowitz’s Fairholme Capital Management discloses 24.8% stake (~48.9 mln shares) in amended 13G filing, up from ~46.8 mln shares as of 6/30

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Today’s Top Performing ETF’s

No. Ticker % Change
1 SOXL 9.15
2 SICK 7.69
3 ZSL 6.95
4 YANG 6.24
5 DUST 5.69
6 USD 5.09
7 DZZ 4.55
8 GLL 4.39
9 TQQQ 4.15
10 LHB 3.92
11 TYH 3.59
12 BZQ 3.55
13 UCO 3.39
14 QLD 3.13
15 TNA 3.09
16 FAS 2.98
17 PXQ 2.93
18 TUR 2.93
19 XVZ 2.91
20 SOXX 2.89
21 XSD 2.79
22 BGU 2.67
23 UPRO 2.64
24 ROM 2.53
25 DGZ 2.42

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OPEC to cut production; global demand slowing by 150,000 bbl/day

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OPEC cut its forecast Monday for global oil demand and production, citing the slowing economic recovery.

In a monthly report, the Organization of Petroleum Exporting Countries said it expected demand to drop to 1.1 million barrels per day worldwide. That’s a reduction of 150,000 barrels per day from its earlier forecasts.

OPEC also trimmed back its oil production outlook, saying it still expects output to increase, but by a slightly smaller 500,000 barrels per day in 2011 — 80,000 barrels below its prior forecast.

“The downward adjustment has been due to a weaker-than-expected driving season in the US and the ongoing sluggish economic performance in the OECD,” said the report, referring to an organization of 32 member nations that includes the United States., the United Kingdom, Germany and Japan.

OPEC said weaker-than-expected demand from China and “ongoing economic uncertainties” were reflective of a global slowdown in industrial activity in most major economies.

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“Corpse Hotels” Prosper in Aging Japan

Across from a noodle shop in a Yokohama suburb, Hisayoshi Teramura’s inn looks much like any other small lodging that dots the port city. Occasionally, it’s even mistaken for a love hotel by couples hankering for some time beneath the sheets.

But Teramura’s place is neither a love nest nor a pit stop for tired travellers. The white and grey tiled building is a corpse hotel, its 18 deceased guests tucked up in refrigerated coffins.

“We tell them we only have cold rooms,” Teramura quips when asked how his staff respond to unwary lovers looking for a room.

The daily rate at Lastel, as it is known, is 12,000 yen. For that fee, bereaved families can check in their dead while they wait their turn in the queue for one of the city’s overworked crematoriums.

Death is a rare booming market in stagnant Japan and Teramura’s new venture is just one example of how businessmen are trying to tap it.

In 2010, according to government records, 1.2 million people passed away, giving the country and annual death rate of 0.95 percent versus 0.84 percent in the United States, which is also the global average.

The rate of deaths is on the increase. Last year, there were an extra 55,000 dead and over the past decade, an average of 23,000 more people have died each year in Japan.

Annual deaths are expected to peak at 1.66 million in 2040 as the bulk of the nation’s baby boomer generation expires. By then, Japan’s population will have shrunk by around 20 million people, an unprecedented die off for a nation neither at war or blighted by famine.

Although two decades of economic malaise has weighed on incomes, a tradition on splashing out on ceremonies means the Japanese still pay an average of 1.2 million yen on flowers, urns, coffins and other funeral expenses. It adds up to a market worth a whopping $21 billion a year, or twice what Americans spend annually on funerals.

“There’s been a rush into the market,” says Teramura, who founded cemetery developer company Nichiryoku (7578.OS) 45 years ago. Even Japan’s second biggest retail chain, Aeon (8267.T), rail companies and the nation’s biggest farmers association, Japan Agriculture are getting into the business, he notes.

CREMATORIUM QUEUE

Teramura, 71, decided a decade ago to widen his business beyond graves to funerals and he opened Lastel last year.

Behind its flower box framed windows, hidden away from mourners, is an automated storage system. It stores and chills encoffined corpses, delivering them through hatches and into a viewing room, day or night, whenever friends and family come to pay their respects.

Building new urban crematoriums to deal with the surge in bodies is near to impossible because nobody wants the furnaces in their back yard, explains Teramura. That not-in-my-backyard crowd is forcing cities to make do with the facilities they have, even as the body count mounts.

In Yokohama, the average wait for an oven is more than four days, driving up demand for half-way morgues such as Lastel.

“Otherwise people have to keep the bodies at home where there isn’t much space,” says Teramura. It also provides a captive audience to which he can market his other funeral services and wares.

FREE FOR ALL

Joining Teramura in the funeral rush are a slew of new entrants, some of them refugees from a shrinking wedding industry.

Entry to the industry is easy. There are no licenses or mandatory qualifications. All any wannabe funeral director needs is an office and a telephone. Flowers or coffins are easy to order and ceremonial halls, hearses and monks are all for hire.

In the United States, by comparison, most funeral entrepreneurs need to study for three years, including a stint as an apprentice before regulators consider handing out a licence.

In a recent poll of 2,796 funeral industry related firms, Japan’s Ministry of Economy Trade and Industry METI.L found that a third have been in business for a decade or less.

It’s becoming a wild west market in some ways, attracting the honest operators and the not so reputable too.

“People tend to leave things to the funeral director and some people take advantage of that. So instead of a 100,000 yen coffin you may end up with a 1 million yen cask,” Teramura says.

A lack of official oversight and a wealth of cash transactions also makes it a magnet for full fledged mobsters, or yakuza, say some industry players.

A niche that the yakuza have slipped into is as brokers who introduce funeral homes to hospitals, said one funeral director, who declined to be identified. That role alone can pull in millions of dollars in commissions.

Just how fast the industry is growing is hard to ascertain.

METI in 2005 said there were 4,107 companies employing 49,079 people. Across the street at the Ministry of Internal Affairs and Communications, officials say there were 6,606 firms in 2006, supporting a workforce of 72,046.

Yoshiatsu Mitsuhashi, who is in charge of compiling the METI survey, said that growth may even understate the pace, because the ministry changed the way it gathered data.

“It probably does indicate that the number of operators is rising, but we don’t really know,” he admits.

Tokyo-based Yano Research Institute said companies positioned to succeed may be former wedding organizers able to respond to growing demand for personalized services on a tighter budget — changes that have roiled the bridal industry already.

Yano predicts the funeral market will be worth 1.96 trillion yen by 2015.

BRIDAL REFUGEE

One former wedding organizer trying his hand at the death industry is Takayuki Nakagawa. In 2002, he founded Urban Funes, which offers customized theme funerals from a converted wedding chapel in a Tokyo suburb.

For recent events, Nakagawa has asked his staff to collect discarded fruit and vegetable boxes for the funeral of a greengrocer. For another, he asked them to come up with a fitting send off for father and husband who for four decades had blown half his salary on booze and gambling.

“People are less bothered about following customs,” says Nakagawa in his offices above the hall where workers were arranging flutes and other memorabilia as part of a final farewell for a middle-aged woman.

To make money Nakagawa, who has no qualifications as a funeral director, says he keeps his operation lean, outsourcing whatever he can. Within five years he wants to do 3,000 funerals a year, compared with 900 in the last 12 months.

“The places that are struggling are those with a lot of facilities,” says Nakagawa.

Those include mutual associations known as gojokai, set up to collect monthly fees from members, meant to pay a chunk of funeral expenses when they pass on. Those funds combined amount to more than 1.7 trillion yen, according to the industry association that most are members of.

Over-exuberance during Japan’s Shangri-La bubble years meant they invested much of that money poorly in golf memberships, event halls and real estate, leaving many teetering on the brink of failure two decades on.

The Japanese government is pushing for the industry to consolidate, cajoling stronger operators to absorb weaker ones. A round of funeral fund failures will allow investors to make at least some money for their distressed assets, Nakagawa reckons.

“We aren’t ordering them to combine, but encouraging them to act in order to avoid problems for consumers,” explains an METI official in charge of overseeing the associations. “It’s difficult to give a timeline for when this issue will be resolved,” he adds.

As for Lastel’s Teramura, he’s pushing ahead with expansion plans.

He pulls out his mobile phone and shows a picture of an office building he just bought in another Yokohama neighbourhood. When he has finished renovating it will be his second Lastel, with room for 40 bodies, more than double the first.

He refuses to divulge, however, exactly where it is in case any NIMBY neighbours get wind of what he is up to and try to kill his latest corpse hotel.

(Editing by Michael Flaherty and Lincoln Feast)

SOURCE

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RNC targets Solyndra as leverage against stimulus

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The chairman of the Republican National Committee is pouncing on the investigation of a California solar company that took a federal loan before laying off over 1,000 workers, saying it is “the prime example of stimulus failure” just as the Obama administration unveils its latest stimulus proposal.

Solyndra, a solar company President Obama visited in 2010 to highlight green jobs, got a $500 million loan guarantee as a part of the federal stimulus program. But the company declared bankruptcy last month and suddenly laid off 1,100 workers before the FBI and Department of Energy began investigating it.

In his statement Monday, RNC Chairman Reince Priebus calls for more transparency about federal involvement with the company.

“As the FBI and Energy Department expand their investigation into solar energy company Solyndra, it is time for the self-proclaimed most transparent White House in history to release all documents related to their involvement with the failed government-backed company,” Priebus said in a statement.

The RNC sent out the statement just ahead of a Monday morning Rose Garden event during which President Obama formally presented his $447 billion jobs and stimulus proposal. He laid the plan out before a joint session of Congress on Thursday evening where he continually implored members to “pass the bill.”

But Priebus says the Solyndra case should teach a lesson about the president’s new plan.

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