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Monthly Archives: April 2013
Upgrades and Downgrades This Morning
In Play and On the Wires
$BLK Advises The Fed to Ease Up on Bond Buying
“Switcheroo! One of the biggest money managers on Wall Street is changing its tune and now advising the Fed to rein in its bond-buying program, and do it now, saying the central bank is distorting markets and risks stoking inflation.
Comments »“Fed policy has had a distorting effect on capital allocation decisions of all kinds at virtually every level of the economy. It is a very large and dull hammer for markets,” Rick Reider, who oversees $763 billion in fixed income investments for BlackRock, told the Financial Times in an interview that published Tuesday….”
Consumer Delinquencies Show a Surprising Trend
“Delinquencies in consumer bank payments have hit a favorable trend, with credit card delinquencies in particular hitting an 18-year low in the fourth quarter of 2012, according to the American Bankers Association (ABA).
The upbeat assessment also found delinquencies, defined as a late payment that is 30 days or more overdue, in all three home-related loan categories — property improvement loans, home equity loans and home equity lines of credit — fell in the fourth quarter.
During the fourth quarter of 2012, bank card delinquencies fell 28 basis points to 2.47 percent of all accounts — an 18-year low and well below the 15-year average of 3.87 percent.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, ranging from personal loans to auto loans and property loans, fell 17 basis points to 1.99 percent of all accounts in the fourth quarter, below the 15-year average of 2.39 percent.
James Chessen, ABA’s chief economist, said the reduction in overdue bank payments by Americans shows they are building defenses against economic uncertainty.
“Consumers continue to carefully manage their finances in an effort to get debt levels under control and build up a secure financial base,” he noted.
“While this conservative approach to credit may slow economic growth in the short term, it portends stronger, more consistent growth in the future. The sharp decline in delinquencies reinforces the notion that the economic recovery has become more self-sustaining and is on a path to increased growth.”
But Chessen said potential fiscal pitfalls have not disappeared altogether for American consumers….”
Comments »
Breaking the Law: Confessions of Hedge Fund Managers
“Nearly half of hedge fund professionals believe their competitors engage in crooked activity, and 35 percent have felt pressure to break the law or engage in unethical behavior themselves, according to a new industry survey.
The study, commissioned by the Hedge Fund Association, Hedgeworld and an industry law firm, found that 87 percent said they would report wrongdoing given the protections of the Securities and Exchange Commission (SEC)’s whistleblower program.
In all, 30 percent of the 127 hedge fund professionals polled said they had personally observed or had first-hand knowledge of wrongdoing the in the work…”
[youtube://http://www.youtube.com/watch?v=L397TWLwrUU 450 300] Comments »Central Banks Take On More Risk
“Central bankers have diversified into riskier assets, such as equities and lower-rated government bonds, a new survey shows.
Central bankers around the world have traditionally put their reserves in U.S. Treasurys and government bonds of the safest European countries, but they’re expanding into currencies like the Australian and Canadian dollar, Scandinavian currencies and the Chinese renminbi, according to the survey by Central Banking Publications, a trade journal, and the Royal Bank of Scotland, the Financial Times reports.
Approximately 80 percent of the 60 central bankers polled said they have purchased or would consider purchasing Australian or Canadian dollars. Over 40 percent have already purchased or would consider the renminbi, about half have invested in or were considering Scandinavian currencies and the New Zealand dollar and 14 percent have bought or were considering the Brazilian real.
What’s more, 30 percent said they might invest in equities, according to the Times.
The central bankers participating in the survey, largely based in Asia and the Middle East, oversee $6.7 trillion.
The central bankers say current low yields of traditional assets and the falling dollar and euro have prompted them into riskier assets, the Times notes. Over four-fifths of the central bankers polled point to the aggressive monetary easing of the European Central Bank and the Federal Reserve is encouraging them to explore different currencies.
In an attempt to revive their economies, the Fed and other major central banks have set interest rates at record-low levels and pushed down the value of their currencies to try to increase exports. …”
Comments »Bogle: Stocks Might Drop 50% in Next 10 Years
“Investors should be prepared for up to a 50 percent drop in stocks in the coming decade, according to Jack Bogle, senior chairman and founder of The Vanguard Group.
“When I tell people I think we ought to have a 7 percent return on stocks, doubling your money in 10 years, that’s a 2 percent dividend yield and perhaps 5 percent earnings growth,” Bogle told CNBC.
“But I also tell them they should expect at least a few 25 percent to 30 percent drops along the way, and maybe even a 50 percent drop in the coming decade.”
Bogle noted that he doesn’t worry too much about the annual outlook.
“The market is going to do what it wants,” he explained. “So you’ve just got to keep a stiff upper lip. I think the best strategy is to just do your best to avoid reacting, and it’s hard to do. I have a hard time doing it myself.”
Bogle instead focuses more on the long-term investment horizon.
“If you’re only in for the day, the week or the month, I think you’re in for a lot of unpleasantness,” he stated.
“But if you look out a decade and I think earnings could grow as much as 5 percent a year and that would imply, because they track very closely, a nominal increase of 5 percent a year of [gross domestic product]. That might be high — it might be more like 4.5 or 4 percent, but that’s what we expect in the next 10 years.”
The effort by central banks worldwide to stimulate economic growth could put a damper on Bogle’s forecast.
“We have an enormous fiscal problem around the world,” he said. “The [Federal Reserve] seems to have done one of the best, if not the best, jobs in the world of trying to do some stimulus. All of that austerity they’ve tried in the European Union, Great Britain and Greece … doesn’t seem to be working at all.” ….”
Comments »The Bearded Clam Says Stress Tests Increase Financial Stability
“Federal Reserve Chairman Ben Bernanke said on Monday the central bank’s periodic bank stress tests have made the U.S. financial system more resilient.
Contrasting the current state of U.S. banks to their tattered condition in 2009 after the historic financial crisis, Bernanke said the sector’s rebound was positive for the broader recovery given the importance of credit to economic growth.
“The resilience of the U.S. banking system has greatly improved since then, and the more intensive use and greater sophistication of supervisory stress testing, as well as supervisors’ increased emphasis on the effectiveness of banks’ own capital planning processes, deserve some credit for that improvement,” Bernanke told a conference on financial stability sponsored by the Atlanta Federal Reserve Bank….”
Comments »Is the Phrase Sell in May and Go Away Meaningless?
“As the end of the month rolls closer, you’re bound to hear the famous phrase “Sell in May, and go away” debated a lot.
The idea is that based on historical patterns, you do better if you’re out of the market starting in May and re-entering through the summer.
Of course, some will argue that this is just cherry picking and meaningless noise.
We’ll hold off debating that hear, but we did like this chart from BTIG‘s Dan Greenhaus….”
Comments »Bitcoin Hits $200+, Gravestone Doji Forming
$AA Earnings Beat Ease Investor Fears
“Alcoa reported an increase in quarterly profit on Monday as performance in its alumina and primary metals segments improved despite a tough market. Revenue, however, fell short.
After the earnings announcement, the company’s shares slipped in extended-hours trading. (Click here for the latest after-hours quote.)
“I’m relatively optimistic that 2013 is going to be better than 2012,” Klaus Kleinfeld, Alcoa CEO, told CNBC. “So for us, we continue to project 7 percent demand growth in aluminum.”
“When you look at aerospace, automotive, building and construction in the U.S. is coming back, China is performing stably and even Europe… is relatively resilient and muddling through,” he said….”
Comments »$MSFT and Other Companies Push EU Regulators to Investigate $GOOG for Antitrust Issues
“BRUSSELS (AP) — A group of companies led by Microsoft have called on European authorities to launch an antitrust investigation into Google and its hold over mobile internet usage on smartphones.
The “FairSearch” initiative of 17 companies — which includes Microsoft, Nokia, and Oracle —claims Google is acting unfairly by giving away its Android operating system to mobile device companies on the condition that the U.S. online giant’s own software applications like YouTube and Google Mapsare installed and prominently displayed.
“Google is using its Android mobile operating system as a Trojan horse to deceive partners, monopolize the mobile marketplace, and control consumer data,” said Thomas Vinje, the group’s Brussels-based lawyer.
Android operating systems have the largest share of the smartphone market worldwide, followed by Apple’s iOS platform with systems from Blackberry, Microsoft and others far behind.
“Google’s predatory distribution of Android at below-cost makes it difficult for other providers of operating systems to recoup investments in competing with Google’s dominant mobile platform,” FairSearch said in a statement.
The European Commission, the 27-nation bloc’s executive arm and antitrust authority, is not obliged to take any action other than reply to the group’s complaint.
Google Inc. did not address the complaint’s charges in detail. “We continue to work cooperatively with the European Commission,” said Google spokesman Al Verney.
The U.S. company is already under investigation by Brussels for practices related to its dominance of online search and advertising markets….”
Comments »$JCP Board Ousts CEO Ron Johnson, Looks to Old CEO in Interim
“NEW YORK (AP) — J.C. Penney is hoping its former CEO can revive the retailer after a risky turnaround strategy backfired and led to massive losses and steep sales declines.
The company’s board of directors ousted CEO Ron Johnson after only 17 months on the job. The department store chain said late Monday, in a statement, that it has rehired Johnson’s predecessor,Mike Ullman, 66, who was CEO of the department store chain for seven years until November 2011.
The announcement comes as a growing chorus of critics including a former Penney CEO, Allen Questrom, called for Johnson’s resignation as they lost faith in an aggressive overhaul that included getting rid of most discounts in favor of everyday low prices and bringing in new brands.
The biggest blow came Friday from his strongest supporter, activist investor and board member, Bill Ackman, who had pushed the board in the summer of 2011 to hire Johnson to shake up the dowdy image of the retailer. Ackman, whose company Pershing Square Capital Management, is Penney’s biggest shareholder, reportedly told investors that Penney’s execution “has been something very close to a disaster.”
On Saturday, Ullman received a phone call from Penney’s chairman Thomas Engibous asking him to take back his old job, according to Penney spokeswoman Kate Coultas. The board met Monday and decided to fire Johnson.
Neither Johnson nor Ullman were available for an interview.
The early reaction to the shakeup was negative. J.C. Penney shares tumbled 96 cents, or 6.1 percent, to $14.91 in trading about three hours before the market opening on Tuesday….”
Comments »EU to Investigate $MA for Antitrust Concerns
“BRUSSELS (Reuters) – EU regulators are investigating whether MasterCard’s card fees for non-European cardholders and business practices locking in merchants to its cards violate EU antitrust rules, as they stepped up their fight against barriers to cross-border trade.
The fresh investigation by the European Commission came six years after it banned the world’s second-largest credit and debit card network from charging cross-border card fees in Europe….”
Comments »WTI Rises for a Second Day
“West Texas Intermediate rose a second day after China reported inflation eased more than forecast last month. U.S. crude stockpiles probably increased to the highest level in 22 years, a Bloomberg survey showed.
Futures gained as much as 0.5 percent in New York after advancing the most in almost two weeks yesterday. Goldman Sachs Group Inc. (GS) said it expects supplies at the U.S. delivery hub in Cushing, Oklahoma, to shrink at the end of next month, and pushed back its recommendation for trading the discount on WTI versus Brent. U.S. crude inventories climbed by 1.5 million barrels in the week to April 5 to 390 million, according to a Bloomberg News survey before data from the Energy Department Administration tomorrow.
“Any healthy demand for oil will have to come from Asia or the Middle East,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark. “Hopes for a Chinese money bazooka have increased.”
WTI for May delivery advanced as much as 46 cents to $93.82 a barrel in electronic trading on the New York Mercantile Exchange, and was at $93.70 at 9:15 a.m. London time. The volume of all futures traded was 22 percent below the 100-day average. The contract increased 66 cents to $93.36 yesterday, the biggest gain since March 26 and the highest close since April 3. Prices dropped 4.7 percent last week.
Brent for May settlement rose 43 cents to $105.09 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $11.39 to WTI futures. The spread was $11.30 at the close of trading yesterday, the narrowest gap since June 22.
Chinese Inflation…”
Comments »The Pound Sterling Rises Against The Dollar on Expectations Triple Dip Recession Will Be Avoided
“Sterling rose toward a six-week high against the dollar after U.K. industrial production increased in February more than economists forecast, boosting speculation the nation will avoid a triple-dip recession.
U.K. 10-year bonds declined for a second day after an auction of the securities attracted the lowest demand since June 2012. Sterling gained versus all but three of its 16 major peers after a gauge of manufacturing rose. The pound has climbed 1.9 percent in the past month, paring its decline this year to 4.3 percent, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies, the second-worst performer after the yen.
“The production figures seem to have been taken very well,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “Now that sterling has firmly handed its crown of whipping boy over to the yen it is good to see it get a bit of a boost from good figures. We think that triple-dip recession will be avoided.”
The pound rose 0.3 percent to $1.5301 as of 11:35 a.m. London time. It reached $1.5363 on April 5, the most since Feb. 20. Sterling climbed 0.1 percent to 85.18 pence per euro, after reaching 85.60 pence, the weakest since March 25.
U.K. industrial production expanded 1 percent in February, after dropping 1.3 percent the previous month, the Office for National Statistics said. The median estimate of 30 analysts in a Bloomberg News survey was for a rise of 0.4 percent. A similar report for the manufacturing industry showed an increase of 0.8 percent….”
Comments »February Exports Fall in Germany Amid Euro Zone Recession
“German exports fell more than economists forecast in February as the euro area, the country’s biggest trading partner, struggled to emerge from recession.
Exports, adjusted for working days and seasonal changes, dropped 1.5 percent from January, when they gained 1.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 0.3 percent decline, according to the median of 15 estimates in aBloomberg News survey. Imports fell 3.8 percent.
Germany’s economy, Europe’s largest, probably returned to growth in the first quarter after contracting 0.6 percent in the final three months of last year. Still, renewed financial-market turmoil after inconclusive elections in Italy and a bailout in Cyprus may delay a recovery in the 17-nation euro area.
“The export-driven manufacturing sector, which accounts for roughly a quarter of German gross domestic product, has not fully turned around yet,” said Christian Schulz, senior European economist at Berenberg Bank in London. “While much of theeuro zone remains in serious recession, Germany will have to rely on domestic demand and exports to stronger economies such as China and the U.S. for a growth rebound.”
The trade surplus increased to 16.8 billion euros ($21.9 billion) from 13.6 billion euros in January. The surplus in the current account, a measure of all trade including services, was 16 billion euros, up from 9.7 billion euros….”
Comments »Russia Drops the Iron Curtain on Foreign Banks
“Russian investment banks controlled by the government of President Vladimir Putin are squeezing out foreign competitors, helped by a bailout of the country’s richest men five years ago.
OAO Sberbank (SBER), the nation’s biggest lender, and VTB Group have increased investment-banking fee income more than fivefold since 2005, according to data compiled by Freeman & Co., a New York-based consulting firm. European financial institutions including UBS AG (UBSN), Deutsche Bank AG (DBK) and Royal Bank of Scotland Group Plc (RBS) lost almost half their market share during the period.
With credit lines abroad frozen after the 2008 collapse of Lehman Brothers Holdings Inc., Russia’s state-run banks stepped in as Putin pledged $200 billion in loans and tax relief to bail out allies who owned strategic businesses. Among companies that received loans were aluminum producer United Co. Rusal (RUALR), controlled by billionaire Oleg Deripaska, and Evraz Plc (EVR), a steelmaker part-owned by Roman Abramovich. Sberbank and VTB then used their position to leverage follow-up business…”
Comments »From $GS to Nomura Skepticism Rises Over China’s Recovery
“China’s unprecedented run of better- than-forecast export growth has spurred deeper skepticism of the data at banks including Goldman Sachs Group Inc., casting doubt on the strength of the recovery.
Gains in overseas shipments exceeded forecasts by at least 7.5 percentage points in December, January and February, the first time that’s happened in three straight months in the eight years Bloomberg has compiled analyst estimates for the data. March figures are due to be released tomorrow at 10 a.m. at a briefing in Beijing, giving the customs administration an opportunity to address the issue.
Overstated exports would mean China is failing to get the boost from global demand that the data suggest as the new government under Premier Li Keqiang seeks to sustain an economic rebound. Theories include companies inflating the value of shipments to bring money into China, according to Nomura Holdings Inc., and exporting the same goods twice as local governments seek to boost data, Goldman Sachs says.
“The recovery in exports is there, but the magnitude probably is much weaker than the official data has been indicating,” saidZhu Haibin, chief China economist at JPMorgan Chase & Co. inHong Kong.
The trade figures are part of a week of China data that started with today’s below-forecast inflation reading and culminate with first-quarter gross domestic product on April 15.
Goldman Sachs said in a March 29 report that investors shouldn’t also be skeptical of the broader growth statistics, because export data don’t enter directly into official GDP.
