Where Money Managers are Investing for the Summer

“SAN FRANCISCO (MarketWatch) — With U.S. stocks struggling to break new ground and a rise in Treasury yields upsetting the bond market, money managers are recommending a mix of proven blue-chips and exchange-traded products to weather the dicey summer months.

Investors have a dilemma about where to put money. For awhile defensive stocks were a safe place to park; that momentum has rotated into cyclicals, which gained nominal all-time highs in May.

Now, well into the stock market’s weakest half of the year and the looming specter of the Federal Reserve tapering its quantitative easing program, the strength of both the Dow Jones Industrial AverageDJIA +0.65%  and the Standard & Poor’s 500 Index SPX +0.51%  is being questioned.

Meanwhile, market volatility, which has been fairly docile, is climbing. The CBOE Volatility Index VIX -0.83% , or so-called fear index, is still below multi-year averages, but the increased activity typically signals a change in market leadership.

With this in mind, MarketWatch polled some seasoned investors for ideas on how to navigate the summer months if the market bears come out of hibernation.

As international economies weaken, think local….”

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“The Swiss are not giving up bank secrecy without a fight.

The lower house of parliament voted Tuesday against a draft law that would have allowed the country’s banks to start sharing secret offshore account information with U.S. tax authorities.

The move keeps Switzerland’s famous bank secrecy rules intact for the foreseeable future, but creates a problem for hundreds of Swiss banks that are being barred, by law, from sharing account information.

The banks could face U.S. legal action if they continue withholding information and there is evidence proving they are helping Americans evade taxes via offshore accounts.

Switzerland is home to the world’s largest offshore banking industry with $2.2 trillion in deposits. Many account holders were attracted to its banks by the prospect of being able to hide their assets and avoid taxes in their home countries….”

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“Scrappy online startups were among the first to realize that renting computing power from cloud providers like Amazon Web Services was an excellent deal. For some, it was the only way they’d get off the ground. What investor would pay millions to build a data center for a new game or service that might not take off?

Now, enterprises are following the little guys’ lead and embracing cloud computing. But because of security concerns, custom requirements, and in some cases, sheer scale, a number of big organizations are doing it with a twist: They’re creating their own private clouds….”

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“Having a higher education won’t help you anymore in your job, writes New York Times columnist Paul Krugman.

Conventional thought holds that technology eliminates jobs for less-skilled workers, but increases demand for more highly educated workers and eventually increases living standards.

But now, highly educated workers are just as likely as are less-educated workers to be displaced. “And pushing for more education may create as many problems as it solves,” Krugman notes.

He points to a recent report from The McKinsey Global Institute that lists a dozen major new technologies that may be “disruptive” for workers and their industries.

“Even a quick scan of the report’s list,” Krugman says, “suggests that some of the victims of disruption will be workers who are currently considered highly skilled, and who invested a lot of time and money in acquiring those skills.”

For instance, watch out for “automation of knowledge work,” he states, where software will do work once done by college graduates, and robots will handle more manufacturing and could also replace some medical professionals.

“Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).”

We could be facing another industrial revolution, a time when many workers lost their jobs to machines…”

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“While the overall labor participation rate has slid in recent years, senior citizens are increasingly returning to the labor force, thanks to losses in their investment portfolios and financial uncertainty, says economist and author Mark Skousen.

The labor force participation rate for those 65 and older rose to 24.4 percent in May from 21.6 percent in June 2008, government statistics show.

“Retirees that used to be the idol class, if you will, are now the new working class,” Skousen tells Newsmax TV in an exclusive interview. “They’re continuing to work.”

Watch our exclusive video…”

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“The FX and precious metals markets are swinging wildly around this morning (amid no news) as US equities remain anchored to hope (and VWAP) ahead of the FOMC tomorrow. Copper is also sliding quickly but WTI is back above $98 as the USD gets back to unchanged on the week. Treasury yields spiked early but have reverted to unchanged now. Credit markets have done nothing but widen (worsen) from the open this morning – also ignoring equity’s stability – but hedgers are active as VIX remains higher on the day…”

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Market Update

[youtube://http://www.youtube.com/watch?v=8WQVb_nuKvs 450 300]

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“(Reuters) – Hormel Foods Corp, which makes Spam lunch meat, cut its full-year earnings outlook on Tuesday, citing weakness in its pork business, softer sales of its refrigerated foods and higher meat costs, and its shares fell nearly 5 percent.

Hormel, which is also a turkey and pork processor, said it expectedearnings of $1.88 to $1.96 a share for the year ending in October, down from its prior forecast of $1.93 to $2.03.

Analysts on average had forecast a profit of $1.99 a share, according to Thomson Reuters I/B/E/S.

Hormel was squeezed by higher costs for chicken, pork and beef, a spokesman said….”

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“CHARLOTTE, N.C. (AP) — Duke Energy’s chief financial officer will take over for retiring CEO Jim Rogers at the end of the month.

Lynn Good, 54, has been CFO since 2009. She will also take a seat on the company board.

Rogers will retain his board chairman seat until he steps down at the end of the year.

The board plans to name one of its independent directors as chair-elect in the coming weeks. That person will become chairman when Rogers departs….”

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“SHANGHAI—China’s money-market rates remained stubbornly high Tuesday, suggesting a standoff between the country’s central bank and lenders that is causing stress to the financial system is set to continue.

An interbank benchmark for funding costs called the seven-day repo rate was at 6.82% Tuesday, close to the 6.89% rate at Monday’s close and a record 6.90% on Friday. It had averaged around 3.30% this year before the liquidity crunch began at the end of last month.

In a sign that China’s central bank isn’t going to relax the pressure soon, the People’s Bank of China refrained from adding cash to the financial system Tuesday. It normally conducts so-called open market operations on Tuesdays and Thursdays by adjusting short-term loans to commercial lenders, which controls the supply of credit.

Since they first soared on May 31, interbank lending rates have taken a toll on other financial markets and vexed investors. The benchmark Shanghai Composite Index has fallen 7.1%, while short-dated bond yields have risen more than 40 basis points. The yuan has been flat during the same period as global investors have pulled out money and lowered expectations for further gains.

The tight conditions suggest China’s financial markets will remain under pressure even though some big banks are calling for the central bank to inject more cash into the market by lowering the share of deposits that banks are required to set aside against financial trouble.

Analysts say Beijing may even be taking advantage of the market turmoil to test banks’ capacity for risks. The higher funding costs stress the ability of banks to raise cash and may reveal which lenders have taken on too much risk should they get into trouble…..”

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“Do you have a computer? Good. Now you can be a quant trader.

For years, complex algorithmic trading has been a major profit generator for Wall Street banks and hedge funds.

It has also been a source of employment for programming prodigies — and a source of stress for regulators.

But thanks to the new Manhattan-based startup EquaMetrics, average Joes can now quant trade from the comfort of their own homes.

CNN Money reports…”

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“There’s a Warren Buffett quote that’s something akin to: When the tide goes out, you can see who’s been swimming naked.

That’s the theme of a note this morning from SocGen analyst Kit Juckes, who says that as rates are rising, and tapering talk picks up, it’s beginning to be clear where the unsustainable bubbles have been built up.

No surprise: He says the bubbles were found in emergingg markets, which have been crumbling lately.

Each of the three significant financial bubbles of the last 30 years has been fuelled by the Fed keeping policy rates below the nominal growth rate of the economy for far too long. The chart below highlights two conflicting issues. It highlights two conflicting issues, one supporting my core view, the other challenging it. The first is that current policy is creating market and economic distortions just as past periods did. The reaction to taper talk in EM, commodities and volatility shows where bubbles have been inflated. This is the most powerful argument in favour of the Fed taking the first baby-steps on the path away from super-easy policy. The second issue is that nominal GDP growth is slowing – 3.4% y/y in Q1 2013 after a post-crisis peak at 4.5% a year ago. SG economic forecasts look for a re-acceleration from here. The Fed may not need evidence of a return to ‘old normal’ growth or signs of a re-acceleration in CPI or wage inflation to justify tapering. But nominal growth does need to turn a bit higher….”

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The U.S. used to be the leader of many lists. Unfortunately, over the past 30+ years we have declined on most of those lists. Now we find the U.S. is seriously lagging the world in the creating entrepreneurs…

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“Ben Bernanke is likely to signal that the U.S. Federal Reserve is close to tapering down its $85 billion-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy.

The Fed chairman has a double communications problem. Markets seem reluctant to acknowledge the improvement that is leading the Fed towards a taper of QE3. But they also appear to be assuming, incorrectly, that any taper means the Fed has become less willing to support the economy’s recovery.

Mr Bernanke is likely to push against both misperceptions, combining an upbeat message on how the strength of the economy will soon justify a taper, with a signal that further tapering depends on further improvement in the economy and in no way brings forward an interest rate rise….”

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“U.S. housing starts rose less than expected in May, likely reflecting labor and material constraints, but the overall trend remained consistent with strength in the housing market.

Meanwhile, U.S. consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilizing after a long decline, a potential comfort to Federal Reserve policymakers who would like to see stronger inflation.

Though permits for future home construction fell, that followed a surge in April, which hoisted them above the 1 million-unit mark. The pullback last month reflected a drop in the volatile multi-family sector, but permits for single-family construction touched their highest level in five years.

The Commerce Department said on Tuesday housing starts rose 6.8 percent to a seasonally adjusted annual rate of 914,000 units. April’s starts were revised up to show a 856,000-unit pace instead of the previously reported 853,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 950,000-unit rate last month.

Builders, who are ramping up construction to meet demand for housing against the backdrop very low inventory, have been complaining about labor shortages and increased material costs.

Sentiment among single-family home builders hit a seven-year high in June, a report showed on Monday, amid optimism over current and future home sales.

Lean inventories are pushing up home prices, which are in turn boosting consumer confidence and spurring consumption, helping soften the blow on the economy from tighter fiscal policy and slowing global demand….”

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“WASHINGTON (Reuters) – President Barack Obama hinted in an interview aired on Monday that he may be looking for a new chief of the U.S. Federal Reserve Bank, saying Ben Bernanke has stayed a lot longer than the current chairman had originally planned.

Obama, speaking to Charlie Rose, host of a PBS interview program, compared Bernanke to longtime FBI Director Robert Mueller, who agreed to stay two years longer than he had planned and is to leave in the coming months.

“Well, I think Ben Bernanke’s done an outstanding job. Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI – where he’s already stayed a lot longer than he wanted or he was supposed to,” Obama said.

Asked whether he would reappoint Bernanke if he wanted to keep the job, Obama did not answer directly.

“He has been an outstanding partner, along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Obama said.

Bernanke, who has tried to nurse along the ailing U.S. economy through the 2008 financial crisis, is widely expected to step down when his second term as chairman expires at the end of January.

Expanding on Obama’s remarks, a White House official said Obama’s remarks were reflecting his admiration for the length and depth of Bernanke’s commitment to serve as Fed chair in a difficult period and at a significant personal sacrifice….”

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“WASHINGTON (AP) — U.S. consumer prices rose slightly in May as higher energy costs were partly offset by cheaper food. The small increase comes after two straight declines, underscoring that American consumers are benefiting from mild inflation.

The consumer price index ticked up a seasonally adjusted 0.1 percent last month, only the second increase in seven months, the Labor Department said Tuesday. Consumer prices fell 0.4 percent in April, the largest decline in four years. In the past 12 months, prices have increased just 1.4 percent. That’s up from a 1.1 percent annual pace in April, which was the smallest in 2 ½ years.

Slow economic growth and high unemployment have kept wages from rising quickly. That’s made it harder for retailers and other firms to raise prices.

Still, tame inflation has helped consumers increase spending this year, despite slow income growth and higher Social Security taxes. It also makes it easier for the Federal Reserve to continue its extraordinary efforts to boost the economy.

And while inflation is low, economists say it isn’t low enough to alarm Fed policymakers. Tuesday’s report “won’t prevent the Fed from beginning to reduce its monthly asset purchases, probably beginning in September,” said Paul Ashworth, an economist at Capital Economics….”

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“DUBLIN (Reuters) – U.S.-based Royalty Pharma has dropped a hostile bid worth up to $8 billion forElan , leaving the Irish drug maker free to seek other suitors having put itself up for sale last week.

Royalty on Tuesday withdrew its appeal against a ruling by Ireland’s regulator on takeovers, meaning the offer automatically lapses and bringing an end to a bitter, four-month battle that involved court hearings, injunctions and a war of words between the two sides.

The end of that saga heralds a new takeover battle for Elan, which has invited bids and has interest from “more than one interested party,” according to a source familiar with the situation.

Under Irish Takeover Panel rules, Royalty is not permitted to submit another hostile bid for Elan for 12 months once its current offer lapses. Elan has said Royalty can take part in the sale process. Royalty did not say if it intended to do so and a spokesman for the company had no further comment.

The New York-based investment firm had made its offer contingent on Elan shareholders rejecting all resolutions put to a vote at a meeting on Monday, but the owners narrowly backed one of the proposals, for a share buyback.

Royalty had said its bid should be contingent on only two of the resolutions relating to acquisitions – both of which were rejected – but the Irish Takeover Panel had said it could not modify the terms at that stage of the takeover contest.

ORIGINAL PLAN…”

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“Sprint Nextel Corp. (S) said it sued Dish Network Corp. seeking to block a buyout of Clearwire Corp. (CLWR), saying Dish’s bid violates rights of investors in the wireless network provider.

Sprint, Clearwire’s largest shareholder, said it sued Dish in state court in Wilmington, Delaware, yesterday to try to halt Dish’s $4.40-a-share bid for Clearwire. Sprint and Dish are both vying to acquire the Bellevue, Washington-based firm.

Dish’s offer is designed to coerce Clearwire shareholders into handing over their shares “or else be left holding stock in a corporation that will be handicapped by unlawful corporate governance restrictions, onerous debt provisions and subject to massive monetary damages claims,” according to a copy of a complaint provided by Sprint’s lawyers. The filing couldn’t be confirmed in Delaware Chancery Court after regular business hours yesterday…..”

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“European car sales fell to a 20-year low in May as record joblessness caused by a recession in the euro area reduced demand at PSA Peugeot Citroen (UG), Renault SA (RNO), Fiat SpA (F)and General Motors Co. (GM)

Registrations dropped 5.9 percent to 1.08 million vehicles from 1.15 million a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today. The figure was the lowest for the month since 1993, said Quynh-Nhu Huynh, the group’s economics director. The ACEA compiles data for the 27-nation EU plus Switzerland, Norway and Iceland….”

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“The International Monetary Fund cut its economic growth forecast for Russia, cautioning against the danger of stoking inflation with fiscal stimulus and urging policy makers to improve the business climate.

Gross domestic production will expand 2.5 percent this year and 3.25 percent in 2014, the Washington-based lender said in a statement today, compared with April predictions of 3.4 percent for 2013 and 3.8 percent next year. The Economy Ministry projects 2.4 percent growth this year and 3.7 percent in 2014.

“Fiscal stimulus at this time would likely be ineffective and merely intensify inflationary pressures, given that the economy is operating at full capacity,” IMF Mission Chief Antonio Spilimbergo said in the statement after completing the Article IV consultation of Russia’s economy. “Monetary policy should remain geared toward achieving inflation objectives.”

The IMF is inserting itself into a debate over a mix of policy tools needed to revive an economy growing at the weakest pace since a contraction in 2009. The government sees room to bolster the economy through a weaker ruble after rejecting calls to make the central bank partially responsible for growth, Finance Minister Anton Siluanov said in an interview last week.

The ruble weakened 0.5 percent against the dollar to 31.8950 as of 10:32 a.m. in Moscow. TheMicex Index (INDEXCF) of 50 stocks fell 0.3 percent percent to 1,321.62.

‘Investment, Diversification’….”

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