NEW$ & VIEW$ (23 Jan. 2012)

Big week on earnings, Obama’s State of the Union, plus Davos. Cheers! Mug

David Rosenberg:

A market on wheels! The equity market has gotten off to its best start in a good 15 years and being led by the deep cyclicals and financials.

Ghost   [GREEKDEBT]IMF’s Lagarde Sounds Alarm Over Europe

The global economy faces a depression-era collapse if Europe doesn’t quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the IMF warned.

Ms. Lagarde said unless euro-zone leaders urgently build a bigger emergency bailout fund, two of the euro zone’s largest economies, Italy and Spain, risked insolvency as the cost of financing their debt spikes upward. Insolvency in those two nations “would have disastrous implications for systemic stability,” she said.

“Adding substantial real resources to what is currently available by folding the European Financial Stability Fund into the European Stability Mechanism, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly,” she said.

Talks on Greek Debt Hit an Impasse

Greek bondholders draw line in the sand

Private owners of Greek debt have made their “maximum” offer for the losses they are willing to accept, the bondholders’ lead negotiator has said, implying that any further demands could kill off a “voluntary” deal and trigger a default.(…)

Crucial talks between Greece and private creditors on debt restructuring stalled over the weekend, with a dispute over the interest rate to be paid on new bonds.Mr Dallara said the IIF’s position tabled with Greek authorities on Friday night – believed to include a loss of 65-70 per cent on current Greek bonds’ long-term value – was as far as his side was likely to go.

If you’re a “private” sovereign bond holder, how do you feel about the possibility of a 65-70% “voluntary haircut”? That’s no haircut, that’s a scalp! Yet, Euro banks surged 9% last week!

Spanish Economy Is Poised to Shrink 1.5% This Year, Central Bank Forecasts

Spain’s economy contracted 0.3% in the fourth quarter and will shrink 1.5 percent this year, the Bank of Spain estimated, undermining government efforts to cut the budget deficit amid the second recession in two years.

Economic output may decline this year as unemployment reaches 23.4 percent, returning to growth of 0.2 percent in 2013, the central bank said. The forecasts are based on the premise that the government will adopt additional austerity measures to “strictly” meet its budget goals.

Confused smile   More austerity = return to growth?


Weaker Euro Could Turbocharge Auto Profits

German car makers are seen as the biggest beneficiary of a falling euro. Their production is generally in the euro zone, but many of their customers are in Asia and the U.S. A weaker euro could lead to fatter profits when earnings overseas are converted back to the currency.



It has now been 4 months of better economic news in the U.S. Citigroup’s surprise indicator generally does not get better than that.



Sales Stir Hope for Housing Market

Existing-home sales increased 5% in December from a month earlier, to a seasonally adjusted annual rate of 4.61 million units. They were +3.6% YoY. For all of 2011, existing-home sales rose 1.7% to 4.26 million from 4.19 million in 2010.

Another sign that demand is strengthening: sales could have been even stronger in recent months. Contract failures were reported by 33% of NAR members in December, unchanged from November; they were 9% in December 2010. Contract cancellations are caused largely by declined mortgage applications and failures in loan underwriting from appraised values coming in below the negotiated price.

Total housing inventory at the end of December dropped 9.2% to 2.38 million existing homes available for sale. Visible inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.30 million homes on the market. (Chart courtesy of NBF Financial)





Buyers purchased nearly 1,750 new units for a combined $800 million between January and December of 2011 to reduce the number of unsold units controlled by the original developers to eight percent of the nearly 22,250 condos created in Greater Downtown Miami during the South Florida real estate boom, according to a new report based on an analysis of Miami-Dade County Property Appraiser data.

“Buyers are acquiring an average of nearly 150 developer condos per month for $368 per square foot in Greater Downtown Miami,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. “The transaction velocity remains strong in early 2012 even though the average developer sales price has increased from less than $300 per square foot in 2009 and $305 per square foot in 2010. (…)”


At the current sales pace, the Greater Downtown Miami condo market could be sold out by the first quarter of 2013.

At least 10 new towers with more than 3,200 units are proposed for Greater Downtown Miami which has been the epicenter of the South Florida crash, according to the Preconstruction Condo Projects list.

Car Makers’ U-Turn Steers Job Gains

Auto-industry employment in the U.S. is predicted to jump to 756,800 in 2015 from 566,400 in 2010, with most of that increase in Michigan, according to the Center for Automotive Research in Ann Arbor, Mich. While that falls well short of the 1.1 million workers employed in the sector in 1999, it indicates the hemorrhaging has been stanched. The center also said major auto companies indicate they expect to increase capital spending in the next few years.

imageCattle prices hit record after US drought Livestock sold earlier because of dry spell

Cattle traders and packers believe prices could rise further. “We are on a cycle in which the size of the herd is getting smaller and smaller and prices can only rise,” a senior executive for one of the US largest meat packers said.

“In addition, the drought in southern US, particularly in Texas, is also impacting cattle numbers and that is another bullish factor.”

Orange juice prices squeezed higher
Disease outbreak in Texas pushes futures to daily limit

The Texas Department of Agriculture and other US authorities confirmed midweek the first detection in the southern state of citrus “greening”, a destructive bacterial disease transmitted by an insect called the citrus psyllid. Texas is the third-largest orange producer in the US, after Florida and California.

And oil which dropped just in time for Christmas:

The average price of a gallon of gasoline in the U.S. rose to $3.45 this week, increasing for the fourth straight week.

EU agrees Iran oil embargo  Bloc seeks to pressure Tehran over nuclear ambitions

Foreign ministers from the EU’s 27 member states meeting in Brussels decided to begin full implementation of the ban on July 1 after Greece, a big buyer of Iranian crude, reluctantly dropped its demand for an eight-month transition period, diplomats said.




Copper Imports by China Surge to a Record in December on Demand Outlook

Arrivals jumped 78 percent from a year ago to 406,937 metric tons, rising for a seventh month, according to an e- mailed statement from the General Administration of Customs today. That was the highest on record, according to Wang Zhouyi, an analyst at Shanghai CIFCO Futures Co.

Surging imports, coupled with a rebound in domestic production, have swelled inventories in Shanghai for a seventh week and widened the local cash discount. Three-month copper on the London Metal Exchange advanced to $8,428.5 a ton yesterday, the highest in four months, after retreating 21 percent in 2011.


Money   GOLD
Year of Dragon lifts China gold demand
Precious metal is increasingly popular as festive gift

The value of sales in 2011 rose 61 per cent from the previous year, hitting Rmb 11.6bn ($1.8bn). The first weekend in January saw sales increase 50 per cent from the previous year, as customers stocked up on new year gifts.

Pointing up   China sees 2nd month of net forex sales in Dec  Chinese banks sold more foreign currency than they bought from clients in December. The December deficit stood at $15.3 billion, up from $800 million recorded in November.




Dow’s Blue-Chip Day

Strong earnings from IBM powered blue-chip stocks even as discouraging quarterly reports from other bellwethers kept a lid on broader market gains.

The Dow rose to a six-month high, with IBM accounting for nearly two-thirds of the index’s gains. Shares rose $8, or 4.4%, to $188.52, after the company’s better-than-expected fourth-quarter earnings late Thursday.

Microsoft advanced 1.59, or 5.7%, to 29.71 after the company late Thursday reported fiscal second-quarter earnings that beat expectations.

Intel gained 75 cents, or 2.9%, to 26.38, after the chip maker late Thursday topped fourth-quarter earnings and revenue forecasts.

Google fell 53.58, or 8.4%, to 585.99, and was the S&P 500’s biggest laggard after reporting late Thursday fourth-quarter earnings and revenue that fell short of expectations.



For all big tech companies, the worry heading into the fourth quarter was that sales growth and margin expansion, which have hummed along since the financial crisis subsided, would revert to the mean (as they must, sooner or later). On sales, the worries proved well-founded: at all four companies, the fourth quarter grew more slowly than the third, and (except at Intel) was the slowest quarter of the year. There are specific explanations at each company, of course: both Intel and Microsoft were hit by the floods in Thailand which caused supply problems in a PC market already slowing without the added pain of rising water. IBM is always perfectly happy to sacrifice sales as long as profits grow. The pattern is unmistakable, all the same.

Margins, on the other hand, are hanging in there. Microsoft’s fell but that was to be expected when its PC sales-dependent operating systems business, which absolutely spews profits, shrank. The release of the next version of Windows, perhaps late this year, should help. Intel reported the best gross margin of the year, higher than last year’s fourth quarter, and the company expects a strong margin year in 2012. Margins at IBM continue to tick up as well.


GE Profit Slides on Pricing

General Electric’s biggest industrial businesses are struggling to expand profit despite rising sales as prices for the conglomerate’s products remain under competitive pressure.

Overall, GE said its fourth-quarter profit fell to $3.73 billion, weighed down by lingering costs from a consumer-finance business in Japan that GE has exited and excluding gains from the sale of a Central American bank that helped results in the same period a year earlier.

GE reported new orders rose 15% from a year earlier to $28.6 billion. The company also again reported strong demand in emerging markets, where industrial orders rose 26%.

Johnson Controls Pares Profit View as Europe Slips

Auto industry supplier Johnson Controls Inc. dialed back its full-year forecast, citing weakness in Europe and troubles in China, in a new sign that Europe’s economic weakness is spreading across the global auto industry.

The Milwaukee, Wis., battery maker and auto parts bellwether, said it now expects European auto production to drop 3.5% to 19.6 million new vehicles during its fiscal year which ends Sept. 30. The company originally expected production to increase 1.5% to 20.1 million vehicles.

Johnson Controls now expects its fiscal year earnings to be between $2.70 to $2.85 a share, down from its previous projection of between $2.85 a share and $3 a share. Second-quarter per share earnings are now projected to be between 52 cents and 54 cents, well below analysts’ 70-cent estimate.



Punch   Obama Promises Economic Blueprint

Obama in his weekly radio address accused Republicans of dragging their feet on proposals to expand the economy, and said his State of the Union address Tuesday would lay out plans to boost growth. The GOP was skeptical.


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