NEW$ & VIEW$ (20 March 2012)

Fingers crossed   CARRY ON TRANSPORT!

It has not been all AAPL. Higher oil prices have not scared investors much, yet.

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OUR SAUDI FRIENDS…

Rainbow   Saudi Arabia moves to calm oil market
Kingdom to boost exports to US and expand output

The Saudi cabinet on Monday said the kingdom would work “individually” and with others for the “return [of] oil prices to fair levels”. Riyadh recently said it aimed to keep oil prices at $100.

The kingdom has not yet publicly disclosed its moves, but Gulf and western officials and traders said the kingdom was boosting its oil exports to the US, after hiring more super-tankers last week. They said it was also reviving production at oil fields mothballed decades ago.

The measures by Riyadh come as other countries in Opec, the oil producers’ cartel, also boost their exports. Iraq is bringing about 300,000 b/d of fresh sales on top of current export of about 2.1m b/d with the opening of a new oil terminal in the Gulf. Saudi Arabia also believes that fellow Gulf countries Kuwait and the United Arab Emirates would be able to boost their exports by several hundred thousand barrels in an emergency.

Pointing up  Saudi oil production has not increased much in 20 years while its domestic consumption has skyrocketed as the kingdom subsidized fuel to its rapidly increasing population.

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The key to oil prices is not Saudi production but exports which have declined by more than 1MMbpd since 2005 as revealed by this chart from The Oil Drum.

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Just kidding   The only problem with higher Saudi production is that it reduces the already limited spare capacity which essentially is in Saudi Arabia. Oil markets rapidly price in the increasing supply risk and prices don’t decline much, if at all.

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BUT THE SHOCK IS NOT TOO BIG SO FAR:

Smile   Starwood CEO: Oil price rise reflects robust economy

“As we look at occupancy, not just in North America but around the world, it’s quite strong today,” van Paasschen said in a phone interview on Friday.

Van Paasschen also said Starwood was not seeing signs of a slowdown in its China business. “The Chinese economy by all accounts from what we see continues on robustly” in terms of development, demand and momentum in revenue per available room, an important hotel metric, van Paasschen said.

U.S. HOUSING

Smile   Home Builder Sentiment Holds Steady at Highest Level in Nearly 5 Years

The National Association of Home Builders said Monday its housing market index was 28 this month. It was the same level as February, which was revised down from a previously reported 29. The reading, while historically low, is holding at its highest level since June 2007. The reading of traffic from potential buyers held steady. (Chart from Haver Analytics)

 

Note   LET’S TWIST AGAIN?  Note

Bond Bear Market Yet to Roar

Is the bond bear market here? Some are recalling the events of 1994, when an unexpected U.S. rate increase caused bond-market carnage.

Ten-year Treasury yields have risen 0.36 percentage point in a week to 2.38%—in bond-market terms, a big move.

Gavyn Davies in the FT explains the recent sell-off:

In Japan, where the economy has been in a full liquidity trap for over a decade, the JGB market has never been able to sustain yields below about 1.3 per cent for this very reason. Markets know this, so when US yields were at around 1.9 per cent, they recognised that the maximum capital gain on treasuries was only around 8 per cent, compared to the much larger capital losses which could occur if yields were to rise sharply. This risk/return trade-off seemed unattractive, requiring the market to price a significant and continuing risk of recession to justify the level of yields.

This chart from Scotiabank illustrates bond investors risk:

 

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High five   Investors are worried that the Fed might actually change its rates guidance at its April meeting. That won’t happen anytime soon. First, U.S. inflation is not accelerating. Second, the Fed is very much aware that the U.S. is facing a fiscal cliff that politicians have shown incapable of managing. Read below:

 

The U.S. Cruises Toward a 2013 Fiscal Cliff

Alan Blinder reminds us that

(…) The result of all this can kicking is that Congress must make all those decisions by January 2013—or defer them yet again. If the House and Senate don’t act in time, a list of things will happen that are anathema either to Republicans or Democrats or both. The Bush tax cuts will expire. The temporary payroll tax cut will end. Unemployment benefits will be severely curtailed. And all on Jan. 1, 2013. Happy New Year!

There’s more. As part of the deal ending the acrimonious debate over raising the national debt ceiling last August, the president and Congress created the bipartisan Joint Select Committee on Deficit Reduction, commonly known as the “super committee.” It was charged with finding ways to trim at least $1.5 trillion from projected deficits over 10 years. Mindful that the committee might not prove to be that super, Congress stipulated that formulaic spending cuts of $1.2 trillion would kick in automatically if the committee failed.

Sure enough, it failed. So those automatic cuts are headed our way starting Jan. 15, 2013. To make this would-be sword of Damocles more frightening, the formula Congress adopted aimed half the cuts straight at the Pentagon.(…)

An abrupt fiscal contraction of 3.5% of GDP would be a disaster for the United States, highly likely to stifle the recovery. (…)

In the absence of progress between now and Election Day, Congress will have about eight weeks left—including Sundays, Thanksgiving, Christmas and New Year’s Eve—to either (a) find a solution to the long-running fiscal battle or (b) kick the can down the road again.(…)

Martin Feldstein agrees, seeing damages starting this year:

Obama tax rises threaten US recovery

(…) But the most important cloud on the horizon is the large tax increase that will occur next year unless there is legislation to block it. (…) That increase of $512bn is equivalent to 2.9 per cent of GDP, bringing federal revenue as a share of GDP from 15.8 per cent this year to 18.7 per cent next year.

(…)  Revenue would continue to rise in future years – as a share of GDP it would increase to 19.8 per cent in 2014 and would stay above 20 per cent for the remainder of the decade.(…)

Many political analysts are predicting that Republicans will maintain control of the House of Representatives and become the majority in the Senate but that Mr Obama will be re-elected. While this “most likely” outcome may not occur, the potential tax consequences pose a serious risk to the economy not only in 2013 but this year as well.(…)

The risk of dramatic tax increases and an economic downturn next year affects the behaviour of businesses and households today. Companies that expect large tax increases in 2013 and potentially another downturn in the near future will be reluctant to invest or hire this year. And individuals who think their personal taxes may rise next year will also cut back on current spending on “big-ticket” and other discretionary items.

(…) The political choice has never been more important for our economic outlook. Wilted rose

CHINA WATCH

 

China’s fuel price rise biggest for almost three years
Decision will help refiners cut heavy losses

China will raise retail gasoline and diesel prices by 6-7 per cent from Tuesday, marking the biggest increase in 33 months – a decision that will help refiners to reduce heavy losses but one that is unlikely to affect demand in a big way.

The owners of China’s expanding fleet of private cars will still barely blink at the record pump prices, now about 20 per cent higher than in the US and more than 50 per cent higher than Chinese rates of three years ago.

Obviously, Beijing is raising oil prices after overall inflation has eased. But Chinese consumers will hurt nevertheless even though many goods and services are subsidized.

China’s foreign oil dependency jumped to 56 percent in 2011 from 30 percent in 2000. That’s not a sustainable trend in light of the country’s long-term demand for oil, so China is using the pricing system to curb excessively rapid increases in oil use, the NDRC said.

Central government subsidies to the agriculture, fishery, forestry, urban public transportation and taxi industries will be provided to offset the price hikes, the authority said. (China Daily)

Storm cloud   Mercedes Record 25% Discount Leads Shrinking Luxury Margins in China: Cars

Mercedes dealers are offering record markdowns of 25 percent on high-end models such as the S300 sedan, according to data stretching back to 2009 at cheshi.com, which tracks prices at more than 3,000 Chinese dealerships. BMW AG (BMW)’s 7-series and Audi AG (NSU)’s A8Ls sell for 20 percent below sticker prices, waiting lists have vanished and salesmen are dangling perks ranging from free iPhones to Hermes-bag coupons.

Storm cloud   China Steel Growth Has Flattened as Economy Shifts, BHP Says

BHP Billiton Ltd. (RIO), the world’s biggest mining company, said China’s steel production is slowing as the world’s fastest-growing major economy starts to shift to focus more on consumers than large building projects.

“The big infrastructure build clearly will come to some end,” Ian Ashby, the Melbourne-based company’s president of iron ore, told reporters today in Perth. “Steel growth rates will flatten, and they have flattened, and we still see positive growth out to the middle of the next decade.”

Steel output in China, the biggest producer, may slow growth to 4 percent this year, the China Iron and Steel Association said March 6.

Storm cloud   Australia’s miners sees China iron ore demand flattening

Australian iron ore miners, key beneficiaries of China’s modern-day industrial revolution, on Tuesday signaled demand growth was finally slowing in response to Beijing’s moves to cool its economy.

It was the strongest indication yet from an industry closest to China’s phenomenal industrial growth over the last decade that the boom times, if not over, are tempering.

China’s demand for iron ore, a key steelmaking ingredient, will slow to single digit growth, but the country’s annual steel output will still rise by some 60 percent by 2025, Ashby said.

China’s iron ore imports have grown at a double-digit rate for the last eight years, apart from a 1.4 percent drop in 2010 amid the global financial crisis, according to data from Reuters and China customs.

 

Smile   German Factory Prices Rise Slowly

German factory prices in February rose at the slowest pace on the year since June 2010, but again received a boost from sharply higher energy prices, Germany’s federal statistics office Destatis said.

Producer prices were up 0.4% from a month earlier and increased 3.2% from February 2011. As seen in the previous month, energy prices were the main driver of inflation as they rose 0.5% in February from the previous month. That was a slower monthly pace than in January, when they were up 1.3%.

Excluding energy, producer prices only rose 0.4% from January and were up 1.6% from a year earlier.

EARNINGS WATCH

Sad smile   Tiffany Profit Trails Analysts’ Estimates

Tiffany, which hadn’t reported a profit decline in more than two years, is being hurt by decelerating sales in Europe and the U.S. amid the sovereign-debt crisis and Wall Street job cuts. In January, the retailer reduced its annual earnings forecast, hurt by slowing holiday sales growth in all regions.

 

Chile’s GDP Expanded 6% in 2011

Chile’s economy grew at a robust 6% pace last year, picking up speed in the fourth quarter on resilient domestic demand.

 

2 thoughts on “NEW$ & VIEW$ (20 March 2012)

  1. The post concerning Tiffany ( Tiffany Profit Trails Analysts’ Estimates) is opposite to the Bloomberg article.

    “Tiffany Jumps After Annual Profit Forecast Exceeds Estimates”

    • Yes, but I prefer to put the emphasis on the

        fact

      that sales and profits have weakened recently. Forward looking statements can be rose-colored, proof being that last quarter was weaker than expected. Thanks for pointing that out and for reading me.

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