NEW$ & VIEW$ (31 JANUARY 2014)

U.S. Banks Loosen Loan Standards Big banks are beginning to loosen their tight grip on lending, creating a new opening for consumer and business borrowing that could underpin a brightening economic outlook.

(…) In both the U.S. and Europe, new reports released Thursday show banks are slowly starting to increase their appetite for risk. The U.S. Office of the Comptroller of the Currency said banks relaxed the criteria for businesses and consumers to obtain credit during the 18 months leading up to June 30, 2013, while the European Central Bank said fewer banks in the euro zone were reporting tightened lending standards to nonfinancial businesses in the fourth quarter of 2013.

(…)  The comptroller’s report said it would still classify most banks’ standards as “good or satisfactory” but did strike a cautionary tone. (…)

An upturn in bank lending, if taken too far, could also lead to inflation. The Fed has flooded banks with trillions of dollars in cash in its efforts to boost the economy. In theory, the printing of that money would cause consumer price inflation to take off, but it hasn’t, largely because banks haven’t aggressively lent out the money. (…)

John G. Stumpf, CEO of Wells Fargo & Co., said on a Jan. 14 conference call with analysts that he is “hearing more, when I talk with customers, about their interest in building something, adding something, investing in something.”

Kelly King, chief executive of BB&T Corp., told analysts two days later, “we really believe that we are at a pivotal point in the economy…admittedly that’s substantially intuitive.” (…)

The comptroller’s survey found more banks loosening standards than tightening. The regulator said that in the 18 months leading up to June 30, 2013, its examiners saw more banks offering more attractive loans.

The trend extended to credit-card, auto and large corporate loans but not to residential mortgages and home-equity loans. (…)

The OCC’s findings are consistent with more recent surveys: The Fed’s October survey of senior U.S. loan officers found a growing number loosening standards for commercial and industrial loans, often by narrowing the spread between the interest rate on the loan and the cost of funds to the bank.

The ECB’s quarterly survey, which covered 133 banks, showed that the net percentage of euro-zone banks reporting higher lending standards to nonfinancial businesses was 2% in the fourth quarter, compared with 5% in the third quarter. (…)

 

U.S. Starts to Hit Growth Stride

A potent mix of rising exports, consumer spending and business investment helped the U.S. economy end the year on solid footing.

Gross domestic product, the broadest measure of goods and services churned out by the economy, grew at a seasonally adjusted annual rate of 3.2% in the fourth quarter, the Commerce Department said. That was less than the third quarter’s 4.1% pace, but overall the final six months of the year delivered the strongest second half since 2003, when the economy was thriving.

Growth Story

A big driver of growth in the fourth quarter was a rise in consumer spending, which grew 3.3%, the fastest pace in three years. Consumer spending accounts for roughly two-thirds of economic activity.

The spike in Q4 consumer spending is very surprising, and suspicious. Let’s se how it gets revised.

Consider these nest 2 items:

(…) For the 14-week period ending Jan. 31, Wal-Mart expects both Wal-Mart U.S. and Sam’s Club same-store sales, without fuel, to be slightly negative, compared with prior guidance. It previously estimated Wal-Mart U.S. guidance for same-store sales to be relatively flat, and Sam’s expected same-store sales to be between flat and 2%.

A number of U.S. retail and restaurant companies have lamented poor winter weather and aggressive discounts, resulting in fewer store visits and lower sales. Many of those companies either lowered their full-year expectations or offered preliminary fourth-quarter targets that missed Wall Street’s expectations.

Wal-Mart warned the sales impact from the reduction in the U.S. government Supplemental Nutrition Assistance Program benefits that went into effect Nov. 1 was greater than expected. The retailer also said that eight named winter storms resulted in store closures that hurt traffic throughout the quarter.

Wal-Mart Stores Inc. warned that it expects fourth-quarter earnings to meet or fall below the low end of its prior forecast, citing government cuts to assistance programs and the harsh winter weather.

Amazon earned $239 million, or 51 cents a share, on sales that were up 20% at $25.59 billion. The 51 cents a share were far below Street consensus of 74 cents, and the $239 million profit on $25 billion in sales illustrates just how thin the company’s margins are.

A year ago, Amazon earned $97 million, or 21 cents a share, on sales of $21.29 billion.

The company also forecast first-quarter sales of $18.2-$19.9 billion; Street consensus was for $19.67 billion. In other words, most of that projection is below Street consensus.

It projected its net in a range of an operating loss of $200 million to an operating profit of $200 million.

Surprised smile AMZN earned $239M in 2013 and projects 2014 between –$200M and +$200M. You can drive a truck in that range. But how about the revenue range for Q1’14:

Net sales grew 20 percent to $25.6 billion in the fourth quarter, versus expectations for just above $26 billion and slowing from the 24 percent of the previous three months.

North American net sales in particular grew 26 percent to $15.3 billion, from 30 percent or more in the past two quarters.

Amazon also forecast revenue growth of between 13 and 24 per cent in the next quarter, compared to the first quarter 2013.

Notwithstanding what that means for AMZN investors, one must be concerned for what that means for U.S. consumer spending. Brick-and-mortar store sales have been pretty weak in Q4 and many thought that online sales would save the day for the economy. Amazon is the largest online retailer, by far, and its growth is slowing fast and its sales visibility is disappearing just as fast.

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Back to AMZN itself, our own experience at Christmas revealed that Amazon prices were no longer systematically the lowest. We bought many items elsewhere last year, sometimes with a pretty large price gap with Amazon. Also, Amazon customers are now paying sales taxes in just about every states, closing the price gap further. And now this:

To cover rising fuel and transport costs, the company is considering a $20 to $40 increase in the annual $79 fee it charges users of its “Prime” two-day shipping and online media service, considered instrumental to driving online purchases of both goods and digital media.

“Customers like the service, they’re using it a lot more, and so that’s the reason why we’re looking at the increase.” Confused smile

U.S. Pending Home Sales Hit By Winter Storms

The National Association of Realtors (NAR) reported that December pending sales of single-family homes plunged 8.7% m/m following a 0.3% slip in November, revised from a 0.2 rise. It was the seventh consecutive month of decline.

Home sales fell hard across the country last month. In the Northeast a 10.3% decline (-5.5% y/y) was logged but strength earlier in the year lifted the full year average by 6.2%. Sales out West declined 9.8% (-16.0% y/y) and for the full year fell 4.1%. Sales down South posted an 8.8% (-6.9 y/y) falloff but for all of 2013 were up 5.4%. In the Midwest, December sales were off 6.8% (6.9% y/y) yet surged 10.4% for the year.

Punch Haver’s headline suggests that weather was the main factor but sales were weak across the U.S. and have been weak for since the May taper announcement.

Mortgage Volumes Hit Five Year Low The volume of home mortgages originated during the fourth quarter fell to its lowest level in five years, according to an analysis published Thursday by Inside Mortgage Finance, an industry newsletter.

(…) Volumes tumbled by 19% in the third quarter, fell by another 34% in the fourth quarter, according to the tally. (…)

Overall originations in 2013 stood at nearly $1.9 trillion, down nearly 11% from 2012 but still the second best year for the industry since the mortgage bust deepened in 2008. The Mortgage Bankers Association forecasts originations will fall to $1.1 trillion, the lowest level in 14 years.

The report also showed that the nation’s largest lenders continued to account for a shrinking share of mortgage originations, at around 65.3% of all loans, down from over 90% in 2008.

Euro-Zone Inflation Returns to Record Low

Annual inflation rate falls to a record low in January, a development that will increase pressure on the ECB to act more decisively to head off the threat of falling prices.

The European Union’s statistics agency said Friday consumer prices rose by just 0.7% in the 12 months to January, down from an 0.8% annual rate of inflation in December, and further below the ECB’s target of just under 2.0%.

Excluding energy, prices rose 1.0%, while prices of food, alcohol and tobacco increased 1.7% and prices of services were 1.1% higher.

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Pointing up Figures also released Friday showed retail sales fell 2.5% in Germany during December. The result was far worse than the unchanged reading expected from a Wall Street Journal poll of experts. In annual terms, retail sales fell 2.4%, the data showed. It was the first annual decline in German sales since June.

Consumer spending also fell in France as households cut purchases of clothes and accessories, although by a more modest 0.1%.

Benchmark Japan inflation rate hits 1.3%
December figure brings Bank of Japan closer to 2% goal

Average core inflation for all of 2013, a measure that excludes the volatile price of fresh food, was 0.4 per cent, according to the interior ministry. (…)

Much of the inflation so far has been the result of the precipitous fall in the yen that took hold in late 2012, making imports more expensive. Energy prices, in particular, have risen sharply: Japan buys virtually all of its oil and gas abroad, and the post-Fukushima shutdown of the country’s nuclear industry has further increased the need for fossil fuels.

So-called “core-core” consumer prices, which strip out the cost of both food and energy, rose by 0.7 per cent in December.

SENTIMENT WATCH

Individual Investors Head For the Hills

(…) In this week’s poll, bullish sentiment declined from 38.12% down to 32.18%.  This represents the fourth weekly decline in the five weeks since bullish sentiment peaked on 12/26/13 at 55.06%.  While bullish sentiment declined, the bearish camp became more crowded rising from 23.76% to 32.76%.  

With this week’s increase, bearish sentiment is now greater than bullish sentiment for the first time since mid-August.  The most interesting aspect about these two periods is what provoked the increase in cautiousness.  Back then it was concerns over Syria that were weighing on investor sentiment.  Fast forwarding to today, the big issue weighing on investors’ minds is now centered on Syria’s neighbor to the North (Turkey).  For such a small area of the world, this region continues to garners a lot of attention.

THE JANUARY BAROMETER (Contn’d) Sleepy smile

January Slump Is Nothing to Fret Over

The old Wall Street adage — as January goes, so goes the rest of the year – needs to be put to rest.

Since 1950, there have been 24 years in which the S&P 500 fell in January, according to Jonathan Krinsky, chief market technician at MKM Partners. While the S&P 500 finished 14 of those years in the red, a look at the performance from February through the end of the year provides evidence to buoy investors. In 13 of those 24 years, stocks rose over the final 11 months.

“All else being equal, a down January is less than 50% predictive that the rest of the year will close lower than where it closed in January,” Mr. Krinsky said. (…)

Long time reader Don M. sent me even better stuff on the January Barometer. Hanlon Investment Management must have had many clients asking about that since they made a thorough analysis of the “phenomenon”. Here it is for your Super Bowl conversation:

(…) What was found is that from 1950 until 1984, years where the month of January saw a positive return were predictive of a positive return for the entire year with approximately 90% probability.  The years with a negative return in January were predictive of a negative return for the year approximately 70% of the time. 

In the intervening time since 1984, market action has caused the predictive power of negative returns in January to fall to around 50%, which is nothing more than chance.  However, positive returns in January have still retained their predictive power for positive returns for the year.

Yet still, there is another group of people who advocate that just the first five trading days of January are predictive of the rest of the year.  We took data from 1950 through 2013 for the S&P 500 Index and then calculated both positive and negative results on a weekly and monthly basis.

For the 64 years from 1950 through 2013, a positive return in January was predictive of a positive return for the year 92.5% of the time.  A positive return during the first five trading days of January was predictive of a positive return for the year 90.0% of the time.  A negative return in January was predictive of a negative return for the year 54.2% of the time-basically not predictive at all.  A negative return during the first five trading days of January was predictive only 50% of the time, amounting to nothing more than a flip of a coin.

But what if we filter the results by requiring both a positive return during the first five trading days of January and a positive return in January for a positive signal?  Conversely, we may require a negative return during the first five trading days of January and a negative return for January to generate a negative signal.   When the first week and the month of January both have positive returns, then the signal is predictive 93.5% of the time for a positive year: a slight improvement over 92.5%.

Even more interesting is that when you require both a negative return in the first week and a negative return in January to give a signal.  Though the number of signals is reduced from 24 to 15, the success ratio improves from 54.2% to 73.3%.  The median and average returns for predicted years are listed in the summary statistics table, along with their respective success percentages, on the following page.  This will give you a something to ponder as we begin 2014.

How about negative first week and positive month? And what’s wrong with the last five days of January? Then insert the result of the Super Bowl. There you go!

Thanks Don.

Investors pull billions from EM stocks Dedicated EM funds hit as equity outflows reach highest since 2011 (Via FT Alphaville)

SocGen’s cross-asset research team believes that when it comes to EM outflows they may have only just begun:

As the team notes on Friday, this is especially so given the Fed doesn’t appear to care about the EM sell-off:

Since cumulative inflows into EM equity funds reached a peak of $220bn in February last year, $60bn of funds have fled elsewhere. Given the exceptionally strong link between EM equity performance and flows, we think it plausible that funds are currently withdrawing double that from EM equity (see chart below). EM bond funds face a similar fate. For reasons discussed in our latest Multi Asset Snapshot (EM assets still at risk – don’t catch the falling knife), we see no early end to EM asset de-rating. Furthermore, the Fed remains assertive on execution of tapering despite recent turmoil within the EM world, which spells more turbulence ahead.

And if it keeps going, balance of payments issues could emerge as a result:

A close look at Global EM funds indicates that all EM markets are suffering outflows Mutual fund and ETF investors in EMs both favour global EM funds. Regional or country specialisation is less common (less than 47% of global EM assets). The implication is that all EM markets face outflows currently, with little discrimination between the countries that are most exposed and those which are more defensive. We think Balance of Payment issues may emerge as an important factor going forward.

Though, what is EM’s loss seems to be Europe’s gain at the moment:

Europe reaps the benefits While current EM volatility is impacting developed markets as well, some of the flows are being redirected toward Europe, notably into Italy, Spain and the UK.

The notable difference with taper tantrum V.2, of course, is that US yields are compressing:

Which might suggest that what the market got really wrong during taper tantrum V.1, was that a reduction in QE would cause a US bond apocalypse. This was a major misreading of the underlying fundamentals and tantamount to some in the market giving away top-quality yield to those who knew better.

Taper at its heart is disinflationary for the US economy, and any yield sell-off makes the relative real returns associated with US bonds more appealing.

That taper V.2 incentivises capital back into the US, at the cost of riskier EM yields, consequently makes a lot of sense.

Though, this will become a problem for the US if the disinflationary pressure gets too big.

 
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NEW$ & VIEW$ (29 JANUARY 2014)

SOFT PATCH WATCH

U.S. Durable Orders Tumble 4.3%, Suggesting Business Caution

Demand for big-ticket manufactured goods tumbled last month, a sign of caution among businesses despite sturdier economic growth

New orders for durable goods fell 4.3% in December from a month earlier, the Commerce Department said Tuesday. Economists surveyed by Dow Jones Newswires had a median forecast that durable-goods orders would rise by 1.5% in December.

The decline, the biggest since July, was driven by a sharp drop in demand for civilian aircraft. Excluding the volatile transportation sector, durable-goods orders fell 1.6%—itself the biggest decline since March. (…)

The overall drop in orders was broad-based, with most major categories posting declines. Orders for autos fell by the most since August 2011, and demand for computers and electronic also declined sharply.

Orders for nondefense capital goods excluding aircraft—a proxy for business spending on equipment—declined 1.3% in December, reversing some of November’s 2.6% increase. (…)

Pointing up Nondefense capital goods ex-aircraft are up 0.7% in Q4, a 2.8% annualized rate. They rose 5.1% for all of 2013, but that was really because of a poor second half in 2012. As this chart from Doug Short reveals, core durables have displayed very little momentum in 2013.

Click to View

SPEAKING OF CARS

In reporting its results, Ford said that in the current quarter it would produce 14,000 fewer vehicles in North America than in the same period a year ago.

A Cooling of Americans’ Love Affair With Cars

An aging population and a shift away from car ownership will make it difficult for the U.S. auto industry to sell as many cars as it once did.

(…) The challenge, though, will be maintaining that level with a confluence of demographic headwinds hitting.

The population is significantly older, and growing much more slowly, than it did during the auto industry’s heyday. In 1970, the U.S. median age was 28 and the population aged 16 and over—broadly, those of driving age—had grown at 1.7% annually over the prior five years. Today, the median age is 38, with the driving-age population growing 1% annually.

At the same time, young people’s interest in cars seems to be waning. In 1995, 87% of the population aged 20 to 24 had a driver’s license, according to the Federal Highway Administration. By 2011 that had fallen to 80%.

A recent analysis by industry watcher IHS and French think tank Futuribles suggests a likely culprit: a trend toward more urban living. Cities offer alternatives to driving for getting around and owning a car there can be an outright, and expensive, nuisance. (…)

There has been a marked decline in the time Americans spend behind the wheel. And the further the recession slips into the past, the more this change looks driven by demographics rather than just economic distress.

In 2012, according to an analysis of census data by the University of Michigan’s Transportation Research Institute, 9.2% of U.S. households didn’t have a car, compared with 8.7% in 2007. In the 12-month period ended in November, vehicles logged 2.97 trillion miles on American roads, according to the Federal Highway Administration. That comes to 12,045 miles per person aged 16 and over—nearly a 20-year low. (…)

December Shipment Volumes

imageFreight volumes in North America plummeted 6.2 percent from November to December, making this the largest monthly drop in 2013 and the third straight monthly decline. December shipment levels were 3.2 percent lower than in December 2012 and 1.8 percent lower than 2011. Despite the fact that there were fewer shipments in 2013, other indicators, such as the American Trucking Association’s Truck Tonnage Index, have shown that loads have been getting heavier. This matches well with anecdotal evidence from LTL carriers that they are carrying fuller loads. And since the Cass Freight Index does not capture a representative picture of the small parcel sector of the industry, the steep downward freight movement in December was somewhat offset by the increase in small package shipping for the holidays.

TRUCKIN’ & TRAININ’: Interesting to see how trucking rates have gone up while rail container rates have been flat for 3 years.

Truckload pricing trend data

Intermodal price trends

CHINA: CEBM’s review of January industrial activity shows that economic activity remains weak, but that further MoM weakening was not observed.

U.S. Home Prices Rise U.S. home prices continued to rise solidly in November, according to according to the S&P/Case-Shiller home price report.

The home price index covering 10 major U.S. cities increased 13.8% in the year ended in November, according to the S&P/Case-Shiller home price report. The 20-city price index increased 13.7%, close to the 13.8% advance expected by economists.

The two indexes indicate home prices are back to levels seen in mid-2004. (Chart from Haver Analytics)

Turkey Gets Aggressive on Rates

Turkey’s central bank unveiled emergency interest-rate increases in a move that outstripped market expectations and sent the lira roaring back, in a test case for other emerging markets battling plunging currencies.

The central bank more than doubled its benchmark one-week lending rate for banks to 10% from 4.5%. At the same time, in an apparent effort to quell volatility and get banks to hold money longer, it shifted its primary lending to the weekly rate from its overnight rate of 7.75%, which it raised even higher.

The effective difference for most lending—2.25%—is a major move for any central bank, though not as large as it initially appeared. (…)

The Turkish rate hike, which pushed the overnight rate to 12%, followed a surprising increase in India on Tuesday, as Delhi moved to dampen rising prices even as the South Asian giant faces its slowest growth in a decade.

Argentina’s central bank has also pushed up rates in recent days, and in South Africa, which faces a similar mix of weakening growth and high inflation, rate setters were under pressure to follow suit at their meeting Wednesday.

On Monday, the Bank of Russia shifted the ruble’s trading band higher, in response to selling pressure on the Russian currency. (…)

High five “The reality is that Turkey needs capital flows every day. The rate hike makes more difficult for people to go short the lira, but this doesn’t mean necessarily people are coming in,” said Francesc Balcells, an emerging-market portfolio manager with Pacific Investment Management Co., which manages a total of $1.97 trillion.

Europe Banks Show Signs of Healing

Italy’s second-largest bank by assets, Intesa Sanpaolo ISP.MI +0.86% SpA, said that it has fully repaid a €36 billion ($49 billion) loan it took from the European Central Bank during the heat of the Continent’s financial crisis. The bank moved faster than expected to pay back loans that don’t come due until the end of the year.

Elsewhere, Europe’s banks have recently entered a stepped-up cleanup phase. (…)

In Italy, Banco Popolare BP.MI -1.21% SC on Friday joined several other banks there that plan to sell more shares this year. The lender said Friday that it would raise €1.5 billion by giving its investors the right to buy shares at a discount. (…)

European banks have raised about €25 billion of new capital in recent months in advance of the ECB exams, according to Morgan Stanley MS +0.53% analyst Huw van Steenis. (…)

Some bank executives privately said they are worried that the stress-test process itself could reignite the Continent’s financial crisis if unexpected problems are uncovered. The chairman of one of Europe’s largest banks said his company is refusing to make unsecured loans to other European banks because of concerns about the industry’s health. (…)

Big Oil’s Costs Soar

Chevron, Exxon and Shell spent more than $120 billion in 2013 to boost their oil and gas output. But the three oil giants have little to show for all their big spending.

Oil and gas production are down despite combined capital expenses of a half-trillion dollars in the past five years. (…)

Plans under way to pump oil using man-made islands in the Caspian Sea could cost a consortium that includes Exxon and Shell $40 billion, up from the original budget of $10 billion. The price tag for a natural-gas project in Australia, called Gorgon and jointly owned by the three companies, has ballooned 45% to $54 billion. Shell is spending at least $10 billion on untested technology to build a natural-gas plant on a large boat so the company can tap a remote field, according to people who have worked on the project.

(…) Chevron, Exxon and Shell are digging even deeper into their pockets, putting their usually reliable profit margins in jeopardy. Exxon is borrowing more, dipping into its cash pile and buying back fewer shares to help the Irving, Texas, company cover capital costs.

Exxon has said such costs would hit about $41 billion last year, up 51% from $27.1 billion in 2009. (…)

Costly Quest

Oil-industry experts say it will be difficult for the oil giants to spend less because they need to replenish the oil and gas they are pumping—and must keep up with rivals in the world-wide exploration race.

“If you don’t spend, you’re going to shrink,” says Dan Pickering, co-president of Tudor, Pickering Holt & Co., an investment bank in Houston that specializes in the energy industry. Unfortunately for the oil giants, though, “I don’t think there’s any way these projects are more profitable than their legacy production,” he adds. (…)

EARNINGS WATCH

 

Earnings Beat Rate Strong Early, But A Long Way To Go

With few companies reporting early, the beat rate jumped as high as 70% before falling back down to 58% on January 15th.  Since then we’ve seen it stabilize and solid beat rates late in the week of the 17th have taken us to a range around 65% since the Martin Luther King Day long weekend.

As of this morning, 66% of firms reporting have beaten their consensus EPS estimates, which is better than the last two fourth quarter reporting periods (61% in 2012 and 60% in 2011).  Since the start of the current bull market in early 2009, the average quarter has had a beat rate of 62%.  If the current quarter continues at this pace, we will log the highest EPS beat rate since this reporting period in 2010.  But keep in mind that less than 300 names have reported.  With over 80% of the market waiting in the wings, this earnings season is far from over.

Thumbs down Thumbs up DOW THEORY SELL SIGNAL? (From Jeffrey Saut, Chief Investment Strategist, Raymond James)

(…) All of those Bear Boos were reflected in this email from one of our financial advisors:

Hey Jeff, I know you have heard of the Dow Theory buy and sell signals. We are now in a Dow Theory sell signal, meaning the D-J Transport Average (TRAN/7258.72) made a new high unconfirmed by the D-J Industrials. We’ve been in a Dow Theory buy signal environment for the past two years and now that has reversed. These signals are not short term and only happen at major stock market turns. For instance, we had Dow Theory sell signals 4 times between October of 2007 and February of 2008, which was a precursor to the 2008 carnage. What happened on Thursday/Friday of this week also confirms the bearish Elliott wave pattern.

“Nonsense,” was my response. First, all we have seen is what’s termed an “upside non-confirmation” with the Trannies making a new high while the Industrials did not. That is NOT a Dow Theory “sell signal,” it is as stated an upside non-confirmation. To get a Dow Theory “sell signal” would require the INDU to close below its June 2012 low of 14659.56 with a close by the Trannies below their respective June 2012 low of 6173.86, at least by my method of interpreting Dow Theory.

Second, there were not four Dow Theory “sell signals” between October 2007 and February 2008. There was, however, a Dow Theory “sell signal” occurring in November 2007 that I wrote about at the time. Third, there have been numerous Dow Theory “buy signals” since 2009, not just over the last two years. Fourth, Dow Theory also has a lot to do with valuations, and valuations are not expensive with the S&P 500 trading at 14.7x the S&P’s bottom up earnings estimate for 2014. And fifth, I studied Elliott wave theory decades ago and found it to be pretty worthless.

Canon to Return Some Production to Japan

Canon is stepping up efforts to take advantage of a weak yen by moving some of its production back home, in a move that could signal a shift in momentum of the Japanese manufacturing sector.

First, “Abenomics is working well … thus leading us to believe the foreign currency rate won’t fluctuate widely from the current levels at least for next several years,” Mr. Tanaka said.

Second, Mr. Tanaka said, a gap between labor costs in Japan and other Asian nations, where Canon has production bases, has narrowed. Rising wages outside Japan, as well as advanced factory automation technology the company has introduced at home, have contributed to the narrowing of those costs.

Canon said it expects to increase domestic output to 50% by 2015, from 43% in the latest business year ended December. About 60% of Canon’s production came from domestic factories between 2005 and 2009 but has fallen to below 50% since 2011.

 
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NEW$ & VIEW$ (28 JANUARY 2014)

Calm Returns to Emerging Markets Efforts by emerging-market central banks to counter a vicious market selloff in recent days brought a measure of calm.

The Turkish lira held on to the large gains it made Monday, after the country’s central bank announced a previously unscheduled interest-rate decision for late Tuesday, with the dollar pinned just under 2.27 against the lira, well below the near-2.39 peak it hit Monday.

Bank Gov. Erdem Basci said Tuesday he will “not refrain from permanent policy tightening,” which appears to reaffirm the market’s clear expectation for aggressive rate rises to support the currency at the coming rates announcement, scheduled for midnight local time.

An unexpected 0.25-percentage-point rate rise by India’s central bank has also lent support to battered emerging-market currencies, which have been dented by drab economic news from China, concerns over the effects of the U.S. Federal Reserve’s pullback from monetary stimulus, and a long list of geopolitical stresses including those in Turkey, Argentina, South Africa and Ukraine.

Italy Grabs Record Low 2-Year Funding Costs

At Tuesday’s auction, the Italian treasury sold €2.5 billion euros ($3.42 billion) in December 2015-dated zero coupon notes, or CTZ, and a further €1.25 billion euros in September 2018-dated inflation-index bonds, or BTPei, the Bank of Italy said. The amounts sold were at the upper end of the treasury’s respective target ranges.

The yield on the CTZ was 1.031%. Italy’s previous lowest funding cost in this maturity segment was 1.113%, in May 2013.

Fears had surfaced that ongoing emerging-market turmoil could spill into to the euro zone’s relatively weak sovereign debt markets as the single currency area tentatively emerges from recession. But these auction results suggest the risks to the euro zone can remain contained.

 Italian Retail Sales Offer Very Slow Progress

Retail sales for Italy in November were flat, marking their best performance since August when sales also were flat. The last increase in Italian retail sales came in May 2013 with a 0.1% rise. Retail sales dropped by 1.2% over 12 months, they fell at a 1.5% annual rate over six months and they fell at an even faster, 1.7% rate, over three months. (…)

Real retail sales excluding autos are flat in November, but they had risen by 0.1% in October. Retail sales are down by 1.9% over 12 months and they are falling at a faster, 2.6% annual rate, over six months. However, over three months, real retail sales are declining at only a 0.9% annual rate. (…)

SOFT PATCH WATCH

 

(…) Last week, the flash January factory survey by data provider Markit said some respondents stated “extreme weather conditions in January had temporarily disrupted output levels.” So, too, the Kansas City Fed said its survey of area manufacturers showed production declined slightly this month because of weather.

Store chains are also feeling the freeze.

“It was a slow period for sales over the past week with some bouts of abnormal seasonal weather curbing the consumers’ appetite to shop,” the International Council of Shopping Centers said.

Consumer spending may also take a hit because households are paying more for natural gas to heat their homes.

“Weather was mentioned 21 times in the latest beige book, almost always in a negative context, the most in any winter month Beige Book since at least 2011,” wrote John Canally, investment strategist at LPL Financial, after looking at the book.

Besides store sales and manufacturing, other activity that could be hurt by weather include home building and car sales (who wants to drive a shiny new car off the lot during a snow storm).

As one positive for growth: higher demand for heat is probably lifting utility output this month.

The end result is that when January data roll out in February, the weak tone may cause some economists to trim their tracking of first-quarter GDP growth. (…)

  • FYI, updated to last Saturday:

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Economists polled by Bloomberg anticipate the economy grew 3.2 percent during the final three months of the year, a bit softer than the 4.1 percent gain in the third quarter, which was overwhelmingly the result of a $115.7 billion inventory build. While optimists may claim the fourth quarter was still strong, the data may not provide an accurate depiction of underlying conditions.

First, there’s little doubt the strong economic reports for November were
payback for the sharp, albeit temporary, weakness in October caused by
the shutdown of the U.S. government. Second, with December data coming in softer than Street expectations, recent issues such as the mass layoff announcements by Wal-Mart, Macy’s, JC Penney, Target and Intel, as well as deterioration in China’s industrial sector and currency
issues in the emerging markets, the accumulation of negatives could end up being too much weight for the sluggish recovery to bear.

The Chicago Fed’s National Activity Index decreased to 0.16 in December
from the 0.69 posting in November. Similarly, The Conference Board’s index of leading economic indicators (LEI) inched up 0.1 percent in December following a 0.8 percent spike in November. The LEI is known for predicting turning points in the economy. And the Conference Board’s coincident-to- lagging indicator ratio continues its downward descent.

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Meanwhile, meaningful housing data have been bleak – new home sales
tumbled 7 percent in November – essentially unchanged from mid-year 2013 levels. From an economist’s standpoint, new home sales matter more than their existing home counterpart since they require building materials, new durable goods (washers, dryers, refrigerators, etc.) and employ specialty trade contractors such as plumbers, landscapers,
electricians and other tradesmen.

Similarly, the MBA Purchases Index fell 3.6 percent during the week ended Jan. 17, and is off 15.2 percent from year ago levels. This gauge has been mired in weak territory for years now with no sign of improvement. (…)

 

Sales of newly built homes fell 7% to a seasonally adjusted annual rate of 414,000 in December from 445,000 in November, the Commerce Department said Monday. November’s figure was revised down by 19,000.

December sales came in below the 455,000 annual pace forecast by economists and were at their lowest level since the summer, when rising mortgage rates undermined demand.

It was not just weather related as Haver Analytics points out:

Poor weather crimped sales by more than one-third m/m in the Northeast to 21,000 (-27.6% y/y). Sales also fell 8.8% (+5.1% y/y) to 103,000 in the West while sales were off 7.3% (+4.1 y/y) in the South to 230,000, the second month of sharp decline.

Royal Philips NV and Siemens AG, two of Europe’s biggest industrial groups by revenue, reported Tuesday robust results for the three months to end-December but cautioned that business conditions remain tough, partly because of the euro’s strength against major currencies.

The cautious outlook from the Dutch and German companies follows similar downbeat forecasts from other blue-chip European companies to have reported in the past two weeks, some of them issuing profit warnings.

The year will start a bit slow,” Philips Chief Executive Frans van Houten said.

At Siemens, orders at its power-generation equipment division fell in Europe, the Americas, and Asia in the quarter. The Germany company’s main European competitors in the sector, Alstom SA of France and ABB Ltd. of Switzerland, warned on their earnings prospects last week. (,,,)

Fingers crossed States Weigh Plans for Revenue Windfalls Governors across the U.S. are proposing tax cuts, increases in school spending and college-tuition freezes as growing revenue and mounting surpluses have states putting the recession behind them.

(…) The strengthening in tax revenue started in late 2012 as higher-income residents in many states took increased capital gains among other steps to avoid rising federal tax rates on certain income. Those tax payments spilled over into 2013, and further fuel for collections came from a record stock market and improving economy. State tax revenue nationally climbed 6.7% in the fiscal year ended June 30, 2013, Moody’s Analytics says. (…)

Some states already have responded to rising tax collections by increasing spending on education and other programs, or cutting taxes. (…)

Economists warn the surge in tax revenue already is showing signs of slowing. Some of the strength has been fueled by people shifting income for tax purposes, making the gains more about timing than growth. New York, for example, forecasts income-tax receipts will grow 3% in the fiscal year starting this April after projecting a 6.5% rise in the current fiscal year. And rising collections spurred in part by profits from a record stock market leave some states such as New Jersey and California subject to sharp swings in revenue from income taxes. (…)

Can we now reasonably hope that state employment has bottomed out?

FRED Graph

 

FRED Graph

 

President to Hike Minimum Wage for Federal Contractors

President Barack Obama plans to act unilaterally to raise the minimum wage for employees of federal contractors, asserting his executive powers before the State of the Union address.

The executive order would raise the minimum wage for workers on new federal contracts to $10.10 an hour, according to a fact sheet from a White House official. It said Mr. Obama would announce the new policy in his speech Tuesday, which is scheduled to begin at 9 p.m. Eastern Time.

The current federal minimum wage is $7.25 per hour, and hasn’t been raised since July 2009. About 16,000 federal employees were paid at or below minimum wage in 2012, according to the Labor Department. The agency doesn’t specify how many employees were government contractors.

Mr. Obama’s executive policy change is the opening salvo in a broader, election-year push by Democrats to raise the federal minimum wage to $10.10 an hour for all eligible workers.

SENTIMENT WATCH

 

The “January indicator” says that if the stock market falls in January, it usually falls for the remainder of the year. So far, January has been a disaster for stocks. (…)

High five Wait, wait! Mike Lombardi, in the above post, reproduced in many other blogs today, writes that “it usually falls for the remainder of the year”. Ever thought what “usually” really means? Mark Hulbert shows you the stats since 1880:

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Voilà! Now you know that “usually” means anything above 50% of the time. Hulbert continues where Lombardi did not:

A follower of the January Indicator in 2009 and 2010 would have missed out on two years of double-digit gains if one were to have used the occasion of a “down” January to get out of the market.

Another example that it is usually best to check the facts out. Here “usually” means “generally”, at a minimum, “always” if you really care.

 

BANKING

 

Loan-Loss Reserves Shrink

At the end of September, about 6,500 U.S. banks had set aside loan-loss reserves of just 1.83% of their roughly $7.80 trillion in loans, according to data provider SNL Financial.

That cushion has been shrinking since 2010, and banks are on pace to have ended 2013 with reserves amounting to about 1.66% of total loans, based on fourth-quarter reports from eight of the country’s largest banks provided to The Wall Street Journal by SNL.

That would be the lowest proportion of such reserves since 1.74% in mid-2008, a few months before the collapse of Lehman Brothers.

By contrast, reserves hit a near-term peak of 3.24% at the end of 2010 as banks grappled with troubled loans in the aftermath of the Great Recession.

Total bank loans outstanding, however, still are below prerecession levels of $7.91 trillion at the end of 2007. (…)

U.S. Banks Prune Branches

Bank branch closures in the U.S. last year hit the highest level on record so far, a sign that sweeping technological advances in mobile and electronic banking are paying off for lenders but leaving some customers behind.

U.S. banks cut a net 1,487 branch locations last year, according to SNL Financial, the most since the research firm began collecting the data in 2002.

Branch numbers have been on a steady decline since 2009 and reached a total of 96,339 at the middle of last year, the lowest since 2006, according to data from the Federal Deposit Insurance Corp.

 
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NEW$ & VIEW$ (21 JANUARY 2014)

Pointing up Pointing up Pointing up U.S. bankers voice new optimism as businesses line up for loans Loans to businesses have risen to a record high and bank executives say they are increasingly optimistic about the U.S. economy.

Loans to businesses have risen to a record high and bank executives say they are increasingly optimistic about the U.S. economy.

Increasing demand for bank loans often is a prelude to higher economic growth. With the U.S. government budget crisis fixed for now and Europe showing signs of economic recovery, companies feel more comfortable borrowing to invest in machinery, factories, and buildings.

JPMorgan Chase & Co Chief Executive Jamie Dimon, who has long described himself as “cautiously optimistic” about the economy, recently dropped the modifier “cautiously,” he said on a conference call with investors last week.

“We’re using the word optimistic because we are actually optimistic,” he added.

“The sun and moon and stars are lined up for a very successful year” in the U.S., he said the next day at a conference in San Francisco.

Pointing upI don’t see any weak spots in America,” Dimon said, noting that corporations, small business, the stock market and the U.S. housing market are all showing signs of improving.

Outstanding loans to companies reached an all-time high of $1.61 trillion at the end of last year, topping a record set in late 2008, according to Federal Reserve data released on Friday.

Bankers say that anecdotally, business customers are more hopeful than they had been.

“I am hearing more when I talk with customers about their interest in building something, adding something, investing in something,” Wells Fargo & Co (WFC.N) CEO John Stumpf said on a conference call with investors last week. “There is more activity going on.” (…)

“We have seen some moderate strength in the U.S.,” GE Chief Financial Officer Jeff Bornstein said in an interview, even if he cautioned that the company has not yet seen “the breakout broadly across the economy.” (…)

“We see solid demand for loans as we head into 2014″ from businesses, particularly large corporations and healthcare companies, along with owners of commercial real estate, Bank of America (BAC.N) CFO Bruce Thompson said on a conference call with analysts on Wednesday. (…)

If you missed yesterday’s New$ & View$ you have missed this from the latest NFIB report which neatly complements the above:

Small firms capex is also brightening:

The frequency of reported capital outlays over the past 6 months surprisingly gained 9 percentage points in December, a remarkable increase. Sixty-four percent reported outlays, the highest level since early 2005.

Of those making expenditures, 43 percent reported spending on new equipment (up 5 points), 26 percent acquired vehicles (up 4 points), and 16 percent improved or expanded facilities (up 1 point). Eight percent acquired new buildings or land for expansion (up 1 point) and 16 percent spent money for new fixtures and furniture (up 6 points).The surge in spending, especially on equipment and fixtures and furniture, is certainly welcome and is hopefully not just an end-of-year event for tax or other purposes. This level of spending is more typical of a growing economy.

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And to confirm what bankers are saying, this chart of weekly loans up-to-date as of Jan. 8, 2014:

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So:

Fed on Track For Next Cut In Bond Buys

The Fed is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank’s expectations for solid U.S. economic growth this year.

A reduction in the program to $65 billion a month from the current $75 billion could be announced at the end of the Jan. 28-29 meeting, which would be the last meeting for outgoing Chairman Ben Bernanke.

Punch Read this next piece carefully, as it confirms that the U.S. industrial sector is perking up:

US oil demand growth outstrips China
Abundant energy supplies drive US resurgence, IEA report shows

US demand for oil grew by more than China’s last year for the first time since 1999 according to the International Energy Agency, in a startling indication of how abundant energy supplies are driving an economic resurgence in the US.

The IEA – the rich world’s energy club whose forecasts are the gold standard for the energy market – said US oil demand grew by 390,000 barrels a day or 2 per cent last year, reversing years of steady decline. Chinese demand grew by 295,000 b/d, the weakest in at least six years. (…)

“It is clear that the US economy is rebounding very strongly thanks to its energy supplies,” said Antoine Halff, head of oil market research at the IEA.

“Sometimes oil is a lagging indicator, but sometimes it is the opposite and shows that an economy is growing faster than thought,” he added.

Pointing up The IEA said that US demand growth was driven by fuels such as propane, which is used in petrochemical plants, and indicated a pick-up in industrial activity in the US. 

The rapid growth in US consumption has taken many analysts by surprise. As recently as last month the IEA was forecasting US demand would fall in 2014, but it is now forecasting a second consecutive year of growth. 

Pointing up US consumption also appears to be accelerating. The IEA said the latest estimate of 2013 consumption was based on “exceptionally strong US monthly data for October and robust weekly data since then”.

Surging US consumption may reduce pressure on US politicians to lift an effective ban on the export of US crude oil beyond Canada. 

The IEA has been among the most vocal advocates of allowing foreign sales of US oil, arguing that domestic US oil prices would fall sharply, discouraging production, if US producers were denied a foreign outlet for their crude.

But in its monthly report the IEA acknowledged that thanks to fast-growing domestic demand and exports of refined oil products such as diesel, “challenges to [US production] growth are not imminent”.

European oil demand is also showing signs of growth for the first time since the financial crisis and the IEA said that industrialised economies as a whole are likely seeing oil demand rise for the first time since 2010. 

As a result, oil inventories in OECD countries fell by 50m barrels in November, the most since December 2011, pushing stocks 100m barrels beneath their five-year average.

The IEA also raised its estimate for total oil demand in 2014, helping push Brent crude oil prices up almost 1 per cent to just over $107 per barrel.

EU energy costs widen over trade partners
Industry paying up to four times more than in US and Russia

The gap in energy costs between Europe and its leading trading partners is widening, according to an official paper to be released by Brussels that shows industrial electricity prices in the region are more than double those in the US and 20 per cent higher than China’s.

Industrial gas prices are three to four times higher in the EU than comparable US and Russian prices, and 12 per cent higher than in China, says the European Commission paper, based on the most comprehensive official analysis of EU energy prices and costs to date. (…)

“If we paid US energy prices at our EU facilities, our costs would drop by more than $1bn a year,” said Mr Mittal, noting the US shale gas boom and more industry-friendly policies had led to much lower costs for industrial energy users in that country.

Separately, Paolo Scaroni, chief executive of the Italian oil and gas company, Eni, said in a speech at the weekend that lower American energy costs had created a “massive competitive advantage for the US” that was driving investors and businesses to that country at a rapid pace. “This is a real emergency for Europe,” he said. (…)

California Declares Drought Emergency

Governor’s move frees state resources to cope with the growing economic and environmental threat from some of the driest conditions on record.

(…) The economic fallout is beginning to spread. The U.S. Agriculture Department on Wednesday declared parts of 11 mostly Western states to be natural-disaster areas, making farmers in places including California, Arizona and Nevada eligible for low-interest assistance loans.

In California, with its huge economy, the financial impacts are likely to ripple beyond the farmers. Growers in the Central Valley’s Westlands Water District, for instance, are expected to fallow 200,000 of their 600,000 acres this year, resulting in job losses in surrounding communities, according to a statement by the agency. Other businesses that stand to suffer include landscapers, nurseries and orchards. (…)

Euro-Zone House Prices Improve

House prices rose at the fastest quarterly pace in over two years in the third quarter of 2013, a sign that the slow economic recovery continued in the second half of last year.

Eurostat said house prices across the 17 country euro zone were 0.6% higher in the third quarter of 2013 compared with the second quarter, and fell 1.3% in annual terms.

The quarterly gain was the strongest since a 1.1% increase in the second quarter of 2011, while the annual drop was the smallest since the fourth quarter of 2011.

In the second quarter of 2013 house prices in the euro zone rose 0.2% from the previous quarter and declined 2.4% in annual terms. (…)

House prices in France also bolstered the gain, rising 1.2% in the third quarter from the second. Although Eurostat doesn’t chart official data for German house prices, the estimate they use is based on European Central Bank statistics that showed house prices in the largest euro-area economy grew around 1.0% over the same period.

In Spain Eurostat said house prices grew 0.8% on the quarter in the third quarter after a 0.8% decline in the second quarter while in the Netherlands house prices grew 0.6% after a 2.0% drop in the second quarter.

Just five of the 17 countries saw house prices fall between July and September last year, according to the data—Italy, Cyprus, Malta, Slovenia and Finland.

Thailand Seen Cutting Rates as Unrest Continues

Thailand’s central bank is expected to cut interest rates at its meeting Wednesday as political unrest continues to engulf the exporter of automobiles and electronics.

Almost daily antigovernment protests, many of them violent, have destabilized the country since late last year. Prime Minister Yingluck Shinawatra has called elections for Feb. 2 but the opposition says they will boycott the polls, meaning a likely protracted battle.

At the Bank of Thailand’s most recent meeting, as political protests started to gather steam in November, the bank cut rates by 0.25 percentage point to 2.25%. (…)

Even before the instability, the outlook for Thailand’s economy was shaky. Exports, which account for around two-thirds of the economy, have performed poorly, declining 4.1% on the year in November, the latest month for which data are available.

The automobile industry is suffering because of weak demand in other Asian markets. Exports from the nation’s electronics industry, which supplies parts for personal computers—but not the fast-growing smartphone market—also have been disappointing.

The turmoil is taking its toll on the economy. Tourism, which accounts for 7% of national output, has been hard hit as foreign travelers postpone journeys. Plans to build multibillion-dollar infrastructure, including high-speed rail lines, look likely to face delays amid the political gridlock.

The Finance Ministry last week slashed its growth forecast for 2014 to 3.1%, compared with an earlier projection of 3.5% to 4.0%. Failure to push ahead this year with the 2.2 trillion baht ($66.6 billion) infrastructure plan could push growth as low as 2%, the ministry estimated. (…)

Such monetary easing, though, might have little direct effect in the current environment. The previous rate cut failed to filter through into higher bank lending because Thai banks are currently trying to reduce debt exposure.

Thai household debt stands at 80% of gross domestic product, one of the highest ratios in Asia, reflecting years of aggressive lending to finance house purchases and auto loans. A government tax rebate two years ago for first-time car owners also helped boost debt levels. (…)

China’s Working Population Fell Again in 2013

China’s working-age population continued to shrink in 2013, suggesting that labor shortages would further drive up wages in the years to come.

The nation’s working-age population—those between the ages of 16 and 59—was 920 million in 2013, down 2.4 million from a year earlier and accounting for 67.6% of the total population, the National Bureau of Statistics said Monday. The country’s workforce dropped in 2012 for the first time in decades, raising concerns about a shrinking labor force and economic growth prospects.

Last year, the statistics bureau said the population between the ages of 15 and 59 was 937 million in 2012, down 3.45 million from a year earlier, accounting for 69.2% of the total population. The bureau didn’t explain why it began using a different starting age of 16 to measure the working-age population in 2013.

The share of the elderly, or those who are more than 65 years old, was 9.7% in 2013, up from 9.4% in 2012, official data showed.

Labor shortages are still common in several regions throughout the country, and many employers reported an increase of between 10% and 15% in labor costs last year, Ma Jiantang, chief of the National Statistics Bureau, said at a news conference Monday. (…)

But what’s even more significant than the shrinking working-age population was a notable decrease in the labor-participation rate, or the share of the working-age population that is actually working, Professor Li Lilin at Renmin University of China said.

“The labor-participation rate has been dropping, especially among females in the cities,” Ms. Li said.

Rising household income amid decades-long market reforms has made it possible for some who previously would have needed to work to choose to stay at home, she added.

After adjusting for inflation, actual disposable income of Chinese in urban areas grew 7% last year, while the net income of those living in rural areas rose 9.3%, the statistics bureau said. The average monthly salary of the nation’s 268 million migrant workers was 2,609 yuan ($431), up 13.9%, it said. The rise in wages means workers are likely to benefit more from the nation’s economic growth, though rising labor costs are a growing challenge for manufacturers.

SENTIMENT WATCH

 

Stock Values Worry Analysts

(…) Ned Davis Research in Venice, Fla., has reached similar conclusions. Ned Davis, the firm’s founder, published two reports titled “Overweighted, Over-Believed and Overvalued.” He looked at an array of measures including the percentage of U.S. financial assets held in stocks, margin-debt levels and how much money managers and mutual funds have allocated to stocks.

His conclusion: Investors are overexposed to stocks, but they haven’t gone to bubblelike extremes.

Vincent Deluard, a Ned Davis investment strategist, agrees that the P/E based on forecast earnings is above average. Because forecasts are unreliable, he also tracks earnings for the past 12 months, adjusted for inflation, interest rates and economic growth. All these measures yield a similar conclusion.

“We have a market that is getting a little frothy,” Mr. Deluard says. His team expects a pullback of 10% to 20% in the next six months, but perhaps not right away. Then they expect stocks to rise, maybe for years.

“This is not 2008. This is not 2000. This is more like 1998, where you have some of the signs that you see at tops, but not at extremes,” he says. (…)

High five But some people disagree. James Paulsen, chief investment strategist at Wells Capital Management, which oversees $340 billion, notes that P/E ratios in the past have moved even higher than they are today before running into real trouble.

As long as inflation stays moderate and the Federal Reserve doesn’t raise interest rates sharply, he says, the P/E ratio on earnings for the past 12 months can hit the 20s from its current level of around 16 or 17.

High five Yet Mr. Paulsen, too, is worried that 2014 could be a volatile year and that stocks could finish with little or no gain. His concern isn’t valuation; It is that the economy could warm up. Inflation fears could spread, he says, even if actual inflation stays modest. The worries could limit stock gains.

These things are so hard to predict that he and many other money managers are urging clients not to change their holdings or try to time the market.

This is so beautiful. In just a few words, Paulsen says everything we should know, makes all possible forecasts and none at all. And the article concludes saying that things are so uncertain and unpredictable that investors just just freeze sitting on their hands. Disappointed smile

 
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NEW$ & VIEW$ (20 JANUARY 2014)

China’s Economic Growth Slows to 7.7%

China’s economic growth slowed slightly in the fourth quarter, complicating the challenge for the country’s leaders as they seek to reshape the world’s No. 2 economy.

In the fourth quarter of 2013, China’s economy grew 7.7% from a year ago, slower than the 7.8% it posted in the third quarter, according to data released Monday by China’s National Bureau of Statistics. That translates into 7.4% growth on a quarter-to-quarter annualized basis, the way most major economies report growth. China doesn’t release a similar figure.

Investment, which accounts for about half of China’s economic output, was a major drag on growth in the fourth quarter, a result of monetary authorities making credit more expensive. Fixed-asset investment expanded 19.6% on-year in 2013, down from 19.9% from the first 11 months of the year, indicating slowing capital spending, according toANZ Bank. (…)

The economy was growing more slowly in December than at the beginning of the final quarter of the year.

Louis Kuijs, an economist at RBS in Hong Kong, points out that industrial production grew 9.7% on-year in December versus 10.3% in October. And export growth slowed in December after a strong showing in November. That could point to a slow start to 2014, unless other drivers like exports or local demand pick up above expectations.

One area of brightness in the fourth quarter was retail sales, which grew 13.6% on-year in December, almost the same pace of growth as November. (…)

Sarcastic smile  See anything strange in this CLSA chart? How about 7 straight quarters of stable growth.

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China’s Central Bank Providing Short-Term Cash to Lenders

In a rare accommodative measure, the state-run People’s Bank of China is providing short-term cash to the country’s biggest lenders, in a move seen as a bid to avoid a liquidity crisis near the Lunar New Year holiday.

The PBOC said it will inject further liquidity into the system via reverse purchase agreements, a form of short-term loans to banks, when it conducts its twice-a-week open market operation on Tuesday.

It said the moves are intended to maintain the stability of China’s money market ahead of the weeklong Spring Festival that kicks off on Jan. 31. (…)

The central bank’s apparent reassurance came after China’s financial system showed fresh signs of stress on Monday, with short-term borrowing costs for banks soaring on heavy holiday-induced demand for cash and rising worries over the vast shadow-banking sector.

The benchmark cost of short-term loans between banks, the weighted average of the seven-day repurchase agreement rate, rose to 6.59% on Monday, from 5.17% Friday and 4.35% Thursday. The current level marks the rate’s highest since Dec. 23, when it hit 8.94%.

The surging rates in the money markets also hammered stocks, with the benchmark Shanghai Composite falling below the key level of 2000 to 1991.25, its weakest in almost six months and down 5.9% this year, the worst performer in Asia. (…)

Housing Starts and Building Permits Decline

Housing Starts and Building Permits for the month of December both showed month/month declines but were still up compared to last year.  Relative to expectations, though, Housing Starts exceeded forecasts (999K vs. 985K), while Building Permits missed forecasts (986K vs. 1014K).

 

U.S. LABOR SUPPLY/DEMAND

The NFIB detailed report for December shows that employment was likely stronger than what the last NFP reported:

Overall, it appears that owners hired more workers on balance in December than their hiring plans indicated in November, a favorable development (apparently undetected by BLS).

Note the recent  spike in the marginal increase in employment per firm, bumping against its historical highs.image

Coming wage pressures?

Two percent reported reduced worker compensation and 17 percent reported raising compensation, yielding seasonally adjusted net 19 percent reporting higher worker compensation (up 5 points), the best reading since 2007. A net seasonally adjusted 13 percent plan to raise compensation in the coming months, down 1 point from November. Overall, the compensation picture remained at the better end of experience in this recovery, but historically weak for periods of economic growth and recovery.

Margins pressures?

With a net 19 percent raising compensation but a net negative 1 percent raising selling prices, profits will continue to be under pressure. Higher compensation costs are not being passed on to customers, but there will be more pressure to do so as Obamacare begins to impact small businesses in 2014.

Pointing up Small firms capex is also brightening:

The frequency of reported capital outlays over the past 6 months surprisingly gained 9 percentage points in December, a remarkable increase. Sixty-four percent reported outlays, the highest level since early 2005.

Of those making expenditures, 43 percent reported spending on new equipment (up 5 points), 26 percent acquired vehicles (up 4 points), and 16 percent improved or expanded facilities (up 1 point). Eight percent acquired new buildings or land for expansion (up 1 point) and 16 percent spent money for new fixtures and furniture (up 6 points). The surge in spending, especially on equipment and fixtures and furniture, is certainly welcome and is hopefully not just an end-of-year event for tax or other purposes. This level of spending is more typical of a growing economy. 

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EARNINGS WATCH

We now have 52 S&P 500 companies’ Q4 results in, 19 of which are financials.

  • Of the 53 companies in the S&P 500 that have posted earnings for the latest quarter, 57% have topped analysts’ average earnings estimate, according to FactSet.
  • Out of the 52 companies in the gauge that have posted fourth-quarter results so far, 62 percent have exceeded analysts’ profit estimates, and 63 percent have topped revenue projections, according to data compiled by Bloomberg.

S&P’s own official tally shows a 52% beat rate and a 35% miss rate. Financials beat in 58% of cases while only 48% of non-financials beat (39% missed), so far.

Zacks has the best analysis:

The 2013 Q4 earnings season ramps up in the coming days, but we have results from 52 S&P 500 members already, as of Friday January 17th. And even though the early going has been Finance weighted, the overall picture emerging from the results thus far isn’t very inspiring.

The earnings reports thus far may not offer a representative sample for the S&P 500 as a whole. But we do have a good enough sample for the Finance sector as the 19 Finance sector companies that have reported already account for 47.5% of the sector’s total market capitalization and contribute more than 50% of the sector’s total Q4 earnings. (…)

Total earnings for the 19 Finance sector companies that have reported already are up +14.2% on -1% lower revenues. The earnings beat ratio is 63.2%, while only 36.8% of the companies have come out with positive top-line surprises.

Pointing up This looks good enough performance, but is actually weaker than what we had seen from these same banks in recent quarters. Not only are the earnings and revenue growth rates for the companies below what they achieved in Q3 and the 4-quarter average, but the beat ratios are weaker as well. The insurance industry, the sector’s largest industry behind the large banks, has still to report results and could potentially turnaround this growth and surprise picture for the sector.

We haven’t seen that many reports from companies outside of the Finance sector. But the few that we have seen don’t inspire much confidence. Hard to characterize any other way what we have seen from the likes of Intel (INTC), CSX Corp. (CSX), UPS (UPS) and even GE (GE). But it’s still relatively early and we will know more in the coming days.

The lack of positive surprises is ‘surprising’ following the sharp drop in Q4 estimates in the run up to the start of the reporting season.

The composite picture for Q4 – combining the results for the 52 companies that have reported already with the 448 still to come – is for earnings growth of +7.1% on +1.5% higher revenues and 50 basis points higher margins. The actual Q4 growth rally will most likely be higher than this, a function of management’s well refined expectations management skills.

Easy comparisons, particularly for the Finance sector, account for a big part of the Q4 growth. Total earnings for the Finance sector are expected to be up +25.0%. Outside of Finance, total earnings growth drops to +3.4%.

Profits Show Banks Back From the Brink

Large U.S. banks are finally emerging from the wreckage of the financial crisis, on the back of rising profits, a recovering economy and drastic cost cutting.

(…) As a group, the six earned $76 billion in 2013. That is $6 billion shy of the collective all-time high achieved in 2006, a year U.S. housing prices peaked amid a torrid economic expansion. (…)

One way for banks to improve their standing with investors is to cut compensation, jobs and business lines. This past week, Goldman Sachs announced its 2013 payroll was 3% lower than 2012′s, while Bank of America disclosed it eliminated 25,000 positions during the year. J.P. Morgan and Morgan Stanley both are in the process of exiting from the business of storing physical commodities.

Banks still face numerous headwinds, including high legal costs as regulators and investigators work through a backlog of industry activity and scrutinize everything from overseas hiring to potential manipulation of currency and interest-rate benchmarks. Higher borrowing costs are reducing homeowners’ demand for mortgages, a major profit center for some banks during the early half of 2013, and several firms reported fourth-quarter trading declines in fixed-income, currencies and commodities trading.

Despite the many challenges, big banks are beginning to find ways to boost revenue. The six largest banks posted a 4% revenue gain during 2013.

Smaller banks are recovering, as well. Earnings reports are still being released, but, together, all 6,900 commercial banks in the U.S. are on pace to match or exceed the industry’s all-time earnings peak of $145.2 billion in 2006, according to an analysis by The Wall Street Journal of Federal Deposit Insurance Corp. data. (…)

Another factor fueling earnings growth is a dramatic reduction in the reserves banks have set aside for future loan losses, as fewer U.S. borrowers default. J.P. Morgan, Bank of America, Citigroup and Wells Fargo freed up $15 billion in loan-loss reserves during 2013, including $3.7 billion in the fourth quarter. That money goes directly to the bottom line, boosting profits. The releases made up 16% of these banks’ pretax income for that final quarter. (…)

A closely watched investment-performance ratio called return on equity is well below levels achieved a decade ago. What pushed ratios lower were hundreds of billions of dollars of additional capital raised to protect the institutions from future problems and comply with new regulatory guidelines.

Goldman’s return on equity, which hit a peak of 33% in 2006, fell to 11% in 2013. The ratio was even lower for J.P. Morgan and Bank of America.

Banks are scrambling to make changes as a way of improving returns. The six biggest banks have reduced their workforces by more than 44,000 positions in the past year, while J.P. Morgan told investors it was done with an aggressive branch expansion and would no longer add to its network of 5,600 locations. Goldman Sachs’s 2013 pay reduction brings compensation expenses down to 36.9% of total revenue, the lowest percentage since 2009.

Banks will have to show they can earn money from lending and other businesses, as opposed to releasing reserves, said Fitch Ratings analyst Justin Fuller. Lending for the biggest banks was up 2% on the year, but there were limited signs that slim margins on those loans had begun to widen or at least stabilize.

Light bulb But if capex strengthen, loan demand will rise. Higher volume with the current steep yield curve = higher profits…

SENTIMENT WATCH

VOX POPULI (Gallup)

Half of Americans say investing $1,000 in the stock market right now would be a bad idea, even though the Dow Jones Industrial Average and Standard & Poor’s 500 index have recently hit record highs. Forty-six percent of Americans say investing $1,000 in the stock market would be a good idea. Trend: Americans' Views on Investing in the Stock Market

In January 2000, when the Dow was at a then-record high of 11,500, Americans were much more likely to say investing in the stock market was a good idea than they are today. A record-high 67% of Americans that month said investing was a good idea.

After the onset of the 2008-2009 Great Recession, the percentage of Americans who believed investing in the markets was a bad idea swelled to 62%. While that percentage has dropped, Americans’ confidence in buying stocks has clearly not returned to levels seen during the heady days of the early 2000s.

Stock Ownership Among Americans Still Near Record Low

Fifty-four percent of Americans now say they own stock, little changed from the 52% who said so last April — which was the lowest in Gallup’s 16-year trend of asking this question in its current format. Stock ownership is far lower than it was during the dot-com boom of 2000, when 67% said they owned stock — a record high. While staying above 60% for much of the 2000s, the ownership percentage fell into the 50% range as the Great Recession took hold and has not yet rebounded. Despite economic booms and busts, however, a majority of Americans have maintained an investment in the markets in the past 15 years. Trend: Americans' Ownership of Stocks

Although fewer Americans now own stocks, those who do, not surprisingly, are much more likely than non-owners to believe investing in the market is a good idea, 59% to 30%.

Bottom Line: The Dow is 5,000 points higher today than it was in 2000, but confidence in the markets is much lower, as is participation.

VOX DEI: Bearish Bond Belief At 20-Year Extremes

Jeff Gundlach recently warned that the trade that could inflict the most pain to the most people is a significant move down in yields (and potential bull flattening to the yield curve). (…) despite this, investors remain entirely enamored with stocks and, as the following chart shows, Treasury Bond sentiment now stands at 20-year extremes of bearishness.

Citi: “Time For Yields To Correct Lower”

The end of 2013 saw bond yields at their highs and the US equity markets making higher highs. This came as the Federal Reserve started to finally slow down its asset purchases and, as Citi’s Tom Fitzpatrick suggest, has now seemingly turned a corner in its so called “emergency” policy. That now leaves room for the market/economy to determine the proper rate of interest; and, he notes, given the patchy economic recovery, the fragile level of confidence and the low levels of inflation, Citi questions whether asset prices belong where they are today. As the Fed’s stimulus program appears to have “peaked” Citi warned investors yesterday to be cautious with the Equity markets; and recent price action across the Treasury curve suggests lower yields can be seen and US 10 year yields are in danger of retesting the 2.40% area.

US economic surprise index

General economic surprises look like they are now approaching a peak again. Only twice over the past 7 years have we been above current levels and they were short lived.

We should note that this index is naturally mean reverting as expectations rise with better than expected data and vice versa. A fall back below zero if seen may be quite important. (…)

High five  There is a lot more to Citi’s technical analysis, all mostly pointing to lower rates ahead. But before you get too technical, go back up and re-read the piece on the NFIB report.

Just kidding Up and Down Wall Street

Another sign of froth in European sovereign debt is described by Peter Tchir, a credit-market veteran who heads TF Market Advisors: Spain’s bonds due 2023 yield 3.68%, just a hair above the 3.60% from Apple‘s (AAPL) bond due 2023 issued in its then-record $17 billion offering to fund its share buyback. He admits the comparison is well, apples to oranges.

“One is denominated in euros, the other in dollars. One is a sovereign nation with devoted citizens, the other is Spain. One has so much cash on hand that trying to convince them to do something with that cash hoard has become the ultimate hedge-fund pastime. The other would have trouble rubbing two pesetas together, even if it hadn’t moved to the euro. Fifty percent of the world’s population under the age of 25 already owns or wants to own a device made by Apple. That is still a little behind the 57% in Spain who want a job (assuming some of the unemployed youth actually want jobs).”

GOLD

Physical Gold Shortage Goes Mainstream

As BNN reports, veteran trader Tres Knippa, pointing to recent futures data, says “there may not be enough gold to go around if everyone with a futures contract insists on taking delivery of physical bullion.” As he goes on to explain to a disquieted anchor, “the underlying story here is that the people acquiring physical gold continue to do that. And that’s what is important,” noting large investors like hedge fund manager Kyle Bass are taking delivery of the gold they’re buying. Knippa’s parting advice, buy physical gold; avoid paper.

One of the problems…

That won’t end well…

BUT, WILL THIS END WELL?

IMF warns on threat of income inequality

Lagarde raises stability concerns

(…) “Business and political leaders at the World Economic Forum should remember that in far too many countries the benefits of growth are being enjoyed by far too few people. This is not a recipe for stability and sustainability,” she told the Financial Times. (…)

The message is hitting home. Shinzo Abe, Japan’s prime minister, is coming to Switzerland with the message that Japanese companies must raise wages, while the government of David Cameron, his UK counterpart who is also attending the forum, called for a large inflation-busting rise in the British minimum wage last week.

In U.S., 67% Dissatisfied With Income, Wealth Distribution

Two out of three Americans are dissatisfied with the way income and wealth are currently distributed in the U.S. This includes three-fourths of Democrats and 54% of Republicans.

Satisfaction With Income and Wealth Distribution in the U.S., January 2014

The same poll updated a long-time Gallup trend, finding that 54% of Americans are satisfied, and 45% dissatisfied, with the opportunity for an American “to get ahead by working hard.” This measure has remained roughly constant over the past three years, but Americans are much less optimistic about economic opportunity now than before the recession and financial crisis of 2008 unfolded. Prior to that, at least two in three Americans were satisfied, including a high of 77% in 2002.

Satisfaction With Americans' Opportunities to Get Ahead by Working Hard, 2001-2014 Trend

 
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NEW$ & VIEW$ (10 JANUARY 2014)

China Data Suggest Tepid Pickup in West

Exports in December were up just 4.3% compared with the same month a year earlier, down from a much stronger 12.7% year-over-year rise in November, according to customs data released on Friday. (…)

The poor export growth may in part be due to more than trade flows. China’s State Administration of Foreign Exchange said in December it was tightening supervision of trade financing to stop speculative “hot money” flows from being disguised as trade. That likely dragged down an already weak growth number, Ms. Sun said Friday.

Official data showed a jump in December 2012 that many economists attributed to capital flows misreported as trade.

By contrast, the latest import figures were strong, beating forecasts with an 8.3% year-over-year rise in December, up from 5.3% in November. They were boosted by high raw-material shipments. China brought in 6.33 million barrels a day of crude oil in December, a record, and copper, iron ore and plastic imports were up strongly, too. That could indicate that companies are building up inventories again after running them down earlier in the year, said Shuang Ding, an economist at Citigroup,  but he cautioned that the trend may not last long.

However:

CALIFORNIA BOOMING State Controller John Chiang today released his monthly report covering California’s cash balance, receipts and disbursements in December 2013. Revenues for the month totaled $10.6 billion, surpassing estimates in the state budget by $2.3 billion, or 27.7 percent.

California ended the 2013 calendar year with a burst of tax receipts as the economic recovery continued to boost jobs, incomes, profits, and spending. Revenues flowing into the State’s General Fund coffers totaled $10.6 billion, beating estimates contained in the 2013-14 Budget Act by a hefty $2.3 billion, or 27.7%.

As we noted in our analysis of November’s revenues which, at first glance, appeared to fall short of projections, approximately $400 million of December’s $2.3 billion of unanticipated revenues were actually generated in the month of November but were not deposited into the General Fund and booked into the State’s official ledger until the first week of December.  We attribute this timing anomaly to “Black Friday” weekend falling at the end of November, which impacted the timing of retail sales collections and when they were recorded in the state ledger.

Even when this anomaly is factored-out, December’s revenue numbers alone are still impressive. Retail sales tax receipts surged past estimates by over $700 million, a jump assisted by an improvement in the job market, last year’s 30% swell in stock prices, and strong rebound in housing-related holiday shopping. The growing popularity of online shopping and the agreement of online retailers to now collect California sales taxes also helped boost results.

Personal income taxes exceeded expectations by a large margin of $987 million in December. Estimated taxes were very high, bolstered by capital gains and the desire by taxpayers to make payments by year-end to add to their 2013 federal income tax deduction. Rounding out California’s three major tax sources, corporate tax receipts were better than expected by $189 million during December.

Low-End Retailers Had a Rough Holiday

Retailers such as Family Dollar and Sears had a rough holiday period as their lower-income customers remain under pressure.

Family Dollar Stores Inc. on Thursday lowered its full-year profit forecast and reversed course on strategy. It pledged to cut prices more deeply to win back shoppers, saying its economically challenged customers are under more pressure than ever.

Meanwhile, Sears Holding Corp. said sales at its Sears and K-Mart chains fell deeply from a year earlier, reflecting weakness in its customer base as well as strategic missteps by executives trying to reshape its business. Sears shares plunged 14% in after hours trading.

The company said sales over roughly the past two months, excluding recently opened or closed stores, fell 7.4%. Sales were dragged down by a 9.2% drop in its domestic Sears stores and a 5.7% decline at Kmart with weakness in traditionally strong areas such as tools and home appliances. (…)

Even retailers that target consumers in the middle market have struggled this holiday. Gap Inc., which had been clocking strong sales gains for much of last year, said Thursday that comparable-store sales increased a scant 1% in November and December. L Brands Inc., owner of Victoria’s Secret and Bath & Body Works, said December same-store sales rose just 2% and lowered its earnings guidance for the fourth quarter. (…)

Thomson Reuters rounds it up:

Excluding the drug stores, the Thomson Reuters Same Store Sales Index registered a 2.4% comp for December, beating its 1.9% final estimate. The 2.4% result is an improvement over November’s 1.2% result. Including the Drug Store sector, SSS growth rises to 3.8%, above its final estimate of 2.7%. The late Thanksgiving this year pushed revenue from CyberMonday and other post-Thanksgiving sales into December, helping to offset some of the reduction in sales from the shortened holiday shopping season.

Every apparel retailer in the index missed its SSS estimate with the exception of Stein Mart, as consumers avoided malls during the holiday shopping season, increasingly preferring to shop online. Retailers responded with discounts and promotions to lure customers, while settling for lower margins in the process.

Pointing up Our Thomson Reuters Quarterly Same Store Sales Index, which consists of 75 retailers, is expected to post 1.7% growth for Q4 (vs. 1.6% in Q4 2012). This is below the 3.0% healthy mark.

Banks Cut as Mortgage Boom Ends

A sharp slowdown in mortgage refinancing is forcing banks to cut jobs, fight harder for a smaller pool of home-purchase loans and employ new tactics to drum up business.

A sharp slowdown in mortgage refinancing is forcing banks to cut jobs, fight harder for a smaller pool of home-purchase loans and employ new tactics to drum up business.

The end of a three-decade period of falling mortgage rates has slammed the brakes on a huge wave of refinancing by U.S. households. The drop-off has deprived lenders of a key source of income at a time when the growth in loans for home purchases remains weak.

The Mortgage Bankers Association next week plans to cut its 2014 forecast for loan originations, which include loans for home purchases and refinancing. The current forecast of $1.2 trillion would represent the lowest level in 14 years. The trade group Wednesday reported that mortgage applications in the two weeks ending Jan. 3 touched a 13-year low. (…)

In the third quarter, mortgage-banking income, which includes fees from making new loans and processing payments on existing loans, tumbled by 45% at 10 big banks tracked by industry publication Inside Mortgage Finance. (…)

Draghi Says ECB Ready to Act

European Central Bank chief Mario Draghi pledged “decisive action” if needed to safeguard the euro-zone recovery, as it kept its key lending rate at a record low 0.25%.

The European Central Bank surprised markets with an emphatic assurance that it would respond aggressively if inflation weakens to dangerously low levels, as officials sought to spur the fragile euro-zone recovery.

President Mario Draghi‘s pledge Thursday to deploy “further decisive action” if needed to counter threats stands in contrast to the Federal Reserve, which deployed its stimulus measures sooner and is now slowly winding them down amid signs of more robust U.S. growth.

France’s industrial output surged by 1.3% in November (-0.5% in October), against expectations for a 0.4% rise. EU’s IP could be turning positive YoY:image

OIL
 
Slower China oil demand to test exporters
Crude imports grew by the least in almost a decade in 2013

(…) Last year imports averaged 5.64m barrels a day, an increase of 216,880 b/d, or just under 4 per cent from 2012, according to customs data released on Friday. That was the lowest annual growth since 2005 and a fraction of the record increase in 2010, when import growth topped 700,000 b/d. (…)

But China’s economic growth is beginning to slow, while the focus on energy-intensive manufacturing is also fading.

China also has moved from being a net importer of diesel – a key industrial fuel – to a regular exporter. As a result the need to build new refineries, which encourage more imports, has also become less urgent. (…)Site Meter

Oil Breaking Down

Oil has now given up all of its December gains since the calendar moved into 2014.  As shown below, another dip today has caused the commodity to “break down” below its lows from last November, leaving it just above the $90 level.

Now, that’s WTI which suffers from the surge in U.S. domestic production. Brent, the key crude for U.S. prices is holding its own:

Ghost SENTIMENT WATCH

Prospect of US bond market showdown rises
Pace of recovery brings forward expectations of tightening

Bond traders are bringing forward their expectations of when the Federal Reserve will start to tighten policy, leading to a jump in short-term US borrowing costs.

Recent economic data have pointed to a gathering American recovery, and could result in a showdown between policy makers and the Treasury market.

Ian McAvity:

image

image

Lance Roberts:

One argument that I hear made consistently is that retail investors are just now beginning to jump into the market. The chart below shows the percentage of stocks, bonds and cash owned by individual investors according to the American Association of Individual Investor’s survey. As you can see, equity ownership and near record low levels of cash suggest that the individual investor is “all in.”

Click to View

(…) professional investors are just plain “giddy” about the market.

Click to View

Of course, with investors fully committed to stocks it is not surprising to see margin debt as a percentage of the S&P 500 at record levels also. It is important to notice that sharp spikes in this ratio have always coincided with market corrections of which some have been much worse than others.

Click to View

We sure need everything (profits, jobs, interest rates, inflation) to be right…Fingers crossed

 
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NEW$ & VIEW$ (7 JANUARY 2014)

Weaker Than Expected ISM Services

Monday’s ISM Services report for December came in weaker than expected.  While economists were expecting the headline reading to come in at a level of 54.5, the actual reading was a bit weaker at 53.0.  Taking both the ISM Manufacturing and Non Manufacturing reports and accounting for their size in the overall economy, the combined reading for December fell to 53.5.

Sad smile Slumping new orders and backlog! First contraction in new orders since July 2009.

U.S. Rents Rise as Market Tightens

Nationwide, landlords raised rents by an average of 0.8% to $1,083 a month in the quarter, according to a report to be released Tuesday by Reis Inc., a real-estate research firm. While that is below the previous quarter’s 1% increase, it is above the 0.6% gain seen in 2012′s final quarter. Rents climbed 3.2% for all of 2013.

The vacancy rate, meantime, fell to 4.1% in the fourth quarter from 4.6% in the year-earlier quarter, remaining well below the 8% peak at the end of 2009. (…)

Nearly 42,000 units were completed in the fourth quarter, the most since the fourth quarter of 2003, and about 127,000 for all of 2013, according to Reis. (…)

In 2014, completions should total more than 160,000 apartments, roughly one-third more than the long-term historical average, according to Reis. That could cause the national vacancy rate to rise slightly for the first time since 2009.

CoStar Group, another real-estate research firm, predicts new-apartment supply will peak this year at 220,000, but an additional 350,000 units will hit the nation’s 54 largest markets in 2015 and 2016 combined. (…)

Euro-Zone Inflation Rate Slips

The European Union’s statistics agency Tuesday said a preliminary reading showed consumer prices in the 17 countries that then shared the euro rose by just 0.8% over the 12 months to December, a decline in the annual rate of inflation from 0.9% in November.

After stripping out prices for food and energy, which tend to be more volatile, prices rose by just 0.7% in the 12 months to December—the lowest rate of “core” inflation since records began in January 2001. That suggests that weak domestic demand is becoming an increasingly significant source of disinflationary pressure, adding to the impact from falling world energy prices and the end of a period of administered price rises as governments sought to repair their finances by increasing revenue from sales taxes and charging more for services such as health care. (…)

Separate figures from Eurostat suggested consumer prices are unlikely to rise sharply in coming months. The agency said the price of goods leaving factory gates in November fell for the second straight month, although by just 0.1%.

Slump in Trading Threatens Profit Engine

The trading boom that helped reshape global investment banks over the past decade is sputtering, raising fears that one of Wall Street’s biggest profit engines is in peril.

(…) Executives have warned that lackluster markets could lead to year-over-year declines in fixed-income, commodities and currency trading revenue when banks begin reporting fourth-quarter results next week. That would mark the fourth consecutive drop and the 11th in the past 16 quarters.

Few corners of banks’ trading operations have escaped the slump. A 10-year commodities rally has fizzled, while foreign-exchange trading volume has fallen sharply from its 2008 peak. Since the financial crisis, investors have eschewed exotic fixed-income securities in favor of low-risk government bonds, which are less profitable for banks, and overall trading volumes have dipped.

A rash of new regulations, meanwhile, have prompted Wall Street firms to exit from once-lucrative businesses such as energy trading and storing and transporting physical commodities.

The slump has gone on so long that some observers are beginning to question whether it is part of an ordinary down cycle or a more permanent shift. (…)

FRENCH PMIS DISAPPOINT ONCE MORE

The French Manufacturing PMI fell for the third consecutive month in December to 47.0. It has been stuck below the neutral 50 level for almost two years. On this measure, the French manufacturing sector is the weakest in the Eurozone by some margin. Even the Greek manufacturing PMI improved slightly last month, from 49.2 to 49.6. Official surveys of the French economy paint a somewhat brighter picture. According to a survey by the French statistical agency, Insee, business manager’s perceptions of the overall business climate improved by 2 points to 100 in December, in line with the historic average.

France continues to suffer from declining competitiveness, both in absolute terms and relative to its Eurozone competitors. According to IMF estimates of the real effective exchange rate, the competitiveness of the French manufacturing sector has deteriorated by 12% against Germany since the debt crisis hit in 2010. Over the same period, it has fallen much further against those countries that have experienced deflation. For example, French competitiveness has declined by 28% against Ireland, and by 23% against Greece. Our central view is that France will continue to disappoint through 2014, with growth around zero – the Consensus is looking for something closer to 1%. Risks to our central view are to the downside.

COTW_0106

GOOD READ

Great dollar rally of 2014 as Fukuyama’s History returns in tooth and claw China and Japan are on a quasi-war footing, one misjudgement away from a chain of events that would shatter all economic assumptions (By Ambrose Evans-Pritchard  Tks Fred!)

We enter the year of the all-conquering US dollar. As the global security system unravels – with echoes of 1914 – the premium on the world’s safe-haven currency must rise.

The effect is doubly powerful since the US economy is simultaneously coming back to life. America has shaken off the most drastic fiscal tightening since the Korean War, thanks to quantitative easing. Growth is near “escape velocity” – at least for now – at a time when half of Europe is still trapped in semi-slump and China is trying to cool the world’s most dangerous credit boom.

As the Fed turns off the spigot of dollar liquidity, it will starve the world’s dysfunctional economy of $1 trillion a year of stimulus. This will occur through the quantity of money effect, hitting in a series of hammer blows, regardless of whether interest rates remain at zero. The Fed denies that this is “tightening”, and I have an ocean-front property to sell you in Sichuan.

It is hard to imagine a strategic and economic setting more conducive to a blistering dollar rally, a process that will pick up speed as yields on 10-year US Treasuries break through 3pc. (…)

In case you had forgotten, China has imposed an Air Defence Indentification Zone (ADIC) covering the Japanese-controlled Senkaku islands. The purpose of this escalation in the East China Sea is to test US willingness to back its military alliance with Japan, just as Kaiser Wilhelm provoked seemingly petty disputes with France to test Britain’s response before the First World War.

The ploy has been successful. The US has wobbled, wisely or not depending on your point of view. While American airlines comply, Japanese airlines fly through defiantly under orders from Japan’s leader Shinzo Abe. Mr Abe has upped the ante by visiting Tokyo’s Yasukuni Shrine – the burial place of war-time leader Tojo – in a gesture aimed at Beijing.

Asia’s two great powers are on a quasi-war footing already, one misjudgement away from a chain of events that would shatter all economic assumptions. It would leave America facing an invidious choice: either back Japan, or stand aloof and let the security structure of East Asia disintegrate. (…)

The US is stepping back from the Middle East, leaving the region to be engulfed by a Sunni-Shia conflict that resembles Europe’s Thirty Years War, when Lutherans and Catholics battled for supremacy. Sunni allies are being dropped, Shia Iran courted. Even Turkey risks succumbing, replicating Syria’s sectarian fault lines. (…)

In Europe, the EU Project has by now lost so much caste that Ukraine’s leaders dare to tear up an association accord, opting instead for a quick $15bn from Vladimir Putin’s Russia. (…)

So with that caveat let me try to make sense of global economic forces. Bearish as usual, I doubt that we are safely out of the woods, let alone on the start of a fresh boom. How can it be if the global savings rate is still rising, expected to hit a fresh record of 25.5pc this year? There is still a chronic lack of consumption.

As the Fed tightens under a hawkish Janet Yellen, a big chunk of the $4 trillion of foreign capital that has flowed into emerging markets since 2009 will come out again. It is fickle money, late to the party. (…)

Euroland will be hit on two fronts by Fed action. Bond yields will ratchet up, shackled to US Treasuries. Emerging market woes will ricochet into the eurozone. The benefits of US recovery will not leak out as generously as in past cycles. Dario Perkins from Lombard Street Research says the US is now more competitive than at any time since the Second World War. America is poised to meet its own consumption, its industries rebounding on cheap energy. Europe will have to generate its own stimulus this time. Don’t laugh. (…)

Credit to firms is still contracting at a rate of 3.7pc, or 5.2pc in Italy, 5.9pc in Portugal and 13.5pc in Spain. This is not deleveraging. The effects have been displaced onto public debt, made worse by near deflation across the South.

Italy’s debt has risen from 119pc to 133pc of GDP in three years despite a primary surplus, near the danger line for a country with no sovereign currency. For all the talk of reform – Orwellian EMU-speak for austerity – Italy is digging itself deeper into one hole even as it claws itself out of another, its industries relentlessly hollowed out. Much the same goes for Portugal and, increasingly, France. (…)

There is just enough growth on offer this year – the ECB says 1pc – to sustain the illusion of recovery. Those in control think they have licked the crisis, citing Club Med current account surpluses. Victims know this feat is mostly the result of crushing internal demand. They know too that job wastage is eroding skills (hysteresis) and blighting their future. Yet they dare not draw their swords.

It will take politics – not markets – to break this bad equilibrium, the moment when democracies cease to tolerate youth unemployment of 58pc in Greece, 57.4pc in Spain, 41.2pc in Italy and 36.5pc in Portugal.

Unemployment in the eurozone (yellow), US (red) and Japan (light blue)

The European elections in May will be an inflexion point. A eurosceptic landslide by Marine Le Pen’s Front National, Holland’s Freedom Party, Italy’s Cinque Stelle and Britain’s UKIP, among others, will puncture the sense of historic inevitability that drives the EU Project. (…)

Over all else hangs the fate of China. The sino-bubble is galactic. Credit has grown from $9 trillion to $24 trillion since late 2008, as if adding the US and Japanese banking systems combined. The pace of loan growth – 100pc of GDP over five years – is unprecedented in any major economy, eclipsing the great boom-bust dramas of the past century.

The central bank is struggling to deflate this gently, with two spasms of credit stress in the past six months. I doubt it will prove any more adept than the Bank of Japan in 1990, or the Fed in 1928, and again in 2007. This will be a bumpy descent.

China may try to cushion any hard-landing by driving down the yuan. The more that Mr Abe forces down the Japenese yen, the more likely that China will counter with its own devaluation to protect the margins of it manufacturing industry. We may be on the brink of another East Asian currency war, a replay of 1998 but this time on a much bigger scale and with China playing a full part.

If so, this will transmit an a further deflationary shock through the global system, catching the West sleeping with its defences against deflation already run down. The US may be strong enough to cope. For Europe it would be fatal. The denominator effect would push Club Med into a debt compound spiral. Let us give it a 30pc probability. Happy new year.

 
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NEW$ & VIEW$ (6 JANUARY 2014)

Auto U.S. car sales from different prisms:

 

  • Auto Makers Rebound as Buyers Go Big 

    Five years after skyrocketing fuel prices and turmoil in financial markets knocked auto makers into a tailspin, the U.S. market has recovered to its former size and character.

(…) U.S. car and light truck sales rose less than 1% in December, reflecting in part a hangover from a surge the month before. But overall, the U.S. auto industry in 2013 had its best sales year since 2007, and industry executives said on Friday they expect gains to continue in 2014, though at a slower pace.

For the year, U.S. consumers bought 15.6 million vehicles, up 7.6% from 2012, according to market researcher Autodata Corp., the strongest volume since 2007. Purchases of light trucks including sport-utility vehicles exceeded cars, a reversal from the year earlier. (…)

But as gas prices drifted lower last year, U.S. consumers trading old vehicles for new favored pricey pickup trucks, SUVs and luxury cars. Ford, for example, boosted sales of its F-150 pickup by 8.4% in December over a year ago, while sales of its subcompact Fiesta and compact Focus cars plunged by 20% and 31% respectively. (…)

Consumers also are springing for more luxurious models, driving average new-car selling price to $32,077 in 2013, up 1.4% from a year earlier and up 10% from 2005, according to auto-price researcher KBB.com. (…)

High five December points to slower growth ahead as auto makers found gains harder to achieve against year-earlier results.

GM said its December sales fell 6.3% compared with the same month last year because of what executives said were aggressive pickup truck promotions by Ford and tougher competition from Asian auto makers.

December also marked the first monthly year-over-year decline in car sales at GM, Ford and Chrysler for 2013. Gains in pickups and SUVs offset weaker car sales at Ford and Chrysler. (…)

  • Here’s the monthly sales pattern (WardsAuto):

An expected post-Christmas surge in LV sales failed to materialize, as U.S. automakers reported 1.35 million monthly sales – an increase in daily sales of 4%. December devliveries equated to a 15.3 million-unit SAAR for the month.

ZeroHedge zeroes in on domestic car sales:

 

Via SMRA,

Nearly every automaker has reported lower-than-expected sales for the month of December relative to our forecast and the consensus. At this time, domestic light vehicle sales are running at a disappointing low 11.3 million annualized pace, which compares with 12.6 million for November.

If taken into context, we can say that the strong selling pace in November pulled sales away from December. In September and October, domestic light vehicle sales fell under 12.0 million due to the impact of the federal government shutdown, slipping to 11.7 million for both months, as it negatively impacted on buying confidence.

In November 2013, sales recovered strongly to 12.6 million, perhaps too strongly to the detriment of December’s sales. Therefore, if we average November and December together, we get 12.0 million, which is a respectable, though not spectacular, selling pace.

The times, they are a-changing:

image

Hmmm…

Total car sales using a 3-month m.a. to smooth out monthly fluctuations.

image

Girl “Daddy, is this a cyclical peak?”

image

Just kidding “May well be, but let’s hope not…”

 

From my Nov. 20 post:

The Detroit Three each reported a roughly 90 days’ supply of cars and light trucks in inventory at the end of November. Auto makers generally prefer to keep between 60 days and 80 days of sales at dealers.

Truth is, basic demand seems to be soft:

Americans Holding on to Their Cars Longer

Demand for cars has been helped by the aging of America’s vehicles.

(…) during the 2007-2009 downturn and after, financial problems and tight credit standards prevented many consumers from replacing their old vehicles. As a result, estimate analysts at IHS Automotive, the average age of a vehicle stands at a record 11.3 years. The average age increased faster in the five years ended in 2013, than in the five years before that. The trend is true for cars and for light trucks.

(…) IHS projects vehicle sales will total just over 16 million in 2014, and the new cars will help to slow the aging of America’s car fleet.

Truth is that cars do last longer.

And seems that people want, need or can only afford fewer cars (chart from ZeroHedge)

Cases in point:

Office-Rental Market Is Gaining Strength

(…) Businesses occupied an additional 8.5 million square feet of office space in the quarter. That was only a 0.25% increase from the third quarter, but Reis said it was the largest gain since the third quarter of 2007.

The expansion of tenants was offset by the completion of 9.1 million square feet of new office space during the quarter, the most since the fourth quarter of 2009, according to Reis, which tracks 79 major U.S. office markets. That left the market’s vacancy rate at 16.9%, unchanged from the previous quarter.

The vacancy rate had been steadily falling from the recent high of 17.6% in early 2011, but it still is well above the low of 12.5% in the third quarter of 2007, Reis said.

The amount of occupied office space now stands at slightly more than 3.4 billion square feet, which falls short of the market’s peak in late 2007 by 79 million square feet.

At the current rate that companies are leasing new offices—known as “positive absorption”—it would take more than two years to reach that peak level again.

(…)  Average asking rents increased in the fourth quarter to $29.07 per square foot a year, up 0.7% from the third quarter but still short of the recent high of $29.37 hit in 2008. (…)

Economic research firm Moody’s Analytics projects office-using jobs will increase 2.1% this year to nearly 33.9 million. That growth rate, along with a 2.1% gain in 2012, are the largest since last decade’s boom. “I would expect 2014 to be the best year since 2006 for office-using jobs,” says Mark Zandi, chief economist at Moody’s Analytics.

Reis’ preliminary forecast for 2014 calls for office-vacancy rates to decline by roughly half a percentage point by year’s end and asking rents to increase 2.8%, the largest gain since 2007. (…)

Alien ‘Polar Pig’ Threatens Coldest U.S. Weather in Two Decades

The coldest air in almost 20 years is sweeping over the central U.S. toward the East Coast, threatening to topple temperature records, ignite energy demand and damage Great Plains winter wheat.

Hard-freeze warnings and watches, which are alerts for farmers, stretch from Texas to central Florida. Mike Musher, a meteorologist with the U.S. Weather Prediction Center in College Park,Maryland, said 90 percent of the contiguous U.S. will be at or below the freezing mark today.

Freezing temperatures spur energy demand as people turn up thermostats to heat homes and businesses. Power generation accounts for 32 percent of U.S. natural-gas use, according to the Energy Information Administration. About 49 percent of all homes use the fuel for heating.

China Shows Signs of Slowdown

Four purchasing managers’ indexes—two compiled by the government and two by HSBC Holdings PLC all dropped last month, the first time that has happened since April. The HSBC Services PMI, released Monday, fell to 50.9 for December, compared with 52.5 the month before. (…)

All four PMIs remained in narrowly positive territory for December, indicating that expansion continues, albeit at a slow pace. But that masks difficulties for individual companies in some sectors. Conditions are worsening for small and medium-size businesses, according to the official manufacturing PMI. The subindex for large companies, which has performed best in recent months, also fell in December, though it remains above the 50 mark that separates growth from contraction.

The data show manufacturers cut back stocks of both raw materials and finished goods, suggesting they are expecting weaker sales ahead. (…)

GUIDANCE ON GUIDANCE

This is what the media have been posting from Factset in recent weeks:

For Q4 2013, 94 companies in the S&P 500 have issued negative EPS guidance and 13 companies have issued positive EPS guidance. If these are the final numbers, it will mark the highest number of companies issuing negative EPS guidance and tie the mark for the lowest number of companies issuing positive EPS guidance since FactSet began tracking the data in 2006.

The percentage of companies issuing negative EPS guidance is 88% (94 out of 107). If this is the final percentage for the quarter, it will mark the highest percentage on record (since 2006).

These following info from the same Factset release have generally been omitted by the media:

Although the number of companies that have issued negative EPS guidance is high, the amount by which these have companies have lowered expectations has been below average. For the 107 companies in
the S&P 500 that have issued EPS guidance for the third quarter, the EPS guidance has been 5.7% below the mean estimate on average. This percentage decline is smaller than the trailing 5-year average of -11.1% and trailing 5-year median of -7.8% for the index. If -5.7% is the final surprise percentage for the quarter, it will mark the lowest surprise percentage since Q2 2012 (-0.4%).

That could mean that companies are more prone to reduce guidance than before. Here’s what has happened following Q3 guidance:

At this point in time, all 114 of the companies that issued EPS guidance for Q3 2013 have reported actual results for the quarter. Of these 114 companies, 84% reported actual EPS above guidance, 9% reported
actual EPS below guidance, and 7% reported actual EPS in line with guidance. This percentage (84%) is well above the trailing 5-year average for companies issuing EPS guidance, and above the overall performance of the S&P 500 for Q2 2013.

Under-promise to over-deliver!

Companies that issued quarterly EPS guidance for Q3 reported an actual EPS number that was 9.5% above the guidance, on average. Over the past five years, companies that issued quarterly EPS guidance reported an actual EPS number that was 12.8% above the EPS guidance on average.

Now this:

For the current fiscal year, 149 companies have issued negative EPS guidance and 116 companies have issued positive EPS guidance. As a result, the overall percentage of companies issuing negative EPS
guidance to date for the current fiscal year stands at 56% (149 out of 265), which is below the percentage recorded at the end of September (61%).

Since the end of September, the number of companies issuing negative EPS guidance for the current fiscal year has decreased by eight, while the
number of companies issuing positive EPS guidance has increased by 15.

Pointing up There was a 15% increase in the number of companies issuing positive EPS guidance from the end of September through the end of December.

As a result:

Over the course of the fourth quarter, analysts have lowered earnings estimates for companies in the S&P 500 for the quarter. The Q4 bottom-up EPS estimate (which is an aggregation of the estimates for all 500 companies in the index) dropped 3.5% (to $27.90 from $28.91) from September 30 through December 31.

During the past year (4 quarters), the average decline in the EPS estimate during the quarter has been 3.9%. During the past five years (20 quarters), the average decline in the EPS estimate during the quarter has been 5.8%. During the past ten years, (40 quarters), the average decline in the EPS estimate during the quarter has been 4.3%. Thus, the decline in the EPS estimate recorded during the course of the Q4 2013 quarter was lower than the trailing 1-year, 5-year, and 10-year averages.

So, do you really want to use forward earnings in your valuation work?

Bernanke Kicks Off Farewell Tour In Philly. Some of his comments:

  • I have done my job:

At the current point in the recovery from the 2001 recession, employment at all levels of government had increased by nearly 600,000 workers; in contrast, in the current recovery, government employment has declined by more than 700,000 jobs, a net difference of more than 1.3 million jobs. There have been corresponding cuts in government investment, in infrastructure for example, as well as increases in taxes and reductions in transfers.

  • Politicians have not:

Although long-term fiscal sustainability is a critical objective, excessively tight near-term fiscal policies have likely been counterproductive. Most importantly, with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be.

  • So get to it now:

But the current policy mix is particularly problematic when interest rates are very low, as is the case today. Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels. A more balanced policy mix might also avoid some of the costs of very low interest rates, such as potential risks to financial stability, without sacrificing jobs and growth.

  • That’s for you bankers as well:

The Federal Reserve now has effective tools to normalize the stance of policy when conditions warrant, without reliance on asset sales. The interest rate on excess reserves can be raised, which will put upward pressure on short-term rates;

  • Get ready for higher rates:

in addition, the Federal Reserve will be able to employ other tools, such as fixed-rate overnight reverse repurchase agreements, term deposits, or term repurchase agreements, to drain bank reserves and tighten its control over money market rates if this proves necessary. As a result, at the appropriate time, the (Fed) will be able to return to conducting monetary policy primarily through adjustments in the short-term policy rate. It is possible, however, that some specific aspects of the Federal Reserve’s operating framework will change; the Committee will be considering this question in the future, taking into account what it learned from its experience with an expanded balance sheet and new tools for managing interest rates.

Need more warning?

 

Fed’s Plosser: May Need to Employ Aggressive Tightening Campaign

(…) Mr. Plosser, who spoke as part of a panel discussion held in Philadelphia at the annual American Economic Association, will be a voting member of the monetary policy setting Federal Open Market Committee this year. (…)

Currently, the Fed expects to keep short-term rates very low until some time in 2015. The veteran central banker is uneasy with that, and warns the Fed should prepare for a faster and more aggressive campaign of rate hikes given the inflation risks presented by all the liquidity it has provided markets.

Mr. Plosser said the Fed would like to raise rates “gradually” but added “it doesn’t always work that way.”

“How fast will we have to move interest rates up…we don’t know the answer to that,” Mr. Plosser said. He warned that the Fed may have to be “aggressive,” and he added “people like to think the Fed has all this great control over interest rates, but the market does its own thing.”

JPMorgan Shows The US Is The Most Expensive Developed Market In The World

JPMorgan points out that US equities are 2 standard deviations rich to their average valuation and are in fact the most expensive in the developed world…

Punch By the way, this also impacts employment:

Foreign Companies Investing Less in the U.S.

Obama has made reversing the trend a priority.

Foreign direct investment in the U.S. appears to have dropped 11% last year, to about $148 billion, according to preliminary Commerce Department data, as analyzed by the Congressional Research Service.

This follows a decline in 2012 to about $166 billion from 2011′s estimated $230 billion. Foreign direct investment, or FDI, had peaked in the U.S. at $310 billion in 2008 and sank to about $150 billion in 2009, before rebounding in 2010 to $206 billion.

The steep fall in 2012-2013 has many possible causes, including the heated presidential elections and the knockdown, drag-out budget battles that culminated in last year’s government shutdown. Our politics frighten foreigners. We also saw tougher air-quality regulations from the Environmental Protection Agency and the new Dodd-Frank rules. Nevertheless, the U.S. last year emerged for the first time since 2001 as the most promising destination for FDI, thanks to our productivity gains, according to a survey of 302 companies from 28 countries by A.T. Kearney, a New York international consulting firm.

Obama seems to be in the mean-reverting biz now with many priorities aimed at reversing trends…(see below)

Stock Buybacks’ Allure Likely to Fade

(…) In the fourth quarter, S&P 500 companies may have bought back nearly $138 billion worth of stock, says Howard Silverblatt, Standard & Poor’s senior analyst. If that estimate proves correct as companies file their quarterly disclosures, it’ll be the biggest quarter for buybacks since 2007 and a 40% jump from the level a year ago.

Companies have already repurchased a staggering $445 billion worth of shares in the 12 months ended on Sept. 30. (…)

The S&P 500 Buyback Index, which covers the 100 companies that are the busiest buying back shares, rose 48.3% in 2013, trumping a 33.3% return for even the S&P Dividend Aristocrat Index brimming with companies that have hiked dividends every year for a quarter-century.

Conventional wisdom now expects 2014 to be an even bigger year for buybacks. After all, global growth is improving at only a drowsy pace, and receding crises heap pressure on management to spend their cash stash. Goldman Sachs, for one, sees repurchases increasing 35% this year.

(…) Rising interest rates will make it dearer for companies looking to borrow to finance buybacks or replenish their cash hoards. (…)

Besides, buybacks work better as an interim measure for returning cash to shareholders when the outlook is iffy. Today, a broadening recovery nudges management to rely less on financial engineering and to begin the riskier, tougher task of finding growth, investing in research and development, or inventing the next big thing—whether it’s ocean-driven hydropower or a cure for male-pattern baldness. Reflexively buying back shares was the easy, momentarily crowd-pleasing part. Figuring out where future growth lies and how to secure it is the real challenge that lies ahead.

BANKS

 

Biggest Lenders Keep On Growing

The five largest U.S. lenders control 44.2% of the industry’s assets, up from 43.5% in 2012 and 38.4% in 2007, according to a report by data provider SNL Financial.

The five largest U.S. lenders control 44.2% of the industry’s assets, up from 43.5% in 2012 and 38.4% in 2007, according to a report by data provider SNL Financial. That expansion has been reshaping banking since at least 1990, when the top five institutions held 9.67% of bank assets. (…)

At the same time, the number of U.S. banks fell last year to the lowest level since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp.

There were 6,891 banks as of the third quarter, down from a peak of 18,000. Between 1984 and 2011, more than 10,000 banks disappeared through mergers or failures, according to FDIC data.

The banking units of J.P. Morgan Chase, Bank of America Corp., Citigroup Inc., Wells Fargo and U.S. Bancorp held $6.46 trillion in assets as of the third quarter, the report, released Thursday by SNL, found. The total for the rest of the banking industry, comprised of thousands of midsize, regional and smaller players, was $8.15 trillion.

Meanwhile.

Sarcastic smile Barack Obama has played 160 rounds of golf since taking office. (Time). That’s 32 per year over the past 5 years.

 
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