NEW$ & VIEW$ (31 JULY 2013)

Home Prices Jump, but Headwinds Build

Home prices during the first half of 2013 posted their largest gain since the housing boom peaked seven years ago, but rising mortgage rates and the potential for more supply could eventually slow the run-up.

(…) home prices in 20 major U.S. cities rose by 12.2% in May from one year earlier. The Standard & Poor’s/Case-Shiller index shows that home prices are now down from their 2006 peak by 24.4%, compared with a peak-to-trough decline of 35.1% in March 2012. Prices in two cities, Dallas and Denver, reached an all-time high, surpassing peaks set in 2007 and 2006, respectively.

Some economists say the Case-Shiller index could overstate the magnitude of recent price increases because of how it counts foreclosures. Because foreclosures may be in greater disrepair than traditional homes, they tend to sell at a discount. As the share of distressed-property sales rises, as it did beginning in 2007, price falls can be magnified in markets with lots of foreclosures; later, when the share of distressed sales falls, as it has over the past year, prices appear to rebound faster. The Zillow index, by contrast, doesn’t include foreclosed properties, minimizing potential volatility from this shift in the sales mix.

Nationally, home values rose by 5.8% in June from one year ago, according to Zillow Inc., the real-estate website, the largest gain since 2006. So far this year, prices are up 2.7%, the strongest year-to-date gain in June since 2005.

For now, inventories remain tight in a majority of the nation’s major housing markets. The Wall Street Journal’s survey of quarterly housing-market conditions in 28 metro areas found that Phoenix, Seattle, Denver, and Sacramento, Calif., had less than a 2.5-month supply of homes for sale at the current sales pace. Dallas, Los Angeles, San Diego, Washington, D.C., and Orlando, Fla., had less than three months of supply, according to data compiled by John Burns Real Estate Consulting in Irvine, Calif.

Typically, real-estate agents consider a balanced market to have a six-month supply. Nationally, the supply of existing homes for sale stood at five months at the end of June, according to the National Association Realtors.

EU Jobless Rate Falls

Eurostat, the EU’s official statistics agency, said Wednesday that 10.9% of the workforce in the 27 nations that then formed the EU were unemployed in June, down from 11.0% in May. That is the first fall in the jobless rate since January 2011.

The number of unemployed in the 17 euro-zone countries edged down to 19.27 million from 19.29 million, the first decline since April 2011. The fall wasn’t sufficient enough to move the jobless rate overall, which held firm at 12.1%—its highest on record—for the fourth successive month.

The unemployment rate fell in Portugal, Spain and Ireland—three of the countries given forms of financial assistance since the bloc’s debt crisis began—but rose in Cyprus and Greece, as well as in the Netherlands and France.

Pointing up Eurozone Retail PMI improves to 21-month high in July

The eurozone retail sector neared stabilisation in July, Markit’s retail PMI® data showed. The value of retail sales fell for the twenty-first month running, but at the slowest rate over that period. Moreover, both Germany and France posted higher sales during the month, with the latter recording the first expansion since March 2012. The main negative finding from the latest survey was a sharper decline in Italian retail sales.


Germany’s retail sector registered a third successive month of rising sales in July, the longest sequence of growth for a year. Moreover, the rate of expansion accelerated further, to the fastest since January 2011. The French retail PMI rose for the fourth month in a row in July, and registered above the no-change mark for the first time since March 2012. Moreover, the rate of growth signalled was the fastest since October 2011.

imageItalian retailers continued to weigh on the overall eurozone performance. Sales fell for the twenty-ninth month running, and at the strongest rate since April. Moreover, the gap between the Italian and German retail PMIs was the largest since February 2012.

Eurozone retail sales were lower on an annual basis in July, as has been the case since June 2011. That said, the rate of decline was the slowest
since March 2012, and sales in Germany and France posted year-on-year growth. Italy continued to register a severe annual drop in sales, however.


Retail employment in the eurozone declined for the sixteenth consecutive month in July, albeit at the weakest rate in that sequence. German retailers hired extra staff for the thirty-eighth month running, while the rate of retail job shedding in France slowed to a marginal pace. Italian retail employment fell at the weakest pace in five months.

Retailers’ purchasing of new stock fell at a sharper rate in July. This partly reflected a build-up of unsold stock during the month, the first such increase since August 2012. Meanwhile, the rate of purchase price inflation eased on the month, and remained weaker than the historic survey average.

Euro-Area Inflation Holds at 1.6%, Providing ECB Some Leeway

Euro-area inflation held steady in July after accelerating for two months, adding leeway for the European Central Bank to loosen monetary policy as the 17-nation currency bloc struggles to pull out of a record-long recession.

Pointing up  Beijing offers growth assurance in its economic balancing act

China’s authorities, mindful of the risk of a sharp economic slowdown that could derail their reform efforts, sent their clearest signal yet that they will safeguard growth and tweak policy when necessary.

The message from a meeting of China’s top decision-making body, the Politburo, sought on Tuesday to dispel market concerns about China’s near-term economic outlook by stressing stability of growth.

The main economic planning agency followed on Wednesday with assurances that this year’s growth goal was safe and that the authorities would supply markets with relatively ample funding. (…)

In particular, the politburo’s mention of “stable and healthy development” of the real estate sector caught markets’ attention, interpreted as a sign that Beijing would not risk any radical action to cool that market, concerned about the impact on overall economic growth.

Such a view was reinforced on Wednesday by comments from a senior central bank official, who dismissed any link between the property boom and easy credit. (…)

“Fiscal policy will play a bigger role in supporting the economy as we need to maintain prudent monetary policy,” said Zhu Baoliang, chief economist at the State Information Centre, a top government think-tank in Beijing.

“There will be more tax cuts and the fiscal deficit may exceed 2 percent of GDP (target),” he said, adding that this should allow growth to stabilize in the second half of the year. (…)

“The central authorities will continue to coordinate the multiple tasks of stabilizing growth, restructuring the economy and promoting reforms,” the official Xinhua news agency said, citing a statement released after the politburo meeting.

Both the party leadership and the planning agency highlighted plans to boost China’s urban population by 400 million over the next decade, with the planning agency’s chief, Xu Shaoshi, saying the government would unveil its urbanization plan in the second half of the year. (…)

Taiwan economic growth beats forecasts Rise in consumer spending drives 2.3% second-quarter growth

The economy grew 2.3 per cent between April and June from the same period of last year, the government said on Wednesday. That surpassed the consensus forecast of 2.1 per cent in a Bloomberg survey of economists, and followed first-quarter growth of 1.7 per cent.

The announcement came a week after South Korea also outperformed forecasts by reporting year-on-year growth of 2.3 per cent for the same period.

Taiwan’s struggling labour market means it is unclear whether that consumption growth is sustainable, economists say. While unemployment is low, real wages have been falling gradually for years. Data for May showed average earnings fell 0.3 per cent from a year earlier.

Nonetheless, consumption grew 5.3 per cent quarter on quarter, rebounding from a 0.4 per cent fall in the first three months of the year, according to seasonally adjusted estimates by JPMorgan.

Exports rose 5 per cent year on year in the second quarter, after growth of 4.8 per cent in the previous quarter.

But export orders fell 3.4% YoY in June…

Ford Truck to Use Natural Gas

Ford Motor Co. will begin selling an F-150 pickup truck later this year that is modified to run on compressed natural gas, as demand continues to grow among commercial fleet buyers.

Ford sold 11,000 trucks last year that run on natural gas, and that was double what the company sold in the years of 2009, 2010 and 2011 combined. Until now, Ford hadn’t made it an option available on the base F-150, reserving it for heavier-duty models and its Transit Connect delivery van.

With the addition of the F-150, Ford expects to sell about 15,000 CNG vehicles this year, the company said in a statement. (…)

Neither GM nor Chrysler would disclose how many CNG vehicles they have sold this year. The Natural Gas Vehicles for America—a trade group—estimates that there are about 130,000 natural gas vehicles on U.S. roads, primarily in commercial trucks and buses.

Companies, including Pioneer Energy Services and AT&T Inc., have been among Ford’s biggest clients for the compressed natural gas. The extra cost to build the trucks can quickly be covered because the companies use so much fuel at a higher cost and refueling isn’t difficult because they can install their own natural gas pumps. (…)


NEW$ & VIEW$ (3 JULY 2013)

Portugal Rocks European Markets  Portuguese bonds and stocks led heavy declines in European markets after the foreign minister resigned, triggering the worst political crisis since the country’s bailout two years ago.

Portuguese bonds were already on a weaker footing before the resignation; they had dipped Tuesday after the surprise resignation of Finance Minister Vitor Gaspar. On Wednesday, the selloff accelerated sharply.

Midmorning in Europe, Portuguese 10-year bond yields were up 1.4 percentage points at 7.87% amid fears Mr. Portas’s party will withdraw its support for the government. Yields pushed higher in other financially stressed euro-zone countries as fears of contagion grew. Bond yields rise as prices drop.

“The political problems increase the uncertainty surrounding Portugal’s bailout commitments and potentially even the prospect for negotiations of a precautionary program succeeding the current program running out in May next year,” RBC said in a note to clients. “We see the risk of further spillover effects into Spanish bonds and Italian bonds hampering the recent recovery.”


Total sales volume rose 1.0% MoM after 3 consecutive monthly declines totalling –0.7%. Core sales volume rose for the second month: +0.9% in May after +0.8% in April, more than offsetting the –1.5% drop in Feb-March. (Eurostat)



Auto  Summer Auto Sales Surge  U.S. auto sales rose at the strongest rate in more than five years in June, lending new confidence to industry executives’ belief that the nation’s auto recovery has more room to run.

Overall, auto makers sold 1.4 million cars and light trucks in June, 9.2% more than a year ago, according to researcher Autodata Corp., and putting the industry on track to make 2013 its best sales year since 2007. Through the first six months of the year, Americans have purchased 7.8 million cars, 7.7% more than the same period a year ago.

image(Calculated Risk)

Imports’ share of the U.S. light vehicle market increased to 21.4% in June. (Haver Analytics)

Nissan deliveries increased 13 percent in June, the automaker said in an e-mailed statement, matching the average of eight estimates. The Yokohama, Japan-based company’s rise followed a 25 percent surge in May, which tripled the industrywide increase that month, after cutting the price of seven models. (Bloomberg)

Retail Vacancies Lowest in 4 Years

The average vacancy rate at U.S. retail property in the second quarter fell to its lowest level in more than three years to 10.5%, down from 10.6% in the first quarter, according to a report set to be released Wednesday by real-estate research firm Reis Inc. Asking rent increased to $19.19 a square foot from $19.13 in the first quarter.

The average vacancy rate at U.S. malls was at 8.3% at the end of the second quarter, the lowest rate in more than four years and down from 8.9% one year ago, according to the report. Strip-shopping centers, which include stores clustered around a common parking lot, ended the quarter with a 10.5% vacancy rate, down from 10.8% a year ago.

Still, nationwide vacancy remains well above the lows seen before the economic downturn. Overall vacancy was at 7.7% in the first quarter of 2008.



The market is generally improving for landlords partly because new development has been slow, putting a crimp on competition. About 31.5 million square feet of new space is expected to be delivered this year, compared with about 200 million in 2007 and 2008, according to the CoStar Group.

Development is picking up. CoStar projects that nearly 70 million square feet of new retail space will be delivered next year.

But Suzanne Mulvee, CoStar’s director of research-retail, doesn’t foresee a glut of space. “You’re still less than half of what we were doing,” she said. “This is nothing to be worried about.”

Cass Freight Index Report™ ‐ June 2013

The Cass Freight Index for June shows an increase in freight expenditures over May, while the number of shipments remained
virtually flat. The transportation sector continues to follow the up and down track it’s been on for the last two and half years.



June shipments rose less than 0.1 percent from May and were 1.5 percent lower than this time last year. In fact, the June 2013 value is the lowest of the last three June time periods. The shipment trend for 2013 remains
completely intertwined with those of 2011 and 2012. Cumulatively for 2013, the number of shipments is up 5.8 percent, but second quarter growth was much slower than first quarter growth. The high point year‐to‐date was hit in March, with June coming in 0.6 percent lower than the March high.

The railroad sector began and ended the last four weeks with drops in both carloadings and intermodal loadings, to end the period down 0.7 and 1.1 percent for carloadings and intermodal respectively. The trucking sector remains at high utilization rates with load size trending upward. Most truckers feel that shippers are still in control of pricing, but this could change quickly and soon. The American Trucking Association’s Truck Tonnage Index posted a 2.3 percent increase in May, which coincided with the strong 3.4 percent gain in number of shipments reported last month.

Oil Boom Gives U.S. More Policy Options

[image]The rise in North American petroleum production is a boon to government policy makers, who have less need to worry about the market impact of decisions they make.

(…) new U.S. shale-oil and Canadian oil-sands output provided an extra cushion amid a handful of production outages around the world.

Carlos Pascual, the State Department’s top energy official, said increased oil supplies, especially in the U.S., “have been absolutely essential at being able to undertake the kind of negotiations that we have had with countries around the world to reduce their imports of crude oil from Iran.”



NEW$ & VIEW$ (1 JULY 2013)

Manufacturing Slows Across Asia

Economies across Asia, including China, showed slowing growth or contraction in manufacturing activity, signaling the region isn’t yet feeling the benefits of renewed strength in the West

(…) In South Korea, manufacturing contracted for the first time in five months in June and exports fell for the first time since February—though an even larger fall in imports kept Seoul’s trade balance in surplus.

HSBC’s PMI for Indonesia fell to its lowest level in four months, while a gauge for Taiwan showed manufacturing contracting for the second straight month. Vietnam’s June PMI fell sharply to hit its third-lowest reading ever.

Only India and Australia bucked the trend, but with caveats: HSBC’s PMI for India rose to 50.3 from 50.1—far below readings last year that were regularly in the mid- to upper-50’s. An Australian manufacturing gauge showed improvement but remained in contractionary territory, according to data from the Australian Industry Group. (…)

(China PMI is covered separately)

China’s Cash Crunch Eases

Interbank interest rates eased in China Monday, but they are expected to stay high until later this month as Beijing tightens its grip over risky lending.

Euro-Zone Jobless Rate Hits High

The European Union’s official statistics agency Monday that the proportion of the workforce without jobs rose to 12.1% in May from 12.0% in April to reach its highest level since records began in 1995. In the U.S., the unemployment rate stood at 7.6%.

As of May, 19.2 million people were without jobs in the euro zone, up 67,000 from April and 1.344 million from May 2012. The unemployment rate among people aged 24 or under was much higher, although it fell to 23.8% from 23.9% in April.


French Car Market Shrinks Again

France’s car market shrank sharply again in June, bringing the decline in registrations of new cars to 11% for the first half of the year, with the country’s auto makers’ association warning of only a slight improvement by the end of the year.

The Comité des Constructeurs Français d’Automobiles said the French car market will likely contract 8% this year, to its lowest level since 1997, compared with an earlier forecast of a decline of roughly half that for 2013.

Euro area annual inflation up to 1.6%

Euro area annual inflation is expected to be 1.6% in June 2013, up from 1.4% in May, according to a flash estimate from Eurostat, the statistical office of the European Union.

Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in June (3.2%, stable compared with May), followed by energy (1.6% compared with -0.2% in May), services (1.4% compared with 1.5% in May) and non-energy industrial goods (0.7% compared with 0.8% in May).


BOJ Beat: Five Takeaways From Tankan Survey  The Bank of Japan’s closely-watched tankan survey of corporate sentiment showed that the mood among businesses improved sharply in the three months to June after the central bank introduced an aggressive easing policy in April.

Wary Investors Turn to Cash

Recent market turmoil is pushing more investors into cash. Bond and stock mutual and exchange-traded funds saw outflows of $19.96 billion in the week ended Wednesday.

That’s the biggest outflow since August 2011, as the euro-zone debt crisis was intensifying and worries about the U.S. debt ceiling were coming to a head.

Some of the money went into money-market funds, which took in $5 billion during the week, according to Lipper. It’s likely that billions more flowed into cash or directly into short-term debt, said Matthew Lemieux, a senior research analyst at Lipper. The WSJ Dollar Index rose 1.6% in the period.

The latest fund-flow data captures the tail end of what’s been the biggest quarterly selloff in U.S. Treasurys since the fourth quarter of 2010. Ten-year Treasury yields have surged from a 2013 low of about 1.6% on May 1 to a peak of 2.667%, the highest since August 2011. (…)

Over the last four weeks, about $11.4 billion have come out of high-yield corporate bond funds that report weekly. That’s the largest of any four-week period tracked by Lipper.

Investment-grade corporate bond funds saw $2.32 billion exit in the last week, the second-largest outflow on record. (…)

Number of the Week: U.S. Oil Boom Affecting Global Prices The U.S. oil boom is finally affecting global energy prices — but don’t expect cheap prices at the pump as a result.

The U.S. pumped 6.5 million barrels a day of oil last year, according to the Energy Information Administration, the most since the mid-1990s, and production has continued to surge; April’s figure of 7.4 million barrels per day marked the best month in more than two decades. (Other sources suggest an even bigger increase.) (…)

The industry wasn’t expecting the huge surge in production from North Dakota, so companies didn’t have the pipelines in place to handle all the new oil. So rather than flow into the global market, much of the oil stayed in the middle of the U.S. That pushed down the price of West Texas Intermediate (WTI), the benchmark price for mid-continent oil, but had a much smaller effect on Brent crude, the benchmark price for most oil outside North America. In late 2012 and early 2013, WTI traded for more than $20 a barrel less than Brent.

Unfortunately for American drivers, a large percentage of U.S. gasoline is refined from oil priced off of Brent, not WTI. As a result, even as American crude oil prices remained moderate, prices at the pump stayed high.

Now, however, the gap between WTI and Brent is starting to narrow, as a new report from the Energy Information Administration makes clear. The industry has expanded pipeline capacity and found other ways, such as rail cars, to get oil from the middle of the country to major demand centers on the coasts. Meanwhile, coastal refineries are shifting to use more domestic crudes, leading to lower demand for Brent. The result: The gap between the two prices has narrowed to under $10 per barrel. (…)


While I was away salmon fishing, U.S. equities rose 2.2%, feeding on Fed officials’ generally more dovish comments and mixed economic news, all suggesting that the fed would continue to supply the financial heroin investors now believe they desperately need.

Here’s the week’s recap:

Orders excluding aircraft & parts, a measure of “core” business investment, gained 1.1% (3.2% y/y), the third consecutive month of a similar increase.


New home sales increased 2.1% (29.0% y/y) last month to 476,000 (AR) from a revised 466,000 during April, initially reported as 454,000. (…)

Pointing up  Note that the recent strength is primarily in the Midwest. Sales of new houses in the three other regions, including the important South and West regions (78% of all new home sales in the last 3 years) were essentially unchanged since March:


Similar trends are seen in pending home sales which are +1.1% YoY in the West, the weakest of all regions, while PHS are strongest (+22.2% YoY) in the Midwest.

Home price strength is building throughout the country. The seasonally adjusted Case-Shiller 20 City Home Price Index rose 1.7% (12.0% y/y) during April following its upwardly revised 1.9% March jump, earlier reported as 1.1%. The 3-month annualized rate of increase of 21.5% was a record for the series which dates back to 2000. Home prices in the narrower 10 city group rose 1.8% in April (11.6% y/y). 

Home prices have risen in each metropolitan area with the strongest gains in San Francisco, Las Vegas, Phoenix, Atlanta, Detroit, Los Angeles and Minneapolis. Lagging the rest of the country have been home price gains in New York, Cleveland, Washington D.C., Dallas, Boston and Chicago.

Confused smile  Detroit?  image

The Mortgage Bankers Association reported that total applications for a home mortgage fell 3.0% w/w, extending the declines of the prior six weeks. The latest level was down by one-third since early-May. Last week’s decline reflected a 5.2% drop (-38.4% y/y) in applications to refinance an existing loan. Refinancings were down 41.8% since early May. Home purchase mortgage applications increased 2.1% last week (15.9% y/y), up 26.7% since year end.

Here’s a close up of purchase apps courtesy of BofA Merrill Lynch:


Real GDP growth for Q1’13 was revised lower to 1.8% (1.6% y/y) from last month’s estimated 2.4% rise. Expectations were for a 2.4% gain. Growth in consumer spending and business investment were significantly reduced, but residential investment growth was raised.

Personal income regained its footing in May with a 0.5% gain; April’s move, originally reported as down very marginally, was revised to a 0.1% rise. Year-on-year, income was up 3.3%, compared to the 2.8% reported last month for April. 

Wages and salaries were up 0.3% in May (3.7% y/y), following 0.1% in April, which was originally reported as flat. The stronger income total came from gains in dividend income, 1.6% on the month (8.0% y/y), interest income, 1.9% m/m (2.3% y/y) and transfer payments, which rebounded by 0.8% m/m (3.4% y/y) after April’s 0.6% decline. (…)

Personal consumption expenditures also regained their footing in May, increasing 0.3% (2.9% y/y) after April’s 0.3% fall, a revision from 0.2% reported a month ago. The result was in line with the Consensus forecast of 0.3%. Durable goods outlays picked up by 0.9% (6.7% y/y), after two monthly decreases; motor vehicle purchases in particular were up 1.0% after edging lower for three months.(…)

Pointing up  Note that while disposable income was up 0.6% during April-May and +0.8% (+3.2% a.r.) during the last 3 months,  personal expenditures were unchanged in April-May and up only 0.2% (+0.8% a.r.) during the last 3 months.


The personal saving rate rose to 3.2% in May, and April’s figure was revised to 3.0% from 2.5% in the initial report. It was 3.9% in May 2012.

The PCE chain price index increased 0.1% in May (1.0% y/y) after April’s 0.3% decline. Energy goods and services prices rose 0.2% after their drop in April of 4.5%; Gasoline prices continued lower modestly, but other energy costs rose markedly, especially natural gas for household utilities, which was up 2.4% (16.6% y/y). Elsewhere, durable goods prices were down 0.1% (-1.9% y/y) while apparel prices rose 0.2% (unchanged y/y). Food prices decreased 0.2% (+1.0% y/y) while services prices also were up 0.2% (1.8% y/y), including the natural gas item. The overall price index excluding food & energy was up 0.1% (1.0% y/y).

Adjusted for price changes, disposable income gained 0.4% in May (1.1% y/y) while real spending rose 0.2% (1.8% y/y).

  • Eurozone Retail PMI Rises 2.3 To 49.1

The eurozone retail sector continued to record falling sales in June, Markit’s retail PMI® data showed. That said, the month-on-month drop in sales revenues was the slowest since March 2012, having eased for the third month in a row. Sales continued to fall sharply on an annual basis, however, and employment in the sector was cut for the fifteenth month in succession.


Germany’s retail sector continued to recover in June, registering a second straight month of rising sales and the fastest rate of growth since February 2012. Prior to May, retail turnover had declined four times in five months.

Meanwhile the eurozone’s second-largest economy, France, posted a decline in sales for the fifteenth month in a row in June. The rate of decline slowed sharply, however, to the weakest for a year. Italy’s retailers continued to experience a steep downturn in sales, and the rate
of decline reaccelerated in June having been the slowest in eight months in May.


Retail employment in the eurozone declined for the fifteenth month running in June. The rate of job shedding was modest, and broadly in line with the trend over the current sequence. Germany continued to register growth in retail workforces, as has been the case since June 2010.


Demand for industrial commodities continue to dwindle.

Consider the chart below of the S&P GSCI Industrial Metals Index:

This index tracks the price of industrial metals like copper, zinc, aluminum, nickel, and lead. The S&P GSCI Industrial Metals Index continuously declining suggests these metals aren’t being used as much—factories are not operating at their full potential in the global economy. (Michael Lombardi at Profit Confidential)

The Chicago Fed National Diffusion Index is once again hitting the –0.35 level. Thirty-three of the 85 individual indicators made positive contributions to the CFNAI in May, while 52 made negative contributions.


The Index itself is not at the ominous –0.70 level but nevertheless signals a weak economy and not one that is showing signs of improvement like the Fed is suggesting.


BTW, Fed misses are nothing new (chart from ISI)



ISI’s Company Survey Diffusion Index is rolling over. The consumer-related surveys were particularly weak last week, including the homebuilders which was the weakest.



The MNI China Business Survey fell to 53.7, from 56.7 in May. Both new orders and production are down and both current and future conditions are down. This confirms the HSBC survey for June.


Q2 earnings season officially begins July 8. Factset reports that a record high number and percentage of S&P 500 companies issued negative EPS guidance for Q2.

For Q2 2013, 87 companies have issued negative EPS guidance while 21 companies have issued positive EPS guidance. If 87 is the final number of companies issuing negative EPS guidance for the quarter, it will mark the highest number of companies issuing negative EPS guidance since FactSet began tracking guidance data in 2006. The current record is 86, which was recorded in Q1 2013. If 21 is the final number of companies issuing positive EPS guidance, it will mark the lowest number of companies issuing negative EPS guidance for a quarter. The current record is 25, which was also recorded in Q1 2013.

These numbers are also well above the five-year averages for the number of companies issuing negative EPS guidance (66) and positive EPS guidance (40) for a quarter.


The percentage of companies issuing negative EPS guidance is 81% (87 out of 108). If this is the final percentage for the quarter, it will mark the highest percentage of companies issuing negative EPS guidance for a quarter. The current record is 77%, which was also recorded in Q1 2013.

On average, companies have issued EPS guidance that has been 18.0% below the mean EPS estimate. However, if Peabody Energy is excluded, the average difference between EPS guidance and the mean EPS estimate would be -6.2%. This number is below the 5-year average of -8.3%.

At the sector level, the Information Technology (+6) and Consumer Discretionary (+5) sectors have witnessed the largest increases in the number of companies issuing negative EPS guidance relative to their five-year averages. The Information Technology (-8) and Consumer Discretionary (-5) have also seen the largest decreases in the number of companies issuing positive EPS guidance for the quarter relative to their five-year averages.


High Percentage (80%) of Companies Issuing Negative Revenue Guidance

For Q2 2013, 55 companies have issued negative revenue guidance for the quarter and 14 have issued positive revenue guidance. As a result, 80% (55 out 69) of the companies that have issued revenue guidance for the quarter have issued negative guidance. If this is the final percentage for the quarter, it will mark the third highest percentage since 2006. The current record is 86%, which was recorded in Q4 2008. At the sector level, more than half (39) of the companies that have issued revenue guidance for the quarter are in the Information Technology sector. In this sector, 29 of the 39 companies (or 74%) that have issued revenue guidance have issued negative guidance.

Fiscal Year Guidance: Increase in Number of Companies Issuing Positive EPS Guidance since Q1

For the current fiscal year, 164 companies have issued negative EPS guidance and 88 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 65% (164 out of 252), which is below the percentage recorded at the end of March (69%).

Since March, the number of companies issuing negative EPS guidance for the current fiscal year has decreased by four, while the number of companies issuing positive EPS guidance has increased by eleven. The Financials (+4), Consumer Discretionary (+3), and Health Care (+3) sectors saw the largest increases in the number of companies issuing positive EPS guidance for the current fiscal year since March 31.


For the current fiscal year, 92 companies have issued negative revenue guidance and 66 companies have issued positive revenue guidance. As a result, the overall percentage of companies issuing negative revenue guidance to date for the current fiscal year stands at 58% (92 out of 158), which is above the percentage recorded at the end of March (52%). Since March, the number of companies issuing negative revenue guidance for the current fiscal year has increased by seven, while the number of companies issuing positive EPS guidance has decreased by seven.

The Health Care sector saw the largest increase in the number of companies issuing negative revenue guidance (+7) and the largest decrease in the number of companies issuing positive revenue guidance (-6) for the current fiscal year since the end of March.

At the sector level today (with a minimum of 10 companies issuing guidance), the Consumer Discretionary (61%), Industrials (61%), and Health Care (60%) sectors have the highest percentages of companies issuing negative revenue preannouncements, while the Consumer Staples (57%) sectors has the highest percentage of companies issuing positive revenue preannouncements.

In summary

The estimated earnings growth rate for the S&P 500 overall for Q2 2013 is 0.8% this week, slightly below last week’s growth rate of 0.9%. On March 31, the Q2 earnings growth rate for the index was 4.2%. Eight of the ten sectors have witnessed a decline in earnings growth rates since that date, led by the Materials, Information Technology, and Industrials sectors. Only the Financials and Utilities sectors have seen increases in expected earnings growth rates since the start of the quarter.


Grant Williams “Call my bluff” piece on Fed “communications”, etc. This image gives you an idea:



NEW$ & VIEW$ (17 JUNE 2013)


U.S. Wholesale Prices Rise More Than Forecast on Fuel, Food

The producer-price index rose 0.5 percent after falling 0.7 percent in April, which was the biggest drop in more than three years, according to a Labor Department report released today in Washington. So-called core wholesale inflation, which excludes often-volatile food and energy prices, increased 0.1 percent.

Click to View


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(Doug Short)



The Netherlands is bracing for a new round of belt-tightening despite a growing public backlash against austerity, barely a year after similar bind caused the government to collapse.

The coalition parties are set to begin negotiations next week on how to cut the budget deficit by €6 billion, equal to $8 billion or 1% of the country’s gross domestic product, next year to satisfy European Union budget rules. (…)

With the euro-zone mired in its longest recession in decades, even the so-called core Northern countries are increasingly feeling the pain.

The Belgian government needs to find €500 million ($670 million) in budget savings this year to be sure of avoiding EU sanctions, Prime Minister Elio Di Rupo said Friday in Brussels. The country has already made budget savings of around €18 billion—equivalent to about 5% of annual economic output—since Mr. Di Rupo’s six-party coalition took office in December 2011.

Finnish Prime Minister Jyrki Katainen said on Tuesday that he could not rule out additional austerity measures to keep the budget under control if the economy didn’t turn around soon. (…)

  • France Retail Sales

French retail sales continue to be weak. In May retail sales volumes fell by 0.2% month-to-month with a rise of 5.1% in food sales blunting a drop of 2.8% in nonfood sales. Nonfood sales have fallen for four months in a row.

The overall retail sales volume change over the past 12-months ranks in the lower 17th percentile of all Yr/Yr sales changes back to 1994 (see ‘rank % Y/Y’ in the table). Food sales are relatively stronger, standing in the 37th percentile of their historic queue with nonfood sales in the 15.8 percentile of their queue. Of the categories in the table, textiles, footwear and furniture are the relative weakest according to their queue standings. (…)


Total retail volume has declined 1.1% after 5 months, –2.6% annualized. Food sales reportedly rose 4.5% (+10.8% a.r.) while non-food sales volume has cratered 3.2% after 5 months, a 7.7% annualized rate. New car sales, meanwhile, jumped 9.0% (+21.6% a.r.). I have a hard time believing these breakdowns but the overall picture fits with Markit’s retail PMI:


Nominal hourly labor costs rose 3.9 percent in Germany in the first quarter, the EU’s statistics office Eurostat said on Monday, faster than the overall euro zone rate of 1.6 percent. It was Germany’s biggest jump since the first three months of 2009. (…)

Spanish labor costs fell 0.7 percent in the first quarter, while exports rose 3 percent in the same period, Eurostat said.


From The Economist:

THE gloom in Spain is almost palpable. (…) The numbers are grim. The economy is in deep recession. In the first three months of the year GDP shrank for a seventh quarter in a row. The public finances remain stretched, with the budget deficit at 7% of GDP. Bond yields have fallen, but the credit crunch for small firms is worsening. Corporate bankruptcies are running at ten times pre-crisis levels. And unemployment is at a record 27% (see article).


Unlike France, it has made big structural reforms. Unlike Italy, it has a strong government that expects to last until the next election in late 2015. (…)

The government’s programme of restructuring and reform has also started to produce results. As many as 38 financial institutions have been merged, mainly local cajas brought down by property lending. The remaining banks have been recapitalised and some €50 billion of their worst assets transferred to a bad bank, Sareb. Provisioning against bad debts has risen sharply. Unlike many other euro-crisis countries, the public sector is shrinking: 375,000 civil-service jobs have gone.

The real economy is also showing signs of improvement. Measured by unit labour costs, Spain has done more than most to regain competitiveness. The external current account has switched from a deficit of almost 10% of GDP in 2008 to a surplus, and not only because of import compression. In 2012 exports rose faster than in any other EU country. Reforms last year made it easier to fire workers, so industry is readier to hire again. This new labour-market flexibility is one reason why many car makers are moving production from other EU countries to Spain.

Even so, three big problems could undo this limited progress. One is the credit crunch. Despite lower bond yields, credit for small and medium-sized enterprises remains scarce and expensive compared with northern Europe. (…)

The second problem is reform fatigue. Spaniards have accepted changes, including wage cuts, to restore lost competitiveness. But more is needed: welfare reforms, a lower minimum wage in some regions, encouraging mini-jobs and part-time work and reducing the burden of pensions. It is not clear that Mr Rajoy’s government has the guts to push such reforms through. (…)

Above all is the third problem, insufficient demand and a lack of sources of growth. With public spending, consumption and investment constrained, the government is relying on rising exports. Yet total exports are less than a third of GDP and almost two-thirds go to the recession-hit euro zone. (…)

  • Eurozone exports

In another positive sign, euro zone exports to the rest of the world grew 9 percent in April while imports only rose 1 percent, giving the 17 countries sharing the single currency a trade surplus of 14.9 billion euros ($20 billion).

However, April seasonally adjusted exports declined 0.8% MoM and while exports have grown since December 2012, they are merely back to their August 2012 level.image



Singapore Exports Fall More Than Estimated on Electronics Slump

Non-oil domestic exports slid 4.6 percent from a year earlier, after falling 1 percent in April, the trade promotion agency said in a statement today.  Shipments of electronics dropped 13.2 percent from a year ago, extending the slump to a 10th month.

India Holds Rates as Rupee Drop Risks Fueling Inflation

Vietnam’s Central Bank Says It Intervened to Slow Dong Decline

Vale Sees China Slowdown Blunted by Brazil Currency Depreciation

The real, the worst-performing emerging-market currency in the past three months, probably will weaken to about 2.40 from 2.15 per U.S. dollar, bolstering Brazil’s competitiveness, said Jose Carlos Martins, Vale’s executive director for ferrous and strategy. China’s iron-ore and steel demand growth is set to slow to about 5 percent from 10 percent in the first five months of the year, he said.

“The Brazilian currency will devaluate further,” Martins, 63, said in a June 14 interview at the company’s Rio de Janeiro headquarters. “The slowdown in China is negative, devaluation is positive because not only our costs in dollars will be reduced but also investments will be lower.”



Foreigners Sell Off U.S. Debt

(…) Overall, foreign investors sold a net $70 billion in Treasury securities, cutting their total portfolio of U.S. government debt by roughly 1.2%. Investors have long watched the monthly Treasury capital-flows report for insight into the global appetite for U.S. debt, as foreign demand has been perceived as a key factor in financing U.S. spending.


Treasury auctions this week drew lower-than-average demand for the third consecutive month. (ISI, with chart below)



Warning: aggregators have different ways to compile data. I use S&P as the official “data keeper”.

From S&P:

The second quarter comes to an end in a little more than two weeks, and a number of companies have already started previewing what quarterly numbers will look like. The advance peak isn’t pretty. Of the 110 companies that have provided forecasts, according to S&P Capital IQ, 79 have been “negative,” with 18 positive and 13 in-line. That works out to a ratio of 4.4 negative-to-positive, well above the 10-year average of 2.1.

Profit growth for the second-quarter is seen around 3.5%, according to S&P. Sales growth is seen contracting 1%, according to the firm. “If you are hoping for 3-4% revenue growth – the kind that allows profit margins to expand – you’ll have to wait until 2014, at least according to Wall Street analysts,” wrote Nicholas Colas, the chief market strategist at ConvergEx Group.

From Factset:

Overall, 86 companies have issued negative EPS guidance for Q2 2013, while 21 companies have issued positive EPS guidance. Thus, 80% of the companies in the index that have issued EPS guidance have issued negative guidance. This percentage is well above the 5-year average of 62%.

If the final earnings growth rate for the quarter is 1.1%, it will mark the third consecutive quarter of growth for the index. However, only four of the ten sectors are projected to report an earnings increase for the quarter, led by the Financials (17.5%) and Telecom Services (10.1%) sectors. On the other hand, the Information Technology (-6.3%), Materials (-4.5%), and Health Care (-3.9%) sectors are predicted to see the lowest earnings growth. The estimated revenue growth rate for the index for Q2 is 1.3%, down from an estimate of 2.7% at the start of the quarter.

ISI sees hope in an improving First Call earnings revision trend, even though it remains below 50 for now. The black lines are ISI’s way to show how things seemingly got better in the second half on each of the last 3 years. The red line is my way to show that positive revisions are fewer and fewer.


DRIVING BLIND (continued)

John Mauldin’s recent Thoughts from the Frontline letter should be read by everybody who relies on economists to make any kind of decisions in their life. As the Fed is preparing to alter its monetary stance, John’s letter helps understand the recent high level of volatility in financial markets. Everybody is driving blind just as a major turn approaches. My recent note warned that the Fed was currently Driving Blind but John says that the Fed is actually truly blind, now and always before and in the future!

Dozens of studies show that economists are completely incapable of forecasting recessions. But forget forecasting. What’s worse is that they fail miserably even at understanding where the economy is today. (…)

In plain English, economists don’t have a clue about the future.

If you think the Fed or government agencies know what is going on with the economy, you’re mistaken. Government economists are about as useful as a screen door on a submarine. Their mistakes and failures are so spectacular you couldn’t make them up if you tried. Yet now, in a post-crisis world, we trust the same people to know where the economy is, where it is going, and how to manage monetary policy.

Central banks say they will know the right time to end the current policies of quantitative easing and financial repression and when to shrink the bloated monetary base. However, given their record at forecasting, how will they know? The Federal Reserve not only failed to predict the recessions of 1990, 2001, and 2007, it also didn’t even recognize them after they had already begun. Financial crises frequently happen because central banks cut interest rates too late and hike rates too soon.

Trusting central bankers now is a big bet that (1) they’ll know what to do, (2) they’ll know when to do it. Sadly, given the track record, that is not a good wager. Unfortunately, the problem is not that economists are simply bad at what they do; it’s that they’re really, really bad. They’re so bad that it cannot even be a matter of chance. (…)

If economists were merely wrong at betting on horse races, their failure would be amusing. But central bankers have the power to create money, change interest rates, and affect our lives in multiple ways – and they don’t have a clue.

And don’t think for a moment that private economists are any more useful:

In December 2007 a Businessweek survey showed that every single one of 54 economists surveyed actually predicted that the US economy would avoid a recession in 2008. The experts were unanimous that unemployment wouldn’t be a problem, leading to the consensus conclusion that 2008 would be a good year.

As Nate Silver has pointed out, the worst thing about the bad predictions isn’t that they were awful; it’s that the economists in question were so confident in them. Now, this was a very bad forecast: far from growing by 2.4%, GDP actually shrank by 3.3% once the financial crisis hit. Yet these economists assigned only a 3% chance to the economy’s shrinking by any margin at all over the whole of 2008, and they gave it only about a 1-in-500 chance of shrinking by 2 percent, as it did.

In truth, John goes too far considering that he is, in fact, one who uses economists, including his good friend Nouriel Roubini, the most successful useless economist around, extensively in his publications, conferences and other venues offered by Mauldin Economics. No doubt he must see the irony…

Another Mauldin friend is Joan McCullough, the deliciously snappy macro strategist at East Shore Partners. She is also not fond of economists, particularly the IMF crowd (via John Mauldin).

How fast was the turnip truck goin’ when the IMF fell off the back?

Right. So take the visual and allow it to linger while we make an attempt to recap this latest load of baloney from the organization which is #2 on my list of “agencies to be disbanded immediately” … right after the IRS.

I often wonder why I have long held the IMF in such low regard. Besides the obvious, there is likely a deep-seated, psychological resentment here, too. Occasioned by the fact that for a period of years, they issued a paycheck to one Timothy Geithner. On which he paid no income tax until caught. After which they let him run Treasury which oversees the IRS.
Which put me in a very bad frame of mind. (…)

Here’s how Joan qualifies the recent IMF report titled The Concluding Statement of the 2013 Article IV Mission to The United States of America”. As a bonus, we get, in a single paragraph, a complete account of the State of the Union:

Did you ever read such high-falutin’ insanity in your life? As if these
massive issues can be resolved effortless, with the wave of a wand or the push of a button. No problem. Like I said, it’s a freakin’ term paper.

So there you have it. Please note: There is not a single mention of the fact that the US has record debt and record unemployment, food stamps, disability and Medicaid enrolment. With almost half of us paying no federal income tax whatsoever. That Obamacare is s driving health insurance premiums wild. That after almost 5 years of ZIRP and 3 rounds of QE and a wildly bloated central bank balance sheet, that we
are lucky to get 2% growth. That the quality of jobs being created is piss poor and that wages are stagnant. And while CPI inflation is tame, the cost of living which is not reflected therein, is anything but. And that we also have up to 20 million illegals in this country whose welcome hangs in the balance. Right now. With talk that the State Department is considering taking Syrian refugees as well. Once we determine which ones are Al Qaeda sympathizers and which are not. And most of all, they never addressed this reality: that the FED has painted itself into a corner. And that any suggestion that the FED should carefully plan an exit while being careful not to upset the applecart. Is just plain disingenuous. Either that, or there’s been an en masse psychotic break at the IMF headquarters. Your call.

So if you wanna’ claim that they rolled stocks over because of this worthless bit of writing from a bunch of out-of-touch bureaucrats, be my guest.

This is why I write News-To-Use and use the Rule of 20 to measure the attractiveness of equities: no forecasts. “Simply” objectively measure and monitor the equity risk/reward ratio using trailing profits and inflation and meticulously follow and assess, in as an unbiased way as possible,  the trends and momentum of some of the main economic drivers. While doing that, I try to understand conventional wisdom and how it is likely to behave (i.e. veer) in the near future.

Doing that, I read much media and broker crap, but also numerous great pieces from great minds, economists or not.


NEW$ & VIEW$ (5 JUNE 2013)

Sorry for the gloom, but that’s seems to be all there is.

Storm cloud U.S. Trade Deficit Widens as Global Demand Falters Americans’ demand for foreign goods such as cars and cellphones pushed imports higher and widened the U.S. trade deficit in April, while slower overseas growth restrained U.S. exports.

Imports rose 2.4% from March, to $227.7 billion, and exports increased just 1.2%, to $187.4 billion, the Commerce Department said Tuesday. As a result, the nation’s trade gap expanded by 8.5% from March to $40.3 billion.

(…) exports are up only 0.8% this year compared with the same period last year.

U.S. exports to the European Union so far in 2013 have fallen 7.4% compared with the same period last year. U.S. exports to the U.K alone have dropped 20% this year compared with the same period last year, a reflection of pain across the British economy.

Lightning Euro zone GDP contraction slows in first quarter, April retail sales worse than forecast

The European Union’s statistics office confirmed its earlier estimates that gross domestic product in the 17 countries using the euro fell 0.2 percent quarter-on-quarter in the January-March period, for a 1.1 percent year-on-year contraction.

That came after a 0.6 percent decline in euro zone quarterly output in the previous three months.


Pointing up  Retail sales in the euro zone fell 0.5 percent month-on-month in April for a 1.1 percent year-on-year decline.





Some observations are warranted here:

  • Total sales volume has declined in each of the last 3 months and at a 4% annual rate.
  • Core sales are reported up 0.6% in April but that follows declines totalling 1.7% in the previous 2 months. Last 3 months: –4.5% annualized in real core sales. Things are clearly getting worse, not better.
  • Revisions are continually negative.
  • German retail sales declined 0.4% in April, the 3rd consecutive decline (-5.3% annualized).
  • France sales dropped 0.9%, 3rd consecutive decline (-5.7% a.r.).
  • Markit’s Eurozone retail PMI for May at 46.8 “indicated a further sharp year-on-year drop in Eurozone retail sales in May”.

And now this:

Auto  German Auto Sales Fall Again

Hopes of a nascent recovery in Europe’s car market were dashed at least temporarily as new-car registration data from Germany showed imageEurope’s largest market shrank by 9.9% in May, a worse-than-expected contraction after an uptick in April.

Registrations in Germany fell even more than those in Italy and Spain, where they declined by 8% and 2.6% in May. New-car registrations were down 10% in France.

Storm cloud  Poland Cuts Benchmark Interest Rate to Record Low 2.75%  Poland’s central bank cut borrowing costs to a record low as the European Union’s largest eastern economy grapples with its worst slowdown in four years.

Lightning  Finnish Economy Enters Recession as Euro Slump Saps Output
Flirt female  IMF head warns of ‘sombre trends’
Lagarde warns growth weakening in large emerging markets


“Recent data, for example, suggest some slowdown in growth. At the same time, the downside risks to growth remain as prominent as ever,” she said.

Ms Lagarde said that the US is suffering from self-inflicted wounds and needs to ease up on the pace of fiscal tightening, called for more monetary easing from the European Central Bank, and insisted that Japan must go through with a rise in consumption tax later this year. (…)

In the US – part of her second group of countries with middling growth – she said that good progress in the recovery was being hurt by overly aggressive fiscal policy. “The US is not doing as well as it should, largely because of self-inflicted fiscal wounds. This year alone, fiscal adjustment will constitute an enormous 2.5 per cent of GDP.”

Ms Lagarde urged an end to across-the-board, sequestration cuts to public spending, a “durable solution” to raising the debt ceiling, and a plan to tackle deficits in the longer-run. “The bottom line is clear: while fiscal adjustment might be too aggressive in the short term, it is certainly far too timid in the medium term.” (…)

Abe Unveils Blueprint

As global investors turn skeptical about Japan’s recovery program, the prime minister unveiled an ambitious blueprint for lifting long-term growth.

The blueprint includes some provisions that could have a short-term market impact, even if they don’t affect long-term growth—notably a recommendation to loosen investment rules for Japan’s mammoth public pension funds, allowing them to buy more stocks and shed some of their stable, but low-return, government bonds.

But the long-awaited growth strategy—crafted to supplement the bold fiscal and monetary stimulus that has jolted global markets—dodges some of the tough decisions that many economists say are needed to fix the root causes of Japan’s prolonged slump. It includes only modest measures to make it easier for industrial giants to shrink payrolls widely seen as too swollen for current demand, and avoids any provisions to ease layoffs, which are all but impossible in Japan. (…)

But some measures are considerably weaker than experts had urged. A proposal to require companies to appoint at least one independent director to their boards will allow them to avoid doing so as long as they provide a public explanation. Critics say the lack of independent directors in Japan has made Japanese companies less accountable to shareholders. Slightly more than half of all listed Japanese companies have any outside directors. In the U.S., boards are required to include independent directors.

The blueprint includes a detailed plan to increase “labor-market flexibility.” But rather than allow companies to quickly shed workers deemed unnecessary—a total the government estimates at 4.6 million—it does so with a series of new regulations, such as creating more job-matching and outplacement services, and creating a new category of workers who, once hired, could be let go more easily.

While the plan includes a range of targeted business tax breaks, it doesn’t provide the across-the-board tax relief endorsed by many business groups. Japan’s corporate-tax rate is the second-highest of countries in the Organization for Economic Cooperation and Development after the U.S., and is more than 10 percentage points higher than the global average. (…)

Storm cloud  Australian growth slows as miners cut back

Year-on-year growth falls to 2.5% in the first quarter

State final demand, which measures economic activity through the level of spending by the private and public sectors, dropped 3.9 per cent in the three months to March – the largest decline since the fourth quarter of 1989.

The weakness was driven by an 11 per cent fall in business investment as mining companies, which are under pressure to improve returns for investors, cut back on spending and investment. This was also reflected by a 24 per cent plunge in equipment spending and non-residential construction activity, which fell 4.5 per cent. Household spending also fell (by 0.2 per cent) for the first time since the fourth quarter of 2008.

Inflation Slows Across Most Developed Countries


Figures released by the Organization for Economic Cooperation and Development on Tuesday showed consumer prices in its 34 member countries rose by 1.3% in the 12 months to April, having risen by 1.6% in the 12 months to March. That was the lowest rate recorded since October 2009, when the global economy was emerging from the recession that followed the 2008 financial crisis.

Excluding volatile items such as food and energy, the “core” rate of inflation slowed to 1.4% in April from 1.6% in March.

Four of the Paris-based research body’s 34 members experienced deflation–an outright fall in prices over a 12-month period–during April, including Sweden and Switzerland.

However, inflation rates picked up in a number of large developing economies, suggesting that global inflationary pressures have not entirely receded.

Punch  IMF Urges Faster Change in France

The International Monetary Fund cut its growth forecast for the French economy and said France must act quickly to make its economy more competitive, or it will lose out to southern European countries that have cut costs and raised productivity.

“The external environment is changing rapidly with euro-area periphery countries registering large competitiveness gains,” the IMF said.

Angry smile  EU Hits China With Solar-Panel Duties in Dumping Dispute
Smile with tongue out  China’s tit-for-tat move in trade dispute
Beijing to investigate European wine exports


Sarcastic smile  One of Wall Street’s Riskiest Bets Returns

In a sign of how hard Wall Street is trying to satisfy investor demand for higher returns, J.P. Morgan Chase and Morgan Stanley bankers are moving to assemble synthetic collateralized debt obligations, or CDOs


NEW$ & VIEW$ (30 MAY 2013)

Surprised smile  Tokyo Shares Down Sharply Tokyo stocks fell sharply again, with the Nikkei losing 5.2% to land decisively in a correction. It has now lost 14.7% over the past week.


Survey data indicated a further sharp year-on-year drop in eurozone retail sales in May. Sales have fallen continually on an annual basis for the past two years, the longest sequence since the survey began in January 2004. That said, the rate of decline slowed sharply from April, to the weakest in five months. This reflected slower contractions in Italy and France, although Germany still posted the weakest overall rate of decline.

Retailers cut employment for the fourteenth month in a row in May. The rate of job shedding eased further from March’s 43-month record, however, to the weakest in that sequence. German retailers increased staffing at the strongest rate in nine months.


Spain Recession Eases as Consumers Offset Faltering Exports

Gross domestic product fell 0.5 percent from the fourth quarter, in line with a first estimate on April 30, the Madrid-based National Statistics Institute said today. Output dropped 0.8 percent in the final three months of last year, the sharpest decline since 2009 when the global economy was plunged into a recession following the collapse of Lehman Brothers Holdings Inc.

Household spending contracted 0.4 percent from the previous quarter, when it shrank 1.9 percent, while exports further dropped, by 1.3 percent after 0.9 percent.

Confused smile  What offset? Spending contracted 0.4% QoQ.

Brazil raises interest rates to 8%
Central bank attempts to tackle rising inflation as growth undershoots forecasts
India’s power shortage is economic drain
S&P says electricity crisis could affect credit rating



Q1 earnings season is essentially over. Of the 489 companies having reported May 27, S&P calculates that 65.9% beat and 26% missed. Q1 EPS are now seen at $25.76, up 6.3% YoY. This would bring trailing 12 months earnings to $98.34, up 1.6% from 3 months ago but still within the $97.40-97.69 range of the last 5 quarters.

Q2 estimates are $26.57, +4.4% YoY. Q2 estimates keep coming down as analysts adjusts to slower economic data and company guidance. Q2 estimates were shaved another $0.12 in the last 2 weeks, in line with the average weekly decline since March 28 when Q2 estimates were $27.46. Full year earnings are now estimated at $109.56, down 1.4% from $111.14 on March 28.

So far, 106 companies have pre-announced Q2 results, the same number as at the same stage last quarter. 86 (81%) were negative compared with 82 (77%) as of Feb.28.

image image

Revenues were up a meagre 1.3% in Q1, down from +5.6% in Q4’12. Sectors with the weakest revenue growth rates were Energy (-7.7%), Industrials (0.5%), Utilities (1.2%), Materials (1.5%) and Consumer Staples (2.3%). The highest growth rates were in Consumer Discretionary (6.5%), Financials (4.3%) and Telecom (4.0%).

Operating margins rose to 9.6% in Q1, a new record, but this was essentially due to Financials which saw their margins jump from 11.1% to 14.1%

Sarcastic smile  Consumer Confidence: A Contrarian Indicator

Last week I wrote about the uselessness of the Consumer Confidence data (FEELING GROOVY!). It seems I was wrong after all: it can be a great contrarian indicator. Mark Hulbert in Yet another reason to be scared:

(…) I know it strikes many as counter-intuitive to worry about a big jump in consumer confidence. But that’s what I am doing after analyzing the Conference Board’s Consumer Confidence Index over the last three decades. Specifically, I correlated each month’s change in that index with how the stock market performed in subsequent months.

The biggest monthly jumps in the consumer confidence index were, on average, followed by sub-par returns. Conversely, big drops in the index were typically followed by above-average returns.

Pointing up  The most robust statistical patterns in the data, however, arose when I measured the impact on the consumer confidence index of the stock market’s performance in prior months. I found that the index tends to rise following periods in which the stock market is strong, and vice versa.

So, given that the stock market is surging to successive new all-time highs, it is not a huge surprise that consumer confidence would strengthen.

Following the lead of the consumer confidence numbers is therefore like driving by looking in the rear view mirror. Consumer confidence tells us more about how the stock market has already performed than it does about the future. But insofar as consumer confidence tells us anything about the future, it’s that stronger readings are more negative than positive for the stock market. (…)

US shale output boost ‘temporary’
Prices will remain high, says trader dubbed ‘God’


The oil trader known by rivals as “God” predicts the US shale revolution will only “temporarily” boost production and oil prices will remain high, siding with Saudi Arabia and the Opec cartel in a debate gripping the energy market.

Andy Hall, whose lucrative bets on oil prices earned him a $100m salary at Citigroup in the 2000s, told investors that the rapid decline in output suffered by shale wells is “likely [to] mean that the bounty afforded by shale resources is temporary”. (…)

The trader told investors in his $4.5bn Astenbeck hedge fund, which he runs alongside the Phibro commodity trading house, that while output from shale oil wells is initially prolific, production declines rapidly because each well only taps a single pool of rock-trapped oil, rather than an entire reservoir.

In a letter to investors seen by the Financial Times, Mr Hall said that makes it “impossible to maintain production . . . without constant new wells being drilled [which would] require high oil prices”.

Burton G. Malkiel: You’re Paying Too Much for Investment Help

(…) Why do investors continue to pay such high fees for financial services of such questionable value? (…) Outperforming the consensus of hundreds of thousands of professionals at the world’s major financial institutions is next to impossible. It has been for decades. Over long periods, about two-thirds of active managers are outperformed by the benchmark indexes. The one-third that may outperform the passive index in one period are generally not the same as in the next period. But investors can benefit from low-cost index funds and their exchange-traded cousins.

The lesson for investors is very clear: You can’t control what markets can do, but you can control the costs you pay. The less you pay to the purveyors of investment services, the more there will be for you. The quintessential low-cost investment vehicles are index funds, which should comprise the core of every investment portfolio. The high fees charged for active management cannot be justified.

NTU remains free!


NEW$ & VIEW$ (6 MAY 2013)

Smile  Job Gains Calm Slump Worries

Nonfarm payrolls rose by 165,000 last month and the jobless rate ticked down to 7.5%, the lowest level since December 2008. The Labor Department also significantly raised hiring estimates for the two prior months, by a combined 114,000 jobs. (…)


The increase in 176,000 private-sector jobs, on top of a loss of 11,000 government jobs, was concentrated in a handful of service industries. The professional and business-services sectors added 73,000 jobs, including 31,000 temporary workers. Manufacturing employment stalled and construction employment contracted after gains earlier in the year.

High five  But, as Markit notes:

So far this year, 783,000 new jobs have been created, comprised of a 813,000 rise in the private sector and a 30,000 drop in government jobs. That compares less favourably with last year, when a 899,000 increase
was seen in the four months to April, buoyed by a 916,000 increase in the private sector.

Sad smile  In reality, after 4 months, the U.S. economy, still on hyper-strong financial heroin, has created 13% fewer jobs than during the same months in 2012.

Americans actually worked less last month because of a 0.2- hour drop in the workweek, resulting in total hours worked dropping 0.4% for the month. The U-6 underemployment rate, which covers folks who are working part-time but want full-time gigs or have stopped looking for work, ticked up to 13.9% from 13.8%, the first rise since last July, Philippa Dunne and Doug Henwood of the Liscio Report note. And in the household survey, some 306,000 joined the ranks of the self-employed, more than the total 293,000 overall gain. (Barron’s)

And this from NBF:

Private employment expanded by a consensus-beating 176,000 during the month. The rise, however, was not widespread as only 53.9% of industries increased their headcounts, the lowest proportion in eight
months (the goods sector actually shed 9,000 jobs in April).

The end result is that aggregate hours worked are only up an annualized 0.14% early in Q2, the weakest showing since Q4 2009. As today’s Hot Chart shows, this development is consistent with a significant slowdown in real nonfarm business GDP.


Storm cloud  Spring Swoon Alive and Well in Manufacturing

The manufacturing sector failed to add any jobs last month after a meager 2,000 increase in March payrolls, a black spot on the otherwise rosy jobs report. Those numbers add to other economic data showing that demand for factory goods is falling and the sector is seeing a broad slowdown this spring. And that spring swoon could turn into a summer slide.

(…) with car sales slowing and dealer inventories climbing, the auto industry growth is likely to ease. (…)

Vehicle sales peaked in November and have fallen in four of the past five months but auto production continued at double-digit year-on-year rates through March, he said. That disconnect could result in longer summer shutdowns or slow down at some factories, robbing manufacturing of one of its growth engines.

If the auto sector is starting to sputter, the defense industry has stalled. Military factory orders plunged 34% in March, the month across-board-government cuts backs known as the sequester began. Defense spending has been volatile in recent months, but is down 25% from a year ago. (…)

Storm cloud  Factory Orders Fell 4% in March

Demand for U.S. factory goods in March fell 4% to a seasonally adjusted $467.29 billion, the latest evidence that manufacturing sector began to slow during the month.

(…) Orders for long-lasting items, including cars and machinery, fell 5.8%, slightly worse than last week’s initial estimate.

Demand for civilian aircraft and parts fell 48.3% in March. Orders for metals dropped 3.2% and machinery demand eased 0.8%.

Meanwhile, March orders for nondurable products, reported for the first time Friday, fell 2.4%. (…) Petroleum refining fell 7.3% in March, partially reflecting lower prices. Food processing, clothing and chemical production also declined during the month. (…)

Defense capital goods orders fell 34.4% in March, the first month of the so-called sequester.

Outside of defense, factory orders fell 3.5%

Total factory shipments, including durable and nondurable goods, decreased 1% during March, compared with small gains the prior two months, the Commerce Department said. (…)

ISM Services Weaker Than Expected

This was the lowest reading since last July.  Combining both the ISM Manufacturing and Services indices based on their weighting in the overall economy, the ISM for April came in at 52.8 versus last month’s reading of 54.0.


Total retail volume fell 0.1% MoM in March after a 0.2% decline in February. Real retail sales have dropped 0.4% since September 2012. Core sales volume slumped 0.5% in March, following a 0.7% drop in February. Core sales volume is down 1.0% since September 2012.



This Eurostat data is for March. Markit’s retail PMI released last week said that sales continued to decline at a “sharp rate” in April:


Spanish Jobless Claims Dwindle

The ministry said the number of people filing for jobless benefits fell 0.9% in April from the prior month, to 4.99 million. Although the figures aren’t adjusted for distortions caused by seasonal trends, they show the second-largest fall in joblessness for any April since 2007, before the global financial crisis later that year sparked a deep recession across Europe in 2008 and 2009 from which countries have struggled to recover.

Portugal Unveils Budget Cuts

The prime minister’s plan would cut the number of public employees by 5%, lengthen their workweek and raise the retirement age by a year, to 66.

The plan, which aims to save €4.8 billion ($6.1 billion) through 2015, is certain to face resistance from the Socialist-led opposition and trade unions.

The government has promised to cut its budget deficit to 3% of gross domestic product by 2015, two years later than initially planned and the year Mr. Passos Coelho’s term ends. Last year’s deficit was 6.4%.

Party smile  France Says Austerity Over on Germany Flexibility


French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies. (…)

Moscovici’s declaration amounts to an acknowledgment that France will avoid a sanction for missing 2012 budget-deficit targets and for failing to reach the European Union ceiling of 3 percent of GDP this year. The shortfall will amount to 3.9 percent of GDP this year and 4.2 percent next year with no policy change, the commission said.

There is a “certain flexibility” in allowing France, as well as Spain, to meet its deficit targets, Schaeuble told the Bild am Sonntag newspaper in an interview published yesterday. “This comes with clear conditions for the necessary reforms. The commission will make concrete proposals by the end of May which then will be discussed and decided upon among the euro area finance ministers.” (…)

Indonesian growth slips to two-year low  Domestic consumption helps keep growth above 6%

(…) Gross domestic product grew 6 per cent in the first quarter compared with a year earlier, according to government data released on Monday, lower than the 6.1 per cent delivered in the last quarter of 2012.

(…) the breakdown of the GDP data shows that the pace of growth in investment across the economy is starting to slow because of the knock-on effects of lower export commodity prices.

Australia Retail Sales Fall

March retail sales were down 0.4% from February, the Australian Bureau of Statistics reported Monday, whereas economists had expected a 0.1% increase. First-quarter sales, meanwhile, rose by 2.2%—the biggest quarterly gain in six years—as consumers took advantage of heavy price discounts offered by retailers. (…)

Australian retail sales declined toward the end of last year as the mining-dominated economy slowed alongside China, the nation’s biggest trading partner. They rose 1.3% in January and February, though, as house prices and consumer sentiment picked up.


The earnings season is near complete as 84% of the S&P 500 companies have declared Q1 results. The  beat rate computed by S&P is at 69% while the miss rate is at 22.7%.

Q1 earnings are now estimated at $25.78, up from the March 28 estimate of $25.49 but down from last week’s surprising $26.20 number. Nearly 28% of the 97 companies reporting last week missed (vs 21% up to then), including 44% of companies in Consumer staples (vs 14%), IT (21%) and Utilities (33%).

imageIn addition, Factset calculates that 63 S&P 500 companies have issued negative EPS guidance for Q2 2013, while 17 companies have issued positive EPS guidance. While the 79% negative ratio is not much different than that preceding Q1, there is some concern in the fact that 63 companies have guided negatively so far this season compared to 50 at the same stage in Q1, although there have been 17 positive pre-announcements this year, up from 11 last year.

In light of the above, analysts are busy revising their estimates: while Q1 EPS remain 1.1% above their March 28 forecast, current estimates for the next 3 quarters are now 2.5%, 1.7% and 1.0% lower than their March 28 estimates.

imageIn all, EPS (per S&P) are estimated up 6.4% YoY in Q1, +5.3% in Q2, +16.4% in Q3 and +27.3% in Q4 for full years earnings up 13.6% YoY to $109.94. We will see how that evolves in coming weeks…FYI, this chart from S&P shows the incessant decline in 2013 estimates. My experience with estimates is that a good rule of thumb is that yearly estimates are generally 15% too high, meaning that it would be safer to use EPS around $101 for 2013 if you wish to use forward earnings.

For now, trailing earnings should reach $98.36 after Q1, up 1.6% from trailing EPS after Q4’12. Trailing earnings remain within their very narrow $97.40-98.70 range of the last 5 quarters, confirming that earnings have completely stalled since the end of 2011.

Unsurprisingly, this has coincided with a complete flattening of revenues since Q4’12. Q1’13 revenues are estimated up 1.5% YoY but down 0.5% from their Dec. 2011 level. It is, indeed, very difficult to grow earnings when revenues stall. Here’s what Moody’s wrote last week, to be read in the context of deteriorating conditions in the economies of most of the U.S. trading partners:

Slower global expenditures now weigh on US business activity. It may be difficult to appreciably rejuvenate business sales without a rejuvenation of US exports. After slowing from Q1-2011’s 16.3% to Q1-2012’s 6.8%, the yearly increase by US exports eased to merely 2.1% in Q1-2013. The first quarter’s even slower 0.5% yearly rise by US merchandise exports was weighed down by outright declines of -8.0% for sales to the EU and of -8.5% by shipments to Japan.


U.S. exports have declined at a 4.9% annual rate in Q1. Recent PMIs offered little hope on that front.

This is why second half earnings growth projections of more than 20% appear rather heroic at this juncture.

While trailing earnings stalled, equities have roared ahead +21.8% since May 2012. During that period, U.S. inflation has declined from 2.3% to 1.5%. Under the Rule of 20, such a  decline in inflation raises the fair PE by 4.5% (from 17.7 to 18.5). The remaining 17.2% advance in equity values is a re-rating of equity markets from a 27% undervaluation to a 12% undervaluation as of last Friday.


On the above chart, notice how the Rule of 20 Fair Index Value (yellow line) has moved sideways during the last 12 months while the S&P 500 Index (blue) has jumped. Stable earnings and inflation caused the sideway movement in fair value. This is why the Rule of 20 Value (black) has gone up from its May 2012 15.1 reading to its current 17.6.

Fingers crossedSyria Strikes Raise Alarm

Strikes that Syria attributed to Israel hit an area around a research facility near Damascus, raising concerns of a widening conflict


NEW$ & VIEW$ (1 MAY 2013)

It seems that U.S. housing is the only area offering fresh positive stuff these days. That is if you are not in the market for a new house.


Housing Market Heating Up

Home prices are rising at the fastest rate in seven years, as buyers return to a market where property is in short supply.

Prices increased 9.3% in February from a year earlier while mortgage-interest rates hovered near record lows, according to the Standard & Poor’s/Case-Shiller index that tracks home prices in 20 major metropolitan areas. All 20 cities posted year-over-year gains for the second consecutive month, which hasn’t happened since 2005, before the crash.

In some of the hardest-hit markets, the gains have been particularly heady. Home prices rose 23% from one year ago in Phoenix and 18.9% in San Francisco. Nationally, the median home price in March stood at $184,300, well below the peak of $230,400 in 2006 but up from $154,600 in January 2012. (…)

For now, recent data suggest home-price gains are likely to continue. Sales of previously owned homes rose by 10.3% from one year ago in March, even as supplies of homes for sale fell by 16.8%. The Wall Street Journal’s quarterly survey of market conditions in 28 metropolitan areas showed very low supplies of homes available in a rising number of markets, including a less-than-three-month supply in a dozen markets, including the two hottest—Phoenix and San Francisco. (…)

At current mortgage rates near 3.5%, home values would need to rise by 32% nationally—and by as much as 48% in markets across the Midwest and north Florida—for affordability to return to its long-run average, according to an analysis by John Burns Real Estate Consulting in Irvine, Calif.




Confused smile  Krueger: Sequester Hits Harder, Earlier Than Expected

The economic fallout from deep federal government spending cuts has come sooner than expected, White House chief economist Alan Krueger said Tuesday.

Storm cloud  ADP Says U.S. Companies Employed Fewer Workers Than Forecast

Companies added 119,000 workers to payrolls in April, figures from Roseland, New Jersey-based ADP Research Institute showed today.

Storm cloud  China Manufacturing Weakens

A gauge of China’s manufacturing activity showed fresh signs of weakness in April, undercutting hopes of a stronger upturn in demand from the world’s second-largest economy.

[image]The official Purchasing Managers’ Index came in at 50.6 in April, below expectations of a reading in line with the 50.9 recorded in March.

Note that the seasonally adjusted (by ISI) number is 49.1 vs 49.6 in March.

All but one of the official PMI subindexes—with the exception of a steady measure of raw material stockpiles—were down in April from the previous month.

  • Pointing up  The official PMI sub-index for new orders fell to 51.7 in April from 52.3 in March while the measure of new export orders slid into contraction territory with a reading of 48.6 in April, compared with 50.9 in March.
  • The sub-index for purchasing prices of raw materials tumbled 10.5 percentage points to 40.1 percent, the first reading below 50 after the sub-index stayed above the demarcation level for seven consecutive months.
  • The sub-index for finished goods inventories moved down 2.5 percentage points from the previous month to 47.7 percent, while the sub-index for production shrank slightly by 0.1percentage points to 52.6 percent.
  • The CFLP data also showed that the employment sub-index for April declined 0.8 percentage points to 49.0 percent, indicating job cuts, while the sub-index for supplier delivery times fell slightly to 50.8 percent.

Lightning  Eurozone retail sales continue to fall sharply in April

Markit’s retail PMI® data signalled little respite for the Eurozone’s retailers at the start of the second quarter. Sales fell on a monthly basis for a survey record eighteenth consecutive month, and the rate of
decline remained sharp despite easing slightly since March. Retailers subsequently cut more staff and lowered their purchasing activity.

Retail PMI data by country signalled steep falls in sales in both France and Italy, and an ongoing flat trend in Germany. The month-on-month rate of decline in France eased from March’s record pace, but remained severe.

(…)  Retailers across the Eurozone continued to cut workforces in April, extending the current sequence of job shedding to over a year. Moreover,
the rate of decline was little-changed from March’s 43-month record. Retail employment rose in Germany for the thirty-fifth successive month, but at only a marginal rate, while job shedding at French and Italian retailers remained sharp in the context of historic survey data.

(…) retailers’ gross margins continued to fall sharply, and they cut the value of purchases for the twenty-first successive month. Subsequently, stocks of goods for resale declined for the eight consecutive month, the
second-longest sequence in the survey history.


Denmark Exhausts Stimulus Avenues as Housing Losses Persist

Denmark’s government says it has exhausted all avenues for adding stimulus as the economy shows signs of sinking into its third recession since the global financial crisis started.

“We’ve used whatever leeway there is,” Economy Minister Margrethe Vestager said in a telephone interview from Copenhagen late yesterday. “There’s no more space to stimulate the Danish economy.”

Seoul offers exporters $10bn of help
Companies dealing with sluggish global demand and weaker yen

South Korea exported goods and services worth $46.3bn in April, the government said on Wednesday. This was a 0.4 per cent year-on-year rise, but down by 2.4 per cent from March’s figure.

Seoul said it would seek to revive export growth by increasing from Won71tn ($64.5bn) to Won82.1tn the value of public loan programmes aimed at small and midsized exporters. (…)

However, he cautioned that Seoul would closely monitor the weakening Japanese yen, a source of growing concern for South Korean policy makers. This follows a warning last month from finance minister Hyun Oh-seok that the yen’s slide was already having an impact on the South Korean economy.

Despite a recent fall in the US dollar value of the South Korean won, it has strengthened by 21 per cent against the yen over the past seven months, as markets anticipate expansionary fiscal and monetary policy under Japan’s new government. (…)

On Monday, data showed that South Korea’s industrial production suffered a month-on-month fall of 2.6 per cent in March: the third successive decline.

Smile  Solid rises in output and new orders support continued expansion of Japanese manufacturing economy

imageThe headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™) rose to 51.1 in April, up from March’s 50.4 and a 13-month high. The PMI has shown steady improvement since the start of 2013 and has posted readings above the 50.0 no-change mark in each of the past two survey periods.

April’s survey data indicated a further rise in manufacturing output. Growth was modest, but still the sharpest in over a year as a particularly strong performance from the investment goods category offset ongoing weakness in the consumer and intermediate sectors.

Similar market group trends were observed for new orders data, with investment goods producers supporting a solid increase in sales for the sector as a whole. There was evidence of improved domestic and overseas demand, with clients reportedly investing in plant equipment and raising inventory holdings. A depreciation of the yen helped to support a solid rise in new export sales.


The chart below shows the 26-week rolling correlation of the Economic Surprise Index and changes in the S&P 500. A declining line represents periods where economic data and the S&P are becoming less correlated, or even moving inversely to each other. The most recent correlation below -0.7 indicates that stocks and negative economic data are moving in almost perfectly opposite directions. (Bill Hester via John Hussman)


Lightning  Slovenia Junks Its Bond Sale After Downgrade

Slovenia stunned investors when it halted a bond sale just before Moody’s downgraded the country’s debt to “junk.”

The government said it would proceed with the bond issue. However, Slovenia will likely see higher borrowing costs, some investors said. Now that its bonds are rated junk, they will be off limits to investors that buy only investment-grade debt. Slovenia’s 10-year bond yielded 5.847% on Tuesday, compared with 5.69% a day earlier. (…)

Moody’s said it was concerned about Slovenia’s undercapitalized banking sector and deteriorating government balance sheet.

Rift Emerges Over Saudi Oil Policy

A rare public dispute over oil policy in Saudi Arabia emerged as the kingdom’s oil minister and a senior member of its royal family disagreed over long-term production targets for the world’s largest crude exporter.

The Middle Eastern kingdom, which produces around 10% of the world’s oil, needs to increase its crude production capacity by a fifth to 15 million barrels a day by 2020 in order to meet rising domestic consumption and maintain its current export capacity, said Prince Turki al-Faisal, a former intelligence chief and ambassador for the kingdom. (…)

The comments from the prince, who has no formal government position, but is a prominent member of the kingdom’s royal family, were contradicted by Saudi Oil Minister, Ali al-Naimi. There is currently no need to increase crude production capacity beyond 12.5 million barrels a day, Mr. Naimi said.

Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million barrels a day as spare capacity. (…)

Prince Faisal’s comments also run counter to the official position of the state-controlled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to comment Tuesday, but its top executive has previously ruled out increasing capacity to 15 million barrels a day despite acknowledging that domestic use of crude would rise and thus limit exports.

Aramco’s Chief Executive Khalid al-Falih ruled out increasing Saudi production capacity to 15 million barrels a day in 2011, despite acknowledging that domestic use of crude would rise and thus limit exports, because he said expansion plans in other producing countries such as Iraq and Brazil should be enough to satisfy world markets. (…)

Saudi Arabia last year consumed around 3 million barrels per day of oil, according to the U.S. Energy Information Administration, almost double its 2000 level and putting it on track to use more than 5 million barrels a day if a 7% annual growth rate were to continue.

Aramco’s Mr. al-Falih acknowledged in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030. (…)

Remember: the Saudis need $100 oil to balance their budget.