NEW$ & VIEW$ (20 SEPTEMBER 2012)

Central Banks Flex Muscles

Massive injections of stimulus into financial markets by the world’s largest central banks are creating a domino effect around the globe.

(…) As with past episodes of aggressive easing by the world’s major, developed-market central banks, many investors are homing in on emerging markets offering higher yields and generally healthier economies. The Brazilian real initially jumped 0.7% after the Fed’s move, but finished Wednesday’s session up 0.3% from a week earlier. The Mexican peso, meanwhile, has gained 2.7% over the past week, the Polish zloty is up 4.3% and the Korean won is up 1.6%. (…)

Brazil took steps Monday to prevent potential waves from the Fed’s easing from lifting the value of its currency, conducting so-called “reverse dollar swaps” to prevent its currency, the real, from appreciating. Also Monday, Peru adjusted its intervention strategy toward weakening the Peruvian sol, and on Tuesday Turkey cut interest rates by more than expected. (…)

Officials in South Korea, Thailand, Singapore and the Philippines took a cautious view of the uptick in their currencies following the Fed’s announcement, though they all asserted a readiness to smooth out market movement if capital inflows become excessive. (…)

In the previous round of Fed quantitative easing, the dollar weakened significantly against most currencies. The Wall Street Journal Dollar Index, a measure of the dollar’s value against a basket of major currencies, fell 18% in the 13 months from June 2010, when expectations of more Fed stimulus first began to rise, until the $600 billion bond-buying program ended the following summer. The index dropped 20% against the Brazilian real over the same period and 18% versus the Korean won. (…)

Yuan Hits Fresh High Against Dollar

Since late last year, the yuan has weakened modestly against the dollar, falling as much as 1.6% against the U.S. currency in late July. But the Chinese currency has reversed course recently and hit a seven-month intraday high during Thursday’s trading, at 6.2945 against the dollar. The yuan is now down just 0.2% against the dollar this year.

China’s central bank, which has been guiding the currency on a stronger path in recent weeks, Thursday guided the yuan a bit stronger. Traders said the recent yuan guidance reflected the broad weakness in the dollar against other currencies following massive stimulus plans by the European Central Bank and the U.S. Federal Reserve.

Japan suffers steep fall in exports
Surprised smile  August shipments to western Europe drop 28%

Thursday’s government data showed that shipments slipped almost 6 per cent from a year earlier to Y5tn ($64bn), the third monthly fall in a row, while imports were 5.4 per cent lower at Y5.8tn. (…)

The provisional data from the ministry of finance showed that August shipments to western Europe fell by 28 per cent from a year earlier, thanks to big falls in exports to Germany (18 per cent) and the UK (42 per cent). Exports to China posted their third successive decline. August’s 10 per cent fall was only slightly better than a 12 per cent slump in July.

Swedish budget emphasises stimulus
Government downgrades growth forecast for next year

Anders Borg, the centre-right finance minister, on Thursday unveiled SKr23bn of initiatives to boost the economy, including a big cut in corporate tax, investment in infrastructure and measures to tackle youth unemployment. (…)

Among the measures unveiled, many of which have been trailed by the government in recent weeks, was a cut in corporate tax from 26.3 to 22 per cent, putting Sweden just under the EU average. It also unveiled plans to spend SKr100bn on infrastructure from 2014 to 2025 including a new underground line in Stockholm.



Smile  Housing Recovery Gains Traction

Home sales and construction jumped to their highest levels in more than two years, offering the strongest signal to date that the U.S. housing sector has turned the corner after a six-year rout.

imageSingle-family housing starts in August rose by 5.5% from July to their highest level in 28 months, the Commerce Department said Wednesday. In August, builders started construction on 535,000 homes at a seasonally adjusted annual rate, up 26.8% from one year ago. Overall housing starts were up by 2.3%, amid a small drop in the more volatile multifamily sector.

Meanwhile, sales of previously owned homes in August rose by 7.8% from July to their highest level in 27 months, the National Association of Realtors said. Sales climbed 9.3% from a year ago, marking the 14th straight year-over-year sales increase, even as the number of homes listed for sale was down sharply.

As I have been saying since January:

The lack of attractive inventory is having “the single biggest impact on new-home sales right now,” Mr. Wehrli said.

Existing house prices are +10% in the last 7 months. Now that prices are rising YoY in most cities, the recovery could accelerate if it motivates fence-sitters. Even more so if QE3 lowers mortgage rates even further.


Storm cloud  Bank of America Ramps Up Job Cuts

Bank of America is planning to cut 16,000 jobs by the end of the year. If the cuts are made, the lender will likely lose its title as the U.S banking industry’s largest employer.

Fingers crossed  Architecture Billings Index Inches Back into Positive Territory

    On the heels of a nearly three-point increase, the Architecture Billings Index (ABI) climbed into positive terrain for the first time in five months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 50.2, up from the mark of 48.7 in July. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.2, up from mark of 56.3 the previous month.

    “Until the economy is on firmer ground, there aren’t likely to be strong increases in demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “In the meantime, we can expect to see design activity alternate between modest growth and modest decline.” (Chart from CalculatedRisk)


Fingers crossed  Oil tumbles as Saudis offer more supply  Higher-than-expected US inventories also weigh on prices

Higher-than-expected weekly US inventories data released on Wednesday also weighed on crude. ICE November Brent fell $3.84 a barrel to $108.19. Nymex October West Texas Intermediate, the US benchmark, which briefly rose above $100 late last week, settled down $3.31 at $91.98 a barrel.

The prospect of extra Saudi supplies comes as the market has grown cautious about a possible release of strategic petroleum stocks by the US and other developed nations.


88 companies have already said that results will come in below expectations; 21 that have signaled a positive outlook, said Greg Harrison, corporate earnings research analyst at Thomson Reuters.

“That’s much more pessimistic than normal,” said Mr. Harrison, who added that the third quarter of 2001 was the last time that earnings guidance leaned so heavily to the downside. (NYT)

Pointing up  Since September 4, eight additional companies have issued Q3 guidance, all of them negative.

I remind you that for Q2 2012, 107 companies issued EPS guidance. Of these 107 companies, 72 issued negative EPS guidance and 35 issued positive EPS guidance.

Last night:

Norfolk Southern Profit Drop Echoes FedEx Slowdown Signal  Norfolk Southern Corp.’s quarterly profit will trail analysts’ estimates as dwindling volumes at the second-biggest eastern U.S. railroad add to signs of a slowing domestic economy.

Surprised smile  Third-quarter profit at Norfolk Southern will be $1.18 to $1.25 a share, according to a railroad statement, short of the $1.63-a-share average estimate of 27 analysts surveyed by Bloomberg. The Norfolk, Virginia-based carrier will report earnings Oct. 23.

GOOD QUOTE from George Jonas in Why George Soros is wrong about the European Union:

You can’t have socialism without a printing press.


On Jan. 27, 2012, I posted on 3D printing technology, urging you to take 15 minutes of your time to watch a TED video on 3D printing which will truly revolutionize manufacturing and shipping and …etc., etc., etc. The link to the video is at the end of the post NEW$ & VIEW$ (27 Jan. 2012).

John Mauldin’s Outside the Box letter prints the transcript of a presentation by Alex Daley, editor of Casey Extraordinary Technology which discusses 3D printing, among other topics. You can watch the presentation here:  or, if you prefer, read the full transcript. Some excerpts:

The idea is simple. Take a powder, like  the ink in an inkjet printer. Spray down a thin layer, then use heat or chemicals to bond the powder together into a solid object. Then layer on some more and repeat until you slowly, one layer at a time, build up a 3-dimensional object. Hence the term additive manufacturing. Control the entire process by computer, and you can fuse layers together to build almost anything.

The premise may be simple, but the implications are far-reaching. Unlike traditional subtractive manufacturing, there is little to no waste in the process. And, thanks to the generic nature of the machines, able to control the layers one at a time from a computerized model of the object to be built, one object can be created at a time with customization, much like with a router or lathe – but far more flexible than mold-based processes.

A single copy of a thousand different objects, or a thousand copies of a single one, can be created with no change in the economies of doing so, just as a home printer can print a letter one moment and a photo the next.

(…)systems have now been created to work with a wide variety of practical materials like flexible plastics, or steel and aluminum, all the way  to the emerging ideas of biological materials or even… chocolate. (…)

User cases like BMW’s underscore the importance of the technology. During the design phase of a new or improved vehicle, BMW will go through many iterations of a part to get it exactly right. Previously, they used CNC routers to create prototype fixtures for the car. However, when they moved to using a printer from Stratasys – one of the largest 3D printer manufacturers in the world – BMW was able to reduce the cost of each test part by 58%. Better than that, their wait time for a newly designed part fell 92%. That’s an astounding change to the financials of the process, and a huge leap forward in terms of their ability to bring a design to life quickly. (…)

While this type of work still requires highly precise machines with steep price tags, the prices are dropping rapidly. (…)

3D printing is a remarkable emerging industry, and at approximately $500 million dollars annual revenue in size today, has a great future ahead of it, for both consumers and investors. The technology is just now making the turn up that hockey stick-like growth curve, and over the long run may have as much effect on manufacturing as the PC had on knowledge work – an economic revolution of immense proportions.

Really immense!


NEW$ & VIEW$ (27 Jan. 2012)

ChartU.S. GDP Rises 2.8%

The U.S. economy grew at its fastest pace in more than a year and a half in the final three months of 2011, rising at an annual rate of 2.8%.

Growth was lifted by a 2 per cent rise in consumer spending, compared with 1.7 per cent in the third quarter.

But cuts to defense spending weighed on the economy, pulling down government spending and investment by 7.3 per cent, more than three times the 2.1 per cent decrease in the third quarter.

Pointing up   Defense cuts hurt:

Spending on national defense swung from a 5 per cent increase in the earlier quarter to a 12.5 per cent drop in the final three months of the year. That on its own may have subtracted as much as 0.8 per cent from headline growth, said Ian Shepherdson, chief US economist at High Frequency Economics.

Stripping out those cuts, non-defense spending by the federal government actually rose 4.2 per cent.

imageBusinesses Ramp Up Spending on Goods

New orders for durable goods increased 3.0% last month following a 4.3% rise during November and a 0.1% gain in October. Unfilled orders rose 1.5% in December after +1.4% in November.

The increase in durable goods was spurred by demand for airplanes. However, there were gains in every major category, from primary metals to machinery, with the exceptions being electrical equipment and defense products. Orders for nondefense capital goods excluding aircraft—a proxy for business spending—rose 2.9%, after two months of declines.


The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4% in December to 94.3, following a 0.2% increase in November and a 0.6% increase in October. This month’s data inaugurates a number of major changes to the components and calculation of the LEI.

“Revised figures show that adding the new Leading Credit Index™, in conjunction with other changes, makes the LEI a more accurate predictor of U.S. business cycles since 1990,” said Ataman Ozyildirim, economist at The Conference Board. “The improvement is especially pronounced before and during the 2008-2009 recession, and during the current expansion.


In December, the LEI for the U.S. increased again. The gain was widespread among the leading indicators, suggesting economic conditions should improve in early 2012. However, the LEI gain in December was held back by negative contributions from the new Leading Credit Index — which indicates weak credit and financial conditions — and from consumer expectations for business and economic conditions.”


Pointing up Pointing up  The revised LEI now stands at 94.8, nearly 20% below the old reading for November, a more accurate reflection of the economic reality. The new LEI has actually moved sideways in recent months, something worth watching, especially since the coincident/lagging indicator has been weakening.

The Conference Board has decided to replace three of the ten components and make a minor adjustment to another component. The composition changes reflected in the new LEI address structural changes that have occurred in the U.S. economy in the last several decades. The upcoming changes in the LEI composition include:

1) incorporating the new Leading Credit Index (LCI) and omitting the real money supply (M2) component starting in 1990 (real M2 remains in the index before 1990);

2) replacing the ISM Supplier Delivery Index with the ISM New Orders Index;

3) replacing the Reuters/University of Michigan Consumer Expectations Index with an equally weighted average of consumer expectations of business and economic conditions using questions from Surveys of Consumers conducted by Reuters/University of Michigan and Consumer Confidence Survey by The Conference Board (after 1978, Reuters/University of Michigan Consumer Expectations Index remains in the index before 1978 ); and

4) replacing “New Orders for (nondefense) Capital Goods” with “New Orders for (nondefense) Capital Goods excluding Aircraft.”





 Greece Edges Toward Debt Deal

Talks between Greece and its private-sector creditors edged toward an agreement, with bond holders seemingly willing to accept lower yields on their future holdings of Greek debt.

But Bloomberg notes:

Any agreement between the Greek government and the Washington-based Institute of International Finance on debt writedowns will only bind 50 percent of investors in the 206 billion euros ($270 billion) of notes being negotiated, Barclays Capital estimates. Hedge funds may resist a deal, seeking to get paid in full or compensated from insurance contracts.

A senior European policy maker said euro-zone governments may have to increase their contributions to Greece’s debt deal, and said he was hopeful agreements could be struck soon to increase euro-zone bailout funds and International Monetary Fund resources.

European Union economics commissioner Olli Rehn also appealed to the U.S. and other countries not to block an expansion in IMF resources—even if they didn’t want to contribute directly.



U.S. Treasury Secretary Timothy Geithner hinted that the Obama administration would support an increase in resources for the IMF to fight the euro crisis – but only if Europe itself puts more of its own money on the line first.

“Without more resources…austerity will feed decline,” Mr. Geithner said.

A meeting of finance ministers of the Group of 20 in late February in Mexico City is the most likely venue for a decision on the IMF.

  • While Eurozone banks feel somewhat better and dive into the ECB financed carry trade:

BBVA Chief Upbeat on Plans to Fix Bank Sector

Francisco Gonzalez, BBVA’s chief executive, said the new Spanish government is planning a deep cleanup of Spain’s most beleaguered banks in order to permanently renew international confidence in the sector.

A new law that would require banks to take bigger losses on bad assets could be unveiled as early as next week, said a person familiar with the matter.

In the latest round of measures proposed by Spain’s new government, stronger banks are poised to snap up weaker ones unable to swallow the losses needed to fully clean up their balance sheets.

Rainbow   Interesting statement:

One-Year Chart for Bloomberg European Financial Conditions Index (BFCIEU:IND)“The European banking system is no longer facing significant problems today,” he said. “Once you sort out the liquidity and you have enough capital—and you know most European banks will have 9% capital—I don’t think [there is] any serious problem, generally speaking.”

The Bloomberg European Financial Condition Index (above chart) reflects the recent improvements.

Euro banks are indeed buying their countries’ sovereign debt with ECB money:

Mr. Gonzalez said the better condition of the banking system allows banks to support their countries’ sovereign debt. “Sovereign bonds, in my view, are very safe…. The likelihood of Spain having to default is zero,” he said.

Another load of ECB loans is coming at the end of February.

“We are really seeing clear signs that this money is not simply staying in the deposit facility, but is circulating in the economy,” ECB President Mario Draghi said earlier this month, pointing to the declining yields of some European government bonds as a sign that banks are using the funds to buy the bonds. “By and large, the banks that have borrowed the money from the ECB are not the same as those that are depositing the money with the deposit facility of the ECB.”

BBVA’s Gonzalez to conclude:

“The cost of funding is going down very rapidly. That will put more money in the margins of the banking system, which is good because in order to give credit you need strong banks,” said BBVA’s Mr. Gonzalez. “We are in the process of filtering that money down to the real economy.”

Which would be most welcome given:

Spain Jobless Rate Hits 22%  The number of jobless Spaniards rose by 295,300 in the fourth quarter from the third, to 5.27 million. That is equal to 22.85% of the work force.

Under intense government pressure, Spanish unions and business leaders have taken some measures in recent weeks that they hope will encourage hiring, including a wage-moderation agreement for the next several years and a commitment to allow more flexible working hours for unionized workers. Analysts say these moves are steps in the right direction but don’t address key problems like Spain’s high cost of dismissal, which discourages hiring, and the inability of companies in difficulty to opt out of sector-wide wage agreements.

MORE EASING COMING:  Brazil Bank Warns of Possible Rate Cut

Brazil’s central bank made an unusually forthright statement on interest rates, saying the benchmark Selic rate could be lowered to single digits after a sharp slowdown in domestic economic growth.



Auto   Japanese Car Makers Post Output Rises

Japan’s top three car makers Friday reported solid increases in domestic production for December, in a sign that the worst is over after natural disasters both at home and abroad disrupted their supply chain networks most of last year.


China Home Prices Must Fall 30% to Reach ‘Reasonable’ Level, Lawmaker Says

China’s property prices need to decline 30 percent to reach a “reasonable” level, according to He Keng, a deputy director of the Financial and Economic Affairs Committee of the National People’s Congress.

Housing prices will be at a “reasonable” level when they are equivalent to about six years of salary for a family, the senior lawmaker said, according to the transcript of an interview with China National Radio.



According to ISI, S&P 500 earnings beats have been roughly 60%. While this is below previous beat rates of 67%, U.S. companies keep beating estimates even in pretty difficult economic environments. Importantly, over the past 2 weeks, the bottom-up estimate for S&P earnings has increased from +9.4% YoY to +11.0%.

Only 38% of companies have beaten on revenues, down from 46% in Q3 and 57% in Q2. Nominal growth in U.S. GDP was a weak +3.7% in Q4 as government spending declined 0.1% YoY, the first decline in over 45 years.

Bespoke Investment looks at all listed companies:

Of the 373 companies that have now reported, just 56.6% have beaten earnings estimates, which is two full percentage points lower than the already very low number that was in place earlier this week.  We haven’t had a beat rate below 55% since the first quarter of 2001, but it looks like there’s a real shot for that to happen this quarter.

Caterpillar Voices Optimism

Caterpillar and other big manufacturers, feeling more upbeat about the global economic outlook, are promising further gains in earnings this year.

The debt-repayment trouble in Greece, Italy and other southern European countries “has been going on a long time and hasn’t tanked the place,” Doug Oberhelman, chief executive officer of Caterpillar, told investors Thursday after it reported a 60% leap in fourth-quarter earnings. “We don’t think it will.”

Western Europe will remain in a mild recession in this year’s first half, predicted Alexander Cutler, Eaton’s chief executive officer. But Europe’s recession appears “more mild than some people had feared,” Mr. Cutler said.


I like Zerohedge, always a good place to find bears on just about everything resembling a rising equity. And when they are short on facts, objectivity or judgment, they are generally entertaining. This one on Apple is none of the above. (Disclosure: I own AAPL). So I thought I could bla-bla-bla on Apple as well but with facts. First, Zerohedge:

In case one was wondering how the Goldman trading team was axed in Apple, we now know that they are pushing their inventory of stock in the name out of the door and to clients harder than ever, having just released a forecast with a $600 price target. However, with nearly 200 hedge fund holders in the name, and pregnant to the teeth in the stock, we fail to find who the incremental buyer of GS’ AAPL stock will be.

The coming shortage of incremental AAPL buyers has been used a lot by the bears during the last, oh! 150 bucks on the stock. A few ideas where new buying may come from, keeping in mind that AAPL is 3.5% of the S&P 500 Index:

  • U.S. institutional equity portfolios are only 69% invested currently. I bet their balanced portfolios are also low on equities.
  • Hedge Funds equity exposure is 44%, nearly as low as in early 2009.
  • Same underinvestment is likely in mutual funds.
  • Foreign investors could decide that the U.S. is a better place to be than, say, Europe, and buy U.S. market ETFs.
  • U.S. individual investors could dip again into equities and also buy market ETFs.
  • Should Apple decide to pay a dividend, many restricted funds might wish to own the name.
  • Apple may launch a stock buyback program with its $96B in cash.

Were any or, god forbid, all of these ideas materialize, lots of marginal buying would show up, even if only to maintain their current exposure in the best large cap stock around (not that there has not been any lately mind you).

I understand that people can be frustrated not owning a stock that has more than quadrupled in 3 years, more than doubled in 2 years and gained 37% in the last year (when its founding visionary passed away). Still not a reason to write such superficial and biased stuff.

For the record, Apple EPS rose 109% YoY last quarter, beating street estimates by 38%. Sales rose 73% YoY. Not insignificant, total net income was $13 billion and net cash on hand rose $16 billion to reach $97.6B. To save you time, cash is $105 per share, and rising nearly $180M per day. Ex-cash, AAPL shares thus trade at $340 or 10.3x trailing EPS (ex interest income), still a huge discount to the overall market.



2012 may be the year of 3D printing, when this three-decade-old technology finally becomes accessible and even commonplace. Lisa Harouni gives a useful introduction to this fascinating way of making things — including intricate objects once impossible to create.