NEW$ & VIEW$ (20 Feb. 2012)

Greek Rescue Close as Ministers Meet to Resolve Disputes

“I don’t think there will be a majority to go down any other avenue” than a Greek bailout, Austrian Finance Minister Maria Fekter told state broadcaster ORF yesterday. Her French counterpart, Francois Baroin, told Europe 1 radio today that “we have all the elements of an agreement.” (…)

The German Finance Ministry is “increasingly optimistic” on agreement, though some points need to be resolved, including a plan for an escrow account to ensure that Greek aid money goes to paying creditors, ministry spokeswoman Marianne Kothe said in Berlin. Euro officials have reached broad agreement with Greece on the account; “at this point it’s down to technical questions,” Kothe told reporters.


The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in January to 94.9 (2004 = 100), following a 0.5 percent increase in December and a 0.3 percent increase in November.

This fourth consecutive gain in the LEI reflected fairly widespread strength among its components, pointing to somewhat more positive economic conditions in early 2012. The LEI’s increase in January was led not only by improving financial and credit indicators, but also rising average workweek in manufacturing. These both offset consumers’ outlook about the economy, which remained pessimistic, though slightly less so.




China cuts banks’ reserve ratios
Move expected to free up about $64bn for new lending

The People’s Bank of China said it would lower the reserve requirement ratio by 50 basis points from February 24. The cut will bring the ratio down to 20.5 per cent for the largest banks, and is expected to free up about Rmb400bn ($64bn) for new lending.

Storm cloud   China home-sale data show prices slumping  Local reports say no new homes sold in Beijing during holiday

Average new home prices were flat or lower across all large and medium-sized Chinese cities in January, compared to levels a month earlier, according to data released over the weekend by the National Bureau of Statistics.

Of 70 cities tracked by the bureau, prices were lower in 48 cities and little changed in 22, while none saw gains from the prior month

Punch   Foxconn lifts China workers pay again

Foxconn Technology Group, the top maker of Apple Inc’s iPhones and iPads whose factories are under scrutiny over labour practices, has raised wages of its Chinese workers by 16-25 percent from this month, the third rise since 2010.

In a statement on Friday, Taiwan-based Foxconn said the pay of a junior level worker in Shenzhen, southern China, had risen to 1,800 yuan per month and could be further raised above 2,200 yuan if the worker passed a technical examination.  It said that pay three years ago was 900 yuan a month.


Iran struggles to find new oil customers
Storm cloud    Crude at eight-month high as sanctions bite

Tehran is trying to sell an extra 500,000 barrels a day of oil, or nearly 23 per cent of what it exported last year, to Chinese and Indian refiners, according to two industry executives familiar with the talks. (…)

If it cannot find customers by mid-March for the oil, which is equal to the amount European refiners bought last year, Iran would be forced to put unsold barrels into floating storage in supertankers, or reduce output. Either measure could push oil prices higher.


Confused smile   Saudi Arabia Cuts Oil Output, Export: Industry Report

The world’s top oil exporter, Saudi Arabia, appears to have cut both its oil production and export in December, according to the latest update by the Joint Organizations Data Initiative (JODI), an official source of oil production, consumption and export data.

The OPEC heavyweight saw production decline by 237,000 barrels per day (bpd) from three-decade highs of 10.047 million bpd in November, the JODI data showed on Sunday.

Pointing up  The draw-down was sharper for the actual amount exported, declining by 440,000 bpd, or 5.6 percent, to come in at 7.364 million bpd, the data also showed. The level would still be similar to exports after a steep ramp-up last June.


The FT’s Gavyn Davies discusses the global experiment underway which combines progressively tighter fiscal policies with aggressive QEs by the central banks.

This is intended to reduce fiscal deficits while allowing aggregate demand to grow at least as fast as its trend rate. No one can be confident that the strategy will succeed – the evidence from last year is indecisive – but at least it constitutes a clear plan.


Fingers crossed   China and Japan unite on IMF resources   Support conditional on eurozone increasing bail-out funds


S&P data to Feb. 15, covering 88% of S&P 500 companies, show that 60% beat Q4 earnings estimates and 29% missed. The beat rate is unchanged from the previous week but better than the 57% beat rate as of Feb. 2nd when 70% had reported.

Sad smile   imageEstimates keep declining. Q4 estimates are now 23.76, down 0.8% from $23.94 one week ago. Q1’12 estimates edged 0.3% lower to $23.94.

ISI reports encouragingly that, so far this earnings season, reported revenue has beaten expectations 73% of the time and missed 22% of the time.

Pointing up   (Watch for an equity market update today).

Winking smile   THE AMERICAN BULL

(…) since 1978, whenever an American graced the Sports Illustrated swimsuit cover, the total return for the S&P 500 averaged an annual gain of 14.3% and was on the plus side 88.2% of the time, while during those years when no American was on the cover, the index averaged a total return of 10.8% and was positive 76.5% during that span.




High five   European banks: lost decade looms

Europe’s banks are a spurned lot: eurozone lenders now trade on just 0.4 times book value, less than half their US peers. Widen the net to Europe as a whole and it only rises to 0.6 times. That there are so many lonely hearts should not be a surprise though: few European banks are in mint condition after the last crisis and most are now preoccupied with the latest one. There are also European Banking Authority capital rules to comply with. The combination of having to boost equity and shrink assets amid a regional slowdown has slashed average returns on equity to just 2.4 per cent, according to Datastream data. If investors have been leery, global rivals have not. Banks from the US and Japan are eating European banks’ lunch – and some are cherry-picking for dessert. (FT Lex)

Lightning   But also lost deposits (chart from Henderson Asset Management). Pretty dangerous when you depend on wholesale markets for funding…


Pointing up   COPPER



FT Alphaville has a good piece on the apparent decline of U.S. housing inventory.

Depending on how you look at it, you would probably be justified in reacting to this chart from SocGen with either optimism or pessimism:

Optimism because the decline in overall inventory has recently fallen fast, pessimism because it is still higher than at any time since the late 1980s and there remains a big gap between visible and total inventory.

Credit Suisse expresses conventional wisdom:

The U.S. housing sector has been cheap by most measures for some time, but excess supply, driven by a steady stream of distressed homes, will continue to put downward pressure on home prices for the time being.

I generally try to fight conventional wisdom. A few thoughts:

  • Total visible inventory is at a 10-year low. This means that the actual supply of occupied and well maintained houses is very limited and has been falling rapidly.
  • Shadow inventory remains high but is also declining. It might increase following the recent deal with banks but the quality of those homes is most likely inferior.
  • Keep in mind that the bulk of foreclosures is situated in just a few states. Florida and California carry 35% of the foreclosed housing stock. The rest of the U.S. may be facing a shortage of available houses pretty soon.


  • With so little offering in mots states, house prices could start rising rapidly if demand picks up. We have had many signs of increasing demand recently (HOUSING WATCH) 

Also, consider this:

Pointing up   Shadow inventory: now you see it, now you don’t

Florida is one of the worst housing markets in the U.S. and boasts the largest shadow inventory which bearish economists use to maintain their negative views. Here’s a way this inventory can change rapidly:

345 South Beach Condo Units Trade In Bulk For $124 Million

Nearly 350 South Beach residential and commercial condo units in a pair of projects – the Paradiso and Roney Palace – on the ocean side of Collins Avenue have traded for nearly $124 million, according to a new report from

The buyers – 2377 Collins Resort LP and Roney 3 Investors LP both with Eric Franklin of Rinaldi, Finkelstein & Franklin of Greenwich, Conn. as contact – acquired the condo units in the first week of February 2012, according to an analysis of Miami-Dade County records. 

The condos are part of a series of transactions totaling nearly $230 million that includes 340 hotel rooms in the former Gansevoort Miami Beach Hotel and more than 50,000 square feet of developable land on the west side of Collins Avenue, according to government records. 

A consortium of investment funds comprised of Starwood Capital Group, the LeFrak Organization, and Invesco Limited has issued a joint statement claiming credit for the deal but declining to disclose the purchase price. 

The consortium did state it intends to invest “$100 million in an extensive renovation of the overall property” in hopes of repositioning the project into being one of Miami Beach “premier” destinations. 

“This bulk deal will have an immeasurable impact on the South Beach condo market,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. “Prior to this bulk deal, there were nearly 1,000 developer units still unsold in the South Beach market from the South Florida real estate boom that began in 2003. After this bulk deal, the anxiety level – and price – to acquire unsold developer inventory in South Beach is likely to change.”

Just kidding   Americans Judge Reagan, Clinton Best of Recent Presidents

Americans believe history will judge Ronald Reagan and Bill Clinton as the best among recent U.S. presidents, with at least 6 in 10 saying each will go down in history as an above-average or outstanding president. Only about 1 in 10 say each will be remembered as below average or poor. Three years into Barack Obama’s presidency, Americans are divided in their views of how he will be regarded, with 38% guessing he will be remembered as above average or outstanding and 35% as below average or poor.

How do you think each of the following presidents will go down in history -- as an outstanding president, above average, average, below average, or poor?

Open-mouthed smile   THE CANDY MAN: (tks Terry)



NEW$ & VIEW$ (14 Oct. 2011)


Storm cloud   Asia is center stage this am. Chinese authorities seem stuck with their form of stagflation. China Inflation Slows Minimally   China’s September CPI did not show much downward trend, +6.1% ToY and +0.5% MoM (+0.3% in August). Food prices were up 13.4% YoY, unchanged from August’s increase, and +1.1% MoM. Economists, who have been calling for peaking inflation since the spring now face a trendless stat. September’s producer price index was up 6.5% YoY, slower than August’s 7.3%. Non-food inflation “eased” to 2.9% from 3.0%.

So, the government is stuck with more signs that the economy will need help soon but sticky inflation. Unless you think like many economists this am that YoY CPI declining from 6.5% to 6.2% and to 6.1% is really positive. Remember that MoM CPI was 0.5%, 0.3% and 0.5% during the last 3 months. While that’s 5.3% a.r., it remains elevated to use Fed speak. They will err on the inflation fight for a while longer.

Storm cloud   New loans in China came in weaker than expected in September at Rmb470bn, down from Rmb550bn in August (China Lending Shrinks as Wen Wrestles With Inflation Over 6%). See yesterday’s write up on shadow banks.

Storm cloud   SAME FOR INDIA:   India Sept Inflation Remains High  India’s wholesale price index rose 9.72% YoY in September from a year earlier.  Food prices in September rose 9.23% YoY, and 1.5% MoM.


Storm cloud   WHILE ASIAN ECONOMIES ARE SLOWING:  Singapore Grows Slowly, Central Bank Eases Policy  Singapore reported meager growth for the latest quarter. The economy grew at annualized pace of 1.3% in the third quarter from the second, a weak bounce from a contraction of 6.3% in the second quarter.  The MAS said the weak external environment is likely to persist, and that the domestic economy will expand more slowly in 2012 and growth could be below its potential rate of 3%-5%. The central bank also said the slowdown in domestic economic activity will reduce tightness in the labor market and alleviate price pressures.

As a result, core inflation should gradually ease from an estimated 2.3% in fourth quarter this year to 1.5% at the end of 2012.


The MAS forecasts that core inflation is expected to come in around 1.5%-2.0% in 2012 (2.5-3.5% headline), compared to about 2.1% in 2011 (5% headline).



In line with the weaker global outlook, growth in Asia is expected to be imageslightly lower in 2011‒12 than forecast in April 2011, but the expansion should remain healthy, supported by domestic demand, and inflation is expected to recede modestly after peaking in 2011. For the region, growth is forecast to average 6¼ % in 2011 and 6¾% in 2012, about ½ and
¼ percentage point less than our April 2011 forecast.

Nevertheless, risks for the Asia and Pacific region are also decidedly tilted to the downside.

image image

In economies where such overheating pressures remain high (Figure 1.25), inflation remains above target, and inflation expectations have continued to rise (Figure 1.26), such as in China, India, and Korea, the current pace of monetary tightening remains appropriate.


Here’s the IMF analysis of Asian countries’ sensitivity to a Western slowdown:


Pointing up   EMERGING MARKET INVESTORS HAVE ALSO HAD THEIR BEAR MARKETS, when considering currency moves:



Storm cloud   COPPER: Simon Hunt remains a bear:

In general, fabricators are seeing a sharp fall in order books in Europe, across Asia, excluding Japan, and in many sectors in China, especially magnet and electrical wires. Their worries are such that they will be reducing their contracted requirements from producers from around 70% to between 40-50% for 2012.

On the other hand, to take one example, copper production in the Congo is forecast to increase from 498kt in 2010 to over 1.6MT in 2015. Yet, producers reduced premiums to Europe by 9% to $90! Premiums are high in Shanghai giving the appearance of a tight market, but this is more a reflection of holders of metal being unwilling sellers at these prices than a fundamentally tight market. There are also stories of large scrap stocks sitting at the ports.


Storm cloud   SPDEFICITS&P DOWNGRADED SPAIN at midnight yesterday, just in time to ruin dessert and Pacharán:   Though the Spanish government insists it will cut its deficit to 6% of GDP as promised, a growing number of independent economists believe it will fail to meet this target, possibly by a wide margin. Spain Credit Rating Cut by S&P on Weak Outlook: The financial profile of the Spanish banking system will weaken further, with the stock of problematic assets rising further.

Money   MORE BANK STRESS: At least 66 big European banks would fail a revised stress test and need to raise ~€220B ($302.3B) of capital, Credit Suisse analysts say.

Storm cloud   UK UNEMPLOYMENT reached 2.57 million in the three months to August, its highest level imagesince October 1994, pushing the unemployment rate up to 8.1%. Youth unemployment continued to rise towards the politically sensitive one million mark, increasing by 74,000 to reach 991,000, its highest since comparable data were first available in 1992. Youth accounts for nearly 40% of UK unemployeds!

Moreover, survey evidence from the KPMG/REC Report on Jobs, compiled by Markit, suggests the situation is likely to get worse in coming months. Recruitment agencies reported that demand for staff at employers had risen at the weakest rate for two years in September, as business confidence waned in the face of the increasingly gloomy economic outlook.



Pointing up   MOODY’S ANALYTICS had a conf call yesterday on Europe. Nothing really new but a few interesting charts (click to enlarge):


Clock   And for your agenda:



Rainbow   US RETAIL SALES came out this am. Not much time to analyze but nice to have them here today as they provide the only ray of hope today:

  • Retail sales jumped 1.1% in September. The prior month was revised up from zero to +0.3%.
  • Ex auto retail sales rose 0.6% with upward revisions in the prior month too.   Discretionary sales good but somewhat mixed.

Full US Census report here. 

Confused smile   BANK EARNINGS, DVAs, CVAs, ETC,   Q3 bank results will no doubt improve everybody’s accounting savviness. FT Alphaville:

The $1.9bn pre-tax DVA (debit valuation adjustments) gain ($0.29 per share after-tax) made the difference for JPMorgan’s “beat”: revenues of $1.02 per share, over forecasts of $0.91.

As the WSJ says, the old saw is that, under these rules, a bank could make a bundle by going bankrupt. No wonder investors were feeling confused. And that feeling is likely to be even worse when Morgan Stanley, Citigroup and Bank of America report, since the value of their debt fell even more during the third quarter.

[JPMHERD]So, even someone who is three sheets to the wind can see that the bank’s earnings “beat” relied on JPMorgan being able to book gains from its own debt falling in price (i.e. under the view that the bank could therefore buy back debt more cheaply). (…)

+ Noninterest expense included $1.0 billion of additional litigation expense, predominantly for mortgage-related matters.

+ JPMorgan is chalking up $1bn of Durbin fee losses in the next two years.

None of the above is likely to be “non-recurring”!! And Dimon admitted that he needs to pay the piper, just like all bankers (see also BUT, WHO’S THE PIPER?):

:We are sorry to have spent $8 billion on stock buybacks (as the stock has since fallen). We are willing to be punished for the mistakes (in sloppy mortgage-foreclosure procedures and record-keeping.)

Bank woes are not over, just yet:


Third quarter foreclosure activity increased  marginally from the previous quarter, breaking a trend of three consecutive  quarterly decreases that started in the fourth quarter of 2010. This marginal increase in overall foreclosure activity was fueled  by a 14 percent jump in new default notices, indicating that lenders are  cautiously throwing more wood into the foreclosure fireplace after spending months  trying to clear the chimney of sloppily filed foreclosures.

While foreclosure activity in  September and the third quarter continued to register well below levels from a  year ago, there is evidence that this temporary downward trend is about to  change direction, with foreclosure activity slowly beginning to ramp back up.


Pointing up   NOW, THAT’S CORRELATION (from BMO Capital):


Thumbs down   IAN MCAVITY: A real bear!

The early August death cross where the S&P 500 50-day MA crossed below the 200-Day MA does confirm a major trend rollover now that the 200-Day MA is declining in my view. (…)

Last week, Ned Davis Research (concluded) with a strong statement: “The US market drop has now met the NDR criteria for a cyclical bear market – a drop to new lows after a decline of at least 13% over 145 days. This is the 35th cyclical bear since 1900, and it is the 23rd to take place within a secular bear.”

(…) Putting the mean & median drop & duration of 22 such bears in the context of today’s DJIA would project the Dow down to 8160 by 6-Aug-2012 (mean) or 8493 by 24-Sep-12 (median).

In love   TIME TO GET SENTIMENTAL?  Bullish minus bearish advisor sentiment is the only valid sentiment reading in my view, and it is useful only when it gets in deeply bearish territory. Not quite the case, yet. See INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL!.



Star   Ian McAvity tells his readers that in a 1992 contest to name a proposed new single European currency, he suggested the “Franc & Stein” since

it would be the French and Germans who would have to pick up the pieces when it blew up.


NEW$ & VIEW$ (12 Oct. 2011)

Surprised smile   S&P 500 Rallies 12% From Brink of Bear Market as Index Approaching 1,220  The threat of a U.S. bear market is receding after the Standard & Poor’s 500 Index rallied the most in 31 months, leaving the gauge about 1 percent away from a level where two advances have stopped since August. A pundit said:

I’m not sure the world has changed that much in the last five or six days that 10 percent is really a reasonable change in the price of those risky assets.

Doubtful? Read on!

Confused smile   “THE COMPREHENSIVE PACKAGE”   Slovakia will soon vote for the EFSF bailout fund (Slovakia Set to Approve European Bailout Fund). But as Ambrose Evans-Pritchard writes in the UK Telegraph:

The traumatic affair almost brought down the German government. It has in fact brought down the Slovak government. You can’t keep doing this. Democracies are not to be toyed with.

This political revolt matters a great deal because Europe will soon have to come back for more money and bigger bail-outs. The EFSF’s €440bn firepower – or €300bn after Greece, Ireland, and Portugal have taken their bites – is not enough. So even when the Slovaks fall on their sword, nothing will have been resolved.

A reluctant ECB will remain the only credible lender-of-last resort standing behind EMU, in breach of the Lisbon Treaty. Its actions already face a challenge at the European Court.

(German finance minister Wolfgang Schäuble) was forced to give categorical assurances to the Bundestag that the bail-out fund will not be enlarged further. Most people understood him to mean that it will not be “leveraged”. Pledges to parliaments have consequences. And as Mr Schäuble himself said, the September ruling by the German Constitutional Court has blocked off any possibility of eurobonds.

Pointing up   Just to be clear, the Merkel-Sarko “comprehensive package” is much easier said than done. How to backstop risky EU debt with the rich neighbor money?

Deutsche Bank Chief Executive Josef Ackermann:

On the one hand it [the debate] sends the signal that a [debt] haircut is more likely, and on the other because the resources for recapitalisation will surely not come from private investors, but rather states would ultimately have to raise the funds themselves, thereby worsening their debt levels. The key to the problem therefore lies with governments to restore trust in the solidity of state finances.

High five   THE ECB IS AGAINST A BIGGER HAIRCUT: ECB warns against PSI role in bail-outs:

Such moves “may put at risk the financial stability of the currency area as a whole” and trigger a need for “large scale” bank recapitalisation steps, the ECB warned in its monthly bulletin on Thursday.

Its comments reflect the central bank’s alarm at eurozone leaders’ attempts to oblige banks to contribute more to Greece’s rescue – which it fears is sending a disastrous signal to investors in other crisis-hit eurozone countries. (…)

(The ECB) said it has “strongly advised against all concepts that are not purely voluntary or that have elements of compulsion, and has called for the avoidance of any credit events and selective default or default.”

It adds: “All euro area governments need to demonstrated their inflexible determination to fully honour their own individual sovereign signature, which is a decisive element in ensuring financial stability in the euro area as a whole.”


Storm cloud   I HOPE YOUR NOT SURPRISED!  Job Openings Fell in August  Given the summer political brawl, this is not surprising. The number of positions waiting to be filled dropped imageby 157,000 (4.9%) to 3.06 million, from a downwardly revised 3.21 million in July. The number of private sector openings fell 5.1%. Hiring increased by 38,000 to 4.01 million. Employers discharged 1.66 million workers in August, down from 1.69 million in July. There were more than four people vying for every opening, up from about two when the last recession began in December 2007. (Chart from Haver Analytics)

Sad smile   “SELF-CONFIDENCE IS THE FIRST REQUISITE TO GREAT UNDERTAKINGS” (Samuel Johnson). Not much of that in America these days. Consumer confidence is in the pits, small businesses confidence is in the pits, Fed officials are generally downbeat about the economy (even admitting “significant” downside risks to their outlook), and now CEO confidence is in the pits. (Chart from BMO Capital).

The Conference Board Measure of CEO Confidence™, which had declined in the second quarter, fell further in the third quarter. The Measure now stands at 42, down from 55 last quarter (a reading of more than 50 points reflects more positive than negative responses).

imageCEOs’ appraisal of current economic conditions turned even more pessimistic, with only 11 percent saying conditions are better compared to six months ago, down from 33 percent last quarter. In assessing their own industries, business leaders were also considerably more pessimistic. Now, about 19 percent say conditions have improved, compared with 40 percent in the second quarter of 2011.

CEOs’ optimism about the short-term outlook also deteriorated sharply. Currently, about 19 percent of business leaders anticipate an improvement in economic conditions over the next six months, down from 43 percent in the second quarter. Expectations for their own industries are also quite negative, with approximately 22 percent of CEOs expecting conditions to improve in the months ahead, down from 44 percent last quarter.

(Survey results were fielded from mid-August to mid-September)

Winking smile   COUNT ONE MORE PESSIMIST:  Pimco’s Gross makes U-turn on Treasuries  Fund manager lays big bet on lower long-term rates.

Crying face   I CAN’T GET NO … Satisfaction Remains Low, Economic Concerns High

1979-2011 trend: In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?

In November 1979, 19% of Americans were satisfied with the way things were going in the United States, the last Gallup reading before Jimmy Carter’s defeat in 1980. Also, in August 1992, 22% were satisfied prior to George H.W. Bush’s unsuccessful re-election bid.

Satisfaction levels were higher when Ronald Reagan (48% in September/October 1984), Bill Clinton (39% in October 1996), and George W. Bush (44% in October 2004) all won re-election.

Snail   13 months to go, Mr. President!


Smile   France’s core inflation rate was unchanged in September and is up 1.1% YoY. The harmonized CPI, comparable to other Eurozone inflation rates, was also unchanged but is up 2.4% YoY. German harmonized inflation was +0.1% MoM and 2.9% YoY. Ex-energy -0.1% and +1.5%.

Storm cloud   Carrefour Cuts Profit Target  The WSJ: French retail giant Carrefour cut its full-   year profit target for a second time in a few months, battered by see-sawing on its core strategy and increasing worries about consumer spending. Consumer confidence has weakened in Carrefour’s home market, a trend that also impacted competitors such as Groupe Casino SA, which cited a slow-down in sales of nonfood items in its hypermarkets. Carrefour is present in countries such as Spain, Greece and Italy which are suffering from the sovereign-debt crisis.


Storm cloud   And if you doubt the big slowdown in China,

The performance in China was blighted by rocketing inflation which has slowed consumption, Mr. Sivignon said. Sales increased by 3.1%, but Carrefour witnessed a sharp drop of 11% in nonfood sales.

Storm cloud   WALMART CEO MIKE DUKE  said at yesterday’s annual meeting:

We don’t have a staff of economists but we have over 200m customers around the world to get perspective from. I can’t tell you that I see it getting better.

Storm cloud   Turkey Revises Growth Forecast   Mr. Babacan, the ruling AK-party’s most senior economic policy maker, upgraded Turkey’s growth forecast this year to 7.5% from 4.5% but lowered the government’s 2012 prediction to 4% from a previous expectation of 5%. Turkey’s ballooning current account will hit 9.4% of gross domestic product this year and ease only moderately to 8% next.

Storm cloud   Greece Budget Deficit Widens 15%  Greece’s budget deficit for the first nine months of the year widened 15.1% from a year earlier to $26.05 billion, the Finance Ministry said .

Laughing out loud Laughing out loud Laughing out loud   Berlusconi Calls for Confidence Vote  Mr. Burlesquoni, who knows something about rituals, said

Financial markets are too volatile for Italian political rituals.

He also said that if his government does fall, the country will need to hold early elections.


Smile   CANADIAN ECONOMY LOOKS OK: Total hours worked declined 0.3% decline in Canada in September. But, as BMO Capital notes,


the bigger picture is that hours worked popped at a 4.7% a.r. for all of Q3,
and are still up at a 2.7% clip in the past six months. While not perfectly in synch with real GDP, the hours worked data are far from sending any serious warning signals about the broader economy. In contrast, the deep dive in late 2008 did give an excellent heads up to the trauma ahead for GDP (as the figures are released almost two months earlier than GDP).


Ghost    CHINESE GHOSTS  China’s debt spree returns to haunt   Bail-outs are coming thick and fast in China. In less than a week the authorities have had to step in to prop up the banks, rescue the insolvent railway system and save the near bankrupt city of Wenzhou from a spectacular debt crash. (By UK Telegraph’s Ambrose Evans-Pritchard)

Star   Add the rising problem with shadow banks“:

With the new government crackdown on underground lending, analysts say there is now a risk that this source of credit could dry up, bringing down even thriving companies, with ripple effects on the formal banking system.

Shadow finance in China has been around for years, but the recent surge in such lending is unprecedented, analysts say. The lightly regulated underground lenders pool money from property developers, coal miners or other cash-rich individuals hunting for higher returns.

A significant portion of shadow lenders’ funds comes from the banks themselves. Shadow lending has become sizable enough to challenge the government’s tight control of credit and interest rates, two critical tools for steering the world’s No. 2 economy.

How big is the problem? Huge!

The IMF calculates that the stock of domestic loans, including those both on and off banks’ books, reached 173% of China’s gross domestic product as of the end of June.

In an indication of how much lending isn’t reflected on banks’ books, credit extended through banks, but moved off their balance sheets, stands at roughly 12 trillion yuan ($1.9 trillion), UBS economists say. Total loans outstanding , both on and off banks’ balances sheets, stood at 55.7 trillion yuan as of August.

Pointing up   How does that impact monetary policy?

Dragonomics, a Beijing-based research and advisory firm, estimates that shadow finance accounted for more than 40% of new loans issued in the first half of this year. Much of this kind of informal lending actually is conducted by, or through, the major state banks.

The woes of the private sector also raise fresh doubts about China’s ability to use bank lending to pump up the economy, as it did during the global financial crisis two years ago. “We think the bigger risks are credit withdrawal in both the formal and informal lending market and contagion,” Wang Tao, China economist at UBS, said in a recent note.

How do you feel now? Sick smile 


[CHINAHERD]Storm cloud    China Trade Surplus Narrows  China’s trade surplus narrowed in September to $14.51 billion from $17.76 billion in August, with exports +17.1%, down from +24.5% in August and the slowest gain in 7 months. Exports to the EU rose only 9.8%. Imports rose 20.9%, a big slowdown from August’s 30.2% increase. Domestic demand is waning fast while China’s appetite for natural resources may be declining. Copper imports during the first nine months of this year are down 18 per cent compared with a year earlier, although they rose 3% YoY in September. See below.


Confused smile   COPPER: China has for the first time revealed the estimated size of its copper inventories, shedding light on one of the commodity market’s biggest mysteries. Chinese copper inventories stood at 1.9m tonnes at the end of 2010, more than the US consumes in a year, according to estimates by the state-backed China Non-Ferrous Metals Industry Association. The estimate is significantly higher than the 1.0m-1.5m tonnes range that foreign executives have assumed in the past.

The estimates, which were announced at a recent meeting of the International Copper Study Group but have not been made public, imply that real Chinese copper demand may have been lower than thought in recent years. (FT)


Money   ASIAN CASH LOOKING FOR HOME:   Yen’s Rise Piques Appetite for Deals

The head of Japan Bank for International Cooperation signaled that the country’s cash-rich firms are ready to take advantage of the stronger yen to pursue overseas buyouts, saying the state-backed lender hopes to finance its first deal under a special government facility by the end of the year.

CHINA is also clearly on the hunt for FDIs with over $3T in foreign reserves destined to lose value as the Yuan keeps appreciating. China ranked 4th in FDI outflows in 2010 ($68B), slightly exceeding Japan.

Pizza   BRAZIL: The first wave of work stoppages under President Dilma Rousseff has disrupted mail and banking services as unions demand wage hikes above inflation. Workers at oil giant Petrobras want some, too.




Red rose   Steve Jobs: How to live before you die   Red rose

Steaming mad   The inkblot protests

A new generation takes to the barricades. They should pay more attention to the ballot box.

Embarrassed smile   SEEN BEFORE AT A STOCK EXCHANGE NEAR YOU!  The Guardian found evidence that the Journal had been channelling money through European companies in order to secretly buy thousands of copies of its own paper, misleading readers and advertisers about the Journal’s true circulation.

Devil   Jail Time for Inside Trading Is Climbing  People convicted of insider trading are facing harsher sentences than in the past, according to a Wall Street Journal analysis.



(The Globe & Mail)- (…) Chile’s Codelco, the world’s largest copper producer, said some of its clients in the United States and Europe have asked to cancel orders, showing that debt troubles and stagnant economies in those areas are starting to spread through the metals industry.(…)


Codelco’s acknowledgment that some of its European and U.S. clients want to cancel orders has fuelled fears of a major pullback in the global economy.

“This reflects the uncertainty in these markets,” Rodrigo Toro, vice-president at Codelco, told El Mercurio, an influential Chilean newspaper. The report said Codelco executives fear a repeat of the 2008 collapse in copper demand that saw the company’s worst-ever sales campaign.

Codelco, which produces 11 per cent of the world’s copper, sells about 20 per cent of its product to Europe and about 9 per cent to North America. China is its largest market at 42 per cent, which was reduced from 47 per cent two years ago as it strived for more geographical diversity.(…)

Chinese buying on lower prices is said to be keeping prices from plummeting, which was evident in new data released over the weekend showing the country’s copper imports rose 11 per cent in August to 340,398 metric tonnes, compared with the month before. However, that was still a 10-per-cent drop from August, 2010, and imports are down 20 per cent year-to-date compared with the same period last year, according to data released over the weekend from China’s General Administration of Customs.(…)


More than 2.8m tonnes of hidden copper stocks

From FT Alphaville:

The debate over how much copper is being stored ‘off market’ in private inventories — not part of the LME inventory system — has been going on for a while.

The general position taken by investment bank analysts is that supply is tight. There’s not enough inventory to go round and whatever private inventories exist are hardly big enough to offset rising, mega demand from China.

Others like Simon Hunt of Simon Hunt Strategic Services, David Threlkeld, president of metal strategist group Resolved Inc and Steven Spencer, chief executive ofTraderight, a commodity trading advisory — notably all independent — claim the opposite.

They say anecdotal evidence suggests there’s been a hugely worrying rise in off-market inventory. So much so that a sudden and violent liquidation could pose a major threat to market fundamentals.

The problem for them is that it’s hard to get cold hard data on the scale of the problem.

But, in his latest note, Simon Hunt says data is finally coming to light. And it comes from a less than obvious source: SEC filings from yet to be approved copper ETFs.

As Hunt notes:

JP Morgan and Black Rock have been promoting their physical copper ETFs to potential investors on the basis that the copper market is extremely tight, that there are no hidden stocks and that therefore prices will go much higher. Both groups have made frequent filings to the SEC to obtain approval for their listings. Now comes the bombshell for the bulls. In its latest filings, JP Morgan stated that in addition to the reported circa 568kt in exchange stocks in 2010, there was a further 2.53 million tonnes in the physical market. Black Rock stated that the amount of copper in exchange approved warehouses at the end of 2010 was roughly one-fifth of total global refined copper inventories meaning that the total outside the exchange warehousing system was more than 2.8 million tonnes.

These crucially important copper stock factoids (which came in the form of amendments to the institutions’ original filings) were actually dug up by Dow Jones reporter Andrea Hotter.

In the original story published on Tuesday (wire only — sorry), Hotter writes that it’s revelations like these — that there are more than 2m metric tonnes of hidden stocks — which are causing regulators to pause for thought when it comes to regulatory approval. (The fear being that the funds might only encourage copper ‘hoarding’.)

As Hotter notes, there’s also the awkward situation of the true inventory picture not sitting at all well with the ‘tight supply’ picture being promoted to investors by the institutions themselves:

Both J.P. Morgan and BlackRock are promoting their physical ETFs to potential investors on the basis that the copper market is extremely tight, there are no hidden stocks in storage, and that prices are going higher as a result, making the industrial metal a great investment.

Under this deficit scenario, the two ETFs would account for about 28% of the roughly 650,000 tons held in LME, Shanghai and Comex warehouses–J.P. Morgan’s totaling roughly 61,800 tons and BlackRock’s the equivalent to 121,200 tons, according to the filings. But both companies’ estimates of the amount of copper held off-exchange in the physical market, finally included in their latest filings and designed to allay SEC concerns of a potential squeeze, make for extremely interesting reading.

Digging into the filings themselves — the latest coming from Blackrock, whilst JP Morgan’s is dated from July — the following picture emerges:

According to filings made to the SEC, J.P. Morgan Commodity ETF Services LLC originally lodged its Physical Copper Trust prospectus in October and has refiled amended versions a further five times, the last in July. BlackRock Asset Management International Inc. also filed its iShares Copper Trust prospectus in October and has refiled a further four times, with the latest updated filing made Friday. J.P. Morgan’s July filing stated that while exchange warehouse stocks in 2010 were around 568,000 tons, there is estimated to be a further 2.53 million tons of copper stock in the physical market, taking total inventories to over 3 million tons.

This figure is at serious odds with the bank’s house view on copper, which earlier this year forecast a 2011 deficit of nearly 600,000 tons. BlackRock meanwhile said in its filing Friday that the amount of copper held in exchange-approved warehouses at the end of 2010 was roughly a fifth of total global refined copper inventories, meaning the total outside the exchange warehouse system was more than 2.8 million tons.

If stocks in the physical and exchange markets combined totals at least 2.8 million tons, then the impact of the proposed physical ETFs would in theory be relatively limited. However, in practice this metal isn’t available for immediate delivery, and if total copper stocks are this high then the rationale behind investing in the apparently supply-constrained market in the first place is significantly reduced.

Hunt’s own thoughts on the matter are clear:

Slowly, the truth on whether the global copper market is really tight is coming out. It illustrates just how large an involvement the financial institutions have become to the copper industry. It shows, too, that by throwing money at a market, prices can be driven higher. In the process, however, the delicate balance between supply and the industry’s requirements for a basic material used to produce a range of essential products is destroyed. In short, copper is becoming a financial asset in place of its historic role as an industrial metal.

It’s for this reason, he says, copper and other commodities could end up as the next major victims of the financial sector’s quest for instruments to sell to unwary investors.



Euro-Zone Growth Weakens The euro-zone economy grew more slowly in the second quarter than at any time since the end of the recession in the same period of 2009. The combined gross domestic product of the euro zone’s 17 members grew by 0.2% from the first quarter, and was up 1.7% from the second quarter of 2010.


German Growth Slows Germany’s gross domestic product rose 0.1% in the second quarter from the first quarter, and by 2.7% in annual terms. The German data mark a considerable slowdown from the first quarter, when growth was 1.3% quarterly and 4.7% annually.

German GDP growth

Dr. Copper, meet Dr. Derivative. Since we always take the cue from the credit market, which in this case is the derivative market, we expect copper to break to the downside, and sport a handle closer to $3 than the current $4/lb. (BMO Capital Markets)


US Postal Service Targets 220,000 Job Cuts  The U.S. Postal Service would reduce its work force by 220,000 jobs—more than a third—by 2015 under a plan presented to Congress to remedy dire financial conditions at the agency.

U.K. Inflation Picks Up The CPI increased to 4.4% in the 12 months to July, compared with 4.2% in June. The increase in the inflation rate was due to upward price pressures from financial services; clothing, footwear and furniture sales; housing equipment; and housing rent. Core inflation picked up to 3.1% from 2.8% in June. The retail-prices index, an alternative measure of inflation that is often used in pay settlements, remained at 5%, the ONS said.

Banks Open Loan Spigot a Bit U.S. banks continued to ease lending standards in the second quarter, but loans remain hard to get by historical standards, the Fed said in its senior loan officer survey.


Fed’s Lockhart: Recession Risks on the Rise Using what has become a central banking catch phrase, the Fed official maintained that the U.S. economy was mired in a temporary “soft patch.” But with the world’s largest economy retrenching and Europe still grappling with its debt crisis, Lockhart acknowledged that the risk of a recession “is higher than we perceived a month or two ago.” Because U.S. growth is stuck below 2%, Lockhart added that past trends were suggestive of the economy falling back into recession.

China buys more US bonds in June China continued to increase its purchases in June as its holdings rose by $5.7 billion to $1.17 trillion.

Munich Re stake signals ‘strategic shift’ on reserves China’s investment in German reinsurance company Munich Re Group is a sign that the country’s foreign exchange regulator might be seeking out higher-yielding but riskier investments. SAFE has long followed a conservative investment strategy that guarantees liquidity and safety, investing mainly in low-risk, fixed income products such as US Treasury securities and the government bonds of Japan and some European nations.

Indian inflation eases slightly Lower July figure could prompt pause in rate increases

Chinese Students Flood U.S. Grad Schools Thanks to a thriving economy in China, an increasing number of Chinese students are attending U.S. graduate schools, according to a study to be released on Tuesday by a graduate-school industry group.


Interpublic sells half of its Facebook stake Deal implies a value of $66.5bn for social network


Consumer Pullback Slows Recovery Consumer spending, which accounts for 70% of economic activity, decreased 0.2% in June, the biggest drop since September 2009, compared with a 0.1% increase in May. Personal income increased a scant 0.1%, while the wages and salaries that are the fuel of consumer spending declined slightly.


Goldman Sachs economists have come up with a rule of thumb to determine if the economy has entered recession: If the three month average of the unemployment rate increases by more than 0.35 percentage points, the economy will enter recession within the next six months. Stripping out months when the economy is already in recession, or has recently exited one, the measure has proved accurate about two-thirds of the time. “The unemployment rate would need to increase to 9.3% and stay there for two months to surpass the 35-basis point threshold,” notes Mr. Tilton.

Economic Fears Hit Global Markets Worries about the global economy rippled through financial markets, driving down share prices from Tokyo to New York and placing new strains on Spanish and Italian bonds.

    Lingering Worries of U.S. Default

    Reid: “See what we just did!”:


    “New Low: 6% Think Congress Is Doing a Good Job”  “New High: 46% Think Most in Congress Are Corrupt” – Rasmussen, July 27, 2011

    SNB Cuts Rate to Zero The Swiss central bank said it has taken measures to counter the strong Swiss franc, cutting its key three-month Libor-rate target to as close to zero as possible, from 0.25%

    SocGen profit warning on Greek debt French bank’s profit target will be ‘hard to achieve’

    Home Listings Fall but Woes Persist The number of homes listed for sale declined sharply in a number of U.S. cities, offering glimmers of hope that some markets are starting to recover. At the end of June, nearly 2.34 million homes were listed for sale on multiple-listing services in more than 900 metro areas, the lowest level for that time of year since at least 2007, according to In some cases, inventory levels are at their lowest levels since the housing downturn began five years ago. The number of newly initiated foreclosures has dropped to a three-year low. But the number of homes in foreclosure—a backlog of 2.1 million—is near a high, according to LPS Applied Analytics.

    Comparison of Global Crude Steel Output and Industrial Production

    Chinese Banking System Leveraging Among lowest in Major Economies



    Fighting Spurs Fears of War in Yemen Yemen edged closer to civil war as opposition fighters seized government buildings and Washington stepped up pressure on the embattled president, Ali Abdullah Saleh, to step aside.

    State Tax Revenue Increases by 9.1% Tax revenue grew 9.1% in the first quarter for 47 states that have reported collections, the fifth straight quarter of growth and the fastest rate in five years. Goldman Sachs, in a separate report Tuesday, said average state revenue in April was up 12% from a year ago for 11 big states—including California and New York—that the bank tracks. “Although a few states enacted high profile tax increases for this year, the most recent revenue gains appear to be due mostly to underlying economic strength.” And while state finances are recovering, the outlook for local government revenue is starting to deteriorate. That’s because while states get most of their money from income and sales taxes, local governments rely more on property levies.


    Banks Face $17 Billion in Foreclosure Suits State attorneys general told the nation’s five largest banks they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn’t reached to address improper foreclosure practices.

    The OECD revised down its forecast for China’s gross domestic product growth this year to 9.0% from a projection of 9.7% made in November, and to 9.2% for 2012 from an earlier forecast of 9.7%. China’s GDP grew 10.3% in 2010.

    China reported its imports of copper in the first four months of this year were 756,199 metric tons, 29% less than the same period last year. April refined copper imports fell 48% from a year earlier and down 17% from last month to 160,236 metric tons. China is the world’s top copper consumer, accounting for 30% of demand.

    U.S. credit markets are so far unfazed. Credit spreads continue to narrow, suggesting plentiful liquidity. (BMO Capital Markets)


    New-Home Sales Rise New-home sales rose more than expected and the median price climbed in April, but the overall pace of sales remained weak for the battered U.S. sector.

    OECD: Central Banks Should Raise Rates  The Paris-based think tank upped its 2011 inflation forecast for its 34 members to 2.3% from the 1.5% it forecast in November, as well as for 2012, to 1.7% from 1.4%. “The rise in long-term inflationary expectations … suggests that part of the recent rise in headline inflation may now be expected to persist for longer than previously thought,” the OECD said. The OECD called on the U.S. Federal Reserve to raise its key interest rate to between 1% and 1.25% by the end of the year, and to 2.25% by the end of 2012.

    Kansas City, Dallas Feds Want Higher Discount Rate Most Fed regional banks, cautious about the economic outlook amid rising commodity prices, last month voted to hold steady the low discount rate. Directors from the Kansas City and Dallas Fed called for an increase in the rate to 1%.

    U.K. Retail Sales Stay Subdued The Confederation of British Industry said retail sales were “subdued” in May. Its monthly survey showed a balance of 18 of retailers reporting year-to-year sales growth in the first two weeks of the month, down from 21 in May.

    Sell in May… (continued): Since 1950, $1,000 invested in the Dow only between November and April would have grown to $22,917 in price-only terms, while $1,000 invested only between May and October shrank to $969. (BMO Capital Markets)