2012 YTD Country Stock Market Returns

Saturday, April 14th, 2012

Below is an updated snap­shot of 2012 equity mar­ket returns for 78 coun­tries around the world.  Of the 78 coun­tries shown, 64 are in pos­i­tive ter­ri­tory for the year, while 14 are in the red.  The aver­age YTD per­cent­age change for all coun­tries shown is 7.11%.  Of the G7 coun­tries, Japan, Ger­many and the US are out­per­form­ing the over­all average.

Four of the G7 coun­tries are sig­nif­i­cantly under­per­form­ing the aver­age.  The UK and Canada are cur­rently up just over 1% year to date, France is up just 0.93%, and Italy is down 4.84%.  Spain has been the worst of any coun­try in 2012 with a year to date decline of 15.36%.

Tags: Canadian Market, Countries Around The World, Country Stock, Decline, G7 Countries Japan, Italy, Japan Germany, Percentage Change, Snapshot, Spain, Stock Market Returns, Year To Date, Ytd
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Gold Market Radar (April 9, 2012)

Sunday, April 8th, 2012

Gold Mar­ket Radar (April 9, 2012)

For the week, spot gold closed at $1,631.23 down $37.12 per ounce, or 2.2 per­cent. Gold stocks, as mea­sured by the NYSE Arca Gold BUGS Index, fell 6.8 per­cent. The U.S. Trade-Weighted Dol­lar Index jumped 1.3 per­cent for the week.

Strengths

• Fol­low­ing the release of Fed min­utes that indi­cated sen­ti­ment towards renewed stim­u­lus pro­grams was not imme­di­ately press­ing, the pull­back in bul­lion prices stim­u­lated strong phys­i­cal demand from India on Wednes­day. Deal­ers reported that buy­ing demand was the strongest since March 14. His­tor­i­cally, Indian buy­ers have been fairly price-sensitive to buy­ing when they per­ceive pric­ing is at bar­gain levels.
• Rand­gold Resources, Mali's largest investor, and Angl­o­Gold Ashanti, Africa's largest gold pro­ducer, said on Wednes­day they had enough sup­plies of fuel to sit out any imme­di­ate changes in the way they do busi­ness with respect to the coup d’état in Mali.
• Mark Bris­tow of Rand­gold Resources said the com­pany, which sources two-thirds of its gold from Mali, had no prob­lem bring­ing in fuel and ship­ping gold despite bor­der clo­sures by the 15-state Eco­nomic Com­mu­nity of West African States designed to squeeze Mali's econ­omy. Gold com­pa­nies with mines in Mali are play­ing down the risk of bor­der clo­sures and fall­out from sanc­tions imposed on the West African nation after a coup last month.

Weak­nesses

• Gold’s recent decline has also been based on India’s nation­wide jeweler’s strike to protest a tax on non-branded orna­ments. The strike is in its 19th day today. The coun­try was the world's second-largest bul­lion con­sumer in the fourth quarter.
• Gold imports into India tum­bled more than 55 per­cent in March. The pres­i­dent of the Bom­bay Bul­lion Asso­ci­a­tion notes that the coun­try imported just 15 to 20 tonnes of gold in March as com­pared to the 45 to 55 tonnes that is usu­ally imported on a monthly basis. He added that the high price of the pre­cious metal also deterred fresh pur­chases in the first quarter.
• The com­bined jew­el­ers strike in India plus the com­ments that the Fed­eral Reserve was unlikely to pro­vide more stim­uli for the econ­omy, sent many gold stocks to 52-week lows this week. In addi­tion, this sit­u­a­tion was exac­er­bated by a large fund com­plex in Canada that had a change in own­er­ship, with the new man­age­ment insti­tut­ing whole­sale changes for many of the firm’s port­fo­lios, dump­ing mil­lions of shares of gold-mining and oil stocks.

Oppor­tu­ni­ties

• An upcom­ing Hindu fes­ti­val, Akshaya Tri­tiya, held on April 24, may be the cat­a­lyst that brings the jeweler’s strike in India to an end and moves gold prices higher in April. In terms of impor­tant fes­ti­vals, the Akshaya Tri­tiya fes­ti­val and Dhanteras are the two biggest gold-buying events in the Hindu cal­en­dar. These are essen­tial buy­ing occa­sions that jew­el­ers won't want to miss, espe­cially after the strike-inflicted drop in rev­enues in March.
• Accord­ing to an analy­sis of the Chi­nese gold mar­ket, growth in aggre­gate demand from jew­elry buy­ers, pri­vate investors, and the People's Bank of China will con­tinue to out­pace growth in total sup­ply from mine pro­duc­tion and sec­ondary sources. Fur­ther­more, it sug­gests that the country's gold pro­duc­tion and con­sump­tion are both far higher than fig­ures sug­gest, but also that this gold will not find its way back on to the global marketplace.
• With both domes­tic sup­ply and demand rel­a­tively price inelas­tic, the mar­ket will require a grow­ing stream of imports, which will be avail­able only at higher prices. Despite bul­lion prices hav­ing moved up from $300 to more than $1,600 over the last decade, world gold mine pro­duc­tion is essen­tially unchanged.

Threats

• The Mozam­bi­can gov­ern­ment is seek­ing to guar­an­tee that the sale of shares in min­ing com­pa­nies whose assets are in the coun­try should bring finan­cial ben­e­fits to the coun­try. A team of offi­cials from the Min­istries of Min­eral Resources and of Finance has been set up to work on how to tax these sales. The new law, which is expected to be sub­mit­ted to the country’s par­lia­ment, will stip­u­late that the trans­mis­sion of min­ing rights and titles must oblig­a­to­rily take place in Mozam­bique and any pub­lic offer of shares must be announced in the Mozam­bi­can press.
• Ongo­ing con­flicts in Eritrea and the threat of addi­tional sanc­tions pose sig­nif­i­cant risks to the country’s min­ing sec­tor and those com­pa­nies oper­at­ing within the bor­ders. The coun­try is cur­rently the tar­get of U.N. sanc­tions, its hos­til­i­ties with neigh­bor­ing Ethiopia have reignited in recent months, it faces seri­ous infra­struc­ture issues (par­tic­u­larly with regards to water), and its author­i­tar­ian government’s mil­i­tary and geopo­lit­i­cal ambi­tions are unsus­tain­able. So while Eritrea’s min­eral deposits are attrac­tive, it will remain one of the riskier min­ing juris­dic­tions in Africa for the fore­see­able future.
• A Roman­ian court annulled a zon­ing plan that fur­ther delayed the devel­op­ment of Gabriel Resources’ Rosia Mon­tana project. The project has been a favorite for a num­ber of non-governmental orga­ni­za­tions to rally around to pre­vent the devel­op­ment of the mine. React­ing to the news today, Gabriel’s share price plunged 23 percent.

Tags: African Nation, Anglogold Ashanti, Border Closures, Bullion Prices, Canadian Market, China, Coup D, Dollar Index, Economic Community, Gold, Gold Bugs, Gold Companies, Gold Imports, Gold Market, Gold Producer, gold stocks, India, Mark Bristow, Market Radar, Mining, Nyse Arca, Pullback, Quar, Randgold Resources, Spot Gold
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Are Genetically Modified Foods Safe, and Other Easter/Passover Weekend Reads

Friday, April 6th, 2012

Here are this week's read­ing diver­sions for your per­sonal enlight­en­ment. Have a happy, long Easter/Passover weekend!

Bad Habits Affect­ing Our Health: Five Things Killing Canadians

TORONTO — A new study says smok­ing, alco­hol, poor diet, lack of phys­i­cal activ­ity and stress finds are cost­ing Ontar­i­ans more than seven years of their lives.

Are Genet­i­cally Mod­i­fied Foods Safe?

Genet­i­cally mod­i­fied foods are made by insert­ing genes from another species into a food's DNA. About 60 to 70 per­cent of prod­ucts on gro­cery store shelves con­tain at least one genet­i­cally engi­neered ele­ment. These foods include corn, straw­ber­ries, toma­toes, let­tuce, pota­toes, soy­bean, and canola.

Ben­e­fits Of Being Bilin­gual: Two Lan­guages May Delay Alzheimer's Disease

Many Cana­di­ans can attest that the bonuses of being bilin­gual are boun­ti­ful. Learn­ing a sec­ond lan­guage has been shown to bring in more income and offers a more flex­i­ble mind­set — and now, a study out of York Uni­ver­sity in Ontario links know­ing two lan­guages with a delay in the onset of demen­tia and Alzheimer's Disease.

Carbs With­out Cause: 8 Foods Worse Than White Bread

Not only can these have as many calo­ries as a meal, (some­times upwards of 400) their carb count can be on par with a pre-marathon pasta binge; some have 60-80g of carbs per serv­ing. Add in sug­ars, sat­u­rated fats in whipped cream and choco­late fla­vor­ings, and you've got dessert in a very large plas­tic cup.

Salt In Food: 8 Eats Saltier Than Potato Chips

You prob­a­bly already know that a diet too high in salt can increase a person's risk of heart attack, stroke, heart fail­ure, and dying from other heart-related causes.

Ital­ian Food For Passover: No Need To Skimp On The Meatballs

For those who will be cel­e­brat­ing Passover over the next week or so, a cup­board full of matzah can feel like the most bor­ing menu prospect in the world (after, of course, you've fin­ished off the seder left­overs). Sure, you have your recipe for chicken soup and kugel, but why not get inven­tive this year with some Ital­ian inspiration?

World's Best Food Mar­kets: St. Lawrence Mar­ket Tops National Geo­graphic List

Savour the win Toronto. St. Lawrence Mar­ket was named by National Geo­graphic as the world's best food mar­ket. The Toronto land­mark beat out a lot of tasty com­pe­ti­tion includ­ing New York's Union Square Green­mar­ket and London's Bor­ough Market.

7 April Superfoods

As are an ever-increasing num­ber of healthy and deli­cious fruits and veg­gies — foods that can help boost your energy and put some pep in your step so you can get out there and actu­ally, you know, do stuff now that the sea­son has changed.

What Is Passover? — Study & His­tory — Passover

The eight-day fes­ti­val of Passover is cel­e­brated in the early spring, from the 15th through the 22nd of the Hebrew month of Nis­san. It com­mem­o­rates the eman­ci­pa­tion of the Israelites from slav­ery in ancient Egypt. And, by fol­low­ing the rit­u­als of Passover, we have the abil­ity to relive and expe­ri­ence the true free­dom that our ances­tors gained.

Easter Bilby takes on the Easter Bunny — World — CBC News

The bilby is a rabbit-sized mar­su­pial with a pouch like a kan­ga­roo, and there may be as few as 600 of them left.

Tags: Bad Habits, Canadian, Canadian Market, Canola Benefits, Carb Count, Celebrating Passover, Chicken Soup, Cup Salt, Flavorings, Food Markets, Grocery Store Shelves, Heart Attack, Heart Failure, Italian Food, Italian Inspiration, Learning A Second Language, Leftovers, Meatballs, Passover, Personal Enlightenment, Poor Diet, Potato Chips, Saturated Fats, Whipped Cream, White Bread
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David Rosenberg: The Record Quarter

Tuesday, April 3rd, 2012

from David Rosen­berg, Gluskin Sheff

What a quar­ter! The Dow up 8% and enjoy­ing a record quar­ter in terms of points — 994 of them to be exact and in per­cent terms, now just 7% off attain­ing a new all-time high. The S&P 500 surged 12% (and 3.1% for March; 28% from the Octo­ber 2011 lows), which was the best per­for­mance since 1998. It seems so strange to draw com­par­isons to 1998, which was the infancy of the Inter­net rev­o­lu­tion; a period of fis­cal sta­bil­ity, 5% risk-free rates, sus­tained 4% real growth in the econ­omy, strong hous­ing mar­kets, polit­i­cal sta­bil­ity, sub-5% unem­ploy­ment, a sta­ble and pre­dictable cen­tral bank.

And look at the com­po­si­tion of the rally. Apple soared 48% and accounted for nearly 20% of the appre­ci­a­tion in the S&P 500 (it now makes up 3% of the 200 largest hedge fund port­fo­lios — three times as much as any other name; 4% of the S&P 500 mar­ket cap; and 11% of the Nas­daq). Not since Microsoft in 1999 was one stock this dom­i­nant, though the val­u­a­tions are not com­pa­ra­ble (MSFT then was trad­ing with a 70x P/E multiple).

But out­side of Apple, what led the rally were the low-quality names that got so beat up last year, such as Bank of Amer­ica bounc­ing 72% (it was the Dow's worst per­former in 2011; finan­cials in aggre­gate rose 22%). Sears Hold­ings have sky­rock­eted 108% this year even though the com­pany doesn't expect to make money this year or next.

What does that tell you? What it says is that this bull run was really more about pric­ing out a pos­si­ble finan­cial dis­as­ter com­ing out of Europe than any­thing that could really be described as pos­i­tive on the global macro­eco­nomic front. Low– qual­ity stocks in the S&P 500 out­per­formed high-quality stocks in Q1 by 500 basis points and high-beta stocks within the Rus­sell 1000 out­per­formed low– beta by 900bps. On a global scale, what has been a poorer place to put cap­i­tal to work than Japan? And yet the Nikkei posted a rip­ping 19% advance in Q1, the best start to any year since the pre-bubble-burst times of 1988. Emerg­ing mar­kets are up 13% year-to-date. Greece ral­lied 7% in Q1 — that also tells you some­thing about this rally. It's called a dead-cat bounce. Mean­while, the stodgy sec­tors that worked so well last year are bid­ing their time — util­i­ties so far in 2012 are down 3%, tele­com is flat, and sta­ples are up a mere 5%.

Most investors can dig back to 2000 if they really try. It was not uncom­mon for typ­i­cally risk-averse investors such as retirees to be insis­tent that at least half of their port­fo­lios con­sisted of Microsoft, Intel, Cisco and Dell. Each of these stocks had gone par­a­bolic and none of them paid div­i­dends, which was a good thing because that left them with all those earn­ings to plow back into the busi­ness. If you needed to buy gro­ceries, you could just sell a few shares for cash flow.

My how things have changed. Today, "div­i­dend pay­ing stocks" are all the focus of atten­tion — not to men­tion fund flows. Indeed, what is still so fas­ci­nat­ing is how the pri­vate client sec­tor sim­ply refuses to drink from the Fed liq­uid­ity spiked punch bowl, hav­ing been burnt by two cen­tral bank-induced bub­bles sep­a­rated less than a decade apart. Investors con­tinue to use stock price appre­ci­a­tion as an oppor­tu­nity to rebal­ance and diver­sify rather than chase per­for­mance — pulling $15.6 bil­lion from U.S. equity mutual funds so far this year while tax­able bond funds have seen net inflows amount­ing to $59 billion.

The lack of any real sig­nif­i­cant back-up in bond yields sug­gests that the asset allo­ca­tors have been idle as well.

It would then seem as though this is a mar­ket being dri­ven by traders. Then again, it has been a very trad­able rally, just as the post-QE1 and post-QE2 jumps were. Ditto for the cur­rent post-LTRO rally. But liq­uid­ity is not an anti­dote for fun­da­men­tals. And a mar­ket that lacks breadth, par­tic­i­pa­tion and vol­ume is not gen­er­ally one you can rely on for sus­tained strength, notwith­stand­ing the ter­rific first quar­ter that risky assets deliv­ered. We lived through this exactly a year ago.

Mean­while, we have real estate defla­tion rear­ing its ugly head in China, a spread­ing Euro­pean reces­sion (for all the talk of Ger­man resilience, retail sales vol­umes sank 1.1% in Feb­ru­ary and have con­tracted now in four of the past five months), acute debt prob­lems in Por­tu­gal and Spain (there is already talk in Greece about the need for a third bailout), and the U.S. data have been com­ing out rather mixed (it should have enjoyed a much big­ger bounce than it did in recent months from the extremely warm weather — it was the fourth warmest win­ter since 1896; 15% warmer than usual.

In Chicago, it was the warmest March ever and sec­ond balmi­est March on record in New York City. For the lat­ter, it was 9 degrees above nor­mal and would have lined up in the top 10 for any April!). That the employ­ment, hous­ing and spend­ing data weren't even stronger than what they showed — likely lit­tle bet­ter than a 2% pace for Q1 real GDP — is the real story beneath the story. The fact that the 10-year note yield stopped at 2.4% and has since ral­lied 20 basis points instead of mak­ing the expected tech­ni­cal chal­lenge of 2.65% sug­gests that the bond mar­ket crowd may be fig­ur­ing out what this means for the Q2 land­scape as the weather skew to the data subsides.

U.S. DATA ON SHAKY GROUND
Yes, yes, U.S. per­sonal spend­ing jumped an above-expected 0.8% in Feb­ru­ary, above the 0.6% increase that was gen­er­ally expected and the largest monthly gain since August 2009 when the shoots were green. But if truth be told, this as we would say in mar­ket par­lance, was a "low mul­ti­ple" increase. The rea­son? Per­sonal incomes were soft and that is what counts most — income fun­da­men­tals remain dis­mal. Not only did income come in soft at +0.2% (half what was expected) but not even enough to cover the cost of liv­ing, but Jan­u­ary and Feb­ru­ary were both revised lower. Real dis­pos­able income also declined 0.1% — the third decrease in the past four months and on a per capita basis is down 0.4% YoY, a far cry from the +2% trend of a year ago. The econ­omy is build­ing momen­tum. Right.

Let's just say that had the sav­ings rate stayed the same in Feb­ru­ary, nom­i­nal con­sumer spend­ing growth would have come in at a puny +0.2% and guess what? Real PCE would have been –0.1%. Thanks for com­ing out. As we said, a "low qual­ity" spend­ing per­for­mance, absent the income fun­da­men­tals, there is no sustainability.

Then we got yet another spotty regional man­u­fac­tur­ing index in the form of the Chicago PMI (the national fig­ure comes out today). It came in below expec­ta­tions at 62.2 for March (con­sen­sus was 63.0) — a 1.8 point drop from the pre­vi­ous month, and the third decline in the past four months. New orders slid from 69.2 to 63.3 — the largest one month drop since last May and the low­est level since Octo­ber (this is now the fifth man­u­fac­tur­ing sur­vey to show a drop in new orders). If not for the inven­to­ries, which jumped from 49.6 to 57.4 — the sharpest run-up since Decem­ber 2010 and the high­est lev­els since last Sep­tem­ber — the head­line decline would have been much worse. And in a sign­post of how cor­po­rate exec­u­tives (or the Human Resource depart­ments in any event) are respond­ing to neg­a­tive pro­duc­tiv­ity growth, the employ­ment index dropped from 64.2 to 56.3— largest drop since April 2008 and it has fallen in two of the past three months.

Then we got the Uni­ver­sity of Michi­gan con­sumer sen­ti­ment index which was revised higher for March to 76.2 from 74.3 in the pre­lim­i­nary read­ing — this the high­est level since Feb­ru­ary 2011. What was inter­est­ing were the details beneath the sur­face, such as auto buy­ing plans being revised down from 123 to 122 — first decline in three months; and buy­ing con­di­tions for large house­hold items being revised lower from 127 to 125— a four-month low.

Finally, the best Canada could muster up was a 0.1% gain in real GDP for Jan­u­ary. At least it was pos­i­tive — but barely. It reveals an econ­omy that right now is uneven and sput­ter­ing. It's a good thing there was a solid hand­off from the tail-end of Q4, as that is what is keep­ing Q1 GDP esti­mates close to a 2% annual rate. If there is a piece of infor­ma­tion that Cana­dian dol­lar bulls can put in their back pocket it is that man­u­fac­tur­ing out­put, even with the loonie at par, man­aged to post a solid 0.7% advance — fac­tory out­put up now for five months run­ning. Now that is impressive.

Copy­right © Gluskin Sheff

Tags: Bank Of America, Basis Points, Bull Run, Canadian, Canadian Market, China, David Rosenberg, Financial Disaster, Fiscal Stability, Fund Portfolios, Global Scale, Gluskin Sheff, Hedge Fund, Internet Revolution, Low Quality, Lows, Msft, Nasdaq, Political Stability, Quality Names, Quality Stocks, Record Quarter, Sears Holdings
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Shifting Winds-Turbulence Ahead? (Sonders)

Monday, April 2nd, 2012

Shift­ing Winds-Turbulence Ahead?

March 30, 2012

by Liz Ann Son­ders,Senior Vice Pres­i­dent, Chief Invest­ment Strate­gist, Charles Schwab & Co., Inc., and,
Brad Sorensen, CFA, Direc­tor of Mar­ket and Sec­tor Analy­sis, Schwab Cen­ter for Finan­cial Research, and
Michelle Gib­ley, CFA, Direc­tor of Inter­na­tional Research, Schwab Cen­ter for Finan­cial Research

Key Points

• Trea­sury yields have moved some­what higher, while stocks have largely con­tin­ued to rise. Some recent cor­re­la­tions appear to be break­ing down, which could lead to some increased volatil­ity but we remain rel­a­tively con­fi­dent in the equity mar­ket. Per­cep­tion as to the next poten­tial moves by the Fed­eral Reserve appeared to be shift­ing, but Chair­man Bernanke reit­er­ated their easy mon­e­tary stance. Uncer­tainty is ris­ing and the Fed’s goal of increased clar­ity through more trans­par­ent com­mu­ni­ca­tion is under increased scrutiny.
• Liq­uid­ity con­cerns in Europe have eased but eco­nomic risks remain ele­vated, while Spain and Italy face deal with their ongo­ing debt crises. Mean­while, fears remain about a hard land­ing in China, although we have a more san­guine view.

Are we start­ing the return to a more "nor­mal" mar­ket envi­ron­ment? It's too early to tell but we are begin­ning to see lower volatil­ity and asset class cor­re­la­tions. Con­tribut­ing to this more sta­ble envi­ron­ment is a shift­ing of Fed expec­ta­tions and increased investor con­fi­dence about US eco­nomic expan­sion. How­ever, we acknowl­edge that such a shift will likely cause some near-term tur­bu­lence in the mar­ket, espe­cially given ele­vated bull­ish investor sen­ti­ment (a con­trar­ian indi­ca­tor). The mar­ket has also become tech­ni­cally extended after its roughly 30% rally since early Octo­ber 2011, and could be due for a breather. Addi­tion­ally, an uncer­tain earn­ings sea­son is approach­ing, oil prices con­tinue to be con­cern­ing, and the siren song of "sell in May" is likely to be heard again. We believe any con­sol­i­da­tion is likely to be shal­low and could bring back some of the "wall of worry" that the mar­ket loves to climb.

One of this year’s ear­lier trends had been stocks mov­ing higher, but Trea­sury bond yields remain­ing near record lows, indi­cat­ing both con­tin­ued con­cern about the sus­tain­abil­ity of the eco­nomic expan­sion, and the con­fi­dence that the Fed­eral Reserve would con­tinue its extremely accom­moda­tive mon­e­tary stance for the fore­see­able future. Recently, we’ve seen Trea­sury yields move up from those record lows, while stocks con­tin­ued to move higher. This could be the begin­ning of a shift in investor atti­tudes as con­fi­dence in the eco­nomic expan­sion may be grow­ing lead­ing to skep­ti­cism that the Fed can main­tain its cur­rent pol­icy stance through 2014.

Yields Move Higher—For Pos­i­tive Reasons

Source: Fact­Set, Fed­eral Reserve. As of Mar. 27, 2012.

While it's too early to say this is the start of a trend of yields mov­ing inex­orably higher, it does appear that the retail investor could begin to shift some assets from bond funds and cash into equi­ties. This could feed the next leg up in the equity rally.

Eco­nomic Transition

Part of the impe­tus behind the retail investor warm­ing up to equi­ties may be the improve­ment in eco­nomic data—especially as it relates to jobs and hous­ing. But here too we may be enter­ing a tran­si­tion phase as year-over-year com­par­isons become more dif­fi­cult and sub­stan­tial gains become harder to come by. Hous­ing data con­tin­ues to be mixed and although ini­tial job­less claims recently hit their low­est level in three years, the pace of the recov­ery in jobs could slow. This could con­tribute to near-term volatil­ity, but we do believe in the sus­tain­abil­ity of the eco­nomic expan­sion, which should help to sup­port equity prices through the bal­ance of 2012.

Jobs pic­ture con­tin­ues to improve

Source: Fact­Set, U.S. Dept. of Labor. As of Mar. 27, 2012.

Hous­ing is not off to the races and likely won’t see a sharp bounce off of the bot­tom, but we are see­ing encour­ag­ing signs. Although exist­ing home sales fell 0.9% month-over-month in Feb­ru­ary, it was still the best Feb­ru­ary read­ing in five years and sales were up 8.8% over a year ago. Mean­while, hous­ing starts fell 1.1% but forward-looking build­ing per­mits rose 5.1%, to the high­est level since Octo­ber 2008. And while hous­ing remains extremely afford­able based on his­tor­i­cal lev­els, mort­gage rates have moved mod­estly higher. Some­what counter-intuitively this could con­tribute to fur­ther improve­ment of the hous­ing mar­ket as the prospect of rates actu­ally mov­ing higher may push poten­tial pur­chasers who had been sit­ting on the fence toward action.

Other eco­nomic data con­tin­ues to show growth in the econ­omy, although there are some poten­tial chinks that we are watch­ing closely. The Empire Man­u­fac­tur­ing Index moved to its high­est level since June 2010 while the Philly Fed Index rose to its best read­ing since April 2011. How­ever, the for­ward look­ing new orders com­po­nent of both reports moved lower. While not overly con­cern­ing yet, it’s some­thing we’re keep­ing an eye on.

Addi­tion­ally, the Index of Lead­ing Eco­nomic Indi­ca­tors rose 0.7% in Feb­ru­ary, mark­ing the fifth-straight month of improve­ment. The National Fed­er­a­tion of Inde­pen­dent Busi­nesses Index moved higher, indi­cat­ing improv­ing small busi­ness con­fi­dence. Finally, retail sales moved 1.1% higher; while ex-autos and gas they moved 0.6% higher and the pre­vi­ous month was also revised upward, indi­cat­ing the Amer­i­can con­sumer con­tin­ues to spur activity.

Fed Stance Shifting?

This con­tin­ued improv­ing data may be con­tribut­ing to a shift in the per­cep­tion of the future of Fed pol­icy. While the recent Fed meet­ing kept pol­icy the same and con­tin­ued to pre­dict near zero inter­est rates through at least late 2014, they did upgrade their out­look of the econ­omy slightly. Also, sev­eral Fed mem­bers have said they believe higher inter­est rates may be needed sooner than cur­rently offi­cially pre­dicted. The fed funds futures mar­ket has the first rate hike com­ing at least six months before the end of 2014. And finally, dur­ing Chair­man Bernanke’s recent tes­ti­mony on Capi­tol Hill, he did noth­ing to indi­cate another round of quan­ti­ta­tive eas­ing was in the cards, lead­ing investors to believe the Fed's con­fi­dence in the eco­nomic expan­sion may be grow­ing. How­ever, in a sub­se­quent speech, he reit­er­ated his belief that the econ­omy and job mar­ket would con­tinue to need Fed assis­tance, throw­ing a lit­tle more uncer­tainty into the equa­tion. We are encour­aged at these glim­mers of hope and believe that a return to more nor­mal pol­icy sooner rather than later would be appropriate.

Europe’s debt cri­sis merely on pause

The sec­ond Greek bailout was com­pleted on March 20 with mar­kets hardly bat­ting an eye. But the euro­zone sov­er­eign debt cri­sis is far from over—it is merely on pause and there is still risk of future outbreaks.

Where could sov­er­eign debt con­cerns arise?

• Greece and Por­tu­gal could need addi­tional bailouts;
• Ire­land could ask for debt for­give­ness to bol­ster a pub­lic vote for the fis­cal pact;
• France’s gen­eral elec­tion could result in a change of lead­er­ship from Sarkozy to Hollande.

How­ever, we feel these poten­tial events are unlikely to result in a broad con­ta­gion out­break. On the other hand, Spain and Italy have the abil­ity to heat up con­cerns and risk aver­sion due to their large debts and economies. Italy’s econ­omy has grown less than the euro­zone aver­age over the past decade and reforms are needed to improve com­pet­i­tive­ness and enhance growth prospects. Ital­ian Prime Min­is­ter Monti needs to keep mak­ing progress to main­tain investor con­fi­dence, and watered down labor reforms may not have a last­ing effect.

How­ever, Italy has some pos­i­tive attrib­utes, includ­ing a wealthy pri­vate sec­tor with a per capita net worth more than three times higher than the other Euro­pean periph­eral coun­tries, accord­ing to BCA Research, giv­ing them the abil­ity to fund debt locally. As such, Italy’s debt tends to be in stronger, longer-term, hands. Addi­tion­ally, Italy has a pri­mary bud­get sur­plus – a sur­plus before debt pay­ments – as well as long debt maturities.

Spain's hous­ing bub­ble still deflating

Source: Fact­Set, S&P/Case-Shiller, Bank of Spain. As Mar. 27, 2012. Indexed to 100 = 1/1/1996.

Spain on the other hand has a more uncer­tain and risky out­look. While Spain’s cur­rent gov­ern­ment debt load is smaller than Italy’s as a per­cent­age of gross domes­tic prod­uct (GDP), it has an ele­vated deficit, high and ris­ing unem­ploy­ment and a hous­ing bub­ble that is still deflat­ing. A risk is that the large amount of pri­vate sec­tor debt could incur more losses for banks, poten­tially requir­ing cash infu­sions from the gov­ern­ment. Addi­tion­ally, instead of mak­ing deficit-reduction progress, Spain has backpedaled; now tar­get­ing a higher deficit to end 2012 than envi­sioned a few months ago.

Pos­i­tively, Euro­pean pol­i­cy­mak­ers are doing their part to con­tain risks, from the Euro­pean Cen­tral Bank's three-year loans and Germany's recent will­ing­ness to com­bine the tem­po­rary Euro­pean Finan­cial Sta­bil­ity Facil­ity (EFSF) with the longer-term Euro­pean Sta­bil­ity Mech­a­nism (ESM) that comes into effect in July. How­ever, an even big­ger fire­wall may even­tu­ally be needed.

Europe drag­ging down global growth

The lin­ger­ing effects of the sov­er­eign debt cri­sis on the Euro­pean econ­omy con­tinue. The renewed down­turn of euro­zone pur­chas­ing man­ager indexes in March indi­cate the econ­omy is still frag­ile and it could take some time before growth reac­cel­er­ates. A hob­bled Euro­pean bank­ing sys­tem remains at the heart of the slow­down. Bank bal­ance sheets likely don't have enough excess cap­i­tal to expand lend­ing and banks have responded by tight­en­ing lend­ing stan­dards. Lend­ing is the lifeblood of eco­nomic growth and a severe reduc­tion in lend­ing is likely to restrain activity.

In terms of invest­ment impli­ca­tions, the out­look for Euro­pean stocks is mixed. Val­u­a­tions appear attrac­tive and we believe cor­re­la­tions will decline and investors will dif­fer­en­ti­ate across mar­kets. Mar­kets with stronger economies such as Ger­many could do bet­ter, while those with weaker eco­nomic out­looks, like Spain, could lag. The Ital­ian stock mar­ket falls in the mid­dle, as a neg­a­tive eco­nomic out­look is off­set by high pri­vate sec­tor wealth.

Should we worry about China?

There are plenty of bear­ish sto­ries about China these days and China remains a puz­zle to many. The lack of trans­parency and the view that news is fil­tered and man­aged helps fuel the fears.

We believe the truth lies some­where between the bear­ish and bull­ish case. We still believe that a hard land­ing is unlikely and that mar­kets are at times over-reacting to data that is really not new news. Exam­ples include the 7.5% growth tar­get for 2012 when the Five-Year Plan issued a year ago envi­sioned a 7% rate over the full period; and com­ments from BHP Bil­li­ton that demand for iron ore would drop to single-digits, which was not sig­nif­i­cantly dif­fer­ent than what they had said in the past.

Even reports that China's man­u­fac­tur­ing pur­chas­ing man­ager index (PMI) is in con­trac­tion ter­ri­tory are a mis­nomer. The PMI sur­vey is a dif­fu­sion index—a read­ing below 50 indi­cates more peo­ple say things are slower ver­sus last month than faster—in other words, below aver­age activ­ity. In a fast grow­ing econ­omy such as China, this does not nec­es­sar­ily equate to a contraction.

Man­u­fac­tur­ing in China slowing

Source: Fact­Set, Markit. As Mar. 27, 2012.

We have believed for some time that China's econ­omy would con­tinue to slow, but that a sharp drop in infla­tion and money sup­ply would allow stim­u­lus to be enacted that could reac­cel­er­ate growth later in 2012. How­ever, we are dis­cour­aged by so far mod­est pol­icy eas­ing amid signs of accel­er­ated slowing.

In par­tic­u­lar, the report that prof­its for Chi­nese indus­trial com­pa­nies fell 5.2% dur­ing the first two months of 2012 was worse than we expected. Granted, this fig­ure was after prof­its gained 34.3% a year ear­lier and is dur­ing a sea­son­ally weak period, so it may not be a last­ing trend, but is concerning.

The Chi­nese gov­ern­ment typ­i­cally takes grad­ual moves, but the slow pace of response while eco­nomic data is mov­ing faster indi­cates the gov­ern­ment could slip behind the eco­nomic momen­tum, then strug­gle to gain ground. China’s econ­omy is now the second-largest glob­ally and is becom­ing tougher to micro-manage – the risk of a pol­icy mis­take is grow­ing. We’re not ready to change our view as we believe we’re still in the early innings of the slow­down, but have a wary eye on pol­icy response.

An event that could have longer-term impli­ca­tions is the com­ing polit­i­cal changeover at year's end. Con­cerns have arisen after the party chief in Chongqing, one of China's biggest cities, was sacked in March. This is the high­est level offi­cial removed in over two decades. There appears to be increas­ing strains within the Com­mu­nist party about whether to move toward reforms or tighten con­trol. We'll be mon­i­tor­ing this over the com­ing year.

Read more inter­na­tional research at www.schwab.com/oninternational.

Impor­tant Disclosures

The MSCI EAFE® Index (Europe, Aus­trala­sia, Far East) is a free float-adjusted mar­ket cap­i­tal­iza­tion index that is designed to mea­sure devel­oped mar­ket equity per­for­mance, exclud­ing the United States and Canada. As of May 27, 2010, the MSCI EAFE Index con­sisted of the fol­low­ing 22 devel­oped mar­ket coun­try indexes: Aus­tralia, Aus­tria, Bel­gium, Den­mark, Fin­land, France, Ger­many, Greece, Hong Kong, Ire­land, Israel, Italy, Japan, the Nether­lands, New Zealand, Nor­way, Por­tu­gal, Sin­ga­pore, Spain, Swe­den, Switzer­land and the United Kingdom.The MSCI Emerg­ing Mar­kets IndexSM is a free float-adjusted mar­ket cap­i­tal­iza­tion index that is designed to mea­sure equity mar­ket per­for­mance in the global emerg­ing mar­kets. As of May 27, 2010, the MSCI Emerg­ing Mar­kets Index con­sisted of the fol­low­ing 21 emerging-market coun­try indexes: Brazil, Chile, China, Colom­bia, the Czech Repub­lic, Egypt, Hun­gary, India, Indone­sia, Korea, Malaysia, Mex­ico, Morocco, Peru, Philip­pines, Poland, Rus­sia, South Africa, Tai­wan, Thai­land and Turkey.The S&P 500® index is an index of widely traded stocks.Indexes are unman­aged, do not incur fees or expenses and can­not be invested in directly.Past per­for­mance is no guar­an­tee of future results.Investing in sec­tors may involve a greater degree of risk than invest­ments with broader diversification.International invest­ments are sub­ject to addi­tional risks such as cur­rency fluc­tu­a­tions, polit­i­cal insta­bil­ity and the poten­tial for illiq­uid mar­kets. Invest­ing in emerg­ing mar­kets can accen­tu­ate these risks.The infor­ma­tion con­tained herein is obtained from sources believed to be reli­able, but its accu­racy or com­plete­ness is not guar­an­teed. This report is for infor­ma­tional pur­poses only and is not a solic­i­ta­tion or a rec­om­men­da­tion that any par­tic­u­lar investor should pur­chase or sell any par­tic­u­lar secu­rity. Schwab does not assess the suit­abil­ity or the poten­tial value of any par­tic­u­lar invest­ment. All expres­sions of opin­ions are sub­ject to change with­out notice. The Schwab Cen­ter for Finan­cial Research is a divi­sion of Charles Schwab & Co., Inc.

Tags: asset class, Bernanke, Brazil, Canadian Market, Charles Schwab, Chief Investment Strategist, China, Contrarian Indicator, Earnings Season, Economic Expansion, Economic Risks, India, Investor Confidence, Investor Sentiment, Liz Ann, Market Environment, Market Perception, Monetary Stance, Russia, Sanguine View, Senior Vice President, Siren Song, Stable Environment, Transparent Communication, Treasury Yields
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Gold Market Radar (April 2, 2012)

Sunday, April 1st, 2012

Gold Mar­ket Radar (April 2, 2012)

For the week, spot gold closed at $1,668.90 up $6.45 per ounce, or 0.4 per­cent. How­ever, gold stocks, as mea­sured by the NYSE Arca Gold BUGS Index, fell 0.4 per­cent. The U.S. Trade-Weighted Dol­lar Index slid 0.5 per­cent for the week.

Strengths

• Early in the week, com­ments from Fed­eral Reserve Chair­man Ben Bernanke sug­gested the need for con­tin­ued accom­moda­tive mon­e­tary pol­icy. This brought prospects of QE3 back onto the hori­zon and helped pro­vide a floor to the recent down­swing in gold prices.
• Queen­ston Min­ing sold their joint ven­ture prop­erty to Kirk­land Lake Gold for $60 mil­lion and a roy­alty this week. Fac­tor­ing in this $60 mil­lion, the com­pany now has $120 mil­lion in cash and cash equiv­a­lents on their bal­ance sheet. This will be used to fund explo­ration and advance the fea­si­bil­ity study of the Beaver Creek project. The mar­ket reacted pos­i­tively to this and the stock out­per­formed the major gold indexes for the week.
• AuRico Gold sold two small gold mines in Aus­tralia to Croc­o­dile Gold this week. This came as no sur­prise to the mar­ket as AuRico had been talk­ing about the sale of their assets before. The total amount of the sale is $105 mil­lion (Cana­dian), or $0.32 per share. In our eyes, AuRico sold their mines for too lit­tle, but when you con­sider the increas­ing oper­at­ing costs for the company’s Aus­tralian assets, it was the right thing to do strategically.

Weak­nesses

• Fol­low­ing 12 days of protests by gold traders across India, the Indian gov­ern­ment has said that it will review the tax on ‘unbranded’ gold jew­elry. For­mer finance min­ster Yash­want Sinha pressed for a roll­back of the excise duty on non­branded jew­elry, and called for doing away with the newly required Per­ma­nent Account Num­ber (PAN) card to doc­u­ment any gold jew­elry pur­chases worth greater than roughly $4000. The PAN card allows the gov­ern­ment to track sig­nif­i­cant gold pur­chases and would have to be doc­u­mented on an individual’s income tax returns.
• Speak­ing to the Indian par­lia­ment, Pranab Mukher­jee said, “I know it (gold) is part of our cul­ture … but the import of gold of such mag­ni­tude strains bal­ance of pay­ments and affects exchange rate of the rupee through impact­ing supply-demand bal­ance of for­eign exchange.” He went on fur­ther to express his con­cern over the out­flow of pre­cious for­eign exchange on the import of “dead assets that cause prob­lems in the coun­try.” We think Mukher­jee may be con­fused as to which is asset, gold or the rupee, is the “dead” one.
• Cen­terra Gold took a hit this week, down 15 per­cent on Tues­day alone, on news that ice and waste move­ment has halted pro­duc­tion at their Kum­tor mine. In response to the dis­rup­tion, the com­pany revised and reduced its 2012 gold pro­duc­tion by 33 per­cent to 570,000–625,000 ounces. The news proved to be a great buy­ing oppor­tu­nity as Cen­terra fin­ished the week only down 1.8 percent.

Oppor­tu­ni­ties

• Gold­man Sachs urged traders to buy gold in a research note this week. The company’s research shows U.S. real inter­est rates as the pri­mary dri­ver of U.S. dollar-denominated gold prices. Their mod­els sug­gest the cur­rent level of real inter­est rates would be con­sis­tent with the cur­rent trad­ing range of gold prices. As they look for­ward how­ever, their U.S. econ­o­mists expect sub­dued growth and fur­ther eas­ing by the Fed­eral Reserve in 2012. They fore­cast this would push the market’s expec­ta­tions of real inter­est rates back down near zero and gold prices back to $1,840 an ounce.
• Franco-Nevada Corp CEO David Har­quail said that with share prices lag­ging, min­ers are wary of turn­ing to equity mar­kets to raise money and are explor­ing all alter­na­tives such as stream deals or roy­al­ties. The lat­ter are at an all-time high, but with most deals hap­pen­ing in the mid-tier mar­ket, ones over $500 mil­lion will be few and far between. We have a feel­ing there will be a num­ber of roy­alty streams locked-in this upcom­ing year.
• In an inter­view with the Gold Report, Brent Cook com­mented on some trends he has noticed gold sec­tor. He empha­sized that com­pa­nies are start­ing to rec­og­nize that qual­ity of a min­eral deposit super­sedes size. “Grade, or more suc­cinctly mar­gin, is get­ting more and more impor­tant ... These junior com­pa­nies with these large, low-grade, low-margin deposits are then doomed to build.” On a supply-demand basis though, all signs point to gold going up. Brent says that 83 mil­lion ounces are being mined annu­ally right now while only 20–30 mil­lion ounces are being found per year. This gap between pro­duc­tion and dis­cov­ery is not being filled and can only point to a bet­ter gold environment.

Threats

• Still no con­clu­sion or real pro­gres­sion out of Mali, but Rand­gold Resources CEO Mark Bris­tow said that the Bamako air­port has reopened and the bor­ders are open for all traf­fic. He main­tained that the company’s Loulo com­plex was replen­ished with fuel sup­plies over the week­end and that all three of the Rand­gold mines in Mali were oper­at­ing in full.
• Ren­Cap Secu­ri­ties held a spe­cial con­fer­ence call on the sit­u­a­tion in Mali. Their con­sul­tant expects eco­nomic pressure–primarily in the form of sanc­tions and sus­pended West­ern aid–to be the pri­mary out­side inter­ven­tion in Mali. This could ham­per import and export activ­ity, though the rebels have promised to tran­si­tion to new elections.
• How­ever, no timetable exists for the tran­si­tion and given the rebels’ lack of orga­ni­za­tion; they may be tempted to stay in power for a period of months in order to found a polit­i­cal party. This could mean that sanc­tions have the time to truly bite. Any such sanc­tions, how­ever, would be leaky by virtue of the lack of bureau­cratic capa­bil­ity to enforce them among Mali’s neighbors.

Tags: Beaver Creek, Canadian, Canadian Market, Cash And Cash Equivalents, Dollar Index, Feasibility Study, Federal Reserve Chairman, Federal Reserve Chairman Ben Bernanke, Gold, Gold Bugs, Gold Jewelry, Gold Market, Gold Mines In Australia, Gold Prices, gold stocks, Gold Traders, Income Tax Returns, India, Jewelry Purchases, Kirkland Lake Gold, Market Radar, Mines In Australia, Mining, Nyse Arca, Spot Gold
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What Your Handwriting Says About Your Health, and other Weekend Reads

Friday, March 30th, 2012

Here are this week's read­ing diver­sions for your per­sonal enlight­en­ment. Have an awe­some (earth hour, Sat­ur­day 8:30 p.m.) week­end!

Juice pH and Why the Right Alkaline-Acid Lev­els Are So Important

A urine test that is less than 6.8 shows you are becom­ing too acid, and a urine test read­ing over 7.5 means you are becom­ing too alka­line. When your pH goes too far into the acid range cells will become poi­soned by toxic acidic waste caus­ing many cells to die off. This cell die off will lead too cat­a­strophic illness.

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Top 3 Foods For Long Life

If you don't like cooked cab­bage, you can eat coleslaw or shred raw cab­bage on your salad. You should eat some of your cab­bage raw any­way because cook­ing can reduce some of the health benefits.

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Brand vs. Generic: When It Mat­ters (And What To Do When It Does) | Psy­chol­ogy Today

I recently met a rep from a well-known chem­i­cal com­pany (whose name I won't men­tion) who had trav­eled to India to visit their generic drugs plant.  "Let me tell you some­thing," she said. "Any­one that says that generic drugs are the same as brand name is lying."  She went on to tell me how appalling the plant con­di­tions were, and that there were major safety and con­t­a­m­i­na­tion concerns.

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Evo­lu­tion­ary Rea­son For Runner's High?

Researchers had humans and dogs—both natural-born runners—jog a half hour on a tread­mill. Then they sam­pled their blood for endo­cannabi­noids, some of the com­pounds thought to trig­ger the runner's high. As expected, humans and dogs had much higher lev­els after the run. But when ferrets—a seden­tary species—took the same 30-minute trot, they had no spike in those feel-good molecules.

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Dr. Susanne Ben­nett: Are These Com­mon Foods Caus­ing Your Allergies?

The cor­rect diet can dra­mat­i­cally reduce your allergy symp­toms. Our day one goal is to elim­i­nate allergy-inducing foods and replace them with health­ier choices.

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Chem­i­cals in Car­pets, Non-Stick Pans Tied to Thy­roid Dis­ease — Health News — Health.com

The researchers cau­tioned that while the data show an asso­ci­a­tion between the chem­i­cals and thy­roid dis­ease, they do not prove cause and effect, mean­ing there could be other expla­na­tions for why peo­ple with high lev­els of the com­pounds in their blood had more thy­roid disease.

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Celiac and Crohn’s Dis­ease May Share Genetic Risk Fac­tors — Health News — Health.com

Celiac dis­ease, which makes it hard to absorb nutri­ents prop­erly, is an inher­ited autoim­mune dis­ease in which the lin­ing of the small intes­tine is dam­aged by gluten and other pro­tein found in wheat and some other grains. Crohn’s dis­ease is a form of inflam­ma­tory bowel disease.

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Lone­li­ness Hurts the Heart — Heart Dis­ease — Health.com

Peo­ple who lack a strong net­work of friends and fam­ily are at greater risk of developing—and dying from—heart dis­ease, research shows. Accord­ing to some stud­ies, the risk of soli­tude is com­pa­ra­ble to that posed by high cho­les­terol, high blood pres­sure, and even smoking.

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The 14 best sup­ple­ments for men | The Health & Well­ness Blog

In the May 2012 issue of Cana­dian Liv­ing, we're fea­tur­ing a great story on the best sup­ple­ments for women. I'm sure you'll love the arti­cle and find it really use­ful. I never know what sup­ple­ments I should be tak­ing, but now I will know! Be sure to pick up a copy of the issue when it's on news­stands on April 2.

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The 100 Foods Dr. Oz Wants in Your Shop­ping Cart

It's the only gro­cery list you'll ever need. Dr. Oz cov­ers every­thing from pro­duce to desserts to keep your kitchen stocked with only the health­i­est foods. Print this list and take it on your next trip to the supermarket.

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What Your Hand­writ­ing Says About Your Health

Hand­writ­ing is about the brain, not the hand.  Nerve impulses travel down the arm, into the hand, direct­ing the fin­gers to maneu­ver the pen. When the ink hits the paper, it actu­ally reveals the com­plex inner work­ings inside the writer’s body mind and spirit. A deeply trained graphol­o­gist can spot imbal­ances in hand­writ­ing that reveal imbal­ances in the body mind and spirit.

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Reflex­ol­ogy 101

Reflex­ol­ogy reduces stress (a major con­tribut­ing fac­tor to dis­ease), enhances the body's abil­ity to heal itself, and bal­ances both body and soul. Research shows that a sin­gle reflex­ol­ogy ses­sion can cre­ate relax­ation, reduce anx­i­ety, dimin­ish pain, improve blood flow and decrease high blood pressure.

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Tags: Acid Levels, Allergy Symptoms, Cabbage Salad, Canadian, Canadian Market, Carpets, Catastrophic Illness, Chemical Company, Common Foods, Cooked Cabbage, Correct Diet, Diversions, Ferrets, Generic Drugs, Half Hour, Handwriting, Health Benefits, Health News, India, News Health, One Goal, Personal Enlightenment, Psychology Today, Thyroid Disease, Treadmill, Urine Test
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Defence That Pays: Dividend Equities as a Long Term Strategy

Thursday, March 29th, 2012

Defence That Pays
Div­i­dend Equi­ties as a Long-term Strategy

by Alfred Lee, CFA, CMT, DMS
Vice Pres­i­dent & Invest­ment Strate­gist
BMO ETFs & Global Struc­tured Invest­ments
BMO Asset Man­age­ment Inc.
alfred.lee@bmo.com

March 29, 2012
Recent Developments:

• Despite the global macro-economic con­cerns that remain, year to date, investors have clearly favoured risk-assets as improv­ing sen­ti­ment has led global equity mar­kets to rally with sig­nif­i­cant breadth. Although, investors should not put too much focus on day-to-day head­lines, last Thursday’s read­ing of Europe and China’s weak Pur­chas­ing Man­agers Index (PMI), shows how the global eco­nomic recov­ery remains vul­ner­a­ble. While we have become more opti­mistic over the mid-term, we still remain con­cerned on the struc­tural issues remain­ing over the long-term, and is why we con­tinue to rec­om­mend that investors do not throw cau­tion to the wind.
• News of Greece’s debt restruc­tur­ing sev­eral weeks ago, has put con­cerns on the back­burner; although we believe Greece’s sol­vency issues remain over the long-term. On a short-term out­look, this has lifted a major over­hang on the equity mar­kets. Investors should note, how­ever, that credit default swap (CDS) prices of Por­tu­gal still remain ele­vated (Chart A). More­over, China’s poten­tial hous­ing bub­ble and infla­tion hand­cuffs the nation’s abil­ity to imple­ment a whole­sale mon­e­tary eas­ing pol­icy. Thus, unlike 2009, China will not be able to shoul­der the global economy.
• The year-to-date rally in risk-assets hinges on whether U.S. eco­nomic data can sus­tain or con­tinue to build pos­i­tive momen­tum. Although we have increased our rec­om­mended allo­ca­tion to Cana­dian equi­ties, we still remain defen­sive in our com­po­si­tion. Con­cerns on China should weigh on some commodity-based equi­ties over the short-term, so we rec­om­mend that investors look at non-cyclical areas such as div­i­dend pay­ing equi­ties in Canada.
• In addi­tion to being more defen­sive in nature, lower bond yields should lead investors to look to div­i­dend pay­ing equi­ties to source yield. Cur­rently, the 10-year gov­ern­ment bond yield is less than the div­i­dend yield of the S&P/TSX Com­pos­ite Index (TSX) (Chart B). An aging demo­graphic search­ing for income dis­tri­b­u­tions should pro­vide a fur­ther tail­wind for div­i­dend pay­ing equi­ties over the long-run.
• Improv­ing eco­nomic data has also recently led the yield curve to shift upwards (Chart C), which has neg­a­tively impacted bonds, espe­cially those of longer matu­rity. As we have become more bull­ish on equi­ties over the short– and mid-term, investors may want to con­sider real­lo­cat­ing some bond expo­sure to div­i­dend pay­ing equi­ties as a way of main­tain­ing over­all port­fo­lio yield while decreas­ing dura­tion risk. Investors should keep in mind that equi­ties and fixed income do react to risk in dif­fer­ent man­ners and there­fore should keep in mind their over­all port­fo­lio risk composition.

Invest­ment Idea:

• Investors may want to con­sider the BMO Cana­dian Div­i­dend Equity ETF (ZDV) as an effi­cient way to gain expo­sure to a bas­ket of 50 large and some mid-cap Cana­dian div­i­dend pay­ing stocks. Cur­rently, the under­ly­ing port­fo­lio yields 4.5%, diver­si­fied across eight dif­fer­ent sec­tors and a man­age­ment fee of only 0.35%. In addi­tion to being eli­gi­ble for a div­i­dend rein­vest­ment plan (DRIP) like our other BMO ETFs, ZDV pays a monthly dis­tri­b­u­tion. We con­tinue to rec­om­mend defen­sive hold­ings such as ZDV as core posi­tions and more cycli­cal ori­ented themes around the periph­eral as more tac­ti­cally ori­ented themes.

Chart A: CDS Prices on Por­tu­gal Remain Elevated

Source: BMO Asset Man­age­ment Inc., StockCharts.com

Chart B: Cana­dian Bonds Yield­ing Less than Cana­dian Equities

Source: BMO Asset Man­age­ment Inc., Bloomberg,

Chart C: Yield Curve Shift­ing Upwards Will Impact Fixed Income

Source: BMO Asset Man­age­ment Inc., Bloomberg

*All prices as of mar­ket close March 27, 2012 unless oth­er­wise indicated.

Dis­claimer:
Infor­ma­tion, opin­ions and sta­tis­ti­cal data con­tained in this report were obtained or derived from sources deemed to be reli­able, but BMO Asset Man­age­ment Inc. does not rep­re­sent that any such infor­ma­tion, opin­ion or sta­tis­ti­cal data is accu­rate or com­plete and they should not be relied upon as such. Par­tic­u­lar invest­ments and/or trad­ing strate­gies should be eval­u­ated rel­a­tive to each individual’s cir­cum­stances. Indi­vid­u­als should seek the advice of pro­fes­sion­als, as appro­pri­ate, regard­ing any par­tic­u­lar investment.

BMO ETFs are man­aged and admin­is­tered by BMO Asset Man­age­ment Inc, an invest­ment fund man­ager and port­fo­lio man­ager and sep­a­rate legal entity from the Bank of Mon­tréal. Com­mis­sions, man­age­ment fees and expenses all may be asso­ci­ated with invest­ments in exchange-traded funds. Please read the prospec­tus before invest­ing. The indi­cated rates of return are the his­tor­i­cal annual com­pound total returns includ­ing changes in prices and rein­vest­ment of all dis­tri­b­u­tions and do not take into account com­mis­sion charges or income taxes payable by any unit holder that would have reduced returns. The funds are not guar­an­teed, their value changes fre­quently and past per­for­mance may not be repeated.

Tags: Alfred Lee, Asset Management Inc, Backburner, BMO, Canadian, Canadian Equities, Canadian Market, Caution To The Wind, Cmt, Credit Default Swap, Debt Restructuring, Economic Concerns, ETF, ETFs, Global Economy, Global Equity Markets, Global Macro, Housing Bubble, Investment Strategist, Purchasing Managers Index, Structured Investments, Swap Cds, Term Outlook, Wind News
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Tampering with Canadian Pacific risks Canada’s National Dream, in Ackman's Proxy Fight

Thursday, March 29th, 2012

by Jay Nor­den­strom, TalkRail.ca

Is it worth risk­ing an irre­place­able national trans­porta­tion sys­tem for a ques­tion­able promise of a cou­ple of extra pieces of silver?

That’s what Cana­dian Pacific share­hold­ers need to pon­der before vot­ing at the railway’s annual meet­ing in Cal­gary on May 17. Their dilemma results from a messy proxy bat­tle launched by Per­sh­ing Square Cap­i­tal Man­age­ment, a New York hedge fund with own­er­ship stakes in retail­ers J.C. Pen­ney and Tar­get, as well as McDonald’s and Wendy’s.Pershing Square’s CEO, Bill Ack­man, wants share­hold­ers to give him the power to dras­ti­cally revise CP’s board of direc­tors, its man­age­ment and their way of run­ning what is already a prof­itable transcon­ti­nen­tal rail­way. He wants to replace cur­rent CP pres­i­dent Fred Green with for­mer CN pres­i­dent Hunter Har­ri­son, who would return from retire­ment in the U.S. CP prof­its and div­i­dends would allegedly increase rapidly thanks to a new cor­po­rate cul­ture that would include large reduc­tions in loco­mo­tives, freight cars and employees.

On the other side of this dust-up is the cur­rent CP board. It is headed by for­mer Royal Bank of Canada chair­man and CEO John Cleghorn and includes two bright lights recently brought aboard from the U.S. rail indus­try, one of whom was Harrison’s oper­a­tions chief at CN. These heavy­weights and an out­side rail ana­lyst hired by the CP board endorse the cur­rent multi-year growth plan, which was pre­sented to investors in Toronto on March 27. The plan hinges on steady increases in traf­fic, rev­enues and prof­its, as well as cost control.

Per­sh­ing Square’s argu­ment rests on its view that CP has not been per­form­ing as well as CN of late. There is some truth in this, but there are also exten­u­at­ing fac­tors that are being addressed by CP now. A new man­age­ment team totally unfa­mil­iar with CP is unlikely to fix these glitches and mirac­u­lously unlock hid­den value in some­thing as com­plex, cap­i­tal inten­sive and phys­i­cally chal­leng­ing as a 23,700-kilometre, continent-wide rail­way. It’s like expect­ing a super­sized steamship to pull a 90-degree turn mid-ocean.

The real­ity of rail­road­ing is that no two rail­roads are alike. Nor should they be expected to per­form iden­ti­cally. CP and CN han­dle dif­fer­ent mixes of freight traf­fic, take dif­fer­ent routes (even between the same cities) and grap­ple with dif­fer­ent topo­graph­i­cal and cli­matic con­di­tions. These fac­tors can severely affect per­for­mance year-to-year.

The two rail­ways also have widely vari­ant fund­ing his­to­ries. From 1919 to 1995, CN was a Crown cor­po­ra­tion that enjoyed exten­sive pub­lic sup­port. This left a plush infra­struc­ture legacy that con­tin­ues to have a pos­i­tive effect on its per­for­mance as a pri­va­tized railway.

As an investor-owned com­pany through­out its 131-year his­tory, CP has always had to run hard to meet the chal­lenges posed by CN, some large U.S. rail­ways that cross the bor­der and other forms of indi­rectly sub­si­dized trans­porta­tion, such as truck­ing. These chal­lenges have been met and div­i­dends have been paid consistently.

If this CP approach is so flawed, why has CN’s cur­rent pres­i­dent been adopt­ing some of the tech­nolo­gies and customer-friendly ser­vice tech­niques CP has pio­neered and employed for many years?

CP share­hold­ers also need to con­sider the views of major freight ship­pers, who have a huge stake in the future of a nation-spanning rail­way that helps sup­port Canada’s econ­omy, its global com­pet­i­tive­ness and thou­sands of jobs on and beyond its rails. Among those in favour of the CP team’s growth plan are the senior exec­u­tives of min­ing giant Teck Resources, Pater­son Global Foods, Con­sol­i­dated Fast­Frate and Mosaic, the world’s lead­ing pro­ducer of potash and con­cen­trated phosphate.

It’s worth recall­ing the track record of oth­ers who promised untold riches if investors just put cer­tain rail­ways in their hands. As the fourth gen­er­a­tion of my fam­ily to work in and around the rail indus­try, I had a ring­side seat for the fall­out from mis­guided deci­sions to install these prophets of profit at the helm of sev­eral U.S. rail­ways. The result was asset strip­ping, ser­vice cuts, line aban­don­ments, employee lay­offs, insol­vency and gov­ern­ment intervention.

Do unsub­stan­ti­ated claims of ever-increasing CP div­i­dends make Per­sh­ing Square’s bid a risk worth tak­ing? Tam­per­ing with the rail­way long known as our national dream could be dan­ger­ous for investors, ship­pers, employ­ees and the pub­lic. It risks turn­ing CP into a national night­mare. That’s no way to run a railway.

Copy­right © TalkRail.ca

Tags: Bank Of Canada, Bill Ackman, Canadian, Canadian Market, Ceo John, Cp Board, Cp Rail, Freight Cars, Hunter Harrison, J C Penney, John Cleghorn, Mining, National Dream, National Transportation System, New Management Team, Pershing Square, Pershing Square Capital, Pershing Square Capital Management, President Fred, Proxy Battle, Proxy Fight, Royal Bank Of Canada, Steady Increases, Target, Transcontinental Railway
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Frontrunning: March 27, 2012

Tuesday, March 27th, 2012

• 6.0+ Mag­ni­tude quake strikes near Tokyo (USGS)
• Ire­land Faces Legal Chal­lenge on Bank Bailout (Reuters)
• Bernanke says U.S. needs faster growth (Reuters)
• Spain Promises Aus­tere Bud­get Despite Poll Blow (Reuters)
• Orban Pun­ished by Investors as Hun­gary Retreats From IMF Talks (Bloomberg)
• Obama vows to pur­sue fur­ther nuclear cuts with Rus­sia (Reuters)
• Japan's Azumi Wants Tax Issue Decided Tues­day (WSJ)
• Aus­tralia Los­ing Com­pet­i­tive Edge, Says Dow Chem­i­cals CEO (Aus­tralian)
• OECD Urges ‘Ambi­tious’ Euro­zone Reform (FT)
• Yields Less Than Italy’s Sig­nal Indone­sia Exit­ing Junk (Bloomberg)

Overnight News Digest

Canada

THE GLOBE AND MAIL

- Public-sector employ­ees in Ontario will have to make higher con­tri­bu­tions to their pen­sion plans, have their ben­e­fits cut or work longer before they can col­lect retire­ment pay, as part of new aus­ter­ity mea­sures to be unveiled in Tuesday's provin­cial bud­get. r.reuters.com/hys37s

- Nat­ural Resources Min­is­ter Joe Oliver con­firmed Mon­day that the bud­get will spell out the government's inten­tion to reduce reg­u­la­tory delays faced by energy and min­ing com­pa­nies when they pro­pose major projects in Canada. r.reuters.com/gys37s

- It was offi­cially billed as a nuclear secu­rity sum­mit, but trade and the econ­omy trumped ter­ror­ism in Stephen Harper's back­room chats with other world lead­ers. r.reuters.com/fys37s

Reports in the busi­ness section:

- As North Amer­i­can crude oil prices con­tinue to lan­guish, pipeline builder Enbridge Inc is launch­ing a major new round of con­struc­tion to push more bar­rels down the cen­tre of the con­ti­nent, in hopes of eas­ing sup­ply gluts that have kept prices low. r.reuters.com/dys37s

NATIONAL POST

- Depart­ment of National Defence offi­cials charged with select­ing Canada's next fighter jet met with Lock­heed Mar­tin — maker of the F-35 — more times than with all other bid­ders com­bined before their billion-dollar deci­sion to select it. r.reuters.com/cys37s

- The fed­eral government's once-feared bad-news bud­get is being trans­formed into a plan that will com­bine spend­ing cuts with new mea­sures designed to spur the econ­omy, RBC Eco­nom­ics says in a research report Mon­day. r.reuters.com/bys37s

- The gov­ern­ment of Alberta is expected to pocket $1.2 tril­lion in roy­al­ties from the oil sands in the next 35 years, as oil pro­duc­tion rises to 5.4 mil­lion bar­rels a day from today's 1.6 mil­lion bpd, accord­ing to a new study by the Cana­dian Energy Research Insti­tute made pub­lic Mon­day. r.reuters.com/xus37s

Reports in the busi­ness section:

- Engi­neer­ing firm SNC-Lavalin Group Inc could face a reg­u­la­tory or police probe into the US$56 mil­lion that went miss­ing under Chief Exec­u­tive Offi­cer Pierre Duhaime and into the company's busi­ness in Libya. r.reuters.com/zus37s

WSJ

* Ben Bernanke said that the Fed­eral Reserve's easy money poli­cies are still needed to con­front deep prob­lems in the nation's labor market.

* After years of tout­ing the supe­ri­or­ity of online ads, Google is tak­ing a dif­fer­ent approach to pro­mote itself against rivals.

* The Chief Exec­u­tive of BATS Global Mar­kets has reached out to direc­tors about his future and said the com­pany likely will can­cel bonuses related its stock floata­tion, which was pulled Friday.

* Abu Dhabi's sovereign-wealth fund said it would invest $2 bil­lion to buy into the sprawl­ing busi­ness empire of Brazil's rich­est man, Eike Batista.

* A House sub­com­mit­tee said a top lawyer at J.P. Mor­gan Chase will tes­tify at a highly antic­i­pated hear­ing Wednes­day into the col­lapse of MF Global Hold­ings Ltd

FT

GOLDMAN EYES ELECTRONIC BOND TRADING

Gold­man Sachs is con­sid­er­ing how to roll out elec­tronic trad­ing tech­nol­ogy to its fixed income busi­ness — one of its biggest rev­enue gen­er­a­tors — as it pre­pares for new regulation.

BUMI BOARD DISPUTE NEARS RESOLUTION

London-listed Bumi is expected to announce changes to the board and man­age­ment that will see financier Nat Roth­schild step down as co-chairman of the Indone­sian coal miner he cre­ated in 2010.

CAMERON BOWS IN CASH FOR ACCESS ROW

British Prime Min­is­ter David Cameron has been forced to reveal the names of Con­ser­v­a­tive party donors invited to din­ners at his offi­cial res­i­dences as pres­sure grows for an inde­pen­dent inquiry into the "cash for access" affair.

JEFFERIES TO SET UP EUROPE FINANCING ARM

Jef­feries is look­ing to set up a cor­po­rate lend­ing busi­ness in Europe as the fast-growing U.S. invest­ment bank seeks to grab mar­ket share from retrench­ing rivals.

FED DOUBTS BIG US JOBLESS FALLS WILL LAST

Rapid recent falls in U.S. unem­ploy­ment may prove to be a one-off unless eco­nomic growth picks up, Ben Bernanke, chair­man of the U.S. Fed­eral Reserve, warned on Monday.

HUEWEI SEEKS TO OVERTURN AUSTRALIAN BAN

Huawei, the world's second-largest net­work equip­ment ven­dor by sales, aims to con­vince the Aus­tralian gov­ern­ment with gen­er­ous secu­rity mea­sures to revert a ban on the Chi­nese com­pany from a large broad­band project.

EMBRAER AIMS FOR SECOND SHOT AT US JET CONTRACT

Embraer said it expects a can­celled U.S. Air Force con­tract for light attack air­craft to be re-tendered "within weeks" in a deal seen as cru­cial to the defence ambi­tions of the Brazil­ian air­craft producer.

EASYJET OFFERS EXIT-ROW SEATS FOR 12 STG

Seats in the exit rows of some Easy­Jet flights will cost 12 pounds from April as the no-frills air­line seeks to attract cus­tomers reluc­tant to take part in the boarding-time mêlée of bud­get flying.

NYT

* State offi­cials and insur­ance exec­u­tives are devis­ing pos­si­ble alter­na­tives to the com­ing fed­eral require­ment that most Amer­i­cans buy health insur­ance, even as the Supreme Court hears argu­ments about the con­sti­tu­tion­al­ity of the mandate.

* The U.S. government's chief con­sumer pro­tec­tion agency said on Mon­day that it intended to take direct aim at the vast indus­try that has grown up around the buy­ing and sell­ing of infor­ma­tion about Amer­i­can consumers.

www.nytimes.com/2012/03/27/business/ftc-seeks-privacy-legislatio .html?ref=business

* The Euro­pean Union took a big step on Mon­day toward build­ing a finan­cial fire­wall strong enough to pre­vent the spread of fis­cal con­ta­gion to major economies like Spain. The move came after Ger­many dropped its oppo­si­tion to bring­ing the Continent's total bailout capac­ity to more than 690 bil­lion euros ($916 billion).

* As grow­ing num­bers of baby boomers face retire­ment with inad­e­quate sav­ings, some state offi­cials are con­sid­er­ing a novel pro­posal to rebuild America's ail­ing retire­ment sys­tem — hav­ing state pen­sion funds run retire­ment plans for companies.

* The Supreme Court on Mon­day ordered an appeals court to recon­sider its deci­sion to uphold patents held by Myr­iad Genet­ics on two genes asso­ci­ated with a high risk of breast and ovar­ian cancer.

* FX, a basic cable chan­nel that is part of News Corporation's pow­er­ful cable divi­sion, has con­sciously carved a niche in the new tele­vi­sion land­scape, fol­low­ing a blue­print to lure younger view­ers whom mar­keters pay a pre­mium to reach.

* In a speech that sought by turns to deflate opti­mism and pes­simism about the labor mar­ket, the Fed­eral Reserve chair­man, Ben Bernanke, said Mon­day that the Fed's efforts to stim­u­late growth were grad­u­ally reduc­ing unem­ploy­ment, but that the scale and dura­tion of the prob­lem could leave last­ing scars on the economy.

* The chief exec­u­tive of SNC-Lavalin, a major Cana­dian engi­neer­ing and con­struc­tion firm that had exten­sive busi­ness oper­a­tions in Libya, left the com­pany on Mon­day after the release of a report indi­cat­ing that he had autho­rized 56 mil­lion Cana­dian dol­lars in improp­erly doc­u­mented pay­ments to uniden­ti­fied agents, the company's chair­man said Monday.

* MF Global's top lawyer will break her five-month silence on Wednes­day to tell Con­gress that she was unaware of a gap­ing short­fall in cus­tomer money until hours before the bro­ker­age firm filed for bank­ruptcy on Oct. 31.

* Michaels Stores, the arts and crafts retailer owned by the Black­stone Group and Bain Cap­i­tal, plans to file to go pub­lic as soon as next week, in what could be one of the biggest ini­tial pub­lic offer­ings of the year.

* Mega Mal­dives Air­lines is going after a grow­ing niche, link­ing the increas­ingly afflu­ent China with the tiny island nation of the Mal­dives. The company's chief exec­u­tive says his start-up is poised for expansion.

Euro­pean Eco­nomic Update

• Ger­many GfK Con­sumer Con­fi­dence Sur­vey 5.9 – lower than expected. Con­sen­sus 6.0. Pre­vi­ous 6.0.
• Ger­many Import Price Index 1.0% m/m 3.5% y/y – higher than expected. Con­sen­sus 0.9% m/m 3.5% y/y. Pre­vi­ous 1.3% m/m 3.7% y/y.
• Switzer­land UBS Con­sump­tion Indi­ca­tor 0.87. Pre­vi­ous 0.92. Revised 0.93.
• Swe­den House­hold Lend­ing 5.0% y/y – in line with expec­ta­tions. Con­sen­sus 5.0%. Pre­vi­ous 5.1%.
• Swe­den PPI 0.4% m/m 0.5% y/y – lower than expected. Con­sen­sus 0.5% m/m 0.3% y/y. Pre­vi­ous 0.5% m/m 0.1%. y/y.
• Swe­den Trade Bal­ance (Kro­nor) 5.9B – lower than expected. Con­sen­sus 8.0B. Pre­vi­ous 11.3B. Revised 10.8B.
• UK CBI Reported Sales 0 – higher than expected. Con­sen­sus –5. Pre­vi­ous –2.

Tags: Austerity Measures, Bank Bailout, Brazil, Canadian, Canadian Market, Crude Oil Prices, Department Of National Defence, Dollar Decision, Dow Chemicals, Enbridge Inc, Globe And Mail, Gluts, Imf Talks, Joe Oliver, Lockheed Martin, Magnitude Quake, Mail Public, Mining, Natural Resources Minister, Nuclear Cuts, Overnight News, Public Sector Employees, Quake Strikes, Retirement Pay, Russia
Posted in Markets | Comments Off

Frontrunning: March 26, 2012

Monday, March 26th, 2012

• BOJ Crosses Rubi­con With Des­per­ate Mon­e­tary Pol­icy, Hirano Says (Bloomberg)
• Europe’s bailout bazooka is prov­ing to be a toy gun (FT)
• Monti Sig­nals Span­ish Euro Risk as EU to Bol­ster Fire­wall (FT)
• Merkel set to allow fire­wall to rise (FT)
• Banks set to cut $1tn from bal­ance sheets (FT)
• Supreme Court weighs his­toric health­care law (Reuters)
• Spain PM denied sym­bolic aus­ter­ity boost in local vote (Reuters)
• Anti-war move­ment stirs in Israel (FT)
• Obama to Ask China to Toughen Korea Line (WSJ)
• Pimco’s Gross Says Fed May ‘Hint’ at QE3 at April Meet­ing (Bloomberg)
• How to ensure stim­u­lus today, aus­ter­ity tomor­row (FT)
• Merkel’s Party Wins Saar­land State in Show of Cri­sis Back­ing (Bloomberg)

Overnight Media Summary:

FT

MERKEL SET TO ALLOW FIREWALL TO RISE

Ger­many is poised to bow to inter­na­tional pres­sure and allow a tem­po­rary increase in the euro zone's finan­cial "fire­wall" this week, to pre­vent the cri­sis in the region's periph­ery spread­ing to other mem­ber states.

BANKS SET TO CUT $1 TRILLION FROM BALANCE SHEETS

Invest­ment banks are to shrink their bal­ance sheets by another $1 tril­lion or up to 7 per­cent glob­ally within the next two years, says a report that fore­sees a shake-up of mar­ket share in the industry.

HEDGE FUNDS FACE HIGHER TRADING COSTS

Lead­ing prime bro­ker­ages are prepar­ing to hit clients with across-the-board increases in the cost of trad­ing, which could dry up liq­uid­ity and cause niche global mar­kets to shut down.

BIRDS EYE IGLO PUT UP FOR SALE BY PERMIRA

Birds Eye Iglo, the frozen foods busi­ness bought out of Unilever by Per­mira, is join­ing the shop­ping trol­ley of food assets up for sale.

UBS TO OFFER ORCEL FULL BACKING

UBS is gear­ing up to use its bal­ance sheet heft to back its new co-head of invest­ment bank­ing as the Swiss group steps up efforts to revive its sta­tus in the market.

LLOYDS' DEAL FACES BUYOUT OPPOSITION

Two pri­vate equity firms are look­ing for ways to block Lloyds Bank­ing Group's sale of their loans to a Bain Cap­i­tal arm, accord­ing to a per­son famil­iar with the matter.

LUXEMBOURG FACES EU RAP ON INVESTMENT RULES

Lux­em­bourg, the main home for one of Europe's most pop­u­lar invest­ment prod­ucts, is to be sin­gled out as a reg­u­la­tory weak link in an unusu­ally undiplo­matic Euro­pean Com­mis­sion proposal.

US REGULATOR POINTS FINGER OVER FREDDIE AND FANNIE

The U.S. reg­u­la­tor over­see­ing state-controlled home loan financiers Fan­nie Mae and Fred­die Mac has said the com­pa­nies are being pushed to accept losses to keep big U.S. banks from writ­ing down their holdings.

OUTGOING FSA ENFORCER SAYS WATCHDOGS NEED MORE BITE

UK finan­cial watch­dogs should step up penal­ties and tackle a wider range of fraud cases to make sure the London's finan­cial dis­trict con­tin­ues to take the law seri­ously, Mar­garet Cole, a top Finan­cial Ser­vices Author­ity offi­cial, has urged as she pre­pares to leave for the pri­vate sector.

UK'S ROYAL MAIL TO DELIVER IPO IN 2013

Britain's coali­tion gov­ern­ment aims to begin the pri­vati­sa­tion of Royal Mail by sell­ing or float­ing at least part of it in autumn 2013 if the state-owned postal operator's finances con­tinue to improve.

SPAIN'S CAIXABANK SET TO BID FOR CIVICA

Caix­a­bank, the listed arm of the Barcelona-based sav­ings bank La Caixa, is poised to announce a bid as early as Mon­day to take over its smaller rival Banca Civica in the lat­est move to restruc­ture Spain's finan­cial sec­tor, accord­ing to exec­u­tives from both banks.

SWEDISH OIL GROUP SVENSKA UP FOR SALE

Mohammed Hus­sein al-Amoudi, the Saudi bil­lion­aire, has put Swedish oil explorer Sven­ska Petro­leum up for sale in a deal that could raise $2 billion.

IAG WEIGHS ITS NORTH ATLANTIC OPTIONS

The owner of British Air­ways, IAG, is close to appoint­ing an adviser to help safe­guard its north Atlantic joint ven­ture with Amer­i­can Airlines.

Canada

THE GLOBE AND MAIL

- Thomas Mul­cair has taken con­trol of the New Democ­rats in the same way that Stephen Harper took con­trol of the Con­ser­v­a­tives: by appeal­ing to the party mem­ber­ship in the face of oppo­si­tion from the old guard.

- It's hard to believe that a sin­gle provin­cial bud­get could be more impor­tant to the Cana­dian econ­omy than Thursday's long-awaited fed­eral budget.

But Ontario is in a bind. Growth is stuck in low gear as the province strug­gles with high unem­ploy­ment, and chal­lenges in its key man­u­fac­tur­ing sector.

Reports in the busi­ness section:

- The McCains and Sobeys, two pow­er­ful busi­ness fam­i­lies with deep roots in rural Atlantic Canada, are join­ing forces for the first time in an invest­ment ven­ture, SeaFort Cap­i­tal Inc.

- A major labour dis­rup­tion has been averted for at least two more days after Toronto's largest civic employ­ees' union reluc­tantly agreed to send the Ford administration's final offer to a rat­i­fi­ca­tion vote Wednesday.

- When Thorsten Heins took over as CEO of Black­Berry maker Research In Motion Ltd from long-time co-chiefs Mike Lazaridis and Jim Bal­sil­lie in Jan­u­ary, he inher­ited a stum­bling giant. Heins will over­see his first quar­ter as RIM's CEO this Thurs­day when fis­cal fourth-quarter results are released.

NATIONAL POST

- Canada's largest med­ical reg­u­la­tor is propos­ing an end to the age-old tra­di­tion of licences that give physi­cians almost unfet­tered free­dom, as it steps up its drive to restrict doc­tors from dab­bling in areas where they lack the proper skills.

- Prime Min­is­ter Stephen Harper acknowl­edged the poten­tial dif­fi­cul­ties in secur­ing a trade deal with Japan, and admit­ted some sec­tors of the econ­omy will be view­ing the launch of trade talks with some hesitation.

WSJ

* Dis­trust of the government's han­dling of money mat­ters has turned Zim­babwe into a nation of hoard­ers. The grubby gray­ing Amer­i­can dol­lars on Zimbabwe's streets — includ­ing boun­ti­ful sup­plies of $2 bills — attest to a robust cash econ­omy that largely bypasses the country's banks.

* U.S. busi­nesses see slow­ing sales growth in China this year, while nearly half rate the nation's eco­nomic slow­down as a top risk factor.

* Yahoo said it would appoint three new inde­pen­dent direc­tors to its board in April, as the Inter­net com­pany aims to com­plete an over­haul of its board and lead­er­ship while avoid­ing a proxy fight with an unhappy large shareholder.

* Some of the world's largest insur­ance com­pa­nies are gear­ing up to com­pete for ING Groep NV's Asian life insur­ance arm, poten­tially cre­at­ing a bid­ding war that could reach $6 bil­lion for what is con­sid­ered a good fran­chise in the world's fastest-growing insur­ance market.

* An exper­i­men­tal Merck & Co anti­clot­ting drug proved effec­tive in a study at pre­vent­ing heart attacks for patients with heart dis­ease, but the cost was a sharp increase in the risk of sig­nif­i­cant bleeding.

NYT

* Tes­ti­fy­ing recently in a law­suit that is unre­lated to Cop­per River's clos­ing, its chief main­tained that actions taken in the fall of 2008 by Gold­man Sachs had done irrepara­ble dam­age to his fund.

* Jon Corzine, the for­mer chief exec­u­tive of MF Global , was told dur­ing the bro­ker­age firm's final day of busi­ness that a cru­cial trans­fer of $175 mil­lion came from the firm's own money — not from a cus­tomer account, accord­ing to an inter­nal e-mail.

* Despite a very pub­lic set­back for BATS Global Mar­kets on Fri­day, the future of stock trad­ing still looks to be one dom­i­nated by rapid-fire com­put­er­ized trad­ing platforms.

* Com­puter soft­ware giant, Microsoft, won a court order to enter two Web host­ing facil­i­ties last week in a war against so-called bot­nets that scour the Inter­net for per­sonal data to steal and exploit.

* As Con­gress begins work this week on leg­is­la­tion to shore up the finances of the debt-ridden post office, com­pa­nies rep­re­sent­ing a cross-section of Amer­i­can busi­ness are spend­ing mil­lions of dol­lars lob­by­ing law­mak­ers to oppose or sup­port var­i­ous pro­pos­als to keep the agency afloat.

* Acorn Media says it is now the second-largest dis­trib­u­tor of British pro­gram­ming on DVD in North Amer­ica, sec­ond only to the BBC.

* CASH Music is part of a grow­ing num­ber of behind-the-scenes com­pa­nies that han­dle busi­ness tasks like mar­ket­ing and mer­chan­dis­ing that used to be the domain of record labels.

Euro­pean Eco­nomic Update:

• Fin­land PPI 1.2% m/m 2.2% y/y. Pre­vi­ous 1.0% m/m 1.8% y/y.
• Ger­many IFO – Busi­ness Cli­mate 109.8 – higher than expected. Con­sen­sus 109.6. Pre­vi­ous 109.7.
• Italy Con­sumer Con­fi­dence Indi­ca­tor s.a. 96.8 – higher than expected. Con­sen­sus 93.5. Pre­vi­ous 94.4.

Tags: Austerity, Bailout, Balance Sheets, Banking Group, Birds Eye, Canadian, Canadian Market, Euro Zone, Foods Business, Frozen Foods, Group Steps, Healthcare Law, Hirano, Investment Banks, PIMCO, Private Equity Firms, Qe3, S Gross, Shopping Trolley, Swiss Group, Toy Gun, War Movement
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Alfred Lee: Investment Outlook (March-April 2012)

Sunday, March 25th, 2012

Invest­ment Out­look, March 2012

Silent Waters Run Deep

by Alfred Lee, CFA, CMT, DMS, Vice Pres­i­dent & Invest­ment Strate­gist
BMO ETFs & Global Struc­tured Invest­ments, BMO Asset Man­age­ment
alfred.lee[@]bmo.com

As we artic­u­lated in last month’s report, equity mar­ket volatil­ity remains eerily quiet given the num­ber of macro-economic issues that remain largely unre­solved. With the news of Greece agree­ing to a debt restruc­tur­ing deal, the con­cern of a Euro­pean sov­er­eign debt cri­sis has been put on the back burner and the mar­ket has shifted its focus to U.S. eco­nomic data, which con­tin­ues to come in bet­ter than expected. The deci­sion by the Inter­na­tional Swaps and Deriv­a­tives Asso­ci­a­tion Inc. (ISDA) to deem the Greek bond deal a default, also restores faith in credit default swaps (CDS)1 as a viable insur­ance pol­icy for debt issuances, which will help Euro­pean sov­er­eigns keep their yields lower over the short-term. Although, U.S. eco­nomic data con­tin­ues to impress, con­cerns of the other, and larger, PIIGS2 nations, are being overlooked.

The con­tin­u­a­tion of the cur­rent rally does hinge to a degree on U.S. eco­nomic data and its abil­ity to con­tinue gath­er­ing pos­i­tive momen­tum. Most notably, unem­ploy­ment is down to 8.7% in its Decem­ber read­ing, from 9.1% in Sep­tem­ber. In addi­tion, there is a grow­ing, albeit small, trend of “on-shoring” where man­u­fac­tur­ing jobs are com­ing back state­side, due to ris­ing labour costs in cer­tain emerg­ing mar­kets. Recent opti­mism of the U.S. econ­omy has led the mar­ket to quell their expec­ta­tions for an addi­tional round of quan­ti­ta­tive eas­ing, or fur­ther stim­u­lus from the U.S. Fed­eral Reserve (Fed). As a result, our short-term momen­tum indi­ca­tors show that gold prices have stalled, and is the rea­son we remain neu­tral on pre­cious metals.

Despite the re-pricing of asset mar­kets to reflect improv­ing U.S. eco­nomic fun­da­men­tals and a lower per­cep­tion of tail-risk3, the CBOE/S&P Implied Volatil­ity Index (“VIX”)4 remains abnor­mally sup­pressed. In mid-March, the VIX had an intra­day print of 13.99, which would be con­sid­ered low dur­ing a sec­u­lar bull-market and well below its long-term aver­age of 20. As volatil­ity has a ten­dency to quickly revert to its aver­age, we remain cau­tiously opti­mistic on risk assets. While we have moved over­weight to equi­ties, we remain defen­sively posi­tioned in our equity expo­sure, in order to bet­ter dis­trib­ute risk across our strat­egy. Although we have become more pos­i­tive on equi­ties over the mid-term, we believe there are unre­solved struc­tural issues which will weigh on equi­ties in the long-term.

Notable Changes to the Mix

• Global equi­ties have ral­lied sig­nif­i­cantly over the course of the last five months with the MSCI All Coun­try World Index (ACWI) gain­ing 23.9% from its Octo­ber lows. More encour­ag­ing has been the breadth of the rally, with all sec­tors con­tribut­ing to the strength of its ascent. As the over­hangs on the mar­ket have been more macro-economically related, a ris­ing tide lifts all boats as the mar­kets have re-priced a lower prob­a­bil­ity of an imme­di­ate tail-risk event.

• We have decreased our allo­ca­tion to fixed income and increased our weight in equi­ties and cash. Though attrac­tive from a fun­da­men­tal per­spec­tive, the equity mar­ket con­tin­ues to look over­bought in the short-term based on tech­ni­cal and quantitative-based momen­tum indi­ca­tors. Con­se­quently, we antic­i­pate some short-term con­sol­i­da­tion. By increas­ing our cash posi­tion, it allows us to be more nim­ble and take advan­tage of any upcom­ing oppor­tu­ni­ties and slowly increase our weight towards tac­ti­cal oppor­tu­ni­ties in equi­ties. In addi­tion, the ongo­ing equity rally could put upward pres­sure on inter­est rate expec­ta­tions, which is why we have over-weighted the short-and mid-part of the yield curve to lower our dura­tion risk.

• Com­ing into the new year, we were bear­ish on Cana­dian equi­ties. Though we have raised our posi­tion­ing to neu­tral, we believe that weaker gold prices and con­cerns over China tar­get­ing lower growth expec­ta­tions will weigh on the S&P/TSX Com­pos­ite Index (TSX). We do how­ever remain bull­ish toward cer­tain areas within Cana­dian equi­ties such as lower volatil­ity equi­ties and div­i­dend pay­ing equi­ties, and we are rec­om­mend­ing the BMO Low Volatil­ity Cana­dian Equity ETF (ZLB) and BMO Cana­dian Div­i­dend ETF (ZDV), respec­tively, to access these areas.

New Additions/Deletions to Strategy:

• One of the areas where we have been bull­ish over the last six­teen months has been U.S. equi­ties. More specif­i­cally, we were bull­ish on the large-cap blue chip com­pa­nies, the rea­son why we have been rec­om­mend­ing the BMO Dow Jones Indus­tri­als Aver­age Hedged to CAD Index ETF (ZDJ). Though we still favour the stocks in the Dow Jones Indus­trial Aver­age (Dow), higher oil prices and a buoy­ant U.S. dol­lar, will weigh on the multi­na­tion­als in the Dow. More­over, improv­ing eco­nomic con­di­tions and on-shoring will likely lead to an improv­ing busi­ness envi­ron­ment for some of the smaller, more locally based U.S. com­pa­nies. We are there­fore par­ing back some of our expo­sure to ZDJ in favour of the BMO U.S. Equity Hedged to CAD Index ETF (ZUE) in our strat­egy mix.

• Last week, the Fed released the results of the U.S. bank stress test, which came in over­whelm­ingly pos­i­tive. Of the 19 banks, 15 were given pass­ing grades. Fur­ther­more a num­ber of the banks were given approval by the Fed to raise its div­i­dends. This news added a fur­ther tail­wind to the U.S. bank­ing sec­tor, as it con­tin­ues to show lead­er­ship amongst the U.S. equity sec­tors. Cur­rently, the BMO Equal Weight U.S. Banks Hedged to CAD Index ETF (ZUB), which tracks the Dow Jones U.S. Large-Cap Banks Equal Weight Total Stock Mar­ket Index CAD Hedged Index, trades at a for­ward price-to-earnings (P/E) ratio of 11.9x, a dis­count to the 13.5x for­ward P/E of the S&P 500 Com­pos­ite Index. Our tech­ni­cal indi­ca­tors sug­gests that pos­i­tive momen­tum in ZUB has returned, some­thing we like to see in assets trad­ing at attrac­tive val­u­a­tions as we want to avoid value traps. Given the sec­tor remains vul­ner­a­ble we rec­om­mend investors con­sider uti­liz­ing a trail­ing stop loss order of no more than 10% and limit their allo­ca­tion to mit­i­gate risk.

Things to Keep and Eye On

Last month, we men­tioned that most broad equity mar­ket indices, includ­ing the TSX, were trad­ing at a dis­count to their respec­tive 10-year aver­ages. This month we wanted to take a closer look at the TSX to deter­mine which of the sec­tors look more attrac­tive from a val­u­a­tion stand­point. We used the cur­rent price-to-earnings (P/E) ratios of the sec­tor index rel­a­tive to its own 10-year aver­age using his­tor­i­cal daily data. It should be noted that 10-years may not be a long enough period to demon­strate the sec­u­lar trend in equi­ties; how­ever, the 2008 finan­cial cri­sis should also com­press a 10-year aver­age P/E ratio, mak­ing a more strin­gent bench­mark for deter­min­ing which sec­tors are attrac­tive on a his­tor­i­cal basis. In addi­tion, investors should also note that since the TSX lacks depth in a num­ber of its sec­tors, the val­u­a­tion of those sec­tors can be heav­ily impacted by indi­vid­ual com­pa­nies. Infor­ma­tion tech­nol­ogy and health care are prime exam­ples of sec­tors lack­ing depth.

Rec­om­men­da­tion: A num­ber of the sec­tors trad­ing at a dis­count to their 10-year aver­age in terms of P/E are well rep­re­sented in the BMO Low Volatil­ity Cana­dian Equity ETF (ZLB). Although the mar­ket has rotated into more cycli­cal ori­ented areas, we con­tinue to favour lower volatil­ity areas in the equity mar­ket as a long-term core hold­ing. As men­tioned, in our recent BMO Trade Oppor­tu­nity report, a com­bi­na­tion of ZLB with the BMO S&P/TSX Equal Weight Global Base Met­als Index ETF (ZMT) pro­vides investors with a solid long-term hold­ing com­bined with a more tac­ti­cal ori­ented opportunity.

Since the 2008 finan­cial cri­sis, there has been an increas­ing con­cern of run­away infla­tion due to the stim­u­la­tive mea­sures and accom­moda­tive mon­e­tary poli­cies of cen­tral banks around the world. Although it can be argued that the Con­sumer Price Index (CPI) is not a good rep­re­sen­ta­tion of true infla­tion, espe­cially given the ele­vated prices of hard assets over the decade, CPI for the U.S. remains at 2.9%, well below its long-term aver­age of 3.4%. One of the key rea­sons why an increase in money sup­ply has not trans­lated to infla­tion is due to a slower money velocity7, which has decreased sub­stan­tially since the 2008 finan­cial cri­sis as a result of greater uncer­tainty with the busi­ness envi­ron­ment. Should the recent improve­ment in U.S. eco­nomic data and unem­ploy­ment prove to be a sus­tained trend, the rate at which money changes hands could increase, even­tu­ally mak­ing infla­tion a concern.

Rec­om­men­da­tion: As U.S. mon­e­tary pol­icy indi­rectly affects the actions of other cen­tral banks and par­tic­u­larly the Bank of Canada, investors should keep an eye on the actions of the Fed. Although not an imme­di­ate con­cern, an uptick in money veloc­ity could poten­tially make infla­tion a prob­lem sev­eral years down the road. As a result, we con­tinue to favour short– and mid-term bonds as a means of decreas­ing interest-rate risk (See Cross-Asset Allo­ca­tion Mix Table for our rec­om­mended exposures).

In recent weeks, there has been much dis­cus­sion about the diverg­ing trends between the VIX and the Credit Suisse Fear Barom­e­ter Index (CSFB)5. Both indices are used as a gauge of mar­ket sen­ti­ment with higher read­ings indi­cat­ing increased ner­vous­ness with investors. In recent months, the VIX has dropped sig­nif­i­cantly whereas the CSFB has steadily risen. The VIX is reflec­tive of the market’s cur­rent antic­i­pa­tion of volatil­ity over the next 30-days, annu­al­ized. The CSFB, on the other hand, is cal­cu­lated as a zero-cost collar6, using three-month options. As such, there are a num­ber of dif­fer­ences in the two indices, includ­ing dif­fer­ent matu­rity terms of the under­ly­ing options, mak­ing a diver­gence pos­si­ble depend­ing on the term struc­ture in volatil­ity. Also worth men­tion­ing, is that the VIX cal­cu­lates volatil­ity using options on indi­vid­ual com­pa­nies whereas the CSFB uses index options.

Rec­om­men­da­tion: As we noted at the onset of the year, the term struc­ture in the VIX futures curve is cur­rently upward slop­ing and rel­a­tively steep in the first three con­tracts, which has made a diver­gence between the two “fear indices” pos­si­ble. The term struc­ture for VIX can be inter­preted as the market’s cur­rent expec­ta­tion for volatil­ity in the future. Although the term struc­ture for the VIX futures changes over time, and it is pos­si­ble that the term struc­ture could flat­ten, the VIX is well below its long-term aver­age and can­not get much lower. We con­tinue to advise investors that short– and mid-term bonds should not be neglected as a risk mit­i­ga­tion tool and that investors should con­tinue to main­tain expo­sure to defen­sive ori­ented areas in the equity mar­ket.

Oil prices have seen a steady rise since early Octo­ber reflect­ing an increase in opti­mism of a global eco­nomic recov­ery. Though polit­i­cal tur­moil has had more of a direct impact on the prices of Brent crude (Brent), West Texas Inter­me­di­ate (WTI) which is more reflec­tive of North Amer­i­can oil prices has seen an indi­rect impact due to a chang­ing demand and sup­ply equi­lib­rium. Last year on Sep­tem­ber 26, we rec­om­mended investors invest in energy through our BMO S&P/TSX Equal Weight Oil & Gas Index ETF (ZEO), which has gained 13.7% on a total return basis since. Energy com­pa­nies remain our top invest­ment idea within the com­mod­ity sec­tor based on global macro-economic and polit­i­cal forces. More­over, both Brent and WTI prices tend to strengthen the first seven months of the year, which could pro­vide an addi­tional tail-wind for oil prices.

Rec­om­men­da­tion: Although we would never make an invest­ment rec­om­men­da­tion based on sea­son­al­ity alone, the ten­dency for oil to gain in the first half of the year does pro­vide us with an addi­tional rea­son to be pos­i­tive on energy com­pa­nies. How­ever, as we men­tioned last month, since oil does have a ten­dency to be very reac­tive to macro-economic risk, we con­tinue to rec­om­mend a trail­ing stop-loss order of 10% on BMO S&P/TSX Equal Weight Oil & Gas Index ETF (ZEO). Investors that acted on the trade in Octo­ber may also want to con­sider par­ing back their expo­sure to their orig­i­nal allocation.

Cross-Asset Asset Allo­ca­tion Mix using BMO ETFs (click to enlarge)

Foot­notes

1 Credit Default Swaps (CDS): A swap agree­ment where the seller of the CDS will com­pen­sate the buyer in the event of a loan default or other credit event. The buyer of a credit default swap receives credit pro­tec­tion, whereas the seller of the swap guar­an­tees the credit wor­thi­ness of the debt secu­rity. In doing so, the risk of default is trans­ferred from the holder of the fixed income secu­rity to the seller of the swap. As such, a ris­ing CDS price indi­cates an increas­ing prob­a­bil­ity of a default on a fixed income issue, while a declin­ing price indi­cates a lower prob­a­bil­ity.
2 PIIGS: An acronym used to refer to the five euro­zone nations, which were con­sid­ered weaker eco­nom­i­cally fol­low­ing the finan­cial cri­sis: Por­tu­gal, Italy, Ire­land, Greece and Spain.
3 Tail-risk: The risk of an out­lier or improb­a­ble event occur­ring. Sta­tis­ti­cally, the event is said to be three stan­dard devi­a­tions or more away from the mean, under a nor­mally dis­trib­uted curve.
4 CBOE/S&P 500 Implied Volatil­ity Index (VIX): shows the market’s expec­ta­tion of 30-day volatil­ity. It is con­structed using the implied
volatil­i­ties of a wide range of S&P 500 index options. This volatil­ity is
meant to be for­ward look­ing and is cal­cu­lated from both calls and puts.
The VIX is a widely used mea­sure of mar­ket risk and is often referred to
as the “investor fear gauge”.
5 Credit Suisse Fear Barom­e­ter (CSFB): mea­sures investor sen­ti­ment for 3-month invest­ment hori­zons by pric­ing a zero-cost col­lar. The col­lar is imple­mented by sell­ing of a 10% out-of-the-money call (OTM) option on
the S&P 500 Com­pos­ite (SPX) and using the pro­ceeds to buy an OTM put.
The CSFB level rep­re­sents how far OTM that SPX put is.
6 Zero-cost col­lar: con­sists of the simul­ta­ne­ous sale of one option and using
the pro­ceeds towards the pur­chase of another option at dif­fer­ent strikes.
7 Money veloc­ity: aver­age fre­quency with which a unit of money is spent on new goods and ser­vices pro­duced domes­ti­cally in a spe­cific period of time.

Tags: Alfred Lee, Asset Markets, BMO, Canadian, Canadian Market, Cboe, Cmt, Credit Default Swaps, Debt Crisis, Debt Restructuring, Economic Fundamentals, ETF, ETFs, European Sovereigns, Gold Prices, Investment Outlook, Investment Strategist, Labour Costs, Market Volatility, Mining, Momentum Indicators, precious metals, Silent Waters, Structured Investments, Volatility Index, Volatility Index Vix
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Laughter is the Best Medecine, and other Weekend Reads

Friday, March 23rd, 2012

Here are this week's read­ing diver­sions for your per­sonal enlight­en­ment. Have a ter­rific first week­end of Spring!

Study finds white rice raises risk of dia­betes | National Nurs­ing News

Researchers with the Har­vard School of Pub­lic Health looked at pre­vi­ous stud­ies and evi­dence of the asso­ci­a­tion between eat­ing white rice and the risk of type 2 dia­betes. Their study sought to deter­mine whether this risk is depen­dent on the amount of rice con­sumed and is stronger for the Asian pop­u­la­tion, which tends to eat more white rice than the west­ern world.

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Nat­ural Reme­dies At Home: How To Treat Ill­nesses Naturally

Herbs and spices and foods such as turmeric, Ore­gon grape, honey and gold­enseal can rem­edy sick­nesses and scrapes, the video adds. Many oth­ers can help to heal every­thing from rashes to arthri­tis symptoms.

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Eat­ing­Well: Foods That Are Good for Your Smile

Milk and cheese are nat­u­rally good for your teeth. Not only do they pro­vide cal­cium, which helps make teeth and bones strong, they also deliver casein, a pro­tein that reduces cav­ity formation.

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5 Things That Prob­a­bly Won't Help You Live Longer | Caring.com

Your par­ents' ages. Don't count on repeat­ing long-lived ances­tors if you your­self smoke, have high cho­les­terol, and lead a couch-potato life — all fac­tors asso­ci­ated with short­en­ing one's lifes­pan. Lifestyle fac­tors can trump genetics.

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Eye And Brain Health Linked: Retinopa­thy Asso­ci­ated With Mem­ory, Think­ing Problems

We know that the health of dif­fer­ent parts of our bod­ies are all linked — for exam­ple, mouth health is asso­ci­ated with the health of our hearts. Now, a small new study shows that eye health may be an indi­ca­tor of brain health.

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7 Dou­ble Duty Beauty Foods — ABC News

These nutri­tious foods are a recipe for great hair, glow­ing skin, and more — whether you eat them or turn them into top­i­cal treatments:

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Crohn's dis­ease: Lifestyle and home reme­dies — MayoClinic.com

Avoid prob­lem foods. Elim­i­nate any other foods that seem to make your signs and symp­toms worse. These may include "gassy" foods such as beans, cab­bage and broc­coli, raw fruit juices and fruits, spicy food, pop­corn, alco­hol, and foods and drinks that con­tain caf­feine, such as choco­late and soda.

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5 things you should know about food expiry dates — Health — CBC News

Check­ing the "best before" and "expiry date" labels on foods, from milk and cheese to bread and meats, is one of the first things con­sumers should do before throw­ing them in their gro­cery carts.

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Crohn's Dis­ease — When To Call a Doc­tor — Health.com

If you have any of these symp­toms and you have been diag­nosed with Crohn's dis­ease, your con­di­tion may have become sig­nif­i­cantly worse. Some of these symp­toms also may be signs of toxic mega­colon, a rare com­pli­ca­tion of Crohn's dis­ease that requires emer­gency treat­ment. Untreated toxic mega­colon can cause the colon to leak or rup­ture, which can be fatal.

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Pho­tos: Pets and your health: the good and the bad — latimes.com

Health: An Aus­tralian sur­vey found that dog and cat own­ers were in bet­ter health than peo­ple with nei­ther (health was mea­sured either by how often peo­ple went to the doc­tor or by how much med­ica­tion they took). And a study with peo­ple on Medicare found that those who owned pets made fewer doc­tor vis­its than those who didn't.

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The Ben­e­fits of Bilin­gual­ism — NYTimes.com

SPEAKING two lan­guages rather than just one has obvi­ous prac­ti­cal ben­e­fits in an increas­ingly glob­al­ized world. But in recent years, sci­en­tists have begun to show that the advan­tages of bilin­gual­ism are even more fun­da­men­tal than being able to con­verse with a wider range of peo­ple. Being bilin­gual, it turns out, makes you smarter. It can have a pro­found effect on your brain, improv­ing cog­ni­tive skills not related to lan­guage and even shield­ing against demen­tia in old age.

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Samuel Glazer, a Cre­ator of Mr. Cof­fee, Dies at 89 — NYTimes.com

Samuel Glazer, a co-founder of the com­pany that gave the world Mr. Cof­fee, one of the first and most pop­u­lar auto­matic drip cof­fee mak­ers to appear on Amer­i­can kitchen coun­ters, died on March 12 in Cleve­land. He was 89.

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Laugh­ter is the best med­i­cine « Psychologies

Like yawn­ing, laugh­ter is con­ta­gious and uncon­trol­lable. You only have to watch or lis­ten to some­one else laugh­ing hys­ter­i­cally to lose con­trol of your breath­ing, voice and facial mus­cles. Before you know it, you’re laugh­ing and feel a rush of light­ness, energy and joy.

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The truth about salt and high blood pres­sure | NOLA.com

Peo­ple with chronic high blood pres­sure are at a much greater risk for heart attack, stroke, con­ges­tive heart fail­ure, and kid­ney fail­ure, but for­tu­nately, high blood pres­sure can be con­trolled, and diet plays a key role in pre­ven­tion and treatment.

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Tags: Abc News, Arthritis Symptoms, Brain Health, Canadian Market, Cavity Formation, Couch Potato, Crohn S Disease, Eye And Brain, Glowing Skin, Harvard School Of Public Health, Herbs And Spices, Herbs Spices, High Cholesterol, Lifestyle Factors, Milk And Cheese, Parents Ages, Personal Enlightenment, School Of Public Health, Spring Study, Topical Treatments, Type 2 Diabetes
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Falling Treasuries: A Currency Perspective (Merk)

Wednesday, March 21st, 2012

Axel Merk, Merk Funds

March 20, 2012

What are the impli­ca­tions for the U.S. dol­lar and investors’ port­fo­lios if bond prices con­tinue to fall, as they have of late? Within that con­text, should investors care whether the U.S. retains its sta­tus as a “reserve cur­rency”? Should it effect the way investors think about their own cash reserves?

Until the end of last year, China had been a net seller of U.S. Trea­suries for six con­sec­u­tive months, spook­ing some investors that China might start to diver­sify its reserves in earnest. That trend was reversed in Jan­u­ary, when its Trea­sury hold­ings grew by 0.7% in one month to $1.159 tril­lion; year-on-year, China’s hold­ings increased a mere $4.8 bil­lion. China’s year-on-year increase in Trea­sury hold­ings is suf­fi­cient to finance the U.S. cur­rent account deficit for about 3 busi­ness days; that’s a good rea­son why investors should care, as the cur­rent account deficit reflects the amount of U.S. dol­lar denom­i­nated assets for­eign­ers need to buy just to keep the green­back from falling.

Whereas China has taken a breather with regard to pil­ing on U.S. debt, Japan has increased its pur­chases of Trea­suries, pos­si­bly because it is eager to weaken its own cur­rency. Japan’s Trea­sury hold­ings now stand at $1.1 tril­lion. Together, total for­eign hold­ings of U.S. Trea­suries rose 0.9% to a record $5.05 tril­lion in January.

Unfor­tu­nately, for­eign­ers might be attracted to the U.S. dol­lar more for liq­uid­ity and less so for qual­ity con­sid­er­a­tions. Cen­tral banks with bil­lions to deploy are able to do so in U.S. Trea­sury mar­kets with­out influ­enc­ing mar­ket prices too much. Think of it as the upside of issu­ing a huge amount of debt: there’s lots of it one can buy and sell. Liq­uid­ity, how­ever, doesn’t guar­an­tee suc­cess, as the Ital­ian bond mar­ket has clearly shown; when weaker Euro­zone coun­tries are engulfed in a cri­sis of con­fi­dence, Ital­ian bonds have often been sold as a proxy due to the size and depth of the mar­ket. Japan rep­re­sents another large bond mar­ket. Still, the U.S. bond mar­ket dwarfs all of these. When it comes to per­ceived safe havens, Swiss gov­ern­ment bonds may be hard to come by at times; given the erratic actions of the Swiss National Bank in recent months and years, we have to cau­tion that even Switzer­land may not be the safe haven some per­ceive it to be. Mov­ing to Ger­many – con­sid­ered to be a large, mature mar­ket by many – note that even Ger­man Trea­sury bills have been extremely dif­fi­cult to obtain dur­ing stretches of the finan­cial cri­sis, even at neg­a­tive yields.

Indeed, one of the most pos­i­tive global devel­op­ments would be if emerg­ing mar­ket coun­tries develop their domes­tic fixed income mar­kets. If gov­ern­ments, par­tic­u­larly in Asia, were to issue more debt in their domes­tic cur­ren­cies, they would be less depen­dent on U.S. dol­lar fund­ing, reduc­ing the so-called con­ta­gion risk in a finan­cial cri­sis. Ide­ally, emerg­ing mar­kets would fur­ther develop both long-term bond mar­kets, as well as short-term Trea­sury mar­kets. The fol­low­ing exam­ple illus­trates how global mar­kets are so inter­re­lated, and why such a devel­op­ment is so impor­tant: cur­rently, a great deal of emerg­ing mar­ket financ­ing is U.S. dol­lar denom­i­nated, but orig­i­nates from Euro­pean banks. Those Euro­pean banks, with trou­ble at home, are cut­ting their credit lines, to both shrink their loan port­fo­lios, but also as their cost of bor­row­ing U.S. dol­lars soared. That’s because Euro­pean banks his­tor­i­cally obtain much of their U.S. dol­lar financ­ing through U.S. money mar­ket funds. On aver­age, U.S. prime money mar­ket funds held about 50% of their assets in U.S. dol­lar denom­i­nated com­mer­cial paper issued by Euro­pean banks. After lots of pub­lic scrutiny, includ­ing from us (see: Mak­ing the U.S. Dol­lar Safer: Return OF Your Money), those hold­ings fell to about 1/3rd of money mar­ket fund assets in late 2011. As U.S. money mar­ket funds reduced their appetite for debt issued by Euro­pean banks, the Fed­eral Reserve (Fed), in con­junc­tion with other major cen­tral banks, put in place “cen­tral bank liq­uid­ity swaps”, a fancy way of describ­ing U.S. dol­lar loans extended by the Fed to the Euro­pean bank­ing sys­tem via the Euro­pean Cen­tral Bank (ECB) to alle­vi­ate U.S. dol­lar financ­ing con­cerns and ulti­mately, con­ta­gion risks to the global economy.

A key attribute of liq­uid­ity is the abil­ity to take money out of a coun­try. An investor will be more will­ing to invest in a coun­try when there are no cap­i­tal con­trols, when there’s con­fi­dence in the rule of law, con­fi­dence that investors’ rights are pro­tected. And while emerg­ing mar­kets are gen­er­ally on the right path, it’s a path that takes a long time to build, as investors’ trust must be earned over many years.

As such, odds are the reserve cur­rency sta­tus of the U.S. is likely to erode over time rather than overnight, if for no other rea­son than the lack of suit­able alter­na­tives. In our view, how­ever, U.S. pol­icy mak­ers would be well served if they attempted to make the U.S. dol­lar as attrac­tive as pos­si­ble, rather than rely­ing on the fact that for­eign­ers have lim­ited alter­na­tives. As recent years have shown, the Chi­nese, for exam­ple, have gained oper­a­tional expe­ri­ence in deploy­ing their reserves into assets out­side of U.S. Trea­suries, in real assets, through­out the world: notably by invest­ing in nat­ural resources in Aus­tralia, Africa, Latin Amer­ica and Canada.

For many years, until a month ago, the ECB, in its monthly com­mu­niqué, warned of a “poten­tial for a dis­or­derly cor­rec­tion of global imbal­ances.” That was cen­tral bank par­lance for a dol­lar crash. For what it’s worth, the warn­ing was miss­ing for the first time in years in this month’s state­ment.¹ Like the boy who cried wolf, when some­one warns about some­thing repeat­edly, few may take that risk seri­ously any­more. Is it com­pla­cency when one drops the warning?

What many don’t real­ize is that we don’t need a low prob­a­bil­ity / high-risk event – a “black swan” event – to be con­cerned. Take the recent tur­moil in the Trea­sury mar­ket: from the high on Feb­ru­ary 28, 2012 until the close on March 15, 2012, the U.S. 30 year bond had fallen about 8.5% in value (with declines con­tin­u­ing as of this writ­ing). Many have pre­vi­ously been chas­ing yields: a lot of money had moved into longer dated secu­ri­ties, the so-called long end of the yield curve. In that process, volatil­ity in that mar­ket had come down, pro­vid­ing the illu­sion of safety. We don’t need a crash, we need a return to a more nor­mal envi­ron­ment to have what may be a rude awak­en­ing for investors. The plunge in the 30-year bond in just over 2 weeks should serve as a wake-up call. It turns out that for­eign­ers appear to have piled into longer-dated Trea­suries just before the recent cor­rec­tion (net long-term TIC flows of $101 bil­lion in Jan­u­ary vs. $38.5 bil­lion expected), pos­si­bly mak­ing for a few very unhappy, but very impor­tant investors.

What is the rel­e­vance for the dol­lar? For­eign investors tend to own a large amount of Trea­suries. When Trea­suries fall in value, their invest­ments may go down, unless the dol­lar increases by the same amount. While some pun­dits – in an effort to com­ment on short-term cur­rency moves on any one day — point out that falling bond prices make the dol­lar more attrac­tive as yields are higher, that’s lit­tle con­sol­i­da­tion to those already hold­ing Trea­suries. Indeed, his­tor­i­cally speak­ing, our analy­sis indi­cates that the U.S. dol­lar tends to weaken dur­ing early and mid phases of an increas­ing inter­est rate cycle. That’s pre­cisely because the bond mar­ket turns into a bear mar­ket in such an envi­ron­ment. It’s in the late phases of a tight­en­ing cycle that for­eign­ers come back to the bond mar­ket, in antic­i­pa­tion that the next bull mar­ket for bonds is around the cor­ner; in that phase, the dol­lar may get a reprieve.

How­ever, when rates are ris­ing, investors may want to con­sider reduc­ing their inter­est risk, mov­ing from longer dated bond funds to shorter dated ones. Look­ing at it from an inter­na­tional per­spec­tive, the same rela­tion­ship applies; it should not be a sur­prise that the volatil­ity in shorter dated fixed income secu­ri­ties is less than that of longer dated ones:

Per­for­mance data in the chart above rep­re­sents past per­for­mance and is no guar­an­tee of future results.

For investors con­cerned about plung­ing bond prices, the obvi­ous move may be to trim inter­est risk. Some may appre­ci­ate the per­ceived safety of U.S. dol­lar cash, although, as our dis­cus­sion of U.S. money mar­ket funds above has shown, not all cash is equal. Investors con­cerned about the pur­chas­ing power of the U.S. dol­lar may want to con­sider mit­i­gat­ing the poten­tial risk of a declin­ing dol­lar by diver­si­fy­ing to other cur­ren­cies. Be warned, though, that cur­rency risk is then intro­duced. A money mar­ket fund will thrive to hold a sta­ble net asset value in U.S. dol­lar terms; a cur­rency fund will not. Indeed, much of invest­ing is about try­ing to pre­serve pur­chas­ing power. By mov­ing to cash in other cur­ren­cies, one does avoid equity risk, and pos­si­bly mit­i­gates inter­est and credit risk. But risk-free it is not. Indeed, we have argued for a long time that cen­tral banks may be erod­ing the pur­chas­ing power of cur­ren­cies around the world – risk free assets can no longer be thought of as such. It was in 2006 when I first said “there is no such thing any­more as a safe asset: investors may want to con­sider a diver­si­fied approach to some­thing as mun­dane as cash.”

Notes:

Please sign up for our newslet­ter to be informed as we dis­cuss global dynam­ics and their impact on currencies.We man­age the Merk Funds, includ­ing the Merk Hard Cur­rency Fund. To learn more about the Funds, please visit www.merkfunds.com.

¹For­mer ECB Pres­i­dent Willem Duisen­berg men­tioned "risks per­tain­ing to exter­nal imbal­ances" in the first time in March 1999. But he didn't ref­er­ence it again until 2002. (Instead, he men­tioned "there are no major imbal­ances in the euro area which would require a longer-term adjust­ment process" in 2001.) In May 2002, Duisen­berg brought up this topic again at the press con­fer­ence, say­ing "there are still a num­ber of uncer­tain­ties such as those related to ... and to the impact of exist­ing imbal­ances else­where on the world econ­omy". He used the sim­i­lar phras­ing in June, Octo­ber and Decem­ber 2002 but not every meeting.

It was Jan­u­ary 2003 that for the first time Duisen­berg ref­er­enced "a dis­or­derly adjust­ment of global imbal­ances" by say­ing "there are still risks relat­ing to a dis­or­derly adjust­ment of the past accu­mu­la­tion of macro­eco­nomic imbal­ances, espe­cially out­side the euro area." Then he reit­er­ated it a cou­ple of times dur­ing his remain­ing term as ECB pres­i­dent ended in Octo­ber 2003. A note here, cur­rent Greek PM and then ECB vice-president Lucas Papademos hosted the Sep­tem­ber con­fer­ence in 2003, where he also ref­er­enced "macro­eco­nomic imbal­ances in some regions of the world persist."

Since Trichet took office in Novem­ber 2003, it became almost a rou­tine to ref­er­ence "external/global imbal­ances" at the press con­fer­ences, though his word­ing changed over time. Dur­ing Novem­ber 2003 and June 2006, Trichet often used the word "per­sis­tent global imbal­ances" when talk­ing about con­cerns and risks to growth. Then he ref­er­enced "a dis­or­derly unwind­ing of global imbal­ances" for the first time in August 2006. He fre­quently used "pos­si­ble dis­or­derly devel­op­ments owing to global imbal­ances" dur­ing 2007–2008 and "adverse devel­op­ments in the world econ­omy stem­ming from a dis­or­derly cor­rec­tion of global imbal­ances" in 2009, and started to reg­u­larly ref­er­ence "con­cerns remain relat­ing to … and the pos­si­bil­ity of a dis­or­derly cor­rec­tion of global imbal­ances" since Sep­tem­ber 2009, through his last press con­fer­ence in Octo­ber 2011. Dur­ing his eight years in office, the only times he didn't men­tion "global imbal­ance" at all were August 2007, April 2005, and from Octo­ber 2004 to Jan­u­ary 2005.

Draghi con­tin­ued the tra­di­tion of ref­er­enc­ing "the pos­si­bil­ity of a dis­or­derly cor­rec­tion of global imbal­ances" in all of his press con­fer­ences from Novem­ber 2011 to Feb­ru­ary this year. The past meet­ing in March was the first time he didn't ref­er­ence it.

Axel Merk

Man­ager of the Merk Hard Cur­rency Fund, Asian Cur­rency Fund, Absolute Return Cur­rency Fund, and Cur­rency Enhanced U.S. Equity Fund, www.merkfunds.com

Axel Merk, Pres­i­dent & CIO of Merk Invest­ments, LLC, is an expert on hard money, macro trends and inter­na­tional invest­ing. He is con­sid­ered an author­ity on currencies.

The Merk Hard Cur­rency Fund (MERKX) seeks to profit from a rise in hard cur­ren­cies ver­sus the U.S. dol­lar. Hard cur­ren­cies are cur­ren­cies backed by sound mon­e­tary pol­icy; sound mon­e­tary pol­icy focuses on price stability.

The Merk Asian Cur­rency Fund (MEAFX) seeks to profit from a rise in Asian cur­ren­cies ver­sus the U.S. dol­lar. The Fund typ­i­cally invests in a bas­ket of Asian cur­ren­cies that may include, but are not lim­ited to, the cur­ren­cies of China, Hong Kong, Japan, India, Indone­sia, Malaysia, the Philip­pines, Sin­ga­pore, South Korea, Tai­wan and Thailand.

The Merk Absolute Return Cur­rency Fund (MABFX) seeks to gen­er­ate pos­i­tive absolute returns by invest­ing in cur­ren­cies. The Fund is a pure-play on cur­ren­cies, aim­ing to profit regard­less of the direc­tion of the U.S. dol­lar or tra­di­tional asset classes.

The Merk Cur­rency Enhanced U.S. Equity Fund (MUSFX) seeks to gen­er­ate total returns that exceed that of the S&P 500 Index. By employ­ing a cur­rency over­lay, the Merk Cur­rency Enhanced U.S. Equity Fund actively man­ages U.S. dol­lar and other cur­rency risk while con­cur­rently pro­vid­ing invest­ment expo­sure to the S&P 500.

The Funds may be appro­pri­ate for you if you are pur­su­ing a long-term goal with a cur­rency com­po­nent to your port­fo­lio; are will­ing to tol­er­ate the risks asso­ci­ated with invest­ments in for­eign cur­ren­cies; or are look­ing for a way to poten­tially mit­i­gate down­side risk in or profit from a sec­u­lar bear mar­ket. For more infor­ma­tion on the Funds and to down­load a prospec­tus, please visit www.merkfunds.com.

Investors should con­sider the invest­ment objec­tives, risks and charges and expenses of the Merk Funds care­fully before invest­ing. This and other infor­ma­tion is in the prospec­tus, a copy of which may be obtained by vis­it­ing the Funds' web­site at www.merkfunds.com or call­ing 866-MERK FUND. Please read the prospec­tus care­fully before you invest.

Since the Funds pri­mar­ily invest in for­eign cur­ren­cies, changes in cur­rency exchange rates affect the value of what the Funds own and the price of the Funds' shares. Invest­ing in for­eign instru­ments bears a greater risk than invest­ing in domes­tic instru­ments for rea­sons such as volatil­ity of cur­rency exchange rates and, in some cases, lim­ited geo­graphic focus, polit­i­cal and eco­nomic insta­bil­ity, emerg­ing mar­ket risk, and rel­a­tively illiq­uid mar­kets. The Funds are sub­ject to inter­est rate risk, which is the risk that debt secu­ri­ties in the Funds' port­fo­lio will decline in value because of increases in mar­ket inter­est rates. The Funds may also invest in deriv­a­tive secu­ri­ties, such as for– ward con­tracts, which can be volatile and involve var­i­ous types and degrees of risk. If the U.S. dol­lar fluc­tu­ates in value against cur­ren­cies the Funds are exposed to, your invest­ment may also fluc­tu­ate in value. The Merk Cur­rency Enhanced U.S. Equity Fund may invest in exchange traded funds ("ETFs"). Like stocks, ETFs are sub­ject to fluc­tu­a­tions in mar­ket value, may trade at prices above or below net asset value and are sub­ject to direct, as well as indi­rect fees and expenses. As a non-diversified fund, the Merk Hard Cur­rency Fund will be sub­ject to more invest­ment risk and poten­tial for volatil­ity than a diver­si­fied fund because its port­fo­lio may, at times, focus on a lim­ited num­ber of issuers. For a more com­plete dis­cus­sion of these and other Fund risks please refer to the Funds' prospectuses.

This report was pre­pared by Merk Invest­ments LLC, and reflects the cur­rent opin­ion of the authors. It is based upon sources and data believed to be accu­rate and reli­able. Opin­ions and forward-looking state­ments expressed are sub­ject to change with­out notice. This infor­ma­tion does not con­sti­tute invest­ment advice. Fore­side Fund Ser­vices, LLC, distributor.

Tags: Axel, Billions, Bond Market, Bond Prices, Business Days, Canadian Market, Cash Reserves, Central Banks, Current Account Deficit, ETF, ETFs, Eurozone Countries, Foreigners, Good Reason, Greenback, Guarantee Success, liquidity, Portfolios, Quality Considerations, Reserve Currency, Treasuries, Treasury Markets, Trillion, U S Treasury
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Global Market Needs Canada's Crude

Tuesday, March 20th, 2012

Canada's nat­ural resources min­is­ter told del­e­gates at the Inter­na­tional Energy Forum in Kuwait that his coun­try was on the cusp of becom­ing an "energy super­power." Canada ranks No. 6 in terms of global oil pro­duc­tion, but much of its crude exists in the form of oil sands. Euro­pean lead­ers are con­sid­er­ing a mea­sure that would clas­sify oil sands as an envi­ron­men­tal issue, prompt­ing Canada to threaten to take the issue to the World Trade Orga­ni­za­tion. With the U.S. polit­i­cal sys­tem in a dead­lock over Cana­dian crude, the Ottawa gov­ern­ment is now work­ing to con­vince the inter­na­tional com­mu­nity that the global mar­ket is in jeop­ardy if polices "dis­crim­i­nate against oil sands."

Drill-happy crit­ics of the Obama admin­is­tra­tion are paint­ing the Key­stone XL oil pipeline planned from Alberta as a panacea to U.S. eco­nomic woes. Because of debates over the planned route through Nebraska, how­ever, the White House has pushed the issue aside for now. The pipeline com­pany behind the project, Tran­sCanada, has opted for a smaller leg in the United States while the Cana­dian gov­ern­ment has thrown its sup­port behind the North­ern Gate­way pipeline meant for Asian exports.

Cana­dian Nat­ural Resources Min­is­ter Joe Oliver said his pres­ence at the IEF sum­mit in Kuwait proved his coun­try was "an emerg­ing energy super­power." Canada has around 175 bil­lion bar­rels of proven oil reserves, which means it's the only non-OPEC mem­ber in the global top five, just behind Saudi Ara­bia and Venezuela.

Euro­pean lead­ers in March were unable to reach a deci­sion on whether or not to char­ac­ter­ize oil sands as an envi­ron­men­tal issue. Crit­ics of oil sands note that its pro­duc­tion releases much more CO2 into the atmos­phere com­pared with reg­u­lar crude oil and its ten­dency to sink in water makes it a par­tic­u­lar con­cern if spilled. Some crit­ics have dubbed it the dirt­i­est form of oil on earth and advo­cate an out­right ban. The Euro­pean gov­ern­ment is set to con­sider the issue by June.

Oliver, how­ever, com­plained to IEF del­e­gates that any pol­icy that would dis­crim­i­nate against oil sands would be harm­ful to the global mar­ket and over­all energy secu­rity. Last year, the global econ­omy was threat­ened by a loss of crude oil from war-torn Libya, OPEC's No. 7, so sidelin­ing oil sands from Canada could be much more severe.

"Our gov­ern­ment believes that the free mar­ket is the most effi­cient and cost-effective means to ensure the proper allo­ca­tion of resources for the devel­op­ment and sup­ply of energy," said Oliver.

Just as Obama said there's no "sil­ver bul­let" that can mag­i­cally push U.S. gaso­line prices to some­thing Amer­i­can con­sumers con­sider fair, there's noth­ing in a global mar­ket that's eas­ily replaced. Sin­gling out Cana­dian oil means poten­tially sidelin­ing an oil sup­ply larger than Iran's, some­thing a depressed Euro­pean econ­omy could hardly stom­ach. But as with Iran­ian crude, if the Euro­peans don't want it, they don't have to buy it. While that's an over­sim­pli­fi­ca­tion of the issue, the world still needs as much oil as it can get. Europe is embrac­ing a greener econ­omy. But until global eco­nomic engines run on some­thing other than petro­leum prod­ucts, when Cana­dian crude oil is at stake, it's time to just let it flow.

Tags: Canadian, Canadian Market, Canadian Natural Resources, Cusp, Economic Woes, Emerging Energy, Energy Forum, Environmental Issue, European Government, European Leaders, Global Oil Production, International Energy, Joe Oliver, Natural Resources Minister, Northern Gateway, Oil Pipeline, Oil Sands, Outright Ban, Pipeline Company, Proven Oil Reserves, Transcanada, World Trade Organization
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"This Time It's Different?" — David Rosenberg Explains The Melt Up And The Latent Risks

Monday, March 19th, 2012

The mar­ket is rip­ping. That much is obvi­ous. What some may have for­got­ten how­ever, is that it ripped in the begin­ning of 2011... and in the begin­ning of 2010: in other words, what we are get­ting is not just déjà vu (all on the back of mas­sive cen­tral bank inter­ven­tion time after time), but dou­ble déjà vu. The end results, how­ever, by year end in both those cases was less than spec­tac­u­lar. In fact, in an attempt to con­vince read­ers that this time it is dif­fer­ent, Reuters came out yes­ter­day with an arti­cle titled, you guessed it, "This Time It's Dif­fer­ent" which con­tains the fol­low­ing ver­biage: "bursts of opti­mism have sown false hope before... Today there is a cau­tious hope that per­haps this time it's dif­fer­ent." (this arti­cle was penned by the inhouse spin mas­ter, Stella Daw­son, who had a rather promi­nent appear­ance here.) So the tril­lions in excess elec­tronic liq­uid­ity pro­vided by every­one but the Fed (con­strained in an elec­tion year) is dif­fer­ent than the liq­uid­ity pro­vided by the Fed? Got it. Of course, there are those who will bite, and buy the pro­pa­ganda, and stocks. For every­one else, here is a run­down from David Rosen­berg explain­ing why stocks con­tinue to move near-vertically higher, and what the latent risks con­tinue to be.

UP, UP AND AWAY!

It has been quite a move up in the U.S. equity mar­kets. The S&P 500 just com­pleted its fifth straight week of gains, the longest streak of the year. From the clos­ing low of last Octo­ber 3rd, the index has ral­lied a breath­tak­ing 28%. So far in 2012, the Dow is up 8%, the S&P 500 is up 12% and the Nas­daq is up 17%. Breath­tak­ing to say the least.

What accounts for all this optimism:

• The Euro­pean LTRO pro­gram has oblit­er­ated finan­cial tail risks in the region.
• The suc­cess­ful sec­ond bailout of Greece.
• Chi­nese infla­tion down to 3.2% has fuelled hopes of mon­e­tary ease.
• Per­cep­tions that that the U.S. econ­omy is reac­cel­er­at­ing — all the Fed had to do was change "mod­est" to "mod­er­ate" (plus the ECRI lead­ing index has improved to a seven-month high).
• Ten­ta­tive signs that the sec­u­lar head­winds are sub­sid­ing — hous­ing, credit, employ­ment, local gov­ern­ment fis­cal restraint.
• Oil prices sta­bi­liz­ing with a calm emerg­ing with respect to Iran.
• Tech­ni­cally, the mar­ket is mak­ing higher highs and higher lows — a con­firmed uptrend.
• Global earn­ings esti­mates are no longer going down.
• Finan­cial con­di­tions are eas­ing with cor­po­rate bond spreads nar­row­ing sharply.
• The suc­cess evi­dent in the Fed's lat­est bank­ing sec­tor stress tests — bank
• stocks advanced 9% last week.
• The snap­back after the early-March triple-digit decline in the Dow — the first of the year has embold­ened the 'buy the dip' psychology.

What are the risks?

That we wake up some time in the sec­ond quar­ter and dis­cover that the econ­omy may well have con­tracted if not for the extremely warm weather we had in the open­ing months of the year, which pro­vided a huge, if not unprece­dented, skew to the data (see Weather Alert: Why the Sun Could Be Bad for Risky Assets on page 14 of the week­end FT).

Remem­ber —Jan­u­ary and Feb­ru­ary were both 5 degrees warmer than usual. For months usu­ally beset by win­ter weather, the sea­sonal fac­tors attempt to cor­rect for this by boost­ing the raw data, which at that time of year are about the low­est given that many folks are snow­bound. If not for the sea­sonal adjust­ment process, we would only be able to com­pare the data on a year-to-year basis because there is no apples-to-apples com­par­i­son between eco­nomic activ­ity in Jan­u­ary and what you would typ­i­cally see in May. So in Jan­u­ary and Feb­ru­ary in par­tic­u­lar, the raw non­sea­son­ally adjusted basis get a "bell curve" like we would in school in a tough mid-term exam. The prob­lem this time is that Jan­u­ary and Feb­ru­ary were down­right balmy. This wreaked havoc on all the data, espe­cially hous­ing, employ­ment and spending.

We esti­mate that over 40% of the job gains were weather-related, tak­ing both months into account. We also know that pro­duc­tiv­ity is con­tract­ing and 100% of the time in the past decade, com­pa­nies responded by curb­ing their hir­ing. So tak­ing the weather effect into account and the rever­sal this will have in com­ing months with respect to the data impact, com­bined with the likely cooling-off in hir­ing plans already evi­dent in many sur­veys, and we could well see the non­farm pay­roll num­bers get cut in half and come in closer to 100k than 200k as we move into the spring and sum­mer months.

This is not a dis­as­ter story at all, but recall that it was this sort of slug­gish back­drop that brought at least a tem­po­rary end to the equity mar­ket rally last year and forced the Fed into more inter­ven­tion in sup­port of the bond mar­ket. Don't write off QE3 just yet. On top of all that, we do expect to see the trade deficit con­tinue to widen as the Euro­pean reces­sion and Asian slow­down hit the U.S. shores, and con­trac­tion in net exports is going to very likely emerge as a big head­wind for the GDP data in the next few quar­ters. In fact, it is only now starting.

And by the time it sub­sides later this year, house­holds and busi­nesses will be prepar­ing for next year's mas­sive tax grab. If logic pre­vails, this prepa­ra­tion is prob­a­bly going to include a move to boost sav­ings and raise liq­uid­ity (osten­si­bly at the expense of spend­ing growth — expect the retail­ers to head into the 2012 hol­i­day sea­son lean and mean).

The weather also had a direct impact on spend­ing by releas­ing more than $30 bil­lion in recent months in terms of house­hold cash flow from a rad­i­cally lower util­ity bill. Absent that de facto tax cut', and retail sales would have stag­nated over the past three months as opposed to ris­ing at what appears to be a healthy 8% annual rate. This will sub­side now and we have not yet seen the full brunt of $4 gaso­line either — many a com­men­ta­tor has stated that the con­sumer sec­tor is less vul­ner­a­ble now and there is less of a "shock fac­tor" this time around. We shall see about that.

As it stands, nom­i­nal spend­ing at the pumps is at its low­est level since last June — we have not seen the drain­ing impact on house­hold cash flows yet. But we did see the impact on Uni­ver­sity of Michi­gan con­sumer sen­ti­ment, which sur­prised to the down­side in a month that saw the Nas­daq head to 12-year highs and employ­ment rip by more than 200k — going from 75.3 on sen­ti­ment to 74.3 is largely explained from the rise in gaso­line prices.

The IBD/TIPP eco­nomic opti­mism index also slumped to 47.5 in March from the one-year high of 49.4 in Feb­ru­ary. The com­po­nents of the recently released March sur­vey data from NY Fed Empire and Philly Fed looked on the soft side, espe­cially order books and pro­duc­tion plans. This has also shown up in a recent rever­sal in Pres­i­dent Obama's approval rat­ings — so the gaso­line impact, with a lag, is only now start­ing to rear its ugly head.

Keep in mind that even with WTI con­sol­i­dat­ing, the prices that con­sumers pay at the pump are on a steady march higher — up 31 cents in the past month to an aver­age of $3.82 a gal­lon (nation­wide) — but already nearly one-third of Amer­i­cans are pay­ing $4 or higher. What does this then do to the GDP price defla­tor and hence to real growth — well, just have a look and see what hap­pened in the first quar­ter of 2011. It's called stall speed, not escape velocity.

It is unclear just how sta­ble things are in Europe. The ECB has papered over the prob­lems for now but has jeop­ar­dized the sanc­tity of its bal­ance sheet at the same time. The U.K. is seem­ingly on the precipice of los­ing its AAA rat­ing sta­tus. Then we have Asia. India in a full-blown eco­nomic down­turn and its bank­ing sys­tem is in dis­ar­ray. And the Chi­nese econ­omy is now slow­ing down at a pace we have not seen since the 2009 hard land­ing. As the U.S. mar­ket has been surg­ing, the MSCI China index sagged 2.7% in March —not a con­struc­tive sign­post for the com­mod­ity com­plex. While this has caused the TSX index to lag the S&P 500, the Cana­dian dol­lar has man­aged to stay above par, in part because the rate-hike that is now being priced into the local bond mar­ket (Cana­dian 2-year note yields now offer a hefty 90 basis point pre­mium to the U.S. comparable).

Back to China for a minute — the country's A shares are down 3.3% in the past month while the H shares have gained 18%. The Chi­nese stock mar­ket now trades at a 9.9x for­ward mul­ti­ple, ver­sus a 15-year aver­age of 12x. So the mar­ket there is well val­ued and the A shares (those listed in China; the H shares trade in Hong Kong) may well be poised to play some catch-up here. Some­thing we have noticed and are def­i­nitely key­ing on.

As for the over­all mar­ket, our CIO, Bill Webb, likes what he sees in the form of the lin­ger­ing wide gap between the pre­vail­ing return on cap­i­tal and the cost of cap­i­tal. Screen­ing for GARP (Growth at a Rea­son­able Price) and yield remains in vogue. While we are involved in those slices of the mar­ket, the major aver­ages have man­aged to rally to lev­els above the year-end tar­gets the con­sen­sus estab­lished at the start of 2012 (of 1,355 on the S&P 500), as was the case this time last year. The S&P 500 has actu­ally risen as much in 2012 so far as it did at this stage in 1998 and when you con­sider how benev­o­lent 1998 was in terms of fis­cal, mon­e­tary and eco­nomic sta­bil­ity just three years after the advent of the Inter­net, how can any­one really com­pare the two years?

What we are see­ing unfold really is a liquidity-induced rally that is built on a lot of hope. Nei­ther were required in 1998 — the Fed kept a neu­tral pol­icy in place for most of that year and there was no need for hope; the growth in the econ­omy was organic and self-sustaining with­out unprece­dented gov­ern­ment assis­tance. Even then, we had a near-20% cor­rec­tion that sum­mer. Noth­ing moves in a straight line indef­i­nitely and while Bill and the invest­ment team have been tac­ti­cally bull­ish for most of this year, we are feel­ing the need to dial back the risk some­what near-term given the high lev­els of com­pla­cency and the fact that val­u­a­tion is less com­pelling than it was four-six months ago.

For exam­ple, the FT cites research show­ing that the S&P 500 is now two stan­dard devi­a­tions above its 50-day mov­ing aver­age, which is far beyond the norm of even an over­bought mar­ket and in the past this has proven to be a pretty good 'chill for now indi­ca­tor. Breadth has also dete­ri­o­rated of late as the mar­ket has scaled new highs, which is often a tech­ni­cal sign that an inter­me­di­ate top is at hand.

In the name of being 'tac­ti­cal' and 'nim­ble', which is crit­i­cal in today's rapid-fire volatile back­drop, get­ting a lit­tle more defen­sive here is not a bad idea at all. We also remain long-term bulls on gold and com­modi­ties, but with the U.S. dol­lar break­ing out and the Chi­nese data com­ing in softer than expected for the most part, we have taken on a less ebul­lient pos­ture for the time being and plan to get more involved at bet­ter pric­ing lev­els once this cor­rec­tive phase runs its course. The min­ing stocks have bro­ken below key sup­port lev­els here and over the near-term, the chart points are to be respected.

Also keep an eye on the bond mar­ket, which has become a bit unglued in recent weeks. Of course, this hap­pens at least four times a year so hic­cups like this are really par for the course. And as usual, we are hear­ing once again how we should all be pre­pared for the end of the sec­u­lar bull mar­ket in Trea­suries. These Wall Street reports come out at least once per year, the lat­est com­ing from UBS strate­gists. When will these peo­ple ever learn? In any event, it has been a rocky road as the 10-year note yield spiked 27 basis points last week to a five-month high of 2.3%. This is all part of the global risk-on trade because Ger­man bunds sold off just as much, and other assets that tend to do bet­ter in risk-off envi­ron­ments, such as gold, also suf­fered set­backs (the yel­low metal lost S50/oz over the week).

Bond yields are not yet at a level to upset the equity mar­ket apple cart, espe­cially with the yield on the banks improv­ing so much in one fell swoop. But if we approach 3% on the 10-year note then we could start to see the stock mar­ket pay some atten­tion — it's not so much the level, as the change, and at a time when gaso­line prices start to really pinch the con­sumer (dri­ving sea­son is right around the cor­ner), ris­ing bor­row­ing costs are not going to pro­vide a very con­struc­tive backdrop.

Tags: Bailout, Canadian, Canadian Market, Cautious Hope, Central Bank Intervention, David Rosenberg, Dawson, Deja Vu, Election Year, False Hope, Latent Risks, liquidity, Nasdaq, Optimism, Perceptions, Reuters, Rundown, Spin Master, Time After Time, Trillions, Verbiage, Year End
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Emerging Markets Radar (March 19, 2012)

Saturday, March 17th, 2012

Emerg­ing Mar­kets Radar (March 19, 2012)

Strengths

• Russ­ian indus­trial pro­duc­tion rose 6.5 per­cent in Feb­ru­ary com­pared with a year ear­lier, the fastest pace since Jan­u­ary 2011 and up from 3.8 per­cent in January.
• National Bank of Poland announced that M3 money sup­ply rose 12.6 per­cent year-over-year in Feb­ru­ary, after a 13.7 per­cent increase in January.
• China will con­sol­i­date rare earth com­pa­nies into two or three large-size enter­prises, Shang­hai Secu­ri­ties News reports, cit­ing Miao Wei, Min­is­ter of Indus­try and Infor­ma­tion Technology.
• China may resume nuclear plant approvals early this year, accord­ing to State Nuclear Power Tech­nol­ogy Corp. pres­i­dent Wang Binghua. China domes­tic coal prices and imports may surge as rail­way lines shut down for main­te­nance, accord­ing to Com­modor Research.
• China will allow exchanged-traded funds (ETFs) of Hong Kong shares to trade on the main­land exchanges “soon,” accord­ing to Hong Kong’s Sec­re­tary for Finan­cial Ser­vices and Trea­sury K.C. Chan.
• From March 1–9, China’s pas­sen­ger vehi­cle sales were 294,200 units, ris­ing 13 per­cent year-over-year and 5 per­cent month-over-month after adjust­ing the num­ber of work­ing days, accord­ing CICC.
• Singapore’s non-oil exports surged 30.5 per­cent year-over-year in Feb­ru­ary as elec­tron­ics and phar­ma­ceu­ti­cal ship­ments increased. The result was much higher than the median Bloomberg esti­mate of 16.2 percent.

Weak­nesses

• South African retail sales growth expanded at the slow­est pace in six months in Jan­u­ary as the high­est infla­tion rate in more than two years damped con­sumer spend­ing. Sales growth eased to 3.9 per­cent from 8.7 per­cent a month ear­lier, a Pretoria-based Sta­tis­tics South Africa said on its web­site this week. Infla­tion in South Africa was 6.3 per­cent in Jan­u­ary as elec­tric­ity, fuel and food prices climbed, lim­it­ing the room the cen­tral bank has to stim­u­late the econ­omy as Europe enters a recession.
• China’s for­eign direct invest­ment fell for the fourth month in a row in Feb­ru­ary as com­pa­nies reined in spend­ing amid a slow­down in the world’s second-biggest econ­omy and the pro­longed Euro­pean debt cri­sis. Invest­ment declined 0.9 per­cent to $7.73 bil­lion last month from a year ear­lier, fol­low­ing a 0.3 per­cent drop in Jan­u­ary, the Min­istry of Com­merce said in a state­ment this week.
• China’s Feb­ru­ary exports rose 18.4 per­cent, lower than the esti­mate of 31.1 per­cent, while imports rose 39.6 per­cent, higher than the esti­mate of 31.8 per­cent. How­ever, the largest trade deficit in the month was mainly due to sea­sonal fac­tors and won’t be sus­tained, Min­istry of Com­merce spokesman Shen Danyang said.
• Chi­nese pre­mier Wen Jiabao at a news con­fer­ence after the “Two Con­fer­ences” in Bei­jing strongly com­mented that the house prices are far from being rea­son­able, and stated the gov­ern­ment will main­tain its prop­erty curbs.
• Korea’s Feb­ru­ary unem­ploy­ment rate rose sur­pris­ingly to 3.7 per­cent from 3.2 per­cent in Jan­u­ary, above con­sen­sus of 3.2 per­cent. The main rea­son for the higher job­less rate was the increased labor force in the month, as col­lege stu­dents entered the labor market.

Oppor­tu­ni­ties

• Chile is said to spend more than $9 bil­lion on water treat­ment plants by 2017 as min­ing com­pa­nies boost pro­duc­tion, a report from Ray­mond Philippe, a Santiago-based direc­tor for the Cana­dian engi­neer­ing com­pany, Hatch Group, said this week.
• HSBC, Europe’s largest bank, is look­ing to buy a lender in Turkey. Given the size of HSBC, buy­ing a small bank would make lit­tle sense. HSBC would like “a mean­ing­ful invest­ment,” accord­ing to its CEO.
• Turkey will stop charg­ing spe­cial con­sump­tion taxes on car pur­chases, said Indus­try Min­is­ter Nihat Ergun.
• Turkey, with the biggest cur­rent account deficit after the U.S. and eco­nomic growth rival­ing China, is seek­ing to grow its pen­sion sys­tem as a means of sus­tain­ing eco­nomic growth with­out rely­ing on more volatile for­eign cap­i­tal inflows. The gov­ern­ment may dou­ble tax incen­tives for pen­sion con­tri­bu­tions this year.
• The merger between Youku and Tudou con­sol­i­dates China’s online video indus­try, which will ben­e­fit estab­lished inter­net play­ers such as Baidu and Sina. As the online video ad mar­ket grows explo­sively, those estab­lished plat­forms will com­pete rationally.

Threats

• India’s head­line infla­tion picked up for the first time in five months in Feb­ru­ary on higher food costs but another mea­sure of price pres­sures cooled, spark­ing mar­ket spec­u­la­tion that the cen­tral bank may sur­prise with an inter­est cut on Thurs­day. The whole­sale price index, India’s main gauge of infla­tion, edged up a faster-than-expected 6.95 per­cent from a year ear­lier in Feb­ru­ary after a spike in veg­etable prices fanned food inflation.
• With deter­mi­na­tion to restruc­ture its indus­try, China will allow its GDP growth to touch a lower low in the first and sec­ond quar­ters, but the mar­ket expects it to go higher after the first half of the year.

Tags: Canadian, Canadian Market, Cicc, Coal Prices, Commodor, Consumer Spending, Domestic Coal, ETF, ETFs, Food prices, Foreign Direct Investment, Inflation Rate, Minister Of Industry, Money Supply, National Bank Of Poland, Nuclear Plant, Nuclear Power Technology, Oil Exports, Railway Lines, Rare Earth, Research China, Retail Sales Growth, Russia, Shanghai Securities News, Technology Corp
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7 Foods That Have Strange Side Effects, and other Weekend Reads

Friday, March 16th, 2012

Here are this week's read­ing diver­sions for your per­sonal enlight­en­ment. Have a ter­rific St. Patrick's Day Weekend!

70% of All Ground Beef con­tains "Pink Slime"

Older Men's Biggest Health Worries

The study, pub­lished in the jour­nal The Aging Male, found that men were most con­cerned with health issues that would go on to affect their inde­pen­dence and qual­ity of life. How­ever, the researchers also found that few men reported receiv­ing guid­ance on these con­cerns from their health practitioners.

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10 Early Signs of Parkinson's Dis­ease That Doc­tors Often Miss

This is one of the odd­est, least-known, and often ear­li­est signs of Parkinson's dis­ease, but it almost always goes unrec­og­nized until later. "Patients say they were at a party and every­one was remark­ing on how strong a woman's per­fume was, and they couldn't smell it," says Rezak

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Red Meat Linked to Can­cer and Heart Dis­ease - NYTimes.com

Eat­ing red meat is asso­ci­ated with a sharply increased risk of death from can­cer and heart dis­ease, accord­ing to a new study, and the more of it you eat, the greater the risk.

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7 Foods That Have Strange Side Effects

You've prob­a­bly heard while grow­ing up that 'you are what you eat.' Well, if that say­ing holds any truth, then Leo Bar­nett might as well be a car­rot. The three-year-old boy from Britain was writ­ten about in the Daily Mail as liv­ing with a con­di­tion known as hyper-beta caroten­e­mia. Other than being a mouth­ful, the con­di­tion pro­hibits Barnett's body from digest­ing carotene.

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The Best Way To Pour Guinness

The Guin­ness should be poured in a tulip-shaped pint glass. The glass is a very impor­tant com­po­nent to get­ting a proper pour since it guides the nitro­gen bub­bles back up — and this stout is all about its soft bub­bles. When the beer goes through the keg, it has to pass a five-hole disk restric­tor plate at high speed; this cre­ates fric­tion and brings out the nitro­gen. It's those nitro­gen bub­bles that give Guin­ness its sweet, creamy head, which makes such a nice con­trast to the malty, bit­ter fluid

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After 244 Years, Ency­clopae­dia Bri­tan­nica Stops the Presses — NYTimes.com

Those coolly author­i­ta­tive, gold-lettered ref­er­ence books that were once sold door-to-door by a fleet of trav­el­ing sales­men and dis­played as proud fix­tures in Amer­i­can homes will be dis­con­tin­ued, com­pany exec­u­tives said.

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Red meat increases death risk by a fifth — Lifestyle, Front­page — Herald.ie

Reg­u­larly eat­ing red meat — espe­cially the processed vari­ety — dra­mat­i­cally increases the risk of death from heart dis­ease and can­cer, a major study has shown

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Agapi Stassinopou­los — Greek Par­ent­ing — Unbind­ing the Heart — Oprah.com

As women, we're pow­er­ful, my mother always told me. We're Aphrodite. We're Athena. We're Artemis. We're Hera. We're the god­desses of the beauty and wis­dom, the god­desses of the hunt and the moon, and the god­dess of mar­riage and child­birth. We're not the god­desses of the cell phone or the microwave.

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StPatricksDay.com – St. Patrick of Ireland

His father belonged to a Roman fam­ily of high rank and held the office of decu­rio in Briton. Conchessa was a near rel­a­tive of the great patron of Gaul, St. Mar­tin of Tours. Kil­patrick still retains many memo­ri­als of Saint Patrick, and fre­quent pil­grim­ages con­tin­ued far into the Mid­dle Ages to per­pet­u­ate there the fame of his sanc­tity and miracles

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St. Patrick Day's Recipes: Dishes You Can Drink And Dine To

Ask peo­ple what St. Patrick's Day means to them in this era and you're bound to get a response that involves some sort of alco­hol. But that's just a tiny frac­tion of how peo­ple cel­e­brate on March 17th. There's also the charm, lore, and cer­tainly the food behind the widely cel­e­brated Irish hol­i­day — after all, there's more to St. Paddy's Day than drink­ing, green beer, and close calls with alco­hol poi­son­ing. Leg­end has it that Patrick was the saint respon­si­ble for build­ing monas­ter­ies and schools in Ire­land after being blessed by the Pope. Rumour also has it that he was the one respon­si­ble for dri­ving out the hoards of poi­so­nous snakes that plagued the emer­ald isle thou­sands of years ago

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Amy D. Sho­jai, CABC: 3 Ways Your Pet Can Help You Heal

Stud­ies prove that pets pro­vide phys­i­cal health ben­e­fits, offer stress relief and detect or pre­dict health chal­lenges. Some pets now are used prior to health tests like MRIs to reduce patient fear. How can that be? Pets help keep us emo­tion­ally healthy.

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Tags: Aging Male, Barnett, Canadian Market, Carotenemia, Daily Mail, Diversions, Ground Beef, Guinness, Health Issues, Health Practitioners, Heart Disease, Keg, Mouthful, Nitrogen, Older Men, Personal Enlightenment, Pint Glass, Red Meat, Slime, St Patrick, Strange Side Effects
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Cyclical Outlook: Navigating the Hurricane of Global Deleveraging (PIMCO)

Friday, March 16th, 2012

by Saumil H. Parikh, PIMCO

• We expect the euro­zone econ­omy to expe­ri­ence a reces­sion in 2012 on the back of con­tin­u­ing pro-cyclical fis­cal aus­ter­ity measures.
• We expect 2012 to be the year in which the res­i­den­tial con­struc­tion sec­tor begins to grad­u­ally con­tribute to U.S. eco­nomic growth after a long and painful five-year hiatus.
• Major emerg­ing mar­ket economies are strug­gling with domes­tic over-investment, ris­ing income inequal­i­ties and infla­tion risks. There­fore, PIMCO expects major emerg­ing mar­ket economies to be less of a global engine of growth in 2012–13.

The global econ­omy finds itself sail­ing through calmer waters and clearer skies this quar­ter. Most finan­cial asset prices have improved sub­stan­tially in recent months. Liq­uid­ity con­di­tions across mar­kets have eased. Forced bal­ance sheet delever­ag­ing has slowed, and as a result, global eco­nomic growth has found a foot­ing of sorts com­pared to last quarter.

The recent improve­ment in liq­uid­ity con­di­tions and finan­cial asset prices in Europe on the back of two Long-Term Repo Oper­a­tions (LTROs) car­ried out by the Euro­pean Cen­tral Bank (ECB) in early Decem­ber and early March is of great impor­tance to the evolv­ing nature of PIMCO’s cycli­cal eco­nomic out­look. These oper­a­tions have suc­ceeded in pro­vid­ing highly at-risk Euro­pean finan­cial insti­tu­tions with nearly a tril­lion euros in much needed financ­ing to meet accel­er­at­ing deposit flight, pay bond redemp­tions, secure longer-term fund­ing and address asset-liability mis­matches. Addi­tion­ally, they have also dri­ven pos­i­tive spillover effects for cer­tain sov­er­eign bond mar­kets (in par­tic­u­lar Italy and Spain). In turn, this has slowed down the vicious Euro­pean delever­ag­ing feed­back loop that was threat­en­ing the global eco­nomic out­look com­ing into 2012.

But the crit­i­cal ques­tion for the year ahead is whether the ECB has done enough to halt and reverse delever­ag­ing and change the course of the euro­zone and global eco­nomic out­look on a sus­tain­able basis? That is, is the global econ­omy in the eye of the hur­ri­cane or has the hur­ri­cane passed over completely?

At PIMCO, we rec­og­nize the dynam­ics of eco­nomic and bal­ance sheet heal­ing but remain con­cerned that, in some key areas, they have not yet reached crit­i­cal mass. This is par­tic­u­larly the case in Europe, where ECB liq­uid­ity pro­vi­sions are nec­es­sary, but insuf­fi­cient to deal with the twin under­ly­ing prob­lems of too lit­tle growth and too much debt.

Eurozone’s Chal­lenges Continue

In our view, it is still too early to give the all clear sign for the euro­zone out­look. The fun­da­men­tal prob­lem fac­ing the euro­zone remains one of uneven com­pet­i­tive­ness, cur­rency rigid­ity and the lack of a coör­di­nated vision shared between mon­e­tary and fis­cal pol­icy institutions.

We expect the euro­zone econ­omy to expe­ri­ence a reces­sion in 2012 on the back of con­tin­u­ing pro-cyclical fis­cal aus­ter­ity mea­sures, which will make euro­zone sov­er­eign risk indi­ca­tors cycli­cally worse before they are given a chance to get sec­u­larly better.

This raises the specter of more down­grades, fur­ther destruc­tion of demand for euro­zone debt and the need to fur­ther delever­age bal­ance sheets in the com­ing months and quar­ters. Spain has already raised its hand, demand­ing per­mis­sion to run higher fis­cal deficits than promised just a few months ago. The sit­u­a­tion in Greece remains crit­i­cal, and, along with Por­tu­gal, high­lights the inad­e­quacy of liq­uid­ity pro­vi­sions to cure real sol­vency prob­lems once debt dynam­ics move beyond the point of no return.

The future sol­vency of euro­zone sov­er­eigns can only be improved via the real­iza­tion of much higher nom­i­nal growth and the reduc­tion in sov­er­eign bor­row­ing costs which will require a lender of last resort. Rates need to drop to a level low enough to make debt bur­dens sus­tain­able even at eco­nomic growth rates below the eurozone’s full poten­tial. Nei­ther of these sol­vency improv­ing options are being offered to the trou­bled euro­zone economies today.

As a result of our expec­ta­tions for a euro­zone reces­sion, ris­ing polit­i­cal risks across impor­tant coun­tries and also the lack of crit­i­cal sol­vency con­di­tions, we believe the delever­ag­ing feed­back loop in Europe will remain in place and will con­tinue to be the defin­ing cen­tral fea­ture of the global cycli­cal eco­nomic out­look. Like we said in Decem­ber, as goes the euro­zone delever­ag­ing, so goes the global econ­omy over the next six to 12 months.

U.S. Eco­nomic Growth Prospects

While the strug­gling euro­zone econ­omy will likely pre­vent the U.S. from achiev­ing above-trend growth, some sec­tors of the U.S. econ­omy have gen­uinely improved and are re-emerging from sec­u­lar lows. This is clear in auto­mo­bile out­put and more gen­er­ally in man­u­fac­tur­ing. One impor­tant inflec­tion point in the story of U.S. delever­ag­ing is the flat­ten­ing out and rever­sal of the neg­a­tive con­tri­bu­tion of res­i­den­tial con­struc­tion to over­all eco­nomic growth. We expect 2012 to be the year in which the res­i­den­tial con­struc­tion sec­tor begins to grad­u­ally con­tribute to U.S. eco­nomic growth after a long and painful five-year hia­tus. While we don’t expect the total con­tri­bu­tion from this sec­tor to be large (῀0.3%-0.4%), it does set the stage for a poten­tial multi-year recov­ery in res­i­den­tial con­struc­tion that we expect will even­tu­ally see a return to bal­ance between house­hold for­ma­tion rates and new con­struc­tion. This will add jobs and cre­ate income for many Amer­i­can work­ers that have endured a long depres­sion in the sec­tor. This is great news.

Another pos­i­tive for the U.S. econ­omy in 2012 is the nascent revival of avail­abil­ity of con­sumer credit. In recent months, this has become most clearly evi­dent in the areas of stu­dent loans and also auto­mo­bile financ­ing. The lat­ter was a crit­i­cal com­po­nent in the recov­ery of auto­mo­bile sales to a 15 mil­lion annu­al­ized sales rate in Feb­ru­ary 2012 (a level of activ­ity not seen in the sec­tor since March of 2008) accord­ing to the U.S. Depart­ment of Com­merce.
An impor­tant ques­tion, how­ever, is whether this recov­ery in con­sumer credit avail­abil­ity will fil­ter deep enough and wide enough in the house­hold sec­tor to allow for a sus­tained and con­tin­ued drop in the U.S. house­hold sav­ings rate, which will be needed to sus­tain cycli­cal U.S. eco­nomic growth in the face of a weak­en­ing out­look for fis­cal stim­u­lus and exports. The poten­tial cer­tainly exists and will be strength­ened sig­nif­i­cantly if cur­rent improve­ments in employ­ment and income can be sus­tained into 2013.

Emerg­ing Mar­ket Slowdown

Europe and the emerg­ing mar­kets are very impor­tant des­ti­na­tions for U.S. exports. Brazil, Rus­sia, India, China and Mex­ico, in total, are the largest mar­ket for U.S. exports, fol­lowed by Canada, fol­lowed closely by Europe. While we believe Europe is almost cer­tainly going to encounter a reces­sion in 2012, recent evi­dence from the major emerg­ing mar­ket coun­tries sug­gests that there is a sig­nif­i­cant cycli­cal slow­down under­way there as well, espe­cially in China, Brazil and India.
Our cycli­cal out­look for the major emerg­ing mar­kets is for growth to set­tle at the sector’s full poten­tial, with risks of under-shooting due to poli­cies designed to oppor­tunis­ti­cally con­tain infla­tion. Emerg­ing mar­ket economies have played an out­sized role in the global eco­nomic recov­ery since 2008.

Because of much bet­ter ini­tial con­di­tions, and also greater pol­icy effec­tive­ness, fis­cal and mon­e­tary stim­u­la­tion of major emerg­ing mar­ket economies pro­vided impor­tant exter­nal demand for both U.S. and Euro­pean com­mod­ity and cap­i­tal goods exports dur­ing frag­ile peri­ods of post-crisis growth. But, we expect this exter­nal demand source to wane dur­ing 2012.

Major emerg­ing mar­ket economies are strug­gling with domes­tic over-investment, ris­ing income inequal­i­ties and infla­tion risks. There­fore, PIMCO expects major emerg­ing mar­ket economies to be less of a global engine of growth in 2012–13.

Poten­tial Grey Swans

Finally, there are three grey swans on the cycli­cal horizon.

The U.S. elec­tions in Novem­ber will be crit­i­cal in deter­min­ing the shape of U.S. fis­cal pol­icy going into 2013 and beyond. As is well known by now, the U.S. econ­omy faces a “fis­cal cliff” in Jan­u­ary of next year, when tax stim­u­lus and gov­ern­ment spend­ing worth approx­i­mately 3.5% of GDP are sched­uled to be cut. Even if the new pres­i­dent and incom­ing con­gress are able to avoid the debil­i­tat­ing fis­cal con­trac­tion in 2013, the risk remains that as we approach the “fis­cal cliff,” polit­i­cal the­atrics and uncer­tainty regard­ing the out­come will hin­der con­fi­dence and ani­mal spir­its as they did before the debt ceil­ing debate of 2011.

There are also pres­i­den­tial elec­tions in France, a coun­try that is key to resolv­ing the Euro­pean debt cri­sis. We will be fol­low­ing devel­op­ments there closely, with par­tic­u­lar focus on their poten­tial impact on the French pol­icy stance, Franco–

Ger­man col­lab­o­ra­tion and the out­look for Europe.

It is the third swan that dis­turbs us most. The qui­etly ris­ing ten­sions in the Mid­dle East between Israel and Iran must be addressed by global lead­ers in a uni­fied man­ner before long. The exis­tence of known unknowns is exert­ing unwel­come pres­sure on oil prices at a time when the global econ­omy is only begin­ning to sta­bi­lize and grow out of vicious sec­u­lar delever­ag­ing process. Any global com­pla­cency on this front will quickly embed itself in oil prices, which in turn will ren­der our best cycli­cal fore­casts use­less dur­ing a time in which vis­i­bil­ity is already poor on all points across the horizon.

While we are sail­ing through calmer seas and clearer skies this quar­ter, the hori­zon in most direc­tions remains grey and vis­i­bil­ity remains very poor. A sus­tain­able res­o­lu­tion to the euro­zone sov­er­eign cri­sis, con­tin­ued gains in U.S. employ­ment and con­sump­tion and a peace­ful res­o­lu­tion to Mid­dle East ten­sions are all nec­es­sary before we can declare sec­u­lar smooth sail­ing ahead.

Tags: Asset Liability, Asset Prices, Austerity Measures, Bond Markets, Brazil, Canadian Market, Construction Sector, Critical Question, Emerging Market Economies, Feedback Loop, Financial Asset, Fiscal Austerity, Global Economic Growth, Global Economic Outlook, Global Economy, Income Inequalities, Inflation Risks, Liquidity Conditions, Outlo, Parikh, PIMCO, Russia, Spillover Effects
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Why The Rich Are Less Ethical, and other Weekend Reads

Friday, March 9th, 2012

Here are this week's read­ing diver­sions for your per­sonal enlight­en­ment. Have a awe­some week­end, and excel­lent March break (if you have one)!

Rose Reis­man: Can Food Labels Be Misleading?

How often do you walk through your super­mar­ket and read lur­ing food labels that con­vince you that you're eat­ing health­ier with terms such as lower sodium, lower fat, reduced calo­ries, omega-3s, "Lite", organic or nat­ural? And that's only the begin­ning! Food man­u­fac­tur­ers are jump­ing on the health band­wagon so you will pur­chase their prod­ucts. These descrip­tions may be legally allowed, but often when you read between the lines you will find you're not get­ting the entire story.

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Be More Assertive (And Feel Good About It)

To com­pli­cate mat­ters, we have to fight a life­time of old (bad) habits–saying "sure" when we really mean "no way." True, stand­ing your ground can be momen­tar­ily uncom­fort­able, but it's so worth it–your rela­tion­ships will be stronger as a result, Miller says

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What Does Your Dog Say About You?

Dog own­ers and dog lovers come in all shapes, sizes and per­son­al­i­ties. But does hav­ing a cer­tain dog say some­thing about you? Some say "yes". Check out what your dog says about you!

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Why Spoiled Babies Grow Up to Be Smarter, Kinder Kids

All three stud­ies sug­gested the same thing: chil­dren who are shown more affec­tion early in life reap big ben­e­fits. Researchers found that kids who were held more by their par­ents, whose cries received quick responses in infancy and who were dis­ci­plined with­out cor­po­ral pun­ish­ment were more empathic — that is, they were bet­ter able to under­stand the minds of oth­ers — later in life.

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Why the Rich Are Less Eth­i­cal: They See Greed as Good

If you ever thought that the guy dri­ving a late-model Mer­cedes is more of a jerk than the one behind the wheel of a bat­tered Honda, you’d be right. Even after con­trol­ling for fac­tors like traf­fic den­sity and the driver’s gen­der and per­ceived age (younger men tend to drive faster and often rudely), dri­vers of the newest, most high-status cars were much more likely to cut other dri­vers off.

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What Is Chrons Ileo­col­i­tis Causes Nat­ural Rem­edy Chrons Dis­ease Healing

"Chron's dis­ease is char­ac­ter­ized by fre­quent attacks of diar­rhea, severe abdom­i­nal pain, nau­sea, fever, chills, weak­ness, anorexia, and weight loss. Chil­dren with the dis­ease often suf­fer retarded phys­i­cal growth. The diag­no­sis of Chron's dis­ease is based on clin­i­cal signs, x-ray stud­ies using a con­trast medium, and endoscopy. The dis­ease is eas­ily con­fused with ulcer­a­tive col­i­tis, which is also an inflam­ma­tory bowel dis­ease affect­ing the colon and rec­tum." Ibid.

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Top 10 Hid­den Sources of Salt

After a diag­no­sis of heart fail­ure, "reduce salt intake" is one of the first pieces of advice doc­tors offer. Sodium con­tributes to fluid reten­tion, and too much sodium is one of the most com­mon trig­gers for exac­er­ba­tion. For this rea­son, doc­tors rec­om­mend that those with heart fail­ure limit salt intake to 1,500 to 2,000 mil­ligrams of sodium per day.

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Divorce Apho­rism Of The Day

It crosses our mind that there's far too much atten­tion paid to apho­risms about falling in love and not nearly enough to those about falling out of love.

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6 Foods That Weaken Bones

What you eat plays a big role in whether you’re get­ting the nutri­ents you need to build strong bones. What might sur­prise you, though, is that your diet can also play a role in sap­ping bone strength. Some foods actu­ally leach the min­er­als right out of the bone, or they block the bone’s abil­ity to regrow. Here, the six biggest bone-sappers

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10 Sur­pris­ing Clues to Stroke Risk

Some risk fac­tors are well known, such as being a long­time smoker or hav­ing high blood pres­sure or atrial fib­ril­la­tion, but many come as big sur­prises. These ten sur­pris­ing clues can alert you to a higher-than-normal risk of stroke. If one or more of these applies to you, you'll want to up your aware­ness, because act­ing fast can mean the dif­fer­ence between life and death.

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Foods That Fight Dis­ease: 5 'Super­stars' That Keep Ill­ness At Bay

Just call them the Fan­tas­tic Five; a group of disease-fighting super­foods that boost energy while help­ing to van­quish ill­nesses like dia­betes, heart dis­ease, can­cer and more.

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Heather Bauer, RD, CDN: DIY Greek Yogurt Desserts: Deli­cious and Nutritious

Greek yogurt has seen a recent pop­u­lar­ity in every facet of the food world — even Ben & Jerry's has cre­ated a frozen swirl. What's not to love? Greek yogurt is high in pro­tein, low in sugar and is one of the most ver­sa­tile ingre­di­ents around. When it comes to sweet treats, Greek yogurt is the way to go.

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How to be a good role model for your kids

You and your spouse may not agree all the time, and that's nor­mal. But the way that you han­dle your dif­fer­ences can have a big impact on your chil­dren and how they learn to han­dle conflict.

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What Is the Alka­line Diet?

Foods rich in pro­tein or phos­pho­rus, such as meat, grains and dairy prod­ucts, are said to be detri­men­tal to bones because they leave an acid residue that needs to be neu­tral­ized and elim­i­nated to avoid health prob­lems. But stud­ies show that this is sim­ply not true.

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Stress Less in 7 Steps

You know the feel­ing: the more you do, the more it seems you have to do. As chal­lenges mount in your work, rela­tion­ships, finances and health—sometimes in sev­eral areas of your life at once—they can eas­ily turn from try­ing to overwhelming.

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Tags: Affection, Bad Habits, Bandwagon, Canadian, Canadian Market, Corporal Punishment, Diversions, Dog Lovers, Dog Owners, Empathic, Food Labels, Food Manufacturers, Greed, Infancy, Jerk, Late Model, March Break, Model Mercedes, Omega 3s, Personal Enlightenment, Shapes Sizes, Traffic Density
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