Weak Economics Leave Energy and Natural Resources Mixed, Lower (June 4, 2012)

Monday, June 4th, 2012

Energy and Natural Resources Market Radar (June 4, 2012)

Strengths

• U.K. coal consumption was at a six-year 46 percent high in the first quarter. The exact opposite of what is occurring in the U.S. is happening in the U.K. where utilities switched from natural gas to cheaper coal supplies. The U.K.’s Department of Energy and Climate Change estimated that coal-fired power generation increased by 20.2 percent, or 6.5 terawatt hours, in the first quarter. The U.K.’s gas-fired power generation fell to 25 percent market share, the lowest in 14 years. Britain’s six largest utilities expect difficult market conditions for gas-fired power generation through 2016.

Weaknesses

• Utility inventories for coal were up again in March to 196 billion tons or 86 days of supply, 62 percent above the 10-year average of 53 days, according to industry research from Stifel Nicolaus.
• Based on Energy Information Administration data, U.S. monthly coal consumption of 57.6 million tons in March 2012 was a 25-year low. With total power generation down 3 percent year-over-year in March, coal generation was down 21 percent year-over-year while natural gas generation increased 40 percent year-over-year.  March utility coal inventories of 196 million tons represent 106 days of supply versus 71 days last year. The monthly increases in utility coal inventories have been declining, primarily due to production cuts across the industry.
• Copper producer China Nonferrous Mining Corp. has pulled its planned Hong Kong initial public offering of up to $313 million due to worsening market conditions, becoming the second major IPO to be scrapped in the city this week and underscoring tepid demand for new listings.

Opportunities

• China made stimulus announcements.  The Ministry of Finance announced RMB 98 billion ($15 Billion) in central government funding for social housing projects.  This compares to 153 billion spend by the government over all of 2011.  Also, the National Development and Reform Commission (NDRC) approved construction of three major steel projects, with combined investments exceeding RMB 130 billion.  And on Monday, the NDRC approved the construction of a new airport in Sichuan, joining recent approvals of three other airports.
• GlobalOre, the second major physical iron ore trading platform, and rival to the China iron ore platform, launched this week in a bid to boost its price-setting influence. Vale, BHP and Rio Tinto have also joined the platform, reports GlobalOre.

Threats

• BofA-Merrill Lynch warned this week that the global iron ore market may be oversupplied in 2013 due to 100 million tons of additional capacity coming online out of Australia.
• China’s Ministry of Commerce reported that domestic thermal coal prices are expected to drop further in the short term. In the week to May 27, domestic crude coal prices dropped 1 percent week-over-week, the sixth week in a row. Weak coal demand from the downstream power generation sector and high stocks at power plants have been behind the downward trend in coal prices. Coal stocks at China’s major power plants totalled 88.87 million metric tons on May 20, a record high, up 6.4 percent from the end of April.
• Argentina’s Mining Ministry this week ordered mining companies to prioritize the purchase of local products and services, as well as seek prior government approval 120 days before making overseas purchases of goods and services. Since February of this year, Argentina has subjected the import of all goods to a pre-registration and pre-approval regime, called the Declaración Jurada Anticipada de Importación. More than 600 product types must now obtain an import license, such as mining machinery and chemicals.

Tags: Administration Data, Central Government, Climate Change, Coal Consumption, Coal Fired Power, Copper Producer, Department Of Energy, Energy Information Administration, Gas Generation, Government Funding, Housing Projects, Initial Public Offering, Inventories, Market Radar, Mining Corp, Ministry Of Finance, Power Generation, Social Housing, Stimulus, Terawatt Hours
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In Your Face … Book (Bradley)

Thursday, May 24th, 2012

By Tom Bradley

I find the kerfuffle about the Facebook initial public offering (IPO) interesting. I don’t know if anything nefarious went on behind the scenes, but it seems to me that what played out on this overhyped and highly priced IPO (the $38 issue price equates to over 20x revenue) fell within the range of possible outcomes.

Facebook is impossible to value at this point in its development. It’s already one of the most important web platforms (along with Google, Apple and Amazon) and it certainly has a shot at becoming a highly profitable company (as the others did), but it’s still a bit of a crap shoot. Ultimately the stock price will be determined by how well the company monetizes (makes profits from) its user base. In the meantime, because Facebook’s valuation is so far out of the normal range, the stock will ebb and flow with every new analyst report, privacy abuse and Zuckerberg sighting.

Clearly the company and large shareholders got greedy in pricing and sizing the issue. Employees and other early shareholders sold over $9 billion of stock to the public, while only $6.8 billion was put into the company’s coffers. But should the buyers of Facebook shares, on the IPO or in the market afterwards, be surprised that Wall Street is hyperventilating (it was before the issue, why not after) and media sentiment is swinging like a baby on a Jolly Jumper? Certainly the sophisticated institutional buyers shouldn’t be. They read every page of the prospectus and knew the risks. Individual investors bought through full service advisors, so presumably their Facebook shares were put in the ‘high growth / high risk’ bucket of their portfolios.

I’m not trying to make light of investors’ short-term paper losses, but the result here was well within the realm of possibility. New issues aren’t a one-way street. They don’t all go to massive premiums on the first day of trading. Indeed, the fact that some do, like LinkedIn and Groupon, just reinforces how imprecise the IPO process is.

Tags: Amazon, Analyst Report, Face Book, Google, Hyperventilating, Individual Investors, Initial Public Offering, Initial Public Offering Ipo, Institutional Buyers, Jolly Jumper, Kerfuffle, Linkedin, Media Sentiment, Nefarious, Paper Losses, Privacy Abuse, Profitable Company, Stock Price, Tom Bradley, Web Platforms
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Gold: The World’s Friend for 5,000 Years

Saturday, May 19th, 2012

Gold: The World’s Friend for 5,000 Years

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

Facebook’s highly anticipated initial public offering today helped the company raise $16 billion, a record for tech IPOs. It’s refreshing to see investor excitement rally around the stock, as the U.S. needs innovative businesses to thrive and attract capital. However, as behavioral finance warns, be cautious of a herd mentality.

Last November, the IPO deal of the day was Groupon. On the first day of trading, shares rose to a high of $31 from an initial offering price of $20.

By Thanksgiving, the stock had fallen below the IPO price, and only a few months later, uncertainty popped up around the company’s accounting methods and financial controls. The stock fell further, with the market devaluing Groupon by about 50 percent in only six months. How’s that for a group buy?

It’s interesting to note that the value of Groupon’s stock has lost more than $13 billion since the peak on the first trading day through April 30. For comparison, if you look at the total net assets in Lipper’s precious metals mutual fund peer category, assets fell $8.3 billion over the same timeframe. Investors lost more than $5 billion more in one tech stock alone than in all of the precious metals funds combined.

Gold—A Reality Check
Investors have “defriended” gold recently in favor of the dollar, as Greek and French voters rejected austerity measures. Greeks have been responding to their escalating debt issues for a while by steadily pulling money from overnight deposits. I often say, money goes where it is best treated, and these deposits will need to find a safe haven.

It’s not only Greece the market is worried about, says BCA Research. In a special report aptly named, “In Case of Emergency Grexit,” the firm says there’s extra pressure on Spain and Italy, “which imminently needs a large bailout of its banking system.” The 10-year yields for each country have reached 6 percent today, and while there are funds to sufficiently cover Spain, there aren’t enough funds for Italy, too, says BCA.

So if the European Union (EU) stops the flow of bailout funds, Greece, unable to pay wages, would invoke social unrest, according to BCA.

More importantly, without funds from the EU, Greece would default on its bonds. Looking at what the country owes this year alone, $1 to $7.6 billion is due each month, says BCA. The European Central Bank would then most likely stop providing funds to Greek banks, causing more individuals to pull money. “With deposit flight, and no injections from the ECB, the banks would be bust and Greece would be hemorrhaging money,” says BCA.

It’s also important to look at the investors of Greek debt. According to the London Evening Standard earlier this year, French banks are the largest holders of Greek government bonds and private-sector debt in the eurozone, with $47.9 billion exposure to Greece.

In the end, I believe governments in Europe lack the courage to be fiscally disciplined. Earlier this week, I told Aaron Task and Henry Blodget on The Daily Ticker that when push comes to shove, Europe will likely continue to print money. This should be positive for gold.

At the Hard Assets Conference earlier this week, Greg Weldon compared the money printing situation to a sink. In an interview he gave with The Gold Report, Greg said:

“It’s going to be very difficult to see how economies in Europe, the U.S. and Japan can stand on their own two feet without the assistance of central banks debasing currency through debt monetization. I liken it to filling the sink halfway up with water and pulling the plug out of the drain. Of course, the water level will recede unless you turn the faucet on and start more water pouring into the sink. The level of water represents asset prices, the water flowing out of the faucet represents liquidity provided by global central banks and the drain represents the real macro economy, which has not been fixed.

“At the end of the second round of qualitative easing, when the Fed shut off the faucet, the water level (asset prices) started to go down. But now the water is running again—particularly with some of the measures instituted by the European Central Bank, with its three-year loan program, the federal liquidity swaps and the back-ended way that it’s managed to involve the International Monetary Fund.

“The problem with all of this is it does nothing to fix the underlying problem, which is too much debt. This is not sustainable. Central banks turning on the water faucet is good for asset prices. The real solutions of fiscal austerity, which are probably not palatable to most politicians in Europe, are the real struggle as we go forward. This problem is not going to go away.”

So, during times like we’ve had recently, when the dollar is chosen over gold, I apply math. The chart below shows the 60-day percentage change of the gold price and the U.S. dollar. Gold’s recent weakness has triggered a -2.2 sigma event in standard deviation terms. Over the past 10 years, this has happened less than 2 percent of the time. Historically, each time gold has touched the -2 sigma mark, the precious metal has rallied.

This bounce is exactly what we saw on Thursday and Friday this week.

See more slides from my Hard Assets Investment Conference.

While gold may not go up vertically from here—as frequent readers know, the yellow metal historically has fallen in June and July—with the extraordinary events occurring in Europe, I believe investors will soon “friend” gold once more. As we wait for the central banks around the world to act, I encourage investors to consider dollar-cost averaging. It’s a way to stay invested, and more importantly, to avoid making emotional investment decisions.

Tags: Accounting Methods, Austerity Measures, Bailout, Behavioral Finance, Chief Investment Officer, Deal Of The Day, Debt Issues, Extra Pressure, Frank Holmes, French Voters, Herd Mentality, Initial Offering, Initial Public Offering, Investor Excitement, Ipo Price, Lipper, Net Assets, Offering Price, Precious Metals Funds, U S Global Investors
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Facebook IPO May Break the Market and Initiate a Free Fall Crash

Friday, May 18th, 2012

by Steven Vincent,  Bull Bear Trading

Let me start by clarifying something.  I am not saying that the market could crash spectacularly in the next few days and that in that event the Facebook IPO would be a major contributing factor.  I am not saying that.  The market is saying it.

Facebook boosts IPO size by 25 percent, could top $16 billion

NEW YORK/SAN FRANCISCO (Reuters) -
Facebook Inc increased the size of its initial public offering by almost 25 percent, and could raise as much as $16 billion as strong investor demand for a share of the No.1 social network trumps debate about its long-term potential to make money.
Facebook, founded eight years ago by
Mark Zuckerberg in a Harvard dorm room, said on Wednesday it will add about 84 million shares to its IPO, floating about 421 million shares in an offering expected to be priced on Thursday.
http://finance.yahoo.com/news/facebook-expands-ipo-size-aims-011714…

This mammoth dumping of shares onto the market is coming at the exact moment that global financial markets are teetering on the brink of disaster.  Technically and psychologically this market is as weak and poorly positioned to absorb a new float of this size as it could possibly be.  As every market across all asset classes breaks major bearish technical levels, as the fundamental news flow accelerates and worsens by the hour, Wall Street if fixated upon “the biggest IPO ever”.  Few ask why Facebook owners are rushing for the exits now.  Few observe that the markets began their current crash on the day of the Carlyle IPO.  Even fewer wonder what the potential effect will be of sucking the remaining air out of the room even as the markets gasp for breath.

Bulls will presently argue that the market is very oversold and positioned to rally.  Under conditions of a healthy bull market, they would be correct.  Every indicator you could think of is positioned for a rally in the context of a real bull.  The trouble is that the last bull phase ended in February of 2011 and the market has been falling apart internally for over a year.  In fact, technical deterioration has run far ahead of price declines in much the same way in 2011.  The result then, as now, is that market price sprints to catch up to the technicals and the result is a crash.

Here’s just one example of many.  Prior to the 2011 crash, the ratio between Down Volume and Up Volume began to expand dramatically even as the market made new highs, creating a divergence between market price and the indicator:


Take note that if this pattern repeats itself for a fourth time (and there are many compelling reasons to think it will as we will see later in this posting), then we are yet very early in the process.  This suggests that although we could be considered “oversold” at this time, a market crash is pending.  And it is important to further note that serious market crashes come from deeply oversold, deteriorated technical conditions such as those prevailing right now.  When comparing 2011 and 2012 levels, the indicator also made a higher low while the market made a higher high which is a divergence.

The ratio between Advancing and Declining issues is set up very similarly and is also highly suggestive of a pending crash with a breakout move just beginning:


This indicator also created a divergence at the 2011 and 2012 price highs.  Keep in mind that both of these indicators are just now beginning their big moves.

One of the hallmarks of a crash is a rapid expansion of New 52 Week Lows:

Note the huge divergence between 2011 and 2012 as more New Lows were being registered at a higher price level in 2012.  Also notice the rapid expansion of New Lows as price breaks the neckline of Head and Shoulders tops in both 2011 and 2012.

Many will argue that the price of the 30 Year Treasury Bond is “too high” and that the recent flight of capital to the perceived safety of that market is “irrational” or even “stupid” and that it “must reverse”.  Right now, the long bond is blasting through the upper resistance band that has contained it for several decades:

Note that this very long term breakout move is coming after a six month long consolidation.  Also note that this is the first time ever that this market did not return to support after visiting its upper resistance band.  Traders should respect the intelligence of the market.  Clearly it is saying that there is a real need for safety and that the need is so urgent that a multi-decade technical level needs to be completely taken out.  Also note that this breakout move is only just beginning.

The ratio of SPX to the 30 Year Treasury Bond has very recently plunged through its multi decade uptrend while simultaneously violating its 20, 50 and 200 month exponential moving averages:


Clearly this is a move that is only just beginning.  When such long term technical events occur is far more likely to mark the onset of something rather than the end of something.  The presence of a clear Head and Shoulders formation suggests an immediate crash to the neckline and beyond.

The Dollar ETF, UUP, is rapidly approaching the neckline of a clear reverse Head and Shoulders formation:

This is coincident with a triple bull moving average cross.  The bull cross together with a breakout from the formation neckline would be the beginning of a very strong move.

Volatility Index has broken out from a six month long inverse Head and Shoulders pattern and has closed four consecutive sessions above its 200 EMA:

This is the beginning of a very large move for VIX, which can only correlate with a significant bearish event for stocks.

I could post many more charts which show that the market is far nearer to the beginning of a major event than to a sort of end.  Oversold is likely to become much more oversold as panic selling takes hold.

While we could argue that RSI is now well below 30 and therefore oversold, historical precedent shows that it can go much lower:
The incidents when RSI started at 70 and went below 20 led to an average bottom for the indiator of 16.  My take is we will see that reading on this decline and it will reflect a serious bearish market event.

In this context, Wall Street will be dumping an enormous new float of a new “darling” stock into the market on Friday.  Market participants still largely regard the recent price decline as a buying opportunity and the expectation is that the FB shares will be “snapped up” by eager investors.  Recent dip buying behavior has only served to expend what little available cash there is in the market.  The Facebook IPO will suck the remaining air out of the room, leaving a vacuum.  While the effect may not be immediate, it could take only a few sessions for the real selling to begin.  The setup for a Black Monday is there.  And I do not mean that metaphorically.

I will leave you with the following chart study comparing the period immediately prior to the Friday before Black Monday 1987 and the period leading up to today, Friday, May 18, 2012:


Day by day, tick by tick, technical event by technical event, the two charts are nearly perfect replicas.  Will the fractal echo complete on Friday and Monday?

Any long position under these circumstances is sheer folly.  And I’m not saying that.  The market is saying it.

There’s an elephant in the room and no one wants to acknowledge it.

Copyright © http://www.thebullbear.com

Tags: Asset Classes, Brink Of Disaster, Bull Bear, Bulls, Carlyle, Crash, Dorm Room, Exact Moment, Facebook, Finance Yahoo, Global Financial Markets, Harvard, Initial Public Offering, Investor Demand, Ipo, Mark Zuckerberg, Reuters, Steven Vincent, Trumps, Wall Street
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Horizons ETFS Announces March 2012 Distributions

Friday, March 23rd, 2012

HORIZONS ETFS ANNOUNCES MARCH 2012 DISTRIBUTIONS

TORONTO, March 22, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the distribution amounts per unit (the “Distributions”) for certain of the Horizons ETFs family of exchange traded funds (the “ETFs”), for the period ending March 31, 2012, as indicated in the table below.

The ex-dividend date for the Distributions is anticipated to be March 28, 2012, for all unitholders of record on March 30, 2012. The Distributions will be paid in cash or, if the unitholder has enrolled in the respective ETF’s dividend reinvestment plan (DRIP), reinvested in additional units of the applicable ETF, on or about April 12, 2012.

Read Complete Press Release [PDF] - HORIZONS ETFS ANNOUNCES MARCH 2012 DISTRIBUTIONS

****

HORIZONS ENHANCED U.S. EQUITY INCOME FUND ANNOUNCES MONTHLY DISTRIBUTION

TORONTO, March 22, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the monthly distribution of the Horizons Enhanced U.S. Equity Income Fund (the “Fund”) for March 2012 in the amount of $0.06667 per Class A unit of the Fund. The Class A units of the Fund are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol HES.UN.

The distribution represents an 8.00% annualized yield on the Fund’s initial public offering price of $10.00 per Class A unit. The March distribution ex-dividend date is anticipated to be March 28, 2012, for all Class A unitholders of record on March 30, 2012. The distribution is payable on April 12, 2012.

Read Complete Press Release [PDF] – HORIZONS ENHANCED U.S. EQUITY INCOME FUND ANNOUNCES MONTHLY DISTRIBUTION

For further information:
Martin Fabregas, Investor Relations, (416) 601-2508 or 1-866-641-5739.

Tags: Complete Press, Distribution Amounts, Distributions, Dividend Reinvestment Plan, Drip, Equity Income Fund, ETF, ETFs, Ex Dividend Date, Exchange Traded Funds, Fabregas, Horizons, Initial Public Offering, Investor Relations, Management Inc, Offering Price, Press Release, Toronto March, Toronto Stock Exchange, Tsx
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Horizons ETFs Announces February 2012 Distributions

Wednesday, February 22nd, 2012

HORIZONS ETFS ANNOUNCES FEBRUARY 2012 DISTRIBUTIONS

TORONTO, February 21, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the distribution amounts per unit (the “Distributions”) for certain of the Horizons ETFs family of exchange traded funds (the “ETFs”), for the period ending February 29, 2012, as indicated in the table below.

The ex-dividend date for the Distributions is anticipated to be February 27, 2012, for all unitholders of record on February 29, 2012. The Distributions will be paid in cash or, if the unitholder has enrolled in the respective ETF’s dividend reinvestment plan (DRIP), reinvested in additional units of the applicable ETF, on or about March 12, 2012.

[Complete Press Release] Horizons ETFs Announces February 2012 Distributions
HORIZONS ENHANCED U.S. EQUITY INCOME FUND ANNOUNCES MONTHLY DISTRIBUTION

TORONTO, February 21, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the monthly distribution of the Horizons Enhanced U.S. Equity Income Fund (the “Fund”) for February 2012 in the amount of $0.06392 per Class A unit of the Fund. The Class A units of the Fund are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol HES.UN.

The distribution represents an 8.07% annualized yield on the Fund’s initial public offering price of $10.00 per Class A unit. The February distribution ex-dividend date is anticipated to be February 27, 2012, for all Class A unitholders of record on February 29, 2012. The distribution is payable on March 12, 2012.

[Complete Press Release] Horizons Enhanced U.S. Equity Income Fund Announces Monthly Distribution

HORIZONS GOLD YIELD FUND ANNOUNCES FEBRUARY 2012 DISTRIBUTION

TORONTO, February 21, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. (“AlphaPro”) are pleased to announce the monthly distribution rate for the Horizons Gold Yield Fund (the “Fund”) for February 2012 in the amount of $0.07780 per Class A unit and Class F unit of the Fund. The Class A units of the Fund are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol HGY.UN. The Class F units of the Fund are not publicly listed.

This distribution rate, which is equivalent to $0.9336 per annum or a yield of 9.34% per annum on the initial issue price of $10.00 per Class A unit and Class F unit. The February distribution ex-dividend date is anticipated to be February 27, 2012, for all Class A and Class F unitholders of record on February 29, 2012. The distribution is payable on March 12, 2012.

[Complete Press Release] Horizons Gold Yield Fund Announces February 2012 Distribution

For further information:
Martin Fabregas, Investor Relations, (416) 601-2508 or 1-866-641-5739.

Tags: Complete Press, Distribution Amounts, Distributions, Dividend Reinvestment Plan, Drip, Equity Income Fund, ETF, ETFs, Ex Dividend Date, Exchange Traded Funds, Gold Fund, Horizons, Initial Public Offering, Management Inc, Offering Price, Press Release, Toronto Exchange, Toronto Stock Exchange, Tsx, Yield Fund
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News That Matters (August 11, 2011)

Thursday, August 11th, 2011

via The Trader, thetrader.se

FT.com
The flagship fund of Paulson & Co, the world’s third-largest hedge fund, lost more than 10 per cent of its value in the first week of August alone, the FT reports. At Friday’s close, the Advantage Plus and unleveraged Advantage strategies were down 31 per cent and 21 per cent respectively for the year http://ftalphaville.ft.com/thecut/2011/08/11/650286/paulson-fund-loses-10-in-week/

George Osborne is to tell MPs on Thursday that he has drawn up contingency plans to deal with the fallout of a new European banking crisis, amid renewed market turmoil and speculation about the health of the French banking sector. The FT reports Mr Osborne will tell an emergency session of the Commons that there is no immediate threat to financial stability http://ftalphaville.ft.com/thecut/2011/08/11/650201/osborne-to-outline-contingency-plans/

French president Nicolas Sarkozy gave his finance and budget ministers a week to devise new measures to cut France’s budget deficit as shares in the country’s banks plummeted in the latest bout of financial markets turmoil http://ftalphaville.ft.com/thecut/2011/08/11/650251/focus-of-eurozone-crisis-turns-to-france/

Groupon has abandoned a controversial accounting measure in a revised prospectus for its initial public offering filed on Wednesday. The FT reports the Chicago-based online coupon company was criticised after its initial filing in June for using a metric called “adjusted consolidated segment operating income”, http://ftalphaville.ft.com/thecut/2011/08/11/650241/groupon-revises-its-ipo-prospectus/

Shares in Cisco Systems rose as much as 13 per cent in late trading after profit and sales beat analysts’ estimates, Bloomberg reports. It was the first time in six quarters that the shares gained after results. Profits of 40 cents per share in the fourth quarter exceeded average analysts’ estimates of 38 cents http://ftalphaville.ft.com/thecut/2011/08/11/650231/cisco-shares-jump-on-earnings/

Trading in equities and derivatives has hit record levels this week, the FT reports, as investors traded frantically in response to a tumult of factors such as the US Federal Reserve’s decision to stick with near-zero interest rates until 2013, http://ftalphaville.ft.com/thecut/2011/08/11/650191/trading-volumes-reach-record-levels/

The yuan strengthened beyond Rmb6.4 per dollar for the first time in 17 years, Bloomberg reports, supported by the Federal Reserve’s pledge to keep interest rates at a record low and signs China willhttp://ftalphaville.ft.com/thecut/2011/08/11/650136/yuan-strengthens-against-dollar/

WSJ.com
Asian shares hit the skids again Thursday amid another battering for global markets, while the euro was choppy as investors remained cautious. Japan’s Nikkei Stock Average fell 1.6%, Australia’s S&P/ASX 200 lost 1.4%, South Korea’s Kospi Composite dropped 1.8% after slumping over 4.0% on the opening bell, and New Zealand’s NZX-50 was 0.1% lower.http://online.wsj.com/article/SB10001424053111903918104576501051890278110.html?mod=WSJAsia_hpp_LEFTTopStories

France is preparing new measures to ensure it meets its deficit-reduction targets, French President Nicolas Sarkozy said Wednesday, as the country gears up to fight to retain its top-notch triple-A credit rating. Mr. Sarkozy, who unexpectedly came back to Paris from his holiday retreat on the Côte d’Azur to call a meeting with key cabinet ministers and Bank of France governor Christian Noyer, said the deficit-reduction goals are “imperative,” and tasked the finance and budget ministers to make proposals so that they can be safeguarded. http://online.wsj.com/article/SB10001424053111904006104576499582749927712.html?mod=WSJEurope_hpp_LEFTTopStories

The euro rebounded from early session lows in Asia trade on Thursday, led by a rally in regional stocks that caught many analysts by surprise given investors globally remain downbeat on the prospects for world growth. Catching the eye of traders was the daily fix of the yuan against the U.S. dollar after the Chinese central bank guided its currency to a stronger-than-expected level http://online.wsj.com/article/SB10001424053111903918104576501192237870896.html?mod=WSJEurope_hpp_LEFTTopStories

Bank of England Governor Mervyn King said Wednesday he won’t commit to any particular path for monetary policy as the central bank cut its forecasts for both inflation and economic growth in the U.K. Mr. King told reporters it is “very dangerous” for policy makers to make a public commitment around future interest rates and that monetary policy should instead react to changes in economic conditions as they arise. “Monetary policy has to be able to respond to changing circumstances,” Mr. King told reporters following the publication of the BOE’s quarterly inflation report. Mr. King’s reluctancehttp://online.wsj.com/article/SB10001424053111903918104576499730805645012.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Greece’s ambitious reform program suffered a double setback Wednesday after it emerged that talks with the country’s creditors on a bond swap plan have stumbled and fresh data showed a sharp increase in the budget deficit. Citing poor private sector participation, officials said that a plan to swap Greek government debt maturing by 2020 into new, longer-dated securities, might be extended to include bonds falling due in 2022 or even 2024. http://online.wsj.com/article/SB10001424053111904006104576500032711389132.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

The Bank of Korea kept its benchmark interest rate on hold for a second straight month as it opts to tread cautiously in normalizing policy amid global market turmoil and increasing concerns about the health of Korea’s major export markets. The BOK, as expected, held its policy rate at 3.25% at its monthly rate review on Thursday.  “The Korean economy appears on track for steady growth. However, the downside risk to growth is likely to increase due mostly to the momentum of recoveries in the U.S. and other major countries slowing, and to signs of sovereign debt problems in the euro area spreading,” the BOK said. http://online.wsj.com/article/SB10001424053111903918104576501162298232234.html?mod=WSJASIA_hpp_LEFTTopWhatNews

Financial stocks took another thumping Wednesday, adding to the pressure building on Bank of America Corp. Chief Executive Brian Moynihan. BofA shares led a financial rout for the second time this week. They slid 11% to $6.77 in heavy trading even as Mr. Moynihan struck a contrite tone in an unusual public conference call, in his latest effort to win over skeptical investors.http://online.wsj.com/article/SB10001424053111903918104576500480744611382.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

South Korea returned fire twice toward North Korea Wednesday after it said artillery shells fired from the North landed on the southern side of the countries’ sea border near an island Pyongyang attacked last year. The flare-up underscores how any progress in talks over the North’s nuclear program could be derailed by armed  confrontation. http://online.wsj.com/article/SB10001424053111904006104576499502627933520.html?mod=WSJEUROPE_hpp_MIDDLESecondNews

After three decades of serial reorganizations, Eastman Kodak Co. is struggling to stay in the picture. The 131-year-old company lost much of its film business to foreign competitors, then mishandled the transition to digital cameras. Now it is quickly burning through its cash as it remakes itself into a company that sells printers and ink. http://online.wsj.com/article/SB10001424053111903454504576488033424421882.html?mod=WSJASIA_hpp_LEFTTopWhatNews

Marketwatch.com
The Australian unemployment rate rose 0.1 percentage points to 5.1% in July, according to data compiled by the Australian Bureau of Statistics. Economists had been expecting an unemployment rate of 4.9%. The number of people unemployed increased by 18,000 to 611,600 while the number of employed remained broadly unchanged at 11.45 million, the ABS data showed. The country’s participation rate remained steady at 65.6% http://www.marketwatch.com/story/australian-unemployment-rate-rises-unexpectedly-2011-08-10

Japan’s core machinery orders, a key leading indicator for capital spending, rose 7.7% in June, the Cabinet Office reported Thursday, widely beating a 1.7% forecast from a Dow Jones Newswires survey of analysts. Core machinery orders, which strip out volatile power-utility and shipping orders, rose 3.0% in May. However, the data set is generally volatile, and the June release included a forecast for the orders to rise just 0.9% during the July-September quarter. http://www.marketwatch.com/story/japans-core-machinery-orders-jump-77-in-june-2011-08-10

Oil prices have been thumped as concerns about global growth keep investors sidelined, but analysts say the fundamentals in Asia remain strong enough to reinvigorate energy demand. Demand has weakened in light of the struggling world economy. This week, the International Energy Agency (IEA) cut its global outlook for 2011. The IEA now estimates for 2011 global oil demand will be 60,000 barrels a day less than previously projected, with the agency citing the impact of high crude prices and slowing economic growth. http://www.marketwatch.com/story/asian-appetite-to-support-oil-demand-2011-08-11

Reuters.com
Brent slipped on Thursday, reversing the previous session’s gain of 4 percent, on worries over demand as the European debt crisis spilled in to France amid a weaker economic outlook for the United States.Brent crude fell as low as $105.00 a barrel and traded 40 cents lower at $106.28 by 0228 GMT, after gaining $4.11 to settle at $106.68 a barrel. U.S. oil slumped as low as $81.14 and traded down 17 cents at $82.72. http://www.reuters.com/article/2011/08/11/us-markets-oil-idUSTRE77838320110811

Concerns about S&P’s downgrading of the U.S. credit rating and the resulting global stock sell-off are sparking urgent calls for investigations and reinvigorating ongoing efforts to reform the ratings agencies, which have been under fire since the Enron scandal of 2001. Representative Maxine Waters, a California Democrat, on Wednesday called for the House Financial Services Committee to hold a hearing on the implications of the S&P downgrade. http://www.reuters.com/article/2011/08/11/us-financial-regulation-creditraters-idUSTRE77A03S20110811

Bloomberg.com
Google Inc. (GOOG) , the largest Internet- search provider, lost share among U.S. online searches in July while Yahoo! Inc. gained, researcher ComScore Inc. (SCOR) said. Google’s share of the U.S. Web-search market declined to 65.1 percent last month from 65.5 percent in June, while Yahoo’s rose to 16.1 percent from 15.9 percent, according to Reston, Virginia-based ComScore. Microsoft Corp. (MSFT)was unchanged at 14.4 percent. http://www.bloomberg.com/news/2011-08-10/google-loses-share-in-u-s-searches-in-july-yahoo-gains.html

Economic miracles sometimes need course corrections, even in Singapore, which last year was home to more U.S. dollar-millionaire households per capita than any other country, according to Boston Consulting Group Inc. As non-Singaporean workers and companies have poured into what the World Bank says is the easiest place on earth to do business, some Singaporeans have been left behind. Theincome gap between richest and poorest has widened in recent years, according to the government statistics department. http://www.bloomberg.com/news/2011-08-10/singapore-miracle-dimming-as-income-gap-widens-squeeze-by-rich.html

Societe Generale (GLE) SA, France’s second-largest bank, denied “all market rumors” and asked the nation’s market watchdog for an investigation after speculation France’s creditworthiness was in doubt sent the shares tumbling. The lender’s performance in July and early August shows it will be able to post “solid” results in the future, Paris- based Societe Generale said in a statement after the market closed yesterday. The bank asked France’s Autorite des Marches Financiers to open a probe into the origin of speculation that is “extremely harmful to the interests of its shareholders.”http://www.bloomberg.com/news/2011-08-10/societe-generale-leads-fall-in-french-banks-as-credit-default-swaps-climb.html

Bill Gross was right after all, though that hasn’t helped his investors this year. Former White House economic adviser Lawrence Summers and Christina Romer, the former chairman of the U.S. Council of Economic Advisers, were among critics who challenged a view promoted by Gross’s Pacific Investment Management Co. that the U.S. economy may be headed for a long period of below-average growth and high unemployment, a scenario known as “new normal.” Money manager Kenneth Fisher called the concept “idiotic.” http://www.bloomberg.com/news/2011-08-10/pimco-s-gross-proves-summers-wrong-as-selloff-shows-new-normal-is-real.html

Central bankers are racing to shield their economies from fiscal tightening and lopsided currency swings that threaten a new global recession. In the 72 hours after a Group of Seven conference call on Aug. 7, the Federal Reserve pledged to keep interest rates near zero through at least mid-2013, the European Central Bank intervened in bond markets and the Bank of England indicated it’s ready to add more stimulus if needed. Japan signaled renewed concern about the yen and Switzerland yesterday stepped up its fight to curb an “overvalued” franc. http://www.bloomberg.com/news/2011-08-10/central-bankers-become-tower-of-strength-amid-debt-turmoil.html

Cnbc.com
Gold eased on Thursday from record highs struck earlier in the session after the CME Group raised margins on COMEX gold futures, but turmoil in the global financial markets and fears of slower growth will buoy sentiment. Spot gold hit an all-time high of $1,813.79, and U.S. gold rose to a record high of $1,817.6 early in the day. Both eased after the CME Group raised margins on U.S. gold futures by 22.2 percent, driving spot gold down to $1,790.29 an ounce by 0337 GMT, off 0.2 percent from the previous close. http://www.cnbc.com/id/44097448

Goldman Sachs on Wednesday reviewed its position on further monetary stimulus, saying that further quantitative easing had a greater than ever chance of being implemented in the United States. “We now see a greater chance that the FOMC (Federal Open Market Committee) will resumethis year or in early 2012. We’ve changed our call because the committee’s reaction to incoming economic data is more dovish than previously thought,” Jan Hatzius, chief U.S. economist Goldman Sachs said in a note.

Extreme market turmoil is forcing a marked shift in central bank policy, pushing the lenders of last resort to go places they would rather not. Finance ministers and central bankers of the G7 held emergency talks over the weekend. While they pledged to take action in the currency market to tackle disorderly movements if necessary, there was no other mention of joint action http://www.cnbc.com/id/44098180

NYTimes.com
It feels eerily familiar: Stocks are plummeting. The economy is slowing. Politicians are scrambling to find solutions but are mired in disagreement. Many Americans are wondering whether they are in for a repeat of the financial crisis of 2008. The answer is a matter of fierce debate among economists and market experts. Many say the risks are lower today — at least in terms of an immediate crisis — because the financial system over all is healthier and there are fewer hidden problems. But the experts add that there are reasons to worry, and they do not rule out a quick downward spiral if politicians in the United States and in Europe cannot calm investors by addressing fundamental financial threats. http://www.nytimes.com/2011/08/11/business/financial-turmoil-evokes-comparison-to-2008-crisis.html?_r=1&ref=global

FoxBusiness.com
The United States is running a $1.1 trillion budget deficit to date in the current fiscal year, the Treasury Department said on Wednesday, as lawmakers began to seek extra cuts in public spending to rein in debt. The budget deficit, 10 months into the government’s fiscal year, was $69 billion lower than the same period a year earlier, said the Treasury Department.  The U.S. budget deficit is forecast to reach $1.4 trillion, according to the Congressional Budget Office. In July, the government posted a budget deficit of $129 billion — the 34th consecutive month of budget shortfalls http://www.foxbusiness.com/markets/2011/08/10/us-budget-gap-hits-11-trillion-to-date/#ixzz1Uh6lC0gi

CNN.com
When the unexpected strikes, most Americans aren’t prepared to pay for it. A majority, or 64%, of Americans don’t have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday. Only 36% said they would tap their rainy day funds for an emergency. The rest of the 2,700 people polled said that they would have to go to other extremes to cover an unexpected expense, such as borrowing money or taking out a cash advance on a credit card. “It’s alarming,” said Gail Cunningham, a spokeswoman for the Washington, DC-based non-profit. “For consumers who live paycheck to paycheck — having spent tomorrow’s money — an unplanned expense can truly put them in financial distress,” she noted.http://money.cnn.com/2011/08/10/pf/emergency_fund/index.htm?cnn=yes

USAtoday.com
Government agencies reported positive outlooks for the job market and the wholesale industry this week. U.S. employers posted more job openings in June and layoffs fell, a sign that hiring could improve a bit in the coming months. The number of available jobs rose to 3.1 million, up from 3 million in May, the Labor Department said Wednesday. It was the highest total since March. Still, 14 million Americans remain unemployed. The weak economy is not generating enough jobs to rapidly reduce that figure. And the total number of job openings is far below healthy levels seen before the recession.http://www.usatoday.com/money/economy/2011-08-10-wholesale-sales-inventories-june_n.htm

Telegraph.co.uk
Switzerland’s central bank warned that it is ready to act to curb the “massive overvaluation” of the Swiss franc after safe-haven investors pushed the currency near parity with the euro and triggered its biggest single-day rise against the dollar. http://www.telegraph.co.uk/finance/financialcrisis/8693774/Switzerland-acts-to-curb-francs-rise.html

Waeker eurozone members face the prospect of being left with no domestic banks in future as market resistance to funding lenders in peripheral countries grows.  “We envisage that banks operating on a more EU-wide basis, alongside an ECB with appropriate powers, would be an important part of a sustainable euro project,” said Tony Silverman, a financial analyst at S&P.  “This may mean peripheral countries should not necessarily expect to have their own domestic banks,” he added. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8694162/Weaker-euro-states-could-lose-local-banks.html

The 100pc mortgage is back. After becoming extinct in the wake of the credit crisis, one bank is now offering borrowers the chance to buy a property without a deposit. Northern Bank, which operates in Northern Ireland, is offering the loans subject to affordability, although it is understood that borrowers do not have to belong to a special group, such as professionals who can expect to earn high salaries in future, in order to be considered. http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8694426/100pc-mortgages-return-to-the-market.html

TheGlobeAndMail.com
Finance Minister Jim Flaherty is vowing to stay the course on spending cuts and planned hikes to Employment Insurance premiums, while acknowledging Canada’s economy faces “obvious risks” from financial troubles in the United States and Europe. Having repeatedly urged his G20 colleagues to move more aggressively on debts and deficits, it’s no surprise that Canada’s Finance Minister isn’t backing down from his own pledge to balance the books by 2014-15. Yet meeting that goal is shaping up to be a far more difficult task as economists downgrade their assumptions for Canadian growth in light of world events. http://www.theglobeandmail.com/report-on-business/flaherty-admits-canadas-economy-faces-risks-from-financial-woes-in-us-europe/article2125353/

Cs.com.cn
U.S. President Barack Obama and Federal Reserve Chairman Ben Bernanke met in the Oval Office on Wednesday to discuss the U.S. and global economic situation. According to a White House statement, they were joined by Treasury Secretary Timothy Geithner, White House chief of staff Bill Daley and top White House economist Gene Sperling. It was the third time Obama has met with Bernanke this year. On Tuesday, the Fed announced that it would keep the historic low interest rates at least through mid-2013. The news had boosted the stock market but the gains were wiped out on Wednesday as investors are worrying about U.S. economic prospect. http://www.cs.com.cn/english/ei/201108/t20110811_3004878.html

Xinhuanet.com
There is a possibility Singapore could experience a technical recession, though the growth prospects remained good at the moment, local daily Straits Times quoted a senior official with the Ministry of Trade and Industry as reporting Thursday. Kwek Mean Luck, deputy secretary for industry at the ministry, said the ministry was holding its growth forecast for Singapore at 5-6 percent. “I think the possibility (of a technical recession) is there,” he said. http://news.xinhuanet.com/english2010/business/2011-08/11/c_131042892.htm

Chilean President Sebastian Pinera said Wednesday the country’s economy maintains stable growth despite the U.S. and European debt crises. “Chile is well prepared,” he said at a public event in Santiago. “It is one of the few economies in the world that has steady growth. We grew 8 percent during the first six months of this year.” But Pinera also cautioned that Chile is not immune to the impact of the sluggish world economy, event it is strong enough to deal with the crisis. http://news.xinhuanet.com/english2010/business/2011-08/11/c_131042710.htm

TheHindu.com
Country’s biggest petroleum products retailer Indian Oil Corporation (IOC) on Wednesday reported a higher loss of Rs.3,719 crore against Rs.3,388 crore in the corresponding quarter in the previous year as the government covered only a third of the losses it made on selling petroleum products at subsidised rates. Addressing a press conference here, IOC Managing Director R. S. Butola said, “The major reason for widening of net loss has been that we have had a higher number of unmet under-realisation on diesel, domestic LPG and kerosene and increase in interest outgo.” http://www.thehindu.com/business/companies/article2344026.ece

The Reserve Bank of India panel to review facilities for individuals under FEMA (Foreign Exchange Management Act) on Wednesday said the concept of ‘non-repatriation basis’ or ‘non-repatriable funds’ was outdated and all the relevant regulatory guidelines especially with reference to ‘investments’ needed to be amended forthwith to indicate limited repatriability in accordance with the directions and up to the limits as may be specified by the RBI from time-to-time. “Since non-residents have been given the freedom to remit $1 million annually, it makes little sense to maintain procedures under FEMA that continue to treat these two categories, (repatriable and non-repatriable funds) separately,” it said. http://www.thehindu.com/business/Economy/article2344030.ece

EconomicTimes.com
It seems a sustained above 9% growth is out the grasp for India in the medium term. The Planning Commission is likely to lower its growth target for the next Plan period (2012-17) to 8.5-8.7% from an earlier range of 9-9.5%. India’s economy is expected to expand only about 8% in the current 2011-12 fiscal, the terminal year of the eleventh Plan. The downgrade in the growth target for the next Five-Year Plan is largely due to grim prospects of global economic growth coupled with uncomfortable domestic fiscal deficit and balance of payments situation. http://economictimes.indiatimes.com/news/economy/indicators/planning-commission-likely-to-cut-growth-target/articleshow/9559437.cms

Yonhapnews.co.kr
Import prices of major agricultural goods surged last month from a month earlier, adding to South Korea’s already skyrocketing consumer prices, a report said Thursday. According to the report by the Korea Customs Service, the average import price of pumpkins jumped 59.4 percent from a month earlier to 1,207 won (US$1.11) per kilogram. The price also marked a 38 percent spike from the same period last year. Import prices of carrots and ginger also jumped 23.1 percent and 41.5 percent, respectively, from the previous month. http://english.yonhapnews.co.kr/business/2011/08/11/89/0501000000AEN20110811005300320F.HTML

TheMoscowTimes.com
India is looking to acquire a 20 percent to 25 percent stake in Belarus-based Belaruskali, one of the world’s largest producers and suppliers of potash, in a deal that could be worth $6 billion to $7 billion, the Mint reported Wednesday.  The proposal is likely to be discussed at a meeting chaired by Prime Minister Manmohan Singh on Wednesday, the report said, citing two officials of the federal ministry for chemicals and fertilizers. http://www.themoscowtimes.com/business/article/india-mulls-stake-in-belaruskali/441896.html#ixzz1UhCQ21FX

Fin24.com
Johannesburg – South Africa has a huge advantage as an investment destination, although the nationalisation debate is off-putting, India’s High Commissioner Virendra Gupta said on Wednesday. “At the moment South Africa has a huge relative advantage… but the nationalisation debate does detract investors,” he said on the sidelines of a seminar in Johannesburg on Indian-South African business relations.http://www.fin24.com/Economy/India-warns-on-nationalisation-debate-20110810

Tags: Banking Crisis, Banking Sector, Bloomberg Reports, Budget Deficit, Canadian, Canadian Market, Cisco Shares, Cisco Systems, Crude Oil, Emergency Session, European Banking, Financial Stability, French President Nicolas, French President Nicolas Sarkozy, Ft Reports, George Osborne, India, Initial Public Offering, Ipo Prospectus, Market Turmoil, Mr Osborne, Nicolas Sarkozy, Outlook, Paulson, President Nicolas Sarkozy
Posted in Canadian Market, India, Markets, Oil and Gas, Outlook | Comments Off

Emerging Markets Cheat Sheet (May 23, 2011)

Sunday, May 22nd, 2011

Emerging Markets Cheat Sheet (May 23, 2011)

Strengths

• Traffic for CCR, one of the largest toll road operators in Brazil, grew 9 percent year-over-year in the first quarter. The company was able to maintain a healthy earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 63.4 percent.
• Chile’s GDP in the first quarter grew by 9.8 percent year-over-year, underpinned by the growth of exports (up 9.5 percent) and construction (up 11 percent). Agricultural exports fared especially well, rising in excess of 30 percent
• Colombia’s industrial production grew by 5.2 percent in March versus the estimate of 2.7 percent.
• Retail continues to do well in China. Demand for gold jewelry gained 21 percent in the first three months from a year ago, to 142.9 metric tons.
• Singapore raised its GDP growth forecast for 2011 to 5-7 percent from an earlier estimate of 4-6 percent.
• China’s National Development and Reform Commission (NDRC) plans to raise on-grid electricity prices by 0.02 yuan per kilowatt hour in Jiangxi, Hunan and Guizhou provinces to help local power generators. There is a shortage in power supply across China.
• China’s April new home prices rose modestly from a year earlier in 67 of the 70 cities monitored by the National Bureau of Statistics, a government agency. Due to declining house sales in major cities in China, the government may not issue further restrictive policies on the housing market.

Weaknesses

• Stocks of industrials and materials sectors are underperforming their Hang Seng Composite Index (HSCI) peers due to investors’ concern that China may slow down its economic growth.
• Construction machine sales are down slightly between 1.2 percent to 2.9 percent for bulldozers and loaders, respectively.
• The initial public offering (IPO) of BGZ bank in Poland did not go as well as the government had hoped for. The state treasury was able to get 22 percent of originally planned proceeds despite reducing the price to Zl 60, from a previously announced range of Zl 66-90. We believe that weak recent profitability of BGZ and the abundance of banks on the Warsaw Stock Exchange were some of the reasons behind lack of interest from investors.
• The net profit of OTP, the largest bank in Hungary, in the first quarter fell by 12 percent year-over-year due to the impact of a special banking tax that will stay in effect for another two years as the country is repairing its finances. Excluding the tax, the profit of OTP would have risen by 4 percent.

Opportunities

• We expect big interest in the IPO of Yandex, the largest Russian home-grown search engine company, that will be listed on NASDAQ and will further broaden the opportunities in Russia for investors beyond the traditional resources plays.
• According to numerous press reports in Mexico, ICA, the infrastructure-oriented company, is likely to sell its 54 percent stake in OMA, the smallest airport group. The proceeds (around $450 million) would be used for funding some core infrastructure projects.
• Mainland China listed banks have had robust earnings growth at 33 percent as reported in their first quarter announcements, primarily due to faster growth of interest-earning assets (6.5 percent quarter-over-quarter) and expanding interest spread or net interest margin (NIM). Sector NIM rose six basis points to 2.51 percent in the first quarter on a quarter-over-quarter basis. CITIC Securities International is forecasting second quarter sector earnings to remain high, rising 5 percent over the first quarter. In addition to the two drivers, growing interest-earning assets and NIM, CITIC believes the sector is undervalued by the market.

Threats

• Although April economic statistics have shown the Chinese economy is landing to a target level of activities, a soft landing is still not guaranteed due to inflation uncertainty. The market is currently guessing when the People’s Bank of China will reverse its monetary policy direction.

Tags: Agricultural Exports, Brazil, China China, China Demand, Cities In China, Construction Machine, Electricity Prices, First Three Months, GDP Growth, Gold Jewelry, Grid Electricity, Hang Seng Composite Index, Hsci, Infrastructure, Initial Public Offering, Kilowatt Hour, Major Cities In China, National Bureau Of Statistics, Ndrc, Power Generators, Restrictive Policies, State Treasury
Posted in Brazil, Infrastructure, Markets | Comments Off

Soros Backed IPO Adecoagro (AGRO) Provides Hard to Find Access to Farmland

Wednesday, January 26th, 2011

by Trader Mark, Fund My Mutual Fund

No matter what you think of George Soros’ politics, he has his nose in all the right places in the investment world.  I’ve long bemoaned the lack of avenues to invest in farmland for the regular investors – indeed aside from Argentina based Cresud (CRESY), I don’t think there is another option – but this week’s slate of IPOs brings us Adecoagro (AGRO).  This sort of thing won’t be hot money, but if you give me a 40 year horizon, I say arable land (or water) will be the best investments on earth.   And I’m not the only one:

• [Jun 5, 2008: NYTimes: Food is Gold, So Billions Invested in Farming]
• [Jun 14, 2008: Bloomberg: Farmland Reaps Bonanza for TIAA]
• [Jun 2, 2009: The Economist - Outsourcing's 3rd Wave - Buying Farmland Abroad]
• [Dec 31, 2009: Bloomberg - Ethopian Farmers Lure Investor Funds as Workers Live in Poverty]

Meanwhile I am sure all the attention in the short term will go to the hype machine that is the IPO of Digital Media.

—————————–

The English website can be found here

Adecoagro is currently one of the leading companies in the production of food and renewable energy in South America. Present in Argentina, Brazil and Uruguay, our main activities include the production of grains, rice, oilseed, dairy products, sugar, ethanol, coffee, cotton and cattle meat.

Since its creation in 2002, the company´s growth was based on the implementation of a sustainable efficient production model, working on its own land and managing risk through diversification.

Unfortunately, there is a lot of exposure to the politically unstable country of Argentina, but that has not stopped investors from giving Cresud a rich valuation.

Bloomberg gives us a closer look at the company

• Adecoagro SA, a farmland venture in South America that’s backed by billionaire George Soros, plans to raise as much as $429 million in an initial public offering in the U.S. as food prices surge. As much as 21.4 million new and 7.14 million existing shares will be offered for $13 to $15 each, the Luxembourg-based company said today in a U.S. Securities and Exchange Commission filing.
• The company’s main shareholders include Pampas Humedas LLC, an affiliate of Soros’s Soros Fund Management LLC, which owns about 34 percent and will reduce its stake to about 21 percent after the offering.
• As part of the offering, a subsidiary of Qatar’s Doha-based sovereign fund, which already owns 6.5 percent of Adecoagro, may buy as much as $100 million of the stock. The IPO is scheduled to price on Jan. 27, according to data compiled by Bloomberg.
• The company said in the filing it plans to use $230 million of the proceeds to build a sugar-cane processing plant in Brazil and may spend about $145 million on “the acquisition of farmland and capital expenditures required in the expansion of our farming business.”
• The new sugar mill in Ivinhema city, Brazil, will process 6.3 million tons of cane by 2017, more than doubling Adecoagro’s capacity to 11.5 million tons a year. The company said it may also use cash and more debt to fund the construction of the Ivinhema mill.
• Adecoagro grows rice, coffee, soybeans, wheat and corn in about 288,000 hectares (712,000 acres) of farmland, an area that’s bigger than Jacksonville, Florida. It owns 38 farms in Brazil, Argentina, and Uruguay that’s valued at a combined $784 million, the filing said.
• Adecoagro said it owns 21 farms in Argentina, 15 in Brazil and two in Uruguay. It operates rice processing facilities, has a dairy operation with 4,500 cows, owns two coffee processing plants, seven grain and rice conditioning and store plants and two sugar and ethanol mills.

IPOFinancial per TheStreet.com has more data:

• The company has seen its sales explode, with a CAGR of 48% from 2007 to 2009 and +38% improvement in the first three quarters of the year. Among the key factors for growth has been sales in corn and soybean, which are up +112% and +77%, respectively, in the first nine months of 2010 from the comparable period in 2009. That being said, the largest segments by total revenue remain rice and ethanol, the latter of which will expand production following the allocation of IPO proceeds.
• At first glance, it may be puzzling as to why a company growing so fast, with a reasonable debt structure, is still not recording an accounting profit. In reality, AGRO has had to incur non-cash expenses that have skewed its earnings. Even though higher food and cattle prices have increased sales, the accounting benefit is somewhat offset because the markup in total inventory value has made depreciation expenses much higher.
• In the first nine months of 2010, it incurred more than $100 million in charges as a result of faster depreciation and amortization. It also ran into a problem in its sugar market last year, as sugar prices fell by 50% from their early 2010 high of $30 before making a late-year recovery to a 30-year high.

No position

Copyright (c) Trader Mark, Fund My Mutual Fund

Tags: Arable Land, Argentina Brazil, Billionaire, Bloomberg, Brazil, Cresud Cresy, Dairy Products, Emerging Markets, energy, Ethanol, Farmland, George Soros, Gold, Hot Money, Hype Machine, Initial Public Offering, Investment World, Investor Funds, Leading Companies, Managing Risk, Oilseed, Production Model, Tiaa, Unstable Country
Posted in Brazil, Energy & Natural Resources, Gold, Markets, Oil and Gas | Comments Off

Meet the ‘New Normal,’ Same as the Old Normal! Goldman Invents the Non Public-IPO

Tuesday, January 11th, 2011

by Jeff Matthews

In “Meet the ‘New Normal,’ Same as the Old Normal” (April 9, 2010), we described a recent spate of earnings announcements from retailers across America as being surprisingly reminiscent of every other economic recovery we ever recalled.

‘Surprising,’ that is, to those too busy proclaiming the death of the “Old Normal” and the rise of the so-called “New Normal”—a new American era of dashed expectations, vanished hopes, reduced living standards, “Two and a Half Men” reruns in perpetuity, and just generally the decline and fall everything we once held dear—to notice that things were, in fact, improving.

And although it took a few more months than we expected to see the “Old Normal” begin returning in earnest, yesterday’s ADP payroll data made clear the “New Normal” is, in fact, looking pretty much like the ‘Old Normal.’

Today we are happy to report one more sign that the “New Normal” looks a lot like the “Old Normal”: Goldman Sachs is back, center stage, in all its canny rule-avoiding supremeness.

How else to describe the Goldman-managed, Goldman-led, Goldman-directed Non-Public Initial Public Offering (what we will abbreviate as ‘NP-IPO’) of Facebook—in what surely must be the hottest Initial Public Offering since the very public Initial Public Offering of Netscape 15 years ago?

The rules being avoided here are those set by the Securities Exchange Act of 1934, since amended by SEC rules, that a company with more than $10 million in assets and 500 shareholders ought to register its shares with the SEC, and file quarterly and annual financials.

Goldman, for the record—according to the Wall Street Journal—is selling what is believed to be $1.5 billion worth of Facebook shares to a bunch of Goldman clients for a minimum investment of $2 million a person.

And the deal is, in the parlance of IPOs since time immemorial, oversubscribed.

So how is Goldman getting around the $10 million asset/500 shareholder hurdle, since, after all, Facebook certainly has more than $10 million in assets and, even before the Goldman Non-Public IPO, more than 500 shareholders?

By calling it a private investment and pitching it only to wealthy individuals, that’s how.

Here’s how the Journal described Goldman’s sales pitch for the hottest shares on the planet:

Some investors approached by Goldman initially got a 400-word email, offering them a chance to “discuss a highly confidential and time sensitive investment opportunity in a private company that is considering a transaction to raise additional capital.”

We’ve heard from our own sources—non-Goldman people—that this is how the Goldman pitch did in fact go down, and that while Facebook wasn’t actually identified in the initial contact, everybody who got contacted seemed to know that Goldman was handling a Non-Public IPO of Facebook anyway, or would when the news broke the next day, so the cloak-and-dagger stuff was for naught.

The Goldman email itself is a doozy—at least, as it has been reported by the Wall Street Journal—and reads as follows:

“When you have a chance I wanted to find a time to discuss a highly confidential and time sensitive investment opportunity in a private company that is considering a transaction to raise additional capital.

For confidentiality reasons, I am unable to tell you the name of the company unless you agree not to use such information other than in connection with your evaluation of the investment opportunity and to keep all information that we reveal to you strictly confidential. All I can tell you is that it is a private company, but that its stock trades in a limited manner on certain private markets. If you are a participant in trading on private markets, you may wish to decline receiving information about this opportunity because of the restrictions that will be imposed on you, which I will now describe.

If you agree not to use information that we reveal to you (including the name of the company and that the company is considering a transaction) other than in connection with your evaluation of the investment opportunity and to keep all such information strictly confidential until the information has become public, I will be able to disclose the name of the company and provide you with more information about the company and the investment opportunity.

In addition, certain information we will reveal to you about the investment opportunity and the related transaction will constitute material nonpublic information about this private company. US federal securities laws impose restrictions on certain securities trading on the basis of material nonpublic information. You must agree that if we disclose to you information regarding the company, the investment opportunity and the related transaction, you will not purchase or sell the company’s securities until the earlier of (i) the date when all of the information either has been publicly disclosed or is no longer material and (ii) 6 months after the date on which we provide you the information. However, even after such 6 month period has elapsed, trading in the company’s securities will remain subject to federal securities laws and you will need to determine at the time of any transaction, in consultation with your advisors and based upon the prevailing facts and circumstances, whether purchasing or selling the company’s securities would be in compliance with such laws.

If you agree to these restrictions either by responding to this email or verbally on any subsequent telephone conversation that we have, I will send you an email confirming your agreement to be subject to these restrictions and, on that basis, will provide you with a summary of the investment opportunity.”

—The Wall Street Journal, January 6, 2011

And so it is that Goldman Sachs, which for one, brief, shining moment was dressed-down in the chambers of Congress for selling the deliberately-packaged, shoddy merchandise of one client to yet another client that was selling the same merchandise short, is already back in action, at the top of its game.

Having wormed its way inside the most popular web site in the world and pried away shares in the most highly valued (relative to sales and earnings) large company in the Free World, it is now offering those shares along with “material nonpublic information” on a take-it-or-leave-it basis to its own most exclusive clients.

No slackers, no Congresspersons, no non-Goldman clients need apply.

“Well what,” you may ask, “is wrong with that?”

Technically, of course, very likely nothing.

But during the heady dot-com Bubble days of the late 1990s, when Silicon Valley companies were routinely distributing millions of shares worth of stock options to employees without being required to expense, for reporting purposes, the expected value of those options—thus inflating the valuation of those companies and the likely cost of those stock options while simultaneously damaging the value accruing to those companies’ public shareholders, Warren Buffett asked, rhetorically and correctly, “If the value of the options is not an expense, what is it?”

And if Goldman Sachs’ offering—of what apparently amounts to millions of shares of Facebook worth more than a billion dollars, to hundreds, if not thousands, of outsiders not affiliated with that company—is not an “Initial Public Offering,” what is it?

Why, it’s a Non-Public Initial Public Offering!

Goldman end-running the Securities Exchange Act of 1934?

Meet the New Normal, same as the Old Normal!

Jeff Matthews
I Am Not Making This Up

© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

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