Month: October 2013

Is Asia facing a housing debt crisis?

High household debt levels are spurring concerns about Asia’s housing sector, but even if mortgage rates start to rise, a US-style crash may not be on the cards.

Around the region, household debt levels are high, with household-debt-to-gross domestic product at 81 percent in Malaysia, at least 77 percent in Thailand, at 77 percent in Singapore and 75 percent in Korea, according to data from Standard and Poor’s.

“Asia has had a good run so far, but increasingly the internal risks of Asian financial systems are rising. So, whatever we faced in 2008, if it were to come again now, the implications would be even more damaging,” said Ritesh Maheshwari, managing director at SandP.

Read more: Household debt: Singapore’s ‘Achilles heel’?

Where’s the next property bubble building?

Are markets at risk of 1999-style Fed bubble?

In 2008, the global financial crisis peaked as a buildup in the US of bad mortgage loans, many of which were securitized and used as collateral, caused many large banks to go under.

Maheshwari noted mortgages around the region have very high loan-to-value ratios, sometimes as high as 90 percent. In the US in 2008, loan-to-value ratios could be over 100 percent of the value of the home.

“The moment there’s more than [a] 20 percent correction [in home prices], you’re going to go into negative equity,” he said. But he noted, “Negative equity in Asia doesn`t mean you`ll start defaulting. Our mindset isn’t that the house is less value than the loan, so chuck it, because the bank can come after me for my other assets.”

In the US, banks can’t chase buyers for other assets if the house is forfeited, he noted. There is more of a social stigma in Asia when individuals are faced with debt collectors at the door as well, he noted.

Others also see less reason to be concerned Asian homebuyers might walk away from mortgages.

“Families tend to pool savings together,” said Frederic Neumann, an economist at HSBC. “Unlike in the US, there is no good personal bankruptcy in Asia where individuals come out of the bankruptcy in a few years,” he noted. “Individuals would carry that burden with them for the rest of their lives. It`s very difficult to wipe your slate clean, unlike in the US.”

Neumann also noted mortgages in Asia aren’t securitized, with banks keeping the loans on their books. “There’s much higher incentive to make sure there’s fairly high debt-servicing capacity,” he said.

Maheshwari also doesn’t expect house price declines in Asia would be as sharp as in the US. “Part of the reason the decline is so steep in the states, is people were borrowing against the home to consume. Home equity loans don’t occur here,” he said. “The level of stretch is not as much as in the US.”

He noted SandP isn’t yet adjusting its ratings on the region’s banks, but added, “We shouldn’t get complacent.”

Neumann noted that the high household debt could cause larger problems.

“As long as interest rates don’t go up and property prices continue to climb, we don’t think that will have any impact on consumption,” Neumann said. “Once interest rates start to rise, at the very least, you’ll have a sharp impact on consumption in Asia.” He doesn’t expect rates to rise for at least another year.

“The threshold is higher, but we shouldn’t rule out a severe financial stress if Asia were to plunge into deep recession,” Neumann said.

What’s in a name? Wealth and social mobility, study says

Want to make more money and have a higher social standing? Well, in the UK, if you’re a Percy, Baskerville or Cholmondley, your luck’s in. The rest of us have the same chance of climbing the social ladder as we had before the industrial revolution, according to a new study by economic historians in the UK and US.

Research by the London School of Economics (LSE) published on Tuesday showed that despite a leveling of the social playing field thanks to education, family names have a direct impact on social mobility. In the UK, there are several names stretching back almost a thousand years still dominating certain high salary careers.

Read more: Income inequality: Is it good for everyone?

Ultra-rich hedge fundersto poor: we feel your pain

Is income inequality as American as apple pie?

Entitled “Surnames and Social Mobility,” the study by LSE economic historian Dr Neil Cummins and Professor Gregory Clark from the University of California Davis researched the genealogical history of English families with rare surnames, first recorded in the Norman age (from 1066 onwards).

Using data provided by genealogy website Ancestry.com and studying the UK distribution of those surnames over the past 800 years, they found that social status, wealth, education and occupational status was highly heritable – even more so than one’s height – and could be correlated to one’s family name.

To measure the average social status of surnames, the academics focused on their frequency at two elite UK universities, Oxford and Cambridge (collectively known as “Oxbridge”) which were also founded in the Norman age.

“Just take the names of the Normans who conquered England nearly 1,000 years ago. Surnames such as Baskerville, Darcy, Mandeville and Montgomery are still over-represented at Oxbridge and also among elite occupations such as medicine, law and politics,” Dr Cummins said of the findings.

Other names in the top 10 “wealthy” list were Berkeley, Neville, Packenham and Percy while among the poorer surnames were Boorman, Cholmondley, Defoe, Goodhill, Ledwell, Rowthorn, Sidwells and Tonbridge.

Importantly for the study of social mobility, the name checks showed that social mobility in England is hardly better now than in pre-industrial times and had not been improved by mass publicly funded education and universal voting rights.

“What is surprising is that between 1800 and 2011 there have been substantial institutional changes in England but no gain in rates of social mobility for society as a whole,” Cummins added.

They also found that it takes at least half a millennium for the UK’s elite class to shake off their lineage and “converge with the average members of society” – at least 400 years slower than economists had earlier predicted, meaning that the rate of social mobility — both up and down the social scale — is far slower than expected.

The study comes at a time of widespread concern over social mobility in both developed and emerging market economies. The gap between rich and poor has been steadily growing particularly in the US.

The Congressional Budget Office reported in 2011 that between 1979 and 2007 the top 1 percent of households saw their income grow by 275 percent, while for the bottom 20 percent, income grew by just 20 percent. For the middle 60 percent of Americans, average incomes grew just under 40 percent.

In the UK, however, the latest figures from the Office of National Statistics (ONS) showed this year that the income gap narrowed in the UK between 2011-2012.

The agency’s data showed that while the richest fifth of UK households had seen their household income drop 6.8 percent since the start of the economic downturn in 2007-2008, the poorest fifth had seen their average income rise by 6.9 percent.

The world’s most powerful person is not Obama?

President Barack Obama has been bumped off the top spot of Forbes’ annual ranking of the world’s most powerful people—by his Russian counterpart.

Vladimir Putin, Russia’s president, was named the most powerful person in the world in 2013 by the publication, climbing two places from the previous year. He was followed by Obama at No. 2 and the general secretary of China’s Communist Party, Xi Jinping, who jumped from No. 9 in 2012 to No. 3.

Politicians dominated 2013’s top 10, with German Chancellor Angela Merkel coming in at No. 5, the highest ranking for a woman. Britain’s Prime Minister David Cameron, however, fell out of the top 10, being named the 11th most powerful person in the world.

View slideshow: World’s top female policymakers

Read more: The richest person in every state

2012’s Forbes Power List

Central bankers also fared well, with Ben Bernanke, chairman of the Federal Reserve, and Mario Draghi, president of the European Central Bank, ranking No. 7 and No. 9, respectively.

Bernanke’s designated successor, Fed Vice Chair Janet Yellen was a newcomer to the list, coming in at No. 72. She was one of only nine women ranked to the list of 72 people, although this marked the highest representation of women to date.

Former US Secretary of State Hillary Clinton did not make the list, although her husband, former President Bill Clinton, took the 43rd spot.

Only one business person made the Top 10, up from none last year, with Wal-Mart CEO Michael Duke ranked No. 10.

To compile the list, Forbes looked at whether the candidate has power over a lot of people, for example, over a billion Roman Catholics look to the pope as spiritual leader, helping Pope Francis’ ranking of #4, and the financial resources they control, such as gross domestic product for heads of state.

The publication also assessed whether the candidate was powerful in “multiple spheres,” and if they actively used their power.

Forty percent of the people ranked were billionaires, including the richest man in Africa, Nigerian billionaire Aliko Dangote, who took the 64th position.

Bill Gates slipped two places to be named No. 6, and eighth was Saudi Arabia’s King Abdullah bin Abdul Aziz.

Pope Francis was the highest ranking newcomer at No. 4. The CEOs of Volkswagen (Martin Winterkorn at No. 49), IBM (Virginia Rometty at No. 56) and Oracle (Larry Ellison at No. 58) were also among the 13 new names on the list, as was Samsung’s Chairman Lee Kun-Hee, at No. 41.

Tech CEOs also fared well this year, with Amazon CEO Jeff Bezos jumping from the 27th spot in 2012 to the 15th this year following his purchase of The Washington Post. Apple CEOTim Cook also climbed the rankings, from No. 35 last year to No. 19 in 2013.

Soaring India stocks have strategists on edge

Indian equities have had a stellar run over the past two months, recently rising to a three-year high, but analysts warn that the market rally is ripe with risks.

“Investors ought to be cautious on India. The economy will continue to suffer from a poor growth-inflation mix, leading to a high cost of capital,” said Nicholas Ferres, investment director at Eastspring Investments.

“In this context, the valuation multiple for the market does not provide sufficient compensation for risk, in my view,” he added. The benchmark S&P BSE Sensex is trading at a price-to-earnings ratio of 16.8.

Indian shares have surged around 13 percent since the US Federal Reserve’s decision to delay tapering its USD 85-billion-a-month asset-purchase program in late August, driven by robust inflows from foreign investors.

Geoff Lewis, global market strategist at JP Morgan Asset Management, who has an underweight position on India, is also cautious on the outlook for the market given sluggishness in the broader economy.

 “We look for more analyst earnings downgrades in coming months in response to the slowing economy,” he said. India’s economy is expected to grow 4.7 percent in the fiscal ending next March after expanding 5 percent in the previous year, which was the weakest since 2002-2003.

“We are also concerned that if there is another wave of outflows from emerging market triggered by Fed tapering, then India could see more significant outflows than in the summer,” he added. Foreign investors withdrew around USD 3.8 billion from the local stock markets between June-August as concerns around tapering reached fever pitch.

The central bank is expected to maintain its bond-purchasing program until April 2014, according to the latest CNBC survey of economists, strategists and money managers.

 Politics will also be a source of uncertainty for the market before the upcoming general elections scheduled to take place by May 2014, said strategists.

“Currently, the election looks very hard to call, and adds to market uncertainty,” Lewis said.

“But investors would probably welcome signs that the Bharatiya Janata Party [the main opposition party] was moving into the lead, as Narendra Modi could be expected to kickstart the reform process. That is a scenario we would need to be aware of, given our current underweight position,” he added.

Narendra Modi, who is serving as the chief minister of India’s Gujarat state, is the BJP’s candidate for prime minister. He has been applauded by the business community for his investor-friendly policies that have led Gujarat to double-digit economic growth.

Nomura, which upgraded Indian stocks to an overweight on Tuesday, cited the upcoming five-state elections – which will be held between November 11 and December 4 – as a positive driver for the market.

“We expect the BJP to perform strongly in the state elections. If the BJP emerges stronger from the state elections, this would be seen as increasing the likelihood of a BJP-led government at the center. Sentiment could improve as a result, since the BJP is seen as more market friendly and more amenable to structural reforms,” wrote Sonal Varma, India economist and Alastair Newton, senior political strategist at Nomura in a report.

Markets are still reaping the “honeymoon” benefits from Raghuram Rajan’s accession to the RBI governorship on September 4, the bank added.

 Deustche Bank also has an optimistic view on the market. Last week, the bank raised its year-end target for the Sensex to a record-high 22,000 from 21,000 – around 5 percent above current levels.

The bank cited factors including receding investor pessimism, a bottoming out in the economy and withdrawal of liquidity tightening measures by India’s central bank.

El-Erian: How long will the Fed’s elixir last?

By maintaining an unchanged policy stance, the Federal Reserve delivered on consensus market expectations. The question now is: How long will this sustain the mix of financial conditions that the Fed and investors desire, and — most importantly — is needed to improve job prospects given the extent of Congressional dysfunction? Namely, strong equities and no undue disruptions to fixed-income markets, housing finance and the economy’s broader financial conditions.

To answer this question, we need a good handle on how quickly the Fed will be able to move from relying on (ultimately) transitory sources of support for markets to well-entrenched improvements in underlying economic fundamentals.

Unfortunately, today’s statement didn’t advance much our collective assessment of how the Fed sees its policy experiment evolve from here — particularly with respect to future benefits for the economy, longer-term collateral damage and unintended consequences.

Accordingly, to understand better what lies ahead, investors need to assess and re-assess the two sets of “big threes” that have enhanced recent market gains.

Read more: Taper tease? Market worries Fed will end easing

Slightly less dovish Fed sends ripple through the market

The first set has to do with the Fed’s big three policy tools.

Here, the central bank pleased investors by maintaining floored policy rates, accommodative forward guidance and USD 85 billion in monthly purchases of securities. In the process — and particularly after the taper scare of May-June — markets have been rewarded for regaining confidence in the notion of a “Fed put.”

When it comes to the economy, however, the Fed was a lot less clear today on how it see the other big three evolve — namely the channels through which its policies impact private-sector behavior.

The Fed’s current policy stance enables a further shift in portfolio allocation to risk assets, higher corporate buybacks and dividends, and, most importantly, additional time for the real economy to heal.

It is important to periodically remind ourselves that Fed officials are not interested in financial-asset prices as an ultimate objective. Rather, they regard them as a means to generate higher growth with stable inflation.

At a time when political polarization undermines comprehensive policy responses, financial markets are the Fed’s only large-scale conduits to the real economy — albeit highly imperfect and distortionary conduits.

With the Federal Open Market Committee statement out of the way, attention now shifts to the release of the FOMC minutes. Together with a string of economic-data releases, they will shed greater light on the future evolution of the “benefits, costs and risks” of the Fed’s current policy stance.

In the meantime, don’t look for much change in the large disconnect between a buoyant Wall Street and a still-muted Main Street. Over the longer-term, however, only a broad-based and durable economic recovery can validate the current pricing of many financial assets.

As yet, there is insufficient evidence to assure us that Fed policies will indeed succeed where it matters most — on Main Street.

Verdict on Abenomics, one year on

Almost a year on from when Japanese Prime Minister Shinzo Abe voiced the need for radical change to kick-start Japan’s moribund economy, analysts remain divided over the success of ‘Abenomics.’

Some say the mix of aggressive monetary policy, fiscal stimulus and economic reform this year has ignited a buzz about the world’s third-largest economy not seen for a long time. Just look at the Nikkei, which is up almost 40 percent this year to easily become the world’s best performing stock market.

Read more: Why Japan stocks may storm even higher even if yen firms

Japan’s Abe calls for cut in corporate tax

Japan retail sales, household spending beat forecasts

Others however, argue that the move towards significant long-term reforms, on which the success of Abenomics is expected to rest, remains to be seen.

“Abenomics is at its first anniversary in effect and yet the only thing we’ve seen is the sales tax and that was looking hesitant for a while,” said Andrew Sullivan, director of Asian sales trading at Kim Eng Securities. He was referring to Abe’s decision in early October to push ahead with a controversial rise in Japan’s sales tax, which is seen as key to easing the country’s huge debt load.

 “That is probably what has worried fund managers the most, the fact that there doesn’t seem to be a strong will behind these policies,” he added.

Disappointment about the lack of detail from Abe on measures to put Japan’s economy on a stronger footing long-term has been cited by strategists as one reason why a rally in the Nikkei has stalled and the yen has been unable to weaken significantly beyond the 100 level against the dollar.

Japan’s blue-chip stock index is trading around 14,500 points – down 9 percent from a 5-1/2 year high hit in May. That’s still up roughly 65 percent from where the Nikkei traded in early November 2012 when Shinzo Abe first started to talk about the need for radical economic policies before elections in December that saw him return to power as Japan’s Prime Minister.

“The way I would look at Japan is that it is between a rock and a hard place,” said Rob Aspin, head of equity investment strategy at Standard Chartered Bank Wealth Management Group.

“Either it reverts back to where things were before Abenomics kicked in, with deflation and a weak economy, or the BOJ [Bank of Japan] has to print significantly more money and become a buyer of last resort of JGBs [Japanese government bonds],” he added, saying that he holds a neutral position on Japanese stocks and is waiting for signs of further stimulus from the BOJ.

The BOJ said in April it would pump $70 billion into the economy each month to help push inflation up to 2 percent in two years. Japan’s consumer price index, when food and oil prices are stripped out, was flat in September and that means the BOJ has room to step up monetary stimulus, analysts say.

Ed Rogers, CEO of Rogers Investment Advisors, which runs a Japan-focused fund, said the bottom line with Abenomics is to look at the cumulative impact of the economic policies.

Recent economic data certainly has painted a positive picture. Japanese retail sales rose 3.1 percent from a year earlier in September, while household spending logged a bigger-than expected 3.7 percent gain from a year earlier – signs that personal spending is supporting economic growth.

“Not everyone buys into Abenomics… but what matters is the cumulative effect,” Rogers said.

“One of the most important things about the third arrow is confidence and looking back from a year ago there’s absolutely no doubt that has improved,” he added, citing Tokyo’s successful bid to host the 2020 Olympic gains as one sign of improved confidence in Japan.

Aging to upset South Korea’s economic prowess

South Korea has one of Asia’s fastest-growing economies, but one looming roadblock threatens its path to becoming an international powerhouse: a rapidly aging population.

According to a report by the Korea Statistical Office, the number of people aged 65 and above has surpassed 6 million for the first time, accounting for 11.7 percent of the population. What’s more, the ratio of senior citizens to working age people – currently 1 to 6 – is projected to shift to 1 to 1.5 by 2050.

“The aging population is one of the most fundamental, structural shifts happening in Korea and affecting the growth prospects for the country,” said Wonsik Choi, Senior Partner at McKinsey and Company in Seoul. “Just to give you an example, the working age population in Korea will peak at 37 million in 2016, three years from now and will diminish thereafter,” Choi added.

Read more: Megatrends: The world’s aging population

Bank of Korea cuts growth outlook, eyes US impasse

Can Korea keep its ‘morning calm’ amid the selloff?

South Korea central bank holds rates, as expected

Korea’s fertility rate – the average number of births a woman has in her lifetime – stands at just 1.24, among the lowest in the world. And while Korea currently bears the third-youngest population globally, the OECD estimates that it will have the second oldest population by 2050, right after Japan.

The demographic shift in population structure is expected to be an economic headache for Seoul, which will likely see a slowdown in the growth of its labor force.

Savoring the “Sweet Spot”

But some economists argue that Korea merely faces a transitional period, stating that the country is benefiting from a demographic “sweet spot”, which will ultimately result in a sizable build-up of net financial wealth.

“The age structure of the population strongly suggests that over the next five years Korea will benefit from a demographic sweet spot – one in which the working age population (the 15-64 age cohort) expands, while at the same time falling fertility rates lower child dependency, but before old age dependency starts to rise significantly,” Nomura said in a report.

“As a result, we expect Korea to build up sizable financial wealth, given that in economic theory the saving rate tends to be higher than the investment rate when an economy finds itself in such a demographic sweet spot – Korea`s total dependency ratio is at its lowest level in its history,” it added.

“From a current account perspective, aging is good. The aging population is positive for savings, that`s why Korea has a current account surplus,” explained Young Sun Kwon, Senior Economist and Managing Director for Asia ex-Japan at Nomura International in Hong Kong.

Kwon notes that the elderly population’s tendency to save more boosts capital investment growth as household savings are the main source of funds for investment.

The Future of Korea

So just how big of an issue is the diminishing of youth from Korea’s general population?

A report from Nomura says its “sweet spot” will only last until 2016, after which, the country will face headwinds from its aging society.  

“The ability to seize this window of opportunity is not automatic, and Korea’s demographic sweet spot will only last until 2016, after which the country will face headwinds from an ageing society as the old-age dependency rate starts to rise sharply and significantly,” the Nomura report said.

“If Korea fails to capitalize on the released resources and fails to harness this demographic sweet spot effectively, it faces the prospect of having to deal with renewed pressures from a much weaker position. Korea’s population growth rate is set to start falling below zero in 2018,” it added.

Kwon emphasizes that while an aging population is good for savings, it may not necessarily be good for domestic demand. For economic growth, a younger population is better, he says.

For now, the secret to sustaining Korea’s growth potential could just lie in increasing its labor participation. The Bank of Korea’s Kim agrees to that. “Unless we make our population young, we’re likely to lose economic dividend, which has contributed to Korea’s growth in the past. We should find more opportunities for women and the elderly to remain in the labor market to participate in the market further.”

Still, with household debt levels among the highest in Asia as the young spend more than they can afford to, even the growth drive from a younger population would not be without risks.

McLaren revs up dealerships in China race

McLaren is experiencing strong demand for its brand in China following the recent opening of four dealerships, a number it plans to double next year, an executive at the British sports car manufacturer told CNBC on Wednesday.

China, the world’s second-biggest economy, has become a key market for luxury car brands including Ferrari and Lamborghini who have targeted the country despite a recent slowdown in economic growth.

Read more: Hottest battle among automakers: Luxury under $50,000

US is minting almost all of the world’s millionaires

Auto profits to surge, over half coming from China

Mirko Bordiga, regional director for Asia-Pacific at McLaren Automotive, said the company now has four dealerships operating in China and hopes to take that number to eight next year.

“China will account for 10 percent of company volumes next year. If you look at the P1 – just 375 units are produced worldwide and out of this 38 have been sold in China,” he said referring, to McLaren`s famous million-dollar sports car.

According to a report by Swiss bank Credit Suisse earlier this month, China generated 90,000 millionaires in the past 12 months.

McLaren Automotive, which is part of the group that runs the McLaren Formula 1 racing team, opened its first China dealerships in September. It joins a long list of luxury brands that have entered the China market in recent years to take advantage of growing consumer wealth.

Consulting firm McKinsey expects that global auto profits will grow 50 percent by 2020, with more than half of that coming from China.

Bordiga said that McLaren was seeing robust demand across Asia, which Japan its top-selling market.

In China, the company was benefiting from being the newest brand on the market, he added.

“In markets that are new such as China, they like new things, things that are cool,” he said. “So since we are the new kids on the block, we are experiencing a lot of demand.”

Talking about how McLaren would do in China against its competitors, Bordiga said: “The reality is that we only started producing road cars about three years ago, so we really have to learn our way through. But we have 50 years of F1 technology and we are applying that to our cars.”

Wall Street listens for cooing of dovish Fed

Markets are primed for a dovish statement from the Federal Reserve on Wednesday that should keep a lift in stocks.

The Dow and SandP 500 rallied to record highs Tuesday, as traders bet on an uneventful outcome when the Fed ends its two-day meeting Wednesday afternoon.

“They put the possibility of a surprise tapering at zero,” said Art Cashin, director of floor operations at UBS. He said there was some short-covering as traders assumed the Fed would not announce any reduction in its USD 85 billion monthly bond-buying program.

Also read: Tighter global funding to weigh on emerging Asia: IMF

The Fed issues its statement at 2 p.m. EDT, and there is no press briefing with Chairman Ben Bernanke this month. Fed watchers do say the Fed could tweak its view on the economy, to show the uncertainty that has resulted after the government shutdown.

Traders also will be more focused than usual on the 8:15 a.m. ADP private sector employment report, expected to show 150,000 private sector jobs were added in October, slightly weaker than the 166,000 added in September. The government`s monthly employment report usually follows ADP within two days, but because of the government shutdown, the October jobs report will be delayed until Nov. 8.

“The perception of the accuracy of ADP has increased, so I think the market might be paying more attention to it,” said Ian Lyngen, senior Treasury strategist at CRT Capital. “It`s the most comprehensive early glimpse we have of employment in October. Any caveat about the impact of the government shutdown will be of note.”

Employment is a key metric for the Fed, and the September jobs report was disappointing when it was released after a several week delay. Only 148,000 nonfarm jobs were created in September, and economists expect the government`s October report to be weak due to the 16-day government shut down.

The Fed surprised markets after its September meeting, when it announced no change in its bond purchases, so every new employment report is important. The Fed instead cited financial conditions and concerns about fiscal headwinds as reasons not to cut back.

Barry Knapp, head of equity portfolio strategy at Barclays, said after that meeting he raised his year-end target for the SandP 500 to 1,800.

Knapp said historically the market has corrected when the Fed pulls back from easing, with an average 8 percent decline. “We basically pushed that correction into next year,” he said.

The CNBC Fed Survey this week found that Wall Street now expects the Fed to maintain its current level of purchases of Treasury and mortgage securities until April.

“They`re on hold until they can get a cleaner read from the data that`s not distorted by government shutdown and they reassess where the economy stands,” Lyngen said. “There is tail risk that the Fed does something more hawkish that the market is not prepared for. I would ascribe a very small probability but that`s the one thing that could shock the market.”

The Dow on Tuesday soared 111 points to 15,680, besting its Sept. 18 closing high and catching up with other indexes that had already set new highs. The SandP 500 was up 9 at 1,771, and the Nasdaq rose 12 to 3,952.

“We have this favorable set up where public and monetary policy are both generally improving. I think the economic outlook is generally improving as well,” Knapp said.

He also said the market is now in a seasonally positive time. “There were only four fourth quarters since 1990 when the returns were negative,” he said. The last time the market registered a loss in a fourth quarter was when the recession was in full swing in 2008.

“I don`t see much to stop it now,” Knapp said. He said he expects the upcoming budget negotiations in Washington to be less contentious and he does not expect the Fed to announce that it will taper its bond buying until March.

Jack Ablin, CIO of BMO Private Bank, said Fed officials may say something more hawkish to keep the markets thinking about tapering, even if they don`t do it yet.

“My guess is they`re going to take a more hawkish tone. I think they`re going to have to get the idea of tapering in the future back in the system. I don`t think they do it. I just think they have to talk about it again,” he said.

But that should not stop stocks from moving higher. The SandP 500 “is about 10 percentage points above the 200-day moving average. This is a very good story. The most likely scenario is the market tends to gain 10 to 15 percent in the subsequent 12 months,” said Ablin.

The Fed likes the animal spirits it is creating, he said. “What they want to do is have their monetary policy stimulate activity but they don`t want to create a bubble in the meantime,” he said.

Besides ADP, the delayed consumer price index for September is released at 8:30 a.m. There is oil and gasoline inventory data at 10:30 a.m.

There is also a big batch of companies reporting earnings. Before the bell, General Motors, Chrysler , Comcast Sanofi, Barclays, Honda, Corning and Booz Allen Hamilton are among companies that will report.

Facebook Kraft Foods Allstate (NYSE: ALL), MetLife Boston Beer and Weight Watchers (NYSE: WTW) report after the close. Visa also reports in the afternoon, with its first earnings release as a Dow component.

-By CNBC`s Patti Domm. Follow here on Twitter @pattidomm.

Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.

Copyright 2011 cnbc.com

Onion crisis leaves trail of tears across India

The tripling in India’s onion prices over the past year is proving to be highly burdensome for many of the country’s 1.2 billion people, leading some to alter their traditional eating habits.

The price of onions – a staple of Indian cooking – has risen around 320 percent over the past 12 months, driven by a combination of factors including a supply shortage after excessive rains hit crop output as well as poor infrastructure for the storage and distribution of produce.

Mumbai-based Shivani Verma, who works as a chartered account, says the spike in prices has forced her to purchase smaller quantities of onions, and substitute the vegetable with other ingredients including tomato, garlic or ginger in daily cooking.

Read more: India hikes rates by 25 basis points to 7.75%

India’s headline inflation at 7-month high

Wal-Mart cozies up to China as it shelves India

“Previously, we used to buy 4 to 5 kilos of onions to last for a month. Now, we’re buying half a kilo at a time to last for a week or two. Our consumption has reduced,” said Verma, noting that onions currently cost around 75 rupees (USD 1.22) per kilogram in the city.

To put this into perspective, in India, around one-third of the population lives on less than USD 1.25 a day, according to data from the World Bank.

With onions an essential part of the Indian diet, skyrocketing prices have also become a politically sensitive issue in the country, which is due to hold its general elections within the next seven months.

“We blame this situation on the politicians. They aren’t doing enough to bring down the prices,” said Wilson Thomas, a personal chauffeur based in Cochin, Kerala – a state located in Southern India.

Some believe that speculation is another cause for the rapid rise in prices.

“Farmers aren’t benefiting at all. This money is going to the hands of traders and small shop owners,” said Arvind Singhal, chairman of consultancy firm Technopak Advisors.

“Hundreds of millions of dollars are being taken away from consumers who are forced to pay this extra money for onions,” Singhal added.

For Mukesh Gupta, a street food vendor in Mumbai, the rapid rise in onion prices is impacting his livelihood as he unable able to pass on the additional cost to his customers.

“The rise in onion prices is eating into my profits. I cannot increase my selling price because my customers will go to other vendors,” said Gupta, who uses 2 kilograms of onions a day in the preparation of his savory snacks that are priced at an average of 20 rupees (USD 0.30).

To keep a lid on rising prices, the Congress-led government raised the minimum export price of onions by almost 40 percent to USD 900 a metric ton in September. It is also looking at importing onions from neighboring Pakistan, Iran, China and Egypt.

Singhal of Technopak agrees the government hasn’t done enough to control prices and believes this could backlash at the polls. “To me this is death wish by the current government. Five states will go through elections in next four weeks. Why the government is not in a state of panic completely defies explanation,” he said.