Month: December 2013

Greece to exit bailout plan in 2014: Prime Minister

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Greece is on schedule to exit its EU-IMF bailout program in 2014 and should require no further loans, the country’s Prime Minister Antonis Samaras said in a television address late Monday.

“In 2014, Greece will venture out to the markets again [and] start becoming a normal country,” the prime minister said in the address, according to media. “In the new year, Greek debt will be officially declared viable, meaning there will be no need for new loans and new bailout agreements.”

(Read more: Greece’s emerging market status: Good news really?)

The embattled euro zone state has secured two international bailouts since mid-2010, totaling about USD 330 billion.

Ireland this month became the first euro zone member to successfully exit its international bailout and analysts say a similar move by Greece would brighten the prospects for the euro area, which has been battered by financial crises and recession in recent years.

Read more: Ireland exits bailout: Mission not quite accomplished

“I think the picture looks good for Europe in 2014,” Richard Harris, CEO at Port Shelter Investment Management told CNBC Asia’s “Squawk Box” on Tuesday.

“2013 was the year where markets finally believed that the euro zone debt issue was under control. It is still there in the background but stories like Ireland coming out of their difficulties, Greece coming out of their difficulties, are good news and that is going to help Europe going forward,” he added.

(Read more: Greece’s Recovery Coming – But at a Cost)

Against a backdrop of improved sentiment towards the euro zone, government bond yields in peripheral member states have fallen sharply. For instance the benchmark Greek 10-year government bond yield has come down to about 8.5 percent from a peak of almost 40 percent in 2012.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Nikkei at 25,000? Nomura thinks so

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Nikkei may have just finished its best year since 1972, but its best days aren`t behind it, Nomura said, making the market its top global pick.

“Japanese equities will provide the greatest return of all global stocks in 2014,” Nomura said in a note.

It`s a big call after a big year. The Nikkei ended its final trading session of 2013 on Monday at 16,297.31 points, up 53.7 percent for the year, its best gain since 1972.

After waning risks and higher stock valuations pushed up shares globally this year, Nomura now expects earnings increases to be the key driver in 2014.

“We forecast earnings per share (EPS) growth of 19 percent for Japanese equities in 2014, the highest of all, followed by European equities at 14 percent,” it said.

Nomura forecasts the index will rise to 18,000 by the end of 2014, based on 15 times earnings. But the forecast assumes the U.S. dollar will be fetching 100 yen, compared with current levels around 105. For every 1 yen that the U.S. dollar ticks up, the Nikkei will rise by around 377 points, Nomura estimates. 

“Further yen depreciation would increase upside,” it said.

The bank doesn`t expect the gains to stop there, predicting the index could touch 25,000 in 2018 if Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe in late 2012 to jump start the economy – proves successful.

If the ruling party`s pledge to achieve nominal gross domestic product (GDP) growth of at least 3 percent appears more realistic, it could increase medium-term EPS growth to around 15 percent, from around 10 percent.

Japan`s GDP growth has barely breached 2 percent over the last decade and deflation has plagued the country for 15 years.

In addition to earnings, Nomura sees two other potential drivers for Japan`s stocks.

The country`s individual investors may step up stock purchases with the January start of tax breaks for the tax-free investment accounts dubbed NISA, for the Nippon Individual Savings Account. The accounts offer a five-year tax holiday on dividends and capital gains, provided the funds are invested in stocks, mutual funds or exchange-traded funds, with bonds not eligible for the tax breaks. 

“It will trigger a `great rotation` in financial assets,” Nomura said, noting as of October the National Tax Agency received 3.58 million applications for NISA accounts, suggesting a rapid takeup. It expects around 1.3 trillion yen, or around $12.4 billion, could flow into equities.

If around 1 trillion yen a year flow into Japanese equities, share prices could rise by around 5.2 percent a year, it said.

The second new driver for the market will likely come from the Government Pension Investment fund increasing its weighing in Japanese equities, Nomura said, adding it expects the new weightings to be decided by the middle of 2014.

To be sure, Nomura expects stocks to suffer a mid-year hiccup. 

“Stock prices may well be weighed down by concerns that the consumption tax rate hike will dent earnings and the disappearance of expectations that the Bank of Japan will implement additional monetary easing,” it said.

In April, Japan`s consumption tax is slated to be raised to eight percent from five percent. The hike is expected to dent consumer spending, hurting corporate earnings.

The market expects the Bank of Japan will ease monetary policy further in the April-to-June period, according to a Nomura survey of institutional investors in November, but the bank thinks the easing likely won`t come until around July.

“If the market expects easing in April but none takes place, this negative surprise could dent the market for a time,” it said, forecasting the index may slip to around 15,000 mid-year, before spiking higher.

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1 

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Four big challenges for Asia in 2014: HSBC

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asia must navigate four big challenges in 2014 – inflation, interest rates, Japan`s regional role and politics – all of which could dent investors` hopes for a cheery new year, HSBC said.

“Risks are finely balanced. For each positive, a significant challenge remains,” said Frederic Neumann, HSBC`s co-head of Asian economics research, in a note.

The lack of inflation is a key issue as it has been accompanied by a collapse in nominal gross domestic product growth, he said.

Excess capacity has meant profit growth has suffered as margins were squeezed and capital spending could decline, Neumann said, adding as a follow-on effect, slower economic and corporate profit growth may impair the ability of governments, households and companies to service debt.

Low inflation has been a bugbear mainly in developed markets, with lower-than-expected inflation in the Eurozone spurring concerns over the region`s nascent economic recovery. U.S. consumer prices were essentially flat in November.

Japan has struggled for decades against the pressures of deflation on its moribund economy. Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe in April to jump start the economy – helped to spur the country to a 1.2 percent on-year rise in inflation in November, marking a five-year high. 

Developed markets are key destinations for Asia`s exports and slower growth will likely hurt demand.

The next concern is interest rates, Neumann said. U.S. Treasury yields have begun to creep upward as the Federal Reserve announced in December it would taper its asset purchases to USD 75 billion a month from the previous USD 85 billion.

Although markets initially convulsed when the Fed first broached the subject in May, Neumann said the actual announcement has been “well digested.”

But he noted, “Weaker cash flow and higher debt expose emerging Asia to a possible spike in funding costs.”

If the U.S. economy performs better than expected, the Fed many act more aggressively and higher interest rates wouldn`t be offset by faster export shipments, he said.

In addition to concerns about the Fed, China officials` moves to restrain a debt build-up have pushed up interest rates there, posing harsh headwinds to more speculative parts of the economy, the note said.

China`s National Audit Office reported this week that China`s total public debt pile stands at 30.27 trillion yuan (USD 4.99 trillion) at the end of June, which analysts estimate equates to around 53 percent of gross domestic product (GDP).

Neumann`s third concern is whether Japan`s efforts to stimulate its economy will bear fruit for the rest of Asia.

While Japanese officials likely want their economic stimulus to remain within the country, it is an expensive place for companies to do business and an aging population can make it difficult to find workers.

After the Bank of Japan surprised markets in April with the announcement of huge monetary stimulus, there were hopes it would spur capital flows around the region, Neumann said.

“These were quickly dashed, however, when, among taper jitters abroad and a soaring equity market at home, Japanese investors stayed quiet,” he said.

While Neumann expects this may change as Japanese banks seek market share in Southeast Asia and as its manufacturers increase foreign direct investment, any disappointment with Abenomics could derail these plans. 

The fourth challenge for Asia in the new year is with its politics.

“Slower growth, declining productivity growth and ever-larger financial risks point to the need for far-reaching structural reforms to put the region`s economies on a more sustainable path. This requires political determination,” Neumann said.

Over the May-to-September period, Fed tapering fears spurred massive fund outflows from Asian markets. Countries with perceived imbalances, such as current account and fiscal deficits, including India, Indonesia and Thailand, were among the hardest hit, highlighting the need for economic adjustments.

Investors have been wary of excessive government spending, especially on subsidies, such as Thailand`s multi-billion-dollar rice subsidy program and India`s recent food subsidy bill.

But looming elections in India, Indonesia and Thailand may sap the will to make unpopular reforms, while other countries – such as Japan, the Philippines, Vietnam and Malaysia — need to reassure investors that they will tackle “hard choices,” he said.

In addition, while China appears determined to press ahead with its impressive reform agenda, the implementation could be “disruptive” to the country`s growth, Neumann said.

Amid the challenges, “a sharp pick-up in Asian growth, already near a decade low, appears unlikely. On the other hand, a bigger slip-up, one that many had feared over the course of 2013, doesn`t appear on the cards as well,” he said. “Asia will thus deliver disappointing, if steady, growth.”

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China debt: The biggest ‘known, unknown’ in 2014?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As China`s local government debt levels balloon to USD 3 trillion, one analyst told CNBC that China`s debt sentence is the biggest “known unknown” risk to global financial markets in 2014.

In a long awaited report, China`s National Audit Office reported this week that local government debt had increased 67 percent from the end of 2010 to reach 17.9 trillion renminbi (USD 2.95 trillion) by the end of June.

Read More: China-Japan tensions: Who has the smartest approach?

The report highlights concerns over the country`s spiraling credit addiction at a time when it`s struggling to sustain economic growth and avoid a financial crisis.

“China`s debt is the biggest `known unknown` of 2014. Because is it something that is going to balloon into an international issue and something that will affect the markets?” Richard Harris, CEO of Port Shelter Investment Management told CNBC Asia`s Squawk Box on Monday.

“When you look at what the National Audit Office is really saying, they are talking about local government debt being up 70 percent, we are not talking about 10 or 15 percent, this is 70 percent,” he added.

Read More: China`s bad-loan skeletons to haunt markets

Local governments in China borrowed heavily following the global financial crisis to help sustain the country`s impressive growth rates by funding investment projects. The entities are not permitted to borrow from banks, so instead they set up special purpose vehicles to do so.

But analysts have expressed fears that many of these investments may never make enough returns to repay the interest and principal on the debt.

Port Shelter Investment Management`s Harris told CNBC that China`s rising local government debt was a huge issue.

“Local government debt is pretty much half of Chinese debt in total which is now over USD 5 trillion. This is now a big problem, we are no longer in a situation where china is a rich country we are now in a situation where china is an indebted country,” he added.

Read More: China will not overtake US economy until 2028: CEBR

However, Harris added that in his view the issue was “controllable” and China does have the tools to tackle the issue.

He pointed out that cutting down on lending would inevitably damage economic growth in China, but policy makers were at an advantage because they have not used quantitative easing before.

“This is a big price tag but don`t forget the US can handle its debt issues at the moment, so I do think it`s controllable,” he said.

The US government`s debt pile currently totals around USD 17 trillion.

Harris added that Chinese policy makers needed to relax their grip on liquidity, tighten control on state-owned banks and take further steps to control the shadow banking sector.

“The biggest ace up their sleeve is the fact that the US is growing and we are looking now at quarterly rates of 4 percent growth in the US…if that`s going to continue China will be pulled along,” he added.

Including national debt, the audit office report found that China`s total public debt pile stands at 30.27 trillion renminbi (USD 4.99 trillion) at the end of June, up from 27.77 trillion renminbi (USD 4.58 trillion) in December 2012. Analysts estimate that this figure equates to around 53 percent of gross domestic product (GDP).

By contrast, Japan`s public debt totals over 200 percent of its GDP, while Greece`s totals around 160 percent of GDP.

-By CNBC`s Katie Holliday: Follow her on Twitter @hollidaykatie

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Platinum may be a bright spot in 2014

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nimble investors may find pockets of outperformance next year in platinum group metals (PGMs) and selected industrial metals while abundant supplies weigh down most other commodities.

Platinum and palladium are due to struggle with potential mine closures amid labor trouble in South Africa while zinc, tin and lead could face regional shortages.

The opportunities may be short-lived so investors will have to be quick-witted to squeeze out profits, said analyst Andrey Kryuchenkov of VTB Capital.

“Market participants will have to be extremely vigilant, flexible and dynamic in their decision-making, aiming to benefit from mostly short-term seasonal trades,” he said.

Broad commodity indexes are likely to underperform again as surpluses burden oil, grains and metals such as copper and nickel.

The Thomson Reuters/Core Commodity CRB index, which tracks 19 commodities, has shed nearly 4 percent this year, the third straight year of losses. In 2014, it is due to underperform stocks again as the latter benefit from strong company earnings, analysts and fund managers said.

MSCI’s all-country world equity index is up 20 percent this year and the US S&P 500 index has surged 32 percent.

Long PGMs/Short gold

Many analysts and fund managers expect more labor problems in South Africa. The country accounts for about three-quarters of global output of platinum, mainly used for jewelry and in catalytic converters to clean vehicle exhaust fumes.

“We’re positive on the PGMs because … the three largest platinum producers in South Africa, they’ve still yet to renegotiate those (labor) contracts,” said Sudakshina Unnikrishnan, an analyst at Barclays.

(Watch video: Watch out! Gold to go below USD1,000 in 2014)

“Any sort of supply risk we think is likely to be the catalyst to push prices higher.”

Barclays is advising clients to place relative value trades in precious metals, taking long positions in platinum and palladium while going short gold.

Gold is expected to post more losses in 2014 after falling out of favor with investors, who have been liquidating holdings of an asset that has lost its safe-haven appeal.

A huge outflow of physical gold holdings from exchange-traded products (ETPs) has hit gold, which this year is set to post its biggest annual loss in three decades—some 28 percent—as it ends a 12-year bull run.

“We do not expect to see a repeat of the rapid outflows that occurred during the first half of the year, but with 1,820 tonnes of gold still held by physically backed ETPs, there remains substantial scope for further divestment,” said Nic Brown, head of commodities research at Natixis in London.

Zinc, lead, tin

Other potential bright spots in commodities include zinc, lead and tin, which analysts said could also encounter supply problems.

“Zinc should continue to see modest deficits with mined supply lagging,” analyst Grant Sporre at Deutsche Bank said in a note. “Based solely on the annual supply-demand balances, we think that zinc and lead remain the most attractive.”
Again, the safest way to play the market is through relative value trades, several analysts said.
Metals strategist Stephen Briggs at BNP Paribas suggests taking a short position in copper due to expected surpluses versus a long position in a basket of zinc, lead and tin.

Broad commodity indexes are expected to be sluggish again next year, as global growth is seen as insufficient to offset expected surpluses in many sectors, including oil and grains.

“There is a pattern in commodities where returns don’t tend to become very strong until there’s been a decent period of demand growth that enables any excess inventory or spare capacity to be drawn down,” said Kevin Norrish, head of commodities research at Barclays in London.

Global economic growth is expected to rise modestly to 3.5 percent in 2014 from 2.9 percent this year, according to a Reuters poll in October.

Surging supplies are expected to push North Sea Brent crude down to an average of USD 103.50 per barrel in 2014, from this year’s average around USD 109, according to analysts polled by Reuters this month.

Bumper corn and soybean harvests have weighed on grains prices and more weakness is seen in 2014.
“We expect the balance of risks tilting to the bearish side in the agri commodity space, continuing the trend seen in 2013,” Macquarie said in a note.

—By Reuters

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How to do good AND make money in emerging markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nelson Mandela galvanized the socially responsible investment (SRI) movement when he called for people and institutions to sell holdings that supported South Africa’s apartheid regime. It’s taken 30 years for the investment companies to start catching up to Mandela when it comes to emerging markets.

A tiny handful of funds now allow investors who want to follow their conscience and invest in developing market economies. Three companies known for socially conscious or religiously-themed investment strategies have created emerging markets funds in the past two years, adding to a Dimensional Fund Advisors’ ethical emerging markets portfolio that’s been available since 2006.

“A few years ago I would have said you can’t do [socially responsible investing in emerging markets] at all,” said J. Chris Cogswell, a Louisville, Ky.–based advisor with Portfolio Resources Group, a boutique firm that manages nearly $1 billion and emphasizes socially responsible investing. “I’m not going to say you can’t do it now, but it’s hard.”

(Read more: Time to overcome your fear of Chinese stocks)

Demand for investment products that are filtered in one way or another is rising. Some funds filter out some companies—tobacco companies and petroleum producers are two common types—or filter in companies known for responsible strategies. More than 1 in 9 dollars under professional management in the United States, or USD 3.74 trillion, was invested in SRI strategies in 2012, up from USD 3.07 trillion in 2010, according to the Forum for Sustainable and Responsible Investment.

Until recently, emerging markets has been the forgotten stepchild of the socially responsible world, for a few reasons: Information is harder to come by for companies operating in emerging markets, and the emphasis in emerging economies tends to be on growth rather than sustainability, ethics or governance.

The choices remain limited, too, and can be expensive. The net expense ratio on these funds ranges from 0.75 percent to 3.76 percent, according to Morningstar, though some of the ethical emerging markets funds have outperformed benchmarks.

(Read more: ETF investors pour billions into country funds)

But the outperformance of emerging markets over the last decade—emerging markets was the top-performing asset class in seven of the last 10 years—has increased the pressure on fund companies to add emerging markets portfolios. Many advisors now suggest that emerging markets should comprise as much as 20 percent of a diversified portfolio, depending on your risk tolerance.

Bethesda, Md.–based Calvert Investments introduced its fund in response to demand from advisors and investors, said Bennett Freeman, senior vice president for sustainability research and policy. The Calvert Emerging Markets Equity A fund, introduced in October 2012, was up 3 percent year-to-date as of Dec. 27. The iShares MSCI Emerging Markets Index exchange-traded fund, a proxy for emerging markets, has lost 7 percent this year, as of Dec. 27. The Calvert fund has roughly USD 44 million in assets; the fund has a net expense ratio of 1.76 percent.

If you want to invest ethically and still gain exposure to emerging markets, you have a few choices.

Investigate the handful of ethical emerging markets funds. In addition to Calvert, two other fund companies—Timothy Plan and Epiphany—have introduced emerging markets SRI funds. Because the funds are so new, it’s not yet clear how much following your conscience in emerging markets will cost you in terms of returns. The Timothy Plan Emerging Markets A is down 1 percent this year, and the Epiphany FFV Latin America A, which has a narrower geographic focus, has lost 10 percent this year.

(Read more: Exxon Mobil’s biggest threat is a calculator?)

Maitland, Fla.–based Timothy Plan invests with filters aligned with a Christian worldview of evangelical pastors, according to its website. Irving, Texas–based Epiphany also takes a faith-based approach.

Morningstar identified two other funds as having a socially responsible bent: the DFA Emerging Markets Social Core Equity Fund, the first-of-its-kind, and the American Century NT Emerging Markets Institutional Fund. The latter filters out tobacco stocks (NT stands for No Tobacco). Dimensional Fund Advisors’ portfolio has a five-year return of 16 percent, according to Morningstar, which also claims the iShares MSCI Emerging Markets ETF is up 13 percent in the past five years.

Freeman said Calvert Emerging Markets Equity A, managed by London-based portfolio manager Hermes Investment Management and sold through advisors, looks both for companies making a positive impact in emerging markets, such as those adopting fair labor practices, and filters out companies making a negative impact, such as big polluters. “Increasingly, Calvert is a broad church that fills its pews with worshipers at both altars,” said Freeman.

(Read more: Ethical investing comes of age)

Consider stock picking. You might buy a broad index–based traditional emerging markets fund and then set aside some money for what’s known as impact investing—buying into companies that support a cause you care about.

The 100 global companies perceived to be socially responsible, ranked by the New York City–based Reputation Institute, could be a good place to start. But be warned that this kind of research is incredibly complex. Take, for instance, the question of investments in real estate in India. Investing in real estate could be seen as a profitable and socially responsible investment because it is spurring economic development in India. But developers there, particularly in hot property markets, are often in direct conflict with local residents for scarce water, and some are tapping into precious groundwater. On top of that, how will you get the real story of a particular company’s behavior or impact?

“In emerging markets, the societal checks and balances to keep companies honest may be fewer [than in developing markets],” Loic Dujardin, director of research products for Amsterdam-based research firm Sustainalytics, wrote in an email. “However, investors have begun to rely on several non-company information sources—e.g., NGOs or local media. This provides a fuller and multi-stakeholder perspective of the company and moderates the company’s own message and information.”

Use an outside-the-box option. Some of Cogswell’s clients buy notes from the Bethesda-based Calvert Foundation, a spin-off of the investment company. The foundation makes loans to microfinance organizations and packages them as investments that have a fixed term, usually ranging from one to five years, and a fixed interest rate comparable to what investors would get from a CD. Withdrawals prior to term are subject to tight restrictions, and the money and the return aren’t guaranteed, though “they’ve never lost a penny of investors’ money,” Cogswell said.

If you want some exposure to emerging markets in your portfolio but your emphasis is on the ethics, this approach might work for you.

—By Elizabeth MacBride, Special to CNBC.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why economic growth alone won’t fire up oil in 2014

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Like any other asset, crude oil trades on supply as well as demand. And while an improving US economy can be expected to boost the demand for oil, a stronger supply picture should take any wind out of oil’s sales in 2014.

“Although the US economic growth story might make it seem as though rising petroleum demand should lift prices, the uptrend in US crude oil production is likely to be the dominant fundamental factor for the oil market in 2014,” Tim Evans, energy futures specialist at Citi Futures, wrote to CNBC.com.

“Four-week average US crude oil production is running some 1.2 million barrels per day, or 18 percent higher than a year ago—more than enough to outpace demand.”

(Read more: Crude goes on a tear after US stockpiles tumble in latest week)

“This is a commodity that’s priced off of logistics,” said Stephen Schork, the editor of the Schork Report. “We know that North America is awash in oil,” he said, making the most important question how easily it can be moved to market.

Consequently, Schork will be closely watching progress on the Keystone Pipeline system (which he said is starting to resemble a “Frankenstein pipeline”), as well as on the proposal to build a pipeline carrying oil from Alberta, Calgary, to Kitimat, British Columbia.
“You certainly don’t want to buy a futures contract on the idea that demand is improving, and now we’re off to the races,” Schork said.

West Texas Intermediate (WTI) “has not traded on fundamentals for many years because of the glut situation, and now WTI is going to start trading closer to fundamentals,” he added. “But that said, demand is still being trumped by supply.”

For Robert Yawger, Mizuho’s director of energy futures in New York, the battle lines between an improving economy and strengthening supply have been firmly drawn.

“There’s a battle royal between the two, and I guarantee that everything in this industry is trying to figure it out,” he said. “The US economy is on a roll right now, and if equities manage to take off as a function of the economy, it will add a degree of a support. But that will be in battle with a supply scenario that is very healthy.”

(Read more: On tap for next year: Legit economic growth?)

Like Evans and Schork, Yawger said supply would rule the day.

“You have the Keystone South pipeline coming on board, and you probably have a situation where more Libyan barrels come to the market, and more Iraqi barrels,” he said. “I think ultimately what will happen is that supply will lean on the price a little bit.”

(Read more: What does John Podesta’s addition mean to fate of Keystone XL?)

Still, for those such as Brian Stutland of the Stutland Volatility Group, who prefer equities to commodities, oil could be the best commodity play in any event.

“If we see GDP hitting 4 percent consistently quarter after quarter, you’re going to see oil probably push higher, and you’re going to see drawdowns in inventory. So on any selloff in oil after the big run that it’s had, I’d be a buyer,” he said. “That’s your play in 2014—if there’s any commodity that you want to touch.”

—By CNBC’s Alex Rosenberg. Follow him on Twitter:
@CNBCAlex. 

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Do you really know bitcoin? Here are 11 myths

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While there were plenty of other big surprises in 2013, no business story likely was more unique than bitcoin, the online simulated currency that threatened to shake up the global monetary system.

Debate raged over bitcoin’s legitimacy: Was it just a playful creation of hobbyists, or a new exchange medium brought about as a logical reaction to profligate currency manipulation from the world’s central banks?

Nick Colas, chief market strategist at ConvergEx, was one of the early Wall Street analysts to take a serious look at bitcoin back in February. To wrap up 2013, he examined what he sees as 11 myths surrounding the subject.

1. Bitcoin is huge

For all the talk and hype, bitcoin is tiny with a total value of just USD 10.8 billion. That compares to the total stock of US dollar at USD 800 billion, Colas said in a report. There’s also about USD 4 trillion in global currency traded every day.

(Read more: What you need to know about digital currencies)

2. Bitcoin enables drugs and terrorism

Colas argues that bitcoin is “way too volatile” for the average drug dealer or terrorist. That’s not to say that “some enterprising dealers” don’t use it, but if it was widespread Colas contends its value would be “USD 10,000 or higher” compared to Friday morning’s trading value of about $800.

3. Bitcoin is a currency

This is perhaps the most contentious observation, as bitcoin is often referred to as a “cryptocurrency.” Colas offers that bitcoin is “a system much more than a ‘currency'” in which holders agree to take part in a transaction of value.

Banking analyst Dick Bove may have been more to the point, where in a recent analysis he called bitcoin a “low-cost replacement for credit cards and other payment mechanisms.” There are virtually no costs involved with bitcoin transactions, as opposed to wire transfers, for instance.

4. Bitcoin has never been more volatile than now

Untrue, according to a chart Colas prepared analyzing bitcoin’s one-month returns and standard deviation. It actually was more volatile in May 2011, before most people even had heard of bitcoin.

(Read more: Behind China’s love affair with bitcoin)

5. Chinese citizens can’t buy bitcoins

BTC China has been one of the most dominant exchanges for bitcoin, with nearly 10 million transactions over the past month, according to bitcoincharts. That’s despite a government ban on financial institutions handling such transactions.

6. Bitcoin is not a store of value

This is an expression often given to gold and silver, and Colas said it does not apply to bitcoin. “Bitcoin may one day prove it deserves to sit alongside those assets,” he said. “It isn’t there yet.”

7. Bitcoin is untraceable

Bitcoin transactions happen online. Enough said. (Though Colas does offer: “If you think anything you do online is secret, I can’t help you.”)

8. Losing anonymity will render bitcoin useless

Conversely, traceability doesn’t dim bitcoin’s allure, which is really in its low or no-cost transactions.

(Read more: Big US online retailer to accept Bitcoin)

9. It’s a Ponzi scheme

No, it isn’t. Ponzi schemes have no other intent than to defraud. There’s no evidence to suggest that bitcoin is in the same boat, despite the strong price volatility and attraction for speculators. The Federal Reserve has noted the “potentially significant positive social value” of bitcoin, Colas noted.

10. Bitcoin is “ready for prime time”

No, it isn’t. As Bove, Colas and numerous others have pointed out, bitcoin won’t get legit until price volatility gets tamped down and a truly safe, mainstream storage place emerges. Colas suggests banks, Paypal or Apple come up with a storage device.

11. Something better will kill bitcoin

This one doesn’t get so much play, but it’s worth considering. Bove has contended that being first gives bitcoin a tremendous competitive advantage, and Colas echoes that point. “There are other online money transfer products out there, of course, and more to come,” he said. “The challenges will be the same for all of them: security, utility and legal compliance.”

The quest to meet those challenges likely means bitcoin remains a serious story for 2014.

“I absolutely understand why there are so many bitcoin haters out there. But don’t hate the player; hate the game,” Colas said. “Technology is a tremendously disruptive force in society, and it knows no boundaries. It disturbs every status quo. That’s what is does. Just don’t make the mistake of thinking that you can reverse it by calling it a bubble.”

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What do fund managers do with unpopular asset classes?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As investors chase their new-found love for developed market equities, take a moment to pity the poor fund managers who find the fickle markets giving their asset classes the cold shoulder.

“It can be pretty demoralizing,” said Travis Hamilton, managing director at Khan Investment, which focuses solely on Mongolia. “I’ve had a number of people ask me, ‘how do you get up every day and keep doing what you’re doing?'”

“If you look back at 2012 or 2011, a number (of managers) were courting Mongolia. There was a huge amount of exuberance and enthusiasm. Almost all of them have packed up and left,” he told CNBC.

(Read more: Will foreign investors give Mongolia another shot?)

Foreign investors abandoned one-time frontier-market darling Mongolia over the past 18 months amid a prolonged dispute between the government and private-sector partners over Rio Tinto’s USD 6.6 billion Oyu Tolgoi mine. Foreign direct investment (FDI) fell 17 percent in 2012 and then fell a further 42 percent in the January-to-August period this year.

The government has since passed a new investment law in hopes of restoring foreign investor confidence and is negotiating with Rio Tinto to end the dispute.

Hamilton believes pulling out of Mongolia was just short-term thinking, as it may take at least 10 years to pay off. “Investors in any emerging market or frontier need to consider that,” he told CNBC.

(Read more: Bond fund manager: I hate bonds)

While his fund hasn’t faced redemptions, “it certainly is fair to say it has been very challenging in terms of attracting new capital to the strategy,” he said. “All we can do (is) keep marketing and promoting the fund,” as well as keeping current investors “very informed” of developments.

His fund hasn’t suffered alone. Investors have pulled around USD 15.58 billion out of dedicated emerging market equity funds and USD 14.04 billion out of emerging market bond funds so far this year, according to data from Barclays.

Others have asset classes that aren’t a niche market, like Mongolia. Financial advisors may generally consider fixed income a necessary core holding as part of most investors’ portfolios, but bond funds globally have seen around USD 15.22 billion of outflows over the past three months, according to data from Jefferies.

(Read more: Goldman: Cut your emerging markets exposure by a third)

Fixed income managers are coping by talking down expectations.

“You have to be realistic,” Cecilia Chan, HSBC’s chief investment officer for fixed income in Asia, told CNBC earlier this month.

“When I talk to the customer, I try to be genuine. I’m not telling you that you will get rich buying bonds,” she said, noting HSBC has around USD 50 billion worth of bonds under management.

 “The great rotation, the attractiveness of equities as a headline story, the macro environment (are) supportive in terms of selling equity,” Chan said. “But in reality, whether it will materialize into actual returns nobody knows. For equities, it comes with volatility, market timing as well. Bonds still are a lower risk asset class,” she noted. “We need to manage risk.”

Others take a similar approach to their unpopularity, being upfront about the likelihood of losses.

Fixed income has done well for the last 30 years, noted Kumar Palghat, chief investment officer at fixed income specialist Kapstream Capital, which has around 6 billion Australian dollars, or around USD 5.33 billion, under management. “It can’t go on forever,” he told CNBC.

(Read more: Take cover! Bond market ‘hell’ could be on the way)

He doesn’t have a problem with telling clients his offerings face a difficult outlook.

“They have to step up and admit that their asset class isn’t going to do as well,” he told CNBC. “They didn’t do well in 2013 and they’re not going to do well in 2014,” he said.

“I don’t sell the product just to sell it. I’m happy to say bonds will underperform equities. Otherwise, you’re just pushing a product,” Palghat said. He noted, however, that he continues to see demand from longer-term investors such as pension and superannuation funds which can’t have all their money in equities.

(Read more: Euro zone bond rally may be ending: Here’s why)

He tells his clients that if they must be in bonds, there are strategies to minimize the capital losses that are likely to come from the expectations interest rates will rise.

To be sure, being unpopular can be a boon for bargain-hunting.

As investors pulled out of emerging market bonds, Hamilton’s Mongolia fund started buying, picking up Mongolian debt at around 58 cents on the dollar.
 

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Japan inflation at fresh five-year high in November

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Japan reported a 1.2 percent on-year rise in inflation in November, marking a fresh five-year high.

The November consumer price index (CPI) was above expectations for a 1.1 percent rise in a Reuters poll and up from October`s 0.9 percent rise.

Core CPI – excluding food and energy prices – rose 0.6 percent on year in November, its highest level in 15 years.

Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe in April to jump start the Japanese economy – underlie the rise in inflation.

“It looks like Abenomics is working, according to headline inflation numbers. Now, we have to see whether they have to ease [with] more extreme measures to get it where they want to or can they afford to let it run for a while,” said Jesper Bargmann, head of trading, Markets, Singapore at Nordea.

“The whole market is buying into Abenomics so of course, if inflation starts picking up quicker than expected, then yes it`s a success but it could also mean that they might not have to go as extreme as the market expected,” he added. 

Friday`s figures bring the Bank of Japan closer to reaching its target of 2 percent inflation in two years. The reading comes hot on the heels of comments from Bank of Japan Governor Haruhiko Kuroda on Wednesday that Japan`s consumer inflation is likely to exceed 1 percent in the first half of 2014 and will help heighten inflation expectations.

For the Tokyo area, Japan reported a 0.7 percent on-year rise in core CPI for the month of December, in line with expectations.

Japan also posted retail sales and industrial output data on Friday.

Retail sales rose 4.0 percent on year in November, well above expectations for a 2.9 percent rise in a Reuters poll and marking their fastest pace since April 2012.

The data underpinned a pick up in private spending ahead of a national sales tax hike due to take effect in April, which will see the sales tax rise to 8 percent from 5 percent currently.

Industrial output rose 0.1 percent on month in November, below expectations for a 0.4 percent rise.

According to the Japanese Ministry of Economy, Trade and Industry (METI), Japanese manufacturers see output at 2.8 percent on month in December, up from the previous forecast of 2.1 percent. For January, manufacturers see output at 4.6 percent on month.

Following the data the yen fell to a fresh five-year low of 104.93 per dollar. The Nikkei 225 rose 0.3 percent to a fresh six-year high in early trading, extending its rise above the 16,000 level. 

Copyright 2011 cnbc.com

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow