Month: June 2013

Gross skewers Bernanke: You’re part of problem

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

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Bond guru Bill Gross has taken straight aim at the Federal Reserve and its Chairman Ben Bernanke, charging that ultra-loose monetary policies are holding back the economic recovery.

In his monthly letter to investors, Gross, who heads fixed-income giant Pimco and its USD two trillion in assets under management, uses unusually blunt language to convey his feelings about historically aggressive central bank easing measures.

While he concedes that the Fed isn’t getting help from Washington and its fiscal mess, he said the central bank’s easing programs are only complicating matters.

Gross compares the economy to a heart that uses the ability to earn return appreciably over the cost of investment-“carry,” in market terms-as its lifeblood. Carry has been increasingly difficult to achieve in the current quantitative easing environment, he said.

“Perhaps, in addition to a fiscally confused Washington, it`s your policies that may be now part of the problem rather than the solution,” Gross said in comments directed at Bernanke .

“Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system,” he added. “Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution.”

The Fed has dedicated USD 85 billion a month to purchase Treasurys and mortgage-backed securities, expanding its balance sheet to USD 3.4 trillion.

In doing so, it has helped boost the stock market and contribute to the housing recovery but has failed to generate a similar amount of strength in the broader economy.

From Gross’ view, the Fed’s zero interest rate policy has made life miserable for fixed-income investors and savers, depressing yields and inhibiting businesses from innovating or expanding.

“Western corporations seem focused more on returning capital as opposed to investing it,” he wrote. “Low (returns on investment) fostered by central bank policies in financial markets seem to have increasingly negative influences on investment and real growth.”

Indeed, while the unemployment rate has dropped to 7.5 percent from its October 2009 peak of 10 percent, that has been as much a function of a decreasing labor force as it has been strong job creation.

Gross warned that a continuation of current policies will hamper growth, despite Bernanke`s hopes that rates will return to normal once monetary policy grows the economy.

“Sacrifice now, he lectures investors, in order to prosper later,” Gross said. “Well it’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5 percent.”

The economic news of late has not been good, with manufacturing and trade levels suggesting economic growth waning from the 2.4 percent registered in the first quarter.

“Perhaps when yields, carry and expected returns on financial and real assets become so low, then risk-taking investors turn inward and more conservative as opposed to outward and more risk seeking,” Gross warned Bernanke. “Perhaps financial markets and real economic growth are more at risk than your calm demeanor would convey.”

-By CNBC`s Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom .

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

Australia holds fire on rates, but for how long?

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

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Even as the Reserve Bank of Australia (RBA) left its key interest rate steady at a record low on Tuesday, analysts bet the central bank would ease monetary policy soon to bolster the economy from an imminent peak in mining investment.

Australia’s central bank cut rates by 25 basis points just a month ago to 2.75 percent and markets had not anticipated another move so soon, especially since an almost six percent fall in the Aussie dollar over the past month has boosted exporters and given the economy a fillip.

The RBA said that there was scope for further monetary easing although policy was appropriate for now. In a sign that the recent fall in the Aussie dollar may not be a barrier to further cuts, the RBA said the currency remained high despite its recent depreciation.

And with the non- resources sector of the Australian economy showing no significant sign of a pick-up as mining investment eases, a rate cut in either July or August seemed likely for now, analysts said.

“At this stage an August cut is on the go and further cuts will be a function of the interest-rate sensitive parts of the economy not growing to the extent that they [the RBA] want and investment falling more than they were anticipating 12 months ago,” Tony Farnham, an economist at Paterson Securities told CNBC Asia’s “Capital Connection.”

Data last week showed capital expenditure by firms on things such as equipment fell a bigger-than-expected 4.7 percent in the first three months of 2013 compared with a 2.1 percent fall in the previous quarter.

And even after the RBA cut rates to a record low last month, consumer confidence fell sharply in May. An index of consumer sentiment compiled by the Melbourne Institute and Westpac Bank fell seven percent in May after a 5.1 percent tumble in April.

“It’s a question of timing and it’s difficult to say when exactly the RBA will move,” Stephen Nash, director of strategy at FIIG Securities in Sydney told CNBC ahead of the rate announcement.

“The RBA keeps telling us that inflation is under control, so they don’t have any concerns on that side. What is a concern is getting more momentum in the non-mining sector. We’ve had a little bit of an increase in established home prices, but construction is really not proceeding that much,” he added.

The RBA has slashed interest rates 200 basis points since late 2011 to boost the economy.

A private measure of Australian inflation released earlier on Tuesday showed consumer prices rose 0.2 percent in May from April when it increased by 0.3 percent, a sign that price pressures remain muted.

Savanth Sebastian, equities economist at Commonwealth Securities, said he expects the RBA to cut interest rates in August just before a general election in September.

He added that the labor market could be the key to the timing of further monetary easing. Australian job advertisements in newspapers and online fell for a third straight month in May, a survey by Australia and New Zealand Banking Group showed earlier on Tuesday.

“A lot more focus is going to be on the real sector [economy] , so jobs in particular, and less so on inflation and they appear happy on that front,” said Farnham Paterson Securities.

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

Relax, sign points to eventual rally in Japan

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

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It’s a question of when, not if, Japan’s large institutional investors will reallocate funds from government bonds into riskier assets including domestic equities, said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.

This shift would inject fresh momentum into the nation’s recently battered stock market.

Japan’s government is set to urge the country’s USD two trillion worth public pension funds to increase their exposure to equities and overseas assets as part of Prime Minister Shinzo Abe’s long-term growth strategy expected to be announced this week, Reuters reported Tuesday.

“Bottom line they [Government Pension Investment Fund and Yucho] will start to reallocate funds to more risk assets including equities and foreign assets,” Fujita told CNBC Asia’s “Squawk Box” on Tuesday, referring to the investment arm of Japan`s public pension system and the country’s postal bank.

Under its current portfolio strategy, the Government Pension Investment Fund (GPIF), which manages the retirement savings of government employees, targets 11 percent allocation for domestic stocks, according to Reuters, with a six percent band to increase or decrease equity holdings from the specified target.

The flexibility of the band will likely be increased, Fujita said, adding that Abe could announce this as soon as Wednesday.

“The GPIF is a quasi-sovereign wealth fund. They [government] can order the pension funds to diversify into risk assets,” he said.

However, Fujita noted that the shift out of government bonds into equities is not going to happen overnight.

“This is going to be a multi-year event. For example, in the late 90s, when the US went down reforms in their pension funds, it took a good part of 10-15 years to get their portfolio together. And Japan will go down the same way,” he added.

Japan’s Nikkei 225 has undergone a deep correction over the past two weeks, losing over 16 percent, but experts say an official announcement on pension fund allocation could prompt investors to re-enter the market.

What about other ‘risk assets’?

While Japanese investors have been net sellers of foreign debt in recent weeks, Steven Major, global head of fixed income research at HSBC, is still betting on a “buying spree” in foreign bonds over the next two years.

Japanese investors sold 1.12 trillion yen (USD 11 billion) in overseas bonds in the week ended May 25 after selling 800.6 billion in the previous week defying forecasts that the Bank of Japan’s asset purchases would lower domestic yields and push investors overseas.

With Japanese government bond yields rising in the past month, market watchers say this could have lured domestic institutions back into sovereign debt. But this could change as bond yields settle.

“We still expect outflows of at least 600 billion over two years once JGB [Japan government bond] and yen frictions settle down,” Major wrote in a report on Monday.

“Of the large bond markets, the US, UK and core euro zone are expected to benefit. Italy and Spain appear well-positioned too. In emerging markets, Mexico, Turkey and Malaysia are likely to be future targets,” he said.

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

Madonna’s manager: Entrepreneurs are new rock stars

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

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Guy Oseary is more than just Madonna’s manager, he’s also an investor in several Internet companies, including Spotify, Shazam, Square and Uber.

Along with Ashton Kutcher he also runs a fund called A-Grade Investments, which was recently valued at USD 100 million.

Oseary was also the founder of Maverick Records, which has sold over 100 million records. Running a music label and investing in start-ups may seem to have nothing in common, but Oseary says they couldn’t be more similar.

It’s all about finding the next big thing. “At Maverick, I had to find the next big artist,” Oseary said.

Years of watching aspiring stars helped Oseary build a skill set of figuring out what he likes, and what works. The new rock stars are start-up founders, Oseary said, “they have the same sort of quality” in wanting their product-music or a start-up-to have an impact on the world.

Staying up-to-date with cutting-edge technology is crucial to success in the music business, and innovation is key to keep up with quickly-changing consumer tastes.

And in light of the threat of music piracy, artists and their labels need to give consumers all the necessary high-tech bells and whistles to keep them paying for content.

Oseary sat down before his on-stage interview at the D11: All Things D conference, to discuss the companies he’s invested in, which have the most potential to disrupt established players.

Starting with the music industry, Oseary called Spotify “as good as it gets with where music is headed today.” Spotify is supportive of both artists and the industry, he said.

“It’s nice to see a company come out of nowhere and give USD 500 million back” to content creators.

When asked about which startups he’s most excited about he immediately pointed to AirBnb, saying, “I don’t think people will ever travel the same way again.”

His second choice was Nextdoor, a social network that allows people to connect with neighbors. Another pick-Uber-is transforming the way people get around, he said.

How does Oseary pick his investments? He and partner Kutcher have two criteria. “The first thing we look for is whether this company is solving a big problem. The second question is whether we can help it.”

They’re not just passive investors; they spend time with each company, as advisors, bringing their expertise from both entertainment and venture and angel investing.

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

Will it be hit or miss for Shinzo Abe’s final arrow?

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

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There has been a certain buzz around Japan since Prime Minister Shinzo Abe promised radical change to breathe life back into a run-down economy six months ago. Whether that will last or fizzle out will depend on what long-term strategy Abe outlines as early as this week.

Analysts expect Abe to fire his third salvo to improve the competitiveness of the world’s third largest economy. From introducing more flexible labor policies to steps that encourage more women into the workforce, Abe could also tackle deep-seated issues such as opening up the farm sector or loosening the country’s tight immigration laws – widely seen as a necessary step given a rapidly-aging population.

“Japan has now agreed and announced globally that it is willing to embrace change, something that it has not been willing to do for two decades and that’s a shift that’s still not priced into equity markets,” said Glen Wood, head of sales at Japanese bank Mitsubishi UFJ. “People globally are skeptical about ‘Abenomics’ given what’s gone on historically. A long-term plan would be helpful.”

Abe, who became prime minister in December, has delivered on two fronts: fiscal stimulus announced earlier this year to give the economy a boost and pushing the Bank of Japan to adopt aggressive monetary stimulus to end two decades of deflation.

These are short-term steps and it’s the long-term structural changes implied by the last arrow of the three arrow strategy on which the success of Abe’s economic policies, dubbed “Abenomics,” hinges, Japan watchers say.

The International Monetary Fund said on Friday that it supported “Abenomics,” urging Japan to implement structural reforms and fix its public finances.

Japan has slipped in and out of recession in recent years, been hurt by two decades of falling prices, while previous efforts to implement long-term change have fallen short of expectations.

The Nikkei stock index hit a 5-1/2 year high in May, propelled higher by a weak yen and optimism over Japan’s outlook. But recent sessions have seen a sharp pull-back, casting a shadow over Abenomics.

“Investors are starting to believe that if there’s no follow through in structural reforms then this program [Abenomics] is not going to get traction,” Stephen Roach, a former executive at Morgan Stanley told CNBC.

Different this time?

Some Japan watchers say they are hopeful that Japan under Abe has entered a new era of change. In addition to the short-term monetary and fiscal stimulus measures, there have been some signs that the government is willing to take on strong opposition to make changes.

Japan, for instance, will be part of the next round of US led Trans-Pacific Partnership talks to be held in July, and that could lead to negotiations to open up its agricultural sector.

Abe’s Liberal Democratic Party is also expected to win elections to Japan’s upper house of parliament in July and that could put the government in a stronger position to push through change.

“The farm sector is clearly a big issue, so is immigration, but right now the emphasis has to be on investment, productivity, the core of the Japanese economy and getting it back on track,” said Uwe Parpart, managing director at Reorient Financial Markets.

“The Sonys, the Panasonics, they really need to become competitive against the likes of [South Korea’s] Samsung again,” he said referring to the well-known big Japanese brands. “That’s a big task and I think they will take that on and handle it properly.”

Hedge fund manager Daniel Loeb has caused a stir by calling for a break-up of the electronics giant Sony which analysts say could mark the start of much-need change and restructuring at Japan Inc.

Abe’s use of the term “three arrows” comes from a Japanese folk story, in which a father shows his three sons how one arrow can be bent, but when together the arrows are unbreakable.

The point here is that Abe needs to deliver on that third arrow for the other two arrows of “Abenomics” to succeed.

“Nobody has said that Abenomics can work without structural reform, that is stating the obvious,” said Parpart. “After the upper house election, there is going to be three years of Abe, so unless he really messes up, he has the leeway to make the change.”

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

Cyber attacks mean big business for small security firms

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

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Cyber criminals aren’t the only ones cashing in on espionage and hacking attacks. There are a slew of smaller security software companies that are also poised to rake in profits as cyber threats mount.

With cyber attacks continuing to bombard government agencies and companies, there’s growing pressure to spend more on securing the networks and platforms where valuable information lives. And this bodes well for security companies – small as well as large, experts say.

“There is a huge amount of runway for security software companies to sell their technology to enterprises around the world to guard against hackers and protect loss of data that could be devastating to companies,” said Daniel Ives, an analyst at FBR Capital Markets.

In fact, only 15 to 20 percent of all private enterprise and federal agencies combined have upgraded their security to the level needed to keep up with the current state of threats, Ives said, which makes it a ripe market for investing.

“I think part of what’s happened is there are much more sophisticated types of security out there now that could guard against the threat environment and its brought security software to the top of IT spending lists,” he said. “You can’t put security spending into the closet anymore.”

Companies that are focused on network security are some of the best plays in the space, he said.

Some high growth security software companies that have carved out solid segments in the sector include Palo Alto Networks, Fortinet and Sourcefire, said Ives, who has a buy rating on those stocks.

“Those three,” he said, “have separated themselves from the pack. They are focused on network security, and a good proportion of spending is on the network.”

Other companies that are also likely to get a boost are Imperva and Proofpoint, he said.

One of the biggest spenders on securing valuable data on networks is the US government.

_PAGEBREAK_

While US budget cuts continue to stifle federal spending in many departments, the Defense Department is actually planning to ramp up its cyber security spending both defensively and offensively. The Pentagon increased its cyber-operations budget to USD 4.7 billion for 2014, up from USD 3.7 billion this year, according to budget documents.

“There’s more potential data being lost in this country than we saw throughout the whole Cold War. It may not be physical, you may not be able to see it, but the amount of data being taken is the equivalent of cargo ships docking on our shore and leaving with our goods,” Ives said.

Columbia, Md.-based Sourcefire, which was founded in 2001 and went public in 2007, is one of the companies that will benefit the most from federal spending, Ives said.

“They really skated to where the puck was going. Federal spending was under pressure,” he said. “But what was once a headwind has become a strong tailwind for the company.”

But it’s not just the government ramping up spending, companies across all sectors are boosting their investments in security, said Jason Brvenik, vice president of security strategy at the security firm Sourcefire.

“The reality is no one is safe anymore,” Brvenik said. “If you are a company and you have something valuable, they are going to come after you persistently.”

One area where fighting cyber attacks will be very profitable is in protecting critical infrastructure – like the electrical grid, water systems and nuclear plants – said Stuart Carlaw, the chief research officer at ABI Research.

_PAGEBREAK_

Total global spending on security infrastructure is expected to reach USD 86 billion by 2016, up from an estimated USD 65.7 billion this year, according to the Gartner technology firm. And securing electrical grids alone from cyber attacks will be a USD 2.9 billion market by the end of this year, according to ABI Research.

“It really is the wild west, that is the fundamental thing,” Carlaw said. “Everyone says the next world war will be a cyber one, but we are already fighting the next world war.”

Sourcefire is also one of the biggest players in securing critical systems, as well as a handful of defense contractors – including Lockheed Martin and Northrup Grumman – and other networking companies like Cisco, that also play in this sector, Ives said.

Investing opportunity

The boom in cyber security spending has also fueled a surge of tech security acquisitions and investments.

Venture capitalists are investing in newer areas in cyber security that haven’t fully developed, including mobile security providers and companies focusing on helping the government’s offensive strategy, Ted Schlein, a general partner at Kleiner Perkins Caufield and Byers, said on CNBC’s “Closing Bell” earlier this year.

“I think there is going to be a new area around offensive cyber, meaning that it’s not going to be good enough that we are trying to prevent ourselves from attack, but eventually the government … will want to set up offensive capabilities,” Schlein said. “And that’s in event that it’s needed for some purposes for the defense of our country. And that’s going to create a whole new industry segment.”

Endgame Systems, in which Kleiner Perkins has invested, is one of the companies focused on developing offensive technologies and in March it landed USD 23 million backing led by Paladin Capital.

Another example, AirWatch, a mobile security company, raised USD 200 million in February from Insight Ventures and USD 25 million in May from Accel Partners and Insight Ventures, according to CB Insights.
 
There have also been a number of acquisitions.

The McAfee security firm bought the security company Stonesoft earlier this month for USD 389 million and Blue Coat, which is a web security firm owned by the private equity group Tom Bravo, snagged the Intel-backed security company Solera last week for an undisclosed amount.

Most recently, Vista Equity Partners shelled out USD one billion to acquire Websense, which secures messages and other data.

“Because of the core [intellectual property], strong market opportunity and mature growth, a lot of private equity investors look at these companies and see ways that a lot of fat can be cut and made more valuable,” Ives said. “If you put it all together, it’s really the ingredients for a surge of M&A activity, as well as on IPO activity.”

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

Investors shouldn’t fear rising bond yields yet

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

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With the Federal Reserve moving closer to pulling back on monetary stimulus, a rise in 10-year Treasury yields has made investors nervous. But it will take a bigger move to kill the equity market’s run up, Wall Street pros say.

“The Fed is floating the trial balloon of slowing down its purchases, and the market is digesting that news,” Gary Flam at Bel Air Investment Advisors said of the recent swings in equities. “Up until about a month ago, tapering was seen as a big negative. If anything, the market may now believe [tapering] is not a bad thing and could be a positive.”

With Chairman Ben Bernanke and other Fed officials hinting that a pullback in bond-buying may be coming sooner than expected, yields on the benchmark 10-year note have moved above 2 percent.

“In the near term we have rallied too much,” said Andrew Burkly at Oppenheimer & Co. of the market’s recent run. With Richard Bernstein, CEO of Richard Bernstein Advisors.

Andrew Burkly at Oppenheimer & Co. said the recent steepening of the yield curve is “generally an early-cycle indicator the bond market is sniffing out better growth.”

But the recent move still should keep investors on alert.

“This is a little bit of a nervous market,” Flam said. “A measured rise in yield would be good for the market and financials especially.”

A spike in yields, however, could spell trouble for stocks, he said. “If we go a couple of weeks and get to 2.5 percent [on the 10-year Treasury] — that type of move would be fairly dramatic.”

Getting to 2.5 and above by the end of the year would be less worrisome, Flam added. “A slow grind higher in yields would be a positive sign of an increasing pace of economic activity versus market failure.”

Read More: On Second Thought … Maybe Fed Tapering Won’t Be So Bad

Will stocks fall if bond yields rise? Pimco’s Bill Gross offers insight. “There is going to be a mild positive correlation: If bond prices go down, stock prices will go down as well,” he says.

Pimco’s Bill Gross doesn’t expect that relationship to hold, however.

“The correlation between stocks and bonds up until 2008 was a negative one in which when bond prices went down, stock prices went up — at least as a reflection of real growth,” he told CNBC. “There’s going to be a mild positive correlation. If bond prices go down, stock prices should go down as well.

“That’s simply because the global [leveraged] trade is dependent on a stable Japanese yen and a stable JGB yield and a stable Treasury yield. Once you produce instability, that leverage starts to unwind, the housing market gets affected and stocks come down,” Gross said.

Economic data come back into focus tomorrow with a revised first-quarter reading on gross domestic product, pending home sales for April and weekly initial jobless claims.

Economists expect first-quarter growth of 2.5 percent, according to estimates from Reuters, while pending new-home sales are seen rising 1.1 percent. Jobless claims should come in at 340,000 for the week ended May 5, unchanged from the prior week.

While good data may push up yields, Richard Bernstein at Richard Bernstein Advisors isn’t concerned about stocks. Bond yields have risen since reaching a trough last summer, and the stock market has still advanced sharply, he noted.

“This notion that rising rates will kill the equity market is a kerfuffle,” Bernstein told CNBC. “It’s been happening already and it doesn’t stop the market. I’m not quite sure why people are so scared that the potential for long-term rates to go up.”

Read More: Here’s How the Party Will End If the Fed Pulls Back

The sign of a looming bear market isn’t a steepening yield curve, he said. Instead, it’s when the Fed overtightens on policy and the yield curve inverts: meaning short-term rates move above long-term ones.

“We’re no place near an inverted yield curve,” Bernstein said.

With rising bond yields high-yielding defensive stocks such as utilities and telecoms have been hit hard. They are down 9 percent and 6 percent, respectively, over the past month.

“The valuation got rich in those areas, and now the rate that you’re discounting the meager earnings growth is going up and it actually looks more expensive,” as interest rates rise, Burkly at Oppenheimer said.

Christopher Wolfe of Merrill Lynch Private Bank & Investment Group, provides perspective on what’s driving stocks to record highs, as bond volatility becomes “a bit more frightening at this level.”

He advocates getting more exposure to cyclical areas as the market corrects. Financials in particular benefit from the steepening yield curve as it helps fatten up their net interest margins, a measure of the profits they earn from their lending activities.

Read More: Dow 28,000 Possible in 6 Years: BlackRock’s Fink

Wall Street’s preference for cyclicals has become more pronounced as strategist and investors see better economic growth ahead.

“You have a lot of the cyclicals that are on sale,” Christopher Wolfe of Merrill Lynch’s private bank said. While the overall market looks stretched, there are opportunities beneath the surface, he said, “and that’s part of how we’re thinking about this market going forward, is that you’re going to have to be more nimble.”

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 stocks are May’s best performers

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

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Asia’s infamous stock market laggard seems to have regained a little swagger in May.

Even as most major global markets managed to shake off the “sell-in-May” syndrome to finish higher for the month, it’s China that’s taken the lead position in the gains.

The benchmark Shanghai Composite is up more than six percent for the month, far outperforming Asia’s major markets, including Japan’s volatile Nikkei which is down two percent in May.

In comparison globally, the benchmarks – Dow Jones Industrial Average and the SandP 500 – are both up over three percent this month, while FTSE EuroFirst 300, a broad measure of European stocks, is higher by two percent.

But China’s May performance has baffled market watchers, who think going ahead there might be little positive trigger for Chinese stocks.

Paul Krake, founder of View from the Peak: Macro Strategies, a trading strategy firm, cannot find a reason for this rally.

“There’s no fundamental news that has pushed this, literally in the first four months of the year, it was a structural underperformer,” Krake said. “So, is it a short squeeze? [Referring to sellers being forced to close short positions as the market bounces higher] There’s not been any policy response [either].”

A series of negative economic data out of China in the past month, like a contraction in factory activity for the first time in seven months and weak export growth, have added to fears that the recovery in the world’s second-largest economy may be losing steam. Plus, both the International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) cut their 2013 growth forecasts for China this week.

Policymakers have yet to respond with any recent measures to boost growth.

Adrian Mowat, chief Asian and emerging market equity strategist at JP Morgan, said policymakers in China are “completely boxed in” the economy and as a result stocks wouldn’t necessarily benefit from more stimulus.

“They [policymakers] have to manage inflation pressures, rising wages, rising property costs and we’re finding that throwing lots of money at this economy isn’t generating a lift,” Mowat said, referring to the USD 157 billion of stimulus spending in September 2012, which did lift growth towards the end of the year, but China’s full-year annual growth of 7.8 percent in 2012 was the weakest since 1999. In the first quarter of 2013 again growth unexpectedly slowed to 7.7 percent year on year.

According to Mowat, there is a huge contradiction in the Chinese market: “There are stocks in China that are up over 40 percent year-to-date and then there are some that are down 40 year-to-date,” Mowat added.

Krake of View from the Peak said structural problems have led investors going away from Chinese stocks this year as focus shifts to Japan.

“Everyone is so focused on Japan, that primarily China really is a sideshow,” Krake said. “I think we have a credit block in the next two years, I think that the book value of banks is grossly overstated, profitability is about to collapse.”

Japan’s benchmark Nikkei is up over 30 percent so far this year, while the Shanghai Composite is only higher two percent in the same time period.

– By CNBC.com`s Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu

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

Surprise! Surprise! This economy is looking strong

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

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Like a steam engine leaving the station, the American economy is gathering momentum: the wheels are turning, the engine is pumping and the engineers have opened the throttle full bore. If only Washington would get out of the way.

The US economy expanded at a 2.4 percent annual rate during the first quarter, down a tenth of a point from an initial estimate, according to revised figures from the Commerce Department released on Thursday. Economists had forecast a 2.5 percent gain, the initial reading reported by the government last month.

Still, the report follows a string of economic data – from rising home prices to improved consumer confidence – offering more evidence that the economy continues to repair the widespread damage inflicted by the 2008 financial collapse.

But the headwinds from federal spending cuts are expected to blow harder later this year. That could test the underlying strength in spending by consumers and businesses that is offsetting the drag from cuts in government spending, which accounts for roughly 20 cents of every dollar of GDP.

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“We’ve seen some false dawns in this recovery before – times where it looked like the economy was ready to step it up, and then it kind of petered out,” said Joshua Feinman, chief global economist with Deutsche Asset and Wealth Management.

Government belt – tightening started five years ago as a sharp drop in both property and income taxes forced state and local governments to slash budgets, pare services and lay off workers. A massive federal stimulus package helped blunt some of the pain, but those funds have largely dried up.

Now, as state budgets are stabilizing, an USD 85 billion federal budget-balancing package of tax hikes and spending cuts is taking another bite out of gross domestic product.

“The ongoing fiscal contraction is now the biggest obstacle holding back the recovery,” said economists at Capital Economics in a note to clients this week.

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Investors, Fed policy makers and business managers are watching closely to see if the shrinkage in federal spending cuts more deeply into the economy later this year. The 5 percent across-the-board reduction known as the sequester officially took effect in March. But the impact may lag into the summer and early fall because of delays in implementing the cuts by government agencies.

As Uncle Sam has cut back, other sectors of the economy have taken up the slack. Consumers, who account for 70 cents of every GDP dollar, are feeling much better about their financial well-being.

Some have seen their wealth buoyed by rising stock prices. Others are benefiting from the surge in home prices, which have risen 10 percent in the past 12 months. Though wages remain stagnant and this year’s payroll tax hike is taking a bigger bite, falling gas prices and very low inflation are helping households make ends meet. Lower interest rates are helping them carry mortgage and credit card debt more easily.

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The revival of the housing market is also spurring a new wave of home building, which helps boost spending on everything from appliances to landscaping. But the contribution from that corner of the economy is relatively limited: residential investment made up only 2.7 percent of GDP in the first quarter, down from 6.1 percent in 2005.

Businesses continue to invest in new equipment at a healthy pace, even as they remain slow to hire more workers until the economy shows more convincing signs of strength.

Jim Iuorio, TJM Institutional Services has the unemployment and gross domestic product numbers. And, CNBC’s Steve Liesman, and Tom Higgins, BNY Mellon’s Standish chief economist weigh in on what it indicates about the economic recovery and its impact on the markets.

The result of that hiring reluctance is a stubbornly high jobless rate that, five years into the recovery, remains one of the biggest forces holding it back. Though the job market has been improving gradually for the last two years, some 11.7 million Americans were still without a paycheck in April. Roughly a third of them have been out of work for a year or more, double the level seen in any recession since World War II.

“It’s not that the economy isn’t generating enough jobs. It is,” said Feinman. “It’s just that we lost so many jobs in ’08-’09 – we created such a deep crater – that even with the pace of decent job growth that we’ve been having recently, it’s just going to take a long time to repair that damage.”

So far, much of that repair job has fallen to the Fed, whose unprecedented, massive money manufacturing effort has pumped more than USD 3 trillion in the system to help fill in the hole created by the 2008 collapse of the housing market and financial system.

At some point, the Fed will decide the economy has recovered well enough to shut off the money pumps. That’s why, ironically, recent strength in the economic data has spooked investors. They’re afraid that when the Fed turns off its money machine, the resulting rise in interest rates could create yet another headwind to growth.

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