The last time the market did this, serious problems ensued

By Lawrence Lewitinn
July 2, 2014 6:00 AM

Talking Numbers

http://finance.yahoo.com/blogs/talking-numbers/the-last-time-the-market-did-this--serious-problems-ensued-224912014.html

The last time the market did this, serious problems ensued

It’s not just the stock market that’s hot.

According to data from Thomson Reuters, the mergers and acquisitions market saw nearly $1.77 trillion in deals announced for the first half of this year. And, the second quarter of 2014 saw over $1 trillion in deals announced, the highest since the second quarter of 2007.

And, we all know what happened after that. But, does that mean we’ll see a repeat of seven years ago?

“If you look back in history, big merger waves definitely precede precipitous drops in the equity market,” said Gina Sanchez, founder of Chantico Global. “As you have extraordinary valuations in your own stock, you can use it to buy up all sorts of things. So, there’s a reason these tend to happen at the top.”

(Watch: US stocks close at records; Dow near 17,000)

But trying to use M&A as a signal comes with its own peril, warns Sanchez, a CNBC contributor. “The problem with M&A as a timing tool is it’s not particularly precise,” she said. “It could go on for a while before it actually proceeds that drop. So, it’s not terribly exact. But what we do know is, when we see enormous waves of M&A, you can expect a precipitous decline to come after that.”

Mark Newton, chief technical analyst at Greywolf Execution Partners, also believes large M&A activity signals a possible top in the market.

“When you get a market that’s really as overbought as this,” said Newton, “it’s just one of a few signs to look out for.”

Though the Dow Jones Industrial Average is near 17,000, Newton says there are signals technical traders should be on the lookout for. “You really want to see moved down to at least two or three month lows to really have some expectation the market’s going to have a precipitous decline,” he said.

The rally in the Dow is starting to get old, according to Newton, and the time to end could be soon. “We’ve been in almost 280 weeks now of rallying, the third-longest on record without a 10 percent correction [and] I believe the fifth-longest without a 10 percent correction,” he said. “It’s been over 1,000 days thus far. The market certainly is starting to show a few signs of being long in the tooth.”

Gouging the Gauchos

Nouriel Roubini, chairman of Roubini Global Economics, professor at NYU Stern

Wednesday, 2 Jul 2014 | 10:55 AM ET
CNBC.com

http://www.cnbc.com/id/101807441?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par

Like individuals, corporations, and other private firms that rely on bankruptcy procedures to reduce an excessive debt burden, countries sometimes need orderly debt restructuring or reduction. But the ongoing legal saga of Argentina's fight with holdout creditors shows that the international system for orderly sovereign-debt restructuring may be broken.

Individuals, firms, or governments may end up with too much debt because of bad luck, bad decisions, or a combination of the two. If you get a mortgage but then lose your job, you have bad luck. If your debt becomes unsustainable because you borrowed too much to take long vacations or buy expensive appliances, your bad behavior is to blame. The same applies to corporate firms: some have bad luck and their business plans fail, while others borrow too much to pay their mediocre managers excessively.

Bad luck and bad behavior (policies) can also lead to unsustainable debt burdens for governments. If a country's terms of trade (the price of its exports) deteriorate and a large recession persists for a long time, its government's revenue base may shrink and its debt burden may become excessive. But an unsustainable debt burden may also result from borrowing to spend too much, failure to collect sufficient taxes, and other policies that undermine the economy's growth potential.

Read More › Argentina's debt fight: What it is and why it matters

When the debt burden of an individual, firm, or government is too high, legal systems need to provide orderly ways to reduce it to a more sustainable level (closer to the debtor's potential income). If it is too easy to default and reduce one's debt burden, the result is moral hazard, because debtors gain an incentive to indulge in bad behavior. But if it is too difficult to restructure and reduce debts when bad luck leads to unsustainable debts, the result is bad for both the debtor and its creditors, who are better off when a reduced debt ratio is serviced than when a debtor defaults.

Finding the right balance is not easy. Formal legal bankruptcy regimes for individuals and firms have evolved over time to accomplish this.

Because a formal bankruptcy regime for governments does not exist (though Anne Krueger, the International Monetary Fund's then-deputy managing director, proposed one more than a decade ago), countries have had to rely on a market-based approach to resolve excessive debt problems. Following this approach, the country offers to exchange old bonds for new bonds with a lower face value and/or lower interest payments and longer maturities. If most investors accept this offer, the restructuring occurs successfully.

Read More › Sovereign debt is the 'ultimate bubble': Wilbur Ross

But this implies a key problem: Whereas a bankruptcy court can force holdout creditors to accept the exchange offer as long as a significant majority of creditors have already done so (a so-called "cram down"), the market-based approach allows some creditors to continue to hold out and sue to be paid in full.

That is why, over the last decade, governments have augmented the market-based approach with a contractual approach that resolves the holdout problem by introducing collective-action clauses (CACs) that can also cram down on holdouts the terms accepted by a majority of creditors. These clauses became standard in sovereign bonds but were missing in those issued by Argentina before 2001, when the crisis hit. Though 93% of Argentina's creditors accepted new terms for their bonds in 2005 and 2010 in two exchange offers, a small group of holdouts sued Argentina in the United States, and, with the US Supreme Court recently ruling on the issue, have now won the right to be paid in full.

The US court decision is dangerous for two reasons. First, the court ruled for the first time that a country cannot continue to pay those creditors who accepted a big reduction (or "haircut") on their claims until the holdouts are paid in full. So, why would any future creditor who benefits from an orderly restructuring vote for it if its new claims can be blocked by even a single holdout creditor?

Read More › Fiscal woes could 'eat us alive': NJ Gov. Christie

Second, if the holdouts are paid in full, the majority of creditors who accepted a haircut can request to be paid in full, too. If that happens, the country's debt burden will surge again, become unsustainable, and force the government — in this case Argentina, which is servicing most of its debt — to default again on all creditors.

The inclusion of CACs in new bond contracts may help other countries avoid the holdout problem in the future. But even CACs may not fully help, because they are designed in a way that still allows a small minority of creditors to hold out and thus prevent an orderly restructuring.

Either super-CACs need to be designed and introduced (though it will take years to include them in all new bond contracts) or the international community may want to reconsider whether the 2002 IMF proposal for a formal bankruptcy court for sovereign borrowers should be resurrected. Holdouts must not be permitted to block orderly restructurings that benefit debtors and creditors.

Why Thousands Of Men Like JPMorgan CEO Jamie Dimon Are Getting Throat Cancer

http://www.forbes.com/sites/matthewherper/2014/07/02/why-thousands-of-men-like-j-p-morgan-ceo-jamie-dimon-are-getting-throat-cancer/

==scstocks: I thought for sure I was going to see Japan's name in this article when I saw the headline, YIKES! end scstocks=====

Last night, Jamie Dimon, the chief executive of banking giant JPMorgan , told employees that he is being treated for throat cancer. In a memo, he said that he would begin eight weeks of chemotherapy and radiation treatment at Memorial Sloan Kettering Cancer Center.

He wrote:

“The good news is that the prognosis from my doctors is excellent, the cancer was caught quickly, and my condition is curable. Following thorough tests that included a CAT scan, PET scan and a biopsy, the cancer is confined to the original site and the adjacent lymph nodes on the right side of my neck. Importantly, there is no evidence of cancer elsewhere in my body.

The Gardasil Problem: How The U.S. Lost Faith In A Promising Vaccine

Matthew HerperMatthew Herper
Forbes Staff

Four Ways Katie Couric Stacked The Deck Against Gardasil

Matthew HerperMatthew Herper
Forbes Staff

At Our Throats

Matthew HerperMatthew Herper
Forbes Staff

It’s impossible to speculate on Dimon’s cancer beyond what he put in his memo. I contacted JPMorgan and the company could not confirm any other details about his conditions. But it’s very possible that Dimon has been swept up, along with thousands of other men, by an increasingly common disease: throat cancer caused by infection with the human papilloma virus, or HPV.

“It wouldn’t be unusual,” says Eric Genden, chief of head and neck oncology at the Mount Sinai Hospital in New York. “This is an epidemic.”

In 2008, the last year for which data are available, the Centers for Disease Control & Prevention estimate that 2,370 women and 9,356 men developed HPV-caused head and neck cancer, about a third of the cases of head and neck cancer that year.


HPV surpassed other causes of throat cancer in 2004.
HPV surpassed other causes of throat cancer in 2004. Source: Journal of Clinical Oncology

But Genden says that 70% to 90% of head and neck cancer cases worldwide are now caused by HPV; the American Cancer Society estimates that this year, there will be 42,440 cases of head and neck cancer in the U.S.

Traditionally, head and neck cancer patients were older men who smoke and drank heavily. The alcohol and tobacco damaged the cells in the throat, eventually leading to cancer.

HPV-caused cancer is different. The men (and it’s still mostly men) who get it are younger. In a series of cases at Mount Sinai, they were between 35 and 65.

Five years ago, I profiled Maura Gillison, the Ohio State University researcher who helped establish that this was a big problem. She told me how when enrolling a study several years ago, she’d recruited, in sequence, a malpractice lawyer, doctor, a scientist and a rear admiral. The first patient I spoke to about his HPV throat cancer was a consultant and economist who later died from his disease. Two years ago, I wrote about a 50-year-old biotech CEO who also had HPV throat cancer. Last year, the actor Michael Douglas said that his throat cancer was caused by HPV.

The point is that these are men much like Dimon: CEOs and consultants, men at the peak of their lives and professional power. And their numbers are increasing.

The chart above shows the total number of throat cancer cases, and also the amount caused by HPV and the amount that weren’t, among patients in Hawaii, Iowa, and Los Angeles. As you can see, in 2004 the HPV cancers began to outnumber the type caused by smoking and drinking.

How do you get HPV cancer? HPV is sexually transmitted. It’s mainly known as a cause of cervical cancer, which is what happens when it infects women. But men can get it by performing cunnilingus. It’s also possible, though less likely, that it can be transmitted by kissing. Eighty percent of sexually active people between the ages of 14 and 44 have had oral sex with an opposite sex partner. Researchers estimate that HPV throat cancer in men will be more common than cervical cancer in women in the U.S.

Most strains of HPV do not cause cancer, either in the throat or the cervix. And most HPV infections are cleared by the body. But in a minority of cases, perhaps 10%, they persist. If the strain is of the right variety – for instance, the HPV 16 strain of the virus – this infection can eventually lead to cancer. When it comes to throat cancer, this process takes decades.

The good news is that throat cancer caused by HPV is far less deadly than the old type that resulted from chronic tobacco use and drinking. Some researchers have cited data that it is 80% curable. In a series of 500 patients who were early in their disease conducting at Sinai, more than 90% were still cancer free five years after surgery. And in that study Sinai was deliberately using less invasive surgery and skipping chemotherapy and radiation in the interest of sparing men side effects.

One hope is that the vaccines developed to prevent HPV infection in women – Gardasil, from Merck , and Cervarix, from GlaxoSmithKline – could prevent HPV infection in the throat and, therefore, cancer later on. But there’s no way to prove this. Drug companies funded studies showing the vaccines prevented the formation of precancerous lesions in the cervix, but there’s no way to do something similar in the throat.

“I think the downside of having the HPV vaccine in young boys is so low and the potential upside is so high that I advocate it,” says Genden. “Do we have evidence that it prevents oropharangeal cancer in boys? No.”

Central Bank Analysts Say Stocks Are In 'Euphoric' Territory And We're Screwed When The Recession Hits

Business Insider
By Jim Edwards
June 30, 2014 7:10 AM

http://finance.yahoo.com/news/central-bank-analysts-stocks-euphoric-111047438.html

The Bank for International Settlements — the Swiss-based financial institution that acts as a counterparty to national central banks — has declared that stock markets are in a "euphoric" state and has urged central banks globally to begin tightening interest-rate policies now while economies are growing rather than wait for another recession, when it will be too late.

Those are scary words coming from a set of economists whose job it is to monitor how capable central banks are of responding to economic conditions with flexible monetary policy.

The subtext (and not so subtext) of BIS's annual report is that, because many central banks have reduced interest rates to zero — the U.S. and Japan included — they are without weapons to boost the economy should another crisis hit. You can't go lower than zero, basically.

These words from the BIS ought to terrify anyone who thought central banks were unprepared for the last recession in 2007, when U.S. interest rates were "high" at about 5.3%:

Financial markets are euphoric, but progress in strengthening banks’ balance sheets has been uneven and private debt keeps growing. Macroeconomic policy has little room for manoeuvre to deal with any untoward surprises that might be sprung, including a normal recession.

And that crisis looks set to arrive any day now because stocks are at a peak. Bloomberg underlined the point at the weekend:

One thing making people nervous about stocks these days is the fact the U.S. market has gone more than two years without a correction, or a 10 percent drop.

It just doesn’t feel right. Sort of like going two years without changing a car’s oil, or two days without brushing your teeth, or two paragraphs into a column without a good metaphor.

The last major dip for the Standard & Poor’s 500 Index (SPX) was an 11 percent drop from its intraday high on April 2, 2012, through its low on June 4, 2012. This year, the closest it’s come was a 6.1 percent slide from the middle of January to early February and a 4.4 percent decline in April.

On top of that, the M&A market hit new records this year. The Financial Times reports:

Deal frenzy, animal spirits, merger mania – call it what you like, it is back. The value of global mergers and acquisitions hit $1.75tn in the first six months of the year, a 75 per cent rise on the same period last year and the highest since 2007.

The FT also cites these frothy stats about the value of the M&A market:
•The value of U.S. M&A this year hit $748.5 billion, up almost 75%.
•In Asia-Pacific, the number hit $327.8 billion, up 85 per cent — a record since 1980, The FT says.
•In Europe, the $509 billion in deals was doubling over the year before.

Alberto Gallo, head of macro credit research at RBS in London, believes investors are asleep at the wheel:

The worry is that a combination of complacency and illiquidity could turn a snowball into an avalanche when “low-for-long” interest rates come to an end. With US unemployment falling and the Fed’s asset purchase “tapering” ending in the fourth quarter, this moment is getting closer. Markets are unprepared.

Get out now, in other words, because the Fed won't be able to rescue stocks with more liquidity should the market begin a secular slide.

Hong Kong Democracy Protest: Thousands March Through City

Students Plan Sit-In in Central and in Front of Chief Executive's Office

By Chester Yung,

Edward Ngai and Ned Levin connect

====scstocks: I can't believe it's been 17 years! YIKES! (I added the red highlights to one sentence to make it stand out. end scstocks=====

Updated July 1, 2014 7:34 a.m. ET

http://online.wsj.com/articles/hong-kong-democracy-rally-city-prepares-for-record-march-1404192707?mod=trending_now_2

Protesters in Hong Kong's Causeway Bay district Tuesday. Felix Wong/South China Morning Post

HONG KONG—A buoyant and rain-soaked crowd stretching more than 2 miles across Hong Kong on Tuesday marked the anniversary of the city's handover to China by denouncing interference from Beijing and demanding democratic elections.

The public holiday marking the end of British colonial rule and the city's return to Chinese sovereignty has become an annual day of protest in Hong Kong. This year, the 17th anniversary of the handover, the event has taken on new significance.

Demands for universal suffrage are growing while some members of the public are increasingly concerned about Beijing's approach to the city, which was promised a high degree of autonomy after the handover. The slogan of this year's rally was "Defending Hong Kong Authority: No fear of Beijing's threat of comprehensive control."

Organizers estimate 510,000 people joined the rally, while police estimated a crowd of 98,600 at its peak. People who have seen previous rallies say they have never seen a crowd as large, and it took more than four hours for the last marchers to leave the protest's gathering point at Victoria Park. Organizers had hoped to draw more than half a million people to the march.

Disparity between organizers and police in estimates happens every year, with analysts saying that the true number typically lies somewhere in the middle. The University of Hong Kong, a more neutral party, estimates around 154,000 to 172,000 people took part in the protests. Last year, organizers estimated that 430,000 people took part in the protest, while police estimated the rally size at 66,000 at its peak.

Beijing has said universal suffrage in Hong Kong will begin in 2017. But the city's government has wrestled with the question of how to introduce direct elections.

Protestors in Wan Chai. Darren Hayward/The Wall Street Journal

"I have never come to protest in the July 1 march before," said Kwok Lin-ka, a wheelchair-bound 81-year-old waiting for the protest to begin. "If I didn't come this year, I feel like my grandchildren and great-grandchildren would never forgive me."

Late Tuesday night, hundreds of people gathered at the rally's end point in the Central business district at a sit-in organized by students. Leaders from the student group said they intended to march to Hong Kong Chief Executive Leung Chun-ying's office later in the night and said they were ready to face arrest. People continued to arrive in Central from the protest's starting point. A representative of a pro-democracy group told the crowd to "prepare for the possibility" that arrests would occur.

Word spread among the protesters that the police expected them to leave by 4:30 a.m.

The sit-in was seen as a precursor to future protests. A pro-democracy coalition, Occupy Central, has called for protesters to paralyze the city's financial district later this year if their demands for universal suffrage in the election of Hong Kong's top leader aren't met.

A carnival atmosphere prevailed at Victoria Park, with crowds singing "Do You Hear the People Sing" from the musical "Les Misérables" competing for attention with a uniformed, drum-heavy marching band convened by Falun Gong, a spiritual movement banned in mainland China. Organizers said more than 100 civil groups joined the event.

===scstocks- there is more in the article but it would not copy over so you will have to use link provided if you are interested, the pictures alone of all those protestors are well worth it imo...... end scstocks=======

Bulgaria Has Resources to Stop Run on Banks, President Says

by Elizabeth Konstantinova Jun 29, 2014 3:07 PM ET

http://www.bloomberg.com/news/2014-06-29/bulgaria-arrests-two-men-amid-efforts-to-stop-run-on-banks.html?cmpid=yhoo

Bulgarian President Rosen Plevneliev said the eastern European nation has the resources to fight attempts to destabilize its financial system as it grapples with the worst run on banks in 17 years and prepares for early elections.

Plevneliev met with the leaders of the country’s biggest political parties and central bank Governor Ivan Iskrov, who agreed “to secure all necessary means and actions to guarantee banks’ stability,” the president told reporters in the capital Sofia today. He called early elections for Oct. 5 and said he will dissolve parliament on Aug. 6.

Bulgaria’s ruling Socialists are under pressure to resign following a poor showing in European Parliament elections May 25. The government, which took office a year ago, is fighting to keep the banking system stable as opposition politicians say current leaders have brought the country to the brink of ruin and police make arrests on charges of spreading rumors to destabilize the country’s finances.

In the past two days, police have arrested seven men on suspicion of spreading “false, ill-intended information against Bulgarian banks to destabilize the banking system,” the State Agency for National Security said on its website.

The detained men used “mobile phone and e-mail messages and social media, including Facebook and YouTube, to spread rumors prompting people to withdraw bank deposits,” the agency said. It claimed some of the men owed large amounts of money to banks, and the agency is making further investigations.

‘Under Attack’

“The money of citizens and companies deposited in Bulgarian banks are secure and guaranteed,” Plevneliev said. “The banks will continue operating as usual. We have enough reserves, means and mechanisms to deal with all destabilization attempts and will stand behind each bank under attack.”

Iskrov said June 27 that the financial industry is under organized attack via anonymous e-mails, texts and rumors, threatening Bulgaria’s security. First Investment Bank AD, the country’s third-biggest lender by assets, was the target of an “epidemic of rumors and libelous public statements,” he said.

First Investment paid 800 million lev ($558 million) to clients on June 27, the bank said on its website, adding that it has “enough money in cash and financial instruments” to meet demand. A week ago, the central bank placed under supervision Corporate Commercial Bank AD, the country’s fourth largest, after a big depositor pulled out his funds. The central bank will recapitalize it and Corporate Bank will re-open in a month.

Bulgarian banks “are under criminal attack,” Plevneliev said. “Urgent actions are needed to find and punish the perpetrators and instigators of this ill-intended act.”

Lev-Euro Peg

The country will keep its currency board system, which requires that lev in circulation are covered by foreign exchange reserves, Plevneliev said. It will also maintain the current lev-euro peg at 1.9558 until it adopts the euro. Bulgaria hasn’t set a target date for euro-area entry.

Bulgarian Finance Minister Petar Chobanov appealed to politicians yesterday to refrain from attacks on the banking system in their campaigns. Former Prime Minister Boyko Borissov, whose Gerb party won the European Parliament vote, now seeks re-election.

“The overemotional political messages of Gerb leader Boyko Borissov lead to destabilization of the country,” Chobanov said yesterday in a live broadcast on National Television. He said they have become “uncontrollable and incompetent statements on such sensitive subjects as the financial security and stability of the country. This kind of political pressure on society causes panic.”

‘Catastrophic State’

Chobanov was responding to a statement made by Borissov in an interview yesterday with Nova television in Sofia that Bulgaria’s “finances and bank system are in a catastrophic state as a result of this government’s rule.” He added that “when the finance minister says the banks are stable, in the language of Bulgarians it means disaster is imminent.” Borissov was reiterating statements made throughout the week.

Last week, Bulgaria sold 1.49 billion euros of 10-year Eurobonds with a 2.95 percent annual coupon, the country’s “lowest ever” in an auction, where bids more than doubled the amount on sale, the Finance Ministry said June 27. The country’s public debt, at 18 percent of gross domestic product, is far below the euro-area average of 96 percent.

“Bulgaria’s bank system is stable, well regulated and capitalized,” Plevneliev said. “There are no reasons for panic.”

The banking system is 85 percent-owned by foreign lenders, including UniCredit SpA (UCG) and Raiffeisen Bank International AG. (RBI) The nation’s banks had total profit of 306 million lev on April 30, up from 211 million lev a year earlier. The total capital adequacy ratio was 20 percent on March 30, with a first-tier capital adequacy of 18 percent, according to central bank data.

"It looks like a peak": Robert Shiller's CAPE is waving the caution flag

By Aaron Task
3 hours ago
Wed, Jun 25, 2014, 12:27pm EDT - US Markets close in 3 hrs and 33 mins
Daily Ticker

http://finance.yahoo.com/blogs/daily-ticker/-it-looks-like-a-peak---robert-shiller-s-cape-is-waving-the-caution-flag-004753218.html

Major stock averages remain in earshot of all-time highs and this bull market has been nothing if not resilient, repeatedly defying predictions of its demise for five-plus years.

Still, Robert Shiller, Yale professor and Nobel prize winnner, is "definitely concerned" about the outlook for stocks based on the cyclically adjusted price-to-earnings ratio (CAPE) he created. At 26, the so-called Shiller PE is currently well above its long-term average of 17 and approaching levels that previously presaged doom for equities.

Shiller has plotted CAPE going back to 1881 and notes (with some alarm) it has only been higher than current levels three times: In 1929, 2000 and 2007.

"It looks to me like a peak," he says in the accompanying video. "I would think there are people thinking 'it's gone way up since 2009, it's likely to turn down again.' That's what people might plausibly think."

Anecdotal evidence does indeed suggest people are thinking "the end" of this bull run is nigh. But if the market "climbs a wall of worry," that's arguably a bullish sign as my colleague Michael Santoli describes here.

And Shiller is quick to note the CAPE is not a market-timing tool and he remains in the market in his personal account. "We don't know what it's going to do," he says. "Realistically, stocks should be in one's portfolio but maybe lighten up."

Stocks should be in one's portfolio in part because interest rates are so low and "the fixed income market just doesn't look very attractive," Shiller says.

As for the idea, proffered here by Citigroup's Tobias Levkovich, that CAPE is flawed because it doesn't "normalize" for interest rates (as it does for earnings), Shiller says the following: "He's right the very low interest rates are a sign maybe you want to keep more invested in the [stock] market now rather than getting nothing [from bonds]. That ought to help explain the high CAPE but that doesn't mean the high CAPE isn't a forecast of bad performance."

So what does Shiller, whose books include Animal Spirits and Irrational Exuberance, make of the recent steep declines in trading volume and volatility? Watch the accompanying video to find out.

US warns of investment risks in Chinese Internet firms

Sat, Jun 21, 2014, 11:16pm EDT - US Markets are closed

http://finance.yahoo.com/news/us-warns-investment-risks-chinese-internet-firms-205958936.html

Buying stock in online giant Alibaba or other Chinese Internet companies that bypass Beijing's restrictions on foreign ownership could be a big risk for investors, a US government panel warns.


U.S. Investors in China’s Internet Companies Face Risks Bloomberg
U.S. report casts doubt on legal structure of Alibaba, others MarketWatch
Alibaba Acquires UCWeb, Maker Of China’s Most Popular Mobile Browser TechCrunch
Here are the big risks of Alibaba’s big IPO MarketWatch
SolarCity and Weibo Shares are Rising Motley Fool

An agency that advises Congress on national security implications of the US-China trade and economic relationship raised the red flag this week, as Alibaba, the world's largest online retailer, prepares for its US stock listing.

Alibaba, social networking giant Weibo and several other Chinese Internet firms use a complex legal mechanism in which "ownership is deliberately obscured by a series of shell companies," the US-China Economic and Security Review Commission (USCC) said in a report Wednesday.

In the case of Weibo, for example, the report noted that a Cayman Islands corporation owns 100 percent of a Hong Kong company that in turn controls the group through three layers of Chinese entities.

"This intricate ruse is a way of making the business appear to be Chinese-owned to Chinese regulators while claiming to be a foreign-owned business to foreign investors. Neither claim is technically true, and the arrangement is highly risky and potentially illegal in China," the report said.

Because of this structure, any legal contracts may be on shaky ground, noting that "the contracts are only binding and enforceable if Chinese courts are willing to uphold them."

Workers at a handbag factory completing orders to be …
Workers at a handbag factory completing orders to be sold through the Chinese internet e-commerce si …

As a result, "for US investors, a major risk is that the Chinese shareholder... will steal the entity, ignoring the legal arrangements on which the system is based."

The companies must rely on foreign investors to keep their businesses growing because they cannot access sufficient capital from China's state-owned banking system or from its undersized bond market, and they also need permission to list overseas, the USCC said.

To circumvent these restrictions, the leading Chinese Internet companies use a Variable Interest Entity (VIE), essentially a holding company that links foreign investors and Chinese firms through a set of complex legal contracts. VIEs are usually based in tax havens such as the Cayman Islands.

"US shareholders face major risks from the complexity" of the VIE structure, the report said.

Wall Street has seen a flood of initial public offerings recently by Chinese Internet companies, including Baidu, Renren, Weibo, and JD.com, the number-two online retailer after Alibaba.

Alibaba in May filed for a US-based IPO that is expected to be one of the largest in US history, with some analysts estimating it will raise $15 billion.

- Alibaba in focus -

The USCC report highlights that Alibaba's filings with the Securities and Exchange Commission show it will use a VIE and a preferential stock structure that will consolidate all decision-making authority with the company's founders in China.

"Alibaba's controversial history, with its first major foreign investor Yahoo, sheds light on the risks US investors face in buying into Chinese Internet companies under the VIE structure," it said.

Yahoo lost any direct benefit from Alibaba's spinoff of an online payment tool called Alipay, a similar service to PayPal, in a secret move by Alibaba founder and chairman Jack Ma.

"Under the VIE structure, there is no obligation of the parent company to notify foreign investors of these kinds of decisions, which can prove very costly for them."

Americans are getting into debt to afford food, gas

Outside the Box Archives | Email alerts

June 19, 2014, 10:01 a.m. EDT

http://www.marketwatch.com/story/americans-are-getting-into-debt-just-to-get-by-2014-06-18

Opinion: With rates near 0%, credit card companies are happy to lower standards and lend

By Peter Atwater

Shutterstock.com

Nowhere has the unequal nature of the post-banking-crisis recovery raised more concerns for the long-term sustainability of the U.S. economy than in the clear rise of non-discretionary consumer credit.

While the “haves” have fully returned to their pre-crisis behavior of paying for everything from higher education, cars and luxury homes with cash, and fully leveraging their investment portfolios, the rest of the consumer sector has changed dramatically over the past six years.

Upper-middle class “aspirational wealthy” families who were overexposed to the housing bubble continue to see debt of all kinds as a negative. Rather than using lower interest rates to purchase larger homes, if not vacation homes, they have instead opted to convert their 30-year mortgages to 10- and 15-year loans with essentially equal monthly payments terms. Lower interest rates have translated into faster loan amortization rather than economic growth. Well into the recovery, the focus of the upper-middle class remains on less, rather than more, credit, and — thanks to demographics — less, rather than more, home, too.


Click to Play

Expatriate Americans giving up citizenship to escape taxes

Aggressive enforcement of tax rules for American expatriates and their families has prompted some middle-income earners to renounce their U.S. citizenship rather than risk sizable taxes and penalties. WSJ's Liam Pleven reports on Lunch Break with Tanya Rivero. Photo: Getty

Further down the credit spectrum, the world of consumer debt has changed even more profoundly. For the “have-nots,” the continued absence of wage growth has resulted in an unprecedented boom of non-discretionary credit. Ordinary life in America now simply requires more debt rather than less to live. It is needs, not wants, that are behind the post-banking-crisis growth in consumer credit.

The clearest example of non-discretionary credit growth today is in higher education. With tuition costs rising far above wage inflation, and families no longer willing to take out home equity loans to fill the gap, lower- and middle-class students have no choice today but to borrow for college. A completed FAFSA (Free Application for Federal Student Aid) form is as much a prerequisite to college entry as four years of high school English and math. For those entering college, it is not a question of whether they will borrow, but rather how much.

But higher education is not the only place in our economy where non-discretionary credit is now the norm. The same condition today exists with car sales, too. With the average car on the road more than 11 years old, it’s no longer if Americans will replace their cars, but how.

Here, again, non-discretionary credit fills the void. With savings low, few Americans can afford much more than the down payment on a new car. Financing, whether in the form of a loan or a lease, is the only way low- and middle-class Americans can afford a new or used car.

But please appreciate how stretched non-discretionary car financing has now become. The following is per the Wall Street Journal:

“[The] average automotive loan term [reached] 66 months for the first time. According to Experian Automotive’s latest State of the Automotive Finance Market report, loan terms in the first quarter of 2014 reached the highest level since the company began publicly reporting the data in 2006. The analysis also shows that loans with terms extending out 73--84 months made up 24.9% of all new vehicle loans originated during the quarter, growing 27.6% since Q1 2013.

“The average amount financed for a new vehicle loan also reached an all-time high of $27,612 in Q1 2014, up $964 from the previous year. In addition, the average monthly payment for a new vehicle loan reached its highest point on record at $474 in Q1 2014, up from $459 in Q1 2013.

“ ‘As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,’ ” said Melinda Zabritski, Experian Automotive’s senior director of automotive credit.

With maturities of seven years or more, car loans might better be called car mortgages. But as the Wall Street Journal report makes clear, it isn’t just lengthened terms that have been required. The report also said that lenders have lowered credit scores while lessors have introduced lower mileage caps. Just as we saw in housing at the top, lenders are doing whatever they can to lower the monthly payments to consumers.

Two weeks ago, I read a quote from the CFO of America’s Car-Mart in which he offered: “Our customers have never been more stressed, yet they have never had more aggressive financing options.”

Those aggressive finance options are sustaining car sales just like federally supported student loans are keeping higher education afloat. Outside of the very wealthy, the borrowing is required. The only way the sale happens at the car dealer is with a lender’s support.

While the extreme reliance of both higher education and the automotive industry on the widespread availability of credit is worrisome to me, something even more troubling looks to be afoot.

Over the past two weeks I have seen many different versions of the chart below from economists, all of whom are salivating over what 12% revolving credit growth will mean for second half of 2014 growth.



Federal Reserve/Haver Analytics

To them, higher borrowing, particularly credit card debt, suggests a rebound in consumer confidence is finally here. Before you break out the champagne over a whopping 12% annual increase in credit card balances, let me offer a few words of caution.

First, while the seasonally adjusted figures are spectacular, the unadjusted (i.e. real) figures aren’t particularly noteworthy.

Stocks are ‘dangerously overvalued,’ M&A deals suggest

Analysis: Every big wave of mergers has ended with a drop in equities

Mark Hulbert Archives | Email alerts

June 20, 2014, 4:42 p.m. EDT


By Mark Hulbert, MarketWatch

Bloomberg

Medtronic has offered $43 billion to buy Covidien, a medical-device competitor.
Here’s one sign a significant stock market decline might occur sooner rather than later: the rapid acceleration of recent merger and acquisition activity.

This past week saw news of another big deal, led by medical-device maker Medtronic’s MDT -1.25% announcement of its $43 billion bid to acquire rival Covidien COV -1.24%

At the current pace, M&A deals could reach $3.51 trillion this year, the most since 2007, according to data provider Dealogic.

It wasn’t a fluke that a surge in M&A activity coincided with that year’s market top, according to Matthew Rhodes-Kropf, a professor at Harvard Business School and an expert in the field. “Each of the last five great merger waves on record” — going back more than 125 years — “ended with a precipitous decline in equity prices,” he says.

Some experts have found that merger activity surges when stocks are richly priced, at least in part because companies can use their inflated shares to pursue acquisitions.

“The marked increase in recent M&A activity is one more piece of evidence that the market is dangerously overvalued,” says Dennis Mueller, an emeritus economics professor at the University of Vienna in Austria who has studied M&A cycles in the U.S. as well as overseas.

Of course, shareholders of the company being acquired rarely complain, since the acquisition price usually represents a huge premium. Covidien’s stock this past week surged as much as 29%, compared with where it closed the prior week, for example.

Does the recent M&A boom mean you should immediately get out of stocks? Not necessarily, since the volume of M&A activity isn’t an exact market-timing tool.

Mueller says it’s possible that the market is at the beginning of a long M&A boom that could last a few more years.

Rhodes-Kropf agrees that the recent M&A surge doesn’t necessarily mean a bear market is imminent. “Everyone tends to call the bubble too soon,” he says, adding that his hunch is that this merger trend could very well last a while longer.

‘Risk arbitrage’

So can you make money from the increased M&A activity while this lasts? One strategy for doing so is known as “risk arbitrage” or “merger arbitrage.” It exploits the price difference that usually exists immediately after a merger deal is announced between the price at which the acquired company’s stock is trading and its eventual takeover price.

Covidien’s stock, for example, trades at a 6.4% discount to the price at which Medtronic says it will acquire the company later this year or early next year. By buying the stock now, and assuming the deal is completed under the same terms as announced earlier this week, you could profit from the discount.

Risk arbitrage is more the province of hedge funds than individual investors. If you’re a so-called accredited investor — which the Securities and Exchange Commission defines as an individual whose annual income tops $200,000 or whose net worth exceeds $1 million, excluding a primary residence — then you are allowed to invest in a risk-arbitrage hedge fund.

Follow Up Off Topic:

This is where my wife thought I was asking about, this 1500 year old oak, but it's not the pics she showed me.....At least not how I remember them with so many limbs buried by their very weight. Anyway, this tree is likely once in a lifetime for most:

http://www.angeloaktree.org/

I don't know a whole lot about down that way, but I was married at Middleton Place, not far from their 900 year old oak, which may have been destroyed in an ice/wind storm since. It was magnificent with giant 2-3 foot diameter branches held together with highway wire and bolts and cables to keep them in the air. I can't think of a more relaxed atmosphere, if that is what you are looking for, than this place. It puts your soul at peace, or drives you crazy with boredom, I would image, if you are the rock climbing type, bring a book. Kind of a Banff of the South if you will. One of the owners of this place signed The Declaration of Independence.

You can stay on the grounds, they used to have a horse drawn carriage you could hitch a ride on, and their top of the line xxxxx room, (forgot name, only one) was paradise, and rustic. The "secret" garden we were married in dated to 1741, really something and a bit off the beaten path. I think all of the rooms have fireplaces, which is a little rare here, and they absolutely nailed "laid back," if that's what you are looking for. If you are staying there, you can take day trips out to other plantations, or forests, ect.

they have a website here:

https://www.middletonplace.org/

=====Among only two hotels chosen in South Carolina, the Inn at Middleton Place made National Geographic Traveler magazine’s first-ever, annual “Stay List." The April 2008 issue’s “Stay List” celebrates 150 hotels in the United States, Canada, Mexico and the Caribbean region that are among the best at blending location-inspired architecture, ambiance and amenities, Eco-stewardship and an ethic of giving back to the community.=====

There is one other place that my better half brought back pictures from, while out geo cashing, with her clan. They were pics of tremendous trees and bright green moss, only the weight of the braches dug them into the ground. Some were many feet in diameter, a rare sight for sure. I have seen the location in at least a movie or two over the years. Creepy and unigue, with the right lighting, ha. Think it might have been Mt. Pleasant outside of Charleston, but not sure. Pretty sure it was between Georgetown and Charleston, where after Hugo in 1989, most of the pines you could see from the road, were snapped off like toothpicks, about 20 feet up. Unforgettable, mile after mile, through a State Forest, all snapped but a few bulldogs. Get the heck out of Nature's way, yikes.

Hope you are doing well.

I got to see an interview with, James Grant, on one of the business channels yesterday. I think he called todays climate, "managed pricing," or in other words, whatever the fed wants prices to be, rather than "free" markets, adding that prices have no relation to earth. He mentioned Jamie Diamon's rant to Ben B. three years ago about possible "unintended" consequences of "going where non before has gone."

It was like watching what I think listening to Eienstien must have been, grasping for words that us mere mortals could understand. Absolutely loved his time on the air. He likes areas of the markets that seem "undermanaged" at this point, s&p puts, gold miners, as it appears gold is not supposed to go higher right now. Best guest I have seen on one of those shows in years. He has website, but I had never heard of him before.

http://www.grantspub.com/

I am mostly dollar cost averaged spec short, kinda like wnr long years ago. Bad timing but still believe I am right in long run and can afford to wait it out and keep lowering cost of entry. Not much trading lately but occasionally add to shorts.

After this guys interview, one of the interviewers said, "ok, guess I'll go back to hiding under the bed now, and the other host added, I'll roll you a couple cans of tuna under there."

But his interview didn't seem that bleak, and he wasn't "set" in his ways so to speak, more like he was just trying to speak the truth in a way to someone with an average IQ could understand it. Really something......

Hope you are doing well.

Off Topic- My better half just got a 7.62x54r, think I mentioned it before. Heavy as heck VEPR with 23 inch barrel. I was wondering what kind of scope to get for it? They have Russian original POSP scopes, (I don't know what posp means,) and a few other , "side mount" scopes. These shoot a round bigger than a 308 and are pretty universally thought of as a 1000 yard type hunting rifle. We don't hunt, but love plinking, and would love to try out some long range stuff. Any scope recommendations? The Russian originals are 6x42 and 8 x 42, with "rangefinder" built in and take 357 type watch batteries that last up to 50 hours. The rifle shipped with two 5 round mags, and all the mags made for it are single stacked due to the round being "rimmed," so 10 rounders are the max I could find, and pretty long due to single stacking the rounds in the mags. Any help/instruction on scopes in general would be very much appreciated as our "normal" plinking spot is pretty short range, great for pistols, but not so great for long ranges stuff, so we are thinking of trying out "down on the farm," for some longer range stuff from a table top and a scope or two. We have 30-30, 20 ga., several .22lr, 5.56x45, 5.39x39, and the 7.62x54r, which seems by far the best build/longest lasting feel to it. we even have a 1200 fps air rifle with target pellet catcher to use on property, and the 1200 fps is more than some .22 rounds at the barrel, they have come a long way with those air rifles.......

Take Care.

ps, your dad can try monex.com as an alternative to a regular broker. Almost any broker worth their salt will tell investors to have 5 to 10 percent of their portfolio in precious metals and the monex site has a "live prices" feature to it to track all kinds of metal prices in either real time or semi real time. I have never used them but think they have been around a while and are likely as good as anyone out there.

China housing slump sparks fears for economy

Fri, Jun 13, 2014, 4:10pm EDT - US Markets are closed

http://finance.yahoo.com/news/china-housing-slump-sparks-fears-economy-065619966.html

Associated Press
By JOE McDONALD
13 hours ago



BEIJING (AP) — Six months ago, China's housing market was so red-hot that Feng Xiaowei, a sales manager at a real estate agency in the eastern city of Hangzhou, rarely took a day off.

Then lending and sales curbs imposed by the government to cool soaring housing costs started to bite and business evaporated. Now Feng and the seven salespeople he supervises spend the day playing cards.

"There are no buyers," said Feng, 24. "We take three days off a week. We go out for barbecue and play poker."

China's house prices have marched higher for 15 years, helping to drive an economic boom but making home ownership unaffordable for many families. Now a slump is dragging down economic growth that already was slowing. Some analysts worry banks might be shaken if developers default on loans.

The slowdown should fit the Communist Party's ambition to nurture growth based on domestic consumption instead of trade and credit-fueled investment. But the timing is awkward, with demand for China's exports and growth in consumer spending both weaker than expected.

That is forcing the government of President Xi Jinping into a politically delicate balancing act. It wants to discourage speculative investment and increase supplies of low-cost housing without allowing prices to fall, which would alienate prosperous city dwellers, a pillar of ruling party support. Banks were ordered in May to prop up the industry with more lending.

"They don't want to get into a situation where prices are going into negative territory," said economist Brian Jackson of IHS Economics. "There are stability concerns related to that on the social side and also on the financial side."

Nationwide, sales fell 7.7 percent in the first quarter from a year earlier to 1.1 trillion yuan ($176 billion), according to government data reported by the official Xinhua News Agency. E-House China R&D Institute, a research firm in Shanghai, said the volume of unsold new housing in 35 cities rose in May to a five-year high.

Some buyers have staged protests after seeing developers cut prices of similar units in the same complex by up to 20 percent from what they paid months earlier.

In Hangzhou and another city, Nanjing, buyers who want a refund of the difference between what they paid and the current price stormed showrooms and smashed models of apartment complexes, according to Xinhua and other media. In Guangdong province, near Hong Kong, unhappy owners in one complex blocked entrances so customers couldn't see units being offered at lower prices.

Feng, the sales manager, said he used to sell at least two properties a month, in addition to those sold by his staff, but there have been no sales in the past month.

"There is just too much housing in Hangzhou," he said. "That's why the price is going down."

The boom took off in the late 1990s when then-Premier Zhu Rongji started selling housing owned by the government or state companies in which almost all urban Chinese lived.

Many families traded up to newly built apartments. Ancient neighborhoods of narrow lanes and one- and two-story homes in Beijing and other cities were demolished to make way for 20- and 30-story apartment towers. In the suburbs, farms were replaced by sprawling complexes of 5,000 and more units.

Sales drove demand for cement, steel, furniture and kitchen appliances. Within a decade, the majority of city dwellers lived in privately owned homes.

With few other investment options in China's state-dominated economy, families with money bought multiple properties. Spending was boosted further by the flood of stimulus money Beijing sent coursing through the economy after the 2008 global crisis.

Prices have risen so high that an 85 square meter (920 square foot) apartment in an average Beijing neighborhood can cost 4.5 million yuan ($725,000) — the equivalent of more than 180 years of income for the average Chinese person.

Alarmed by complaints about soaring costs and warnings China faced a possible real estate bubble, leaders began tightening controls in 2010. They raised minimum down payments to as much as 70 percent of the purchase price and imposed quotas on how many apartments one customer could buy.

Prices that had been rising at double-digit annual rates started to decelerate this year. In May, surveys by real estate companies said prices slipped by 0.1 percent to 0.3 percent from April's level, the first decline in two years.

Su Xiaoling, a sales manager in Shanghai, bought an apartment in February for 1.8 million yuan ($300,000) as an investment.

"There might be some correction in the short term, but it does not mean I lose money as long as I do not sell it," said Su, 33. "I can wait."

Investors who own multiple apartments often leave them vacant while they wait for prices to rise, prompting complaints by would-be renters about lack of supply.

China had 49 million such vacant apartments in August, or 22.4 percent of the total of 218 million, according to an estimate by the China Household Financial Survey and Research Center at the Southwestern University of Finance and Economics. That was based on data gathered by researchers who visited 28,000 properties in 2011-13 and staying in touch with owners by phone, said one of the report's authors, Yi Daichun.

Regulators say China's real estate slowdown is different from the U.S. crash in 2008. They say banks face little risk because mortgages are small and most buyers pay cash.

Private sector analysts warn, however, that real estate plays such an outsized economic role that any decline will rattle other industries.

Lending for mortgages or to developers is 20 percent of outstanding bank loans, and that share doubles if credit to construction and other related industries is added, according to Barclays economist Jian Chang.

Many investors think that China will not come out of the property downturn unscathed and some expect a "large credit event that could cripple the economy and financial system," said Chang in a report.

At least seven developers have defaulted on loans or stopped projects due to financial trouble this year, according to Chinese news reports. Fitch Ratings says real estate is the "principle source of risk" to the stability of China's financial system.

Longer term, analysts see strong demand from millions more rural Chinese who are expected to move into cities. But that might not come soon enough for some developers and the construction companies and others that depend on them.

"China's property market faces a difficult period," said Duncan Innes-Ker of the Economist Intelligence Unit in a report. "Property investment is already falling, but it will have to contract even more sharply if a severe drop in prices is to be avoided."

===without due process of any kind - no charges, no trial, no nothing - ===

sounds kinda like locking up all of our Japanese americans on the west coast after pearl harbor.

I figure if they didn't have those things in place, they would whip them through congress, like the partriot act, in a heartbeat anyway.....didn't watch the you tubes, trying to keep spirits up right now, ugg.

posting china housing in next post,

hope you are doing well, still mostly short here, loving the acus dream after all these years, ha.

===="has been added to the armories of police departments that already look and act like military units.====

I have always made sense of the arming of our police as a "last line" of defense, say should, (you pick the name,) country decides it wants to put boots down on our soil while we argue about transgender this or best singing/dancing that.

We keep shutting our military bases here at home and I always hoped someone would pick up the slack, if we are willing, and we are, to let our military, espec, here at home, dwindle.

I remember them moving the A-10 warthogs, a plane that would literally make an person crap their pants if it came shooting at you, out of the myrtle beach area when our base closed, and now they are finally mothballed, even though many in the military call it the best close quarter combat fighting vehicle ever made. A complete tank busting, come to the lord rumble, slow, easy to fix, and dependable.

It sure would be nice to have 50-100 of them, proven, cheap, and deadly as they come, protecting our shores. We may need it.

Thanks for keeping up with the posts over here. It sounds like this guy knows a lot about nuclear Cardiolite®, I just hope he knows how to speak out against it, in what might be, a room full of highly paid lobbyist that just love the status quo.

Still sitting on small pile of shares from a long, long way back. Figure them as zero, in my head, when thinking of overall trading portfolio, so it has been a little exciting to see acus floating around a buck, ha.

GLTU and thanks again.

Tree-Scrapers: 6 Wooden Buildings Reaching New Heights

The skyscrapers of the future might not be made of metal.

By Sarah Fecht

===Looks like Popular Mechanics followed up on The Economist's story, including 6 or 7 pictures of what wooden "skyscrapers" of the future might look like. oops, edit, it looks like some of the pictures included are actual buildings that are already complete.....====

The World's cities will need to accommodate an additional 2.4 billion people by 2050, according to the World Health Organization, and a growing number of architects think those residents could live in wooden skyscrapers. Every cubic meter of wood sequesters 1 ton of carbon from the atmosphere. Compared with concrete and steel, building with lumber would reduce emissions by up to 81 percent, says architect Michael Green, who will complete construction on British Columbia's Wood Innovation and Design Centre in September. The finished structure is expected to be 96.7 feet, which will make it the world's tallest wooden building.

Wooden architecture is reaching these new heights thanks to mass timber. Composed of thin layers of wood from young or low-grade trees glued together into giant panels up to 16 inches thick, mass timber is stronger than a regular 2 x 4, allowing architects to build towers as high as 42 stories.

===story and pics, here:====

http://www.popularmechanics.com/technology/engineering/architecture/6-wooden-buildings-reaching-new-heights?click=main_sr#slide-1

Thanks for the heads up gfp. Been keeping half an eye on it lately. All I have are shares I consider zero value, I think my broker averaged them out at 12 cents each, so a positive ruling in Europe could be a new car, truck, or house. ha.

Take Care.

Well, At least there about a zillion Mosen Nagants, (you know my spelling,) that are bolt action and hold 5 rounds in a built in clip, at least I think that is how those things were made. They also shoot the 7.62x54R round, so at least the ammo could still be used should a confiscation of semi's does happen. I went shooting with some friends and there was a retired police officer and his son who had one, but I didn't get a close look at it. Loudest rifle I can remember, they reloaded their own ammo and must have just packed that round to the max, man it was ear splitting, and that's with earplugs in, yikes.

What is your feeling on silver going forward?

address of last post was from Marketwatch but for some reason the system here on Ihub won't let post the internet address. I put some spaces in it and am trying again as I don't like to post story's with giving the writers credit.

http: // www . marketwatch . com/ story/ fed-officials-growing-wary-of-market-complacency -2014-06-03-15103357?dist= tcountdown

Fed officials growing wary of market complacency


The Wall Street Journal Archives | Email alerts

June 3, 2014, 3:40 p.m. EDT

By Jon Hilsenrath


====bw, I think I remember 30 years treasury's at around 15% around 1974. I also thing the market was down around 40-50% back then. I highlighted and bolded the 74 STRAIGHT WEEKS of below normal VIX levels in this story, not seen since 2006-2007.===========


Bloomberg

Richard Fisher, president of the Federal Reserve Bank of Dallas.

Federal Reserve officials, looking out at mostly calm financial markets, are starting to wonder whether tranquility itself is something to worry about.

So far this year the U.S. economy has suffered a brief economic contraction, the Fed has begun winding down a major bond-purchase program meant to spur growth, the Obama administration has clashed with Russia over its annexation of Crimea, China’s economy has slowed and the Middle East has become a cauldron of civil strife.

Yet, looking at Wall Street stock and bond trader screens, the world looks like a model of stability. The Dow Jones Industrial Average DJIA -0.13% , up a steady if unspectacular 1% since the beginning of the year, has consolidated big gains registered last year. Yields on 10-year Treasury notes 10_YEAR -0.50% have fallen even though inflation--which typically sends bond yields up--has been inching higher from very low levels.

VIX 11.87, +0.29, +2.50%

Other measures of risk aversion and market volatility show an especially striking sense of investor calm. The VIX VIX +2.50% , which tracks expected stock-market fluctuations based on options trading, has gone 74 straight weeks below its long-run average--a run of steadiness not seen since 2006 and 2007.

Moreover, the extra return that bond investors demand on investment-grade corporate debt over low-risk Treasury bonds, at one percentage point, hasn’t been this low since July 2007. The lower this “spread,” the less risk-averse are bond investors.

The worry at the Fed is that when investors become unafraid of risk, they start taking more of it, which could lead to trouble down the road. One example of increased risk taking: Issuance of low-rated U.S. dollar-denominated junk bonds last year hit a record $366 billion, more than twice the level reached in the years before the 2008 financial crisis, according to financial-data provider Dealogic.

“This indicates a great deal of complacency,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an interview. “When you get complacency you’re bound to be surprised at some point.”

The Fed has given root to the sense of calm by offering investors assurances that interest rates will stay low far into the future. Its policy statement says officials expect to keep short-term rates near zero for a “considerable time” after the bond-buying program, known as quantitative easing, ends later this year.

The policy statement says rates aren’t expected to go up much even after the Fed starts raising them. The policies are in place to invigorate a soft U.S. economy, and officials show no sign of veering from the plan.


ECONOMY AND POLITICS | @MKTWEconomics

Why economists aren't freaking out about the negative GDP numbers
What was remarkable in the analysis after data showed a 1% contraction in the U.S. economy during the first quarter was the lack of any real panic by economists.
• Five states make up nearly half of U.S. foreclosures: CoreLogic

Yet some measures suggest the market has taken the Fed’s assurances further than the central bank itself.

Fed funds futures contracts traded on the Chicago Mercantile Exchange indicate investors expect the Fed’s benchmark federal funds rate FFZ5 -0.01% to average 0.6% in December 2015, up from near zero now. That’s notably below the 1% rate that is the median of projections released by Fed officials after their March meeting. Futures markets indicate investors expect a 1.6% fed funds rate in December 2016, below the Fed’s own median projection of 2.25%.

Fed Chairwoman Janet Yellen gently pushed back on the market’s sense of certitude in a mid-April speech at the Economic Club of New York in which she emphasized the unknown. “It is important to note that tying the response of policy to the economy necessarily makes the future course of the federal funds rate uncertain,” she said.

But risk premiums on bonds haven’t budged since. New York Fed President William Dudley warned in a question-and-answer session after a speech last month that he was nervous that unusually low volatility in markets was breeding too much risk-taking.

The market’s calm was a subject of some discussion at the Fed’s April policy meeting, according to minutes of the meeting released last month. It could come up again when officials meet in mid-June.

However, many officials appear more inclined to talk about market risks than act to pre-empt them given the worry about cutting off a fragile recovery with early rate hikes. Though risk-taking is on an upswing, they don’t see a buildup of serious threats to the broader stability of the financial system. They are expected at the June meeting to keep gradually scaling back their purchases of mortgage and Treasury debt and stick to the plan to keep short-term interest rates near zero.

Fed officials face a double-edged sword. Officials want to keep interest rates low to boost economic growth and hiring and to lift inflation from levels below its 2% target. But, having been burned by the 2008 financial crisis, they are on the lookout for signs that the policies are having dangerous side-effects in financial markets.

“It is a problem of their own making. They can’t have it both ways,” said Martin Barnes, chief economist at BCA Research, an investment-advisory firm. “If they want to sustain zero interest rates and push up asset prices, how can they expect to have that with no excesses and no risk taking?”

Last year showed Fed officials the potential trade-offs they face. Volatility and risk premiums were similarly low early in the year, making some officials become uncomfortable that investors expected the Fed’s bond purchases to go on longer than the Fed planned. Then, when officials in May started openly discussing ending the program, investors were caught off guard and rates rose quickly, knocking the housing recovery off course.

“I cannot tell you for sure when this does get unwound,” Mohamed El-Erian, former chief executive of the bond fund Pacific Investment Management Co., or Pimco, said in an interview of the recent period of market calm. “When it does we are going to be reminded of what happened last May and June.”

Kansas City Fed President Esther George--like Fisher a skeptic of the benefits of the central bank’s easy-money policies--wants the Fed to raise short-term interest rates more aggressively than planned to head off financial risks. She remains in a minority and doesn’t have a policy vote this year.

“My concern is that keeping rates very low into late 2016 will continue to incentivize financial markets and investors to reach for yield in an economy operating at full capacity, posing risks to achieving sustainable growth over the longer run,” she said Tuesday in a speech in Breckenridge, Colo.

Want to read the latest and most interesting stories and analysis to come out of D.C.? Subscribe to the WSJ’s email

Are Bonds Signaling a Recession, or Warning of a Market Crash?

24/7 Wall St.
By Jon C. Ogg

June 1, 2014 11:15 AM

http://finance.yahoo.com/news/bonds-signaling-recession-warning-market-151534208.html

When Treasury yields fall, it generally means that investors around the planet are looking for a flight to safety. Or in the extreme cases, it signals that the economy is slowing -- and bonds are supposed to offer better cover for investors during that time than stocks. Some skeptical investors have pondered whether bond yields drifting mysteriously lower is increasing the chance of a recession.

For starters, first-quarter GDP went into the red. The reading was down by 1%. And retail sales, a key barometer for future production, have not exactly been barn-burning numbers. And yet somehow the S&P 500 Index hit a new all-time high of 1,924.03 on Friday. The math just doesn't add up.

Should investors be preparing for a stock market crash, or even a new mild recession? The latter seems less likely, but sometimes stock selling comes entirely out of the blue. It can simply be the result of valuations getting too frothy. So, would a 5% sell-off spook equity investors? What about a 10% drop into correction territory? Or a 20% drop into bear market territory?

24/7 Wall St. prepared eleven ways to avoid a stock market crash. Market complacency is high, and trading volumes likely will be low this summer. That means that a sell-off, or a so-called crash, could happen without much warning -- and it could happen with low market participation.

So, again, what are the Treasury yields telling us? Almost every single forecaster called for longer-term interest rates to be considerably higher by mid-2014 to late-2014. Yet rates have fallen.

The two-year Treasury finished Friday at 0.34%. While that was up from the 0.32% on Thursday, it was 0.34% last week and 0.41% a month ago. The three-year Treasury yield is 0.77%, flat from a week ago but down from 0.85% a month ago. Even the five-year Treasury yield is down to 1.52%, versus 1.67% a month earlier.

Where the impact is really felt is in longer-term rates. The 10-year Treasury note ended Friday at 2.48%. It hit a low of about 2.45% this last week, but it was 2.53% a week ago and 2.65% a month ago. The 10-year yield simply isn't supposed to drop 20 basis points when it is already so low in normal trading times.

ALSO READ: Eleven Ways to Avoid a Stock Market Crash

And the 30-year Treasury ended the week at 3.33%, down from 3.40% a week earlier and from 3.46% a month ago. Again, this just isn't normal behavior when we are supposed to have entered a rising-rate environment months ago.

Can investors just hope that this is mere allocation and foreign demand driving the interest? Maybe so, but hoping alone is often considered a very poor investment strategy.

We finally got a 7.62 x 54r coming, after collecting ammo for years. Merlot factory, based on RPK machine gun, 50% thicker than stamped AK. We are excited. Our UPS man shoots at 1000 yards, talks about shots dropping 3 feet and has all this wind info in his head. If I can hit the side of a barn at that distance I will feel like I hit the lotto, looking forward to plinking away with it. Cases of 70's-80's surplus stuff on hand, 148 to 203 bullet weights. Seems like those 203 would take out small trees. Time for some thicker steel, resetting, targets.......ha.

hope you are doing well.

I wonder if that London gold is promised as collateral on multiple loans per bar, as it supposedly is in the federal reserve in NY. Making it a paperwork nightmare to unwind, and re allocate each bar before it can be returned to its rightful owner. At least that is what our country tells others. Why bother? it's all a paper scam and has been for decades now......

off topic, honeyville farms is offering 20% off their #10 canned food goods until 6/3/14. usually it's best sales are 10%, I have seen 20% off once before this in 7 or 8 years. you can get number 10 can racks, for the home, for 300 at Costco, that hold 112 cans, or get same overall size rack, with different shelving for 450 cans, same price. about 34.5 x 24.5 x 72, and you can put a board on top for extra storage. dried milk is good for 3-5 years, most other foods good for 15.

EOM DELETE

====reinstate the Glass-Steagall Act=====

Couldn't agree more. I'll never forget the young, wide eyed, early 20's year old man asking if I would like to sit down and discuss my investing strategy, including stock selling to me while not 20 feet from the line of tellers. All while I waited in line to see a teller at the teller window at my local bank. I am guessing he was doing this all day.

I thought, what the f__k just happened, I didn't think they were allowed to do that. Then came the derivatives. Then they all imploded in 2008 or so, only saved by "free" money, all they could take, and then reinvest in derivatives. The "free" money keeps flowing. I personally will consider it a miracle if we dig our way out of this mess, all of our own making, mainly through ignorance. Personal investing classes should be mandatory from grades 5 or 6, straight through collage, with parents required to attend before signing on the dotted co-signing loan line for their kids collage loans....

Our lawmakers could no more read a complex derivative investment strategy, that looks like an Enstien theory when written out on a chalk board, then I have, of winning a spelling bee. ha.

take care.

Krugman Warns ECB Panel World’s Central Bankers Have It Wrong

http://www.bloomberg.com/news/2014-05-27/krugman-warns-ecb-panel-world-s-central-bankers-have-it-wrong.html

By John Fraher and Jeff Black May 27, 2014 7:21 AM ET
125 Comments Email Print

Nobel Laureate Paul Krugman argued that too low an inflation target may be giving... Read More


Paul Krugman thinks Mario Draghi’s biggest thinkers have got it all wrong.

Speaking to a gathering of the European Central Bank's top researchers and policy makers, the Nobel Laureate said the ECB and other banks around the world need to raise the inflation targets they have clung to since the 1990s. At 2 percent, those goals are too low and increase the risk that central banks will run out of room to cut interest rates -- the so-called zero lower bound.

“The intense resistance of central bankers to regime change even after more than five years at the zero lower bound shows that the kind of policy stasis that afflicted Japan for almost two decades is a more or less universal phenomenon,” Krugman said in a paper delivered to Draghi and other officials in Sintra, Portugal.

Krugman’s critique is especially relevant for an institution currently grappling with the threat of a deflationary spiral that’s forcing officials deeper and deeper into unconventional policy. The ECB's benchmark interest rate is currently at a record-low 0.25 percent.

Inflation in the euro region is at 0.7 percent and Draghi, the ECB president, said in a speech yesterday that officials need to be watchful in case a “negative spiral” in prices takes hold.

Krugman argued that too low an inflation (ECCPEMUY) target may be giving European policy makers an excuse not to do more, what he calls a “complacency trap.”

Blunt Talking

“As long as prices remain stable, some officials will argue that monetary policy is doing its job, that any remaining economic difficulties must be addressed with structural reform,” Krugman said.

“And let’s be blunt, there are already visible tendencies toward a similar loss of resolve in Europe, for example declarations by monetary officials that low inflation isn’t really a problem because it’s mainly driven by needed adjustments in debtor nations.”

Krugman’s comments weren’t welcomed by some.

Otmar Issing, who helped devise the ECB’s policy framework during his time as its chief economist, said raising the inflation target risks signaling that officials are becoming complacent about price growth.

“How to re-anchor inflation expectations?” Issing said. “It’s not a mechanical issue, it is a credibility issue and central banks will have a hard time to explain that.”

Election Fallout

Federal Reserve Bank of St. Louis President James Bullard backed Issing up.

“The whole point of inflation targeting is that this is something you can actually do as a central bank, and if you can’t hit it and you start setting other inflation targets, it’s not going to matter,” he said. “I think being able to hit the inflation target is very important.”

Krugman’s paper wasn’t his only intervention that poked at the gathered European Union elite. A critic of austerity as a tool to fix the euro crisis, he yesterday tore into a discussion by European Commission President Jose Barroso and Eurogroup President Jeroen Dijsselbloem about the results of Sunday’s European elections.

“Sitting in a room listening to EU officials reacting to the European Parliament elections -- and it seems to me that they’re deep in denial,” he wrote in a New York Times blog. “The possibility that things are so bad -- and radicals have been empowered -- because the policies are fundamentally misguided just doesn’t seem to be considered.”

This is a huge sign the markets aren't healthy

By Lawrence Lewitinn
13 hours ago

http://finance.yahoo.com/blogs/talking-numbers/this-is-a-huge-sign-the-markets-aren-t-healthy-195810008.html

Talking Numbers

The S&P 500 index traded above 1,900 Friday, but there are still signs that all may not be healthy in the markets.

The market is making new highs on the backs of fewer and fewer stocks. The one-month daily average of stocks hitting 52-week highs is currently about 26. One year ago, that number was about 101. In other words, we've gone from 1 out 5 stocks in the S&P 500 hitting highs to just 1 out of every 19.

"If you look at the breadth, we've seen a pretty amazing amount of deterioration just since last May," said Mark Newton, chief technical analyst at Greywolf Execution Partners. "It's dramatically down from what we've seen over the last year. And, that is a concern."

Although Newton doesn't see a reason to sell stocks right away, he sees the potential for a bit of a retracement in the coming months. The markets are "the most overbought we've been since 2007," he said. "We could have a pullback between the months of July and September/October. That historically is a seasonal time of weakness."

Some sectors may have seen some improvement recently, but the markets may not be out of the woods just yet.

"We've seen a little bit of a sign of technology, consumer discretionary, and financials starting to act better," notes Newton. "But it's really not sufficient now to argue that things are all that healthy compared to where we were even a few months ago."

Steve Cortes, founder of Veracruz TJM, believes the fundamentals are also shaky for the markets.

"Total stock market capitalization – the value of all stocks put together – as a percentage of total U.S. GDP are right back near the highs last seen in the year 2000," Cortes said. "Stocks as a percentage of the economy are incredibly expensive."

"Stocks have done extremely well, but Main Street is just doing okay," Cortes added. "Caution is really in order here."

Wooden skyscrapers Barking up the right tree

http://www.economist.com/blogs/babbage/2014/04/wooden-skyscrapers

Apr 2nd 2014, 9:45 by M.H.| BOSTON

http://www.economist.com/blogs/babbage/2014/04/wooden-skyscrapers

==a little dated, but I thought of pcl when I read it.====


MORE than 15 years have elapsed since America, the birthplace of the skyscraper, was last home to the world’s tallest building. But though it lacks the highest high-rise made from traditional concrete and steel, America may yet boast the world’s tallest skyscraper made from dead trees. Last month the US Department of Agriculture (USDA) announced a $2m competition to demonstrate the viability of a new generation of wooden "plyscrapers".

The idea took root several years ago when Michael Green, a Canadian architect, proposed 20-storey (60-metre) structures made from cross-laminated timber (CLT) panels. These sheets are made from cheap, sustainable softwood, glued or pinned together in precise layers. While the raw material itself might be weak and of variable quality, the panels can be engineered to be virtually identical and even stronger than concrete. They also resist fire well, charring at their surface instead of catching alight like the lumber used in most American homes.


The biggest benefit to reaching for the sky with wood, though, is environmental. "Mass timber" products like CLT are naturally renewable, take less energy to make than concrete and steel, and capture carbon dioxide (rather than belching out greenhouse gases during their production). The USDA believes that a modest four-storey building made from mass timber would cut emissions to a degree similar to taking 500 cars off the road for a year.

Conveniently, it would also use around six times as much wood as one made with conventional framing techniques, making it the perfect poster technology for the USDA’s new "Made in Rural America" initiative, which aims to get such wooden high-rises off the ground. “We’re going to help offset costs for at least one project,” says Tom Vilsack, America’s secretary of agriculture. “Design challenges, engineering studies and compliance with building codes all have additional costs that could discourage someone from using these materials.”

Until now, America’s conservative building regulations and a lack of interest from developers (and their customers) have meant few interesting wooden buildings have been built there. In contrast, Europe and especially Canada are embracing the emerging technologies.

March 22nd saw the topping-out ceremony of the tallest contemporary wood building in the world, and the first that might be considered a true skyscraper, the 30m Wood Innovation and Design Centre (pictured) in Prince George, British Columbia. Its designer, Michael Green, says, “Frankly, we aren’t breaking a sweat. It’s only public perception and emotion trumping science that stalls us moving higher.” He hopes to start work on a 20-storey vertical food-farm in Vancouver later this year.

“The challenge for us is to catch up and we’re going to do that,” says Mr Vilsack. As well as the high-rise prize, the USDA will fund an industry body providing technical support to architects, and push other federal departments to adopt the new technologies. “Cross-laminated timber can be used for emergency shelters, to quickly rebuild communities after hurricanes or floods, and by the Department of Defence to rebuild barracks. There’s even infrastructure that could be built with this,” says Mr Vilsack.

If wooden skyscrapers are to grow in America, the "Made in Rural America" claim will need to become more than just a slogan. There are currently no commercial manufacturers of CLT in the country, and most of the innovation in wood construction is happening north of the border and across the Atlantic. Builders are unfamiliar with mass timber and so even eco-minded customers are not offered it, giving little incentive for local and state authorities to update building codes.

But there are signs of change. Skidmore, Owings & Merrill is the architecture firm responsible for both America’s tallest building (the new One World Trade Centre in New York) and the world’s tallest building (the Burj Khalifa in Dubai). In a study last year, they conceded that a 125m-high skyscraper made (mostly) from mass timber products is technically feasible, economically competitive and could reduce its carbon footprint by up to 75%.

==more on page two in original article====

assuming gas is selling at an average of 3.60 in the usa right now, where do you see it going if/when, gasoline futures start trading in a non us denominated currency, as been happening between select countries now?

more off topic - thanks again for that WNR "golden cross" msg years ago, even though I made a bundle, I sold at 15-18, I think, from aged old memory, but now trading at 41, WTF ???? ha.

Hope You are doing well.

Geez GFP, I feel like a frog in a pot of water with the heat slooooowly being turned up.

Yahoo story today on how Putin made comments about the internet being a CIA conspiracy, and then mentioning one of Russia's Internet companies my name, sending a clear message, and a chill, to those media outlets not already run by those close to him.

I emailed a friend and asked who was that said, all it takes for evil to prevail is for good men to stand by and do nothing? (words to that effect.)

So I guess I am on the list because I would rather not see him put the Soviet Union back together using old KGB tactics that my father tried to protect our Nation from in WWII. (he called them commies in general)

Things are just Crazy since 9/11. Like the pendjelem, (sp?) they swing too far in both directions.

Hope you are well. Great post.

Western states hold summit on controlling federal land, say 'It's simply time'


===here we go again, bold and red added by scctocks, harry reid, my favorite=====

http://www.foxnews.com/politics/2014/04/19/western-lawmakers-strategize-on-taking-control-federal-lands/?intcmp=latestnews

Published April 19, 2014
·FoxNews.com


April 18, 2014: Rancher Cliven Bundy speaks at a protest camp near Bunkerville, Nevada.AP

Lawmakers from Western states said Friday that the time has come for them to take control of federal lands within their borders and suggested the standoff this month between a Nevada rancher and the federal government was a problem waiting to happen.

"What’s happened in Nevada is really just a symptom of a much larger problem," Utah House Speaker Becky Lockhart, a Republican, told The Salt Lake Tribune.

The lawmakers -- more than 50 of them from nine Western states -- made their proclamations at the Legislative Summit on the Transfer for Public Lands, in Utah, which was scheduled before this month’s standoff between Nevada rancher Cliven Bundy and the Bureau of Land Management.

The agency rounded up hundreds of Bundy's cattle, saying he hasn't paid more than $1 million in grazing fees he owes for trespassing on federal lands since the 1990s. But Bundy does not recognize federal authority on the land, which his family has used since the 1870s.

The agency released the cattle after a showdown last weekend with angry armed protesters whom Senate Majority Leader Harry Reid referred to as “domestic terrorists.”

Whether the federal government will use the courts system or other methods to try to resolve such disputes remains unclear. Reid, D-Nev., said earlier this week that he talked to Attorney General Eric Holder and that a task force might be formed, in response. However, a law enforcement official said Saturday that there are no plans for a task force.

The idea of Western states taking control of parts of wide tracts of federal land is nothing new. Those involved in the so-called Sagebrush Rebellion and similar movements have argued for decades that states and local governments west of the Mississippi River often can best manage the land and that doing so would allow them to use it to improve their economies.

On Friday, political leaders from the nine states convened for the first time to talk about their joint goal of wresting control of oil-, timber -and mineral-rich lands away from the U.S. government, according to the paper.

"It’s simply time," said Utah state Rep. Ken Ivory, a Republican who co-organized the summit with Montana state Sen. Jennifer Fielder. "The urgency is now."

Utah GOP Sen. Mike Lee also spoke to the attendees.

Idaho Speaker of the House Scott Bedke argued that Idaho forests and rangeland managed by the state have suffered less damage and watershed degradation from wildfire than have lands managed by federal agencies, the newspaper reported.

The Associated Press also contributed to this report

====The Bureau of Land Management ======

I thought that was going to be Waco TX all over again. American gov killing it's own citizens. 1000, some armed, showed up to protect their neighbors cattle grazing rights, willing to die to do so. unreal.

Good luck to them as they try to dish out future water shortages, although that may be the Army corp of Engineers for that. At least they will be well armed........

BTW, the atf just used the Pen to stop importation of 5.45x39 surplus ammo, back door gun control imo. It's a lot of the worlds answer to the USA Military's standard 5.56x45 rounds. Last boxes in route to the usa going out forever right now, although there are other manufactures of that round, but for us plinkers, surplus .17 a round compared to 3 times that for ar-15 stuff was nice.......

===Like, they hadn’t heard about this years-long orgy of front-running until now?====

hardly a peep when the exchanges started selling "space" on servers located just outside the actual machines making the transactions. closer to the actual trading machine, the more you pay for server space.

seems all on the up and up for all the regular gay and gal traders out there.......

nothing to see here folks.......move along.....

Junk bonds haven’t been this overvalued for this long since before Lehman: Martin Fridson

====bold red added by scstocks=====)


April 11, 2014, 2:27 PM ET

http://blogs.marketwatch.com/thetell/2014/04/11/junk-bonds-havent-been-this-overvalued-for-this-long-since-before-lehman-martin-fridson/

Martin FridsonMartin Fridson
Martin Fridson doesn’t hesitate when he calls the junk bond market extremely overvalued.

February marked the fifth straight month in which his tabulation of the premium junk bonds should pay over Treasurys was more than 130 basis points — or one full standard deviation — above where they were actually trading. The overvaluation is a reflection of just how much investors are bidding up lower-quality debt in the reach for yield, according to Fridson’s analysis.

Fridson, who runs research firm FridsonVision LLC, has long been a voice on the level of value in the market. But he isn’t the only one talking up the discrepancy: big-name investors like DoubleLine Capital’s Jeffrey Gundlach are also slimming down their holdings of junk bonds for that very reason.

The last time junk bonds were overvalued by this much for this long was in mid-2008, just before Lehman collapsed and the financial crisis took hold, Fridson says. That overvaluation quickly went away as junk bond prices plummeted, turning into an extreme undervaluation.

“That stretch was totally crazy. The market was at such extreme conditions at that point,” Fridson said in an interview. (Throwback: See what Fridson was saying at the time.)

The chart below shows the amount by which current junk bond spreads exceed or lag his calculation of fair value. Right now, spreads are nearly 200 basis points below fair value:


Fridson’s model uses a regression analysis that takes into account credit availability, industrial production, capacity utilization, the 5-year Treasury note 5_YEAR yield, and the current default rate. Throw that all together and it tells you the approximate spread that should be paid to investors. He compares it to the option-adjusted spread on the Bank of America High Yield Master Index to find the difference (displayed above).

While the current period of valuation shares some similarities with 2008, if we’re looking for a more telling comparison, it may be better to look at late 2006 and early 2007, Fridson says. As the chart above shows, that was a much more prolonged period of overvaluation (nine months in his book), but it wasn’t as extreme as 2008. That period of junk spreads also didn’t blow up as extravagantly as 2008 did.

The comparison would indicate that right now is a period where investors believe the current market conditions will stay in place indefinitely, justifying paying high prices for junk bonds that provide relatively little income for the risk.

“Often you get this kind of overvaluation when the VIX is very low,” Fridson says. “What that indicates is that there’s a general complacency that things will remain steady with no worries, and of course that usually goes the other way.”

Retail investors often buy junk bonds through mutual funds (like BlackRock Corporate High Yield Fund HYT or Western Asset High Yield Defined Opportunity Fund HYI ) and ETFs (like Barclays High Yield Bond ETF JNK ).

– Ben Eisen

=====shotgun wounds====

so this guy shot himself with one shotgun, figured that wasn't enough, and then found the other gun, and managed to shoot himself with that one too.......nothing to see here folks.....

Dow hits record as 1987 crash comparisons continue

By Pras Subramanian
12 hours ago

Breakout

http://finance.yahoo.com/blogs/breakout/dow-hits-record-as-1987-crash-comparisons-continue-143945083.html

Has a longtime Minnesota bull turned bearish? Jim Paulsen, Chief investment strategist at Wells Capital Management, came out with a peculiar research note earlier in the week. Paulsen highlighted some similarities with an S&P 500 (^GSPC) chart from our current bull market with one that shows a similarity to the 1982 bull market that culminated int the Black Monday crash in 1987:


the contemporary bull market has been following the 1982 bull market fairly closely. As recently as last year-end, both bulls were up about 175% from their respective bear market lows! The important anniversary passed just a couple days ago was the 1274th trading day of both bull markets – the day on 8/25/1987 when the 1982 bull market reached a notable peak. On that day, the S&P 500 Index peaked for the year at 336.77. Moreover, we are now just 37 trading days from another important anniversary in financial history – 10/19/1987 when the S&P 500 Index suffered its biggest single day collapse ever!

As intriguing as the comparison sounds, and with the Dow (^DJI) and S&P 500 hitting new all-time highs today, Breakout viewers will remember these comparisons with past market moves have usually been non-predictive. But fun market talk, sure.

Paulsen will be the first say he doesn’t see a big, ugly 20% move coming. “I’m not anticipating that [1987 type crash] at all,” he says, but he does point out the genesis of both bull markets as very similar - born out of extremely tough economic times in 1982 and 2009.

“I would suggest that history won’t repeat, i don’t think we’ll have a big collapse… but sometime in the next several months, good news on the economy might become bad news for the market like it did in 1987.” Paulsen says a 10% move wouldn’t surprise him in the least.

Despite his call for a modest correction, Paulsen still feels strongly that investors should be positioned aggressively in cyclicals (XLY), with this morning’s “Goldilocks” payrolls number keeping the market happy, and leaving the Fed little option but to continue its low rate policy and slow taper

10-year Treasury yield death cross could signal bond rally

April 4, 2014, 2:03 PM ET

http://blogs.marketwatch.com/thetell/2014/04/04/10-year-treasury-yield-death-cross-could-signal-bond-rally/

===note from scstocks, many thanks to gfp who pointed out a golden cross in wnr a couple/few years back, and made me a decent amount of money in the process, this "death cross" caught my eye based on that experience alone. end of scstocks============

If you’re partial to ominous-sounding technical financial terms, brace yourself for this one: The death cross is approaching.

You can put to rest fears about the grim reaper, but the implications of this indicator suggest you would do well buying bonds, according to analysis by Abigail Doolittle of Peak Theories Research, a technical analysis firm.

The death cross refers to the passage of the 50-day moving average through the 200-day moving average, suggesting a loss of momentum in the market. And it’s not necessarily just bluster: It has been blamed for stock selloffs in the past. As Dootlittle points out, the 10-year Treasury 10_YEAR yield’s 50-day is very close to crossing the 200-day average, which suggests the yield may be poised to fall. Different data sets show varying proximities to the death cross, and on Tradeweb the two averages look to have already converged:


Doolittle has been known to make bearish calls on risk assets that are bullish for safe investments like Treasurys. She made this same call about a year ago as the moving averages came within a few basis points of crossing each other, but the averages diverged because the Federal Reserve sent the 10-year yield for a loop when it began talking about stimulus withdrawal soon after. Now, the averages are once again coming together. In a Friday report, she explains:


“Should the 10-year yield put in an actual Death Cross as the 50 DMA drops below the 200 DMA, it would likely signal a rally for bonds and an accelerated slide down in yield with bonds trading inverse to yield. Put otherwise, a possible Death Cross in the 10-year yield would probably suggest that this year’s rally in bonds is likely to continue and perhaps gain significant momentum.”

The death cross signals a drop of 50 to 100 basis points in yield for the 10-year Treasury, she said, and there’s also a “pretty good chance” that equity markets correct by 20%. It would also be a sign that the bond market doesn’t believe the Fed’s indications that it could begin hiking interest rates, she said.

There have been four such death crosses in the last seven years: The first two came in September 2007 and September 2008 amid the financial crisis. The third came in June 2010 as the markets were grappling with the euro zone crisis, and the fourth came in June 2011, just before a correction in the equity markets. Doolittle adds in a follow-up e-mail:


“After the September 2007, September 2008 and June 2011 death crosses, the 10-year yield dropped by more than 100 bps while it dropped by about 80 bps after the June 2010 death cross. This sort of a potential decline in yield may or may not happen now, but recent history certainly does suggest that death crosses in the 10-year yield tend to precede decent declines in yield in relatively short periods of time.”

[Updated to say there have been four death crosses in the last seven years.]

– Ben Eisen

China Defaults Sow Property Cash Crunch Concern: Distressed Debt

By Bloomberg News Mar 31, 2014 5:25 AM ET

http://www.bloomberg.com/news/2014-03-30/china-defaults-sow-property-cash-crunch-concern-distressed-debt.html

The specter of default in China’s trust loans market is deepening the distress of property developers that also borrowed in dollars.

Eighteen companies owing $15.2 billion, from behemoth China Vanke Co. (000002) to junk-rated Glorious Property Holdings Ltd. (845), have “material exposure” in excess of 10 percent to trust financing, a form of non-bank lending that’s helped homebuilders proliferate in China, Moody’s Investors Service said. This year alone, the number of Chinese junk developer bonds whose yields have increased to distressed levels has almost doubled to 19.

Part of China’s $7.5 trillion shadow-banking system, trust financing has been key to fueling the nation’s 10 percent annual growth rate in the past decade by providing easy credit to companies considered too risky by banks. After trust loans to the property, solar, coal and other industries tripled in the past three years to 10.9 trillion yuan ($1.8 trillion), bondholders are becoming increasingly alarmed as the government reins in lending, housing demand cools and the economy slows.

“There’s concern China’s hitting a rough patch and that a few core industries, especially those based on credit such as real estate, may have peaked,” David Tawil, co-founder of the New York-based hedge fund Maglan Capital LP, said in a telephone interview. “The real question is whether Beijing will try to mask the down cycle or allow it to play out publicly.”

Defaults Unavoidable

Cracks are already starting to appear. Closely held Zhejiang Xingrun Real Estate Co. collapsed earlier this month, less than two weeks after Shanghai Chaori Solar Energy Science & Technology Co. defaulted on its debt.

While China Credit Trust Co. was bailed out in January, Premier Li Keqiang has said some defaults may be unavoidable as the government shifts policy to tighten credit.

Home prices have soared 60 percent since the government provided 4 trillion yuan of fiscal stimulus in 2008 to bolster the economy after the financial crisis, prompting companies to borrow heavily to speed construction. Now, as China abstains from providing further stimulus for the economy, thousands of apartment buildings across the country sit empty.

“If onshore defaults increase, it’ll definitely tighten liquidity and raise funding costs,” said Singapore-based Leong Wai Hoong, a high-yield bond manager at Nikko Asset Management Co., which oversees some $161 billion.

Funding Alternative

Trust financing involves the sale of high-yield investment plans to individuals, raising money for companies which may lack access to bank loans. According to Moody’s, it has become a key alternative of funding for land acquisitions by riskier real-estate companies during times they aren’t able to obtain reliable access to bank loans or the bond market.

Hopson Development Holdings Ltd. (754) and Glorious Property, with a combined $1.3 billion of outstanding dollar-denominated bonds, are two which will face “inadequate liquidity” in the next 12 months if financing avenues seize up, Moody’s said.

Hopson’s $300 million of notes due January 2018, which traded at about 100 cents on the dollar at the start of the year, were at 91.47 cents today, according to prices compiled by Bloomberg. That’s pushed yields on the bonds to 12.8 percent, or 11 percentage points above Treasuries, more than the 10 percentage point threshold at which debentures are considered distressed.

Glorious’s $400 million of March 2018 securities fell to 72.08 cents on the dollar from 83.6 cents to yield 24.8 percent.

Hopson Loans

Hopson has about 2 billion yuan of trust loans and remains prudent in its borrowing strategy, Chief Financial Officer Xie Bao Xin said at a media briefing in Hong Kong on March 27. It plans to fully repay the trust loans in 2014, Xie said. Glorious didn’t reply to an e-mail request for comment.

Property developers account for 19 of the 22 junk-rated corporate bonds in China considered distressed as of March 28, according to a Bank of America Merrill Lynch index of high-yield notes from the country’s issuers. On average, investors demanded 7.98 percentage points of extra yield over similar-maturity Treasuries to hold the 105 securities included in the index.

Chinese junk bonds have lost 0.9 percent this year, versus a 2.9 percent gain for U.S. speculative-grade debt.

As a result of the building binge, the average debt ratio among the top 500 developers rose to a five-year high in 2013, the China Real Estate Association said in an e-mailed report March 20. The ratio of cash flow to short-term liabilities -- a measure of the ability to pay debt -- was minus 5.7 percent compared to 15 percent in 2012, according to the report.

Front End

Such leverage will put developers at the front end of the default cycle in a market shakeout, said Lisa Emsbo-Mattingly, the Boston-based director of asset allocation research at Fidelity Investments, which manages about $2 trillion.

While borrowing costs for China’s property developers have surged in the dollar-bond market, it’s unlikely the biggest real-estate companies will default any time soon, Nikko Asset Management’s Leong said.

“Dollar debt issuers are much larger and a lot of them have sold bonds to refinance their onshore loans,” he said. “Will those developers default? Not in the near term.”

Slower new-home price growth is nevertheless adding to the pressure on builders. Prices in first-tier cities such as Beijing and Shanghai grew in February by the slowest since 2012. At least 10 cities have moved to cool the housing market since November, including raising the minimum down payment on purchases. In smaller cities, companies such as Agile Property Holdings Ltd. have cut prices by as much as 20 percent.

Minsky Moment

Some 634 billion yuan of trust loans to developers must be repaid this year, an amount about the same size as Puerto Rico’s economy, Li Ning, a Shanghai-based analyst at Haitong Securities Co., China’s second-largest brokerage, said by telephone on March 26. That’s a 50 percent increase from 2013.

There’s a “high probability” some trust loans to property companies will default this year, according to David Cui, China strategist at Bank of America Corp.

Developers in mainland China or Hong Kong have also accounted for 32 percent of the $68 billion of dollar bonds issued by all Chinese companies last year. Chinese companies have more than $120 billion of notes and dollar loans due this year and next, according to data compiled by Bloomberg.

Since China’s credit crunch in June when money-market rates surged past 12 percent, both Societe Generale SA and Morgan Stanley have said a “Minsky moment” may be approaching, a reference to U.S. economist Hyman Minsky, who argued periods of rising asset values lead to speculative investments on borrowed money, only to end badly.

Chaori Solar missed payment on part of a bond coupon on March 7 in China’s first onshore default. Zhejiang Xingrun’s collapse followed on March 17. China narrowly averted its biggest trust default in at least a decade in January, when China Credit Trust repaid investors in a 3 billion yuan high-yield product after a bailout offer by Industrial & Commercial Bank of China Ltd.

“Many more defaults will definitely come,” said Bank of America’s Cui.