Hedge Funds Cut Gold Bets as Goldman Lowers Outlook: Commodities – Bloomberg 06-30-13

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Money managers reduced their net-long position in gold to the lowest since June 2007, while shorts climbed to the second-highest on record.

ETP holdings are at a 3-year low. Banks from Goldman to Credit Suisse cut their gold forecasts last week.

Mark Luschini at Janney Montgomery Scott said the things that supported gold have begun to crack, while worries about inflation have disappeared and macroeconomic risks diminish.

Goldman Sachs expects gold prices to drop to $1,050 by the end of 2014 as the Fed tapers and investors sell ETP holdings

Ric Deverell at Credit Suisse said gold’s declines are shattering investors’ confidence and expects $1,150 in 12 months, and lowered its 2014 outlook by 16 percent the same day, citing waning demand for haven assets.

Martin Murenbeeld at DundeeWealth said even if the Fed slows asset buying, countries including Japan and China may continue to stimulate their economies, boosting demand for gold as a hedge against inflation. Murenbeeld said gold is in a mid-cycle correction, but the fundamentals for higher prices are intact.

Cameron Brandt at EPFR Global said money managers pulled $2 billion from gold funds last week while total outflows from commodity funds were $2.68 billion.

Goldman Sachs cut its outlook for copper saying slowing economic growth in China will crimp consumption and supplies will outpace demand through 2016.

Jeff Sica at Sica Wealth Mgmt said a slowdown in China, plus rising supplies, does not augur well for commodities – we are in an era of lower commodity prices.

Read the full article at  http://www.bloomberg.com/news/2013-06-30/hedge-funds-cut-gold-bets-as-goldman-lowers-outlook-commodities.html

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Fareed Zakaria GPS – CNN 06-30-13

Salient to Investors:

Fareed Zakaria said:

  • Africa has become the great hope of the business world. The World Bank says Africa could be on the verge of a take-off the like of China’s 30 years ago.
  • Populations are stagnating or declining in Europe, Japan and China, while Africa’s population of 1 billion is expected to more than double by 2050. Africa’s share of the world’s population will rise from one-seventh to about one-fifth by the middle of the century.
  • African economies grew an average 6 percent in 2012, 3 times the US growth rate and faster than many Asian countries.
  • The World Economic Forum’s Africa Competitive Report shows that 14 of the 20 least competitive economies in the world  are African.
  • African economies are over dependent on commodities – more than half of the continent’s total exports are minerals, which makes it vulnerable to fluctuations in global demand. Over 2/3 of Africa’s labor force is employed in agriculture. Manufacturing is essentially the same share of GDP as it was in the 1970s.
  • The African Economic Outlook says a 1 percent drop in growth in the world’s rich countries translates into a 10 percent drop for Africa’s export earnings.
  • In most African countries, economic and political reforms have stalled, corruption remains staggeringly high and the private sector remains much too tied to government favors.
  • South Africa annual growth fell to less than 1 percent in the latest quarter, while youth unemployment hovers around 50 percent, a recipe for future crises.

Stephen Schwarzman at the Blackstone Group said:

  • The West is uneven in producing jobs while China is producing 10 million jobs a year. With the burdens on governments in the West, people are going to become more and more unhappy just generally. As China becomes a focus as the US’ largest creditor there may be hostility between China and the rest of the world over decades, you could have major trade problems, major economic problems, and potentially military problems. Those problems are already occurring between China and Japan, between China and Europe on certain types of products.
  • The US economic recovery is real – in housing, in auto. Business spending will increase, particularly as construction starts coming back., but it won’t be radical.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1306/30/fzgps.01.html

Global Bonds Dive for Second Month as Stocks Lose $2.7 Trillion – Bloomberg 06-30-13

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Binky Chadha at Deutsche Bank said the market had been pricing in that the Fed would normalize rates much more slowly than it has done historically, and the shock has spilled over across all of the asset classes.

The World Bank said the world economy will expand 2.2 percent in 2013 and the euro region will shrink 0.6 percent.

Seamus Mac Gorain at JPMorgan Chase expects the developed market sell-off to proceed at a far more measured pace over the remainder of 2013, while the position squaring in emerging markets has some way to go, not least because the degree of illiquidity in the sell-off has surprised.

Jeffrey Gundlach at DoubleLine Capital says the worst is over for Treasuries as stability returns to the stock and fixed-income markets.

Bill Gross at Pimco said bond yields and risk spreads were too low 2 months ago and the Fed tilted over-risked investors to one side of an overloaded and over-levered boat, so don’t panic.

Howard Ward at Gamco Investors said the markets needed to vent some steam and did, and Bernanke’s comments were seen as more hawkish than he expected.

In May, analysts cut 2013 earnings estimates for emerging-markets stocks by 3 percent, and raised estimates for MSCI developed-market companies 0.2 percent and 0.1 percent for the S&P 500.

Hayes Miller at Baring Asset Mgmt said we are not out of the woods, and while emerging markets are cheap relative to developed markets, earnings expectations continue to be downgraded fairly rapidly, while developed markets, particularly US and not so much Europe, are seeing upgrades.

Goldman Sachs, Morgan Stanley and Credit Suisse cut their gold forecasts in June as ETP holdings sank to a 3-year low. Societe Generale said investors may sell an additional 285 tons in 2013.

Georgette Boele at ABN Amro said gold does not generate income and is vulnerable to higher interest rates, while weaker data out of China and concerns about emerging markets have hurt the demand outlook.

Read the full article at  http://www.bloomberg.com/news/2013-06-30/global-bonds-dive-for-second-month-as-stocks-lose-2-7-trillion.html

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New Doomsday poll: 98% risk of 2014 stock crash – MarketWatch 06-29-13

Salient to Investors:

Paul B. Farrell writes:

  • 2014 is a virtually guaranteed disaster just waiting to ignite. Bubbles are everywhere.
  • Kit Juckes at Societe Generale says all three worldwide financial bubbles in the last three decades – The Asian Bubble in the early ‘90s, Dot-com Bubble of the late ‘90s and the Credit Bubble that triggered the 2008 Wall Street meltdown – were fueled by the Fed keeping policy rates below the nominal growth rate of the economy for far too long. Juckes says we are trapped in the fourth megabubble fueled by the Fed in the last 30 years.
  • Marc Faber says QE will be part of everyday life for the rest of our lives.
  • Mark Gongloff at Huffington Post said the dramatic downgrade of US growth in Q1 revealed the economy’s lingering weakness, exposed Washington’s austerity obsession, and ridicules the Fed’s newfound optimism.
  • GoldSeek.com says many cycles indicate a stock-market correction or crash is near, with the precious-metals crash which started in April 2013 being the first warning.
  • Bill Gross at Pimco says QE must end as trillions of cheap money has distorted incentives and inflated asset prices to artificial levels.
  • We are in the 5th year of a typical 4-year bull rally – William O’Neill at IBD says market cycles average 3.75 years up, 9 months down.
  • The war in Congress will get worse, upsetting markets and the economy even more. Viz anger after the Supreme Court’s decisions over same-sex marriage issues and gays, anger over abortions, Obamacare, gun control, food stamps, the new voter suppression pushed by GOP governors.
  • USA Today says any jobs recovery is years away in most cities. Meredith Whitney warns that excessive pensions crowd out both liberal goals such as education spending and tax cuts that conservatives want, thus preventing recovery. Corporate pensions are widening the inequality gap. McKesson’s CEO for the past 14 years will retire with a $159 million pension, while the income of America’s average wage earner has stagnated for 30 years.
  • Investors are in denial and won’t get out in time. Wall Street’s returns are just barely beating inflation.
  • Joseph Stiglitz, Bill McKibben, George Soros, the Institute for New Economic Thinking, Al Gore et al say traditional economists are addicted to bad economic theories. GDP is a narrow, misleading measure of America’s long-term growth. Obsessive focus on short-term – stock prices, quarterly earnings, annual returns – is stunting America’s long-term growth.

Read the full article at http://www.marketwatch.com/story/new-doomsday-poll-98-risk-of-2014-stock-crash-2013-06-29?link=MW_story_popular

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Payroll Gains Probably Sustained in June: U.S. Economy Preview – Bloomberg 06-29-13

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The median economist says payrolls grew by 165,000 workers in June after rising by 175,000 in May.

Russell Price at Ameriprise Financial said the fact that the economy is growing as well as it seems to be, despite heavy headwinds, is testament to much-improved underlying fundamentals, and companies are seeing better consumer and business demand while running with very tight labor components.

Thomas Simons at Jefferies said things are picking up but it will be an uneven path toward growth.

Read the full article at  http://www.bloomberg.com/news/2013-06-30/payroll-gains-probably-sustained-in-june-u-s-economy-preview.html

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What China Central Bank Learned From Past Credit Crunches – Bloomberg 06-28-13

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Stephen Bell and Dr. Hui Feng at the University of Queensland write:

  • The current Chinese credit crunch differs markedly from those in the late 1980s and early 1990s, and shows China no longer relies solely on political and administrative controls, and is allowing market forces take a greater role.
  • The most recent tightening of liquidity appears to have been caused by a crackdown on bond-market irregularities along with lower foreign-exchange inflows and by seasonal factors.
  • China is worried about a financial crisis developing as a result of its 2009 anti-crisis lending spree, the rapid expansion of the money supply from the PBOC’s foreign-exchange intervention and the phenomenal growth of a shadow banking sector that escapes regulatory supervision.
  • China’s largely regulatory-induced credit restrictions serve as a real-world stress test of the capacity of its banking system and financial markets.

Read the full article at http://www.bloomberg.com/news/2013-06-28/what-china-central-bank-learned-from-past-credit-crunches.html

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Updated Score: America, 10. China, 0. – Bloomberg 06-28-13

Salient to Investors:

Nisid Hajari writes:

  • No Chinese firms rank among the 10 most valuable companies in the world by market value down from 5, all state-owned, in 2008. All top 10 are American – evidence of the US economy’s resilience and skill at reinvention. However, one good stock rally could vault the Chinese back into the top 10.
  • Ruchir Sharma at Morgan Stanley Investment Mgmt said global investors have refocused on profitability, and value private companies twice as highly as public ones.
  • The shady wealth management products at the heart of China’s crackdown proliferated in part because private companies cannot access capital as easily as favored state firms.
  • Nicholas Lardy at the Peterson Institute for Intl Economics believe that to staunch the flow of easy money, China will be forced to let interest rates rise. Private companies’ return on assets is 3 times that of state-owned enterprises.

Read the full article at http://www.bloomberg.com/news/2013-06-28/updated-score-america-10-china-0-.html

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Lacker Says Markets to Stay Volatile as Fed Debates Tapering – Bloomberg 06-28-13

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Jeffrey Lacker at FRB of Richmond said

  • Financial markets will remain volatile as policy makers debate tapering, part of the process of incorporating new information into financial asset prices.
  • Reaction to Bernanke’s comments is evidence that they had built-in expectations of more asset purchases than I think the FOMC was anticipating, so recent asset price declines were not surprising.
  • When tightening nears, expect more fixed-income volatility.
  • More bond purchases are unwarranted because the 4-year economic expansion is limited by structural elements beyond the Fed’s control, and continued QE increases the risks accompanying the eventual withdrawal of the stimulus. Additional monetary stimulus cannot provide much impetus to real growth.
  • Over the next 12 months, the FOMC will reduce only the pace of QE, leaving the punch bowl in place.
  • Low economic growth rates will persist for several years, but housing is on a solid growth path, boosting the confidence of many households.

Fed Governor Jerome Powell said market adjustments since May have been larger than justified by any reasonable reassessment of the path of policy.

Read the full article at  http://www.bloomberg.com/news/2013-06-28/fed-s-lacker-says-he-doubts-more-monetary-stimulus-effective.html

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Treasuries Lose Most in First Half Since 2009 on Outlook for Fed – Bloomberg 06-28-13

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Bank of America Merrill Lynch data show US bonds fell for a third quarter, the longest losing streak since 1999.

Larry Milstein at R.W. Pressprich said the rate move higher is all about Fed action and is overdone given the economy, but if the Fed is ready to start pulling back, investors do not want to be the last ones out the door.

David Coard at Williams Capital said the Fed did not intend for the market to react the way it did about their plans for tapering.

Jason Rogan at Guggenheim Partners is starting to see data that represents the view the Fed has in their forecasts.

Ian Lyngen at CRT Capital said we are in a largely data-dependent mode with more than a couple of months of inputs to come before it’s clear whether tapering will begin.

Investors bid $2.94 for each $1 of the notes and bonds sold by the Treasury in 2013  versus the  record high $3.15 in 2012, and the first decline in demand at the auctions since 2008.

Read the full article at http://www.bloomberg.com/news/2013-06-29/treasuries-lose-most-in-first-half-since-2009-on-outlook-for-fed.html

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Bank of America Said to Send Property Reviews to India – Bloomberg 06-28-13

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Bank of America opened a unit in India to review home-valuation reports, while eliminating jobs of licensed US workers in its LandSafe business.

Independent banking consultant Bert Ely said with offshoring, the potential for paperwork problems is always there, but it’s hard to be critical for trying to minimize costs.

Goldman Sachs saw headcount in places including Bangalore and Salt Lake City almost double since 2007 to 22 percent of employees. Barclays plans to move 4,000 more jobs overseas.

Bank of America does not disclose how many workers are outside the US.

Read the full article at  http://www.bloomberg.com/news/2013-06-27/bank-of-america-said-to-send-property-reviews-to-india.html

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