Saturday: The Day After China’s Interest Rate Surprise

Really quick… Is mobile data the crude oil of the 21st Century? WSJ story about what’s happening in Europe. Wireless auction in U.S. caught everyone by surprise. Just like in 20th more machines burning oil… More machines burning bandwidth. A whole lot more level 4. Text, color and images, audio, moving images with audio…. When was the last time you visited a site that was black and white?

Greece has officially recovered after six years of recession. Its economy is finally in the black this year, expanding at an annual rate of 1.7 percent in the third quarter, its best performance since 2008. Next year the economy is expected to grow 2.9 percent. Greek auto sales are up 21.5 percent year-to-date.

Also watch what’s happening in Indonesia. TLK.

Big Oil with its super – efficient projects. Just something to monitor in this low price environment.

Preservation vs. not being there when you need it… Millennial fear of the market… Has turning the market into a spectator sport introduced much of the detrimental behavior?

We could also be seeing time for some outperformance in Europe here. Check Société Générale (Dinakar Singh … TGP-Axon). All it will take is a whiff… Germany? So cheap right now that nobody wants it?



Monday: Asian Trade Meetings Underway

Here are some notes I made earlier this year about a potential sovereign debt credit crisis. The interview was on Bloomberg radio and the guest was an old school bond trader from Lehman.

– New subprime is sovereign debt. Central banks are driving capital into weaker credits with the ultra-low interest rates. The amount of money flowing into high yield ETFs is a concern because the real book behind them is not capable of handling the liquidity in them… these guys are on phones. The runs could have dire consequences. Shadow banking: appearance of liquidity in an illiquid market. CAn’t see how they’ll sell the bonds fast enough to get the money bank in the high yield ETFs. In old days, traders may have had a $500 million balance sheet to provide flexibility. Now they have no balance sheet.  Also troubled by the fact that (take Argentina) governments are starting to pick winners and losers. This is something new since the global financial crisis. Over time, investors are going to have less and less faith in government.

The big news this week comes Thursday morning (jobless claims at 8:30 am ) and Friday morning (retail sales at 8:30 am). Import and export prices on Friday morning (8:30 am) will be worth watching. Consumer Sentiment, later on Friday, I expect to stay flat. Here’s the schedule for the week:



Sunday: A Collection of Last Week’s Headlines

Monday, 11/3

* Dollar Gains on U.S. Outlook as Bonds Rise While Stocks Decline

* LabCorp to Buy Covance for $6.1 Billion to Add Contract Research

* HSBC Drops After Profit Misses Estimates, Takes Currency Charge

* U.K. Factory Growth Accelerates as Euro Area Struggles: Economy

* ECB Skips Fireworks for Day One of New Role as Supervisor

* Republicans Have Edge in U.S. Vote With Senate Too Close to Call

* Gold Extends Decline Toward Lowest Since 2010 as Silver Drops

* Gold Wagers Drop as $1.3 Billion Pulled From Funds: Commodities

* Apple Said to Plan Calls With Investors to Market Sale of Bonds

* Publicis to Buy Sapient for $3.7 Billion in Digital Ad Push

* Portugal Finds Chinese Make 90% of Bids at Auction: Real Estate

* London Luxury-Home Values Stagnate for First Time Since 2010

* Brent Crude Trades Near 4-Day Low as China Manufacturing Slows

* Dollar Climbs on U.S. Outlook as Stocks Fall, Natural Gas Jumps


Tuesday, 11/4

* Oil Tumbles on Saudi Price Cut as Bonds Rise, U.S. Futures Fall

* EU Cuts Growth Outlook as Inflation Seen Below ECB Forecast

* Deficit in U.S. Declines to 2.8% of GDP in Unprecedented Rebound

* JPMorgan Faces U.S. Criminal Investigation Into Currency Trading

* Alibaba Profit Beats Estimates as More Shoppers Lure Advertisers

* Munis Beating All U.S. Debt Shows Confidence in Local Government

* Iran’s Nuclear Past Said Not to Impede Ending Standoff

* U.S. Oil Falls to 3-Year Low on Saudi Price Cut as Supply Gains

* Gold Rises for First Time in 5 Days as EU Cuts Growth Estimates

* Saudi Oil Market Fight Shifting to U.S. as Asia Prices Climb

* Deutsche Telekom Says Landline Push Is Priority for U.K. Venture

* Xiaomi Said to Seek Funding at About $50 Billion Valuation

* Paris Second Homes Face New Tax That May Hit Foreign Owners

* Danish Bonds Seen at Risk With Foreign Holders at 20%: Mortgages

* OIL FUTURES: WTI at 3-Yr Low, Brent 4-Yr as Aramco Cuts U.S. OSP

* WTI Crude Drops to Lowest Intraday Price Since October 2011


Wednesday, 11/5

* S&P 500 Futures Gain With Dollar on Republican Win as Gold Falls

* Republicans Profit From Voter Discontent Over Obama Economy

* Ruble Slumps to Record as Russia Moves Closer to Free Float

* Gross Exit Prompts $27.5 Billion in Withdrawals From Pimco Fund

* Barclays Mulls Eight-Way Restructuring as BOE Overhaul Looms

* Republicans Secure Senate Control

* Gold Drops to 4-Year Low as More Than $1 Billion Wiped From ETPs

* Remember Lehman’s Collapse? Gold’s Biggest ETP Back to ‘08 Level

* Silicon Valley Privacy Push Sets Up Arms Race With World’s Spies

* Billionaire Ma’s Pep Talk on Mobile Drives Alibaba Profit Growth

* Patent Reform of Trolls in a Republican Congress Gaining Support

* Republican Win Sets Stage for Keystone, GSE, Patents, Tax Reform

* China Home Buyers Rush Online to Finance Downpayments: Mortgages

* American Realty Accounting Errors Roil Schorsch Property Empire

* U.S. Voters Boost Minimum Wages, Legalize Pot in State Ballots

* OIL FUTURES: Brent ~$82, Fell to 4-Yr Low; EIA Stock Build Fcast


Thursday, 11/6

* Euro Advances While European Stocks Pare Declines as ECB Meets

* Perrigo to Buy Omega Pharma of Belgium for 3.6 Billion Euros

* Draghi Tests Limits of His Power as ECB Approaches 2014 Endgame

* BOE Holds Rate at Record-Low as Europe Weighs on Outlook

* Obama Immigration Vow Clashes With McConnell’s in Goodwill Test

* Ukraine Accuses Russia of Deploying Troops as Cease-Fire Weakens

* World Food Prices Drop a 7th Month in Longest Slide Since 2009

* China’s Parched Plains End Run of Record Corn Crops: Commodities

* Shale Boom Brings Rethinking of U.S. Crude Export Ban

* At Dublin Web Summit, Tech World Braces for Startup Hangover

* Deutsche Telekom Earnings Top Estimates as Europe Recovers

* AT&T, T-Mobile Sued by University of Minnesota Over Patents

* NYC Trump Co-Op Dwellers Face Million-Dollar Bills in Land Deal

* London’s Cheesegrater Tower Investigated After Bolts Break

* WTI Holds Gains on U.S. Stockpiles; Brent Steady Amid Libya Halt

* Plains to Buy 50% of BridgeTex From Occidental for $1.1 Billion


Friday, 11/7

*Dollar Set for Biggest Weekly Gain in 16 Months Before Payrolls

*Mexico Cancels $4.3 Billion China Deal on Doubts Over Bid

*Transocean Takes $2.8b in Impairment Charges, Delays Earnings

*Ukraine Says Tanks Cross Border From Russia as Tensions Rise

*Brent Heads for Longest Weekly Drop Since 2001 on OPEC Outlook

*Gold Seen Extending Slide 12% by Second-Best Forecaster Gan

*ICE to Run Replacement for Century-Old London Gold Fixing

*Telecom Italia New Broadband Customers Slow Revenue Decline

*Slim Adds $750 Million to Telekom Austria in European Push

*Nationstar Leads Servicer Plunge as Probes Widen: Mortgages

*Sears Considers Sale and Leaseback Deal to Strengthen Finances

*OIL FUTURES: Swing in Tighter 75c Ranges; U.S. Jobs Data Eyed

*Dollar Set for Best Week in 16 Months Before Jobs as Stocks Fall


Saturday, 11/8

* China Exports Bolster Economy as External Demand Strengthens

* Shale Drillers Idle Rigs From Texas to Utah as Oil Rout Deepens

* Waldorf Sale to Chinese Risks U.S. Review Over Spying Concerns

* U.S. Stocks Gain for Third Week Amid Economic Growth Optimism

* Coldest November Since 2000 Turning Natural Gas Traders Bullish

* Russia Expands Ukraine Military Presence After 200 Rebels Killed

* LME Proposes Rules to Prevent Market Abuse at Metal Warehouses

* Gold Advances Most Since June as U.S. Job Gains Trail Forecast

* AT&T Faces Off Against Former Ally Slim With Second Mexico Deal

* Alibaba-Backed Momo Files for U.S. IPO of Chinese Chat Service

* Fatal Crash Tests Hands-Off Policy of Regulating Space Tourism

* South Sudan Factions Given 15 More Days to Reach Peace Deal

* Mexico Says Evidence Shows Mass Student Murder and Burned Bodies

Thursday: More US Stock Records After Republican Win Tuesday

[WSJ] “US Stocks Climb to New Highs After Vote” Earnings season has been positive so far and is wrapping up. Oil has plummeted yet the Dow has gained 8.5%. Global growth worries have not held off the rise in shares. The Japanese stimulus has helped. Jobs report out of ADP positive. Data is showing economic expansion but likely to contain low inflation. S&P earning growth on track for 8% for Q3 vs. 4.5% expected.

[WSJ] “Gold, Silver Prices Slide to 4½-Year Lows” Kuroda’s announcement to increase asset purchases to eliminate deflation and boost growth sent dollar higher against yen, monetary easing weakening currency as low rates make it less attractive to hold. This makes precious metals priced in dollars more expensive for foreign holders to hold. Drives prices down. If Fed raises rates this will also benefit the dollar. This should stave off inflation… and the reason to hold gold (positive real interest rates may be coming… or, at least, a departure from negative ones).  Most economies are worried about deflation just as US may be worried about shunting what little inflation there is. Roaring stock market has pulled people out of gold, too.


Monday: Oil Prices Seen Under Pressure and Others

[WSJ] “Pain in Trains Falls Mainly on Grain” Bottlenecks because of bumper crops and oil traffic and lack of capacity.

Grain processors/exporters face higher shipping costs for crops. Grain elevators (gather crops from farmers for transport) offering growers  sharply lower prices. SD: Buy corn for 70 to 80 cents below the December futures price (double normal discount).

Futures markets: Price of corn delivered next spring have climbed higher than December contracts. Shows grain buyers want farmers to store crops away for the winter rather than sell now. DEcember corn $3.7675 a bushel. March ($3.8925) and May ($3.98).

[WSJ] “Auto Sales Trends Echo Troubled Past” Inventory days are up. Low financing cost has been a tail wind. Incentives are up at higher levels like in 2005-06. Fact financing costs are down but inventories are up and incentives are up may mean slow times are ahead.

[WSJ] “Events Could Test History for U.S. Stocks” Investors in Treasurys shows concern for global economic and political outlook. Analysts are adjusting sales forecasts down: 2.6% for Q4 vs. 3.8% at end of Sep.

On the other hand… slow earnings aren’t so bad if they hold down inflation, wages and interest rates. Capital costs/wages are two huge expenses… keeping them low will help margins. Slow and grinding growth has boosted margins over time and they, so far, have stayed there.

[WSJ] “Facing Up to Facebook’s Future” Useful discussion of return on capital here and comparing to how Microsoft, FB, Amazon, Google are spending to try to generate earnings in the future… but is the return really there for what they are doing. MSFT, yes. AMZN not so much. Jury is out on FB.

[WSJ] “Refining Saudi Arabia’s Oil Strategy” Key point is crack spread is falling. As crack spread falls, refiners will push oil guys to push prices lower OR they will buy from the Saudis who are not cutting supply… they are keeping it up and pushing the price lower to squeeze the high cost suppliers out of the game. THE QUOTE: If a price war has started, investors should treat refining margins as news from the front lines.

[WSJ] “Big Oil Feels the Need to Get Smaller” Key point is these guys are seeing shrinking profit margins (Chevron, Shell, BP, Exxon). They are having to go to costly extremes to find fields big enough to make a difference. There is also a very real risk, if oil gets and stays too cheap, that these companies will have to suspend buybacks and perhaps eat into dividends.

[WSJ] “European Central Bank’s Bond Conundrum” The major issue is there is not enough volume for them to buy unless they start buying government bonds and there is huge resistance to doing that. Of course,  a big part of the debate, too, is whether QE is really going to make a difference. Eurozone already has gotten QE benefits but it didn’t make a difference for the economy in the end.

[WSJ] “Toxic Italy Is the Crucial Test for QE in Europe” A lot of this story is pretty esoteric but the point is that Italy’s banks are the big source of loans in the country and they’ve got lots of bad debts still. Bank capital is going to be hard to manage… and corporations who have been borrowing from the banks aren’t likely to be able to raise much of it either! And, without getting Italy out of the doldrums, the Eurozone is in a fix.

Sunday: Barron’s New World of Emerging Markets and Others

[BAR] “The New World of Emerging Markets

On India… the main point is the country has gone through a deleveraging cycle but it my be expensive right now.

On Internet Advertising… branded companies will continue to come to China and need an advertising strategy. BIDU will continue to be a player not just for Internet search. It is also investing in new businesses, including online travel and video.

On the Rate Impact and Deficits… rates higher and will be head wind for South Africa, Turkey… more than in Asia because of current account deficits. Low interest rates have helped as investors have been pushed to higher rates but that will begin to reverse. Money flowing out can be a problem as Fed policy shifts. Unlike some Asian countries, central banks in South Africa and Turkey don’t have as much room to make adjustments to improve the situation.

India was a problem last year. But it has shrunk its CAD aided by shrinking trade deficit.

2001 – 2005 was a great period for emerging market. Will that happen again? If exports are higher, earnings are rising. Lower comm prices could help proift margins.

Emerging markets also have cushions in treasuries. they have not spent on development. That gives their central bank more room to maneuver against shocks than in the past.

On the Philippines and the “Wild Card”… 60% under 30. 30 cars per 1,000 vs. 160 in Thailand. Country is a notch above investment grade.

If something goes wrong in China all bets are off. Or, if central bankers raise rates too quickly. Oops.

[BAR] “Investors in Brazil Have Reason to Celebrate Dilma Rousseff

Some reasonable points and fund ideas: BRF (small-cap) vs. the EWZ as well as a mid-cap BRAQ.  BRF is not so energy laden. Lots of consumer stocks for the growing Brazilian middle class. Exporters will also benefit from weaker Brazilian currency, which has fallen on investors’ negative sentiment.

[BAR] “Commodities: Buy When the World Is Selling

Bear case is China/Europe/Japan slowing. US oil supply is up. Inflation is not an issue as much as possible deflation. But… lower prices may push demand. And, with low rates, the cost of holdin commodities is limited. BUT, if rates start to eek up, won’t those holdings be SOLD??? Futures prices are the same as spot so roll forward costs are low for futures. Institutional money that piled into commodities in 2006 through 2008 has been getting out. Harvard cut public commodity exposure to zero from 8% in 2008.

Fidelity FFFEX drops commodity weighting to 1.2% from 7.5%. GLD now holds $29 billion vs. peak of about $75 billion in 2012.

“A lot of the hot money that came into the market has found its way out,” says John Gabriel, a Morningstar analyst. When that happens, the smart money gets back in.

[BAR] “As Wabco Steps on the Gas, Shares Could Rise 60%” What’s interesting to me is that this forward P/E is probably still expensive.

Industrial companies that can quickly grow their profits typically don’t come cheap. As recently as April, Wabco traded at a 15% premium to the Standard & Poor’s 500 based on next-four-quarter earnings forecasts. Now, at 15.7 times forward earnings, it trades on par with the market. That makes now a good time to invest for the long haul.

[BAR] “The Smart Money Speaks: 14Picks

This about the oil patch amuses me. A classic discussion about valuation based on future prospects. But those future prospects, to me, are not so certain…

Abraxas Petroleum [AXAS]. The stock trades for $4.04. Abraxas double prod to 8,000 barrels. Reserve life 17 years, production up 50% next year. Management swears that debt won’t exceed one times forward 12-month Ebitda [earnings before interest, taxes, depreciation, and amortization]. As for falling oil prices…

At $80 a barrel, their returns on invested capital are north of 20% from both the Bakken and Eagle Ford. It costs $8.5 million to drill and complete a well in the Bakken, and the economics are good. Company has a large inventory of more than 10,000 acres still to drill in Eagle Ford, and about 4,500 in the Bakken. Buying the stock at a discount to proven reserves.

Applied Materials appears to be a picks and shovels opp that has some legs? AMAT manufacturer of semiconductor equipment. AMAT merging with Tokyo Electron [8035.Japan]. Could generate $2.50 a share of free cash flow in 2016. Applied Materials currently trades for $21.

On Europe, the Fed and Rates… Policy makers in Europe are challenged can’t buy sovereign debt outright. ECB hunting assets. It might undertake another round of lending through long-term refinancing operation [financing to euro-zone banks]. All to expand balance sheet and liquidity in financial system. Risks of deflation growing and policy makers don’t have assets to buy. Tip Europe into a deflationary spiral.

Dollar up means inflationary pressures fall. Fed then delays rate hikes into 2016. Corporates could be the place to look. Corp defaults look two years out from rate increases.

On slowing global growth from Faber… Children in Western societies and Japan, earn less than their parents. Less wealth because of taxes. Median incomes declining . But socialist economies in China, the Soviet Union, and Eastern Europe, and in India that opened up will earn more. Better standard of living than parents.

Today’s investors won’t enjoy compounding as much. Yields are not marching from 6% to 15% like they did in the 1970s.

[BAR] “Diamond Hill Small Cap Finds the Diamond in the Rough

Navigators Group (NAVG) insurance. One times tangible book value—in other words, the value of what the company actually owns, excluding intangibles like good will.

DST Systems (DST), a provider of automated record-keeping to the fund industry. Not innovative semiconductor or software companies… just not at attractive prices. It all comes back to price. As prices start to come lower, more things may seem interesting.