Investment News Today: Mei 2013

Jumat, 31 Mei 2013

Can Global Markets Shake Off the Nikkei Jitters?

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Published: Thursday, 30 May 2013 | 11:08 PM ET

By: Dhara Ranasinghe

Senior Writer

Junko Kimura | Bloomberg | Getty Images

Japan's blue-chip stock index has in May suffered its two sharpest sell-offs for the year and its high volatility is fueling concern about a spill over into other major markets.

The Nikkei stock index tumbled over 5 percent on Thursday to its lowest level in a month, knocked down by a strong yen and a fresh bout of profit taking on this year's double-digit gains.

Equity markets in Europe and the U.S. shrugged off the Nikkei's slide to close higher, but strategists say they're not so sure how long they will stand up.

"I don't know how much longer the U.S. markets can hold off [Japan volatility] and I was surprised we didn't open lower [Thursday]," said Mike Crofton, CEO at the Philadelphia Trust Company. "The market is obsessed with the Fed [Federal Reserve] and whether or not it will take its foot off the pedal and so we opened higher on the U.S. economic data," he said, offering a reason why markets had been able to withstand the Nikkei tumble.

Data on Thursday showing an unexpected rise in weekly jobless claims and the U.S. economy growing at a 2.4 percent annual rate in the first quarter, slightly short of estimates for a 2.5 percent gain, eased worries that the U.S. Federal Reserve could start taking back its monetary stimulus soon.

Why Global Markets Ignored the Nikkei's Sell-Off

Michael Crofton, President & CEO at Philadelphia Trust Company says that while investors were spooked by the Nikkei's 5 percent plunge on Thursday, focus still remains on the Fed.

The Nikkei opened more than 2 percent higher on Friday and looked poised to end the month higher.

After a bull-run that took off late last year amid noises about concrete steps to revive a moribund Japanese economy, May has been characterized by huge waves of profit taking in the Nikkei. Thursday's late stock-market dive came exactly a week after the market tumbled more than 7 percent in its largest one-day fall since the March 2011 tsunami and earthquake.

"While the [Nikkei] volatility is contained in Asia for the time being, it is making U.S. investors nervous," said Kathy Lien, managing director at BK Asset Management in a note. "If Japanese stocks continue to fall it could indirectly trigger a top in U.S. markets as uncertainty spreads around the world."

Most equity strategists remain upbeat about the outlook for the Nikkei, which is still up more than 30 percent for the year. That puts it ahead of year-to-date gains of around 16 percent in U.S. stock markets and a rise of about 13 percent in London's FTSE-100.

Profit-Taking Behind Nikkei's Decline: Pro

Alexander Treves, Head of Equities, Japan at Fidelity Worldwide Investment says the Nikkei's sharp correction makes sense given it's rapid increase over the past year.

"It certainly has been an exciting week for Japan markets but you have to put the sell-off into the context of how far the Nikkei has risen," Alexander Treves, head of equities Japan at Fidelity Worldwide Investment in Tokyo, said. "The fundamental story remains intact and people were looking for an excuse to sell."

According to analysts the outlook for the Nikkei remains positive and news this week that Japan's public pension fund, worth over $1 trillion, is mulling a change in its portfolio strategy that could allow its investments in Japanese equities to grow, add to investor optimism.

— By CNBC.Com's Dhara Ranasinghe; follow her on Twitter @DharaCNBC

Japan's blue-chip stock index has in May suffered its two sharpest sell-offs for the year and its high volatility is fueling concern about a spill over into other major markets.

31 May, 2013

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Source: http://www.cnbc.com/id/100778617
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Goldman: This US Treasury Sell-Off Is for Real

With yields on government bonds jumping in the past week, Goldman Sachs has warned that a widely predicted bond sell-off is finally happening, while a major U.S. asset manager has warned investors to move out of long-duration bonds to avoid heavy losses.

Pessimistic growth targets, a fear of the Federal Reserve curtailing asset-purchases, and uncertainty over Japan's "Abenomics" policies are the three key reasons that Goldman Sachs cited for the move higher in yields.

"The bond sell-off: It's for real," Goldman's fixed income analysts said in a research note released on Friday. "Our end-2013 forecast for 10-year U.S. Treasurys remains 2.5 percent, above the forwards, and we will be looking for other opportunities to trade the market from the short side."

The yield on a 10-year benchmark Treasury hit 2.17 percent on Tuesday, the highest level in over a year. Investors fear the Federal Reserve, the biggest buyer of U.S. government bonds in recent years, will start tapering its purchases as the economy improves. (Bond yields and prices move in inverse to each other.)

"We estimate that the direct effect of a shift in expectations around the duration and magnitude of QE3 would be relatively contained. But there could be larger effects from a 'present valuing' of the shrinking Fed balance sheet in the more distant future," Goldman analysts said.

(Read More: CNBC Explains: Quantitative Easing)

Over the past week, the yield on 10-year bonds have risen 10 percent, stabilizing at around 2.0745 percent on Friday. Ten-year Japanese government bonds (JGBs) have hit 1 percent this week, and German 10-year bund yields have also risen.

"Anyone who has too many bonds with too much duration is going to hurt. And that's what markets are like," Jim McCaughan, chief executive officer of Principal Global Investors, which has $281 billion in assets under management, told CNBC Friday.

"There are lots of investors who hold bonds, hold bond funds that have done very well over the last ten years by having long duration. When rates go up those funds are going to get hit. So I think you have to be very wary of funds that are heavily in high quality bonds, whether investment grade or Treasury, who have much duration."

31 May, 2013

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Source: http://www.cnbc.com/id/100779340
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Rising Yields May Stifle Boom in Dividend Stocks

The Standard & Poor's 500 collectively no longer yields more than government bonds, calling into question whether the rush to high dividend-payers this year can continue.

One of the main selling points for the market had been that there was no better place to go for a steady income stream.

Sub-2 percent benchmark Treasury yields offered little alternative to an S&P 500 that had been yielding until recently a shade higher than bonds.

That dynamic has changed, though, as the surging market has meant lower collective dividends, in turn posing a challenge to investor habits.

The S&P 500 dividend yield was 1.93 percent Friday, while the 10-year Treasury yield stood at 2.09 percent.

"Dividend stocks in the last few days have been taking a beating, which has been expected. We've been waiting for this," said Howard Silverblatt, senior index analyst at S&P Capital IQ. "But dividend stocks are up for the long term."

Indeed, S&P 500 companies paid a record $37.5 billion in dividends during May.

(Read More: Can Global Markets Shake Off the Nikkei Jitters?)

That kept up the pace of a record-setting year in which $124.7 billion dividends have been paid out, compared with $112.6 billion in 2012.

Yet dividend stocks have been on the receiving end of bad press lately.

The highest yielders are trading at near-record premiums to their lower-yielding counterparts, according to a warning from Savita Subramanian, equity and quant strategist at Bank of America Merrill Lynch.

She warned investors against chasing dividends in the current environment of high payouts and said a "low-beta bubble" looms.

"Investors should care more about the underlying earnings risk, as well as balance sheet quality, sustainability of dividends, and a host of other factors that play into the safety of an investment," she said in a note to clients.

"Today, an opportunity to buy high-quality stocks and sectors as exhibited by lower fundamental betas at lower valuations is still apparent, and we believe this underscores a fundamental mispricing of risk among equities," Subramanian added.

Indeed, investor appetite for dividend stocks has been huge.

The Vanguard Dividend Appreciation exchange-traded fund has pulled in $2.17 billion in 2013, the ninth-most among ETFs, according to IndexUniverse. The fund is off 0.4 percent this week but up 15 percent this year.

31 May, 2013

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Source: http://www.cnbc.com/id/100777643
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Asia's Love Affair with Investing in Gold Continues

The China Gold Association recently stated that gold imports will swell further, even after more than doubling to an all-time high in March (again before the price selloff).

In India in the first quarter, bar and coin purchases hit 97 tons (up 52%) and jewelry demand rose to 160 tons in the first quarter.

Not surprisingly, India and China account for more than 50% of global consumer demand for gold bullion - the Love Trade, indeed.

The demand for the precious metal in Asia can also be seen in the premiums Asian buyers are willing to pay above the spot price for gold. Premiums hit an all-time record of between $5-$7 per ounce in Hong Kong, Singapore and elsewhere in Asia as buyers waited in long lines to buy their gold at Wall Street sale prices. Premiums are at record highs because of a shortage of physical gold in Asia.

US Gold Coin Sales Hit Three-Year High

Of course, the Love Trade is not just limited to Asians. Some investors here in the U.S. are not following Wall Street's lead.

These investors, as Frank Holmes indicated, are buying gold coins from the U.S. Mint.

After the gold price tumbled in April, sales of gold coins from the Mint rose to the highest level since December 2009. Sales came in at 209,500 ounces, well above March sales of only 62,000 ounces.

Investors are also going to coin dealers.

Todd Dutkevich, a senior account executive at American Bullion Inc., told Bloomberg earlier this month, "People are flocking to buy physical gold. The price drop has made it possible for many retail buyers to add gold."

But the real story continues to lie in Asia with its traditional love of gold now mixing with increasing prosperity of the population.

Marcus Grubb of the World Gold Council summed up the current situation in the gold market nicely.

He believes all of the gold sold through sales of gold ETFs by U.S. investors will find a home in Asia.

He said, "Even if ETF outflows continue in the United States, it is quite likely that the gold previously held in ETFs will find a ready market among Indian, Chinese and Middle Eastern consumers who are taking a long-term view on the prospects for gold."

For more on investing in gold, check out what the recent gold crash has done to gold prices: Has the Great Gold Crash Divorced Bullion from Futures Prices?

Related Articles:

Reuters:
Asia Gold Demand to Hit Quarterly Record, Absorb ETF Outflow -WGC
Forbes:
After India, Now China Catches Gold Bug
Mineweb:
China Demand Drives Asian Gold Bar Premiums to Record Highs

Tony Daltorio 31 May, 2013

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Source: http://feeds.moneymorning.com/~r/moneymorning/jOLe/~3/BvFrJ-8R8Zk/
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Kamis, 30 Mei 2013

Bernanke Warns But Market Says "Bull!"

Closing Bell Exchange

Discussing the day's trading session, and how to play it, with David Kudla, Mainstay Capital Management; Joe Tanious, JPMorgan Funds; Warren Meyers, DME Securities; and CNBC Contributor Michael Farr.

It has been historically rare for a Federal Reserve Chairman to focus much on equity prices—yet Bernanke has. In February's Congressional testimony, he said, "I don't see evidence of an equity bubble." Mr. Bernanke said stock prices don't appear to be overvalued, corporate earnings are high and equity risk premiums — the added return investors demand for holding stocks—are above normal. The dual mandates for the Federal Reserve are high employment and low inflation. Managing the appropriate level for stock prices should not be the concern of any government official or central banker.

Bernanke's approach to restoring the U.S. economy has been many faceted. The two core tactics have been to re-inflate housing prices and re-inflate stock prices. By creating wealth among Americans, the Fed hopes they will spend and hire and that the economy will grow. It strikes us as both risky and inappropriate for the Federal Reserve to establish acceptable value levels in any free-market enterprise like the U.S. equity market.

Mae West quipped that "too much of a good thing can be wonderful." While we enjoy "wonderful" as much as anyone, we are reminded of the first commandment of investing: buy low and sell high. No matter what the Federal Reserve says, the appropriate level for stock prices cannot be determined by simply taking a quick snapshot of the market's price-to-earnings ratio. If it were that easy, anyone could do it! As we mentioned last week, the Fed must (at the very least) consider that profit margins are near record highs. Adjusting the 'e' in 'p/e' to a more normalized level would increase the market's p/e multiple substantially. However, we acknowledge that markets that become overbought can become a lot more expensive and euphoria can last a long time. The question is: Will the enthusiasm for stocks last long enough for the fundamentals to improve In other words, can the Fed successfully prime the pump such that economic growth (and thereby earnings growth) improves and gives investors something tangible to get excited about?

Disciplined investors can always make money over the long-term if they invest in the right things. Color us cautiously optimistic, and be careful out there!

Michael Farr is a contributor for CNBC television and has appeared on numerous broadcasts and has been quoted in global publications. He is a member of the Economic Club of Washington, the National Association for Business Economics, The World Presidents' Organization, and The Washington Association of Money Managers. He is the author of "A Million Is Not Enough," and "The Arrogance Cycle." His new book, Restoring Our American Dream: The Best Investment, debuted in book stores on March 30.

31 May, 2013

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Source: http://www.cnbc.com/id/100384476
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Japan Stocks Dive in Second Bout of Heavy Selling

JGB Will Move 'Sharply' Lower: Pro

Tres Knippa, owner of Kenai Capital Management, says that Japan is going through "a shift of sentiment" and that it's only at the beginning of "a very sharp move lower" for JGB.

"If tonight, we get good data then that will fuel talk about QE tapering and hit stock markets globally," said Kelly Teoh, markets strategist at IG Markets.

"We think the Nikkei will end the year higher, but there're just lots and lots of profit taking right now," she said, adding. "It's bloodshed."

Ben Collett, head of Asian equities at Sunrise Brokers in Hong Kong, said that those investors who had hoped for a rebound after the slide in the Nikkei exactly a week ago have been left disappointed and were bailing out of their positions, exacerbating the tumble.

"The guys that haven't sold in the first leg are getting drawn in," he said.

The market has witnessed heightened volatility in the past week, swinging between heavy gains and losses almost on a daily basis.

Collett foresees heavier losses in the market over the coming days. "We would look to re-enter the market at 13,100, if it keeps going down,we won't step in again until around 11,300," he said.

One trader said that he had seen an uptick in the number of short positions on the Nikkei.

CMC's Chua said the Nikkei was hovering close to key chart support at the 13,500 area and a break through that level could see Japan's stock market fall to 12,000 and levels not seen since early April.

—By CNBC's Dhara Ranasinghe and Ansuya Harjani

30 May, 2013

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Source: http://www.cnbc.com/id/100775197
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Goldman Sachs: Keep Calm and Carry On Buying

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Global stocks may have been on a wild ride of late, hitting all-time highs before plunging to worrying lows, but the world's biggest investment bank has told investors they should see rising U.S. Treasury prices as positive and should continue to buy equities.

"While there are certainly risks around QE (quantitative easing) being withdrawn we continue to view rising bond yields as relatively benign for European equities," Goldman Sachs' European research team said in a report released on Thursday.

"Indeed provided it is better growth that is driving yields upwards (which is what we expect) we would argue it is supportive. We find a positive relationship between real yields in the U.S. and European equities."

Fed Chairman Ben Bernanke gave little away in his testimony before Congress last week, but markets were twitchy both during and after his speech.

Investors were spooked further by the release of the minutes of the latest Federal Open Markets Committee (FOMC) meeting. They revealed that "a number of participants" were willing to scale back the central bank's $85 billion-a-month asset purchases, perhaps as soon as June, if the U.S. economy picks up further.

The yield on a 10-year benchmark treasury ticked above 2 percent as bearish sentiment kicked in and investors feared an end to the extra liquidity provided by central banks that has fueled the recent bull run. The 10-year yields have risen 10 percent in the last week, stabilizing at around 2.1189 percent.

The Nikkei tanked by over 7 percent in the session following the release of the FOMC minutes. This volatility continued as it skidded below the 14,000 mark to a one-month low on Thursday, weighed down by a strengthening yen and volatile Japanese government bond yields (JGBs). The session brought the benchmark's total losses to 14 percent since it plunged on Thursday last week.

"Yesterday (Wednesday) morning it looked as though the market gods had laid out the pieces on a chess board, in a way that was logical and tidy. Now they have thrown them in the air to land where they please," Kit Juckes, global head of foreign exchange strategy at Societe Generale, said in a morning note on Thursday.

"Welcome to a much weaker Nikkei, the prospect of risk aversion into month-end, accompanied by spread widening, lower yields and bizarrely a slightly softer dollar."

But Goldman Sachs urged investors to plough onwards and upwards echoing the famous phrase "keep calm and carry on", coined by the British government during the second world war, to be published in case of a Nazi invasion.

"Our economists continue to expect the first hike in the Fed funds rate to occur in early 2016 with the FOMC to start tapering QE in (the first quarter) 2014," Goldman said.

Contrasting it with 1994, when a surprise rise in Fed funds caused a bond bubble to burst leading to a 17 percent sell-off in European equities, Goldman said the rise in Treasurys would be slower and equities today are a lot less vulnerable.

"European equities had risen by 42 percent in the previous year and were on a P/E (price-to-earnings) of 17 times. Today the market is up 27 percent over the last year, on a P/E of 12 times and at only a 13 percent premium to the 5-year average," it said, adding that cyclicals should be preferred over defensive stocks.

"We still see the most likely outcome as a modest rise in bond yields and reasonable returns on equities."

—By CNBC.com's Matt Clinch; Follow him on Twitter @mattclinch81

30 May, 2013

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Source: http://www.cnbc.com/id/100775620
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Walls Around Stock Research Are Crumbling

There's little room for doubt that at least some of the analysts indicating that their compensation depends on investment banking business and trading commissions work inside some of the biggest Wall Street firms. Although the researchers cannot say which ones, because they promised anonymity to the respondents, there's really no way to get to the 60 percent without including analysts from the bigger firms.

For example, over fifty percent of the respondents work for firms that have 26 or more research analysts. And, in any case, the smallest research firms tend to be independent and not connected with investment banks.

The firms that originally signed onto the 2003 settlement were Citigroup's Salomon Smith Barney (now run by Morgan Stanley), Merrill Lynch (now owned by Bank of America), Credit Suisse First Boston (now simply Credit Suisse), Morgan Stanley, Bear Stearns (acquired by JPMorgan Chase), Goldman Sachs, Lehman Brothers (which declared bankruptcy in 2008, Piper Jaffray, J.P. Morgan (now part of JPMorgan Chase) and UBS Warburg (rebranded as UBS Investment Bank).

Credit Suisse and JPMorgan declined to comment. Bank of America Merrill Lynch said it was unable to comment immediately. Goldman Sachs, UBS and Piper Jaffray, and Morgan Stanley did not respond to inquiries.

The researchers themselves were surprised by how many of the research analysts indicated their pay was tied to the investment banking and trading sides of the business.

"I thought it was quite surprising," said Texas A&M's Sharp. "When we presented it to an audience at another university, one person who has done a lot of research into the analyst field told us it was the most surprising finding in the whole study."

The survey results may actually undercount the number of analysts who believe their pay is tied to underwriting and trading.

"These guys are well aware of the Chinese Wall rules. Several of them specifically brought it up in individual interviews we conducted. So the fact that 44 percent say what they said, it could be taken as a lower bound of what's really going on," Call said.

In addition to the survey, the researchers also conducted 18 detailed follow-up interviews. They discovered a disconnect between what analysts would say when individually interviewed and the survey responses.

"They were adamant that the Chinese walls were consistent and working, when interviewed individually,"said Arizona State's Call.

A person at one of the firms involved in the settlement said that the survey question was flawed because it combined generating underwriting business with trading commissions. (This person requested anonymity because he was not authorized to speak on the matter.) Tying the former to analyst compensation is barred by the 2003 agreement and SEC guidelines, while tying the latter is not, the person said. Nonetheless, tying research to sales commissions creates a conflict of interest for analysts since it makes them part of the securities sales force for the firm.

"Asking about both these things in one question is bound to produce misleading results. One is legal, another is not," a person at a different firm involved with the settlement said.

As a legal matter, this is correct. While the 2003 settlement required firms to separate research and investment banking, they left open this important loophole. Analyst compensation can still be tied to trading commissions, which puts implicit pressure on analysts to craft ratings to generate high levels of client trading. Think of it as the new form of that old Wall Street swindle known as "churning."

The researchers distributed surveys to all 3,341 analysts whose research appeared in the Investext database in the 12 month period from October 1, 2011 to September 30, 2012. They received full survey responses from 365 analysts, or 10 .9 percent of the survey pool. That's considered a very favorable response rate in academic circles. Their report, titled "Inside the Black Box of Sell-Side Financial Analysts," was published in March 2013.

The study seems to vindicate some of the early criticisms of the attempt to liberate analysts from compromising financial ties at their firms.

"Clearly, brokerage and investment firms have a conflict of interest. Since investment activities (such as initial public offerings and secondary market issues) are highly profitable and research and analysis lose money, the former will eventually compromise the latter. Chinese walls will mask rather than preclude abuses, and even the most conscientious analysts will in the end surrender to the rainmakers' dictates," law professor Michael Greve wrote in an article for the American Enterprise Institute even before the settlement was finalized.

''I am not convinced that the global settlement has done enough to change attitudes at the top of these banks,'' said Senator Richard Shelby, then chairman of the banking committee, said in 2003.

Not everyone is surprised that at the results of the study. Barbara Roper, director of investor protection at the Consumer Federation of America, said, "Sadly I'm not surprised. The analyst settlement never did as much as it could or should have done to bring real analyst independence. The SEC never fully embraced it, didn't adopt rules to enforce its principles, and didn't implement it in a way that really changed practices."

She added, "The best thing the settlement did was to undermine confidence in stock analysts. It put people on alert not to trust these guys."

(Full disclosure: one of the individuals who participated in the 2003 settlement was Henry Blodget. He paid millions to a restitution fund and agreed to a lifetime ban from the securities industry. I worked for Blodget at Business Insider from 2008 to 2010.)

_By CNBC's John Carney. Follow him on Twitter at @carney.

30 May, 2013

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Source: http://www.cnbc.com/id/100774459
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Rising Oil Prices: The Euro Zone's Next Big Problem?

"If the EU doesn't understand that affordable energy is an absolutely critical part of the solution to the growth problem, it is going to continue digging its own hole, with subsidies and with extremely expensive energy," added Lacalle.

Lacalle is long oil, predicting that private companies producing shale oil will ultimately need to see a higher return on their capital.

"There is very little return on capital employed to deliver from this revolution, so it also needs a price signal. But they are private companies, they want to make money and they need to make, 15 or 16 percent return on capital employed – that is not happening at $100 a barrel," he added.

Nitesh Shah, associate director of research at ETF Securities, said Brent will be driven higher as a result of supply forces within the Middle East and Europe. But he added that OPEC countries manage the price with a "strong hand" and a decline in demand from Europe would trigger the price to fall.

"If the demand from Europe starts to wane significantly, that would move the price and they would tighten up supply. That is a key issue for the OPEC countries - they need make sure whilst they maintain the price, they also maintain the volume of sales to have sufficient revenues to maintain their spending programs."

Shah said dwindling demand from the EU would be enough for OPEC to become more flexible on the $100 a barrel level, which is deemed to be minimum price before supply cuts are considered to boost prices.

"Whilst most of the focus tends to be on the price, each individual country is thinking of the price times the volume - the actual revenues they are going to get - so I think there will be flexibility. If the price was to fall down due to lack of demand form Europe, I think they would be a lot more flexible on that $100 level," he said.

Nancy Curtin, CIO at Close Brothers Asset Management, said shale may hurt some of the African oil producers, but the Gulf States, who are the main exporters to the EU, will not be hit.

"Part of what will prop up the price in oil is structurally, shale gas is more expensive, so it creates cost pressures in the industry. If the world begins to grow again, you are going to have ongoing and continued demand from the emerging world," she said.

—By CNBC's Jenny Cosgrave; Follow her on Twitter @jenny_cosgrave.

30 May, 2013

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Source: http://www.cnbc.com/id/100776563
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This Chart Shows Dow Should Be (a Lot!) Lower

Published: Thursday, 30 May 2013 | 12:36 PM ET

By: Jeff Cox

CNBC.com Senior Writer

Traders work on the floor of the New York Stock Exchange (NYSE) on May 23, 2013 in New York City.

Getty Images

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.

While earnings have grown only modestly over the past few quarters, stock prices have surged, sending what could be a disconcerting message to investors.

The Dow industrials, in particular, have seen a 17 percent jump in 2013 alone even as earnings in the past two quarters have grown little.

That trend disrupted a formerly symbiotic relationship between earnings and stock prices and is indicating that the bluechip average is in for a substantial pullback, according to Tom Kee, who runs the StockTradersDaily investor web site.

"They've been moving in tandem since 2009, until recently. Earnings per share for the Dow Jones industrial average have flatlined and the price has taken off," Kee said. "There is something happening here that defines a bubble."

After being stuck at $19.17 a share in early 2009, Dow earnings jumped to a peak of $36.15 in 2012.

But they've stayed in that range over the past two quarters, hovering around $35 and most recently at $34.84 in the first quarter.

A similar situation has happened on the Standard & Poor's 500, which saw first-quarter earnings increase 5.1 percent on revenue growth of just 1.1 percent.

At one point not long ago, earnings for S&P 500 and the price surge from the 2009 lows were nearly identical, but that relationship also has begun breaking down.

The Dow has been at the front of the major averages in gains.

Kee fears that won't last, though, with the 30-stock index set to tumble to around 13,500, which is the level where the price-to-earnings ratio started to break down.

Winds of Change Sweeps Markets?

Michael Tyler, Eastern Bank Wealth Management, and David Bianco, Deutsche Bank, discuss whether the markets' wild ride is indicative of a reversal in investor sentiment.

"This is looking at the parallels," he said. "If this thing is expected to continue to be parallel, with the same relative relationship, then the actual price on the Dow Jones industrial average should be much lower than it is."

Worries over whether the market is getting overheated have begun to creep into investor sentiment surveys.

The American Association of Individual Investors reported that bullishness—expectations the market will rise over the next six months— last week fell a full 13 percentage points to 36 percent, while bearishness rose to 8.1 percentage points to 29.6 percent. Neutral sentiment gained 4.9 percentage points to 34.4 percent.

The Investors Intelligence survey, which polls newsletter editors, remained optimistic though slightly less so, with bulls outnumbering bears 52.1 to 19.8 percent.

—By CNBC.com Senior Writer Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.

While earnings have grown only modestly over the past few quarters, stock prices have surged, sending what could be a disconcerting message to investors.

31 May, 2013

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Source: http://www.cnbc.com/id/100776807
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Questions raised about broker-dealer's financial health

broker-dealer, finra, net capital

Allied Beacon Partners Inc., a midsize independent broker-dealer with 200 registered reps, informed its advisers yesterday that the firm is in violation of industry rules requiring that sufficient capital be kept on hand to remain open for business, according to a rep at the firm, who spoke on the condition of anonymity. While the broker-dealer remains open — and brokers can make unsolicited sales of securities for clients looking to cash out of positions — reps no longer buy securities for their clients.

Other industry participants echoed what the rep told InvestmentNews about the status of the B-D. "I've spoken to a number of producers and producer groups, and it's my understanding that the advisers were told earlier this week that Allied Beacon was under its net-capital requirement," said Brad Fay, president of recruiting firm IBDSearch LLC. "That means the brokers can't buy securities for clients and can only make unsolicited sales of client's position. The firm was looking for an equity partner or capital infusion."

Allied Beacon's chief financial officer, Roger Leibowitz, did not return calls yesterday or today to comment.

Nancy Condon, a spokeswoman for the Financial Industry Regulatory Authority Inc., which monitors net capital levels at broker-dealers, declined to comment on Allied Beacon.

The company is the legacy broker-dealer for at least two B-Ds that went out of business over the past few years after being hit with investor lawsuits over fraudulent private placements. One of those investor complaints, originally filed in 2010 against a dead broker-dealer called Community Bankers Securities LLC, finally caught up to Allied Beacon last week. In a decision rendered by a Finra panel, Allied Beacon was ordered to pay a $1.6 million claim stemming from the 2010 complaint.

The investors in the claim made several allegations, including that the firm failed to conduct proper due diligence related to selling private placements of what turned out to be Ponzi schemes, Medical Capital LLC and Shale Royalties, which is also known as Provident Royalties LLC.

That award allegedly pushed the brokerage into a net-capital violation as the firm did not have enough cash on hand to pay the claimants, said several people familiar with Allied Beacon's situation. The Securities and Exchange Commission's net-capital rule regulates a broker-dealer's ability to meet its financial obligations to its customers and creditors. According to Allied Beacon's 2012 audited financial statement filed with the SEC, the firm had $104,000 of net capital at the end of last year.

Mr. Fay said he estimated that roughly 40% of the reps at Allied Beacon were previously affiliated with two firms. They were Workman Securities Corp., which closed in 2011 after striking a deal for many of its reps moved to Allied Beacon, and QA3 Financial Corp., which also closed in 2011 but had no formal agreement with Allied Beacon to move its reps there.

"A rep called me on Wednesday and said the firm was closed due to net capital violation as told to him from the back office of the broker dealer," said Jon Henschen, also an industry recruiter. "Allied Beacon's story shows a repeating theme of smaller firms taking on more risk with alternative investments to attract reps to join but having a lack of capital to cover those risks when arbitrations occur."

An added wrinkle to the problems surrounding Allied Beacon is its role as the distributing broker-dealer for a new nontraded real estate investment trust, United Realty Trust Inc.

The REIT will change dealer-managers to another broker-dealer, Cabot Lodge Securities LLC, said Jacob Frydman, the REIT's chief executive and one of the owners of Cabot Lodge Securities. That change had been in the works prior to Allied Beacon's net-cap violation, Mr. Frydman said.

31 May, 2013

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Source: http://www.investmentnews.com/article/20130530/FREE/130539991
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InvestmentNews to honor industry innovators with Best Practices Awards

InvestmentNews is pleased to announce a new initiative that will formally acknowledge the top firms in the financial advice business.

The 2013 InvestmentNews 'Best Practices Awards' will recognize the top-performing and most innovative firms in the industry – specifically in the areas of human capital and technology.

InvestmentNews' Research team will identify the winners of the 2013 Best Practices Awards by analyzing data collected through our 2013 InvestmentNews/Moss Adams Staffing & Compensation Study, as well as our 2013 Adviser Technology Study.

To be eligible for the InvestmentNews Best Practices Awards, an advisory firm must participate in a 2013 InvestmentNews benchmarking study. The 2013 InvestmentNews/Moss Adams Staffing & Compensation survey is now open for participation until June 10. To complete the survey, and be considered for the 2013 Best Practices Awards, please visit InvestmentNews.com/AdviserComp

Winners will be notified over the next several months and invited to attend an exclusive "Best Practices" workshop and awards ceremony in September, which will be featured in InvestmentNews and on InvestmentNews.com

If you believe that your practice is one of the industry's top-performing or most innovative firms, please take a moment to complete the 2013 InvestmentNews/Moss Adams Staffing & Compensation survey and find out if you and your firm are one of the advice industry's "2013 Best Practices."

Participate Now!

For more information about 2013 Best Practices Awards, or the 2013 InvestmentNews/Moss Adams Staffing & Compensation survey, please contact Mark Bruno at 212-210-0116 or mbruno@investmentnews.com

31 May, 2013

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Source: http://www.investmentnews.com/article/20130530/FREE/130529928
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Morgan Stanley fights Idaho defecting brokers

morgan stanley, stifel, finra

When is a successful recruiting effort actually a competitive raid?

Morgan Stanley may test that question in arbitration with the Financial Industry Regulatory Authority Inc., now that an Idaho federal court judge has denied most of its requests for a restraining order against three former brokers.

On May 17, the company filed a complaint against three former Smith Barney brokers in its Coeur D'Alene, Idaho. branch who left to join Stifel Nicolaus & Co.

Donald Scharenberg, Guy Gerber and Michael Armon, the producing branch manager for the office, signed on with Stifel on May 9. In its filing with the court, Morgan Stanley said the three men managed a total of $229 million in assets and produced $1.7 million in revenue between them, which represented more than half the assets managed and revenue generated by the Coeur D'Alene office.

"The Coeur d'Alene MSSB branch is relatively small, with only six financial advisors at the time defendants were still employed there. The departure of three financial advisors, including the branch manager (defendant Armon) has led the relatively small office to experience upset, anxiety, insecurity, uneasiness and concern," Morgan Stanley said in its filing.

Spokesman Jim Wiggins of Morgan Stanley did not return calls for comment. The company has not indicated whether it plans to file an arbitration claim against the brokers.

"This is just three guys who want to change jobs," said Steven Andersen, a Boise-based lawyer representing the three brokers. "I don't know why Morgan Stanley brought this to court."

Morgan Stanley's request for a restraining order against the three brokers asked the court to demand they return "documents, records and information removed from MSSB or concerning MSSB's clients," to prohibit the destruction of any such evidence that might be used in further proceedings against the three, and to prohibit them from soliciting any other Morgan Stanley employees.

According to the PACER electronic disclosure system, on May 20, the U.S. District Court for the District of Idaho granted the restraining order requests only in regard to Mr. Armon.

Mr. Andersen said his clients had no documents or information to return to Morgan Stanley, and that Mr. Armon did not violate his employment contract.

"This is a non-starter. We fought the charge and we won," he said. "I don't know what Morgan Stanley is going to do now."

In its complaint, Morgan Stanley accused Mr. Armon of violating the Protocol for Broker Recruiting as well as his employment contract, which prohibited him from soliciting other Morgan Stanley employees to join another firm for 18 months after leaving the company. The complaint alleged that Mr. Armon had already tried to solicit two other advisers in the Coeur D'Alene office and another in Washington state to join him at Stifel.

31 May, 2013

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Source: http://www.investmentnews.com/article/20130530/FREE/130539993
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With new name, broker-dealer group retrenches and sets relaunch

broker-dealers, independent broker-dealers

After dropping off the radar screen for the past year, the National Association of Independent Broker/Dealers Inc. plans to relaunch itself next month with a new name, the National Association of Broker Dealers.

The "independent" part of the old name was dropped to attract firms that are not independent-contractor broker-dealers, said compliance consultant Carolyn May, who became NABD chairman in January.

"We didn't feel like that [old name] indicated what we are," Ms. May said.

The newly rechristened group plans to launch a new-member drive, with an updated website and a schedule of regional meetings in place of a national conference that flopped last April year from lack of interest.

"We decided a national symposium is not what we want to do," Ms. May said. "Small firms don't have a lot of travel money, so we're going back to regional [meetings] and reconstituted the [NABD] board with members from around country."

Ms. May said it's been about year since existing NAIBD members have been contacted. "We have to do a better job of communicating with the constituency we have," said Howard Spindel, founder of Integrated Management Solutions USA LLC, a compliance consultant, and current NABD treasurer.

Dues for NABD members will stay at $300 per year.

"Our members can't afford to be members of large trade organizations" such as the Securities Industry and Financial Markets Association and the Financial Services Institute Inc., Ms. May said.

"The FSI, from what I've seen, seems to be leaning a little bit more toward advisers," she added. "That's a niche that needs to be covered, as well. But there's not a group out there that is really an advocate for small B-Ds."

Not so, FSI spokesman Chris Paulitz.

The FSI does indeed represent small B-D firms and has several small-firm representatives on its board, he said.

The trade group for independent contractors has 105 B-D members and 35,000 individual financial adviser members. Firms pay $1,500 or more per year in dues, depending on size. Individual advisers pay as little as $99 per year if their firm is an FSI member and part of a campaign to enroll advisers, or as much as $199 if their firm is not a member.

Ms. May and Mr. Spindel did not know exactly how many members the NABD has but Ms. May said that as of early 2011, the NAIBD had about 330 members.

"We have to some extent retrenched," Mr. Spindel said.

"But we have people on the board from all over the country who are devoted to the mission of promoting broker-dealers, and particularly the small broker-dealer," he added.

31 May, 2013

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Source: http://www.investmentnews.com/article/20130530/FREE/130539994
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Rate spike could skewer stocks, too

stocks, bonds, interest rates

Surprisingly, stock investors may have more to worry about than bondholders when it comes to rising interest rates.

Obviously, rising interest rates have an inverse effect on bond prices, but with global growth sluggish at best, experts say surging rates could put extra pressure on already thin company earnings.

Three out of five companies in the S&P 500 beat earnings estimates in the first quarter, but only 46% beat revenue estimates, according to research firm FactSet Research Systems Inc. That's the third quarter out of the last four that the majority of S&P 500 companies have disappointed on sales.

One of the biggest reasons there's been a disconnect between income and revenue is that companies have been propping up earnings through cost-cutting, said Russ Koesterich, chief investment strategist at BlackRock Inc.

The cost cutting is keeping margins at companies high even though top- line growth has been tepid, he said.

Companies have also been helped by the fact that their three largest costs — wages, cost of capital, and raw materials — have been flat or falling.

With interest rates spiking — the yield on the 10-year Treasury has risen almost 50 basis points this month — the cost of capital is rising and could shrink margins if sales stay low.

"If you believe stocks are cheap than you assume companies can keep up these margins," Mr. Koesterich said. "Over the long-term revenues are a cause for concern."

The biggest thing to worry about with rising interest rates is the speed at which they keep going up, said Bob Doll, chief equity strategist at Nuveen Asset Management LLC. If interest rates slow their roll, it shouldn't pose a big problem for stocks.

"The market can tolerate more rise in rates," he said. "But not at this pace."

Eventually though, revenue is going to have to pick up the pace to keep stocks chugging along after this year's already sizable 16% gain through May 29.

"If we're going to have a decent leg up from here, there's going to have to be earnings and revenues," Mr. Doll said.

One positive sign for stocks is that there's been a rotation from defensive stocks' to cyclical stocks' leading the market over the last month.

The technology, energy, and industrial sectors are all up between 4% and 5% over the last month, while two of this year's early leaders —utilities and consumer staples — are down 9% and 1.3%, respectively.

"It's a good sign for the economy," Mr. Doll said.

31 May, 2013

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Source: http://www.investmentnews.com/article/20130530/FREE/130539992
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The Real Concern with the Smithfield-Shuanghui Merger

The New World Created by Smithfield-Shuanghui Merger

When all is said and done, Shuanghui will pay about $7 billion for Smithfield, which makes this the largest takeover of an American company by a Chinese company in history.

The merger is expected to close later this year, but first is subject to approval by both shareholders and the U.S. Committee on Foreign Investment (CFIUS).

However, CFIUS, which scrutinizes these deals based on threats to our national security, will be no small hurdle to overcome. There is a significant history of epic would-be Chinese takeovers axed by CFIUS due to national security concerns.

In 2005, CNOOC Ltd., a Chinese oil company, bid a whopping $18.5 billion for Unocal Corp, a US oil producer, but apprehensions that the Chinese would interfere with the U.S. energy market put a stop to it.

In 2008, Chinese telephone equipment maker Huawei Technologies and Bain capital bid $2.2 billion to buy American computer-equipment maker 3Com. This deal was nixed for fear that the Chinese would have an increased ability to engage in cyber-attacks against us.

In fact, next week U.S. President Barack Obama intends to confront Chinese president Xi Jinping about China's latest hacks into more than two dozen advanced American weapons systems.

Looks like the timing of the Smithfield-Shuanghui merger is about as awkward as a blind date...

But when I look at the numbers of CFIUS-approved deals, I'm thinking the Shuanghui deal could get the green light. The vast majority of these deals are approved.

Between 2009 and 2011, 269 deals in which a Chinese company would take over an American company fell under the CFIUS review umbrella. Out of those 269, only 100 were investigated, and 25 withdrew somewhere during the investigation process.

In 2011, the CFIUS received 111 notices of deals to review. Of those 111, 40 were investigated and 6 withdrew during the process.

In fact, there have been over 650 examples of foreign direct investment by Chinese companies all-in-all, despite high-profile failed deals.

Plus, annual exports of U.S. agricultural products to China are quickly rising, up 111% between 2009 and 2012.

It seems to me that CFIUS will grant the Smithfield-Shuanghui merger passage through its golden gates. The pork industry doesn't proffer many threats to national security per se, and the deal falls in line with present agricultural export trends.

Still, I would argue the deal is dangerous to our national security on a much grander scale.

It's laughable that we would open our doors to the biggest Chinese takeover in history mere days after they pull off a serious hack into our military databases.

If we continue to allow China to entangle itself in our economy, we undoubtedly become more beholden to it.

Related Articles:

Money Morning:
How China's Deep Game Gave Us Our Sixth Takeover Play
Business Insider:
14 Facts About The Staggeringly Huge Chinese Pork Industry
The Guardian:
Chinese shocked by rat dressed as mutton
The Guardian:
Chinese bid for Smithfield latest in line of heavily scrutinised China-US deals
Reuters:
China's Shuanghui to buy Smithfield Foods for $4.7 billion
The Wall Street Journal:
How About a Smithfield Quid Pro Quo?
The Wall Street Journal:
Opposition to China-Smithfield Deal Seen as Muted

David Zeiler 31 May, 2013

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Source: http://feeds.moneymorning.com/~r/moneymorning/jOLe/~3/H_RA0YbjIYM/
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How to Invest as America Spends $190 Billion to Fix Our Highway System

How to Invest in Infrastructure Repairs

An investor might arrange across-the-board exposure by investing in an infrastructure mutual fund. These usually have a global focus, rather than dealing with any coming American build-out.

These mutual funds are usually resistant to economic downturns, for the simple reason that governments the world over spend, spend, spend when the economy is bad. A great deal of that money is spent on infrastructure.

The Morgan Stanley Global Infrastructure Fund Class A (MUTF: UTLAX) maintains exposure to worldwide infrastructure spending. Morningstar gives it a five-star rating overall. It's currently trading at less than half its early 2000s highs, but has been on a consistent upswing over the past four years.

Pasadena, CA-based Jacobs Engineering Group Inc. (NYSE: JEC) should play a role in any attempt to upgrade the national infrastructure base. The company has a worldwide presence on engineering and infrastructure projects. Jacobs works in places that are considerably further behind than the United States.

About 87% of the shares are institutionally owned, and the company pays no dividend. The stock has shot from $33.61 to $56.59 over 52 weeks, and is sitting fairly close to its 52-week high now.
URS Corp. (NYSE: URS) is another huge construction and engineering firm that operates all over the world. The company has operated since 1904, going through a long-lived round of expansion in the 1970s and 1980s.

URS is a one-stop shop for infrastructure build-out, offering everything from architectural services to consulting to construction. This stock, now at nearly $49, is also trading close to its 52-week high, and yields 1.73%.

If you're looking to play the nuts and bolts side of this road-building enterprise, consider a construction equipment company, like Kubota Corp ADR (NYSE: KUB). The company's stock has had a big year, with a 52-week run from $40.61 up to $88.38. The stock has settled somewhat and is now in the upper $70 range.

Kubota is based in Osaka, Japan, but has worldwide operations, with Gainesville, GA's Kubota Manufacturing of America producing front loaders, backhoes, and all manner of construction equipment. Kubota has at least four American subsidiaries, employing American workers under mostly American management.

Repairing all of America's infrastructure, bridges and roads included, is going to cost about $3.6 trillion, but the savings in lost time, maintenance, and even human life are going to be well worth the cost.

As things stand, ASCE estimates that close to 42% of America's urban highways remain congested, costing us $101 billion in wasted time and fuel.

But with a newly upgraded highway system, complemented by efficient rail and aviation networks, the United States would be well on the road to regaining its place at the top in transportation.

For more on how to invest in U.S. infrastructure repairs, check out Stocks to Buy Now Before the U.S. Infrastructure Spending Boom

Related Articles:

Federal Highway Administration:
Infrastructure
American Society of Civil Engineers:
2013 Report Card For America's Infrastructure
The Street:
10 Best Construction Stocks for 2013

David Zeiler 31 May, 2013

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Source: http://feeds.moneymorning.com/~r/moneymorning/jOLe/~3/CHH9Lj9T9p0/
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