The Real Arctic Threat
Obama focuses on global warming while Putin’s neo-imperialist dreams continue to spread north.
By John McCain
Sept. 1, 2015 7:17 p.m. ET
Morgan Stanley issues 'full house' buy alert for stocks
All five of the bank's key timing indicators are flashing a green light for the first time since early 2009, suggesting the worst may be over for global equities
By Ambrose Evans-Pritchard
8:02PM BST 01 Sep 2015
The US investment bank said that all five of its market-timing signals are now flashing a buy signal as selling-fever reaches capitulation levels.
The trailing dividend yield on stocks – measured by the MSCI Europe index – is currently 240 basis points above the yield on a mix of European government bonds, near its all time-highs over the past century. Such levels usually precede powerful equity rallies.
Morgan Stanley’s bold call has raised eyebrows since the bank caught the exact top of the European equity market in June 2007 using the same timing indicators, on that occasion issuing a "full house" sell alert.
It comes at a treacherous time for global investors as they try to fathom what is really happening in China and brace for the first rate rise in nine years by the US Federal Reserve, a move akin to a margin call for debtors in emerging markets with $4.5 trillion of US dollar liabilities.
“Our indicator is not the Holy Grail of investing. We think that on the balance of probabilities, the risk-reward ratio looks pretty good right now, but it is not a very good week-to-week timing signal,” said Mr Secker.
He said the current mood has echoes of 1998 during the East Asia crisis and the Russian default, when there was a nasty squall in the markets but it proved to be a false alarm for the global economy, thanks to three back-to-back rate cuts by the Fed.
It is the only time the "full house" buying signal has been triggered without a recession happening first in the developed countries, but that time it was six weeks premature.
The five timing tools are: valuation, fundamentals, risk, capitulation, and a combined market indicator. Between them they capture mutual fund flows, market breadth and technical momentum measures such as the rate of change, as well as price-to-earnings (P/E) ratios, dividend yields and their relationship to bonds.
Mr Secker said P/E ratios in Europe are likely to be flat this year, but this is distorted by a collapse in mining, energy and commodity revenues. Median earnings are growing at almost 10pc. “Europe is now discounting no growth over the next 12 months, which looks too bearish,” he said.
Morgan Stanley said the best way to invest for the rebound is through eurozone bank stocks, beneficiaries of quantitative easing and ultra-loose money. The star country over the next two years may be Italy – surprisingly – as it begins to reap the rewards of deep reform.
The FTSE 100 in Britain is likely to lag badly yet again next year, thanks to an over-valued pound and the heavy weighting of UK equities towards oil, gas and mining companies.
However, there is plenty of scope for well-aimed rifle shots. Mr Secker likes Burberry, Next, Pearson, Hays, Vodafone, Michael Page, Schroders, Imperial Tobacco and utilities such as Centrica and National Grid, as well as TUI, with a high exposure to Europe.
He recommended “mega-cap” stocks that on average generate 42pc of their earnings from emerging markets (EM), compared with 23pc for small companies. These have been punished over the past year. “We think it's still a little early to buy EM exposure, although that moment is getting closer,” he said.
The great worry is that China may be in deeper trouble than the authorities have let on after their failed attempts to prop up the Shanghai stock market and their ill-explained decision to ditch the country’s dollar-peg.
The heavy-handed arrest of 200 journalists, brokers and regulators for allegedly spreading false rumours and undermining public trust has further entrenched the view that Beijing is losing control.
The decision to force a respected journalist from Caijing Magazine to issue a grovelling confession on state television smacks of Maoist practices in the Cultural Revolution and amounts to crude repression of news reporting.
However, the economic picture may not be as bad as it looks, at least over coming months. While the latest data confirm that China is struggling to shake off what amounted to a recession earlier this year, it fails to clarify whether or not growth is picking up again.
The Caixin PMI index for manufacturing fell to a six-year low of 47.3 in August, but this was badly distorted by the fallout from the Tianjin chemical explosion and the closure of 12,000 factories to clear the air in Beijing before this week’s Victory Parade.
Capital Economics said the PMI index issued a false reading after the air purification campaign before the APEC summit in Beijing last year.
The Chinese property market is picking up after a deep slump, with house prices up for four months in a row. The fiscal crunch earlier this year is fading as a new bond market for local governments gets off the ground, issuing $100bn a month.
Morgan Stanley said it remains wary of China in the “short-run” but is waiting to jump back in if there is a fresh blast of fiscal stimulus.
That may be exactly what is now happening. Lou Jiwei, the finance minister, said last week that Beijing will pull forward a raft of infrastructure projects planned for next year, launching them later this year instead.
Both credit growth and the money supply are accelerating. Draconian curbs have been imposed on foreign exchange transactions to stop capital flight, easing the way for the central bank to cut lending rates further and inject liquidity by lowering the reserve requirement ratio.
A combined shot of fiscal and monetary stimulus is already in the Chinese pipeline. Yet China has lost so much credibility over the past year that the world may not believe the promise of largesse until the evidence is irrefutable.
Who Will Suffer Most from Climate Change?
Crops won’t grow because of too little rain or too much rain. Pests will thrive in the warmer climate and destroy crops.
Read more at http://www.project-syndicate.org/commentary/farmers-adapt-to-climate-change-by-bill-gates-2015-09#xvFs28A2eB2oeEZ1.99
Slumping Commodities Force Glencore to Make a Tough Trade
Swiss mining and trading giant could risk denting its earnings power in an effort to cut debt
By Helen Thomas
Sept. 2, 2015 9:03 a.m. ET
There is a paradox at the heart of Glencore GLNCY -9.09 % ’s business: The commodities powerhouse has ways to stabilize its balance sheet, but doing so could undermine the might of its trading machine.
Glencore said last month that it had reduced working capital in its trading business by about $4.7 billion. Of that, $1.5 billion came from squeezing very short-term debt used to fund the business, while $3.2 billion was found elsewhere, such as inventories.
This releases cash for the trader-cum-miner, helping to cover spending and reduce Glencore’s relatively high net debt. That is vital at the moment: those debt levels have made Glencore a target as commodities prices have slumped: its stock has collapsed, down 40% over the past month, in part on fears of a need for it to raise additional equity.
With commodities in a severe funk and many fearful it could get even worse should China’s economic situation deteriorate further, the ability to pull capital from trading is an important lever for Glencore. It is a tool the company’s pure mining peers can’t deploy and may help Glencore forestall the need to raise additional equity.
But, as Glencore does so, it will become tougher to generate profits. Commodities trading is a low-margin business that requires churning large volumes.
But the need to reduce working capital may make that more difficult, even if the direct link between that and profits isn’t exactly clear. The trading unit has, on average, made about a 13% return on capital employed, according to Morgan Stanley. MS -3.86 % It made about 14% last year. On that basis, cutting working capital by $4.7 billion theoretically could wipe some $600 million from annual operating profit.
But that outlook is too severe. About two-thirds of Glencore’s reduction in working capital was due to falling commodities prices: the company needs less capital to finance a given shipment when prices are lower.
So profits wouldn’t be as adversely affected. Prices aside, the reduction in working capital was perhaps closer to $1.6 billion, theoretically cutting about $200 million from operating profit.
In dire straits, however, Glencore argues there is marginally profitable business it can cut.
Effectively, there are diminishing returns to its trading capital: the final billion invested earns a much lower return than the first.
Glencore seems likely to cut working capital more to protect its credit rating. Finance chief Steven Kalmin said it could reduce the company’s first-half net working capital of about $15 billion further, if needed. Some of that would come from operating its mines more efficiently, though the bulk would likely be found in trading.
This could mean foregoing opportunistic trades, such as taking advantage of the shape of the futures curve. The problem with that: Glencore’s vast trading operation is also meant to give it market intelligence and access that rivals lack. Doing some low-margin business may also be needed to maintain key relationships.
One option would be to do more brokerage-style business, taking a handling fee for marketing commodities, rather than taking risk on its own balance sheet. Another possibility is to team up with banks or other financiers to share the costs of potentially lucrative trades.
All of this involves trade-offs that come at a cost. But Glencore at least has a trade to make.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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