Chinese investors short gold in London as prices tumble while the retail public buys; Tianjin Precious Metal Exchange flooded with requests from investors looking to short gold

Chinese investors short gold in London as prices tumble

Staff Reporter, 2013-04-20

Members of the public have rushed to buy gold amid the current price drop, while investors have been actively short selling. (Photo/CFP)

Chinese investors in London are increasingly short selling gold shares as the price of the precious metal has lost about 30% of its value from a year and a half ago.

The price of gold in the city hit a low of US$1,385.70 an ounce at one point on April 15, a plunge of nearly 30% from a historic high of US$1,920.38 an ounce in September 2011, according to the Chinese-language National Business Daily, which quoted an official at the research unit of Donghai Futures.

An investment consultant at Mintai Precious Metals, a member of the Tianjin Precious Metal Exchange — one of two precious metal exchanges in China approved by the State Council — said his company was flooded with requests from investors looking to short gold. Read more of this post

Rob Arnott of Research Affiliates: Most hedge funds disappoint; Funds have underperformed at a time when they are drawing more and more money from middle class retirement accounts

Rob Arnott: Most hedge funds disappoint

By Stephen Gandel, senior editor April 19, 2013: 11:51 AM ET

Funds have underperformed at a time when they are drawing more and more money from middle class retirement accounts.

Blue bar shows what happened to the portfolios risk-adjusted returns when hedge fund were added. Source: Research Affiliates

FORTUNE — Hedge funds have been a bust.

That’s how Robert Arnott, one of the nation’s most successful investment managers, sees it. That’s also the conclusion of a piece of research posted on his firm’s website this week.

The research, which is titled “The Lure of Hedge Funds,” directly refutes one of the key claims hedge funds managers make when they try to attract investors.

“There are some outstanding hedge funds, but they are considerably outnumbered by the multitudes of lousy ones,” says Arnott, who heads Research Affiliates.

Hedge funds have traditionally been investment vehicles for the rich and universities. But in the past decade or so, they have drawn more and more money from public pensions and other accounts that hold the retirement funds of the middle class. Assets in hedge funds have more than tripled in the past decade to $2.25 trillion, according to Research Affiliates.

“The results have been a disappointment, and yet asset flows continue at an astronomical rate,” says Arnott.

Part of that has to do with the sales pitch.

On the face of it, hedge funds have had a rough go of it recently. The vast majority of funds have done worse than the market for the past four years. To add insult to injury, last year even mutual funds outperformed hedge funds, which charge much higher fees than their rivals.

But hedge fund managers and the industry in general have long contended that those criticizing the funds for not having the highest returns are missing the point. They say hedge funds achieve their investment returns with less risk. You hear of the benefits of diversification, and risk-adjusted-returns. The pro-hedge fund camp argues that when you factor in the lower risk, investing in hedge funds is a better bet than just blindly putting your money in the market.

But Arnott says that’s a bunch of baloney. Read more of this post

Jim Chanos’s New China Presentation Will Have You Convinced The Country Is Doomed For A Hard Landing

Jim Chanos’s New China Presentation Will Have You Convinced The Country Is Doomed For A Hard Landing

Sam Ro | Apr. 19, 2013, 12:26 PM | 58,050 | 14

Jim Chanos gave a devastating presentation on China at Mish Shedlock’s Wine Country Conference. Chanos has been bearish on China for quite a while.  However, his new presentation is particularly fascinating because it has some pretty graphic cartoons. “The cartoons/illustrations, gruesome/silly, as they are, are FROM Chinese sources!” said Chanos in an email to Business Insider.  “That’s why we put them in-so that people know that the media inside China is becoming more skeptical itself.”

Read more of this post

CBRC Renews Push to Regulate Wealth Management as Credit Expands

CBRC Renews Push to Regulate Wealth Management as Credit Expands

The China Banking Regulatory Commission said it will scrutinize lenders’ wealth-management and short-term note sales, control increases in bad loans and focus on debts in an attempt to limit “severe risk.” The regulator has told banks to improve the accuracy of how they classify loans, to monitor non-performing loans and to control total lending to local government financing vehicles, according to a statement posted on the CBRC website yesterday. “The authorities are serious about the whole explosion of wealth management — and they must also be concerned at the scale of credit creation,” Michael Shaoul, chairman of New York-based Marketfield Asset Management LLC, said in an e-mail. First-quarter credit creation was about $1 trillion, he said.

Chinese banks rely on wealth-management products, which pay higher rates than regulated deposits, to retain clients who are diverting savings to other investments. The sales are transforming the stable and cheap deposit base that has supported lenders into one that is “more mobile, expensive and short-term,” creating repayment risk, Fitch Ratings has warned. The outstanding balance of banks’ wealth-management products may have been 13 trillion yuan ($2.1 trillion) at the end of 2012, compared with 8.5 trillion yuan a year earlier, according to Fitch. The pace of expansion is faster than during the 2009 credit boom and is taking place through wealth management and corporate debt-issuance systems, not through the better regulated bank-loan system, Shaoul said. Read more of this post

Here Comes the Next Hot Emerging Market: the U.S.

Updated April 19, 2013, 4:07 p.m. ET

Here Comes the Next Hot Emerging Market: the U.S.

By JASON ZWEIG

The investment visionary who coined the term “emerging markets” and helped launch the first funds to invest in developing countries thinks he has spotted what you might call the next great emerging market. It is called “the United States.”

Antoine van Agtmael is arguably the founding father of emerging-markets investing. He still is an evangelist for investing in parts of Africa, Asia, Latin America and other less-developed regions, where he thinks the future remains bright. But he believes the U.S. is at the beginning of an industrial revitalization that most analysts only have begun to recognize. Read more of this post

Congestion pushes Chinese on to their bikes

April 19, 2013 5:14 am

Congestion pushes Chinese on to their bikes

By Patti Waldmeir in Hangzhou, China

For decades under communism, owning a private car was an impossible dream inChina. Now that the dream has come true for tens of millions of Chinese, they are waking up each day to a life of traffic jams and smog. Beijing’s air pollution has been so bad recently that it has captured headlines around the world – yet the capital has far from the dirtiest air in China. More and more mainland cities can boast world-class traffic congestion, parking shortages and commuting times, auto analysts say.

Under Chairman Mao Zedong, schoolchildren were taught that these were the ills associated with capitalism, but China’s urban planners were no match for half a century of pent-up demand from first-time car buyers. The country, whose showpiece industry event – the Shanghai Auto Show – starts this weekend, is now the world’s largest car market. And it is paying the price. With more than half of all Chinese living in cities, “smog and clog” are becoming big political issues. Even washing all those cars is exacerbating the country’swater shortage, according to a report last week from a Chinese NGO. The impact is so high that some cities are even thinking the unthinkable: sending China back to its roots as a nation of cyclists. Read more of this post

1,424 listed firms in China got RMB57bn in subsidies last year

1,424 listed firms in China got RMB57bn in subsidies last year

Staff Reporter,  2013-04-20

The production line of Chongqing Iron & Steel, which got US$320 million in subsidies in 2012. (Photo/Xinhua)

The Chinese government last year provided 57 billion yuan (US$9.2 billion) in subsidies to 1,424 listed firms, with state enterprises receiving 70% of the funds.

BOE, a major flat panel display maker, took over 1.6 billion yuan (US$259 million) in government subsidy last year, when its accumulated net loss topped 8 billion yuan (US$1.3 billion), compared with total capital of 30 billion yuan (US$4.8 billion). China Ocean Service received 900 million yuan (US$145 million) last year, just a fraction of its staggering net loss of 9.6 billion yuan (US$1.55 billion).

Despite the rigorous financial screening for IPO plans, there are still over 700 firms lining up to list their shares on China’s stock market. “Share listing enables a company to raise funds by floating new shares and entitles it to various incentives from municipal governments, amounting to millions, tens of millions, or even one hundred millions of yuan,” said an executive with a listed securities firm. Read more of this post

Graduate schools stung by drop in Chinese applications

Graduate schools stung by drop in Chinese applications

Fri, Apr 19 2013

(Reuters) – Slowing graduate-school enrollments, including a 5 percent decline in applications from China for fall 2013, are hurting the revenues of many U.S. universities, Moody’s Investors Service said on Friday.

In a commentary, Moody’s said graduate school enrollments for the coming autumn term increased by just 1 percent, or the smallest increase in 11 years, according to data from the Council of Graduate Schools.

Private universities took the biggest blow, with applications from typically higher-paying international students off 4 percent. Public universities saw international applications go up 3 percent, Moody’s said.

Applications from China, the largest exporter of graduate students to the United States, were off 5 percent. Read more of this post

Luxury Slumps in Switzerland; glut of high-end developments and shrinking employment in the banking industry have led to a downturn in the upscale real-estate market

April 18, 2013, 10:45 p.m. ET

Luxury Slumps in Switzerland

A glut of high-end developments and shrinking employment in the banking industry have led to a downturn in the upscale real-estate market; slow sales at the Löwenbräu high-rise

Mobimo Tower is a luxury high-rise with units priced between $1.4 million and $7.4 million. After two years, about one-third of the residences remain unsold.

By MARTA FALCONI

When Mobimo Holding AG MOBN.EB +0.48% opened a 24-story luxury tower in one of Zurich’s trendiest neighborhoods, Chief Executive Christoph Caviezel expected the building’s glitzy condominiums to sell fast.

Snapshot: Zurich

• Population: 380,500
• Cost of living: Switzerland is currently experiencing mild deflation. Prices fell on average 0.7% in 2012, compared with a gain of 0.2% the year before.
• Average high-low temperatures: January: 37.8°/26.4°F July: 77°/55°F
• Biggest deal: Two detached houses sold for more than $32 million apiece last year.
• Notable neighbors: Singer Tina Turner lives along the Gold Coast of Lake Zurich. Swiss bank UBS board member Rainer-Marc Frey reportedly bought a condo in the Mobimo Tower.
• Conversation pieces: Zurich West, where the Mobimo Tower and the Löwenbräu high-rise were built, was formerly the city’s industrial center. Now it’s peppered with bars, restaurants and boutiques. Cultural events are often hosted in refurbished industrial sites. The Gold Coast along Lake Zurich has lured wealthy residents drawn to its quiet neighborhoods and stunning water views. The area got its nickname from the evening sunshine that bathes the area year-round.

Two years later, a third of the Mobimo Tower’s 53 units remain unsold even though they sport panoramic views, high-end fixtures and access to an on-site health club. Mobimo hopes the condominiums, which reportedly cost between 1.3 million and 7 million Swiss francs ($1.4 million and $7.4 million), will be sold by the end of 2014, a year later than previously expected.

Poor sales at the $268 million tower, its flagship property, have prompted the Lucerne, Switzerland-based developer to scrap plans for a similar luxury complex on the shores of Lake Zurich. Mobimo has already sold the land earmarked for that development, which was planned for a sun-splashed area dubbed the Gold Coast.

“It makes no sense to build more apartments in the high-price range,” Mr. Caviezel said in an interview.

Mobimo and other Swiss developers have been caught by a sudden swing in Zurich’s real-estate market. A glut of high-end developments and shrinking employment in the banking industry have hit high-end real estate hard. Efforts by the central bank, which began requiring banks in February to put an additional 1% of mortgage-related exposures aside as part of a capital cushion, are also weighing on the market. The Swiss franc is little changed compared with other currencies.

The shift has come fast for Zurich, which has been among the world’s most buoyant markets for several years. Historically low interest rates—about 1.5% for a five-year, fixed-rate mortgage—and an influx of wealthy foreigners helped push prices of upscale condominiums to nearly $2,000 per square foot, according to analysts at Credit Suisse CSGN.VX +1.03% . Confident that prices would keep rising, buyers often committed to purchases before construction of a site was completed.

Now condominium prices in the canton of Zurich, which houses Switzerland’s biggest city and the country’s financial hub, are slowing. Condo prices rose 6.5% last year, but that was down from 9.4% the previous year and 7.1% in 2010, according to Wüest & Partner, a property consultant. Analysts at Credit Suisse say price growth will “slow considerably” this year, although it will remain positive.

Properties listed for $2 million or more stayed on the market for more than 90 days in the fourth quarter of 2012, compared with more than 60 days in the third quarter, according to Wüest & Partner.

“The golden times of the last two or three years are gone now,” said Thomas Rieder, a senior economist at Credit Suisse, who says slimmer paychecks in the financial industry have weighed on the market. “It’s not so easy anymore to sell property at any price you want.”

PSP Swiss Property, PSPN.EB +0.96%a Zug-based developer, is also struggling to complete sales in its Löwenbräu high-rise, a 20-story tower built on the site of a former brewery and just down the road from the Mobimo Tower.

Though sales opened nearly three years ago, roughly 22% of the complex’s 58 units remain empty. PSP even chopped the tower’s glamorous 6,028-square-foot penthouse in two, hoping the smaller units would be easier to sell. So far, neither of the condominiums has found a buyer.

PSP CEO Luciano Gabriel said his company wasn’t planning to cut prices yet but acknowledged prices in the luxury segment have been “not very realistic.” PSP is shifting back to commercial developments, its historic strength.

Allreal, ALLN.EB +0.90% a developer with commercial and residential properties in the greater Zurich area, is also changing tack, moving back to the midlevel residential market after a luxury project overlooking Lake Zurich struggled to attract buyers. Just seven of the project’s 23 units have sold, despite a desirable location in the leafy village of Meilen, about 10 miles outside of the city center.

“Looking back a few years, such a project would have been sold out in no time,” said Matthias Meier, a company spokesman. Allreal also has another luxury project along the shore of the lake that will be completed in 2014. Prices for condos there go from about $1.4 million to $5.2 million.

Mobimo, too, is refocusing on projects that will appeal to middle-class Swiss families, a move that means a lower price point. The company is working on a complex of 50 apartments in Zurich that will likely sell at about $1,000 per square foot, roughly half the price tag for luxury developments.

Mr. Caviezel, the Mobimo chief executive, says he’s bracing for a more challenging environment. With tighter credit and fewer high-paid banking jobs, he says it will take longer for the company to sell out its big projects. Amid regulatory changes in the banking industry, UBS, UBSN.VX +3.23% the country’s biggest bank by assets, has reported that its head count in Switzerland fell to about 22,400 as of the end of last year, from roughly 23,200 in 2011. Credit Suisse, too, has cut jobs as it restructures its operations, reducing head count world-wide by 2,300 jobs during past year.

“We’ve been a little bit spoiled in the past, with apartments that could be sold even before they were finished,” said Mr. Caviezel. “Now it takes more time.”

Low-interest-rate environment exposes seniors to fraudsters; “Right now, because of interest rates, the fraudulent sellers aren’t having any issues finding a buyer who wants to believe the lie.”

Low-interest-rate environment exposes seniors to fraudsters

By Ylan Q. Mui, Friday, April 19, 2:37 AM

Senior citizens are being lured into riskier investments — and often outright scams — as carefully laid retirement plans have been scuttled by five years of low interest rates.

Government regulators and advocacy groups say unscrupulous dealers are taking advantage of a growing fear among seniors that they will run out of money in their final years of life. That’s in large part because many seniors have parked their cash in safe investments, such as government bonds, where returns have barely kept pace with inflation. As a result, their savings are stagnating as their life expectancy grows — and that is making many older Americans increasingly desperate.

In Georgia, state regulators nabbed a man last year who bilked seniors out of nearly $16 million by promising to generate high returns with investments in foreign currencies. In South Carolina, regulators are pressing charges against a former insurance agent who they say was able to scam 17 people out of more than $1 million by advertising certificates of deposit with returns of just 4 percent. A similar scheme in Virginia attracted more than $11 million from seniors hoping to beat bank interest rates that have fallen below 1 percent.

“What we really have now is a combination of the fraudulent seller with the needy buyer,” said A. Heath Abshure, commissioner of the Arkansas Securities Department and president of the North American Securities Administrators Association. “Right now, because of interest rates, the fraudulent sellers aren’t having any issues finding a buyer who wants to believe the lie.” Read more of this post