SocGen: The End of the Gold Era; The Nightmare Scenario For Gold Investors That Could Cause The Market To Crash

PRESENTING: The Nightmare Scenario For Gold Investors That Could Cause The Market To Crash

Matthew Boesler | Apr. 2, 2013, 10:58 AM | 5,471 | 13

Société Générale analysts are quite bearish on gold. Their $1375-per-ounce price target for the end of 2013 puts them well below most of the Street. Today, the SocGen team, led by Patrick Legland and Michael Haigh, released a new report titled “The End of the Gold Era.”

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Asia royalty rises provoke investor fury; Dramatic hikes viewed by many as worrying trend to remove funds from emerging markets

April 2, 2013 6:23 pm

Inside Business: Asia royalty rises provoke investor fury

Dramatic hikes viewed by many as worrying trend to remove funds from emerging markets

By Jeremy Grant

If you are a fund manager investing inAsia’s emerging markets, one way to gain exposure is by holding shares in a multinational company’s locally listed subsidiary.

Want some concrete action in India? Buy shares in Ambuja Cements, a Mumbai-listed company controlled by Holcim, the Swiss cement maker.

How about shampoo in Indonesia? Simple. Buy a chunk of Unilever Indonesia, which has been listed on the Jakarta stock exchange since 1981.

For years, this arrangement worked well for fund groups such as Aberdeen Asset Management and Arisaig Partners, a Singapore-based boutique investor with a focus on the consumer companies that are such a big part of the emerging market growth story. Unilever Indonesia made sales of $2.6bn last year from selling Dove soap, Surf detergent and Wall’s ice cream across the country’s vast archipelago. Its market capitalisation makes it one of Asia’s biggest companies. It is also highly profitable. Net profit has risen every year bar one since 1999, hitting $432m in 2011 – the last year for which figures are available. Dividends have rolled in nicely.

However, in the past few months, this neat way of investing in emerging markets has been upset. A chorus of funds is furious that Unilever and Holcim, as parent companies, have recently decided to take much bigger royalty payments from their Indonesian subsidiaries. Similar noises have been made in India where the two companies are also seeking higher royalty payments. Royalties are levied by multinationals on local units to recoup the cost of providing “shared services” – research and development, marketing, branding and so forth. But changes to royalties are not unusual and are perfectly legal. Read more of this post

Martin Wolf: Why China’s economy might topple

April 2, 2013 6:42 pm

Why China’s economy might topple

By Martin Wolf

As Japan has shown, shifting to a lower-growth model is risky

Over the next decade, China’s growth will slow, probably sharply. That is not the view of malevolent outsiders. It is the view of the Chinese government. The question is whether it will do so smoothly or abruptly. On the answer depends not only China’s own future, but also that of much of the world.

Official Chinese thinking was on display at last month’s China Development Forum, organised by the Development Research Center of the State Council (DRC), which brought influential foreigners together with high-level officials. Among the background papers was one prepared by economists at the DRC, entitled “Ten-year Outlook: Decline of Potential Growth Rate and Start of a New Phase of Growth”. Its proposition is that China’s growth will slow from more than 10 per cent a year from 2000 to 2010 to 6.5 per cent between 2018 and 2022. Such a decline, notes the paper, is consistent with the slowdown since the second quarter of 2010 (see chart).

The authors note two possible reasons for the decline: either China has fallen into the “middle income trap” of aborted industrialisation; or it is managing the “natural landing” that occurs when an economy begins to catch up with advanced economies. This latter scenario played out in Japan in the 1970s and South Korea in the 1990s. The DRC paper argues that, after 35 years of 10 per cent growth, it is at last happening to China.

Here are a few reasons why the authors say this view is plausible. Read more of this post

Key Bond Index Gets Bitten; Investors Are Pulling Funds Tied to ‘the Agg’ as Safe Bonds Look Anything But

Updated April 2, 2013, 9:51 p.m. ET

Key Bond Index Gets Bitten

Investors Are Pulling Funds Tied to ‘the Agg’ as Safe Bonds Look Anything But

By CAROLYN CUI And PATRICK MCGEE

The guiding star for many bond investors is starting to flicker. The Barclays BARC.LN +2.18% U.S. Aggregate Bond Index, known as “the Agg”—which tracks the broader debt market the way the Standard & Poors-500 follows stocks—declined 0.12% in the first quarter, its first negative return in that period since 2006. And with many large investors yanking funds tied to the Agg, the index’s flagging popularity is having repercussions for how hundreds of billions of dollars are allocated in fixed-income portfolios. The move is perhaps the most stark indication yet that the safest bonds are scaring investors.

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Thailand’s Securities and Exchange Commission (SEC) lacks ability to nab share price manipulators as it has no authority to file charges against perpetrators

SEC lacks ability to nab manipulators

Published: 3 Apr 2013 at 00.00

The securities regulator wants to put more effort into cracking down on share price manipulators during the bull market, but its work remains limp as it has no authority to file charges against perpetrators.

The Securities and Exchange Commission (SEC) is only the starting point for a stock manipulation crackdown, as these matters go to court, said secretary-general Vorapol Socatiyanurak.

The SEC just filed its first criminal complaint this year against Shine Bunnag and 12 others for manipulating the share prices of Mida Leasing Plc (ML) from March-May 2008 and in August 2010 and doing the same to Max Metal Corporation (MAX) shares in September 2010. There are growing worries over the irregular movements of several stocks now that the market is skyrocketing. Read more of this post

Asia Soaring Wages Stoke Inflation as Factory Costs Rise; “The wage increases I hear about in Asia are astronomical, and our American customers just laugh because they cannot relate to it. This is not over yet.”

Asia Soaring Wages Stoke Inflation as Factory Costs Rise

Koda Ltd (KODA). Executive Director Ernie Koh has a message for clients in 50 countries who complain about the Singapore-based furniture maker’s first price increase in two years: Take it or leave it.

Koda’s factories in China, Malaysia and Vietnam are battling rising costs as governments in Asia increase minimum wages to curb discontent over a widening wealth gap. While weak global growth and increased competition limited the ability of producers to raise prices during the past five years, Koh says they can’t go on absorbing the additional expenses.

“We aren’t even passing on the full costs,” said Koh, who counts U.S. retailer Williams-Sonoma Inc (WSM)., owner of Pottery Barn, and Cost Plus Inc. among customers. “Wage escalation in China these past few years has been crazy. We have collective bargaining with the union in Vietnam, and in Malaysia there is a big outcry among manufacturers over the minimum wage.”

Average pay in Asia almost doubled between 2000 and 2011, compared with a 5 percent increase in developed countries and about 23 percent worldwide, according to the International Labour Organization in Geneva. The gain was led by China, where average remuneration more than tripled during the period. Southeast Asia is catching up, with new minimum pay levels in at least five nations eroding companies’ ability to make cheap toys, clothes and furniture. Read more of this post

The failed $740 million funds management empire overseen by flamboyant Gold Coast businessman Peter Drake lent $301 million to Mr Drake and his companies, administrators have revealed.

Related-party loans probed in LM fund

April 3, 2013, Ben Butler

The failed $740 million funds management empire overseen by flamboyant Gold Coast businessman Peter Drake lent $301 million to Mr Drake and his companies, administrators have revealed.

Administrators John Park and Ginette Muller, of FTI Consulting, said the loans were made from the LM Managed Performance Fund, which operated outside Australian company law.

The related-party loans, representing about three-quarters of the $397 million fund, included $17 million lent directly to Mr Drake, the administrators said.

They said they would apply to the Queensland Supreme Court on April 12 to take control of the fund as its receivers.

”MPF has to date been operating as an unregulated fund outside the Corporations Act,” the administrators said. ”The administrators are continuing to work with ASIC [the Australian Securities and Investments Commission] to address the regulatory concerns.” Read more of this post

Suntech Unit Bankruptcy Had Roots in Deadbeat Customers linked to the founder who couldn’t pay their bills and the company booked the sales as revenue anyway

Suntech Unit Bankruptcy Had Roots in Deadbeat Customers

Suntech Power Holdings Co. (STP), forced to put its Chinese solar unit into bankruptcy last month, began that slide into insolvency in 2009 when customers linked to the founder couldn’t pay their bills and the company booked the sales as revenue anyway, regulatory filings show.

Seven buyers backed by an investment firm funded by Suntech and its founder, Shi Zhengrong, accounted for 29 percent of Suntech’s uncollected bills as 2009 ended, according to correspondence between the solar company and the U.S. Securities and Exchange Commission. Those customers hadn’t yet received enough money to proceed with their projects and Suntech, once the world’s largest solar-panel maker gave them more time to pay, the letters show.

The SEC correspondence provides clues to Suntech’s prospects and a road map to business practices that left the company vulnerable to a 560 million-euro ($720 million) fraud and a $541 million bond default. Anyone with Internet access could have learned that Suntech was booking revenue from sales to related companies with unbuilt projects in the fledgling solar industry, while also guaranteeing loans to those related companies. It relied on a former sales agent to secure one guarantee with bonds it never saw.

“Digging through SEC correspondence is one of the most important things an investor should do before investing in any company — especially in companies that are higher risk or more opaque,” said short seller Carson Block of Muddy Waters LLC, whose analyst reports starting in November 2010 triggered $7 billion in losses for Chinese stocks in two years. Read more of this post

Chart of the Day: Ratio of Negative to Positive Earnings Guidance stands at a record high; At 3.5 negative updates for every positive one, that is by far the highest ratio since FactSet began tracking such data in 2006.

Updated April 1, 2013, 9:06 p.m. ET

Recent months have offered yet more proof that markets love to climb a wall of worry. Hand-wringing, whether from retail investors or professional pundits, often precedes heady gains. But some people’s anxiety counts for more than others. While last week the S&P 500 finally erased all its bear-market losses and strategists are falling over one another to raise their year-end targets, the only people in the market with legal inside information are surprisingly cautious. As the first quarter drew to a close, 86 companies in the S&P 500 issued negative guidance for what they expect to report in earnings for that period. Just 24 issued positive guidance. At 3.58 negative updates for every positive one, that is by far the highest ratio since FactSet began tracking such data in 2006.

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The last of the metal-bashers; In odd corners of the country British industry clings on

Manufacturing towns

The last of the metal-bashers; In odd corners of the country British industry clings on

Mar 30th 2013 | BARROW-IN-FURNESS, CORBY AND PENDLE |From the print edition

TO WALK into Devonshire Dock Hall, in Barrow-in-Furness, a town of 70,000 in England’s north-west, is to walk into the heart of a community. Some 260 metres long, this cathedral of industry houses three part-built grey and black nuclear submarines. Workers in blue overalls and hard hats are busy assembling the vast machines. Among them are “fourth- or even fifth-generation shipbuilders”, says Alan Dunn, the operations director at the plant. “When people here go to the pub, they talk about submarines. The yard dominates everything we do.”

In most parts of Britain, manufacturing has all but disappeared in the past half-century. In 1997 about 4.4m people worked making things; now, just 2.8m do. North of Birmingham the urban landscape is characterised by redundant factories and the glitzy regeneration schemes intended to replace them. And yet in a few places, such as Barrow-in-Furness in Cumbria, or Pendle in Lancashire by the Yorkshire Dales, manufacturing and engineering continue to thrive. If there ever is a new “march of the makers”, as George Osborne, the chancellor of the exchequer, hopes, these places will be where they head for. Read more of this post

Canada’s economy on thinning ice; Disappointing exports, stalled investment and fiscal austerity leave the overstretched consumer as Canada’s only hope for growth

Canada’s economy on thinning ice

Disappointing exports, stalled investment and fiscal austerity leave the overstretched consumer as Canada’s only hope for growth

Mar 30th 2013 | OTTAWA |From the print edition

WHEN the world financial system collapsed in 2007, triggering a global recession, Canada recovered faster than any of the other members of the G7 group of large developed countries. Its banks remained solid, while low interest rates encouraged consumers to borrow and spend. But five years on, consumers are showing signs of flagging. The economy is set to expand by a paltry 1.6% this year. So the authorities are casting around for another source of growth. The trouble is they cannot seem to find one. Government, both federal and provincial, is trying to curb deficits swollen by stimulus spending. Companies are restrained by uncertainty prompted by Europe’s woes and the stand-off over fiscal policy in the United States, Canada’s main trading partner. Exports have still not returned to their pre-recession peak. As for consumers, after 11 consecutive years in which household spending has exceeded disposable income, they are deeply in hock. Just over a year ago, Craig Alexander, chief economist at Toronto-Dominion Bank, predicted the debt build-up “is going to end in tears”. The ratio of household debt to disposable income has continued to edge up (see chart 1). An increase in unemployment (from 7% at the moment) or a rise in interest rates could push some households into bankruptcy and puncture a housing bubble inflating in several Canadian cities.

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Diseased pork eaten in Shanghai for years, says farmer; “You Shanghai people have no idea how many diseased pigs you have eaten over the years”; many local farmers regularly sell their dead pigs at a discount price of around 1 yuan (US$0.16) per kilogram to recover their losses. New bird flu strand could be linked to dead pigs in Shanghai river: expert

Diseased pork eaten in Shanghai for years, says farmer

Staff Reporter 2013-04-02

The thousands of dead pigs fished out of Shanghai’s Huangpu river last month have lifted the lid on the formerly hush-hush practice of selling diseased pig carcasses for human consumption, reports Hong Kong’s Wen Wei Po.

More than 10,000 pigs have been retrieved from the river since early March, according to official figures, though internet users believe the real figure may be far higher.

Local media has reported that the dead pigs are likely to have originated from Jiaxing, a prefecture-level city in neighboring Zhejiang province about 100 kilometers southwest of Shanghai. Public pressure has reportedly now forced farmers to stash their dead pigs in more centralized locations rather than simply dumping them by the side of the road, where they were often collected by organized scavengers that resold the pigs — usually infected with disease — to butchers and meat processing companies that prepare the meat for human consumption.

“You Shanghai people have no idea how many diseased pigs you have eaten over the years,” a restaurant owner near Jiaxing told Wen Wei Po. The newspaper found that many local farmers regularly sell their dead pigs at a discount price of around 1 yuan (US$0.16) per kilogram to recover their losses. Read more of this post

CHART OF THE DAY: The Insane Parabolic Rise Of Bitcoin

CHART OF THE DAY: The Insane Parabolic Rise Of Bitcoin

Matthew Boesler | Apr. 1, 2013, 4:55 PM | 3,475 | 5

The parabolic rise of Bitcoin has caught a lot of people off guard this year and is generating a ton of investor interest. Nick Colas at ConvergEx Group, the only Wall Street strategist we know of so far who has written about the Bitcoin market, says all of his clients think the virtual currency is in a bubble. When one looks at a chart, going all the way back to 2010, it’s easy to see why the word “bubble” is being tossed around among investors. Whether it continues to go up is anyone’s guess, but Colas thinks there are five broad themes converging to create a “perfect storm” behind the current rise of Bitcoin.

Bitcoin Is The Perfect Asset Bubble — Prices Could Go Vastly Higher From Here

Henry Blodget | Apr. 1, 2013, 11:29 AM | 6,594 | 36 Read more of this post

Air Pollution Linked to 1.2 Million Premature Deaths in China

April 1, 2013

Air Pollution Linked to 1.2 Million Premature Deaths in China

By EDWARD WONG

BEIJING — Outdoor air pollution contributed to 1.2 million premature deaths in China in 2010, nearly 40 percent of the global total, according to a new summary of data from a scientific study on leading causes of death worldwide.

Figured another way, the researchers said, China’s toll from pollution was the loss of 25 million healthy years of life from the population. Read more of this post

The Continuing Evolution of “Starbucks with Chinese Characteristics

The Continuing Evolution of “Starbucks with Chinese Characteristics”

By Robert O’Brien on March 27, 2013 at 10:00 AM 0 Comments

Last year was a big year for Starbucks in China. The company continued to open cafes at a rapid rate, began offering breakfast to Chinese consumers for the first time, was accused of “cultural invasion” for the second time in five years, and took a huge step toward establishing Yunnan Province as a major producer of coffee beans. All of these developments, and the rapid evolution of the company’s China strategy in general, led us to launch a special series –“Starbucks in China” – last December. In contrast, 2013 started off quietly on the Starbucks China front. That is, until last week, when the publication of a China Daily article and the company’s annual shareholder’s meeting shed fresh light on what new plans the popular coffee purveyor is brewing in China. Read more of this post