Henry Blodget: Be Prepared For Stocks To Crash 40%-55%

Be Prepared For Stocks To Crash 40%-55%

HENRY BLODGET NOV. 9, 2013, 8:14 AM 49,411 140

The stock market continues to set new highs, which is exciting and fun for those of us who own stocks. I own stocks, so I’m certainly enjoying it. I hope stocks continue to charge higher, but I can’t find much data to suggest that they will. I only have a vague hope that the Fed will continue to pump air into the balloon and corporations will continue to find ways to cut more costs and grow their already record-high earnings. Meanwhile, every valid valuation measure I look at suggests that stocks are at least 40% overvalued and, therefore, are likely to produce lousy returns over the next 10 years. Which valuation measures suggest the stock market is very overvalued? These, among others:

• Cyclically adjusted price-earnings ratio (current P/E is 25X vs. 15X average)
• Market cap to revenue (current ratio of 1.6 vs. 1.0 average)
• Market cap to GDP (double the pre-1990s norm)

Read more of this post

One More Systemic Risk to Worry About: M-REIT

One More Systemic Risk to Worry About

Borrowing lots of money overnight to buy long-term assets is a great way to blow up the world economy. That’s why everyone from Federal Reserve Governor Jeremy Stein, to the International Monetary Fund, to Financial Times columnist Gillian Tett is worried about the systemic danger posed by mortgage real estate investment trusts, which collectively own about $500 billion in assets, according to the IMF. The good news is that this risk can be reduced with the help of a little financial engineering. Read more of this post

Treasure Hunters of the Financial Crisis

November 9, 2013

Treasure Hunters of the Financial Crisis

By PETER LATTMAN

Five years ago, the global financial system was falling apart. Lehman Brothers had imploded. Banks had stopped lending. Foreclosure signs were as common as weeds on the front lawns of suburban homes. And Bruce A. Karsh saw the buying opportunity of a lifetime. Mr. Karsh, a low-key money manager from Los Angeles, had spent his career analyzing and trading the debt of companies. With the world economy buckling, the prices of corporate debt had plunged to levels suggesting that much of American industry was hurtling toward bankruptcy. So Mr. Karsh, through his Oaktree Capital Management firm, plowed money into distressed debt at a torrid pace, investing more than $6 billion over a three-month stretch. Read more of this post

Corporate disclosure, though frequently valuable, also has serious drawbacks, often leading to adverse unintended consequences that can outweigh its benefits?

November 8, 2013

Against Disclosure

By DAVID M. PRIMO

IN the policy world, corporate disclosure is widely seen as an unalloyed good. Publicly traded corporations are under growing pressure to reveal more information about C.E.O. compensation, political spending and even the dangers that climate change poses for the company. Shareholders need such information, advocates say, in order to hold managers accountable and reduce risks to the company and its reputation. Democracy itself, the argument continues, benefits when voters know more about how corporations operate. But a number of recent studies, including some of my own, suggest that this view is shortsighted. Disclosure, though frequently valuable, often leads to adverse unintended consequences that can outweigh its benefits. Read more of this post

When big beer goes small; MillerCoors had success this summer with its craft beer division. Other big brewers have dipped their toes into the craft category, but some are staying far away

When big beer goes small

November 8, 2013: 12:42 PM ET

MillerCoors had success this summer with its craft beer division. Other big brewers have dipped their toes into the craft category, but some are staying far away.

By Daniel Roberts, writer-reporter

FORTUNE — “The taste is flat out lemonade … maybe an eyedropper of booze,” writes the user Sammer on ratebeer.com’s page for Leinenkugel Summer Shandy. On Beer Advocate, where the brand has a 72 rating (“okay”), the user Alphagnome writes, “Honestly, it’s not good … BUT it’s refreshing.” Perhaps that’s all that matters for a seasonal drink; Leinenkugel’s lemonade-flavored beer had enormous success this summer. The second-best selling and fastest-growing craft beer, it outsold all of Leinenkugel’s other beers combined in the time it was on shelves. Shipments were up 24% over last year. And it has helped the Jacob Leinenkugel Brewing Company go from producing 60,000 barrels a year when the Miller Brewing Company bought it in 1988 to now nearly 1 million. Read more of this post

Michael Pettis Cautions Abe (And Krugman): “Debt Matters”

Michael Pettis Cautions Abe (And Krugman): “Debt Matters”

Tyler Durden on 11/09/2013 16:16 -0500

“Debt matters… even if it is possible to pretend for many years that it doesn’t,” is the painful truth that, author of “Avoiding The Fall”, Michael Pettis offers for the current state of most western economies. Specifically, Pettis points out that Japan never really wrote down all or even most of its investment misallocation of the 1980s and simply rolled it forward in the form of rising government debt. For a long time it was able to service this growing debt burden by keeping interest rates very low as a response to very slow growth and by effectively capitalizing interest payments, but, as Kyle Bass has previously warned, if Abenomics is ‘successful’, ironically, it will no longer be able to play this game. Unless Japan moves quickly to pay down debt, perhaps by privatizing government assets, Abenomics, in that case, will be derailed by its own success. Read more of this post

Chinese engineering machinery firms suffer mounting bad debt

Chinese engineering machinery firms suffer mounting bad debt

Staff Reporter

2013-11-09

As a harbinger of the economic climate, leading engineering machinery firms in China, including Sany, Zoomlion, XCMG, are feeling the pinch of a possible economic downturn. In order to boost its sales, Sany Heavy Industry is now accepting a range of orders, instead of only processing orders from major clients. The company is now expecting a marked increase in bad debt. According to their financial statements, in the first nine months this year the revenue of Sany, Zoomlion and XCMG tumbled 26.5%, 26.1% and 25% year-on-year, respectively, with their net profits scoring even sharper declines of 49.3%, 45.48% and 46.3%. Meanwhile, as of the end of September, their accounts receivable totaled 68 billion yuan (US$11.5 billion): 22.55 billion yuan (US$3.7 billion) for Sany, 25.6 billion yuan (US$4.2 billion) for Zoomlion and 19.8 billion yuan (US$3.2 billion) for XCMG, up 50.6%, 35.6% and 11.5% respectively over the amounts at the beginning of the year. Read more of this post

Harvard University, the world’s richest college, lost $345.3 million terminating interest-rate swaps last year, bringing its cost of unwinding debt derivatives since 2008 to more than $1.25 billion

Harvard Swap Toll Tops $1.25 Billion as Agreements Exited

Harvard University, the world’s richest college, lost $345.3 million terminating interest-rate swaps last year, bringing its cost of unwinding debt derivatives since 2008 to more than $1.25 billion. Harvard made the most recent payments to exit derivatives linked to about $942 million of existing and future debt, the Cambridge, Massachusetts-based university said in a report today on the fiscal year ended June 30. Read more of this post

South Korea’s Spicy Kimchi Index to Rival Big Mac

South Korea’s Spicy Kimchi Index to Rival Big Mac

By Meeyoung Cho on 3:49 pm November 8, 2013.
If the Economist magazine’s Big Mac Index is too fattening, South Korea may have the answer with a Kimchi Index tracking the cost of ingredients in the pungent cabbage dish that is gaining fans worldwide as a healthy “superfood.” Kimchi-making season has just started in the Asian country and a shortage of locally produced cabbage has been enough to trigger hand-wringing editorials and the import of what Koreans regard as inferior Chinese cabbage to make their national dish. South Korea’s agriculture ministry launched the index on Friday, saying it would be published weekly to alert consumers if prices proved to be “seriously volatile.” Read more of this post

Large retail shops change consumers’ shopping pattern; E-Mart, Korea’s largest discount store chain, said its shop in Chang-dong located in the north part of Seoul, will mark its 20th anniversary

Large retail shops change consumers’ shopping pattern

Sohn Dong-woo, Lee Yu-jin

2013.11.08 16:35:00

E-Mart, Korea’s largest discount store chain, said Friday its shop in Chang-dong located in the north part of Seoul, will mark its 20th anniversary next Tuesday.
The 20-year-old retail shop and the advent of followers grew rapidly for a short period, changing the nation’s retail industry and consumers’ shopping practices completely. Large retail shops take up a significant part of Korea’s retail industry. Their market value reaches 38.8 trillion won ($36.44 billion), larger than that of department stores with 29.1 trillion won. The number of such shops amount to 470 in Korea and 627, including those outside Korea.  Read more of this post

122 Korean SMBs to go under restructuring

122 SMBs to go under restructuring

Lee Jin-myung

2013.11.08 15:56:54

South Korea’s 112 small and mid-sized businesses (SMBs) will face restructuring. The Financial Supervisory Service (FSS) along with creditor banks conducted credit risk assessment of 1,502 SMBs with weaker financials Friday and thereby rated 54 companies as grade C, a rating reserved for companies that need workout, and 58 companies as grade D, a rating for those that need to go under court receivership or shut down business. The total number of SMBs subject to restructuring was up 15.5 percent from a year ago to the highest level unseen since 2010.  Read more of this post

Savings tapped as pay falls: ‘Abenomics’ on notice

Savings tapped as pay falls: ‘Abenomics’ on notice

31% of households lack financial assets

BLOOMBERG

NOV 8, 2013

The share of Japanese households with no financial assets rose to a record high as falling incomes forced people to dig into their savings, highlighting the potential for widening disparities under “Abenomics.” The proportion reached 31 percent, according to a Bank of Japan survey released Thursday in, up from 26 percent a year earlier and the highest since the poll began in 1963. The BOJ surveyed 8,000 households of two or more people aged 20 years or older from June 14 though July 23. Read more of this post

Indonesian finance minister Basri Sees Rupiah Back to 2009 Levels After QE Taper

Basri Sees Rupiah Back to 2009 Levels After QE Taper

By Bloomberg on 5:10 pm November 8, 2013.

Chatib Basri said the rupiah and bond yields will return to levels seen in 2009 after the Federal Reserve cuts stimulus that has buoyed emerging-market assets. (GA Photo/Defrizal)

Indonesia’s rupiah and bond yields will return to levels seen in 2009 after the Federal Reserve cuts stimulus that has buoyed emerging-market assets, Finance Minister Chatib Basri said. The currency traded at an average of 10,396 per dollar in 2009, compared with 11,408 as of 1:15 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. Read more of this post

How the Holes in Indonesia’s Safety Nets Hamper Poverty Reduction

How the Holes in Indonesia’s Safety Nets Hamper Poverty Reduction

By IRIN News on 4:24 pm November 8, 2013.

Indonesia’s economy grew by roughly 6 percent in 2013, but its poverty reduction has nearly stalled with almost half the population living in poverty — and experts struggling to identify and serve the neediest among them. “It’s true that [social] targeting is not easy and it’s complicated,” Nina Sardjunani, the Indonesian government’s deputy development planning minister, told IRIN. Read more of this post

Luxury brands follow wealthy customers

November 8, 2013 9:04 pm

Luxury brands follow wealthy customers

By Rachel Sanderson

Call it the year of transition. A slowing in the Chinese luxury goods market, returning confidence among US buyers, the growing power of tourist shoppers and a relentless incursion from the digital world – from online shopping to smart watches – are all shaking up the industry of watches and jewellery. The cue for change came from Richemont, the industry’s bellwether. Johann Rupert, its billionaire tycoon owner, chose this year to take a sabbatical after a quarter of a century running the group whose other brands include Cartier and Van Cleef & Arpels. Read more of this post

Shanghai raised the minimum down payment required for buyers of a second home to 70 percent from 60 percent as house prices in China’s financial hub surge

Shanghai Raises Home Down-Payment Requirement as Prices Jump

Shanghai raised the minimum down payment required for buyers of a second home to 70 percent from 60 percent as house prices in China’s financial hub surge. Counties and municipal departments should take measures to ensure the city’s annual price-control target is met, according to a statement on the local housing bureau’s website. The city also tightened the qualifications required for non-local home buyers and will increase residential land supplies, according to the statement. Read more of this post

History Suggests China Plenum Reforms Will Be Limited

History Suggests China Plenum Reforms Will Be Limited

By Bill Powell on 4:04 pm November 8, 2013.

Shanghai. If history is any guide, the next wave of Chinese reform is likely to be smaller and slower than before. As President Xi Jinping and other Communist Party leaders gather at the weekend for a landmark conclave, foreign investors hoping that wide-ranging reforms will follow should consider that previous such meetings have shown a pattern of diminishing returns. Read more of this post

Chinese Industrialization and its Discontents

Chinese Industrialization and its Discontents

BARRY EICHENGREEN

NOV 8, 2013

TOKYO – As the Third Plenum of the 18th Central Committee of the Chinese Communist Party convenes in Beijing, China stands at a crossroads. Its recent growth record is stupendous; no country in history can match it. But China’s economic imbalances are also stupendous. The country has sustained its output growth by investing fully one-half of GDP, though no country can productively invest more than a third of national income for an extended period. Household consumption accounts for only one-third of GDP, compared to two-thirds in a normal economy. Read more of this post

Chinese Attacks Ignite Terrorism Debate; Tiananmen Square, Central China Violence Provoke Different Set of Reactions; “The government ought to contemplate the source of these conflicts. That’s more important than arresting and executing

Chinese Attacks Ignite Terrorism Debate

Tiananmen Square, Central China Violence Provoke Different Set of Reactions

JOSH CHIN

Nov. 8, 2013 3:32 p.m. ET

BEIJING—Two deadly attacks in China in the weeks leading up to a much-anticipated leadership meeting have ignited debate around the thorny question of what China considers to be terrorism. State media said the culprit in the latest attack, in which homemade explosives detonated outside a Communist Party building in central China, was “dissatisfied with society.” Meanwhile, officials and state media have said a suicide attack last week at Beijing’s Tiananmen Square was the work of terrorists. Read more of this post

China Can’t Be a Global Innovation Leader Unless It Does These Three Things

China Can’t Be a Global Innovation Leader Unless It Does These Three Things

by Anil Gupta and Haiyan Wang  |   1:00 PM November 8, 2013

When the Chinese Communist Party’s central committee wraps up the Third Plenum on November 12, 2014, a shift from efficiency to innovation will likely be one of the major planks in its vision for China.  The government’s imperatives are clear: It wants to double incomes by 2020 in the face of a declining population of working-age; an appreciating currency, and, relative to other emerging economies, high and rising wages.  Promoting innovation is also one of the eight key reform priorities in the “383” plan being circulated by the State Council’s Development Research Center. Read more of this post

A Chinese City Seeks to Turn Migrants Into Urbanites; Tongling’s Recipe for Growth: Giving Rural Workers Urban Benefits

A Chinese City Seeks to Turn Migrants Into Urbanites

Tongling’s Recipe for Growth: Giving Rural Workers Urban Benefits

BOB DAVIS

Nov. 8, 2013 7:01 p.m. ET

TONGLING, China—Tongling, a copper-mining center since the Ming dynasty, is running low on ore. The Yangtze River city wants to turn itself into a manufacturing center, but it lacks a critical ingredient: a steady supply of factory workers. So it is doing what many places in China are unwilling to do. It is inviting migrants and their families to settle, giving them the same rights to education, health care and housing as locals, and even letting émigrés from China’s villages retain their exemption from China’s notorious one-child policy, so they can have a second child. Read more of this post

Pension lessons from Down Under

November 8, 2013 7:11 pm

Pension lessons from Down Under

By Josephine Cumbo

Australia may pack less punch on cricket pitches and rugby fields these days, but when it comes to pensions, Aussies still reign supreme. Their national “superannuation” scheme, known locally as “super”, is the envy of the world. As many countries, including the UK, beginto tackle their pension savings crisis, Australia can quite comfortably boast that nearly 12m of its 23m citizens have a workplace pension pot, and are on course for a decent retirement. Read more of this post

UN Says Meth Boom Sweeping Asia

UN Says Meth Boom Sweeping Asia

By Agence France-Presse on 1:48 pm November 8, 2013.
Bangkok. The United Nations on Friday sounded the alarm over record seizures of methamphetamine across much of Asia as the illegal drug floods streets and clubs. Last year 227 million methamphetamine pills were seized in East and Southeast Asia — up 59 percent from the year before and a more than seven-fold increase compared with 2008, the United Nations Office on Drugs and Crime (UNODC) said. Read more of this post

Thai power producers rush into solar to ride on generous government incentives

Updated: Friday November 8, 2013 MYT 2:19:22 PM

Thai power producers rush into solar

BANGKOK: Riding on generous government incentives, Thailand’s energy firms are deepening a push into solar power to bolster their profits over the next few years and perk up lacklustre shares. Utility Electricity Generating Pcl (EGCO) and refiner Bangchak Petroleum Pcl are among a dozen listed Thai companies investing as much as US$2bil combined in solar projects over the next five years to provide power to South-East Asia’s second-largest economy. Read more of this post

How to spot a bubble about to burst; The ‘adjustment phase’ of QE could be painful

November 8, 2013 6:38 pm

How to spot a bubble about to burst

By Merryn Somerset Webb

The ‘adjustment phase’ of QE could be painful

How do we know when irrational exuberance has unduly escalated asset values? That, as my colleague Jonathan Eley is keen to remind us, is the question that Alan Greenspan was rhetorically asking in his famous December 1996 speech on stock markets. He wasn’t saying he necessarily saw the characteristics of a bubble, just wondering how we would all recognise them if we saw them. Read more of this post

Lost Kingdom: Myanmar’s Forgotten Royals

Lost Kingdom: Myanmar’s Forgotten Royals

By Kelly Macnamara on 12:23 pm November 8, 2013.
Yangon. In a modest Yangon apartment, the granddaughter of Myanmar’s last king lives poor and unrecognized by her neighbors — a far cry from the power and riches of her ancestor. Princess Hteik Su Phaya Gyi said the childhood days when her family had a bevy of servants and retained some of its royal status were now a distant memory. The British colonial regime dethroned her grandfather King Thibaw in 1885 and later the military junta, which ruled the country for decades, kept the family out of the public eye. Read more of this post

In New Myanmar, Junta’s ‘Evil Prince’ Wants to Offer His Help

In New Myanmar, Junta’s ‘Evil Prince’ Wants to Offer His Help

A Decade After He Ran Junta’s Spy Apparatus, He Wishes Someone Would Call

SHIBANI MAHTANI and MYO MYO

Nov. 8, 2013 8:03 p.m. ET

YANGON, Myanmar—When Lt. Gen. Khin Nyunt was a leader in the junta that formerly ruled Myanmar, the spy apparatus that he ran was capable of punishing ordinary citizens for even uttering the word “democracy.” Now, nearly a decade after he was ousted in a power play and placed under house arrest, he wishes someone would just call. “I have so much experience, but no one has asked me for help as a consultant or strategist,” said Mr. Khin Nyunt, almost wistfully. “If anyone approaches me, I will give good advice, which will be in our country’s interest—I am not a politician, so I won’t be biased.” Read more of this post