Warning from Suspect’s Father: ‘If they killed him, then all hell would break loose’

The father of suspected Boston Marathon bomber called on his son today to give up peacefully, but warned the U.S. that if his son is killed “all hell will break loose.”

Anzor Tsarnaev spoke to ABC News from his home in the Russian city of Makhachkala as Boston police carried out an intense dragnet for his son Dzhokhar Tsarnaev.

Dzhokhar Tsarnaev, 19, survived a running gun battle with police during the night that left an MIT security officer dead and a Boston cop badly wounded. His older brother Tamerlan Tsarnaev, 26, died in the shootout.

http://abcnews.go.com/US/boston-bomb-suspects-dad-tells-son-surrender-hell/story?id=18995936#.UXFs17VfAls

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InvestmentWatch

Warning from Suspect’s Father: ‘If they killed him, then all hell would break loose’

Gold slide flashes warning signs for global economy

Gold bars are displayed at the Ginza Tanaka store in Tokyo April 18, 2013.

Credit: Reuters/Yuya Shino

By Ryan Vlastelica and Richard Leong

NEW YORK | Fri Apr 19, 2013 2:18am EDT

NEW YORK (Reuters) – The plunge in the gold price in the past week may have raised a big red flag over the global economy.

Some top investors say the gold sell-off, and the broader declines in oil and metals prices, reflect the failure of the Federal Reserve and other central banks to create robust demand even as they inject massive amounts of money into the world financial system.

The slide, which took gold to its biggest one-day loss ever in dollar terms on Monday, unnerved investors who saw billions of dollars in gains wiped out in a few days, and it may portend declines in other asset prices ahead. That may have begun this week with several days of big stock price drops.

Some see the move in gold as a possible flashpoint for a broader economic and markets shock comparable to the collapse of hedge fund Long-Term Capital Management in 1998 and even the financial crisis a decade later. Both events were preceded by sharp drops in gold.

The gold and commodities weakness is “signaling concerns about global growth,” said Mohamed El-Erian, the co-chief investment officer of PIMCO, which oversees $ 2 trillion in assets. “Commodities have been sending the signal on growth for a while, and now even louder.”

And after the stampede out of gold earlier this week, investors on Thursday dumped their holdings of U.S. inflation bonds after a lousy auction. This kind of debt is seen as a way to protect against any rise in the inflation rate that might materialize in a more buoyant economy.

The post-crisis run-up in gold prices resulted in part from speculation triggered by the massive amounts of cash created by aggressive monetary policy. It had been thought that the massive creation of credit would support a “re-inflation” of the world economy – but the recent pullback in gold, oil and copper – the latter two assets linked closely with global industrial growth – suggests that this may just not be happening.

The recent rush into the safety of U.S. Treasuries – which has pushed yields close to four-month lows – is another sign that the global economy is far from humming. Treasuries are often seen as a shelter when the economy is weak or unstable.

The PIMCO Total Return Fund (PMBIX.O), which holds $ 289 billion in assets and overseen by Bill Gross, increased its exposure to Treasuries and Treasury-related securities to 33 percent in March from 28 percent the previous month. Gross said on Twitter on Wednesday that “gold has started a levered market ‘sell-off.’ Buy Treasuries.”

Some are even talking about the possibility the United States could head back into recession, though this is a minority view.

“It’s not noise. There are fundamental consequences,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies and a portfolio manager of the TCW Comprehensive Asset Allocation Strategy fund.

The International Monetary Fund on Tuesday dialed back its forecast on global economic growth in 2013 to 3.3 percent from its earlier projection of 3.5 percent. That is little changed from the 3.2 percent in 2012.

Concerns about slowing growth are also resonating within the Federal Reserve. Several Fed officials expressed worry about disinflation, including the more centrist James Bullard, St. Louis Fed president, who said on Wednesday that “if inflation continues to go down, I would be willing to increase the pace” of stimulus.

“The stars are lining up” for a significant dip in U.S. growth in the second half of the year, possibly even a double-dip recession by 2014, Sri-Kumar said.

It all raises questions about the effectiveness of the huge cash stimulus pumped into the world economy by the Fed, the Bank of Japan, and other major central banks.

With governments strapped for cash, the central banks have taken on a lot of the burden of getting the world economy back on a growth path after the devastation inflicted by the financial crisis. If the impact of those measures, such as the Fed buying massive amounts of government and mortgage debt, starts to show diminishing returns it could be a huge concern for investors in any riskier assets.

GOLD LOSING SHINE

The downdraft in gold prices coincided with mounting evidence of a slowing of the rate of price increases. On Tuesday, the U.S. Labor Department said U.S. consumer prices have increased by 1.5 percent over the past 12 months, the slowest rate of increase since July 2012.

Bank of America-Merrill Lynch recently warned that gold – which was trading at $ 1,392 an ounce late on Thursday – could fall to $ 1,200 before stabilizing, citing “fears of disinflation combined with news of potential central bank gold selling.

The sell-off in gold, together with weak economic data, knocked investors’ long-term inflation expectations to their lowest levels since late last summer.

The yield gap between 10-year Treasury Inflation-Protected Securities and regular 10-year Treasury notes – used to gauge investors’ outlook on inflation – 2.27 percentage points on Thursday, the lowest since early September prior to the Fed’s announcement of its third round of large-scale bond purchases, known as QE3.

This 10-year inflation “break-even” rate, which the Fed monitors, was as high as 2.61 points in late January.

Meanwhile, three-month copper futures are down 12 percent this year, falling below $ 7,000 per ton on the London Metal Exchange for the first time since October 2011. Copper’s importance as a use in industrial and housing applications – from autos to water pipes – has made it a key barometer of demand.

Some, however, believe the dramatic wind-down of the severe inflation of assets in the previous decade remains incomplete – making the declines in gold and other metals less disconcerting.

“Because the global economy is on the downside of a global credit bubble, it seems unreasonable to expect abnormal inflation,” said Richard Bernstein, a long-time strategist who heads his own namesake investment advisory firm in New York.

In addition, gold has arguably been in line for a correction. Its price had risen for 12 straight years, and had gained 52 percent in the last three years, the kind of gains seen notably in technology stocks in the late 1990s.

“Even at these levels, gold is still not attractive. The odds favor the bull market being over,” said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Global Investments, which in early March told clients to stop allocating a position to gold.

As the outlook on inflation has diminished, investors have cut back on their gold exposure.

U.S. funds that invest in precious metals suffered a record one-week outflow of $ 2.7 billion in the week ended April 17, according to Lipper, a unit of Thomson Reuters, of which $ 2.2 billion came from the SPDRs Gold Shares ETF (GLD.P). The GLD is one of the largest exchange-traded funds with $ 50.8 billion in assets, but it has seen its assets dwindle by one-third since October 2012, Lipper said.

The stampede out of gold has tapered off, and it has pulled back more than 5 percent from a two-year low of $ 1,321 an ounce hit earlier this week, leading to some hopes the declines are the result of a much-needed correction in the metal.

Still, investors are very wary of another plunge.

“If we see this kind of liquidation again, the equity market will follow. Then we’ll have a real problem,” said Frank Cholly, Jr., senior commodities broker at R.J. O’Brien and Associates in Chicago.

(Reporting by Richard Leong and Ryan Vlastelica, additional reporting by Jennifer Ablan and Sam Forgione; Editing by David Gaffen and Leslie Gevirtz)

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Reuters: Business News

Gold slide flashes warning signs for global economy

TIC-TIC-TIC: The Ominous Warning In Foreigners" U.S. Bond Positions

Submitted by F.F.Wiley of Cyniconomics blog,

When data released last year showed China losing its appetite for U.S. bonds, it didn’t cause much concern. Sure, some bloggers took notice, such as the always alert Tyler Durden(s) in this post. But most pundits saw other countries picking up the slack and decided to “move along, nothing to see here.”

As of later this month, we’ll receive the final picture on China’s U.S. bond sales over late 2011 and early 2012, and the reaction isn’t likely to be much different than it was last year. But I’ll argue that there’s actually quite a lot to see. Namely, there’s a brand new reason to be concerned about America’s access to foreign capital.

Comparing annual and monthly TIC data

I’ll first share data from the Treasury International Capital (TIC) System’s annual survey of foreigners’ U.S. bond holdings. Those familiar with the TIC data know that these annual results are notoriously stale. Preliminary data was released on February 28^th, with the final report due April 30^th for a survey describing foreign bond holdings as of June 2012.

In other words, there’s a 10 month lag from survey date to report date.

But the first thing we learned from the preliminary release is that the annual survey didn’t add much information to the approximations published by the Treasury Department on a monthly basis. Thanks to new methods, which were introduced to fix large errors that used to occur in the monthly approximations, revisions were minor this time around.

The February 28^th release merely confirms that China dumped U.S. bonds between the annual survey dates of June 2011 and June 2012, while other countries offset China’s sales by increasing their holdings.

Here’s the comparison of total foreign holdings of U.S. government bonds to China’s holdings:

Now for the bad news

As I mentioned above, most pundits have sounded the all clear based on the continued increase in total foreign holdings. To see the bad news, though, we need to dig deeper. We need to ask who picked up the bonds that China’s no longer buying. And then more importantly, whether those increased purchases are sustainable.

To answer the first question, the chart below shows the top ten buyers of U.S. government bonds in the year ended June 2012, compared to the same countries’ average net purchases in the previous five years.

Japan was the star of the bunch, adding $ 217 billion to its U.S. government bonds. But it wasn’t the only country to significantly increase its positions. With the sole exception of Brazil, each country in the chart set a new record for the change in U.S. bond holdings in a single year.

Now, moving onto the question of sustainability, we need to collect more information before developing an answer. We need a proxy for each country’s ability to absorb U.S. bonds on a consistent basis. And an excellent choice is the current account balance, which tells us how much foreign currency a country is generating naturally through global trade. It was China’s massive current account surplus, after all, that created the piles of dollars that it was able to recycle into U.S. Treasuries and other global assets in recent decades.

Take the five years from June 2006 to June 2011, for example. On average, China added $ 183 billion per year to its U.S. government bond holdings over that period. And over roughly the same period (I used calendar years for simplicity), its current account surplus averaged $ 293 billion per year.

China was spending about 60% of its current account surplus on U.S. government bonds, which seems a manageable amount.

But how about the ten countries in the second chart above? Collecting them into three groups (Japan alone in the first group, then the next four largest bond buyers, and then the five after that), I’ve compared their U.S. government bond purchases to the IMF’s estimates for current account balances in 2012:

Defining unsustainable

These results suggest a whole new challenge in the quest for buyers of U.S. bonds. The old challenge was to sustain the status quo of large current account surpluses and correspondingly large U.S. bond purchases in China. We knew there were limits to the sustainability of these surpluses, but we also knew they can persist for a long time before finally correcting. And after corrections occur, such as in the global trade collapse of 2008/09, imbalances can return.

But today, we’re dealing with a different notion of unsustainable. As long as China was willing to buy huge amounts of U.S. bonds in recent times, it was more than capable of doing so. But you can’t draw the same conclusions for Japan, Switzerland, Belgium and so on. As shown in the chart, investors in these countries spent more than twice their aggregate current account surpluses to buy U.S. bonds in 2011/12.  This is much less sustainable than relying on China.

It simply can’t continue for very long.

The results shown above also explain the observation that all but one of the ten countries set new records for net U.S. bond purchases in the latest measurement year. They’ve never bought as many U.S. bonds before 2011/12 because they could only reach these amounts by reallocating assets from other investments, which isn’t something that can be done continually. Again, it’s unsustainable.

In a nutshell, America needs foreigners to be both willing and able to buy its bonds.

China is able but much less willing than it used to be. (Treasury data that isn’t shown here suggests its interest in U.S. securities recovered somewhat in late 2012, but remains far short of the levels of two years ago.)

Other countries are willing but not nearly as able as China, notwithstanding the sharp increase in purchases in the recent period.

And overall, the message in the preliminary TIC data is more worrisome than it may appear on the surface. Should the final report on April 30^th confirm the message, consider it a warning of a potentially disastrous future decline in foreign purchases of U.S. debt.

(For another perspective on the limits to government borrowing, see “Answering the Most Important Question in Today’s Economy.”)

Zero Hedge

TIC-TIC-TIC: The Ominous Warning In Foreigners" U.S. Bond Positions

Words Of Warning: Get Your Money Out Of European Banks

If you still have money in European banks, you need to get it out.  This is particularly true if you have money in southern European banks.  As I write this, the final details of the Cyprus bailout are being worked out, but one thing has become abundantly clear: at least some depositors are going to lose a substantial amount of money.  Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be considered 100% safe ever again.  Without trust, a banking system simply cannot function, and right now there are prominent voices on both sides of the Atlantic that are loudly warning that trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can.  Even if you don’t end up losing a significant chunk of your money, you could still end up dealing with very serious capital controls that greatly restrict what you are able to do with your money.  Just look at what is already happening in Cyprus.  Cash withdrawals through ATMs have now been limited to 100 euros per day, and when the banks finally do reopen there will be strict limits on financial transactions in order to prevent a full-blown bank run.  And of course anyone with half a brain will be trying to get as much of their money as they can out of those banks once they do reopen.  So the truth is that the problems for Cyprus banks are just beginning.  The size of the “bailout” that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn.  Cyprus is heading for a complete and total banking meltdown, and because the economy of the island is so dependent on banking that means that the economy of the entire nation is going to collapse.  Sadly, similar scenarios will soon start playing out all over Europe.

So if you hear that a “deal” has been reached to “bail out” Cyprus, please keep in mind that the economy of Cyprus is going to collapse no matter what happens.  It is just a matter of apportioning the pain at this point.

According to the New York Times, it looks like much of the pain is going to be placed on the backs of those with deposits of over 100,000 euros…

The revised terms under discussion would assess a one-time tax  of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking  depositors’ money to help plug the hole.

A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.

Does that sound bad to you?

Well, if a deal is not reached, there is a possibility that those with uninsured deposits could lose everything.  According to Ekathimerini, EU officials are telling Cyprus to choose between a “bad scenario” and a “very bad scenario”…

The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 percent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.

The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.

When asked by Kathimerini how the Cypriot economy will survive if all company and personal deposits above 100,000 euros disappear from the country’s two biggest lenders, the EU official said: “Unfortunately, Cyprus’s choices are between a bad scenario and a very bad scenario.”

So what percentage of the deposits in Cyprus are uninsured deposits?

Well, nobody knows for sure, but according to JPMorgan close to half of the total amount of money on deposit in EU banks as a whole is uninsured.

Do you think that some of those people will start moving their money to safer locations after watching how things are going down in Cyprus?

They would be crazy if they didn’t.

And if you think that “deposit insurance” will keep you safe, you are just being delusional.

According to CNBC, very strict capital controls are coming to Cyprus.  These rules will apply even to accounts that contain less than 100,000 euros…

Financial controls are coming. Depositors with less than 100,000 euros may not lose their money outright, but they won’t like the restrictions–no matter how much they have in the bank. Limits on withdrawals, limits on check cashing, and perhaps even outright conversion of checking accounts into fixed term deposits are coming (translation: you don’t have a checking account, you have a bond from the bank).

A lot of people are going to lose a lot of money in Cyprus banks, and a significant percentage of them are going to be Russian.

And as I wrote about the other day, you don’t want to have the Russians mad at you.

According to the Guardian, Moscow is already considering various ways that it might “punish” the EU…

However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: “If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.

“Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy.”

Could this be the start of a bit of “economic warfare” between east and west?

One thing is for sure – the Russians simply do not allow people to walk all over them.

Meanwhile, things in Cyprus are getting more desperate with each passing day.  Because they cannot get money out of the banks, many retail stores find themselves running low on cash.  In a few more days many of them may not be able to function at all…

Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus’s Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”

But do you know who was able to get their money out in time?

The insiders.

According to the Daily Mail, the President of Cyprus actually warned “close friends” about what was going to happen and told them to get their money out Cyprus…

Cypriot president Nikos Anastasiades ‘warned’ close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.

Overall, approximately 4.5 billion euros was moved out of Cyprus during the week just before the crisis struck.

Wouldn’t you like to get advance warning like that?

Well, at this point it does not take a genius to figure out what to do about any money that you may have in European banks.  The following is from a recent Forbes article by economist Laurence Kotlikoff…

Whatever happens, no one is going to trust or use Cypriot banks.  This will shut down the country’s financial highway and flip Cyprus’ economy to a truly awful equilibrium in a replay of our own country’s Great Depression, which was kicked off by the failure of one-in-three U.S. banks.

Cyprus is a small country.  Still, the failure of its banks could trigger massive bank runs in Greece.  After all, if the European Central Bank is abandoning Cypriot depositors, they may abandon Greek depositors next.  A run on Greek banks could then spread to Portugal, Ireland, Spain, and Italy and from there to Belgium and France and, you get the picture, to other countries around the globe, including, drum roll, the U.S.   Every bank in each of these countries has made promises they can’t keep were push come to shove, i.e., if all depositors demand their money back immediately.

We’ve seen this movie before.  And not just in real life.  Every Christmas our tellys show It’s a Wonderful Life in which banker Jimmy Stewart barely saves his small town from economic ruin arising from a banking panic.

Others are being even more blunt with their warnings.  For example, Nigel Farage, a member of the European Parliament, is warning everyone to get their money out of southern European banks while they still can…

The appalling events in Cyprus over the course of the past week have surpassed even my direst of predictions.

Even I didn’t think that they would stoop to stealing money from people’s bank accounts. I find that astonishing.

There are 750,000 British people who own properties, or who live, many of them in retirement down in Spain.

Our message to expats now that the EU has crossed this line, must be: Get your money out of there while you’ve still got a chance.

And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your head examined…

What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them.  They don’t really know where their deposits went to and they also ignore what jurisdiction they really belong to. Finally, depositors are paid mere basis points for their trust in the system vs. the 20% p.a. Argentina offered in 2001 (thanks to the zero-interest rate policies of the 21^st century). In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!

So where should you put your money?

I don’t know that there is anywhere that is 100% safe at this point.  But many are pointing to hard assets such as gold and silver.  The following is what trends forecaster Gerald Celente had to say during one recent interview…

“People always say to me, ‘Mr. Celente you are always talking about gold.  What are you going to do with gold when everything collapses and there is no money?’  Well, let’s say you are a Cypriot and all of the ATM machines are out of money and the banks are closed?  Do you think those pieces of silver are going to buy you what you need?  Do you think that ounce of gold is going to get you what you want?

That’s the real money.  There is no other money.  When it all comes down, gold and silver are the only things you have to buy what you need, get what you want, or even get out if you need to.”

I used to tell people that putting their money in U.S. banks was safer than putting it other places because U.S. bank deposits are covered by deposit insurance up to a certain amount.

But now we see that deposit insurance means absolutely nothing.  If they decide to “tax” (i.e. steal) your money from your bank accounts they will just go ahead and do it.

So what should we all do?

Personally, I think that not having all of your eggs in one basket is a wise approach.  If you have your wealth a bunch of different places and in several different forms, I think that will help.

But as the global financial system falls apart, there will be no such thing as 100% safety.  So if you are looking for that you can stop trying.

Our world is becoming a very unstable place, and things are going to get a lot worse.  We are all going to have to adjust to this new paradigm and do the best that we can.

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The Economic Collapse

Words Of Warning: Get Your Money Out Of European Banks

Howard Marks: "It Isn"t Just A Windfall, It"s A Warning Sign"

Despite the all-knowing Alan Greenspan confirming there is no irrational exuberance currently, Oaktree Capital’s Howard Marks is less convinced. Though he is not bearish, he lays out rather succinctly the current pros and cons for equities – based on the various ‘valuation’ arguments, discusses the folly of the equity risk premia, and highlights the dangers of extrapolation and what history can teach us… “appreciation at a rate in excess of the cash flow growth accelerates into the present some appreciation that otherwise might have happened in the future… it isn’t just a windfall but also a warning sign.”

Via Oaktree Capital’s Howard Marks,

The problem with basing a pro-equities argument on the yield comparison is that most of equities’ current attraction on that basis comes from the lowness of interest rates. Just about everyone knows (a) interest rates are artificially low because of central banks’ efforts at stimulus and (b) rates will be considerably higher at some point in the intermediate term. In that case, rising rates would render stocks less attractive.

The Other Pros and Cons of Equities

There are many ways to view valuation, and many elements in the current debate over equities. Here are a few of them (I?ll start by reiterating the above for the sake of completeness):

• The differential between the S&P earnings yield and the risk-free rate or the yields on bonds – and their ratio – makes stocks look extremely cheap. PRO


• The attractiveness of these relative valuation parameters is highly dependent on interest rates staying low. CON (or LESS PRO)


• Relative to normal post-WWII p/e ratios, stock prices are average to slightly low as a multiple of projected earnings for the year ahead. PRO


• Robert Schiller?s cycle-adjusted p/e ratios are gaining increased attention, and they suggest full rather than fair valuations. CON


• Arguably earnings growth in the years ahead will be slower than that which prevailed in the decades following WWII. Thus the post-war valuation norms are too high under the changed circumstances and should be discounted. CON


• The outlook for earnings is restrained by the questionable macro environment, including the challenges in restarting growth and the dire prognosis for the federal deficit. These problems may not be easily solved. CON


• Among the things keeping earnings high – and thus making stocks seem attractive – are some of the highest profit margins in history. If profit margins were to move toward normal levels, this would bring down earnings, either taking stock prices down with them or lifting p/e ratios and thus reducing stocks? attractiveness. CON


• Corporate cash hoards are high, implying some combination of safety, potential for stock buybacks, and possible dividend increases. These are all good for shareholders. PRO


• Investor attitudes toward stocks remain tepid (see below). PRO


• However, with the S&P 500 up 16% last year and 10% so far this year, it can?t be argued that stocks have been overlooked and or that attitudes towards them are still mired in the doldrums. CON

What History Can Teach Us…

In the mid-1970s I was fortunate to happen upon one of the first of the time-worn pearls of wisdom that contributed so much to my education as an investor. It described the three stages of a bull market:

• the first, when a few forward-looking people begin to believe things will get better,


• the second, when most investors realize improvement is actually underway, and


• the third, when everyone?s sure things will get better forever.

In “The Tide Goes Out,” written in March 2008, several months before the lows of the financial crisis, I applied the same thinking to the converse – the three stages of a bear market:

• the first, when just a few prudent investors recognize that, despite the prevailing bullishness, things won?t always be rosy,


• the second, when most investors recognize things are deteriorating, and


• the third, when everyone?s convinced things can only get worse.

Hindsight always makes it clear what was going on at a particular point in time. It?s a snap now to say the second quarter of 2007 marked the third stage of a bull market: no one could think of a way to lose money. And in the fourth quarter of 2008 (for credit) and the first quarter of 2009 (for equities), we were certainly in the third stage of a bear market: most people thought the financial system was about to collapse, and securities that had halved in price could do nothing but halve again.

And On The Dangers of Extrapolation…

To me, the answer is simple: the better returns have been, the less likely they are – all other things being equal – to be good in the future. Generally speaking, I view an asset as having a certain quantum of return potential over its lifetime. The foundation for its return comes from its ability to produce cash flow. To that base number we should add further return potential if the asset is undervalued and thus can be expected to appreciate to fair value, and we should reduce our view of its return potential if it is overvalued and thus can be expected to decline to fair value.

 

In other words, appreciation at a rate in excess of the cash flow growth accelerates into the present some appreciation that otherwise might have happened in the future. Or to paraphrase Warren Buffett, “when people forget that corporate profits are unlikely to grow faster than 6% per year, they tend to get into trouble.” I doubt he intended anything special about 6%, but rather a reminder that when assets appreciate faster than the rate at which their value grows, it isn’t just a windfall but also a warning sign.

Zero Hedge

Howard Marks: "It Isn"t Just A Windfall, It"s A Warning Sign"

Wall Street edges lower after seven-day rally, warning on Europe

Traders work on the floor at the New York Stock Exchange, March 11, 2013.

Credit: Reuters/Brendan McDermid

LONDON | Tue Mar 12, 2013 5:05am EDT

LONDON (Reuters) – Stock index futures pointed to a slightly weaker open on Wall Street on Tuesday, with futures for the S&P 500, the Dow Jones and the Nasdaq 100 down 0.1 to 0.2 percent.

ICSC/Goldman Sachs release chain store sales for the week ended March 9 at 1145 GMT. In the previous week, sales rose 0.2 percent.

Ryanair (RYA.I) is to announce a deal to buy 200 aircraft from Boeing (BA.N) on Sunday, the Irish Independent newspaper reported on Tuesday without citing sources.

Redbook releases its Retail Sales Index of department and chain store sales for March at 1255 GMT. In the prior period, sales were up 1.3 percent.

Retailer Costco Wholesale Corp (COST.O) posted a 39 percent increase in quarterly profit, beating expectations, on increasing sales, membership fees and a tax benefit related to a special cash dividend.

Germany’s second biggest utility RWE (RWEG.DE) has hired Goldman Sachs (GS.N) to sell its oil and gas exploration unit DEA, two people familiar with the matter told Reuters.

Brent futures slipped below $ 110 a barrel on Tuesday on worries of a slowdown in demand growth in China and the United States, two of the world’s biggest oil consumers, with a rise in the dollar weighing further on the market.

European shares turned slightly higher in morning trade on Tuesday, led by miner Antofagasta (ANTO.L) after it more than doubled its dividend payout.

Japan’s Nikkei share average .N225 fell on Tuesday, snapping an eight-day winning streak, as investors took profits on recent gainers such as financials and exporters.

Wall Street rose modestly on Monday, lifting the Dow to another record and giving the S&P 500 its seventh straight advance as early weakness enticed buyers. The gains briefly lifted the benchmark S&P 500 index to its highest intraday level since October 2007.

The Dow Jones industrial average .DJI ended up 50.22 points, or 0.35 percent, at 14,447.29 on Monday, the Standard & Poor’s 500 Index .SPX rose 5.04 points, or 0.32 percent, to 1,556.22, while the Nasdaq Composite Index .IXIC added 8.51 points, or 0.26 percent, to close at 3,252.87.

(Reporting by Atul Prakash/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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Reuters: Business News

Wall Street edges lower after seven-day rally, warning on Europe

A warning about the price of generic drugs

When I’m not hanging out on Marketplace Money, I’m over at the L.A. Times writing a column on consumer affairs. My most recent piece looked at the pricing of generic drugs. If you’re like me, you probably figure that a generic is a generic is a generic. And the same generic from two different manufacturers will be priced pretty much the same because, well, they’re the same drug. Apparently not.

In my column, I tell the story of a Southern California woman who went to a CVS story to fill a prescription for a generic antibiotic. She paid $ 4 and 30 cents. When she went in a couple of months later for a refill, though, CVS said she’d have to pay $ 165 for the same generic drug. But was it the same? Turns out not. The first time around, the drug was from one manufacturer. The second time around, it was from another. And the second manufacturer was charging a price 30 times higher than the first.

This is how I learned about what the drug industry calls the average wholesale price, or AWP. Jeffrey McCombs, a professor of pharmaceutical economics and policy at the University of Southern California, explained it to me like this:

“The AWP price is a made-up price. It’s probably not real at all. I’m not sure that when it comes to the actual price that’s paid by distributors or pharmacy chains, etc. are that different,” says McCombs. “It’s just like your hospital bill. There’s no resemblance to reality whatsoever.”

What’s the takeaway here? It’s this: Don’t assume that just because you’re buying a generic drug you’re paying the lowest possible price. And if you don’t like what you’re being charged, don’t be shy about taking your business elsewhere. A different drugstore might deal with a different manufacturer, and that can make a big difference for your pocketbook.

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A warning about the price of generic drugs

Global Risk Appetite Signals "Risk-Off" Process Starting

Despite the improvements in equity markets, Credit Suisse’s global risk appetite indices are flashing warning signals. Their equity risk model points to weakness (most notably – Emerging Market underperformance relative to Developed Markets) and their credit risk appetite model maintains its ‘sell’ signal (which is what we are seeing in the broad credit markets). Finally, their bond risk model suggests a confirming signal getting long US duration.

 

 

 

Charts: Credit Suisse

Zero Hedge

Global Risk Appetite Signals "Risk-Off" Process Starting

Global Risk Appetite Signals "Risk-Off" Process Starting

Despite the improvements in equity markets, Credit Suisse’s global risk appetite indices are flashing warning signals. Their equity risk model points to weakness (most notably – Emerging Market underperformance relative to Developed Markets) and their credit risk appetite model maintains its ‘sell’ signal (which is what we are seeing in the broad credit markets). Finally, their bond risk model suggests a confirming signal getting long US duration.

 

 

 

Charts: Credit Suisse

Zero Hedge

Global Risk Appetite Signals "Risk-Off" Process Starting

Dr. Copper Sends A Deja Vu Warning Signal

While the world’s attention has been focused on a precious metals’ slide and a ‘dire’ 2% correction in stocks, another metal has been sending some ominous signals. So-called Dr. Copper is down 5.5% this week dragging it to negative for the year and highly suggestive (see 2011 and 2012 charts below) of a pending slide in US equities.

The reason for stocks to extend their losses, we believe, comes back to the little known fact that China is the marginal inflation center of the world. When global inflation gets too hot, it will tend to hit China first/hardest given its high food-weighting and energy demand; China then, subtley mind you, complains to the Big-5 Central Banks and an implicit tightening occurs – which then fades global stocks as the liquidity pump dries up.

As we noted recently, the Chinese never had a strong equity tradition and instead the trillions in deposits ($ 14 trillion last) is mostly going to fund loans used to buy homes (and marginally away from gold). However, the PBoC is clearly nervous and took matters into their own hands – with the largest liquidity withdrawal (tightening) on record in the last week (net repo redemptions). Perhaps, as we have seen again and again, with liquidity all there is left to create ‘growth’, Dr. Copper’s credentials are worth paying attention to.

 

Longer-term, Copper vs Gold (perhaps – growth vs fiat) points to a different picture for stocks…

 

 

But in the short-term, we have seen this picture of Copper and Chinese stocks leading US equities into a downturn twice before since the 2009 lows… and each time, US equities caught down soon after…

 

But the reason appears to be China’s clear signal to the world that it won’t stand idly by and enable inflation importation – whether for fear of an ‘arab spring’ like reaction or more simply a bubble-popping need to slow things down… It appears for now, China has taken that latter route with the largest ‘net’ liquidity withdrawal on record of CNY910bn this week or around USD150bn – as seen in the lower two panes of the chart below…

 

It would appear, just as when inflation reared its head last year, tightening has taken place with the massive easing before hand flowing from stocks and gold (blue and yellow in the chart above) at the margin to real estate… last year this marked the bottom in gold as inflation fears sent the marginal Chinese buyer back into the precious metal – and the levels are around the same this time also.

 

Charts: Bloomberg

Zero Hedge

Dr. Copper Sends A Deja Vu Warning Signal