Monday, June 17, 2013

Wall Street gains on Fed hopes after weekly loss

By Rodrigo Campos
NEW YORK (Reuters) - Stocks rose 1 percent early on Monday, with traders focused on expectations the Federal Reserve will reinforce this week its commitment to supporting the economic recovery.
Energy and financial shares led gains on the S&P 500, pointing to bets on a stronger economy. The PHLX housing sector index (.HGX) rose 2.4 percent.
Equities held on to sharp gains after data showed U.S. homebuilder sentiment jumped in June, rising above 50 for the first time since the start of the housing crisis in a vote of confidence for the sector's recovery.
While consensus is building among policymakers that the time is nearing for the U.S. central bank to scale down its quantitative easing, or $85 billion-a-month bond-buying program, divisions remain over when the Fed will start to wind down its purchases.
Chairman Ben Bernanke said on May 22 during Congressional testimony that the Fed could reduce the pace of QE in the "next few meetings," sparking a global bond and stock selloff.
"There's hopes we'll get clarity from the Fed this week," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
"The market is beginning to adjust itself to an eventual trimming from the Fed toward the beginning of next year," he said. "I think we're headed for more volatility but the market stays range-bound."
Volatility in U.S. equities has spiked, with the average daily range in the Dow industrials near 191 points since Bernanke's testimony in May. The average for 2013 before that was just below 110 points.
Major indexes closed Friday their third negative week in the last four.
The Dow Jones industrial average (.DJI) rose 157.5 points or 1.05 percent, to 15,227.68, the S&P 500 (.SPX) gained 15.6 points or 0.96 percent, to 1,642.33 and the Nasdaq Composite (.IXIC) added 35.44 points or 1.04 percent, to 3,459.
Netflix Inc (NFLX.O) shares jumped 5.8 percent to $226.09 after it signed a multi-year deal for original content with DreamWorks Animation (DWA.O). DreamWorks added 6.8 percent to $24.37.
Terex Corp (TEX.N) tumbled 10.9 percent to $28.28 after the machinery maker cut its earnings forecast.
Advanced Micro Devices Inc (AMD.N) rose 3.8 percent to $4.09 after Barron's said prospects are looking better for the No. 2 maker of microprocessors for personal computers.
Growth in the New York state manufacturing sector picked back up in June, but the details were less encouraging as new orders contracted further and measures of employment weakened, a report from the New York Federal Reserve showed on Monday.
(Reporting by Rodrigo Campos; Editing by Theodore d'Afflisio and Nick Zieminski)

Euro Becomes the Port in a Storm

The euro is emerging as an unlikely oasis in the latest bout of market turmoil.
Assets ranging from Japanese stocks to emerging-market bonds to U.S. Treasurys have slumped this spring, as investors brace for the possible pullback from easy-money policies by the world's major central banks. But the euro has largely avoided the volatile trading that has whipsawed other currencies, including the dollar and the Japanese yen, gaining about 4% against the greenback over the past four weeks to trade late Friday at $1.3345, near a four-month high.
It is a dramatic reversal for a currency that frequently has been at the center of global market turmoil in the past few years. Investors had put on record bets that the euro would fall, fueled by Europe's economic slump and questions about the long-term viability of the currency union.
Bearish euro positions have tumbled 90% in the past two weeks, according to the Commodity Futures Trading Commission. Despite problems that include stunted European economic growth, rising unemployment and large debt loads in southern European economies, many investors say the euro is a relatively safe bet these days, thanks to its status as a heavily traded reserve currency and ebbing fears of an imminent crisis.
The prospect of an early end to Federal Reserve stimulus has prompted many traders to hastily unwind bets on emerging markets and other high-yielding assets. As these positions unravel, some investors are taking shelter in the euro, which they see as having more in common with havens such as the dollar and yen than riskier, more thinly traded, higher-yielding currencies like the Australian dollar.
"It's hard to bet against the euro," said Sam Katzman, chief investment officer for New York-based Constellation Wealth Advisors, which invests about $5 billion in various funds on behalf of clients. "Until we stop printing money in the U.S., or they start, the wind is at the back of the euro." 
Driving the euro's strength is an unwinding of the "carry trade," in which investors borrow a low-yielding currency like the euro, sell it and then use the proceeds to buy higher-yielding assets like U.S. stocks and Mexican bonds. Carry trades, which helped power solid gains in riskier asset classes for the past few years, rely on a steady interest-rate differential to make money.
But now that the outlook for interest rates is less certain, investors are scrambling to exit carry trades before central banks change course. The euro is up nearly 10% since the start of May against the Australian dollar, a popular carry-trade target.
"The path of least resistance for the euro is higher," said Bob Marcellus, managing director at Richmond Optimus, which manages $30 million and is betting the currency will strengthen.
To be sure, betting on the euro has its drawbacks. The currency's appreciation isn't a welcome development for struggling European economies, such as Spain, Portugal and Italy. A stronger euro makes European exports less attractive to overseas buyers, and reduces revenue for exporters when they convert their foreign earnings back to euros.
Also, Italian and Spanish bond prices have fallen in the past two weeks, a sign that investors still view parts of the euro zone as risky. MSCI Inc., which publishes stock and bond indexes tracked by investors managing trillions of dollars, recently reclassified Greece as an emerging market rather than a developed one.
"It makes sense from an economic standpoint that the euro should be weaker," said Jeffrey Sica, president and chief investment officer of Sica Wealth Management, Morristown, N.J.
Mr. Sica has been betting the euro will fall for two years but said holding that position has been "torturous."
"All rules have been thrown out the window," he said. "There are no fundamentals, and that's making it very, very difficult to be a trader."
The euro's strength is also at risk if the market stabilizes and investors feel more comfortable putting on carry trades again, which would mean selling the European currency
Some investors point to tentative signs that Europe's prolonged recession may have found a floor. Euro-zone industrial production rose in April for the third straight month, led by gains in Germany and France. A leading indicator released last week by the Organization for Economic Cooperation and Development signaled a return to euro-zone growth later this year.
The improved data reduce the odds that the European Central Bank will need to loosen monetary policy at a time when the Fed is warning it may soon pull back. That preserves a crucial edge the euro has had over the dollar and yen. 
The ECB has refrained from big stimulus programs, while the Fed and Bank of Japan both are buying billions of dollars in bonds every month to boost growth. Central-bank stimulus tends to hurt the local currency, by increasing the amount in circulation. Much of the euro's rise has come since the ECB's June 6 meeting, where ECB President Mario Draghi said the central bank wasn't ready to introduce negative deposit rates, a measure aimed at boosting lending that also could have triggered a drop in the euro.
"They're dealing with the economy now" in Europe, said Thanos Papasavvas, a strategist at Investec Asset Management, which manages about $105 billion in assets globally and currently holds the euro in its currency portfolio. "It will take time, but it's stable, and I think if anything it's going to be surprising to the upside."
Other investors cite as a reason to buy the euro the fact that its value has held up despite a series of challenges. The currency declined in February after Cyprus took a bailout and an Italian election failed to immediately produce a new government. But its slide to just below $1.28 in late March was mild compared with past crises that knocked the euro to $1.20 or below. 
"The system has been tested a bit and it's held up," said Matthew Alexy, director of global foreign exchange at TD Securities.
 Write to Matthew Walter

June home builder sentiment index above 50, first time in seven years

NEW YORK (Reuters) - Homebuilder sentiment jumped in June, rising above a key milestone for the first time since the start of the housing crisis in a vote of confidence for the sector's recovery, data from the National Association of Home Builders showed on Monday.
The NAHB/Wells Fargo Housing Market index surged to 52 from 44 in May, handily topping forecasts for 45.
[See Rates in Your Area]
Readings above 50 mean more builders view market conditions as favorable than poor. It was the first time the index has been above that dividing line since April 2006 and was its highest level since March of the same year.
"Surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases," NAHB chairman Rick Judson said in a statement.
"With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes."
Confidence among homebuilders has strengthened in the last year and a half, alongside a recovery in the broader housing sector. The index is 23 points higher than where it was in June of last year.
Rising prices, tighter inventory and improved sales have all helped the housing market get back on its feet.
Homebuilders felt even more optimistic for the coming months with the gauge of single-family sales expectations for the next six months accelerating to 61 from 52. The single-family home sales component rose to 56 from 48, while prospective buyer traffic climbed to 40 from 33.
(Reporting by Leah Schnurr; Editing by Chizu Nomiyama)

Are Average Investors Better Off Since Crisis? Top Regulator Says: Not Really

CFTC Commissioner Bart Chilton is an outspoken advocate for financial reform to protect consumers, but he’s also outspoken about the lobbying and litigation that hold up the process.
And there never seems to be an absence of stories that could leave the average investor feeling like the markets are, quite frankly, rigged against them. And that not much has changed post-crisis to better protect their interests and level the playing field.
Take last week. First comes a story from Bloomberg, reporting that traders have allegedly been manipulating benchmark foreign exchange rates used to set the value of trillions of dollars of investments. Then, a report comes out revealing that an elite group of traders can access the routinely market-moving consumer confidence report before its official release, for the right price.
Related: Big Banks Still Write the Rules: Fmr. Inspector General of Bank Bailout
So we wanted to back up and assess the situation for average folks: five years after the financial crisis and one massive financial reform bill later, are average investors and savers really any better off? You may be shocked to hear what Chilton tells The Daily Ticker in the accompanying video.
He says when it comes to the CFTC (Commodities and Futures Trading Commission – they regulate the futures markets including derivatives), they’ve done the best job in terms of shoring up investor protection when it comes to “swaps.” Chilton says the market has gone from being opaque to one regulators can see. You may recall these were partly responsible for nearly bringing down the financial system during the last crisis.
Chilton says they’ve done the worst when it comes to protecting customer segregated funds. This is customer money that is supposed to be sacrosanct, and even after MF Global and Peregrine Financial tapped into these funds before imploding, Chilton says they are still vulnerable.
Chilton has also mentioned the need for regulators to take a closer look at the unregulated cyber currency bitcoin.
We asked Chilton about this again, given the revelations from the Guardian and whistleblower Edward Snowden that Americans’ phone records are being handed over to the NSA, and through PRISM, potentially their digital footprint, too.
Related: Did Obama Just Destroy the Internet?
While Chilton says he can understand the argument for privacy offered in the form of an unregulated currency, he’s not sure there isn’t a government oversight role to make sure it’s not being used for nefarious activity. However, we’d point out that a big bank like HSBC is heavily regulated and it wasn’t too long ago it agreed to pay $1.9 billion to settle money laundering charges. “Touché,” says Chilton.
Related: Bitcoin Prices Blast Through $100, Driving Speculators Wild
Amid reports that both Chilton and CFTC Chairman Gary Gensler may be out when their terms expire, see the video for Chilton’s response. As for why this matters, the CFTC is at a crucial point in trying to get derivatives reform done. Chilton tells us how a shakeup would impact the CFTC’s efforts to rein in those “financial weapons of mass destruction,” as Warren Buffett famously called them (referring to one type – credit default swaps).
Tell Us What You Think!

Once Hot Internet IPOs Have Lost Their Luster: Suttmeier

When OpenTable (OPEN) came public in 2009, its tightly managed and over-subscribed IPO soared 60% in its trading debut. But those initial glorious days would prove to be short-lived as the restaurant reservation website quickly found itself in an ugly 8-month downtrend.
Since then this four year-old "elder-statesman" of the new internet sector has recovered, fallen, and then recovered again. Richard Suttmeier, chief market strategist at, rates the stock a ''hold'' and says that the volatility and opportunity presented by these type of companies makes for an interesting mix.
"The thing is, when you deal with these internet stocks, you never know what you're going to get," he says in the attached video, expressing his doubts that OpenTable's 100%, 10-month run has much more gas in the tank, so to speak.
Similarly, he points out that LinkedIn (LNKD) has also marked an IPO anniversary; its second since making a May 2011 debut. But unlike the boom-bust-boom performance of OpenTable, LinkedIn "has been one of the better (long-term) performers," although he feels its upward ascent looks limited at around the $174 level.
Younger still are shares of Pandora Media (P), which has been gaining interest lately in the wake of Apple (AAPL) entering the digital i-radio space. While Suttmeier calls the hold-rated music purveyor "a failed IPO" that currently has "upside limited to $17.75," he's not averse to trading the stock on pullbacks.
"Volatility is the name of the game with these internet stocks," he says.
As for shares of Yelp (YELP), which marked its one year IPO anniversary in March, Suttmeier also sees this social networking lifestyle site as a better trading play than a long-term hold. Specifically, because he thinks that it has only about $2 of upside versus almost $10 of downside risk.
And lastly, there's Facebook (FB), the much maligned one year-old giant of the social media space. Even though he calls it "the poster child for failed IPOs," it is Suttmeier's lone buy-rated internet play of a dozen that he tracks. He'd advise building a position on weakness in shares of Facebook with an eye to get out in the low $30s. "It will move with the markets."

Indonesia smoke haze shrouds Malaysian cities

Malaysia was Sunday shrouded with haze from forest fires on the Indonesian island of Sumatra causing "unhealthy" levels of pollution in six areas.
Haze is an annual problem during the monsoon season from May to September as winds blow the smoke across the Malacca Strait to Malaysia.
Environment Department director general Halimah Hassan said they had detected 46 hotspots in Sumatra via satellite.
The Air Pollutant Index (API) showed unhealthy levels of between 101 and 129 in six areas on Sunday morning, including two places in Malacca state along with Port Dickson and the country's largest port, Port Klang.
In the capital Kuala Lumpur the skies were hazy with air pollution readings at 92, just below the unhealthy threshold.
A level of 101-200 is considered unhealthy, while 51-100 is moderate.
Halimah in a statement late Saturday attributed the haze to the westerly monsoon season during which winds blow the smoke towards Malaysia.
Haze, mostly caused by fires in Indonesia, builds up during the dry season, affecting tourism and contributing to health problems across the region.
Indonesia's government has outlawed land-clearing by fire but weak law enforcement means the ban is largely ignored.
The haze hit its worst level in 1997-1998, costing the Southeast Asian region an estimated $9 billion by disrupting air travel and other business activities.

Collapse Will Destroy ALL With Debt – Although Mortgage Rates Are Very Low, A Few Percentage Point Increase Can Wipe Out A Large Portion Of Home Owners

Debt is too dangerous to hold in these uncertain times.
Individuals who hold any form of debt are well-advised to eliminate that prior to investing.
Although mortgage rates are very low, a few percentage point increase can wipe out a large portion of home owners.
The average bankrupt Canadian is getting older and has a growing level of debt, says a recent study.
“We reviewed approximately 7,000 personal insolvency filings from 2011 and 2012, and discovered the typical insolvent person is a 43-year-old male with more than $61,000 in unsecured debt,”……

Huge Earth-Passing Asteroid an 'Entirely New Beast'

A big asteroid that flew past Earth last month belongs to a new category of space rock, scientists say.
Asteroid 1998 QE2 and its moon sailed within 3.6 million miles (5.8 million kilometers) of Earth on May 31, making their closest approach to our planet for at least the next two centuries. New radar images captured by the Arecibo Observatory in Puerto Rico are revealing just how unique this binary asteroid is, researchers say.
“Asteroid QE2 is dark, red, and primitive — that is, it hasn’t been heated or melted as much as other asteroids," Arecibo's Ellen Howell said in a statement. "QE2 is nothing like any asteroid we've visited with a spacecraft, or plan to, or that we have meteorites from. It's an entirely new beast in the menagerie of asteroids near Earth." [Potentially Dangerous Asteroids (Images)]

The 1000-foot-wide (305 meters) Arecibo dish and NASA's 230-foot (70 m) Deep Space Network antenna in Goldstone, Calif., tracked 1998 QE2 as it approached Earth last month, then kept following the near-Earth asteroid as it receded into the depths of space.
The resulting radar images have helped researchers take 1998 QE2's measure. The dark, cratered main asteroid is 1.9 miles (3 km) wide, and it has a 2,500-foot (750 m) moon that orbits it once every 32 hours.
"QE2's moon is roughly one-quarter the size of the main asteroid," Patrick Taylor, also of Arecibo, said in a statement. "Similarly, our moon is also approximately one-fourth the size of our planet."
Studying the moon and its orbit should help scientists determine the mass of the main asteroid, which in turn will shed light on the object's composition, researchers said.
Asteroid 1998 QE2 was discovered in August 1998 by astronomers working with MIT's Lincoln Near Earth Asteroid Research program in New Mexico. The space rock completes one lap around the sun every 3.8 years.
There was never any danger of 1998 QE2 hitting Earth during last month's flyby, scientists say. If it had hit us, the damage would have been severe; researchers think that any asteroid bigger than 0.6 miles (1 km) is capable of inflicting damage on a global scale, primarily by altering the planet's climate.
1998 QE2 is one of roughly 10,000 near-Earth asteroids that have been spotted to date. The total population of close-flying space rocks is thought to exceed 1 million.
Arecibo's observing campaign of 1998 QE2 came to end on Thursday (June 13), observatory officials said.

David Stockman: The Fed Created a Bubble Machine

Asian shares reverse losses, capped before Fed meeting

By Chikako Mogi
TOKYO (Reuters) - Asian shares recouped early losses on Monday but prices were capped as investors settled in to wait for the U.S. Federal Reserve meeting outcome later in the week - and some long-awaited clarity on its intentions for monetary stimulus.
Uncertainty over the Fed's future policy course has triggered a sharp sell-off in broad risk assets over the past few weeks, offering dip buying levels for some Asian equities.
Wall Street fell on Friday for its third negative week in four as investors took profits from recent gains, while data showed the U.S. economic recovery was still not strong enough to warrant an imminent change in the Fed's current position.
"Market players both domestic and overseas are taking a wait-and-see stance," said Kim Young-il, a market analyst at Daishin Securities, of South Korean shares (.KS11) which traded nearly flat but hovered near a seven-month low hit last week.
"The market at its current level, however, has limited room for further downward moves. Valuations are cheap," Kim added.
MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> erased earlier losses to rise 0.5 percent. It advanced 1.6 percent on Friday for its best daily gain since January 2, but ended the week down 1.3 percent after tumbling to its lowest since September on Thursday.
Australian shares (.AXJO) regained positive territory to rise 0.4 percent from a 1 percent drop earlier in the session. They posted their biggest one-day rise in 18 months on Friday.
Still, investors remained wary ahead of the Fed policy meeting over Tuesday and Wednesday, where the central bank may conceivably taper its massive bond-buying program as long as the economy is showing some improvement.
Data on Friday showed May industrial output was unchanged, below a 0.2 percent forecast rise, while Thomson Reuters and University of Michigan's index of U.S. consumer sentiment unexpectedly fell from a near six-year high in early June.
The U.S. economy may not be picking up much steam but it was also not facing deflationary pressure, with the producer price index up 0.5 percent last month, above a 0.1 percent gain forecast.
"Although no change in policy settings is expected, the ability of Fed Chairman Bernanke to communicate effectively the Fed's strategy over 'tapering' will be crucial to determine whether market volatility persists or lessens," analysts at Credit Agricole CIB said in a research note.
The dollar was top-heavy against a basket of six major currencies, trading up 0.06 percent (.DXY) but staying near a four-month low of 80.50 hit on Thursday.
Goldman Sachs said in a research report that despite moderate growth in the United States relative to the rest of the world, the latest TIC data released last week indicated a lack of any notable capital inflows, which, along with the persistent trade deficit, remains negative for the dollar.
The dollar recovered against the yen, however, rising 0.5 percent to 94.57 and helping improve sentiment for Japan's benchmark Nikkei stock average (.N225), which rose 1.2 percent after opening lower. (.T)
The dollar hit a 10-week low of 93.75 yen on Thursday, bringing it down nearly 10 percent from last month's 4-1/2-year peak of 103.74 yen. The dollar ended last week down 3.4 percent for its biggest weekly loss since July 2009.
The dollar's loss against the yen has also been linked to speculators and investors cutting back their yen short positions after the Bank of Japan took no action to quell a highly volatile domestic bond market last week, sparking a sell-off in the Nikkei and erasing gains made since the central bank's big-bang stimulus unveiled on April 4, which had helped propel the index up to a 5-1/2-year high last month.
"The reaction to the BOJ's no-action brought the dollar/yen and Nikkei back to levels before the bazooka stimulus in April, leaving markets wondering whether the BOJ's 2 percent inflation target is achievable without a weak yen," said an official at a Japanese institutional investor.
On the interest rate front, India's central bank will announce its rate decision later in the session, coming after central banks in the Philippines and South Korea held rates steady last week amid the spike in global risk aversion.
U.S. crude futures fell 0.3 percent at $97.53 a barrel and Brent eased 0.2 percent to $105.76. (O/R)
London copper rose 0.9 percent to $7,151 a ton on short covering following its steepest weekly decline in two months last week, ahead of the Fed meeting.

India rates, WPI, OIS:
(Additional reporting by Jungyoun Park in Seoul; Editing by Eric Meijer)

BofA Gave Bonuses to Foreclose on Clients, Lawsuit Claims

“At best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees,” Simon said. “While we will address the declarations in more depth when we file our opposition to the plaintiffs’ motion next month, suffice it to say that each of the declarations is rife with factual inaccuracies.”
The lender unsuccessfully tried to dismiss the complaint in 2011. U.S. District Judge Rya Zobel ruled that the case could proceed while dismissing some claims. Zobel is scheduled to consider the class-certification request at an Aug. 1 hearing.
Loan collectors who put at least 10 customers into foreclosure, including those who were in trial modifications, were given a $500 bonus, said Gordon, who worked at Bank of America for more than four years. Other rewards included gift cards for retailers including Target (TGT) and Bed, Bath and Beyond, she said.

‘Falsify Information’

Another former employee, Theresa Terrelonge, said loan officers were given restaurant gift cards and $25 cash awards for denying loan applications. The incentives moved workers to improperly reject applicants, Terrelonge said in a May 15 statement.
“I witnessed employees and managers change and falsify information in the systems of record, and remove documents from homeowners’ files to make the account appear ineligible for a loan modification,” said Terrelonge, a loan servicing representative. This allowed managers to meet quotas for closed cases, she said.
Bank of America instructed employees to delay applications and mislead customers “as part of a deliberate practice of stringing homeowners along,” lawyers said in a June 7 filing.

Private Loans

The law firm is in contact with more than 1,000 Bank of America customers who said they completed requirements for a trial and were denied permanent modifications, attorney Steve Berman of Hagens Berman Sobol Shapiro LLP said in a court filing. Lawyers supported their claims with declarations from the seven employees, many of whom said they had access to the bank’s software, which allowed them to understand the process.
“I personally reviewed hundreds of files in which the computer systems showed that the homeowner had fulfilled a trial-period plan” before being denied, said William Wilson, a loan manager who left the firm in August. “On many occasions, homeowners who did not receive the permanent modification that they were entitled to ultimately lost their homes.”
The bank offered some applicants who should’ve gotten HAMP modifications a more-expensive private loan that charged as much as 5 percent interest, compared with 2 percent under the U.S. program, said Wilson, a case-management leader overseeing 13 others.
The bank held a twice-monthly “blitz” in which thousands of cases were improperly denied, Wilson said. Employees would certify to the U.S. Treasury Department false reasons for rejections, he said.

New York

Bank of America was among five mortgage servicers that reached a $25 billion settlement last year with the U.S. and states to resolve claims of abusive foreclosure practices. The deal provided monetary relief to homeowners and establishes standards for servicing mortgages.
Those rules restrict banks from foreclosing on a home while a borrower is being considered for a loan modification, and set procedures and timelines for reviewing loan-modification applications from homeowners.
New York Attorney General Eric Schneiderman said in May that he intended to sue Bank of America and Wells Fargo & Co. (WFC), the largest U.S. mortgage lender, for violating terms of the settlement related to processing modification applications.
Schneiderman’s office has been alerted to the filing of the former employees’ statements, said Linda Tirelli, a White Plains, New York-based lawyer who represents clients seeking modifications from Bank of America. She included the documents in a letter to the attorney general dated June 13.

‘Sitting Around’

The banks aren’t “fulfilling their obligations under the national mortgage settlement,” Tirelli said. “After a three-month trial basis, they’re supposed to promptly deliver a loan modification. My clients have been sitting around for six, seven, eight months and still don’t have a permanent modification.”
Bank of America said last month that New York’s claims are “entirely baseless” and argues that under the settlement, the state has no right to file an enforcement action against the company.
The case is In Re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, 10-md-02193, U.S. District Court, District of Massachusetts (Boston).

Dollar up as Fed meeting nears, shares nudge higher

By Marc Jones
LONDON (Reuters) - The dollar edged up against the yen and euro while European and Asian shares firmed after last week's tumbles on Monday, as investors hunkered down for the U.S. Federal Reserve's meeting later this week.
Uncertainty over the Fed's future policy course has triggered a sharp sell-off in broad risk assets in recent weeks and investors are hoping for some clarity on its intentions when it concludes a two-day meeting on Wednesday.
After a 2.7 percent jump in Japan's Nikkei (.N225) had lifted Asian markets, European shares (.FTEU3) opened for the week up 0.5 percent as London's FTSE 100 (.FTSE), Paris's CAC-40 (.FCHI) and Frankfurt's DAX (.GDAXI) rose 0.5-0.7 percent.
The dollar (.DXY) was broadly stronger. The jump in the Nikkei saw the yen drop off last week's two-month high back to 95 yen to the dollar, while the greenback edged up to $1.3324 per euro.
"I think Bernanke is going to stress that any tapering off of the Fed's QE programs will dependent on the data flow but that it is still too soon at the moment to reduce the purchases," said Peter De Bruin, a senior economist at ABN Amro, adding the message should calm markets.
In the debt market, the German bund future was 31 ticks lower at 143.55 and peripheral euro zone bonds saw minor gains as the uncertainty ahead of Fed meeting capped trading volumes.
(Reporting by Marc Jones; Editing by Toby Chopra)

Analysis: Japan PM Abe's true test; rising government bond yields

By Lisa Twaronite
TOKYO (Reuters) - Abenomics' massive monetary stimulus was supposed to depress long-term interest rates to spur economic activity, but the Japanese government bond market has other ideas.
Banks, unable to make money on their Japanese government bonds (JGBs) anymore, have begun sloughing off their holdings, putting upward pressure on yields. Major banks sold off about 11 percent of their holdings in April alone.
Large lenders have hiked their prime rates to make up for the loss of earnings on JGBs, which threatens to price potential borrowers out of the mortgage market, while higher long-term rates could sap corporate Japan's already anaemic demand for loans.
That puts at risk the very activity Prime Minister Shinzo Abe had intended to spark with the Bank of Japan's massive quantitative easing (QE) on April 4, when it promised to inject $1.4 trillion into the economy over two years.
"QE policy doesn't mean just buying more government bonds. Buying more bonds is just a tool, a means to achieve lower interest rates," said Takuji Okubo, chief economist at Japan Macro Advisors.
"QE is also convincing the market that yields will stay low, and the Bank of Japan is not doing the latter," he said.
The yield on the benchmark 10-year JGB is still very low both historically and compared with other sovereign debt.
But it has jumped about half a percentage point from the record-low 0.315 percent reached the day after the BOJ unveiled its radical plan to double the monetary base over two years to achieve 2 percent inflation. At one stage in recent frenetic trading, it reached 1 percent.
The plan's rationale was that the intense burst of monetary stimulus would drive down interest rates, as the central bank bought an amount equivalent to about 70 percent of new issuance each month.
Instead, after a brief tumble, rates began to rise as banks and other investors sold JGBs, worried they were holding assets that would lose value as the promised inflation emerged.
"There is a conflict of the logic in terms of the higher inflation rate and lower nominal interest rate," said Tadashi Matsukawa, head of fixed-income at Pinebridge Investments in Tokyo.
The worst-case scenario for Japan would be a bond market caught in a vicious circle of selling, which could happen some economists suggest if investors start to worry about the impact of rising long-term rates on the country's public debt.
That will make it increasingly costly for the Japanese government to service the debt, which at 230 percent of gross domestic product is already the heaviest among industrialised countries.
"The Bank of Japan cannot control the JGB market. They have already used every method to control JGBs, so the JGB yield will go up sharply," said Takeshi Fujimaki, a former adviser to billionaire investor George Soros and now president of investment advisory firm Fujimaki Japan.
"A 'good' interest rate rise is when yields rise because of expected inflation," Fujimaki said.
But if that inflation is not the result of a healthy pick up in economic growth, it would lead to what Fujimaki called a "bad" interest rate rise, as investors sell more JGBs to reduce their financial exposure to Japan's increasing fiscal burden.
Japan's cabinet on Friday rubber-stamped measures aimed at boosting sustained growth in consumption, output and incomes, with more steps promised after next month's upper house elections.
But measures announced so far have left markets unconvinced, despite a drumbeat of reassurance from government and BOJ officials. Reflecting some doubts, the yen rose to a 10-week high last week, while the Nikkei stock average (.N225) is more than 20 percent below its 5-1/2 peak hit on May 23.
"Japan's economy is on a steady path of recovery and it will gradually gather strength," and financial markets will calm down, BOJ Governor Haruhiko Kuroda told reporters on Thursday after a meeting with Abe.
In a sign that Japanese are also worried interest rates will continue to head higher, homebuyers are rushing to secure fixed-rate mortgages.
Japan's top three banks, Bank of Tokyo-Mitsubishi UFJ , Mizuho Bank (8411.T) and Sumitomo Mitsui Banking Corp all raised 10-year fixed rates for most qualified borrowers to 1.6 percent in June, from 1.4 percent in May and 1.35 percent in April, to reflect the rise in benchmark long-term interest rates.
Banks themselves contributed to some of that rise as they shed JGBs. The total balance of Japanese government bonds held by the country's major banks plunged in April to 96.27 trillion yen, down 10.8 percent from March, dropping below the 100 trillion yen threshold for the first time since June 2011, BOJ data shows.
To be sure, falling bond prices and a corollary rise in interest rates is also much more widespread as investors grow concerned about the direction of U.S. and Japanese monetary policy. They are worried that the U.S. Federal Reserve, which meets this week, is preparing to taper off its own stimulus programme and investors were upset last week that the Bank of Japan decided against introducing new money market methods to calm volatile prices.
The risk for the Japanese government is that the broader market turbulence, partly the result of investors selling off their riskier assets, continues as investors fret over the direction of monetary policy.
"That will make the situation difficult for Mr. Abe's policymaking," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
"I think it's too early to determine whether or not Abenomics is a success or failure, but as far as the JGB market is concerned, Abenomics and the BOJ's new policy framework actually increased market volatility and also confused market participants," she said.
The lack of clarity on Japanese policy, combined with less market liquidity as the central bank snaps up so many bonds, has prompted investors to brace for large price swings.
Implied volatilities on JGB futures have been above 5 percent for most of the past month, hovering around their highest levels since they spiked following Japan's March 2011 earthquake and tsunami, and up sharply from around 2 percent before the BOJ unveiled its radical monetary policy.
(Additional reporting by Dominic Lau; Editing by Neil Fullick)

Detroit Goes Under: “There Is No Way Out But Collapse”

Though most Americans go through their day thinking everything is now returning to normal, the fact of the matter is the situation is anything but stable.
With crime rates skyrocketing, home prices dropping to under $500 for a house, and the local government out of solutions, the city of Detroit is the latest to join the likes of Stockton, California, having just defaulted on its loans from creditors.
Despite promises to the contrary, it should come as no surprise that the city is unable to meet its obligations. And it won’t be the last. City and state governments all over America are in the same boat.
This is a serious occurrence, and one that will not only destroy the financial bottom line of lenders and wipe out retirement promises for tens of thousands of current and former employees, but may well foreshadow events to come throughout the rest of the United States in the near future:
The city of Detroit defaulted on $2.5 billion of its outstanding debt. The creditors are getting what they deserve.
He who lends to government depends on the exploitation of the people to get repaid.
The city’s retired city workers were also warned that significant cuts in pensions and health insurance would take place.
This is the problem all governments face. They promised the moon. Then when those workers retired, they had to be replaced. The cost of government is rising exponentially and this causes higher taxes and it becomes a dog chasing its own tail.
There is NO way out but collapse.
The economic model upon which government has been designed post-WWII is simply braindead. Dumb and Dumber could have done a better job.
The  size of government escalates and this creates a deflationary vortex through which the economy is sucked dry.
There is no surviving this crisis.
Politicians are desperate to cling to power so they buy tanks and guns to defend against the inevitable.
Via Martin Armstrong
emphasis added)
Detroit and Stockton are mere microcosms compared to the almost unimaginable debt obligations held by the United States government. We’re talking about tens of trillions of dollars that will never, ever be repaid. There’s so much money that has been borrowed that future generations yet to be born are already indebted.
Detroit, Chicago and other cash-strapped cities are turning into domestic tribal war zones akin to the middle east, with cops outnumbered 500-to-1. Now, with the revelation that they have no money left, people who believed in the benevolence of government and depended on them to pay for their retirements are going to be left high and dry.
We will see the same across the rest of this nation, as the federal government runs into similar funding problems for the one hundred million Americans dependent on monthly disbursement checks. These checks are either going to be cut, or more likely, our money will be inflated away driving prices for essential goods like food and energy to the moon.
It will end in disaster, and as Martin Armstrong notes, will lead to violent confrontations when people who thought they’d be taken care of from cradle to grave realize that no help is coming.
Absolutely plan on the worst case scenario – because you can be assured the government is.
You can prepare and have a chance to survive and thrive. Or, fail to do so and be guaranteed a world of horrific despair and poverty.
Understand this or pay the price: THERE IS NO WAY OUT BUT COLLAPSE.

SWAT Team Bursts Into Man's Home, Keeps Him Handcuffed For Six Hours Over A Student Loan

Silver & Gold – Debt Collapse (Full Version)

Mike Maloney is the author of the world’s best selling book on precious metals investing. Since 2003 he has been advocating gold and silver as the ultimate means of protecting wealth from the games played by our governments and banking sector. In this 90 minute presentation he lays down his ‘most likely’ scenario for the global economy over the next deacde…short term deflation, followed by big or even hyperinflation. Here you will learn the true definitions of inflation/deflation, the difference between currency and money, price vs value, ‘Wealth Cycles’, gold and silver accounting for the expansion of fiat currency, gold and silver supply and demand, the differences between the today’s bull market and that of the 1970s, The Debt Collapse, and more.

India leaves rates unchanged, warns of inflation risks

By Suvashree Dey Choudhury and Tony Munroe
MUMBAI (Reuters) - The Reserve Bank of India kept interest rates unchanged on Monday after cutting them in each of its previous three policy reviews, warning of upward risks to inflation posed by a falling rupee and increases in food prices.
The RBI also called for vigilance over global economic uncertainty, citing the risks of a reversal of capital flows from emerging markets.
Such outflows, fueled by investor worries that the U.S. Fed will soon wind down its quantitative easing, have hit the Indian currency especially hard and complicated policymaking for RBI Governor Duvvuri Subbarao.
As expected, the Indian central bank left its policy repo rate unchanged at 7.25 percent and kept the cash reserve ratio (CRR), or the share of deposits banks must keep with the central bank, steady at 4.00 percent, despite falling inflation in recent months.
"It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth," the RBI said in a statement.
Indian markets were little affected by the policy decision. The 10-year bond yield briefly fell, while stocks (.BSESN) extended losses marginally to trade down 0.4 percent. The rupee was trading largely unchanged from pre-statement levels, at around 57.80/81 per dollar.
"The RBI continues to remain very hawkish. It has clearly said external sector imbalance has been weighing on its decision," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.
The Indian rupee touched a record low of 58.98 to the dollar last week and has been among the worst performers amid a global selloff from emerging markets as investors worry about India's record-high current account deficit and were unimpressed by government efforts to boost investment.
Last week, Indonesia responded to outflows and market volatility by unexpectedly raising interest rates - the first Asian central bank to do so since 2011 - in a bid to support its currency, while Brazil said it would scrap a tax on foreign exchange derivatives as the real weakened.

Inflation, repo rates, output:
For a graphic on BOP vs current account balance, see:
India GDP, exports
Asian interest rates
Graphic on Asian currencies
A Reuters poll released on Thursday showed 28 of 38 analysts expected the RBI to hold the repo rate steady and 30 of 34 saw the CRR unchanged.
The RBI left rates on hold despite headline wholesale price index inflation that fell to 4.7 percent in May, within its comfort zone, as well as an economy that grew at just 5 percent in the fiscal year that ended in March, its weakest in a decade.
While noting that inflation had fallen, the central bank warned of looming price pressures.
"Upside pressures on the way forward from the pass-through of rupee depreciation, recent increases in administered prices and persisting imbalances, especially relating to food, pose risks of second-round effects," the RBI said.

Analysis: Why bankrupt W.R. Grace is thriving

By Ernest Scheyder and Nick Brown
COLUMBIA, Md./NEW YORK (Reuters) - A company stuck in bankruptcy for 12 years may not seem like much of a catch, but investors have fallen in love with U.S. specialty chemical manufacturer W.R. Grace & Co (GRA.N) and its surging sales to the energy sector.
One of the longest bankruptcies in U.S. history, Grace filed for Chapter 11 protection in 2001 after an asbestos leak at one of its mines led to thousands of lawsuits against the company.
Through bankruptcy, Grace was able to pause debt repayments, survive two recessions and take advantage of a U.S. shale energy revolution that is fueling demand for its fine-powder catalysts, which help refiners process crude oil into gasoline, heating oil and other products.
The company's stock has more than tripled in the past three years and counts 46 hedge funds among investors as of March 31.
"Bankruptcy has been a great place to hide out," said Scott Baena, an attorney who helped negotiate the settlements on behalf of property damage claimants. "It has for all intents and purposes been business as usual."
Grace closed its mine in Libby, Montana, in 1990 after discovering the process it used to extract vermiculite - a mineral used in commercial insulation - caused the release of asbestos. More than 400 residents died from asbestos exposure.
Early in the case, plaintiffs claimed Grace's personal injury liability topped $7 billion, 14 times what the company had estimated, said Peter Lockwood, a lawyer for a committee of Grace's personal injury claimants.
Had the matter gone to trial and the plaintiffs prevailed, it may have crippled Grace.
Instead, Grace settled for about $4 billion and agreed to set up trusts for the victims, and took similar measures with its property damage claimants.
Grace's bankruptcy was akin to hitting "pause" on its liabilities while it figured out the most efficient way to address them. Most companies struggle to make money while in Chapter 11, but Grace continued to thrive. It is erecting a $20 million building on campus for executive offices, funding the project through cash flow.
Creditors of most bankrupt companies would object to such expenses because they could eat into recoveries. Grace's creditors and shareholders have let it slide.
"As long the company is not in danger of being unable to pay the money it's going to owe, creditors take a more relaxed attitude," said Lockwood.
Technically, there is no court-set limit on how long a company can remain in bankruptcy. However, the process is designed to help craft a plan to repay creditors, and courts look down on companies that do not make a good-faith effort to restructure. In such cases, courts usually allow creditors to present their own plans for how to restructure the company.
Executives at Grace have said for years that an exit from bankruptcy is just around the corner, only to have dates come and go. Now, with a court hearing on Monday and rulings not expected until the fall, an exit may not come until 2014.
"Obviously, we're all eager to come out of bankruptcy," Chief Financial Officer Hudson La Force said in an interview at Grace's Columbia, Maryland, headquarters. "There are a few steps that need to happen first."
Leaving bankruptcy protection will allow creditors to be paid, asbestos liabilities to be met, and give the company access to debt markets and let it dispense cash to shareholders, Grace said.
Grace tailor-makes catalysts for Tesoro Corp (TSO.N), Citgo Petroleum Corp (PDVSAC.UL) and other refinery customers to match the chemical makeup of the shale oil that will be refined, a step for which the company charges a premium.
Sales of the product constitute roughly 32 percent of Grace's 2012 pretax profit, and the company earned $94.1 million last year, up 20 percent from 2001 when it entered bankruptcy.
"Whether we're out of bankruptcy one day or another, the reality is that it's not affecting our earnings. It's not affecting our cash flow," La Force said.
Surging catalyst sales have boosted Grace's stock price to $82.69 as of Friday's close. That is vastly higher than the $1.52 per share when the company filed for bankruptcy on April 2, 2001.
Yet the stock is widely overvalued and should be trading at an intrinsic value of $56.37, based on expected growth rates over the next decade, according to Thomson Reuters StarMine.
That "might not be taking into account the full scope of Grace's performance and some of the intangibles around management effectiveness and management credibility," said Mark Sutherland, Grace's director of investor relations.
As part of its bankruptcy, Grace filed a restructuring plan that will channel all current and future injury and property damage claims to trusts, pushing the liability off books.
Grace will receive help in funding the trusts from third parties, including Sealed Air Corp (SEE.N), that shared in the alleged asbestos liability.
Grace had promised shareholders it would use $1 billion after bankruptcy for either buybacks or a dividend. Yet roughly $490 million will have to be used immediately to redeem stock warrants held by one of the asbestos trusts, limiting payouts to stockholders.
Still, with $453.6 million in annual cash flows and no debt, shareholders stand to reap rewards, said Chris Shaw, an analyst with Monness, Crespi, Hardt & Co who tracks Grace.
"That's always been a positive about Grace: they're a strong cash generator," he said. "They want to reward the shareholders who have stuck with them through the whole bankruptcy process."
Grace's bankruptcy could stretch at least into next year as creditor objections to its exit plan wind through the courts.
In oral arguments at the U.S. Court of Appeals in Philadelphia on Monday, a bank lending group led by JPMorgan Chase & Co (JPM.N) will claim the plan does not pay its members enough interest, while a South Carolina hospital will argue that its pending property damage claim would not be fairly adjudicated under the plan. Other objectors include the state of Montana, the Canadian government and Garlock Sealing Technologies Inc.
If the court rejects the appeals, Grace could take another two to three months to exit bankruptcy, in part because it still needs to secure a bankruptcy exit loan, La Force said.
That does not take into account possible appeals at the U.S. Supreme Court, which could further delay its exit from bankruptcy.
Doug Roll, mayor of Libby, Montana, said his town has been "trying to get beyond" the asbestos-related problems.
"As far as we're concerned, Grace is gone," Roll said. "And good riddance."
(Editing by Tiffany Wu and Matthew Lewis)

$9,000,000,000,000 Missing From The Federal Reserve. Why should any Amer...

Offshore Tax-Haven Data Made Public As Companies Brace For Scrutiny

WASHINGTON -- The International Consortium of Investigative Journalists (ICIJ) on Friday made public what it calls the most extensive collection of records on offshore accounts in history, encouraging sleuths to ferret out possible tax evasion.
The online portal, called the Offshore Leaks Database, contains hundreds of thousands of records showing corporations set up in so-called "tax-haven" countries, gleaned from the contents of about 2.5 million emails and financial documents that ICIJ said it received in early 2012. Over the past year, the data have been used by journalists around the world to detail alleged tax evasion by billionaires, oligarchs, emirs, princes and multinational corporations on nearly every continent.
Publication of the documents may heighten scrutiny of some of the world's largest financial institutions and their clients. Governments worldwide have renewed efforts to stamp out tax avoidance as fiscal authorities, including those from Europe and the United States, confront record budget deficits and slow-growth economies.
Click here to search the Offshore Leaks Database.
A 2012 report by the Tax Justice Network (TJN) found that untaxed wealth invested in offshore tax havens ran between $28 and $32 trillion dollars, equal to two years’ worth of U.S. economic output. The report estimated that if the money were to have been invested in home countries, even at low rates of return, it could have generated hundreds of billions of dollars per year in tax revenue.
The TJN report also described the secrecy enveloping the world of offshore tax havens as a "subterranean system that … is the economic equivalent of an astrophysical black hole."
The new ICIJ OffShore Leak Database provides a small window into that world for the public to peruse. The database contains documents covering 30 years from the British Virgin Islands, Cayman Islands, Cook Islands, Singapore, Hong Kong, Samoa, Seychelles, Mauritius, Labuan and Malaysia. According to ICIJ, the information came from a leak of documents from two offshore service companies, Singapore-based Portcullis TrustNet and British Virgin Islands-based Commonwealth Trust Limited (CTL).
The documents have been used to unearth stories, starting in April 2013, about tax evasion by politicians in Canada, France, Malaysia, Mongolia, Pakistan and the Philippines; how offshore companies are used to hide the foreign investors in London's real estate market; the use of tax havens to buy and sell on the fine art market; the involvement of companies like Deutsche Bank to help create offshore entities; arms trading in war zones; and how the world's ultra-rich hide their money from taxation.
In making the database freely available, ICIJ hopes to engage the public in its ongoing work to expose the use of offshore tax havens by international corporations and wealthy individuals. Readers are encouraged to contact journalists if they come across promising leads.
Tax havens are nations that offer favorable tax treatment to assets held within their boundaries, often offering zero or near-zero tax rates with very few questions asked. Bermuda, the British Virgin Islands, Dubai and the micro-state of Jersey, off the coast of England, are just a few of the countries that host corporate entities and trusts created by the world's wealthy and powerful to shield their money from taxes in their home-country.
While the transactions listed in the database likely are legal in countries considered to be tax havens, use of offshore accounts by a corporation or individual often are decried as tax evasion in home countries, regardless of the circumstances.
In some cases, authorities have targeted offshore accounts when accusing banks of facilitating illegal tax evasion.
UBS, Switzerland’s largest bank, in 2009 avoided criminal prosecution by entering into a deferred-prosecution agreement and paying $780 million to settle allegations it defrauded the U.S. government. The bank admitted it participated in a scheme to defraud the federal government by "actively assisting or otherwise facilitating" tax evasion by Americans from 2000 to 2007.
Peter Kurer, then-chairman of UBS, said at the time: "UBS sincerely regrets the compliance failures in its U.S. cross-border business that have been identified by the various government investigations in Switzerland and the U.S., as well as our own internal review. We accept full responsibility for these improper activities."
Thousands of wealthy U.S. customers eventually turned themselves in. The Swiss government also turned over the identities of U.S. account holders to U.S. officials.
In 2010, Deutsche Bank, Germany’s largest lender, agreed to pay $554 million to U.S. authorities to settle criminal accusations that it helped create fraudulent tax shelters for clients from 1996 to 2002 that deprived the U.S. Treasury of revenue. The bank admitted wrongdoing and entered into a non-prosecution agreement.
At the time, the bank said it was “pleased that this investigation, which concerned transactions that ceased more than eight years ago, has come to a resolution.”
“Since 2002, the bank has significantly strengthened its policies and procedures as part of an ongoing effort to ensure strict adherence to the law and the highest standards of ethical conduct,” it added.
In response to growing allegations of evasion, the U.S. in 2010 enacted the Foreign Account Tax Compliance Act (FATCA) to enlist financial institutions in the government’s fight to recoup lost tax revenues.
FATCA forces foreign banks to report information on overseas accounts held by U.S. individuals and businesses, and foreign corporations in which U.S. taxpayers hold a substantial ownership stake.
Other nations are now following suit. The eight leading industrialized nations that comprise the Group of Eight (G8) are due to discuss efforts to combat tax dodging at their coming meeting June 17-18 in Northern Ireland.
“The upcoming G8 summit is poised to deliver a hammer blow to offshore corporate tax avoidance," Sen. Carl Levin (D-Mich.) said.
“The G8 summit should take advantage of the emerging international consensus that we can no longer allow profitable multinational corporations to play one country off another, ducking corporate taxes and leaving other taxpayers to pick up the slack,” he added.
Banks that structure and facilitate offshore corporate entities designed to minimize tax payments may feel the brunt of the pressure.
A review by The Huffington Post of the ICIJ database, which comprises only a portion of the total data trove in the leak, revealed that UBS was linked to more than 3,000 offshore accounts. It allegedly served as a "master client” -- defined by the ICIJ as "an intermediary or go-between who helps a client set up an offshore entity” -- or as a "nominee shareholder," a shareholder who is not the real owner or beneficiary of the corporation.
The bank declined to comment.
The database shows Deutsche Bank linked to more than 1,000 offshore accounts. A spokesman declined to comment.
Though not all of the offshore accounts listed in the database are currently active -- many are listed as defunct or dissolved -- the data covers three decades of offshore accounts, potentially providing tax authorities with a road map to discover tax cheats.
A slew of ICIJ-inspired reporting in April had dramatic effects.
Herbert Stepic, Raiffeisen Bank International chief executive, resigned his post after news reports alleged he had numerous offshore accounts.
A month later, police in South Korea raided the home of business titan Lee Jay-Hyun, CJ Group chairman and a billionaire grandson of Samsung founder Lee Byung-Chul, as part of a tax evasion probe.
The revelations unearthed by ICIJ and journalists around the world also prompted stern responses from a number of European leaders, and in some cases helped lead to calls for changes in laws to promote banking transparency and prevent tax evasion.
In May, British Prime Minister David Cameron said at a White House press conference that “we need to know who really owns a company, who profits from it, whether taxes are paid.”
Algirdas Šemeta, the European commissioner for taxation, said: “Recent developments, fueled by the outcome of the Offshore Leaks, confirms the urgency for more and better action against tax evasion."
Šemeta further called for European nations operating as tax havens, including Luxembourg and Monaco, as well as protectorates controlled by European countries like the British Virgin Islands, to adopt the European Union's standard of banking transparency.
After Šemeta's statements, Luxembourg announced that it would end secret banking for investments by European nationals. Britain's overseas territories also announced that they would begin sharing banking information with the United Kingdom, France, Germany, Italy and Spain.
In Washington, ongoing congressional hearings on American companies' use of offshore tax havens to avoid paying U.S. corporate taxes appeared to reach an apex in May, when Apple CEO Tim Cook testified before Levin’s Senate investigative subcommittee on the company’s aggressive use of strategies allegedly for the sole purpose of minimizing taxes.
“We pay all the taxes we owe, every single dollar. We not only comply with the laws, but we comply with the spirit of the laws,” Cook said.

Physical Gold and Paper Gold Battling for Supremacy: Brien Lundin

Physical Gold and Paper Gold Battling for Supremacy: Brien Lundin
Source: Alec Gimurtu of The Gold Report (6/12/13)
The recent drop in gold prices is a confirmation, or a revelation, to investors of the battle between the physical and paper gold markets. In this interview with The Gold Report, Brien Lundin, editor of Gold Newsletter, predicts the timing of a handoff from Asian physical demand to Western speculative demand and assesses the readiness of the junior market to respond to a revival in commodity prices. Plus, in a tip to Father’s Day, he discusses his efforts to groom the next generation of investors.
The Gold Report: In your latest newsletter, you advocate that gold investors pay close attention to the Federal Reserve meeting taking place on June 18. What are you looking for out of that meeting?
Brien Lundin: The main driver for gold right now is quantitative easing (QE). An investor trying to figure out where the gold market is heading in the near to intermediate term needs to focus on QE. Investors should look for clues to the future prospects of the Fed’s QE program—that’s what’s going to drive gold in the short and intermediate term. The question really is: To QE or not to QE? The next Fed meeting will be a prime indicator of that, and the one after that and the one after that.
My general view is that the reports of a resurgent U.S. economy are way ahead of themselves and some data points are indicating that the recovery is not that robust and may even be in danger. The jobs numbers will shed some light on this. If such a scenario develops, then the snap back for gold would be pretty dramatic. A weakening U.S. economy would be bullish for gold because it’s bullish for continued QE, and that’s the real factor for gold going forward.
TGR: Besides the jobs numbers and the Fed meeting minutes, what indicators are you watching to get some insight into whether the economy really is improving?
BL: People need to listen to the Fed. The Fed is trying to be more open and transparent, despite the typical central banker doublespeak. But it is looking at two numbers right now: jobs and inflation. The jobs number is predominant because every indicator that economists currently use to measure inflation is showing no significant inflation. Now, the consumer price index (CPI) is not the CPI of our fathers, and it has been jiggered here and there to underreport price inflation. Regardless, until we start seeing price inflation in the CPI, the Fed will be more conducive to easing. The unemployment numbers, however, are where we’ll see some real action or perhaps some tapering if the unemployment rate starts to improve.
TGR: What’s your take on the price behavior in the precious metals markets? Where do we go from here?
BL: I think the big price action that’s happened in gold over the last six weeks or so is a big revelation. It has revealed the character of the modern gold market, which has developed into a West versus East or paper gold versus real gold market. In the West, there are speculators who invest in the future exchanges primarily. They are more concerned about the short-term direction for gold and the other precious metals. The future exchanges are really nothing more than an opinion poll on the price of gold. It’s not really a place where real metal gets bought and sold but, rather, the futures market is a place to trade derivatives. In a real sense, it is fractional reserve investing.
In mid-April, when we had the big smackdown in gold, over 400 tons sold on the Comex. In a matter of an hour or two the amount of metal sold exceeded, by over 100 tons, the amount of gold in the Comex warehouse. The Comex trading on that day had no relation to the physical markets. Conversely, the price drop resulting from that selloff spurred physical demand throughout the world, but particularly in price-sensitive markets in Asia.
One of the things people looked at throughout all of this was the big drawdown in the exchange-traded funds (ETFs) of physical gold. Since the beginning of the year, the remarkable drawdown in the ETFs amounted to around 370 tonnes of gold. Over that same timeframe, I estimate that more than 600 tonnes of gold have been consumed in China alone. And that doesn’t include the huge demand in India or the rest of Asia. It also doesn’t include the surging physical demand for gold in the Western markets or the renewed central bank demand. If you add it all up, I think that price smash in April did nothing but increase global gold demand.
TGR: How does an investor get data on increased physical consumption worldwide?
BL: It’s tough. I’ve tried to compile these numbers many times before. You get some information from the World Gold Council. Now, you get some information from the Shanghai Gold Exchange, which, although it’s a futures market, represents more of a physical market in China. You look at imports through Hong Kong into China. Indian import data is more difficult. And you have anecdotal reports of demand. The World Gold Council is the only group that actually tries to sum up all of these totals, and it doesn’t offer much in the way of real-time information. So it’s really tough, but there are seasonal trends that investors or retail investors need to keep in mind.
Unfortunately, although we’ve had tremendous physical demand providing an underpinning for the market recently, we’re entering the seasonal slow period of early to mid-summer for physical gold demand. One of my concerns is that as physical demand lessens, we may see some resulting price weakness in gold.
TGR: That was the commodity, but what about the miners? During this pullback, have most miners mirrored the underlying commodity?
BL: Yes, mirrored and magnified. The good thing about the mining equities is that they tend to leverage the moves in gold and silver. The bad news is that they tend to leverage the moves in gold and silver. In this cycle, as the metals have dropped, the equities have absolutely been lambasted. I tell my readers that there is too much uncertainty in the near term.
The longer-term picture remains very bright for the metals because the world’s governments are going to continue to float their economies on an ocean of new liquidity for the foreseeable future. So the fundamental economic backdrop for gold and, ultimately, the equities remains bullish. But in the near term, especially as we get into the seasonal slow period for physical demand, too much risk exists out there. I’m advising people to keep their heads low, be patient and wait for mid to late summer before they make any new purchases.
TGR: It’s a little bit of a risk-off trade for the mining equities. Does that mean you are weighted toward producers rather than explorers?
BL: In a very general sense, the producers will benefit much more quickly from a rebound in the precious metals. With that said, there are specific juniors that are hot on the trail of big, new discoveries and/or are expanding discoveries with the drill bit right now. The juniors have always been more of a news-driven sector. So looking at the broad sector, it will take a while for enthusiasm to filter down through the producers, through the majors and down to the juniors, but specific companies could have significant and company-making news in that meantime.
TGR: You mentioned juniors and then producers. One company that has attributes of both that you have followed for a long time is New Gold Inc. (NGD:TSX; NGD:NYSE.MKT). It was a junior several years ago, and grew into a midtier. It recently acquired Rainy River Resources Ltd. Is this the start of a new trend in consolidation in the sector?
BL: I hope so, but New Gold is kind of a special case. It’s a very well-run, very aggressive company. Our readers in Gold Newsletter have benefitted from that for years, as that company has been one of our recommended producers. It is much more aggressive than the rest of the producer flock, but that’s really not saying a lot because nobody has been very aggressive recently. I hope it’s the beginning of a trend, but New Gold has always been a bit of a special case. It has been able to move quickly to secure companies and projects that have turned out to be very economic. You see the opposite by some of the larger majors having reached, in the past, too far and too aggressively and paid too high a price for projects that did not turn out to be as economic. I’m very bullish on New Gold, and I do hope it’s the beginning of a trend.
TGR: What are your thoughts on silver?
BL: I’m very bullish on silver. Silver offers optionality to gold. Silver equities offer optionality to silver, so you can really get a lot of bang for the buck through some really well-run, well-positioned silver producers.
I like Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ), SilverCrest Mines Inc. (SVL:TSX.V; SVLC:NYSE.MKT), Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) and Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.MKT). There is a nice selection of companies out there on the smaller end of the scale, companies that have good, solid production growth profiles.
TGR: Do you have a forecast or an expectation of silver prices?
BL: Not to any decimal places, but silver will track gold. And silver will move more quickly than gold in whatever direction gold is headed. I’m bullish on gold, so I have to be bullish on silver.
TGR: Across the industry, pundits are talking about the death of the junior mining sector. Is the death of the junior mining sector exaggerated?
BL: I don’t think the junior sector is dead, although it may be comatose. The thing that will surprise the people who are waiting for further and further levels of capitulation in the junior market is how quickly this market can wake up. I’ve seen worse days. If you look in the late 1990s and even the very early 1990s or late 1980s, you’ll see times when the market was comparatively worse off. In those days, the financing infrastructure was limited relative to where it is today. Since then, capital markets have matured. With the money available from the previous rounds of QE, a lot of money is available to come into the junior market when that market turns around.
TGR: Positives include financial infrastructure, a large investor community, positive fundamentals and money on the sidelines.
BL: Absolutely, but first we need a turnaround in prices to start a rally.
TGR: For juniors, where do you see good risk-reward opportunities now?
BL: I see the best investments in the sector on a case-by-case basis. I don’t do a lot of macro-level analysis because once you start off with the big picture, then drill down to a more focused picture and down to the project level, there are lots of places to make false assumptions. Rather than top down, I like to take things on a story-by-story basis and see if a company, particularly in the juniors, has a shot at finding an economic deposit. That analysis is somewhat independent of the global economic picture. A good deposit or a great deposit can overcome a lot of other problems.
With that said, I’m turning more bullish on uranium lately. After looking at that story, I believe that we’re going to go into a supply deficit toward the end of this year or early next year. That’s a very powerful story that we’ll start seeing develop over the coming months.
TGR: The big player in uranium is Cameco Corp. (CCO:TSX; CCJ:NYSE), which has a large majority of the production globally. Apart from it, most of the other players are explorers. Does that mean that you’re interested in uranium explorers?
BL: To some degree, as I say, the ones that have very good individual stories. The last time we had a really rollicking bull market in uranium and uranium juniors was about five years ago. They called it uranimania back then, and any company that had some version of the word uranium in its name and its property position could have a $20 million ($20M) market cap. The companies that have survived from then are the better-run companies with the better prospects, and a number of them are in production or are about to get into production. So they are very highly exposed to the uranium price.
Uranium Energy Corp. (UEC:NYSE.MKT) is one, as is Uranerz Energy Corp. (URZ:TSX; URZ:NYSE.MKT). On the exploration front are the Alpha Minerals Inc. (AMW:TSX.V) and Fission Uranium Corp. (FCU:TSX.V)stories. And I think that’s going to get much bigger. One of the better stories out there, and a story many are overlooking, is Kivalliq Energy Corp. (KIV:TSX.V).
TGR: You’re not concerned, with the names that you just mentioned, that near-term or short-term new production will come on-line to flood the market?
BL: No, I don’t think that a big flood of new production will swamp the market, at least not enough to overcome the deficit position. The Highly Enriched Uranium agreement with Russia that’s ending this year is going to take 15–20 million pounds off the market and most likely put the global market into a significant deficit position.
TGR: Besides uranium, you like the fundamentals for platinum. Do you want to talk about that?
BL: I cover Prophecy Platinum Corp. (NKL:TSX.V; PNIKF:OTCPK; P94P:FSE). Where else in the world do you have a high-grade, bulk mineable, platinum-palladium project? There isn’t one, especially in a geopolitically reliable region. Wellgreen is an extraordinary project; plus, platinum and palladium have positive fundamentals that are tremendously powerful right now. The key to that project is that the preliminary economic assessment (PEA) that came out was good and was economic.
However, the size of the project assumed in the PEA presented challenges. It was neither small and quick to production nor large enough to bring long-term production forward. It was right in the middle and showed a mine life of 37 years. For Wellgreen to work best, it needs to be either much larger or significantly smaller than what the PEA showed. In this market, I think it needs to rework that plan to show it as a smaller project with lower capital expense and, therefore, a much higher rate of return. With that said, it’s still very large and still has the potential to grow significantly with this season’s drill targets. The deposit has a lot of allure for a major company.
TGR: What would Wellgreen’s path to production look like?
BL: Prophecy itself could develop and finance a smaller project focused on some higher-grade starter pit scenarios, and it has gone a long way in trying to identify those starter pits. It could end up joint venturing with a major to develop a slightly larger scenario or it could get sold off to a major for a much larger scenario.
TGR: You also cover several companies with projects in Mexico. What are the highlights there?
BL: Mexico is a great place geologically and a fairly good place politically. The country has a long history of mining and mining laws are well established. The business climate helps companies work and secure land title. Its more streamlined path to production is a great benefit to the smaller producers. Mexico offers a lot of great opportunities and many discoveries are yet to be found.
TGR: Any specific names?
BL: I like Cayden Resources Inc. (CYD:TSX.V; CDKNF:NASDAQ). For a junior, Cayden offers a lot to like, including a good share structure and money in the bank. The company sold a small portion of its project in the Guerrero Gold Belt to Goldcorp Inc. (G:TSX; GG:NYSE) for approximately $16M. That will fund exploration on its primary projects for the next two years. One highlight is the El Barqueño project, which is showing impressive trench results, including 21 meters at 8.3 grams per ton. Cayden should be able to start drilling that target in the near term.
TGR: You also watch companies in the Yukon. The latest Yukon gold rush, which started in 2009, brought high expectations that haven’t been fulfilled. Can you give us an update? Are there some exploration opportunities that have stood the test of time?
BL: When the Yukon erupted with Underworld Resources Inc.’s Golden Saddle discovery, Gold Newsletter was the only publication to recommend Underworld, and we did it before that discovery. It turned out to be a very profitable experience for our readers. Along with a couple of other projects, Golden Saddle really ignited a gold rush in the Yukon.
Along the way, there were some speed bumps. People didn’t realize how long it takes to develop prospects and get them to drill-ready status. In that environment, the shortened drill season affects project speed—you can only explore one season a year. As a result, development has taken longer, and it is much more difficult than people had imagined. When you combine the slow project progress in the Yukon with the correction in the junior market, the net result is that some companies that have already made discoveries are selling for fractions of what their ultimate worth will be.
One example of this is Kaminak Gold Corp. (KAM:TSX.V) with its Coffee project. At today’s prices, it represents real value. Eventually, I believe it will be taken out at a multiple to today’s price.
I’m interested in and have been recommending Comstock Metals Ltd. (CSL:TSX.V) as well. I’m a fairly large shareholder in the company. Comstock’s project is interesting for many reasons, including that it may be an extension off the same structure as Underworld’s Golden Saddle discovery. It had interesting drill results last year. Comstock is following up with its VG zone this year and, hopefully, will be able to advance some of other targets to drill-ready status before the season is over.
TGR: If investors were looking for, in the best possible sense, the next Yukon or the next underappreciated region that has potential to be a world-class district, where would they look?
BL: Let me share some of the key takeaways of going through a few cycles in the precious metals market. One of the things we saw in the early 1990s was the perception of a revolution of freedom across the world. New regions opened to modern mineral exploration. Two examples were Southeast Asia and Indonesia—and then came the Bre-X scandal. Another example was Venezuela—and then came the leftist Hugo Chavez. The Next Big Thing is a moving target. Success breeds, in some cases, envy and expropriation. I stress to investors that they don’t need to be pioneers—it’s the pioneers who get the arrows in the back. Investors don’t have to take on added geopolitical risk when we have well-positioned companies with proven deposits and proven exploration teams that are selling at huge historic discounts.
TGR: Is there anything else you want to say?
BL: Looking at the general market, the concern I have right now is that we’re beginning to see speculative demand in the West come back into gold. We’re beginning to see some short covering by Western speculators. While that is positive in the short term, we may see a falloff in physical demand as we get into summer. I’m not sure that the strong physical demand that we’re seeing now will be handed off in an orderly fashion to the Western speculators. If so, we could have some further weakness in gold going into midsummer. And that’s why I am targeting around the end of July as a good time for investors to come back into the market and pick up some bargains.
TGR: I noticed that you have expanded the scope of attendees that you are welcoming to the next New Orleans Conference. As Father’s Day approaches, can you talk about this?
BL: A few weeks ago, I was on the phone with Frank Holmes, the CEO of U.S. Global Investors, discussing ideas for the next New Orleans Investment Conference. Frank came up with an idea that hit me like a thunderclap: Let parents bring their kids to the conference for free. I love the idea. This would encourage more attendees to bring along their kids, to show them the benefits of free markets, expose them to the constant threats to their liberty, reveal the hidden dangers of on-going monetary debasement and teach them how to protect their money and freedoms. I’m always searching for ways to expand our unique experience and outlook to younger people who rarely get exposed to the free market ideals that we promote.
We wrapped up the idea as a limited-time special opportunity between Mother’s Day and Father’s Day, but I decided to extend it through the end of June. And, incidentally, it also applies to children who want to bring along their parents.
Interested investors need to call our offices at 800-648-8411 to take advantage of this special opportunity.
TGR: That’s a great way to get the next generation introduced to the investment markets. We look forward to speaking with you again.
BL: Thanks, it was great to speak with you.
With a career spanning three decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, the oldest and most respected investment event of its kind.
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1) J. Alec Gimurtu conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Silver Standard Resources Inc., SilverCrest Mines Inc., Great Panther Silver Ltd., Cayden Resources Inc., Prophecy Platinum Corp. and Goldcorp Inc. Uranerz Energy Corp. and Fission Uranium Corp. are sponsors of The Energy Report. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Brien Lundin: I or my family own shares of the following companies mentioned in this interview: New Gold Inc., Fission Uranium Corp., Kivalliq Energy Corp., Uranerz Energy Corp., Prophecy Platinum Corp., Cayden Resources Inc., Kaminak Gold Corp. and Comstock Metals Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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