1. Creditors and Large Depositors to take Large Loss in Cyprus Rescue from the EU — hours before a possible financial meltdown in Cyprus, the eurozone agreed to a €10B bailout in which the country’s second-largest bank, Laiki, will be closed and its operations folded into Bank of Cyprus. Deposits of over €100,000 will be hit with a large tax, perhaps 30% or more, while those below that level will be left untouched. Laiki’s senior bondholders will be wiped out, while Bank of Cyprus’s creditors will also be affected.
2. Fears Arise that Farming is Heading for a Bust — NYTimes, Rising crop prices, particularly corn, have sent the cost of farmland soaring, with prices in Iowa, for example, doubling to an average of $8,296 an acre since 2009. The trend has prompted farmers to expand and has attracted investment companies, but with data about rural debt incomplete, economists fear that the boom will at some point turn into a bust, leaving a trail of bankruptcies and out-of-pocket creditors.
3. Freddie Mac sues 15 banks over Libor Rigging Scandal — Freddie Mac (FMCC.OB) has sued Bank of America (BAC), JPMorgan (JPM), Citigroup (C) and 12 other banks for losses caused by the manipulation of the Libor rate. Freddie, which invested in mortgage bonds and swaps tied to U.S. dollar Libor, is seeking a whole gamut of damages. The FHFA has already calculated that Freddie and Fannie Mae (FNMA.OB) lost a combined $3B because of the Libor manipulation.
4. Bank of England (BOE) voted 6-3 to reject more Quantitative Easing (QE)– The Bank of England’s monetary policy committee voted unanimously to keep interest rates on hold at a meeting earlier this month and 6-3 against more quantitative easing. As in February, Governor Mervyn King was among those wanting the bank to increase the program by another £25B to £400B.
5. FOMC Maintains Its Current Policy of Bond Buy — the Federal Reserve has left its $85B-a-month QE program in place, saying that the economy has returned to moderate growth even as fiscal policy has become more restrictive. Notable among the revised economic projections was an expected improvement in the unemployment rate.
6. Household net worth drops 36% in six years — WSJ, the median net worth of American households dropped to $69,000 in 2011 from $82,000 in 2000 and $107,000 in 2005, a census report shows. Meanwhile, debt in households headed by older people more than doubled during the decade to a median $26,000 from $12,000, largely because of mortgage loans. The trend increases worries about the financial well-being of older Americans, whose retirement funds have been hit by the recession and rock-bottom interest rates.

The week ahead — Economic data from Econoday.com:

“I always keep these seasonal patterns in the back of my mind. My antennae start to purr at certain times of the year” — Kenneth Ward

1. UK manufacturing slump raises risk of triple-dip — per theguardian, U.K. manufacturing and industrial production unexpectedly fell in January, renewing fears that Britain will enter a triple-dip recession. Manufacturing output dropped 1.5% on month and industrial production 1.2%, with the latter hurt by the suspension of a North Sea oil platform.
2. U.S. retail sales climb 1.1% in February — U.S. consumers boosted purchases at retail stores in February. Excluding autos and gas, sales rose a smaller 0.4% while other sectors did not fare as well. Sales dropped 1.6% at home-furnishing stores, 1.0% at department stores, 0.9% at sporting goods and hobby stores, and 0.7% at bars and restaurants.
3. China’s Stocks Slump to Two-Month Low on Property Curbs Concern — Bloomberg, Chinese stocks fell, dragging the benchmark index to a two-month low, as real estate and construction companies tumbled on concern policy makers will step up property curbs. Zhou Xiaochuan, the Governor of the People’s Bank of China, has said the country should be on “high alert” over inflation after February’s price increases topped expectations. Monetary-policy is “no longer relaxed” and is “neutral,” he said. Zhou’s remarks add to signs that China is tightening policy even as its recovery may be hitting a bump, including the city of Shenzen banning property developers from raising home prices.
4. S&P eyes record high — the S&P 500 up to make a fresh challenge on its all-time high after it closed just 11 points shy of the mark last Friday, and the Dow Jones to continue its record run. Below is a repost of the S&P500 chart of all time high.

5. CFTC looks at possible gold and silver manipulation6. Fed OKs 16 bank capital-return programs but rejects two — The Federal Reserve has approved the capital return plans of 14 banks and rejected two – those of Ally and BB&T (BBT). Goldman Sachs (GS) and JPMorgan (JPM) received conditional approval and were asked to resubmit their programs by the end of Q3 to “address weaknesses in their capital planning processes.” JPM wants to raise its dividend to $0.38 from $0.30 and repurchase $6B in shares.
7. China appoints Li Keqiang as Premier — China’s National People’s Congress has appointed Li Keqiang as the country’s first ever premier with a doctorate in economics. The selection of Li, who replaces Wen Jiabao, follows the election of Xi Jinping as President. The legislature will complete China’s once-a-decade transfer of power tomorrow with ministerial and other appointments.

The week ahead — Economic data from Econoday.com:

“He who fights and runs away, lives to fight another day” — Unknown

1. Chinese shares tumbled on government property action — Chinese shares closed sharply lower, led by real-estate developers, after Beijing intensified its three-year campaign to curb rising property prices by ordering larger deposits and a stricter enforcement of sales taxes.
2. China passes U.S. as world’s top oil importer — China has tentatively passed the U.S. as the biggest importer of oil in the world, with EIA data showing that China’s incoming shipments hit 6.12M bpd in December and those of the U.S. fell to 5.98M bpd, the lowest since February 1992. It’s worth pointing out that tax maneuvering may have distorted December data, while U.S. imports tend to recover in January.
3. China Puts Focus on Consumers to Drive Growth — China has given itself a GDP growth target of 7.5% for 2013, which would be below last year’s 7.8%. At the opening of the annual National People’s Congress, the finance ministry said it plans to increase the country’s budget deficit to 1.2T yuan ($192.8B), or about 2% of GDP from 1.6% in 2012. Much of the increased spending will go on social programs as China looks to shift the focus of its economy towards the consumer and away from exports and infrastructure.
4. Shell plans LNG plants in Louisiana and Canada — Shell (RDS.A) announced plan to construct facilities in Louisiana and Canada that will produce LNG for heavy trucks and large ships, with the idea being to increase the demand for the glut of natural gas in North America. A Great Lakes cargo-ship operator has already pledged itself as a customer, while Shell plans to run three vessels in the Gulf of Mexico on natural gas.
5. Euro Zone to Bail Out Cyprus, No Details Available — per CNBC, Eurozone finance ministers intend to agree on a bailout for Cyprus – which is seen as systemically important to the eurozone despite its small size – by the end of the month, although it’s not clear how the rescue would be financed. Cyprus needs up to €17B, an amount that would lift its debt-GDP ratio to 145%.
6. Time Warner to spin off magazine operations — Time Warner (TWX) plans to spin off Time Inc. into a publicly-traded company, with the goal being to complete the transaction by the year-end. Division CEO Laura Lang will leave after the process is completed. Time Inc. publishes the namesake magazine, Sports Illustrated, Fortune, and dozens of other titles, along with related web sites and mobile apps.
7. Fed Stress Tests for Banks — eighteen major banks have passed the Fed’s stress tests, showing they’d have a Tier 1 Common Ratio of over 5% in the central bank’s “severely adverse” economic scenario. That includes GDP slumping 5%, unemployment of 12%, a 50% fall in stocks and recessions overseas. Only Ally Financial failed, while Citigroup (C) came out as the most overcapitalized of the largest banks with an 8.3% common ratio.

The week ahead — Economic data from Econoday.com:

DJIA Set New Record Highs Since 2007 — the Dow Jones closed +0.83% at a record high of 14246 and surpassed 2007. Below are the charts of the DJIA (past 25 years) and the S&P500 (last 20 years).

“In investing, the return you want should depend on whether you want to eat well or sleep well.” — J. Kenfield Morley

1. Italy Bond yields rise to 4-month high as it sells 6-month debt — the results of the Italian election have immediately hit the government where it hurts, with yields jumping to 1.24% in an auction of €8.75B in 6-month sovereign bonds from 0.73% in a sale in January. The bid-to-cover ratio fell to 1.44 from 1.65.
2. 4Q GDP Revised up — per Marketwatch, the nation’s entire output of goods and services, known as gross domestic product, expanded at an annual 0.1% pace in the fourth quarter, the Commerce Department reported. Initially the government said last month that the economy contracted by 0.1%, which would have marked the first decline since the second quarter of 2009. The revised GDP report showed that construction spending rose faster than previously estimated while exports fell less than the government thought. That nudged GDP into positive territory.
3. Sequester cuts set to kick-in as Senate bills fail — Automatic federal budget cuts of $85 billion looked certain to kick in Friday after a pair of bills to replace them failed in the Senate. The budget cuts for fiscal 2013 would not take effect all at once on Friday. Instead, they would go into effect gradually through the end of the fiscal year on Sept. 30. In total, the sequester would cut about $1 trillion over nine years.
4. Chinese manufacturing slows in February — China’s factory activity weakened last month as the official PMI, which focuses on larger state-owned companies, unexpectedly fell to 50.1 from 50.4 in January. HSBC’s PMI, which concentrates on smaller private firms, dropped to 50.4 from 52.3. The timing of the Chinese New Year may have affected the figures.
5. Default worries send Argentine markets into turmoil — fears that Argentina will default hit the country’s markets yesterday, with the Merval stock index tumbling 3.5% and the cost to insure $10M of its debt for one year rising to a whopping $6.6M. The turmoil came after a lawyer representing Argentina’s government told a U.S. court on Wednesday that it would choose to default rather than pay bondholders who won’t accept restructured debt that was issued following the 2001 crisis.
6. AAII Plummeted — according to the weekly sentiment survey from the American Association of Individual Investors (AAII), chart courtesy from the Bespoke Investment Group, bullish sentiment plummeted from 41.79 down to 28.39. This was the largest weekly decline since November 2010, and it was the lowest weekly reading since last July.

The week ahead — Economic data from Econoday.com: