“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” — Winston Churchill
1. CBO slashes deficit estimate — WSJ, The federal deficit will narrow to $642B in the fiscal year ending in September, the CBO reported — a meaningful improvement from February’s projection of $845B. The revision comes courtesy of higher tax receipts and dividend payments to the Treasury from Fannie (FNMA.OB) and Freddie (FMCC.OB).
2. Buffett Latest 13F Filings (Dated May 15, 2013) Holdings — Berkshire Hathaway’s (BRK.A) 13F filing shows Warren Buffett’s conglomerate upped its equity holdings by nearly $10B Q/Q in the January-March period. Notable moves include a new 6.5M share position in Chicago Bridge & Iron (CBI) worth ~$400M, divestitures of stakes in Archer Daniels Midland (ADM) and General Dynamics (GD), and additions to existing stakes in Wells Fargo (WFC), IBM, Davita Health Care (DVA), and DirecTV (DTV).
3. Hedge Funds Dump Apple, Jump into Hess in Q1 — CNBC, based on the latest 13F filing, David Tepper’s Appaloosa Management reduced its stake in the iPhone maker by 40% during Q1 while Julian Robertson’s Tiger Management sold-off its entire position. Meanwhile, David Einhorn’s Greenlight Capital boosted its stake by 84%.
4. Eurozone Slump Dragging On — the currency union’s economy fell 0.2% in Q1, easing from Q4’s 0.6% drop but marking the 6th straight sequential contraction. Germany barely rebounded from a prior fall with a 0.1% uptick. France fell back in recession while Italy and Spain extended their downturns.
5. Nikkei rallies to New Highs — the yen (FXY) continued its slide early last week, falling to a new four-and-a-half year low against the dollar (before recovering), helping the Nikkei (NKY) post another triple-digit gain on the session, rising 1.2% to 14782, its highest level since January 2008. The weak yen comes on the heels of the G7’s reportedly amicable meeting over the weekend.
6. Gold down nearly 5% for week — Marketwatch, the precious metal is down 4.8% as the week comes to a close, having dropped under $1,390 an ounce this week, the lowest level since April 17. Multiple factors have conspired to weigh on prices, including comments from San Francisco Fed Chief John Williams regarding a possible late summer pull back in the pace of the Fed’s asset purchases and data showing George Soros was a seller in Q1.

The week ahead — Economic data from Econoday.com:

“The news just seems to follow the markets.” ~ Jeff Saut

1. GM to invest $16B in U.S. over next three years — GM announcement would add to the $8.5B spent since 2009 and would be well above the $11B that GM and its joint-venture partners plan to invest in China over the next three years.
2. Chinese services PMI falls to 21-month low — Chinese HSBC services PMI has declined to its lowest level since August 2011, falling to 51.1 in April from 54.3 in March. The growth in new orders dropped to the slowest rate in 20 months, while staffing declined for the first time in over four years. The stumble in the services sector, which accounts for almost half of GDP, has added to a deceleration in manufacturing, and has increased concerns about China’s economic recovery.
3. Secular Bull Or Secular Bear Market — below is the chart of the DJIA going back to 1884 as the market rallied to new highs. The question remains is – “Are We in a Secular Bull Or Secular Bear Market”?

3. Australia’s central bank cuts rates — the Reserve Bank of Australia cut rates for the seventh time in 18 months last week, taking the benchmark cash-rate down 25 basis points to a record low 2.75%.
4. German industrial production posts surprise gain — German industrial output rose 1.2% in March, beating economists’ expectations of a small decline, and posting an increase for the second straight month. The breakdown shows manufacturing output climbed 1.4% and energy production rose 4%.
5. Rio Tinto Says China Iron Ore Sales Strong –Rio Tinto’s (RIO) CEO Alan Smith said at a conference last Wednesday that China’s demand for steel will be robust and will continue to expand until 2030 despite fears of an economic slowdown. As a result, Smith expects his company’s iron ore sales to the country will top 147M tons this year, eclipsing last year’s record.
6. Yields on Junk Bonds Reach New Low — WSJ, for the first time ever, the yield on junk bonds (HYG, JNK) has fallen below 5%. The Barclays U.S. Corporate High Yield index fell to 4.97% earlier this week, capping a more than 100 basis point compression YTD, as investors’ insatiable appetite for income in a stingy ZIRP environment has fueled robust demand for relatively riskier assets.
7. Margin debt hits pre-crisis levels — NYSE margin debt hit $379.5B in March, a 28% Y/Y increase as investors borrow money to buy into what has become a famously resilient rally. The concern is that a steep sell-off could snowball if leveraged investors are forced to unwind positions to meet margin calls. Borrowing to buy shares is of course one sign of unbridled optimism, although some believe levering up makes sense in the current environment.
8. AAII Bullish Sentiment Rises For 4th Straight Week — per BIG, last week’s reading of 40.79% represents an increase of 9.8 percentage points from the previous week and is the highest reading since March 14.

The week ahead — Economic data from Econoday.com:

“Every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.” – Warren Buffett

1. Greece to get new aid — European officials are set to approve a long-delayed €2.8B tranche of bailout money for Greece after the country’s parliament passed a reform late last week which calls for the dismissal of 15,000 workers by the end of 2014 and the extension of a property tax assessed through citizens’ electric bills. The next obstacle for Greece is winning approval for a €6B disbursement it needs by May 20 in order to repay a maturing bond held by the ECB.
2. Treasury to Pay Down Debt For First Time in Six Years — WSJ, the U.S. government will retire $35B in bonds, notes, and bills during the second quarter, as spending cuts and higher tax receipts allow the Treasury to defy projections which showed net debt outstanding rising by over $100B during the three month period.
3. Apple’s debt offering is largest in history — WSJ, Apple’s (AAPL) first debt offering in nearly two decades was also the largest corporate bond deal in the history of the market. Goldman Sachs (GS) Deutsche Bank AG (DBK) sold the debt for Apple to investors in all corners of the credit markets, from buyers overseas to municipal-bond investors to portfolio managers who typically prefer ultrasafe government debt. Pension funds, insurance companies and hedge funds also joined in the scramble.
4. China PMI slips. China’s official PMI for April slipped to 50.6 from 50.9 in March — analysts polled by Reuters expected a reading of 51.0. Both reports cited weakness in new export orders, a reflection of tepid global demand.
5. ECB cuts interest rate — the ECB’s governing council said it decided to lower its main refinancing rate by 25 basis points to 0.50%. The ECB also said the interest rate on the marginal lending facility will be cut by 50 basis points to 1.00%.

The week ahead — Economic data from Econoday.com: