“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” — Warren Buffett

1. PBOC drains $7.9B from financial system — the People’s Bank of China has drained $7.9B from the country’s financial system by selling 48B yuan in repurchase contracts, the first such transaction since June of 2013. The PBOC made the tightening move after the recent data showed that aggregate financing soared to a record 2.58T yuan ($425B) in January from 1.23T yuan in December despite the bank’s attempts to rein in lending.
2. Fed Reserve Sets Rules for Foreign Banks — the Federal Reserve has passed regulations for foreign banks on capital, debt levels and annual “stress tests” that could force 15-20 of them to raise billions of dollars in capital. Overseas banks with U.S. assets of over $50B would have to form special holding companies in the country and maintain higher capital buffers than other nations require.
3. U.S. Household Debt Begins to Rise Again — NYTimes, total household debt in the U.S. increased 2.1 percent, the largest quarterly increase since before the recession, according to a new report from the Federal Reserve Bank of New York. Mortgages rose by $16B on year to $8.05T following four consecutive years of declines. Retail analyst David Strasser says “We’re still over-leveraged by any historical measure.”
4. Chinese factory activity contracts at faster pace — China’s flash manufacturing PMI tumbled to a seven-month low of 48.3 in February from 49.5 in January and missed consensus of 49.4. The sub-indexes for output, new orders, new export orders and employment contracted. The fall in overall PMI adds to other data that provides a mixed picture of China’s economy. The latest figures may have been hampered by the Lunar New Year holiday.
5. Latest FOMC minutes — in the latest FOMC meeting chaired by Ben Bernanke, a few policy makers saw a chance of rate hikes “relatively soon.”

The week ahead — Economic data from Econoday.com:

“The test of success is not what you do when you are on top. Success is how high you bounce when you hit bottom.” – George S. Patton

1. Millions Trapped in Health-Law Coverage Gap — WSJ reported that millions of Americans earn too tittle for health-law subsidies but ineligible for benefits under Existing Medicaid Programs. Around 4.8M people aged 18-64 get no government help to buy medical insurance – because they earn too little to qualify for federal subsidies. However, they earn too much to receive benefits under state programs. The gap is the result of 24 states deciding not to expand Medicaid coverage under the Affordable Care Act.
2. Dow Jones Average (DJIA) Chart Similar to 1929?? — below is a chart of the DJIA which displays a scary correlation to the 1928-1929 depression courtesy of McClellan Market Report. Will the pattern repeat is anyone guess???

3. White House again delays healthcare mandate for employers — Reuters, the government has announced yet another delay to a crucial part of Obamacare. The latest is that businesses with 50-99 full-time workers won’t have to provide health insurance to their workers until 2016. Larger firms will have to cover at least 70% of employees by 2015 and 95% a year later. The original plan was for companies to offer coverage in July 2014. That was delayed until 2015.
4. House approved suspension of debt limit for a year until March 16, 2015 — the House has authorized a one-year extension to the government’s borrowing authority – until March 16, 2015 – without any conditions by a vote of 221-201. There had been plans to link the debt-cap vote to restoring cuts to military pensions, but the battle-fatigued Republican leadership dropped its demands in order to keep the political focus on Obamacare.
5. German CPI in deflation territory — German CPI fell 0.6% on month in January following an increase of 0.4% in December. The drop in prices comes amid increasing concern that the eurozone faces the threat of deflation, although European Central Bank chief Mario Draghi has so far been sanguine about the prospect.
6. China’s Inflation Rate Holds Steady — WSJ, China’s CPI held steady at +2.5% on year in January, while PPI dropped for the 23rd consecutive month with a fall of 1.6%. The benign inflation could give the People’s Bank of China room to loosen monetary policy should the economy slow further, although the PBOC is also concerned about reining in soaring debt.
7. Twitter (TWTR) Insiders Get First Chance to Sell Shares as Lockup Ends — Bloombers, about 9.87 million of non-executive employees’ shares will become eligible for sale as agreements that locked them up after the IPO expire, according to filings with the U.S. Securities and Exchange Commission. That would boost the number of shares available for trading by 12 percent to about 90 million, according to data compiled by Bloomberg. More stock will start to become available for trading in May.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of Feb 7 2014. We are away for some needed R&R.

Have a good week.

The staffs at EGS.

“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett

1. Apple building mobile-payments business — WSJ reported Apple (AAPL) is working to expand its mobile-payments service to enable users to buy goods and services. AAPL ‘S iTunes havE 575M registered users, it poses a serious threat to the likes of PayPal (EBAY) and Square.
2. British economy grows at fastest pace since financial crisis — U.K. GDP increased 1.9% in 2013 in what was the quickest growth since 2007. However, GDP slowed a bit to +0.7% on quarter in Q4 from +0.8% in Q3 and the economy was still 1.3% below its pre-recession peak.
3. Congress forges deal on farm bill — Bloomberg reported the House and Senate negotiators have agreed to a five-year farm bill that would save up to $24B over the next ten years. The bill will reduce spending on food stamps by $8B and ending direct payments to farmers. That’s the third bill that legislators have negotiated in recent weeks.
4. FOMC Maintains QE Tapering Pace — Policymakers scaled back the bond purchase program by another $10bil a month, matching the prior cut despite the weak Dec. jobs report and upheaval in emerging markets. Central bankers noted mixed labor data and some slowing in housing.
5. Emerging Markets raised interest rates to calm market — Turkey raised rate on one-week Interbank Rates, from 4.5% all the way to 10% as an attempts to get it’s plummeting currency and runaway inflation under control. Others did the same, see chart below courtesy of the WSJ.

6. Investors yank $9 billion from emerging market funds — Reuters, investors yanked $9 billion from emerging stock and bond funds during a turbulent past week, with equities seeing their biggest outflow in 2-1/2 years according to Boston-based fund tracker EPFR Global. This past week has seen some major falls in emerging currencies’ exchange rates, with central banks forced into rate rises or market interventions to limit the swings. Those currency losses and rate rises have put pressure on bond and stock holdings, forcing exits.
7. Individual Investors Rushed for the Exit — courtesy of BIG, According to the American Association of Individual Investors(AAII), bearish sentiment is now greater than bullish sentiment for the first time since mid-August. The last time bullish sentiment was above the 50% mark was back in late January. This represents the fourth weekly decline in the five weeks since bullish sentiment peaked on 12/26/13 at 55.06%. While bullish sentiment declined, the bearish camp became more crowded rising from 23.76% to 32.76%.

The week ahead — Economic data from Econoday.com: