“Volatility is greatest at turning points, diminishing as a new trend becomes established.” — George Soros

1. Nikkei sinks towards bear territory — the Nikkei (EWJ) has lost over 19% since hitting a 52-week high on May 23 – a drop of 20% would put the index in a technical bear market.
2. Chinese PMI (Purchasing Manager Index) comes in mixed — China’s HSBC PMI for May fell a bit more than the “flash” read — at 49.2 vs. 50.4 in April. The downward revision “suggests a marginal weakening of activities towards the end of last month, due to deteriorating domestic demand conditions,” says HSBC.
3. Turkish markets plunge after protests continued — the Istanbul National 30 index down 6.6%; Turkish shares (TUR) have plummeted after demonstrations in Istanbul over the preservation of a park turned into a vehicle for an outpouring of anti-government anger amid accusations that it has become increasingly authoritarian.
4. Japan’s Premier Lines Up New Overhauls — WSJ, Abe’s ‘Three Arrows’ Aim for Long-Term Economic Boost, With New Policies on Industry, Investment and Taxes to pull his country out of deflation. The program includes allowing Japan’s massive public pension funds to buy more stocks, the creation of special economic zones, free-trade agreements, privatization, and power-market reform. The hope is to raise average income by 3%, which is greater than the two-year inflation target of 2%.
5. U.S. oil output surpasses imports — WSJ, U.S. crude oil production exceeded imports last week for the first time in 16 years. Since January 1997, weekly U.S. crude imports averaged around 9.2M bpd, topping domestic output by 3.5M bpd. But by late 2014, U.S. crude oil output should surpass imports by nearly 2.5M bpd.
6. NSA taps in to user data of Google, Skype and others, secret files reveal — theguardian reported government electronic surveillance have widened to include several of the country’s largest technology companies under a program called PRISM. A National Security Agency document reportedly shows that it has “direct access” to the servers of Microsoft (MSFT), Yahoo (YHOO), Google (GOOG), Facebook (FB), Paltalk, AOL (AOL), Skype, YouTube and Apple (AAPL).
7. Japan’s $1 trln public pension cuts govt bond weighting, lifts stocks — Reuters, Japan’s public pension fund, the world’s largest with a pool of $1.1 trillion, announced the most significant shift in its asset allocation since 2006 so it can take on greater risk by shifting into stocks and away from Japanese government bonds. It is increasing its Japanese stocks allocation to 12 percent of its portfolio from 11 percent, while lowering its JGB weighting to 60 percent from 67 percent.
8. AAII Bullish Sentiment Falls — bullish sentiment declined to 29.5% from last week’s reading of 36.0%. After reaching a short term peak of 49% two weeks ago, bullish sentiment has now declined by 19.5 percentage points in just the last two weeks.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of May 31 2013. We are away for some needed R&R.

Have a good week.

The staffs at EGS.

There will not be any re-cap for the week of May 24 2013. We are away for some needed R&R.

Have a good week.

The staffs at EGS.

“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:

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“Never test the depth of the river with both feet”. — Warren Buffet

1. Precious metals in vicious sell-off — Gold continued a sell-off that began last week and has turned into a full-scale stampede. A number of reasons have been given for gold’s free-fall, chief among them the ECB’s pressurization of Cyprus’ central bank to sell its gold reserves to help pay for the country’s bailout.
2. China first quarter GDP falls short — Reuters, the world’s second-biggest economy grew 7.7 percent in the first quarter from a year ago, slower than 7.9 percent hit in Q4 2012. Industrial production data for March also disappointed, coming in at +8.9% vs consensus of +10%, although retail sales beat forecasts with an increase of 12.6%.
3. Moody’s lowers China outlook — Moody’s cut its outlook on China’s government bonds to stable from positive citing risks tied to local government borrowing. The action by the agency follows a similar measure by Fitch Ratings last week.
4. European car sales continue to plunge — European car registrations dropped for the 18th consecutive month in March, slumping 10% to 1.35M vehicles. Germany led the way as sales skidded 17%, while Spain, Italy and France all fell, although the U.K. rose 5.9%. GM’s (GM) registrations dropped 13%, Ford’s (F) 16% and Toyota’s (TM) 17%, although Honda’s (HMC) rose 17%.
5. AAII Bullish Sentiment Update — courtesy from BIG, the sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment rose from 19.3% up to 26.9%. Even at this week’s level though, there have only been 12 weeks out of 215 in the current bull market where bullish sentiment was lower.

The week ahead — Economic data from Econoday.com:

“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.” — Sir John Templeton

1. Disability claims spike following recession — the number of people receiving disability benefits has jumped from 7.1M in December 2007 to an estimated 8.9M in March, or 5.4% of the civilian workforce. That compares with just 1.7% in 1970. The latest trend costs 0.6% of national output, or equivalent to around $95B a year.
2. Chinese imports suggest solid demand — China swung to a shocking trade deficit of $884M in March from a surplus of $15.25B in February, badly missing forecasts for a surplus of $14.7B. Imports rose 14% and beat consensus, helping to reduce worries over the strength of domestic demand, while exports climbed 10%. However, questions have been raised about the data, especially with exports to Hong Kong rising by what researcher IHS says is an “astounding” 92.9%.
3. Facebook to roll out new targeted ad tool — per WSJ, in an attempt to win more advertising dollars, Facebook Inc. (FB) is using new ways to cull personal information from outside the social network and match it with data submitted by its billion-plus users. Facebook launched a new last week that will help advertisers directly target its members based on their non-Facebook activity, including their Web surfing, email subscriptions and spending. The tool combines the social network’s data with that from third-party marketers such as Acxiom (ACXM) and Alliance Data Systems (ADS).
4. Japan Return from 1994 to Present —

5. Obama signs order for $109 billion in 2014 sequester cuts — President Barack Obama signs order for the next $109 billion of the reductions to military and domestic programs for the year starting on October 1, 2013.
6. Retail sales post biggest drop in 9 months — Marketwatch, spending falls by 0.4% in March as most stores take a hit. Sales for January were also revised to show a 0.1% drop instead of a 0.2% increase, suggesting that first-quarter growth might not be as strong as forecast.
7. Cost of Cyprus bailout ‘rises to 23bn euros’ — The cost of the bailout for Cyprus has increased to 23bn euros ($30bn; £19.5bn), according to a draft document prepared by the country’s creditors. Cyprus will have to find 13bn euros to secure 10bn euros from the European Union and the IMF.

The week ahead — Economic data from Econoday.com:

“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” —Arthur Schopenhauer

1. China unveils new property curbs — China trying to cool the again-bubbly property market, Beijing banned single-person households in the city from buying more than one residence and increased the minimum down-payment required for all buyers of 2nd homes.
2. Factories Cool Off As Possible Spring Slowdown Looms — ISM’s manufacturing gauge fell 2.9% to 51.3 in March, signaling a slower pace than expected. It shows a possible sign of another economic slowdown this spring according to IBD.
3. Stockton cleared for bankruptcy protection — in a blow to municipal bondholders, a judge has ruled that Stockton in California is eligible for bankruptcy protection. The decision allows the city to keep its pensions intact while imposing losses on those holding its paper. Jefferson County in Alabama and San Bernardino in California – along with other municipalities – are watching closely.
4. Court tells holdouts to respond to Argentina’s bond offer — A U.S. appeals court ordered holdout creditors to respond to Argentina’s proposal to offer them restructured bonds that either discount the original debt’s face value or extend the final payout years into the future. Argentina had been trying to avoid returning the full amount, sparking fears it could default, as it did in 2001.
5. Japan unveils massive stimulus plan (EWJ) — the Bank of Japan (BOJ) said it would increase its purchase of government bonds by 50 trillion yen ($520bn; £350bn) per year in its most aggressive steps to date to battle deflation and a stagnant economy. The BOJ will buy $79 bil in bonds a month, that is the equivalent of almost 10% of Japan’s annual gross domestic product.
6. Russell 2000 Vs. S&P 500 Divergence — is it a warning sign of things to come for small caps and the broader market? Below is the chart of the two indexes courtesy of BIG.

7. Hong Kong hit by bird flu fears — Hong Kong stocks suffered their worst drop in more than eight months last week as worries about the impact from a new strain of avian flu in China hurt sentiment, airline shares were hit the most. Below is the chart of the HangSeng during the last bird flu crisis.

The week ahead — Economic data from Econoday.com: