Strong Selling of U.S. inflation protected bonds

Investors have been dumping U.S. inflation-protected bonds at the fastest pace since the 2008 financial crisis, as inflation fears cool off.

Amid a broad selloff in most bond markets, investors pulled $7.3 billion of cash from funds that invest in Treasury inflation-protected securities, or TIPS, in the second quarter through June 26, surpassing the previous record quarterly outflow of $3.6 billion investors pulled out during the fourth quarter of 2008, according to the latest data from fund tracker Lipper.

Prices of inflation-protected securities also fell sharply in recent weeks.

TIPS have been one of the most popular tools for investors to hedge against rising prices because their value rises along with higher inflation. Investors had worried the Federal Reserve’s aggressive monetary stimulus for the economy would spark runaway price increases.

The pullback is also a blow to the U.S. Treasury, which had ramped up its sales of TIPS in recent years to borrow at ultracheap levels to help fund U.S. spending.
Source: WSJ

Fed New Plan for higher capital requirements for US largest Banks

WASHINGTON—The U.S. Federal Reserve on Tuesday outlined a multipronged plan to place the nation’s largest banks under stricter capital requirements to guard the financial system from risks posed by “too big to fail” companies.

Fed officials said they hope to act in the coming months on four proposals aimed at the eight largest U.S. firms considered “systemically important” to the global economy, including Goldman Sachs Group Inc., Bank of America Corp. and J.P. Morgan Chase & Co.

Fed governor Daniel Tarullo, the agency’s point man on regulation, said regulators could soon propose a higher leverage ratio, which is expected to fall between 5% and 6%, for the largest banks. This capital measure gauges equity against total assets and is favored by some regulators as a measure of a bank’s ability to withstand stress. The Federal Deposit Insurance Corp. said it will consider the leverage proposal early next week.

Regulators are also working on: a requirement that these banks hold a minimum amount of long-term debt, a separate charge based on a firm’s reliance on volatile forms of short-term funding, and a special surcharge agreed upon by international regulators.

Source: WSJ

Precious Metals Quotes

Gold Price Futures      3 months       US$ 1,242.46

Silver Prices                3 months       US$     19.34

10 billion dollar outflow from Pimco in June

The turbulent second quarter left a big scar on bond king Bill Gross: a record quarterly loss for his bond fund and clients fleeing in droves.

Investors yanked nearly $10 billion in June out of Pacific Investment Management Co.'s $268 billion Total Return Bond Fund (PTTRX) run by Mr. Gross, according to fund tracker Morningstar. The outflow was the biggest cash outflow from the world's biggest bond fund since Morningstar started tracking the fund's flow in 1993.

The outflow came as Mr. Gross's bond fund handed investors a loss of 3.6% in total return basis for the second quarter of the year, the biggest quarterly loss since its inception in 1987, according to data from fund trackers Morningstar and Lipper.

EU retreats from financial transaction tax

A top European Union official signaled a fresh retreat on Europe’s controversial financial-transactions tax Tuesday, saying the EU’s executive arm could live with a watered-down version of the proposal.

The concession is the latest in a series of setbacks for a proposal that has been fiercely opposed by the financial industry and some EU member states. Last week, the European Commission admitted the tax would be delayed by at least six months, as the 11 participating countries continue to squabble over key questions, including the scope of the levy.

Source: WSJ

History and its influence to Different Economic Approaches.The European Experience.

Excerpts

"It is increasingly popular to think of Europe in binary terms. French President François Hollande is constantly flirting with the idea of building a new Latin bloc, in which Spain and Italy would join France in the struggle against fiscal austerity. In this vision, Latin superiority consists in a more expansive view of the state’s capacity to secure incomes and create wealth, and less of the “Protestant” obsession with the individual’s work.
The modern tendency to regard economic differences in terms of religion was stimulated by Max Weber’s reflections on the Protestant work ethic. But that interpretation is clearly unsatisfactory, and cannot account for the dynamism of the deeply Catholic world of Renaissance Italy and Flanders.

A better way to understand economic differences is to view them as a reflection of alternative institutional and constitutional arrangements. In Europe, that difference stems from two revolutions, one peaceful and wealth-enhancing (1688 in England), and the other violent and destructive (1789 in France).
In the late seventeenth century, in the wake of Britain’s Glorious Revolution, when Britain revolted against the spendthrift and autocratic Stuart dynasty, the British government that was formed after William and Mary assumed the throne adopted a new approach to debt. Voting budgets in parliament – a representative institution – ensured that the people as a whole were liable for the obligations incurred by their government.
The result was a dramatic reduction in the British state’s borrowing costs and the emergence of a well-functioning capital market, which caused private borrowing costs to fall as well.
The alternative model to British constitutionalism was ancien régime France. Official bankruptcy, a regular occurrence, required prolonging maturities on state debt and reducing interest payments. But this solution raised the cost of new borrowing, so France began to consider the British model. The problem was that the imitation was imperfect.

After the conclusion of the American War of Independence, instead of returning to the old model of default, which had been applied as recently as 1770, the French elite did everything it could to avoid that outcome. Fearing that the system was fragile, the government opened its coffers in 1787, bailing out private investors who had lost in an immense speculative scheme to corner shares in a reorganized East India Company.

 But there was an immediate problem: the existing tax system had reached its limits, and no more revenue could be raised without ending time-honored privileges and immunities. In the end, the only viable course was massive confiscation – the creation of biens nationaux as the basis for the issuance of state debt. But that measure, instead of restoring financial calm, led to an escalation of expectations regarding what the state could and should do, and exacerbated social tension.

Adherence to the principle of non-default produced the French Revolution, the lesson being that political systems will collapse if they take on too much debt and try to pay at any cost. The situation was the reverse of Britain. In France, there was no adequately functioning market that differentiated among risks.
But the French Revolution also produced a powerful and attractive myth of social transformation. Far from discrediting the flawed approach to debt management, the “nation,” which succeeded absolutist monarchy as the basis of political authority, remained wedded to statist solutions".

By Harold James

China's Growth and Premier Li Keqiang Targets

"Everyone is talking about China’s economic slowdown. Last year, Chinese GDP growth reached a 13-year low, and no upturn is in sight. But, as Premier Li Keqiang seems to recognize, this trend could actually be beneficial, spurring the structural reforms that China needs to achieve its longer-term goal of more balanced and stable GDP growth.
The World Bank cut its 2013 economic growth forecast for China from 8.4% to 7.7%. Moreover,latest  data show that Chinese banks increased their lending by only about ¥667 billion ($108 billion) in May – a roughly ¥125 billion decline from the same period last year.
But simply lending more would not improve the situation. Given that outstanding loans already amount to nearly double China’s GDP – a result of the country’s massive stimulus since 2008 – new loans are largely being used to pay off old debts, rather than for investment in the real economy
But the willingness of China’s new leadership to initiate another round of growth-securing stimulus depends on what rate of GDP growth Li can tolerate. With China’s leaders having offered no indication that they will change current monetary policy, some economists have estimated that Li will not act until GDP growth falls below 7%
The reason for Li’s inaction emerged in early June, when Chinese President Xi Jinping told his American counterpart, Barack Obama, that China had deliberately revised its growth target downward, to 7.5%, in order to pursue structural reforms aimed at supporting stable and sustained economic development.

The view that Li will tolerate slower growth only above a particular threshold is based on the belief that GDP growth below 8% would hurt economic development more than it helped, and lead to social instability. And, indeed, if unemployment pressure had become as acute today as it was in the 1990’s, the prolonged economic slowdown would undoubtedly have precipitated government intervention.

But, over the last decade, structural changes to China’s economy have caused unemployment pressure to decline significantly – a trend that can be corroborated by across-the-board wage increases. Now, the setting is very favorable to build the stronger, more stable economy that Li wants – and that China needs".

By  Zhang Jun
Professor of Economics and Director of the China Center for Economic Studies at Fudan University, Shanghai.

WSJ March 2013. Preparing for an Interest Rise

Back in March 2013 the WSJ published and article, where they stated that  large money managers like Blackrock,TCW Group Inc.and Pacific Investing Management Co. at that time they were already
preparing for an interest hike, because they thought that the Fed couldn't keep interest rates so low
for a longer period of time. They were worried that when the interest rate hike came, the ascent would be quick and steep. So rather than taking a guess when it will come,they were taking pre-emptive moves making investments that would pay off in an scenario of higher interest rates.

The moves included buying debt with floating interest rates that rise as overall rates climb, as well as interest-rate swaps and inflation-protected bonds that will also increase in value.

Other investors were hedging against potential bond losses by making bearish bets on U.S. Treasury bonds through derivatives that gain when rates rise. As rates rise, prices of bonds fall.

Because rates are so low now, many investors are worried that even a small rise could be particularly painful for anyone holding Treasurys.

Precious Metals Quotes

 Gold Futures 3 Months             US$    1,246.13
 
 Silver Futures 3 Months            US$        19.41

China's Poverty relief Campaign

Chinese Vice Premier Wang Yang called for more specific and effective measures in the country's poverty relief campaign on Friday.

Wang made the remarks at a meeting held by the poverty relief leading group under the State Council, China's cabinet.

"The pertinence and effectiveness of the poverty relief work should be boosted, with resolute efforts to grasp the real situations, accurately locate relief targets and map out plans for every village and household," Wang said.

He stressed tourism, the cultivation of animals and plants with local characteristics, vocational training, labor force transfers as well as infrastructure improvements, among other aspects, for the relief plan.

Urging the mobilization of resources across the country, Wang called for increasing financial input, strengthening relief fund management and letting the market play a bigger role.

Bond Quotes

  Goverment Bonds                                                   Price Change     Yield

U.S. 2 Year			1/32	0.347
U.S. 5 Year			-1/32	1.386
U.S. 10 Year			-1/32	2.486
U.S. 30 Year			6/32	3.471
Germany 2 Year			2/32	0.181
Germany 10 Year			7/32	1.703
Italy 2 Year			3/32	2.145
Italy 10 Year			12/32	4.387
Japan 2 Year			0/32	0.148
Japan 10 Year			-3/32	0.900
Spain 2 Year			3/32	2.054
Spain 10 Year			8/32	4.563
U.K. 2 Year			1/32	0.369
U.K. 10 Year			11/32	2.377

Marc Faber Thoughts

"American economists’ high esteem of consumption as the motor of economic growth has a long tradition dating back to the early 20th century. The continuous drive to boost consumption has led to Affluenza, an All-Consuming Epidemic, which is accompanied by an unprecedented array of escalating imbalances: ever-declining personal savings; a large fiscal and current account deficit; exploding government and consumer debts; and, a protracted shortfall in business fixed investment, employment and available real incomes. The current mantra of “selling” emerging markets and “buying” the US is likely to disappoint even if the US stock market continues to outperform. After all, the out performance may arise from US equities declining less than emerging stock markets. In this context, I should like to point out that the late May/June sell-off has been extremely benign by historical standards and that far more downside volatility is likely to occur in the months ahead".

Jefferies: Gold have been crushed.But carnage has not ended.

According to Jefferies they have been bearish on gold minining stocks for a long time. And despite declines ranging from 30 to 56% this year,there is a further downside to go.

They have also are lowering the price target for gold to US$ 1,250 from 1,500, and downgraded and reduced the price targets for the Gold Majors: ABX to US$ 14 from 15.25;  GG to US$ 19 from 25.47

KGC US$ 3.75 from 5.10 and NEM from US$ 18 to 30.18.

  And they sound very bearish for the Gold Major Companies,as the price of gold declines further, gold will fall below the cost of production for these companies, resulting in years of negative cash flow.

"In conclusion, while we’d like to believe the carnage in the group is over, we don’t. With short reserve lives, rising costs, rising political risks and a stagnant commodity price, we believe an argument could be made that gold equities should trade at valuation discounts to other resource equities. Instead, they continue to garner valuation premiums. In our opinion, that continues to make the risk/reward for the North American gold group unattractive".

Source: BusinessInsider

Gulf Arab Banks in better shape than pre-crises levels

Across the Gulf region, most conventional lenders and Islamic banks cleaned up their balance sheets from the debris of the financial crisis and switched to the expansion gear.

According to the corporate banking benchmarking report published by advisory firm Boston Consulting Group (BCG) earlier on Friday, the Gulf Cooperation Council (GCC) banks' corporate banking divisions are at peak levels in terms of revenues and net profits. "They even crossed the pre-crisis levels seen in 2008," said the analysis.

Local lenders in the six GCC countries, including Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates (UAE) and Oman, benefitted from relative political stability at home, capital outflows in turmoil-struck Arab nations such as Egypt or Syria, and ongoing high oil prices which gained 15.34 percent per barrel in U.S. crude over the last 12 months.

TAILWINDS FOR GROWTH

Thanks to these tailwinds, GCC lenders expand at home and abroad as an announcement in recent months. Net profits of GCC banks increased in the first quarter by 7 percent year on year to hit 4.6 billion U.S. dollars amid a rise in loan activity and rising deposit volumes.

The UAE topped the first quarter ranking with profits edging up by 18.7 percent, followed by their counterparts in Qatar, Saudi Arabia and Kuwait, where net income increased year on year by 7.3 percent, 2.6 percent and 2.4 percent, respectively.

In Saudi Arabia, the biggest GCC country, lending increased in the first four months by nearly 5.5 percent to 1.05 trillion Saudi riyal (283.5 million U.S. dollars), the Saudi Gazette reported in June.

Source : Xinhua

Yuan to become a global currency, a long term goal

It may take another 15 years before the yuan becomes a truly global currency as China needs to loosen restrictions on capital accounts and unify exchange rates for both on- and offshore markets, experts told the Lujiazui Forum yesterday.

"The internationalization of the yuan is a gradually developing and maturing process," said Li Lihui, chairman of the Bank of China. "We expect it to take 15 years for the yuan to become one of the world's major settlement and reserve currencies."

True globalization of the yuan will come after five stages - lifting the proportion of yuan trade-settlement in China's foreign trade, lifting the proportion of yuan payments in the global clearing system, expanding cross-border investment in yuan, becoming the reserve currency in Asia, and expanding the offshore yuan market.

Precious Metals

  Gold Futures 3 Months       1,253.94

  Silver Futures 3Months            19.58

Quotes of Bonds

Government Bonds

                                                                                   Price Change    Yield

U.S. 3 Month			-1/32	0.020
U.S. 2 Year			0/32	0.359
U.S. 5 Year			-0/32	1.399
U.S. 10 Year			-1/32	2.494
U.S. 30 Year			6/32	3.490
Germany 2 Year			-1/32	0.208
Germany 10 Year			3/32	1.725
Italy 2 Year			9/32	2.194
Italy 10 Year			27/32	4.436
Japan 2 Year			-1/32	0.147
Japan 10 Year			-11/32	0.887
Spain 2 Year			8/32	2.111
Spain 10 Year			1 1/32	4.592
U.K. 2 Year			1/32	0.385
U.K. 10 Year			6/32	2.421

 Source: WSJ

Real State Project

I have been working lately with 2 partners and close friends since our University education,studying investments in land in Perú. We are not interested in the Boom Urban Real State because we believe
it is already priced to perfection.
We are looking to land investment opportunities and our basic criterion are Location and Price.
  My friends and myself have a long experience in Real State Investments,and we believe that we
can build a good portfolio that we could later monetize with a good profit.
 Initialy we will buy land for ourselves, but the idea is to bring investors later to develop an interesting
Real State Fund, we believe that at least a 25% of any investment portfolio should be allocated to
Real State,which is an asset that you can see and you can touch,and a proper investment in these times
of fiat currencies.
 Location,Location and Location is the most important decision maker and then a very competitive
price of entry.
We will advance or pause in the project depending, on the evolution of the local economic indicators
and the global economic scenario.

Upbeat EU Indicators

Equity in European markets ticked higher in afternoon trading. The Manufacturing PMI index revision
came at 48.8 in June upward adjustments in French and Italian activity more than offset, sluggish
German data. UK Mfg PMI index rose to 52.5 in June, it was expected a 51.4 level

US Economic Indicators

U.S: Purchasing Management Index for June 2013   Actual  51.9     Expected  52.3

ISM Manufacturing Index     Consensus  50.5    Actual   50.9

China´s Indexes up despite a four month low in PMI

Chinese shares went up Monday despite weak purchasing managers' index (PMI) data.

The benchmark Shanghai Composite Index went up 0.81 percent, while the ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, surged 4.37 percent.

China shares opened lower on Monday, as the newly-released PMI came in at 50.1 percent in June, hitting a four-month low and down 0.7 percentage points from May.

The market reversed early losses in the afternoon, driven by bargain hunting after a seven-day losing streak in late June.

But sentiment remained fragile, with total turnover on the two bourses shrinking to 103.15 billion yuan (16.82 billion U.S. dollars) from 160.67 billion yuan the previous trading day.

Source: Xinhua

China's middle class rise,increased wealth management for Banks

The rise of China's middle-class has triggered demand for customized wealth management services, providing opportunities for commercial banks to earn more income, a Lujiazui Forum panel said yesterday.

"Individuals in China had 80 trillion yuan (US$13 trillion) worth of investable assets last year, which expanded by an average annual rate of 21 percent from 2008," said Zhang Yun, vice chairman of the Agricultural Bank of China.

"By the end of 2012, the top-four banks had more than 120,000 private banking customers and managed more than 1.7 trillion yuan of assets," Zhang added.

He said the 80/20 rule has no longer applied in China. At present, 80 percent of financial assets in the country are owned by 15 percent of the population.

"Private banking serves a small group of customers, however this small group has a very large need (for wealth management services)," said Ma Jian, general manager of private banking at the Industrial and Commercial Bank of China. "The small platform of private banking could even leverage the restructuring of the whole banking sector."

Investment needs and the strategic transformation of banks fostered the rapid growth of wealth management business in China. The nation's 18 major banks have made 246.4 billion yuan for their clients with an average return of 4.11 percent annually, the Shanghai bureau of the China Banking Regulatory Commission said in a report yesterday.

Domestic and overseas banks issued 27,565 personal wealth management products last year in Shanghai, up 10 percent from a year earlier. However, the funds they attracted dropped 9.7 percent to 3.34 trillion yuan.

Outstanding products stood at 576 billion yuan at the end of 2012, a 37.5 percent yearly increase. The scale of wealth management products in Shanghai accounted for about 14 percent of the national total, the report said.

Source: Xinhua

Japan. Business Sentiment Postive since September 2011

Business sentiment among large manufacturers in Japan turned positive for the first time in seven quarters, the Bank of Japan's "tankan" quarterly survey for June showed Monday. 
The closely watched diffusion index for large manufacturers' current business conditions stood at plus 4, against minus 8 in the previous March survey, logging the first positive figure since September 2011. The sentiment picked up for the second straight quarter.

Source: Jiji Press

China's PBOC will adjust liquidity in an appropiate manner

China's central bank governor Zhou Xiaochuan told the Lujiazui Forum in Shanghai that the central bank will guide financial institutions to maintain reasonable lending policies.

Zhou said that the Central bank of  China will adjust market liquidity in an appropriate manner.

Earlier this week, the central bank took actions to quell fears a recent money squeeze, which pushed interbank money rates to historic high, could expand into a full-blown financial crisis and hurt real economy. But still, the central bank has made it clear and reiterated that there is reasonable level of liquidity and lenders should improve money management and lending practices.

Source: Shanghai Daily

Precious Metals Quotes

Price of Precious Metals Futures 3 Months

                                  US$
Gold                       1,238.94

Silver                          19.48