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TOP STORIES:
China
Steel Mills Slide as Credit Squeeze, Iron Ore Panic Grips - (www.bloomberg.com) Chinese steel companies, the world’s largest,
helped drive a regional industry benchmark index to a seven-month low as concern
builds that some mills face financial difficulty amid a government credit
squeeze.“They are having trouble accessing finance,” Yunde Li, chairman of
Ishine, a unit of ChinaZhongsheng Resources Holdings Ltd.,
which processes iron ore in Shandong, said today in an
interview in Perth. Some of Ishine’s steel mill customers cannot make their
payments to his company, Li said through a translator, declining to name the
companies. Closely-held steel mills in China are struggling to
get funding at the moment and that’s led to panic selling of iron ore,
according to Morgan Stanley. The nation’s top banking regulator said yesterday
strict credit guidelines will be imposed on mills that were big polluters and
users of energy. “The capital squeeze on steel traders has started to affect
mills,” said Henry Liu, Hong Kong-based executive director of China Merchants
Capital and head of its commodities research department. “It looks like the
credit crunch is worsening.”
How
States Are Cracking Down on Small Business Tax Cheats - (www.businessweek.com) Small businesses and the self-employed stiff
the federal government on billions of dollars (PDF) in unpaid
taxes each year, according to IRS estimates of the tax gap. That’s the
difference between taxes owed and and the amount actually collected. States
also have tax gaps: California’s is about $10
billion annually, and the Golden State is investing $670
million over five years in technology to improve its collections, expected to
raise an additional $1 billion a year in tax revenue. California isn’t alone.
According to interviews with revenue officers from 30 states published last
week by Bloomberg BNA (subscriber only), states are betting on new
compliance tools aimed at collecting billions of dollars in unpaid taxes. While
those efforts aren’t focused solely on Main Street, there are plenty of
developments small business owners would do well to keep up on. Here are four
takeaways from the BNA report:
Venezuelan
Businesses, Starving for Dollars, May Get Some Relief - (www.businessweek.com) Oswaldo Contreras is hoping that Venezuela’s
third foreign exchange system will be the charm. Contreras, who sells vitamins,
shampoos, and accessories to pet stores, has been buying dollars on the
country’s black market to pay for the products he sells, all of which are
imported. Over the last year, the black market rate has soared to more than 90
bolivars to the dollar, or roughly 14 times the official exchange rate. “What I
import isn’t regarded as a priority,” says Contreras, explaining why he has no
access to officially sanctioned mechanisms for procuring dollars. “I have no
choice but to hit the black market. I am hoping that the new auction will make
the dollar more affordable.” Venezuela plans to kick off as soon as tomorrow
the new SICAD 2 auction, which will enable companies and individuals to buy and
sell dollars under the supervision of the Central Bank of Venezuela.
Puerto
Rico Gets a Break With Rates on Its Bonds - (www.nytimes.com) Puerto Rico is expected to sell roughly $3
billion in bonds on Tuesday at interest rates that are considerably lower than
many investors in the municipal market had expected, providing a rare bright
spot for the cash-squeezed island. The lower yields, investors say, are being
driven by a combination of factors, including a recent flow of investments in
mutual funds that are large buyers of municipal
bonds, Puerto Rico’s progress in closing its chronic budget gap, its
improved financial disclosures and a general sense of relief that the
commonwealth still has access to the debt market. “There’s a very explicit,
almost to the point of jarring, acknowledgment of many problems,” said Robert
Donahue, a managing director at Municipal Market Advisors, referring to a
long-sought liquidity report issued last week by the Puerto Rican government.
“Now the commonwealth has opened the curtain.”
Copper
Slumps to 44-Month Low on Concern China Demand Is Slowing - (www.bloomberg.com) Copper reached a 44-month low in London amid
concern demand is weakening in China, the biggest consumer of the metal.
Futures traded in Shanghai touched the lowest price since 2009. The metal
slumped this week after figures showed exports from China unexpectedly fell the
most since 2009 last month. The nation’s central bank will cut reserve ratios
for lenders next quarter amid increased downside risks to the economy, Nomura
said in a report. China’s industrial output slowed in February as retail sales
sped up, economists said before data tomorrow. “The markets were spooked by the
export data, and if retail sales and industrial production come in iffy, it
won’t look good,” said Rob Montefusco, a trader at Sucden Financial Ltd. in
London.
TOP STORIES:
The scary factors behind
copper's price plunge - (www.cnbc.com) Cascading copper prices have multiple root
causes that lead to one conclusion: The anticipated global economic recovery
may not be all it's cracked up to be. Consequently, analysts are in virtual
unison that the extended-term trajectory is lower for the metal often used as a
growth barometer. Copper futures are off more than 12 percent in 2014 and 7
percent over just the past three days, though they rose less than 1 percent in
Wednesday trading. A slowdown in the global economy, forced selling by Chinese
banks and technical factors have converged in multiple calls for more weakness
in a commodity known by traders and economists as "Dr. Copper" for
its ability to accurate make economic prognoses.
Herbalife says FTC opens
inquiry; shares slump - (www.cnbc.com) The Federal Trade Commission has opened a
formal investigation into Herbalife's operations
Wednesday, pushing shares of the nutrition and weight loss company sharply
lower. Shares of Herbalife plunged as much as 15 percent after being
temporarily halted but gradually recovered from lows. Shares were up more than
4 percent prior to the halt. A circuit breaker also briefly halted trading in
shares of rival Nu Skin due to volatility. Herbalife
said it will fully cooperate with the FTC, saying it "welcomes the inquiry
given the tremendous amount of misinformation in the marketplace." On
Wednesday, hedge fund manager Bill Ackman accused Herbalife of breaking
direct-selling laws in China, its fastest-growing market. Representatives of
the FTC declined to comment. Ackman and Pershing Square also declined to
comment.
Obama
wants to expand overtime pay - (money.cnn.com)
President Obama will ask the
Labor Department on Thursday to issue tougher rules on overtime, which could
lead to extra pay for millions of workers who aren't currently paid for extra
hours of work. The administration will point out that some convenience store
managers, fast food shift supervisors and office workers may be expected to
work 50 or 60 hours a week without overtime, and that their hourly pay rate may
actually be less than the $7.25 an hour minimum wage. Currently, most hourly
workers must be paid time-and-a-half if they work more than 40 hours a week.
Most salaried workers do not need to be paid overtime, unless they earn less
than $455 a week. But that works out to $23,660 a year, which is less than the
federal poverty level for a family of four. The $455 threshold for overtime
hasn't been raised in 10 years, since President Bush upped it from $250 a week.
It would be $553 today if it had gone up in line with inflation.
Fannie
Mae, Freddie Mac Shares Fall on Wind-Down Measure - (www.bloomberg.com) Leaders of the U.S. Senate Banking Committee
announced long-awaited plans to dismantle Fannie Mae and Freddie Mac, pushing
the companies’ common shares to their biggest intraday drop in 10 months. Fannie
Mae shares tumbled as much as 44 percent, paring the losses to 31 percent to
close in New York at $4.03, after Edwin Groshans, a managing director at
Washington-based equity research firm Height Analytics LLC, described the
proposal as holder-negative. Freddie Mac fell 27 percent to close at $4.04.
Preferred shares also dropped, some by as much as 12 percent. The bipartisan
measure, drafted with input from President Barack
Obama’s administration, would replace the U.S.-owned mortgage
financiers with government bond insurance that would kick in only after private
capital suffered losses of at least 10 percent, Senate Banking Committee
Chairman Tim Johnson and Senator Mike Crapo said in a statement yesterday. The
bill would require most borrowers to make down payments of at least 5 percent.
Iron
Ore’s Bear Market Deepens on Demand Concern in China - (www.bloomberg.com) Iron ore extended
its decline into a bear market on concern that demand in Chinamay slow as credit tightens in the largest
buyer, exacerbating the impact of rising global supplies that are seen spurring
a surplus. Ore with 62 percent content delivered to Tianjin fell 8.3 percent to
$104.70 a dry ton, the lowest since October 2012 and the biggest drop in more
than four years, according to data from The Steel Index Ltd. yesterday. The
benchmark price lost 27 percent since Aug. 14, when it reached a five-month
high of $142.80. The raw material dropped into a bear market on March 7. BHP Billiton Ltd. (BHP) and Rio Tinto Group predict lower prices this year
after producers spent billions of dollars to expand output. Banks from
Citigroup Inc. toStandard
Chartered Plc
predict a surplus, and Goldman Sachs Group Inc. listed iron ore among its
least-preferred commodities for 2014. Credit concerns in China may have helped
to amplify volatility in prices, according to Jimmy Wilson, BHP’s head of iron
ore.
Staples
to shut 225 stores in North America as sales fall - (www.reuters.com) Staples Inc.
said it would close up to 225 stores in the United States and Canada - 12
percent of its North America outlets - and forecast another quarter of sales
decline as it loses customers to mass market chains and e-retailers. Shares of
the largest U.S. office supplies retailer fell as much as 17 percent after the
company also reported weaker-than-expected fourth-quarter results and forecast
a profit for the current quarter that fell far below analysts' estimates. Staples has
1,846 stores in the United States and Canada. "Our customers are using
less office supplies, they're shopping less often in our stores and more
online, and their focus on value has made the marketplace even more
competitive," Chief Executive Ronald Sargent said on a post-earnings call.
Staples said it had initiated a multi-year cost reduction plan that was
expected to generate annualized pretax cost savings of about $500 million by
2015.
Copper
Prices Hit Four-Year Low on China Fears - (online.wsj.com) Copper
prices fell to their lowest level in nearly four years Tuesday, amid continued
worries that a slowdown in China—the world's biggest buyer—will damp demand for
the industrial metal. The most actively traded contract, copper for May
delivery, was recently as low as $2.9420 a pound on the Comex division of the
New York Mercantile Exchange, losing nearly 2.5% to hit its lowest level since
July 2010. Copper futures have been on shaky ground, as investors fear that
China's economy will cool off as the government shifts its focus to longer-term
growth. China accounts for 40% of the world's copper imports. "Investors
are beaten down and they don't know what China's plans are," said Ira
Epstein of the Linn Group. "The mentality is to watch and wait and see
what happens next." Losses in copper have ramped up in recent days, after
China's first corporate debt default intensified concerns about the country's
banking system.
Top
German body calls for QE blitz to avert deflation trap in Europe - (www.telegraph.co.uk) A
leading German institute has called for full-blown quantitative easing by the
European Central Bank (ECB) to head off a deflation spiral, marking a radical
shift in thinking among the German policy elites. Marcel Fratzscher, head of
the German Institute for Economic Research (DIW) in Berlin, demanded €60bn
(£50bn) of bond purchases each month to halt the contraction of credit and
avert a Japanese-style trap. "It is high time for the ECB to act.
Otherwise Europe risks falling into a dangerous downward spiral of sliding
prices and declining demand", he wrote in Die Welt. "The ECB must
counter the deflation threat quickly and decisively, and launch a broad-based
programme of bond purchase along the lines of the Federal Reserve," he
said. The scale should be 0.7pc of eurozone state debt each month, comparable
to 'QE3' in the US.
Fed’s Aid in 2008 Crisis Stretched Worldwide - (www.nytimes.com) Tuesday
morning, Sept. 16, 2008, was perhaps the darkest time for the United States
economy in modern memory — even if nobody knew it quite yet. It was barely 24
hours removed from the bankruptcy of Lehman Brothers, and a few hours before
the government would rescue the insurer American International Group. Events had been set in motion that would
drive the unemployment rate to double digits and cause half a decade of
economic misery. But before they would confront any of that, the men and women
of the Federal
Reserve received
an urgent briefing on Norway. A few minutes into the meeting of the Fed’s policy
committee,
according to newly released transcripts, William C. Dudley, then the head of
the markets desk at the New York Fed, brought dangerous tidings from across the
Atlantic. “I have just sketchy details based on a phone call,” Mr. Dudley said.
“But my understanding is that this morning Norway put in place a facility by
which they are going to offer their banks dollars, up to $5 billion,” adding
that “the fact that Norway is doing this suggests that the situation has
broadened quite a bit further.”
Banks
Enriched by Junk Resist U.S. Regulator Standards - (www.bloomberg.com) More
than five months ago, the Federal Reserve and Office of the Comptroller of the
Currency told some of the biggest banks to improve underwriting standards for
non-investment-grade loans. The market is showing few signs of tightening as
lenders chase lucrative fees. Banks are arranging junk-rated deals that leave
companies with debt levels exceeding guidelines set by regulators. Among them:
the $1.7 billion of loans led by UBS AG and Deutsche Bank AGlast
month to finance KKR & Co.’s
purchase of a majority stake in Sedgwick Claims Management Services Inc., and
the $700 million loan Credit Suisse Group AG arranged in January for Applied Systems Inc., a maker of software for insurance companies.
NYC
Property Tax Change Seen Yielding $4 Billion Windfall - (www.bloomberg.com) Mayor Bill de Blasio’s vision of
raising income taxes to pay for pre-kindergarten and after-school programs
would generate $530 million a year. By revamping property taxes -- and taking
on some of New York’s
richest residents -- he could get eight times as much. De Blasio, a
self-described progressive Democrat, was elected on a promise to reduce income
inequality in
a city where the richest 1 percent took home almost 40 percent of all earnings
in 2012. New York’s property-tax structure does little to reduce that divide
and may even widen it.
Disney's
Magic Kingdom Nears $100 Tickets, and the Crowds Keep Coming - (www.businessweek.com) Walt
Disney (DIS) is
prying parental wallets open a little wider for that vacation visit to the
theme park. The Empire of the Mouse is now charging $99 for a one-day park pass
at its Magic Kingdom Park near Orlando, an increase of $4 that comes just eight
months after the last price hike. Behind the steadily rising ticket prices is
the small world of supply and demand. People keep flooding Disney’s U.S. theme
parks, notwithstanding steeper costs. The company reported a 16 percent
increase in operating income, to $671 million, for the most recent quarter
at its theme park division as sales rose 6 percent, to $3.6 billion. In
Disney’s last fiscal year, theme park income rose 17 percent, to $2.2 billion.
The company does not disclose attendance data.
‘Warren
Buffett Indicator’ Signals Collapse in Stock Market - (www.moneynews.com) It
is only a matter of time before the stock market plunges by 50% or more,
according to several reputable experts. “We have no right to be surprised by a
severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund
manager who is notorious for his hugely profitable billion-dollar bet on the
2008 crisis. “In fact, we must absolutely expect it." Unfortunately Spitznagel isn’t alone. “We are
in a gigantic financial asset bubble,” warns Swiss adviser and fund manager
Marc Faber. “It could burst any day.” Faber doesn’t hesitate to put the
blame squarely on President Obama’s big government policies and the Federal
Reserve’s risky low-rate policies, which, he says, “penalize the income
earners, the savers who save, your parents — why should your parents be forced
to speculate in stocks and in real estate and everything under the sun?” Billion-dollar
investor Warren Buffett is rumored to be preparing for a crash as well. The
“Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,”
is breaching sell-alert status and a collapse may happen at any moment.
TOP STORIES:
China’s
credit reckoning draws closer - (www.marketwatch.com) Friday saw China’s first-ever onshore corporate default on a 1
billion yuan ($163 million) bond, which was followed by the weekend release of an unexpected trade deficit in
February — the first since April 2013. Both these events point to risks the
market will enforce tighter monetary conditions going forward. The failure of
Chinese solar-equipment maker Shanghai Chaori Solar Energy to make a deadline
on interest payments last Friday came after it warned it was struggling to
raise funds. The significance of this default is that it ends the belief
Chinese corporate debt came with a de-facto government guarantee. The
glass-half-full view is that this will be a positive development, as it helps
to inject risk and proper pricing into a $1.5 trillion domestic bond market.
The less sanguine take is that introducing market pricing at this stage in
China’s cycle comes a bit late to instill real discipline. Instead, prepare for
an ugly unraveling, as the removal of the ‘Beijing put’ opens the floodgates on
credit defaults.
Is
Con-Edison Igniting A New Housing Crisis In New York? - (www.mfi-miami.com) “It’s clear that now is not the time for Con
Edison to demand that its customers pay more,” -New York Governor Andrew
Cuomo. As people in the New York metropolitan area began breathing a sigh of
relief from brutal winter that has plagued most of the U.S. for the past five
months, they were thrown into shock when they opened their Con-Ed bills this
week to find that their bill increased by 200-300%. From the Hudson Valley to
Long Island, people were talking about the increase of their Con-Ed bills.
Homeowners were streaming into MFI-Miami’s New York office scared of what would
happen if they paid their Con-Ed bills over their mortgage payment. Many New
York homeowners saw their bills double from $300 to over $650. Wives and single
mothers in mortgage modifications fear they will be homeless because they can’t
afford to pay both. One restaurant owner in Warwick, New York, almost collapsed
when he opened his bill which had jumped from $1500 to $2500.
Stock
caution urged as margin debt levels hit new highs – (www.marketwatch.com) A number of warning signals are flashing in the
stock market, and while not indicative of an imminent crash, they’re telling
investors to exercise caution, say market strategists. Stocks finished higher
last week, ending on a choppy Friday highlighted by the release of a
better-than-expected job report. The Dow Jones Industrial Average advanced
0.8%, the S&P 500 Index rose 1% to close at another record high of 1,878.04, and the Nasdaq Composite Index finished
up 0.7% for the week. All except the Dow are higher for the year, which is
still down 0.8% in 2014. The gains haven’t come without a share of fretting
that the good times can’t last. Among the warnings signs: The indexes’ string
of record highs; high levels of margin debt, or borrowings to finance stock
buys; the slim number of prior bull markets that have lasted past this point;
and valuations that are close to levels when stocks last peaked. Margin debt,
which tends to spike alongside stock rallies and pullbacks, has been rattling investors for months. “As that
debt goes up, the market’s foundation gets shakier and shakier,” said Brad
McMillan, chief investment officer for Commonwealth Financial. “The correction
could be deeper.”
CREDIT
SUISSE: 'We've Just Lost A Quarter' - (www.businessinsider.com) Economically speaking, 2014 hasn’t gone exactly
as expected, particularly in the United States. At the end of 2013, the
prevailing wisdom was that the U.S. economy would finally break out of its
post-recession holding pattern and start to grow in earnest. The euro crisis
had stabilized, removing a key source of global risk, and a Congressional
budget deal struck in December reduced federal spending cuts made earlier in
2013. An important labor market indicator was flashing green, too: The
unemployment rate had fallen from 7.9 percent at the end of 2012 to just 6.7
percent in December. But the once-upbeat narrative had a few plot twists in
store.
Pizza
chain Sbarro files for bankruptcy protection - (www.reuters.com) Pizza chain Sbarro LLC has filed for bankruptcy
protection for the second time in three years after struggling with too much
debt and fewer customers in malls that house many of its restaurants. Lenders
would take control of the Melville, New York-based company under a
"pre-packaged" Chapter 11 reorganization, which Sbarro on Monday said
could allow it to made a "quick exit" from bankruptcy before May 7. Sbarro
expects to cut its debt load by more than 80 percent, and said nearly all its
lenders support its restructuring, which requires court approval. The company
will invite other buyers to submit better offers. Founded in 1956, Sbarro had
tried to boost sales by revamping its recipes to entice diners who increasingly
favor "fast casual" chains such as Chipotle and Panera Bread.
Kerry
Makes Push to Ease Ukraine Tension in Lavrov Talks - (www.bloomberg.com)
