George Soros Tells Germany It Should Leave Euro Zone...

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 As the backlash against austerity and bailouts increases in the euro zone, billionaire investor George Soros is the latest person to criticize Germany's role, telling the country on Tuesday that austerity "does not work" and that it should even consider leaving the euro itself.

"The financial problem is that Germany is imposing the wrong policies on the euro zone. Austerity doesn't work. You can't shrink the debt burden by shrinking the budget deficit," Soros, the founder and chairman of Soros Fund Management,said during a speech in Germany's financial center of Frankfurt on Tuesday.

Soros, who is known as "the man who broke the Bank of England" for betting against the pound in the early 1990s, told Europe's paymaster and largest economy that it had made mistakes on Cyprus' 10 billion euro ($13.07 billion) bailout, which forced some savers to share in the cost.

"In the bailout of Cyprus, Germany went too far, what happened in Cyprus undermined the business model of the European banks which relies heavily on deposits," he said.


 In a lecture entitled "How to save the European Union from the euro crisis," Soros said that he was attributing "a large share of the responsibility [for the crisis] to Germany."

"I want to make it clear in advance that I am not blaming Germany. Whoever was in charge would have made similar mistakes…I realize that I risk antagonizing you by putting the responsibility on Germany. But only Germany can put things right," he added.

He said that Germany should either drop its opposition to "Eurobonds" – the mutualization of European debt – or should leave the euro.

"My first preference is eurobonds; my second is Germany leaving the euro…It is up to Germany to decide whether it is willing to authorize eurobonds or not. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing Eurobonds," he said.
"In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting others introduce them," he said, adding that another dimension to the crisis was Germany's unwillingness to take responsibility for its policies.

"Germany did not seek the dominant position into which it has been thrust and it is unwilling to accept the obligations and liabilities that go with it. Germany understandably doesn't want to be the "deep pocket" for the euro. So it extends just enough support to avoid default but nothing more," he added.
Soros' comments come against a backdrop of anti-austerity feelings in Europe as Portugal's constitutional court rejected reform measures and Slovenia becomes the latest country to resist pressure to request a bailout.

(Read More: Portugal Fires Warning Shot for Austerity in Europe)
His comments also follow criticism of austerity from the U.S. Treasury Secretary Jack Lew. During his visit to Europe this week, Lew called on his European counterparts to strike a balance between growth and austerity and to boost demand.

Lew met French and German finance ministers on Tuesday and his pro-growth message may have struck a chord in France, which is grappling with slow growth and high unemployment. Germany, however, has the biggest trade surplus in the euro zone and is the driving force behind austerity measures.

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News Source: www.cnbc.com

North Korea warns foreigners to leave South Korea...

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North Korea intensified threats of an imminent conflict against the United States and the South on Tuesday, warning foreigners to evacuate South Korea to avoid being dragged into a "merciless, sacred, retaliatory war".

The North's latest antagonistic message belied an atmosphere free of anxiety in the South Korean capital, where the city center was bustling with traffic and offices operated normally.

Pyongyang has shown no sign of preparing its 1.2 million-strong army for war, indicating the threat could be partly intended to bolster Kim Jong-un, 30, the third in his family to lead the reclusive country.

None of the embassies in Seoul appeared to have issued any directives to their nationals after the warning and airlines reported no changes in their schedules. Schools catering to foreign pupils worked without interruption.

The warning, read out on North Korea's state television in a bulletin that interrupted normal programming, was the latest threat in weeks of high tension following U.N. sanctions slapped on Pyongyang for its latest nuclear arms test.

It followed the North's suspension of activity at the Kaesong joint industrial just inside North Korea, all but closing down the last remnant of cooperation between the neighbors. North Korean workers failed to turn up on Tuesday.

North Korea had said South Korea was trying to turn the Kaesong complex into a "hotbed of war".
The warning to foreigners, reported by the KCNA news agency said once war broke out "it will be an all-out war, a merciless, sacred, retaliatory war to be waged by (North Korea).
"It does not want to see foreigners in South Korea fall victim to the war," the agency quoted the Korea Asia-Pacific Peace Committee as saying.

"The committee informs all foreign institutions and enterprises and foreigners, including tourists...that they are requested to take measures for shelter and evacuation in advance for their safety."
Last week, North Korean authorities advised embassies in Pyongyang to consider pulling out in case of war, though none appeared to have taken any such action.

SPECULATION OVER MISSILE LAUNCH, NUCLEAR TEST

Speculation has grown that the North would launch some sort of provocative action this week -- perhaps a missile launch or a fresh nuclear weapons test.
A government source in Seoul said a North Korean medium-range missile, reported to have been shunted to the east coast, had been tracked and was believed to be ready for launch.
"Technically, they can launch it as early as tomorrow," the source said.

But a U.S. embassy official in Seoul said a directive issued last week saying there was no imminent threat to Americans in South Korea remained valid. "Our workers are in all our offices today," he said. "We have not evacuated anyone."

A Philippine foreign ministry spokesman quoted diplomats at its Seoul embassy as saying the situation "remains normal and calm".

Stocks, which had fallen 4 percent over the past four days, edged higher on Tuesday despite the warning to foreigners. The won currency moved little, dipping slightly after the North Korean statement.

Employers at the Kaesong complex faced uncertainty as the 53,000-strong North Korean workforce stayed away. A spokesman for textile company Taekwang Industrial and at least two other firms said production had stopped.

About 475 South Korean workers and factory managers remain in Kaesong, which generates $2 billion in trade for the impoverished North. The Seoul government said 77 would return on Tuesday.
North Korean workers at the park have appeared increasingly agitated in recent days, refusing to talk to their colleagues.

Many Southerners connected with the park bedded down at budget hotels in a nearby South Korean town in the hope that an order would come from the North to re-open.
"I have been feeling anxious now and then. Now it's really preposterous facing this," said Shing Dong-chul, 55, a South Korean worker who transports wire made in Kaesong.

"North Korean workers didn't talk a lot, but they appeared to have complaints about Kaesong being closed. They worried whether they would be working or not."Addressing a cabinet meeting, South Korean President Park Geun-hye described the suspension of Kaesong as "very disappointing" and said investors would now shun the North.

Few experts had expected Pyongyang to jeopardize Kaesong, which employs more than 50,000 North Koreans making household goods for 123 South Korean firms.

LAST VESTIGE

The zone is practically the last vestige of the "Sunshine Policy" of rapprochement between the two Koreas and a powerful symbol that the divided country could one day reunify.
South Korean companies are estimated to have invested around $500 million in the park since 2004.
World leaders have expressed alarm at the crisis and the prospect of a conflict involving a country claiming to be developing nuclear weapons.

China, the North's sole diplomatic and financial ally, issued a new call for calm and restraint, though Beijing's leaders have shown increasing impatience with Pyongyang.

"We ask all the relevant sides to bear in mind regional peace and stability and earnestly protect the legal rights and safety of citizens," Chinese Foreign Ministry spokesman Hong Lei told a briefing.
A Russian foreign ministry spokesman, in a statement on the ministry's website, said Moscow was in solidarity with all G8 industrialized countries "as regards the rejection of Pyongyang's current provocative and bellicose line of conduct".

The North is also angry at weeks of joint U.S.-South Korean military exercises off the coast of the peninsula, with B-2 stealth bombers dispatched from their U.S. bases.But the United States announced the postponement last weekend of a long-planned missile launch, a move officials said was aimed at easing tensions on the peninsula.

U.S. Secretary of State John Kerry visits Seoul this week and the North holds celebrations, and possibly military demonstrations, next Monday to mark the birth date of its founder, Kim Il-Sung - the current leader's grandfather.

In Washington, U.S. Deputy Defense Secretary Ashton Carter urged China to use its influence with the North and said Moscow wanted similar action from Beijing.But Chinese criticism of North Korea is unlikely to mean tough new action against Pyongyang because China would see any collapse of its troublesome neighbor as a disaster.

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News Source: www.marketwatch.com

Stocks Earnings are 1st big stock test since market high...

U.S. stocks, which reached all-time highs at the end of March, will face the first real test of their resiliency in the coming weeks as investors parse a flood of first-quarter earnings reports due to hit the market.

Since the benchmark Standard & Poor’s 500 Index reached a new closing high of 1,569.19 on the last trading day of the first quarter, the index SPX -0.01% has met resistance at that level, not straying past 1,573.66, a few points below the all-time intraday high of 1,576.09. On Friday, weak jobs data drove the index down to close at 1,553.28, marking its worst week of the year.

As a drumbeat of lowered analyst estimates and increasingly negative outlooks fills the air, investors who are planning on going long in the market should look past the initial negative hype and concentrate on what the company is making and how they are making it, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Upon further inspection of the earnings, initial pullbacks because of negative numbers can be exploited as buying opportunities.

After all, the fourth quarter saw all-time highs in capital expenditure spending, and 2012 saw all-time highs in corporate cash, dividends, and cash flow, Silverblatt said, who expects those metrics to grow going forward, or at worst be flat.

He said it was noteworthy that most of these strong corporate metrics came during a time when the average investor and consumer was being assaulted daily not only with the uncertainty of the November elections, but also with budget showdowns and the specter of the so-called fiscal cliff.

“The consumer is still spending mostly because they’re tired of hearing how the world is coming to an end,” Silverblatt said. Barring another big flare-up in fighting in Washington, D.C., or on the Korean peninsula for that matter, consumer spending should continue and provide wide support for earnings, he said.

On Friday, the Federal Reserve said February consumer credit jumped the most in six months, rising $18.1 billion, with credit card debt increasing by less than 1% to $532 million.

How that played out in the rest of the first quarter will become more evident toward the end of April and into May when consumer staples and consumer discretionary company earnings start coming out in full force.    

McDonalds Corp. MCD -0.36% , Coca-Cola Co. KO +0.77% , and PepsiCo Inc. PEP +0.66% report the week beginning April 15. While classified as a tech company, the consumer is the life blood of Apple Inc. AAPL +0.19% , which reports during the week beginning April 22, along with other consumer bellwethers like Procter & Gamble Co. PG +0.41% and Amazon.com Inc. AMZN +0.34% . After that, major retailers including Wal-Mart Stores Inc. WMT +0.77% , Target Corp. TGT +0.23% , and Home Depot Inc. HD +0.84% come out in mid-to-late May.

The current bottom-up, operating earnings per share estimate for the S&P 500 is $25.45, according to Silverblatt. That’s two cents above the all-time high of $25.43 set in the second quarter last year, and a 5% increase from the year-ago quarter, so even if it falls a few cents short, it’s the second-highest earnings on record, he said.  

While it may be one of the most negatively forecast earnings seasons in a while, some analysts say the consensus is still too high. Consensus earnings estimates have already fallen 6.5% over the first quarter alone, according to Silverblatt’s data.

Alcoa may be traditional first, but banks are bigger

Even though Alcoa Inc. AA +0.06% is scheduled to report results after the bell Monday and kick off the unofficial start of earnings season, the biggest earnings of the week by far will be in the banking sector with both J.P. Morgan Chase & Co. JPM +0.09% and Wells Fargo & Co. WFC -1.24% reporting on Friday.

Expect fundamentals, such as loan growth and margins to remain challenges for the sector, said Paul Miller at FBR in a recent note. The analyst said that business loan growth slowed dramatically in the first quarter. Also, mortgage originations may fall short of expectations because of seasonal weakness, something to think about with Wells Fargo, the largest U.S. originator or mortgages.

On the other hand, Miller expects capital markets to do well with strong equity and debt underwriting to boost results. Expect that to be a big factor in the results of J.P. Morgan, which has fought with Goldman Sachs Group Inc. GS -1.16% recently for dominance in the capital markets sector.

But unless a significant number of companies beat bottom-line results, it doesn’t appear that earnings growth is in the cards this season. The high frequency of negative outlooks has John Butters, senior earnings analyst at FactSet, expecting a 0.6% decline in earnings for the first quarter.

In the run-up to earnings season, 86 out of the 110 companies on the S&P 500 that have offered an outlook have issued one that falls below the Wall Street consensus. That 78% negative outlook from companies giving forecasts is well above the five-year average of 61%, Butters said in a recent note.

Other S&P 500 components scheduled to report in the coming week all happen on Wednesday and include Bed Bath & Beyond Inc. BBBY +1.14% , CarMax Inc. KMX +2.37% , Constellation Brands Inc. STZ +1.63% , Family Dollar Stores Inc. FDO -0.77% , and Fastenal Co.

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News Source: www.marketwatch.com

Gold Slightly Lower as Market Place Awaits FOMC Results

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Gold prices are slightly lower in early U.S. trading Wednesday, on some mild profit taking and a corrective pullback from current gains that pushed prices to a three-week high on Tuesday. The entire market place is on hold, awaiting the results of Wednesday’s U.S. FOMC meeting. April Comex gold last traded down $3.30 at $1,608.00 an ounce. Spot gold was last quoted down $3.80 at $1,609.50.  May Comex silver last traded up $0.042 at $28.885 an ounce.

Attention of the market place at mid-week has turned to the Federal Open Market Committee monetary policy meeting of the U.S. Federal Reserve, which started Tuesday and ends Wednesday at midday. Fed Chairman Ben Bernanke will hold a press conference following the meeting’s conclusion Wednesday afternoon. Better U.S. economic data released recently has the commodity market bulls worried the Fed could start to tap the brakes on its very accommodative monetary policies of the past few years. The markets could see immediate and significant price reactions to the conclusion of the FOMC confab, if recent history repeats itself.

The controversial European Union/International Monetary Fund bailout package for Cyprus unveiled over the weekend that included taxing savings accounts in domestic banks is still on the front burner of the market place at mid-week. However, from a markets perspective the situation has de-escalated since Monday morning.  European stocks were higher and the Euro currency was firmer overnight. The Cypriot finance minister reportedly had “constructive” talks with his Russian counterpart on Wednesday. Late Tuesday the Cyprus parliament voted down the EU/IMF bailout measure that included the controversial savings account tax. The market place was also somewhat assuaged by the European Central Bank announcing late Tuesday that it would provide liquidity, “within the rules,” to the Cyprus financial system. Still, Cyprus banks remained closed this week amid the confusion. An auction of German 10-year bunds Wednesday produced the lowest yield since last July, which underscores the keener risk aversion in the market place this week.

The U.S. dollar index is trading near weaker early Wednesday, on a corrective pullback and some profit taking from recent gains that saw prices Tuesday hit a fresh 7.5-month high. The U.S. dollar bulls continue to hold the overall technical advantage. Meantime, Nymex crude oil futures prices are higher Wednesday. The crude oil bulls have the slight near-term technical advantage at present. These two key “outside markets” will continue to have a significant daily influence on gold and silver prices.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, the weekly DOE energy stocks report, and the FOMC statement.

The London A.M. gold fixing is $1,611.50 versus the previous London P.M. fixing of $1,610.75.

Technically, gold futures bulls have gained some fresh upside near-term technical momentum recently to begin to suggest a near-term market bottom is in place. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,619.70. Bears' next near-term downside breakout price objective is closing prices below solid technical support at $1,575.00. First resistance is seen at Tuesday’s high of $1,615.00 and then at $1,619.70. First support is seen at $1,600.00 and then at this week’s low of $1,589.60.

May silver futures bears have the overall near-term technical advantage, but prices have also been trading sideways and choppy for nearly four weeks as the bulls have stabilized the market. This price action could be “basing” at lower price levels that can put in market bottoms and eventually kicks off price uptrends. Bulls’ next upside price breakout objective is closing prices above solid technical resistance at $29.495 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at $27.925. First resistance is seen at this week’s high of $29.11 and then at last week’s high of $29.35. Next support is seen at last week’s low of $28.53 and then at the February low of $28.315.

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5 - 10% Stock Market Correction is Coming (Between March and June 2013

Created by Stock Analysis Desk (New York) on 3/11/2013 9:25 PM

As of last week Friday, The DJIA continued to breach new highs while the Nasdaq and S&P 500 continued their upward trend as they inched ever closer to their highest levels ever. The longest winning streak since 2004 has taken U.S. markets to uncharted territory.

“We're certainly off to a great start in 2013”, said Jack Ablin, chief investment officer at BMO Private Bank. "But we may have gotten a little ahead of ourselves."

There are many factors contributing to this run up in stock prices. The biggest factor being Ben Bernanke and the Federal Reserve Board (FRB). The various quantitative easing (QE), especially the most recent QE “Infinity”, have in combination enabled a continual increase in asset (stock) prices. Improvements in hiring by employers (stronger-than-expected nonfarm jobs number) and other expanding economic indicators have also contributed to this long-run rally.

However, as a follow up to our previous “stock correction is coming” article, we would like to reiterate our 2013 stock market correction call and caution investors that a stock market correction is coming in the next 1 to 3 months (between March and June of 2013).

Major Indexes Surge Past their One Year Peak

As seen on the chart below, all three major indexes have surged above their One Year Peak line. In the past one year (in March and again in September), whenever stocks have climbed above this horizontal line, they have been met with a stock market correction, averaging 5-10%.  

March 2012                                             to                                                     March 2013

 

 Stocks in Overbought Territory

In January 2013, investors scrambled to accumulate stocks after Washington reached a Fiscal Cliff deal. As reported by CNN Money: “The rally, which pushed stocks near all-time highs, coincided with record inflows into stock-based mutual funds, as individual investors regained some appetite for risk after shunning stocks for years. But the bullish tone has already started to fade.”

Bespoke Investment Group reports that a majority of stocks in the S&P are strongly in overbought territory with “90% of the stocks currently trading above their 50-day moving averages”. The highest reading they’ve seen over the last year.

The picture we are beginning to see is one in which investors are throwing caution to the wind and jumping in as those who felt they’ve missed the boat are beginning to chase the market higher. As stated by Art Hogan of Lazard Capital Markets, "If you look at sentiment coming out the week, you have much more of a shift, whether it's kicking or screaming or capitulation. The 'wait for a pullback buyer' has turned into 'the train is leaving the station buyer.'"

S&P 500 (^VIX): Extreme Market Complacency

The VIX index currently trades around $12.59, its lowest level since 2007. The VIX, which is considered the investing fear gauge, rises when stocks are on a decline and falls when stocks are rising. Levels below 13 normally signify extreme market complacency and they are a well-tested indication that the market may be reaching a short term peak.

 

 CNBC recently reported that the run up in the stock market will result in either a 20 percent correction or a more severe sell off at some point this year. Marc Faber, Managing Director of Marc Faber Ltd., sees two possible scenarios: “either a 20% correction and then a move higher, or a scenario that is similar to 1987 or 2000 when stocks rose strongly early in the year only to drop sharply.”

Thomas Lee, chief U.S. equity strategist at JPMorgan, commented that he sees a worst-case scenario for stocks. He argued that various factors could come in to trip up this rally: “it would be that we've got a bigger hit to consumer spending than expected or there's some adverse developments in Europe; or China doesn't sort of stabilize. I think that would set us up for a larger correction."

Bottom Line

Accommodative monetary policy will underpin the market for some time to come, but a correction between 5% and 10% is a very real risk over the coming one to three months.

A 5-10% market correction, however, may be a healthy adjustment that keeps stocks from becoming inflated and reaching bubble status, which could in turn trigger a much bigger crash.

In fact, as reported by US News, “Bank of America and many other market watchers think any dips over the next few weeks could be a terrific buying opportunity. The economy will get back on track sooner or later, it may just have a few more detours to make before that happens.”

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News Source: www.reuters.com