ABRAHAM GULKOWITZ

abe@gulkowitz.com
917-402-9039
2014 issue 10 May 29, 2014
All that cheap money
US stocks continue to breach record levels while highly rated government bond yields slide - - all with the prospect of continued support fromthe world’s
central banks. Indeed, expectations that the European Central Bank would unveil a package of supportive policy measures when it meets next week were
bolstered by the release of select weak eurozone stats. It must be noted that all this cheap money is finding its way into various asset classes, most notably
equities and debt products. Hence, record levels for Wall Street alongside historically lowsovereign bond yields. This wild euphoria is supported somewhat
by signs of an improving economic environment, notably in the US, but remains way ahead of market fundamentals. U.S. government bonds are heading for
a fifth monthly gain, the longest since 2006, as growth --- but not rapid growth --- underlined an appetite for long-termdebt of all stripes. The newranking of
global competitiveness has just been released and underscores some of the key themes in these pages. The US leads, Europe struggles to recover, and
big emerging markets grapple with some newrealities. Given the ever tighter spreads and the relentless march of markets, some, including the European
Central Bank, have warned that investors' wild pursuit of higher returns could be creating newprice bubbles, sounding the alarmas financial markets chase
quick gains. In a strongly worded message they clearly underscored concerns that have been penned in these pages as well, There may be an ugly
downside to runaway market enthusiasm. The ECB cautioned that the dash for higher returns could suddenly unravel, sending the investor herd charging in
the opposite direction.
Could inflation be the big surprise in 2015-16?
Russia’s holdings of U.S. Treasury securities declined by 20%in March to
thelowest level sinceSeptember 2008as Russianbanks triedto avoidU.S.
sanctions and the country’s central bank sought to support the currency.
Russia’s holdings fell to $100.4 billion in March from$126.2 billion in
February, postingafifthstraight monthof decline. TheU.S. government has
frozen theassets of 45Russian individuals and 19 entities (mostly Russian
banks), inreactiontoRussia’sannexationof Ukraine’sCrimea.
Global Growth Worries Climb
Policy Makers in Europe, U.S. and China Grapple With What Steps to Take Next
Germanycontinuestoact asthebloc’slocomotive
on the back of increasing business orders across
all sectors, but slowingdemandhitsFrance
Thailand’s military has launched its 12th
coup of the modern era, plunging
southeast Asia’s second‐largest economy
into a fresh phase of its crisis and raising
the prospect of international sanctions.
Sales of U.S. new homes recovered in April after slumping
in the previous two months. But Americans are still buying
new homes at a slower pace than they did a year ago.
Gap between Canadian, US gas prices 
is biggest on record, report finds
The growing gap between Canadian and U.S.
gasoline prices is the biggest it's ever been on
record, according to a recent report from the
National Bankof Canada.
India: hopes of a big economic push
under the incoming Modi-led government.
India: Whatever you think of him, Narendra Modi’s victory is a global
event. Nobody knows whether Mr Modi will embrace the US-India
relationship or walk the multipolar walk. His swearing-in today as India’s
prime minister coincides with Vladimir Putin’s “pivot to Asia” with the 30-
year China-Russia gas deal. US President Barack Obama’s own pivot
looks increasingly content-free. If the US president is to retrieve the
geopolitical initiative, he will need to win over India’s new strongman.
India, as they say, is the “global swing state” of the 21st century. Mr
Obama must ensure it swings America’s way.
Air freight recovery stalls despite
continuing year-on-year growth
The PunchLine...
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May 29, 2014
In This Issue
Headlines and data appearing in The Punch Line came from widely available publications including
national and international newspapers, trade journals, economic and industrial bulletins and news websites.
• Engines of Growth
Easy money and the timing of the Fed’s policy shift continue to dominate
across the globe. Recovery is widely assumed for the next two years. But
deep-seated weaknesses have also become more evident. Very obvious
financial vulnerabilities, repercussions from various political stalemates and
serious geopolitical concerns are aggravating the problems of clearly
insufficient growth in the world economy. And let’s not forget that many of the
challenges cannot be resolved easily … (pg 9)
• The Return to Normal… (pg 10)
• You Can’t Handle the Truth… (pg 11)
• Credit… (pg 12)
• Pumping Iron … (pg 13)
• The DNA of Business… (pg 14)
• Real Estate and Construction… (pg 15)
• A New Geography of Business… (pg 16)
• Will Life Ever be the Same? (pg 17)
• Reality Check…
US stocks continue to breach record levels while highly rated government bond yields
slide - - all with the prospect of continued support fromthe world’s central banks. Indeed,
expectations that the European Central Bank would unveil a package of supportive policy
measures when it meets next week were bolstered by the release of select weak
eurozone stats. It must be noted that all this cheap money is finding its way into various
asset classes, most notably equities and debt products. Hence, record levels for Wall
Street alongside historically low sovereign bond yields. This wild euphoria is supported
somewhat by signs of an improving economic environment, notably in the US, but
remains way ahead of market fundamentals. U.S. government bonds are heading for a
fifth monthly gain, the longest since 2006, as growth --- but not rapid growth ---
underlined an appetite for long-term debt of all stripes. The new ranking of global
competitiveness has just been released and underscores some of the key themes in
these pages. The US leads, Europe struggles to recover, and big emerging markets
grapple with some newrealities. Given the ever tighter spreads and the relentless march
of markets, some, including the European Central Bank, have warned that investors' wild
pursuit of higher returns could be creating new price bubbles, sounding the alarm as
financial markets chase quick gains. In a strongly worded message they clearly
underscored concerns that have been penned in these pages as well, There may be an
ugly downside to runaway market enthusiasm. The ECB cautioned that the dash for
higher returns could suddenly unravel, sending the investor herd charging in the opposite
direction. (pg 1)
• In This Issue (pg 2)
• New World Ranking… (pg 3)
• Dislocation, Dislocation… (pg 4)
• Go Figure… (pg 5)
• Households… (pg 6)
• Briefly Noted… (pg 7)
• The Likelihood of Unlikely Events... (pg 8)
Contact information:
Abraham Gulkowitz
phone: 917-402-9039 email:   abe@gulkowitz.com
The PunchLine...
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May 29, 2014
New World Competitiveness Rankings
The World Competitiveness Scoreboard presents the 2014 overall rankings
for the 60 economies covered. The economies are ranked fromthe most to the
least competitive
 The competitiveness ranking is an annual survey compiled by the IMD
institute's World Competitiveness Center. For its 2014 ranking, it looked into
the economies of the world's 60 most industrialized countries. IMD has based
its ranking on over 300 criteria, of which about two-thirds are statistics and the
remaining third gathered fromopinion polls.
http://www.imd.org/wcc/news-wcy-ranking/?MRK_CMPG_SOURCE=wcc-
1514005&utm_source=DM&utm_medium=em&utm_campaign=WCC_14_DME_1514005
NewWorld Competitiveness Rankings – Select Country Records
Source: Institute of Management Development, Switzerland; Competitiveness of 59 economies, based on over 330 criteria
Country 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1990 1980
--------------------------------------------------------------------------------------------------------------------------------------
USA 1 1 2 1 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2
SWITZERLAND 2 2 3 5 4 4 4 6 8 8 14 9
Sweden 5 4 5 4 6 6 9 9 14 14 11 12 12 11 14 14 16 19 14 12 9 -- --
Canada 7 7 6 7 7 8 8 10 7 5 3 6 7 9 8 10 8 6 12 13 20 -- --
Australia 17 16 15 9 5 7 7 12 6 9 4 7 10 12 11 11 12 15 21 16 16 -- --
Germany 6 9 9 10 16 13 16 16 26 23 21 20 17 13 13 12 15 16 10 6 6 4 4
Taiwan 13 11 7 6 8 23 13 18 18 11 12 17 20 16 17 15 14 18 18 14 22 -- --
U.K. 16 18 18 20 22 21 21 20 21 22 22 19 16 17 15 19 13 9 19 15 14 -- --
France 27 28 29 29 24 28 25 28 35 30 30 23 25 25 22 23 22 22 20 19 13 -- --
Japan 21 24 27 26 27 17 22 24 17 21 23 25 27 23 21 26 20 17 4 4 3 1 1
Korea 26 22 22 22 23 27 31 29 38 29 35 37 29 29 29 41 36 30 27 26 -- -- --
China 23 21 23 19 18 20 17 15 19 31 24 29 28 26 24 29 21 27 26 31 34 -- --
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
IMD ANALYSIS:
The overall competitiveness story for 2014 is one of continued success in the US,
partial recovery in Europe, and struggles for some large emerging markets
Most big emerging markets slide in the rankings as economic growth and foreign
investment slow and infrastructure remains inadequate. China (23) falls, partly owing
to concerns about its business environment, while India (44) and Brazil (54) suffer
from inefficient labor markets and ineffective business management. Turkey (40),
Mexico (41), the Philippines (42) and Peru (50) also fall.
The world's biggest economy regained the top sport due to the recovery in its
financial sector, more technological innovations and and a wide range of
successful companies.
Germany was ranked in ninth place, alongside Switzerland and Sweden one of
just three European countries which made it into the top 10.
Note that in the early years of the rankings, China
and Russia were not even considered.
The US leads, Europe recovers, and big emerging markets struggle
The PunchLine...
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May 29, 2014
Dislocation, Dislocation, Dislocation
U.S. Homebuilder Confidence
Unexpectedly Drops In May
Homebuilder confidence in the U.S. unexpectedly
deteriorated in the month of May, the National
Associationof HomeBuildersrevealedinareport on
Thursday, with the homebuilder confidence index
dropping to its lowest level in a year. The report
showedthat theNAHB/WellsFargoHousingMarket
Index edgeddownto45inMay fromarevised46in
April. The drop surprised economists, who had
expected theindex to climb to areading of 49 from
the47originallyreportedfor thepreviousmonth.
If US yields had risen this year as expected,
and the dollar strengthened, eurozone
inflationmight behigher andtheECB under
lesspressuretoact
April Existing-Home Sales Showed Only
Modest Improvement Behind Rising Inventories
Total existing-home sales, which are completed transactions
that includesingle-familyhomes, townhomes, condominiums
and co-ops, rose 1.3 percent to a seasonally adjusted annual
rateof 4.65millioninApril from4.59millioninMarch, but
are 6.8 percent below the 4.99 million-unit level in April
2013. Total housinginventory at theendof April jumped
16.8percent to2.29millionexistinghomesavailablefor sale,
whichrepresentsa5.9-monthsupplyat thecurrent salespace,
upfrom5.1monthsinMarch. Unsoldinventoryis6.5percent
higher thanayear ago, whentherewasa5.2-monthsupply.
The PunchLine...
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May 29, 2014
Go Figure… Select Considerations
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May 29, 2014
Households – Brave New World
Prices for meats, poultry, fish, and eggs showed a notable 1.5 percent
increase in April and are now up by 3.9 percent over the last three
months. A reboundinenergypricesalsocontributedtohigher consumer
prices, withenergy pricesrisingby 0.3percent inApril after dippingby
0.1percent inMarch. Gasolinepricessurgedupby 2.3percent inApril
after falling for three straight months. Prices for natural gas showed a
moremodest 0.3percent increase.
U.S. CPI Core services prices were up 0.3% (2.6% y/y) for a second consecutive
month. Shelter costs (32% of the CPI) increased 0.2% (2.8% y/y), reflecting a
similar pattern in owners equivalent rent of primary residences (+2.6% y/y).
Medical care services prices were up 0.3% (2.7% y/y). Physicians' services firmed
to a 0.3% rise in April (+1.4% y/y) from 0.2% in March, while hospital charges
slowed to a 0.5% rise (6.1% y/y) from 0.8% in March. Transportation services,
including public transportation and personal vehicle maintenance and insurance
charges, saw a 0.7% price rise (+2.3% y/y), impacted by a 2.6% advance in airline
fares; those had been weak, however, and their year‐to‐year change is ‐0.2%.
Walmart’s sales andprofits fell short of market expectations inits first
quarter under new chief executive Doug McMillon, as the world’s
biggest retailer blamed theeffects of severewinter weather intheUS.
Despite assumptions that bad weather is good for online shopping, as
consumersopt tobuyfromthecomfort of their homes, Walmart saidits
own fast-growing ecommerce operation did not see an increase in
business on stormy days. In the quarter to the end of April,
Walmart’s US like-for-likesales – akey measureof its performance–
fell 0.1per cent fromayear ago, thefifthconsecutivequarter inwhich
theyhavedeclined.
NOWWHAT?
US Home Prices had moved too quickly
The median price for a new home fell 2.1% to $275,800 (‐1.3%
y/y) from a downwardly‐revised $281,700. The average price of
a new home declined 2.0% (‐5.0% y/y) to $320,100, the lowest
level since last August.
U.S. Retailers Missing Estimates by Most in 13 Years
U.S. retailers’ first-quarter earnings are trailing analysts’ estimates by the
widest margin in 13 years after bad weather and weak spending by lower-
incomeconsumersintensifiedcompetition. Chainsaremissingprojectionsby
an average of 3.1 percent, with 87 retailers, or 70 percent of those tracked,
having reported, researcher Retail Metrics Inc. said in a statement today.
That’s theworst performancerelativeto estimates sincethefourth quarter of
2000, when they missed by 3.3 percent. Over thelong term, chains typically
beat by 3 percent, the firmsaid. Extreme winter weather through February
andMarchforcedstoreclosingsandstifledsales, Swampscott, Massachusetts-
based Retail Metrics said. Lower- and moderate-incomeconsumers had little
discretionaryspendingpower, andchainsalsofacedpricecompetitionfrome-
commercesites.
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May 29, 2014
Briefly Noted
Small-caps slip into correction territory amid flight to safety
The Russell 2000 index, home to the US’s small-cap shares, fell into correction
territory asinvestorsshift further intotherelativesafetyof stockswithbigger market
values but slower growth. Recent trading brought its losses since a recent March
peak to10per cent. Therisingrisk aversionfollowedlast year’sgains, whichanalysts
with Citigroup said had tempered the prospect of further advances. In 2013, the
Russell 2000 advanced 37 per cent whiletheNasdaq Internet index, another closely
watchedindex, rose65per cent.
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May 29, 2014
The Likelihood of Unlikely Events
EuropeanCentral Bank President Mario Draghi saidMonday that theBank must
be alert to negative price spirals in the Eurozone andconcededthat therewasa
risk of deflationinthecurrency areaunder certainscenarios. Speakingas part of
the keynote address to the ECB's annual Forumon Central Banking in Sintra,
Portugal, Draghi also said that there was no debate among members of the
Governing Council with respect to the Bank's main goal of returning inflation
towards 2%in the mediumtermand said assets purchases could be used if low
inflationweretolast for a"too-prolonged" periodof time.
France’s attempt to sell warships to Russia is both a “sell the rope to
hang themselves” moment and a comment on U.S. stature these days.
In Asia, Political Risk is Back on the Agenda
After years in which Asia was seen as an island of
relative stability in the emerging world, political risks
are returning to the fore
Thai army imposes martial law
Thailand’s army declares martial law ‘to keep peace
and order’ and troops deploy on Bangkok’s streets as
political turmoil continues
Thai army chief summons ousted PM for talks a
day after coup
Thailand's army chief, General Prayuth Chan-ocha, will
begin to govern a polarized country on Friday, a day after he
seized power in a bloodless coup in a bid to end six months
of turmoil. Prayuth launched his coup after factions refused
to give ground in a struggle for power between the royalist
establishment and a populist politician that has raised fears
of serious violence and damage to Thailand's economy,
southeast Asia's second biggest. Soldiers detained some
politicians from both sides when Prayuth announced the
coup after talks he was presiding over broke down. The
military censored the media, dispersed protesters and
imposed a 10 p.m. to 5 a.m. curfew.
Cyber threats rise up US business agenda
Reports of cyber risks doubled in the two years before Washington 
charged five Chinese military officers with stealing trade secrets
General warns of US space vulnerability
Russia’s threats to stop the US using its
satellitelaunch technology haveexposed long-
existing weaknesses in the American space
industry
The keenly priced gas deal signed this week between Russia and
Chinawill createanewpricebenchmark for global marketsthat puts
cost pressureon other producers becauseconsumers haveagrowing
number of supplysourcestochoosefrom. ChinaandRussiasigneda
long-awaited $400 billion gas supply deal this week, providing
energy-hungry China with a major source of fuel and opening up a
new market for Moscow as it risks losing European customers over
the Ukraine crisis. Russia's state-controlled Gazprom(GAZP.MM)
has so far declined to say at what price the deal was struck, but
industry sources say it is between $350-$380 per thousand cubic
meters. That would be similar to what most European utilities pay
under discountedlong-termcontractssignedinthelast twoyears, and
several sources said it is as lowas Gazpromcould havegonebefore
makingaloss.
Fitch Ratings said the deal "sets a new benchmark for
what China is willing to pay for natural gas over longer
term contracts". The deal also opens up a huge new
market for Gazprom, which so far generates around 80
percent of its revenues from Europe, where demand is
stagnatingandprofitsarefalling.
Russia’s investment slump extended into a fourth
month and wage growth fell short of economist
expectations as the U.S. and Europe threatened to
tighten sanctions over Ukraine.
Russian economy to grow by 0.5 percent in 2014
Far right, Euroskeptics sweep EU vote
Many parties promote anti-immigrant, anti-EU policies; European
Commission head calls on pro-EU groups to come together
The Department of Agriculture has warned of sticker shock facing
home chefs on the eve of the Memorial Day holiday weekend, the
unofficial start of the U.S. summer grilling season. The agency
said conditions in California could have "large and lasting effects
on U.S. fruit, vegetable, dairy and egg prices," as the most
populous U.S. state struggles through what officials are calling a
catastrophic drought.
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May 29, 2014
Engine Drivers…
China's auto sales rebounded in April despite slowing economic
growth as expectations of tighter ownership curbs to fight
smog prompted buyers to rush to make purchases. Passenger
vehicle sales rose 11.6 percent to 1.6 million vehicles,
according to figures released by the China Association of
Automobile Manufacturers, an industry group. That was up from
March's 7.9 percent growth. Sales growth in China, the
biggest auto market by number of vehicles sold, has cooled
steadily since peaking above 40 percent in 2009. Sales are
forecast to grow by 8 to 10 percent this year.
Eurozone GDP grew 0.2% (q/q) in Q1 2014, unchanged from
Q4 2013, according to flash estimates. Germany expanded
at the fastest pace since early 2011, with GDP growth
doubling to 0.8% from 0.4% Q4, while France’s GDP growth
was unexpectedly flat after expanding 0.2% in Q4.
Meanwhile, the Italian economy shrank 0.1% percent after
recovering from recession in Q4. On an annualized basis,
Eurozone GDP increased by 0.8% (q/q saar) following Q4’s
0.9% increase.
Ford warns carmakers over
excess capacity in Europe
Alan Mulally, chief executive of Ford, has
warned that European carmakers need to
cut back further the numbers of cars they
can build as excess capacity on the
continent remains at dangerous levels.
Idle production lines and underproductive
factories have plunged almost all of
Europe’s big carmakers into billion-dollar
losses in recent years after annual sales on
the continent fell by about 4m cars between
2007 and 2013. In an interview with the
Financial Times, Mr Mulally said that the
closure of a handful of European factories
over the past year was not enough to bring
capacity down to a sustainable level
German Consumer Confidence To Stay At 7‐Year High
FRANCE: The Court of Auditors, which oversees the
government's accounts, said the Elysee Palace's
forecasts of tax revenue in 2013 were so wildly
inaccurate that they cast doubt on its forecasts for
this year.
The PunchLine...
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May 29, 2014
The Return to Normal ?
The PunchLine...
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May 29, 2014
YouCan’t Handle the Truth…
Let's Take the “Con” out of Economics
The PunchLine...
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May 29, 2014
Credit Matters-Know Risk
Many Excel in Strategy, Few in the Management of Risk
U.S. banks’ share of leveraged loans to middle-market
companies contracted to 9% of overall middle-market
volumelast year, according to LCD. That’s down from12%
in2012andnearly20%in2011.
Investors in loans made to US junk-rated
companies are giving up basic protection as they
scramble for higher-yielding securities in a market
that regulators warn could be overheating. “Call
protection” penalizes corporate borrowers for
repaying their loans at an early stage and was once a
basic feature of most “leveraged loans” to companies
below investment grade. Investors generally like the
call protection since it means they do not have to
reinvest their money. But in recent months the
balance of power has tipped further in favor of
corporate borrowers, who can now dictate the terms
of loans. With demand for loan securities high,
investors have been willing to buy higher-yielding
loans with fewer safeguards – known as covenants –
and with shorter call protection periods. One-year
call protection that was once considered the market
standard has been overtaken by protection that lasts
for just six months, according to Xtract Research.
CLO sizes haveincreased steadily in theU.S. this year, with upsizes now
morethenormthantheexception. AndfollowingadiscussionamongCLO
managers at the IMN conference in New York last month about the
possibility of a$1billionvehicle, Onex Credit Partners last week priceda
$1billionCLOviaBank of AmericaMerrill Lynch… Morebillion-dollar
CLOscouldemerge, withAresManagement understoodtobeworkingona
transaction of a similar size via J .P. Morgan for pricing next month,
accordingtomarket sources.
The PunchLine...
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May 29, 2014
Pumping Iron…
The Old Economy Revisited
U.S. Industrial Production Showed
Unexpected Decrease In April
With utilities output falling sharply as demand for heating
returned toward normal levels, the Federal Reserve
released a report showing an unexpected drop in U.S.
industrial production in the month of April. The Fed said
industrial production fell by 0.6 percent in April following an
upwardly revised 0.9 percent increase in March. Economists
hadexpectedproductiontocomeinunchangedcomparedtothe
0.7percent increaseoriginallyreportedfor thepreviousmonth.
Demand for OPEC’s crude will be higher
in the second half of the year than
previously estimated as inventories in
developed economies remain depleted,
according to the International Energy
Agency. The Organization of Petroleum
Exporting Countries will need to providean
average of 30.7 million barrels a day in the
second half, or 800,000 a day more than it
pumpedlast month, theIEA saidtoday. This
calls for 140,000 more barrels of OPEC
crude than the IEA forecast in April as
stronger-than-expected demand has kept
stockpilelevels “tight” in advanced nations,
the agency said. OPEC controls about 40
percent of global supplies. “Forecast
balances call for a significant rise in OPEC
productionfromcurrent levelsfor thesecond
half of the year,” the Paris-based adviser to
oil-consuming nations said in its monthly
report. “WhileOPEC has morethanenough
capacity to deliver, it remains to be seen
whether it will manage to overcome the
above-ground hurdles that have plagued
someof itsmember countrieslately.” Brent
crude futures have been steady this year,
trading near $110 abarrel in London today,
as concern that the crisis in Ukraine may
lead to a disruption in Russian energy
supplies, and the protracted disruption to
Libyan exports, are countered by slowing
economic growth in emerging nations such
asChina.
OPEC Rebound
Production among OPEC’s 12 members
rebounded froma five-month low in April,
by 405,000 daily barrels to 29.9 million,
largely becauseof arecovery inIraqi output
and increases by Saudi Arabia, according to
the report. Members are expected to keep
their formal target of 30 million barrels
unchanged at their next meeting on J une11
inVienna, accordingtotheIEA.
Surging imports from Russia and the U.S. mean the premium
Europeans pay for diesel will stay down this summer after plunging
to the lowest level for the time of year since 2003.
Rubber fit to burst as supply glut expands
Oversupply rises to a nine›year record,
sending prices close to a five›year low
Platinum has risentoits highest level sinceSeptember onconcerns that acripplingfour-monthstrike
at South African mines will not be resolved soon. The precious metal, which is used in vehicle
catalyticconvertersandjewelery, climbed1.7per cent toanine-monthhighof $1,489.20atroyounce,
asthestalematebetweenproducersandunionscontinued.
The PunchLine...
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May 29, 2014
The DNA of Business
Reconfiguring Industries to Define Growth
Truck Driver Coercion Rule Puts 
Spotlight on Shippers, Supply Chains
For years, truck drivers have complained about
beingpushedby dispatchers andothers to violate
federal regulations to meet unrealistic delivery
deadlines. Soon, truckersmayhaveawaytopush
back.
The Federal Communications Commission recently voted in
favor of advancingaproposal that coulddramatically reshapethe
wayconsumersexperiencetheInternet, openingthepossibilityof
Internet service providers charging Web sites for higher-quality
delivery of their content to American consumers. The plan,
approvedinathree-to-twovotealongpartylines, couldunleasha
new economy on the Web where an Internet service provider
suchas VerizonwouldchargeaWebsitesuchas Netflix for the
guaranteeof flawlessvideostreaming. Theproposal isnot afinal
rule, but thevoteon Thursday is asignificant step forward on a
controversial idea that has invited fierce opposition from
consumer advocates, Silicon Valley heavyweights, and
Democraticlawmakers. TheFCC will nowopentheproposal toa
total 120days of public comment. Final rules, aimedfor theend
of theyear, couldberewrittenafter theagencyreviewsthepublic
comments.
Energy companies have investors fired up
Private equity groups are finding oil and gas industry
attractive again
In2007DavidFoley, headof energyinvestingfor Blackstone, passedon
joininginthebiggest leveragedbuyout of all time: the$48bnbidfor TXU,
the Texas utility. J ust over a fortnight ago his decision was vindicated.
It was not an easy decision. Stephen Schwarzman, the founder of
Blackstone, was deeply concerned, say people familiar with the matter.
Goldman Sachs, KKR and TPG, Blackstone’s great rivals, were leading
thebid. If it was goodenoughfor them, heasked, was Mr Foley missing
something? LongbeforeTXU, sincerenamedEnergy FutureHoldings,
filed for bankruptcy on April 29, it had becomeclear that Mr Foley was
right. Equity initially valued at $8bn is now worth almost nothing, and
about $26bn of debt will be written off in the planned restructuring.
That spectacular disaster has tended to obscureamuch brighter story for
private equity investors elsewhere in the energy sector. Since 2010, Mr
Foley has been writing big cheques and making an average return of 6
times his money on his energy investments, according to confidential
letterstoinvestors. Thedemonstrationeffect of successful dealsdoneby
Blackstone and other groups, including KKR, has led to an upsurge of
privateequityinterest inthesector. Privateequityinvestment inenergy,
includingoil andgas, power plants, utilities, andrenewables suchas wind
farms, dropped from $19.3bn worldwide in 2012 to $13.1bn last year,
becauseof asharpslowdowninoil andgas deals, accordingto Dealogic.
However, it has rebounded, already reaching $5.9bn in the first four
monthsof 2014.
Short sellers targeted organic retailers
HP may cut up to 16,000 more jobs as
results disappoint
Pfizer admits defeat in AstraZeneca bid
Month-long battle ends as US pharma group
abandons offer
Noteworthy switch from paper
to polymer
De La Rue’s full-year results are likely to be
about two Ps: paper and plastic. The banknote
maker will unveil details of its performance in a
year that featuredaprofit warningandthedeparture
of its fresh-faced chief executive, Tim Cobbold.
Thereisunlikelytobeanynewsof whowill replace
Mr Cobboldandbecomethecompany’sfourthchief
executiveinadecade. But investors will bekeen
for an update on the banknote paper market, in
which overcapacity has been something of a
running theme for De La Rue. Commercial and
state rivals – including India – have been upping
their output of thecotton-basedpaper sheetsusedin
traditional tender. That increased competition and
its effect on prices was thecauseof thewarning in
October, since when the company’s shares have
fallenmorethan15per cent.
The PunchLine...
15
May 29, 2014
Real Estate and Construction Outlook
The Architecture Billings Index (ABI) has
reverted into negative territory for the last
two months. As a leading economic indicator of
construction activity, the ABI reflects the approximate nine
to twelve month lead timebetween architecturebillings and
construction spending. The American Institute of Architects
(AIA) reported the [April] ABI score was 49.6, up slightly
fromamark of 48.8inMarch. This scorereflects adecrease
indesignactivity(anyscoreabove50indicatesanincreasein
billings). Thenew projects inquiry index was 59.1, up from
thereadingof 57.9thepreviousmonth. TheAIA hasaddeda
newindicator measuringthetrendsinnewdesigncontractsat
architecture firms that can provide a strong signal of the
directionof futurearchitecturebillings. Thescorefor design
contractsinApril was54.6.
New construction starts in
April rose 3% to a seasonally
adjusted annual rate of $533.7
billion, according to McGraw
Hill Construction, a division of
McGraw Hill Financial. The
increase maintained the
upward movement established
in March, which followed
sluggish activity at the outset
of 2014. By major sector,
April gains were reported for
nonresidential building and
housing, while nonbuilding
construction (public works and
electric utilities) retreated.
Through the first four months
of 2014, total construction
starts on an unadjusted basis
came in at $153.8 billion,
unchanged from the same
period a year ago.
More REITs Eyeing Self-Storage Market
The challenge for Vancouver and cities like it is that foreign
investment isn’t an unalloyed good. It’s great for existing
homeowners, whoseethevalueof their homesrise, andfor the
city’s tax revenues. But it also makes owning a home
impossiblefor muchof thecity’spopulation. Andthetendency
of foreignbuyersnot toinhabit investment propertiesraisesthe
spectre of what Yan has called “zombie neighborhoods.” A
recent study he did found that a quarter of the condos in a
luxury neighborhood called Coal Harbour were vacant on
censusday.
MALTA, NY -- The $10 billion expansion of Fab 8, the
GlobalFoundries computer chip factory, ishappeningso
rapidly that the company is going to use as many as 200
workers from IBM to help complete the project.
GlobalFoundries has 2,200employees at Fab8, as well as
600 contractors working to help the plant with the
expansion of its 300,000-square-foot clean room.
Althoughit is inhiringmode, thecompany will beadding
asmanyas200IBM employeesfromDutchessCountyand
Vermont to help install and prepare manufacturing
equipment in the clean room. The first piece of new
equipment -- called"tools" intheindustry -- will beput in
startingThursday.
The PunchLine...
16
May 29, 2014
A New Geography of Business
Brazil’s retail sales growth contracted notably in March. Year-on-
year, retail sales fell 1.1% (y/y), down from the upwardly revised
8.7% (y/y) increase in February. The broader retail sales index,
which includes cars and construction, saw a 5.7% (y/y) decline
following an 8.2% (y/y) increase in February. On a monthly basis,
retail sales fell 0.5%in March, the biggest monthly decline since May
2012, after rising 0.2%in February.
The euro area put in a disappointing performance in the first
quarter of 2014 as GDP is only rising at a 0.8% annual rate.
Among the early reporters, GDP declined in Portugal, dropped
sharply in the Netherlands, fell in Italy and fell in Finland.
France posted only the narrowest increase of 0.1%; that's
essentially stagnation. Of theeight early reporters, four showed
GDP declines. Germany put inastronger quarter thanexpected;
its gain was 3.3% at an annual rate. After that, Belgiumand
Spaineachpostedincreasesof 1.6%andthenthere'sFrancewith
a gain of 0.1%. The year-over-year figures show that the
EuropeanMonetary Unionis growingless than1%at anannual
rate. Still, this represents acceleration from its fourth quarter
gainof 0.5%at anannual rate.
GDP growthrateshavetobeviewedinthecontext of theevents
that underliethemtobeunderstood. We'renot terribly surprised
by the disappointing results fromEurope today, because there
has beenso muchunevenness intheeconomic statistics that we
have been seeing through the course of the quarter. Even
German statistics have been tilted to the weak side in recent
months.
Rating agencies raised sovereign‐debt ratings on
Span and Greece on improved growth prospects for
counties that were at the center of the region’s debt
crisis. Standard & Poor’s upgraded Spain’s credit
rating by one notch to ‘BBB’ from ‘BBB‐‘ with a stable
outlook, becoming the third rating agency to do so in
recent months in response to the nation’s “improving
economic growth and competitiveness as a result of
Spain’s structural reform efforts since 2010, including
the 2012 labor reforms.” Fitch raised Greece’s credit
rating by one level as well to ‘B,’ five notches below
investment grade, from ‘B‐,’ citing improving
economic and fiscal outlook for the nation.
Weaker yen prompts Panasonic to weigh relaunchof Japan production
Panasonic is considering bringing some of its manufacturing back to
Japan, in what would be a rare reversal of Japanese companies
offshoring production to China and other Asian countries with lower
production costs.
Brazil’s woes weigh on sugar industry
Analysts say that unless the industry restructures and the government allows
fuel prices to rise, Brazilian sales will continue to hang over the market
Mexico Fin Min Cuts 2014 GDP Estimate to 2.7% From 3.9% 
Cites Harsh US Winter, New Taxes as Negative Factors
But Conditions Improving, Econ Reforms Seen as Upside Risks
Mexico's Finance Secretariat Friday lowered its estimate for 2014 growth to
2.7% from 3.9%, blaming the harsh U.S.
The PunchLine...
17
May 29, 2014
Will Life Ever Be the Same?
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