Sunday, March 15, 2015

Activists in Commodities Should Beware of Cliffs

Clever activists in commodities NOT. Aivars Lode

Even a rational plan to shake up a miner or a big oil company can run into the reality of slumping commodity prices

By Liam Denning 

Activists have gotten bolder in terms of targets, with even a giant like Apple fair game these days.
But taking on China? That is what Casablanca Capital did, albeit indirectly. In January 2014, the fund said that it had taken a 5.2% stake in iron-ore miner Cliffs Natural Resources. At the time, Cliffs shares traded at about $19, and Casablanca had paid about $25 a share for its stake. But it said that, under its plan, they could be valued at $53.
On Friday, the stock closed at less than $5. Casablanca actually won its proxy fight last year and installed a host of directors and a new chief executive, Lourenco Goncalves. Yet its plan to split Cliffs looks beside the point given a roughly 50% decline in iron-ore prices the past year.
That is largely because of chief buyer China’s slowing growth. Rather than relying solely on self-help, Mr. Goncalves urged big, rival miners last week to curb output to help rebalance the iron-ore market, which would help Cliffs sell international assets. His call likely won’t be heeded.
Even the U.S. business, around which Casablanca wants Cliffs to focus, faces issues as steel plants contend with weak demand and surging imports from, you guessed it, China. Moreover, Cliffs said last week that many bondholders are holding out against a proposed debt exchange.
Casablanca’s case is a harsh one, but it isn’t completely alone. A year before its own campaign, Elliott Management began pressing for change at Hess. Elliott got much of what it wanted; the stock rose as high as $104 from less than $50. Hess is undoubtedly a stronger company now, yet the stock is back below $70. The reason? Oil also has slumped. When it comes to going after commodities producers, even when you win the argument, the world won’t always listen.

Decline of Australian dollar set to deepen

After our trip to Australia three years ago, i talked about how the Aussie economy would have difficulty and why; so, here we are now. Aivars Lode

By Netty Ismail

Reserve Bank of Australia governor Glenn Stevens will get a drop in the nation's dollar that's even steeper than his target, the world's biggest money manager says.
BlackRock, which oversees $US4.65 trillion ($6 trillion) worldwide, expects the Aussie to fall 9 per cent to US70¢ as the RBA cuts record-low interest rates to offset the pain caused by tumbling commodity prices.
The currency is approaching the US75¢ level Mr Stevens identified in December as his ideal exchange rate, declining to an almost six-year low of US75.61¢ last Wednesday.
BlackRock says the Aussie will keep sliding, because Mr Stevens will need to act to revive an economy struggling with the collapse of a once-in-a-century mining boom and a slowdown in China, which buys more than a third of Australia's exports.
The RBA held borrowing costs steady last week, after a reduction in February spurred concerns the housing market may overheat.
"We anticipate further rate cuts; we're seeing significant declines in the prices of Australia's commodity exports," Stephen Miller, the Sydney-based head of Australian fixed income at BlackRock, said. "If we put all those things together, we could well see the Aussie dollar down towards US70¢ in the second half of this year."
The Aussie has slipped 6 per cent against the US dollar this year, heading for a third straight quarterly decline, as expectations that the US Federal Reserve will raise rates support the greenback.
It fell 1.2 per cent to US76.13¢ on Friday.
Even with its recent drop, the local dollar was still "relatively high" given the state of the economy, RBA assistant governor Christopher Kent said last Wednesday.
Goldman Sachs estimates a one-in-three chance Australia will fall into recession in the next 12 months, while a Bloomberg survey of economists suggests the probability of a contraction has increased in recent months.
The economy grew 2.5 per cent in the 2014 fourth quarter from a year earlier, compared with 4.6 per cent growth in early 2012.
The Aussie was about 2 per cent overvalued last month and could still be considered too high to achieve "desired domestic economic outcomes", RBA documents, released under a Freedom of Information request, said.
Mr Miller is more bearish than most analysts.
Strategists see Australia's currency levelling off in 2015, with the median of more than 40 forecasts compiled by Bloomberg putting it at US74¢by year end.
Mr Miller said he expected the RBA to reduce interest rates twice more this year to 1.75 per cent, from a record-low 2.25 per cent.
Another cut to 1.5 per cent was also a possibility, he said.
Swaps traders see about 50 per cent odds that the RBA will reduce rates when it meets on April 7, prices compiled by Bloomberg show.
They are expecting at least one reduction by June and see about a 20 per cent chance of a 1.5 per cent rate in September, the data show.
Australia's central bank ended more than a year of inaction when it cut its benchmark interest rate in February, joining an avalanche of global policy easing led by the European Central Bank's decision to buy government bonds.
"A period where the currency is potentially undervalued relative to its fundamentals is something that the RBA seems to think would be a good thing for the economy," said Ray Attrill, global co-head of currency strategy at National Australia Bank.
"They haven't got anything to fear from an inflation standpoint."
Consumer prices rose at an annual 1.7 per cent pace in the fourth quarter. It is the slowest pace in 2½ years and below the 2 per cent to 3 per cent range the RBA seeks.
The Aussie's "fair value" level would continue to fall as the price of commodities exports slumped and US interest rates rose, said Paul Lambert, head of currencies at Insight Investment Management.
The money manager, which oversees the equivalent of about $US18 billion in currencies, was adding to bets that would profit from a weaker Aussie because it expected the RBA to cut rates again, Mr Lambert said.
The local dollar might have to fall even further than BlackRock forecasts to give the economy the boost it needed, said Greg Gibbs, head of Asia-Pacific markets strategy at Royal Bank of Scotland.
"The Aussie may have to become cheap," Mr Gibbs said from Singapore. "It could mean the currency has to go to US65¢ in the context of the stronger US dollar."

A Better World, Run by Women

For many of you that have heard me talk about how the world will have peace in the next 20 years due to women, here is some back up data. Aivars Lode

Male biology has brought the world war, corruption and scandal. Women are poised to lead us to a better place

By Melvin Konner 

Hillary Clinton seems to be preparing to run for president, and the former Hewlett-Packard CEO Carly Fiorina may yet enter the race on the Republican side. Whoever wins the White House in 2016, today it seems easily possible that within the next decade, the U.S. will follow Britain, Germany, Brazil, Argentina, India, Israel, Thailand, Norway and dozens of other countries in electing a woman to our most powerful office. 
Can we predict the consequences? Yes, we can—and the news is good.
Research has found that women are superior to men in most ways that will count in the future, and it isn’t just a matter of culture or upbringing—although both play their roles. It is also biology and the aspects of thought and feeling shaped by biology. It is because of chromosomes, genes, hormones and brain circuits. 
And no, by this I don’t mean what was meant by patronizing men who proclaimed the superiority of women in the benighted past—that women are lofty, spiritual creatures who must be left out of the bustle and fray of competitive life, business, politics and war, so that they can instill character in the next generation. I mean something like the opposite of that.
All wars are boyish. People point to Margaret Thatcher, Indira Gandhi and Golda Meir as evidence that women, too, can be warlike. But these women were perched atop all-male hierarchies confronting other hypermasculine political pyramids, and they were masculinized as they fought their way to the top. 
There is every reason to think that a future national hierarchy staffed and led by women who no longer have to imitate men, dealing with other nations similarly transformed, would be less likely to go to war. But that’s not all. Sex scandals, financial corruption and violence are all overwhelmingly male. 
We must give up the illusion of sameness between the sexes. The mammalian body plan is basically female. The reason males exist is that a gene on the Y chromosome derails the basic genetic plan. It causes testes to form, and they produce testosterone while suppressing female development. 
Testosterone goes to the brain in late prenatal life and prepares the hypothalamus and amygdala for a lifetime of physical aggression and a kind of sexual drive that is detached from affection and throws caution to the winds. (I know, not all men, but way too many.) By contrast, almost all women, protected from that hormonal assault, have brains that take care of business without this kind of distracting and destructive delirium.
Our own species hasn’t always suffered from male supremacy. Among our hunter-gatherer ancestors, living in small, mobile communities, group decisions were made face to face, among men and women who knew each other intimately. Men tried to dominate, but it wasn’t easy. They could show off by hunting, but war, that universal booster of male status, wasn’t common. 
This changed when hunter-gatherers settled in larger, denser populations. Such cultures could have nobles, commoners and slaves, and they made war often. Men became more aloof from families, and women increasingly became the objects of male strife. Politics became a male game, played in public spaces where men could shame and exclude women, and these tendencies grew more powerful with the rise of farming and chiefdoms and empires. 
The Bible, the Iliad, the great Indian epics—all of them are full of sex and violence. I don’t know whether Helen’s face was what launched a thousand Greek ships against Troy. I don’t know whether David really fell in love with Bathsheba and had her soldier-husband sent to die at the front, or if Solomon had seven hundred wives. But all the evidence suggests the plausibility of such stories, and this culture of male domination didn’t come to an end with the ancients. It prevailed throughout the middle ages and the Renaissance as well.
But then what happened? Why did some men begin at last to let go of their privileges?
The great transformation of the past two centuries—the slow but relentless decline of male supremacy—can be attributed in part to the rise of Enlightenment ideas generally. The liberation of women has advanced alongside the gradual emancipation of serfs, slaves, working people and minorities of every sort. 
But the most important factor has been technology, which has made men’s physical strength and martial prowess increasingly obsolete. Male muscle has been replaced to a large extent by machines and robots. Today, women operate fighter jets and attack helicopters, deploying more lethal force than any Roman gladiator or Shogun warrior could dream of. 
As women come to hold more power and public authority, will they become just like men? I don’t think so. Show me a male brain, and I will show you a bulging amygdala—the brain’s center of fear and violence—densely dotted with testosterone receptors. Women lack the biological tripwires that lead men to react to small threats with exaggerated violence and to sexual temptation with recklessness. 
Growing evidence shows that women leaders operate differently. The government shutdown of October 2013 ended, despite a complete congressional impasse, when three women Republican Senators broke ranks from their party. Two women Democrats followed their lead, and men on both sides came along. The bipartisan committee that worked on the final deal was gender balanced, but John McCain perceptively joked that the women were taking over.
Sen. Susan Collins of Maine, who had started it all by courageously calling for compromise, told a reporter, “I don’t think it’s a coincidence…. Although we span the ideological spectrum, we are used to working together.” While male colleagues crossed their arms and sulked, women crossed the aisle with phone calls, email and social media. The men saw a deal they could live with and followed suit. 
What about women in executive office? There are not yet enough women heads of state to study them systematically, but there are enough in other governing roles. In a 2006 study, political scientist Lynne Weikart and her colleagues surveyed 120 mayors—65 women and 55 men—in comparable cities of over 30,000. Women mayors were far more likely to alter the budget process and seek broad participation. 
Perhaps it is time for us to consider returning to the hunter-gatherer rules that prevailed for 90% of human history: women and men working at their jobs, sharing, talking, listening and tending children. Men didn’t strongly dominate because they couldn’t; women’s voices were always there, speaking truth to male power every night around the fire. There was violence, and it was mainly male, but it was mostly random, accident more than ideology.
Women won’t make a perfect world, but it will be less flawed than the one that men have made and ruled these thousands of years. My grandson, I think, will be happy in the new world. It will be better for him because women will contribute so much more to running it.

Signals From U.S., China Show How Much Global Economy Has Shifted Since Crisis

I am reminded of blogs I posted back in 2008 discussion on why not to write off the USA. Aivars Lode

Mismatch between world’s No. 1 and No. 2 economies in growth forecasts and policy responses portends market aftershocks

By Jon Hilsenrath And Mark Magnier 

Developments in just the past week underscored a remarkable turnabout in the global economy since the financial crisis.
Six years ago, the U.S. was in financial panic, Europe was seen largely as an innocent bystander and China as an engine for a return to global growth. Now the U.S. economy is charging ahead—producing jobs at the fastest pace since the late 1990s—while Chinese authorities are struggling to manage a gathering slowdown and Europe is still getting back on its feet. 
Emblematic of the shifts are differing monetary signals: Strong U.S. jobs data Friday increased the likelihood the Federal Reserve will raise short-term interest rates this year, while the People’s Bank of China added to a rate-cutting campaign last week. 
The mismatch in growth outlooks and policy responses portends financial-market aftershocks, including the potential for further gains in the U.S. dollar, which has appreciated 11% against a broad basket of other currencies in the past year and 2% against China’s yuan.
This backdrop also raises a big question: Can the U.S. economy—stronger but still weakened by crisis—power the global economy the way it did in decades past?
Because China accounts for a bigger share of global growth than it did before, its slowdown will surely have bigger global consequences than it might have in the past. But an improving U.S. and stabilizing Europe would help the rest of the world manage to weather China’s problems.
Central to the outlook: the changing patterns of financial stress across the globe.
Fed officials said Thursday that 31 large banks had passed its annual “stress tests” of their financial resilience, meaning they had capital buffers large enough to withstand a return to recession. It was the first time since the Fed launched the tests during the panic of 2009 that all banks had the capital needed to weather the Fed’s test of their financial health.
With U.S. financial institutions on surer footing, credit growth is accelerating. Commercial and industrial loan portfolios among banks in the U.S. were up 12% in mid-February from a year earlier, at the same time as real-estate and consumer loan portfolios are rising and growth of cash holdings slowing.
“It has been a painful path and somewhat disappointing, but we got to this point with a process of fairly gradual but significant adjustments in private sector [debt], a grinding healing in the financial sector and a Federal Reserve which has been consistently trying to offset [drags on growth],” said Bruce Kasman, chief economist at J.P. Morgan 
Chinese authorities, on the other hand, reduced their growth target for 2015. At 7%, the world’s second-largest economy is still expected to expand faster than almost any other in the world, but the momentum has clearly downshifted. Growth last year was 7.4%, the slowest pace in nearly a quarter-century. The International Monetary Fund has forecast 6.8% growth for 2015. 
Moreover, China’s woes are reflected in the fortunes of other emerging-market economies oriented toward exporting commodities—Russia and Brazil are both in or near recession.
Chinese authorities are fighting battles that threaten to work at cross-purposes—trying to boost economic output in the short run while also overhauling an economy that became heavily indebted and geared toward real estate in the aftermath of the 2008 financial crisis.
Beijing’s preference for incrementalism is leaving policy makers with fewer appealing options, slower economic growth and tighter budgets at a time when the population is aging rapidly, demanding more comprehensive social services and hungering for a better lifestyle.
While China struggles, Europe is showing some evidence of improvement, which could be an important swing factor in the global economic outlook.
The European Central Bank raised its economic forecasts Thursday for this year and next, in a sign of confidence that Europe’s economy, one of the global economy’s trouble spots for the past five years, is finding its footing even before the ECB launches a €1 trillion-plus stimulus package on Monday. The bank sees growth above 2% in 2017.
“If Europe would really manage to move towards 2% growth it would make a big difference for the global economy and for China,” said Carsten Brzeski, economist at ING. 
After growing 20% annually from 2006 to 2008, Chinese exports to the eurozone have fallen or stagnated the past four years, he noted. And Europe, particularly Germany, depends on China, which was the top export destination for German machine tools last year.
Germany has started to rebound strongly on the back of a weakening euro, which makes German exports even more competitive in global markets amid low oil prices and rock-bottom interest rates that have fueled a construction boom.
For a global economy that has largely written off Europe for the past five years, any contribution would be welcome. “These days in the eurozone you’re grateful for any growth you can get,” said Howard Archer, an economist at consultancy IHS Global Insight.