StockSHAKERS

Stockshakers are short this market.

Specifically the S&P 500 (SPY) The Close from the session Tuesday 02/23/10 indicates a violation of the current trend.
From March of 2009 until the start of 2010 the trend was generally up.

Early 2010 saw some sharp selling. The last few weeks has been an up trend attempted recovery.

However at the 50 Day MA we have failed to hold support.
The early indications are a negative character change for the market.

Stockshakers are short this market and specifically we are short the SPY from the current level at 109.81 on the daily chart hourly indicates 109.79. The next test will be at the 108 level.
Uptrend looks to be ending at least for the near term.

What you need to know about credit card reform
 The new credit card regulations are finally here. Starting Monday, Feb. 22, 2010, banks will need to abide a spate of new rules on terms and disclosures. The idea behind the landmark law was to prevent banks from using unfair practices that dig borrowers deeper into debt.
The new credit card law is finally here. Starting Monday, banks will need to abide by new regulations on terms and disclosures. The idea behind the landmark law was to prevent banks from using practices that often dug borrowers deeper into debt.
A look at how the credit card law affects key aspects of your account.

INTEREST RATES

THEN: Banks could raise the interest rate on an account at any time, including the rate on an existing balances, even if you weren’t late on payments.

NOW: The rate cannot be raised in the first year after an account is opened unless an introductory rate has come to an end. After that, cardholders must be notified 45 days in advance of any rate change.

For existing balances, rates can’t be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.

There’s still no cap on rates.

DISCLOSURES

THEN: The fine print on cardholder agreements was often difficult to understand. Rates, fees and penalties for other services such as cash advances, for example, could be hard to find. The impact of the interest rate on paying down a balance was hard to compute.

NOW: Cardholders will see how many months it will take to pay off a balance if only minimum payments are made. Statements will also indicate how much needs to be paid each month to pay off a balance within three years.

SERVICE FEES

THEN: Banks could charge as much as they wanted. They could assess annual fees, activation fees and other fees. This was mostly a problem for subprime cards marketed to those with poor credit scores. One popular card, for example, the Premier Bankcard, charged $256 in first-year fees for a $250 credit line.

NOW: Service fees, such as activation and annual fees, will be capped at 25 percent of the credit limit during the first year of use. After that, there is no cap.

GRACE PERIODS

THEN: Some card companies sent out statements not long before payments were due, and sometimes shifted payment due dates from month to month, meaning that payments would not always have enough time to arrive and get processed before being deemed late. As a result, some cardholders ended up getting charged interest or late fees even when they thought they were sending in payments on time.

NOW: The law requires that due dates remain consistent. Statements must be sent out 21 days before the payment due date, and finance charges and fees cannot be applied before that period is up. In practice, about half of card issuers have extended grace periods to as long as 25 days.

OVER-THE-LIMIT FEES

THEN: Banks set credit limits, then routinely allowed charges to exceed those limits. When that happened, though, the customer was charged an over-the-limit fee as high as $39. These fees were often triggered by interest charges or late-payment fees that pushed a balance over the credit limit. What’s more, multiple over-the-limit fees could get charged in a single billing cycle if the balance was paid down and another charge pushed the balance back over the limit.

NOW: The cardholder must specifically agree to permit transactions that exceed the credit limit. Only then can over-the-limit fees be charged. But the fees can’t be triggered by other fees or interest charges. Only one over-the-limit fee may be imposed during a billing cycle. No over-the-limit fees may be charged unless the cardholder has specifically agreed to permit transactions exceeding their authorized credit limit. These fees can no longer be triggered by other fees or interest charges imposed by the card issuer, and only one such fee may be imposed during a billing cycle.

In practice, several of the largest card companies have dropped these fees. Some banks are using pop-up boxes on their Web sites or other methods to obtain consumer authorization.

UNIVERSAL DEFAULT

THEN: If you made a late payment on one credit card or loan, or even late payments for obligations like utility bills, that could trigger interest rate hikes on other credit card accounts.

NOW: Card companies cannot raise interest rates on existing credit card balances. Interest rates can’t rise during the first year an account is open, unless the original agreement spelled out a promotional rate for a limited time.

Consumers with older accounts must be informed of any interest rate increase on new charges at least 45 days in advance. They must also be given a chance to opt out of the hike by canceling the account and paying down the balance at the old interest rate. If an interest rate is increased, the card company must review the account once every six months to assess whether the rate should be dropped.

STUDENTS

THEN: Students arriving on college campuses often confronted a gantlet of credit card marketers handing out T-shirts, pizza and other gifts in exchange for filling out card applications. Credit cards were frequently handed out without checking the applicant’s income sources. In 2008, 84 percent of undergraduates had at least one credit card. Average balances topped $3,100.

NOW: Credit cards may no longer be issued to anyone under age 21, unless the applicant has a co-signer, or can show independent means to repay the debt. Colleges must disclose any marketing deals they make with credit card companies. Banks are not allowed to hand out gifts on or near campuses or at college-related events.

Fidelity targets 630 mln stg for Bolton China fund

Fund firm Fidelity International said on Tuesday it plans to raise about 630 million pounds ($982 million) in an initial fund raising for the new China fund to be run by its investment figurehead Anthony Bolton.

The figure tallies with industry expectations for the fund, which Bolton has said would seek to avoid capacity issues by limiting fund raising.

Bolton surprised the industry and colleagues alike when he announced he would put off retirement for a period to run a Chinese equity fund. He will move to Hong Kong next month for at least two years. [ID:nGEE5AP13R]

The company said in a statement it would launch the closed-ended investment company, Fidelity China Special Situations PLC, with an application to list on the main market of the London Stock Exchange.

Shares in the fund will be issued at 1 pound each and made available through a public offer for subscription in the UK and a placing in certain overseas jurisdictions, it said.

The launch coincides with a troubled period for Fidelity’s Hong Kong operations. Late last month, it suspended two portfolio managers, Kevin Chang and Wilson Wong, over a breach of the company’s code of ethics. [ID:nTOE60P0B7]

The offer will open on Feb. 26 and close on April 5.

Some commentators have said Bolton’s move comes at a time when China is filling a speculative bubble and is vulnerable to a sharp correction.

In the statement on Tuesday, he played down the risk.

“As for a bubble, I think it is much too soon to be talking in these terms. The Chinese market began its recent rise in November 2008 and, in my experience, bubbles take several years to develop, not a little over one,” he said. ($1=.6415 Pound)

Federal Deficit At $430.7B Through January
The federal deficit through the first four months of the budget year is running
at a record-breaking pace even though the deficit in January was slightly
smaller than expected.

Beijing Sells  $34.2 Billion Treasuries In December As Japan Becomes Largest Official Holder Of US Debt

Gradually we are getting confirmation that Chinese “posturing” about offloading US debt is all too real. The most recent TIC data confirmed the Treasury’s greatest nightmare: China is now dumping US bonds. In December China sold $34.2 billion of debt ($38.8 billion in Bills sold offset by $4.6 billion in Bonds purchased), lowering its total holdings $755.4 billion, the lowest since February 2009, and for the first time in many years relinquishing the top US debt holder spot to Japan, which bought $11.5 billion  mostly in Bonds, selling $1.4 billion Bills bringing its total to $768.8 billion. Also, very oddly, the surge in UK holding continues, providing yet another clue as to the identity if the “direct bidder” - as we first assumed, these are merely UK centers transacting primarily on behalf of China as well as hedge funds, which are accumulating US debt under the radar. UK holdings increased from $230.7 billion to $302.5 billion in December: a stunning $70 billion increase in a two month span. Yet, with the identity of the UK-based buyers a secret, it really could be anyone… Anyone with very deep pockets.

We will go through the TIC data in much more detail later; for now here is the official press release.
February 16, 2010
tg548
TREASURY INTERNATIONAL CAPITAL DATA FOR DECEMBER
WASHINGTON – The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for December 2009. The next release, which will report on data for January 2010, is scheduled for March 15, 2010.
Net foreign purchases of long-term securities were $63.3 billion.
Net foreign purchases of long-term U.S. securities were $82.2 billion. Of this, net purchases by private foreign investors were $62.6 billion, and net purchases by foreign official institutions were $19.6 billion.
U.S. residents purchased a net $18.9 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $50.9 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $67.7 billion. Foreign holdings of Treasury bills decreased $53.0 billion.
Banks’ own net dollar-denominated liabilities to foreign residents increased $77.7 billion.
Monthly net TIC flows were $60.9 billion. Of this, net foreign private flows were $82.0 billion, and net foreign official flows were negative $21.1 billion.

Fund manage Anthony Bolton last week launched a China fund

An eminent British fund manager, Anthony Bolton, last week launched a fund aimed at putting $1bn into Chinese stocks. He has left retirement for the purpose: China, he explained, is in an “investment sweet spot”, with incomes per head rising and consumption accelerating.

Doubtless, Mr Bolton knows what he is doing. But less experienced hands should beware of an implicit fallacy. The long run evidence shows there is no correlation between economic growth and investment returns.

If that sounds counter-intuitive, remember it is not the opportunity that matters, but the price attached to it. As Adam Smith put it more than two centuries ago, “the chance of gain is by every man more or less overvalued”.

That is, we tend to pay more for growth than it is worth. That applies both to growth stocks and growth economies. And I suspect  though it is harder to prove that it also applies to investment by corporations.

The latest Credit Suisse annual study from the academic trio of Dimson, Marsh and Staunton (DMS) gives us 110 years of evidence on this. Among 19 countries covered, the long run correlation between real growth in gross domestic product and real equity returns is in fact slightly negative. The country with the lowest growth, South Africa, had the second highest average equity returns. Italy, with half the growth rate, produced nearly four times the returns.

As for emerging economies, live indices have been around only since the late 1980s. But the study backdates them to 1975, since when emerging markets have returned 1 per cent less per annum on average than developed markets.

But everything depends on the starting date. Since the indices went live, emerging markets have outperformed by 1 per cent. In the past decade they have outperformed by 10 per cent. This looks suspiciously like an emerging fad, prompted by the existence of the indices themselves. In the last decade, we have had Goldman Sachs’ doctrine of the supremacy of the Brics Brazil, Russia, India and China. It is not impossible that all four will achieve developed market status, but it would certainly be unusual. The DMS study simulates emerging and developed markets since 1900, based on per capita GDP.

In that time, five of 38 countries graduated from emerging to developed status, among them Greece and Portugal. Two more, Argentina and Chile, slipped from developed to emerging.

In the past 30 years, it gets worse. Besides Greece and Portugal, only two countries Israel and South Korea moved up a grade. Many more were downgraded from emerging to so called “frontier” status.

This is a handy reminder of the futility of long range forecasting. That said, how to explain the underwhelming performance of emerging equities, besides a simple propensity to overpay for growth?

One strong possibility is that stock markets fail to capture growth adequately. In an entrepreneurial economy, growth is what happens at the grass roots. By the time companies come to the market, the best is over  an idea supported by remarkably slow-growing or even shrinking real dividends in almost all countries over time.

Another possibility raised by Smithers & Co is that investors expect countries with fast rising GDP per head to have strengthening currencies. So it makes sense to pay high multiples of earnings at today’s exchange rate, since a rising currency will make good the difference.

If investors do in fact think that, they should be careful. According to Professor Dimson, of the 19 countries in his 110 year study, none has shown average currency movements over the period of more than 1 per cent per annum either way after inflation. Another suggestion from Mr Smithers brings me to a question raised at the outset  whether corporate managers, like investors, overpay for growth. Fast growing economies, he says, should have faster depreciation rates, presumably because any given piece of plant or equipment will be obsolete more quickly. It is doubtful, he adds, whether accounting practice recognises this properly.

More generally, companies may be tempted by the lure of high growth to pitch their prices low when first entering a market. Thereafter, their profits will rise rapidly with GDP. But if their starting point is too low, they are making the same mistake as portfolio investors who buy stocks too high. The end result in both cases is a disappointing long term return.

Does this mean you should steer clear of emerging markets? Not at all. In non crisis times they offer diversification, which is worth something in itself. But if you are invested in emerging markets to begin with, you should of course buy some old style, low growth developed market stocks on just the same grounds

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