Household Income Sinks to '95 Level

The income of the typical U.S. family has fallen to levels last seen in 1995, a long and pernicious slide that likely means it will be a generation before Americans regain the peak income levels reached at the close of the '90s.

Falling Star - Chinese Economy

On 6/30/2012, Barron's reported that the Chinese economy is slowing and is likely to slow a lot more. You can find the article here (Click to download the pdf file). The article will help us to be cautious and cognizant about the risks but not to speculate or make investment on it. 

When I was in Fuzhou (福州) in Dec 2011. I witnessed at first hand many many new and empty apartment buildings (mostly 20 - 30 floors or more) between the international airport and city of Fuzhou. During the course of 2011, I also saw many reports on other cities with empty apartment buildings or shopping malls.

You may also notice just recently that many commodity prices go down including oil price. Why did oil fall from $110+ to $80?

If you have friends in China, what questions can they ask? If they have multiple real estate investments which had been doing more than fantastic, should they diversify their investment to US?

Enjoy reading this article.

Overprepared for the Next Storm

This is from Barrons article on 6/2/2012. 

Though some market experts claimed that the repeat of 2008 is likely. Do they mean more than 50 - 70% ? I say it is unlikely, less than 20%. This means to take advantages of any sizable dip such as 10% to 20% decline to buy up good business.   

Josh
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A lot of the market's "de-risking" process has already unfolded.

 

A New York Times headline Wednesday proclaimed "Windows Are Ready for the Big Storm (the One from Last August)." The article was about the curious abundance of Manhattan apartment windows still taped in ineffectual and belated protection against Hurricane Irene. But it could well have been alluding to the financial markets' bracing for a rerun of last summer's gale of dangerous economic conditions.

The global selloff in risk assets during May, mostly prompted by the gradual but steady weakening in Europe's debt levees and sharp slowing in China's economy, was barely tallied by the time the lousy May employment report arrived Friday morning.

The meager net increase of 69,000 jobs was the poorest reading since—you guessed it—last August, as the 2011 Europe debt drama was peaking. And gold prices, so long in an ebb phase, had their largest one-day rise since August, too, as expectations of more central-bank money-conjuring surged. Big U.S. stocks had held up better than nearly every other risk-asset class for the year but succumbed Friday to more aggressive selling, the Dow industrials losing 274 points and surrendering all gains for the year.

With the Dow at 12,118, and the Standard & Poor's 500 at 1278—just about where they were sitting one year ago—the burden of proof falls upon those who have been suggesting, here and elsewhere, that 2012 need not hew so closely to the 2011 macro-panic-and-policy-rescue script.

The case for avoiding last year's fate, or worse, rests on somewhat larger fundamental cushions—and on the simple observation that traumas so fresh in mind don't usually allow for a hazardous complacency to rebuild so quickly. Corporate earnings, total employment, retail sales, housing activity and bank lending are all significantly higher than they were a year ago, while stock-market valuations at this year's market peak were less lofty than at the first-quarter 2011 peak. Further, there is now a new European Central Bank chairman who has shown more willingness to marshal monetary powers to head off banking collapse.

WITH STOCK MARKETS OUTSIDE the U.S. having lost 20% in the past 12 months and twice as much in May as American stocks, it wouldn't be much of a shock for the S&P 500 to sag another couple of percent back to that old familiar 1250 level, or a bit lower.

For reasons that may include sheer coincidence, this level is a frequent fulcrum for the index. The 1250 mark immediately preceded the Lehman Brothers collapse, was roughly where 2011 started and ended, and has been crossed during 10 separate weeks in the past year and at least 50 times since the index first got there 13 years ago.

Chartists already are on alert, with the S&P 500 breaking below the market's 200-day average, a measure the market also toggled above and below for parts of 2011. Now, as then, the evidence can support either a painful correction after a 30% rally, or the foreboding overture to a bear market.

Stocks are close to probing valuation levels that have tended to arrest declines in the past couple of years. The S&P 500 is trading below 13 times earnings for the past 12 months and less than 12 times forecast earnings, though it's a fair bet that those profit forecasts are vulnerable to downward pressure.

ONE THING ABOUT THIS YEAR'S market downturn is that it was preceded by a distinctly defensive tone, the majority hunkered against "expected shocks." Even before the overall market had shed 10%, the areas that call out loudest for punishment in a growth-and-credit scare had been pummeled, with financial, commodity, emerging markets and lower-quality tech names badly underperforming. Bespoke Investment Group notes that its log of the frequency of financial headlines on the virally popular online news aggregator Drudge Report is again approaching peak levels previously coinciding with tradable market lows.

This suggests a lot of the "de-risking" process has already unfolded, and that the merest of upbeat stimuli—with ECB policy makers meeting this week, and the Fed convening and Greece voting soon thereafter—would touch off a quicksilver rally, with the tape so oversold and the investor mood dour.

Investors already lucky or smart enough to be in a defensive crouch who are looking to take on some "upside risk" protection in the event of such a rally should consider trounced, high-volatility cyclical names, in small doses. These might include Cliffs Natural Resources (ticker: CLF), the Market Vectors Coal ETF (KOL),Halliburton (HAL), SanDisk (SNDK) and Hess (HES).

Should US be the world's largest LNG supplier?

The short answer: If it wants to be. And it should—to create jobs, double exports, build global trading links and generally boost our economy.

 By JOHN R. SIEGEL in Barrons

By 2017 the U.S. could be the largest exporter of liquefied natural gas in the world, surpassing leading LNG exporters Qatar and Australia. There is one big "if," however. America can produce more gas, export a surplus, improve the trade deficit, create jobs, generate taxable profits and reduce its dependence on foreign energy if the marketplace is allowed to work and politics doesn't get in the way.

In May 2011 Cheniere Energy received an Energy Department license to export LNG from its Sabine Pass LNG import terminal in Louisiana. Cheniere subsequently reached long-term deals with the U.K.'s BG Group, Spain's Gas Natural and India's GAIL. Cheniere is targeting operation in 2016 and plans to export up to 730 billion cubic feet of LNG annually, roughly 3% of current U.S. gas production.

Sabine Pass originally was built as an import facility to alleviate projected U.S. gas shortages. Shale-gas technology changed that assumption radically. Now Sabine Pass is attractive because it already possesses much of the infrastructure for an export plant: LNG storage tanks, gas-handling facilities and docking terminals. Only a liquefaction plant is needed to convert natural gas into LNG. Overall, Cheniere can create its export terminal for half the investment required for a new one.

With world oil over $100 per barrel, equivalent to $17 per million BTUs of gas, versus domestic natural gas at $2.10 per million BTUs, the opportunity is obvious: Cheniere can deliver its gas to Asia or European customers well below current market prices.

Six developers with existing import terminals are following the Sabine Pass model. And Cheniere has another project in Corpus Christi. With the expansion of the Panama Canal, Gulf LNG projects can economically target the lucrative Asia market. By 2017, the U.S. could be exporting upwards of 13 billion cubic feet of LNG per day.

But exporters must overcome growing opposition to LNG exports by environmentalists and industrial users of natural gas. Exporters must also get multiple permits from environmentally conscious federal officials. And Rep. Ed Markey (D.-Mass.) has proposed legislation to bar federal approval of any LNG export terminals until 2025. Those who most fear global warming don't want anyone anywhere to use more fossil fuel, even "cleaner" natural gas.

It is uphill for the anti-gas crowd. High oil prices are driving a transition to natural gas, even as fuel for trucks and cars. In the U.S., the T. Boone Pickens Plan would displace gasoline and diesel fuel for compressed natural gas in large trucks. Pickens estimates savings of two million barrels per day of oil imports if the nation's fleet of 18-wheelers converts to CNG. The Pickens Plan might fail legislatively because it calls for subsidies to fuel the transition. But if CNG's nearly $2-per-gallon price advantage over gasoline continues, the concept will evolve via natural market forces, as it should.

THE ENERGY DEPARTMENT SAYS natural gas has grown its market share in the U.S. in the past three years from 28% to 30%. Globally, the trend is similar, and LNG is integral to the global supply chain.

Despite the recession, global LNG demand has been growing at a 6% to 8% annual clip for the past 10 years. When demand collapsed in 2009, prices in Asian markets fell 50% to about $5 per million BTUs. But the price drop was also driven by the rapid growth in U.S. shale gas. U.S. natural-gas supply -- flatlined for a decade at 19 trillion to 20 trillion cubic feet annually -- increased 15% in the past three years due to the shale-gas revolution. Technology advances created a supply perturbation. As U.S. gas prices plunged, LNG cargoes bound for the U.S. had no market.

Global LNG markets are growing again. By late 2010, the main Asian consumers -- Japan, Korea and Taiwan -- were seeking more LNG, while new customers such as Thailand were entering the market. The Japan tsunami put a call on LNG imports to supplant Japan's nuclear shutdowns, and with increasing demand, Asian markets rebounded to the $15-per-million-BTU range. After the tsunami, Germany plans to close its nuclear plants. Most of Germany's (and all of Europe's) new supply will be gas-fired. Given the choices, would Europe rather grow its gas supply from Russia, North Africa or the U.S.? The policy implications should be obvious, even to the U.S.

Estimates of the job benefits from U.S. LNG projects depend on a variety of assumptions. Roughly 25,000 direct construction jobs would be created if all the projects are built. Increasing the U.S. natural-gas production base by another 13 billion cubic feet might translate to 450,000 direct and indirect jobs and $16 billion in annual tax revenue for federal and state coffers.

It's easier to forecast improved trade balances. Exporting 13 BCF per day of LNG could generate about $45 billion annually. Reaching Pickens' goals could offset another $70 billion annually of oil imports.

Exporting energy, however, rubs a lot of people the wrong way. Pickens wants cheap natural gas for his 18-wheelers and opposes LNG exports. Industrial gas users argue that a vibrant LNG industry would propel domestic gas prices higher. A study by Deloitte said that exporting six 6 BCF per day of LNG would raise wellhead gas prices by 12 cents per million BTU (about 1% on a retail basis). Advocates of "energy independence" argue that exporting LNG would tie U.S. natural gas prices to global markets.

The Energy Department's Office of Fossil Energy is considering whether exporting LNG is in the public interest. In the meantime -- shades of Keystone XL -- the department has effectively put a moratorium on new LNG export licenses.

Energy's decision-making process balances the extent to which exporting LNG drives up prices with the economic benefits of increased production and energy exports. The price assessment comes at a time when U.S. gas fetches the same price in constant dollars as it did in 1975. Producers are now shutting down production and lowering exploration budgets. The shale-gas "job machine" is now in reverse.

Energy's price study, released in January, found that exporting six BCF per day would increase wellhead prices by 50 to 60 cents per million BTU by 2026. The study has a myriad of assumptions and scenarios, the most fundamental of which is future gas production. In 2007, Energy predicted the U.S. would be importing 12.3 BCF a day of LNG by 2030 due to falling gas production. But primarily because of the shale-technology phenomenon, wellhead prices have tumbled from $6.25 six years ago, even as demand increased by eight BCF per day. That demand figure is larger than the six BCF assumption of the Energy study. The Energy Department is not particularly to blame, as most forecasters got it just as wrong on gas production.

Ideally, the Energy Department should move quickly and recognize free-market principles. And the administration could send a clear policy signal that natural gas is integral to the country's energy future and that exporting LNG is good economics and consistent with its 2010 State of the Union address to double U.S. exports over five years and create two million new jobs. But Energy is moving slowly, and administration signals on natural gas are mostly lip service. The economic-benefits study should have been done by the end of March. But last week, Energy delayed its release until late summer, and said there is no timeline to review results and develop policy recommendations. Translation: after the election.

While we are fantasizing, the government could stop singling out the job-creating energy industry for higher taxes, emphasize cost/benefit analysis before adding further regulation to energy production, and get out of the business of regulating LNG exports altogether, which smacks of protectionism. To that end, should we also give veto authority to the Agriculture Department over grain exports (to lower corn prices) and the Commerce Department over auto, airplane and smartphone exports? 

JOHN R. SIEGEL is the president of J.J. Richardson, a registered investment advisor that manages a hedge fund in Bethesda, Md.

 

The Myth of Japan’s Failure

In this article, the author said that while Japan is often quoted by many experts as an example of "Lost Decades", Japan’s achievement is all the more impressive. Japan should be held up as a model, not an admonition.

Read more on The Myth of Japan’s Failure By EAMONN FINGLETON who predicted the Japanese financial crash of the 1990s