Tuesday, April 19, 2011

Intel's net jumps 29 pct as businesses snap up PCs

By JORDAN ROBERTSON

Intel's earnings rose 29 percent as strong spending by businesses on new computers helped the company overcome a serious product design error and fallout from the deadly earthquake and tsunami in Japan. An extra week in the quarter also helped.

Net income was $3.16 billion, or 56 cents per share, higher than the 46 cents per share that analysts polled by FactSet expected. A year ago, Intel earned $2.44 billion, or 43 cents per share.

Revenue was $12.8 billion, up 25 percent from $10.3 billion a year ago and higher than the $11.6 billion that analysts expected.

The revenue forecast was stronger than expected.

Intel predicted second-quarter revenue of $12.3 billion to $13.3 billion. Analysts expected $11.9 billion.
Intel admitted to a serious design error in one of its chips.

Yahoo 1Q results top analyst views; stock climbs

By MICHAEL LIEDTKE

Yahoo Inc.'s first-quarter earnings turned out better than analysts expected as online display advertising sales picked up.

The results released Tuesday could help Yahoo CEO Carol Bartz persuade skeptical investors that the company is improving after years of aimlessness.

"Our turnaround is proceeding on schedule," Bartz assured analysts in a conference call. "We are very confident we are headed in the right direction."

The initial reaction was positive. Yahoo shares gained 53 cents, or 3.3 percent, to $16.65 in extended trading.

The company earned $223 million, or 17 cents share, for the first three months of the year. That's a 28 percent decline from $310 million, or 22 cents per share, a year ago.

Excluding unusual gains and charges in both periods, though, Yahoo's earnings would have increased by 4 cents per share compared with last year.

Analysts surveyed by FactSet expected earnings of 16 cents per share.

Revenue fell 24 percent to $1.21 billion. The big decline stemmed from a search partnership with Microsoft Corp.

In a gauge followed more closely by Wall Street, Yahoo's revenue came in at $1.06 billion after subtracting ad commissions. That was $10 million higher than analyst estimates.

IBM earnings up 10 percent, helped by weak dollar

By PETER SVENSSON

IBM Corp. on Tuesday reported stronger-than-expected net income and revenue for the first quarter, helped by the weak dollar and strong performance in the U.S. and emerging markets.

IBM also raised its full-year forecast for operating earnings.

Net income rose 10 percent to $2.86 billion, or $2.31 per share. In the year-ago period, IBM earned $2.6 billion, or $1.97 per share.

Excluding mostly acquisition-related charges, earnings were $2.41 per share, beating the average analyst estimate as polled by FactSet of $2.29.

Revenue rose 8 percent to $24.6 billion. Analysts expected $24.02 billion. The increase would have been 5 percent at a constant currency, IBM said.

IBM said it expects full-year operating earnings of "at least" $13.15 per share, up from an earlier forecast of $13.

In extended trading, after the release of the results, IBM shares were down $2.65, or 1.6 percent, at $162.75. The shares are close to their all-time high of $167.72.

Hardware sales did particularly well, rising 16 percent at constant-currency rates from last year. In the largest segment, Technology Services, revenue rose just 3 percent.

See the original article >>

LEAKING VOLATILITY

By Rohan Clarke

Interesting article at Zero Hedge over the weekend (here and follow-up via Alphaville here) – where Tyler speculates as to whether the Fed has been aggressively selling volatility on Treasuries. The recent plunge in volatility, as measured by the MOVE index, looks remarkably similar to a fall that occurred at the end of QE1. Logic is against such a trade given that the end of QE should herald in more uncertainty not less.
Just how close the theory is to the truth is unlikely to see the light of day in the near term. It’s a persuasive case in some respects – so maybe there is a smoke and fire correlation.

In any event, as the largest single holder of Treasuries, the Fed is clearly very exposed to higher rates – and it’s adding to this risk with every suck on the QE pipe. Should the curve spiral higher for whatever reason, imploding the Fed’s balance sheet, the chances of a Congress led revolt will rise materially. Ultimately, it’s this type of cause and effect that is likely to bring an end to any successive QE…
__________________________________________________________________________________________
Now this is not to say that Treasury yields are about to explode with the imminent pulling of the Fed’s bid. If anything, in the near term it looks like the removal of the liquidity drip is likely to promote a return of Treasury safe haven buying.

To summarise the argument – current risk asset prices have stalled and require ample and growing liquidity to be sustained. Unfortunately, the exact opposite is likely occur – as China and Europe tighten and the US removes the QE stimulus. Therefore we expect risk prices to weaken and equity volatility to emerge from its liquidity induced slumber. In this environment, Treasuries will catch a safe-haven bid.
One chart that we follow around here that tracks the relationship between equity volatility and price is the following:
We’d normally look for a divergence between the performance of the actual and implied versions of reality – nervousness in options markets often leads the underlying index. So it’s interesting that the implied model has recently made a new high, while the actual index failed at its last attempt. Either equities have another leg up left in them, or the option pit has capitulated and joined the all-in punt.

Hay prices may 'spike', even if cattle futures dip

by Agrimoney.com

Hold on to your hay. Prices of the fodder may "spike" thanks to the high prices of feed grains, even if – in fact, especially if – livestock values fall.
Hay prices have lagged other feed sources since the grains rally started last June, with official data showing prices of baled US alfalfa rising 17% since then to $136 a tonne.
This reflects a long-term trend, fuelled by the reduction in the US cattle herd, which has declined to its lowest levels since the late 1950s.
Hay values have risen some 60% since 1990, compared with a more than doubling in prices of feed grains, such as corn, which have found alternative industrial uses as sources of ingredients and biofuel.
Herd expansion?
However, hay prices may play some catch up, if rises in cattle prices to a record high earlier this month encourage cow-calf producers to attempt to raise their game, raising demand for quality fodder.
"It is important to keep in mind that for cow-calf producers, no expansion will take place unless they have enough grass on their pastures to feed an expanding herd and there is enough hay availability to cover their needs over the winter," a report from Paragon Economics and Steiner Consulting said.
Yet supplies face a double whammy, first from a lower area allocated to the crop, as farmers plough up alfalfa to make way for the likes of corn, which set a record price last week in Chicago.
The US Department of Agriculture forecasts America's hay area falling by nearly 900,000 acres to a 17-year low just below 58m acres, the fourth-lowest figure on record.
'Running low on hay'
Secondly, dry weather in the southern Plains, where one-third of the US cattle herd are stationed, could lower hay quality as well as increase demand for fodder.
USDA officials on Monday highlighted that in Oklahoma, one of the biggest cattle states, the dire condition of pasture, of which 59% was rated "poor" or "very poor", had prompted a switch to alternative feed and meant "producers are running low on hay".
Paragon Economics and Steiner Consulting said: "Drought in the southern Plains is a significant concern going into the summer. If there is not enough moisture now, how will those pastures be in July and August?"
'Spike in values'
While it is possible that a decline in cattle prices, which some analysts believe have passed a seasonal peak and set in for a falling trend, by decrease the enthusiasm of breeders for maximising calf production, that may not prevent hay values falling thanks to a knock-on effect from feedlot dynamics.
Feedlots have been hoovering up available supplies of feeder cattle to fatten on grain-based diet, reducing the number of animals relying on other fodder sources.
Indeed, this dynamic, which is expected to see USDA data on Thursday show a rise of 6-8% in livestock placements on feedlots last month, has been a big factor in curbing the rise in hay prices.
"If cattle prices stall, however, the situation could reverse and we could see a spike in hay values," Paragon and Steiner said.
In hedge fund terms, alfalfa prices would gain a bit of alpha.

See the original article >>

Will China’s Economy Overheat?


China’s GDP growth continued at a blistering pace during the first quarter of 2011, rising 9.7 percent from the previous year, according to economic data released today from the People’s Bank of China. Once again this outpaced many forecasts—even that of the Chinese government—and reignited the discussion of China’s overheating economy. While its robust growth may raise a few eyebrows, the economy isn’t in danger of “red-lining.”

Andy Rothman, from Credit Lyonnais Securities Asia (CLSA) points out that the first quarter growth figures “[aren’t] dangerously high given the GDP growth rate and strong income growth” in the country. After rising nearly 8 percent during 2010, inflation-adjusted urban incomes rose 7.1 percent during the first quarter, according to CLSA. Rural incomes grew at 14.3 percent, up from just under 11 percent in 2010.

Fixed asset investment (FAI) also remains strong. China’s FAI grew 25 percent during the first quarter, a reversion to the long-term pace of FAI growth China saw for six-straight years prior to the government’s stimulus plan in 2009.


This pace is supported by a property sector that refuses to slow despite Beijing’s multiple efforts to tap the brakes. Property sales grew 15.8 percent on a year-over-year basis and commodity housing starts grew 19.5 percent in March. You can see from this chart that this is a much more manageable pace than the stimulus-induced spike we saw in March 2010. Current levels are much more on par with long-term trends.

Much has been said about empty housing prices in cities such as Shanghai and Beijing but UBS says that the sharp drop of sales in tier-1 cities have been more than offset by strong sales in most tier-2 and tier-3 cities. These are cities, such as Taiyuan and Xi’an in northwest China, which generally have urban populations of about 4-to-6 million people and are located away from China’s densely populated coastal areas.

Development in the interior has been a substantial driver in continuing China’s rapid growth. Insatiable construction demand from these inland regions helped push sales of wheel loaders—up 45 percent—and excavators—up 58 percent—during the first quarter. In addition, planned investment of FAI under construction rose 19.1 percent, according to CLSA. In addition, the government’s plans for extensive investment in social housing development—10 million units this year, in addition to carry-forward projects from last year—should provide an extra boost.

Chinese trade data released last week showed a 32.6 percent rise in imports during the first quarter. This figure includes a 12 percent rise in crude oil, 38 percent rise in metal-cutting machinery and a 32 percent rise in auto/auto-chassis from a year ago.

All of these factors are very supportive of demand for commodities such as cement, iron ore and copper.
China’s biggest threat continues to be inflation. The country’s Consumer Price Index (CPI) rose 5.4 percent in March, the largest rise in nearly three years. This is certainly something to keep an eye on but not yet at the levels needed to hinder growth or, more importantly, cause social unrest. Chinese government has been pulling all stops to curtail inflation. Recently, 24 commerce associations across the country have made a joint statement to support the government’s effort to defeat inflation. China Premier Wen Jiabao called on local government officials last week to help stabilize consumer product and housing prices.


Food prices rose about 11 percent in March, contributing about two-thirds of the increase in CPI. You can see from this chart that if you exclude food and residential inflation—which was up 23 percent—the inflation levels appear quite manageable. 

The rise in food prices is a result of external factors and not symptomatic of an overheating economy. However, the rise in incomes we referenced previously negates a portion of this. In addition, CLSA’s Rothman thinks we are either at or close to the peak in food price inflation. 

China’s March money supply (M2) growth rate was 16.6 percent. This was higher than February but 3.1 percent lower than the same period last year. This may be close to the government’s target money growth rate since it is in line with those prior to financial crisis. We think there is still room for money supply to further contract without damaging the government’s target GDP growth rate.


To control money supply, the People's Bank of China (PBOC) raised its reserve requirement ratio (RRR) for the fourth time this year, bringing the ratio to a record high of 20.5 percent. This is tenth increase since the beginning of 2010. The chart on the left shows how this has effectively slowed bank lending, and thus, money supply. Given that China’s inflation battle is not over yet, we believe the PBOC will continue to raise RRR as needed to further slow money supply.
The chart on the right shows that bank lending is declining in China. After adding Rmb 679 billion new bank loans in March, China’s total bank lending this year is Rmb 2.24 trillion. Without an official loan target for this year, the market’s opinion is that the unofficial PBOC target is around Rmb 7.5 trillion—roughly the same as in 2010.

However, the current new loan speed is certainly more than the PBOC can allow. We expect the PBOC may allow a little more lending earlier in the year, before tightening more toward the end of the year, after a clearer picture forms of where the economy is headed.
Other tightening policies are likely to be completed by the first half of the year and with inflation apparently under control, money supply back to historical levels and food prices peaking, it appears that the government will be successful in engineering a soft-landing.
China analysts Xian Liang and Michael Ding contributed to this commentary.
Percentages refer to year-over-year (yoy) change unless otherwise specified.

See the original article >>

S&P Downgrade Shows U.S. Debt Crisis Could Have Dire Consequences


Martin Hutchinson writes: The latest development in the U.S. debt crisis came yesterday (Monday) when Standard & Poor's finally downgraded its outlook for U.S. debt to "negative," from "stable." 

That's right: Of the 17 countries that S&P has rated AAA, the United States is the only sovereign that carries with it a negative outlook.

This merely confirms what we've been saying all along about the complete lack of fiscal discipline on display in Washington - and it has potentially dire implications for the U.S. economy.

Fortunately, as an investor, there are steps you can take to safeguard yourself against the abhorrent fiscal and monetary policy that has resulted in this U.S. debt crisis.

I'll get to that later - but first, let's examine how we got to this point...

The Nexus of the U.S. Debt Crisis

First, the obvious: Deficits are a lot harder to get rid of than they are to incur. 

That's particularly true in the United States, where spending cuts and tax increases are very hard to enact, and spending increases and tax cuts virtually enact themselves.

Remember, the $787 billion U.S. Recovery and Reinvestment Act was passed in a couple of weeks in 2009, whereas it took Congress three months and a near-shutdown of the government to agree on a mere $38 billion of 2011 spending cuts. 

Of course, it wasn't always like this.

Traditionally, governments thought they had little alternative but to balance the budget, or risk an economic collapse. The required self-discipline was best demonstrated by Lord Liverpool's British government, which in 1815 inherited the largest public debt that any country has successfully conquered - about 250% of Britain's 1815 gross domestic product (GDP). 

Even back then, there were voices like Henry Brougham advocating a loose monetary policy that would reduce the real value of the debt, satisfying the government's obligations by cheating the bondholders. Liverpool's government, however, was made of sterner stuff; it raised taxes on imported food through the notorious Corn Laws, took the country back on the gold standard - which involved a price deflation of about 20% -- and cut public spending to the bone. 

The short-term result was a huge economic boom, which within a decade produced substantial budget surpluses and reduced the debt's burden to manageable levels. The long-term result was a century of stable prices and prosperity, at the end of which the debt was lower in nominal terms than it had been in 1815, and GDP was about 10 times higher.

The blame for eradicating that admirable attitude towards deficits and debt can be laid squarely at the feet of John Maynard Keynes. His spurious justifications for increasing government spending in depressions and reducing it in booms were used to create deficits, and never surpluses (except accidentally, as in 1998-2001). 

When Britain in 1945 was faced with a similar but smaller debt problem to that of 1815, it increased public spending rather than decreasing it, and sorted out the debt by creating inflation. Thus it balanced the government's books by robbing bondholders like my Great-Aunt Nan, who was reduced to penury before her death in 1974.

It is now very clear that the approach of U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke to public debt is similar to that of the British leaders Clement Attlee and Hugh Dalton after 1945. They created a huge wave of unproductive spending when faced with recession in 2009, most of which became locked into the "baseline" expenditure for future years - thus preventing the budget from ever approaching balance. 

Their strategy for tackling the resulting debt is the same as that of Britain after 1945: Create inflation and watch it magically melt away, becoming a smaller and smaller percentage of a GDP that is inflating in nominal dollars. 

Of course, there are two problems with that approach. One is that there are no longer sweet old ladies like my Great-Aunt Nan that can be leveraged to absolve the U.S. debt crisis. Instead, much of the debt is held by Asian central banks and the Middle Eastern ultra-wealthy. They probably won't like being swindled in this way, and will find some way of getting revenge.


The second problem is that the policies of ultra-low interest rates, huge public deficits and increasing inflation are very bad for the real economy. They encourage banks to engage either in speculation or to simply buy government bonds and finance them short-term. Neither activity directs money to small businesses, which create jobs. 

Companies also are encouraged to invest in new factories, mostly outside the United States, while cutting labor forces to the bone - since capital is cheap and U.S. labor is relatively expensive.
Those two factors explain why GDP growth in this recovery has been sluggish and high unemployment has been so persistent. Indeed, long-term unemployment is almost half total unemployment at present, far above its level in previous post-war recessions - and that's not counting those who drop out of the workforce altogether. 

Worse, years of ultra-low interest rates are as bad for the nation's social fabric as they are for the economy as a whole, because they produce a huge pool of unemployables, encourage gambling, and discourage true entrepreneurship and hard work. 

Liberals inclined to doubt my analysis should reflect on one thing: What kind of society do we have when Donald Trump is leading the polls for the Republican Presidential nomination? If the Fed had maintained normal interest rates following the recent real estate crash, that overleveraged real estate and casino speculator would be too busy fighting for his financial life to finance a run for high office.

The Bottom Line: Liverpool's budgetary austerity was rewarded by a massive economic boom, which was the core of the first Industrial Revolution. And the United States would see similar results if it made that approach its own.

Of course, that is hopelessly unlikely in the near term, so buy gold and sell Treasury bonds. It won't entirely mitigate the economic unpleasantness ahead, but it will help you avoid the sad financial fate of my Great-Aunt Nan!

Action to Take: The U.S. Federal Reserve's loose monetary policy and the Congress' inability to rein in the U.S. debt load have undermined both the dollar and the economic recovery.
There is no safe place to hide, but owning gold and other precious metals like silver could go a long way toward preserving your wealth. 

In fact, I would recommend you have at least 15% to 20% of your portfolio in gold and silver, the traditional inflation hedges. For detailed instructions on how to stock up on these metals see Money Morning's special reports: "How to Buy Gold" and "How to Buy Silver."

Of course, the short story is that both metals have exchange-traded funds (ETFs) that track their price fluctuations: The SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV).
[Editor's Note: Earthquakes and nuclear meltdowns in Japan, soaring food-and-energy prices, a numbing federal debt load and savings-account rates that make your mattress an alluring place to stuff your money ... it's enough to make the typical investor surrender.

Worrying about QE2


The end of the Fed's program of quantitative easing will bring plenty of bumps but won't crash the US economy. Emerging markets could be in for a rockier road.

What happens in June when the U.S. Federal Reserve stops buying $100 billion in U.S. Treasury notes every month as part of the program of quantitative easing know as QE2?
You've heard the wails of worry. Which buyers, if any, will pick up the slack when the Fed exits this market? At the least, U.S. interest rates will have to rise to attract those additional buyers. At the worst, a lack of buyers will tip over the entire tower of cards that is U.S. government finances.

And I'm starting to hear another, still-building cacophony of worry. The Fed's most recent program of bond buying will have put $600 billion into the U.S. money supply by the time it's over in June. A significant portion of that hasn't stayed in the United States. Instead, some of that money has gone overseas, seeking better returns in Brazil, China, Turkey and Indonesia than it can get in any domestic U.S. market.

What will happen, the emerging worry goes, when this hot money starts to flow out of the financial markets in Brazil, China, Turkey and Indonesia? Won't the flight of this hot money create another global financial crisis akin to the Asian currency crisis of 1997 that brought the world to the brink of a financial meltdown?

The key thing that both these scenarios have in common is that they envision a big blow-up -- that things will go wrong quickly and in a big way.

Actually, I think, the most likely scenarios have less in common with the Hindenburg disaster than with a slow leak from an inflatable plastic model of the globe. In other words, the end of QE2 will bring not a bang of disaster but a whimper of pain. But investors still need to pay attention.

First worry: Who will buy our Treasurys?

Unless you've got some secret alternative global currency that investors, institutions and central banks can buy instead of the dollar, I don't think this question as dire as it seems.

The foundation of this worry is a belief that overseas investors have so many dollars already in their portfolios that they certainly won't buy more. At the moment, that does not seem to be the case. Foreign investors as a whole -- and this includes the world's central banks -- owned $4.45 trillion in Treasurys as of January 2011. That's up from $3.7 trillion in January 2010.

You may find this hard to fathom -- I know I've got trouble wrapping my mind around it. Given the size of the U.S. budget deficit, why would any sane investor buy U.S. government paper? The U.S. budget deficit for the fiscal year that ends in September is 10.5% of GDP. Greece, where 10-year bonds yield more than 13%, shocked investors when the 2010 budget deficit was revised upward to 10.5%. The yield on the 10-year Treasury is, in contrast, 3.41%.

But the United States is not Greece in some critical ways. First, Greece is saddled with the euro, which is run by a distant central bank. The United States, in contrast, controls its own currency. Greece can't depreciate the euro to restore the competitiveness of its economy. Instead, restoring the profitability of the deeply uncompetitive Greek economy so the country can pay off its debt will require very painful long-term reductions in the pay that Greeks take home for their work. Frankly, I doubt that Greece can get there using that method. The country will have to restructure its debt, even though its leaders are now insisting it has no intention of doing so.

The United States, on the other hand, can depreciate the dollar -- let the value of the dollar sink so that it can pay back what it owes in cheaper dollars. I know this possibility is often greeted with horror. The United States has no intention of paying back its debts, the criticism goes. It will just depreciate its way out of the current mess.

That is a problem, especially in the long run, if creditors decide that the United States lacks the intention or ability to pay its debts. Then the U.S. could see the same kind of buyers' strike that Greece, Portugal and Ireland have gone through -- but without the backup of buying from a central bank. There simply isn't a central bank in the world big enough to provide that support.

But a depreciating dollar that's combined with a reasonable budget deficit reduction plan is something else entirely. That's just business as usual: The world's bondholders recognize that the United States will have to let the dollar depreciate in order to reduce the U.S. balance-of-payments deficit with the rest of the world. An orderly reduction of that deficit because of a slipping dollar would, in fact, be a good thing in a world that can't keep running huge surpluses in some economies and a huge deficit in the United States.

Whether the world can engineer that kind of orderly rebalancing is an open question. Right now the odds aren't good. In fact, on April 18, Standard & Poor's lowered its outlook on U.S. debt to "negative," citing concerns that policymakers would not be able to agree on how to address the country's fiscal problems. Stocks plunged in response.

Foreign money has nowhere else to go, for now

The biggest thing the U.S. Treasury market has going for it is the disarray in financial markets that might otherwise provide reasonable alternatives in the volume that global investors need. The euro is still in crisis, and the euro bloc of nations looks further away from a solution to the problem than it did six months ago. Japan's budget is even further out of balance than that of the United States -- the yen may be a great currency to borrow if you want to invest somewhere else, but Japanese government bonds are even less attractive than U.S. Treasurys in the long run. The Chinese yuan may be an alternative to the U.S. dollar someday, but not until the Chinese government decides that its currency is fully and freely convertible.

All this may explain why, despite saber-rattling about diversifying out of the dollar, foreign central banks bought 60% of the $66 billion in 10-year Treasury notes sold this year.

As long as U.S. inflation remains subdued -- and the data released on April 15 show U.S. core inflation (the number the Federal Reserve cares about) running at an annual 1.2% rate as of March, with headline inflation at an annual 2.7% -- I think the Treasury market will be able to absorb the end of the Federal Reserve's buying program. U.S. interest rates may move up slowly as the U.S. dollar falls -- if the euro crisis moderates so that the European Central Bank can continue to raise its benchmark interest rate.

The biggest chance of a "big bang" disaster will come not when the Fed stops buying but when, in order to fight inflation, the Fed needs to start selling the some of the assets that it piled on its balance sheet in QE1 ($1.3 trillion) and QE2 ($600 billion). Then investors will get to see how big the world's appetite for Treasurys truly is.

I think that challenge is a question for 2012 and not this year. And if you think what I'm saying is that the Federal Reserve will be able to kick its balance-sheet problem down the road for another year -- assuming that our politicians don't send the country into default in July in the battle over raising the debt ceiling -- then you're exactly right.

That doesn't mean the end of QE2 can't have some wicked, though less than disastrous, effects in 2011. Even a small increase in U.S. interest rates from the end of QE2 could significantly slow growth in the U.S. economy when it's added to higher oil prices and to the cuts made so far in federal and state government spending. Each of these measures is a small drag on growth in the economy. Together they're enough to produce a slowdown in U.S. growth that's noticeable, even if well short of a return to recession. Looking at the combined effect of all these factors on U.S. economic growth is one reason why I think the U.S. stock market won't do as well in the second half of 2011 as it will in the first half.

That's my take on worry No. 1. Now what about worry No. 2?

A good deal of the money that the Federal Reserve pumped into the U.S. financial markets through QE2 didn't stay in those markets. Instead, it went looking for better returns elsewhere in the world. Since the start of QE2 back in November through February 2011, about $58 billion of that money went into emerging financial markets, according to EPFR Global, a company that researches fund flows. Of that $58 billion, about $12 billion went into emerging market bonds and $46 billion into emerging market stocks. That flow of cash is one reason why emerging market stocks were up about 6% in 2011 as of March 31 and emerging market bonds were up 1%.

What happens when those cash flows reverse and this hot money starts to flow out of these emerging markets? The worst imaginings result in something like a replay of the 1997 Asian financial crisis, when outflows of hot money took down stock markets in countries that included Thailand and Indonesia, requiring major rescue efforts by the Federal Reserve and the International Monetary Fund to prevent a global financial market meltdown.

Less catastrophic scenarios merely call for an extended correction in emerging market stocks. Emerging market stocks recently traded at a 10% premium to developed market equities, Alain Bokobza of Société Générale calculated in the Financial Times on April 14. With the end of QE2, that could turn into a 15% to 20% discount by the end of 2011, he said. To buttress his argument, he notes that stocks in India trade at three times book value despite inflation well above 8% and with the prospect of more interest rate increases from the Reserve Bank of India.

I think investors can rule out a repeat of the 1997 Asian crisis. Then, the countries involved had built up debt loads that left them dependent on hot money. They didn't have the kind of foreign exchange reserves that emerging market countries do now. China's $3 trillion in foreign reserves is by far the largest fund, but Brazil, India and South Korea each come in near $300 billion. Even Thailand, a country that was at the locus of the crisis, now has reserves near $200 billion.

In 1997, when overseas hot money fled as asset bubbles in these countries burst, some emerging market countries, Thailand, for example, found themselves essentially bankrupt. I don't think recent asset bubbles are big enough to sink these countries' economies -- which are now much bigger and have better reserves. That doesn't mean, of course, that individual banks in these economies couldn't find themselves overexposed to bubbles in real estate and consumer loans.

The second-worst scenario, a 15% to 20% correction in emerging market stocks, is certainly possible. (And while I wouldn't enjoy that, please remember my Rule of Two -- that emerging markets are about twice as volatile as developed markets -- so a 20% drop in emerging market stocks is not a bear market, as it would be in the United States, but instead roughly equivalent to a 10% correction.)

I think this scenario is unlikely because it ignores the positive effects of the end of QE2 on emerging economies. An end to heavy flows of hot money would reduce the upward pressure on the currencies of these countries. That would give relief to exporters in economies such as Brazil that now say they are being priced out of global markets, and thus it would add to economic growth in these economies. It would also give these countries' central banks more room to fight inflation, thus bringing interest rate cycles to a quicker end. (Central banks in some countries have been reluctant to raise interest rates to fight inflation because higher rates would attract more hot money from overseas, pushing up the domestic currency even more and hurting national exporters.)

Reversing the flow of hot money out of emerging economies into the U.S. economy would also, quite possibly, strengthen the U.S. dollar. That in itself would lower global commodity inflation, since global commodities priced in dollars go up in price when the dollar falls.

But it's not clear to me how quickly these flows would reverse. About $15 billion, or one-third of the money that flowed into emerging market equities from the start of QE2 in November 2010 through February 2011, has flowed back out of these markets since then, according to EPFR Global. That's either a lot -- if you look at how fast it happened -- or not very much, considering the outperformance of the U.S. stock market in 2011.

And there is, of course, just the little question of how fast this money will flow out of these emerging markets if investors see slowing economies in Europe and the United States. But whichever way you look at it, that outflow hasn't tanked emerging market stocks.

I think the course of worry No. 2 depends on the timing of the inflation battle in emerging economies. The longer the fight drags on and the more growth that central banks need to take out of these economies, the more hot money will flow out of emerging stock markets.

That question will be answered on a market-by-market basis as investors see that the inflation/interest-rate/economic-growth story is very different for a Chile, a Brazil, a China or an India.

That's the reason that I've urged investors to be very selective when they allocate money to emerging markets now. To repeat, you want to put money into economies that are close to the end of their cycle of interest rate increases and to hold off on investing in countries where the length of the battle is still open.

At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. Find a full list of the stocks in the fund as of the end of March here.

Johnson & Johnson's 1Q net income falls 23 percent

By LINDA A. JOHNSON

Health care giant Johnson & Johnson said Tuesday its sales rebounded but its profit dropped 23 percent in the first quarter because of higher costs for recalls and litigation and a tax gain that boosted last year's results.

Adjusted earnings topped analysts' expectations. J&J also raised its full-year earnings outlook, sending the company's stock up $1.34, or 2.2 percent, to $61.80 in premarket trading.

The maker of Band-Aids, baby shampoo and birth-control pills posted net income of $3.48 billion, or $1.25 per share, down from $4.53 billion, or $1.62 per share, in 2010's first quarter.

But after an unprecedented two years of declining sales, revenue rose in the quarter by 3.5 percent, to $16.17 billion from $15.63 billion.

Adjusted income was $4.86 billion, or $1.35 per share. Analysts polled by FactSet, on average, expected earnings per share of $1.03 and revenue of $15.6 billion.

Johnson & Johnson, based in New Brunswick, N.J., raised its profit forecast for the year to $4.90 to $5 per share, from $4.80 to $4.90 per share. Those figures exclude any one-time charges or gains. Analysts previously expected $4.84 per share.

Overseas revenue jumped 7.3 percent, to $8.57 billion, offsetting a 0.6 percent decline in U.S. revenue to $7.61 billion. Domestic sales have been hurt by an embarassing string of 22 recalls of products including Tylenol and Benedryl over the last 19 months and the year-long closure of a consumer health products factory where many of the recalled medicines were made.

Consumer product sales decreased 2.2 percent to $3.68 billion as a 5.9 percent rise in overseas sales was wiped out by a 13.8 percent plunge in the U.S., mainly due to the recalls.

Drug revenue rose 7.5 percent worldwide, to $6.1 billion, and sales of medical devices and diagnostic products edged up 3.3 percent, to $6.43 billion.

"Our pharmaceuticals business demonstrated strong growth this quarter led by the performance of newly launched products," CEO William Weldon said in a statement. "We delivered solid earnings while making investments necessary to advance the robust pipelines across our business."

J&J took after-tax charges totalling $271 million for litigation and costs of additional recalls of DePuy artificial hips.

It also reported higher costs for production, sales and administration, and research and development. A year earlier, the quarter's results were buoyed by a $910 million after-tax gain related to litigation.

See the original article >>

Goldman posts 72 percent drop in quarterly earnings

by Reuters

Goldman Sachs Group Inc posted a 72 percent drop in first-quarter profit to shareholders as it made less money from trading bonds for clients. The largest U.S. investment bank posted a profit to common shareholders of $908 million, or $1.56 per share, compared with $3.3 billion, or $5.59 per share, in the same quarter a year ago.

Following is a selection of initial comments by analysts:

JOERG RAHN, CHIEF INVESTMENT OFFICER , MARCARD, STEIN & CO, HAMBURG

"These are good results. Yes, expectations weren't gigantic but they were beat nevertheless. As an investment bank, Goldman is a good indicator for the global M&A and IPO markets so overall this is encouraging going forward."

MATT MCCORMICK, PORTFOLIO MANAGER, BAHL & GAYNOR INVESTMENT COUNSEL, CINCINATTI

"It looks like Goldman had a good beat. It puts them up in the category of JPMorgan Chase. My guess is they'll be rewarded for it today as the market looks for a bit of a snapback for financials." The decline in fixed-income trading revenue was "a little bit higher than I expected, because I expected Goldman Sachs to be the best in class on that issue, but all their other peers seem to be facing the same challenges. I don't think the market will focus on that."

PETER CARDILLO, CHIEF MARKET ECONOMIST, AVALON PARTNERS, NEW YORK

"Goldman Sachs is a bellwether and these numbers will probably begin to calm some of the fears that the market has been worried about. It should help alleviate some of the fears and we could regain some of yesterday's losses."

GARY TOWNSEND, CEO, HILL-TOWNSEND CAPITAL, CHEVY CHASE, MARYLAND

Townsend said Goldman's toughest problem going forward would be its relationship with the U.S. government: "The government seems interested in diminishing franchise value. The report from (Senator Carl) Levin is just the most recent example."

MICHAEL NIX, CO-CHIEF INVESTTMENT OFFICER, GREENWOOD CAPITAL ASSOCIATES, GREENVILLE, SOUTH CAROLINA

"The numbers are pretty good I guess. They executed fairly well during the quarter. But if you look back three weeks ago, the consensus estimate was around $3.80 a share. That's pretty significant compression of earnings expectations over the last few weeks, and I wonder whether people pushed that down a little bit too far. I think you have to take these numbers with a little bit of a grain of salt. I hate to get too excited when the reality is this would have been a significant earnings miss a couple weeks ago."

Financial Scam Behind Rising Crude Oil and Food Prices?

By: Danny_Schechter

The global economy and its recovery, and the living standards of millions of plain folks, are now at risk from the sudden rise in oil and commodity prices. 

Gas at the pump is up, and going higher. Food prices are following. 

The consequences are catastrophic for the global poor as their costs go up while their income doesn’t. It’s menacing American workers too, who in large part have not seen a meaningful raise since the days of Reagan (keeping it this way is clearly behind the current flurry of attacks on unions). 

Already, unrest in the Middle East and many African countries is being blamed for these dramatic increases. It seems as if this threat to global stability is being largely ignored in our media, one that treats the oil business as just another mystical world of free market trading. 

Why is it happening? Why all the volatility? Is oil getting scarcer, leading to price increases? Is the cost of food, similarly, a reflection of naturally increasing commodity prices? 

While it’s true that natural disasters and droughts play some role in this unchecked price inflation, it also seems apparent that something else is attracting increasing attention, even if most of our media fails to explore what is a political time bomb while most political leaders shrug their shoulder and ignore it. 

President Obama recently said there is nothing he can do about the hike in oil and food prices. 

Critics say the problem is that government and media outlets alike refuse to recognize what’s really going on: unchecked speculation! 

Not everyone buys into this suspicion. In fact, it is one of more intense subjects of debate in economics. Princeton University economist Paul Krugman pooh-poohs the impact of speculation counter posing the traditional argument that oil prices are set by supply and demand. 

The Economist Magazine agrees, summing up its views with a pithy phrase, “Speculation does not drive the oil price. Driving does.” 

Others, like oil industry analyst Michael Klare of Hampshire College in the US see demand outdistancing supply: 

“Consider the recent rise in the price of oil just a faint and early tremor heralding the oilquake to come. Oil won’t disappear from international markets, but in the coming decades it will never reach the volumes needed to satisfy projected world demand, which means that, sooner rather than later, scarcity will become the dominant market condition.” 

Usually you hear this debate in scholarly circles or read it in political tracts where orthodox views collide with more alarmist projections about the oil supply “peaking.” 

But officials in the Third World don’t see the subject as academic. Reserve Bank of India Governor Duvvuri Subbarao charges "Speculative movements in commodity derivative markets are also causing volatility in prices," he said. 

The World Bank is meeting on this issue this week because it is seen as a matter of “utmost urgency.” 

“The price of food is a matter of life and death for the very poorest people in the world,” said Tom Arnold, CEO of Concern Worldwide, the international humanitarian agency, ahead of his participation at The Open Forum on Food at World Bank headquarters. 

He adds, “…with many families spending up to 80% of their income on basic foods to survive, even the slightest increase in price can have devastating effects and become a crises for the poorest.” 

Journalist Josh Clark argues on the website “How Stuff Works” that much of the oil speculation is rooted in the financial crisis, “The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you'll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much interrelated. Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures.” 

The debate within the industry is more subdued, perhaps to avoid a public fight between suppliers and distributors who don’t want to rock the boat. But some officials like Dan Gilligan, president of the Petroleum Marketers Association, representing 8,000 retail and wholesale suppliers has spoken out. 

He argues, “Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.” 

Now, a prominent and popular market analyst is throwing caution to the wind by blowing the whistle on speculators. 

Finance expert Phil Davis runs a website and widely read newsletter to monitor stocks and options trades. He’s a professional’s professional, whose grandfather taught him to buy stocks when he was just ten years old. 

His website is Phil’s Stock World, and stocks are his world. He’s subtitled the site, “High Finance for Real People.” 

He is usually a sober and calm analyst, not known as maverick or dissenter. 

When I met Phil the other night, he was on fire, enraged by what he believes is the scam of the century that no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence. 

He studies the oil/food issue carefully and has concluded, “It’s a scam folks, it’s nothing but a huge scam and it’s destroying the US economy as well as the entire global economy but no one complains because they are ‘only’ stealing about $1.50 per gallon from each individual person in the industrialized world.” 

“It’s the top 0.01% robbing the next 39.99% – the bottom 60% can’t afford cars anyway (they just starve quietly to death, as food prices climb on fuel costs). If someone breaks into your car and steals a $500 stereo, you go to the police, but if someone charges you an extra $30 every time you fill up your tank 50 times a year ($1,500) you shut up and pay your bill. Great system, right?” 

Phil is just getting started, as he delves into the intricacies of the NYMEX market that handles these trades: 

“The great thing about the NYMEX is that the traders don’t have to take delivery on their contracts, they can simply pay to roll them over to the next settlement price, even if no one is actually buying the barrels. That’s how we have developed a massive glut of 677 Million barrels worth of contracts in the front four months on the NYMEX and, come rollover day – that will be the amount of barrels "on order" for the front 3 months, unless a lot barrels get dumped at market prices fast.” 

“Keep in mind that the entire United States uses ‘just’ 18M barrels of oil a day, so 677M barrels is a 37-day supply of oil. But, we also make 9M barrels of our own oil and import ‘just’ 9M barrels per day, and 5M barrels of that is from Canada and Mexico who, last I heard, aren’t even having revolutions. So, ignoring North Sea oil Brazil and Venezuela and lumping Africa in with OPEC, we are importing 3Mbd from unreliable sources and there is a 225-day supply under contract for delivery at the current price or cheaper plus we have a Strategic Petroleum Reserve that holds another 727 Million barrels (full) plus 370M barrels of commercial storage in the US (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery. “ 

These contracts for oil outnumber their actual delivery, a sign of speculation and market manipulation, as oil companies win government authorizations for wells but then don’t open them for exploration or exploitation. It’s all a game of manipulating oil supply to keep prices up. And no one seems to be regulating it. 

What Phil sees is a giant but intricate game of market manipulation and rigging by a cartel—not just an industry—that actually has loaded tankers criss-crossing the oceans but only landing when the price is right. 

“There is nothing that the conga-line of tankers between here and OPEC would like to do more than unload an extra 277 Million barrels of crude at $112.79 per barrel (Friday’s close on open contracts and price) but, unfortunately, as I mentioned last week, Cushing, Oklahoma (Where oil is stored) is already packed to the gills with oil and can only handle 45M barrels if it started out empty so it is, very simply, physically impossible for those barrels to be delivered. This did not, however, stop 287M barrels worth of May contracts from trading on Friday and GAINING $2.49 on the day. “ 

He asks, “Who is buying 287,494 contracts (1,000 barrels per contract) for May delivery that can’t possibly be delivered for $2.49 more than they were priced the day before? These are the kind of questions that you would think regulators would be asking – if we had any.” 

The TV news magazine 60 Minutes spoke with Dan Gilligan who noted that, investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery." 

He says they make their fortunes “on the volatility that exists in the market. They make it going up and down."
Payam Sharifi, at the University of Missouri-Kansas City, notes that even as the rise in oil prices threatens the world economy, there is almost total silence on the danger: 

“This issue ought to be discussed again with a renewed interest – but the media and much of the populace at large have simply accepted high food and oil prices as an unavoidable fact of life, without any discussion of the causes of these price rises aside from platitudes.”
What can we do about that?

Standard & Poor's U.S. Sovereign Debt Downgrade Watershed Event

By: Richard_Mills

"Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation." ~ Congressman Ron Paul (R-TX)


Billions of Dollars


Declining confidence in paper money is pushing gold and silver from the shadows to center stage.



"The surge in commodity prices over the past year appears to be largely attributable to a combination of rising global demand and disruptions in global supply. These developments seem unlikely to have persistent effects on consumer inflation or to derail the economic recovery and hence do not, in my view, warrant any substantial shift in the stance of monetary policy." ~ Federal Reserve Vice Chairman Janet Yellen

"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen... the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil." ~ Frederic Bastiat (1801-1850)
The federal deficit this year is a record $1.6 trillion -- a number that requires the government to borrow 43 cents out of every dollar it spends. The US government's total debt will mushroom from $14.2 trillion now to almost $21 trillion by 2016.

Obama's projected $1.6 trillion deficit for the current year would be the highest dollar amount ever. It represents 10.8 percent of the total economy, the highest level since 1945 when the deficit was 21.5 percent of GDP and reflected heavy borrowing to fight the Second World War.

The president's 2012 budget projects that the deficits total $7.2 trillion over the next 10 years with the shortfalls never coming in below $607 billion.

Professor Peter Bernholz, from the University of Basel, examined 12 of the 29 hyperinflationary episodes where significant data exists.
"Hyperinflations are always caused by public budget deficits which are largely financed by money creation...The figures demonstrate clearly that deficits amounting to 40 percent or more of expenditures cannot be maintained. They lead to high inflation and hyperinflations."
Most analysts quote government deficits as a percentage of GDP:
"The president's projected $1.6 trillion deficit for the current year...would also represent 10.8 percent of the total economy."
This reporting is misrepresenting the true size of the problem because it doesn't say how big the deficit is relative to expenditures.

On February 14, 2011, President Obama released his 2012 Federal Budget. The report updated the projected 2011 deficit to $1.645 trillion. This is based on estimated revenues of $2.173 trillion and expenditures of $3.818 trillion.

He then unveiled a $3.73 trillion budget for 2012 with a projected deficit of $1.1 trillion - a lot of savings/cuts and revenue assumptions in the 2012 budget appeared to this author, to put it politely, to be pie in the sky. 

The savings and revenue projections have more to do with the 2012 election than reality - Obama is trying to appear fiscally responsible to the voters. It also doesn't look like either party can agree to any cuts except to those in someone else's (somebody from the other party) back yard.

The US government cannot sell enough of its debt to its own citizens and foreigners to finance its deficit and pay the interest on its existing debt.
"Yes, we are monetizing debt. You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time." ~ Thomas Hoenig, President, Federal Reserve Bank of Kansas City, early March 2011
The US government is already buying its own debt - this is the most inflationary thing a country can do - and it looks like we can expect this trend to continue and probably increase.

The Event

April 18th 2011 - Standard & Poor's Ratings Service lowered its long term outlook for the United States sovereign debt to Negative from Stable.

Moody's issued a warning earlier in 2011 saying that its rating could be downgraded if progress isn't made soon on the $1.5 trillion US budget deficit.

Conclusion

Are any countries in the world going to enter into a hyperinflationary episode anytime soon? This writer doesn't know - I do know we are experiencing inflation, I think it's going to get to much higher levels than today's and I've been saying so for quite a while.

Gold and silver shine brightest in inflationary times - when your cash is trash your gold and silver are shining - and history proves the greatest leverage to rising precious metal prices are junior companies involved in the discovery and development of precious metal projects.

Junior precious metal companies should be on every investors radar screen. Are they on yours?
If not, maybe they should be.

See the original article >>

Wheat prices soar as threats from dryness escalate

by Agrimoney.com

Wheat futures soared more than 3% in Paris, and 4% in Chicago, despite the US debt fears which sank many other markets, as weather fears prompted investors to reinject a risk premium into prices.
A range of assets sold off after Standard & Poor's cut to "negative", from "stable", its outlook for its rating on US sovereign debt, signalling that a downgrade may be on the way.
London shares ended down 2.1% and prices of many raw materials fell, including copper, which lost more than 1%, and New York crude, which shed 2.7%, with soft commodities also falling.
New York cocoa for May shed 3.5%, with losses also prompted by growing expectations of shipments out of Ivory Coast.
'Problems around the world'
However, grains - with gold, a safe haven in times of global uncertainty – showed substantial gains after weather forecasts over the weekend removed a forecast of rain for America's hard red winter wheat districts in the southern Plains, where grain ratings have suffered from a dearth of moisture.
"That's what started it, the idea that [the southern Plains] will not after all get rain on April 19-20," David Tallentis at WxRisk.com told Agrimoney.com.
While some models were now predicting rain for April 22-23, a series of wrong forecasts meant "people are getting pretty sceptical".
Furthermore, the forecast for northern Europe, where a lack of moisture is raising growing concerns for crops the region's four main grain-producing countries, including France, Germany, Poland and the UK, "still looks pretty dry".
"China is seeing problems too, especially in the north east. There are all sorts of problems all around the world."
'Not looking good'
Wheat for May closed 3.3% higher at E246.00 a tonne in Paris and, at 16:45 GMT, stood 4.5% higher at $7.78 a bushel in Chicago, regaining most of its losses of last week.
In Kansas, where the hard red winter variety of wheat is traded, the May lot added 4.2% to return back over $9, to $9.02 a bushel.
"If we did not have these negative outside market force, we would probably be limit up in wheat," Mike Mawdsley at Iowa-based Market 1 said. In Chicago, the maximum daily rise would take the grain to $8.04 ¼ a bushel.
Meanwhile, forecasts remain wet for major US corn districts, and are expected to land up to five inches of rain on some areas over the next week, hampering the spring sowing campaign.
"It is too early to say we have a problem. But it is not looking good for much of the Corn Belt," Mr Mawdsley said.
However much progress US farmers had made in sowings, which will be revealed later by weekly official US crop progress data, "I do not see it being added to much by next Monday around here", he added.

US downgrade would help stocks, hurt bonds

By DAVE CARPENTER and STAN CHOE

When Standard & Poor's says it might lower its top AAA rating on U.S. government debt, the stock market fell sharply. Traders were worried that if a downgrade happened, it would send interest rates higher. And, in turn, raise companies' borrowing costs.

But short-term investors were driving the markets Monday. For individual investors who are in the market for the long haul, a downgrade might not be as devastating as it seemed at first — especially if their biggest investment is in the stock market.

The downside of a lower U.S. credit rating would be another drop in Treasury prices. And they've already been falling because interest rates are expected to rise as the economy grows. But some analysts say that stock prices would rise over the long term because they'll have better returns than bonds and cash.

"For people who bought bond funds and think they won't lose money -- you're wrong," says Linda Williams, director of fixed income investments for Minneapolis-based private wealth management firm Lowry Hill. "When rates rise, those bond funds will be worth less than what you paid for them."

Stocks, meanwhile, will look more appealing compared to other investments that are losing value.

"The equity market may be the best alternative, and it could improve," says Randy Bateman, chief investment officer of Huntington Funds. He noted that U.S. businesses have strong balance sheets with record amounts of cash — unlike the indebted federal government.

A U.S. downgrade would also likely hurt the dollar's value. That would help stock prices of U.S. exporters, because their products would be cheaper for customers buying in foreign currencies, says Philip Tasho, chief investment officer of TAMRO Capital.

"The federal government's financial position is terrible," Tasho says. "Corporate America's is the best in a generation."

S&P's warning called attention to the fact that investors owning the 10-year Treasury note, or Treasurys with longer maturities, are particularly vulnerable.

"They have to realize that their bond portfolio is not where they want to be taking risk. You need to have a short maturity to protect yourself against a rising interest-rate scenario," says Tom Atteberry, co-manager of the FPA New Income Fund.

Investors shouldn't overreact based on Monday's news, however, cautioned Bill Stone, chief investment strategist for PNC Wealth Management. It shouldn't come as a surprise to anyone because the government has been taking on billions of dollars in debt since the financial crisis.

"If you had all your money in U.S. Treasurys, I'd say there might be some other places that are more attractive," he says, citing corporate debt and stocks. "But I don't think there's a reason to panic."

The risk that the U.S. government will default on its debt any time soon remains "infinitesimally remote," he says.

Some past downgrades - and threats of them - have had little impact on a country's stock market.
On May 21, 2009, S&P says it was considering a downgrade of Britain's AAA rating. The country's FTSE 100 index sank 5 percent over the next month and a half, but investors quickly shrugged it off. It rose 24.6 percent between May 21 and the end of 2009.

Follow Us