Monday, March 19, 2012

Hedge Rising Interest Rates With TBT

ProShares UltraShort 20+ Year Treasury Fund (NYSE:TBT) — The economy appears to be improving, and “real” interest rates are on the rise with bond prices falling. On Wednesday, the benchmark 10-year note fell to its lowest price since October.

TBT seeks daily investment results that correspond to twice the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index. It invests in derivatives that ProShares Advisors believe should have daily returns similar to twice the inverse of the daily return of the index. It usually invests the rest of its assets in money-market instruments.

The fund is non-diversified and is not rated by Morningstar. Its net expense ratio is 0.93%.

If interest rates rise, bond prices should fall and TBT should rise, because it is designed to move in the opposite direction of the 20-Year U.S. Treasury Bond. So this trade is suggested as a long-term purchase and a hedge against rising interest rates.

Trade of the Day -- ProShares UltraShort 20+ Year Treasury Fund (NYSE:TBT)

Will Apple Announce "The Dividend" Monday?,

Minutes ago Apple announced that first thing tomorrow it will "host a conference call to announce the outcome of the Company’s discussions concerning its cash balance. Apple® will not be providing an update on the current quarter nor will any topics be discussed other than cash." As a reminder, Apple has just about 100 billion in cash. Everyone expects a dividend. So what happens when everyone finally gets what they have been expecting for so long? Will it mean the end of the growth phase and the advent of the "MSFT" anti-growth curve? Also, which bank will claim the commission for advising Apple on how to spend a cash amount that while nearly a third of Greek GDP, is less than half of the US February budget deficit (in other words, Apple could fund just 12 days of the US spending burn rate in February)? Finally, was the pre-election administration at all involved in the making of this decision - remember the company was expected to announce a cash-related decision a month ago, and nothing happened. Why now? All shall be revealed tomorrow at 9 am. (more)

Meredith Whitney: 'Tidal Wave' of Muni-Bond Defaults Still Coming

A "tidal wave" of defaults in the municipal bond market is still building and will eventually hit the United States, says Wall Street analyst Meredith Whitney.

Many U.S. cities, towns and municipalities are insolvent but are treading along similar to how Greece did for years before officially defaulting.

In late 2010, Whitney told 60 Minutes that municipal defaults could run up into the hundreds of billions of dollars although that hasn't happened. Maybe not officially, but insolvency is a deepening problem, and defaults are still on the way.

"You have Stockton (Calif.) that is on the brink of bankruptcy. You have five cities, including Detroit, which is on the brink of insolvency. It's fascinating, because there's been so much back-room political maneuvering to keep these cities from going bust," Whitney tells CNBC, pointing out how California is trying to pass legislation to prevent municipalities from declaring bankruptcy.

"So there's been every effort on the part of the states to prevent this tidal wave of defaults, which is going to happen sooner or later. It's happening at an accelerating pace."

Taxes are rising, social services are being cut and fiscal shortfalls will keep widening.

"They're not called technical defaults. It took how long for Greece to become a technical default, so they're insolvent, they're not paying their bills," says the founder of the Meredith Whitney Advisory Group.

"You're either willing to see it or you'll shut your eyes, and if people want to tell me, 'Oh, I was wrong,' because this hasn't played out, stay tuned."

Municipal defaults rose to 5.5 per year in 2010 and 2011, from 2.7 in the previous 39 years, Moody's Investors Service says in a report.

Most defaults involved healthcare and things like multifamily housing projects, although more failures in the last two years came from smaller cities unable to pay services, pensions and salaries, Moody’s finds.

“While we expect the vast majority of municipal issuers to continue to pay their debts, we also expect a very small but growing number of general government issuers to default on their bonded debts,” says Anne Van Praagh, Moody’s chief credit officer for public finance, according to Bloomberg.

The municipal debt market returned 11.2 percent in 2011, its best performance since 2009, according to Bank of America Merrill Lynch index data, Bloomberg adds.

Martin Armstrong: Anatomy of a Debt Crisis only Julius Caesar understood

Anatomy of a Debt Crisis
only Julius Caesar understood

click here to read in pdf

Spain – The Next Domino Is Getting Ready to Tumble

Spanish House Prices Plunge Again

It is well known that Spain's economy is in a depression, and we do not use this term lightly. With the official unemployment rate at about 23% and youth unemployment close to 50% it is not an exaggeration to speak of a depression. The probability of social upheaval erupting with greater frequency is extremely high. We already noted that the general strike recently called for by Spain's unions is only the fifth since the end of the Franco regime in 1975. It is a rare event in Spain and underscores the decline in the social mood and the growing desperation. Those who still have work want to protect their privileges and use the unemployed as their political weapon.

Meanwhile, Spain's banks are quietly sinking beneath the waves. They are the quintessential zombies, especially the insolvent cajas, which are drowning in real estate related assets that see the value of their collateral inexorably spiraling down the drain (as an aside here: the Fed's recent 'stress test' of US banks possibly has not taken sufficient account of this 'moving target problem'; as we have seen mentioned elsewhere, it also failed to consider the remote possibility that treasury bonds may decline more than it currently widely expected).

But let's return to Spain. The WSJ reports on the latest house price data, and keep in mind here that these are the 'official' and hence doctored in every imaginable way, data. The plunge in house prices is in fact accelerating. (more)

Bleak outlook for US newspapers

The headlines about the US newspaper industry have never been so bleak.

In recent weeks, LinkedIn, the networking website, and the Council of Economic Advisers have reported that the press is “America’s fastest-shrinking industry”, measured by jobs lost; the Newspaper Association of America has shown that advertising sales have halved since 2005 and are now at 1984’s level; and the Pew Research Center has found that for every digital ad dollar they earned, they lost $7 in print ads.

As media from television to billboards bounce back from the recession, newsprint is being left behind. Zenith Optimedia this week predicted that internet advertising would pass newspaper advertising next year around the world – but in the US, where internet penetration is high and newspaper audiences are shrinking, digital will overtake newspapers’ and magazines’ combined ad sales this year, eMarketer estimates.

“There’s no doubt we’re going out of business now,” one unnamed executive told Pew’s Project for Excellence in Journalism, which predicted a future of shrinking newsrooms, print deliveries only a few days of the week and more papers closing altogether. A USC Annenberg School study reached the stark conclusion that most printed US dailies would be gone in five years.

Departing executives and bankruptcy advisers have been among the few people making good money from newspapers. The chief executives of Gannett and the New York Times left in recent months with packages worth $37m and $24m respectively, while advisers to Tribune’s Chapter 11 proceedings have earned $233m.

Yet the very pressures on print are also accelerating the pace of change in newspapers’ business models.

On March 5, the Los Angeles Times introduced a “membership programme” that will limit online users to 15 free articles a month. After that, readers must pay a subscription, which is more pricey for digital-only access than for a bundle in which they keep taking the newspaper.

The move followed Gannett’s announcement in February that all 80 of its community newspapers will introduce digital subscriptions, in a move the publisher expects to add $100m to operating profit.

Charging for news online had been seen by many as the preserve of specialist titles, notably financial news brands such as the Financial Times and the Wall Street Journal, but the model has been adopted in recent months by a string of local newspapers such as the Minneapolis Star Tribune to the Memphis Commercial Appeal.

Publishers have focused particularly closely on the New York Times, which began charging for online content a year ago and counted 390,000 digital subscribers by December. Barclays Capital estimated this month that digital subscriptions could add $100m to the group’s annual circulation revenues, more than offsetting an estimated $50m-$60m annual decline in print advertising.

By the end of this year, one in five US newspapers will charge for digital access, according to Ken Doctor, a US news industry analyst. Attitudes towards charging online have undergone “a revolutionary change in the last six months”, adds Steven Brill, co-founder of Press+, a company that has advised 258 media groups on charging for content and is owned by RR Donnelley, the communications company.

Even the business magnate Warren Buffett, a long-time investor in the Washington Post – which does not charge online – has backed digital payments. Sitting in front of the printing presses at the Omaha World-Herald, a local paper he bought last year, he told CNBC last month: “You shouldn’t be giving away a product that you’re trying to sell.”

By putting the same content online for free that they were charging for in print, Berkshire Hathaway’s chairman said newspapers had been competing against themselves. Now, he added, “you’re seeing throughout the industry a reaction to that problem and an answer to it”.

Advocates such as Press+ say that publishers that have adopted “metered” models allowing free access to a limited number of articles have not seen the loss in online advertising revenues many feared. Such models have “somewhat shored up print” circulation, adds Alan Mutter, a newspaper analyst and blogger.

But the industry is far from agreeing on a single model. “Fifteen years into the digital transition, executives still feel they are in the early stages of figuring out how to proceed,” Pew found.

Caroline Little, chief executive of the Newspaper Association of America, says: “I don’t think there is one silver bullet. I think paywalls are helping.” Her job is not to preserve print, she adds. “The preservation of journalism is what’s important. Print will continue to decline.”

Newspapers were collaborating more to find solutions such as Newsright, an initiative to enable easy rights clearance for websites republishing news content online, Ms Little says. Others are sharing costs, analyst and blogger Mr Mutter says, pointing to the fact that the Chicago Tribune now prints and distributes the rival Chicago Sun-Times.

Online advertising remains the core of most newspapers’ digital businesses, but growth has been anaemic compared with digital native companies. Mr Mutter notes that US newspapers’ digital advertising sales were less than those of the “adolescent” but targeted ads – which are placed to reach a specific audience – on Facebook in 2011.

Some, however, are bucking the trend, finding success selling targeted digital advertising or building consulting businesses to help confused local businesses navigate the intricacies of search engine optimisation, digital ad platforms and daily deal sites. Tablet editions and smartphone apps are also encouraging some to charge for content on mobile devices after years of giving content away for free.

Warnings of newspapers’ demise were common three years ago, after the closure of the Rocky Mountain News and the Seattle Post-Intelligencer’s decision to end its print edition, but few large newspapers have closed since.

That is thanks to the high margins many enjoyed in the decades where they had a grip on classified and automotive advertising, Mr Mutter says. He adds: “Most newspapers continue to be profitable, just not as profitable as they used to be.” Their typical double-digit profit margins “are quite good compared with Walmart or Amazon”, he says.

According to Mr Buffett, newspapers also still have some unique content to draw readers in, from sports to local politics. He added: “Obituaries are a good thing. You’re not going to find out whether your friends are alive or dead any place else.”

US Weekly Economic Calendar

time (et) report period Actual forecast previous
10 am Home builders' index March 29 29
Tuesday, MARCH 20
8:30 am Housing starts Feb. 706,000 699,000
Wednesday, MARCH 21
10 am Existing home sales Feb. 4.60 mln 4.57 mln
Thursday, MARCH 22
8:30 am Jobless claims 3-17
353,000 351,000
10 am Leading indicators Feb. 0.6% 0.4%
10 am FHFA home prices Jan. -- 0.7%
10 am New home sales Feb. 330,000 321,000