(NYPost) Twitter’s wings have been clipped.

Twitter’s wings have been clipped.
The microblogging company — whose shares have been soaring since its Nov. 6 IPO, more than tripling its $26-a-share offering — fell back to earth on Friday.
Its shares lost 13 percent of their value, tumbling to $63.75, after Benjamin Schachter, an analyst with Macquarie Group, downgraded the San Francisco tech company.
Twitter’s big recent run-up had little to do with an improved business plan.
“Nothing fundamentally has changed since our neutral initiation on Dec. 11, except that shares have risen 40 percent (compared to 2 percent for the S&P 500),” Schachter wrote in a note to clients.
Twitter shares closed Thursday at $73.31, well above Schachter’s $46 target, before he clipped the bird:
“We expect many other analysts will quickly have to either justify raising targets (based on little new information) or downgrade.”
The recent Twitter run-up came partially because of excitement over Facebook’s projected mobile ad revenue.
Schachter, in his report, pointed out that Twitter’s future is promising as the popular microblogging network may see huge growth potential in online advertising.
But realizing that potential will take time, Schachter reasoned. One point he made was that Twitter, which has no profits, needs to hire a large sales force in order to begin monetizing that potential.
There are “many opportunities, but [they] will take time and additional headcount,” Schachter wrote. “While we are quite bullish on Twitter’s potential, we highlight that it takes time and people to execute against opportunities.”
Facebook shares have also seen a recent rise, with the stock up nearly 20 percent over the last month — on similar frothy valuations — before a 4 percent pullback Friday.
The banks who underwrote Twitter’s Nov. 6 initial public offering have lower revenue forecasts than those not involved in the public offering, Schachter noted in his report.
That, he added, is a sign of a consensus that Twitter is likely to fall.
“There is a meaningful gap between revenue consensus of underwriting banks and consensus for other firms, with underwriting banks 15 percent below for 2014 projections and 28 percent below for 2015 forecasts,” Schachter’s report stated.
His report also said, “This suggests that in conversation with Twitter’s management team ahead of the IPO, Twitter guided toward lower growth numbers over the next two years. While this may be related to conservatism on the part of management, it is also possible that published consensus as it stands now is too high, and will have to be revised down after Twitter reports 4Q’13 earnings.”
Schachter projects Twitter — with a $35.3 billion market cap — will not actually become profitable until the fourth quarter of next year.

(CNBC) ECB'S Draghi sees no urgent need to cut rates further

European Central Bank President Mario Draghi sees no urgent need to cut the euro zone's main interest rate further and no signs of deflation, he said in an interview published on Saturday.

While the euro zone crisis has not yet been beaten, he added, there were many encouraging signs, including economic recoveries in some countries, easing trade imbalances and shrinking budget deficits.

"That is more than we would have expected last year," he told German news magazine Spiegel.

Asked about any further cuts to interest rates after the ECB cut its main refinancing rate to 0.25 percent in November, Draghi said: "at the moment we don't see a need for any urgent action." There could be "no talk of deflation" in the euro zone, he added.

Draghi expressed satisfaction that the fears and warnings of some German economists about his monetary policies had proved unfounded.

"There was this perverse fear that things would only get worse.... each time we heard, 'oh God this Italian is destroying Germany'". The very opposite has happened, Draghi said, noting inflation was low and uncertainty had eased.

Asked about the U.S. Federal Reserve's decision to start scaling back its bond-buying programme, Draghi said market reaction had been muted, showing markets were much more resilient than last year.European Central Bank President Mario Draghi sees no urgent need to cut the euro zone's main interest rate further and no signs of deflation, he said in an interview published on Saturday.

While the euro zone crisis has not yet been beaten, he added, there were many encouraging signs, including economic recoveries in some countries, easing trade imbalances and shrinking budget deficits.

"That is more than we would have expected last year," he told German news magazine Spiegel.

Asked about any further cuts to interest rates after the ECB cut its main refinancing rate to 0.25 percent in November, Draghi said: "at the moment we don't see a need for any urgent action." There could be "no talk of deflation" in the euro zone, he added.

Draghi expressed satisfaction that the fears and warnings of some German economists about his monetary policies had proved unfounded.

"There was this perverse fear that things would only get worse.... each time we heard, 'oh God this Italian is destroying Germany'". The very opposite has happened, Draghi said, noting inflation was low and uncertainty had eased.

Asked about the U.S. Federal Reserve's decision to start scaling back its bond-buying programme, Draghi said market reaction had been muted, showing markets were much more resilient than last year.

(NY Post) Icahn ready to bake Apple in Feb. 28 showdown

Set the date on your iPhone calendar, the Apple annual meeting and Carl Icahn-Tim Cook showdown will be Feb. 28 at noon EST.
Icahn’s High River Limited Partnership has proposed that shareholders approve a non-binding resolution that Apple commit to completing not less than $50 billion in share repurchases during Apple’s fiscal year ending September 27, 2014, a proxy filing released Friday said.
Apple recommended against the proposal in a polite fashion.
“[We] believe that capital should be returned to shareholders on an efficient and sustained basis, and that the evaluation of capital return should be performed regularly and carefully with the best long-term interest of the business and shareholders in mind.”
Apple also said, “Dividends and share repurchases must be funded by domestic cash, and the Company [over the last six quarters] has returned [$43 billion] to shareholders or invested all of the domestic cash generated by its business and raised through the issuance of debt.”
In a separate filing Apple said CEO Cook received $4.25 million, while other top execs CFO Peter Oppenheimer and SVP Eddy Cue earned $2.63 million.
In what is sure to be a controversial move, Apple too recommends against a Northstar Asset Management proposal to form a board Committee on human rights to examine its criticized treatment of foreign workers.
“The Board does not believe that establishing a committee is an effective way for the Company’s practices and goals to continually evolve and improve in response to changing conditions. Instead, such an additional and redundant committee would distract the Board from its other responsibilities,” Apple said.
BlackRock is Apple’s largest shareholder and has increased its stake since its last public filing from 5.1 to 5.6 percent — worth $28 billion as of Friday’s closing price — according to the proxy filing.

>>> Marc Faber's 2014 Predictions

Marc Faber's 2014 Predictions

Marc Faber has 3 very contrarian predictions for 2014 that we are sure will have the yammering yay-bobs screaming. While "everyone thinks stocks can continue to rise," Faber sees "the US market as expensive," and will return very little over the next few years. Furthermore, he adds, while "some stocks are not terribly expensive; but just like in the year 2000, [social media] stocks are grossly over-valued," and a short basket in the most egregious will return at least 30% next year. Lastly, Faber exclaims, "given all the money printing that is going on globally... physical gold is a good insurance."

In an interview with Talking Numbers' Brian Sullivan, Faber offers what he thinks is next for the world in 2014:

1. The market will decline from current levels

Faber says: "My sense is that at the present time, the US market is relatively expensive compared to foreign markets, especially to European markets and to emerging markets. On a cyclically-adjusted P/E [price-to-earnings] basis, it is actually going to return very little over the next seven to 10 years.

2. Best shorts for 2014: Facebook, Tesla, Twitter, Netflix, and Veeva Systems

Faber says: "If you look at the entire market, some stocks are not terribly expensive and some stocks are very expensive. It's like in year 2000, not every stock was overpriced. At that time, the NASDAQ was grossly overvalued but, say, resource shares and so-called 'old economy' companies were relatively inexpensive or absolutely cheap. In the present instance, I think that stocks like Facebook, Tesla, Twitter, Netflix, [and] Veeva Systems are grossly overvalued and that the basket of shorts in these stocks will return you at least 30% next year."

3. Best longs for 2014: Gold, gold shares, and Vietnamese stocks

Faber says: "Given all the money printing that is going on globally – and not just in the US – and given that the total credit as a percent of the advanced economies is now 30% higher than in 2007 before the crisis hit, I think that gold is a good insurance."

"I'd rather buy something that is reasonably priced. And, I think gold shares are very inexpensive. So a basket of gold shares I think next year could easily appreciate 30%."

"I think the Vietnamese stock market, which this year was up 22% [and] which is not bad for an emerging market, will continue to go up."

(Barron's) Betting on the House

Betting on the House

U.S. home prices are climbing again, but at more measured rates than during the last boom. Why the housing cycle still has room to run.

It's no secret that U.S. home prices have enjoyed a healthy rebound in 2013 after the nightmarish 33% drop over the previous five years that triggered an orgy of mortgage defaults and wealth destruction. These days, monthly home-price reports regularly show double-digit percentage jumps over the year-earlier period, whether it's the 13.3% annual increase for September of the S&P/Case-Shiller 20-City Composite Home Price Index or the 12.2% annual rise for October logged by CoreLogic's home-price index.

Yet, at least some observers question how much longer the home-price recovery can continue. A jump in mortgage rates along with the torrid increases in home prices have hurt transaction volume some. The market has been overly dependent on all-cash buyers such as vulture funds, which earlier this year accounted for about a third of all sales. What will happen when they have eaten their fill? Increasingly, the home-price growth will depend on conventional buyers, who must borrow from a mortgage-lending industry that is still imposing stringent lending standards on new mortgages.

Still, after talking to various industry experts and analyzing disparate data, Barron's thinks that home-price appreciation should continue for the next three years, albeit at a slower pace than the double-digit increases seen this year.

We claim some bragging rights on the subject: In two cover stories last year -- "Home Prices Ready to Rebound" in the March 19 issue and "Happy at Last" in the Sept. 10 issue -- we not only called the imminent recovery but hit the timing of it right on the screws.

TO BE SURE, forecasting markets is an unforgiving and somewhat foolhardy task. And experts' three-year projections for home prices vary all over the lot. Ingo Winzer of Local Market Monitor, which tracks more than 300 U.S. metro markets, is looking for price growth of about 7% over each of the next three years, while CoreLogic, the real-estate statistical firm, expects price increases of 4.7% in 2014, 4% in 2015, and 1.9% in 2016.

For the sake of conservatism, we're hewing to the middle range, looking for home-price jumps of 5% in each of the first two years and, perhaps, just 3% in 2016, as new construction picks up to bolster supply and more empty-nest baby boomers put their houses on the market to unlock trapped home equity. These projections somewhat mirror those of Moody's Analytics. "The U.S. is clearly in a home-price up-cycle that has a lot of room to run," says Mark Zandi, chief economist for Moody's Analytics.

A constellation of factors revolves around our relatively upbeat forecast on home prices. Upswings in home prices, like the one that has just begun, tend to run in five-to-10-year cycles, due to market inefficiency arising from the inertia of home buyers' expectations.

Another positive: Homes are still within reach of many buyers. True, housing is somewhat less affordable now than it was in the past five years, after the recent run-up in prices and higher mortgage rates since the spring -- the rate on a 30-year conforming mortgage is 4.5%, up from 3.5% in the spring. But according to the National Association of Realtors (NAR), which compares median incomes with median home prices in different locales, homes are still more affordable now than in any of the previous 40 years before the bust. This, of course, is the result of the virtually unprecedented home-price collapse.

Also lending strength to the market is the fact that much of the shadow inventory -- homes in the foreclosure pipeline or those with seriously delinquent mortgages -- has been sharply reduced. According to NAR economist Lawrence Yun, that inventory has dropped from nearly 10% of the U.S.'s 50 million mortgages in 2009 to 5.6% of the total today.

By Yun's reckoning, distressed sales by lenders, or by delinquent homeowners with the approval of their lenders, currently account for about 15% of all home sales, compared with a third of all sales during the bust years of 2008, 2009, and 2010. Distress sales weigh not only directly on home-price indexes -- they typically sell at about a 17% discount to homes of comparable size and quality -- but they also blight the appraised values of entire neighborhoods.

THE SUPPLY OF HOMES for sale, as any frustrated home buyer can attest, has also dropped to rock-bottom levels. The current inventory number, according to the NAR, stands at about five months' supply at the current sales pace, compared with a more normal level of about 10 months.

The supply constraints don't figure to improve dramatically, at least not over the next two years. New-home construction (both single- and multifamily) is now limping back to a pace of about one million new units next year, and not much more the following year. That's well above the 550,000 new homes built in 2009 as the Great Recession hit home-building with particular ferocity. But housing starts need to hit at least 1.5 million, according Moody's Zandi, or perhaps l.7 million, in order to meet current population growth, net immigration, the replacement of obsolescent housing stock, and demand that has built up during the housing bust.

After all, no supply factor is as crucial to the health and balance of the housing market as new homes, even though in a typical year existing-home sales represent about 75% of all residential sales.

Lastly, housing prices figure to be bolstered by significant pent-up demand over the next couple of years, particularly if lenders loosen credit standards and mortgage rates remain well behaved. Household formations -- young adults moving to their own abodes from mom and dad's basement or from cramped apartments shared with friends -- is finally starting to revive after being in the deep freeze since 2007, running at about a half-million a year over the five-year period ended in 2011. With improved employment prospects and income growth, new household formations figure to hit a more-normal annual rate of about 1.1 million over the next three years.

TO BE SURE, some of these new entrants into the housing market will rent rather than buy homes or apartments. But in a sense that doesn't matter. Rentals contribute to home-price levels and new-housing starts just as surely as outright purchases do, since all such real estate is owned by someone.

Tight credit standards could, of course, inhibit future housing demand some. According to David Blitzer, managing director of S&P Dow Jones Indices and maven of the S&P/Case-Shiller Indexes, a lot of potential home buyers are finding mortgages difficult to obtain because of onerous down-payment requirements. Likewise, lenders are demanding higher credit scores than before 2003, when existing lending requirements were deemed prudent, says Blitzer. In today's market, short employment records and various credit-record dings make it tougher for buyers to qualify for a mortgage.

Also, mortgage rates seem destined to go higher over the next three years with the tapering in Fed purchases of mortgage-backed securities. Unhelpful on that score was the recent announcement that Fannie Mae and Freddie Mac would be charging higher fees at the start of 2014 to guarantee mortgages of borrowers with lower credit scores and an inability to put up the full 20% down payments on home purchases.

Yet, higher mortgage rates won't be a deal breaker unless they rise markedly, which could prove to be a psychological barrier. Likewise, most up-cycles in home prices tend to last five to 10 years because of inherent momentum in residential real-estate prices. The steady increases in home-equity levels of the past year have triggered a virtuous cycle that will continue to boost prices in the future.

And perhaps most important, home prices were battered so badly during the recent home real-estate depression that they seemingly have nowhere to go but up.

Forget the gaudy year-over-year monthly price jumps of over 20% reported by the likes of Phoenix, Las Vegas, and Miami–Dade County. According to a CoreLogic analysis, Phoenix, Las Vegas, and Miami were, as of the second quarter, still 39.9%, 50.2%, and 42%, respectively, below their vertiginous price peaks.

The CoreLogic second-quarter numbers contained other surprises, as well. While such real-estate disaster areas as Fort Myers–Cape Coral in Florida and Riverside and Stockton in California were about 50% below peak values, the San Francisco–San Mateo–Redwood market had already recovered to just 7.6% off peak, while Boston-Quincy is just 10.9% below peak level. The latter two markets were obviously aided by strength in the most desirable neighborhoods of these coastal cities.

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And a number of metro areas have already returned to peak-value prices, largely because they avoided the last price boom or got a nice boost from recent secular economic developments. Real estate in Texas (Houston, Dallas–Fort Worth, San Antonio, Beaumont, and Amarillo) and Oklahoma (Tulsa and Oklahoma City) has profited mightily from the energy boom, as have Fargo and Bismarck in North Dakota and Rapid City in South Dakota.

The state of Iowa; Honolulu; Louisville, Ky.; Buffalo, N.Y.; Great Falls, Mont.; and Erie, Pa. (on the fringe of the Marcellus Shale) were also at new price highs in the second quarter.

The nearby table includes the three-year home-price projections of Ingo Winzer of Local Market Monitor. His methodology involves establishing equilibrium home prices for each market, or the price for housing that the area's per capita income can comfortably support. Other inputs also enter into his calculations, including local unemployment rates, in- or out-migration, and market momentum.

It's the last factor that has him somewhat worried over the bullish cast of his forecast of 6.9%, 7.1%, and 7.1% growth over the next three years, beginning in the third quarter of this year. He said his numbers may have been "polluted" by large volumes of distressed sales in the past, which tend to exaggerate the current increases.

Yet he is confident that he has the direction of the trend in U.S. home prices right, if not its absolute magnitude or speed.

And that's great news for growth in household net worth, construction employment, gross domestic product, and perhaps most important, homeowner peace of mind.

(Barron's) Hedge Funds Eye Fresh Risk Plays for 2014

Hedge Funds Eye Fresh Risk Plays for 2014

Strategies emerge in risky moves, from syndicated loans to mortgages, that U.S. and foreign banks can no longer afford to exploit.

Here are some of the opportunities hedge-fund investors are likely to hear more about in 2014. In many cases, these are risk-taking opportunities, from syndicated loans to mortgages, that U.S. and foreign banks can no longer afford to exploit.

European Bank Loans: The region's lenders are in a hurry to unload these assets to conform to the new Basel III banking rules. These measures require them to sharply increase their capital levels relative to their assets by 2019. This shift was supposed to be well under way by now, but regulators gave the banks some leeway in light of the Continent's recent debt problems; now there's more urgency to sell before 2014's regulatory "stress tests," and hedge funds have begun to buy nonperforming loans.

Los Angeles-based Canyon Partners, for one, is snapping up multibillion-dollar syndicated loans issued before the financial crisis but never repaid. Canyon pays anywhere from 30 to 80 cents on the euro for loans made to "fundamentally good" medium-size manufacturers, hotels, retailers, and other companies, mainly in Britain, Germany, France, Ireland, and Spain, says Joshua Friedman, co-founder of the firm. Canyon is also doing some things banks generally prefer not to: restructuring some of the loans in return for equity in the companies.

Real Estate: On Nov. 15, the Blackstone Tactical Opportunities fund, combining hedge and private-equity strategies, launched a new vehicle called B2R with a mission to lend money to small investment companies that own less than 500 single-family homes each. "It's shadow banking," explains Mitch Roschelle, managing partner of the real-estate practice of PricewaterhouseCoopers in New York. "As the real-estate market continues to improve, credit risk becomes less complicated to underwrite for a nonregulated entity like a hedge fund without the regulatory nuances that a bank or an insurance company might encounter, " he notes. The Volcker rule, which goes into effect April 1, 2014, will be one substantial limit on what the banks can do.

Emerging Markets: With the U.S. market getting stretched, more long-bias equity funds are finding better values in emerging markets. Lee Partridge, who runs Salient Partners in Houston, likes Brazil, where the Bovespa index was down 16% for the 12 months through Dec. 18. Another hedge fund manager recently bought Smiles (ticker: SMLE3.Brazil), which administers the frequent-flier business of Brazilian airline GOL Linhas Aéreas Inteligentes (GOLL4.Brazil). Smiles trades at 14 times earnings, excluding a large special dividend. By comparison, Air Canada's frequent-flier administrator, Aimia (AIM.Canada), trades at 29 times earnings.

Some funds are going further afield. Francois Buclez, who runs the event-driven single-manager Cube Global Opportunities Fund in London, likes frontier-market stocks in sub-Saharan Africa where he expects strong secular growth for the next four or five years.

More Shorts: Only 58 stocks in the S&P 500 fell from Jan. 1 through Dec. 18, according to Lipper. That makes it tough to find short-selling opportunities. Look for more chances to make money in 2014. "Many industrial stocks are trading as if they are at the beginning of a stock market or economic cycle – not the end — but it's absurd to think that we are," says Daniel Khoshaba, who runs KSA Capital Partners, a long-short equity fund. He's short Caterpillar (CAT) stock, which is down 1% this year but still trades at 15.6 times forward earnings despite a projected 17% decline in sales. Demand is weak for its big construction and mining equipment. And then there's Amazon.com (AMZN), which trades at 193.5 times forward earnings – higher than any other S&P 500 stock.

Bonds From Puerto Rico: Some credit funds see the debt problems in Puerto Rico as the second coming of Greek bonds. Traditional muni investors have dumped so many of the commonwealth's bonds that their yield spreads over Treasuries have widened from just 30 basis points (a basis point is one-hundredth of a percentage point) in July to about 320 basis points in October. Some investors sold in a panic because Puerto Rico's problems happened to gain notice just as Detroit was declaring bankruptcy. But now some emerging-markets hedge-fund managers, skilled in dealing with sovereign-debt problems, have started to buy the discounted bonds and expect a restructuring that will give Puerto Rico time to work out its financial issues.

The Steepener: As the Federal Reserve gradually unwinds its massive quantitative easing, rates of long-term Treasuries and agency securities are expected to rise. The Fed has insisted it will keep short-term rates near zero until 2016. So, in what's known as a "steepener trade," referring to a widening gap between short and long rates, hedge-fund managers are shorting long-term bonds and buying short-term securities. Cube's Buclez says he is buying two-year bonds at a 0.34% yield and shorting 10-year bonds at a 2.87% yield, for a current spread of 253 basis points. He thinks that a 253 basis-point differential will reach previous highs of 280-290 basis points.

"This is the bread and butter of corporate banks," says Buclez. "They borrow short-term and lend long-term."

(Barron's) Believe the Forecasters for a Standout 2014

Believe the Forecasters for a Standout 2014

2014 may become the highest-growth year since the recovery from the Great Recession began in mid-2009.

At each turn of the year over the recent cycle, both the Federal Open Market Committee of the central bank and the consensus of forecasters polled by Blue Chip Economic Indicators have repeated the same refrain: Economic growth in the year gone by was no great shakes, but wait 'til next year, when growth will pick up.

In 2011, the promised pickup failed utterly. The year's growth in real gross domestic product ran 2%, on a fourth-quarter-over-fourth-quarter basis, a marked slowdown from 2010's 2.8%. Nor did the pickup come in 2012, when growth also ran 2%, the same as in 2011.

But with growth in 2013 having run about 2.4%, faster than in 2012, that upbeat outlook has finally been vindicated. Look for it to be vindicated again in 2014, which should likewise do better than 2013. Indeed, 2014 may become the standout year since the recovery from the Great Recession began in mid-2009, beating even 2010.

IN DECEMBER 2012, Blue Chip's consensus of 50 forecasters predicted that growth in 2013 would run four-tenths of a percentage point higher than in 2012. That four-tenths acceleration has proved to be about right. With strong growth in the third quarter, the fourth quarter needs to come in at an annual rate of just 1.9% -- which now seems likely -- for fourth-quarter-over-fourth-quarter growth to hit the consensus.

Blue Chip's Dec. 10, 2013, consensus predicted growth of 2.8% in 2014, and the midpoint of the forecasts in the FOMC's Dec. 18 report was 3%. There are reasons to believe 2.8% to 3%, or even better, is quite attainable in 2014.

Why? First, despite this year's increase in mortgage interest rates, the Index of Housing Affordability kept by the National Association of Realtors is still quite favorable, signaling plenty of potential for rising home purchases in 2014. (See cover story, "Betting on the House".) It is devoutly to be wished that the housing market not replicate the unsustainable levels of the mid-2000s. But if there is a possibility of that later on, there is little danger of it over the next 12 months. For example, new-home sales in October to November ran at an annual rate of 469,000, a five-year high, but that's still quite low compared with annual sales of more than one million every year from 2003 through 2006.

The rebound in housing seems poised to make a greater contribution to overall GDP growth in the coming year than in the previous two years -- and in all of the three main ways that housing usually boosts growth: by spurring construction activity, by encouraging consumption through a positive wealth effect from rising home prices, and through stimulating purchases of durable and nondurable goods that accompany purchases of homes. Retail-sales figures for November confirmed strong gains in all of these areas, from furniture to appliances to household supplies.

Second, strong retail sales confirm that consumer spending generally is picking up, fueled by strong housing activity, the positive wealth effect of advancing stock prices, and rising incomes from employment growth.

Third, rising consumer spending should help stimulate an increase in business investment, including the growth of inventories. Inventory rebuilding made a large contribution to growth in the third quarter, accounting for 1.7 percentage points of the 4.1% annual growth in that quarter. But despite that inventory expansion, all three standard measures of inventory/sales ratios tracked by the Bureau of Economic Analysis remain quite low, signaling the potential for even more inventory building as sales continue to increase.

Fourth, whatever fiscal drag occurred in 2013, it should be much diminished in 2014. The tax hikes that took effect last January will not be replicated this January. And for better or worse -- over the long run, probably for the worse, but the next 12 months is our focus here -- the recently passed Bipartisan Budget Act of 2013 provides for an increase in federal spending in 2014.

Finally, this upbeat scenario assumes that the Federal Reserve's planned tapering from quantitative easing will not be significantly destabilizing. For better or for worse, the FOMC has promised to hold the short-term interest rate at zero "well past" the point at which the unemployment rate falls below 6.5%.

SPEAKING OF THE UNEMPLOYMENT rate, while both the FOMC and Blue Chip consensus have consistently predicted a pickup in growth, both have consistently underestimated the fall in the jobless rate. For example, in December of last year, both the FOMC and consensus believed that unemployment would now be about 7.5%, against an actual November low of 7%.

The main reason for their error: overestimating the increase in the number of job seekers. Right now, the consensus puts the unemployment rate at 6.7% by year-end 2014, and the FOMC, at 6.5%. Based on past patterns, those figures are probably on the high side of what's likely. But they will still be too high to reflect anything like "full employment."

>>> How Ultra-Rich Chinese Men Find Their Wives

How Ultra-Rich Chinese Men Find Their Wives
“Luxury Matchmaker Parties” offer women the chance to meet and marry a multi-millionaire.

Much of the world is familiar with the unique struggles Chinese face when it comes to marriage. Increasingly strict financial security requirements coupled with the growing pains of a nation in the midst of swift change leave many unable to find proper marriage partners.

Add in the traditional, family-enforced marriage age limits, and the increasing number of shengnan (leftover men) and shengnü (leftover women) make contextual sense.

One particularly perplexing sector of society that has a hard time finding suitable marriage partners is young, extremely wealthy men.

Cheng Yongsheng has made a business out of finding dream women for Chinese millionaires with his Luxury Matchmaker Parties, found in most large cities, including Beijing, Shanghai, Chengdu, Guangzhou, Chongqing, Hangzhou and spreading elsewhere as economic conditions create a viable market. All participants must have capital worth at least 100 million RMB ($16.5 million) to attend.

The need for such an industry arises from the busy wealthy men themselves, who claim that while beautiful women are no rarity in their lives, women actually serious about and suitable for marriage are hard to find when one has a financial empire to build.

Less than one year after their establishment in 2012, these parties have become well known among the Chinese populace. Women volunteer to attend the gatherings, providing intimate information about themselves and their backgrounds. Volunteers are asked to provide their height, weight, measurements, family background, hobbies, and skills. They are then interviewed and ranked according to their “grade.” Afterwards, they are asked to demonstrate certain household skills, such as ironing and chopping vegetables, as well as an individual skill or talent.

The actual requirements vary from city to city and event to event, following the trends and tastes of the participants. After one woman in Chengdu presented a medical certificate of virginity, such verification has become an increasingly common expectation at matchmaking events.

Volunteers come from all walks of life, which for some is a demonstration of China’s movement in the direction of social equality. Parents also come representing their daughters, some of whom are still in high school, as a way to secure for them a proper future and raise the social rank of the family.

The reaction from the public has been mostly one of disapproval. Many young people express suspicion at men who blatantly use money to attract women. Others say that it is disrespectful to women to have them vie for marriage partners in such a fashion, reducing them to a checklist of requirements, rather than treating them as equals.

Others, meanwhile, take what they perceive as a more pragmatic approach to the matter. Marriages arranged by family members, friends and other third parties are still the norm in China. The requirements by which marriages are made are still largely a matter of finances and social status, with shared hobbies and interests a distant way down the list.

As long as material wealth remains a publicly acknowledged priority for finding marriage partners in China, Cheng Yongsheng and others like him will continue to do good business.

(Barron's) Air France-KLM: Time to Lift Off

--> The Bottom Line If Air France-KLM traded in line with British Airways owner International Consolidated Airlines Group, the shares would fetch €9.17, some 25% above the current price.

Air France-KLM: Time to Lift Off

The Franco-Dutch airline has cut costs and restructured in an effort to end years of losses.

While many airline stocks have had a spectacular year, Air France-KLM has been stranded on the runway. Formed by the 2004 merger of Air France and the Dutch carrier KLM, the company hit an air pocket in 2007, when the global financial crisis struck, and has yet to right itself. It has posted an operating loss in three of the past four years, and its shares have plummeted 80%, to a recent 7.45 euros ($10.24).

Next year, however, Air France could get its wings back as the company lowers operating costs and returns to profitability. In doing so, it will be following the trajectory of British Airways owner International Consolidated Airlines (IAG.Spain), which executed a successful restructuring and saw its shares more than double in 2013.

IAG now trades for 13.1 times projected 2014 earnings, compared with 10.6 times for Air France. If the Franco-Dutch carrier commanded the same price/earnings multiple, its shares would fetch €9.17, or almost 25% more than the current price. Assuming economic growth in Europe exceeds expectations, the stock could even double in 18 months, says Stuart Mitchell, founder of London-based S.W. Mitchell Capital, which owns 0.8% of the shares.

Air France-KLM carried 77.4 million passengers last year, fewer than Deutsche Lufthansa's (LHA.Germany) 103 million, but more than IAG's 69 million. At 83.1%, its load factor, or the percentage of available seats filled, exceeded both competitors'. The airline, whose Air France unit is a member of the SkyTeam alliance, a 19-carrier consortium, has a strong long-haul network serving Asia, Latin America, and Africa. It also carries a substantial amount of trans-Atlantic traffic, due in part to a joint venture with Delta Air Lines (DAL).

None of this equated to profits in recent years, owing to Air France-KLM's bloated cost structure and heavy debt load. The company lost a cumulative €2 billion in 2011 and 2012.

Last year management decided it was time for an overhaul, and developed a multi-pronged restructuring plan. It focuses on workforce reductions, productivity enhancements, and cutbacks in outside investments. Among other things, Air France-KLM is working to refocus its medium- and short-haul operations, which have been under intense pressure from low-cost carriers such as Ireland's Ryanair (RYA.U.K.) and Britain's easyJet (EZJ.U.K.). The company is cutting the number of aircraft it keeps at regional bases to focus on more profitable long-haul routes.

Changes are occurring in the cargo business, too, which has suffered from overcapacity amid a sluggish economy. Not least, the carrier has been reducing net debt, which peaked at €6.52 billion in 2011, but had fallen to €5.4 billion by the end of the third quarter. Management hopes to reduce debt to €4.5 billion by the end of 2014.

Leading the charge is CEO Alexandre de Juniac, 51, who joined Air France-KLM in 2011 as chairman and CEO of the Air France business. Previously an executive at the French aerospace and defense company Thales (HO.France), he took the top job in July, succeeding Jean-Cyril Spinetta, who retired as CEO in 2009 but was called back in 2011.

De Juniac has injected energy and dynamism into the company, and taken some bold steps. For one, he declined to participate in a €300 million rights issue for Alitalia, which will reduce Air France-KLM's stake in the Italian carrier to 19% from 25%, because Alitalia's creditors refused to renegotiate the company's debt. Air France acquired its position in 2009, a year after the Italian carrier was rescued by a group of private investors.

Says one European portfolio manager, "de Juniac will do to Air France what [CEO] Sergio Marchionne did to Fiat [F.Italy]"—namely, turn around a storied European brand. De Juniac and other executives were unavailable to comment.

So far, progress has been encouraging on several fronts. By the end of 2014, Air France will have eliminated more than 5,000 jobs, cutting its workforce to less than 100,000. That's no small achievement in France, where jobs are fiercely protected and layoffs draw political ire. The company managed to secure voluntary departures in an agreement with labor unions, avoiding the usual rancor.

Costs are coming down at a time when revenues are rising. The company reported operating profit of €183 million in the first nine months of 2013, and generated free cash flow of €500 million, although restructuring charges tipped net results into the red. Net losses for the full year are expected to narrow to €1.15 a share from last year's €2.07, on revenue of €25.9 billion. Next year Air France-KLM could finally return to the black, with analysts forecasting a 2014 profit of €0.70 a share, followed by €1.33 in 2015.

MOST ANALYSTS RATE Air France-KLM's shares Hold or Sell, citing the company's high debt level. But that's not a case of excess baggage; the ratio of net debt to earnings before interest, taxes, depreciation, and amortization fell to a comfortable 3.1 times at Sept. 30 from 4.3 times a year earlier. It is likely to drop further as free cash builds.

While the carrier's restructuring has been partly delayed, economic conditions could provide a tail wind in 2014. Gross domestic product in the euro zone is forecast to climb 1.1% from minus 0.4% in 2013. For Air France-KLM's long-suffering shareholders, it's time to buckle up and enjoy the flight. 

>>> Weekly Update Dow +1,85% S&P+1,76% Nasdaq+2,43%

Weekly Market Update: Santa Claus Rally Comes to Town

- The Santa Claus rally arrived right on time this week, as the DJIA and the S&P500 pushed out to fresh all-time highs. Low-energy trading prevailed during the quiet Christmas holiday period, with volumes running 30-40% below historical averages, as is usual at this time of year. Europe was even quieter than US trading, though the German DAX cracked 9,500 for the first time. In Japan the Nikkei Index topped 16,000 for the first time in six years on more signs that Abenomics is working. For the week, the DJIA gained 1.6%, the S&P500 added 1.3% and the Nasdaq rose 1.3%, even as, with little fanfare, the 10-year Treasury yield crossed above 3.00% for the first time in nearly two-and-a-half years.

- The November US durable goods report was strong, with the top-line figure at +3.5%, while the October data was revised higher, to -0.7% from -2.0% prior. Excluding transportation, orders rose 1.2%, the most since May, while core capital goods rose 4.5%, the strongest since January. Analysts caution that the strong figures for the month (and likely the forthcoming December data) may reflect companies scrambling to acquire capital goods before the expiration of R&D and depreciation tax credits at the end of 2013. Initial jobless claims were better than expected and saw the largest week-over-week decline since November 2012, coming off a 9-month high last week. The volatility can be explained by the usual difficulty the labor department has in accounting for seasonal hiring.

- Retailers frantically marked down goods in the days leading up to Christmas in an effort to squeeze more sales out of a holiday shopping period that was six days shorter than last year. SpendingPulse reported 2013 retail sales grew 3.5% y/y in the period from November 1st to December 24th. Comscore determined that online sales showed double-digit growth for the holiday period but still fell short of expectations, as the last week before Christmas was "considerably softer" than predicted.

- Apple shares were on the move again as the company formally announced its 4G partnership with China Mobile, after a long period of negotiations. Sales of iPhones 5S and 5C models will begin in mid-January. Tech blogs also reported that Apple's inaugural foray into the large-screen "phablet" device category may arrive sooner than expected, with reports of a possible May 2014 launch from prior expectations of a fall launch.

- Over the course of December, shares of Twitter appreciated approximately 75% in a run that has been attributed to momentum trades and year-end buying by fund managers. The run topped as shares hit $74 on Thursday and then sank 8% over the course of trading on Friday. Multiple analysts have made cautious comments about the social media company, warning that a market cap of $38 billion for an unprofitable company was questionable, at best.

- Textron announced a $1.4 billion deal to acquire bankrupt aircraft manufacturer Beechcraft Corp. With this acquisition, Textron is looking to counter a slump in business-jet sales. Jos. A. Bank rejected the $55/share counter takeover offer from Men's Wearhouse, following Men's Wearhouse previous rejection of Jos. A. Bank's $48/share offer. Seagate said it would buy network and storage equipment maker Xyratex for about $374M to strengthen its supply and manufacturing chain for disk drives.

- FX trading saw big moves in illiquid year-end markets. EUR/USD finally tested above the 1.3800 handle as participants shot out stops layered above the 1.3830 level. There was plenty of talk about option barriers toward the 1.4000 level (which happens to correspond with the 5-year downtrend line).

- The Nikkei225 Index saw eight up sessions and hit a fresh six-year high above 16,000 as the yen extended five-year lows against the dollar and the euro. In data out on Thursday, Japanese core CPI lifted above 1% for first time since 2008, although analysts caution the rise has been more cost-push rather than the more desirable demand-pull sort of inflation. The weaker yen currency has been a big factor in driving CPI higher. PM Abe's cabinet also approved the FY14/15 budget draft this week, proposing a record ¥95.88T in spending.

- USD/CNY hit 20-year lows this week as the pair edged closer 6.0700. After a year-end cash crunch unsettled global markets, the PBoC undertook its first repurchase agreement in three weeks. The absence of central bank intervention in money markets had caused rates spike, driving underperformance on Chinese stock markets in the second half of December.

- The Turkish currency (Lira) continued to hit fresh record lows against the USD and Euro after Turkey PM Erdogan replaced half of his cabinet following an unscheduled meeting with President Gul in an effort to quell protests against allegations of high level corruption. The USD/TRY tested above the 2.16.