FT : England stands out as most generous country for divorcing spouses

England stands out as most generous country for divorcing spouses

Divorcing spouses in England are more likely to receive generous maintenance payments over a longer period than in 13 other countries because judges can take more factors into account, according to research. A study by law firm Withers examined spousal maintenance payments in jurisdictions in Europe, the US, South Africa and New Zealand and concluded that England and Wales stood out because of the broad range of issues the judge could take into consideration.

London has gained a reputation for being the divorce capital of the world in recent years after a series of generous awards to ex-wives. These have included ex-Beatle Sir Paul McCartney, who was ordered to pay Heather Mills £24.3m after four years of marriage, and the £48m awarded to Beverley Charman, former wife of John Charman, the insurance magnate. In the most recent high-profile case, Michelle Youngwas last month awarded a £20m lump sum after divorcing her husband Scot Young, a one-time fixer for Russian oligarchs. In the bitter dispute, he had claimed he was penniless and could not afford to pay anything. She alleged he was worth millions. In another case in August, an unnamed Russian businessman, identified as M, was ordered to pay £38m to his ex-wife and transfer UK properties to her. The complex case involved tracing the husband’s assets across the world. The judge, Mrs Justice Eleanor King, described the litigation as "a fantastic charade, with the husband a shady puppet master in the background", and said that those representing the wife "have crossed and recrossed the globe in an attempt to trace the husband’s assets, every penny of which has been acquired during the course of the marriage". Court orders were obtained in Cyprus, the British Virgin Islands and Seychelles, after which the husband was "one step ahead", transferring assets across the Caribbean Sea to Belize and eventually using a Panamanian intermediary. The English courts have also shown themselves willing to be tough against those who refuse to obey court orders to disclose documents during proceedings, or to pay up.Mr Young was jailed for contempt of court for failure to comply with court orders. Suzanne Kingston, partner at Withers, said the discretion of judges most frequently came into play in England when the amount and duration of maintenance payments to divorcing spouses was decided. This compared with other countries where awards were often more formula-based The German court often uses official guidelines, notably the Düsseldorf table, which provides certainty in maintenance calculations. Although many jurisdictions gave judges discretion to make awards, Withers found that England and Wales stood out for the broad judicial discretion they applied to all aspects of each case. In some countries, notably Cyprus, Germany and Switzerland, the term for maintenance can be strictly limited. Some jurisdictions still use the concept of "fault-based divorce" and include factors such as adultery, unreasonable behaviour or desertion as grounds to refuse a claim for maintenance. Ms Kingston said: "France maintains this as a discretionary point but Malta considers it an important question when considering maintenance awards." The study found that Malta remained one of the few jurisdictions in which conduct of the divorcing parties was genuinely taken into account; the right to maintenance is forfeited if the recipient "caused the breakdown of the marriage for reasons of adultery, cruelty or grievous injury or desertion for two years or more without good cause". In France, the court also had discretion to refuse to award spousal support in cases of fault-based divorce, the study noted. Catherine Thomas, lawyer for law firm Vardags, who represented Ms Young, said the English courts did not distinguish between the breadwinner and the homemaker in a longstanding marriage – making London an attractive place for divorcing wives. She said: "There is a wide discretion and judges here will look at individual factors and cases. This can sometimes make the decisions less easy to predict and can lead to more litigation." She added that the complexity of many international divorce cases and spouses with assets around the world in various tax havens had led to an influx of City lawyers into family law. "Family law used to be seen as quite soft and less intellectually demanding than corporate law, but now it has attracted City lawyers who use their skills in family law and that is seen as quite normal."

FT : Republicans line up for new budget battle

Republicans are gearing up for a new fight with President Barack Obama over the need to lift America’s borrowing limit early next year, raising concerns that the fiscal truce established in last week’s bipartisan budget deal may be shortlived. Paul Ryan, Republican chairman of the House budget committee, said his party planned to demand concessions from the White House in exchange for raising the country’s debt ceiling. Republicans would meet in January to discuss the options.

"We don’t want [to get] nothing out of this debt limit. We’re going to decide what it is we’re going to accomplish out of this debt limit fight," Mr Ryan said on Sunday. The budget deal he crafted with Patty Murray, a Democratic senator, dramatically reduces the threat of a government shutdown over the next two years and unwinds some of the budget cuts introduced in March under "sequestration". Many view the pact as marking the end of three years of vicious fiscal battles on Capitol Hill, but Mr Ryan’s comments suggest that tensions could flare up again soon and dealing a blow to the global economy as early as the first quarter of next year. The budget deal was passed overwhelmingly by the House of Representatives last week but faces its final hurdle in the Senate this week. It is expected to clear the upper chamber, but opposition from a number of high-profile Republican senators in recent days has left some uncertainty about the outcome. "I feel we’ll have a good strong showing from the Democratic side, but we need bipartisan support to pass it," Dick Durbin, a senior Democratic senator, told CBS on Sunday. He noted that some Republicans vying for the presidential nomination in 2016 and others were still worried about a backlash from the Tea Party, which could cause problems. "This is very difficult," he added. Renewed uncertainty over the debt ceiling comes as Federal Reserve officials prepare to decide on Wednesday whether to begin tapering – or slowing – the pace of their asset purchases in support of the US recovery. A strong jobs report for November increased the likelihood that the Fed might initiate a small reduction in the rate of bond buys, as did news of the budget agreement reached last week. But Mr Ryan’s comments might temper any enthusiasm among Fed officials about the fiscal environment on Capitol Hill. The US Treasury has signalled that the debt limit will have to be raised by February or early March at the latest to avoid a possible default, though some analysts believe there might be more breathing room. In August 2011 and October 2013, the US narrowly escaped running out of cash to pay its bills in two crises driven by political brinkmanship. Obama administration officials and many Democrats insist that raising the debt limit should not be the subject of negotiations because the new borrowing helps cover payments for past tax and spending decisions made by Congress. But Republicans have tried to force their agenda for deep spending cuts and reforms of big social programmes in conjunction with rises in the debt limit. "The right answer is they should just extend the debt limit way in advance and not have any sense of crisis at all. I hope that will happen," Jack Lew, US Treasury secretary, said last month. Mr Ryan’s comments on the debt ceiling follow days of open warfare between Republican leaders in Congress and outside conservative groups who opposed the compromise budget deal for increasing spending in the short term. John Boehner, the Republican House speaker, said last week that they had "lost all credibility" after forcing a government shutdown to try to defund the 2010 health law, a plan that backfired politically for their party. In a separate NBC interview aired on Sunday, Mr Ryan sought to play down divisions among Republicans, saying Mr Boehner "just got his Irish up" in frustration, and that he would "prefer to keep those conversations within the family". Taking a tough line on the borrowing limit would patch up the split between the Republican party leadership and conservative groups, but would also reignite tensions with business allies who have been pleased with the shift towards compromise in the budget deal. In the past, Republicans have asked for deep spending cuts in exchange for debt ceiling rises, but they may also revive their demands for changes to the 2010 healthcare law, given the flaws in the scheme’s rollout. Some Republicans may also argue for a framework for tax reform to be tied to a debt ceiling increase.

>>> Peugeot shareholding may not be resolved until late January

Peugeot shareholding may not be resolved until late January The exact picture of shareholding reshuffles at French car giant Peugeot Citroen [EPA:UG] is unlikely to be clarified until a good month into 2014, according to the Journal du Dimanche. An unsourced item in the French-language weekly noted that with General Motors last week pulling out of its holding in the automaker, the subsequent actions by the Peugeot family and Chinese counterpart Dongfeng may not come about until shortly before Peugeot makes public its accounts for the year in February.

Without sourcing the projections, the JDD noted that between them the French state and the Wuhan-based automotive group could end up with a 50% holding.

The Peugeot descendants today hold a 38% of voting rights and 25% of tshares, the JDD noted. Those percentages could fall to 15% and 12%, the item noted , suggesting the French authorities are keen on such an outcome. Again without sourcing, the item noted that the group could turn to the markets for further capital. It could also call on the family to kick in up to EUR 250m into company coffers.

Michigan based GM on Thursday announced the intention to sell its entire 7% stake in PSA Peugeot Citroen through a private placement, as reported. The US company netted EUR 250m from the divestment, as reported.

Source Journal du Dimanche

Shell Exiting Woodside Seen Opening Door to China Bids: Real M&A

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Shell Exiting Woodside Seen Opening Door to China Bids: Real M&A 2013-12-15 19:00:00.0 GMT

(For a Real M&A column news alert: SALT REALMNA <GO>.)

By Angus Whitley and James Paton Dec. 16 (Bloomberg) -- Royal Dutch Shell Plc’s long-awaited sale of its $6.4 billion stake in Woodside Petroleum Ltd. may open the door for Asian buyers to grab a slice of Australia’s second-largest oil and gas producer, or even the whole company. Shell, which said last month it was entering “a divestment phase,” may exit its 23 percent holding in Woodside as soon as 2014 as its importance to Europe’s largest oil company fades, said Nomura Holdings Inc. While Shell may opt to sell the stock back to Woodside and institutional investors, China’s Cnooc Ltd. and China Petroleum & Chemical Corp. might pursue the stake or a full takeover, Morningstar Inc. said. Woodside, which has a market value of $28 billion, offers buyers six of Australia’s seven LNG processing plants as China- led demand for liquefied natural gas is forecast to almost double worldwide by 2030. Government opposition to a foreign takeover may have eased since Shell was blocked in 2001, said E.I.M. Capital Managers Pty. The company also is more affordable after its multiple to cash flow more than halved since 2011, according to data compiled by Bloomberg. A sale of Shell’s stake in Woodside “opens it up for somebody,” John Robertson, a Melbourne-based investor at E.I.M. Capital who owns shares in Woodside, said in a phone interview. “There’s going to be rising energy demand throughout Asia, particularly in China.”

Not Strategic

Shell, Woodside’s largest shareholder, said last year the asset didn’t fit into The Hague-based company’s long-term plans. Then, in May, Shell Chief Financial Officer Simon Henry said the company “eventually would sell the stake,” describing the investment as “no longer strategic.” The stake is “increasingly non-core” to Shell as Perth, Australia-based Woodside expands overseas, Theepan Jothilingam, a London-based analyst at Nomura, said in a Dec. 3 report. As Shell cuts costs, selling the Woodside stake would free up cash for incoming Chief Executive Officer Ben van Beurden, who replaces Peter Voser in January, said Evan Lucas, Melbourne- based strategist at IG Markets Ltd. Institutional investors, as well as Chinese, Japanese or South Korean companies, may be interested in buying the shares, Lucas said by phone. Woodside would be “very interesting” to Cnooc, China’s biggest offshore oil and gas producer, and China Petroleum & Chemical, better known as Sinopec, said Mark Taylor, an analyst at Morningstar in Sydney. Neither is likely to be blocked by the Australian government, Taylor said.

Blocked Bid

“Woodside is not the only LNG exporter,” he said in a phone interview. “It doesn’t have the same national significance anymore.” In April 2001, then-Australian Treasurer Peter Costello blocked Shell’s bid for Woodside. At the time, Woodside ran Australia’s only liquefied natural gas plant and the government was concerned Shell would slow Woodside’s expansion by prioritizing other investments in Asia. A logical domestic acquirer, Melbourne-based BHP Billiton Ltd., the world’s biggest mining company, is now more focused on cutting costs than takeovers, said Taylor. Kate Gauntlett, a spokeswoman for Woodside, declined to comment on Shell’s stake or potential buyers, and Sarah Bradley, a spokeswoman for Shell, also wouldn’t comment. Michelle Zhang, a spokeswoman for Cnooc, declined to comment. Calls to Sinopec’s Beijing-based spokesman Lv Dapeng weren’t answered during normal business hours.

Profit Growth

Formed in 1954, Woodside endured a decade of fruitless exploration in southern Australia before discovering gas off the west coast, according to the company’s website. Woodside’s Pluto project, which started in 2012, and its North West Shelf development in Western Australia will help boost profit 14 percent to $2.16 billion next year, according to analysts’ estimates compiled by Bloomberg. Woodside plans to expand in Israel and expects to decide in 2015 whether to develop the Browse LNG project off Western Australia with Shell. Woodside closed last week in Sydney at A$37.75 a share, leaving the A$31 billion ($28 billion) company trading at about 8 times its cash flow, according to data compiled by Bloomberg. That’s less than half the figure in April 2011. Shell already sold 10 percent of Woodside stock for A$42.23 a share in November 2010. The shares haven’t traded higher than A$40 since 2011.

Gas Demand

The price has sagged partly due to expectations of a pending sale by Shell, said Lucas at IG. Should that take place, there would be fresh demand for the stock, he said. “It makes your big hedge funds wake up to the fact that Woodside is clear,” he said. Central to Woodside’s appeal to a corporate buyer is rising demand for gas throughout Asia, said Robertson, the fund manager at E.I.M. Capital. Chinese or Japanese energy companies might attempt to buy a stake as a path toward a takeover, a move that may not be opposed by Treasurer Joe Hockey, he said. “Right now the government is going through some soul- searching about what its view is toward national assets,” Robertson said. “There have been some interesting decisions which throw up the question as to whether the same decision Costello took more than 10 years ago would be taken today.” Australia ruled this month that China’s state-controlled Yanzhou Coal Mining Co. didn’t need to cut its stake in its Australian business to less than 70 percent, instead allowing it to move toward full ownership. And even as Hockey blocked Archer-Daniels-Midland Co.’s $2 billion takeover of GrainCorp Ltd. last month, he said he would allow the U.S. company to raise its stake to almost 25 percent to work toward “potentially greater participation.” Shell is still more likely to sell its Woodside shares to institutional investors or to Woodside itself, said Vincent Pisani, a Melbourne-based analyst at Shaw Stockbroking Ltd. That may not deter foreign suitors from trying to buy the stake, said Robertson at E.I.M. Capital. “Someone might say, ‘OK, if we bought the Shell stake, that might be a stepping stone to going the whole way,’” he said.

For Related News and Information: Gas Buyers Poised to Commit on South Korea Atomic Shift: Energy NSN MUR8MR6KLVRL <GO> Woodside Sees Israel Deal Alternatives With Decision in 2014 NSN MXKV856S972F <GO> Highest-Paid Workforce Driving Shell Offshore Australia: Energy NSN MLUUCO0YHQ0X <GO> Woodside deal news: WPL AU <Equity> TCNI MNA <GO> Real M&A columns: NI REALMNA <GO> Top deal news: TOP DEAL <GO>

--With assistance from Benjamin Haas in Hong Kong and Eduard Gismatullin in London. Editors: Sarah Rabil, Beth Williams

To contact the reporters on this story: Angus Whitley in Sydney at +61-2-9777-8643 or awhitley1@bloomberg.net; James Paton in Sydney at +61-2-9777-8698 or jpaton4@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at +1-212-617-5992 or srabil@bloomberg.net; Jason Rogers at +65-6231-3673 or jrogers73@bloomberg.net

NYT : Government Rests Case Against Ex-SAC Trader

Government Rests Case Against Ex-SAC Trader

Michael S. Steinberg, right, a former fund manager at SAC Capital Advisors, with his lead lawyer, Barry H. Berke.
After three weeks and 13 witnesses, the government on Friday rested its insider trading case against Michael S. Steinberg, a former fund manager at SAC Capital Advisors.

The defense’s case will take considerably less time. It said it might call one witness on Monday, and then both sides will present their closing arguments. Mr. Steinberg will not take the witness stand.

Seated in the Federal District Court in Lower Manhattan, a jury of nine women and three men have been presented with hundreds of emails, phone records and trading records by the prosecution, often enduring hours of Wall Street jargon.

The prosecution, led by Antonia M. Apps, an assistant United States attorney, has accused Mr. Steinberg of trading the stocks of the technology companies Dell and Nvidia after receiving confidential information about their earnings from Jon Horvath, a former technology analyst at SAC.

They sought to establish that, under pressure from Mr. Steinberg to supply “edgy proprietary information,” Mr. Horvath turned to a network of analysts that shared nonpublic information.

“My edge is contacts at the company and their distribution channel,” Mr. Horvath wrote in an October 2007 email to an account used to send trading ideas to Steven A. Cohen, the founder of SAC.

Later in the email chain, Mr. Steinberg wrote: “I suspect the line about contacts at the company may wake up our legal eagles,” adding, “fortunately, to my knowledge, the guys don’t actually work there anymore.”

The jury listened to hours of testimony from SAC employees that pulled back the curtain on the secretive world of SAC. They also heard from witnesses who have pleaded guilty in unrelated insider trading cases and employees from Dell and Nvidia.

The government rested its case after Salvatore Cincinelli, an F.B.I. agent working in the securities and fraud division, talked jurors through the records of Mr. Steinberg’s trades in Dell and Nvidia stocks, as well as the trading records of managers at other hedge funds who were receiving the same information from Mr. Horvath’s network.

The jurors were alert and engaged as Mr. Steinberg’s lead lawyer, Barry H. Berke, began his cross-examination, lobbing a quick succession of questions at Mr. Cincinelli, flipping through the charts the prosecution presented, asking about a figure in one chart before jumping to another chart and figure.

“What I’m trying to do is keep this simple,” Mr. Berke told Mr. Cincinelli as he questioned the validity of Mr. Cincinelli’s method of presenting the trading information on which Mr. Steinberg’s guilt or innocence may hinge.

At times Mr. Cincinelli was unable to follow, replying “I don’t recall.” Judge Richard J. Sullivan also interjected at one point to say he didn’t understand a question asked by Mr. Berke.

Jurors were also given one last glimpse into the world of insider trading when Hyung Lim took the witness stand. Mr. Lim, who worked at Altera Corporation and Broadcom, has pleaded guilty to insider trading charges. He admitted to providing his friend Danny Kuo, another analyst in Mr. Horvath’s information network who was employed at Whittier Trust, with nonpublic information about Nvidia.

When asked why he supplied information to Mr. Kuo even though he knew it was illegal, Mr. Lim replied, “It was easy information for me to get.”

“Danny was a friend; he wanted help, so I just gave it to him,” he added. Mr. Lim said he and Mr. Kuo played poker together.

Mr. Berke’s performance was strongest during his seven-day cross-examination of Mr. Horvath. He has argued that Mr. Steinberg did not know the information he received from Mr. Horvath was obtained illegally.

The defense team has tried to discredit Mr. Horvath, who pleaded guilty to insider trading charges in September 2012 and agreed to help prosecutors in the investigation of Mr. Steinberg.

Mr. Steinberg’s trial strikes at the core of a decade-long investigation of SAC by the government. The trial began on Nov. 20, two weeks after SAC agreed to pay $1.2 billion and plead guilty to five counts of insider trading violations. Of the eight SAC employees to be charged criminally, six have pleaded guilty to securities fraud in what the government has called a “systematic” insider trading scheme.

>>> What to look at this Week End - Part 1 ( Saturday 14/12 )

US Market closed slightly postive, but still negative on the month, S&P-1,7% and Russel 2000 -3,1%, volume still light with 627mil shares traded...VIX @ 15,77 +1,48%...highest level since mid October...see demand for protection ahead fo next week FED meeting

- Chinese spacecraft landed on the moon,
- Germany's SPD backs coalition with Merkel's CDU
- German Union Rejects EU Stance on Merkel Energy Policy: Bild
- Italy’s Deficit Very Close to 3% of GDP This Year: Saccomanni

Keep an eye on :
- ALO FP : Alstom rejects Siemens as partner for Transport division; TMH (Russian) still a possibility - Challenges
- BMW GY : BMW North America Recalls 76,000 Cars Over Air Bag Defect: NHTSA
- BOL FP : Bollore Awarded London Electric Car Charging Contract: Parisien
- DTE GY / TMUS US : Sprint Working Toward Bid for T-Mobile US, Dow Jones Says
- EAD FP : EADS’s Astrium Unit Wins Order for 18 Ariane 5 ECA Rockets
- GE US : raised dvd by 16% (payable 27/01), annual outlook meeting next week, big focus on manufacturing M&A.
- JNJ US : J&J Said to Get 3 Diagnostics Bids of at Least $4 Billion Each
- KCO GY : Kloeckner Considering Acquisitions, to focus on North America because of low energy cost, could shut down unprofitable business, Co coould return to profitability in 2014, could allow to pay dvd again in 2014, CEO Ruehl Tells Welt
- MB IM : Generali Cuts Mediobanca Stake Below 2%, Consob Says
- ML FP : Michelin North America Recalling as Many as 1.2m Tires: NHTSA
- MONC IM : Moncler Combined IPO Offering About 27 Times (97mil shares demand) Oversubscribed ( Retail 14 times) - start trading on Monday, priced @ E10,20/share--> value the Co @ 2.55bil Euros (cuccinelli oversub. 17 times)
- ORC FP : Orco Property’s Hungarian Units Start Insolvency Proceedings
- PVA SM : Pescanova Investors Propose 90% Debt Write-Off, Cinco Dias Says
- Red Bull : Red Bull Granted License in China, Plans Drink Sales, Krone Says
- RSA LN : Zurich Ins. Or Allianz could be interested in all or part of RSA - FT
- Taittinger : Taittinger preparing for acquisitions the French champagne house owned by banking group Credit Agricole and the Taittinger family, is interested in acquiring winemakers operating in the Burgundy and Bordeaux regions.
- TIT IM : Telefonica CEO Alierta Steps Down From Telecom Italia’s Board
- TKA AV : New Austria Govt Aims to Sell Company Stakes, Austria’s three big listed company stakes are: 53% of Austrian Post,28% of Telekom Austria, 32% of OMV
- VIE FP : Veolia French Water Unit Chief Sees EU150m of Additional Revenue
- VOS GY : Vossloh May Cut Dividend Again, CEO Andree Tells Boersen-Zeitung

(Barron's) Time to Brace for a 20% Correction

Time to Brace for a 20% Correction

Ned Davis Research expects a 2014 buying opportunity. How to play the decline-and-recovery scenario.

Ned Davis Research is well-known on Wall Street, even though it's based almost 1,200 miles away, in Venice, Fla. That's because, over the past 33 years, it has built a reputation for incisive technical analysis, delivered clearly. It's been particularly good at anticipating turns in the market, and it sees trouble approaching, despite the general bullishness among investment pros about 2014. (See the Cover Story for other views.)

On a curiously balmy December day, even for the Sunshine State, Barron's last week visited the company's founder, Ned Davis, along with Timothy Hayes, its chief global investment strategist, and Lance Stonecypher, its chief U.S. equity sector strategist. They had a lot to say.

Barron's: You've warned that a correction is near. Why?

Davis: Right now, about 78% of industry groups are in healthy uptrends. That would have to fall to about 60% for us to say the market had lost upside momentum. We also focus on the Federal Reserve, and it's still in a very easy mode, despite all the talk about tapering. So, those two indicators are bullish. However, we've looked at all the bear markets since 1956 and found seven associated with an inverted yield curve [in which short-term interest rates are higher than long ones] -- a classic sign of Fed tightening. Those declines lasted well over a year and took the market down 34%, on average. Several other bear markets took place without an inverted yield curve, and the average loss there was about 19% in 143 market days. We don't see an inverted yield curve anytime soon. So, whatever correction we get next year is more likely to be in the 20% range.

That's great news, I guess, at least compared with Armageddon.

Davis: We also looked at midterm-election years -- the second year of a presidential term, like the one coming up in 2014 -- going back to 1934, and the average decline in those years was 21%. But after the low was hit in those years, the market, on average, gained 60% over two years. So, a correction should be followed by a great buying opportunity.

Lance, one of your reports indicates that, as the market reaches its peak, there are three stages for investors to ponder, and we're near stage one now.

Stonecypher: We reached our conclusions after averaging all the one-year seasonal market cycles, the four-year midterm-election cycle Ned mentioned, and a 10-year cycle. The timing of the stages can be tricky. But based on the average pattern, this stage should run from the beginning of the year into April or so. In this first stage, the equity sectors to be in are usually high beta. Our top three sectors for this stage are industrials, consumer discretionary, and health care.

However, I have industrials on a short leash because the 50% bonus-depreciation for equipment might expire this year, hurting them. If that happens, we'd mark them down from Overweight to something more neutral. Also, the correlations among stocks today are at their lowest since 2007. So the leadership might not play out exactly as history says it will. That's good news for stockpickers, who now can make judgments on stocks on [individual merits, rather than the outlook for their sector or the market].

[image]
Alex Stafford for Barron's
Ned Davis, center, flanked by Timothy Hayes, left, and Lance Stonecypher
Why have correlations broken down?

Stonecypher: Correlations rise during bear markets or when there's a lot of macro risk, as there was during the sovereign-debt crisis. Correlations peaked in 2011 and have been declining ever since.

What about stage two, which your research indicates might run until October or so of 2014?

Stonecypher: Well, when you have a bear market, the leadership becomes very defensive, so you want low-beta stocks: utilities, staples, health care, energy. These all tend to pay higher dividends.

Which helps offset any price hits your stocks take. What about stage three?

Stonecypher: That's pretty much the inverse of stage two. You want to load your portfolio up with high-beta stocks again: things like financials, technology, industrials, consumer discretionary, and materials. That's history's view. We also watch momentum -- just simply the rate of change in stock prices, an indicator that has been working well for the past year or so. The problem is that price momentum works great when you are in an environment of low correlations among stocks. Unfortunately, at major market turning points, especially when you go from a bear market to a bull market, the momentum factor needs to be inverted. It's less problematic going from stage one to stage two, but it is very problematic going from stage two to stage three. If the correction we expect is mild, I probably won't reduce the weighting of my momentum readings very much. But I will, if we do have a 15%, 20% decline. A lot of times that is where following momentum will give you drawdowns.

Drawdowns? Are those what most people would call losses?

Stonecypher: Yes. You could get big losses.

Tim, what about the global outlook?

Hayes: I wanted to see how the four-year cycle applies to markets around the world. So we looked at all the components in the All Country World Index and discovered that from the beginning of the summer on June 21 to the end of the summer on Sept. 22, the market tends to drop. It fits in with the old "sell in May and go away." This trend tends to be much stronger in the second year of the four-year cycle. This supports the idea that whatever kind of correction we're going to have will be pretty global.

And money has been pouring into global funds, right?

Hayes: The 13-week moving average of flows into U.S. and international mutual funds and exchange-traded funds has gotten to $9.5 billion, the highest we've seen. In fact, international funds are having more consistent inflows.
Davis: This is comparable to 2000, the biggest difference being that, back then, almost all the buying was concentrated in U.S. funds, and now it is pretty well split right down the middle. And, also like in 2000, bond funds are showing big outflows.
Hayes: So we are seeing really a big shift in asset allocation. Anyway, here's where valuations come into play: Markets will start to look expensive early next year. And you're not going to see the U.S. fall 20% and the rest of the world keep going up. Any decline will be a global decline, although some markets will dip more than others.

Based on price/earnings ratios alone, China and Korea are pretty cheap, and they still look good when you factor in expected interest rates and economic growth. One question we've been asking is, What happens if rates move up? Is this a problem for a particular market at 0.5%, 5%, or what? One way to look at this is to compare the earnings yield [earnings per share divided by a stock's price] against interest rates. In the 1990s, earnings yields were below bond yields, yet the market kept going up. Why? Because growth was good and, as a result, the market's earnings expectations were, too. So, for a time, the market could support higher valuations…until it all ended with the bubble of 2000. Going forward, a big question will be, Are rates at levels that will impede growth?

Along with China and Korea, you put Israel at the top of your favorite places to invest, and Ireland, Italy, and Portugal at the bottom.

Hayes: If you look at Europe just off the basis of P/E valuations, you might make a bullish case for a lot of its markets. But when you also consider the growth and interest-rate outlooks, you see that in some peripheral markets not all their risks are off the table.

Rotate and Prosper

In the first and third stages of the decline-and-recovery scenario Ned Davis Research foresees, relatively high-beta stocks, such as consumer-discretionary issues, would be the top bets. In the second stage, low-beta sectors, such as health care, would do best.

S&P 500 Sector Recommendation 36-Mo Beta
Industrials Overweight 1.16
Consumer Discretionary Overweight 0.97
Health Care Overweight 0.75
Materials Marketweight 1.38
Consumer Staples Marketweight 0.50
Financials Marketweight 1.42
Information Technology Marketweight 0.99
Energy Underweight 1.37
Telecommunication Services Underweight 0.31
Utilities Underweight 0.25
Source: Ned Davis Research
In contrast, in China and Korea, which have gone through several tough years since 2010, the true valuations look much better. People were worried that China would have a hard landing, but the Chinese engineered the kind of soft landing they wanted. The new government has come up with a formal growth plan, and the market seems to be reacting well to it, so investments are starting to show up there in a bigger way, especially with China's economic numbers coming through. Overall, Asian emerging markets look much better than Latin America's or Europe's.

Ned, let's get back to the U.S. for a minute. Some investors argue that the markets are setting up as they did after 1982, leading up to the 1987 fiasco. Is there a possibility of another Black Monday?

Davis: This is an interesting period. Interest rates are zero, so stocks look good, relative to other assets. But on an absolute basis, they're not really so cheap. In 2007, some people said, yeah, stocks may be a little overvalued, but not relative to houses. Houses are way overvalued, so money will flow from houses to stocks. But stocks went down more than houses. Relative valuation is tricky. I trust absolute valuation more, and I'm hoping that, if we get a decline next year, it will make absolute values look better, while relative values will stay good. That would set up the buying opportunity we're looking for. If the Fed does taper its bond-buying next year and rates go up, say, to 3.25% or 3.5% on 10-year notes, that may be enough tightening to create the correction we see coming. A lot of value players, even Warren Buffett, say they're not seeing a lot of great values. Those are absolute values they're talking about, and that's a problem a correction would solve.

What about the economy itself in 2014?

Davis: We've had a very slow-growth economy, barely above stall speed. But our forward-looking indicators have gotten a lot better; you could see a 2.5% to 3% growth rate for gross domestic product. There also could be some wage pressure; we think the labor markets are a little tighter than the Fed thinks. Average hourly earnings have been moving up 1.55%, on a year-to-year basis. The rate is 2.03% now. If you look at the long-term picture of wages and inflation, they could hit 2.5%, and 2.5% is the Fed's danger level. To me, a 3.25% T-note yield and 2.5% wage inflation put the Fed on the defensive. I don't know how much of this bull market is Fed-driven, although I suspect quite a bit of it is. So, I'd really watch the T-note yield and wage inflation.
Stonecypher: Some studies we did might shed some light on how supportive the Fed has been to this market. The market had a waterfall decline -- a 20% drop -- in 2011, and I'd done studies to see how long it typically takes to recover in a postwaterfall period. In this case, the market returned to its highs by February 2012, in one of the fastest postwaterfall recoveries on record. I attribute a lot of that to QE 3 [the Fed's third bout of quantitative easing].
Davis: That 20% drop in 2011 points to what we're looking for next year. But let's back up for a minute. Before, we were talking about how strong fund inflows have been. People aren't as stupid as Wall Street makes them out to be. You don't want to see extremes, but if you're an equity investor, you want to see money flow into equity funds and you want to see it come out of bond funds. A year ago, almost to the day, Tim put out a major report suggesting that a secular change in asset allocation was occurring, away from bonds and into stocks. And this probably has been the best year ever for stocks versus bonds. I'm giving him a shout-out.

He'd probably prefer a raise.

Davis: This is going to be an ongoing theme. So, while people who are rushing into stock funds might be buying wrong short term -- meaning next year -- that doesn't necessarily mean they will be wrong long term.

If we do get a 20% decline, and the market begins rallying after that, how much of a pop could we get?

Hayes: Well, it's really a big guess, but you'd probably end 2014 up slightly from where you started. Then, double-digit returns would be normal.

Double-digit returns for a couple of years?

Hayes: That would be normal.

Most investors would happily take that. Thanks.

(Barron's) Bullish on 2014, Wall Street strategists expect stocks to rise 10%,

Bullish on 2014

Wall Street strategists expect stocks to rise 10%, boosted by a stronger economy and fatter corporate profits. Bullish on tech, industrials.

Following six years of manic performance, Wall Street's top strategists see a sense of normalcy returning to the financial markets next year. They expect the Federal Reserve to sharply reduce its $85 billion monthly bond-buying program, allowing interest rates to edge higher. And they see stocks rising about 10% on the basis of corporate fundamentals, instead of being whipsawed by every utterance from the Fed.

After a year in which the Dow has advanced 20% and the S&P 25%—far more than almost anyone had predicted—more muted gains might seem boring. But boring could be just the ticket to inspire renewed confidence among investors in the markets and the financial system.

THE 10 STRATEGISTS Barron's consulted about the outlook for 2014 have year-end targets for the S&P of 1900 to 2100, well above Friday's close of 1775.32; their mean prediction is 1977. The bullish consensus might trouble contrarians, but Wall Street's pros see ample reason for optimism, given their expectations of a stronger economy and rising corporate profits.

In recent years, and especially in 2013, the market moved ahead because investors were willing to pay more for earnings. The Standard & Poor's 500 currently trades for almost 15 times analysts' next-12-month profit estimates, up from 13 times a year ago. Next year, however, the strategists expect earnings growth to do the heavy lifting, with S&P profits climbing 9%, compared with subpar gains of 5% in the past few years.

Specifically, the strategists eye S&P profits of $118, up from this year's estimated $108 to $109. Industry analysts typically have higher forecasts; their 2014 consensus is $122, according to Yardeni Research.

Profit growth will be driven mostly by a 2.7% increase in U.S. gross domestic product, which compares with this year's expected 1.7% gain. A more robust economy could encourage more capital spending and business investment, as well as more hiring, as corporate leaders see an uptick in customer demand.

Ironically, many market watchers believe that when the Fed tapers its bond-buying regimen, it will hasten an improvement in corporate confidence. For chief executives, such action, expected in the first quarter, would signal that the central bank sees a sustainable recovery, at last.

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Technology and industrial stocks could be the biggest beneficiaries of a better economy around the world, the Street's strategists say. Tech stocks, in particular, trade for relatively low price/earnings ratios, and many of the group's members have cash-rich balance sheets.

The strategists continue to recommend that investors steer clear of sectors such as consumer staples, consumer discretionary, utilities, and telecommunications. Staples stocks aren't as leveraged as other sectors to a reviving economy, and consumer-discretionary issues sport sky-high P/Es, relative to historic valuations. It wouldn't take much in the way of bad news to knock them down.

Utilities and telecom stocks have performed poorly this year, in part because, with their rich dividends, they act as bond proxies. They aren't expected to thrive in a rising-interest-rate environment. The consensus view is that yields on 10-year Treasury bonds will climb to 3.4% next year from a current 2.8%. The 10-year yielded as little as 1.75% a year ago.

OUR EXPERTS DON'T SEE everything coming up roses. In particular, they worry that the Fed could make missteps under its new boss, Janet Yellen, when it begins to remove stimulus from the markets next year. Yellen is scheduled to replace Chairman Ben Bernanke on Feb. 1, pending confirmation by Congress.

The Federal Reserve must get the timing of any move right, and also must make clear the distinction between tapering and an actual hike in its federal-funds-rate target, now a puny 0.25%. The Fed sets this benchmark rate, which banks charge one another on overnight loans. Our seers expect the central bank to hold the rate steady until sometime in 2015.

If the Fed doesn't communicate its intentions well, the tapering period could become a rocky one for the stock market. And if the tapering is followed by a sustained deceleration in economic growth—well, it's hard to imagine that stocks would remain aloft.

The strategists will be keeping an eye on Washington, too, in the event Congress can't reach an agreement in the spring on raising the federal debt ceiling. Last week's bipartisan budget deal offers some hope, at least, that politics won't derail the bull market. Likewise, stocks have held up despite wars and political crises in other parts of the world.

Here is a closer look at four key factors that will shape financial markets in 2014.

Corporate Earnings
The U.S. economy hasn't enjoyed much of a recovery since the financial crisis of 2007-08, notes David Kostin, U.S. equity strategist at Goldman Sachs. This could be the year: The firm expects GDP growth to rise to 3%, which could help spur earnings growth.

Employment data and figures from the Institute for Supply Management support hopes for a pickup, Kostin says. In November, the ISM manufacturing purchasing managers' index advanced for the sixth straight month, to 57.3 from 56.4. A reading above 50 signals economic expansion.

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Stephen Auth, Federated Investors' chief investment officer, is even more bullish. "We are entering Phase II of the bull—the return of an economics- and profit-growth-driven market," he declares.

Auth has been among the most consistently optimistic of the strategists we've consulted, and also on the mark. His year-end S&P target is the highest this year, as it was a year ago: 2100. Federated's forecast of 3.5% GDP growth in 2014 also tops the list.

"In the past five years, no one was making long-term investments," Auth says. As a result, corporations are sitting on $1 trillion of cash, and there is pent-up demand for investment around the world. Thomas Lee, the chief U.S. equity strategist at JPMorgan Chase, notes that U.S. gross fixed investment has fallen to 13% of GDP, on par with Greece and well below the 16% to 21% range that obtained from 1950 to 2007. Just getting back to the midpoint of that range would require additional spending of $600 billion, he observes.

VARIOUS ECONOMIC INDICATORS suggest that a recovery isn't limited to the U.S. The Organisation for Economic Cooperation and Development reported on Dec. 9 that composite leading indicators in most major countries, both developed and emerging, are showing signs of improvement.

Interviewed on their outlook for the fall ("Fall Forecast: Sunny," Sept. 2), many strategists said they expected signs of economic acceleration to be visible in the second half of the year. Indeed, that's been the case: Investors applauded an upward revision in the third-quarter annualized GDP growth rate, to 3.6% from 2.8%, and a recent drop in unemployment, to 7% from 7.3%. But the bull is always hungry for more and better data.

Auth, of Federated, is looking for another leg up in the housing market, and in nonresidential construction. Gains in both would help to boost employment. Household balance sheets are in better shape, he notes, so consumer demand could remain steady.

The domestic boom in shale oil and gas is another boon to employment, and will lower energy costs for some industries, he adds.

The calendar, too, is a help. Addition will come from subtraction as the U.S. begins to lap some of the government's automatic spending cuts tied to the sequestration that began last spring, and the expiration of the Obama administration's 2% payroll-tax cut early this year. The government cost the economy perhaps 1.5 percentage points of GDP growth in 2013, but "government drag will be a lot less in 2014," predicts Auth.

Both people and companies will start to spend more in 2014, he adds.

To Taper—or Not?
That is the question—for the Fed, the economy, and Wall Street. Mere mention by the central bank of a desire to rein in its bond purchases sent jitters through the market this year. Stocks fell 6% last spring, after Bernanke, on May 22, broached the idea of stimulus removal.

When the tapering finally begins next year, the reaction might not be so negative, says Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch. That's because a rotation out of rate-sensitive stocks, including utilities, telecoms, and real-estate investment trusts, already has begun. Moreover, "tapering in the context of an improving economy is something investors should be happy about," she says.

Adam Parker, head of U.S. equity strategy at Morgan Stanley, concurs: "Tapering won't be as negative as people think.…The Fed will taper when the economic data has improved enough."

BAD NEWS WAS GOOD this year, as the market frequently wilted on strong economic numbers or other seemingly positive information that suggested the Fed's assist might be drawing to an end. Conversely, stocks often rose on weak economic numbers, which implied that the central bank would leave its zero-bound interest-rate policy in place. Lately, stocks have been rising on stronger economic results, another sign of creeping normalcy.

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The tapering process could test Yellen's mettle early in her tenure, and provoke market volatility. "But once investors get comfortable that tapering doesn't equate to a tightening of interest rates, markets will stabilize," says John Praveen, chief investment strategist at Prudential International Investment Advisors.

Our panel's predictions on year-end yields for the 10-year bond range widely, from 2.9% to 3.75%. (Bond prices move inversely to yields.)

Market Sectors
Jeffrey Knight, head of global asset allocation at Columbia Management, makes a strong case for industrial stocks, noting that "investors will increasingly gravitate to stocks correlated to the business cycle" as the economy picks up. Technology stocks, in particular, are leveraged to better economic growth.

While shares of the big hardware makers such as Microsoft (ticker: MSFT) and Cisco Systems (CSCO) are struggling, these stocks boast low valuations, and the companies have ample cash.

Russ Koesterich, global chief investment strategist at BlackRock, also is a fan of tech, noting the sector's impressive return on equity. Tech's ROE, based on trailing 12-month earnings, is 22%, significantly higher than the S&P's 15%. Also, technology outfits, which generally have little to no interest expense, won't be hurt by rising interest rates.

Despite its strengths, the tech sector doesn't trade at a premium to the market. The shares fetch 17 times trailing 12-month earnings, right in line with the S&P.

Koesterich also favors foreign stocks, which tend to be cheaper than U.S. issues. He recommends playing the global recovery in tech through exchange-traded funds, or ETFs, such as BlackRock iShares Global Tech (IXN). The table nearby highlights more stocks that our panelists believe will outperform the market in 2014.

Both industrials and techs offer international exposure, particularly to Europe and emerging markets, says Subramanian of BofA Merrill. European stocks have risen sharply, but U.S. stocks exposed to the Continent haven't seen comparable gains, she notes.

Cyclical stocks, which cross sector boundaries, are another favored group for 2014, given their economic sensitivity. According to JPMorgan's Lee, cyclicals, which include industrials, tech, materials, and consumer-discretionary shares, made the biggest contribution to year-over-year growth in third-quarter S&P 500 earnings. "That's a huge reversal from the first half of 2013," he says.

Yet cyclicals trade for 20 times trailing earnings, a big discount to many defensive issues.

Some market commentators have observed that profit margins are near all-time highs, suggesting limited room for expansion. But Tobias Levkovich, chief U.S. equity strategist at Citibank's Citi Research, calls that "malarkey." In eight of the 10 S&P sectors, margins on earnings before interest and taxes (Ebit) are lower than they were in 2007, which marked the previous high, he says.

Corporate America's bottom line has been helped by substantial declines in interest expenses and taxes. Although both are expected to rise next year, Levkovich still sees room for Ebit margins to widen as the recovery gathers steam.

CONSUMER-DISCRETIONARY SHARES have been big winners this year, but several strategists advise caution. "Discretionary has had a great run, and everyone loves and owns it," observes Subramanian.

Valuations are high, and she sees risks in multiple industries. Housing, she notes, has slowed a bit, and rising wages and costs related to health-care reform could hurt the retail and restaurant industries.

BlackRock's Koesterich agrees, noting that household income isn't rising rapidly, and that the labor market is growing more challenging for consumer-staples and discretionary stocks. "Many consumer stocks are priced for perfection," he says.

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As for utilities and telecoms, they are bondlike and relatively expensive, comments Columbia's Knight. They are also sensitive to taper talk; they tanked in June, after Bernanke spoke about reining in quantitative easing.

Investment Risks
The market made headway this year in part because investors' worst fears weren't realized. The U.S. didn't default on its debt; China didn't experience a hard economic landing, interest rates remained benign, and Europe's debt crisis abated. Yet, every sunny forecast is subject to clouds, and the outlook for 2014 is no different.

As noted, the timing and manner of the Fed's stimulus withdrawal could pose major problems for stocks. Yellen & Co. will have to walk a tightrope, curbing the central bank's bond-buying while ensuring that investors don't misinterpret the move as a prelude to an imminent rise in the fed-funds rate. The Fed's change in command also presents added risk. "The market was comfortable with Bernanke," says JPMorgan's Lee. Yellen has to establish credibility, and "the potential for error is there."

No matter how well executed, a change in Fed policy will bring new uncertainties to the stock market, notes Barry Knapp, U.S. equity strategist at Barclays Capital.

The market hasn't suffered a serious setback in nearly two years, and that is potentially problematic, too. "We've had a 40% rally in the past 18 months with no correction," says Goldman's Kostin. "It's hard to identify why, but an increased probability of a correction next year is worth emphasizing."

A bout of volatility around the start of tapering is a reasonable expectation, says Citi's Levkovich. Even if the tapering goes smoothly, the market will start to worry about a coming interest-rate hike. Columbia's Knight doesn't see a boost in the fed-funds rate in 2014, but anticipation of a policy change in 2015 could roil the waters next year.

THE CONSENSUS VIEW IS that economic growth will accelerate globally in 2014. If that prediction proves wrong, "there is much more downside risk than from tapering alone," Knapp says,

The strategist also is worried about the implementation of the Affordable Care Act, aka Obamacare, which got off to an inauspicious start this fall. Further problems could erode consumer confidence, he suggests.

Europe's economy looks to be on the mend, but the recovery could stall. "You could end up with a meaningful disappointment in Europe, relative to expectations," says Levkovich.

Given this year's unusual gains, some strategists have looked to the past for hints about future performance. But the history is mixed.

Federated's Auth, for example, studied the market's performance after two consecutive years of double-digit returns. In 50% of cases, stocks advanced the next year. He concludes that "two years of big rises is not a reason to be bullish."

THE CURRENT BULL MARKET began in March 2009, and the S&P 500 has rallied 162% since then. Typically, bull markets that last more than four years eventually are knocked off course because of a recession, says JPMorgan's Lee.

Our strategists don't see a recession in 2014, just as they don't see negative equity returns—or a third year of 20%-plus gains. Instead, they see an unremarkable 2014 unfolding. After the thrills and spills of the past five years, chances are investors wouldn't complain about that.

Sector Snapshot
Only four sectors are beating the market this year, with consumer-discretionary in the lead. Bond-proxy sectors have been dragging.

Price Returns
S&P 500 Sector P/E* 2013** 2012 2011 2010
Consumer Disc 16.9 35.1% 21.9% 4.4% 25.7%
Health Care 16.0 34.1 15.2 10.2 0.7
Industrials 15.7 30.3 12.5 -2.9 23.9
Financials 12.9 28.2 26.3 -18.4 10.8
Info Technology 13.4 20.3 13.1 1.3 9.1
Consumer Staples 16.6 20.3 7.5 10.5 10.7
Energy 12.6 17.4 2.3 2.8 17.9
Materials 15.3 15.8 12.2 -11.6 19.9
Utilities 14.8 6.6 -2.9 14.8 0.9
Telecom 14.0 3.6 12.5 0.8 12.3
S&P 500 14.5 24.5 13.4 0.0 12.8
*Based on 2014 analysts' earnings estimates. ** Through 12/12.
Source: Bloomberg

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>>> Faber, Rogers, Dent, Maloney, & Stockman – What Do They Say Is Coming In 201

Faber, Rogers, Dent, Maloney, & Stockman – What Do They Say Is Coming In 2014?

Some of the most respected prognosticators in the financial world are warning that what is coming in 2014 and beyond is going to shake America to the core. Many of the quotes that you are about to read are from individuals that actually predicted the subprime mortgage meltdown and the financial crisis of 2008 ahead of time. So they have a track record of being right. Does that guarantee that they will be right about what is coming in 2014? Of course not. In fact, as you will see below, not all of them agree about exactly what is coming next. But without a doubt, all of their forecasts are quite ominous. The following are quotes from Harry Dent, Marc Faber, Gerald Celente, Mike Maloney, Jim Rogers and nine other respected economic experts about what they believe is coming in 2014 and beyond...

-Harry Dent, author of The Great Depression Ahead: "Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest."

-Marc Faber, editor and publisher of the Gloom, Boom & Doom Report: "You have to say that we are again in a massive financial bubble in bonds, in equities, in [other] asset prices that have gone up dramatically."

-Gerald Celente: "Any self-respecting adult that hears McConnell, Reid, Boehner, Ryan, one after another, and buys this baloney… they deserve what they get.

And as for the international scene… the whole thing is collapsing.

That’s our forecast.

We are saying that by the second quarter of 2014, we expect the bottom to fall out… or something to divert our attention as it falls out."

-Mike Maloney, host of Hidden Secrets of Money: "I think the crash of 2008 was just a speed bump on the way to the main event… the consequences are gonna be horrific… the rest of the decade will bring us the greatest financial calamity in history."

-Jim Rogers: "You saw what happened in 2008-2009, which was worse than the previous economic setback because the debt was so much higher. Well now the debt is staggeringly much higher, and so the next economic problem, whenever it happens and whatever causes it, is going to be worse than in the past, because we have these unbelievable levels of debt, and unbelievable levels of money printing all over the world. Be worried and get prepared. Now it [a collapse] may not happen until 2016 or something, I have no idea when it’s going to happen, but when it comes, be careful."

-Lindsey Williams: "There is going to be a global currency reset."

-CLSA's Russell Napier: "We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels."

-Oaktree Capital's Howard Marks: "Certainly risk tolerance has been increasing of late; high returns on risky assets have encouraged more of the same; and the markets are becoming more heated. The bottom line varies from sector to sector, but I have no doubt that markets are riskier than at any other time since the depths of the crisis in late 2008 (for credit) or early 2009 (for equities), and they are becoming more so."

-Financial editor Jeff Berwick: "If they allow interest rates to rise, it will effectively make the U.S. government bankrupt and insolvent, and it would make the U.S. government collapse. . . . They are preparing for a major societal collapse. It is obvious and it will happen, and it will be very scary and very dangerous."

-Michael Pento, founder of Pento Portfolio Strategies: "Disappointingly, it is much more probable that the government has brought us out of the Great Recession, only to set us up for the Greater Depression, which lies just on the other side of interest rate normalization."

-Boston University Economics Professor Laurence Kotlikoff: "Eventually somebody recognizes this and starts dumping the bonds, and interest rates go up, and inflation takes off, and were off to the races."

-Mexican Billionaire Hugo Salinas Price: "I think we are going to see a series of bankruptcies. I think the rise in interest rates is the fatal sign which is going to ignite a derivatives crisis. This is going to bring down the derivatives system (and the financial system).

There are (over) one quadrillion dollars of derivatives and most of them are related to interest rates. The spiking of interest rates in the United States may set that off. What is going to happen in the world is eventually we are going to come to a moment where there is going to be massive bankruptcies around the globe."

-Robert Shiller, one of the winners of the 2013 Nobel prize for economics: "I'm not sounding the alarm yet. But in many countries the stock price levels are high, and in many real estate markets prices have risen sharply...that could end badly."

-David Stockman, former Director of the Office of Management and Budget under President Ronald Reagan: "We have a massive bubble everywhere, from Japan, to China, Europe, to the UK. As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future."

And certainly there are already signs that the U.S. economy is slowing down as we head into the final weeks of 2013. For example, on Thursday we learned that the number of initial claims for unemployment benefits increased by 68,000 last week to a disturbingly high total of 368,000. That was the largest increase that we have seen in more than a year.

In addition, as I wrote about the other day, rail traffic is way down right now. In fact, for the week ending November 30th, U.S. rail traffic was down 16.3 percent from the same week one year earlier. That is a very important indicator that economic activity is getting slower.

And we continue to get more evidence that the middle class is being steadily eroded and that poverty in America is rapidly growing. For example, a survey that was just released found that requests for food assistance and the level of homelessness have both risen significantly in major U.S. cities over the past year...

A survey of 25 American cities, including many of the nation's largest, showed yearly increases in food aid and homelessness.
The cities, located throughout 18 states, saw requests for emergency food aid rise by an average of seven percent compared with the previous period a year earlier, according to the US Conference of Mayors study, published Wednesday.
All but four cities reported an increase in demand for assistance between the period of September 2012 through August 2013.
Unfortunately, if the economic experts quoted above are correct, this is just the beginning of our problems.

The next wave of the economic collapse is rapidly approaching, and things are going to get much worse than this.

>>> Weekly Market Update: The Long Melt Up Freezes in Place

Weekly Market Update: The Long Melt Up Freezes in Place

- Global equity markets retreated further from the highs seen at the beginning of December as participants cleared the decks ahead of the Fed meeting on December 17-18th. In Congress, a modest fiscal truce has been declared, raising hopes that the budget wars of the last three years are over. Data out this week was not quite as impactful as the reports out last week, but there was nothing that would dilute the impression that things are moving in the right direction. November retail sales rose 0.7%, topping the 0.6% gain in October. US import prices fell for a second straight month in November, thanks to lower oil and food prices. In Asia, there was speculation about additional BOJ easing as early as Q1 of 2014, helping to make the Nikkei the only major average to keep in the green this week. Growth in Chinese investment and industrial output eased slightly in November while retail sales grew at their strongest rate this year. Industrial output grew 10% y/y, a four-month low while retail sales rose 13.7% y/y. For the week, the DJIA lost 1.7%, the S&P500 dropped 1.7% and the Nasdaq fell 1.5%.

- On Wednesday Senator Murray and Representative Paul Ryan reached a two-year budget deal to fix federal spending at $1.012T in 2014 and $1.014T in 2015, reduce sequester cuts by $63B over the two years and also cut the deficit by a symbolic $20-23B. Speaker Boehner and the GOP Congressional leadership embraced the deal over howls of protest from Tea Party conservatives, and the House passed the measure in a 332-94 bipartisan vote, raising hopes that the budget wars are over for now. The Senate is expected to vote on the budget compromise next Tuesday.

- This week China held its annual week-long Central Economic Work Conference, at which the leadership sets the national agenda, including targets for 2014 GDP, CPI and M2. Rumors suggested that the conference would roll back Beijing's fiscal policy stance from "proactive" to "prudent," however, in the end the leadership maintained a "proactive" fiscal policy. The conference memo released after the event did not specify the GDP and inflation targets for 2014, although many have speculated the GDP target would be reduced to around 7.0% from 7.5% in 2013.

- The five Federal regulatory agencies that oversee the US financial system (the Fed, OCC, FDIC, CFTC and the SEC) approved the long awaited Volcker Rule this week. The rule constricts proprietary trading by banks and will come into effect most ironically on April 1st, 2014. By June large banks must begin reporting some data; full compliance with the rule is not required until July 21st, 2015. The FDIC's Hoenig said the rule does not fully deal with the risks in the financial system and could be used as the first step to a full segregation of investment and commercial banks.

- General Motors named Mary Barra as its first female CEO. She replaces Dan Akerson, who guided GM through most of the period since it emerged from bankruptcy in 2009. Barra joined GM 33 years ago and has held a series of manufacturing, engineering and senior staff positions. Additionally, the US Treasury announced that it had sold off the last of its stake in GM, noting that it had recouped a total of $39B of the $50B loaned to the company during the financial crisis.

- Microsoft's hunt for a new CEO continues to make headlines. Steve Mollenkopf, COO of wireless chipmaker Qualcomm, was anointed as QCOM's next CEO a day after he was mentioned in a news report as a possible successor to Microsoft's outgoing CEO Ballmer. Microsoft has considered several outside candidates, including Ford CEO Alan Mulally and VMware CEO Pat Gelsinger, as well as various Internal candidates. Ford reiterated this week that Mulally has no plans to leave the company.

- A little more than two weeks after the P5+1 group reached a deal to halt Iran's nuclear program, Iran walked away from continuing negotiations with world powers, accusing Washington of going against the spirit of the agreement reached last month by expanding its sanctions blacklist. Iranian officials said they were evaluating the situation and would make an "appropriate" response, while US Secretary of State Kerry said he fully expects talks to continue after participants "take a moment" to consult.

- Ireland became the first bailed-out Eurozone country to officially exit its financial rescue program. Over the last three years, the Irish Republic has received €85B in funding from its European partners. The move is largely symbolic, as the economy remains very fragile and debt levels remain very high, at 124% of GDP, while unemployment has only just declined to under 13%.

- EUR/USD extended last week's upswing to make one-month gains above 1.3800 on Wednesday, just shy of 2013 highs of 1.3830. Euro zone bond spreads narrowed markedly as officials sought an agreement on the banking union, including the single resolution mechanism. The EU wants to cement the historic agreement on banking union at a meeting on December 18th.

- USD/JPY and EUR/JPY hit multiyear lows late in the week as speculation builds about more BOJ easing. BOJ Governor Kuroda said the bank would continue to target 2% inflation and would stick with easy policy to keep inflation at 2% even after target was achieved. The yield on the benchmark 10-year JGB hit its highest level in two and a half months as the Nikkei index rebounded.