>>> Asia Update

Asian Market Update: US equity selloff reverberates through Asia

***Economic Data*** - (AU) AUSTRALIA AUG HOME LOANS M/M: -0.9% (biggest decline in 8-month) V +0.2%E; INVESTMENT LENDING: -0.1% V +6.8% PRIOR; OWNER-OCCUPIED LOAN VALUE: -0.2% V 0.0% PRIOR - (JP) JAPAN SEPT BANK LENDING INCL TRUSTS: 2.3% (3-month high) V 2.2% PRIOR; BANK LENDING EX-TRUSTS: 2.4% V 2.3% PRIOR

***Index Snapshot (as of 02:30 GMT)*** - Nikkei225 -1.0%, S&P/ASX -1.7%, Kospi -1.2%, Shanghai Composite -0.6%, Hang Seng -1.6%, Dec S&P500 -0.2% at 1,923

***Commodities / Fixed Income*** - Dec gold -0.3% at $1,222/oz, Nov crude oil -1.8% at $84.20/brl, Dec copper -0.3% at $3.02/lb - SLV: iShares Silver Trust ETF daily holdings fall to 10,812 tonnes from 10,857 tonnes prior - GLD: SPDR Gold Trust ETF daily holdings fall 0.8 tonnes to 762.1 tonnes; Lowest level since Dec 2008 - (AU) Australia MoF (AOFM) sells A$500M in 3.25% 2018 Bonds; Avg yield: 2.7472%; Bid-to-cover: 5.65x - (US) Weekly Fed Balance Sheet Total Assets for week ending Oct 8th: $4.45T v $4.45T prior; M1 y/y change: 10.8% (3-month low) v 10.9% w/w; M2 y/y change: 6.4% (3-month low) v 6.5% w/w

***Market Focal Points / Key Themes / FX*** - Asian indices are tracking the outsized US selloff with moderate declines of their own. Australia's S&P/ASX is leading on the downside given its exposure to the particularly large drop in basic materials - Woodside Petroleum was down over 2% as brent oil fell to its lowest level in over 2 years. BHP and Rio Tinto are also both down over 2%. In FX, USD is contained to narrow ranges in the major pairs after paring some of the overnight losses in Thursday's US session - USD/JPY is in a 30-pip range below ¥108, while AUD/USD hit session lows of $0.8745 after the soft home loans data showed the biggest m/m drop in 8 months.

- Brazil polls for Oct 26th runoff elections indicate pro-business challenger Neves is holding a slim lead over incumbent Rousseff. 2-point lead in both Datafolha and Ibope surveys are statistically within a margin of error.

- Coal names in China were down across the board after overnight announcement the finance ministry is planning to levy a 3-6% coal import tariff on certain types of coal effective Oct 15th. Of note in the property sector, Housing Ministry researchers speculated Beijing is unlikely to ease home purchase limits.

- Tesla unveiled "Model D" (stands for "dual motor") all-wheel-drive model that will be available for purchase in December. Increased efficiency would boost the single charge range by 10mi to 275 miles, feature the fastest acceleration to 60mps for sedans time of 3.2 seconds, and also have a new speed-limit-sign reading safety feature.

***Equities*** US markets: - CVEO: Greenlight Capital (Einhorn) discloses 9.99% active stake (vs prior 5.8% passive stake); Greenlight says CEO should be replaced and Civeo should return capital to shareholders - 13D filing; +15.0% afterhours - CUDA: Reports Q2 $0.08 v $0.04e, R$68.7M v $66.8Me; Guides Q3 $0.04-0.05 v $0.03e; R$69-70M v $69Me; Raises FY15 $0.22-0.24 v $0.18e, R$274-276M v $273Me ($0.14-0.18, R$270-274M prior) - conf call comments; +3.2% afterhours - FDO: Reports Q4 $0.73 v $0.77e, R$2.61B v $2.58Be; -0.7% afterhours - JNPR: Guides Q3 lower to $0.34-0.36 v $0.38e, R$1.11-1.12B v $1.18Be ($0.35-0.40, R$1.15-1.2B prior guidance); -4.0% afterhours - MTW: Reports prelim Q3 revenue just under $1B v $1.03Be; Revises FY14 guidance; -4.7% afterhours - MCHP: Reports prelim Q2 R$546.2M v$564Me ($560-575.9M prior guidance); -8.3% afterhours - KN: Guides Q3 lower to $0.36-0.40 v $0.48e, R$301M v $315Me (1 est) ($0.45-0.52, R$310-330M prior guidance); -9.1% afterhours

Notable movers by sector: - Customer discretionary: Fast Retailing 9983.JP +1.9% (FY13/14 result) - Financials: China Construction Bank 939.HK -0.9%, Industrial and Commercial Bank of China 1398.HK -1.2% (to start new mortgage policy); AnXin Trust & Investment 600816.CN +0.9% (9-month result); China Merchants Property Development 000024.CN +5.0% (Sept result) - Industrials: Geely Automobile 175.HK -3.1% (Sept result); China Resource Cement 1313.HK +0.4% (9-month guidance) - Materials: Glencore 805.HK -3.5% (possible listing in Australia); Zhengzhou Yutong Bus 600066.CN +1.4% (9-month result);Anhui Jianghuai Automobile 600418.CN -1.3% (Sept result) - Energy: Yanzhou Coal 600188.CN +1.1% (China to levy coal import tariff); Woodside Petroleum WPL.AU -2.1% - Technology: TCL Corp 000100.CN +6.5% (Q3 result, 9-month guidance)

Telegraph : German model is ruinous for Germany, and deadly for Europe

German model is ruinous for Germany, and deadly for Europe


France may look like the sick man of Europe, but Germany’s woes run deeper, rooted in mercantilist dogma

The Kaiser Wilhelm Canal in Kiel is crumbling. Last year, the authorities had to close the 60-mile shortcut from the Baltic to the North Sea for two weeks, something that had never happened through two world wars. The locks had failed.

Large ships were forced to go around the Skagerrak, imposing emergency surcharges. The canal was shut again last month because sluice gates were not working, damaged by the constant thrust of propeller blades. It has been a running saga of problems, the result of slashing investment to the bone, and cutting maintenance funds in 2012 from €60m (£47m) a year to €11m.

This is an odd way to treat the busiest waterway in the world, letting through 35,000 ships a year, so vital to the Port of Hamburg. It is odder still given that the German state can borrow funds for five years at an interest rate of 0.15pc. Yet such is the economic policy of Germany, worshipping the false of god of fiscal balance.



The Bundestag is waking up to the economic folly of this. It has approved €260m of funding to refurbish the canal over the next five years. Yet experts say it needs €1bn, one of countless projects crying out for money across the derelict infrastructure of a nation that has forgotten how to invest, sleepwalking into decline.

France may look like the sick of man of Europe, but Germany’s woes run deeper, rooted in mercantilist dogma, the glorification of saving for its own sake, and the corrosive psychology of ageing.

“Germany considers itself the model for the world, but pride comes before the fall,” says Olaf Gersemann, Die Welt’s economics chief, in a new book, The Germany Bubble: the Last Hurrah of a Great Economic Nation.

Mr Gersemann says the Second Wirtschaftswunder – or economic miracle – from 2005 onwards has “gone to Germany’s head”. The country has mistaken a confluence of exceptional events for permanent ascendancy. It cannot continue to live off exports of capital goods to China and the BRICS as they hit the buffers, or by stealing a march on southern Europe through wage compression, a zero-sum game.

Marcel Fratzscher, head of the German Institute for Economic Research (DIW), makes a parallel critique (more Keynesian in flavour) in his new book, Die Deutschland Illusion, no translation needed. It is a broadside against the fiscal fetishism of finance minister Wolfgang Schauble, now written into the constitution as a balanced budget law from 2016 onwards, making it almost impossible to override. It is the self-deception of a country “resting on its laurels”, prisoner of the “household fallacy” that economies are like family budgets, and falsely reassured by the misplaced flattery of foreigners who rarely look under the bonnet at the German engine below.

The International Monetary Fund gently prodded Berlin this week to pull its weight in a world economy gasping for demand, if only for its own good. “Germany could afford to finance much-needed public investment in infrastructure, without violating fiscal rules,” it said. For good measure, the fund said there is a 40pc chance of a triple-dip recession in the eurozone over coming months and a 30pc chance of deflation.



The German economy has already stalled. Output contracted in the second quarter. Factory orders fell 5.7pc in August. Germany’s “Five Wise Men” council of economic experts will slash the country’s growth forecast to 1.2pc next year in a report on Friday.

Prof Fratzscher accuses Germany’s elites of losing the plot in every important respect. Investment has fallen from 23pc to 17pc of GDP since the early 1990s. Net public investment has been negative for 12 years.

Growth has averaged 1.1pc since the beginning of the decade, placing Germany 13th out of 18 in the eurozone (or 156th out of 166 countries worldwide over the past 20 years). This chronic weakness been masked by slightly better growth since the Lehman crisis, and by the creditor-debtor dynamics of the EMU debt crisis. German looks healthy only because half of Europe looks deathly.

The Hartz IV reforms – so widely praised as the foundation of German competitiveness, and now being foisted on southern Europe – did not raise productivity, the proper measure of labour reform. Data from the OECD show that German productivity growth slumped to 0.3pc a year in the period from 2007 to 2012, compared with 0.5pc in Denmark, 0.7pc in Austria, 0.9pc in Japan, 1.3pc in Australia, 1.5pc in the US and 3.2pc in Korea. Britain has been negative, of course, but that is no benchmark.

Prof Fratzscher says the chief effect was to let companies compress wages through labour arbitrage. Real pay has fallen back to the levels of the late 1990s. The legacy of Hartz IV is a lumpen-proletariat of 7.4m people on “mini-jobs”, part-time work that is tax-free up to €450. This flatters the jobless rate, but Germany has become a split society, more unequal than at any time in its modern history. A fifth of German children are raised in poverty.

Philippe Legrain, a former top economist at the European Commission, says Germany’s “beggar-thy-neighbour economic model” works by suppressing wages to subsidise exports, to the benefit of corporate elites. This is “dysfunctional”, and the more that EU officials try to extend the model across the eurozone, the more dangerous it becomes.

Capital flows within EMU have been a form of vendor financing for buyers of German exports, but it should be obvious that such a structure must reach breaking point – for Germany as well as EMU – if France and Italy buckle to demands and follow Greece, Spain, Portugal and Ireland into wage deflation. Europe is already sliding slowly into a contractionary vortex, replicating the errors of the Gold Standard in the 1930s. Doubling down would be calamitous.

Germany must move with great care. As Mr Gersemann argues in his book, it is enjoying the last days of a particularly powerful demographic dividend, soon to reverse with a vengeance. The European Commission’s Ageing Report (2012) said Germany’s workforce will shrink by 200,000 a year this decade. The old age dependency ratio will jump from 31pc in 2010, to 36pc in 2020, 41pc in 2025, 48pc in 2030 and 57pc in 2045, tantamount to national suicide.



This is a grave failure of public policy over decades. Tax policies and social structures have encouraged the collapse of the fertility rate. Lack of investment has compounded the error. Within five years it will surely become obvious to everybody that Germany is in deep trouble, and a balanced budget will not prove any defence. Within 10 years, France will be the dominant power of continental Europe.

Freeport Offers Rio Recipe to Repel Glencore Advances: Real M&A

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Freeport Offers Rio Recipe to Repel Glencore Advances: Real M&A 2014-10-09 22:11:48.745 GMT

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

By Liezel Hill, Jesse Riseborough and Sonja Elmquist Oct. 10 (Bloomberg) -- Rio Tinto Group may decide that its best defense against another takeover approach from Glencore Plc is buying the largest mining company in the U.S. A bid for Freeport-McMoRan Inc. will probably look tempting to London-based Rio as a way to stymie Glencore, said Paul Gait, an analyst at Sanford C. Bernstein Ltd. Freeport, a $32 billion copper producer that expanded into energy last year, is the cheapest it’s been in more than 15 months relative to earnings before interest, taxes, depreciation and amortization. “I would be amazed if they aren’t running the ruler over it,” Gait said in a phone interview from London. “It would be a classic kind of defensive move by the board.” Speculation about mining deals has intensified this week after Rio and Glencore, two of the industry’s biggest companies, confirmed Glencore’s informal approach about a possible merger. While Rio, valued at $92 billion, said it’s better off going it alone, a deal for Freeport could help it ward off any further advances from Glencore. It would also provide a means for Rio to lessen its dependence on iron ore at a time when the metal is slumping. “Freeport fits all the criteria of an attractive takeout candidate and would make sense for a lot of the larger-cap global miners, anyone looking to increase their copper exposure and getting some very high-margin energy assets at the same time,” Garrett Nelson, analyst at BB&T Capital Markets in Richmond, Virginia, said in an interview. “The stock’s undervalued and they really have some world-class assets in both mining and energy.”

Ticking Clock

Eric Kinneberg, a spokesman for Phoenix-based Freeport, said the company doesn’t comment on speculation. A representative for Rio declined to comment. Glencore, the $69 billion commodities conglomerate run by billionaire Ivan Glasenberg, said this week it’s no longer actively studying an offer for Rio. The Baar, Switzerland-based company is now barred, in most cases, from making a renewed bid for six months under U.K. takeover rules. While Glencore could turn to alternative targets in the industry, a merger with Rio would create the world’s largest mining company, with a market value of about $160 billion. Rio’s desire to stay independent could lead to its own deal pursuits.

Big Departure

Bidding for Freeport would be a major departure for Rio’s Sam Walsh. Since taking over as chief executive officer last year, he’s shunned acquisitions and instead focused on cutting billions of dollars of operating costs and investments in future projects. “We lost our way in relation to our acquisition ability,” Walsh said in December, reflecting on Rio purchases in previous years. The company paid about $37 billion for aluminum maker Alcan Inc. in 2007 and subsequently wrote down most of the deal’s value. Even so, a takeover-as-defense strategy wouldn’t be without precedent in this year’s manic deal market. Brewer SABMiller Plc approached Heineken NV earlier this year in an attempt to shield itself from a possible acquisition by Anheuser-Busch InBev NV. In the drug industry, Allergan Inc. held talks to buy Salix Pharmaceuticals Ltd. or be sold to Actavis Inc. as it tries to fight off a hostile bid from Valeant Pharmaceuticals International Inc.

Decent Business

Freeport is the world’s largest publicly traded copper producer and the metal accounts for the majority of its revenue. The company, with mines in the Americas, Indonesia and the Democratic Republic of Congo, diversified into oil and gas last year after buying two energy companies for about $9 billion. While copper prices have declined this year, Freeport’s mines are still profitable. Global demand exceeded production in June, according to the most recent data from the International Copper Study Group. Freeport has “a very decent copper business and I think copper is deeply undervalued as a commodity,” Bernstein’s Gait said. The company’s shares fell 17 percent this year, a bigger drop than the 3.9 percent decline in the Bloomberg World Mining Index, as a dispute with the Indonesian government curbed output at its biggest mine. “It’s been a real headwind,” said Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank AG. Freeport’s enterprise value is equivalent to 5.8 times its Ebitda for the past 12 months, the same as Rio’s, according to data compiled by Bloomberg. They’re both cheaper than the median multiple of 9.7 among metals and mining companies valued at $5 billion or more, the data show.

Backfire Risk

A Rio-Freeport merger may face antitrust scrutiny. The two companies accounted for about 11 percent of global copper supply last year, data compiled by Bloomberg show. Glencore’s acquisition of Xstrata Ltd. last year was only allowed by Chinese regulators on the basis that it sell a $7 billion copper mine in Peru. A bid for Freeport may well end up backfiring on Rio, said Bernstein’s Gait, and boost Glencore’s chances in the event it comes back with another offer. Gait recommends buying Rio shares. “All it will do is put Rio Tinto firmly in play,” he said. “What would you prefer? To pay a premium or to take one?”

For Related News and Information: Glencore-Rio Talk Pushes Industry to Evaluate Future: Real M&A NSN ND4OVU6KLVRT <GO> Rio Shares Drop in Sydney After Glencore Abandons Merger Bid NSN ND3MLJ6KLVRO <GO> Lundin to Buy Freeport Chile Copper Mine for $1.8 Billion NSN ND3DBT6KLVR4 <GO> Freeport to Cut Spending as It Begins Asset-Sales Process NSN MQEOLP6TTDTQ <GO> Bloomberg Intelligence copper research: BI COPP <GO> Top commodity stories: CTOP <GO> Mining stories: NI MNG <GO> Commodity price forecasts: CPF <GO> Real M&A columns: NI REALMNA <GO>

--With assistance from Brooke Sutherland in New York.

To contact the reporters on this story: Liezel Hill in Toronto at +1-416-203-5727 or lhill30@bloomberg.net; Jesse Riseborough in London at +44-20-3216-4198 or jriseborough@bloomberg.net; Sonja Elmquist in New York at +1-212-617-7128 or selmquist1@bloomberg.net To contact the editors responsible for this story: Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net; Simon Casey at +1-212-617-3143 or scasey4@bloomberg.net Simon Casey

>>> US Close Dow -1,97% S&P -2,07% Nasdaq -2,02% Russell -2,66%

Closing Market Summary: Energy Sector Leads Stocks Lower

The stock market followed Wednesday's sharp rally with an even sharper slide that clipped all ten sectors. The S&P 500 lost 2.1% and slid back below its 100-day moving average (1962.28) while the Russell 2000 tumbled 2.7%.

Equities began the trading day with modest losses, but the energy sector (-3.7%) was a notable laggard from the start once again. That prevented the broader market from turning positive while the relative weakness among most of the remaining cyclical sectors allowed for the selling to feed on itself.

The energy sector registered its largest one-day loss since surrendering 4.0% in April 2013 with crude oil contributing to the weakness. West Texas Intermediate crude plunged 2.4% to $85.22/bbl while Brent crude slipped below the $90.00/bbl level for the first time in more than two years. Following today's slide, WTI crude is down 6.8% since the start of October.

Macroeconomic concerns aside, crude prices were also pressured by the dollar rebounding from three days of losses. The Dollar Index (85.55, +0.25) traded lower overnight but erased that decline in the morning. Strikingly, greenback strength has had little effect on precious metals with gold futures climbing 1.5% to $1224.20/ozt.

The sell-off caused a scramble in search of volatility protection. The CBOE Volatility Index (VIX 18.96, +3.85) surged more than 25.0% to its highest level since early February. Treasuries, however, surrendered their overnight gains in the early morning before spending the session near their flat lines. The 10-yr note shed four ticks with its yield rising one basis point to 2.33%.

As mentioned earlier, most cyclical sectors underperformed the broader market, which prevented a sustained rebound from taking hold. The growth concerns weighed on economically-sensitive sectors like consumer discretionary (-2.3%), industrials (-2.3%), and materials (-2.5%), while financials (-2.1%) ended in-line with the S&P 500.

The widespread losses masked an 12.5% dive in the shares of Gap (GPS 36.67, -5.23) after the company reported below-consensus comparable store sales for September and announced the resignation of Chief Executive Officer Glenn Murphy.

Elsewhere, the technology sector (-1.7%) ended ahead of the other cyclical groups. Shares of Apple (AAPL 101.02, +0.22) contributed to the outperformance after activist investor Carl Icahn argued for a larger repurchase program in a letter sent to Chief Executive Officer Tim Cook.

Meanwhile, the four countercyclical sectors displayed some intraday strength, but the consumer staples sector (-0.9%) was the only group to register a loss smaller than 1.6%.

Today's participation was stronger than average with 874 million shares changing hands at the NYSE floor.

Economic data was limited to Initial Claims and Wholesale Inventories:
  • Weekly initial claims ticked down to 287,000 from a downwardly revised rate of 288,000 (from 287,000), while the consensus expected a reading of 295,000 
    • Once again, the Department of Labor said there were no special factors affecting the reading, suggesting an improvement in labor market conditions 
    • The four-week moving average of 287,750 for initial claims is at its lowest level since February 4, 2006 
  • Wholesale inventories increased 0.7% in August after increasing an upwardly revised 0.3% (from 0.1%) in July, while the consensus expected an increase of 0.3%
Tomorrow, Import/Export Prices for September will be announced at 8:30 ET while the September Treasury Budget (consensus $106 billion) will be released at 14:00 ET.
  • Nasdaq Composite +4.8% YTD 
  • S&P 500 +4.3% YTD 
  • Dow Jones Industrial Average +0.5% YTD 
  • Russell 2000 -8.3% YTD

NYT : Bill Gross, in His ‘Second Life,’ Strikes a Gloomy Note

Bill Gross, in His ‘Second Life,’ Strikes a Gloomy Note

William H. Gross, the co-founder of the mutual fund giant Pimco who abruptly quit last month to join a much smaller mutual fund firm, has in the past peppered his market commentary with upbeat and zany humor.

But on Thursday, in his first investment remarks in his new role at the Janus Capital Group, Mr. Gross did not disguise his pessimism about the markets or his disappointment over being forced to leave Pimco.

“Had there been a reasonable way to continue there, I would have stayed to my last breath,” Mr. Gross said in a letter accompanying his investment outlook note, seeming to acknowledge reports that top executives at his employer were pushing for his ouster.

“But slowly and with great hesitation, I came to understand that it was time for me to leave,” he continued. “It happens sometimes to founders! But that is water under the bridge, as they say.”

The remarks were part of Mr. Gross’s formal introduction to Janus clients. On Thursday morning, he sat with Richard M. Weil, the head of Janus, for a webcast in which Mr. Weil lavished praise on his new colleague and Mr. Gross used a sailing analogy and a reference to James Bond to describe the current state of his career.

“They say in James Bond-speak that you only live twice,” said Mr. Gross, 70, who wore a dark suit and had a bandage under his right eye. “I expect to live a happy second life at Janus Capital.”

(A spokeswoman said the bandage was the result of a “minor dermatological procedure.”)

Many investors were not thrilled with the turn of events. In September, investors pulled $23.5 billion from the giant bond fund that Mr. Gross managed at Pimco, with the largest redemptions coming on the day he resigned. The fund Mr. Gross will manage at Janus received just $66.4 million in deposits during that time.

Mr. Gross said on Thursday that he had “a certain empathy” for “clients of both Janus and Pimco that have suffered disruptions to their portfolio.” But he predicted, “it’s going to be a better few weeks and few months going forward.”

Saying he had observed a red sky the previous evening, Mr. Gross used a nautical epigram: “They say in sailor speak, red sky at night, sailor’s delight. That means the next morning will be very smooth sailing.”

But over the long term, he said, the investing outlook is more grim. Hitting on themes he has mentioned in the past, Mr. Gross argued in his investment outlook note that financial markets were priced at “artificially” high levels, thanks, in part, to the extraordinary stimulus by the Federal Reserve.

He offered an “adage” to investors.

“Recognize that times have changed,” Mr. Gross said during the webcast. “Yes, we may only live twice, and this second financial era may be alive and well, but it won’t be the same as the one in the past.

“It’s not a warning, it’s just a heads up,” he continued. “Returns are going to be lower than in the old days. That’s just too bad. It’s too bad for Janus Capital, it’s too bad for Bill Gross and it’s too bad for investors.

“We all profit when markets are moving up,” he added, “but bye-bye to those days.”

Mr. Gross expanded on these themes in his investment outlook note, while also relaying an anecdote about dancing with his wife one day in September after years of abstaining. “We dipped, we twirled, I even did a bop or two. Travolta would have been proud,” he said in the note, which was called “You Only Dance Twice.”

But while the ending of the anecdote was joyous — “it turned out to be just like a fairy tale” — Mr. Gross then modulated to a minor key.

“Picture perfection or fairy tale endings,” he wrote, “do not describe the global economy or even its financial markets.”

>>> NBC reports that the first Ebola vaccine trial has started in Africa

NBC reports that the first Ebola vaccine trial has started in Africa 

"The vaccine was developed at the U.S. National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health. A consortium led by the University of Maryland is carrying out the trial. Ebola vaccine trials are also under way at NIH outside Washington, D.C., and in Britain."