June 11 , 2013 Recovery, with a Tangle of Mixed Signals

2013 issue 11

Lots of tantalizing tidbits in this issue. We have a new World Competitiveness Ranking to report on. And a surprise in the U.S. jobs reports is always welcome, even though the path of job growth remains well under historical recovery patterns. With all the massive policy easing and robust corporate refinancings, job growth has been particularly meager. Moreover too much of the job growth is subpar. That is, lower-paid and temporary work accounted for much of the recent employment growth. And there is a risk that such part-time work could remain high as Obamacare requirements kick in. New job growth in leisure and hospitality, retailing and temporary work made up well over 50% of Mays increase and 40 percent of the 2.1 million jobs added to the economy since May 2012. Yet their overall share of the existing labor force is generally just 23 percent. Bottom line, with unprecedented government largesse in all major financial centers around the globe, the throughput to job growth has been abysmal. Also there have been consistently poor results in key emerging economies, as we highlight in this issue of The PunchLine. Mixed signals from Asia, in particular, have caught world markets off guard. New Chinese trade, inflation and industrial production datasets all undershot general expectations. Disappointing export and import figures were a particular concern. Another major concern is the likely timing of a gradual change in the Feds easing posture. It is inevitable. What is worrisome is that there may have been a significant reliance a dependency - on easy money that has built up in world financial markets. Any reversal in this historic experiment in government policy leads us into the unknown.

US funds bruised by heavy May bond losses Sharp rise in global yields takes toll

Treasuries Likely to be Volatile on Stimulus Exit, BIS Warns

US data mining revelations complicate cyber policy
Senator Mark Udall of Colorado, a member of the Senate Intelligence Committee, yesterday called for reopening debate on the Patriot Act, which, among other things, authorizes greatly expanded US electronic surveillance and data mining efforts. Last week's disclosures of the scale and pervasiveness of these US intelligence community activities have caused a degree of political embarrassment for the White House, compromised Washington's position on cybersecurity during the June 7-8 US-China summit in California, and created acute commercial and reputational challenges for a range of US-based IT companies. Most of this strategic and economic damage is likely to be brief and relatively insignificant -- but a few key elements could have a more lasting effect.

Weakness of central institutions has become more evident

Internet sales tax could kill small businesses Stocks Had Advanced Despite Tepid Economic Data
An upward revision to Japanese growth numbers: Q1 GDP rose by an annualized 4.1%, up significantly from the initial estimate of 3.5%.

Japan did not offer new measures to calm its bond market, disappointing U.S. investors who are also trying to gauge the future direction of central bank policy at home.

World Competitiveness Scoreboard 2013 (page 3)

Timber!!!

ABRAHAM GULKOWITZ
abe@gulkowitz.com
917-402-9039

The price of framing lumber on CME is barely over $300 per 1,000 board feet, down more than 20% since the beginning of April. The last time prices were this low was October of last year.

The downturn in the world's second largest economy, China, could be the most drawn-out since the 1997-1998 Asian Financial Crisis, with the risks heightened following a slew of weaker-than-expected economic data for May released over the weekend. The risk for growth is now predominantly on the down side The real estate sector - an important driver of fixed asset investment - showed weakness in May, with growth of new home starts, property transactions and land purchases falling.

June 11, 2013

The PunchLine...

In This Issue
Recovery, with a Tangle of Mixed Signals
Lots of tantalizing tidbits in this issue. We have a new World Competitiveness Ranking to report on. And a surprise in the U.S. jobs reports is always welcome, even though the path of job growth remains well under historical recovery patterns. With all the massive policy easing and robust corporate refinancings, job growth has been particularly meager. Moreover too much of the job growth is subpar. That is, lower-paid and temporary work accounted for much of the recent employment growth. And there is a risk that such part-time work could remain high as Obamacare requirements kick in. New job growth in leisure and hospitality, retailing and temporary work made up well over 50% of Mays increase and 40 percent of the 2.1 million jobs added to the economy since May 2012. Yet their overall share of the existing labor force is generally just 23 percent. Bottom line, with unprecedented government largesse in all major financial centers around the globe, the throughput to job growth has been abysmal. Also there have been consistently poor results in key emerging economies, as we highlight in this issue of The PunchLine. Mixed signals from Asia, in particular, have caught world markets off guard. New Chinese trade, inflation and industrial production datasets all undershot general expectations. Disappointing export and import figures were a particular concern. Another major concern is the likely timing of a gradual change in the Feds easing posture. It is inevitable. What is worrisome is that there may have been a significant reliance a dependency - on easy money that has built up in world financial markets. Any reversal in this historic experiment in government policy leads us into the (pg 1) unknown.

In This Issue New World Ranking Data You Cant Handle the Truth Engines of Growth

(pg 2) (pg 3) (pg 4)

New Directions The New Geography of Business U.S. Breakout Potential The Return to Normal Credit Matters The Likelihood of Unlikely Events... A Closer Look Data Detective Pumping Iron Deal or No Deal in Europe The DNA of Business Tech and the Business Cycle Real Estate and Construction More Construction Views Will Life Ever be the Same?

(pg 7) (pg 8) (pg 9) (pg 10) (pg 11) (pg 12) (pg 13) (pg 14) (pg 15) (pg 16) (pg 17) (pg 18) (pg 19) (pg 20) (pg 21)

There will be far-reaching repercussions from this ongoing subpar growth trajectory, and one should worry about the likely contours of the recovery path as massive easing is tempered. And lets not forget that its clearly an international affair, rife with politics and therefore difficult to resolve (pg 5)

Households?
Lots of recovery signals but far off the normal recovery path. Numerous questions remain for a once free-spending sector whose housing and mortgage finance machinery have not just collapsed but are severely damagedThe previous boom cannot and should not be recreated But the world aches for a vibrant U.S. consumer with healthy job growth (pg 6)

Contact information:

Abraham Gulkowitz
phone: 917-402-9039
Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.

email:abe@gulkowitz.com

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New World Competitiveness Rankings

New World Competitiveness Rankings Select Country Records
Source: Institute of Management Development, Switzerland; Competitiveness of 59 economies, based on over 330 criteria Country 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1990 1980 -------------------------------------------------------------------------------------------------------------------------------------USA 1 2 1 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 2 SWITZERLAND 2 3 5 4 4 4 6 8 8 14 9 Sweden 4 5 4 6 6 9 9 14 14 11 12 12 11 14 14 16 19 14 12 9 --Canada 7 6 7 7 8 8 10 7 5 3 6 7 9 8 10 8 6 12 13 20 --Australia 16 15 9 5 7 7 12 6 9 4 7 10 12 11 11 12 15 21 16 16 --Germany 9 9 10 16 13 16 16 26 23 21 20 17 13 13 12 15 16 10 6 6 4 4 Taiwan 11 7 6 8 23 13 18 18 11 12 17 20 16 17 15 14 18 18 14 22 --U.K. 18 18 20 22 21 21 20 21 22 22 19 16 17 15 19 13 9 19 15 14 --France 28 29 29 24 28 25 28 35 30 30 23 25 25 22 23 22 22 20 19 13 --Japan 24 27 26 27 17 22 24 17 21 23 25 27 23 21 26 20 17 4 4 3 1 1 Korea 22 22 22 23 27 31 29 38 29 35 37 29 29 29 41 36 30 27 26 ---China 21 23 19 18 20 17 15 19 31 24 29 28 26 24 29 21 27 26 31 34 ----------------------------------------------------------------------------------------------------------------------------------------

The World Competitiveness Scoreboard presents the 2013 overall rankings for the 60 economies covered. The economies are ranked from the most to the least competitive The competitiveness ranking is an annual survey compiled by the IMD institute's World Competitiveness Center. For its 2013 ranking, it looked into the economies of the world's 60 most industrialized countries. IMD has based its ranking on 333 criteria, of which about two-thirds are statistics and the remaining third gathered from opinion polls. http://www.imd.org/news/World-Competitiveness-2013.cfm

IMD ANALYSIS: The United States was back as the world's most competitive country, ahead of Switzerland which had moved up one place and Hong Kong, the frontrunner in 2012, the Swiss Institute for Management Development (IMD) announced . The world's biggest economy regained the top sport due to the recovery in its financial sector, more technological innovations and and a wide range of successful companies. Germany was ranked in ninth place, alongside Switzerland and Sweden one of just three European countries which made it into the top 10. Winners since 1997 (+ 5 or more ranks): China, Germany, Israel, Korea, Mexico, Poland, Sweden, Switzerland, Taiwan Losers since 1997 ( 5 or more ranks): Argentina, Brazil, Chile, Finland, France, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Philippines, Portugal, South Africa, Spain, United Kingdom and Venezuela. US competitiveness and performance remains a key to global recovery No other nation can exercise such a strong pull effect on the world. In Europe, the most competitive nations include Switzerland (2), Sweden (4) and Germany (9), whose success relies upon exportoriented manufacturing, diversified economies, strong small and medium enterprises (SMEs) and fiscal discipline. Like last year, the rest of Europe is heavily constrained by austerity programs that are delaying recovery and calling into question the timeliness of the measures proposed. The BRICS economies have enjoyed mixed fortunes. China (21) and Russia (42) rose in the rankings, while India (40), Brazil (51) and South Africa (53) all fell. Emerging economies in general remain highly dependent on the global economic recovery, which seems to be delayed. In Latin America, Mexico (32) has seen a small revival in its competitiveness that now needs to be confirmed over time and by the continuous implementation of structural reforms.

BOTTOM 20
40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 India Latvia Russia Peru Italy Spain Portugal Slovak Rep Colombia Ukraine Hungary Brazil Slovenia S Africa Greece Romania Jordan Bulgaria Croatia Argentina Venezuela

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YouCant Handle the Truth

Let'sTaketheConoutofEconomics
Prospects for Turkey
Prime Minister Recep Tayyip Erdogan, leader of the conservative Justice and Development Party (AKP), will face the greatest test of his political career as nationwide protests against his rule continue. The economic recovery, which has not been as strong as expected, must now cope with the recent weakness of the lira as well as the political unrest.

Emerging Stock Markets had Rough Month

Emerging-market stocks fell, dragging the benchmark index toward its biggest monthly loss in a year. Philippine equities tumbled the most in 20 months and South Africas rand traded weaker than 10 per dollar for the first time since March 2009. San Miguel Corp. (SMC), the Philippines largest food and drinks company, slid 5.2 percent and Ayala Land Inc., the countrys biggest developer, retreated 6.3 percent. New World Resources Plc dropped to a record low in Prague, declining for a second day after Moodys Investors Service lowered its credit rating. Harmony Gold Mining Co. (HAR), Africas third-largest producer of the metal, gained the most in more than four years in Johannesburg as gold advanced. The MSCI Emerging Markets Index has lost 2.3 percent this past month amid concern the Federal Reserve will scale back stimulus as the recovery strengthens.

South East Asia

Declining export competitiveness undercut growth in the more industrialised economies during the first quarter. Growth averaged about 5.0% between January and March, down from 5.5% in the fourth quarter, an extraordinary 7.8% growth in the Philippines preventing a deeper trough. However, regional performance was skewed by a high base effect from end-2012 and the Chinese New Year in February. Preliminary data for April showed some signs of an exports recovery, but advance orders were still dropping and inventories were again climbing. More ominously, there are signs that domestic demand, which has replaced external revenues as the backbone of most economies, may be starting to weaken.

China Failure to Accelerate With $1 Trillion in Debt is Stark Warning

Chinas economy is proving less responsive to credit, escalating pressure on Premier Li Keqiang to strengthen the role of private enterprise. The governments broadest measure of credit rose 58 percent to a record 6.16 trillion yuan ($1 trillion) in JanuarytoMarch, when gross domestic product gained 7.7 percent, compared with 8.1 percent a year earlier. Each $1 in credit firepower added the equivalent of 17 cents in GDP, down from 29 cents last year and 83 cents in 2007, when global money markets began to freeze

BIS warns of dangers of cheap money driving up stock prices

Markets are under the spell of the worlds central bankers, with cheap money driving stock prices to record highs despite a lack of good economic news, the Bank for International Settlements has said. The BIS, the socalled central bankers bank, on Sunday became the latest high-profile financial institution to warn that low rates and a plentiful supply of cash from quantitative easing had prompted investors to drive asset prices to record highs in spite of signs that a meaningful recovery continues to elude the global economy. The strong performance of European bourses, which held up despite negative economic news and officials dithering over the banking crisis in Cyprus, highlighted the degree to which the worlds monetary authorities were driving investor behaviour. Several senior central bankers have voiced misgivings about the optimism seen in financial markets since the turn of the year.

Ship finance is so scarce that the glut of vessel capacity that's depressing freight rates in the major east-west trades this year could vanish by 2016 unless shipowners and shipping lines find new ways to finance orders for the fuel-efficient ships they'll need if they hope to lower their costs.

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Engine Drivers
China's growth forecast cut by IMF
Japan Fails to Plow Yen Profits Back Into Capital Spending The Abenomics euphoria thats boosted the Japanese stock market 31 percent this year has yet to convince chief executives to invest more in factories and equipment in the worlds third-largest economy. The International Monetary Fund (IMF) has cuts its economic growth forecast for China, with weakness in the global economy set to hit exports. The IMF said it now expected the world's second largest economy to grow by "around 7.75%" this year, and at about the same pace in 2014. That is lower than the 8% forecast for 2013 the IMF made in its World Economic Outlook, published last month.

Commodities, China will be fundamental to many emerging-market outlooks

Chinas Export Growth Slows Amid Concern of Slowdown

US Residential Recovery Too Fast in Some Local Economies

Fitch Ratings believes the recent home price gains recorded in several residential markets are outpacing improvements in fundamentals and could stall or possibly reverse. Many of these areas are in California, which has seen price increases of 13% over the last year. In many markets, fundamentals are improving as unemployment rates continue declining, while low prices and low interest rates have kept affordability high. However, especially in cities that never fully unwound the mid2000s bubble, rapidly increasing price levels are a potential cause for concern. For example, in Los Angeles, prices are up more than 10% in the past year despite a stubborn unemployment rate that remains above 10% and real incomes that have declined over the past two years. Prices are now more than 75% above pre2000 levels. Several factors are combining to form an environment supportive of brisk home price growth, but few are capable of providing longterm support to sustain the recent pace of improvement.

UCLA Anderson Forecast It says that real gross domestic product growth the inflationadjusted value of goods and services produced is well below the 3-percent growth trend of past recoveries. The forecast says the country isnt creating enough good jobs. However, the forecast also says a housing market recovery should boost the GDP over the next two years and bring down unemployment, falling to 6.9 percent next year. California, meanwhile, outperformed the nation in job growth during a 12-month period that ended in April. One reason is demand for California goods, such as computers.

New report says US hasnt seen expected Great Recovery as economy continues to fall short

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Households Brave New World

U.S. Household Wealth Still Struggling
Increasing housing prices and the stock market's posting all-time highs haven't helped the plight most Americans. The average U.S. household has recovered only 45 percent of the wealth they lost during the recession, according to a report released yesterday from the Federal Reserve Bank of St. Louis. This finding is a very different picture than one painted in a report earlier this year by the Fed that calculated Americans as a whole had regained 91 percent of their losses. The writers of the report released yesterday point out that the earlier number is based on aggregate household-net-worth data. However, this isn't adjusted for inflation, population growth or the nature of the wealth. Further, they say much of recovery in net worth is because of the stock market, which means most of the improvement has been a boon only to wealthy families.

Unemployment rates fall in 92 percent of US cities in April, latest sign of widespread gains New-vehicle sales in the U.S. rose last month on demand for pickups and SUVs, but the industry's rebound is showing signs of leveling off.

Why home prices are rising . Two trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all despite long-term delinquencies. The other is that private equity firms flush with cash thanks to easy mony have been bidding up and holding foreclosed houses off the market. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices.

Poor Job Growth and Demoralization

Rising stock markets and a housing recovery have combined to bring US household net worth to a new record high in Q1 2013

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New Directions
US shale gas challenge paves way for lower crude prices
The US shale gas revolution virtually guarantees the end of oils monopoly as a transport fuel paving the way for lower crude prices. While coal, natural gas and renewable fuels regularly substitute for each other in power generation, oil has traditionally been immune from price competition because of the lack of widely adopted alternatives to kerosene, diesel and petrol in plane, train and car engines. But many argue that the lower gas prices and plentiful supplies unleashed by the US shale revolution to lead to the adoption of compressed natural gas and liquefied natural gas vehicles.

U.S. Driving Declines Could Negatively Affect Toll Roads

The revenue of some toll roads may come under pressure if the driving decline trend continues for the long run, according to Fitch Ratings. Americans have driven less each year since 2004 and those ages 16 to 34 have reduced their driving more than any other age group. Toll roads with meaningful un-tolled competition, especially those designed to relieve congestion, could be vulnerable because their value would diminish with slower traffic growth. Expressway system expansions and standalone projects built to meet new growth needs in particular have a greater dependence on the nature of future infrastructure funding development. We would expect the important corridors for interstate commerce to see small effects. We also expect bridge systems that are essential to cities like San Francisco and New York City to be only marginally affected, given the existing capacity constraints and transportation options.

Persistently low yields have led corporate cash managers and corporate treasury consultants to think more creatively about how to achieve higher returns without taking excessive risk and maintaining appropriate liquidity, according to Fitch Ratings. Cash managers seek safety of principal and liquidity while optimizing yield to the extent possible. Increasingly, this involves dividing a corporation's liquidity needs into several 'buckets' based on when the cash is needed and the accuracy of their cash forecasting process. This more focused analysis of liquidity needs has led some cash managers to invest a portion of their companies' cash for longer time horizons in order to maximize yield.

Toyota Helped by Yen Slide Detroit Claims it as a $5,700-Per-Car Bonus

Toyota Motor Corp. (7203), which last year overtook General Motors Co. (GM) to become the worlds largest automaker even as its profit margins lagged behind the industry, is riding a weakening yen that has Detroit executives concerned. The yen has fallen 17 percent against the dollar since Oct. 31 as Shinzo Abe, who became Japans prime minister in December, advocated for the decline to improve his countrys economy. The currencys slide gives Toyota and other Japanese automakers a financial gain on every car, which they can use to cut prices, boost ads and improve products. Morgan Stanley estimates the currency boost at $1,500 per car, while the Detroit automakers contend the figure is $5,700 per vehicle.

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The New Geography of Business

Latin America
Elections in the latter part of 2013 will dominate political calculations in most of the major economies, sometimes to the detriment of economic policy-making. Brazilian Dollar Bond Slump Deepens as S&P Lowers Rating Outlook Brazils benchmark dollar bonds fell after Standard & Poors cut the governments credit rating outlook to negative amid an economic slump thats threatening to drive up debt levels.

Moodys Casts Doubt Over Nordic Havens Amid Housing Risks

Scandinavias mortgage model is adding risk to the regions economies as too few homeowners pay down their debt, Moodys Investors Service said. While interestonly mortgages in Sweden and Denmark helped households keep up payments during the crisis, consumers now rely too much on the loans, according to Oscar Heemskerk, vice president and senior credit officer at Moodys.

Birth rate fall and prospect of longer life cloud Mexicos future

China Reaping Biggest Benefits of Iraq Oil Boom

Since the toppling of Saddam Hussein, Chinese state-owned companies have poured workers and billions of dollars into Iraq to secure a steady supply of energy for China.

South Korean stocks suffer as weak yen hits profits

Central Europe suffers severe flooding

TURKEY
Strife on the streets puts economic rise in peril Biggest fall in stock market for a decade

Export growth fastest for three years in Japan, contrasting with falling exports in China

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U.S. Breakout Potential

U.S. Oil Boom Scrambles Economic and Political Calculus

According to a report from SEMI (the global industry association serving the nano- and microelectronics manufacturing supply chains) the U.S. Semiconductor Market is Poised for Long-Term Growth, heres an excerpt: Six years ago, the outlook for U.S. semiconductor manufacturing was dim and dimmer. Today, the outlook for U.S. semiconductor manufacturing couldnt be more promising. The United States has rebounded to become once again one of the largest and fastest growing regions of the world for semiconductor manufacturing.

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The Return to Normal ?

The loan markets technical fever finally broke in May, thanks largely to the sell-off in the high-yield market and an increase in new-money loan activity.

Modest Negative Rating Drift Persists for Global Corporates in 2013

The rating drift remained net negative for global corporate issuers in the first-quarter of 2013. Downgrades topped upgrades by a margin of 1.3 to 1 even with 2012 fourth quarter results. However, rating activity was overall more subdued at the beginning of the year.

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Credit Matters-Know Risk

SHADOW BANKING Big finance companies to be regulated like banks
AIG, GE Capital, Prudential Financial and other major nonbank financial companies face tougher federal oversight under a long awaited plan from financial regulators. The Treasury Departmentled Financial Stability Oversight Council has designated such big "shadow" banks "systemically important financial institutions," which means they could be required to set aside a minimum amount of capital Surprise changes in European banking regulation are set to deal a blow to the nascent market in structured loan vehicles, making it harder to raise funds that lend to sub-investment-grade companies. Collateralised loan obligations in which corporate loans are bought and bundled into investable packages were once the main source of funding in the European leveraged loan market for corporate buyouts. Before the crisis, this was a 220bn market. Under existing regulation, managers of new CLOs are required to keep some skin in the game by holding a slice of equity in their device. Managers have been able to get around this requirement by offloading that slice of equity to a larger third party. But the European Banking Authority is proposing that offloading will not be allowed from next year. As a result, the cost of holding the extra capital will make it difficult for smaller managers to raise CLOs.

BIS records startling collapse of eurozone interbank loans

Cross-border lending is falling drastically across the western world as banks slash exposure to Europe and bend to tougher capital rules, according to data from the Bank for International Settlements. Foreign bank loans fell by $472bn (311bn) in rich countries in the fourth quarter of last year, contracting at an 8pc annual rate. The retrenchment was led by a collapse of interbank loans in the eurozone, where lenders in the creditor states continue to pull back from periphery countries. Volumes fell by $284bn across the eurozone, a 20pc rate of contraction. Belttightening by banks is a key reason why the region remains stuck in recession for the seventh quarter in a row.

Easing US C&I Loan Terms Point to Weaker Asset Quality

Fitch RatingsCompetitive pricing and easier terms offered by U.S. banks on commercial and industrial (C&I) loans likely signal weakening asset quality for many commercial lenders, according to Fitch. We expect some deterioration in C&I credit quality, particularly in a rising rate scenario, with smaller banks potentially facing greater risks as a result of their more recent entry into this loan space. Tighter spreads across all asset categories have contributed to more competitive loan pricing by C&I lenders. Underwriting terms have also been loosened. With net interest margins compressed and yields on debt securities still very low, many banks have looked to C&I lending as a key growth driver.

SOVEREIGN RISK The IMF appears to be testing the waters for a potentially radical shake-up in the sovereign debt restructuring process. If so, bondholders should beware. The papers main conclusions are that the IMFs rescue money sometimes simply bails out private creditors; that debt sustainability assessments have often proved too optimistic; and that restructurings are often done too late in the process. The findings indicate that the IMF is likely to be more aggressive in the future, seeking earlier and deeper haircuts of government creditors.

Junk bond issuance is at record highs this year-and thus at the greatest danger should yields start rising. Companies around the world have issued $254 billion in high-yield debt this year, a number that includes $130.6 billion from the U.S., according to the latest numbers from Dealogic. Global issuance is up a stunning 53 percent from the same period in 2012 and has accounted for 9 percent of the total deals in the debt capital markets space-also a record and fully one-third higher than last year's pace.

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The Likelihood of Unlikely Events

Report points to seeds of next global financial crisis
Treasury Secretary Jack Lew testified to Congress last week on the findings of the 2013 Annual Report of the Financial Stability Oversight Council (FSOC), which identified several areas of continued systemic vulnerability. Despite the 2010 comprehensive overhaul of financial regulation and continued regulatory focus on implementing those reforms, a significant risk remains of another iteration of the 2007-08 crisis.

Recent volatility in some of the worlds biggest bond markets could upend the complicated mathematical models that underpin large banks trading businesses, risk managers have warned.
Great jobs still hard to find The U.S. recovery is leaning heavily on McJobs. Lower-paid and temporary work accounted for most of Mays 175,000 employment increase and 850,000 of new jobs in the past year. And part-time work remains high and may rise as Obamacare kicks in. The jump in jobs might look good, but for many its not a path to prosperity.
Philippine stock volatility is surging at the fastest pace in emerging markets as foreign investors sell the worlds most expensive equities on speculation the U.S. will reduce monetary stimulus. The Philippine Stock Exchange Indexs 10-day historical volatility increased to 33 yesterday from 12 two weeks ago, the highest level since October 2011 and the biggest jump among 21 developingnation gauges tracked by Bloomberg. Overseas money managers sold a net $78 million of the nations shares yesterday. The PSE index fell 1.3 percent at the close in Manila, extending its drop from a May 15 record to 9.7 percent. A four-year rally has driven the PSE indexs valuation to 19 times estimated profit, the highest level among gauges in 45 emerging and developed markets. While foreign inflows and record earnings helped Philippine shares produce the best risk-adjusted returns among major markets since March 2009, Schroders Plc says increased volatility will deter investors as the U.S. Federal Reserve moves closer to scaling back its bondbuying program.

JAPAN: The central banks aggressive money-printing pledge has yet to impress consumers. Though the BOJ is pumping spending declined. Unless households open their wallets, Prime Minister Abes anti-deflation drive could hit a speed bump.

Chinese businesses have to slash prices to keep a grip on their export markets. The weaker yen is placing great pressure on China. And unit labour costs are still rising at a 5 per cent rate, squeezing profit margins, and are up 20 per cent relative to the export competition since 2011.

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A Closer Look

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Data Detective

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Pumping Iron - Old Economy New Challenges

SUVs drive 2013 pick up for US carmakers US car buyers enthusiasm for pick-up trucks and sport utility vehicles helped all three big domestic carmakers report ongoing strong sales in May
Iron ore prices will fall dramatically during the second half of this year due to sluggish steel demand in China, the head of Anshan Iron and Steel, Chinas fourth-largest steelmaker by output, has predicted in a rare and candid assessment. Zhang Xiaogang, Ansteel chairman, expected the average iron ore price for this year to be around the current level of $110 to $120 a tonne, implying that prices would continue their downward slide.

US manufacturing gauge sinks to June 2009 levels

A measure of U.S. manufacturing fell in May to its lowest level since June 2009 as slumping overseas economies and weak business spending reduced new orders and production. The Institute for Supply Management said Monday that its index of manufacturing activity fell to 49 last month from 50.7 in April. That's the lowest level in nearly four years and the first time the index has dipped below 50 since November. A reading under 50 indicates contraction. The ISM index had sunk during the recession to a low of 33.1 in December 2008. Since the recession ended in June 2009, it peaked at 59.6 in February 2011.

Joy Global Inc, the largest maker of underground mining equipment, cut its full-year profit and sales forecasts and said it sees no immediate recovery in orders as commodity producers reduce spending amid surplus supply.
Dubai and Abu Dhabi create $15bn aluminium champion
Dubai and Abu Dhabi will merge their aluminium smelters after years of negotiations to create a United Arab Emirates industrial champion valued at $15bn including net debt. The government investment arms of Dubai and Abu Dhabi will own a 50:50 equal stake in Emirates Global Aluminium, which will become the worlds fifthlargest producer with annual production of 2.4m tonnes a year when the second phase of the Abu Dhabi smelter is completed in mid2014. The merger, expected to complete next year, marks the end of five years of negotiations between Abu Dhabi, the UAEs oilrich capital, and Dubai, the regions commercial and financial hub. Relations between the two leading emirates in the seven-member federation have historically been marked by both co-ordination and competition. The creation of a Gulf entity to compete on a global stage has been on the cards for years, with investment bankers trying to structure a deal that would combine the financial power and energy resources of Abu Dhabi with indebted Dubais greater experience in aluminium.

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Deal or No Deal in Europe?

Eurozone jobless rate climbed to a new record in April after six quarters of economic contraction forced companies to scale back investment and in turn employment More cuts and high private debt threaten Dutch growth
With the economy still contracting and the budget deficit now expected to settle at 3.3%, the European Commission this week granted the Netherlands an additional year to bring its budget deficit within the threshold of 3.0% of GDP required by the EU Stability and Growth Pact. The government of Prime Minister Mark Rutte is maintaining its focus on enhancing consumer confidence through austerity measures aimed at balancing the public budget. However, the population's willingness and ability to spend is low, owing to record-high unemployment, depressed disposable income and sky-rocketing private debt.
climbed to a record 223 billion euros ($291 billion) last year as a drought in orders at home pushed companies to upgrade products and go abroad. It was another step away from a decade of growth fueled by mass construction and tourism. Spains budget deficit, at 10.6 percent of gross domestic product, is the widest in the EU, more than three times the limit set for all members. The country last year received 41 billion euros in European aid to bail out banks burdened by bad loans linked to real estate.

Spains Crisis Blunted as Exports Struggle to Transform Country Spanish exports

Spanish Banks told to untangle complex ownership webs

This cozy, interconnected world is epitomized by the nexus of crossshareholdings between banks and many of Spains largest companies, largely constructed during the past two decades. Out of the 35 companies in the Ibex stock index, 15 are connected to another member though a significant shareholding. If Bankia, the nationalized savings bank recently dropped from the index, were included, that figure would rise to 19.

Germany's central bank has cut its growth forecast for the country, but says the outlook for the economy has "become brighter". The Bundesbank expects the economy to grow by 0.3% this year, down from an earlier forecast of 0.4%. In 2014, it expects 1.5% growth, down from a previous estimate of 1.9%. The Bundesbank suggested that the worst could be over for the eurozone, saying that in the euro area "the economy appears to be bottoming out".

Latvia Steps Toward a Tarnished Prize, the Euro

European leaders hoped the membership of the tiny Baltic nation would show the endurance of the euro zone.

Slower Growth in Russia

Russia's service sector recorded a slower growth in May, data from a survey by Markit Economics and HSBC Bank showed. The seasonally adjusted purchasing managers' index (PMI) for the service sector dropped to 51.4 in May from 53 in April. Readings above 50 indicate expansion in the sector, while those below signal contraction. The sector has recorded growth for the thirty-third month in a row. The Russian manufacturing sector expanded at a weaker pace in May, marking the third successive slowdown in activity, data from a survey by Markit Economics and HSBC bank showed The seasonally adjusted purchasing managers' index (PMI) for the manufacturing sector dropped to 50.4 in May from 50.6 in April. An index reading above 50 indicates expansion, while one below points to contraction.

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The DNA of Business

Workouts to Define Recovery
The national LoDI index experienced a slight decline from 52 in the preceding month. The national index has been in the 48-54 range over the past five years. The index uses data primarily from the four transportation modes (road, runway, rail and river) that are important to the logistics and distribution economy to calculate a number value between 1 and 100.

Exide Technologies files for Chapter 11 protection in Wilmington

Milton, Ga.-based battery maker Exide Technologies filed for Chapter 11 protection in Wilmington, Del., early this week, as expected, blaming the rising price of lead and the loss of one its main customers, Wal-Mart, among other things. The California Department of Toxic Substances Control issued an April 24 order suspending Exides operations in Vernon, a secondary lead-recycling facility, alleging the facilitys underground storm-water system was not in compliance with state requirements.

Enterprise technology heads for the clouds

Proliferation of remote servers has created a disruptive moment that opens the door to start-ups
When it comes to the sky-high prices being paid for the hottest new companies in business IT, there have been few starker examples than Nicira. A specialist in a field known as software-defined networking, the Californian start-up was sold to the much larger VMware last year for nearly $1.3bn. Yet at the time, two people familiar with its finances now say, it had generated lifetime revenues of only about $5m. Such deals represent something new in the staid world of so-called enterprise technology: a hunger for growth at the expense of profits, and a race for strategic advantage amid a change in the IT landscape.

Valeant Pharmaceuticals' intention to purchase eye care company Bausch & Lomb underscores the continuing trend of consolidation in the specialty pharmaceutical sector. The need to build scale in this area has propelled Valeant's acquisitive posture as the company has spent over $9 billion in 12 acquisitions since 2010 (excluding the Bausch purchase expected to be completed during the third quarter). Mergers have become a common strategy for specialty pharmaceutical manufacturers like Valeant. Increases in scale and scope are beneficial as these firms compete against highly capitalized companies in a cost restrictive healthcare environment. In addition, enhanced product and research portfolios allow drug developers to maintain pricing and reimbursement flexibility with public and private drug purchasers.

Trade ins

Sales of older iPhones, iPads banned as agency says Apple infringed Samsung patent
Dish proposes $25.5 billion merger with Sprint Dish Network chairman Charlie Ergen offered an ambitious vision Monday for a $25.5 billion merger with Sprint, outlining plans for a single company that provides broadband, video and voice services for the home and wireless devices.

Google reportedly acquiring Waze app for $1.3 billion News ends months of rumors on deals with Apple, Facebook, or Google
New Business networking service Capital IQ co-founder Neal Goldman has launched Relationship Science, or RelSci, a networking service aimed at connecting businesspeople through everything from charitable donations to job histories. It already has 2 million names and 1 million organizations in its database, and nearly 1,000 subscribers at $3,000 each

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Tech and the Business Cycle

Disruptive technologies: Advances that will transform life, business, and the global economy
The relentless parade of new technologies is unfolding on many fronts. Almost every advance is billed as a breakthrough, and the list of next big things grows ever longer. Not every emerging technology will alter the business or social landscapebut some truly do have the potential to disrupt the status quo, alter the way people live and work, and rearrange value pools. It is therefore critical that business and policy leaders understand which technologies will matter to them and prepare accordingly.

Who needs money when you can have iMoney?

Apple has applied for a patent on a combined virtual currency and digital wallet technology that would allow you to store money in the cloud, make payments with your iPhone, and just maybe communicate with point-of-sale terminals via NFC. Not to mention making money by viewing ads. The patent application, published by the U.S. Patent and Trademark Organization, details how iPhone users could walk into a store, pay for goods with their phone, and walk out with their merchandise. All of this is possible today, of course, but Apples patent application mentions although does not require NFC, something that Apple has long resisted adding to the iPhone. NFC facilitates digital wallets and cashless purchasing by wirelessly transmitting payment credentials and pricing information.

More than one-third of Americans adults have tablets: Tablet adoption is on the rise nearly doubling in the past year alone. The devices are now in the hands of just over one in three Americans, according to a study from the Pew Internet and American Life Project.

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Real Estate and Construction Outlook

World Chasing U.S. Real Estate With 25% Deal Jump
Singaporeans, South Koreans, Israelis and Norwegians are accelerating purchases of U.S. real estate as a growing economy and rebounding prices lure yield-hungry buyers from overseas.

Apartment Reit occupancy has hovered around the 95 per cent mark since mid2010, which has helped drive rental rate growth of about 5 per cent since 2011.

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More Construction Views

MostActiveU.S.CommercialMarkets
Market Vol.(bil) Cap rate
1NYCMetro $52.3 5.67% 2LAMetro $28.6 6.22% 3SFMetro $21.6 5.82% 4DCMetro $20.8 6.23% 5Chicago $12.0 6.94% 6Dallas $10.1 6.85% 7Houston $10.1 7.36% 8Seattle $9.9 5.76% 9Boston $8.7 6.35% 10Atlanta $8.1 7.01% Basedonlivedata;dealsvaluedat$10mil.or greaterreportedincontractorclosedinpast12 months

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Will Life Ever Be the Same?

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