ABRAHAM GULKOWITZabe@gulkowitz.com917-402-9039

2015 issue 13July 27, 2015

OOPS ! What a quandary! The Fed needs to finally move off its awkward and record-long easing posture. The U.S data can be found to support such a move, andthe Federal Reserve has even acknowledged that the US economy and financial markets “need” higher short-term rates and that there were risks in waitingtoo long before altering Fed policy. These arguments have been highlighted in the pages of The PunchLine for over a year. Yet a long list of seriousconcerns and new pressures points have arisen that confound the business and financial outlook and make the decision to finally alter Fed policy so muchmore complex. We have highlighted many of these before, but new data bolster the concerns. Challenges to world growth emanating out of China andother major economies are first on our list, as are abrupt movements in commodity, fx and select equity markets. While serious concerns over Greece’sfinances and the future of the euro remain, growth prospects in the rest of Europe have become stronger for 2015 and for 2016, though way below U.S.standards. Risks remain high for commodity exporting regions. An extended period of high commodity prices supported higher income growth in regionsfrom Latin America to Russia. Now commodity outlooks have been reassessed, as has growth in China. There was more gloomy news for the Chineseeconomy as the manufacturing purchasing managers’ index slipped to its lowest level in15 months. A report recently showed industrial profits in the world’ssecond-biggest economy had fallen in June, sending Chinese shares tumbling again, with concern that government intervention to stem a market selloffmay not be sustainable in the face of a weaker growth trajectory. Many still dismiss moves in China’s stock market as only a marginally relevant marketgyration. But the government’s direct involvement in first pumping the markets up, and its failure to keep it aloft after the latest crash, should haveinvestors and political observers concerned regarding China’s ability to manage or control even more consequential developments.

How could China lose such control of its equity markets?

Greece’s deal with creditors includes billions to prop up its banks. That could evaporate quickly.

Chinese state-owned chip maker Tsinghua Unigroup makes $23 billion bid for Idaho based Micron

US Retail Sales Don’t Come Up With the Goods

The Canadian dollar, also known as the loonie, has cratered to an 11-year low against the US dollar after the Bank of Canada cut itsOvernight Rate 25 basis points to a record-low 0.50%China’s market aid tops $200bn

Extent of state support casts doubts on rally Injections used to fund broker purchases Covenant quality hit new low in June

In June, covenant quality on U.S. high-yield new issues hit an all-time low for theseries, which commenced in January 2011. The less volatile quarterly series, however,registered a slight improvement in the second quarter after a low in Q1.

Bankrupt A&P to Sell Stores All Over America…

Harley-Davidson hits currency headwindsMotorcycle maker to cut production to combat cheaper rivals

Chinese market drops sharply… again

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July 27, 2015

In This Issue

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.

• Engines of GrowthConflicting economic signals emanating around the globe haveconfounded investors and contributed to intermittent bouts ofvolatility, even in government bond markets. Despite massive easing,most of the global economy faces woefully inadequate growthprospects and difficult policy options. Very obvious financialvulnerabilities, especially in Europe and in China, and seriousgeopolitical concerns are aggravating the uncertainty. And let’s notforget that many of the challenges are not fleeting, and many cannotbe resolved easily … (pg 5)

• Dislocation, Dislocation… (pg 6)

• You Can’t Handle the Truth ! (pg 7)

• Households… (pg 8)

• Think it Through… (pg 9)

• Data Update… (pg 10)

• New Reference Points… (pg 11)

• The Likelihood of Unlikely Events... (pg 12)

• Not So Simple… (pg 13)

• Credit… (pg 14)

• Credit Matters… (pg 15)

• A New Geography of Business… (pg 16)

• Pumping Iron … (pg 17)

• The DNA of Business… (pg 18)

• Real Estate and Construction… (pg 19)

• Will Life Ever be the Same? (pg 20)

• Oops !…What a quandary! The Fed needs to finally move off its awkward and record-long easing posture. The U.S data can be found to support such a move, andthe Federal Reserve has even acknowledged that the US economy andfinancial markets “need” higher short-term rates and that there were risks inwaiting too long before altering Fed policy. These arguments have beenhighlighted in the pages of The PunchLine for over a year. Yet a long list ofserious concerns and new pressures points have arisen that confound thebusiness and financial outlook and make the decision to finally alter Fedpolicy so much more complex. We have highlighted many of these before, butnew data bolster the concerns. Challenges to world growth emanating out ofChina and other major economies are first on our list, as are abruptmovements in commodity, fx and select equity markets. While seriousconcerns over Greece’s finances and the future of the euro remain, growthprospects in the rest of Europe have become stronger for 2015 and for 2016,though way below U.S. standards. Risks remain high for commodity exportingregions. An extended period of high commodity prices supported higherincome growth in regions from Latin America to Russia. Now commodityoutlooks have been reassessed, as has growth in China. There was moregloomy news for the Chinese economy as the manufacturing purchasingmanagers’ index slipped to its lowest level in15 months. A report recentlyshowed industrial profits in the world’s second-biggest economy had fallen inJune, sending Chinese shares tumbling again, with concern that governmentintervention to stem a market selloff may not be sustainable in the face of aweaker growth trajectory. Many still dismiss moves in China’s stock marketas only a marginally relevant market gyration. But the government’s directinvolvement in first pumping the markets up, and its failure to keep it aloftafter the latest crash, should have investors and political observers concernedregarding China’s ability to manage or control even more consequentialdevelopments.

(pg 1)

• In This Issue (pg 2)

• Market Roar… (pg 3)

• The Return to Normal… (pg 4)

Contact information:

Abraham Gulkowitz

phone: 917-402-9039 email:   abe@gulkowitz.com

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July 27, 2015

The Market Roar… Tech stocks are roaring back — and putting enormous wealth back into several key tycoons’ pockets.Five top executives and founders at key tech companies, including LarryPage and Sergey Brin of Google (GOOGL), Jeff Bezos of Amazon(AMZN) and Mark Zuckerberg of Facebook (FB), hauled in a $19 billionscore in paper gains this week as the tech rally is taking on yet anothersurge higher. Gains by these key stocks go a far way in explaining whythe tech-heavy Nasdaq is on fire this week — notching yet another all-time high. It’s been a great week for the Google guys Page and Brin. Thetwo just got more than $12 billion windfall this week as shares of thecompany sprung back to life. Shares of Google are up $96.80, or 16%, to$699.53 just Friday following its better-than-expected results lateThursday. That’s the biggest one-day creation of wealth, $51 billion, inU.S. history, says Howard Silverblatt of S&P Dow Jones Indices.

Frenzy Around Shopping Site Jet.com Harks Back to Dot‐Com BoomOnline marketplace Jet.com Inc. has almost no revenue, years of likely losses in its futureand a strategy that includes underpricing mighty Amazon.com Inc. on millions of items. Jetalso has perhaps the highest valuation ever among e-commerce startups before their officiallaunch. That is no contradiction in Silicon Valley, where investors keep pouring moneyinto audacious business experiments filled with big-splash potential. Jet is the buzziest e-commerce arrival of the current boom, with $225 million in capital raised in the past yearand a timer on its website counting down the seconds to Tuesday’s opening of Jet to thepublic.

The Chinese equity indices crashed again with the Shanghaishare index falling again in a wild gyration. .. despitegovernment efforts to calm the markets… The Government ofChina had used extraordinary measures over the past weeks inorder to support a rally from the lows reached in earlyJuly. These included banning short selling and initial publicofferings, requiring purchases of shares by state‐ownedinvestors, banning sales by leading shareholders, and providingdirect credit support from the central bank. A survey ofemerging market investors, however, shows that thepossibility of a ‘hard‐landing’ in China has supplanted the riskof a sell‐off in the US Treasury market as the biggest concern.

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July 27, 2015

The Return to Normal ?

The first possible US interest rate rise inmore than a decade later this year has thepotential to disrupt markets, even if onlytemporarily. Other major central banksremain in extreme easing mode and thismonetary policy divergence is set to causestrains for EM borrowers, as capital flowsback to the US. Many EM sovereignsalready face lower commodity prices and acontinued weakness in global trade.

QE inflating house bubble, warns studyGermany, Norway and the UK judged most at risk as ultra-low yields push investors into property

Every Treasury secretary since the late 1930s couldproclaim with confidence that the U.S. bond market isthe deepest and most liquid in the world. Today’silliquid debt markets threaten the potency of thispledge and put the global economy at risk foranother financial crisis.

The median sales price of an existing homeincreased 3.1% (6.5% y/y) to a record $236,400from $228,900 in May. The average sales priceimproved 2.7% (4.7% y/y) to $281,200.

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July 27, 2015

Engines of Growth…

The central bank of Japan has lowered itsprojection for 2015 economic growth down to1.7 percent, down from 2.0 percentpreviously. Partly due to the sales taxincrease last year, consumption has beenweak and is weighing on growth. Inflation isalso expected lower at 0.7 percent for 2015,compared with 0.8 percent forecastpreviously and some ways off from the 2.0percent target.

Burberry Sales Growth Sapped by Asian Shoppers’ ShiftBritish luxury-goods house faces sluggish demand inHong Kong, as Chinese shoppers chase bargains inEurope Burberry said Wednesday that same-store salesdropped by a low-single-digit percentage in the Asia-Pacific region in the three months ended June 30. Thatcompares with double-digit percentage growth for theregion in the same period last year.

IMF warns Japan to step up reforms Country faces ‘stagflation’ and market turmoil unless Abenomics is ‘reloaded’

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July 27, 2015

Dislocation, Dislocation, Dislocation

China’s GDP dataWhile investment continued to slow, servicesaccelerated. The industrial sector grew 6.1%year-on-year in the first half, down from 6.4% inthe first quarter. By contrast, the services sectorjumped to 8.4% growth from 7.9% in the firstquarter. That matters since services now occupya larger share of Chinese GDP than industry.There is reason to doubt the sustainability of theservices strength. Was it predicated to a largeextent on financial services benefiting from thestockmarket bubble that popped last month?

Currencies in Norway, Canada, Russia and Nigeria have fallen sharply against the U.S. dollar this month on oil-price declines.

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July 27, 2015

YouCan’t Handle the Truth…Let's Take the “Con” out of Economics

Oil Production Shows Signs of FlaggingAs U.S. and OPEC pump out crude, other producers cut back

The real story in Asia… Singapore’s economycontracted more than analysts predicted last quarter, underscoringthe weakening outlook for Asian nations amid sluggish globalgrowth. The local dollar weakened to its lowest level in more thana month. Gross domestic product fell an annualized 4.6 percent inthe three months through June from the previous quarter, when itexpanded a revised 4.2 percent, the trade ministry said in astatement on Tuesday. Growth in global trade has slowed in the lastfew years after outpacing world expansion for decades, accordingto the International Monetary Fund. A commodities slump, China’sslowdown and uneven recoveries in the U.S. and Europe havedamped the exports that power many Asian economies. Singapore’smanufacturing shrank an annualized 14 percent in the secondquarter from the previous three months, data showed.Construction contracted 0.2 percent, while services fell 2.6percent in the same period.

It was reported that China’s 17 state‐owned banks have lent a combined 1.3trillion yuan ($209.4 billion) to China Securities Finance Corp. (CSF), thecountry’s state‐backed margin lender, in recent weeks to prevent a meltdownin Chinese stocks. CSF is the only government agency that provides marginfinancing loan services to Chinese securities firms, and is perceived as animportant conduit for the government to counter stockmarket volatility.

Overtime Rules Send Bosses ScramblingCompanies are racing to manage the hourstheir employees really work, following aproposal that would put millions more U.S.workers in line for overtime pay.

Some money managers are lookingto profit from potential trouble atsome ‘alternative’ mutual funds andbond ETFs

Caterpillar Sales SlideCaterpillar reported a steeper-than-expected13% drop in sales amid lower oil prices andweakness in the mining sector.

RUSSIA’S Currency Slide… With inflation at elevated levels and the ruble at a five-year low, real wages have been falling, undermining the purchasing power of consumers.

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July 27, 2015

Households – Brave New World

Consumer credit outstanding increased $16.1billion during May following a $21.4 billion riseduring April, initially reported as $20.5 billion. Itwas the smallest increase in three months.Expectations were for an $18.5 billion increase,according to the Action Economics ForecastSurvey. During the last ten years, there hasbeen a 49% correlation between the y/y growthin consumer credit and the y/y growth inpersonal consumption expenditures.

Slower growth in revolving consumer creditusage accounted for the easing of total credit'sincrease. The gain of $1.58 billion (3.2% y/y)was the smallest since a decline duringFebruary. Commercial bank & savingsinstitution balances (82% of the total)increased 4.6% y/y. Finance company lending(7% of the total) declined 9.1% y/y whileborrowing from credit unions (5% of the total)gained 7.2% y/y. Nonfinancial business creditusage (3% of the total) improved 0.2% y/y andsecuritized credit card balances (4% of thetotal) fell 1.5% y/y.

US RETAIL SALES Advance estimatesshow that retail sales in the U.S. slipped 0.3percent in June (m/m), compared withexpectations of a 0.3 percent gain. Core sales,which exclude cars, petrol and buildingsupplies, dropped 0.1 percent. The figures forMay were also revised downwards, dampeninga gathering upward trend in q2 ofstrengthening economic activity supported byjobs growth and consumption.

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July 27, 2015

Think it Through…

New home sales during June declined 6.8% to482,000 following a revised 1.1% May drop to517,000, initially reported as 546,000. April salesalso were revised lower to 523,000 from 534,000.Sales were at the lowest level since Novemberand 11.6% below the February peak of 545,000.

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July 27, 2015

U.S. Data Update: Go Figure… Where Now?

Eggs are getting much more expensive.The outbreak of avian flu caused the cost ofeggs to nearly double last month for producers.Wholesale prices for chicken eggs jumped 84.5percent in June, the Labor Department saidWednesday. The spike comes amid otherwisetame inflation across the rest of the economy.The producer price index, which measures thecosts of goods and services before they reachconsumers, increased 0.4 percent in June.

Revisions to the changes in total IP show lower rates of change inrecent years than were previously estimated. After having declinedsharply during the recession, total IP is still reported to have reboundedstrongly in 2010 and then to have increased moderately in each yearfrom 2011 to 2013; industrial production advanced solidly in 2014 andfell back somewhat in the first half of 2015. However, the gains in2012 and 2013 are each 1 percentage point weaker than previouslystated, putting the trajectory of the recovery on a lower path. Ascurrently reported, total IP did not return to its pre-recession peak untilMay 2014; previously, it was estimated to have reached that level inOctober 2013. On net, the revision resulted in lower estimates formanufacturing IP and higher estimates for mining IP thanpreviously reported; the estimates for utilities are little revised.

More than 100 oncologistsfrom top cancer hospitalsaround the U.S. have issueda harsh rebuke over soaringcancer-drug prices and calledfor new regulations tocontrol them.

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July 27, 2015

New Reference Points…

China’s Steel Slowdown Spreads as Korea’s Posco Gets Shake-UpSouth Korea’s Posco, the world’s fifth-biggest steel producer, plans to purgebusiness units to try to counter the China-induced slump in global steel markets.The company reported a 61 percent drop in second-quarter profit. Posco’s shake-up shows how the world’s steel producers are having to react to a contraction inChina’s demand after decades of unprecedented expansion. The speed of theslowdown is roiling global markets for the material as unneeded supplies from theworld’s biggest producer are exported across the world. China’s steel exportssurged 28 percent in the first half of 2015 and may top 105 million metric tons thisyear, according to Bloomberg Intelligence. To put that in perspective, ArcelorMittal,the world’s biggest producer and almost twice the size of its nearest rival, made93.1 million tons of the material last year.

Cheap Oil Is Bad for the U.S. Economy (at Least, So Far) It's been about a year since oil pricesstarted their historic drop, falling fromabove $100 a barrel to a bottom of about$45 in March. After creeping back toaround $60, prices are shaky again amidnews of a nuclear deal with Iran andrecord Saudi production. And low oilprices are good for growth, right?Cheap oil means cheap gasoline, and theassumption throughout the oil price routhas been that for the U.S. economy, builton consumer spending, cheap gas is allgood. In theory, yes. In practice, it's beentough to find the benefits in the economicdata this year.

U.S. Housing Starts Strength Reflects Strong Multi-Family Building

Low Oil Price Here to Stay as Russia Bleeds CapitalLow oil prices are just the tip of what ails Russia. With its dependence on commodities and a slump in investment, Russia will have a hard time recovering from its downturn…

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July 27, 2015

The Likelihood of Unlikely Events

Russian economic stagnation heightens instability riskAccording to Russia's Central Bank, at the end of June, Russia's gold and foreignexchange reserves totalled 362 billion dollars. The current recession in Russia is notturning into the dramatic downturn that some had forecast. However, a differentconcern is being raised by Russian leaders: a fear of stagnation in the longer term.They do not use that term in its usual meaning of zero growth; the concern is ratherthat Russia will fail to keep pace with the rest of the world and it will grow more slowlythan the global economy as a whole. The prospect of a sluggish economy concernsboth the leadership and the population.

China and 'Grexit' risks weigh on EMs globallyThis month, 3 trillion dollars had been wiped off the value of alllisted China companies since a seven-year high on June 12,undermining confidence in the government's ability to steer themarket. These developments along with the lingering risk of aGreek exit ('Grexit') from the euro-area, despite the provisionalagreement reached on July 12, are taking a toll on emerging market(EM) asssets more broadly.

Russia will strive to further Middle East arms salesOn July 14, Iran and the P5+1 (United States, United Kingdom, France, China, Russia andGermany) announced a final nuclear agreement. Under the deal, the UN arms embargo willremain in force for five years, while the ban on ballistic missile sales will stay for eight years.This means that Russia's plans to supply Iran with the advanced S-300 missile system will facefurther delays. However, Moscow is not only focusing on arms sales to Iran, but is looking morewidely across the Middle East and North Africa (MENA) region. The Kremlin will becomeincreasingly dependent on high-value, high-technology military sales while oil prices stay lowand Western sanctions remain.

Retail sales in Russia fell 9.4 percent in the year to June 2015, the sixthconsecutive month of declines. While the inflation rate has been slowingin recent months, it was 15.3 percent in June (y/y). With inflation atelevated levels and the ruble at a five-year low, real wages have beenfalling, undermining the purchasing power of consumers.

Brazil government coalition risks unravelingOn July 17, Lower House Speaker Eduardo Cunha withdrewfrom the government coalition, promising to push for hisDemocratic Movement Party (PMDB) to follow at itsSeptember congress. On her return from the United States andRussia, President Dilma Rousseff's problems have notchanged; indeed, most worsened during her absence. Brazil'seconomic outlook is bleaker, the governing political coalitionweaker and the scope of the corruption scandal has widened.

Venezuela food shortages will increase public anger

Japan ramps up warnings over China in maritime dispute

Municipal debt will hinder financial reform in ChinaChina's local governments issued 734billion renminbi (118 billion dollars) lastmonth, accounting for some 35% of totalbond issuance. A 1‐trillion‐renminbi localgovernment debt‐swap programme wasintroduced in March, under a pilotinitiative announced in August 2014, andexpanded last month by another 1 trillionrenminbi. A slowdown in investment andan increasing use of bank loans by localgovernments to roll over debt may nowhave forced the central government to actboldly.

A combination of bad fundamentals in thecommodities markets and limited liquiditycontinued to weigh on the secondary high-yieldmarket

China ties will shape Iran's openingChinese companies maintained strong tieswith Iran throughout various sanctionsregimes, mainly in the energy sector. AsIran's economy gradually opens afteryears of sanctions, Tehran will look todiversify its trade and investmentpartners. Chinese firms, supported byactive diplomacy, will seek to maintainand expand their footprint. Their abilityto position themselves in a newcompetitive landscape will affect otherinvestors and the speed with whichIranian energy exports return to globalmarkets.

Ukraine faces debt restructuringdecisions… Extended restructuringtalks on Ukraine’s $70bn debt pileare due to come to an end, with Kievfacing a decision to pay up ordefault

The Russian rouble has been walloped of late, a victim of both a wider rout in emerging market currencies and troubles unique to the Russian economy

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July 27, 2015

Not So Simple…

Italy should abandon euro, says GrilloLeader of populist Five Star Movement says Rome should use its debt pile as leverage

France, Italy views to fail in post-Greece euro-areaFrench President Francois Hollande has called for a euro-areagovernment, budget and parliament, while Italian PrimeMinister Matteo Renzi has announced plans for three years oftax cuts that would threaten Italy's euro-area deficit reductiontargets. After displaying rare and effective unity during thismonth's euro-area negotiations with Greece, the French andItalian governments have drawn lessons from the Greek crisisthat reinforce longstanding policy preferences. The Frenchand Italian positions make a potent intellectual combination.If they gained traction, they could change the terms of theEuropean policy debate. However, the lessons France andItaly have drawn from Greece will exacerbate differenceswith Germany.

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July 27, 2015

Credit IssuesAn interesting trend which has re-emerged lately hasbeen using leveraged credit index tranches to short onlythe riskiest set of credit entities in an index. The goal isto benefit from the downfall of companies that arestruggling to meet costs amid a global market full ofuncertainties.

One such targeted name has beenNorwegian paper manufacturer NorskeSkogindustrier. Its 5-yr CDS upfront hasrocketed 10% wider so far this month andspreads now imply an almost certain default

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July 27, 2015

Credit Matters-Know RiskMany Excel in Strategy, Few in the Management of Risk

From July 8, 2014 to July 8, 2015, the US composite high-yield bondspread widened by 179 bp, which nearly matched the accompanying184 bp climb by the average high-yield EDF metric. The power of theEDF metric to predict defaults one year out is borne out by how closeJune 2015’s high-yield default rate is likely to be to the June 2014’saverage high-yield EDF metric of 2.1%.The pronounced widening by high-yield has not been limited to energycompanies. In fact, according to a Credit Suisse tabulation, the 385 bpballooning of high-yield metals/minerals companies (to 896 bp) toppedthe 367 bp spread swelling of energy companies (to 759 bp).

Challenging arbitrage and collateral supply came out asthe top concerns in J.P. Morgan's 15Q3 Client Survey,aired last week. The survey has been running for thelast six years, and this time 89 clients participated. It isthe second survey to put reduced collateral supply atthe top of market players' list of concerns, after Citi’sCLO Research team released the results of its survey ofglobal CLO investors and managers last week.In joint second place were risk retention and creditdeterioration, while Volcker Rule-related illiquiditywas in third place. Few respondents expressedconcern over Fed rate hikes, with 40 investorschoosing to remain unhedged, versus seven investorsthat will hedge using various means (interest ratefutures, interest rate options, or another strategy).

With an Iran nuclear deal apparently imminent, the prospects of aflood of new oil hitting the global market has put downwardpressure on oil prices and consequently the US high yield market. Iran ranks fourth behind Venezuela, Saudi Arabia and Canada.

Needless to say, any sanctions relief would open up Iranian oilchannels back into world markets. Resultant oversupply in the market has the potential to trigger another downward trend in the price of crude oil.

RETAILING

MOODYS: Credit Risks Rise as Sales Lag Capacity LEGAL BONANZA The Federal Housing Finance Agencydisclosed that it paid two law firms over $373 million since 2010 topursue litigation against several banks over mortgage-backedsecurities sold to Fannie Mae and Freddie Mac before the financialcrisis. The FHFA, which has acted as conservator for Fannie andFreddie since the government took them over in 2008, disclosed thesums in response to a Freedom of Information Act request by Reuters.The disclosure marked the first time the FHFA had said how much ithad paid Quinn Emanuel Urquhart & Sullivan LLP and KasowitzBenson Torres Friedman LLP. The nearly $373.5 million amounted toless than 2 percent of the $18.7 billion obtained by the U.S. regulatorthrough settlements and judgments against 16 banks, including $806million after it took Nomura Holdings Inc to trial.

Toxic’ Loans Wallop French TownsInterest rates pegged to Swiss franc skyrocket, and ‘the tab keeps growing’; rethinking school constructionThe loans offered very low interest rates for thefirst few years, before the rate would start tovary according to the value of the Swiss franc.Contracts that convey currency risk in this wayfall under the category of what are known asfinancial swaps. At their inception, the loanshad appeal to both parties. Borrowers wereguaranteed low initial interest payments, andthey didn’t expect the rates to rise to anywherenear where they ended up.

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July 27, 2015

A New Geography of Business

New Mexico airport will attract global interest

Prominent German Economist Rejects Greek DealHans-Werner Sinn, president of the Ifo Institute for EconomicResearch in Munich who has criticized the German government forbailing out Greece, firmly rejected the latest agreement forged inBrussels. “Many people believe that the paper presented is good forGreece,” he said in a statement. “It is not. While it will cost the restof Europe a lot of money, all this money won’t be enough to makethe Greeks happy.” Greece is too expensive and uncompetitive, hesaid. “It makes no sense to want to pour in money to try to solve thecountry’s problems,” he added. “That won’t create jobs.”

Greek, Chinese and Puerto Rican Crises All Fall Short of Going GlobalAfter economic turmoil erupted on three continents in recent weeks, a familiar consequence of past crises is notably absent: panic

China domestic demand, manufacturing and real-estate investment remain weak, profit growth at major industrial companies has slowed and auto sales are struggling. And while stocks have clawed some of their losses in recent trading sessions, the benchmark Shanghai Composite declined by some 30% in recent weeks, jolting confidence.

COMMODITIESPapua New Guinea investment climate deterioratesPapua New Guinea (PNG) has benefitted from over a decade ofbuoyant economic growth, culminating in a forecast GDPgrowth rate of 15% in 2015. However, the outlook for PNG'smajor commodity exports (natural gas and gold) is nowdeclining as aggregate demand for resources falls in China andelsewhere in the region. This will lead to a fall in the growth ofoverall government revenues.

The containership industry appears to be continuing on its merry path to self‐destruction as it continues to order more vessels than the supply and demand equation requires.Another 171,000 teu were added to the fleet in June, at the same time as spot rates on all the majortrade lanes hit record lows as lack of demand combined with competitive forces that saw lines takerates so low they were all but paying to move containers on behalf of shippers. While July GRIshave offered some sign of relief, the outlook still looks grim. To counter this, the large alliancesare reducing capacity, particularly on the main lane east-west route between Asia and Europe.Maersk and MSC are using smaller vessels, Ocean Three has combined services and the G6 allianceis voiding sailings to take capacity out of the market. Which begs the question: why order moreships when they can’t even use the ones they already have? The answers lie in the individual lines’requirement to create efficiencies and replace older, less flexible tonnage with new vessels that canreduce slot costs. But unless these run fully loaded, the efficiencies do not exist; and with so manyships and so little demand, they do not run fully loaded. It’s a vicious circle that will not end well.Industry observers are already forecasting that most lines will make a loss this year. In the pastmonth, Cosco has been rumoured to be joining the ordering spree, with a report, still unconfirmedat the time of going to press, that the company is close to closing a deal for nine 20,000 teuboxships, with an option for four more, at three Chinese shipyards: Shanghai WaigaoqiaoShipbuilding, Nantong Cosco KHI Ship Engineering and Dalian Shipbuilding. Maersk Broker saideach vessel was priced at around $150m, and scheduled for delivery in the second half of 2017.

Starting gun fired on long awaited privatisation of Poste Italiane

Even if Greece does stay in the eurozone, the psychologicaldamage to the currency bloc has been huge. Financialinvestors may be pouring money into the economy, butcorporate chiefs who have to take a longer‐term view remainscarred by the sudden stops of the past few years. ManyEuropean corporate chiefs still focus their investment plansoutside Europe to diversify their earnings, as they have beendoing in recent years.

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July 27, 2015

Pumping Iron…The Old Economy Revisited

It’s going to take a prolonged slump in commodities to break a cycle of too much money and excess production

El Niño hits Asian and African cerealCorn imports to sub-Saharan Africa expected to double

Energy Companies to Merge in $15.8 Billion DealMarathon’s pipeline operator MPLX to buy natural-gasprocessor MarkWest EnergyEnergy producers, by organizing themselves as partnerships,can avoid some corporate taxes and offer hefty dividend-likepayments that are popular with investors. The partnershipshelped bankroll the U.S. shale boom, spending billions to buyknown oilfields from cash-hungry drillers that, in turn,wildcatted for new prospects. But the plunge in crude-oilprices since last summer, combined with a slump in U.S.natural-gas prices, has taken some of the shine off the so-called master limited partnerships that pump the fuels inrecent months.

Falling crude price fuels supertanker activityRate for transporting oil from Saudi Arabia to Japan reaches a seven-year seasonal high For owners of supertankers, which are capable of hauling more than2m barrels of crude around the world, the crash in oil prices has beengood for business. After five years of flatlining rates and shrinkingprofits, operators of very large crude carriers, or VLCCs, areenjoying strong trading for the first time since the financial crisis,when a glut of tankers came on the market just as demand collapsed.Since the turn of the year, the cost of hiring a VLCC has jumpedmore than 50 per cent, with the rate for shipping oil from SaudiArabia to Japan — the benchmark route for supertankers—rising to$93,600 a day, a seven-year seasonal high. For the big tankercompanies such as Euronav, DHT Holdings, Teekay Tankers,Frontline and Nordic American the oil market rout that started in2014 is a boon that could allow them to reduce debt, invest in newvessels and reward shareholders that have stuck with them throughthe lean years.

Big Vehicles Power Surge in GM ProfitGM kept on trucking in the second quarter despite slower growth in China, as the popularity of its pickups and SUVs led the company to solidly beat analyst expectations.

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July 27, 2015

The DNA of BusinessReconfiguring Industries to Define Growth

Core sectors of the magazine media industry saw relatively steady levels of M&A activity in the first half of 2015, but dollars continued to pour into ancillary categories, according to investment advisory firm, the Jordan Edmiston Group.Consumer media and technology saw both deal volume and valueincrease slightly through June, up 9 percent and 18 percent,respectively (100 deals; $9.1 billion). Activity in B2B media andtechnology declined slightly with the number of deals down 27percent and aggregate value dipping 14 percent (44; $3.1 billion).Exhibitions and conferences saw the biggest increase in M&Amovement of any of the seven media, marketing and technologysectors measured by JEGI—volume rose 40 percent to 42 deals,while value shot up 760 percent to $2.5 billion. Part of theexponential increase in events spending was due to the $1.2billion purchase of Cirque du Soleil, though the segment stillposted growth north of 340 percent without it.Two other high-priority areas for magazine media companies,mobile media and technology, and database and informationservices, followed suit—they were each the second-fastestgrowing segments for volume and value, respectively.

Cyber law will put pressure on foreign firms in ChinaChina on Wednesday passed a wide‐ranging new nationalsecurity law, covering everything from militarysecurity and territorial sovereignty, to cybersecurity, the environment and food safety. It alsocalls for strengthening China’s financial system andbanking infrastructure, and protecting core industriesand areas of the economy, including the financialsystem and grain security, along with China’sinterests in space, deep oceans and polar regions.Chinese top legislature, announcing the law, said itwould "protect people's fundamental interests.”However the law’s wide scope and relatively vagueclauses have alarmed some analysts, who see it asfurther evidence of tightening controls on societyunder President Xi Jinping. The law calls, forexample, for the protection of “core socialistvalues,” ensuring “cultural security” and combatingthe influence of “harmful moral standards.” Concernshave also been raised that it might put more pressureon Hong Kong, which is part of China but has its ownlegal system, to enact similar security legislation infuture.

The New York local radio market remained soft at ‐8.3%.

Comcast Sets Streaming ServiceComcast said it will launch a new streaming video service, a move to reach younger customers looking to cut the cable cord.

Johnson & Johnson on Tuesday reported sharply lowersales in the second quarter, and cited a stronger U.S.dollar, disappointing sales of its medical devices andplunging demand for a hepatitis C drug faced withstrong competition.

Motor industry has been slow to embrace theecommerce revolution with dealerships stilldominant

Pearson said it would sell FT Group, which includes the Financial Times newspaper, to Nikkei of Japan for more than $1.3 billion.

Teva to buy Allergan generic business for$40.5 billion, drops Mylan bid

Israel’s Teva Pharmaceutical Industries will pay $40.5billion in cash and stock for Allergan’s generic drugsbusiness, solidifying Teva's position as the world's No. 1maker of generics while freeing Allergan to focus onbranded drugs, paying down debt and potential"transformational" acquisitions.The deal, the largest in Israel's corporate history, allowsTeva stronger economies of scale, crucial in the low-margin generic drugs business. Teva, which dropped itshostile pursuit of Mylan, will likely have to sell off somedrugs to allay antitrust concerns.

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July 27, 2015

Real Estate and Construction Outlook

Many big citiesSoaring Vancouver home prices spur anger toward foreign buyers

China's rich seek shelter from stock market storm in foreign propertyRealtors in Australia, Britain and Canada are bracing for a surge of new interest in their already hot property markets, with early signs that wealthy Chinese investors are seeking a safe haven from the turmoil in Shanghai's equity markets.

U.S. investment floods into European real estate

Reshoring of auto production spurring growth in U.S. and Mexican industrial markets

The Federal Reserve highlighted rapidlyrising commercial real-estate prices as anarea of concern amid broadly moderating risksto U.S. financial stability. “Valuationpressures in commercial real estate are risingas commercial property prices continue toincrease rapidly, and underwriting standards atbanks and in commercial mortgage-backedsecurities have been loosening,” the centralbank said in a semiannual report to Congress.The report accompanies Fed ChairwomanJanet Yellen’s testimony to the House.

Financial-services firms stepped back into the driver'sseat in the Manhattan office market in a big wayduring the first half of the year. The leasing of officespace by such firms, the traditional leaders of the NewYork market, is rising again after two years ofstagnation, according to a new report from Cushman& Wakefield. With employment in the sector up by22,000 high-paying jobs during the past two years,companies are again expanding. The shift comesafter two years in which leasing had been led bytechnology, advertising, media and informationcompanies. Last year, such companies, referred to asTAMI, accounted for 40% of the new space leased inManhattan. This year, that figure has slipped to 20%as new leases signed by financial-services firms surgedto 26% of the total from 14% a year ago, according toCushman. "And it's not just big banks," saidCushman's Josh Kuriloff. "Hedge funds and private-equity firms are where the growth is coming from.“Resurgent demand for space by such firms has been ahuge boon to landlords in midtown.

The booming market in prime centralLondon has finally slowed—whichmeans some discounts on topproperties.

With the pervasion of smartphones, laptops,and tablets, the 21st century workplace is nolonger confined to leasable office space;workers can conduct business just aboutanywhere. Office markets have been slow torecover from the recession, and the recoveryhas been more uneven than that of otherproperty types. The pipeline of legacyCMBS loans set to mature will peak duringthe next several years, with the office sectorleading the way. With almost $93.6 billionin office CMBS loans set to mature betweennow and 2017, is the office marketsustainable enough to support a wave ofrefinancings?

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July 27, 2015

Will Life Ever Be the Same?

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