Gold rushes to six-month high after US jobs data
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CA Mihir Desai
A man shows off the Instagram app on an iPhone. The newest iPhone could provide a significant boost to the economy, a JPMorgan economist says.
NEW YORK (CNNMoney) -- As anticipation builds for the launch of Apple's iPhone 5, one economist has got an additional selling point for the product: It could provide a significant boost to GDP growth.
JPMorgan's Michael Feroli says in a research note that the iPhone 5, expected to be unveiled Wednesday, could add between 0.25% and 0.5% to annualized economic growth in the fourth quarter.
To reach those figures, Feroli began by assuming that 8 million iPhone 5's will be purchased in the last three months of this year, as JPMorgan predicts. He then assumed a retail cost of $600 per phone and subtracted $200 for the cost of imported components.
Each iPhone sold would therefore add $400 to GDP, or $3.2 billion for the quarter. That's $12.8 billion at an annual rate, and would yield a boost in annualized GDP growth of 0.33% for the fourth quarter.
Overall, JPMorgan (JPM, Fortune 500) predicts fourth-quarter GDP growth of 2%.
Feroli noted that the iPhone's estimated GDP bump "seems fairly large, and for that reason should be treated skeptically." However, he said evidence from the launch of the iPhone 4S last year appeared to support the projection, estimating that that product may have added between 0.1% and 0.2% to growth in the fourth quarter of 2011.
Related: 3 big features the iPhone is missing
Dean Baker, co-director of the Center for Economic and Policy Research, said Feroli's analysis made the questionable assumption that Apple's (AAPL, Fortune 500) iPhone 5 launch wouldn't affect sales of other phones.
"Clearly, some fraction of that 8 million would have bought a phone in the fourth quarter whether or not Apple (AAPL, Fortune 500) came out with that new iPhone," Baker said.
Facebook's Next Fight: Suits, and More Suits
Facebook Inc.'s FB botched initial public offering is turning into a potential legal morass for the social-networking firm, its investment bankers and the exchange on which it went public.
About 50 lawsuits have been filed against Facebook, Nasdaq OMX Group Inc. and underwriters of Facebook's May IPO, according to lawyers involved in the cases.
In addition, securities lawyers who represent Facebook investors say they expect hundreds of arbitration claims to be launched against brokers and securities firms that pitched the company's shares.
While investors face an uphill battle to recover losses, some legal experts said defendants in the arbitration claims and civil lawsuits face potentially large financial exposure given the stock's 47% slide since the IPO. The slump has erased about $38 billion in Facebook's stock-market value. On Tuesday, the company's shares fell 2.5%, or 51 cents, to $20.28 in New York Stock Exchange trading.
"IPOs are the most attractive kind of suit for the plaintiff's bar," said John Coffee, a law professor at Columbia University. While at least one-third of such class-action cases are thrown out, many of the rest eventually conclude in settlements for roughly 2% to 3% of the alleged losses, he estimated.
According to Stanford University's Securities Class Action Clearinghouse, Facebook has been named as a defendant in 29 of the 53 securities class-action filings related to IPOs this year.
Facebook CEO Mark Zuckerberg gave his first interview since the IPO at TechCrunch Disrupt, a San Francisco conference for start-ups, where he spoke with TechCrunch founder Michael Arrington about the performance of his company's stock and his mistake of betting on HTML 5. (Photo: AP)
The highly-anticipated Facebook IPO was plagued with problems, potentially costing thousands of dollars to many small investors and further damaging Wall Street's reputation on Main Street. A Wall Street Journal report.
The bulk of the cases against Facebook and underwriters led by Morgan Stanley allege that investors weren't told clearly enough in disclosures that the social-networking firm's growth was suffering from a migration in customers to mobile devices from desktop computers. Some analysts are concerned about Facebook's advertising model for mobile devices.
Facebook and Nasdaq declined to comment.
In a securities filing, Facebook has said the lawsuits are "without merit." Just before the initial public offering, Facebook updated its stock-sale document with a warning about the mobile-device trend and its possible impact on results.
People familiar with the company's thinking say Facebook followed the securities rules mandating that certain deal-related communications be disclosed only in a deal's prospectus.
At the same time, many stock analysts covering Facebook reduced their revenue and earnings estimates for the company. That information was passed along to many large institutions—but not to many retail investors. Such information isn't required to be made public.
A Morgan Stanley spokesman said that the firm followed "all applicable regulations" with its handling of the Facebook IPO. It said that Facebook's revised prospectus filing on May 9 was "widely publicized" and that "a significant number of research analysts" reduced their earnings views to reflect the "impact of the new information."
Steven Caruso, a partner at law firm Maddox Hargett & Caruso in New York, says he is preparing to file as many as a dozen arbitration claims with the Financial Industry Regulatory Authority, representing investors who claim the deal's price was "elevated" or they "weren't given the same information."
Lawyers say some Facebook investors aren't doing anything until they know how much money will come from Nasdaq, which has admitted that technology glitches hampered investors' ability to buy and sell for a few hours on May 18. The exchange operator is willing to pay $62 million but has said it shouldn't be held responsible for all Facebook investor losses.
Last week, a judicial panel playing the role of legal traffic cop heard arguments about how and where the Facebook lawsuits should be heard in court. Legal experts say that many or all of the cases could be brought to the same court in the U.S. Southern District of New York, with the cases combined into a small group.
Among the civil suits filed so far, about 30 name Facebook as a defendant, according to the Stanford database. The rest are focused on Nasdaq, underwriters and directors, a lawyer familiar with the cases said. The Securities and Exchange Commission and state regulators are looking into how individual investors were treated in the Facebook deal.
Securities class-action suits can drag on for several years. Arbitration cases, which typically are ruled by fairness or equity issues rather than strict legal doctrines, generally appeal to investors with steeper losses.US major financials...since TARP (10/3/08)
Cross-asset-class retracement of pre-crisis peak...
Equities - DM Defensive and Smaller EMs have surpassed pre-crisis peaks, and Majors nearing those peaks...
Bonds & FX - well above their pre-crisis peaks...
In the case of some of these nominal recoveries, it's as if the crisis had never happened - just how the central planners had 'planned' it - though the evidence of newly forming bubbles is clear.
By Richard Cowan
WASHINGTON | Fri Mar 1, 2013 12:02pm IST
(Reuters) - The U.S. government hurtled on Friday toward making deep spending cuts that threaten to hinder the nation's economic recovery, after Republicans and Democrats failed to agree on an alternative deficit-reduction plan.
Locked in during a bout of deficit-reduction fever in 2011, the time-released "automatic" cuts can only be halted by agreement between Republican lawmakers and the White House.
That has proved elusive so far.
Both sides still hope the other will either be blamed by voters for the cuts or cave in before the worst effects - like air traffic chaos or furloughs for tens of thousands of federal employees - start to bite in the coming weeks.
Barring any breakthroughs in the next few hours, the cuts will begin to come into force at some time before midnight on Friday night. The full brunt of the belt tightening, known in Washington as "sequestration," will take effect over seven months so it is not clear if there will be an immediate disruption to public services.
President Barack Obama meets top leaders of Congress at the White House at 10 a.m. EST (1500 GMT) to explore ways to avoid the unprecedented, across-the-board cuts totaling $85 billion.
But expectations were low for a deal when the Democratic president huddles with Senate Majority Leader Harry Reid, Senate Republican leader Mitch McConnell, House of Representatives Speaker John Boehner, the top U.S. Republican, and House Democratic leader Nancy Pelosi.
Democrats insist tax increases be part of a solution to ending the automatic cuts, an idea Republicans reject.
"We should work together to reduce our deficit in a balanced way - by making smart spending cuts and closing special interest tax loopholes," Obama said on Thursday.
Congress can stop the cuts at any time after they start on Friday if the parties agree to that. In the absence of any deal at all, the Pentagon will be forced to slice 13 percent of its budget between now and September 30. Most non-defense programs, from NASA space exploration to federally backed education and law enforcement, face a 9 percent reduction.
The International Monetary Fund warns that the cutbacks could knock at least 0.5 percentage point off U.S. economic growth this year and slow the global economy.
ITCHING FOR A FIGHT?
Despite dire predictions that the budget cuts will jeopardize 750,000 jobs, rank-and-file Republicans and Democrats sounded as if they were itching for this fight to play out.
Republican Representative Lee Terry of Nebraska accused Obama of exaggerating the severity of possible disruptions in government services.
The public, Terry said, is "being told ... that Armageddon occurs on Saturday: You're never going to fly, you can't buy any meat at a grocery store, every illegal alien is going to be released, that our borders are going to be overrun by terrorists and al Qaeda will establish themselves in every city of the United States if this goes through."
Terry said Republicans "want the cuts" to trigger, but with more flexibility on how they are carried out.
Even some Republicans keen to rein in government spending are wary of sequestration because of its potential to cause pain. The cuts are designed to hurt by hitting a wide range of government programs whether cost reduction is warranted or not.
Liberal Democratic Representative Ed Markey of Massachusetts predicted a political victory for Obama in the days after the spending cuts are triggered.
He likened this fight to a Republican-led U.S. government shutdown in late 1995 and early 1996.
At the time, Markey said, "President Clinton began explaining the government and how it serves each part of the needs of American families and Republicans lost that debate and they're going to lose the debate again this time."
Markey said Obama too will have an opportunity to lay out the benefits of public services to Americans skeptical of big government. "The government is Medicare, it's Head Start (for pre-school kids), it's protecting the safety of food, it's ensuring that children are educated," he said.
DISEASE RESEARCH, WEAPONS HIT
If the cuts were to stay in place through September, the administration predicts significant air travel delays due to layoffs of airport security workers and air traffic controllers.
Some Pentagon weapons production could grind to a halt and the budget cuts would ripple through the sprawling defense contracting industry.
Meat inspections could get hung up, medical research projects on cancer and Alzheimer's disease canceled or curtailed and thousands of teachers laid off.
Instead of these indiscriminate cuts, Obama and Democrats in Congress urge a mix of targeted spending cuts and tax increases on the rich to help tame the growth of a $16.6 trillion national debt.
Republicans instead want to cut the cost of huge social safety nets, including Social Security and Medicare, that are becoming more expensive in a country with an aging population.
Meantime, Obama is edging closer to having to enforce the meat-axe approach.
By midnight, he is required to issue an order to federal agencies to reduce their budgets and the White House budget office must send a report to Congress detailing the spending cuts. In coming days, federal agencies are likely to issue 30-day notices to workers who will be laid off.
Despite warnings that it had little flexibility on executing the cuts, White House budget office controller Danny Werfel outlined some steps that could come before major program cuts are instituted.
Federal travel, conferences and training classes could first be canceled, he said, as could worker bonuses and new hiring. Agencies have also been instructed to identify contracts and grants that could be canceled or delayed.
Even so, the process has already generated uncertainty among businesses that work with the federal government, as well as throughout the agencies that run Washington.
Referring to the partisan battles that have dominated budget fights for two years, Republican Representative Scott Rigell told Reuters: "This reminds me of a couple of crocodiles in a death grip underwater and they're running out of oxygen and we're all going down" with them.
Rigell's eastern Virginia congressional district has the highest concentration of active-duty military personnel in the country and houses major Pentagon shipbuilding facilities that could come under the budget axe.
(Additional reporting by Thomas Ferraro and Roberta Rampton, Editing by Alistair Bell and Todd Eastham)
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
What if there are tail risks present in the Fed's Frankenstein Economy of the same sort that Greenspan et al. failed to identify in 2008?
A longtime correspondent emailed me last week about the apparent contradiction between a Federal Reserve that has had the power for five years to counteract any decline and my call for a market decline in 2014: why would the Fed allow a market it has pushed higher for five years to ever fall?
It's an excellent question, as it summarizes the key question: is there any limit on "don't fight the Fed?" Can the Fed push assets higher essentially forever? And if so, why did it fail to do so in 2008?
Former Federal Reserve chairman Alan Greenspan's recent bleatings in Foreign Affairs,Why I Didn't See the Crisis Coming, offered one primary reason: the Fed's models failed to accurately account for "tail risk," (otherwise known as things that supposedly happen only rarely but when they do happen, they're a doozy), because guess what--they happen more often than statistical models predict.
I would add that tail risk is a fancy name for unintended consequences of central planning. Thus Greenspan had more in common with failed Soviet planners than he would ever admit.
Greenspan also confessed that the Fed overcame the meltdown by creating and lending unlimited sums of money--yes, unlimited. Various accountings after the fact identified $16 trillion in direct Fed backstops and loans to global banks, but implied or indirect subsidies, backstops and lines of credit added tens of trillions of dollars to the total bailout of the privately held banking cartel.
This money spigot has remained open for five years, and a tiny reduction ($10 billion a month) is all the Fed dares to do lest the global markets melt down again.
So are there no "tail risks" or unintended consequences to leaving the money spigot fully open for five years running? Those who believe the Fed's record of five years of rising asset prices proves its ability to drive prices higher for another five years. In other words, having created a Frankenstein economy that depends on unlimited credit pumping, the Fed can control its monster with uncanny finesse.
The Fed's extraordinary success in suppressing risk, tail and every other variety, has given punters and strategists alike a supreme confidence in the Fed's ability to suppress risk for another five years, and another five years after that. (The similarity to Soviet-era five-year plans is ironic coincidence.)
What if there are tail risks present in the Fed's Frankenstein Economy of the same sort that Greenspan et al. failed to identify (or grossly under-estimated) in 2008?
If the limitless hubris of the Frankenstein story doesn't resonate for you, consider the unseen risks of monoculture agriculture as an apt analogy. In this view, the financial markets are a Fed-farmed monoculture that is sustained solely by massive quantities of financial fertilizers and carefully engineered "crops." The Fed claims its engineered monoculture is as resilient as a market-based ecosystem, but this is simply not true: monocultures are exquisitely vulnerable to tail risks that are impervious to the policies intended to kill all threats.
Indeed, in the monoculture analogy, central planning engineering perfects the power of threats to bypass the system's defenses.
Despite the supremacy of Fed hubris and punter confidence in the Fed's Frankenstein Economy, the likelihood of some tail risk emerging out of nowhere is rising. Indeed, the very confidence in central planners, i.e. that the Fed is now the ultimate power in the Universe, is a prerequisite for collapse.
Debt = Serfdom (April 2, 2013)