Another Natural Gas Margin Hike: Third Time In Two Weeks

Interim budget surprise: Gold import curbs may be relaxed

If the current political indicators are anything to go by, the interim budget to be presented on February 17 may spring some surprises.

Normally, no significant tax proposals or economic policy decisions are announced in the interim budget, but this time round, expectations are that gold import curbs may see some relaxation and additional sums allocated for certain social sector welfare programmes.

This, however, will not be against the convention, as there is no constitutional restriction on the Government. Besides, various measures such as hiking the import duty to 10 per cent or the 80:20 schemes are executive decisions and no Parliamentary approval is required. Expectations on a possible announcement on gold gathered momentum after National Advisory Council Chairperson Sonia Gandhi asked the Centre to look into the matter.

Current account

This was followed with the Finance Minister P Chidambaram expressing confidence that by the end of the fiscal year the Government will be able to revisit some of the restrictions on gold imports. Since the current account deficit is expected to be below $45 billion, almost half of $88 billion recorded in 2012-13, this may help the Government to ease some of the curbs. Bullion and jewellery traders are also pressing for some relaxation as the restrictions, imposed since August last year, are also leading to a rise in smuggling. The budget could also see additional allocation for some social sector welfare programmes. This is possible as the Finance Minister is likely to report a fiscal deficit of anywhere between 4.6 and 4.7 per cent of GDP (Gross Domestic Product), lower than the budget estimate of 4.8 per cent. This reduction will provide some room for the Minister to increase the allocation.

Expenditure concerns

The interim budget is presented when Government of the day is unable to present an annual financial statement for the coming fiscal year (April 1-March 31) either due to General Election or some other compelling reasons. Usually, this is just a statement of the Government’s achievements, revised estimate for the current year and budget estimate for the next fiscal . The new Government can revise the next year estimate in the full budget. Technically speaking, the interim budget must be approved by Parliament, for expenditure after March 31, since the previous full budget has already provided for expenditure till March 31 and the full budget will be presented only after a new Government is formed.

That is why the interim budget is also called Vote-on-Account. The Parliamentary approval is for expenditure for the next four months. The last interim budget, presented in 2009 by then Finance Minister Pranab Mukherjee, did not see any new tax announcements.

However, the 2004 interim budgetby then Finance Minister Jaswant Singh did mention the Government’s commitment to extending fiscal benefits for many new schemes .

Weekly Economic Data for the week 01-Feb-14 to 07-Feb-14

Exp.:	Expected or Anticipated value calculated from the recent survey conducted.
Prior:	Represents the last actual for each indicator. In case there is a revision to the last actual, the prior column reflects the prior figure as revised.
Exp. change today:	Exp. - Prior
Avg. change of last 1 year:	Average Change in Actual data calculated for last 1 year.
Expected impact on price:	This indicator shows the effect of the anticipation of data on the prices of related country’s major indices. We have categorized it as below: Very Good Good Neutral Bad Very Bad
Actual:	Refers to the actual/latest figures after its release.

Data for the week 01-Feb-14 to 07-Feb-14

Date	Time (IST)	Country	Data	Exp.	Prior	Exp. chg today	Avg. chg of last 1 year	Exp. Impact on Price
01-02 Feb-2014	-	United States	Janet Yellen Replaces Bernanke as Fed Chairman
01-Feb-2014	06-30 AM	China	NBS Manufacturing PMI	50.5	51	-0.50	0.77	Neutral
03-Feb-2014	02-30 PM	European Monetary Union	Markit Manufacturing PMI	53.9	53.9	0.00	0.97	Neutral
03-Feb-2014	08-30 PM	United States	ISM Manufacturing PMI	56	57	-1.00	1.35	Neutral
04-Feb-2014	09-00 AM	Australia	RBA Cash Rate Target	2.5%	2.5%	0.00%	0.05	Neutral
04-Feb-2014	03-30 PM	European Monetary Union	Producer Price Index (MoM)	0.1%	-0.1%	0.20%	0.45	Neutral
04-Feb-2014	03-30 PM	European Monetary Union	Producer Price Index (YoY)	-1.0%	-1.2%	0.20%	0.45	Neutral
04-Feb-2014	08-30 PM	United States	U.S. CBO Releases Budget and Economic Outlook
05-Feb-2014	09-00 PM	United States	EIA Crude Oil Stocks change		6.421M		3.45
06-Feb-2014	05-30 PM	United Kingdom	BoE Interest Rate Decision	0.5%	0.5%	0.00%	0.00	Neutral
06-Feb-2014	06-15 PM	European Monetary Union	ECB Interest Rate Decision	0.25%	0.25%	0.00%	0.07	Neutral
06-Feb-2014	07-00 PM	United States	Trade Balance	$-35.9B	$-34.3B	-1.60$	3.21	Neutral
06-Feb-2014	07-00 PM	European Monetary Union	ECB'S Draghi Holds Press Conference After Rate Decision
06-Feb-2014	09-00 PM	United States	EIA Natural Gas Storage change		-230		33.60
07-Feb-2014	06-00 PM	Australia	RBA Statement on Monetary Policy
07-Feb-2014	03-00 PM	United Kingdom	Industrial Production (MoM)	0.7%	0.0%	0.70%	1.75	Neutral
07-Feb-2014	04-30 PM	Germany	Industrial Production s.a. (MoM)	0.30%	1.90%	-1.60%	2.36	Neutral
07-Feb-2014	07-00 PM	United States	Nonfarm Payrolls	180K	74K	106.00	43.00	Very Good
07-Feb-2014	07-00 PM	United States	Unemployment Rate	6.70%	6.70%	0.00%	0.13	Neutral

Investors ditch zinc for lead as supply tightens

* Forward curve shows physical tightening in lead
* Some investors going long lead, short on zinc
* Lead seen in deficit in 2014, zinc in surplus

Some investors are switching long zinc positions to lead on the view that others got the timing wrong on when zinc would feel the impact of dwindling mine supplies, analysts say.

The increasing scarcity of immediate supply for lead and the more plentiful spot market for zinc - the best performing industrial metal of 2013 - is showing up in near-term forward curves of the metals, moving in opposite directions.

"We think the zinc story is reasonably strong but we don't think it's a 2014 story," Hermes Fund Managers' metals analyst Joseph Murphy said.

Spread and ratio trades between the two metals, often found in the same mines, is a top play among investors and traders.

They piled into zinc last year, betting on shortages from big operations such as Australia's Century mine, the world's No. 3. The mine, owned by China's MMG Ltd , is due to see output drop this year and run out of ore in mid-2015. 

"Fundamentally zinc is improving, but over a longer time frame. Lead has more solid fundamentals now," Standard Bank analyst Leon Westgate said. "Lead should outperform zinc by some margin (in the coming weeks)."

Lead usually sees more demand in the winter as car batteries often go dead in cold weather and need to be replaced.

"We have a moderately constructive outlook for lead heading into 2014 a function of healthy auto sales growth in the U.S. and China, higher industrial battery demand growth in China, ongoing mine production challenges and flat Chinese refined lead production," Deutsche Bank analyst Grant Sporre said in a note.

Cash zinc had been at a premium to the three month contract of $9.50 a tonne at the start of the year, indicating shortages, but this has flipped to a discount of $13.60.

Lead, by contrast, has trimmed its cash-three month discount to $14.39 a tonne from $28.50 at the start of 2014.

The broader supply-demand balances also favour lead.

"There's been quite a lot of interest ... in putting the spread trade back on where you are long the lead leg and short the zinc leg," Hermes Fund Managers' Murphy said.

"We think zinc is overpriced at current levels and we expect it to underperform, particularly against the likes of lead over the next few weeks," he said.

The gap between the price of the two metals narrowed to $87 on Jan. 9 from nearly $200 a month earlier as cheaper zinc moved closer to lead, but it has since moved back to about $150.

Murphy is targeting the spread to move to $170-$180, not to the widest gaps of last year of over $200.

The price of benchmark zinc on the London Metal Exchange gained 12 percent from late November to last Wednesday, but has since shed more than 4 percent.

The lead market is expected to have a deficit of 22,000 tonnes by the end of this year, deepening to 51,000 tonnes in 2015, according to consensus forecasts of analysts polled by Reuters.

Zinc, on the other hand, is forecast to have a 96,000 tonne surplus this year, narrowing to 17,500 tonnes in 2015.

Marc Faber Warns "Insiders Are Selling Like Crazy... Short US Stocks, Buy Treasuries & Gold"

Beginning by disavowing Mario Gabelli of any belief that rising stock prices help 'most' people ("Fed data suggests half the US population has seen a 40% drop in wealth since 2007"), Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron's interview.

Quoting Hussman as a caveat, "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There's no calling the top," Faber warns there are a lot of questions about the quality of earnings (from buybacks to unfunded pensions) but "statistics show thatcompany insiders are selling their shares like crazy."

His first recommendation - short the Russell 2000, buy 10-year US Treasuries ("there will be no magnificent US recovery"), and miners and adds "own physical gold because the old system will implode. Those who own paper assets are doomed."

Via Barron's,

Faber: This morning, I said most people don't benefit from rising stock prices. This handsome young man on my left said I was incorrect. [Gabelli starts preening.] Yet, here are some statistics from Gallup's annual economy and personal-finance survey on the percentage of U.S. adults invested in the market. The survey, whose results were published in May, asks whether respondents personally or jointly with a spouse have any money invested in the market, either in individual stock accounts, stock mutual funds, self-directed 401(k) retirement accounts, or individual retirement accounts. Only 52% responded positively.

Gabelli: They didn't ask about company-sponsored 401(k)s, so it is a faulty question.

Faber: An analysis of Federal Reserve data suggests that half the U.S. population has seen a 40% decrease in wealth since 2007.

In Reminiscences of a Stock Operator [a fictionalized account of the trader Jesse Livermore that has become a Wall Street classic], Livermore said, "It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight." Here's another thought from John Hussmann of the Hussmann Funds: "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There's no calling the top, and most of the signals that have been most historically useful for that purpose have been blaring red since late 2011."

I am negative about U.S. stocks, and the Russell 2000 in particular. Regarding Abby's energy recommendation, this is one of the few sectors with insider buying. In other sectors, statistics show that company insiders are selling their shares like crazy, and companies are buying like crazy.

Zulauf: These are the same people.

Faber: Precisely. Looking at 10-year annualized returns for U.S. stocks, the Value Line arithmetic index has risen 11% a year. The Standard & Poor's 600 and the Nasdaq 100 have each risen 9.4% a year. In other words, the market hasn't done badly. Sentiment figures are extremely bullish, and valuations are on the high side.

But there are a lot of questions about earnings, both because of stock buybacks and unfunded pension liabilities. How can companies have rising earnings, yet not provision sufficiently for their pension funds?

Good question. Where are you leading us with your musings?

Faber: What I recommend to clients and what I do with my own portfolio aren't always the same. That said, my first recommendation is to short the Russell 2000. You can use the iShares Russell 2000 exchange-traded fund [IWM]. Small stocks have outperformed large stocks significantly in the past few years.

Next, I would buy 10-year Treasury notes, because I don't believe in this magnificent U.S. economic recovery. The U.S. is going to turn down, and bond yields are going to fall. Abby just gave me a good idea. She is long the iShares MSCI Mexico Capped ETF, so I will go short.

...

What are you doing with your own money?

Faber: I have a lot of cash, and I bought Treasury bonds.

...

Faber: I have no faith in paper money, period. Next, insider buying is also high in gold shares. Gold has massively underperformed relative to the S&P 500 and the Russell 2000. Maybe the price will go down some from here, but individual investors and my fellow panelists and Barron's editors ought to own some gold. About 20% of my net worth is in gold. I don't even value it in my portfolio. What goes down, I don't value.

...

Which stocks are you recommending?

Faber: I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don't own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.

Zulauf: Can you put the time frame on the implosion?

Faber: Let's enjoy dinner tonight. Maybe it will happen tomorrow.

...

There is a colossal bubble in assets. When central banks print money, all assets go up. When they pull back, we could see deflation in asset prices but a pickup in consumer prices and the cost of living. Still, you have to own some assets. Hutchison Port Holdings Trust yields about 7%. It owns several ports in Hong Kong and China, which isn't a good business right now. When the economy slows, the dividend might be cut to 5% or so. Many Singapore real-estate investment trusts have corrected meaningfully, and now yield 5% to 6%. They aren't terrific investments because property prices could fall. But if you have a negative view of the world, and you think trade will contract, property prices will fall, and the yield on the 10-year Treasury will drop, a REIT like Hutchison is a relatively attractive investment.

...

Faber: The outlook for property in Asia isn't bad because a lot of Europeans realize they will need to leave Europe for tax reasons. They can live in Singapore and be taxed at a much lower rate. Even if China grows by only 3% or 4%, it is better than Europe. People are moving up the economic ladder in Asia and into the middle class.

Are you bullish on India?

Faber: I am on the board of the oldest India fund [the India Capital fund]. The macroeconomic outlook for India isn't good, but an election is coming, and the market always rallies into elections. The leading candidate is pro-business. He is speaking before huge crowds.

In dollar terms, the Indian market is still down about 40% from the peak, because the currency has weakened. In the 1970s, stock market indexes performed poorly and stock-picking came to the fore. Asia could be like that now. It is a huge region, and you have to invest by company. Some Indian companies will do well, and others poorly. Some people made 40% on their investments in China last year, but the benchmark index did poorly.

I like Vietnam. The economy has had its troubles, and the market has seen a big decline. I want you to visualize Vietnam. [Stands up, walks to a nearby wall, and begins to draw a map of Vietnam with his hands.] Here's Saigon, or Ho Chi Minh City, the border with China, and the Mekong River. And here in the middle, on the coast, is Da Nang.

...

Faber: I recommend shorting the Turkish lira. I had an experience in Turkey that led me to believe that some families are above the law. When I see that in an emerging economy, it makes me careful about investing.

10 Secrets To Success

Biggest aluminium buyer attacks prices

“The LME warehouse queues are still distorting the market,” said Eoin Dinsmore, senior analyst at CRU. “But we expect to see premiums reduce in the coming months as larger tonnage deals are concluded.”

Read the full article on FT.com