“Of the June total,” reports the Labor Department, “1,235 mass layoffs were reported in the manufacturing sector.”

“All the indicators in the real economy,” said Bill Bonner in his final speech at the Agora Financial Investment Symposium in Vancouver, “are actually getting worse.”

And is it any surprise? What exactly does America make anymore? We have been a nation of consumers for the past decade, spending and borrowing to buy the gee-gaws and gadgets that our friends in the Far East have been so busy producing. But now, consumers are saving…they aren’t buying flat-screen televisions…or new cars…or much of anything for that matter.

And it goes without saying that since the housing bubble has popped, the one sector that was actually producing – the building of residential and commercial real estate – is failing miserably as well.

Caterpillar (NYSE:CAT) announced its results for the second quarter too. Profits were down 66%. In other words, while the banks were making money speculating with taxpayer’s money, Caterpillar was trying to make things and selling them to customers. Caterpillar not only makes things; it makes things that help other companies make things. Things with motors…big things…things that make noise and give off exhaust…things you use to dig holes and move dirt…things you need if you’re going to have a real economic recovery. Unfortunately for CAT, these things aren’t selling.

So what does this tell us? Well…it suggests that there is no real economic recovery at all. The real economy is suffering…sinking…and shutting down.

The banks are not earning their money helping Caterpillar expand. They’re making their money not because of a recovery, but because there isn’t one. In other words, they’re profiting from the financial stress of the early stages of a depression. There’s a post-crash bounce…and the government is sending a lot of money their way.

As for a real recovery – forget it. There’s no evidence of it. Unemployment is getting worse. Housing is still going down. Profits are going down. Those aren’t the things that presage a recovery…they herald a deeper, darker depression.

The depression darkens because people are not just being laid off – their jobs are disappearing. They do not get called back to work. Instead, they stay unemployed until they run out of unemployment benefits…and then the statisticians in Washington drop them off the unemployment rolls. Currently, the first batch of those people to reach the end of their benefits came this week. Last we looked, the Pennsylvania legislature was passing a law so they could continue drawing benefits for a few weeks more.

Unemployment, trade, defaults, foreclosures, bankruptcies, prices, manufacturing…you name it and you have to go back to the end of WWII to find similar numbers. Of course, at the end of the war, the wartime economy shut down. Millions of people who have been in uniform…or making tanks and airplanes…were suddenly out of work. Economists thought the economy would go right back into the Great Depression. Instead, it boomed.

But what was normal for so many years is not normal any more. Now, consumers are paying off debt faster than any time since 1952. The government, however, is making up for them. Goldman may no longer be able to push more credit onto the public; but it can push one heckuva lot of debt onto the public sector. Wall Street firms helped households ruin themselves in the Bubble of 2003-2007. Now they’re doing the same for the government, helping the feds raise money on a scale never seen before in human history.

The above is just an excerpt from Bill’s standout essay from this week. You can read it in its entirety here.

Bill also made the final speech at the AF Investment Symposium on Friday. “I’d like to start by thanking all the DR readers here,” he said to the audience, “you have my sympathies. You have to read 1,500 pages a year – and in ten years it’s been 15,000 pages.”

That’s right. The Daily Reckoning recently celebrated a birthday – our little publication turned 10 this month. We celebrated by “roasting” Bill at an intimate gathering at the Pan Pacific Hotel in Vancouver this past Wednesday night.

Addison Wiggin, started working on the DR in the early days of the Internet Age…when they weren’t quite sure how this ‘daily e-mail’ thing would work – but they knew it was something they had to try. Addison fondly recalled that in those days, he and Bill shared a tiny desk in an office in Paris, and every time Bill got up from the desk, he would knock the power cord out of Addison’s computer, erasing all the work he had done that day.

But the DR has come quite a ways since then. We have figured out the ins and outs of Internet publishing (for the most part) and we now have five international versions. Sometimes we are right, and sometimes our forecasts and musings are wrong…but that won’t keep us from publishing these daily reckonings. We hope you enjoy them.

Here’s to ten more years,

Kate Incontrera

Source: The Real Economy is Getting Worse

We’re attending a financial conference here in Vancouver. Yesterday was actually the tenth anniversary of the Daily Reckoning. A group of readers took your editor to dinner and toasted him.

He was flattered… and grateful for the attention.

But we’re not kidding ourselves. Readers come up to us at conferences and tell how much they enjoy reading the DR. We wait for questions about Quantitative Easing, the Trade of the Decade, the Empire of Debt or other of our important themes. Instead, what they want to know about is:

“How’s your gardener doing? What’s Maria doing in Los Angeles? Did you ever figure out what happened to your missing cows…?”

Readers know what’s important. They want to know more about what really matters.

Still, we are foot soldiers in the lonely battle against economic claptrap; we must march on!

Yesterday came more evidence that the depression is over. The Dow shot up 188 points. From a technical point of view, if you believe that kind of thing, it looks as though the rally has farther to go. We recall setting a target of Dow 10,000. Perhaps we will get there.

Oil traded at $67 yesterday. Gold rose to $954 and bond yields on the 10-year T-note rose to 3.7%.

All of this sounds vaguely inflationary… and vaguely bullish. Besides, Goldman (NYSE:GS) stock is rising. And as we all know, what’s good for Goldman is good for the country.

Wait… we’re kidding… right?

Yes, we are kidding. What’s good for Goldman is generally bad for the country. Goldman makes money by separating investors from their money. Nothing wrong with that; someone has to do it. But the big banks are most profitable when speculation is rampant and debt is growing. That is, when people are going further and further into debt… and speculating on rising asset prices. We know you don’t really prosper by borrowing and gambling. But that doesn’t make casinos unpopular nor lenders unlawful. Bankers, like undertakers, benefit from human frailty. At least, they benefit as long as the government bails them out. Otherwise, they fall victim to their own human frailty.

But this is a minority opinion. Most economists disagree with us. And there are so many of them… if all the economists who disagreed with us were laid end to end… it would be a good thing. They believe that the economy is stabilizing… and on its way back to normal. Trouble is, ‘normal’ ain’t what it used to be.

Wall Street banks are making money, ‘tis true. But they’re not financing new businesses… or factories. They’re not aiding the process of capital formation nor allocating capital in ways that will result in new jobs and new industries. Instead, they are refinancing old debts… and speculating on zombie assets.

This will not increase the real wealth of the planet. Instead, money just changes pockets. Which, of course, raises an interesting question; where did all this money come from? If Goldman’s pockets are fatter, whose are thinner? If the four biggest banks earned a combined $11 billion in the last quarter… who did they take the money from? Who’s got that kind of money?
Meanwhile, we found out this week that the feds have wagered an amount equal to 170% of GDP in their attempt to bailout the world (more below). Part of that money was used to buy Wall Street out of the investments that they didn’t want. Which ones were those? Well, the ones that didn’t work out.

In other words, no wonder the banks are making money.

But while the banks are making billions, cometh another report from another sector – manufacturing. Caterpillar (NYSE:CAT) announced its results for the second quarter too. Profits were down 66%. In other words, while the banks were making money speculating with taxpayer’s money, Caterpillar was trying to make things and selling them to customers. Caterpillar not only makes things; it makes things that help other companies make things. Things with motors… big things… things that make noise and give off exhaust… things you use to dig holes and move dirt… things you need if you’re going to have a real economic recovery. Unfortunately for CAT, these things aren’t selling.

So what does this tell us? Well… it suggests that there is no real economic recovery at all. The real economy is suffering… sinking… and shutting down.

And more thoughts…

*** The banks are not earning their money helping Caterpillar expand. They’re making their money not because of a recovery, but because there isn’t one. In other words, they’re profiting from the financial stress of the early stages of a depression. There’s a post-crash bounce… and the government is sending a lot of money their way.

As for a real recovery – forget it. There’s no evidence of it. Unemployment is getting worse. Housing is still going down. Profits are going down. Those aren’t the things that presage a recovery… they herald a deeper, darker depression.

The depression darkens because people are not just being laid off – their jobs are disappearing. They do not get called back to work. Instead, they stay unemployed until they run out of unemployment benefits… and then the statisticians in Washington drop them off the unemployment rolls. Currently, the first batch of those people to reach the end of their benefits came this week. Last we looked, the Pennsylvania legislature was passing a law so they could continue drawing benefits for a few weeks more.

We’ve mentioned John Williams and his excellent service called Shadow Government Statistics. He looks at the numbers and figures out how they are twisted and tortured… and then figures out what they would be if they were treated properly. Currently, the unemployment rate nationwide officially is almost 10%. But if you computed the unemployment numbers the way they did back in the Great Depression, Williams says one in 5 people is out of work. In some places the figure is as high as one in four.

In other words, the unemployment numbers are already beginning to look like those of the Great Depression. But that’s true of almost all the numbers. They’ve all got a ‘30s era look to them. And if you stopped water boarding them, they’d tell a similar story. Almost all the indicators are worse than any we’ve seen since WWII.

Unemployment, trade, defaults, foreclosures, bankruptcies, prices, manufacturing… you name it and you have to go back to the end of WWII to find similar numbers. Of course, at the end of the war the wartime economy shut down. Millions of people who have been in uniform… or making tanks and airplanes… were suddenly out of work. Economists thought the economy would go right back into the Great Depression.

Instead, it boomed. Those soldiers and their families had savings. They had pent up demand – they hadn’t bought a new car in 10 years… they were young… they got married… they had children… they needed baby cribs and houses. We remember going to look at one of the first major suburban developments as a child – Harundale – in Maryland, built by the Levitt company…

…Horrible place. But you could buy a house for peanuts… on credit. And it set the pace for the suburban consumer credit expansion of the next half a century.

But what was normal for so many years is not normal any more. Now, consumers are paying off debt faster than any time since 1952. The government, however, is making up for them. Goldman may no longer be able to push more credit onto the public; but it can push one heckuva lot of debt onto the public sector. Wall Street firms helped households ruin themselves in the Bubble of 2003-2007. Now they’re doing the same for the government, helping the feds raise money on a scale never seen before in human history.

As we said… no wonder they’re making money. Too bad.

Source: The Real Economy is Shutting Down

Just because a company like Caterpillar crushes its estimates, it doesn’t mean the business is humming along. It just means they beat the estimate.

That said, at a time like this, it’s important to figure out why the earnings come in better than expected. Were sales higher than forecast? Did margins improve? Was it due to a lower tax rate? Lower general and administrative costs (layoffs)?

There are a number of reasons why a company might spring a surprise. Let’s take a look at a few that recently reported stronger than expected earnings and see if we can figure out why it happened…

Yahoo! (Or Not)

On Tuesday, Yahoo! (Nasdaq: YHOO) doubled up on analysts’ estimates, notching earnings per share of 16 cents, versus expectations of 8 cents. That was on a non-GAAP (Generally Accepted Accounting Practices) basis, though. Using GAAP, the company earned 10 cents per share – a penny more than in the same period last year.

Behind the flashy headline numbers, Yahoo actually experienced a 13% decline in sales. It offset that with a $120 million decrease in sales and marketing expenses and $50 million less in general and administrative expenses (most likely due to layoffs).

In addition, the company’s gross and operating margins were both lower than the corresponding earnings period in 2008. So while Yahoo did beat its estimates – and even earned more per share than it did last year – it was all due to cost-cutting and firing employees.

Starbucks Brews Up Earnings… But Are They Real?

Despite a revenue decline of 6.6% during its fiscal third quarter, as all-important same store sales dropped by 5%, Starbucks (Nasdaq: SBUX) was still able to post a profit of $151 million or 20 cents per share. That beat EPS estimates by a penny and compared to a loss of $6.7 million during the same period a year ago.

To its credit, management was able to shave operating costs at company-owned stores from 42.1% of revenue to 41.9%. But the big change to this quarter’s income statement was the roughly $175 million in cost-saving, mainly by closing stores.

It took $51.6 million in restructuring charges this quarter, versus $167.7 million a year ago.

Starbucks also had an additional $33 million benefit, due to lower interest expenses, higher interest income, plus other items when compared to last year.

But even though the company swung to profitability, a quick comparison of this quarter’s numbers versus the same data from a year earlier shows that the real story behind the profitability was because of savings from closed stores.

Still, that’s not necessarily a bad thing. Starbucks did need to cut back ( as long as they dont cut the one by my office). And if the company can show increased profitability from existing (and any new) stores in the future, then its cost-cutting moves will prove fruitful.

Right now, though, a look at Starbucks’ numbers tells us that its recovery is still early in its development. Too early, in my opinion, to make for an attractive investment.

Delta Air Lines: A Tale Of Lower Revenues And Poor Traders

Here’s another example of how the mainstream media can mislead.

Some outlets reported that Delta Air Lines’ (NYSE: DAL) revenue shot up by 27%. But some journalists didn’t take the company’s acquisition of Northwest into account. Their combined revenue actually fell by 23%.

In addition, while Delta did report better than expected numbers, losing 24 cents per share, 5 cents better than consensus estimates, it would have turned a profit if not for losses suffered when trying to hedge fuel costs.

So in Delta’s case, the airline was actually operating in the black, despite lower revenues. That was until some traders got involved and bet the wrong way on fuel prices.

I don’t love the airline business, but if Delta can show me another quarter where it manages its business efficiently, it could be an interesting recovery play. Assuming some oil traders don’t mess things up, of course.

Clearly, this is just a quick look at these companies’ earnings reports. But even then, it reveals more information than the headline numbers you see reported in the press. Unless you drill into those numbers, they can be pretty much meaningless.

Hoping your longs go up and your shorts go down.

Source:  A Trio Of Twisted Numbers… And How To Get Beyond The Fluff

• The introduction of the new iPhone 3GS and a price cut for the 8-gigabyte iPhone 3G propelled Apple Inc. (Nasdaq: AAPL) to easily exceed Wall Street expectations for its third quarter ended June 30. The company reported a net income of $1.23 billion, or $1.35 a share, on revenue of $8.34 billion, compared to a net income of $1.07 billion, or $1.19 a share, on revenue of $7.46 billion in the same quarter last year. Analysts were expecting earnings of $1.17 a share on revenue of $8.20 billion. Apple, which could lead a second-half tech sector rebound, sold 5.2 million iPhones in the quarter, compared to a mere 717,000 in the same quarter in 2008. The company’s computer business edged up 4% year-on-year, with sales totaling 2.6 million Macintosh computers in the quarter. Apple sold 10.2 million units of its ubiquitous iPod, down 7% from the previous year’s quarter.

• The Coca-Cola Co. (NYSE: KO) yesterday (Tuesday) reported better-than-expected second-quarter profit, as growth in emerging markets such as India and China helped offset the impact of the stronger U.S. dollar. Second-quarter profit rose 43% from the same period last year to $2.04 billion, or 88 cents per share. Sales fell 9% from last year, to $8.27 billion, something the company attributed to a rise in the value of the dollar. But international sales volume gained 5% in the second quarter, even as U.S. sales fell 1%.

• The $3 billion bridge loan CIT Group Inc. (NYSE: CIT) may not be enough to keep the lender out of bankruptcy, according to a filing with the Securities and Exchange Commission SEC. With $1.7 billion in debt payments due by year’s end, and another $8 billion coming due in 2010, analysts at CreditSights have said the company may need about $6 billion to avoid bankruptcy protection, the Wall Street Journal reported.

• Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program (TARP), said yesterday (Tuesday) that Treasury officials have not done enough to ensure American tax dollars are being used appropriately, CNNMoney reported. The TARP Czar said the Treasury should require banks to report exactly how they’re using their bailout dollars. Barofsky also wants Treasury to report the actual worth of the assets it has purchased via the bailout. The inspector general’s office has launched 35 criminal and civil investigations into a range of allegations from accounting and securities fraud to insider trading and public corruption.

• Caterpillar Inc. (NYSE: CAT) stock jumped more than 7.5% yesterday (Tuesday) after the company boosted its 2009 profit forecast. Second-quarter profit tumbled 66% to $371 million, or 60 cents per share, but the company said it saw evidence that government stimulus plans, particularly in China, are beginning to have an effect. Caterpillar stock surged $2.83 a share, or 7.72%, to close at $39.48.

• Investment management firms BlackRock Inc. (NYSE: BLK) andState Street Corp. (NYSE: STT) beat and missed Wall Street expectations in the second quarter. BlackRock reported a net income of $218 million on revenues of $1.03 billion, or $1.59 a share for the quarter ended June 30, down from last year’s net income of $274 million, or $2 a share. Analysts at FactSet Research were expecting BlackRock’s earnings to be $1.58 a share on revenues of $1.01 billion. Meanwhile, State Street posted a net loss of $3.18 billion, or $7.12 a share on revenues of $2.12 billion. That compares to a net income of $548 million, or $1.35 a share. Analysts were expecting earnings of 97 cents on revenues of $2.16 billion.

• Merck & Co. (NYSE: MRK) may consider partnering with another company to invest in the consumer-health operations it will inherit with its planned purchase of Schering-Plough Corp. (NYSE:SGP) Chief Executive Officer Richard Clark said in an analyst conference call yesterday (Tuesday). “Certainly there will have to be an investment in the consumer business,” Clark said, adding that the drug maker is now considering whether “we do it alone or can we do it with a partner?” Clark later said in an interview withThe Wall Street Journal that is was too early to say which direction Merck was leaning.

• A tough advertising market led to a decline in sales for Yahoo Inc. (Nasdaq: YHOO), but the search giant still managed to beat Wall Street estimates. For the quarter ended June 30, Yahoo reported a net income of $141 million, or 10 cents a share on revenues of $1.57 billion, compared to a net income of $131 million, or 9 cents a share on revenues of $1.79 billion. Wall Street estimates called for average earnings per share of 8 cents and revenues of $1.14 billion.

Source: Investment News Briefs Wednesday, July 22, 2009

Take Caterpillar (NYSE: CAT), for example. With a history dating back to 1925, the company is now the top manufacturer of construction, mining, and forestry equipment, plus industrial turbines and engines for machinery and power generation systems. Whether it’s construction, agriculture, energy, marine, or infrastructure, Caterpillar’s presence is splashed across several sectors.

It’s no surprise, therefore, that its quarterly numbers are always keenly anticipated and thoroughly scrutinized – not just because it’s one of America’s leading firms, but because it’s also a key indicator of economic health.

And its latest batch of results don’t bode well…

Caterpillar’s Second Quarter Crawl

Back in April, my colleague Karim Rahemtulla noted the importance of Caterpillar’s performance as a barometer for the wider economy.

It came as the company reported its first quarterly earnings loss since 1992, as profits sank by $112 million on a 22% drop in sales.

And the second quarter proved to be a struggle, too…

• Revenue: Plunged by 41% to a shade under $8 billion, led by a 43% drop in equipment and 32% fall in engine sales. It was the third straight month of equipment sales declines. By region, machinery sales tanked by 51% in North America… 61% in Europe… 47% in Latin America… and 25% in Asia-Pacific. Large equipment sales are Caterpillar’s biggest revenue generator.

• Profit: Got whacked by 66% – $371 million (60 cents per share), compared with $1.1 billion ($1.74 per share) in Q2 2008. This was due to falling demand for its products in the midst of a recession, but also from less obvious factors like lower commodities prices (and consequently profits) at some of Caterpillar’s key mining customers.

To see results like this, you’d think the company’s shares would be getting walloped. They’re not. The stock ended today up $2.81 (7.9%). And this month overall, the stock is up 17.9%.

And this highlights another key point: Earnings season is nuts.

Bring Out The Arbitrary Analysts And Fickle Investors

Remember that “artificial” good news I mentioned earlier?

With companies terrified of missing their earnings forecasts and seeing a subsequent stock drop, estimates are generally conservative. Very conservative.

With Caterpillar, for example, the average estimate from Thomson Reuters and Bloomberg analysts was 22 cents per share. The company actually earned 60 cents. Similarly, Caterpillar projects its full-year earnings to slide into a chasm-like range between $1.15 and $2.25 per share. Again, this blows away the $1.01 per share analyst estimates.

Do yourself a favor. Don’t pay any attention to analyst estimates at the moment – they don’t mean diddly. And take earnings reports for what they are – temporary catalysts that often don’t reflect the real story.

In April, Caterpillar CEO Jim Owens cited a “high degree of uncertainty” about the global economy, continuing, “It’s extremely difficult to know how our customers will respond during the remainder of 2009.”

If he doesn’t know, do you really think that analysts have a better idea? Or the investors who merrily pile on after the company beats arbitrary estimates?

Some of Caterpillar’s gains came courtesy of heavy cost-cutting measures (the company has shed 17,100 full-time workers since December and a further 17,000 contract and temporary workers), lower production, and a lower tax rate.

There is a bright side…

The “CAT Scan” Of The Global Economy

Even as the recession squashes demand for its products and a “great deal of economic uncertainty” exists, Caterpillar was able to raise its full-year earnings forecast from $1.15 per share to that range between $1.15 and $2.25.

As Owens states, this was due to “signs of stabilization that we hope will set the foundation for an eventual recovery.” He continued by saying that, “Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.” Owens is complimentary of China’s massive infrastructure spending plan.

An improved global outlook is crucial for Caterpillar, given that about two-thirds of its sales came from outside the U.S. in 2008, according to Bloomberg.

At the moment, however, Caterpillar says the global economy could fall by more than 2% this year, compared with the 1.3% drop it forecast in April. And its predictions aren’t random. Bloomberg says Caterpillar correctly forecasted the U.S. economic recession in October 2007 – two months before it officially began.

The company says the U.S. economy was still in recession at the end of the second quarter and anticipates another decline in the current three-month period before growth picks up towards the end of the year.

This supports the view that while the recession is easing, it’s not yet over. For example, the National Association for Business Economics’ just-released quarterly survey says…

• Companies reporting earnings losses outnumbered those with higher profits for the sixth straight quarter.
• More than two-thirds of the companies said they laid off workers during the second quarter, compared with a measly 6% that added jobs – the lowest in the survey’s 30-year history.
• And Reuters quotes the survey: “Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half of the year.”

Time will tell. Just be sure you get the full story beyond the headlines, the analysts’ estimates, and short-lived earnings reports in the meantime.

Source:   Earnings Reports: The Real Deal Behind Wall Street’s “Caterpillar Spin”

China’s voracious appetite for commodities drove the second-biggest monthly haul of crude oil and tripled aluminum imports, but very little steel, aluminum and coal went the other way.

“Industrial production is coming online and demand is rising. But sentiment may be tempered by the view that some of the material is being stockpiled and… consumption hasn’t risen as quickly as imports,” Ben Westmore, commodities economist at National Australia Bank, told Reuters.

Copper imports jumped 6.6% from March to April, to 399,833 tons; iron ore imports soared 9.4% to 57 million tons, and crude oil imports hit 3.93 million barrels per day, a 2% rise, customs data showed.

But China’s exports fell more sharply than most analysts had expected in April. The value of goods and services leaving the country was down 22.6% compared to last year, whereas economists had expected an 18% drop.

The drop in exports is leading some experts to speculate that China’s economy is being sustained solely by the $585 billion stimulus package the government is quickly deploying throughout the country. The stimulus program is heavily laden with infrastructure projects, explaining in part China’s huge demand for raw materials.

But some of that spending is spilling over into sales of construction equipment, much of it imported from the United States. Caterpillar Inc. (NYSE: CAT), the world’s largest maker of bulldozers and excavators, is among several companies already pointing an improvement in sales to China.

“March and April were pretty strong months for sales in China,” Caterpillar Chief Executive Officer James Owens said on an April 21 conference call with analysts.  Owens contends China’s stimulus spending for public works projects is working more quickly than in the U.S.

“When they say ’shovel ready,’ they mean nine weeks, not nine months,” he said.

Still, the drop in exports could put a chill on China’s imports of raw materials and construction products if consumption doesn’t pick up in the West.

“Although the downward trend is in line with our expectations the fall in exports is steeper than we anticipated,” Wang Xiaohui, an analyst at Sinolink Securities in Shaghai told Forbes.“Exports are likely to drop further in the near term as economic indicators in the United States and Europe, such as industrial output and retail sales, are not looking up.”

The U.S. trade gap with China increased to $15.6 billion from $14.2 billion from March to April. The gain in imports from China overshadowed an increase in Chinese demand for American-made goods that pushed U.S. exports to the highest level since October.

But the recent stock market surge and other economic data lead Wang to conclude that the lull in U.S. demand for China’s exports will be short-lived.

“In terms of exports, we’re looking at a better second half than first half, with the U.S economy stabilizing, which will provide support to China,” Wang said.

Source: China Imports Record Amounts of Copper and Iron Ore, but Exports Drop on Slack Global Demand

The identity of the bank that is alleged to have failed the bank stress test was not revealed.

The bank-stress-test findings were reported yesterday (Sunday) by CNBC.com, which said it obtained the information from a source that it did not identify. The source did not identify the company, CNBC.com reported.

“At least one firm – under the [bank] stress test assumptions – will require more capital,” the source said.

The bank-stress-test results were contained in a two-dozen-page report that the government released Friday. But the results had already been “conveyed” to the firms, meaning the bank in question is aware of the U.S. central bank’s assessment, according to the published report.

This round of bank stress tests was essentially a two-step process. The first step – outlining how the banks have been analyzed – was taken care of with the report released over the weekend.  The second step – releasing the results to the public – will be taken care of when the actual results are released May 4, which is one week from today (Monday).

Neither the U.S. Federal Reserve nor the U.S. Treasury Department would comment.

The bank stress tests have a very specific purpose. Financial institutions that are found to have inadequate capital will have six months to raise the money via the private sector. If that doesn’t work, the government has said the financial institutions will be eligible for an infusion of capital via the federal government’s so-called “Capital Access Program.”

U.S. Treasury Secretary Timothy F. Geithner said he would be open to banks repaying their Troubled Asset Relief Program (TARP) loans, as long as the availability of credit (borrowing) was not adversely affected.  As a Money Morning special report detailed last week, the credit markets don’t seem to be loosening up: Lending dropped by more than 20% from October 2008 to February 2009, despite initiatives to encourage such activity.

According to the conclusion of the report released over the weekend, “most banks currently have capital levels well in excess of the amounts needed to be well capitalized.”

However, as Money Morning has reported, the tests have become a “no-win” situation for the Obama administration.

“There are two things that are terribly wrong,” William M. Isaac, the Secura Group chairman who served as head of the Federal Deposit Insurance Corp. (FDIC) from 1981 to 1985, told CNBC.com. The first problem – and a big one – is the fact that the details were announced at all.

“I can’t imagine what Treasury was thinking when it made that move. It has been causing incredible angst in the markets,” said Isaac. “The second big problem is that the Treasury is directing the stress testing, apparently with direct involvement of the White House at the highest levels. Bank regulation by law is supposed to be carried out by the independent banking agencies without any political interference.”

Market Matters

As Money Morning reported Friday – in a Wall Street version of the old “he said/(s)he said” drama, Bank of America Corp. (BAC) Chairman and Chief Executive Officer Kenneth Lewis claimed that ex-U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. and central bank Chairman Ben S. Bernanke threatened to remove him from office if he backed out of the Merrill Lynch & Co. Inc. (SQD) merger or (publicly) discussed the mounting losses.

Paulson had previously testified that Lewis must have misinterpreted their comments, but then seemed to blame Bernanke for the threat (Translation: Paulson tried to throw Bernanke “under the bus.”).

New York Attorney General Andrew M. Cuomo has been investigating the activities surrounding the merger to determine why shareholders were kept in the dark about the financial “challenges.”

Shifting to autos, Italy’s Fiat SpA (OTC ADR FIATY) emerged as a potential major global player as it attempts to forge a partnership with (soon-to-be-bankrupt?) Chrysler LLC, and also has interest in buying General Motors Corp.’s (GM) Opel unit. Meanwhile, GM will be closing 13 production plants over the summer to trim inventory and seems likely to miss a $1 billion debt payment due June 1 as it too moves closer to bankruptcy protection.

How bad is GM’s plight: GM may close its Pontiac division after 82 years of operation, The Wall Street Journal and MarketWatch.com reported over the weekend.

While the earnings news of the week found plenty of winners and losers, ultimately analysts perceived a bit of “cautious optimism.”  Bank of America and Morgan Stanley (MS) failed to live up to the favorable showings by Wells Fargo & Co. (WFC) and other financials, though techs like Texas Instruments Inc. (TXN), Apple Inc. (AAPL) and International Business Machines Corp. (IBM), beat Wall Street expectations, and brought new hope that the downturn was nearing an end. (Watch for an updated “Hot Stocks” feature on IBM here in Money Morning later this week).

Unfortunately, Microsoft Corp. (MSFT) posted the first quarterly revenue decline in its 23-year history, though investors still cheered its ability to reduce costs during these challenging times for PC sales. McDonald’s Corp. (MCD), AT&T Inc. (T), and Ford Motor Co. (F) were among the diverse group of companies reporting better-than-expected results, while United Parcel Service Inc. (UPS), Caterpillar Inc. (CAT), and Continental Airlines Inc. (CAL) issued disappointing numbers.

Amazon.com Inc. (AMZN), the subject of a recent “Buy, Sell or Hold” feature here in Money Morning, bucked the negative trend facing many retailers and posted higher quarterly earnings and revenue.

Additionally, U.S. retailers J.C. Penney Co. Inc. (JCP) and Coach Inc. (COH) each expressed positive sentiment that sales activity seems to picking up.  Oracle Corp. (ORCL) snapped up Sun Microsystems Inc. (JAVA) for $7.4 billion after IBM chose to pass, and PepsiCo Inc. (PEP) is attempting to purchase two related bottling companies as corporate execs seek favorable deals in this environment.  Such merger-and-acquisition (M&A) transactions often signal boardroom confidence and also indicate that the “worst” part of a downturn may be over.

Oil prices surged above the $51-a-barrel level late in the week as traders overlooked the higher inventory levels and instead focused on some favorable signs that the economy may be closing in on turnaround mode.

With a six-week winning streak on the line, investors offered their best “clutch hitting” late Friday, pushing all major indexes to higher levels. Early in the week, after investors digested negative news from the likes of Bank of America and GM, prognosticators said the weekly stock-market winning streak was all but over. However, some better-than-expected earnings and economic reports brought out the “bulls” for one final run.  The Nasdaq Composite Index ended the week in positive territory, and the other equity indexes were virtually flat from last week’s closing levels (with the Dow Jones Industrial Average suffering a slight decline).

Economically Speaking

According to the International Monetary Fund (IMF), the global downturn will be far worse than previously expected.  For 2009, the IMF expects the world economy to contract by 1.3%, its first such decline in 60-years, with over 10 million employees losing their jobs.  Unfortunately, its projections for the United States are even more dire (-2.8% for the year), with domestic financial institutions suffering $2.7 trillion in losses, almost twice the IMF’s prior estimates from just six months ago.

While much of the economic data of the week confirmed the IMF’s weak projection, analysts found a few positive signs that the downturn very well may have bottomed out.  While both new home sales and durable goods orders declined in March, the results beat the weaker Street expectations and came in the aftermath of some (relatively) strong February numbers.

In another promising sign of stability within the housing sector, the median price of an existing home sold in March actually rose for the second straight month.  Still, the record unemployment filings last week revealed the ongoing difficulties facing job seekers amid these tight labor conditions.  Likewise, leading economic indicators, a predictive report, dropped for the third consecutive month and many economists expect the recession to last at least until late third quarter.

Weekly Economic Calendar

Source: Controversial Stress Tests Reveal Only One Bank Needs Capital, but Worries Remain

• A parade of bellwether U.S. companies reported disappointing earnings results yesterday (Tuesday) and cut their outlook for the future. Caterpillar Inc. (CAT) reported its first loss since 1992 and cut its projection for the full year by 50%. Pharmaceutical giant Merck & Co, Inc. (MRK) and chemical maker E.I. du Pont de Nemours & Company (DD) said profits fell 57% and 59% respectively, as both cut forecasts for the full year.
• After acquiring Citigroup Inc.’s (C) Smith Barney retail brokerage unit, Morgan Stanley (MS) is considering buying U.S. regional banks in a move to boost the company’s retail brokerage operations, MarketWatch reported, citing an article in the Nikkei newspaper. “We are looking for potential opportunities to buy a bank that has a presence in an important market in the United States,” Morgan Stanley’s Chief Executive Offer John Mack said in an exclusive interview.
• Continuing to reel from the shift of advertising to the internet, the New York Times Co. (NYT) reported a first-quarter loss of $74.5 million, or 52 cents a share, MarketWatch reported. Excluding special items, the company reported a loss of 34 cents a share as first-quarter revenue tumbled 19% to $609 million. The Times, like many newspapers and magazines, is having a difficult time coping with an advertising downturn.
• Computer spies were able to copy and siphon data related to the design and electronics systems of the $300 billion Joint Strike Fighter project, The Wall Street Journal reported yesterday (Tuesday).  The newspaper quoted current and former government officials as saying the intruders have repeatedly breached the Pentagon’s computer networks, making it potentially easier to defend against the plane.  The spies could not access the most sensitive material, which is kept on computers that are not connected to the Internet. Lockheed Martin Corp. (LMT) is the lead contractor on the Defense Department’s costliest weapons program.
• Senior officials at the Federal Deposit Insurance Corp. (FDIC) have privately discussed who might replace Citigroup Inc. (C) Chief Executive Officer Vikram S. Pandit if the embattled banking giant needs additional federal capital infusions, The Financial Times and MarketWatch both reported. The FDIC identified Chief Financial Officer Edward J. “Ned” Kelly III and ex-CFO Gary Crittenden as possible successors. However, the published reports also state that any initiatives to change Citigroup’s top management will be initiated by the U.S. Treasury Department.
• The U.S. Treasury Department’s plan to excise $1 billion of so-called “toxic” assets from the balance sheets of U.S. banks is vulnerable to all types of abuse and fraud and needs the protection of tough conflict-of-interest rules, government bailout watchdog Neil Barofsky said in a report released yesterday (Tuesday). Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program (TARP), said subsidies for public-private investment partnerships (PPIP) to buy assets could expose taxpayers to higher losses – without offering accompanying increases in the profit opportunities this program is supposed to create, Reuters reported. During the rest of this week, the Treasury Department is accepting applications from asset managers to manage public-private investment funds to buy the hard-to-value, illiquid securities that are backed by troubled mortgages still owned by banks.
• In a report released yesterday (Tuesday), The International Monetary Fund (IMF) says banks and other financial institutions face aggregate losses of $4.1 trillion in the value of their holdings because of a global financial crisis that is “likely to be deep and long lasting.” In that Global Financial Stability Report – which has become a closely watched barometer of the severity of the crisis – the IMF estimated that financial institutions around the world will have to write down about $2.7 trillion worth of loans and securities that originated in the U.S. financial markets between 2007 and 2010. That estimate is up from $2.2 trillion in the fund’s report in January, and is way up from its October estimate of $1.4 trillion, according to The New York Times. Conditions have especially worsened in the emerging markets – and particularly in Europe – where banks face more write-downs and may require fresh equity, even as companies attempt to refinance existing debt. The IMF said banks will endure two-thirds of the write-downs, but noted that pension funds and insurance companies also face steep losses.
• The Reserve Bank of India yesterday (Tuesday) lowered its key borrowing rate by 25 basis points to 3.25% and its lending rate by 25 basis points to 4.75%.”The further policy rate cuts affected as part of this policy should be a definite signal for banks to reduce lending rates,” RBI Governor Duvvuri Subbarao said at a press briefing.

Source: Global Investment News Briefs Wednesday April 22, 2009

For instance, a 5% to 6% contraction in first quarter gross domestic product (GDP) will look decent vs. the wrenching 6.3% decline the U.S. economy experienced in the fourth quarter. Mix in some still weak – but improving – corporate earnings season and there may be reason to hope that U.S. President Barack Obama’s prediction of an economic rebound in 2010 may not be off target after all.

Eddie Cohen, a market historian who is chief investment officer for Stavis & Cohen Financial, a Houston-Texas financial-management firm, points out that the U.S. stock market has endured three protracted bear markets since 1900 (1906-1921, 1929-1942 and 1966-1982) and sees evidence that the United States may be ensconced on one of those periods again.

While Cohen sees some positive indicators, he continues to advise that caution (or even cautious optimism) be the order of the day.

“Plenty of questions still need to be answered before we can proclaim an end to the bearishness and a definitive market recovery,” Cohen said. “At least, we have started to see some rays of sunshine on the horizon, and that is encouraging.  Still, this environment is not the time to be a hero.”

But there are three significant wildcards at play here that could keep the market from sinking into an even deeper malaise – and that could, in fact, be a catalyst for higher stock prices and perhaps even an improved economy in the months to come. Those three wildcards include:

• There’s an estimated $4 trillion in cash in investors’ hands on the sidelines – capital that could be drawn in to further pump up the markets, should the recent rally continue.
• The federal government has already committed to funding $11.6 trillion in stimulus initiatives, and the sheer magnitude of that government intervention could play a substantial role in determining just how long this downturn lasts – or how quickly it ends.
• Stocks are, in many cases, currently trading at levels not seen since the late 1990s, meaning the market is dangling bargains too enticing to ignore.

Cohen believes that investors need to remain cautious and to understand that market sentiment can literally turn on a dime, especially if the volatility levels remain high [there's some evidence that volatility has diminished somewhat in the past week, and is currently below what is usually expected for the start of the corporate earnings cycle]. However, the Texas investment advisor also foresees some potentially positive developments on the horizon and believes that patient long-term investors who are willing to ride out the short-term volatility may want to commit some money to stocks in profit from these low valuations.

Given that there is “an estimated $4 trillion in cash on the sidelines right now … as investors become more confident, some of these funds could potentially find their way into equities and help drive the markets higher,” Cohen said.

The Quarter That Was

When 2008 came to a close, investors hoped the nightmare had ended and some normalcy would return to the economy and the markets. It was not to be. During the first three months of the New Year, a $787 billion stimulus package, multiple blueprints for rescuing the nation’s banking system and a honeymoon period for a new presidential administration that was one of the shortest in U.S. history made it very clear that the nation’s economic nightmare was continuing.

Much of the data portrayed an economy in decline despite the promises by U.S. Federal Reserve Chairman Ben S. Bernanke’s that better times were coming. The U.S. Commerce Department initially reported that fourth-quarter GDP was down 3.8%, its worst showing in 27 years, though not as bad as many economists had projected. A few months later, however, Commerce Department analysts revised that statistic downward to 6.3% and confirmed that the recession had worsened.

Jobless statistics became the barometer for the nation’s declining economic health, as company after company announced major cutbacks. On Jan. 26 – in a single day so bad that it was labeled as “Black Monday” – about 75,000 jobs were eliminated ad the likes of Caterpillar Inc. (CAT), Sprint Nextel Corp. (S), Home Depot Inc. (HD), Texas Instruments Inc. (TXN), General Motors and others announced major job cuts. Even before that dark Monday, there had already been 170,000 job cuts announced that month – and that’s after a 2008 that saw the recession claim 2.6 million jobs.

“Some of the worst job losses are ahead of us, not behind us,” Wells Fargo & Co. (WFC) senior economist Scott Anderson told USA Today at the time.

One-time global giant Citigroup Inc. (C) fell briefly into penny stock territory and came within a heartbeat of nationalization as the U.S. government finally opted to inject more money into the former financial-sector stalwart. A late-quarter restructuring plan seemed to better position Citi.

Nor did the trouble stop with the banks. Two of the U.S. Big Three automakers – General Motors Corp. (GM) and Chrysler LLC – moved closer to bankruptcy as the government rejected the American carmakers’ plans for reorganizing. Indeed, the Obama administration even “suggested” GM’s CEO pursue other endeavors, and laid down serious guidelines regarding future intervention. Even so, bankruptcy may be unavoidable.

But then a funny thing happened on the way to Great Depression II. Citi, Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) each announced promising results for the first two months of the year, surprising investors and igniting a late-quarter stock market rally. In an interesting parallel development, a “surprise” announcement by Wells Fargo & Co. (WFC) last week added fuel to that already-existing rally in financial-sector stocks, and in the market in general.

Some confidence returned to the boardroom – at least within the healthcare sector – as major deals involving Merck & Co. Inc. (MRK) and Schering-Plough Corp. (SGP) ($41.1 billion) and Roche Holding AG (ADR: RHHBY) and Genentech Inc. (DNA) ($46.8 billion) moved forward.

Electronics retailing giant Best Buy Co. Inc. (BBY) reported better-than-expected profits as consumer activity suddenly picked up (at least, above the dismal levels of the fourth quarter). The credit markets began to thaw a bit as corporations issued new debt and the U.S. Federal Reserve offered up a plan to buy U.S. Treasuries as a way of keeping interest rates low.

Though the Dow Jones Industrial Average declined 13.3% for the quarter, March was its best-performing month since October 2002. The tech-heavy Nasdaq Composite Index declined 3.07%, but enjoyed a March that was actually its best month ever. The Standard & Poor’s 500 Index declined 11.67%.

Some of the late-quarter economic reports seem to reflect this brighter outlook. In manufacturing, for instance, factories continued to struggle as industrial production fell to the lowest level in almost seven years, though a favorable durable goods report offered some optimism as the first quarter came to a close.

Home sales likewise offered some cause for optimism, rising in February as buyers took advantage of low rates and a tax-break for first-time homeowners. Retail sales statistics were a bit better than expected – especially after removing dismal auto sales from the mix. And inflation – a much-feared foe with the level of government spending that’s taking place – remained well under control, even as talk of deflation also seemed to subside.

Stocks continued their strong run, even after the quarter closed. Since then, in fact, the Dow has rallied 6%, the S&P 8% and the Nasdaq 8%.

Sound Strategies to Follow No Matter Which Way the Market Moves

Nat Levy, a principal with Houston-based McNeil, Levy & Friedman LP, is a five-decade veteran of the financial-services sector, and has seen his share of uncertainty. In the near term, it rarely pays to prognosticate – so he doesn’t.

“I am unable to predict short-term market or economic movements and don’t know of anyone who can do more than guess at this,” Levy says.

Even so, at a time when many investors are talking about “new rules,” or “new realities,” Levy says it pays to stay the course.

The one prediction he will offer is that some investors will look back on miscues they made today with more than a little regret.

“Right now, we find ourselves in one of those “if only I had…’ periods,” said Levy.  “My one educated guess is that in five years from now we’ll look back and think “If only I had invested in this; if only I had remained invested in that, etc.’.”

Stavis & Cohen Financial’s Cohen points to the usual suspects like automakers and banks as industries that continue to face considerable challenges in the periods ahead.  While he sees signs of renewed housing activity in terms of new and existing home sales, he acknowledges that prices continue to fall each month, foreclosures are increasing, and the newly laid-off workers could exacerbate those trends.

Cohen – like Money Morning – believes that commercial real estate may be the next shoe to drop; vacancies are increasing, rents are under pressure, and banks may not be willing to loan large sums of money to related companies looking to refinance.

Because inflation could become a problem, Cohen says investors should have some exposure to gold in today’s environment.

“The unprecedented level of government intervention has added significant liquidity to the marketplace, but, ultimately may lead to higher levels of inflation,” he said. “Gold can serve as a potential hedge against such price pressures.  Additionally, as the country’s debt and deficit positions mount, the dollar could remain under pressure and gold can be viewed as an insurance policy against a weak currency and the uncertain times faced today and in the future.”

Cohen states that investors can invest in gold directly by purchasing bullion or through funds or exchange-traded funds – one being the SPDR Gold Shares exchange-traded fund, or ETF, (GLD) that track the price movements of the so-called “yellow metal.” His firm uses a manager who buys bullions and stores it in a vault, which he says gives his firm’s clients the opportunity to access a product whose price moves more in lockstep with the market price of gold, and is even more cost effective than gold funds or ETFs.

In terms of stocks, Cohen believes investors should consider small-cap shares.

“Historically, coming out of recessionary times, small-caps are among the best performing equity asset classes,” he says. “Granted, many of these companies may have struggled during the dire economic times as investors shun anything other than industry leaders. Now may represent a decent time for cautiously optimistic investors to again look at small-cap companies, particularly when combined with some exposure to gold as a hedge against renewed downside pressures on stocks.”

Cohen recognizes that the newly enacted government programs could prove helpful in jump-starting the U.S. economy – which should enable the recent upward move in stock prices to continue. In particular, he sees some successes in the Fed’s attempts to get corporations and municipalities borrowing again.

“The credit markets definitely are showing signs of life,” said Cohen. “In the first quarter, domestic companies issued over $350 billion in new investment-grade paper and interest rate spreads between [corporate bonds] and Treasuries are coming down. Likewise, according to Lipper, investment-grade [municipal bonds] were up 4% to 5% in the first quarter and investor demand for such offerings seems to be on the rise. In fact, the state of California moved up a recent sale of $4 billion in bonds by a day to accommodate the demand for what turned out to be one of the largest tax-exempt offerings since 2007.”

Mortgage-market distress could also create some investment opportunities for investors who do their homework, Cohen says.

“I am a firm believer that challenges create opportunities, and no products have experienced more significant challenges over the past few years than mortgage-related securities,” said Cohen. “Amid the subprime debacle and related credit crisis, all mortgage products have struggled and even the higher-quality paper is being priced as if it is a toxic asset. We use a fixed-income manager who has been buying up more stable mortgage-backed issues at what he perceives to be tremendous values because of the negativity that has enveloped the entire asset class.”

A market historian to the end, Cohen likes to return to what he knows best when attempting to analyze just where he believes the markets will head next.

“Dating back to 2000 through mid-March, the equity market lost about 3% in value, so history may suggest we are about halfway through what some would call a secular bear market,” Cohen said. “During such times, it is quite common to experience periods when markets really take off. In fact, during the last few weeks in March, equities rose over 20% and some investors have pointed to that move as evidence that the market had bottomed and the turnaround had begun. In reality, since October 2007, we have seen six rallies of various magnitudes.”

Source: After a Tough First Quarter, Investors Have Cause For Cautious Optimism

[Editor's Note: This look at the U.S. economy and stock market is the latest installment in a series of Money Morning quarterly reports that will examine such topics as gold, housing and oil. These reports will now be a regular feature at the end of each quarter.]

• Heavy equipment maker Caterpillar Inc. (CAT) said it will offer voluntary early retirement packages to about 2,000 workers. Age and length of tenure will determine who gets the offer. “Our intent is to provide eligible employees the opportunity to retire early as we expect significant declines in all geographic regions,” Sid Banwart, vice president of human services, said in a release.

• Canada recorded its first monthly trade deficit in December, its first in more than 30 years. The C$458 million deficit ($366 million) stems from “collapsing commodity prices and the deep dive in U.S. spending, especially on autos,” Doug Porter, deputy chief economist at BMO Capital Markets in Toronto, told Bloomberg. The country is the No. 1 exporter of oil and natural gas to the U.S., and overall exports fell 9.7% in December.

• Research in Motion Ltd. (RIMM) said its quarterly earnings would meet the low end of expectations. “You probably see big financial institutions cutting costs … and the consumer is just not getting a new handset,” James Cordwell, an analyst with Atlantic Equities in London, told Reuters. “It just shows they’re not immune to the economic slowdown like anybody else.”

• General Electric Co. (GE) said it signed a $1 billion contract to build 30 gas turbines in Saudi Arabia. Demand for power is growing in the Middle East, and GE said it has sold 188 gas turbines in 2008 and may sell about 185 in 2009, Bloomberg reported.

• Investors flocked to the U.S dollar yesterday, as it rose against the yen and euro in volatile trading. The dollar was bolstered by a flight to safety surrounding uncertainty about the final size and scope of the U.S. stimulus package. The general consensus was that the U.S. bank bailout plan unveiled on Tuesday covered the key areas needed to stem the hemorrhaging in the banking sector, Reuters reported.  In late afternoon trading, the dollar was up 0.3% against the yen at 90.53 yen. The euro was down 0.4% at $1.2848.

• General Motors Corp. (GM) is asking Sweden to guarantee $600 million in European Investment Bank loans to keep the Saab Automobile unit operating until it can be restructured for sale, Bloomberg reported, citing an anonymous source. The money, along with about $400 million (3.36 billion kronor) from GM, would allow Saab to introduce new models that would keep Saab competitive, and possibly prevent it from being put into administration or closed down. GM is trying to figure out what to do with Saab by Feb. 17, the due date for a progress report to the U.S. Treasury on how it will become viable so it can repay $13.4 billion in government loans by 2011.

• Gold soared to a 7-month high on Wednesday as investors bought gold and bullion-backed exchange-traded funds.  U.S. gold futures pushed through resistance levels just above $930 and rose $30.80 to $944.50 an ounce for April delivery on the COMEX division of the New York Mercantile Exchange. Most analysts are projecting gold to rise above $1,000 this year, as safe-haven buying and demand for gold as a hedge against inflation are expected to continue, MarketWatchreported.

• China will make its biggest ever investment in a foreign company by injecting  $19.5 billion in cash into mining group Rio Tinto Group (ADR: RTP), the Financial Times reported.  Chinalco, a state-owned aluminum producer will increase its stake in Rio Tinto to 18%, grabbing a minority share in some of its best mining assets and an issue of convertible bonds.  The deal will come under intense scrutiny from Australian politicians, who had imposed a 15% limit on Chinalco’s holdings.

Source:  Global Investment News Briefs Thursday, February 12th, 2009