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Japan Shares Rise, Bonds Fall on G-7; Europe Stock Futures Gain

By Pratish Narayanan & Yoshiaki Nohara - May 13, 2013 2:43 PM GMT+0800
Article from http://www.bloomberg.com/news/2013-05-12/yen-falls-beyond-102-as-g-7-tolerates-drop-s-p-futures-decline.html

Japanese stocks climbed, bonds fell and the yen touched the weakest level since October 2008 as Group of Seven officials indicated they will tolerate a decline in the currency. European stock futures gained, while gold and oil slid.

Japan’s Topix Index (TPX) jumped 1.8 percent at 7:42 a.m. in London, as 10-year bond yields rose 11 basis points to 0.8 percent, the highest since Feb. 6. The yen was little changed at 101.65 a dollar after falling to 102.15 earlier today. Euro Stoxx 50 contracts were up 0.2 percent, indicating the region’s shares may rise for a fifth day. Standard & Poor’s 500 Index futures lost 0.3 percent after the measure closed at a record high last week. Spot gold and oil in New York sank 0.9 percent.

While signaling acceptance of the yen’s decline, G-7 policy makers said they examined Japan’s strategy and that they will monitor its impact on currencies. Data today showed China’s fixed-asset investment unexpectedly decelerated last month while industrial output trailed estimates. Italy, France and Iceland are due to sell debt today.

“Markets are prepared to back Japanese authorities’ attempt to reflate in terms of a weaker yen and expanding monetary base,” said Tim Schroeders, a portfolio manager who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The export sector from Japan will be an obvious beneficiary of that.”

The yen has weakened about 15 percent against the dollar this year as a leadership change in the Bank of Japan initiated unprecedented monetary easing. G-7 policy makers reaffirmed a February commitment to “not target exchange rates,” U.K. Chancellor of the Exchequer George Osborne told reporters May 11. Bonds fell, sending U.S. Treasury 10-year yields to 1.94 percent, the highest level since March 26.
Chinese Data

The Topix closed at the highest level since August 2008 as Toyota Motor Corp., the world’s biggest carmaker, climbed 3.8 percent. Nomura Holdings Inc. (8604), Japan’s biggest brokerage, surged 9.6 percent on optimism rising trading volumes will boost earnings. Nippon Telegraph & Telephone Corp. jumped 4.1 percent after forecasting profit that beat estimates.

The MSCI Asia Pacific excluding Japan Index sank 0.6 percent, as Chinese companies dragged Hong Kong’s Hang Seng Index down by 1.2 percent. Most of the declines came before China’s statistics bureau said fixed-asset investment excluding rural households in the first four months of the year increased 20.6 percent, compared with 20.9 percent in the first quarter. Production grew 9.3 percent in April from a year earlier and retail sales climbed 12.8 percent, according to the agency.
Aussie, Won

“The statistics from China are still looking soft and if there is not enough growth momentum from China, that’s going to affect Chinese-related markets like Hong Kong,” said Tim Leung, a portfolio manager who helps oversee about $1.5 billion at IG Investment Ltd. in Hong Kong.

The Australian dollar fell toward an 11-month low before data on business confidence and amid speculation the central bank will cut interest rates further to curb the currency’s strength. The so-called Aussie lost 0.4 percent to 99.90 U.S. cents. South Korea’s won dropped for a third day, falling 0.5 percent against the greenback to 1,111.78.

Gold declined for a third day in the longest slump since April, when the metal entered a bear market, as holdings of the SPDR Gold Trust, the biggest gold-backed exchange-traded product, resumed a drop and the dollar strengthened. Spot gold sank 0.9 percent to $1,436.18 an ounce.

Crude in New York dropped 0.9 percent to $95.21 a barrel, as the Organization of Petroleum Exporting Countries boosted output to the highest level in five months. Oil fell for a third day, the longest losing streak in four weeks.

To contact the reporters on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

Pratish Narayanan & Yoshiaki Nohara - May 13, 2013 2:43 PM GMT+0800
Article from http://www.bloomberg.com/news/2013-05-12/yen-falls-beyond-102-as-g-7-tolerates-drop-s-p-futures-decline.html

Investing: Hate banks? Get even and buy the stocks

By John Waggoner USA TODAY10:06 p.m. EDT May 9, 2013
Article from http://www.usatoday.com/story/money/columnist/waggoner/2013/05/09/bank-stocks-investing-waggoner/2148149/

Banks often bemoan that they are misunderstood and underappreciated. Why such hostility? Sure, they often charge high fees for important everyday services, like using the money you deposited with the bank. And, yes, they lend too much in good times and too little in bad times. And, well, there's the whole wrecking-the-economy-and-then-whining-about-the-burdens-of-regulation thing.

But we're not here to dwell on the negatives about banking. Nooo. Why? Because, looked at from a bank's point of view, the future looks fairly promising, and bank stocks are still a reasonable long-term investment. And if you really hate those fees and all the human misery caused by reckless lending, you can gain a bit of comfort by making some gains in their stocks.

The financial system came within a gnat's eyelash of collapsing in 2008, in large part because of shoddy mortgage lending. And, no, most of those shoddy loans weren't made to satisfy the 1977 Community Reinvestment Act. They were made to satisfy the thirst by borrowers who wanted big houses they couldn't afford. They were also made to satisfy the thirst of unscrupulous loan brokers for commissions, and by the thirst for Wall Street for packages of terrible loans.

After nearly five years of torture for the economy, however, things are looking pretty good for banks. "If you look around, people are buying houses; they're buying cars," says David Ellison, manager of Hennessy Large Cap Financial fund (HLFNX).

Existing home sales, for example, were 10.3% higher in March than a year earlier. And total vehicle sales in April rose 3.5% from a year earlier, for example, and Ford's sales rose 18%. More home sales and more car sales mean more lending, which is a bank's lifeblood.

Furthermore, there's a virtuous cycle in the current spate of mortgage lending, Ellison says. When a home is sold, a borrower is free from what was likely a burdensome loan, and the holder of the note has that potentially bad debt off its balance sheet. The new borrower, who qualifies under sound lending procedures, can afford the house at its current price, and the new lender has a decent asset on its balance sheet.

Furthermore, banks are no longer competing with shyster lenders who offer loans with little or no documentation, as they were during the housing bubble. For banks with good lending practices, it's a healthy and competitive business.

And, while mortgage rates are low, so are deposit rates — which are virtually zero. When interest rates do rise, the spread between deposit rates and loan rates will widen, as deposit rates never rise as quickly as loan rates do. "Banks earn a lot of money when the Federal Reserve is raising interest rates," says Anton Schutz, manager of Burnham Financial Industries fund (BURFX).

Many of the large money-center banks, such as JPMorganChase and Citibank, don't need rising rates. They have a growing market for initial public stock offerings as well as for mergers and acquisitions. And for smaller banks, there's the possibility of being bought out. Larger banks can grow their market share by eating the smaller ones, says Schutz.

Furthermore, many of the largest banks still sell for fairly low prices, relative to earnings. JPMorganChase (JPM), for example, sells for 8.75 times its past 12 months' earnings. Wells Fargo sells for 11.4 times earnings.

(The price-to-earnings ratio — price divided by earnings per share — is an indication of how cheap or expensive a stock is. Lower is cheaper. The Standard and Poor's 500-stock index sells for about 18.5 times its previous 12 months' earnings.)

When looking at a stock with a relatively low valuation, the first question to ask is why. Banks traditionally have lower P-E ratios than the S&P 500, but not by this much. One reason: They really haven't regained their reputation as solid, dependable institutions. (JPMorganChase, for example, recently took a $6 billion loss because of the shenanigans of a rogue trader, dubbed "The London Whale.")

Banks still need to increase their capital — the amount of cushion they have to protect against losses, says Ellison. And they need to get back into the concept of investing in businesses, not simply trading securities. "They got used to making money for no work," Ellison says. "You can't run banks like hedge funds."

At this point, most of the big banks have gone through a cleansing process — aided by taxpayers — and are now in the position of regaining their reputation and repositioning themselves for the future. Ellison says that choosing among the five largest money center banks is like predicting a race as the horses start out of the gate — so he simply owns all of them and intends to monitor them. Schutz likes Texas banks, in part because of the booming oil economy.

The average financial fund is up 28.1% the past 12 months, according to Morningstar, vs. 22.5% for the S&P 500 with dividends reinvested. If you're interested in owning bank stocks, the cheapest way is through an index fund, such as the Financial Select SPDR ETF (XLF) or the iShares Dow Jones U.S. Financial Sector ETF (IYF).

Burnham Financial Fund A, sold through brokers, has beaten 86% of its peers the past five years, although it has lagged this year. Hennessy Large Cap Financial has beaten 83% of its peers over the same time period, Morningstar says.

Bank stocks aren't for everyone. But if you want to recoup a few of those ATM fees — or maybe even some mortgage payments — a bank stock could be one way to get even.

John Waggoner USA TODAY10:06 p.m. EDT May 9, 2013
Article from http://www.usatoday.com/story/money/columnist/waggoner/2013/05/09/bank-stocks-investing-waggoner/2148149/