India's Internet Prominence Increases

With its 277 million users,India has surged past the US to become the world's second biggest Internet user market behind China.Global Internet usage expanded 9% this year to reach 42% of the world's population,or 3 billion users,said Mary Meeker,partner at Kleiner Perkins,at the Code Conference in Rancho Mirage,California.
As developed markets become well-penetrated,it becomes more difficult to locate new Internet users and the emerging markets become more critical for growth of the medium.

Emerging Market Equities Outlook

A number of factors should be considered when evaluating the wisdom of equity investing in the emerging markets today.Andrew Swan,head of Asian Equities and portfolio manager with BlackRock,the world's largest money manager,lists the following:
1.Valuations are very,very defensive;
2.Most investors are out of the asset now;
3.The Fed is changing directions,getting more dovish.*
Improving momentum in the EM has just been for the past two months,said Mr.Swan.What you've seen is currencies appreciate and capital starting to come back to these markets.I do see growth weakening for the moment outside of Asia.*
Exports have been a very big headwind.If we do get a weaker dollar and higher materials pricing,global trade could start to pick up later this year,and that would benefit the EM,Mr.Swan pointed out.*
iShares Emerging Markets ETF (EEM),iShares Asia/Pacific Dividend ETF (DVYA)

The Fed's Rate Hike:What Was Behind It and What It Means

The Federal Reserve announced today that it is hiking the Fed Funds Rate,its iconic interest rate,by 0.25%.*
This action marks the end of an extraordinary seven-year period during which the Fed Funds Rate was held near zero,said Federal Reserve chair Janet Yellen at a post-announcement press conference.It reflects the Open Market Committee's confidence that the economy will continue to strengthen.The Committee judged that a modest increase in the FFR target is now appropriate.The labour market has clearly shown continued improvement.Overall,the Committee sees the risk to both the labour market and economic growth as being balanced.
Low energy prices and the appreciation of the dollar have weighed on inflation.Long-term inflation expectations remain anchored.In considering future policy decisions,we will carefully monitor progress towards our 2% inflation goal.The limit on inflation is due to transitory factors which we expect to slacken over time.An abrupt tightening could increase the risk of pushing the overheated economy into recession.*
It's important not to overblow the significance of this first move-it's only a quarter of a percent.The policy we judge to be accommodative.I continue to judge there is slack in the economy:the depressed level of labour participation and the high level of part-time employment.With rates close to zero,we have less room to respond to negative shocks.If we do not begin to slightly reduce the amount of accommodation,the odds are good the economy would overshoot our goals.
It doesn't mean we need to see inflation reach 2% before we move again.I'm not going to give you a simple formula for when we would move again.It could be on a variety of different forms of evidence,but I don't want to give a simple benchmark.We do expect inflation to be moving up,but we don't expect it to reach 2%.
All oil prices need to do for us to reach our inflation goal is stabilise.I certainly grant that we've seen a number of shocks,but we don't expect them to drop much lower;but to stabilise.Market expectations are for oil to stabilise for awhile and then move up.*
Were there an unexpected,persistent change in financial market conditions,we would need to take them into account.I do not think that expansions die of old age,but the economy does get hit by shocks,and there are significant odds that the economy hits some unforeseen shock that sends it into recession,and of course we would respond.Some European central banks have cut their overnight lending rates;we could study taking the overnight rates into negative territory.This is something we have contemplated-our options.It would be nice to have a buffer in the FFR,to have some ability to respond.We have a far more resilient financial system now than we had before the financial crisis,but we will be evaluating this carefully.*
For average Americans,the Fed's decision reflects our confidence in the US economy.We see an economy that is on the path of sustainable improvement.I hope they will take this to mean that conditions will continue to strengthen and job prospects will be good.Some consumer borrowing rates,some credit card rates (and adjustable rate mortgage and small business loan rates) may move up slightly.
Gradual rate hikes does not mean mechanical,evenly spaced hikes.We will be data-dependent,and as the conditions evolve,we will take them into account.*
We are constantly monitoring foreign economic developments;we understand that our fates are linked.We've made a commitment to the emerging market policy makers that we will communicate as clearly as we can to avoid spillover to the emerging markets.Our economy doing well is encouraging to other economies around the globe.We have taken care to avoid unnecessary negative spillover to the emerging markets,Fed chair Janet Yellen told the reporters.*
In sum,the Fed judges that the US economy is doing so well,they need to slow it down it a bit,so it doesn't overheat into high inflation and another recession.The way they do that is by raising the Fed Funds Rate,which raises the rates on certain consumer loans such as credit card balances and adjustable rate mortgages.

News Notes:Turkey's Rate Hike;Yahoo's Report

Turkey's central bank more than doubled interest rates January 29 in an effort to support the nation's currency,the lira.When you see the Turkish rate hike,you're gonna see their economy in decline,predicted CNBC market analyst Jim Cramer on the "Squawk On The Street" program.I think we could see a 2-6% downside based on the emerging markets.This is the way it is,and you just have to ride it through.It doesn't work.You end up with hyperinflation.When you're going down,it's a source of panic and worry.
We have to go through the handwringing.It's like an HBO drama.I wish I hadn't seen it happen over and over before.You're gonna see people come in and say Turkey is terrible,and they will sell.Twenty-two years ago we went through this cycle in Turkey.We weren't as connected as we are now.We didn't have shows like this to talk about Turkey.
This could be a 2-6% decline in the S&P.It's the arc of freaking out.*
Tech titan Yahoo reported a drop in revenue for the fourth consecutive quarter,with a drop in display ad prices.As well,Yahoo was affected when Alibaba growth slowed.
These are tech companies,not content companies.CEO Marissa Meyer's up against really big,great companies like Google and Facebook-two of the great arsenals of democracy.You can't go up against Facebook and Google without spending a fortune, master investor Jim Cramer pointed out.
On the plus side,Yahoo received 340,000 applications for employment,and 40% of its hires were engineers.There was big growth in its Tumblr site.There were also signs of improving display ad revenues,and Yahoo did beat its earnings estimate,while matching its revenue estimate.*
Jim Cramer's new book,"Get Rich Carefully,"is on sale now.*
Yahoo(YHOO),Google(GOOG),Facebook(FB)

Voices and Trends in Global Business,July 2013

Apple has been slowing iPhone production,said Brian Blair,a senior research analyst at Wedge Partners.We believe there's been a 20% haircut to iPhone production.Most of the component suppliers will stay the same,despite the cuts. Apple's been cutting because they've been watching market leader Samsung,which hasn't been selling as many smart phones as they thought they would.The market for high end smart phones is slowing,and Apple's been responding to that. The IMF has cut its annualised global growth forecast from 3.3% in April to 3.1% in July.Their forecasts for commodity prices,as well as Russian,Brazilian and Spanish growth,were also lowered.The cause of the revision is the downturn in emerging markets and the lengthy Euro-zone recession. Hong Kong property agents marched against government price curbs over the weekend.Up to 5500 agents demonstrated,appalled at the fact that Q2 real estate transactions were at a two decade low because of new taxes and marketing restrictions.About a third of estate agents stand to lose their jobs in consequence. The government measures are making things worse,according to Michael Kilbaner of Jones Lang Lasalle.The rise in property prices both reflects and impacts the strength of the economy.A lot of the movement is really in tier one and upper echelon tier two property.A two bedroom flat in Hong Kong goes for a half million US dollars,with a similar price in Beijing.

Issues in Money Management

BlackRock is the world's largest money manager,owning the iShares exchange traded funds.Consumer confidence is up,but manufacturing is down,BlackRock CEO Larry Fink noted.Private sector deleveraging is still going on.
I actually believe we can't find enough good investments.Bonds are no longer providing sufficient return.
Emerging markets are probably today relatively cheap compared to where they were a few years ago.
We need a mandatory savings policy in the US.Retirement is an even bigger issue than tax policy.We need to educate Americans about the longevity of life.
I'm not worried about retirees.I'm worried about the young people who are not putting money away for retirement.We have men and women who should have more choice-maybe with the mandatory savings plan as a backup.
Everything that we face today is more short-termism.Most market partcipants make money on the velocity of money,on quick trades.It's the 24/7 news cycle,the annual election of board members.Some form of elongation is needed.
One of the big issues is confidence.We're sitting with a trillion dollars in money market funds by corporations.
Five years is the average term of CEOs.You see more short term changes in their behaviour.
BlackRock is the largest shareholder of JP Morgan Chase,and is among the top three shareholders of many other firms.Less pressure on board members means better outcomes,Mr.Fink suggested.
BlackRock(BLK)

Citigroup:Growth and Reallocation

Citigroup is looking to double or triple the number of branches in China over the next few years.We think China will grow about 7%,transitioning from exports to a domestic-led economy,said Citigroup CEO Michael Corbat.That transition seems to be going well.
I'm excited to go to Japan.Their officials and executives are quite excited.It's gonna take some time to play out.They've got to try Abenomics to reflate the economy.
Japan's Prime Minister Shinzo Abe is jump-starting the economy through monetary easing and asset purchases.
We've identified 21 countries where we can get more out of the resources we have there.We'll move those resources to where we can get more out of them.It's a rebalancing,shifting them to places our customers and clients want to grow.The emerging markets, in particular the Asia Pacific,has been a big recipient of those shifted resources,Mr.Corbat noted.
Brazilian bank Itau has purchased Citigroup's Brazilian credit card unit for 1.37 billion dollars.
Citigroup(C)

Western Australia Drawing Increased Interest

Exxon Mobil and BHP Billiton plan to develop a vast natural gas field about 300 kilometers off the coast of Western Australia using a huge gas processing vessel for liquefied natural gas production.The floating plant would produce 6.7 million metric tonnes of LNG a year beginning in 2020-21,the companies said in a filing with Australia's environment department.
The Scarborough field is located in the Carnarvon Basin.The vessel proposed to operate there would employ Floating LNG technology,or FLNG.It is used when gas fields are too small or remote to make onshore facilities practicable.
In a related development,the US State Department has opened a commercial office in its Perth consulate.The office will match an expected surge of US companies looking to invest in Western Australia with local firms which can meet their needs as resource extraction activities ramp up in response to demand from emerging Asia.
Canadian real estate investment trust Brookfield Office Properties lists Perth as a high growth market,ahead of Boston and Vancouver.The REIT owns Brookfield Place in Perth and has a 50% interest in two other office buildings on St Georges Terrace.
Exxon Mobil(XOM),BHP Billiton Ltd(BHP),Brookfield Office Properties(BPO)

Voices and Trends in Wealth Management

We favour US equities to the emerging markets,said Kelvin Tay,Regional CIO for the Southern Asia Pacific at UBS Wealth Management.We like high yield corporate debt.We don't see a huge amount of risk.We're still positive on it at this stage,with an overweight on it.
Cyprus was a reminder that structural issues in Europe are far from over.We need to see that US growth is sustainable to the 3% GDP target that we have.We also need to see that China growth is achievable.
With strong US figures,the emerging markets will struggle for attention.Export numbers in Asia are sharply lower on sequestration in the US.
South Korean exports were worse than expected on the strong US dollar.Goldman Sachs says investors are buying Treasuries at fastest clip since 2009.
Global stocks have posted the best return of any investments for another quarter,but Stephen Wood,PhD of Russell Investments thinks it is unlikely that Q2 results will repeat the first quarter.There's a tug of war.This has been a very broad-based rally,but it also has a defensive character,too.Dr.Wood recommends a globally diversified,multi-asset portfolio constructed in a case-by-case,security-by-security way.
Carter Worth,Chief Market Technician at Oppenheimer,believes several stocks are fully priced,such as Johnson and Johnson and The Traveler's Companies.When does a stock become dangerous?We have a four-year bull market that has taken us to all-time highs.Markets don't normally go up 40-80%.Only four times has that happened.Go to cash,Mr.Worth advised.
Johnson and Johnson(JNJ),The Traveler's Companies,Inc(TRV)

Hedge Fund Advisor:Fighting and Grinding

You've got to watch Europe now,said Sarah Quinlan,founder and Chief Investment Officer of QAM.The IMF and EU are fighting.There was a joint national strike in Spain and Portugal.I think it's sort of a grind lower.Eventually the car runs out of gas.
I'm loving my sovereign bonds-obviously from the emerging markets and the US.
If they start a more entrepreneurial economy,they could start to grind out of it.The austerity is the wrong move.They'd better do something today.
Treasury Secretary Tim Geithner should stay through February to keep the market calm till we get through the debt ceiling.It's an overall anemic volume world that we're living in.
We are way overstaffed on Wall Street.Fewer partners were made at Goldman Sachs this year.I think it's a fundamental change.
QAM is a hedge fund advisory firm.Founder Sarah Quinlan is active in the 100 women in hedge funds peer advisory group.

Chief Market Strategist:What To Look At Now

There really is a sense that something very profound is happening in Spain,said Stephen Wood,PhD,Chief Market Strategist at Russell Investments.There's a sense they're on the edge of something big.It's the fourth largest economy in Europe.We're facing one of the first global stimulus packages in four years.
The UK is just chugging along as it always has.I would have to say the US right now has much stronger fundamentals.They may be better than China right now.Corporations have strong balance sheets.
You need globally diversified,multi-asset portfolios.The Federal Reserve is forcing people up the risk spectrum.I would be looking at emerging markets and corporate debt,Dr.Wood advised.
Stephen Wood conducts research on the economy,capital markets,portfolio strategies and investor behaviour.He interfaces with Russell's institutional clients and retail partners to communicate the firm's perspectives on the global market,investment process and portfolio management.He is also a prominent media spokesman for the company's views.

Investing in Emerging Markets

According to Nicholas Smithie,emerging markets strategist at UBS,the emerging markets have had a splendid decade.We know there is an overhang about sovereign debt.They are trading lower than 75% off other periods,pricing at distressed valuations.We think investors go for them for their high rate of domestic growth.
In the emerging markets,domestic consumption and infrastructure are really starting to take off in Thailand,Indonesia and the Philippines.Investor holding periods have become very short:they want all their returns all at once.Those in it for the long haul will benefit.
We think that Chinese equities have fallen to very low valuations,pricing in a hard landing.In the second half of the year,Chinese growth will come through.We'd be buying,Mr.Smithie advised.
China has just raised interest rates for the third time this year,a sign that growth is still so strong,even with the tightening measures already taken,the government is afraid of the economy overheating into more inflation.
UBS offers wealth management,asset management and investment banking globally,as well as retail banking in Switzerland.Founded in 1854,it is based in Zurich and Basel,Switzerland.UBS has offices in more than 50 countries.
UBS AG(UBS)

Global Commodity Crunch Concerning

A global commodity crunch is driving prices up with little relief in sight.Freezes in China,droughts in Russia and Australian floods,coupled with emerging market diets that are tending toward more protein and sugar,are generating costs that lead to civil unrest worldwide.
Citigroup says that corn and soybean prices will remain elevated for the next 6-12 months.U.S. corn and soybean production are down.Algerians are paying up to 30% more for staples.
Abdolreza Abbassian of the UN Food and Agriculture Organisation thinks we are entering a very precarious situation.We do not see any good news coming in from the crop side or the weather angle.In terms of prices,we are already as bad as 2008.Commodity exchange traded funds are also affecting prices as investor demand for shares continues to increase.
We would like rules and regulations and transparency by investors,Mr.Abbassian said.The weather will be the main driver in the months ahead.It is a very unpredictable and often unfavorable weather outlook,the FAO official noted.

Copenhagen Is Fast-Approaching

The European Union is gearing up for next month's conference on climate change in Copenhagen,at which a successor to the Kyoto Accords is to be agreed.In a summit last week,the EU found that by 2020,developing nations will need 128 billion dollars a year to fight climate change.The EU pledged to contribute 74 billion to a fund to assist these emerging market states.The amount each EU member gives will be determined by the abilities of the donors.
Norway was the first EU member to raise interest rates since the financial crisis began-a sign of economic strength.The U.K is holding its rates steady.Many,if not all,EU members are keen to keep stimulus measures in place.Substantial promises of aid to other countries may thus be viewed with some degree of scepticism at this time.

World Bank Predicts Shrinkage

The World Bank has joined other institutions in forecasting global economic shrinkage in 2009.Emerging markets will see growth drop to 2.1% from the 4.4% prediction of November 2008.A decline in exports,commodity demand and foreign investment is responsible for that.Even should growth resume a better pace,the problems created by shrinkage will continue as far out as 2011,the World Bank thinks.Emerging markets might need as much as 1.3 trillon dollars in aid to cover debt payments and current account deficits.Overall global growth is seen as contracting 1.7%,in the World Bank's view.It would be the first global contraction since World War II.