Stock Preacher

China’s stocks rose again last week driving the benchmark index to a fourth monthly advance, after Tsingtao Brewery Co. reported higher profit and copper prices jumped. “With the economy in recovery, we will see a turnaround in corporate earnings,” said Li Jun, a strategist at Central China Securities Holdings Co. in Shanghai. Still, he only expects a pick up in profits in the fourth quarter. The Shanghai Composite Index which tracks the bigger of China’s exchanges rose 7.75, or 0.3%, to 2,475.94. The measure added 4.4% in April, as record new lending and expectation that growth will be revived drove up share prices. The Shanghai Composite has jumped 36% so far in 2009; it is the 2nd best performer among 90 global gauges tracked by Bloomberg. The measure has advanced on optimism a 4 trillion Yuan (US$585B) stimulus package and record new loans will prevent a slump in the world’s 3rd largest economy.

Popularity: 3% [?]

Former US Federal Reserve Chairman Alan Greenspan recommends graduated capital requirements for banks to cut back their size.

“New regulatory challenges arise because of the recently proven fact that some financial institutions have become too big to fail as their failure would raise systemic concerns,” he writes in Friday’s Financial Times.”The solution is to have graduated regulatory capital requirements to discourage them from becoming too big and to offset their competitive advantage.”

Greenspan is widely blamed for allowing financial firms to outgrow government oversight and in October last year he acknowledged that he was partly wrong to resist the regulation of some securities. He said in Friday’s FT that while regulators could enforce collateral requirements, they could not fully forecast if, for example, sub-prime mortgages would turn toxic.

________________________________________________
Follow us on Twitter: http://www.Twitter.com/StockPreacher

Popularity: 3% [?]

US Treasury yields have moved South to the lowest levels since the ’40s, because investors are very fearful of this global economic downturn + the potential deflation on the horizon and have rushed to purchase the US government issued debt paper considered among the safest asset classes. The fact is that this may turn out to be the biggest investment bubble to date and may be on the edge of popping. According to a article in Barron’s today, the big risk to the Treasury market comes from the potentially inflationary impact of both the Federal Reserve’s extreme accommodative monetary policy, which sent short rates to zero +, and the huge fiscal stimulus slated to come from the US government this year. It is expected that it will take higher yields to attract investors, particularly foreigners, as the US Treasury works to fund an estimated deficit of US$1T + this year. Savvy analysts are saying “get out now”. Why, because other parts of the bond market are calling including municipals, corporate bonds, convertible securities, some mortgage securities and preferred stock. The average junk bond now yields 20%, compared with 9% at the start of 2008. Triple-A-rated Muni’s with 30-year maturities are yielding about 5.25%, almost double the yield on 30-year Treasuries. The yield differential between the two markets is unprecedented. Until this year, Munis almost always yielded less than US Treasuries because of their tax benefits. A Bearish stance toward US Treasuries and a Bullish one toward the rest of the bond market represents the consensus view. Most equity and bond analysts surveyed last month by Barron’s projected the US Treasury 10-year note would carry a yield of 3% or higher by the end of 2009. At the same time, it’s hard to find Bears on corporate bonds. It’s nice to be contrary. Sometimes, however, the consensus view is right.

Popularity: 6% [?]