ABRAHAM GULKOWITZabe@gulkowitz.com917-402-9039

2014 issue 5March 13, 2014

Crisis after Crisis… A series of crises, the latest being the ominous developments in the Ukraine and further evidence of disappointing growth in China, have rattled financial markets. Ofcourse, with all major central banks at amazingly easy policy stances, the bet continues to be that the latest uncertainties will also pass. That may be true once again. Butone must recognize that many of the serious flaws uncovered in each of the predicaments will linger for years to come and that the policy remedies have at best coveredup the fundamental issues without completely resolving them. Even in the U.S., the best of all major economies, the economy and financial markets still suffer from "lastingeffects" of the Great Recession and seem yet to be able to muster up enough momentum to get back up to previous robust growth rates, especially for job growth. And themassive easing itself is likely to have its own potential for unintended consequences. Serious and surprising weakness in emerging economies may also jeopardizegrowth trajectories for global recovery. The exposure emanates out of the greater vulnerability that world trade and growth have today from these super performingemerging economies. This is particularly true for China, which by now has a stronger impact on the world’s economy, supply chains, commodity markets and worldcurrencies. China is a key issue. Weaker growth, a complexity of debt issues, and awkward demographics, all combine to raise issues regarding the outlook. China’s debtsare troubling – and not just because they’re alarmingly big. Amplifying the concerns is the complexity of those debts. That’s the trouble with China’s lengthening “creditchains”. And in Europe, markets roared back as the euro crisis seemed to recede in the face of policy support. Yet basic job growth seems to be far behind.Unemployment is undermining many countries in the EU, not just massive debt levels. The unemployment is particularly severe for most of the younger age groups.Fertility rates are very low, and life expectancy keeps rising -- trends that underpin the conundrum of demographic ageing. Even those countries performing relatively wellare retaining a cautious stance about future prospects, and those performing poorly are still short of new ideas -- and, in many cases, the adequate financial wherewithal --to alleviate weak growth prospects..

China’s currency drop  marks seismic shift

China Weakens YuanChina's central bank weakened the daily referencerate for its currency against the U.S. dollar by thelargest percentage in more than a year and half asit continues to fight capital inflows.China’s yuan depreciated the most on recordagainst the dollar as investors speculated thecountry’s central bank will widen the currency’strading band.

For the entire 2013, U.S. real GDP increased1.9%, compared with an increase of 2.8% in 2012.

Ukraine flares up into major superpower crisisOver the past few days, Western attention hasshifted from violence on Kiev streets and the direstate of Ukraine's economy to the threat of aRussian military invasion. While all these issuesare important one key aspect of the crisis thatremains largely overlooked is the failure of theTurchinov government to consolidate power andstabilize the fragile and fragmented country.

Russia spends $billions supporting its roubleMonday’s move was one of Russia’s largest foreigncurrency interventions on record and is equivalent to2.3% of $493bn its FX reservesSevere weather across much of the

United States took a toll on shoppingand consumer spending in recentweeks, leading to slower economicgrowth or outright contraction in someareas of the country, the FederalReserve said

Worries regarding'unintended consequences' of QEPhiladelphia Federal Reserve President CharlesPlosser is "very worried" about the potentialfor unintended consequences of the Fed'smassive quantitative easing program. Plossertold CNBC that the U.S. was still sufferingfrom "lasting effects" of the recession and"may never return" to its previous growthrates—and warned that policy should not beton growth returning to previous rates, saying itcould be "many, many years."

Corporate default ends Beijing's 'implicit guarantee'

China and Ukraine worries hit markets

US to release oil from strategic reserveTest comes amid heightened tension over Crimea

A significant number of economists havedoubts about the European Central Bank'sview that deflation is not a threat and thatthe recovery will take hold without anymore action, a Reuters poll showed, andthey say more stimulus is needed.

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In This Issue

Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.

• The Likelihood of Unlikely Events... (pg 5)

• Go Figure… (pg 6)

• You Can’t Handle the Truth… (pg 7)

• U.S. Job Growth… (pg 8)

• More Job Data ... (pg 9)

• Households… (pg 10)

• Enlightenment… (pg 11)

• The Return to Normal… (pg 12)

• Credit … (pg 13)

• Pumping Iron … (pg 14)

• A New Geography of Business… (pg 15)

• The DNA of Business… (pg 16)

• Real Estate and Construction… (pg 17)

• Will Life Ever be the Same? (pg 18)

• Crisis after Crisis… A series of crises, the latest being the ominous developments in the Ukraineand further evidence of disappointing growth in China, have rattled financialmarkets. Of course, with all major central banks at amazingly easy policystances, the bet continues to be that the latest uncertainties will also pass.That may be true once again. But one must recognize that many of theserious flaws uncovered in each of the predicaments will linger for years tocome and that the policy remedies have at best covered up the fundamentalissues without completely resolving them. Even in the U.S., the best of allmajor economies, the economy and financial markets still suffer from "lastingeffects" of the Great Recession and seem yet to be able to muster up enoughmomentum to get back up to previous robust growth rates, especially for jobgrowth. And the massive easing itself is likely to have its own potential forunintended consequences. Serious and surprising weakness in emergingeconomies may also jeopardize growth trajectories for global recovery. Theexposure emanates out of the greater vulnerability that world trade andgrowth have today from these super performing emerging economies. This isparticularly true for China, which by now has a stronger impact on the world’seconomy, supply chains, commodity markets and world currencies. China is akey issue. Weaker growth, a complexity of debt issues, and awkwarddemographics, all combine to raise issues regarding the outlook. China’sdebts are troubling – and not just because they’re alarmingly big. Amplifyingthe concerns is the complexity of those debts. That’s the trouble with China’slengthening “credit chains”. And in Europe, markets roared back as the eurocrisis seemed to recede in the face of policy support. Yet basic job growthseems to be far behind. Unemployment is undermining many countries in theEU, not just massive debt levels. The unemployment is particularly severe formost of the younger age groups. Fertility rates are very low, and lifeexpectancy keeps rising -- trends that underpin the conundrum ofdemographic ageing. Even those countries performing relatively well areretaining a cautious stance about future prospects, and those performingpoorly are still short of new ideas -- and, in many cases, the adequatefinancial wherewithal -- to alleviate weak growth prospects. (pg 1)

• In This Issue (pg 2)

• Dislocation, Dislocation… (pg 3)

• Engines of GrowthEasy money and the timing of the Fed’s policy shift continue to dominate across the globe. But weaknesses in significant emerging economies have also become more evident. Very obvious financial vulnerabilities, repercussions from various political stalemates and serious geopolitical concerns are aggravating the problems of clearly insufficient growth in the world economy. And let’s not forget that many of the challenges cannot be resolved easily … (pg 4)

Contact information:

Abraham Gulkowitz

phone: 917-402-9039 email:   abe@gulkowitz.com

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Dislocation, Dislocation, Dislocation

Growing signs of weakening Chinese demand forcommodities are filling a void created by murkyeconomic data and sparking a selloff in the country'scurrency, its stock market and in the coal, copper andiron ore it buys.

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March 13, 2014

Engine Drivers…

Weak growth data hide Japan's underlying strengthsFourth-quarter GDP rose a weak 1.0% from the previous quarter(seasonally adjusted, annual rate). The impending three percentagepoints rise in the consumption tax on April 1 prompted stronghousehold consumption, with buyers taking advantage of before-taxprices. However, this still fell short of the 4-5% leap seen ahead ofprevious rises in the national sales tax -- though consumer durablesdid jump 17%, consistent with the prediction of tax-boosted buying.Japan's economy watchers' assessment of current situation and

expectations continued to deteriorate in February, survey data fromthe Cabinet Office showed Monday. The index that measuresexperts' views of the current condition of the economy dropped to53 in February from 54.7 in January, marking the secondconsecutive fall. Likewise, the outlook index, which reflects theassessment of future economic situation in Japan, fell to 40 inFebruary from 49 in January. The index has now fallen for the thirdmonth in a row.

Turkey’s consumer confidence weakened forthe third consecutive month in February, withthe index dropping to 69.2 from 72.4 inJanuary, the lowest score since February 2010when it was 68.6. All four sub‐indicesdeclined. The index assessing households’sentiment about the possibility of saving thismonth declined the most, dropping 15.8% to22; followed by the index gauging consumers’view on the general economic situation, whichfell 3.9% to 90.4.

The China central bank seems set on bashingspeculators betting on a stronger yuan,without changing the currency’s long-termappeal. The trick is to target low volatilitythat fuels trades. But it’s a fine balancing act– and risks rewarding those who werebetting on a China downturn.

India’s GDP Growth Slows as Interest-Rate Increases Dim Outlook India’s economic growth slowed last quarter, holding below 5 percent and denting the Congress party’s chances of extending its decade-long rule in elections due by May.

Greek Yields Fall Below 7% as Crisis Source Regains Confidence Four years after threatening to splinter Europe’smonetary union, Greek bond yields are back below 7percent as signs Europe is putting the debt crisisbehind it boost demand for the region’s assets.

China extends run of double-digit military spending increasesDefence spending will rise 12.2% in 2014 toRmb808bn, continuing an almost unbrokenstring of double-digit annual increases overthe past two decades

China will struggle to hit even modest growth targets…

The European Commission's latest economic forecasts includeupward revisions to its GDP estimates this year in many of the EU'sCentral and East European (CEE) economies, where growth rates areexpected to be among the fastest in the EU. Stronger recoveries inthe Central Europe (CE) region in particular, driven by a pick‐up indomestic demand, are a key factor underpinning favorable investorsentiment towards the region, at a time when Emerging Europe isbearing the brunt of the sell‐off in emerging markets (EMs). Theweakness of the Russian ruble, which has been exacerbated bythe escalation in geopolitical tensions over Ukraine, and thepersistent vulnerability of the Turkish lira are the mostconspicuous examples of the recent shift in market concernsaway from Emerging Asia and towards Emerging Europe.

Ukraine’s international bonds declined for a seven consecutive week as the political standoffbetween Russia and western governments over the Black Sea Crimea region continued. The $1billion of Eurobonds due in June 2014 fell 1.3% to 91 cents on the dollar from 92.35 yesterdaywith the yield climbing by 6.5% to 49.633%. The Ukraine’s benchmark stock index (UX)retreated 0.8%, extending this week’s drop to 4.3%. In contrast, the country’s currencystrengthened 1% to 9.11 per dollar.

Spanish Central Bank Joins Chorus of Concern Over Euro's StrengthECB May Ease Policy if euro's Strength Continues to Curb Inflation Says Spanish Central Bank Chief

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March 13, 2014

The Likelihood of Unlikely Events

Lebanon's new government will bolster HezbollahLebanese factions will continue talks today on remaining differences over thenew government's draft policy statement. The negotiations come amid formerPrime Minister and Sunni leader Saad Hariri's announcement that he mightreturn to Lebanon before presidential elections scheduled for May. Hariri hasbeen living outside of the country for more than two years for securityreasons. On February 22 a suicide car bomb targeted a Lebanese Army post inHermel, in the latest attack by an al-Qaida-linked group in retaliation forHezbollah's role fighting alongside the Assad government in Syria. Hariri andhis allies in the 'March 14' coalition have repeatedly called on Hezbollah towithdraw its fighters from Syria, in line with the previous government's self-declared disassociation policy on the Syrian war.

Growing geopolitical tensions prompt risk aversion

Growing tension in Ukraine and Russia dampened investors’ riskappetite, weighing on global stocks and sending the Japanese yenand the Swiss franc higher amid increased demand for safe‐havenassets. Worries over geopolitical uncertainty hit Europeans sharesespecially hard…

West scrambles to counter RussiaAmid western condemnation, Russia tightens its grip on Ukrainian peninsula as rouble and equities take a batteringCrimea spillover risk will rise as Kiev strugglesTensions in the peninsula have escalated over the past days with clashesbetween ethnic Russians and Crimean Tatars…

Russian shares tumbled after Crimea’s parliament voted in favor ofbecoming part of Russia.

Privacy concerns may hinder US 'financial warfare'Details were widely reported today about Operation OpticNerve, in which UK intelligence collected images frompersonal webcam communications delivered via Yahoo,sparking renewed concerns about privacy. Since theSeptember 11, 2001 terrorist attacks, the US governmenthas explored innovative means to starve terroristorganisations and states of necessary financialresources. Many of these initiatives have had limitedsuccess. However, the fact that the largest exchange ofbitcoin, a digital currency accused of being a mechanismfor illicit funds, filed for bankruptcy protection today,could lead to greater use of financial mechanisms in USoperations.

Russia's Central Bank Lifts Key Rates UnexpectedlyRussia's central bank raised its key interest rate unexpectedly by a massive150 basis points on Monday, as rising concerns over the escalating crisis inUkraine took the ruble to record lows against the U.S. dollar and caused thestock market to plummet. The Bank of Russia lifted its lending rate to 7.00percent from 5.50 percent, citing rising risks to inflation and financialstability.

Developed economies are less resilient to an emerging-marketshock than they were in the 1990s, when crises from Thailandto Russia rattled investors without triggering a globalrecession. That’s according to an 81-page study released March 5 byMorgan Stanley economists and strategists. They estimate a 1990s-styleslump in emerging-market demand would create an average drag of 1.4percent for four quarters on the growth of the U.S., while the euro area andJapan probably would be tipped into recession. Reasons for the greatervulnerability include the fact that developing markets, and especiallyChina, now have a stronger impact on the world’s economy, supply chainsand trade. Emerging economies account for about half of global grossdomestic product, up from 37 percent in 1997-1998. Developed economiesare also more exposed to their smaller counterparts via exports, corporaterevenue and banking, and the financial crisis of 2008 means they areweaker now than two decades ago…

DANGER in the delay: A delay may be justified, but a delay in return to more normal central bank policy settings also carries dangers…BIS economists said there were risks from markets focusing too narrowlyon certain aspects of Central Bank forward guidance and from centralbanks themselves potentially becoming too worried about markets'reaction, to the extent that it could delay a return to more normalpolicy settings. This could "raise the risk of an unhealthyaccumulation of financial imbalances," the report said.

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March 13, 2014

Go Figure…Select Market Considerations

Risk of global 'secular stagnation'may be risingAs the global recovery continues at atepid pace, concerns have risen thatdeveloped economies could exit the'Great Recession' only to enter a periodof 'secular stagnation'. The idea,endorsed by such high-profileeconomists as Larry Summers and PaulKrugman, relies on Keynesian intuitionthat demand is currently insufficient tomatch idle capacity, boost economicgrowth or lower unemployment. Indeed,more than five years after the end of theglobal financial crisis, GDP growthacross advanced economies is weak,unemployment stubbornly high andinflation worryingly low. Rising incomeinequality and foreign reserveaccumulation are contributing to lowerconsumption and excess savings at theglobal level, which has dampened theimpact of historically low interest rates.

CHINA EXPORTS: Many believe that theexport growth data are distorted --- likely inthree different ways:(1) exporters tend to rush their production andshipments ahead of the Chinese New Year,creating a slump for February; (2) this year theChinese New Year arrived earlier, making theFebruary figure look even weaker; and (3) therewas a considerable amount of falsified invoicein exports last year for carry-trade.

Emerging markets output growth slows to five month low in FebruaryBusiness activity across emerging markets expanded in February at the slowest pace in five months, weighed down byweaker manufacturing in big developing countries such as Russia and China, a survey showed on Thursday.

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March 13, 2014

YouCan’t Handle the Truth…Let's Take the “Con” out of Economics

A new CBO report projects that the ACA willcost $2 trillion, and 2.5 million jobs, over itsfirst decade.

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U.S. Job Growth

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March 13, 2014

More Jobs Growth Data

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March 13, 2014

Households – Brave New World

Threat to recovery:

Americans Shut Out of Home Market

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March 13, 2014

Enlightenment

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The Return to Normal ?

Household wealth in the U.S. increased from Octoberthrough December, as gains in stock portfolios andhome prices boosted Americans’ finances. Net worthfor households and non-profit groups rose by $2.95trillion in the fourth quarter, or 3.8 percent from theprevious three months, to a record $80.7 trillion, theFederal Reserve said today from Washington in itsfinancial accounts report, previously known as theflow of funds survey.

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March 13, 2014

Credit Matters-Know RiskMany Excel in Strategy, Few in the Management of Risk

Portugal Readies Bond Buyback asMoody’s Says Debt Load a RiskPortugal is due to buy back bonds due inOctober 2014 and October 2015 today to easedebt repayments as the nation approaches theend of its international bailout program.Portuguese two-year notes rose for a fifth daybefore the buyback auctions, which arescheduled for 10:30 a.m. London time. Thereare 5.9 billion euros ($8.1 billion) of the 3.6percent 2014 bonds outstanding and 9.2 billioneuros of the 3.35 percent 2015 securities,according to debt agency IGCP. With the endof its 78 billion-euro rescue program from theEuropean Union and International MonetaryFund approaching on May 17, Portugal isseeking ways to ensure it can regain full accessto debt markets. While it has raised 6.25 billioneuros selling bonds through banks this year, thenation’s debt and growth outlook is still aconcern, Moody’s Investors Service senioranalyst Kathrin Muehlbronner said yesterday.

China’s Subsidies End Prompts Forecasts for Slower GrowthChinese carmaker may be getting some bad news as itprepares to start selling in the U.S. next year. A plannedreduction in government subsidies and a phase-out ofinterest-rate controls threaten to raise costs for it andthousands of companies across China. Less than adecade after surging wages began forcing manufacturersto cheaper countries, President Xi Jinping is preparing todismantle a web of subsidies that began under DengXiaoping in the 1980s. The measures could slow averageannual growth to as low as 3 percent through 2022 from10 percent in 2010. They also will mean higher prices forcapital, land and water and swings in the cost of energy,potentially squeezing indebted state businesses. Amongthose with “highly leveraged” financial profiles arepower producer Huaneng Power International Inc. (902)and China Shipping Development (1138) Co., accordingto a Sept. 2013 report by ratings company Standard &Poor’s.

China property developers…SOHO’s earnings fell 47 percent in thesecond half of 2013. A shift from sales toletting means cash flows are dwindling.When the most financially sophisticatedplayers show cracks, it’s time to worry. Atleast SOHO’s lenders are supportive.Lesser rivals may be less fortunate.

S&P warns of downgrades for European lendersThe agency said ‘recovery and resolution’ rules –under which banks will be rescued by bondholder‘bail ins’, rather than state bailouts – would hitratings

Competition among China’s credit-rating agencies is intensifying, leadingto a slide in standards reminiscent ofwhat happened in the U.S. before thefinancial crisis, according to DagongGlobal Credit Rating Co.

Puerto Rican default fears will reappear in 2015

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March 13, 2014

Pumping Iron… The Old Economy Revisited

U.S. dealerships can significantly improve on the industry's averageprofit margin if they upgrade the capability of sales and serviceemployees and pursue new sales formats, a McKinsey & Co. studyconcludes. The average U.S. dealership posted a pretax profitmargin of 2.2 percent in 2013, according to the National AutomobileDealers Association. But some top performers already make marginsof up to 5 percent, and that level is attainable for the typicaldealership that puts in the effort to improve, said Hans-Werner Kaas,McKinsey's senior partner leading the consulting firm's Americasautomotive practice in Detroit

Dream of U.S. Oil Independence Slams Against Shale CostsThe path toward U.S. energy independence, made possible by a boom in shaleoil, will be much harder than it seems. Just a few of the roadblocks:Independent producers will spend $1.50 drilling this year for every dollar theyget back. Shale output drops faster than production from conventionalmethods. It will take 2,500 new wells a year just to sustain output of 1 millionbarrels a day in North Dakota’s Bakken shale, according to the Paris‐basedInternational Energy Agency. Iraq could do the same with 60. ConsiderSanchez Energy Corp. The Houston‐based company plans to spend as muchas $600 million this year, almost double its estimated 2013 revenue, on theEagle Ford shale formation in south Texas, which along with North Dakota isone of the hotbeds of a drilling frenzy that’s pushed U.S. crude output to thehighest in almost 26 years. Its Sante North 1H oil well pumped five times morewater than crude, Sanchez Energy said in a Feb. 17 regulatory filing. Sharessank 7 percent.

The Texas utility renamed Energy Future is nearly bust six-plus years after the $45 bln takeover led by KKR and TPG.A flock of buyout firms and hedge funds, including Apolloand Avenue, are clawing at each other for the scraps. Thisodd beast has juicy bits buried in its books.

U.S. Factory Orders Fall 0.7% In January, More Than Expected

German industrial output rose for a third consecutive month in January as mild winter weather boosted construction activity. 

Car Makers Try to Make It Big With Smallest of ModelsAuto makers are taking a fresh crack at solving the problem of how to make money on the tiny cars that European regulators, and many consumers, want them to sell.

Car Makers Warn of Hit for EuropeEuropean auto executives warned thattensions over Ukraine and sluggishgrowth in Western Europe mean theirnew investments could go elsewhere

Big Auto Makers Post Weaker February SalesDemand Stayed Strong for Ford, Chrysler Pickup Trucks

U.S. Paper Industry Gets an Unexpected BoostAmericans renew their relationship with paper, ditching the cheap stuff for reading news to buy expensive stock for photo-based cards and albums.

CHINA AND COMMODITIESIron ore traders say buyers are standing on thesidelines and stockpiles are rising in China's ports asa drop in exports and tightening credit make steelmills reluctant to add inventory. Copper prices aredown on fears that inventory would flood the marketas companies dump the metal to unwind risky trades.

Copper bottoms !

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March 13, 2014

A New Geography of Business

French efforts to lure back FDI will fall shortFrance's foreign direct investment (FDI) inflows, as measured by theUN Conference on Trade and Development (UNCTAD), fell from25.1 billion dollars in 2012 to 5.7 billion dollars in 2013 -- a 77%decline. Germany's FDI inflows quadrupled in the same period, to 32billion dollars. While UNCTAD's figures may be debated, other datapoint to a decline in France's attractiveness to foreign investors. Thefirst tax decisions of President Francois Hollande, elected in spring2012, seem to have damaged the country's international investmentcompetitiveness -- something Hollande sought to repair on February14, when he invited 34 foreign executives to the Elysee Palace todiscuss the launch of a new strategy aimed at boosting France's'attractiveness' to foreign investors.

Australian economy builds on China demand for property--A construction boom driven by Chinese demand for Australian property could play a key role in rebalancing the economy after mining investment boom

Prospects for India in the second quarterParliamentary elections will be held between April 7 and May 12, the Election Commissionannounced today. The polls will be a three-way race involving the incumbent Congress-ledcoalition, the main opposition Bharatiya Janata Party (BJP) and an Alternative Front ofsmaller parties, with none of the three on track for a clear mandate. The establishment of thenext government, following intense coalition jockeying, will consume much of the secondquarter, creating short-term policy uncertainty. On the economic front, GDP growth in thequarter ending December 2013 slowed to 4.7%, from 4.8% in the previous quarter -- close tohalf the rate of expansion achieved during the 2003-08 boom (8.7%). Given this slowdown,the new dispensation is unlikely to enjoy a 'honeymoon' period.

China's military budget hike will fuel 'arms race'

Unemployment will speed Spain's demographic ageingUnemployment is undermining Spain's economic recovery andblighting the lives of one quarter of its inhabitants seekingemployment and over half its young people. It is also contributing toa shift in longer-term demographic and labour market trends. Genderimbalance in the labour market is disappearing, fertility rates are verylow, and life expectancy keeps rising -- trends that underpin theprocess of demographic ageing (the accumulation of a largerproportion of the population in older age groups). Greater uncertaintysurrounds net international migration, now the principal determinantof population change. Since 2010 this has reversed, from net in-migration to net out-migration, draining people from the working agegroup, stretching the social security system and adding to pressure onhealth services.

Thailand political turmoil imperils foreign and domestic investmentThailand's consumer confidence declined to a 12-year low in February as political uncertainty continued to weigh on investment and spending. The consumer sentiment index fell to 69.9 from 71.5 in January, reports said citing the University of Thai Chamber of Commerce on Thursday. This was the 11th consecutive fall.

Euro will soon admit Lithuania as 19th member

Canada’s Job Loss and Trade Deficits Signal Slower GrowthJob losses and trade deficits suggest the Canadian economy is slowing in the first quarter ofthis year with businesses failing to drive growth as policy makers predicted. Employmentfell by 7,000 in February, the second decline in three months, according to Ottawa-basedStatistics Canada, as a 50,700 drop in government workers exceeded a 35,200 gain at privatecompanies. January’s trade deficit reported today was the 23rd in 25 months, subtractingfrom growth as export volumes fell faster than imports. The Bank of Canada said earlierthis week the world’s 11th-largest economy may slow in the first quarter while keeping itskey lending rate at 1 percent, citing weak exports and investment. Today’s employmentfigures suggest consumers may struggle to keep driving the expansion.

India’s merchandise exports fell notably in February, decreasing3.7% (y/y), the first year-on-year decline in 8 months. Importsdeclined sharply, falling by 17.1% (y/y), driven by lower oil andnon-oil imports. Consequently, the trade balance recorded a deficitof US$8.1bn, which was lower than the deficit of US$14.1bnrecorded last year.

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March 13, 2014

The DNA of BusinessReconfiguring Industries to Define Growth

Men's Wearhouse and Jos. A. Bank on way to merger

Compared to the same time last year, Costco's salesduring the second quarter (which ended in mid-February) were up 6% to $25.76 billion. On a same-store basis, sales were up 4% in the US but flat forstores in the seven other countries where it operates.But, Costco also reported what same-store sales areafter "excluding negative impacts from gasoline pricedeflation and foreign exchange": up 5% in the US andup 7% for its international stores. Gas prices andexchange rate volatility took its toll on Costco.Meanwhile, Costco's profits took a hit. Its operatingprofit of $724 million was 2% lower than last year andnet income was down 15% to $463 million. CFORichard Galanti noted that last year's net income washelped by a $62 million tax benefit thanks to a specialcash dividend to its 401(k) plan participants. Yet thatwasn't enough of an explanation for the disparity, thecompany acknowledges. Weaker sales and biggerdiscounts on its non-food items during the shorterholiday season as well as lower margins with freshfoods also cut into Costco's profits.

Federal forecasters predict a warming of thecentral Pacific Ocean this year that willchange weather worldwide. Globally, it canmean an even hotter year coming up andbillions of dollars in losses for food crops.The National Oceanic Atmospheric andAdministration issued an official El Nino watchThursday. An El Nino is a warming of thecentral Pacific once every few years, from acombination of wind and waves in the tropics.It shakes up climate around the world,changing rain and temperature patterns.

Europe risks losing advanced combat aircraft industryBAE Systems (BAES) recently confirmed a 7 billiondollar contract to supply 72 Eurofighter Typhoonfighters and lifetime support to Saudi Arabia.Following the loss of a 9 billion dollar order fromthe United Arab Emirates (UAE) and failure tosecure an even bigger deal with India, the Saudicontract has given BAES and the four‐nationEurofighter consortium vital breathing space inthe battle to secure export orders. However,Typhoon has had limited export success so far,and Eurofighter has struggled to secure supportfor further development that would improve itsbomber capabilities ‐‐ a major limitation in exportbattles with its French and US competitors.

Canada is set to phase out tariffs on SouthKorean auto imports in less than five years aspart of a free trade deal with Seoul, accordingto a person familiar with the matter. Canada'sdeal with South Korea, Ottawa's first suchdeal in the fast-growing Asian-Pacific region,is expected to be announced

Chiquita to Merge With Ireland's Fyffes, Becoming Top BananaChiquita of the U.S. and Fyffes of Ireland aremerging to create the world's largest bananacompany, in an all-stock deal valued at about$1.07 billion.

Airlines Report on Winter's ImpactThe four largest U.S. airlines said they had canceled a combined 74,500 flights in the first two months of this year because of extreme winter weather.

Safeway’s $9.4 billion sale to the ownerof rival supermarket operator Albertsonsmeans that, after years of shrinking, it willbe part of something much bigger. But themerger's success will hinge partly onwhether Safeway can operate more like alocal grocer. While size and nationalscale offer advantages to supermarketchains, such as more purchasing powerwith suppliers, their business largelydepends on catering to local demand.One thing Albertsons has done well underits private-equity owners, a group led byCerberus Capital Management LP, is togive regional managers more voice in keydecisions such as what products to stock,say analysts and industry consultants.That's an area in which Safeway hassometimes stumbled.

Wireless Bills Go Up, and Stay UpCompetition in the U.S. wireless market has increased over the past year, but so have Americans' overall phone bills.

Engine of Wall Street profits sputtersInvestment banks face 25% fall in quarterly fixed income revenues

Cyber security start-ups have become the latest fascination for Silicon Valley investors, whohave flooded the sector with venture capital investment as they seek to back the latesttechnology to combat criminals online. Early-stage funding for the sector soared byalmost 60 per cent last year to $244m worldwide, according to data from research groupPrivCo. The number of deals rose even faster, up more than 100 per cent year-on-year tomore than one a week. The figures imply multibillion-dollar valuations in total for theseyoung companies, which often only have a small number of employees.

Amazon Working on Music-Streaming ServiceTo Spur Song Purchases, Limits Would Be Placed on Listening

Google Fiber’s gigabit service appears tobe gaining momentum. The company saidlast month it has “invited” 34 cities acrossnine major metropolitan areas to exploreways to bring the service to their citizens,signaling it’s ready to make a substantialinvestment in the venture.

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March 13, 2014

Real Estate and Construction Outlook

Despite proven academic successof NYC’s charter schools, themayor and unions have started awar on city’s charter kids

Investors are willing to paymore than twice as much foroffices on the upper floors ofHong Kong skyscrapers thanfor equivalent space inManhattan, Knight Frank LLPsaid.

New-Home Building in Big Shift to ApartmentsThe share of new homes being built as rental apartments is at the highest level in at least four decades, as an improving jobs picture spurs younger Americans to form their own households but tighter lending standards make it more difficult to buy.

London skyline to be radically reshapedReport reveals 236 towers being built or in the pipeline

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March 13, 2014

Will Life Ever Be the Same?

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