ABRAHAM GULKOWITZabe@gulkowitz.com917-402-9039

2015 issue 1January 12, 2015

Awkward Beginnings… With all due respect…What a way to start the year. The crash in oil prices is no small matter. The previous down sweep in energy prices occurred in the midst of the financial crash0f 2008 and Great Recession. Oil prices soon reversed afterwards and climbed back to dizzying heights, even as world economic and financial recoveryremained fragile. This time it would be foolish to bet solely on such a similarly quick snapback. The current bear market for oil may actually be the beginning ofa longer and extended period of low commodity prices. First, the price of oil at $100/bl or above had been an absurdity. Second, many nations simply cannotafford to curtail pumping oil, even at a loss in the short run. Third, global growth is proving to be woefully inadequate and uncertain. Even as growth in the U.S.economy is becoming more firmly entrenched, the rest of the major economic engines remain mired, as we have argued for some time, in subpar growthtrajectories. The Euro area may be facing another soft patch and remains entangled in both economic and geopolitical crises. The recovery in Japan hasbeen slower than expected. And China continues to grow well below its previous super- track; and it obviously faces headwinds from a volatile real estatesector, awkward debt buildups and massive stockpiles of high-priced commodities. Fourth, the shale gas revolution has transformed America’s energymarkets, with profound effects for economic growth, competitiveness, security, and environmental quality. And the extensiveness of the oil rush in America isalso playing a big role in pushing the adjustment on prices. Naturally, the new weakness in commodity prices will bolster the economies of some countries, butclearly damage others. The strength of the U.S. dollar in the face of a stronger U.S. economy and shift in Fed policy this year, combined with the sharp drop incommodities could expose severe underlying vulnerabilities in situations with significant currency mismatches. The effects of exchange rate movements for thedeveloping world may also become more marked if the duration of the upward climb of the U.S. dollar becomes extended even more. The variousrepercussions will be extensive; this extremely tense business picture will be detailed herein in 2015. Stay tune…

TrTfsw OPEC leader vows not to cut oil 

output even if price hits $20 Brent oil hits new low as OPEC 

price war deepens slumpOil prices crash amid concerns over oversupply and weakening demand for crude

U.S. economy posts fastest growth inmore than a decadeU.S. Posts Best Job Growth Since’99… U.S. employers added to payrolls ata solid pace last month, a sign of steadymomentum for the labor market after thestrongest year of job growth in 15 years. Theunemployment rate fell to 5.6%

China is stepping up its role as the lender of last resort to some of the world’s most rogue and financially strapped countries.

US Oil Rigs are Shutting Down

Greece exit fears rise after failed voteGreek lawmakers have failed to elect a new president in afinal round of voting. As Sonia Legg reports it leaves thecountry facing a January 25th election that could derailthe international bailout program it needs to keep payingits bills. For the first time since the foundation of themodern Greek state nearly 200 years ago, radical leftists –marginalized, tortured and tormented for the best part ofthe 20th century – were on course to assume power.

The ECB will defy Germany in launching QEBrinkmanship of Greek Crisis Returns

The ECB Governing Council on December 4 discussed thepossibility of conducting a quantitative easing (QE) programmethrough the purchase of government bonds, together withother bonds and asset classes. The Governing Council is notunanimous on the necessity of such a programme, but,according to ECB President Mario Draghi, this will not prevent itsimplementation. Most market participants would welcome sucha move; the ECB is likely to unveil these new measures at its nextmeeting on January 22, as technical preparation has stepped up.

The cost of insuring Russian bonds againstdefault rose to the highest levels in manyyears on concerns that the collapse in oil andcommodity prices will damage the economyand its finances…

Deflation is Stalking the Euro Area

Attack Reflects 'Dangerous Moment' for Europe...

China:  a survey index  for business expectations for the year ahead dipped to its lowest reading since August 2014.

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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.

• U.S. Wake Up (pg 7)

• The Likelihood of Unlikely Events... (pg 8)

• Engines of GrowthDespite a broadening U.S. growth potential, most of the global economy faces woefully inadequate growth prospects. Risks from the crash in commodity prices only raises the dangers for many sectors, nations and currencies. Very obvious financial vulnerabilities, and serious geopolitical concerns are aggravating the dangers. And let’s not forget that many of the challenges are not fleeting and cannot be resolved easily … (pg 9)

• Households… (pg 10)

• You Can’t Handle the Truth… (pg 11)

• Credit… (pg 12)

• More Credit… (pg 13)

• A New Geography of Business… (pg 14)

• Pumping Iron … (pg 15)

• The DNA of Business… (pg 16)

• Real Estate and Construction… (pg 17)

• More Real Estate… (pg 18)

• Will Life Ever be the Same? (pg 19)

• Awkward Beginnings… With All Due Respect…. What a way to start the year. The crash in oil prices is no small matter. Theprevious down sweep in energy prices occurred in the midst of the financialcrash 0f 2008 and Great Recession. Oil prices soon reversed afterwards andclimbed back to dizzying heights, even as world economic and financialrecovery remained fragile. This time it would be foolish to bet solely on such asimilarly quick snapback. The current bear market for oil may actually be thebeginning of a longer and extended period of low commodity prices. First,many nations simply cannot afford to curtail pumping oil, even at a loss in theshort run. Second, global growth is proving to be woefully inadequate anduncertain. Even as growth in the U.S. economy is becoming more firmlyentrenched, the rest of the major economic engines remain mired, as wehave argued for some time, in subpar growth trajectories. The Euro area maybe facing another soft patch and remains entangled in both economic andgeopolitical crises. The recovery in Japan has been slower than expected.And China continues to grow well below its previous super- track; and itobviously faces headwinds from a volatile real estate sector, awkward debtbuildups and massive stockpiles of high-priced commodities. Third, the shalegas revolution has transformed America’s energy markets, with profoundeffects for economic growth, competitiveness, security, and environmentalquality. And the extensiveness of the oil rush in America is also playing a bigrole in pushing the adjustment on prices. Naturally, the new weakness incommodity prices will bolster the economies of some countries, but clearlydamage others. The strength of the U.S. dollar in the face of a stronger U.S.economy and shift in Fed policy this year, combined with the sharp drop incommodities could expose severe underlying vulnerabilities in situations withsignificant currency mismatches. The effects of exchange rate movements forthe developing world may also become more marked if the duration of theupward climb of the U.S. dollar becomes extended even more. The variousrepercussions will be extensive; this extremely tense business picture will bedetailed herein in 2015. Stay tune…… (pg 1)

• In This Issue (pg 2)

• Dislocation, Dislocation… (pg 3)

• The Return to Normal… (pg 3)

• Extreme Sports… (pg 5)

• Go Figure… (pg 6)

Contact information:

Abraham Gulkowitz

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

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January 12, 2015

Dislocation, Dislocation, DislocationA couple of weeks ago, Claudio Borio told investors to wake upto the threat posed by currency mismatches. In the past few years,the chief economist at the Bank for International Settlementsobserved, companies in places such as Russia, China, Brazil andIndia have rapidly increased their borrowing, particularly indollars. And though nobody fretted about this until recently, if —or when — the dollar suddenly rises, this debt pile could triggershocks, since much of it is serviced by revenues in domesticcurrencies.

As the U.S.’s emergence as a big oil producer combineswith OPEC’s refusal to cut production, a budding rivalrywith Saudi Arabia, economic slowdown in China andEurope and emerging technologies, is the marketfundamentally altered?

Sliding oil prices leave socialist Venezuela on brink of financial collapse

Russia and four other ex-Soviet nationscompleted the creation of a new economicalliance intended to bolster their integration, butthe ambitious grouping immediately showedsigns of fracture as the leader of Belarus sharplycriticized Moscow. The Eurasian EconomicUnion, which includes Russia, Belarus,Kazakhstan, Armenia and Kyrgyzstan, comes toexistence on Jan. 1. In addition to free trade, it'sto coordinate the members' financial systemsand regulate their industrial and agriculturalpolicies along with labor markets andtransportation networks.

Nigeria slashes capital budget tocope with oil shockFinance Minister Ngozi Okonjo-Iweala onDecember 17 presented the government'srevised 'transition and hope' budgetproposal for 2015. It aims to cutgovernment spending by 10.6% to around4.5 trillion naira (24.5 billion dollars), fromnearly 5 trillion naira in 2014. However, theimpact of austerity will be muted by a sharpreversal of development outlays towards therecurrent budget. This is unlikely to bepopular with voters -- who are nowexpected to fund a much greater share ofgovernment spending.

First tuna auction of the year at Tokyo's famed Tsukijimarket came in below a year agoThe first tuna auction of the year at Tokyo's famed Tsukiji market isa competitive event. Winning the bid for the first fish is believed tobring good luck for the coming year. The winner landed the 180 kilo-- or nearly 400 pound -- blue fin at a bargain 25-thousand yen perkilo -- about a 20 percent discount to last year's price.

Broken Eurozone hits currencies… Mario Draghi,President of the European Central Bank, said in an interview publishedJan. 2 that he couldn’t exclude the risk of deflation in the euro-area,igniting a selloff in the euro amid prospects he’ll embark on large-scalequantitative easing. The euro slid to an almost nine-year low againstthe dollar amid prospects the European Central Bank will embark onlarge-scale government-bond purchases to ward off deflation. Asianstocks fell with oil as silver climbed. The euro slid to an almost nine-year low against the dollar amid prospects the European Central Bankwill embark on large-scale government-bond purchases to ward offdeflation. Asian stocks fell with oil as silver climbed.

Having lost 12% of its value against a resurgent greenback since the start of September,the Mexican peso fell again trading to 14.87 per dollar—its weakest level since March2009. Although Mexico is seen to be among the least affected by the ongoing slide incrude prices, the market has been concerned about the impact of falling oil prices onforeign direct investment in the country as the government opens up its energyindustry.

87% OF NATION TO DIP BELOW FREEZING...

Oil Crash - Pipe and TubingUnited States Steel Corp. will lay offroughly 750 employees between twoplants, undoubtedly the result of fallingoil prices. It is worth noting that thesefacilities are not being shut downcompletely but temporarily idled. Thelayoffs are taking place in a tubulartesting and finishing facility in Houston,Texas and a manufacturing facility inLorain, Ohio. The tubular products thatare produced and tested by thesefacilities are associated with drilling andconstruction in the oil-and-gas industry.Lorain has an annual productioncapability of 780,000 tons of steel.

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January 12, 2015

The Return to Normal ?

Auto Sales Owe Loans Some CreditNobody buys used cars these days—they're "preowned." Likewise, subprime loans are so2007: They are more often referred to as "nonprime" now. While risky mortgages remainfar harder to come by than before the financial crisis, the auto market is starting toresemble the good old days. In some ways, it is even better. Experian Automotive recentlyreported that the average term for a car loan has reached a record high of 66 months. Forcustomers with the worst credit scores, it has reached 71.4 months. Longer terms equallower payments—which equals more people able to afford cars

U.S. Annual Home Price Growth Continues to Slow

Based on a Wards Auto estimate, US light vehicle saleswere at a 16.75 million SAAR in December. That is up8.8% from December 2013, and down 1.7% from the17.09 million annual sales rate last month.

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January 12, 2015

Extreme Sports

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January 12, 2015

Go Figure…Where Now?

The emerging problem of foreign currency debtThe BIS issues a timely warning about exchange mismatches

It is not so long ago that many emerging economies, especiallythose in Latin America, were complaining bitterly about“currency wars”. A decade-long commodity price boom,combined with ultra-loose western monetary policy, flooded theemerging world with capital and pushed up exchange rates towildly overvalued levels.

Those days are over. International tensions with Russia,concerns about China’s financial stability, a strengthening USeconomy and, most of all, fast-falling commodity prices haveprompted foreign capital to head for the exit. During the past threemonths, the JP Morgan index of emerging market currencies hasfallen by almost 8 per cent against the dollar. But that conceals farsharper falls among some of the weaker currencies. The Brazilianreal is down 17 per cent for instance while the Russian rouble hasslumped by nearly half.

Economic measurement faces huge changesImportant decisions are made on the back of economic statistics that arecompiled by government statistical agencies. Policymakers andinvestors use these data with major consequences. However, evidencesuggests that the economic statistics are often based on inadequatemethodologies and data gathering techniques and can be distorted byrapid changes in the structure of most economies.

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January 12, 2015

The Likelihood of Unlikely Events

Switzerland imposed its first negative deposit rate since the 1970s and threatened further action to stem a tide of money flowing from Russia’s financial crisis.

Some of the world's biggest money managers aremaking sweeping changes to their European money-market funds amid expectations of losses for thenormally staid investments. The moves byBlackRock Inc. and Northern Trust Corp. stem fromthe European Central Bank's decision in Septemberto cut interest rates into negative territory. The ratecut threatened the profitability of the EUR93 billionindustry of euro-denominated money funds, whichare used by large corporations and institutionalinvestors as a place to park cash while earning asmall amount of interest.

Uncertainty ripples across Russian economyInterbank rates hit high while manufacturers in west suspend shipments

China Offers Russia Help With Currency Swap Suggestion

The rise of Islamic State in Iraq and Syria didnot affect the oil market in the way that manyprevious crises in the Middle East had, whenconcerns about possible disruptions pushedprices up. The same was largely true of the instability inLibya and the latest episode in the conflict between Israeland the Palestinians. IS had little impact on the globalsupply of oil, which has been increasingly plentiful due tothe shale oil revolution in the US. At the same time,demand for oil has weakened due to the slowdown inChina and the persistent sluggishness of the Eurozone andJapan.

Standard & Poor's (S&P) put Russia's foreign‐currency sovereignrating on 'credit watch negative'. S&P already rates Russia BBB‐,the lowest investment grade, and the review in mid‐January coulddemote it to 'junk'. Russia's currency crisis is undermining investorsentiment towards emerging markets (EMs) at a time when theasset class is already under strain because of plunging oil pricesand the risks stemming from an anticipated rise in US interestrates next year. The more vulnerable currencies in the EmergingEurope region, in particular the Hungarian forint and the Turkishlira, have suffered the effects of financial contagion and are mostat risk if sentiment towards Russia deteriorates further.

Bank Security… Banks are expected to roll out new credit cards with technology that makes counterfeiting more difficult, but opt not to use PINs, widely considered to be more secure than signatures.

Deflation fears blur interest rate outlook

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January 12, 2015

U.S. Wake Up

Natural gas now produces 27 percent of the electricity generated in the United States, and the percentage is rising. The plentiful oil and gas from the drilling boom has reduced America’s dependence on foreign oil to levels not seen in decades, and has contributed to falling oil prices.

“Enhanced oil recovery” (EOR)The shale gas revolution has transformed America’s energymarkets, with profound effects for economic growth,competitiveness, security, and environmental quality. In anation still deeply concerned about its energy future, thisextraordinary success story should prompt the question:Can we do it again? The answer is yes — if we correctly understand boththe model for innovation that shale gas exemplifies and an opportunity thatnow exists to emulate the shale model. That opportunity involves exploiting atechnique called “enhanced oil recovery” (EOR).Like fracking on the eve of its success, this concept is virtually unknown tomost Americans, yet it rests not on pie-in-the-sky technological dreams but onthe application and refinement of proven technologies that companies havebeen developing for decades. Like fracking, enhanced oil recovery has thepotential to recover staggering quantities of hydrocarbons that were previouslyknown but considered inaccessible. As with fracking, the primary players willbe the private sector — but public policy has a crucial role to play in establishingthe necessary conditions and providing the impetus for this market to take off.Most tantalizingly, enhanced oil recovery should be less controversial thanfracking, because it also offers the opportunity to radically reduce greenhousegas emissions from electric power generation (and other industries).

Plunging Oil Prices to Test Texas EconomyThe downturn in energy prices has triggered debateover whether Texas simply got lucky in recentyears or whether it hit on an economic playbookthat other states could emulate.

U.S. Nuclear Capacity on the DeclinePremature nuclear plant retirements areslowly eroding U.S. nuclear capacity andreducing a major source of carbon freeelectricity. Absent reforms to the currentmarket structure, at least eight additionalmerchant nuclear units with an aggregatecapacity of approximately 8,000 MW areconsidered to be at risk of earlyretirement.

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Engines of Growth…

U.S. Home Values Continue to Rebound But at Slower PaceU.S. home values are on pace to conclude another year of strong growth, although the pace is easing up a bit, online real estate marketplace Zillow says.

France's unemployment rose to a new record  amid the fragile economic activity, data from the Labor Ministry revealed

Confidence among Japan's small and medium-sized enterprises decreased in December, survey datareleased by the Shoko Chukin Bank showed. The smallbusiness confidence declined to 46.7 in December from47.7 in November. Similarly, confidence in themanufacturing sector fell to 46.1 in December from 47.4in November.

CHINA PUMPS UP CAP SPENDING AGAIN… The governmenttoday distanced itself from a January 6 Bloomberg report that a 7trillion renminbi (1 trillion dollar) fiscal stimulus package is in theworks, saying that the plan is merely to "guide" privateinvestment into key projects rather than increase publicspending. Recent developments suggest that policymakers arehappy with slower investment growth, but worry about thepossibility of an abrupt slowdown in lending and the risk thathousehold consumption will not yet be able to pick up the slackas investment slows. Canadian merchandise trade shows oil effect

US JOB GROWTH STRONGER, WAGES WEAKERTotal nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined to 5.6 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, construction, food services and drinking places, health care, and manufacturing. The change in total nonfarm payroll employment for October was revised from +243,000 to +261,000, and the change for November was revised from +321,000 to +353,000. With these revisions, employment gains in October and November were 50,000 higher than previously reported.

Weak Industrial Data Suggest Eurozone Economy May Be FalteringCurrency Area Faces Challenges of Political Uncertainty and Falling Consumer Prices

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January 12, 2015

Households – Brave New World

US existing home sales hit slowest pace in 6 months in Nov.

Weak Again !Sales of new single-family houses in November2014 were at a seasonally adjusted annual rateof 438,000, according to estimates releasedjointly today by the U.S. Census Bureau andthe Department of Housing and UrbanDevelopment. This is 1.6 percent below therevised October rate of 445,000 and is 1.6percent below the November 2013 estimate of445,000.

December Auto Sales SurgeMajor auto makers capped a successful year byringing up strong U.S. sales increases last monthwith GM and Chrysler posting double-digit gainsover the same month a year-earlier, while Fordlagged behind

For all the actual tightening in the 2014 job market,what is perhaps the most important indicator from theperspective of working families — wage growth —has hardly budged. Though commentators made a bigdeal out of the bump in pay from the last jobs report,the yearly trend in nominal hourly wage growthremains at about 2 percent, where it has been since2010.

Why Is Wage Growth So Slow?

Sluggish US housing may become a bigger issue in 2015-16

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January 12, 2015

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

Chinese manufacturers signaled a reneweddeterioration in operating conditions at the endof 2014, with both output and new ordersfalling slightly on the month. In response tolower total new orders, firms cut theirworkforce numbers again in December, albeitonly slightly. On the prices front, both inputprices and output charges fell at the sharpestrates in nine months.

Euro Extends Drop to below $1.20

Singapore Home Prices PostLongest Losing Streak in DecadeThe government has imposed variouscurbs to cool the property market,including restrictions in June 2013 on thetotal loan amount for individuals.Singapore’s home prices dropped for afifth consecutive quarter, the longestlosing streak in more than a decade, astighter mortgage curbs cooled demandin Asia’s second-most expensivehousing market.

Japan Demographics time bombDeaths outnumbered births in Japan last year by thewidest margin on record, underscoring the scale ofthe challenge facing the government as it tries toensure a dwindling pool of workers can supportgrowing ranks of pensioners. The urgency of gettingthe country’s finances in order was highlighted thisweek as preliminary figures indicated that Japan’spopulation fell by a record 268,000 in 2014.

The Federal Reserve is concerned that the rising asset valuesand influence of non-banking financial institutions on the U.S.economy could create conditions for another financialmeltdown. The expanding power of the so-called shadow-banking sector has grown to levels not seen since before the2008 crisis. The Fed’s problem is that it has limitedjurisdiction over these financial institutions – money-marketfunds, hedge funds, trust companies and financial firms otherthan banks.

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

Yet another fracas over timing of CEOC 2nd-lien debt default eruptsDebt of Caesars Entertainment Operating Co. was mixed today in thewake of several disclosures that could potentially throw a monkey wrenchinto the timing of an eventual Chapter 11 filing by the company and, byimplication, the tactical leverage in an eventual proceeding held by thecompany’s respective creditor classes.CEOC’s 10% second-lien exchange notes due 2018 are down three quartersof a point today, at 17, according to trade data. Elsewhere in the capitalstructure, the 11.25% first-lien notes due 2017 are up a point, at 72.635.CEOC said in an 8-K filed this morning with the Securities and ExchangeCommission that on Dec. 12, it made a $17.6 million payment to second-lien debt holders to redeem that amount of principal of certain 10% second-priority senior secured notes due 2015 and 10% second-priority seniorsecured notes due 2018, which were issued in December 2008.

China’s State Council amended its rules to ease market accessfor foreign banks in order to open up the domestic financialsector. The new rules remove the requirement that foreignbanks should transfer a specific amount of operating funds toits new branch in China. They also allow foreign banks to applyfor conducting yuan transactions after operating in China forone year instead of three years as previously required, anddrop the requirement for two consecutive years of profit toengage in the transactions. “These rules are aimed to bringmore competition to the banking industry and expand theopening-up policy,” a local analyst said. “By doing so, China’salso preparing for an internationalization of the renminbi.”

Russian regulators took over a leadingretail bank, as the impact of last week’scurrency crisis reverberated through theeconomy even as the ruble recovered.

Raising Flag on China’s $1 Trillion Overseas Debt Pile

Russia's central bank to help companiesmeet debts in initiative to shore up rubleWith inflation showing clear signs ofpicking up, Russia's central bank onWednesday launched another initiative toshore up the ruble, offering hard currencyloans to help companies and banksservice their debts. Stabilizing the ruble,which is one of the world's worst-performing currencies this year followingthe slide in oil prices and the sanctionsimposed on Russia for its involvement inUkraine, is a priority for Russia'smonetary authorities. One key concernover the Russian economy is how muchthe 50 percent or so fall in the ruble thisyear will ratchet up inflationary pressures— a falling currency makes imports moreexpensive.

Paying for safetyInvestors put €1.2tn into negative havens

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More Credit…

There were no defaults among S&P/LSTA Index loans in December, though Caesars did move a step closer toward bankruptcy.A decision on whether a failure-to-pay credit event has occurred withrespect to credit default swaps referencing Caesars EntertainmentOperating Co. will be sent to an external review panel after the ISDAdeterminations committee failed to reach the 80% supermajority votingthreshold. This is only the second time that a dispute has gone to anarbitration panel in the Americas. Previously, cement company CEMEXin 2009 was the only DC question to be decided by external review,according to ISDA.

Impact of retention, leverage ruleson credit marketThe implementation of the Dodd-Frank riskretention rules will likely affect broadlysyndicated loan origination and tradingliquidity, resulting in increased corporatecredit financing costs. There may also befewer collateral managers, as many willeither not be able to compete or may choosealternative uses of their capital that are moreeconomical for them.

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January 12, 2015

A New Geography of Business

India's Minister of External Affairs Sushma Swaraj will visit Israel inJanuary, according to media reports. Her visit will build on Indian PrimeMinister Narendra Modi's meeting with his Israeli counterpart BinyaminNetanyahu on the sidelines of the UN General Assembly meeting inSeptember 2014. Frequent high-level engagements signal a desire on bothsides to deepen bilateral ties, especially in the defence sector where Indiarecently agreed to procure jointly-produced Spike-guided, anti-tank missilesfrom Israel for 525 million dollars.

Lithuania going to euroGeopolitics plague Lithuanians at this frozen Russian borderpost, where a return trip by car can mean 48 hours of queuing.It is a reminder for some of why the former Soviet republic willcement its move to the West by joining the euro zone nextmonth. Tensions with Moscow have simmered ever sinceLithuania became the first republic to declare independencefrom the Soviet Union in 1990, although only 6 percent of thepopulation are Russian speakers, far fewer than in its Balticneighbors. On Jan. 1, it will be the last of the Baltic states tojoin the currency bloc, hoping like Estonia and Latvia for moreinvestment and lower borrowing costs to spur one of Europe’spoorest but fastest-growing economies. All three have felt theblowback from East-West tension over Russia's encroachmentinto Ukraine this year in the form of Russian sanctions andmilitary grandstanding on their borders. When LithuanianPresident Dalia Grybauskaite announced military aid for Ukrainelast month, accusing Moscow of being a "terrorist country",Russia launched a go-slow on the border with its Kaliningradenclave – home to Russia's Baltic sea fleet and, most Lithuanianssuspect, tactical nuclear weapons. Belarus Raises Key Rate to 25% as Russian Rout

Fuels Devaluation… The Belarusian central bankincreased its benchmark rate for the first time since 2011and rolled out other emergency measures to stabilize thefinancial system as the country reels in the aftermath ofthe crisis in Russia.

Japan's economy is highly concentrated on a few major urban centres, but therest of the country -- the 'regions' -- comprises almost two-thirds of thepopulation and more than half of GDP. These provincial areas are poorer andthe gap is growing, but they are indispensable for the reinvigoration of thenational economy. Prime Minister Shinzo Abe's administration did not initiallyprioritise the regions, and the benefits of Abenomics failed to reach them.However, regional revitalisation has now become a goal.

Renzi's reform failure would risk snap Italy electionPresident Giorgio Napolitano indicated on December 18 that he wouldresign in early 2015. Ahead of the election of a new president, PrimeMinister Matteo Renzi needs to push through the two major politicalreform measures that are waiting in parliament. Success would bolsterhim domestically, and strengthen his hand a little in negotiations withBrussels. Failure would be a political blow, and dent his still fairly highdomestic popularity.

Petrobras legal woes mount in Brazil, United StatesA list of 28 politicians, most from the governing coalition, alleged to have benefited from the Petrobrascorruption case was published by O Estado de Sao Paulo yesterday. Multiple US law firms filed classaction lawsuits on behalf of US investors in Brazil's state-controlled Petrobras beginning on December8, over its alleged failure to disclose corruption in the company that led to accounting misstatements. AUS federal court judge must now decide whether to certify a class, and if a class action is allowed toproceed, Petrobras could face liability for substantial damages in US courts. This is only one possiblesource of US legal liability facing Petrobras.

Lowering their growth forecasts, the SouthKorean government now expects the economy togrow by 3.4% (y/y) this year and 3.8% in 2015,lower than the projections of 3.7% and 4%respectively, made earlier in July. Thedownward revision was due to weak business andconsumer sentiment, but the government said itexpects things to improve next year, helped bylower oil prices and stimulus measures.

Brazil’s consumer confidence index remained near the six-year low inDecember, rising marginally to 96.2 from 95.3 in November, data from theGetulio Vargas Foundation, or FGV, showed. The last month’s result had beenthe worst since December 2008. The index has a 1 to 200 point range, with 100considered an indicator of neutral sentiment. Consumer confidence had beenfalling steadily since April 2012 on mounting concerns about high inflation andsluggish economic growth.

Cuba's growth in 2015 will be driven by expectationsOn December 20, at the closing of the National Assembly's annual session, President RaulCastro said that the Cuban economy will grow 1.3% this year, down from the 2.2%expected. Castro said that recent measures should ensure that the target of 4% GDP growthprojection for 2015 is met. Havana's economic outlook looked bleak until last week, butthe recent shift in US policy has put a higher growth rate within closer reach. Even whilethe US Congress keeps the embargo in place, the attractiveness of Cuba has already risen.

Fire engulfs Libya’s largest oil terminalThe terminal, which can export 400,000 barrels a dayof crude oil, has been shut down since militias,known as Libya Dawn and loyal to the self-declaredgovernment in Tripoli, began moving from theirstronghold in the central city of Sirte in an attempt toseize the facility. Control of the oil facilities is seen asa way of altering the balance of the seven-month longcivil war.

Latvia joined the euro club at the start of this past year, taking the number of members following the currency to 18. On January 1, 2015, Lithuania became the newest member to adopt the euro.

Brazil recorded a worse-than-expected trade deficit of 3.93 billion dollars in 2014, according to the TradeMinistry on January 5, the first since 2000. According to Central Bank estimates, a trade deficit of thismagnitude increases the current account deficit to around 4% of GDP, the highest in 13 years, and the third-largest among the big economies in 2014, according to the IMF. Brazil's poor trade performance results mainlyfrom an unfavourable international environment marked by falling commodity prices and the country's failureto reach preferential trade agreements, but it also reflects the failure of local companies to become moreproductive and competitive during the last decade.

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January 12, 2015

Pumping Iron…The Old Economy Revisited

Natural Gas Futures Drop to Lowest Point in Over a YearBooming U.S. Production Creates Surplus

U.S. Grains Lift to Multimonth Highs; Soybeans Also RiseUncertainty Over Russia’s Export Policy Raises Concerns About World Wheat Supply

After so much hype and billions of dollars in investment, the nation isdeluged with gas and not enough pipelines to carry the bounty toconsumers. One energy company after another, year after year, has writtenoff or slimmed down its investments here and in Texas and Louisiana. Butnot Southwestern Energy, a Houston-based company that has risen frombeing the nation’s 40th to become the fourth-largest producer of naturalgas. Southwestern’s discovery of the Fayetteville shale field a decade ago,and its quiet leasing of the heart of the field at bargain prices, made thecompany a power. Since 2007, Southwestern’s Fayetteville production hasrisen 800 percent and its reserves are up 570 percent. It still drills more than30 new wells every month here. And in October, Mr. Mueller doubleddown on gas by committing $5 billion to develop 413,000 acres of reservesin the Marcellus and Utica shale fields of West Virginia and Pennsylvaniapreviously owned by Chesapeake, raising Southwestern’s debtconsiderably.

Russia, one of the world’s biggestsuppliers of wheat, is preparing tointroduce export duties on grain in aneffort to keep prices in check andprevent further selling by traders. “Wewill prepare a draft resolution on grainexport duties. This will be done in thenext 24 hours,” said ArkadyDvorkovich, the deputy prime minister,at a meeting of the government. Russiatightened restrictions on grain exportslast week to prevent a shortage on thedomestic market as traders soughtforeign currency by selling grain as therouble tumbled. Sanitary controls werealso stepped up, which curbedtransport of grain by rail, traders said.“This was not enough. In order tostabilise the situation, proposals ongrain export duties will be prepared,”Mr Dvorkovich said. He said that ofits harvest of 104m tonnes, Russiacould afford to export up to 28mtonnes without risking the stability ofthe domestic market. Exports thismarketing season, which started inJuly, have so far totalled 21m tonnes,he said. Russia is the fourth biggestexporter of wheat, shipping about 20mtonnes a year, and the second-largestexporter of barley, selling about 4mtonnes to overseas buyers.

Rolls-Royce Motor Cars sold a record number of cars last year,breaking through the 4,000 mark for the first time in its 111-year history. The luxury car maker sold 4,063 cars, up 12% onlast year, and marking the fifth consecutive year of recordsales. Sales in the US increased by almost a third, by 40% inEurope and in the Middle East by 20%, the firm said.

Car sales in the world's biggest carmarket China are gearing downfast, and the road ahead in 2015 islooking congested, especially forJapanese carmakers.

GM cuts price on most Cadillac

CTS sedans amid weak demand

Boeing is targeting 715 to 725 deliveries and is

expected to remain ahead of Airbus in

deliveries for the third year running after

resolving earlier delays to its 787 Dreamliner.

Airbus increased its deliveries in 2014, setting

a new company record, a source at the

European planemaker said. The Airbus Group

subsidiary beat its 2013 peak of 626 deliveries

but is expected to remain behind rival Boeing,

which is due to issue annual data.

Volvo to sell Chinese-made cars in U.S.

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The DNA of BusinessReconfiguring Industries to Define Growth

First-year law school enrollment in the U.S. fell 4.4percent from a year ago to the lowest level in 40years, amid a tighter job market and rising tuition.

Thai Union Frozen Products to Buy Bumble BeeOwner of Chicken of the Sea Will Add U.S. Canned-Tuna Company to Portfolio

Wireless TelecomThe level of competition in the industry has been steadily increasing overthe past couple quarters primarily spearheaded by the Un-carrier T-Mobilewho has clearly changed the way the wireless carriers do business but morerecently by Sprint who senses the desperation of needing to turn thebusiness before it is too late. With various new types of contracts,optionality around handsets and financing, more flexible data plans, andoverall cheaper service the current winner is the consumer who will receivemore for less for the first time in a long time.

Calling plans, discounts, incentives, bundling and data increasesare the sizzle of wireless. At stake, though, is the network thatruns it all. As more of our “things” continue connecting to theInternet and many of them continue to do so wirelessly, we seeno end in sight of continued increasing needs for spectrum. Containerships queue up outside LA/Long Beach

A key reason for the current gridlock at the important US port include theincreasing sizes of ships in the trans-Pacific trade lane, which require longertimes at berth - - as well as a shortage of chassis and drayage drivers, and,more recently, slowdowns by members of the International Longshore andWarehouse Union at certain terminals

Minimum Wage Hikes to Affect More Than 1400 Walmart Stores

HeidelbergCement AG said it has agreed to sell operations in North America andthe U.K. for $1.4 billion to a U.S. affiliate of Lone Star Funds. The Germancompany, one of Europe’s biggest building-materials suppliers with annual revenueof €14 billion ($17 billion), said the sale is in line with its focus on processing andrefining raw materials for its core products of cement and aggregates and otherdownstream activities. The deal comes amid a reshaping of Europe’s cement sectoras Switzerland’s Holcim Ltd. and France’s Lafarge SA are close to finalizing theirmerger, representing the combination of the region’s two biggest players.

TV Advertising: Very mad menWhen TV ratings look bad, just claim they are wrong

Dish Network, a satellite television provider, on January 5announced plans for a web streaming package that will include thepopular sports network ESPN. Live sports is the most profitable partof the television industry. Its place as part of cable TV packages hasprevented many US households from switching to lower-costinternet-only subscriptions. In the United States, internetinfrastructure -- the physical cables connecting homes andbusinesses -- is almost all built and maintained by cable companiesand telcos that provide internet and TV. Thus, alternateentertainment delivery mechanisms and political debates aboutcable monopolies determine the technology underpinning the USeconomy.

Monster ships become warehouses for world’s excess oil

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Real Estate and Construction Outlook

Hotels: Occupancy Rate Finishing 2014 Strong, Best Year since 2000

After Two-Year Delay, Construction on California High-Speed Rail Is Set to StartCalifornia's bullet-train agency will officially start construction in Fresno this week on the first 29-mile segment of the system, a symbol of the significant progress the $68-billion project has madeagainst persistent political and legal opposition.

Self Storage It’s lucrative because these buildingscash flow like crazy and deliver a high yield. There’shigh year-over-year growth in rent because there areonly so many places to store things. Average askingmonthly rent in 2013 for an average 10-foot-by-10-footunit in the US was $115 a month. Now, some of ourclients are getting 6% to 15% higher than that. Also,several years ago occupancy was 70% to 80%. Now thepublic REITs are seeing 80% to 90% occupancy. Thegrowing economy, increased consumer spending andthe increasingly mobile population are all macrodrivers of this space. Also, life issues such as death anddivorce play into storage needs.

U.S. CMBS Risk Metrics on the RiseU.S. CMBS conduit originators have increased the amountof partial interest-only loans in their 2014 securitizationsby 42%. Additionally, leverage metrics, including loan-to-value ratio, also rose.

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More Real Estate…

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Will Life Ever Be the Same?

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