China's GDP And Infrastructure Spending Supports Construction Equipment And Raw Materials

From the Chinese National Bureau of Statistics (www.china.org.cn/business/2012-01/17/content_24426253.htm)

Chinese economy grew by 9.2 percent in 2011 from a year earlier, the National Bureau of Statistics (NBS) announced Tuesday.

GDP growth for the fourth quarter last year stood at 8.9 percent year on year, said the NBS. The quarterly growth was the slowest in 10 quarters. China has set the full-year growth target at 8 percent in early 2011, after its economy grew 10.3 percent in 2010.

The country's economy expanded 2 percent in the fourth quarter on a quarterly basis, NBS chief Ma Jiantang said at a press conference.

According to preliminary statistics, the country's GDP reached 47.16 trillion yuan (7.26 trillion U.S. dollars) in 2011, Ma said.

Impressive numbers given the situation in the rest of the world. Q4 growth managed to beat estimates of 8.7%.  The release goes on to say:

NBS data showed China's industrial value-added output growth decelerated in 2011 from a year earlier to 13.9 percent year-on-year. The country's fixed-asset investment, a measure of government spending on infrastructure, rose 23.8 percent year-on-year. Retail sales, a key indicator of consumer spending, rose 18.1 percent year-on-year in December 2011, up from the 17.3-percent growth seen in November.

The infrastructure spending continues on a torrid pace and should continue to support construction equipment and raw materials/mining. I would expect metal/mining and equipment stocks to perform well today as participants focus on this news (as well as German investor sentiment) rather than the looming default of Greece.
On Monday, China's top statistical official Ma Jiantang stated that price increase pressures continue to pose a threat despite the lower 4.1% CPI in December.

In the short run, fixed-asset investment, which remains a major engine driving economic growth in China, is expected to maintain rapid growth in 2012, while residential consumption, another growth engine, will keep stable growth this year, he said.

www.china.org.cn/business/2012-01/17/content_24425203.htm
This continues to support the prospects of both resource economies and companies.

Greece should just default

From the WSJ (article here: WSJ Greece 1-16:

Deadlocked Greek debt-rescheduling negotiations threaten to delay key talks for a critical bailout package set for early next week, with officials warning of a rising risk of default unless a breakthrough comes soon.

A senior delegation from the International Monetary Fund, the European Union and the European Central Bank are to arrive in Athens Friday to discuss Greece's second rescue program. Equally important is a meeting of European finance ministers in Brussels next Monday to formulate their portion of the next Greek bailout, set in October at €130 billion ($164.8 billion).

Both sets of talks hinge on Greece and its private-sector creditors reaching an initial agreement this week to reduce the country's debt to them by half. Talks were suspended Friday after disagreement over the rates of interest Athens would pay on Greek debt holdings. Attention is now focused on overtures to resume negotiations as early as Wednesday, according to Greek officials.

Talks between the Greek government and the Institute of International Finance, which represents the private creditors, broke down on Friday over the coupon on longer-term new bonds that Greece will issue in exchange for the old bonds held by the banks. The private sector wouldn't accept a coupon of 4% on the new bonds, much lower than expected.

The goal of the talks with the private sector is to slice €103 billion from the Greek government's €350 billion in debt without any signs of coercion. An agreement in principle would set up a formal debt offer during the week of Feb. 6-10, with the final debt exchange expected to be completed by the end of February.

The sticking point remains the interest rate stitched to the bond swap. Greece says it can't afford to pay more than a 4.5% average coupon on the new bonds, while sovereign creditors such as Germany and the IMF want below 4% to make sure Greece can afford it and to avoid future shortfalls. The IIF, however, wants more than 5%.

 Greece should just default.  Yes, it will be painful, yes the ramifications will ripple globally, but this dog and pony show is not working.  The whole notion of gaming the CDS system by a "voluntary" swap ultimately will not work.  Add to this the notion that austerity will help and what you have is a recipe for ultimate failure.

More Bad News for Sears

More negative news for Sears today:

(Chicago Tribune)  CIT Group Inc. will no longer provide loans to Sears Holdings Corp. suppliers to finance their shipments to the retailer, a Bloomberg report said, citing two people familiar with the matter.

Sears shares fell 9.7 percent to $29.71 in premarket trading on the New York Stock Exchange. The shares dropped 56 percent last year.

CIT Group, the business lender run by Wall Street executive John Thain, will no longer approve credit for those waiting to be paid for orders delivered to Sears after today, the report said, citing unnamed sources.

At the end of December, Sears had about $4.2 billion of liquidity, including cash balances of about $900 million, Sears spokeswoman Kimberly Freely said in an email to Reuters.

"We disagree with their action, in fact we'd point out that other factors are approving shipments to Sears Holdings and CIT's payables represented less than 5 percent of inventories," Freely said.

The news comes within days of Hoffman Estates-based Sears posting disappointing holiday sales numbers, and announcing the closure of as many as 120 stores.

This is just the latest in a string of bad news for the struggling retailer.  Shares down 5.7% pre-market.

Claims Above Expectations

From the US Dept. of Labor

In the week ending January 7, the advance figure for seasonally adjusted initial claims was 399,000, an increase of 24,000 from the previous week's revised figure of 375,000 (up 3k from the previous release). The 4-week moving average was 381,750, an increase of 7,750 from the previous week's revised average of 374,000 (marginally increased from 373k).

The advance number of actual initial claims under state programs, unadjusted, totaled 642,381 in the week ending January 7, an increase of 102,314 from the previous week. There were 773,499 initial claims in the comparable week in 2011.

full release here:Jan 12, 2012 Claims















EUC and extended benefits both fell (-5.8k and -42.5k, respectively).

While somewhat higher than expected, the general trend is still intact and positive (weakly positive in my opinion, but positive nonetheless).  Market will trade the number lower until we get some other data point or Euro-whisper.

Regions Sells Morgan Keegan

Regions Financial released the following on Wednesday:

Regions Financial Corp. announced today that it has entered into a  stock purchase agreement to sell Morgan Keegan & Company, Inc. and related affiliates to Raymond James Financial Inc., for $930 million.  As part of the transaction, Morgan Keegan will also pay Regions a dividend of $250 million before closing, pending  regulatory approval, resulting in total proceeds of $1.18 billion to Regions, subject to adjustment as described below.  The transaction is anticipated to close during the first quarter, subject to regulatory approvals and customary closing conditions. Morgan Asset Management and Regions Morgan Keegan Trust are not included in the sale and will remain part of Regions’ Wealth Management organization.

As a result of the process of selling Morgan Keegan, Regions expects to record an impairment charge in a range of $575 million to $745 million (primarily non-deductible) in the fourth quarter of 2011 related to  the $745 million of goodwill included in its Investment Banking/Brokerage/Trust segment. 
 

The transaction increases RF's capital ratios and the company believes it will lead to low cost deposits due to a working relationship with Raymond James.  This is all well and fine, but as to the use of proceeds all we get is:

Total consideration of $1.180 billion creates significant additional liquidity at the holding company

Here's a thought: you are being hammered due to your inability to repay TARP, use the proceeds to at least pay down some of your $3.5B TARP preferreds.  I understand that the 5% dividend is cheap money, but it has cost shareholders dearly.

China's Inflation Eases in December

Via Reuters:

China's annual inflation eased to 4.1 percent December, the lowest level in 15 months, giving the government more room to tilt economic policy away from restraining prices and towards supporting sagging growth.

The annual rate of headline consumer price inflation was slightly ahead of expectations of 4.0 in the benchmark Reuters poll of economists, but below November's 4.2 percent, reinforcing the view of many that the central bank is poised to ease monetary policy.

The December figures was the closest that inflation came in 2011 to hitting the official target of 4 percent for the year, leaving the average rate above 5 percent.

The country's customs agency said on Tuesday that China's exports and imports grew at their slowest pace in more than two years in December, fresh evidence of cooling domestic and global economic conditions that could push Beijing towards a more pro-growth policy stance. 

Full article:  Reuters China Inflation

If inflation is viewed as under control (a bit premature, perhaps) then the administration can ease policy in order to help revive "sluggish" growth.  Should this happen, we could see natural resource companies do well as raw material prices would increase with increased demand.  Not saying jump the gun here, just saying to keep your eye on the ball.

Realty Income Capital Structure Analysis

Just an FYI - I published and analysis of Realty Income's capital structure on SeekingAlpha last night.  In full disclosure, it is not reproduced here because it is a "premium article" on the SA website, which means I get paid per page view.

Analysis here:  Realty Income Analysis