China urbanization is far behind that of the US, Japan, Germany, and South Korea. In fact, according to a new report from analysts at Goldman Sachs, by 2050 (37 years from now) China will still be lagging behind all three countries (see chart below). China Urbanization rate will increase rapidly, but it will not be enough to catch up with more ‘developed’ countries. This will have a profound impact on the global economy and investing in China. Whether China will catch up to the US in terms of GDP is a far different question. Below is an excerpt from the Goldman Sachs report on China Urbanization followed by the full report in scribd.

China Urbanization and economic development

China’s new leadership has identified China urbanization as ‘a huge engine’ of China’s future economic development. In this report, we explain how upcoming ‘new’ urbanization (not yet well understood by investors, in our view) may differ from the earlier urbanization model of yester years, identify the key policy variables to look for in the coming months, and in turn, analyze how sectors and stock impacts may shift in the China equities space over the medium term.

First, we study what might be different for ‘new China urbanization’, and where investors may have oversimplified impressions Based on our investor interaction in the past couple of quarters, we found that investors broadly assume that focusing on urbanization as the engine of growth will mean continuing a predominantly FAI-reliant approach, unchanged from the past. We disagree. In our view, the objective is to shift to a ‘new’ urbanization model that may be quite different from the old version in various respects, recognizing a multitude of new constraints. This will likely spell more targeted/selective FAI investments than before, and the incremental benefits may accrue more to consumption/safety net areas instead.

Four common investor misconceptions, which we address, are that new China urbanization:

1. Will mainly focus on accelerating the quantity of people moving into cities (quantity targets do not imply acceleration; focus is more on quality than quantity).
2. Must involve significant city building (Premier Li Keqiang clarified that urbanization is not about building more cities; we see more selective/targeted investment in previously under-invested areas as a higher/earlier priority).
3. Will follow the same economic model as the past few years but at a faster pace (the old model cannot sustain for long; policymakers will want to refocus and realign government officials’ KPIs in order to drive reforms).
4. Will unilaterally benefit all affected sectors in accelerating demand (we see some likely shifts in winners and losers, favoring consumption areas more than before and resource-intensive / polluting areas less than before).

Second, we identify the policy variables that should be monitored in the coming months. Specifically, Premier Li Keqiang laid out five areas of policy deliberation: geographic strategy, land reform, hukou reform, natural resource support, and environmental issues. These are meant to address and reverse accumulating problems from the old urbanization model, like widening wealth disparity, depletion of resources and other side effects. In addition, we think funding sources remain a big unknown that needs to be resolved through policy/reforms. We may see more specific reforms / policy decisions on these fronts in the coming months to firm up the new urbanization path and priorities.

Finally, we identify medium-term directional impacts on sectors and stocks under our coverage. Clearly, many policy uncertainties abound, and the timeline/prioritization to achieve such targets remains unclear. Vested interests and structural obstacles may also hinder progress in the near term. However, we think the broader direction of new urbanization is clearer – to focus more on safety nets, going green, lifting standards for rural residents, etc. Compared to the ‘old’ China urbanization impacts of past years, we see greater benefits for mass market consumption, and a more selective list of investment sector beneficiaries than before. Some key sub-sectors that may benefit include mass market consumption, low-end auto, generic medicine, concrete machinery, railway and subway construction, etc. We identify a group of stocks that may be levered towards each potential policy direction, and isolate Buy rated names that look positioned to benefit medium term.

The investment community has been intensely focused on the theme of urbanization in recent quarters. Premier Li Keqiang had identified urbanization as a ‘huge engine’ of China’s future economic development1, and the NDRC has promised to unveil an urbanization blueprint by the middle of 20132. With many details of the new urbanization still to be determined, we find that many investors we speak to have already formed broad assumptions about urbanization – based largely on how things have been developing in the recent past (what we call ‘old urbanization’). We identify several misconceptions and believe that what will ultimately be unveiled will be different as the new leadership targets a ‘new urbanization’ path. In short, to a greater extent than before, quality has to take priority over quantity, with new constraints and structural objectives. We expect the incremental benefits to accrue more to safety net and consumption areas going forward. In
contrast, demand lift for investment, which has been prominent in the past and assumed to be the main beneficiary going forward, may actually be more selective / targeted than before.

How does China urbanization drive growth?

Our economics team looks at the economic benefits of China urbanization on growth in general in two ways:

1) A shift in resources from primary to secondary and tertiary industries, as the latter have higher productivity, which helps to enhance overall factor productivity. Such benefits have been experienced in many developing countries, and have been China’s primary channel of urbanization driving growth in the recent past. Our economics team estimates population migration into urban areas as being responsible for more than 2ppts of total factor productivity gains over 2004-07, but a diminishing benefit post the financial crisis at only around 1ppt per year.

2) In addition to the first and more obvious route, through city agglomeration, there is also evidence that urban population tends to be more productive through technology spillover and knowledge sharing permitted by close proximity. Such effects may help business productivity as well as create more consumption demands via positive income effects, for example. Our economics team feels that such benefits have been largely absent in China in the past, but will need to play a bigger role going forward given easy productivity gains are declining in scope. For more details on our economics team’s growth quantification analysis by various scenarios, please see their latest report titled, Global Economics Paper: 218 – China: More efficient cities key to a brighter growth path, dated May 21, 2013.

Broadly, we think the shift from mainly focusing on population migration towards the previously absent areas is what will underscore the differences for new China urbanization.

But what precisely is to come with the new leadership’s new urbanization agenda? A lot is still to be determined and we are not certain how fast or how dramatically things may progress. However, based on the information and broad framework provided so far, we see a number of misconceptions already forming in the investment community.

Further reading China Hard Landing Will Hurt These Countries The Most

China Urbanization Still Over 40 Years Behind US: Goldman

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Former New York Governor Eliot Spitzer spoke with FOX Business Network’s (FBN) Liz Claman about the news that JPMorgan Chase Chairman and CEO James Dimon won shareholder approval to keep his chairman title. Spitzer said, “Jamie Dimon is a superb CEO,” but “this is not about James, this is about understanding too much power aggregated in the CEO position permits the CEO to dominate the Board and the Board of Directors is the only check we have on the CEO.” Spitzer also said that splitting the chairman and CEO roles “helps a company” and that while a split won’t necessarily eliminate all problems, he believes that “having all that power in one position in one person is more likely to lead to problems.”

Excerpts from the interview are below.

On the news that JPMorgan Chase Chairman and CEO James Dimon won shareholder approval to keep his chairman title:

“James Dimon is a superb CEO. I will credit him with that, I respect the job he has done. I disagree with him about some fundamental decisions he’s made, but put that aside, this is not about James Dimon, this is about understanding too much power aggregated in the CEO position permits the CEO to dominate the Board and the Board of Directors is the only check we have on the CEO. Shareholder votes really are meaningless in corporate democracy these days and the metaphor I use is that if Thomas Jefferson were acknowledged to be the best president we have, we still would not eliminate the Supreme Court and Congress. Checks and balances is structurally important. We need somebody there as an alternative set of eyes. The Board of Directors and the Chairman of the Board, or Chairwoman, should be there because their primary responsibility is to look at the CEO and say are you doing the right thing?”

On why he is in favor of splitting the chairman and CEO roles within companies:

“My view is it helps a company. This is a governance issue…don’t understand me to be saying if you have that necessarily there will not be problems, not at all. What I’m saying is that having all that power in one position in one person is more likely to lead to problems and hence as a governance matter that’s why we have checks and balances in the Constitution, that’s why we have checks and balances in corporate governance. We should divide the positions.”

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The blog on Magento Infographics depicts the wonderful facts about Magento in an interactive manner that the bloggers would love to know. Also, the Infographics represents the latest stats, global usage, market share and much more else about Magento, which surely reveal its seamless popularity.

Evolution Story of Magento By CSS Chopper’s Infographic infographic

 

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When Google Inc (NASDAQ:GOOG)’s servers were breached in 2009, the Chinese hackers who gained access may have been privy to some sensitive national security information. That’s according to a report by Washington Post reporter Ellen Nakashima.

Details On The Chinese Hack Of Google

Officials told The Washington Post that the hackers were able to access a database which contained years of information about various surveillance targets of the U.S. Hackers were believed to have been trying to learn which Chinese intelligence agents located in the U.S. were under surveillance by U.S. authorities.

Even still, officials haven’t been able to determine how much sensitive information the hackers were able to uncover. However, they do say that the database that was accessed by the hackers had plenty of details about court orders which authorized officials to keep an eye on certain people. Those orders could have indicated that the U.S. was actively engaged in espionage on Chinese agents who used Google Inc (NASDAQ:GOOG)’s Gmail service as their email accounts.

Google Inc (NASDAQ:GOOG) said in 2010 that Chinese hackers had breached its servers, although it did not mention the sensitive database with court order information. After the breach, the search giant and officials from the FBI and the Department of Justice were disputing whether the TBI should be allowed to look at technical logs and other information pertaining to the hack.

Microsoft May Also Have Been Targeted

Last month, one of Microsoft Corporation (NASDAQ:MSFT)’s senior directors seemed to indicate that the company’s servers had also been a target of Chinese hackers around the same time Google reported its breach. David Aucsmith said they believed that whoever was targeting their servers was also trying to determine which accounts were being watched by U.S. government officials.

Since the Microsoft Corporation (NASDAQ:MSFT) official hinted that the company had also been targeted, the company itself denied that its servers had been compromised. Aucsmith later said that his comments weren’t meant to be specific about any particular attack.

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Saks Inc (NYSE:SKS) shares rose as much as 18 percent in after-hours trading after it was revealed that the company hired Goldman Sachs to look into a possible sale. That’s according to a report by New York Post writer James Covert.

Potential Buyers For Saks

Saks apparently is interested in other strategic options outside of a sale as well. According to Covert, the retailer’s flagship store on Fifth Avenue in Manhattan may be worth over $1 billion by itself.

Bidders for Saks Inc (NYSE:SKS) are expected to be large private equity firms. KKR and Leonard Green & Partners were named specifically in Covert’s report as likely bidders for the retail chain.

There was little other information contained in the report. Specifics are decidedly slim on the subject at this point, but Saks shares have been rising steadily throughout the day because of the chain’s latest earnings report.

Saks Surprises With Latest Quarterly Results

Shares of Saks Inc (NYSE:SKS) rose 11 percent during the regular trading day on Tuesday thanks to the company’s positive earnings report today. The luxury retail chain’s first quarter profits were in line with expectations, and its revenue was ahead of consensus.

Same store sales rose 5.9 percent during the quarter, compared to Wall Street’s expectations of 2.6 percent. The chain also said it would launch an ecommerce site this year instead of waiting until next year.

Of course while those results are better than expected, in most cases the results alone wouldn’t be enough to push shares of Saks as high as they did during the regular trading day. With today’s gains during the regular trading day, the company’s stock hit its highest level in over five years.

Barron’s contributor Sam Mamudi pointed out that as of the end of April, 32 percent of the company’s float was held in shorts, which means the positive results may have convinced some of those short sellers to buy shares to cover themselves.

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Tim Cook got grilled by congress for legally using the tax code they created to avoid paying taxes. Below is his full testimony (videos and computer generated transcript) before the ‘honorable’ Senators who tried to make a good show for their constituents. The statements of both CEO Tim Cook and CFO Peter Oppenheimer can be found at the end embedded in scribd.

Current Corporate Tax Code Hurting Economy?

Senator Rand Paul (R-KY) said he thinks the committee should apologize to Apple as the tech giant’s CEO Tim Cook was testifying on tax code, reports CNBC’s Eamon Javers. David Selig, Selig & Associates Federal Tax Practitioner, discusses

Transcript:

we believe anything now. the big story this hour is apple’s tim cook is on the hill being grilled. in case you’re wondering, apple is the largest corporate taxpayer in the country. eamon, you’ve been watching and listening, i imagine this will be a litmus test for some of the other internationals. reporter: that’s right. in fact this particular subcommittee has been going company by company doing case studies. they’re looking at apple releasing pretty revealing report last night, which revealed in fact that apple had created three subsidiary corporations that were not tax residents of any country anywhere in the world, and we expected that tim cook was going to face some grilling on that issue. what we didn’t expect w this moment that we had with senator rand paul that came out even before tim cook began to testify. take a listen. frankly i’m offended by the tone and tenor of this hearing. i’m offended by a $4 trillion government bullying, berating and badgesering one of the america’s greatest success stories. if anyone should be on trial here, it could be congress. i frankly think the committee should apologize to apple. i this that congress should be on trial here for creating a bizarre and byzantine tax code. you’re free to apologize if you wish. you can apologize to anyone you want. this subcommittee is not going to apologize to apple. we did not drag them in front of the this subcommittee. and the subcommittee didn’t in fact apologize to apple. what they did do was question apple fairly intensely at times about why it set up these corporations, whether or not it was avoiding u.s. taxes, but the subcommittee also asked apple’s opinion on how to refor the u.s. tax code overall treating them like subject matter experts. a lot of committee members praising the products. leave at one point pulled out an iphone and said how great it was. it gave apple folks to have some breathing space in the hearing, and tim cook, of course came out to 2k6d his company. i’m often asked if apple still considers itself an american company. my answer has always been an emic yes. we are proud to be an american company, and equally proud of our contributions to the u.s. economy. reporter: so obviously there tim cook saying he’s proud of what the company has done, sort of a mixed day for apple, not necessarily all the body plows landed on the company that a lot of people expected. eamon javers, thank you very much. let’s not forget microsoft and i think hp have also been dragged in front of the congress for the very same reasons. david selig is a federal tax practitioners and advocate. is this a case, david where it’s like senator levin has been in the senate since 1979. he’s had plenty of time to change the tax code. is this a situation where congress basic lip served up the ingredient and now ticked off that apple made the meal? very well said. i think a lot of the individuals who are response gourdian knot and get their rapacious hands on apple’s money, they would probably slap them with a retained earnings penalty, which is the most in — maybe we should be blaming prohibitive tax code, and maybe we need to change it. even tim cook said i would be happy to pay more u.s. tax if indeed you reformed the prohibitive tax code? i think we have to be very careful. even though there are some distinguishes in the code, on the whole it works. the problem with these fast solutions — ivlts wait, it’s not worki if we’re not seeing the moving — i understand that part, but what i’m saying a fast solution to a complex problem usually creates some unpleasant unintended consequences. i’m a big believer in granting whether you call it a federal tax holiday or such so these companies can bring the money back in, and it doesn’t matter how it’s distributed. it could go to different, it could go to bonuses, because that money is going to flow into our federal and state tax laws. what’s the line — you’re a grocery boy sent by a messenger to collect a bill, something like that, right? the government needs money, right? so they’re going after what they seeing is a problem. if you bring up the charts, i think you’ll see would you some people are ticked off. right? corporate taxes used to make up 20%, 25% of the money brought in. it’s now about 9%. the burden on the individual has gone up largely. so does congress at least have a point, especially because it’s broke? no, i have to tell you, without being disrespectful to you, i disagree with the arguments. what’s to stop you? my co-host does it every day. the government has been printing an awful lot of money. it seems they’re looking at they various coveringses as a convenient dog to kick. it creates the impression that these companies are getting awa with something and we’re carrying their water. we have to leave it there, but certainly it’s food for thought. and very polite. very polite as well. yeah, see how nice he was. you could be nicer to me. and we’re talking about tax

Apple Shares Rebound

CNBC’s Seema Mody reports on how Apple shares are reacting to Tim Cook’s testimony on Capitol Hill.

Apple CEO Testifies At Hill Hearing Today

Apple CEO Tim Cook is testifying on Capitol Hill today as Senate investigators accuse the tech giant of using a complicated system to shield billions of dollars in overseas profits. CNBC’s Eamon Javers has the details.

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Post Market News

Stocks that were active in  U.S. trading on Tuesday were The Home Depot, Inc. (NYSE:HD), hhgregg, Inc. (NYSE:HGG), Clearwire Corporation (NASDAQ:CLWR), Carnival Corporation (NYSE:CCL) and FX Energy, Inc. (NASDAQ:FXEN).

Market Levels

• U.S.: Dow Jones: 15,386.72 (0.34%), S&P 500: 1,669.19 (0.17%), Nasdaq: 3502.12 (+0.16%)
• World Markets: Shanghai: 2,305.11 (+0.22%), Nikkei 225: 15,381.02 (+0.13%), Hang Seng Index: 23,366.37 (-0.54%), TSEC: 8,383.05 (+0.07%), FTSE 100: 6,803.87 (+0.71%), EURO STOXX 50: 2,821.65 (-0.10%), BSE Sensex: 20,111.61 (-0.56%)
• Metals: Gold: $1377.60 (-0.47%), Silver: $22.46 (-0.56%), Platinum: $1458.40 (-1.76%)
• Currency: EUR/USD: 1.2910 (+0.10), USD/JPY: 102.35 (+0.08%), GBP/USD: 1.5171 (-0.64%), USD/CAD: 1.0277 (+0.49%), USD/CNY: 6.1356 (-0.05%), AUD/USD: 0.9805 (-0.13%)
• 10 year U.S. Treasury: 1.94% (-0.03), 30 year U.S. Treasury: 3.15% (-0.03)

Market & Economy Update

The stock markets moved higher today, while investors eagerly wait for Federal Reserve chairman Ben Bernanke’s testimony in Congress on Wednesday. A Fed policymaker indicated that the central bank may wind down its bond purchase program if the jobs market continues to improve at the current pace. The Dow Jones Industrial Average gained 52.14 points to 15,387.42, the S&P 500 Index rose 2.87 points to 1,669.16, while Nasdaq gained 5.69 points to 3,502.12.

Stocks In Focus

The Home Depot, Inc. (NYSE:HD)

The home improvement product retailer reported an 18 percent increase in its first quarter earnings to 83 cents a share, handily beating the consensus estimate of 77 cents. Revenues were also better than expectations. Home Depot upgraded its full year earnings and revenues guidance. Shares soared 2.54 percent to $78.71.

hhgregg, Inc. (NYSE:HGG)

The electronics and home appliances retailer’s fourth quarter earnings declined 82 percent amid weaker margins and declining sales. HHGregg said the year earlier period’s performance was helped by insurance-related proceeds. The company issued downbeat guidance for the current year that fell short of Wall Street expectations. Shares plunged 11.92 percent to end the session at $13.75.

Clearwire Corporation (NASDAQ:CLWR)

Sprint Nextel today increased its bid to acquire the remaining 50 percent stake in Clearwire that it doesn’t already own. Sprint increased its offer by 14 percent from $2.97 to $3.40 a share. The revised offer values Clearwire at $10.7 billion. Clearwire shareholders had opposed the previous offer, saying it was too low for the company’s valuations. Clearwire shares jumped 4.29 percent to $3.40 at the end of trading session.

Carnival Corporation (NYSE:CCL)

The cruise-line operator slashed its full year guidance for the second time in the past three months. The company said it’s been hit by lower ticket pricing, higher costs and voyage cancellations. The company now expects full year EPS between $1.45 and $1.65 per share, significantly below consensus estimate of $1.98 a share. Shares tanked 4.28 percent to $33.81.

FX Energy, Inc. (NASDAQ:FXEN)

The oil and gas exploration company reported that its production test at Tuchola-3K well has been successful. The successful testing has  raised the possibility of the company establishing a new exploration play in Poland. Shares surged 38.035 to $4.90 at the end of trading session.

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James Dimon has succeeded in his quest to keep both the CEO and Chairman role. What became a media frenzy, we found a bit boring and lame. As we noted, many other large financial companies have a dual CEO/Chairman (see chart below). Putting that aside, for some reason pundits believed if the roles were separated corporate governance would improve at JPMorgan Chase & Co. (NYSE:JPM). This seems unlikely but aside what happens now?

First a summary of JPMorgan vote on James Dimon

Preliminary voting results suggest that Proposal #6 (Separation of CEO and Chairman roles) has been rather convincingly voted down. In fact, the proposal garnered less support at the 2013 meeting than the previous year, indicating more broad-based support for the current scope of the combined CEO/Chairman role.

Given James Dimon’s successful stewardship of JPMorgan Chase & Co. (NYSE:JPM), many believe that fewer disruptions to his role ultimately benefits JPM and its shareholders.

JPM shareholders vote to keep CEO and Chairman roles consolidated.

James Dimon will keep both the Chairman and CEO titles, as the proposal to separate the two roles actually received less support than the prior year (32.2% vs. ~40% in 2012), indicating the appetite to create an independent Chairman position was probably lower than recent press reports would have suggested.

Analysts at Sterne Agee believe that JPMorgan Chase & Co. (NYSE:JPM) is an organization with proven management talent that has routinely navigated difficult waters, with impressive success, notably the depths of the financial crisis. The organization has a long-established track record, proven business model and earnings power, as well as the proven ability of management to execute both in good times, as well as times of crisis. Although the prosperity has not been uninterrupted (such has the disclosed CIO losses in 2Q12), management’s stewardship of the company has been exemplary, particularly when compared to similarly situated peers.

Composition of the board remains intact, although several directors get significant “no” votes.

Overall, all nine of the current directors won a plurality of shareholder votes. However, three of the directors saw a significant drop in shareholder support vs. last year’s results. Honeywell International Inc. (NYSE:HON) Chairman and CEO David Cote’s vote dropped to 59.3% (from 97%), Henry Crown and Co. President James Crown dropped to 57.4% (from 97%) and Ellen Futter, President and Trustee of the American Museum of Natural History dropped to 53.1% (from 86%). The remainder of the directors all received in excess of 90% shareholder approval.

Focus on fundamentals an incremental benefit to JPM shares.

With the drama surrounding James Dimon’s role now settled, the incremental headline risk associated with a potential management re-shuffling should subside, with an increased investor focus on the company’s otherwise solid operating results. The outlook for JPM’s underlying business units remains favorable under otherwise challenging circumstances, particularly asset management, large corporate / middle market lending and investment banking. Overall, the company continues to deliver shareholder returns, with a mid-teens operating ROTCE in 1Q13, and double digit earnings and tangible book value growth expected for full-year 2013.

Further reading JPMorgan CIO Scores Home Run on UK RMBS

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The Energy Department has issued a second permit to export liquefied natural gas (LNG) from the United States. The license, awarded to Freeport LNG Expansion LP and FLNG Liquefaction LLC, will result in overseas shipping of 1.4 billion cubic feet of gas every day from a terminal on the Texas Gulf Coast. This is only the second such permit to export US LNG. While exports by Freeport are not likely to start before 2017, the market has already started contemplating more such licences being issued by the department going forward.

Chicago Bridge & Iron Company’s Prospects Improved

For once, the move is likely to help engineering and construction firms such as Chicago Bridge & Iron Company N.V. (NYSE:CBI) (FRA:BDZ). The company is an integrated engineering, procurement and construction (EPC) services provider with a focus on the energy, petrochemical and natural resource industries. The company recorded revenue of $2.3 billion during the first quarter 2013, representing an 87 percent jump. While nearly 60 percent of this came from an acquisition, the remaining amount was primarily due to increased construction activities related to LNG mechanical erection and gas processing projects. The company has been winning new projects internationally in this area, including engineering services for an offshore LNG platform in the Norwegian Sea worth approximately $180 million, and scope increases on its refinery project in Colombia worth nearly $175 million. Chicago Bridge & Iron’s prospects are improved by the fact that it has already worked on the front-end engineering and design for the Texas Gulf Coast plant. In fact, it would be a surprise if the company fails to win additional contract work at the plant. Its shares have advanced 23 percent over the last month but are still available at forward price earnings of 12.4.

Fluor Corporation (NYSE:FLR) is another industrial construction and engineering player strong in the hydrocarbon, chemical and petrochemical industries. Although based in Texas, Fluor Corporation is an international player involved in offshore production facilities. It continues to see significant opportunities in the Canadian oil sands market apart from unconventional gas projects in various geographical locations. Oil and gas is the biggest segment for this company with revenues of $9.5 billion, amounting to 34.5 percent of global revenues in 2012. Fluor Corporation is currently trading at a price earnings ratio of only 14.2 times projected earnings for 2014 and has a debt equity ratio of 0.15. Early this month, Deutsche Bank initiated coverage on the stock with a Buy rating and a price target of $84, indicating potential upside of 27 percent.

Beyond construction plays

Another player set to benefit from the relaxed norms is Teekay LNG Partners L.P. (NYSE: TGP) which offers international transportation services for LNG in addition to liquefied petroleum gas (LPG ) and crude oil. The Energy Department’s stance indicates that more such licenses will be rolled out thus increasing business volumes for transporters like Teekay. As of December 31, 2012, the company’s fleet consisted of 27 LNG carriers. With a young fleet that has an average age of 6 years as of year end, the company was able to boost its margins from 25.6 percent in 2011 to 35.5 percent last year. This improvement in margins is substantial and even though margins simply cannot keep going up, current levels are good enough to be maintained. The company has a debt equity ratio of 1.69 which is not very high for this capital intensive business and will support margins to stay at healthy levels. Despite its vastly improved results and margins from previous year, the stock has gained only 18 percent over the last 12 months and offers an excellent dividend yield in excess of 6 percent.

Even though the Energy Department said it would move cautiously on additional approvals, oil and gas industry groups are expected to lobby hard to open the door a bit more. The positives such as job creation and reduction of the U.S. trade deficit which played in favor of Freeport will likely bring more export volumes.

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The Australian dollar became hot and noticeable after rumors that George Soros was shorting the currency surfaced earlier this month. George Soros reportedly placed a $1 billion bet on the fall of AUD on May 6th. The bearish position from Soros, who is known for his big bets against currencies is not the only such incident. Stanley Druckenmiller is the other bear of AUD. He recommended the currency as a short idea in the Ira Sohn Conference.

Australia relies greatly on exports to China and is has a currency heavily linked to commodities. Australia’s major industry is mining, with iron ore, copper, gold and other metals as the backbone of its growth. Reduced demand of raw material from China has been slowly having its effect in Australia, and the same points were also argued in Stanley Druckenmiller’s presentation.

AUD Has Risen 6.4 Percent Against USD

While growth slowed in Australia, its dollar has continued to strengthen.  Between June 2012 and April 2013, AUD has risen 6.4 percent against USD. This rise has increased export costs and has weighed down non-industrial businesses like tourism. The Australian central bank has indicated that it will cut rates and did so on May 7, to a record low of 2.75 percent from 3 percent. As AUD declined, short bets on the currency stacked up.

According to CFTC data, short contracts in AUD futures and options initiated by leveraged funds such as hedge funds and CTAs rose to 67,972 positions on May 14, a 34 percent increase to the 50,576 short contracts that were held till May 7. The current level of short positions is almost double the 35,433 contracts that were held at the end of December. Net long positions by hedge funds have fallen from 116,705 at the end of 2012 to 72,680 on May 14. Of the total 162, 867 active contracts held by hedge funds in AUD futures, 41 percent were held in short bets till May 14.

In addition, long contracts held by asset managers and institutional investors fell from 1670 contracts till May 7 to only 391 on May 14.  Shorts are on the rise among asset managers and other reportable and non-reportable categories as well. On a comparative basis, long to short ratio in AUD is nowhere comparable to the high short interest in EUR and JPY futures, nonetheless AUD bears are gradually picking up speed.

The short interest ratio on CurrencyShares Australian Dollar Trust (NYSEARCA:FXA), another proxy for performance of AUD against USD and a investor sentiment indicator, had risen to 33 percent by May 3. This marks a 54 percent increase to the short interest ratio recorded on Dec 31, 2012. Just like positioning in AUD futures on Comex, here also the highest percentage of shorts have been recorded in CurrencyShares Euro Trust (NYSEARCA:FXE) and CurrencyShares Japanese Yen Trust (NYSEARCA:FXY) where short interest ratio is at 211 and 171 percent respectively.

Australia’s lower dollar can help boost earnings for the core Aussie industry, mining. It is also a common belief that the fiscal easing plan from  Reserve Bank of Australia will support resource stocks in outperfoming, while yield stocks will underpeform. If the Aussies continue to cut interest rates, the short bets on AUD will pile up further. Currently AUD trades at 0.9805 of USD, the currency has declined 5.5 percent YTD and is down 3.72 percent since the May 7th rate cuts.

Further Reading GREED And FEAR Detects Growing Skepticism China Can Ever 

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New York, in its infinite wisdom and need for you to spend your time at ESPN Zone, potentially be the victim of a terrorist attack, and visit Times Square with no chance of finding a prostitute (or peep show for that matter), has decided that the room/apartment rental website that facilitates the letting of extra space is illegal. By New York, in this case, I mean Administrative Law Judge Clive Morrick. In the honorable Judge Morrick’s defense, he did lower the fines levied against Nigel Warren, who rented out his apartment to a woman for a three-day stay in September.

While the law was originally put in place as a means to stop landlords from running illegal hotels from their property, New York courts seem to be continuing their streak of over-legislating its citizens to the point of throwing away tourism revenue. The law that was held up today was by no means intended to keep someone from renting their couch in one of the other four Burroughs that make up New York City in its entirety.

Airbnb Released A Statement

Airbnb clearly agrees and released this statement today….

“This decision runs contrary to the stated intention and the plain text of New York law, so obviously we are disappointed and we are considering all appeal options as we move forward. Put simply, this decision is wrong on the law, and bad for New York.  The laws in New York and around the world are confusing and often contradictory, but we intervened in this case because this was the one area of the law that seemed most clear. This decision demonstrates how difficult is for hosts and even companies like ours to adequately understand laws that were not meant to apply to regular people hosting to make ends meet.

“And more importantly, this decision makes it even more critical that New York law be clarified to make sure regular New Yorkers can occasionally rent out their own homes.  There is universal agreement that occasional hosts like Nigel Warren were not the target of the 2010 law, but that agreement provides little comfort to the handful of people, like Nigel, who find themselves targeted by overzealous enforcement officials.  It is time to fix this law and protect hosts who occasionally rent out their own homes. 87 percent of Airbnb hosts in New York list just a home they live in — they are average New Yorkers trying to make ends meet, not illegal hotels that should be subject to the 2010 law.”

While its nice to stay in the outer reaches of Queens on occasion for $35 a night, New York is going to get you either way when they make you pay $30 for your subway trips for the day. Never mind if you want a large soda or a pack of smokes.

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The various scandals currently circling around the Obama administration are building, and as more information is revealed, the case seems to become more complex. In the scandal concerning the Associated Press, in which twenty of the news agency’s journalists had their phones hacked, the New York Times has uncovered an interesting parallel.

Machen is Not Involved in Just One Hacking Case

Ronald C. Machen Jr, the U.S. attorney for the District of Columbia, revealed last week that his office had obtained phone records for the Associated Press journalists secretly. The news shocked the press, and came immediately in the wake of revelations that the IRS had targeted conservative groups in its oversight. Now it appears that this is not the first phone hacking case that Machen has been involved in.

Back when he was a partner at the law firm WillemHale, Machen was involved in a case in which an Allied Capital investigator had stolen the phone records of a prominent hedge fund manager who was critical of the company’s book keeping. Mr. Machen served as the chief external counselor for Allied Capital during the case.

David Einhorn had his phone stolen by Allied Capital operatives twice in the last decade, in 2004 and 2005. The founder of Greenlight Capital was fighting a campaign at the time to reveal the blurry accounting practices taking place at Allied Capital, a private equity investment firm and money lender.

Allied Capital has since disappeared, but the memory of the case clearly has not. In the case, an investigation was opened into the theft of the phone records, but nobody was ever convicted of the crime. Allied Capital has, however, admitted that one of its investigators was involved in the theft of the phone records.

The connection between the two cases appears to be tenuous, but there are some parallels. In the Allied Capital case, Mr. Machen was doing his job at the law firm he worked for. He represented his client. There were never any accusations that he was involved in the theft of the phone records, or that he knew anything about the theft before he was called in to consult on the case.

There is bound to be a huge amount of evidence and data about those involved in the AP phone hacking case dredged up in the coming weeks. Some of it, like this story, will offer an interesting insight into the ties between law firms and the U.S. government.

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