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					July 12, 2011                                                                                                                                                         2011 issue 12


One Save Leads to Another…
The business outlook is now complicated by so many variables that decision-making at every level has become overly complex and unwieldy. Even the confidence of a
recovery at the two year mark since exiting the worst downturn in modern business history has proven inadequate in the face of deficient job creation here in the U.S.
and the desperate need for a credible, long-term federal budget deficit reduction program. Numerous special factors and the more tenacious headwinds damping the
economic scene around the globe have been aggravating the situation. Markets and policymakers have tried to compensate for each surprise or shock by jerking at the
steering wheel, swerving furiously between "risk off' and "risk on". Europe remains on the precipice and contagion risk is spreading. Despite all the noise about Greece,
Italy and the EU, no one can dismiss the weight of the large negative surprises in the US economic data stream. While the string of surprises may turn around soon,
there is now sufficient suspicion that the 2011 will still disappoint, requiring a further downward adjustment to consensus forecasts. Despite real recovery momentum
and especially significant corporate reliquification, the concern is that ongoing caution by households, policy tightening in emerging markets (notably China), stubbornly
high resource price inflation and a lack of corporate investment in labor continues to counteract any positive factors. And stimulus in the U.S. is fading. About 20
percent of U.S. personal income comes from government payments, and as programs are trimmed, reduced consumer spending could slow the recovery. Unless hiring
picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile.
Among the other supports that are slipping away are federal aid to the states, the Federal Reserve’s program to pump money into the economy and the payroll tax cut,
scheduled to expire at the end of the year. Wobbles are even appearing in emerging markets. Despite continued strong statistical growth, more and more people feel
that not all is right. The slowdown of China's absurd property spiral, as well as recent revelations about the size of its local government debt, have combined to set off
new considerations that could rankle commodity and foreign exchange markets and more.




                                                                                                          One of the most depressing statistics in the depressing June jobs report was
                                                                                                          another decrease in the employment-to-population ratio. This ratio, which
                                                                                                          shows the percentage of American adults (16 and older) who are working,
                                                                                                          dropped again, to 58.2%. This is the lowest level since 1983.




                                                                                       Movement in Budget Impasse?
                                                                                       The “grand deal” would cut trillions in
                                                                                       government spending over the next ten
    Companies focus on profitability and markets;                                      years.
    Help keep unemployment high                                  CONTAGION…  Europe: Bond Yields up Sharply for Italy, Greece, 
                                                                 Ireland and Portugal   Italian bonds slid , driving yields to a nine‐year 
    QE2 Is Over: Now What?                                       high, as contagion from Greece’s fiscal crisis intensified in the 
    The stimulus didn't stimulate job growth but                 region’s biggest government‐debt market.
    inflation is perking up its head, suggesting QE3          Held hostage - - in Greek tragedy and EU political intrigue
    isn't in the works and would be pointless anyway.
                                                                                                         EU bank test laggards will need capital backstop
                                                                                                         Up to 15 lenders are expected to flunk Europe's stress tests. That outcome
  ABRAHAM GULKOWITZ                          Gasoline Prices down almost 40 cents                        would give the exercise much-needed credibility, but also involve sizeable
  abe@gulkowitz.com                          per gallon Nationally from May Peak                         costs. Stragglers need to show how they can fill the capital holes - and
                                                                                                         periphery governments have limited scope to help.
  917-402-9039
July 12, 2011                                                                                                                                                               The PunchLine...




                                                                            In This Issue

• One Save Leads to Another…                                                                                       • Engines…
  The business outlook is now complicated by so many variables that decision-making                                    Despite seemingly entrenched recovery around the globe, we face numerous
  at every level has become overly complex and unwieldy. Even the confidence of a                                      challenges to further balanced expansion and now even government debt and
  recovery at the two year mark since exiting the worst downturn in modern business                                    policy have become risk factors. One should therefore worry about the likely
  history has proven inadequate in the face of deficient job creation here in the U.S.                                 contours of the recovery path. Given all the new risks that have emerged recently,
  and the desperate need for a credible, long-term federal budget deficit reduction
                                                                                                                       it’s clearly an international affair…                                        (pg 7)
  program. Numerous special factors and the more tenacious headwinds damping the
  economic scene around the globe have been aggravating the situation. Markets and                                 •   Moving Off the Bottom…                                                      (pg 8)
  policymakers have tried to compensate for each surprise or shock by jerking at the
  steering wheel, swerving furiously between "risk off' and "risk on". Europe remains on                           •   Trust Me on This…                                                           (pg 9)
  the precipice and contagion risk is spreading. Despite all the noise about Greece,
  Italy and the EU, no one can dismiss the weight of the large negative surprises in the                           •   Pumping iron…                                                             (pg 10)
  US economic data stream. While the string of surprises may turn around soon, there
  is now sufficient suspicion that the 2011 will still disappoint, requiring a further                             •   Credit Concerns                                                           (pg 11)
  downward adjustment to consensus forecasts. Despite real recovery momentum and
  especially significant corporate reliquification, the concern is that ongoing caution by                         •   The Return to Normal…                                                     (pg 12)
  households, policy tightening in emerging markets (notably China), stubbornly high
  resource price inflation and a lack of corporate investment in labor continues to                                •   The DNA of Business…                                                      (pg 13)
  counteract any positive factors. And stimulus in the U.S. is fading. About 20 percent
  of U.S. personal income comes from government payments, and as programs are
                                                                                                                   •   Tech and the Business Cycle…                                              (pg 14)
  trimmed, reduced consumer spending could slow the recovery. Unless hiring picks
  up sharply to compensate, economists fear that the lost income will further crimp
                                                                                                                   •   Complacency in Europe…                                                    (pg 15)
  consumer spending and act as a drag on a recovery that is still quite fragile. Among                             •   The New Geography of Business                                             (pg 16)
  the other supports that are slipping away are federal aid to the states, the Federal
  Reserve’s program to pump money into the economy and the payroll tax cut,                                        •   Real Estate and Construction                                              (pg 17)
  scheduled to expire at the end of the year. Wobbles are even appearing in emerging
  markets. Despite continued strong statistical growth, more and more people feel that                             •   Will Life Ever be the Same?                                              (pg 18)
  not all is right. The slowdown of China's absurd property spiral, as well as recent
  revelations about the size of its local government debt, have combined to set off new
  considerations that could rankle commodity and foreign exchange markets and more.
                                                                                                       (pg 1)
• In This Issue                                                                                        (pg 2)
• U.S. Job Growth                                                                                     (pg 3)
• Households?
  Numerous questions for a once free-spending sector whose housing and
  mortgage finance machinery have not just collapsed but are severely damaged…The
  previous boom cannot and should not be recreated…                          (pg 4)


• Dimensions of Risk…                                                                                  (pg 5)
• You Can’t Handle the Truth…                                                                         (pg 6)




                                                                                                                            Contact information:



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




 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.




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July 12, 2011                                             The PunchLine...




                U.S. Job Growth
                            Jobs barely rise in U.S., dousing hopes of revival




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July 12, 2011                                                                                                                                                            The PunchLine...




                      Households – Brave New World
                                                                                                            More mortgage aid…              The Obama administration will
“For Small Businesses, Recession Isn’t Over.”                                                               require mortgage companies to extend more generous mortgage
According to the WSJ, “The owners of many small businesses say                                              relief to help certain unemployed borrowers from losing their
economic uncertainty and inflationary pressures have led them to                                            homes to foreclosure.       Under policy changes announced
                                                                                                            Thursday, mortgage companies that collect payments on loans
delay hiring and capital expenditures. Seventy percent have no                                              backed by the Federal Housing Administration will be required to
plans to expand their staffs over the next 12 months, according to a                                        offer 12 months of forbearance for qualified unemployed
recent US Bancorp survey of 1,004 U.S. companies with annual                                                borrowers. Currently, out-of-work borrowers with these loans can
revenue of $10 million or less.”                                                                            receive a minimum of four months without mortgage payments.




Big Banks Easing Terms on Loans Deemed as Risks                                                  On 2nd Recovery Anniversary, Still 6.98 Mln Jobs Shy
As millions of Americans struggle in foreclosure with little                                        June Payrolls Only +18,000; Unemp Rate Up a Tenth to 9.2%
hope of relief, big banks are going to borrowers who are not
even in default and cutting their debt or easing the mortgage                                       'Big Swing' Over the Past Five Months
                                                                                                 The new unemployment numbers defied expectations, underlining the slowdown instead of
terms, sometimes with no questions asked. Two of the                                             signaling an uptick, as vacation jobs outdistanced the other major categories and government
nation’s biggest lenders, JPMorgan Chase and Bank of                                             jobs losses took a bigger bite. The Bureau of Labor Statistics Friday reported only 18,000 payroll
America, are quietly modifying loans for tens of thousands                                       slots were created in June while April and May's results were revised lower and the
of borrowers who have not asked for help but whom the                                            unemployment rate rose another tenth, to 9.2%. Without seasonal adjustment, there were
banks deem to be at special risk.                                                                376,000 jobs actually created.




                                                                                                                                           Americans took on more debt in May and used their
                                                                                                                                           credit cards more for only the second time in nearly
                                                                                                                                           three years. Consumers stepped up their borrowing just
                                                                                                                                           as the economy began to slump and hiring slowed.
                                                                                                                                           Borrowing is a sign of confidence in the economy.
                                                                                                                                           Consumers tend to take on more debt when they feel
                                                                                                                                           wealthier. That boosts consumer spending. Ultimately, it
                                                                                                                                           gives businesses more faith to expand and hire. But an
                                                                                                                                           increase in credit card debt can also be a sign of people
 NOTE: Persons marginally attached to the labor force are those who currently are neither                                                  falling on harder times.
 working nor looking for work but indicate that they want and are available for a job and have
 looked for work sometime in the past 12 months. Discouraged workers, a subset of the
 marginally attached, have given a job-market related reason for not currently looking for
 work. Persons employed part time for economic reasons are those who want and are available
 for full-time work but have had to settle for a part-time schedule.




                                                                                                                          Consumer Sentiment Also Weak…                  The final June Reuters /
                                                                                                                          University of Michigan consumer sentiment index decreased to 71.5
                                                                                                                          from the preliminary reading of 71.8. This is down from 74.3 in May.




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July 12, 2011                                                                                                                                              The PunchLine...



                                           Dimensions of Risk
                                      Distortions, Distortions, Distortions

Distorted Recovery…         A study finds the current US recovery
unusually skewed in favor of corporate profits and against                                                 The twists and turns of the Greek crisis and the
increased wages for workers. “Aggregate employment still has not                                           whipsaw market activity have made it difficult for
increased above the trough quarter of 2009, and real hourly and                                            many investors to maneuver.
weekly wages have been flat to modestly negative,” the report
                                                                                                           Playing Make-Believe With Greece
concludes. “The only major beneficiaries of the recovery have been                                         S&P: Greece Debt Plan Is a Default
corporate profits and the stock market and its shareholders.”                                              Standard & Poor's Corp. said that a leading proposal for easing repayment
                                                                                                           terms on Greece's sovereign debt would amount to a default under the ratings
                                                                                                           firm's criteria ... The European Central Bank has maintained that it won't
                                                                                                           accept bonds with a default rating as collateral. Hence, averting a selective
                                                    Brazil plans to curb strength 
                                                                                                           default rating is crucial to ensure that banks holding Greek bonds aren't shut
                                                    of booming economy                                     out from the ECB's liquidity operations for the few days that the country's
                                                    Restraining excess speculation in the futures and      bonds would be rated selective default... A spokesman for the European
                                                    derivatives markets are just two options being         Commission said euro-zone governments designing a second bailout for
                                                    considered by Brazil's finance minister Guido          Greece intend to avoid a selective default and expect to have "clarity" on the
                                                    Mantega in order to curb the strength of the           outlines of the package by the July 11 meeting of finance ministers.
                                                    country's economy.        Those buying Brazilian
                                                    property were told that the Latin American nation
                                                    was on track for a growth of around 4.5 per cent for
                                                    2011, which is higher than the 4.0 per cent and 3.94
                                                    per cent predicted by the central bank and analysts
                                                    respectively, according to Reuters.




Portugal Woes: Cut to Junk by Moody’s on Financing Risk
Portugal’s long-term government bond ratings were cut to Ba2, or
junk, from Baa1 by Moody’s Investors Service. The outlook is
negative.      The reductions stem partly from “the growing risk
that Portugal will require a second round of official financing
before it can return to the private market,” Moody’s said in a
statement. There is also “the increasing possibility that private
sector creditor participation will be required as a pre-condition,”
the ratings company said. Portugal is the second euro country
rated non-investment grade by Moody’s, joining Greece, after
winning a 78 billion- euro ($113 billion) international bailout in
May as the Iberian nation struggles to repair its finances. Concern
that Portugal won’t be able to fully achieve its deficit-reduction
target was also a reason for the cut, Moody’s said.



EU President Calls Emergency Meeting on Italy, as 
Brand New Game of Chicken Emerges in Europe




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   July 12, 2011                                                                                                                                                The PunchLine...




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

                                                                                                                              A New Approach is Needed
Minnesota state shutdown is America's writ small
Washington should look hard at the North Star state. A budget impasse - much like the one playing                             French Greek plan – smoke and mirrors…   
out in the nation's capital - is forcing the government to halt everything from construction to                               It's not entirely clear who the Gallic banks are trying to 
childcare to rest-stops. How it plays out could soften politicians' resolve in D.C.                                           hoodwink with their elaborate scheme for rolling over 
                                                                                                                              Greek debt: rating agencies, accountants or taxpayers. 
                                                                                                                              But Europe would be better off with a simpler, more 
                                                                                                                              upfront scheme that didn't involve smoke and mirrors. 
     Debt ceiling impasse threatens US bonds
     Wrangling could hit sentiment
                                                                     Unemployment Insurance Expiring…
     Moody’s warns of downgrade risk
    The US bond market faces a potentially testing July,             Looming income shock at the end of the year
    should the impasse over raising the Federal debt ceiling         Plenty of slack remains in the labor market and it will take a long
    not be resolved, thereby raising the risk of a default by the    time to clear excess workers from the ranks of unemployment.               “Deleveraging” will dominate the
    Treasury. While the consensus in the bond market is for          Currently there are more than 7.6 million unemployed workers               rich world’s economies for years…
    a last-minute deal ahead of the August 2 deadline,               collecting unemployment checks. At the end of this year extended
                                                                     benefits and the emergency unemployment compensation programs –
                                                                                                                                                Done badly, it could wreck them
    sentiment might be hit as rating agencies weigh in on the
    issue and the market is asked to absorb new debt.. At the        the federally funded UI programs – are set to expire. Support for
    end of June, investors notably backed away from Treasury         extending these programs is unlikely to materialize. When these
    debt sales, mainly due to the low level of yields and relief     programs expire one would expect a slow runoff of workers from
    that Greece had accepted a tough austerity deal. In turn,        these programs. This means that 3.9 million unemployed workers
    the yield on 10-year Treasury notes jumped 34 basis              would lose their weekly unemployment checks. This would act as a
    points to 3.20 per cent last week, the largest such rise         shock to economy in the first half of 2012 in the form of reduced
    since mid-2009. The closer the debt ceiling deadline             income which would hurt already weak consumption growth.
    looms without a sign of a deal, however, the greater the
    risk that Treasury trading becomes less liquid, say
    traders.




    CREDIT BINGING
    China Banks’ Outlook May Be
    Souring on Loans, Moody’s Says…
    Chinese banks’ loans to local governments are
    about 3.5 trillion yuan ($540 billion) more than
    the national auditor’s estimate, and the industry’s
    credit outlook could decline, Moody’s Investors
    Service said. “The Chinese audit agency could
    be understating banks’ exposure to local
    governments,” Yvonne Zhang, a Moody’s analyst
    in Beijing, said in the report today. The “apparent
    absence of a clear master plan to deal with this
    issue” is likely to exacerbate problems and
    lenders may be left to manage a portion of the
    souring loans on their own, it said.            Bank
    shares fell and bond risk rose on concern that the
    banks will be unable to absorb losses on defaults
    should property prices drop. Moody’s estimates
    that local overnments’ debt is about a third more
    than the audit office’s findings last week of 10.7
    trillion yuan. Non-performing loans could reach
    as much as 12 percent of total credit, it said.




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July 12, 2011                                                                                                 The PunchLine...




                                                  Engine Drivers…
PMI CHINA SLIDING           The Chinese factory sector grew at its
slowest pace in 28 months in June as weak demand abroad and tight          CHINA RISK… Doubts are mounting about the health of
                                                                           China's property market, Beijing's ability to control inflation and
monetary policy at home pinched production.            Although the
                                                                           the true extent of government debt.
moderation in activity did not point to a sharp drop-off in economic       Last week, the central government disclosed that local
growth for now, the data were slightly worse than forecast and led         governments owed debts equal to a quarter of gross domestic
some analysts to predict that China might be less aggressive in            product. It's hard to imagine a large chunk of those
tightening monetary policy conditions later this year.                     borrowings won't turn sour.




                                                                           Rents Rise, Vacancies Go Down…               According to
                                                                           Reis, the average effective rent – the amount paid after
                                                                           discounting – was $997 in Q2, up from $974 last year.
                                                                           Across the 82 markets the firm tracks, all but two saw
                                                                           rents rise. Meanwhile, vacancy rates declined to their
                                                                           lowest levels since 2008, falling to 6% in Q2 from 7.8% a
                                                                           year‐ago. The WSJournal also notes that supply remains
                                                                           constrained. Roughly 8,700 new apartment units opened
                                                                           during the second quarter, the second‐lowest quarterly
                                                                           tally for new completions since Reis began collecting data
                                                                           in 1999.




                                                                               China's Bumpy Road Ahead
                                                                               Unrest, inflation and an aging populace stand
                                                                               in the way of the Middle Kingdom's touted
                                                                               domination
                                                                               Demographics may only be one input, but in China's case it is
                                                                               a large one. Thanks to the one-child policy, the population is
                                                                               greying alarmingly quickly. .


                                                                               The financial crisis made clear that China's dependence for
                                                                               growth on the purchasing power of consumers in America,
                                                                               Europe and Japan creates a dangerous vulnerability. Those
                                                                               who insist that it's possible to map the precise arc of China's
                                                                               rise seem to assume that China's leaders can steadily shift the
                                                                               country's growth model toward greater domestic
                                                                               consumption, by transferring enormous reserves of wealth
                                                                               from China's powerful state-owned companies to hundreds of
                                                                               millions of new consumers.        That's quite an assumption.
                                                                               Despite the best efforts of policy architects in Beijing, the
                                                                               share of household consumption in China's economic growth
                                                                               last year actually moved in the other direction, in part
                                                                               because there are political powerbrokers within the elite who
                                                                               have made too much money from the old model to fully
                                                                               embrace a new one.




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 July 12, 2011                                                                                                                                       The PunchLine...




                                     Moving off the Bottom…
Profits… but where are the Jobs?
“To date, through the first quarter of 2011, the nation’s recovery from the 2007–2009                          The median pay raise for chief executives last year
recession is both a jobless and a wageless recovery. Aggregate employment still has not                        — 23 percent — was roughly in line with the
increased above the trough quarter of 2009, and real hourly and weekly wages have been                         increase in net corporate profits. But it far exceeded
flat to modestly negative. The only major beneficiaries of the recovery have been corporate                    the median gain in shareholders’ total return, which
profits and the stock market and its shareholders. Most holders of savings and money mar-                      was 16 percent, as well as the median gain in
ket accounts also are net losers due to declining real interest rates which have been in neg-                  revenue, which was 7 percent.
ative territory for many interest bearing and money market accounts.”
Study - Northeastern University - The “Jobless and Wageless” Recovery from the Great Recession of
2007-2009.




                                                                                                    Washington DC continues to see sharp home price appreciation.
                                                                                                    Home prices in our nation’s capital rose 2% in April and running at a
                                                                                                    13.3% rate over the last three months. Bust markets like Las Vegas and
                                                                                                    Tampa continue to show weakness.




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July 12, 2011                                                                                                              The PunchLine...




                                         Trust Me on This…




                                                      Ford on Car Sales: May and June "slowest sales rates of the year“
   Auto industry, repositioning, is hiring …          General Motors Co. said its U.S. sales rose 10 percent in June, missing
   Volkswagen opened a plant in Tennessee              analysts’ estimates, as pickups lagged the growth in deliveries of cars such as
   last month with 2,000 workers. Honda is             the Chevrolet Cruze. Big-truck inventories swelled to the highest of the year.
   hiring 1,000 in Indiana to meet demand 
   for its best‐selling Civic. General Motors       “Carmakers indulge in sales pipe dreams again”
   is looking for 2,500 in Detroit to build the    Nissan reckons it'll almost double global sales by 2016. Ford is
   Chevy Volt.                                     targeting a 50 pct bump, VW a tad less. If rivals match that growth, in
                                                   five years' time the industry will be producing 20 pct more cars
                                                   annually than market forecasters currently expect to be sold.
                                                   Disappointment awaits !




                                                             9
July 12, 2011                                                                                                           The PunchLine...


                        Pumping Iron - Old Economy –
                              New Challenges




                                                                                US Containerboard: Box shipments rose 0.5% in May
                                                                                On a year‐to‐date basis, actual shipments were up 0.7%. US
                                                                                containerboard producers operated at 93.8% of capacity in
                                                                                May 2011, down from 95.4% one year earlier. Containerboard
                                                                                production was down 0.9% from May 2010. The list price for
                                                                                linerboard has held steady at $690/ton since April 2010




Corn Prices Fall Sharply After a Larger‐Than‐
Expected Estimate of US Crop
The nation’s farmers have planted the second-largest corn crop in
nearly seven decades, the Agriculture Department reported Thursday,
setting off a sharp decline in prices. The size of this year’s corn crop
will be 92.3 million acres, the department said, 9 percent more than
the average annual corn crop over the last decade. The only crop
bigger in the last 67 years was planted in 2007.



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  July 12, 2011                                                                          The PunchLine...




                                                             Credit Matters




Credit-card debt may threaten Brazil's boom




Brazil gorges on credit-card debt, and many worry it could threaten nation's boom




    Bailed-out Portugal paid an immediate price for a
    drastic Moody's rating downgrade to junk status,
    having to offer investors a much higher rate of return
    to raise fresh funding. Dropped four notches to Ba2,
    Lisbon found itself on the defensive in the markets as
    rattled investors demanded more for their money, with
    the new government's tough austerity program
    forgotten quickly in the crossfire.




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 July 12, 2011                                                                                   The PunchLine...




                                           The Return to Normal !

Lodging in Recovery…            The summer leisure travel season is now starting, and the
occupancy rate will increase over the next few of months. Right now the occupancy rate is
tracking closer to 2008 than to 2010 - and well above 2009.




In a sign the economic recovery's recent
stumbles may be spilling over into the real-
estate market, employers took on less office
space during the second quarter than earlier
in the year.




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July 12, 2011                                                            The PunchLine...


                                            The DNA of Business
                                   Workouts to Define Recovery
Fuel Law Looms Over Luxury Cars
Proposed Fuel-Economy Rules Could Levy Big
Fines Against German Auto Makers or Bar
Some Sales
Future U.S. government fuel economy regulations could
saddle auto makers with steep fines or even bar the sale
of certain models. Violations of proposed government
standards could cost auto makers up to $25,000 a
vehicle beginning in 2016, up from current levels of $5
to hundreds of dollars per vehicle.



Truck Firms Gird for New Limits
Calculating Human, Business Costs of a Shorter Driving Day
The rules, proposed in December by a Transportation
Department agency, would cut the daily driving limit for truck
drivers to 10 hours from 11 hours. They would require drivers to
be off duty for 34 hours, including two full nights, once they
reached their driving limit for the week. The agency also has
proposed shrinking work shifts for truckers, which might
include loading or unloading, to 13 hours a day from 14 hours
and requiring a 30-minute break after seven straight hours on the
road.




Switch to online
shopping hurting malls



Retailers to rein in discounts
According to the Wall Street Journal much of the
improvement in recent retail sales was driven by
strong discounting; the summer-clearance season
to clear out shelves for the back-to-school season
got off to a strong start. However, because input
costs have risen, many retailers reportedly plan on
keeping inventory levels very lean to avoid
promotional discounts on overstock and encourage
full-price selling in the back half of the year to
protect margins.




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July 12, 2011                                                                     The PunchLine...




                         Tech and the Business Cycle




Roaming data costs in
EU to be slashed
The average cost of using smart‐
phones and tablets when 
travelling in the European Union 
will be more than halved under 
new plans from Brussels that will 
delight customers…



Weaker Earnings Amid LCD Woes
Samsung Electronics Co. said Thursday it estimates weaker second-
quarter earnings, as its liquid crystal display business likely posted its
second straight quarterly loss due to slumping demand for televisions
and personal computers. Samsung, the world's biggest maker of
memory chips and LCDs by sales, is the first major global
technology firm to give earnings guidance for the second quarter.
The company's weak estimates reflect faltering demand for
consumer electronics amid a slowing global economic recovery.
    The proliferation of flat-panel displaymakers has been
    great for consumers but has made for lousy business




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July 12, 2011                                                                                                                              The PunchLine...




                               Complacency in Europe?

Private sector activity in the eurozone slowed in June, marking
the weakest level of expansion since October 2009, according
to Markit Economics. The Final Composite Purchasing
Managers’ Index declined to 53.3 from 55.8 in May. Meanwhile,
Eurostat reports that retail sales in the eurozone dropped by
1.1% m‐o‐m in May, compared with a 0.7% m‐o‐m expansion
in April. Slower private sector growth, combined with weak
consumer spending, suggests cooling eurozone growth in
Q211 amid rising interest rates and continued fiscal tightening
measures.
Spanish Industrial Production Fell for Third Month in May
Spanish industrial production fell for the third month in May as the
economy struggled to emerge from a three-year slump. Output at                  Italy has a plan…           But is it for real?             The new fiscal
factories, refineries and mines fell 0.4 percent from a year earlier,           austerity package is certainly a step forward relative to the status quo. If
adjusting for the number of working days, the National Statistics               implemented, it would have a strong positive effect on the country’s
Institute in Madrid said today in an e-mailed statement. Production fell        debt dynamics. The proposed reforms of the tax system are welcome
a revised 1.5 percent in April, the sharpest contraction in six months.         and would foster growth. Balancing the budget by 2014 and higher
                                                                                future growth would also take Italy a step closer to conforming to the
                                                                                new rules set by the Eurogroup meeting in March 2011 for the Stability
                                                                                Pact. However, everyone’s fear is that the measures might not be fully
                                                                                implemented. The package is back-loaded, and the majority of the
                                                                                budget cuts will take place in 2013 and 2014. The current legislation,
                                                                                however, will end in 2013. As elections draw nearer, there will be
                                                                                tremendous pressure to postpone the 2013 budget cuts. Quite possibly,
                                                                                the measures for 2014 will also be set by a new government.

                                                                                Italy can't afford to waver on austerity
                                                                                Rome is sending mixed signals on its fiscal plans. Its
                                                                                finance minister has been weakened by a corruption probe
                                                                                into a close associate. With spreads on Italian debt at euro-
                                                                                era highs, investors' patience may be running out. Italy
                                                                                should front-load its austerity programme.


                                                                                ECB: Interest rates hikes will proceed at a slow pace, dependent
                                                                                upon the data; we believe interest rates will increase 25bp again in
                                                                                October to 1.75% (as signaled by the words "monitor very closely");
                                                                                rates could reach 2% in Q1 2012 (as underlined by the repeated
                                                                                reference to monetary policy remaining accommodative and rates
                                                                                at a historically low level: "further adjustment ...is warranted in
                                                                                light of upside risks to price stability")
                                                                                ECB considers the soft patch temporary, with the underlying
                                                                                economic trend still having momentum. There are risks around the
                                                                                on‐going fiscal fragility of some countries. Conversely, the ECB
                                                                                repeated that it is setting policy for the average of the euro area
                                                                                (yet we argue the periphery economic activity is the most sensitive
                                                                                to movements in monetary policy so rate hikes may only proceed
                                                                                slowly to minimize their impact)



                                                                                Russia backtracks on electricity liberalisation
                                                                                Three years after its landmark privatisation, Russia's electricity
                                                                                industry is moving back under state control. A merger between
                                                                                Gazprom's power holdings and those of Victor Vekselberg
                                                                                compromises the sector's liberalisation, illustrating
                                                                                inconsistencies in the reform.




                                                                           15
 July 12, 2011                                                                                             The PunchLine...




                  The New Geography of Business
The devastating earthquake that struck Japan in March
punctured the country’s business confidence during the
second quarter, a closely watched survey showed, but a
post-quake recovery is gathering steam, with companies
expecting conditions to improve in the coming months. The
Tankan survey, a quarterly poll of thousands of companies by
the Japanese central bank, showed that sentiment among large
Japanese manufacturers had slumped drastically after the March
11 disaster to Minus 9 in June, from Plus 6 in March. The
negative reading for June showed pessimists clearly
outnumbering optimists for the first time since March 2010,
when the economy was still reeling from the fallout of the global
financial crisis. It also underscored the drastic effect that the
quake and tsunami had on the wider Japanese economy.


CANADA An index of Canadian small business confidence fell in June
for a second consecutive month to the lowest since last November,
reflecting a less upbeat mood in most industries.


Nestle to Buy Control of China's Biggest Confectioner
Nestlé said on Monday that it had agreed to pay $1.7 billion for a 60 percent
stake in a big Chinese confectioner, its second significant foray into the
rapidly growing Chinese market in less than three months. Best known for its
soluble coffee brands, bottled drinks and baby foods, the Swiss food giant is
teaming up with Hsu Fu Chi International, a maker of chocolate, candies and
pastries popular in China, to create a joint venture that Nestlé said would
"greatly reinforce" its presence in China.




BRAZIL… INFLATION PRESSURES.. May's unemployment rate hit a record
low for Brazil, with the figure dropping to the lowest for the month since 2002.
Although the fall in unemployment may put pressure on increasing levels of
inflation, the Brazilian government remains confident that inflation will fall as
the year progresses. The unemployment rate remained unchanged in May at
6.4 per cent, the Brazilian Geographic and Statistics Institute, or IBGE
revealed, however, this figure is the lowest level of unemployment for the
month since the record began in 2002 and a significant drop compared to the
figure of 7.5 per cent recorded in May 2010. High levels of employment mean
that there are few spare workers in the country, driving up rates of pay as
employers are forced to compete for staff.



                                                                                         Russia: Budget to Stay in Deficit Into 2015




                                                                                    16
July 12, 2011                                                                                                                                                The PunchLine...



     Real Estate and Construction Outlook


                                                                                                       U.S. regional mall vacancies jump to 9.3 pct, rent flat
                                                                                                        Strip mall vacancies climb to 11 pct, rent flat
                                                                                                       The average vacancy rate for large U.S. shopping malls reached its highest
                                                                                                       level in 11 years in the second quarter, as department store closings took effect
                                                                                                       and retailers scaled back their floor space due to cautious shoppers, according
                                                                                                       to a report issued on Friday. Preliminary figures by real estate research firm
                                                                                                       Reis show the vacancy rate at these regional malls rose to 9.3 percent, the
                                                                                                       highest level since 1990 and up from 9.1 percent in the first quarter. The picture
                                                                                                       was even bleaker for U.S. strip malls where retailers gave up over half million
                                                                                                       more square feet than they rented. The vacancy rate at these local retail strips
                                                                                                       was 11 percent versus 10.9 percent in the first quarter, almost matching the 11.1
                                                                                                       percent record set 20 years ago, Reis said. Rents at both types of retail
                                                                                                       locations were flat.




Sluggish economy slows US office market rebound
The U.S. office vacancy rate stood at 17.5 percent at the end of the second quarter, according
to Reis. The rate was the same as the first quarter, when vacancies posted the first decline in
nearly four years. ... The average asking rent rose 0.2 percent to $27.72 per square foot,
according to Reis. Factoring in months of free rent and other concessions landlords offer to
attract tenants, the so-called effective rent also rose 0.2 percent in the second quarter, to
$22.25 per square feet.




U.S. Construction Spending
Release for: May 2011
Source: U.S. Department of Commerce
Millions of U.S. dollars, seasonally adjusted annual rate
                                            yr-ago   % change:        yr/yr
                     May-11 Apr-11 Mar-11 May-10 May-11 Apr-11 Mar-11 May-11

Total (current $)                   753483        757851        762557       811249          -0.6      -0.6     -0.2       -7.1
 Total private                      477213        479275        477158       506752          -0.4       0.4     -0.3       -5.8
 Total public                       276270        278577        285399       304497          -0.8      -2.4      0.0       -9.3
  Private
   Residential                      228935        233837        227254       245216          -2.1       2.9     -2.6      -6.6
    New 1-family                    105186        105466        105923       119327          -0.3      -0.4     -1.0     -11.9
    New Multi-famil                  13251         13532         13460        14222          -2.1       0.5     -1.6      -6.8
  Total New Homes*                  118437        118998        119383       133549          -0.5      -0.3     -1.1     -11.3
  Res Ex New Homes*                 110498        114839        107871       111667          -3.8       6.5     -4.3      -1.0
   Priv Nonresident                 248278        245437        249904       261537           1.2      -1.8      1.9      -5.1
    Office                           21194         20916         21823        24186           1.3      -4.2      1.1     -12.4
    Commercial                       36730         36882         37035        37660          -0.4      -0.4     -0.6      -2.5
    Manufacturing                    31576         31021         31521        39293           1.8      -1.6      4.8     -19.6
    Power                            70763         67787         69771        63484           4.4      -2.8      1.5      11.5
    Transportation                   10423          9970         10486        10054           4.5      -4.9     -1.5       3.7
  Public
    Educational                      68621         70223         71031        75186          -2.3      -1.1      3.2      -8.7
    Highway, street                  74733         75892         77413        84212          -1.5      -2.0     -2.0     -11.3
  Federal                            29598         28995         30046        31776           2.1      -3.5     -0.6      -6.9
  State and Local                   246672        249581        255353       272722          -1.2      -2.3      0.0      -9.6


                                                                                                  17
July 12, 2011                                                                                                                                 The PunchLine...




                Will Life Ever Be the Same?




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