3 Ways to Play Coal & Natural Gas (At Once)

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Thanks To Data Revisions, Britain Has Dodged A Double-Dip Recession

REUTERS/Stefan Wermuth

A worker paints a wall on a construction site in London January 5, 2011.

$('.icon-tooltip').tooltip();LONDON (Reuters) - Britain's economy did not suffer a double-dip recession after all, but its recession immediately after the financial crisis was deeper than previously thought.

Revised data showed that Britain's economy did not shrink in the first three months of 2012, and output was instead flat, the Office for National Statistics said following a major annual revision of Britain's economic data.

That meant that the country did not suffer the two consecutive quarters on contraction which commonly define a recession - a relief for finance minister George Osborne, even if other revisions showed a darker underlying picture.

Britain's economy shrank by 7.2 percent in recession immediately after the financial crisis, compared to earlier estimates of a 6.3 percent decline.

Output is now 3.9 percent below its pre-recession peak, again worse than previously reported.

Growth in the first three months of 2013 was unrevised at 0.3 percent compared with the previous quarter, but the year-on-year growth estimate was unexpectedly halved to 0.3 percent.

Britons' disposable incomes slumped by 1.7 percent on the quarter, their biggest fall since 1987, and business investment also fell sharply.

However, recent data and surveys point to a strengthening of growth in the second quarter, with the Bank of England forecasting a 0.5 percent expansion.

However, the economy remains fragile and many economists expect the central bank to restart its quantitative easing asset purchases of provide other stimulus soon after former Canadian central bank chief takes Mark Carney takes over from governor Mervyn King on July 1.

The ONS also released first-quarter current account data, which showed that Britain's deficit with the rest of the world widened unexpectedly.

(Reporting by William Schomberg and David Milliken)

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Pandora Says Pink Floyd Is Lying About Royalty Cut

REUTERS/Stephen Hird

On Monday, we wrote up Pink Floyd's in-print reunion blasting Pandora's initiative to alter the royalty rate it pays songwriters and accusing the company of sending out misleading information about the effort. 

Now Pandora has responded, sending out the following statement saying they're the ones lying:

We have enormous respect for the members of Pink Floyd, and their amazing artistic contributions. We also respect the genuineness of their opinion.

Unfortunately, they have been given badly misleading information – the result of a well-orchestrated campaign by the RIAA and their lobbying arm to mislead and agitate artists.

A glaring example is the assertion that Pandora supports an “85% artist pay cut." That is simply not true. [emphasis ours]

We never, nor would we ever, support such a thing. In fact, Pandora has suggested solutions that would guarantee no reduction in artist payouts while also nurturing the growth of internet radio -- a medium that is crucial to thousands of independent musicians who don’t enjoy major label support or FM radio exposure. 

This much is true: Pandora is by far the highest paying form of radio in the world and proudly pays both songwriters and performers.

For perspective, to reach the exact same audience, Pandora currently pays over 4.5 times more in total royalties than broadcast radio for the same song.  In fact, at only 7% of U.S. radio listening, Pandora pays more in performance royalties than any other form of radio.

It's not immediately clear where the band's 85% figure comes from – they link to this 2012 post by Register Editor Andrew Orlowsky, and he doesn't cite anyone. (He has not yet responded to our email.) The bill proposed by Pandora and contested by Floyd, the Internet Radio Fairness Act, doesn't mention specific rate levels.

It's also true that as a percentage of its revenue, Pandora's royalty payments are higher than any other platform's (that's why they're trying to get the law changed). 

But Pandora still doesn't address the underlying issue Camper Van Beethoven frontman David Lowery brought up yesterday: a songwriter ends up with paltry returns for their work even if a Pandora user played their song a thousand times. Here's the rate breakdown according to IP lawyer Vanessa Kaster:

$.0019 cents a song (approx.) per play on satellite radio (like SIRIUS XM)$.0019 cents a song (approx.) per play on Pandora$.09 cents a song (approx.) for a permanent download (like iTunes)$.09 cents a song (approx.) for a physical recording (like a CD)$.24 per ringtone.

So if CVB hit "Pictures of Matchstick Men" does literally get played 1,000 times, Lowery would only get $1.90.

Nor does Pandora address Floyd's other contention, that its flyer asking artists to support IRFA is misleading.

We doubt this is the final cut of this dispute.

UPDATE: The musicFIRST coalition says the 85% figure is derived by calculating the reduction in the portion of revenues for royalties Pandora is said to be seeking — 50% to 8%.

A commenter also alerts us to the fact that "Pictures of Matchstick Men" was a poor example since Lowery was not the original songwriter, and the issue in question concerns songwriter, not performer, fees.

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Here Are The Gargantuan 3-Year Returns For Stocks After They Crash

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We’ve done a lot of articles on value and drawdowns on the blog before (search the archives).  I was curious what happens when you bought the US equity sectors back when they were really hammered (French Fama to 1920s).  

Average 3 year nominal returns when buying a sector down since 1920s:

60% = 57%

70% = 87%

80% = 172%

90% = 240%

Average 3 year nominal returns when buying an industry down since 1920s:

60% = 71%

70% = 96%

80% = 136%

90% = 115%

Average 3 year nominal returns when buying a country down since 1970s:

60% = 107%

70% = 116%

80% = 118%

90% = 156%

It’s hard to buy something down 80%, especially if you owned it when it was down 30, 50, then 80%.  But usually that is a great time to be wading in…Some recent examples of assets that have gotten clobbered include tech in 2002, homebuilders in 2009, and Greece and (Junior) Gold Miners now.  

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Two Of China's Biggest Banks Have Stopped Lending At Some Of Their Branches

Branches of Bank of China and the Industrial and Commercial Bank of China (ICBC) have stopped lending amid the country's current liquidity squeeze, according to Caixin Online. 

The two banks, are part of the country's Big Four. Bank of China was reportedly having a hard time meeting loan-to-deposit requirements before the liquidity squeeze and it plans to resume lending on July 15.

Meanwhile, ICBC's headquarters set a cap on lending, but what was unusual was that "headquarters had cut down on the quotas to make room for its own operations," according to Caixin. Other sources however said this wasn't a major problem.

Chinese interbank rates, or the rates at which banks lend to each other, began spiking before the Dragon Boat festival earlier this month.

The People's Bank of China alleviated some of the pressure by injecting liquidity into some banks and saying that it would use various tools like short-term liquidity operations to help stabilize rates.

But it's important to remember that the "PBOC promised more liquidity but not enough to support the equity markets or enough to drop rates below 4%," according to Robert Savage at FX Concepts. 

And the Chinese central bank's initial decision to let rates peak is still being interpreted as its way of punishing certain banks that had runaway credit growth. From Société Générale's Wei Yao:

The PBoC makes clear that it wants more responsible and less risky behavior from financial institutions, including the strengthening of liquidity and asset-liability management, and calls on large banks to help stabilize markets. Secondly, the PBoC calls on financial institutions to balance liquidity and profitability and other business objectives according to macroprudential requirements. Lastly, it calls on financial market participants to strengthen market discipline, particularly related to Shibor.

Jim O'Neill said China was never at risk of a genuine liquidity crunch. But there definitely are concerns of a credit bubble so we will be following these developments closely.

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BlackRock Demonstrates The Awesome Power Of Diversification

Diversification — that tried and true maxim of investing — is still the right move, according to Blackrock via Josh Brown.

But during the financial crisis, investors who thought they were "diversified" found out they didn't have exposure to enough asset classes.

"The fact is that in times of stress, correlations of stocks and bonds rises greatly," BlackRock writes. "And a traditionally diversified portfolio contains a high degree of equity risk."

In this chart, the turquoise line represents a portfolio that is 60% large cap stocks and 40% bonds.  It's reasonably diversified, but could be way more diversified.

The purple line represents a portfolio that is 2% large cap stocks, 12% mid cap stocks, 12% small cap stocks, 12% foreign developed country stocks, 12% emerging market stocks, 13.3% investment grade bonds, 13.3% US Treasury securities, and 13.3% junk bonds.

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CHART OF THE DAY: The Japanese Mothers Aren't Looking So Hot Anymore

Thought the 20% drop from the May 22 peak in the Japanese stock market was bad?

Wait until you see what's happened to the Japanese Mothers, an index of small-cap stocks that surged as the Japan rally took hold in late 2012 and early 2013.

Naturally, the faster they rise, the harder they fall.

The Mothers actually peaked on May 20, two days before the rest of the market, but since then, the small-cap index is down a staggering 47%.

"Buyer beware: Investors are exposed to unproven business models amongst a plethora of small-cap names and somewhere that can prove explosive when hot money pours in," says Miller Tabak Chief Economic Strategist Andrew Wilkinson. "And the flip-side to any fast-money driven explosion is a cataclysmic decline as neurotic investors scramble for their money back."

Wilkinson doesn't necessarily see the big decline in the Mothers index since May 20 as much of a warning, though.

"The Mothers index on a year-over-year basis had advanced by 207% in May and now remains 76% higher than June 2012," says Wilkinson. "And so while you might be forgiven for thinking that this volatile index is a canary in the coalmine, perhaps its behavior is no different than a dash back to cash as investors recognize the need to bank gains before they are all gone."

Business Insider/Matthew Boesler, Miller Tabak/Andrew Wilkinson, Bloomberg

Percentage performance of the Japanese Mothers index (rebased to May 20 peak) and the Nikkei 225 (rebased to May 22 peak).

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