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Good Morning Europe

Europe’s financial markets are stable early Wednesday ahead of much-anticipated comments on U.S. monetary policy. Wall Street stocks closed at a record Tuesday, and Japan left its own monetary settings unchanged earlier Wednesday.

Federal Reserve chairman Ben Bernanke testifies on the economic outlook, and that is followed by the minutes of the latest meeting of the Federal Open Market Committee. Both will be scanned carefully for signals that the Fed may be considering reducing its monetary policy stimulus – a process dubbed “tapering”.

Before the main event, there are plenty of important U.K. numbers, including the minutes of the latest meeting of the Bank of England’s monetary policy committee, alongside news of retail sales and the public finances in April, followed by the Confederation of British Industry’s industrial trends survey.

 Euro-zone current account data are also due, while Germany issues five billion euros of a new 10-year Bund and EU leaders hold a summit in Brussels. In the U.S., figures on existing home sales are due.

Ahead of the European stock markets’ opening, CMC Markets is calling the FTSE 100 down 12 at 6792, the DAX down 13 at 8459 and the CAC-40 down eight at 4028. The euro is firmer than in late New York trading Tuesday, German Bund futures have opened higher, crude oil futures are lower and the gold price is steady.

By Martin Essex

From MoneyBeat:

Coal Miners Try to Unload Australian Port Assets: Coal miners in Australia are auctioning port assets worth tens of millions of dollars, an unthinkable prospect as recently as 18 months ago, when they were scrambling to secure berths.

For Dimon, the Hard Part Now Begins: Jamie Dimon’s resounding victory is just the beginning.

Beware of the Covenant Bubble: Default rates aren’t likely to rise tomorrow, next month or even next year, but when they do, loan investors are going to have fewer protections, and potentially lower recoveries, than in default cycles past, according to new report by Moody’s Investors Service.

So the Tech IPO Market Is Hot Now, Too? Not So Fast: Tableau Software Inc.’s public offering last week has a lot of people wondering: Is it going to crack open the one missing component of the IPO rally – the startup-tech market? 

South African Strikes Stoke Investor Fears: As gold prices continue to fall, gold mines are at risk of becoming unprofitable. In South Africa, trade unions’ demands for wage increases of up to 60% are piling pressure on mine owners whose sales prices have slumped to a hair’s breadth above production costs

From The Wall Street Journal:

Dollar Outlook Hinges On Bernanke Testimony: The dollar was mixed ahead of a key speech by Federal Reserve Chairman Ben Bernanke amid rising speculation about when the central bank will begin to taper its bond-buying program.  Several policy makers have made public remarks in recent days that have fueled a debate about whether the U.S. economy is strong enough to begin winding down the $85 billion in bonds the Fed has been buying

Investors Target Logistics Property in China: Industrial real estate is often seen as the least glamorous slice of the property sector, but investors are increasingly looking at China’s warehouses as a good place to park their money as their sexier cousins lose some of their allure.

Australian Consumers Turn Gloomier: Australian consumer sentiment fell for the second straight month, denting hopes that households will lead a recovery as the long mining boom slows.

Apple CEO, Lawmakers Square Off Over Taxes: Apple’s tax strategies came under harsh scrutiny Tuesday in the Senate, where lawmakers are finding it far easier to call for a simpler tax code than to produce one.

Dimon Strengthens Grip at J.P. Morgan: J.P. Morgan boss James Dimon strengthened his grip on the bank as shareholders voted overwhelmingly against a proposal to split the chairman and chief executive roles he holds.

Stockholm Hit By More Riots: Swedish police grappled with a second round of riots late Monday and early Tuesday morning in a suburb north of Stockholm, as violence spread to a second suburb in the south.

Shares of Colombia’s state oil company Ecopetrol , are trading at a 52-week low, and the country’s finance minister suggests the stock is “cheap” and “it’s a good time to buy.”

Mauricio Cardenas, who sits on Ecopetrol’s board, also contends analysts have a “good rating” and “outlook” on the company.

But according to FactSet, the average analyst recommendation on the stock is “underweight.” And investors clearly didn’t heed Mr. Cardenas’ advice: Ecopetrol’s New York-traded shares hit a 52-week low of $42.29 Tuesday, but finished the session at $43, off 1.1% and bringing their year-to-date decline to 28%.

Despite the fall, Ecopetrol still isn’t cheap, trading at almost double its per share net asset value of $23, according to Darren Engels of Calgary-based FirstEnergy Capital. That compares with Pacific Rubiales Energy Corp (PRE.T), the other main oil producer in the Andean nation, which trades at its per-share net asset value.

Price to cash flow provides an even more striking contrast: Ecopetrol’s multiple stands at 10.4, nearly three times Pacific Rubiales’s 3.8 multiple.

Part of the problem is that Ecopetrol has a small float of just 12%, with the rest owned by the government. Yet it has a sizeable market capitalization of $89.14 billion, about 40% of the roughly $225 billion total market cap of the Colombia Stock Exchange.

Colombian pension funds, with their steady inflows, helped pumped up the stock, which hit an all-time high of $67.48 last May, and will no doubt help keep a floor underneath it.

Also, among Latin American state oil companies, Ecopetrol is one of the best managed with the least amount of political interference, certainly compared with those in Mexico and Venezuela, Mr. Engels points out. It also sports an attractive dividend yield of 6.4%.

But with other investment options available to investors, especially to those outside Colombia, the multiple premiums on Ecopetrol’s share price are weighing it down.

Market Snap: At the New York Close: S&P 500 down 0.17% at 1669. DJIA down 0.34% at 15388. Nasdaq Comp down 0.16% at 3502 Treasury yields down; 10-year at 1.94%. Nymex crude up 0.93% at $95.81. Gold up 0.5% at $1,376/ounce.

How We Got Here:  Until some central banker somewhere says the wrong thing (by accident or on purpose), there seems to be little incentive for U.S. stocks to decline in any meaningful way. DJIA notches its 19th straight Tuesday gain, led by rallies in Home Depot , Merck Chevron and IBM . Those four alone contributed more than 90% of the Dow’s advance.

What You Missed Overnight

Stocks Celebrate Another Tuesday: Shares carried on in their winning ways Tuesday, as investors cheered signals the Federal Reserve remains far from winding down its bond purchases and a bullish stock-market outlook from Goldman Sachs

Dimon Wins, Tightens Grip at J.P. Morgan : J.P. Morgan boss James Dimon strengthened his grip on the bank as shareholders voted overwhelmingly against a proposal to split the chairman and chief executive roles he holds.

Apple CEO Calls for Corporate Tax Reform: Tim Cook challenged Senate investigators who reported Apple paid no corporate income tax on tens of billions of dollars in overseas income over the past four years and urged reforms.

SoftBank Plans Bond for Sprint Bid: SoftBank plans to raise $3.9 billion via a record bond issuance in June, as Sprint Nextel weighs the Japanese carrier’s $20.1 billion offer against a rival $25.5 billion bid from Dish Network .

Investors Target Logistics Property in China: Industrial real estate is often seen as the least glamorous slice of the property sector, but investors are increasingly looking at China’s warehouses as a good place to park their money as their sexier cousins lose some of their allure.

Mining-Service Firms Face Hard Times in Australia: Power generators, engineering firms and other companies that service mining operations in Australia are forecasting weaker earnings as the mining boom slows.

China Tightens Rules on Bond Issuance: Chinese regulators took measures to better control the country’s booming debt market and prevent outsize gains by underwriters selling bonds.

Yields Rise Again in Japan: Yields on Japanese government bonds rose Tuesday, a day before the central bank’s policy board wraps up a monthly meeting, where it will almost certainly be focusing on how to tame turbulence in the government-debt market.

Green Light for DBS in Indonesia: After waiting a year, Singapore’s DBS Group Holdings received final approval to buy a 40% stake in Indonesian lender Bank Danamon, perhaps leading to the biggest deal in Indonesian history.

For Dimon, the Hard Part Now Begins: Jamie Dimon’s resounding victory is just the beginning.

Dealpolitik — Self-Proclaimed Corporate Governance Experts Trounced at J.P. Morgan: Self-proclaimed corporate governance experts like ISS and Glass Lewis took a well-deserved trouncing at Tuesday’s annual meeting of the J.P. Morgan shareholders.

Beware of the Covenant Bubble: Default rates aren’t likely to rise tomorrow, next month or even next year, but when they do, loan investors are going to have fewer protections, and potentially lower recoveries.

Saks Jumps on Report it May be Up for Sale: The luxury-department stores may be the hottest item on the market.

Credit Suisse on LNG Export Expectations –Wow: Soon after the Obama administration gave the green light to a second project to export natural gas in liquefied form, market watchers scrambled to predict how much gas might be sent overseas, and what it might mean for prices.

Emerging-Market Equities Turnaround in Sight: There might be “light at the end of the tunnel” for investors still waiting for a turnaround in emerging-market equities, J.P. Morgan Asset Management says.

New Jet Order Lifts Embraer Shar es. Flying Too High? Shares of Brazilian aircraft maker Embraer SA took off on news that U.S. regional carrier SkyWest may purchase up to $8.3 billion planes if all the orders are confirmed.

Default rates aren’t likely to rise tomorrow, next month or even next year, but when they do, loan investors are going to have fewer protections, and potentially lower recoveries, than in default cycles past, according to new report by Moody’s Investors Service.

The reason is that junk-rated companies are selling record levels of covenant-lite loans that lack the typical protections afforded to lenders. As covenant-lite loan sales become more widely accepted by investors, more lower-quality companies are taking advantage of the trend. That could blowback on loan holders with lower recoveries when defaults do rise again, the report says.

“This is a remarkable environment where there’s enormous demand for yield,” says Christina Padgett, head of leveraged loan research at Moody’s. “There’s not a whole lot of new issuers so leveraged loan borrowers in the market are able to get an excess amount of covenant flexibility compared to what they would get in any other market.”

Covenant-lite loan issuance hit $80 billion in the first quarter, about the same as the full-year total for 2012, according to Thomson Reuters. Yields are dropping in the loan market because investors are piling into the asset class even as the supply of new leveraged-buyout loans declines. As a result, investors are sacrificing covenant protections to get the slightly higher yields that covenant-lite deals pay compared to typical leveraged loans.

Just how much has credit quality of covenant-lite borrowers deteriorated? A lot judging by the changing ratings mix in the covenant-lite market.

The percentage of covenant-lite borrowers rated B1 – the top rung in the single-B classification – fell to 11% in the first quarter from 19% in the fourth quarter, while the component of borrowers rated B2 rose to 66% from 58% over the same period. That builds on a longer-term trend of credit erosion. In 2012, there were twice the number of covenant-lite borrowers rated B3 – the bottom rung of the single-B classification –as there were in 2010.

Investors might draw comfort from the results of a 2011 study that found average recoveries of 89.6% on defaulted covenant-lite loans, compared to an average 81.5% recovery for all defaulted loans. But most of the loans in the study were issued during the last bull loan market when investors mostly bought covenant-lite loans from higher-rated companies.

Now they are reaching further down the credit spectrum to boost yields and “recoveries could be lower during the next downturn than they were last time,” according to the report.

Granted, Moody’s doesn’t expect that day of reckoning any time soon and is forecasting a drop in default rates to 2.4% in 12 months from 3.1% today because of the ample liquidity in the market. But when the Federal Reserve starts raising rates that liquidity could dry up “suddenly,” triggering a spike in defaults according to the report.

By Anna Prior and David Benoit

The luxury-department stores may be the hottest item on the market.

Associated Press

Saks shar es jumped 33% to $16.28 after hours when the NY Post reported it has hired Goldman Sachs to explore strategic options, including a possible sale.

It’s not the first time rumors have swirled about Saks being a potential takeout target, Morningstar analyst Paul Swinand tells MoneyBeat. He says a deal isn’t impossible, but notes that at this point “it seems like there’s a lot of impediments.”

For one thing, Saks has posted improving results over the past three fiscal years, and reiterated Tuesday certain growth targets that it expects to hit in coming years.

Says Swinand: “If you think it’s worth more, why would you sell?”

The Post reported that its expected to attract the interest of private-equity firms in the sale.

The report comes only weeks after WSJ reported rival Neiman Marcus  hired Credit Suisse to shop itself. Neiman, already held by private-equity firms TPG and Warburg Pincus, is expected to approach sovereign-wealth funds during its process.

A Saks spokeswoman says the company doesn’t comment on rumors or speculation.

Here’s the after-hours movement in chart form.

News, analysis, curiosities, and even a little music to ease your commute…

James Dimon has won the battle of the board. Now he must win the peace with investors — Heard on the Street

Property-casualty insurance companies are expected to face at least a couple billion dollars of insured losses from the tornado near Moore, Okla. — MoneyBeat

Lately, bonds are falling out of step — Barron’s‘

It’s increasingly looking like the housing rebound is, to pull a famous Seinfeld phrase, real and spectacular — CNNMoney

While buying Tumblr isn’t necessarily a bad deal, there’s another photo site out there that might have been an even better deal: Pinterest — GigaOM

A one-time technology investing star world is facing a fight to continue running his investment fund — MoneyBeat

As slogans go, “clean coal” hews to the oxymoronic strain of advertising. And as Southern Co. is finding out, the incongruity extends to the thorny issue of economics — Overheard

Self-proclaimed corporate governance experts like ISS and Glass Lewis took a well-deserved trouncing at Tuesday’s annual meeting of J.P. Morgan shareholders. Shareholders defeated AFSCME’s proposal to separate the jobs of chairman and CEO at J.P. Morgan. Preliminary reports indicate the proposal received the vote of the holders of just 32% of the outstanding shares—a significant decline from the 40% support the proposal received last year.

Separation of the two titles seems to be the holy grail of some corporate governance advocates, and proxy advice firms ISS and Glass Lewis frequently support it. But shareholders pushed back against the proposal even more than they had last year. Personally, I don’t have a strong view on the issue. I do believe everyone (including a CEO) needs a boss and it is the job of a board of directors to provide that supervision. But in deciding how the board does it, it does not seem to me to be something the proxy advice firms or unions making shareholder proposals have much expertise in.

In the case of J.P. Morgan (and many other companies who also give the CEO the title of chairman), the issue seems to boil down to a semantic one. At J.P. Morgan, they already have a “presiding Director” (sometimes called a lead director at other companies). According to J.P. Morgan’s proxy statement the presiding director can call meetings of independent directors and would preside over those meetings as well as any full board meetings in which the chairman is not present. The presiding director also approves, and can add matters to, the board meeting agendas and approves materials distributed to the directors. Would giving the presiding director an additional title really change anything at J.P. Morgan?

Perhaps Jamie Dimon deserved a bit of tarring and feathering for the massive London Whale loss last year which took place on his watch. But much more effective than dealing with the nomenclature of titles was the compensation committee’s decision to cut Dimon’s pay by half for last year. The directors seemed to manage that quite nicely without the help of the governance community.

Shareholders also came fairly close to taking the scalps of three of the members of the risk committee of the board, whom ISS and Glass Lewis recommended should be thrown out. They were reelected with under 60% of the vote. (All of the other directors received over 90% of the vote.) Throwing them out would also have been a largely symbolic action with little substance. But Dimon will need to pay some heed to the expressed need for more consequences. One wouldn’t be surprised to see Dimon having a quiet conversation with them over the next year to persuade them to see the wisdom of their retiring before the next annual meeting. Nor would it be surprising to see some fresh blood on the risk committee before that. Indeed, Presiding Director Lee Raymond hinted for investors to “stay tuned” on the risk committee.

Shareholders deserve to have a role in public companies when important matters are to be decided upon. And if an insurgent group can muster the votes, it should have a path to throw out the incumbent directors. Moreover, when bad things happen and the board is passive, maybe some action like separation of the chairman’s title or tossing a couple of directors wouldn’t hurt. But that is not the J.P. Morgan story.

(The author owns J.P. Morgan shares.)

Send questions, comments or story ideas to Dealpolitik@gmail.com.

F. Martin Ramin for The Wall Street Journal

Brazil coffee exporters want better treatment for their beans from one of the world’s biggest commodities exchanges.

The Council of Brazilian Coffee Exporters, known as CeCafe, said Tuesday it plans to petition IntercontinentalExchange to reduce the discount applied to Brazilian coffee beans at the ICE Futures U.S. exchange, where benchmark futures for arabica coffee trade.

“We intend in the next 60 days or 90 days to present a report on the prices of washed Brazilian coffees, in order to suggest ICE reduce the (discount),” Guilherme Braga, CeCafe’s director-general, said in an interview.

In late 2010, Brazilian growers secured the right to have their arabica beans traded on the exchange, a battle they had fought for more than a decade. But there was a catch: Brazilian beans would be delivered against the futures contract at a 9-cent discount. That means that the owner of that physical coffee would receive 9 cents less per pound than the contracted price reflected on the exchange. With one contract representing 37,500 pounds of coffee beans, that difference adds up to $3,375.

Brazilian growers’ battle for inclusion pitted them against critics, including growers groups from other Latin American nations, which argued that coffee from Brazil was of lower quality than the hand-picked, highland-grown beans from other parts of the region. Industry officials say the exchange set the 9-cent discount, the largest discount in the ICE system, in response to the concerns over quality.

Braga said he considers it to be “very high.”

Arabica coffee futures on Tuesday fell 1.8% to $1.3270 a pound, a three-year low. Coffee prices have declined 35% since December 2010 when ICE opened the door to Brazilian beans, which just became effective this year, when buyers and sellers started to make physical delivery of coffee under the March 2013 contract.

Brazilian coffee growers can get better prices selling to roasters directly, he said.

When asked about the rule, ICE said, “We review the discounts regularly and will consider all input from market participants as part of that review process.”

The selloff in coffee prices in the past two years has created little incentive for traders and growers of Brazilian beans to add to the stockpiles certified by the exchange. Coffee delivered against the contract must come from these stockpiles.

While Brazilian growers now can sell their beans on ICE, they haven’t actually taken advantage of the new rules. No Brazilian beans were brought to the exchange to fulfill the March contract nor the next, which was for May delivery, according to ICE.

That is because current coffee prices are too low, and the discount is too big, Brazilian growers and CeCafe said.

“The solution is that this (discount) is reduced,” Braga said. He said CeCafe will determine how much of a reduction it will request based on market conditions during the harvest.

Brazil’s reputation for quality arabica beans has improved in recent years, with gourmet varieties from small farms winning praise from roasters including Starbucks Corp (SBUX).

But many gourmet roasters still say that most run-of-the-mill coffee from Colombia and Central America is more flavorful than the bulk of Brazil’s production.

In the meantime, Brazilian growers won’t be looking to ICE to sell their beans.

“Why would we deliver? There’s no point,” said Demilson Batista, sales director of Legender Coffees, a small grower based in Brazil’s Minas Gerais state.

REUTERS

Property-casualty insurance companies are expected to face at least a couple billion dollars of insured losses from the tornado near Moore, Okla., according to rough calculations by Wall Street analysts.

Some consumer activists are already expressing concern about homeowners falling short of the needed money for repairs because of changes insurance companies have made to their coverage due to the increasing number of tornados.

The preliminary loss estimates are based on damages from other major tornados in recent years, including 2011 tornados in Joplin, Mo., and Tuscaloosa, Ala., which caused more than $2 billion in insured losses in each of those cities, according to analysts at Morgan Stanley .

Disaster modeling company AIR Worldwide, a firm that helps insurers evaluate their exposures to catastrophes, estimated the total replacement value of property with a mile of the tornado track was $6 billion. The firm noted that not every property in that area was heavily damaged.

The insurance industry already had many claims representatives and other employees staged in the area because of a May 19 tornado in Shawnee, Okla., said Robert Hartwig, president of trade group Insurance Information Institute. Insurers also “are actively communicating with policyholders by a variety of means including social-media platforms such as Facebook and Twitter,” said Jim Whittle, assistant general counsel and chief claims counsel for the American Insurance Association.

Big insurer USAA said it had received 800 automobile and property claims by mid-afternoon Tuesday, “and we anticipate more once cell phone coverage and power return,” a spokeswoman said. About 120 USAA claims professionals were in the area, she said.

Severe thunderstorms and tornados caused $15 billion in U.S. insured losses last year, following $25 billion in such losses the year before when the industry suffered two of the costliest tornado events in U.S. history: the $7.5 billion in insured damages (in 2012 dollars) arising out of April 2011 twisters that struck multiple states, most notably Alabama; and the $7 billion in insured damages (in 2012 dollars) that resulted from the May 2011 tornado outbreak, which also impacted numerous states.

“This trend toward more violent and destructive weather patterns shows no signs of abating,” said Mr. Hartwig.

It will take weeks to calculate the number of claims and insured losses from the newest tornadoes, and some consumer activists already are expressing concern that many people could be caught short of the money needed for repairs.

That is because many insurers, reacting to the growing number of tornados, have increased deductibles, reduced coverage amounts and made other changes to terms and conditions that have the effect of putting more of the risk on policyholders, according to agents, financial advisers and industry analysts.

Insurers also have been reacting to lower yields on investments in their big investment portfolios, amid ultralow interest rates on the types of high-quality bonds most insurers favor.

“Our main insurance-related concern is that many insurers have … drastically reduced the amount they will pay for roofs,” said Amy Bach, executive director of advocacy group United Policyholders, based in California. “This will no doubt be yet another huge recovery hurdle and a financial headache people do not need.”

Standard homeowners and business insurance policies cover wind damage to the structure of insured buildings and their contents, if caused by tornadoes or thunderstorms. Some businesses also buy business-interruption coverage to compensate for some lost business income.

Damage to vehicles from a tornado is covered under the optional comprehensive portion of a standard auto insurance policy. Homeowner policies typically provide for additional living expenses.

A one-time technology investing star world is facing a fight to continue running his investment fund.

Kevin Landis shown in his heyday, 1999.

Bloomberg News

Kevin Landis, the founder and portfolio manager of the Firsthand Technology Value Fund , ran the best-performing mutual fund in the U.S. over the five-year period during the Internet boom. A year ago, he was in demand after snapping up private shares of Facebook Inc.

In both cases, his funds eventually endured subsequent slides. Now he has an activist attempting to toss him out of his publicly-traded closed-end fund.

Bulldog Investors, a hedge fund run by Phillip Goldstein that operates in the world of closed-end funds, bought a 9.67% stake and launched a campaign targeting Landis in April. Closed-end funds trade like stocks on an exchange.

Tuesday, Bulldog sent Landis’s fund a new letter, this time asking that he be fired, said Goldstein. The letter, reviewed by The Wall Street Journal, seeks a shareholder vote that could, if successful, force the fund’s trustees to remove the Landis. It may take up to a year for an actual vote.

Bulldog is targeting the fund as its shares have fallen to $19.24, below their net-asset-value, or NAV, of $23.26, the amount a share would be worth if all assets were liquidated.

Tuesday’s letter argues Landis is paid too much for that performance.

“To put it bluntly, there are some people who should not be managing other people’s money,” Goldstein wrote. “Kevin Landis has demonstrated he is one of those people.”

A spokesman for Firsthand said the fund hasn’t reviewed the letter yet. He said the fund wasn’t commenting about Bulldog, other than to say the Firsthand fund’s performance and statements are public.

Goldstein manages more than $500 million, he said, and has targeted closed-end funds for years. Bulldog’s oldest fund is underperforming the S&P 500 through April, according to a fund document, but beating the benchmark on a five-year basis.

Landis made his name during the technology heyday of the late 1990s.

In 1999, his fund sported annualized returns above 50% over five years, making it the best-performing mutual fund in the U.S. over the period, according to the Journal. Within a few years, the fund was negative over five years.

In 2011, the fund transformed from an open-ended fund to a closed-end fund, meaning it doesn’t accept new investments. Since then, the fund’s shares are down nearly 27% while the tech-heavy Nasdaq Composite is up 24%.

Last year, it looked as if Landis had gotten his groove back with an investment in Facebook at $31.50. “Whatever you think Facebook is worth today, it’s going to be worth more once it’s publicly tradable,” Landis told the Journal at the time.

Now the investment, 8.2% of the fund, is underwater.

Earlier this year Landis told CNBC he thought his Facebook investment would still turn a profit.

The fund’s biggest investment now is micro-blogging company Twitter Inc.

Meanwhile, a stake in SolarCity , a solar-panel company chaired by entrepreneur Elon Musk, has performed well. Landis told investors the fund purchased its position at $15.81 a share, before SolarCity’s IPO. The stock is now above $45.

Soon after the Obama administration gave the green light to a second project to export natural gas in liquefied form, market watchers scrambled to predict how much gas might be sent overseas, and what it might mean for prices.

Associated Press

Credit Suisse strategists offered the latest view in a research report this afternoon. Their verdict: by the end of the decade, if additional export permits are approved, LNG exports could total a whopping 10 billion cubic feet a day.

To put that in perspective, natural-gas production in the lower 48 U.S. states totaled 73.22-bcf/day in February, according to the Energy Department. While total output is expected to grow over the next few years, exports of 10-bcf/day will still represent a big chunk of the market.

Front-month natural-gas futures for June delivery have gained 3.8% this week following the approval Friday of Freeport LNG’s planned export facility in Texas. Most analysts and investors attribute the latest move to forecasts for hot weather that will raise gas-fired electricity demand over the next week.

But a quick look at gas futures for delivery a few years from now suggests at least some traders are betting exports will boost prices.

For instance, natural-gas futures for June delivery in 2015 traded at $4.132 per million British thermal units three days ago. Today, that contract is trading at $4.29/MMBtu, a 3.8% jump.

That move has a lot to do with expectations that the Energy Department will act quickly to evaluate and approve the more than two dozen applications for export facilities already on file.

“Freeport LNG’s approval is an indication that more could follow,” said analysts at JBC Energy.

Credit Suisse says growing confidence that more export approval are ahead has lifted U.S. natural-gas calendar-strip prices for 2015, 2016 and 2017 by 3%, 4% and 5%, respectively.

“Wow,” the bank’s analysts wrote.

MoneyBeat colleague Ben Dummett files this dispatch up at Canada Real Time:

One of Canada’s biggest pension funds, which has historically adhered to the age-old mantra of diversification to reduce risk, is charting a drastic new course for billions of assets dedicated to global equities.

Caisse de Depot et Placement du Quebec is taking a 20 billion Canadian dollar ($19.4 billion) global equity portfolio and altering its style from one in which managers typically under- or over- weight equity indices — such as the Standard & Poor’s 500-stock index and the MSCI World index — to one of buying big positions in around 50 to 70 stocks.

The pension fund, which has total assets of about C$176.2 billion, is betting it can reduce the portfolio’s exposure to the vagaries of equity markets — at a time when volatility isn’t expected to fade any time soon — by making bigger, more concentrated investments in a select group of big–capitalized stocks.

The focus will be on “very large, multinational, low beta, dividend paying” companies with strong balance sheets, and would include the likes of Nestle Colgate-Palmolive , and Canadian National Railway Co. , Michael Sabia, chief executive of the Quebec pension fund said at the Bloomberg Canada Economic Summit.

Click here to read the full post.

Tableau Software Inc.’s public offering last week has a lot of people wondering: Is it going to crack open the one missing component of the IPO rally – the startup-tech market?

Tableau, a data visualization company, sparked excitement when it sold more stock than originally planned, priced it higher than it proposed, and watched it pop more than 60% in first-day trading. The buzz got louder as Marketo Inc., a “cloud” marketing software company, popped 78% in first-day trading on the same day. More tech IPOs are market bound this week, including ChannelAdvisor Corp., an e-commerce cloud software firm.

But based on the pricing of these deals, bankers and analysts don’t see much evidence that we have entered a new, more bullish phase in the tech IPO market. The  IPO valuations for Tableau and Marketo appear to be in-line with other similar deals recently – and below the levels that worried some investors in social networking IPOs such as that of Facebook Inc.

Tableau’s stock priced initially at $31 a share, which translates into an enterprise valuation of about eight times its 2014 revenue forecast, according to people familiar with projections for the company.

That is well above the S&P 500 average of two times, according to FactSet, and also above the 3.3-times average of other software IPOs – but very close to where recent “cloud” and “big data” companies like ServiceNow Inc Palo Alto Networks Inc. , and Splunk Inc. priced, according to a client note from Deutsche Bank . It is also behind where Workday Inc. priced, at nearly 12 times next-year revenues.

“‘Re-opening’ presumes the market was closed, and there isn’t much of an argument to say that it was,” wrote bankers led by Ted Tobiason, managing director for equity capital markets at Deutsche, in a note to clients.

“It’s more accurate to say that Tableau and Marketo reconfirm what we already had good reason to believe,” the bankers wrote, which is that enterprise software companies are fetching good prices in the market, because they are growing by replacing legacy systems rather than relying on a boom in economic growth or consumer activity.

Excitement for enterprise software also doesn’t quite read like enthusiasm for social networking, said Paul Bard, vice president of research at Renaissance. Internet companies such as Facebook Zynga and Groupon “came to market on the heels of phenomenal results. The problem was projecting them from there,” said  Bard.

“The question was how long they could continue to add users, and how profitable those users will be. With these software companies, it’s totally different,” he said. “There’s a recurring element to their businesses, and investors can have more confidence in their growth outlook.”

If anything, said Bard, the pricing of deals like Tableau’s that have big after-market gains, are an indication that “the biggest impact that Facebook probably had…is that both underwriters and companies are attuned to making sure IPOs are priced right.”

Shares of Workday, Tableau, ServiceNow, Palo Alto and Splunk are up an average of 106%, according to the Deutsche note.

A sign of a healthy IPO market for tech companies, to be sure – but hardly an exuberant one.

There might be “light at the end of the tunnel” for investors still waiting for a turnaround in emerging-market equities, J.P. Morgan Asset Management says.

The firm, which manages $1.5 trillion in assets, said in a report Tuesday that one key headwind for the asset class, namely weak corporate earnings, is likely set to fade. That could finally open the door to the returns that emerging-market stocks simply haven’t seen.

So far this year, the asset class has underperformed its developed-market peers. The MSCI Emerging Markets index is down 0.7% year-to-date, while developed-market stocks have returned 13.4%, according to the index provider.

But increasingly, asset managers are betting that emerging-market shares are due for a comeback. That’s because these stocks trade at a significant discount compared to developed-market shares and because emerging markets should see a gradual improvement in economic growth, said George Iwanicki, emerging-market macro strategist at J.P. Morgan Asset Management, in the report.

For instance, emerging-market equities’ stock-price to book-value ratio remains around 1.6 times, “which we view as an attractive level at which investors should be accumulating [emerging-market stocks],” he added.

Iwanicki argues that the source of the earnings headwind has been cyclical, making it simply a question of when growth will return to trigger a better earnings picture. That time may be coming.

“A slow-burn, U-shaped recovery in EM economies suggests light at the end of the tunnel for investors questioning when growth catalysts will finally unlock value in these stocks,” the firm says.

As inflationary pressures have eased, central banks have been able to begin cutting interest rates, with Turkey and South Korea as recent examples. Now industrial production and purchasing managers’ indexes are starting to show results, according to the asset management.

With that picture in mind, the next phase is to see a pickup in earnings growth, and there are signals that could be coming. Iwanicki highlights that countries seeing downward revisions to earnings estimates are in Eastern Europe, which is “hostage” to Western Europe, or are commodity-linked Latin American countries.

This narrowing of downward revisions is a positive sign for earnings estimates “and the beginning of the end of what has been a headwind for the asset class,” he adds.

Bloomberg News

Shares of Brazilian aircraft maker Embraer SA took off on news that U.S. regional carrier SkyWest may purchase up to $8.3 billion planes if all the orders are confirmed.

The stock of the world’s fourth-largest plane manufacturer was already on a tear. Tuesday’s recent gains of 2.8% lifted Embraer’s New York-traded shares to $37.76, for a year-to-date ascent of 32%, nearly double the S&P 500’s stellar performance and a huge contrast to the 8% decline in Brazil’s key stock index.

Is it time to sell?

Citigroup thinks so, pointing out that the order is “likely to be heavily discounted” and that “almost all of Embraer’s EJet order flow this year has come from just two carriers operating in the same market.”

Embraer’s deal with SkyWest adds to two others this year, one with United Airlines Inc. (UAL) and another with Republic Airways.

SkyWest has firm orders for 40 E175 regional jets at list prices that total $1.6 billion. Deliveries are to begin in the second quarter of next year and wrap up by mid-2015. It will operate the planes for United Airlines.

Sixty more Embraer jets can be reconfirmed if SkyWest reaches deals with other US carrier partners. It also has options to buy another 100 jets from Embraer.

Yet “significantly discounted” annual deliveries ahead of around 100 EJets “slanted towards smaller E175s represent a revenue shortfall” compared with average annual deliveries of mainly larger E190 jets from 2004 to 2010, Citi says.

Moreover, Citi notes real risks to the order book, including “excessive discounting” on commercial jet orders, not to mention greater competition in the business and commercial jet segments and possible migration of customers to bigger and longer-range aircraft. Coupled with the stock’s valuation and potential for “erosion in backlog quality,” and Citi has a share price target of $30, a 21% nose-dive from its current level.

Getty Images/AFP

The monitor of a $25 billion national mortgage settlement with the five largest mortgage servicers said Tuesday he’s looking into potential violations of the agreement.

At the same time Wells Fargo Bank of America and J.P. Morgan Chase sa id they had completed their obligation under the settlement. The monitor, Joseph A. Smith, Jr., must analyze the data submitted by the banks before formally declaring they have fulfilled the terms of the settlement.

Smith said Tuesday he will issue his report on the banks’ compliance in June.

He noted that part of his report will include a review of how the banks complied with servicing standards outlined in the terms of the settlement, which was reached last year between the five companies and 49 states attorneys general.

“I know there are areas in which the banks still have work to do,” Smith said in a statement. “It is important to the integrity of this process that these compliance reports are thorough and accurate, and I will release them when I am confident they are complete.”

The announcement that Smith is looking into potential violations comes a week after New York State Attorney General Eric Schneiderman said he would sue BofA and Wells over complaints they did not provide fair and timely service to homeowners seeking relief.

Smith and others attorneys general have been looking into the same issues. Illinois Attorney General Lisa Madigan said Tuesday her office found “an alarming pattern of potential violations of ‘servicing standards.’” For example, she said that in 60% of files surveyed, banks failed to notify borrowers within five days of missing documents in their applications.

“The new servicing standards were supposed to eliminate headaches for homeowners,” said Madigan. “Homeowners are getting the runaround, receiving multiple requests for the same information and experiencing continued delays that put them closer to foreclosure.”

The banks provided some form of relief to nearly 622,000 borrowers totaling $50.6 billion, according to the self-reported data released Tuesday. Of that, banks cut around $24.3 billion in loan balances for some 300,000 borrowers who owe more than their homes are worth.

Smith previously approved Ally for fulfilling its requirements under the terms of the settlement. A spokesman for Citi, another party to the settlement, said it has not completed its obligation but is “continuing to work with distressed borrowers to help them avoid potential foreclosure and remain in their homes.”

A Citi spokesman declined to comment. “We worked very hard to help homeowners as quickly as possible,” said Kevin Watters, head of JP Morgan’s mortgage banking business.  A Wells Fargo spokesman said the company is working with the monitor to assess its performance on an ongoing basis. 

The other banks did not immediately respond to requests for comment on the claims of potential servicing violations. 

By Matthias Rieker and David Benoit

Bloomberg

It was a big day for Jamie Dimon and J.P. Morgan .

The banking executive will remain chairman and CEO at J.P. Morgan, despite a heated fight leading up to the bank’s annual meeting. Meanwhile, the bank’s shares have hit 12-year highs, tradig at a price not seen  since Dimon joined the bank.

Here’s some reaction from Wall Street and shareholders on the day.

CLSA analyst Mike Mayo – The meeting “was a step in the right direction.” Mayo attended as a proxy for an investor to get a better idea about the board’s ability to challenge management. “Today is a good day for investor driven capitalism,” he said after he quizzed Dimon and presiding director Lee Raymond. “The Board gets the message that the risk committee must change and Mr. Raymond sent a signal that this will happen.”

Wells Fargo –In a note headlined, “Reason trumps emotion — Shareholders affirm Jamie Dimon’s leadership,” Wells Fargo said it would expect shares to outperform given “investor relief that Mr. Dimon will remain at the helm of the firm.”

Sterne Agee – “Given Jamie Dimon’s successful stewardship of JPM, our view is that fewer disruptions to his role ultimately benefits JPM and its shareholders. … Overall, our view is that 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.”

Byron Snider, president and co-founder of investment advisory firm West Oak Capital LLC in Westlake Village, Calif., said he was relieved that the shareholder proposal to split chairman and CEO roles failed. The outcome “gives [J.P.Morgan] the flexibility to do what they believe is best for the company,” he said. “If the vote had gone the other way, Jamie Dimon may have viewed it as a sign of ‘no confidence’ and considered leaving the company. In our opinion, that could have been terribly disruptive and counterproductive.”

Bill Smead, CEO and CIO of Smead Capital Management, said he had worked for Dimon when Dimon was running brokerage Smith Barney and bought J.P. Morgan shares around $34.50 in the wake of the London Whale trading disclosures. Smead voted with management, even though he doesn’t always agree that a chairman and CEO should be the same person. “My father used to say the best government is a benevolent dictator,” Smead said. “You just don’t find really many good benevolent dictators running a company and [Dimon] is one of those.”

Kevin O’Keefe, an analyst with Brown Advisory, which holds about 1.5 million shares: “Most importantly, shareholders got the answer “right” in my opinion by supporting Dimon in maintaining his dual role…. In thinking about the higher support this year for management, perhaps the resumption of the vote and heightened media coverage caused investors to reconsider and thus fully appreciate Dimon’s leadership record.”

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CtW Investment Group, which represents union pension funds, sent a statement urging three members of the bank’s risk policy committee–Ellen Futter, James Crown and David Cote–to resign immediately. The group said the bank’s board needed new directors capable of overseeing risk management at the bank. Futter garnered 53% of the vote, Cote got 59% and Crown got 57%. “A no vote north of 40% is a vote of no confidence,’’ said William Patterson, emeritus executive director of CtW.

Eric Cohen, chairperson of Investors Against Genocide, whose shareholder proposal garnered support from 8.1% of shares votes, issued a statement criticizing Dimon for comments at the meeting in response to questions from the group. “It is astounding that Mr. Dimon and Mr. Raymond are unaware of the widely-recognized view that PetroChina , as Sudan’s largest business partner, is clearly linked to the ongoing government-sponsored genocide in Sudan,” Cohen said.

As slogans go, “clean coal” hews to the oxymoronic strain of advertising. And as Southern Co. is finding out, the incongruity extends to the thorny issue of economics.

This week, the utility replaced the head of its Mississippi Power business, which is mired in cost overruns at a new clean coal power station it is building. The 582 megawatt Kemper Integrated Gasification Combined Cycle power plant is billed as state-of-the-art technology that can use coal but with lower emissions. Essentially, it takes lignite, a low-quality form of coal, and converts it to gas for burning to generate electricity. It is due to start running next year.

Problem is, the budget for Kemper has rocketed to $4.3 billion.

That works out to be $7,388 per kilowatt of capacity. At that level, Kemper’s costs are on a par with those of a new nuclear plant– at least, on an estimated basis, since few power producers in the western world are willing to finance a new nuclear plant.

Indeed, in the U.S. Dept. of Energy’s latest assessment of how much it costs to build new power stations, released last month, Kemper’s cost per kilowatt is higher than for every other technology apart from biomass (burning wood and other organic material) and plants that burn solid municipal waste. Nothing clean about those economics.

By Rogerio Jelmayer and Paulo Winterstein

Bloomberg News

Brazilian aircraft manufacturer Embraer on Tuesday unveiled its third major contract this year to sell jets to a U.S.-based aircraft operator, providing the world’s fourth-largest aircraft manufacturer with breathing room for the coming years.

SkyWest has agreed to buy as many as 200 jets, worth as much as $8.3 billion in coming years if all the orders are confirmed. The deal is one of the largest in Embraer’s history. A 2003 order by JetBlue Airways  for 200 jets was subsequently revised down to just 100.

Analysts say that the deal is the latest sign that the U.S. travel market is starting to recover following the financial and economic crisis that began in 2008, albeit at a tepid pace.

“I see this as a light at the end of the tunnel for the global economic recovery,” said Mario Bernardes Jr., transportation analyst at BB Investimento, the investment-banking arm of Banco do Brasil SA . Along with improving European vehicle sales, “this Embraer sale shows that there is an improved outlook in the medium- and long-term.”

SkyWest, a regional airline that flies short routes on behalf of the major carriers, said it will initially buy 40 of Embraer’s E-175 jets, with deliveries starting in the second quarter of 2014 and ending in mid-2015. SkyWest will operate the aircraft under a 12-year contract with United Continental Holdings Inc.

SkyWest said it may buy another 60 aircraft, depending on talks with major airlines. It didn’t provide details about the final option for another 100 aircraft.

In April, United bought 30 E-175 jets, with options for a further 40, while in January, Republic Airways bought 47 of the E-175 planes, with an option for another 47.

“Since 2008, Embraer’s backlog of orders had fallen significantly as the crisis took its toll on companies here and abroad,” said Pedro Galdi, chief analyst at brokerage SLW in Sao Paulo. “Airlines have to start buying again because, whether they like it or not, demand is increasing. But we’re still far from where we were in 2008, and will be until the whole world starts growing again.”

Embraer shares climbed 1.9% in Sao Paulo, trading to BRL19.25, and traded for as much as BRL19.81.

The order of 100 planes from SkyWest, if exercised entirely, would lift Embraer’s backlog by 20%, after ending the first quarter at $13.3 billion. That’s up from $12.5 billion in the fourth quarter of 2012.

The backlog peaked at $21.6 billion in 2008. Since then, Embraer has focused on its defense and executive-jet division to try to bring up flagging revenue. It’s building a military transport plane, which could be delivered as soon as 2015, as part of its effort to increase defense’s share of revenues to 20%.

Write to Rogerio Jelmayer and Paulo Winterstein at brazil@dowjones.com

Thousands of striking miners marching near Rustenburg, South Africa, in 10 September 2012, where Tuesday’s Lanxess Chrome Mining clashes also took place.

European Pressphoto Agency

Investors worldwide are considering what the price of precious metals might mean for rebalancing portfolios.

But in one corner of the gold-producing universe, the ramifications go much deeper.

As gold prices continue to fall – they are down 18% so far this year and 28.5% from the high of $1,920.94 in September 2011, gold mines are at risk of becoming unprofitable. In South Africa, where gold and platinum account for a third of exports, trade unions’ demands for wage increases of up to 60% are piling pressure on mine owners whose sales prices have slumped to a hair’s breadth above production costs. It has led to strike action and violence.

Clashes between mine owners and workers erupted again today. In Rustenburg, northwest of Johannesburg, security officials used rubber bullets to disperse a crowd of striking workers at a mine owned by Lanxess Chrome Mining.

And investors are unnerved. Although the clashes weren’t the only factor, the rand fell to its lowest level in four years Tuesday. It is down 7% this month, “buffeted by usual concerns about labor unrest, sluggish growth, and poor economic fundamentals,” Brown Brothers Harriman analysts said in a note to clients.

The mining sector woes “absolutely could impact the (South African) economy,” said Steve Allen, managing partner in Greenbriar Partners, a U.S.-based commodities fund with substantial platinum interests.  In particular, government’s “heavyhandedness” with mining companies, which forced Anglo American Platinum to retract some of its planned cutbacks and sent the rand on a tumble,  has “created a major negative” for investors both inside and outside mining, as it reduces companies’  abilities to set their balance sheets to rights and to control their own destinies, he said.

Jeff Sica, president of Sica Wealth Management, which has significant holdings in platinum, palladium, silver and gold, sees a forthcoming decline in profitability in the country’s mining sector and economy as a whole as “inevitable”. The problem is partly due to mining sector management, which needs to take steps to improve safety, modernize and reduce the working week, he said.

“For investors, perception is reality. If the companies can’t harness a workforce that’s in constant disharmony, this reflects negatively on the South African economy. (Investors) see massive civil unrest to the point of violence, and confidence will erode,”  the fund manager said

Platinum producers Lonmin and Anglo American Platinum, which have both seen violent strikes, declined to comment on the investors’ comments. The country’s mining and labor departments also declined to comment.

“While South Africa’s growth rate has risen to 3.2% per annum 1994-2012, it is just too slow to meaningfully tackle unemployment and poverty,” said   Roger Baxter, senior executive of the country’s Chamber of Mines, an industry group.  “The only way that South Africa can reduce its high unemployment rate is through more balanced growth and the growth of the key export sectors, such as mining.”

Yet just the opposite is happening.  Gold producers, including Gold Fields AngloGold Ashanti and Harmony Gold Mining are battling with gold prices that don’t cover costs in some cases and are reviewing projects. Production costs have soared, as deposits close to the surface become exhausted, and South African mines are now among the world’s oldest and deepest. They’re also labor-intensive, with labor costs accounting for 50-60% of some companies’ total costs, even before the upcoming round of wage talks.

The rand’s slide puts South Africa’s central bank in a bind when its meets for a rate decision later this week. While a rate cut would spur growth, it would also potentially lead to higher inflation, at a time when the weaker rand is already putting upward pressure on prices. Analysts expect the South African Reserve Bank to keep rates on hold at 5%.

The central bank and Ministry of Finance declined to comment.

Devon Maylie, Francesca Freeman, Erin McCarthy and Jessica Mead contributed to this post.