On some level, every quarter is a make-or-break earnings season, and maybe that’s particularly true for the midsummer earnings season, as it comes at an otherwise quiet time for the broader markets.

But as investors get ready for Alcoa’s ‘kick-off’ of earnings season (and really, Alcoa serves as a nice beginning more for its symbol’s position in the alphabet than as any barometer for earnings), there may be something to all of the fretting this time around. After all, investors endured an awful fourth quarter, where the entire S&P collectively managed to lose money on an operating basis (thanks, AIG, and Citigroup, and GM, and, um…), and a first quarter mostly notable for a slightly better performance than expected - even though earnings were down 36% from the previous year.

It’s still hard to see where the improvement is going to be, however. Earnings are expected to fall about 36% once again, and investors in recent weeks have finally cottoned to the idea that vaulting over low bars really isn’t much to get optimistic about. If the market is truly going to turn higher, it will depend on the quality of earnings, and there, some aren’t so optimistic. Mike Lewitt, president of Harch Capital Management, said, “I don’t think there’s a lot of revenue growth, just shrinkage - basically everybody is shrinking across the board and that’s what we’re seeing.”

The hope, somehow, is that consumer demand is starting to rebound, however slightly, as people get used to the new economic reality - relieved to still have a job, and ready to buy goods after putting off purchases for some time. “Many people made decisions to postpone purchases but not forego them,” said Diane Garnick, investment strategist at Invesco.

We’ll see. What may be necessary is a bit of reading between the lines when listening to conference calls. Visibility is still limited, and executives aren’t going to be eager to put forth rosy expectations when the economy remains stretched. An outbreak of brutal honesty among top execs isn’t likely, but a bit of hesitancy in describing current business decisions would say a lot.

By Barani Krishnan

A decade ago, Malaysia's former deputy prime minister Anwar Ibrahim was on trial for sodomy and corruption in a trial that exposed the seamy side of Malaysian justice and the anxieties of a young country grappling with a crushing financial crisis and civil unrest.

Anwar is Malaysia's best known political figure, courted in the U.S. and Europe and probably the only man who can topple the government that has led this Southeast Asian country for the past 51 years.

Photo: Anwar Ibrahim, with a bruised eye, at court on Sept 30, 1998 during his his first trial. REUTERS/David Loh

Now the leader of the opposition, will go on trial next week again charged with sodomising a 23-year old male aide. The trial once again looks likely to provide gory evidence and bringing some unwanted attention from the world's media on this Southeast Asian country of 27 million people. It could also embarrass the government and draw international criticism.

Anwar vowed in a recent interview to fight what he says are trumped up charges.

The 14 months I spent covering the 1998 trials saw Anwar accused of sodomy with three men and having sex with a woman over a period of years. This case is simpler, there is just one accuser. All homosexual acts are illegal in this mainly Muslim country and sex outside marriage is illegal for Muslims.

The first trial was gruelling. Lines began as early as four in the morning as people tried to get into the court that could seat less than 200. Most of the spectators were ordinary people, but there was a sprinkling of dignitaries and businessmen who had known Anwar when he was in office.

There was a separate media queue and again a fight to get in line as dozens of reporters from local and international outlets jockeyed for space. Ringing the court were hundreds of riot police, backed by watercannon, waiting for trouble in a country where there were daily protests at the time, often involving tens of thousands of people.

Once inside the courtroom, things were equally unpredictable. Judge Augustine Paul, plucked from obscurity to oversee Malaysia's most important criminal trial, won national fame for his oft-repeated response of "not relevant" to evidence introduced by the defence team.

The evidence itself was often contradictory and often bizarre. Ummi Hafilda Ali, a star witness for the prosecution called Anwar a "dog" and prayed that he would contract AIDS. At one stage the prosecution paraded a mattress in and out of the courtroom, saying that semen stains showed Anwar had had sex with a man on it.

One day outside the court, a witch doctor cast a spell, for no apparent reason.

Anwar showed up sporting a black eye that he said had been inflicted on him in prison by the country's police chief. This time round he says that he was forced to strip and his sexual organs measured in a hospital.

The evidence to be presented by the prosecution this time looks likely to be just as sensational. The malaysianmirror web portal, backed by one of the government parties, said there will be 30 witnesses, a carpet and a video recording, as well as a DNA evidence brought into court.

Anwar's team, citing two medical reports, says there is no evidence that Saiful Bukhari Azlan was sodomised. Saiful meanwhile has sworn on the Koran that he was and wasn't best pleased when the charge against Anwar was changed to consensual sex.

One key actor in the whole drama is missing this time round. Former prime minister Mahathir Mohamad, who critics say used the 1998 trial to drive Anwar from office and to humiliate him, is no longer in power. That removes some of the sting.

Even so, incumbent premier Najib Razak attracts plenty of ire from the opposition. He has been forced to deny allegations from the opposition and opposition-supporting websites that he was involved in the lurid murder of a Mongolian model.

The country remains tense in the wake of the 2008 general election in which the government lost its customary two-thirds majority.

Can Anwar survive another trial? Without him, can the opposition prosper and have a real chance of winning at the ballot box  in elections due to be held by 2013. Can Najib survive as prime minister if Anwar remains free and can he implement economic reforms?

Five things to think about this week:

WHAT Q3 HOLDS 
-  Global stocks are on track for their best quarterly performance in the 20-year history of the MSCI world index in Q2. But it will take better economic data than in recent weeks and positive earnings surprises to give the rally new impetus as Q3 kicks off, especially since volatility and liquidity remain preoccupations.

FINANCIALS 
- The Q2 reporting season looks set to highlight the gulf between financial institutions which are emerging in robust shape from the crisis and those still plagued by credit losses. Mark-to-market accounting changes and other factors may have distorted Q1 earnings but quarter-on-quarter comparisons could prove less flattering for those which have not been lucky enough to rack up high earnings, enjoy high margins and healthy trading revenues and pick up market share from defunct or weaker rivals. Recommendations in the next few days and weeks from a clutch of national and European authorities on the future landscape of regulation could throw some curveballs but will also offer a clearer picture of what banks will look like in the future. 

JOBLESS SPOTLIGHT 
Jobless data is lagging but some key unemployment numbers next week, including from the United States, will offer clues on how deep the domestic demand downturn will be and how much of a shadow labour market woes will cast over consumer sentiment and household purchases — vital indicators for firms looking for signals as they take decisions on inventory rebuilding. 

CENTRAL BANKS 
- The ECB will be next after the Fed to perform the balancing act that central banks are engaged in as they try to manage markets’ inflation and rate outlook expectations. Breakevens on French inflation-linked bonds have eased from May peaks but those fretting about the QE exit strategy still want reassurance. Some central bankers are flagging the need to turn off the fiscal taps at the right time but the sharpness of these warnings will be tempered by a reluctance to trigger a sharp back up in yields while the market-imposed need for fiscal discipline is being blunted by these central banks’ bond buying. 

ISSUANCE
- Huge borrowing and debt issuance from major countries around the world ensure that long-term inflation is still a concern for some people in financial markets, despite soft economic data and huge capacity utilisation slack pointing to extremely subdued price pressures. Front-loading by some sovereign issuers still leaves plenty of supply to come onto market in H2. Question marks remain over how such supply will be absorbed, and whether shifts in household savings rates will help.

More good news for equity bulls from Crispin Odey.

Odey, who called the possible start of the bull market earlier this year, says technically there is "every reason to be hopeful that a major correction will not happen before September".

And, having profited handsomely from his position in Barclays, which is now a 16.3 percent holding in his European fund, he sees the best opportunities in companies that were once unable to refinance but now can get credit, rather than safe-haven stocks.

"I still find myself coming out of meetings with companies whose share price is up fivefold since January and wanting to fill my boots. But it is quite a narrow field.

"This is the year of the prodigal son, with no prizes for being the sensible and good older brother."

(See also Odey's Barclays Boost)

(Follow major developments in the hedge fund industry this week with Hedge Hub's coverage of the GAIM)

People packing their bags and flying out to St Petersburg, Warsaw, and Prague this summer may not just be seeking an exotic vacation spot.

International property investors are inching back to emerging Europe, lured by prospects of higher returns in markets such as Poland, whose economy has held up relatively well in a global downturn, and Russia, which is bolstered by rising crude oil prices.

After posting strong growth for over 5 years, commercial real estate investments in emerging Europe had been a washout after Lehman Brothers’ collapse in Sept ‘08, with first quarter sales hitting a record low.

As our Moscow-based property reporter Yuliya Komleva and I wrote , major property fund managers such as Germany’s DekaBank, UK’s Aberdeen, and Hines from the United States have again looking for big buys in the region, although Hungary, Ukraine and the Baltics remain largely no-go zones.

Aberdeen Property Investors’ managing director for Russia, Charles Voss, even compared Russian cities favourably against London, where the once-booming UK financial services industry has been weakened by the global financial crisis.

"They don't anticipate all those jobs to come back immediately so the demand for office space will be weak (in the UK). Even though they are starting to get to the bottom, the growth curve in terms of additional value can be less than what can be in found Russia," says Voss, who sits in Russia’s cultural and historical capital of St Petersburg.

With property prices diving and driving up yields in London however, investors are looking to squeeze higher returns in emerging Europe, says Jones Lang LaSalle (JLL) head of CEE Capital Markets & Investment Tomasz Trzoslo.

(This JLL graphic illustrates European office yield movement in the past year)

“If you can buy in London for 6-7 percent, why buy in Central Europe? Central Europe needs to trade at a yield premium—my guess about 150-200 basis points,” Warsaw-based Trzoslo argues.

    The recent run-up in oil prices could have further to go as most analysts are likely to begin raising their year-end oil price targets, according to market research firm Birinyi Associates in Stamford, Connecticut.
    "Given several considerably lower expectations, we think it is reasonable to expect upgrades," they said in a research commentary, noting that crude oil prices were already above most firms' year-end targets.
    U.S. front-month crude hit an intraday high of $73.23 on Thursday, the highest intraday level since prices hit $75.69 on Oct. 21.
    A year-end oil price target of note recently came from Goldman Sachs, which raised its end-of-2009 oil price forecast on June 4 to $85 a barrel from $65.
    Oil's climb partly reflects weakness of the U.S. dollar and expectations that demand may be picking up as the global recession abates.

--- Graphic courtesy of Birinyi Associates, Inc.

As investors in London’s junior AIM market know only too well, high risk does not always mean high return. Now, more than ever, the Alternative Investment Market of the London Stock Exchange needs to prove that it can offer investors high-quality companies.

The FTSE Small Cap index of smaller companies listed on the main London market has outperformed the AIM 100 index on the way down, and on the way back up. The FTSE Small Cap has gained almost 30 percent over the last couple of months, while the AIM 100 has risen 20 percent.

And that’s after the AIM 100 saw falls of over 50 percent in the past year, much more than the 27 percent posted by the FTSE Small Cap index.

While liquid companies like Advanced Medical Solutions and Cape typify the benefits of AIM, there are too many that have cut back so much that they are reduced to a CEO operating alone out of his spare bedroom.

AIM officials said on Friday that they thought the market has had its best month for a year, raising around 500 million pounds for companies, but this includes 220 million pounds raised by one company alone, Max Properties.

Fund managers say that they like some AIM companies that are making profits, or close to that point. However high-risk beta stocks that expect investors to hang around for five years or more should be happy that the winter weather has cleared, because they’re likely to spend most of their time with their caps in their hands.

If AIM wants to see its companies grow fruitfully as cash returns to the market, it will have to start out by sifting the chaff from the wheat.

Opportunistic buyers, lovingly dubbed "tourists" by those in the industry, have moved into the secondary private equity market. They're looking for positions in brand-name private equity funds at knock-down prices. As I wrote in a DealTalk today:

"Pension funds and wealthy middle-east sovereign wealth funds are buying up investments in private equity funds, pushing up prices and sidelining secondary firms that specialise in acquiring the assets.

"The market for second-hand private equity assets -- where private equity investors offload assets to specialist buyers -- has mushroomed as the credit crisis has intensified. And increasing numbers of cash-strapped investors are concerned about meeting their future commitments to buyout funds.

"New investors have been attracted to deals by steep discounts to net asset value, forcing up prices for specialist buyers, such as Goldman Sachs (GS.N) and HarbourVest Partners (HVPE.AS) that last month closed secondary funds after reaching their $5.5 billion and $2.9 billion targets respectively."

Read the full piece here.

More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.

Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.

The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.

Some of the selected comments:

“ESG only plays a role to the extent that it is an overhang on the stock. There is no moral component to investing. We are value neutral when it comes to our investment decisions, but we are not value neutral in our lives. We have a fiduciary duty to our clients, to the people who give us money to manage to maximize returns, which means that we can not be limited by our own personal morality. If I see a cigarette company that looks interesting I may invest in it even though I might not like it
personally.” - U.S. Hedge Fund Investor

“I am convinced that companies that follow the philosophy of social and economic responsibility are performing better in the long-term than those that do not.” - European Core Growth Investor

The report dovetails with Tuesday’s push by U.S. President Barack Obama to push for tougher industrial standards aimed at lowering greenhouse gas emissions.

Obama ordered the U.S. auto industry, where the hand of government is firmly in control (GM and Chrysler, but not Ford) to make more fuel-efficient cars to cut emissions and increase gas mileage.

The House of Representatives started its debate on the 946-page Democratic bill on Tuesday. Republicans are arguing the legislation would burden the economy with higher energy costs.

Does that matter, when scientists reported on Tuesday that global warming’s effects this century could be twice as extreme as estimated just six years ago?

Massachusetts Institute of Technology scientists estimate the Earth’s median surface temperature could rise 9.3 degrees F (5.2 degrees C) by 2100. That’s up from the 4.3 degrees F (2.4 degrees C) estimate in 2003.

The U.N.’s Intergovernmental Panel on Climate Change said seas would rise by between 18 and 59 cms (7-24 inches) this century. But it pointed to big uncertainties about ice sheets in Greenland or Antarctica — one IPCC estimate was that this ice could add up to 20 cms to sea level rise.

Real estate prices are in freefall. Billions of dollars worth of projects have been cancelled or put on hold and expats are leaving in droves as they lose their jobs. Once a playground for the rich and super-rich, the seaside emirate — home to palm tree shaped islands, mega malls and luxury sky-rise hotels — has lost its lustre. And bargain-basement assets are not yet cheap enough to tempt buyers back. 

European investors, who once clamoured to Dubai, reckon they can land better deals closer to home or elsewhere in the Gulf. Some analysts are predicting that the more stable markets in Abu Dhabi, Doha and Saudi Arabia to recover faster than Dubai.

 “Dubai is not one for us. I prefer long-term established locations with underlying intrinsic attractions or clear, sustainable competitive advantages,” Bill Hughes, managing director, Legal & General Property, told Reuters.

True, Dubai offers guaranteed sunshine for almost 365 days of the year, tax-free salaries and arguably the most westernised lifestyle in the Gulf but the boom-bust characteristics of its real estate sector will likely deter many investors from taking the plunge.

From start-2007 to mid-2008, prices rallied almost 80 percent, Morgan Stanley estimates showed. But a UBS report last month said Dubai house prices could fall up to 70 percent from their fourth-quarter 2008 peak. A Reuters poll in March showed prices were likely to fall more than 40 percent in 2009 and 2010 before recovering in 2011.

 It could be some time before western investors are lured back to seek bargains in Dubai’s property sector, and even then, will the emirate’s sector ever reach the same dizzy heights again? –Jason Benham.

(Reuters photo: Steve Crisp)