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Daily Scan: US stocks jump; Trump threatens to boycott debate
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>October 15</p> <p>Good evening. Data aren't on the Fed's side.  U.S. stocks moved higher Thursday as a potential rate rise looks further out. The Dow was up 1.3%, the S&amp;P 500 gained 1.5%, and the Nasdaq rose 1.8%. Consumer prices for September fell 0.2%, as expected, down from -0.1% in August. European and Asian stocks rallied Thursday as well, with the Stoxx Europe 600 growing 1.5%. Crude oil dipped 0.6%, finishing just over $46/barrel. Bottomline: A rate hike in the U.S. this month as about as likely as a snowstorm.</p> <p>Here’s what else you need to know:</p> <p>The Donald threatens to boycott GOP debate. Presidential candidate Trump wants things his way or the highway, and right now the Oct. 28 GOP debate is not going his way. Trump's campaign manager told the RNC Thursday that Trump likely won't show if the CNBC debate doesn't include opening or closing statements, or if it is longer than two hours total. The other GOP candidates also expressed distaste at the lack of opening and closing remarks. A Rand Paul aide reportedly told the RNC officials that "CNBC can go f--- themselves" if the candidates weren't given the option for statements. Politico</p> <p>Goldman Sachs 3Q dips on weak bond trading; Citi beats expectations on lower costs. The investment bank posted EPS of $2.90/share on revenue of $6.86 billion. Analysts had expected earnings of $2.91 on revenue of $7.13 billion. Meanwhile, Citi put its legal costs behind it, and net income rose to $1.35/share vs predictions of $1.28. CNBC</p> <p>Blackstone posts first quarterly loss since 2011. The New York-based private equity firm fell 40 cents a share last quarter, down from 41 cents a share during the same time last year. The firm's net income dropped 35 cents a share, compared with a 66 cents a share gain last year.  Wall Street Journal (paywall)</p> <p>Jeb Bush raises $13.4 million. The former Florida governor's presidential campaign added $13.4 million in the third quarter, surpassing Marco Rubio and Ted Cruz. CNN</p> <p>Former House Speaker pleads guilty. Dennis Hastert will plead guilty to charges that he paid $3.5 million to cover up decades-old wrongdoings while Hastert was a high school teacher in Illinois. Politico</p> <p>Suspects identified in Lockerbie bombing. After nearly three decades, Scottish and U.S. investigators have identified two Libyan suspects responsible for the airplane bombing that killed 270 people in 1988. Another Libyan, Abdel Basset al-Megrahi, was the only person convicted for the bombing. He was sentenced to life in prison in 2001 and died in 2012 of cancer. Reuters</p> <p>Myanmar signs cease-fire with rebels. The Asian country agreed to a cease-fire with eight ethnic rebel groups Thursday. While the cease-fire is a huge step for the tumultuous country, seven of the initial 15 rebel groups in negotiations did not join the agreement. National elections in the country formerly known as Burma are just three weeks away. </p>
Paul Singer says developed countries are “utterly insolvent”, buy gold
Hedge Funds
<p>Billionaire Paul Singer, founder of hedge fund firm Elliott Management and one of the most disliked people in the world, hammered central bank monetary policy at a conference in Israel on Wednesday.</p> <p>Making his controversial comments at the first ever Tel Aviv Sohn Conference, Singer argued that since the financial crisis blew up in 2008, advanced nations have been propped up by a cult of central bankers. Paul Singer’s comments are courtesy of tweets from Bloomberg TV’s Elliott Gotkine, who is attending the conference.</p> <p>Singer is no stranger to controversy. A well-known and less-than popular “vulture investor”, Singer is known for figuratively going for the throat in many of his business dealings. His unrelenting pursuit of defaulted sovereign Argentina bonds through the U.S. court system, even though some note that he paid just pennies on the dollar for the bad debt, is one example of his “vulture” style of investing.</p> <p>According to the tweets from Gotkine, Singer commented that “the balance sheets of developed economies were hopelessly and utterly insolvent once long-term entitlements were added in”.</p> <p>Of note, Singer has previously argued that prices of stocks and bonds have been notably “distorted” by over-accommodative central-bank monetary policy. Singer has also gone on record as saying if central banks make the disastrous decision to “do more” (such as another round of QE) then a global recession or depression likely. Singer has echoed these themes in the past in his letters to investors.<br /> Gotkine also tweeted that Singer said “I like gold. I believe it’s underowned.”  Singer further noted “every institutional portfolio should be 5-10 percent invested in gold to protect against zero interest rates that are degrading the value of paper currency.”<br /> Singer also argued that gold was the one tradable asset that has been “treated unfairly”, and pointed out that his fund holds gold through options.</p> <p>“Gold is the only real money,” Singer claimed. “Gold would do well if people felt they needed some real asset to protect against inflation, government policy and/or diversification from stocks and bonds.”</p> <p>Singer also commented:</p> <p>“In a world where the value of paper money is affirmatively aimed at being degraded by central bank policy, it’s kind of surprising to me that gold can’t catch a bid.”</p> <p>This article was originally published by ValueWalk.</p> <p>Photo: Bullion Vault </p>
Energy excellence: it could be the refiners ETF
Asset Management
<p>Although oil prices have retreated a bit in recent sessions, the United States Oil Fund(NYSE: USO) is still up 3.3 percent over the past month. That move has been enough to boost the fortunes of an array of equity-based energy ETFs.</p> <p>Included on that list is the Market Vectors Oil Refiners ETF (NYSE: CRAK). CRAK, the first dedicated refiners ETF, is higher by 4.3 percent over the past month. That is impressive when considering refiners benefit when oil prices slide due to lower crack spreads, perhaps the inspiration for CRAK's ticker, and the few ETFs with robust refiners exposure have been noticeably less bad this year than traditional equity-based energy sector counterparts.</p> <p>The gains posted by some refining stocks, including several of the 26 held by CRAK, are enough to make investors ponder if the ETF and its holdings can remain firm going forward.</p> <p>Read more on Benzinga. <br /> Photo: Natalie Maynor</p>
Fund managers are snapping up Japanese small-caps
Hedge Funds
Faced with uncertainty over Japan Inc.’s future earnings, hedge funds and asset managers are trying on something a little different from their bread and butter. According to the Nikkei Asian Review, a slew of profit downgrades coupled with a shaky global economy have led investors to flee from Japanese large-caps in favor of the more domestically-oriented small-caps: “Institutional investors are
When Warren Buffett knew he was rich
Lifestyle, 4:01
<p>I’m not exactly a big fan of Warren Buffett, but this answer he had for a student back in 2005 is beyond fantastic, and I thought you guys would like it too – especially those still in the early stages of their careers.</p> <p>Without further ado, here’s Warren Buffett on when he knew he was rich (h/t Josh Brown):<br /> Q: When did you know you were rich?</p> <p>“I really knew I was rich when I had $10,000. I knew a long time ago that I was going to be doing something I loved doing with people that I loved doing it with. In 1958, I had my dad take me out of the will, as I knew I would be rich anyway. I let my two sisters have all the estate.</p> <p>I bet we all in this room live about the same. We eat about the same and sleep about the same. We pretty much drive a car for 10 years. All this stuff doesn't make it any different. I will watch the Super Bowl on a big screen television just like you. We are living the same life. I have two luxuries: I get to do what I want to do every day and I get to travel a lot faster than you.</p> <p>You should do the job you love whether or not you are getting paid for it. Do the job you love. Know that the money you will follow. I travel distances better than you do. The plane is nicer. But that is about the only thing that I do a whole lot different.</p> <p>I didn't know my salary when I went to work for Graham until I got his first paycheck. Do what you love and don't even think about the money. I will take a trip on Paul Allen's Octopus ($400M yacht), but wouldn't want one for myself. A 60 man crew is needed. They could be stealing, sleeping with each other, etc. Professional sports teams are a hassle, especially when you have as much money as him. Fans would complain that you aren't spending enough when the team loses.</p> <p>If there is a place that is warm in the winter and cool in the summer, and you do what you love doing, you will do fine. You're rich if you are working around people you like. You will make money if you are energetic and intelligent. This society lets smart people with drive earn a very good living. You will be no exception.”<br /> Photo: Fortune Live Media</p>
Underserved and uncompetitive: Why VCs are dropping anchor in Vietnam
Venture Capital
Vietnam’s young demographics and increasingly tech-savvy population are making the country a draw for tech investors but the market is still largely underserved, say local venture capitalists (VCs). 500 Startups’ recent decision to add two new venture partners - Binh Tran and Eddie Thai - in Vietnam is the  latest indication that more VCs are interested in the country, The
Blockstream to launch Sidechain
<p>As bitcoin has gained popularity over the past few years, the system that the cryptocurrency runs on began to face some growing pains.</p> <p>Developers started to worry that the existing framework wouldn't be able to support continued growth; new ideas about how blockchain, the ledger-like technology that bitcoin runs on, could be used in other industries began to emerge.</p> <p>Those issues threatened to tear bitcoin apart, as the cryptocurrency community debated whether changes to the way bitcoin operates would take away from its decentralized nature. However, a startup called Blockstream says it has created a solution that will allow bitcoin to grow while keeping its original framework intact.</p> <p>Read more at Benzinga.<br /> Photo: BTC Keychain</p>
Japanese mutual fund assets fall to 2015 low
Asset Management
<p>Just as the Nikkei was shrinking 8%, apparently, Japanese mutual fund assets did some shrinking of their own.</p> <p>Citing data from the Investment Trusts Association, the Nikkei Asian Review reports that mutual funds in the land of the rising sun saw their assets under management shrink by a whopping ¥3.57 trillion ($30 billion) in September. That’s the same amount needed to rebuild Fukushima.</p> <p>The drop left the industry with just ¥93 trillion ($782 billion) in assets last month – its lowest level for the year – though still above last November’s ¥92.6 trillion ($779 billion) reading, not to mention the dramatic, post-Lehman decline.</p> <p>A lot of variables contributed to this, the surging yen for example ate away at foreign currency-denominated investments, while operating losses – now on its fourth consecutive month – continued to erode value.</p> <p>Still, inflows continue to be positive, and if investor commentary is anything to go on, investors are still in love the region, deteriorating fundamentals or not.<br /> Photo: Moyan Brenn</p>
Macquarie Research turns quant equity research on rugby
Lifestyle, 4:01
<p>Macquarie Research has taken its considerable quantitative talents and put them to work forecasting he Rugby World Cup finals and is finding an unusually high win percentage, one that would make any hedge fund manager salivate.</p> <p>Quant research approach has delivered an 82.5 percent success rate<br /> With an 82.5 win percentage – correctly forecasting 33 of 40 Rugby World Cup matches – the group looks forward and thinks the New Zealand team continues to be the front runner, while Australia is a big move and Whales still has a good chance of beating South Africa.</p> <p>The formula considers five variables: Value, momentum, sentiment, quality and home field advantage. While stressing that the purpose of the recommendations is fun, they note that their equity research models incorporate years of research using academic models. “The World Cup model has been put together by a lone team member in their spare time,” they note.<br /> Quant formula defines predictive modeling based on five major categories<br /> In terms of value, the variables the Macquarie Research team uses to determine value includes world ranking and World Cup Match experience. For momentum they select Change in ranking and win percentage over the previous 12 months. For sentiment they consider public odds of winning and change in odds. To determine quality they consider a best result factor and point differential over the last 12 months along with World Cup points. To top off the formula they place a certain mathematical value on home field advantage.</p> <p>“There were clearly some upsets in the tournament that caught everyone by surprise,” said the report, titled “The Marcquarie Quant Guide to the Rugby World Cup.” Unexpected results that defy past performance expectations are often a point of weakness in quant modeling. “England has been the biggest scalp producing the worst result of a home team ever in a World Cup. Being included in the ‘pool of death’ as the host nation was always harsh (obviously the royal family don’t have the sway they used to) and the pressure ultimately proved too much.”</p> <p>This is not the first time Macquarie has taken a quant approach to predict sporting events. It did so with Australia’s famous Melbourne Cup horse race in 2014, 2013, 2012, for instance, as well as last year’s Football World Cup in Brazil. “These forecasts do not come without pedigree; Macquarie’s Melbourne Cup model has generated some good performances and the Football World Cup model successfully picked Germany to win last year,” they wrote.</p> <p>This story first appeared in ValueWalk.<br /> Photo: </p>
Emerging market debt: an end to the agony?
Capital Markets
<p> Capitulation by many EMD investors has created opportunities in many of the more resilient countries.<br /> We favor countries moving down the reform path and where there is significant impetus to reign in excessive government spending.<br /> Valuations have reached the extremes that allow a selective approach to EM to now represent a key part of an income-oriented portfolio.</p> <p>Emerging markets (EMs) have endured a miserable year. Slowing Chinese growth, collapsing commodity prices, rising indebtedness and geopolitical turmoil have all taken their toll on fundamentals. The worsening EM story has, in turn, had a negative impact on capital flows, impacting performance both in absolute terms and relative to developed markets.</p> <p>More recently, China’s devaluation has led to fears that deflation could be exported to the rest of the world. The haphazard nature of China’s policy response to the economic downturn has weakened investor resolve that Chinese authorities can engineer a "good" outcome. The problems do not end there. The Federal Reserve is stating a desire to tighten policy, prompting concerns that a continued rise in the U.S. dollar will undermine EM local returns.</p> <p>Unsurprisingly, sentiment toward emerging markets has soured. The above trends are self-reinforcing, prompting many to call for EM to enter a protracted period of weakness. Given all the uncertainties, should investors simply ignore EMD altogether, or might a more selective approach to EMs produce better results?</p> <p>It is far too late in the cycle to “give up” on emerging markets</p> <p>Abandoning EMD altogether is akin to throwing the baby out with the bath water. The adjustment in EM assets is hardly new, and underperformance has been marked since at least 2012. Consider Brazil — a constant source of discouraging news. Brazilian equities, as measured by the Ibovespa, are down by 36% over the five years ending September 30 in local terms. For a U.S. dollar investor, however, depreciation of the Brazilian real has pushed the return to -71.7% over the period. Local rates in Brazil have risen to over 15%. Other markets — in USD terms — have also posted deeply negative returns. Russia, Ukraine, Turkey and Argentina have all endured periods of notable stress in the last 24 months.</p> <p>Prices could, of course, move lower, but valuations suggest that EM challenges are well-recognized in the market. We fully expect a protracted period of emerging market economic weakness, but we are at a stage in the current cycle that demands a focus on dislocations and valuation. Many opportunities appear compelling. EM growth will be positive and will continue to exceed developed market growth (Exhibit 1), notwithstanding the risk of further downward growth revisions that have dominated this cycle (Exhibit 2). This is a recipe for further volatility, despite much-improved valuations.</p> <p>Exhibit 1: IMF GDP growth forecast — advanced economies</p> <p>Sources: Columbia Threadneedle Investments, IMF, 07/15</p> <p>Exhibit 2: IMF GDP growth forecast — emerging economies</p>