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Weekend Scan: Stimulus still in play; Apple, Alibaba, Twitter to report quarterly earnings
Capital Markets
<p>Greetings, Here we are again. The Federal Open Market Committee convenes once more to review the U.S. economy and determine whether it is time to hike rates. Odds makers, say no. December is the month. Goldman Sachs says so, but only with 60% confidence. Stocks rallied last week as investors placed bets on more easy money -- both the U.K. and China offered more stimulus giving a new buzz to stocks, which are no longer in correction territory. Before the Fed policymakers convene on Tuesday and Wednesday, they will get word on new home sales in September. Look for a slight drop to 549,000 from 552,000 in August, seasonally adjusted. The other big numbers: third quarter GDP on Thursday and personal income and spending on Friday. And, of course, this is another big week for earnings, featuring Apple, Twitter, Alibaba, Yelp, GoPro, Marriott International, and more.</p> <p>Take one: Merrill Lynch says worst of global turmoil behind us. In a note on third quarter GDP, the investment bank says the strong dollar, weakness overseas, and an inventory correction will translate into lower growth this past quarter. Merrill is lowering its outlook to 1.2% from 2% growth. The government reports GDP on Thursday. Calculated Risk</p> <p>Take two: Alibaba results cast a shadow over China consumer spending. Chinese e-commerce giant Alibaba Group’s second-quarter revenue growth is likely to have slumped to half the year-earlier rate, undermining hopes consumer spending will temper a slowdown in the world’s second-biggest economy. Reuters</p> <p>Apple, Twitter lead the earnings hit parade. Analysts are expecting good news from Apple based on early word on sales of the iPhone 6s and 6s Plus. Zacks expects Twitter to beat earnings -- but concern will center around user growth, which has been fading. MarketWatch, Zacks</p> <p>Valeant on the hot seat. The pharmaceutical company saw its stock drop more than 20% last week after Citron Research accused it of accounting slights-of-hand. At 8 a.m. ET on Monday, the company is holding a conference call with analysts. Top questions will surround the specialty pharmacies selling Valeant drugs. Until last week, no one even knew these pharmacies existed. Business Insider</p> <p>Walgreen's halts expansion of Theranos blood test centers. The pharmacy and key partner met with the specialty lab last Thursday after The Wall Street Journal ran a lengthy piece revealing that it used its proprietary system on just one type of blood test. The Verge</p> <p>Calling all bulls. Stock market breadth has improved since August 24th, when ETFs when beserk and investors dove into their bunkers. More than three quarters of S&amp;P stocks are trading above their 50 day average. The Short Side of Long</p> <p>Scary retail sales for Halloween bad omen for Christmas. Halloween sales are expected to hit $6.9 billion this year. Which sounds like a lot. It is, BUT, it's still the lowest since 2011 and 7% lower </p>
Daily Scan: Bulls lose steam; Fifth plenum begins
Capital Markets
<p>Updated throughout the day</p> <p>October 26</p> <p>Despite rushing straight out of the gate, Asian equities ended mixed on Monday as worries over China’s economy led traders to start taking profits. Hong Kong’s Hang Seng Index dipped 0.15%, while China’s Shanghai Composite and Japan’s Nikkei Average – after climbing as high as 1.25% earlier in the day – finished the session up 0.50% and 0.65% respectively. Here’s how the others began the week:</p> <p> Hang Seng China Enterprises Index: +0.05%<br /> Shenzhen Composite: +0.68%<br /> Straits Times Index: +0.55%</p> <p>Over in Europe, the bulls seem to be losing steam as well. Germany’s DAX – up 0.13% – is the only one currently in positive territory, while France’s CAC and the U.K.’s FTSE are down 0.51% and 0.28% respectively.</p> <p>Here’s what else you need to know:</p> <p>China leaders meets to discuss financial reform. The Central Committee, the largest of the Chinese Communist party's elite governing bodies, is gathering until Thursday to finalize the 13th Five-Year Plan, a blueprint for economic and social development between 2016 and 2020. Reuters</p> <p>South Korea man dies of Mers virus 3 months after last death.  A South Korean man died of complications from Middle East Respiratory Syndrome (Mers) Sunday, in the first death linked to the virus in the country for more than three months. South China Morning Post (paywall)</p> <p>Child rapists should get the snip, says India court.  A court in India has said child rapists should be castrated as existing laws had proved to be "ineffective and incapable" in protecting children. Justice N Kirubakaran of the Madras High Court made the remark while rejecting a plea by a British national accused of sexually abusing a boy. BBC</p> <p>IMF to include China's yuan in benchmark currency basket. International Monetary Fund staff are set to give the all-clear for China’s yuan to be included in the lender’s benchmark currency basket, laying the groundwork for a favorable decision by policymakers.  The IMF’s executive board is scheduled to decide in November. South China Morning Post (paywall)</p> <p>Scores injured in HK hi-speed ferry accident. At least 124 people were injured when a high-speed ferry travelling to Hong Kong from Macau hit an object in the water, say officials. The ferry, with 174 passengers on board, lost power close to Lantau island, at about 18:00 local time and began taking on water. BBC</p> <p>Guatemala elects comic for president. Former TV comedian Jimmy Morales, who has no experience in government, won Guatemala's presidential election in a landslide on Sunday after a corruption scandal toppled the last president. Reuters</p> <p>Alibaba results cast a shadow over China consumer spending. Chinese e-commerce giant Alibaba Group's second-quarter revenue growth is likely to have slumped to half the year-earlier rate, undermining hopes consumer spending will temper a slowdown in the world's second-biggest economy. </p>
Elon Musk's must-read books
Lifestyle, 4:01
<p>Elon Musk is a business man, but his reading list is all about science. Here are his top book recommendations for Inc.</p> <p> "Benjamin Franklin: An American Life" by Walter Isaacson. Musk isn't an American by birth, but he's certainly inspired by Franklin the scientist, statesman, and business man.<br /> "Catherine the Great: Portrait of a Woman" by Robert K. Massie. Catherine wasn't an ordinary monarch, she was a strong woman with power and the ability to wield it.<br /> "Einstein: His Life and Universe" by Walter Isaacson. Musk is a physicist by trade, and has created his companies in the light of Einstein's discoveries and understandings of the world.<br /> "Howard Hughes: His Life and Madness" by Donald L. Barlett and James B. Steele. Hughes was a brilliant investor and business man, but it remembered for his failures.<br /> "Ignition: An Informal History of Liquid Rocket Propellants" by John D. Clark. This now out of print book is an inside look at the evolution of rocketry.<br /> "Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming" by Naomi Oreskes and Erik Conway. This book exposes how corporate-funded scientists were able to skew public opinion.<br /> "Structures: Or Why Things Don't Fall Down" by J.E. Gordon. This book is the nerd's version of fun, explaining basic physical behavior in an entertaining way.<br /> "Superintelligence: Paths, Dangers, Strategies" by Nick Bostrom. This may be some of the foundation of Musk's fears about the threat of artificial intelligence.<br /> "Zero to One: Notes on Startups or How to Build the Future" by Peter Thiel. Written by Musk's former colleague has unique insight into starting successful businesses.</p> <p>Photo: Thomas Hawk<br /> &nbsp;</p>
What does online dating have to do with online investing?
Lifestyle, 4:01
<p>There’s been a lot of talk about Match.com in light of last Friday’s IPO filing for Match Group, the IAC-owned company that’s going public. So I thought it was only appropriate to write something on the subject.</p> <p>I should probably start with an admission: I’m a recovering Match-a-holic.</p> <p>When I was dating, I was legitimately addicted to Match.com. And although it surprises a lot of people when I tell them this, I generally found that the women I met on Match were “as advertised.” Meaning when I met them in person on a first date, they were more-or-less who I thought they would be. From my own personal experience, I found Match to be valuable and a lot of fun too.</p> <p>Something I used to do to on Match was update my personal profile often in order to figure out how to get maximum engagement with my intended audience. I routinely did things like Photoshopping my kids out of a vacation picture or changing my job description from “software entrepreneur” to “hedge fund guy.” (Predictably, this last tweak resulted in a huge increase in interest.)</p> <p>But nothing generated more attention than what I called my “Top 10 List.” On this list, I included snippets of what I thought women should know about me before they sent me an email. I made sure it was informative (I’m not a Facebook user, I’m not a serial dater, I don’t use Rogaine, etc.) and I made sure it was funny because let’s face it, we all need a little humor to get through the day.</p> <p>So in celebrating Match.com’s IPO filing, I thought I’d use some of the stuff I learned on their website and apply it to something more relevant for this forum, which aims to cover the area of online capital formation. So without further ado, here it is.</p> <p>The Top 10 reasons why I’m contemplating quitting my job to start an online dating website:</p> <p>No need to register as a dating portal<br /> No waiting for Title III crowdfunding rules<br /> No more complaining from people tired of waiting for Title III crowdfunding rules<br /> No SEC no-action letters that make my head hurt<br /> No need to limit my prospects to accredited investors<br /> No need to take “reasonable steps to verify” anything<br /> No FINRA audits (or FINRA auditors)<br /> No Reg D, Reg A, or other regulatory bureaucracy to deal with<br /> No need to worry about general solicitation (but I still do have to worry about “solicitation”)<br /> No need to have a “substantial pre-existing relationship”</p> <p>Enjoy your weekend (and keep your sense of humor)!</p> <p>This post originally appeared on the Dealflow.com blog. </p> <p>Photo: Andy Morffew</p>
Bear Alert: NYSE data show stocks, margin debt rate of change turned negative in September
Capital Markets
<p>Are we on the cusp of a major bear market? Here's one indicator that will feed hungry bears via Jesse Felder of bear-market clean-shaven fame:<br /> The NYSE margin debt numbers for the month of September were released today revealing a very significant milestone for the stock market. As of the end of September, both stocks and margin debt have seen their 12-month rate of change turn negative after margin debt-to-GDP had risen above 2.5%. The last time this happened was April of 2008, as the stock market crash during the financial crisis was just getting started. The time before that was December, 2000, the very beginning of the dotcom bust.</p> <p>The Felder Report<br /> Photo: Rob Hurson</p>
Warren Buffett's reading list
Lifestyle, 4:01
<p>Read your way to being a billionaire. Or at least read like one. Here is Warren Buffett's recommended reading list for Inc.</p> <p> "Business Adventures: Twelve Classic Tales from the World of Wall Street" by John Brooks. Business journalist Brooks shares some of the best stories from his career.<br /> "Common Stocks and Uncommon Profits" by Philip A. Fisher. This pre-Internet book explains how individuals can pick stocks supported by strong research.<br /> "Dream Big" by Cristiane Correa. Forget Bill Gates and Steve Jobs. Jorge Paulo Lemann, Marcel Telles, and Beto Sicupira are the billionaire innovators of Brazil, and this is their story.<br /> "The Little Book of Common Sense Investing" by Jack Bogle. It's by Jack Bogle. Enough said.<br /> "The Most Important Thing Illuminated" by Howard Marks. In contrast to Bogle, Marks is all about the complex. Think high level investing with complicated factors.<br /> "The Intelligent Investor" by Benjamin Graham. Somewhere between Bogle and Marks, Graham explains the core of investing.<br /> "The Outsiders" by William Thorndike, Jr. Thorndike writes about eight CEOs and what make them succeed against the odds.<br /> "Where Are the Customers' Yachts?" by Fred Schwed. Brokerages are for making brokers rich, not the customers. Yikes.</p> <p>&nbsp;<br /> Photo: collectmoments<br /> &nbsp;</p>
A post-grad job search reality check
Lifestyle
<p>Don't waste graduate school worried about your post-graduate job opportunities. During a graduate school panel at Columbia Journalism School Thursday, a few alumni and I met with current graduate students to discuss the coming year and what to expect as graduation nears. Students who began their studies in August are already panicked about job applications. Take a deep breath. It shouldn't be that bad. Here are the top tips the panel had for students looking ahead:</p> <p> Be flexible. No one, or almost no one, gets their dream job right out of graduate school. If you get something close, or even not so close, take it. A move to the right company, even in the less-than-ideal position, could be a step in the right direction. Almost any experience is good experience, outside of maybe that super lucrative dog walking gig you've been contemplating.<br /> Know that you're going to keep learning. Don't avoid job applications for positions you don't feel 100% qualified for. Everyone is allowed, and encouraged, to learn on the job. Instead, focus on where your past skills and experiences have come from and how you can apply it to a new role. It may be as simple as showing how quickly you were able to adapt to a new role in a new city in a foreign field at your last job. Companies want their employees to succeed and they should support any further knowledge you seek, formal or informal. Ask questions, and lots of them!<br /> Be eager. Try something new. Come early and stay late. Take on duties outside of your core role. Share your ideas. This is your opportunity to prove yourself and show what you are capable of doing, even if it's a bit uncomfortable at first.<br /> Don't say yes to everything. It seems to be contrary to the previous point, but it's not. It's great to do new things and tackle projects outside of your core job, but don't take on things you can't handle. If you drop the ball on other duties, miss deadlines, or disappoint, you're probably going to be passed over for opportunities in the future. Only say yes to things you can give 110% to. If you flake it's not just one person that will know, it's everyone they work with now and in the future too.<br /> Network, network, network! It may seem boring, fake, and sometimes painful, but networking is the way to go. Most people enjoy helping others; it makes them feel good too. There's a clear line between desperate begging and being friendly, open, and eager. Trust me, you'll know when you really cross the line. Don't forget to follow up to meetings with an email or a connection on social media platforms (like NexChange!). As long as you act like yourself (in a good way) and put yourself out there to meet new people, you're doing the right thing. They may not remember your resume and exact skills, but they will remember the really nice, smart person they'd like to work with.</p> <p>Photo: Evonne </p>
Should taxpayers be spending $200B annually to encourage stock investments?
Capital Markets
<p>The U.S. tax code’s treatment of debt and equity is schizoid, to be polite. And it is costing taxpayers a lot of money -- $200 billion, by my estimates based on data from the Congressional Budget Office.</p> <p>At the center of the schizoid set of policies are the favored taxation of dividends and capital gains and the deductibility of interest on debt. In plain English, these rules encourage investors (mostly wealthy ones at that) to buy stocks.  Frankly, $200 billion a year could buy a lot of education and childcare, which in my view are the nation’s most pressing needs. (See my book, The Education Solution, for an explanation of why they are the most pressing needs.)</p> <p>The size of the expenditure naturally leads to the questions, “What do we get for it?” and “Is it worth that much?”</p> <p>I am, in fact, a fan of equity investment as opposed to debt finance. Equity is safer, it tends to provide incentives for longer-term management thinking, and it makes the overall economy more resilient in the face of economic uncertainty and the business cycle. Nevertheless, is such a large incentive necessary or useful?</p> <p>The answer clearly is “no.”  Americans invest their tax-deferred or tax-exempt retirement funds more in equities than in debt even though from a tax point of view that is not rational, since it converts dividends and capital gains into ordinary income (at least eventually). The top tax rate for ordinary income is 39.6% vs 20% for capital gains. So consider this: 39.2% of 401(k) assets are invested in equity funds as opposed to 11.8% in bond funds, according to the Investment Company Institute (ICI). And 49% of IRA assets are in equities and equity funds as opposed to 20% in bonds and bond funds.</p> <p>Asset allocation between stocks and bonds depends on age, not on taxation, according to the ICI. And advice from most sources, including Money.com, confirms that that should be the case.</p> <p>So if tax incentives to encourage equity investment are superfluous, why does the tax code treat capital gains and dividends more lightly than ordinary income (or income from bonds)? The answer is said to be “tax equity.” Corporations pay a corporate income tax BEFORE they distribute dividends. In addition, it is reasoned, capital gains on stock are gains after AFTER the corporation pays income tax. Interest payments on bonds, by contrast, are deductible to the corporation paying them.</p> <p>Regarding capital gains, this tax equity argument fairly clearly is bogus. (1) Over the years, returns on equity investments have significantly outperformed investments in corporate debt. Equity needs no tax advantage to make up for any deficiency. (2) Capital gain levels typically are more related to the stock market in general than to specific corporations and their earnings.</p> <p>Related to dividends, the tax equity argument has greater appeal. After all, corporations can deduct expenses for interest payments on debt but not dividend payments on equity. The playing field should be level, one logically can argue. However, that argument speaks for a corporate deduction for dividends (or repealing the corporate deduction for interest payments), not a tax preference for dividends received. That wouldn't give t</p>
‘Hedge fund bro’ may be out of business soon
Hedge Funds
<p>Remember Martin Shkreli? The Wu Tang-quoting former hedge fund manager who jacked up the price of Daraprim, a sole-source drug used to treat AIDS patients, from $13.50 to $750? He became known -- and hated -- around the world as “hedge fund bro” following his unrepentant behavior on Twitter.</p> <p>Well, here’s a little Brodenfreude for you, via Quartz:<br /> “Shkreli—who became known as “pharma bro” during the controversy—can attempt such stunts thanks in part to unregulated market forces. But those same forces might drive him out of business now that an analogous compound drug priced at $1 a pill could soon hit the market.</p> <p>Imprimis Pharmaceuticals announced it will offer a pill containing pyrimethamine, the ingredient in Daraprim that fights toxoplasmosis, a parasite-induced disease that threatens patients with weak immune systems. Imprimis’ medication isn’t identical to its competitor. But according to Ars Technica, it could serve as an effective and much cheaper alternative, given that Daraprim is the only other pyrimethamine-based drug on the market.”<br /> Photo: NEPA scene</p>
Global growth forecast - Q4 (infographic)
Capital Markets
<p>The global economy is in the midst of a major rebalancing, and many themes we have tracked since the start of the year intensified during the third quarter.</p> <p>Our primary theme -- that the current state of the global credit cycle favors developed market consumers -- remains intact. But markets have focused their attention on the counterpart of that theme: many emerging markets (EM), including China, are entering the downturn phase of the credit cycle, and the availability of foreign capital to emerging markets is becoming scarce. Investors have drawn little comfort from China’s fiscal and monetary stimulus efforts to date.</p> <p>Every quarter, we update our forecast map. Read on for our global highlights:</p> <p>MALR014087</p> <p>This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles &amp; Company, L.P. This information is subject to change at any time without notice.</p> <p>© Loomis Sayles</p> <p>This story originally appeared in Advisor Perspectives.<br /> Photo: Pascal</p>