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Barron's weekend roundup: Trump is dead wrong about China
Capital Markets
<p>&nbsp;</p> <p>Republican front runners Donald Trump and Ben Carson have been talking about China, and according to Barron's this week, they need a reality check. Trump said last week that  “the worst” of Beijing’s “sins” is the “wanton manipulation of China’s currency, robbing Americans of billions of dollars of capital and millions of jobs.” Writes Barron's, "Trump’s diagnosis of its currency maneuvers is demonstrably wrong. And his prescription is certain to be ineffective and have horrendous side effects."</p> <p>A restructure of Emerson Electric could drive the stock up, writes Barron's. Emerson's stocks have fallen 26% in the last year, driven by the slump of the oil and gas industry. The company is planning a spin off of its poorly performing network-power unit, and Barron's expects the stock will benefit.<br /> Photo: Gage Skidmore <br /> &nbsp;</p>
'Markets have rewarded discipline'
Capital Markets
<p>In the aftermath of the attacks in Paris, a number of people have been asking what will happen next in the markets. Josh Brown, wealth manager and author of The Reformed Broker blog posted this chart to his website, in part to answer just that question:</p> <p>Chart by Dimensional Fund Advisors.</p>
Ubben criticizes 'Bumpitrage' in ISS on Willis merger
Hedge Funds
<p>Jeff Ubben claims that maneuvering over the proposed merger between Towers Watson &amp; Co. and Willis Group Holdings Plc is legitimizing short-term shareholder activism.</p> <p>Ubben, who runs activist fund ValueAct Capital Management, says that the Institutional Shareholder Services’ recommendation that Towers Watson &amp; Co. investors reject the merger encourages “bumpitrage,” write Beth Jinks and Katherine Chiglinsky for Bloomberg.<br /> Ubben and ValueAct speak out against ISS report<br /> Bumpitrage refers to a situation where shareholder activists buy stock in the target company in order to pressurize for a bump in the terms of the deal, according to a statement from ValueAct. Ubben’s fund is the second-largest shareholder in London-based insurance broker Willis Group.<br /> “ISS encouraging stockholders to walk away from a highly accretive deal if they do not receive a renegotiation of the deal economics incentivizes the very shortest-term profiteering,” ValueAct said in the statement. “It gives an opening for short-term investors to run into every deal and attempt to collect a tax. When this goes badly, longer-term stockholders suffer the opportunity costs of missed value creation.”<br /> In June Willis agreed to merge with Towers Watson in a move that would allow it to add consulting services, assisting its ongoing struggle with insurance rivals Aon Plc and Marsh &amp; McLennan Cos. which are more diversified insurance companies. Proxy advisers ISS and Glass Lewis &amp; Co. released a report last week in which they advised against the deal, citing an unfavorable valuation for the firm.<br /> ValueAct pressing for deal to go through<br /> Ubben became a member of the Willis board in July 2013, and has advocated for the deal since it was announced. In October he claimed that the deal would be completed by the end of the year and could see earnings double by 2018.</p> <p>Activist fund ValueAct currently has over $19 billion in assets under management and is known for pushing for sales and other changes at companies it is invested in. The proposed deal would leave Willis investors with 50.1% of the combined company, which would be domiciled in Ireland and run by John Haley, Towers Watson CEO.</p> <p>Towers Watson shareholders stand to receive 2.649 Willis shares and a one-time cash dividend of $4.87 for each share.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Amy McTigue</p>
Hedgeable appeals to millennials in US and abroad
Hedgeable, the platform that bills itself as the only private banking platform for millennials, plans on going global in 2016. The goal: Fifty percent of Hedgeable's business should be outside the U.S., says founder and "master sensei" Mike Kane in an interview with NexChange.
GOP nomination race to be a nail biter right down to the wire, says political veteran
<p>The U.S. is just less than 365 days away from the next presidential election, and the race resembles a motley fight club more than a meeting of America’s greatest minds.</p> <p>The Republicans, with more than a dozen candidates fighting on the national level, are leading the fracas. Mark Halperin, managing editor of Bloomberg Politics, gave his take on the election at a recent event hosted by Walkers law firm.</p> <p>“I think there’re seven people that could be the Republican nominee right now,” says Halperin. “The Republican nomination fight could go all the way to the convention.”</p> <p>That’s right; an actual convention just like the good old days.</p> <p>Halperin has been reporting on presidential elections for nearly 30 years, and can confidently say he’s correctly predicted the Republican and Democratic presidential nominees months in advance of conventions during past election cycles. But not this time.</p> <p>Republican have done little to reach an electorate broader than old white men in recent years, says Halperin. Marco Rubio is the GOP establishment favorite, but Republican voters have been pushing back against the old guard’s choices. And, “there is extreme Bush fatigue in this country,” says Halperin of other classic pick Jeb Bush.</p> <p>Donald Trump is “a phenomenal salesman,” says Halperin. While his appeal is somewhat issue-based, Trump is really playing into his image of being an Average Joe. Sure he has large buildings named after him across the U.S., but Trump has an uncouth, non-politically correct way of speaking that Americans want to identify with, while sharing a beer.</p> <p>Less entertaining, but still prevalent, are the Democrats. The U.S. is suffering as strong a case of Clinton fatigue as Bush fatigue, says Halperin, and Hillary Clinton “can be beat” by Republicans. She’s not the most skilled candidate, and while a good public servant, Clinton is a lackluster politician. Republicans need to put forth a strong candidate to take Clinton down though. They’ve relied too heavily on the hope that scandals would mar her public image, but it hasn’t worked, says Halperin. If Bernie Sanders is able to grab an early primary victory it may shake Clinton within her own party, but she’s likely to still come out on top for the Democrats, he says.<br /> Photo: Donkeyhotey </p>
Can bank managers ride herd on investment banking?
Capital Markets
<p>&nbsp;</p> <p>John Reed, former Citibank Chairman, opined in the Financial Times that “We were wrong about universal banking.” By being wrong about universal banking, Reed means that it was a mistake to repeal key provisions of Glass-Steagall. He wrote the opinion piece as if he had been a prime architect of the changes who now has recanted. That is revisionist history, say I. He went along, but he never was a prime advocate of the changes in the law.</p> <p>John Reed was chairman of Citicorp before its merger with Travelers in 1998. He was known as a technology and consumer banking expert. After Sandy Weill eased him out of Citi soon after the merger, Mr. Reed disappeared from the banking scene.</p> <p>Sandy was an apostle of the banking conglomerate. He was a deal maker first and foremost, having cut his teeth putting together the brokerage firm Carter Berlind &amp; Weill in the 1960s, through mergers making that into Shearson Loeb Rhodes in the 1970s, before selling to American Express in 1981. Sandy’s deal-making style was not compatible with America Express, and he became the odd man out.</p> <p>But Sandy was a force on Wall Street—even if he did have to move to Baltimore to prove it by acquiring Commercial Credit Corp., through which he built his next financial conglomerate. And eventually, he rose to the top of the heap as Chairman of Citigroup, America’s largest financial company, by selling Travelers, his bankless financial conglomerate that he had built from the inauspicious origins of Baltimore-based Commercial Credit Corp.</p> <p>It was Sandy who, more than anyone else, was responsible for repeal of key parts of the Glass-Steagall Act in 1999 in order to validate the deal that had created Citigroup.</p> <p>I was an advocate for those changes, going back into the late 1970s when few people even had heard of Glass-Steagall. Actually, few people ever have known what that law said, even among those who debate its relative merits.</p> <p>But back in the 1970s and early 1980s when we developed the early logic for repealing parts of Glass Steagall, investment banks were not, for the most part, engaged in trading (other than Treasury securities), and what commercial bankers wanted to be able to do was to advise on and support M&amp;A, to underwrite corporate debt and equity, and to manage money without needing for that function to be in the trust department. We reasoned that those activities were not fundamentally any more risky than commercial lending and that they were more profitable. They therefore would strengthen the banking system and, through increased competition, lower financing costs for American businesses.</p> <p>John Reed says that the legal changes were a mistake, largely because the commercial banking culture and the investment banking culture—and particularly the trading culture—are not compatible. That is why the European universal banks are having so much trouble configuring their strategies for profitability, he says.</p> <p>I heartily agree with Reed that the two cultures have become incompatible in many ways. But that does not mean that the legal change was wrong. Managements, boards of directors and stockholders have to choose what businesses they want to be in and how to manage those businesses. Prohibiting such choices should be done only to curb excessive risk—not to have Congress and the regulators micromanaging financial firms.</p> <p>It appears to me quite possible for a banking organization to engage in the forms of investment banking that are more compatible with commercial banking, such as M&amp;A, underwriting of corporate debt and equity, and money management, without having to deal with the very different culture and mentality of trading. It also seems to me quite consistent with these thoughts to help bank managements by prohibiting proprietary trading, as the Volcker Rule has done. Whereas the other investment banking functions are extremely useful to society—indeed, they are the functions that now provide about 80% of financing in America, which puts us way ahead of bank loan
Markets set to tumble post-Paris attacks
Capital Markets
<p>Bourses around the world are set to open as usual on Monday, though a short term hit in equities is likely to happen, the Guardian reports.</p> <p>The attack is unlikely to dent the global economy though, as Shane Oliver, chief economist of Australia’s AMP Capital, told the British rag:<br /> “History will tell us that if the economic impact is limited – and I think it will be – that markets will quickly recover and go on to focus on other things.”<br /> SMBC Nikko Securities’ Hidenori Suezawa meanwhile, noting tourism’s large contribution to the French economy, had this to say:<br /> “Given that France has a big tourism industry there may be some damage to the economy if this leads to a fall in visitors to France, or in tourism in general after the crash of a Russian plane…I do not expect this impact to go so far as to affect the Fed’s monetary policy though at this point.”<br /> Still, how Europe handles this should have massive consequences. Germany, Spain, and Italy for instance are wrangling serious political issues at the moment, and the attacks could put a damper to Merkel’s, Rajoy’s, Renzi’s attempts to maintain their grip. France meanwhile -- as the FT's Gideon Rachman points out -- will be holding its regional elections next month, and far-right parties such as The National Front could easily use the tragedy to gain power.</p> <p>In any case, expect a massive rush to safety right out of the gate on Monday. U.S. Treasuries – along with the dollar – will surely be putting on some points on the board, while Eurodollars – which surged post 9/11 – might put on a show as well.<br /> Photo: Sandro Schroeder</p>
Financial lingo, according to Jason Zweig
<p>Jason Zweig – in his new book “The Devil's Financial Dictionary” – took on the Brobdingnagian task of defining Wall Street jargon for the masses and apparently, the noted author did a mighty, mighty fine job at it.</p> <p>Here are five terms plucked from his book, via Business Insider:<br /> Proprietary algorithms (n.) Mathematical formulas ostensibly used to manage money that instead etherize the minds of prospective and current clients. The formulas often resemble something like this:</p> <p>[([e*R2]/∑i=n0)2] * P/b = e(R)</p> <p>When such algorithms are algebraically reduced, they result in the simpler equation:</p> <p>A * f = p</p> <p>where A represents the assets of the firm's clients, f equals the fees they pay, and p is the gross profitability of the money management firm (although not its clients.) The other terms in the original algorithms are extraneous, although attempting to solve them does give the firm's employees something to do all day while they watch the fees piling up.</p> <p>Research (n.) The art of making financial guesswork seem like a science — at a cost to investors of approximately 1% of their total assets annually.</p> <p>"Fundamental research" consists of pretending to study the underlying forces of supply and demand that should determine the long-term futility profitability of an asset while, instead, spending most of your time fixating on short-term fluctuations in market price. "Technical research" consists of looking at squiggly lines all day long.</p> <p>Thrift (n.) The obsolete practice of spending less money than you earn; once believed to be a virtue, now regarded as a disturbing form of deviant behavior.</p> <p>Regulator (n.) A bureaucrat who attempts to stop rampaging elephants by bradishing feather-dusters at them. Also, a future employee of a bank, hedge fund, brokerage, investment-management firm, or financial lobbying organization.</p> <p>Irrational (adj.) A word you use to describe any investor other than yourself.<br /> Photo: Ghozt Tramp</p>
Weekend Scan: 129 dead, 352 wounded in ISIS-backed attacks; Three French nationals arrested
Capital Markets
<p> </p> <p>«Ma copine y était. Je devais me fiancer. Je ne sais pas si je la reverrai» #ParisAttacks #Bataclan<br /> A photo posted by Je SUIS Paris ! ???? (@jesuisparis_) on Nov 14, 2015 at 4:15am PST<br /> &nbsp;</p> <p>&nbsp;</p> <p>The world is in a state of shock this weekend following a series of coordinated terrorist attacks in Paris that left 129 dead and 352 wounded. (New York Times, paywall) France says the Islamic State, known as ISIS, is behind the devastation which unfolded around 9:20 p.m. in Paris at the soccer stadium, a trendy neighborhood in the east, and Bataclan, where young people gathered for a concert. In videos and news reports across the Internet, eyewitnesses described young jihadist methodically and calmly killing people as they dined, strolled, and listened to music. They shouted "Allu Hu Akhbar" and declared this was vengeance for French participation in bombings to stamp out ISIS in Syria. The terrorists either committed suicide or were killed by French police. One was reported to be carrying a Syrian passport and had entered France from Greece. France closed its borders and New York City is in a high state of alert. Follow events on Twitter Moments or this Reddit thread.</p> <p>Here’s what else you need to know:</p> <p>Two Syrian “refugees” may have been among the terrorists. This – if confirmed – will definitely not bode well for the current Syrian refugee crisis. New York Post</p> <p>Three French nationals arrested in connection to the attacks. The arrests were made at near the Belgian border, where the three apparently lived. One of the dead terrorists, was also identified as a French national from the Paris suburb of Courcouronnes. Guardian</p> <p>French President Francois Hollande declares three days of mourning.  Leaders from U.S. President Barack Obama to China's President Xi Jinping offered tough words and condolences. France is still recovering from attacks in January on a Jewish supermarket and the offices of Charlie Hebdo, the satirical newspaper.</p> <p>Democratic debate focuses on terrorism, Wall Street. After observing a moment of silence for the victims of Friday’s attack, Hillary Rodham Clinton – who was prepared to show the world that she was the strongest presidential hopeful in light of the Paris atrocities – found herself grilled on her connections to Wall Street as well as her hand in the Iraq war instead. The New York Times</p> <p>Paris attacks heighten pressure on G20 meeting. The Syrian crisis may have been high on the group’s agenda, but the recent Paris siege has surely changed things for the upcoming G20 meeting in Turkey. “We’re going to do whatever it takes to work with the French people and with nations around the world to bring these terrorists to justice, and to go after any terrorist networks that go after our people,” Obama was quoted saying following the attacks. PBS</p> <p>IMF’s Lagarde backs yuan inclusion to SDR. IMF staff has issued a report recommending the yuan’s inclusion to the special drawing rights (SDR) basket, and Christine Lagarde – the fund’s managing director – saw that it was good: “I support the staff’s findings. The decision, of course, on whether the RMB should be included in the SDR basket rests with the IMF’s Executive Board. I will chair a meeting of the Board to consider the issue on November 30.” IMF</p> <p>Markets succumb to Friday the 13th bad luck. The FTSE 100 – weighed heavy by Rolls Royce and G4S shares – sank 0.98% to a six-week low while the S&amp;P 500 – hit by a massive selloff in retail stocks – tanked 1.12%. A nasty combo of weak earnings and disappointing retail sales apparently sparked the deluge. Commodities meanwhile continued their declines, with WTI crude falling 2.47% to 40.72 a barrel, while Brent crude dropped 1.41% to 43.44. Palladium and coffee however fared much worse, with the former diving 3.93% as the latter plummeted 3.17%.</p> <p>U.S. retail sales miss estimates. An unexpectedly weak October report from the Commerce Department showed that sales rose only 0.1% in October, short of the expected 0.3% incr
The Week Ahead: Fed minutes, U.S. inflation, and BOJ rates coming up
Capital Markets
<p>With Chinese trade data and Euro-area GDP out of the way, attention shifts to inflation once again as several nations – including Canada, Great Britain, and the U.S. – report their inflation rate figures throughout the week. However, all eyes will surely be on the Fed and the Bank of Japan on Thursday as the former releases its much-scrutinized FOMC minutes while the latter unveils its highly-awaited monetary policy decision. Analysts are expecting the BOJ to stand pat on rates, though some traders seem to be optimistic that it’ll bump up its QQE measures.</p> <p>Here’s what else you should look out for:</p> <p>Monday, November 16</p> <p>5:45 New Zealand retail sales (Q3,QoQ) – Forecast: 1.32% Previous: 0.1%</p> <p>7:50 Japan preliminary GDP (Q3, QoQ) – Forecast: -0.1% Previous: -0.3%</p> <p>12:00 Singapore imports (Oct) – Forecast: -28.2% Previous: -25.95%</p> <p>14:30 India WPI inflation (Oct, YoY) – Forecast: -4.0% Previous: -4.54%</p> <p>18:00 Eurozone inflation rate (Oct, MoM) – Forecast: 0.1% Previous: 0.2%</p> <p>18:15 ECB President Mario Draghi speaks</p> <p>Tuesday, November 17</p> <p>8:30 Reserve Bank of Australia minutes</p> <p>8:30 Singapore non-oil exports (Oct, MoM) – Previous: 2.8%</p> <p>16:30 Hong Kong unemployment (Oct) – Forecast: 3.3% Previous: 3.3%</p> <p>17:00 Indonesia interest rate decision – Forecast: 7.5% Previous: 7.5%</p> <p>17:30 U.K. inflation rate (Oct, YoY) – Forecast: -0.1% Previous: -0.1%</p> <p>18:00 Germany Zew Economic Sentiment Index (Nov) – Forecast: 4 Previous: 1.9</p> <p>21:30 U.S. core inflation rate (Oct, YoY) – Forecast: 1.9% Previous: 1.9%</p> <p>21:30 U.S.  inflation rate (Oct, YoY) – Forecast: 0.1% Previous: 0.0%</p> <p>Wednesday, November 18</p> <p>4:30 Federal Reserve Board of Governors member Daniel Tarullo speaks</p> <p>9:30 China house price index (Oct, YoY) – Forecast: -0.2% Previous: -0.9%</p> <p>21:30 U.S. housing starts (Oct, MoM) – Forecast: -2.1% Previous: 6.5%</p> <p>Thursday, November 19</p> <p>3:00 FOMC minutes</p> <p>5:00 Korea PPI (Oct, MoM) – Forecast: -0.4% Previous: -0.3%</p> <p>7:50 Japan exports (Oct, YoY) – Previous: 0.6%</p> <p>12:00 Bank of Japan interest rate decision – Forecast: 0.0% Previous: 0.0%</p> <p>17:30 U.K. retail sales (Oct, MoM) – Forecast: -0.41% Previous: 1.9%</p> <p>20:30 ECB monetary policy meeting accounts</p> <p>23:00 Philly Fed Manufacturing Index (Nov) – Forecast: 0.6% Previous: -4.5%</p> <p>Friday, November 20</p> <p>1:30 Federal Reserve Bank of Atlanta President and FOMC voting member Dennis Lockhart speaks</p> <p>5:45 Federal Reserve Vice Chairman and FOMC voting member Stanley Fischer speaks</p> <p>15:00 Germany PPI (Oct, MoM) – Forecast: -0.1% Previous: -0.4%</p> <p>16:00 ECB President Mario Draghi speaks</p> <p>18:15  Bundesbank President Jens Weidmann speaks</p> <p>21:30 Canada inflation rate (Oct, YoY) – Forecast: 1.0% Previous: 1.0%<br /> Photo: Stefan Fussan</p>