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Wanda boss puts the record straight
Capital Markets
<p>A recent report by The New York Times suggested that the reason behind Wanda’s rapid growth lies in the company’s political ties, stating that relatives of President Xi Jinping and other leaders are Wanda shareholders.</p> <p>This week, Wanda chairman Wang Jianlin told 1000 students at Harvard Business School that the report was wrong:</p> <p>“Wanda has no political affiliation,” he said.</p> <p>“In August 2009, our commercial properties subsidiary had initiated a round of private placement and…[President] Xi’s brother-in law, Deng Jia Gui’s investment company, Qin Chuan Dadi, participated in the private placement at the same subscribed price level as other investment companies…Just two months before the listing, Mr Deng sold all the shares held by his investment company and fully exited at a low price point, and I’d like to state at this point that Mr Deng was never a shareholder of our listed company.” </p> <p>“After six years of investment, he sacrificed the opportunity to realize a huge return in investment. This incident demonstrates that President Xi is not only strict in managing our country but is even more scrupulous when it comes to family affairs.”<br /> Photo: Richard, enjoy my life!</p>
Workers unite!
Capital Markets
<p>Here's an interesting take from Société Générale on the flat-wage conundrum during this US economic growth spurt:</p> <p>"The lack of wage acceleration continues to be one of the most puzzling aspects of this expansion. Solving this puzzle is of crucial importance to both policymakers and investors. We explore the thesis that low productivity growth is the culprit behind sluggish wage growth. If true, this would point in the direction of structural weakness in both, rendering the Phillips curve ineffective. However, our analysis suggests that the causality actually goes the other way, from real wages to productivity. In other words, after a five year period of no gains in real wages, labor has effectively gone on a productivity strike. This phenomenon is not new and has been observed in previous cycles. The only difference about the current cycle is that the process has taken longer. We continue to assume that the US economy has been operating on a dormant portion of the Phillips curve, but is nearing an inflection point."</p> <p>Meanwhile the rich get richer...<br /> Photo: Ilya Boyandin<br /> &nbsp;</p> <p>&nbsp;</p>
Equity investment outlook October 2015: global growth scare: is it warranted?
Capital Markets
<p>&nbsp;</p> <p>During the third quarter, global markets were roiled by heightened investor uncertainty and downright fear that China’s slowing economic growth might tip the global economy into recession. The selling pressure that took hold in mid-August had all the elements of a mini panic. The only assets that held their value or posted gains were cash and investment grade bonds. The further out one looked on the risk spectrum, the worse the decline. Non-investment grade bonds traded off 3-5%. Even the 6% decline in the S&amp;P 500 Index during the quarter was relatively benign compared to smaller cap stocks that pulled back nearly 12% and emerging market equities that tanked nearly 18%. China and the economies that depend most directly on China’s demand were hit hardest: the Chinese market fell 30% and Brazil was down 33%.</p> <p>The key development precipitating the sell-off was China’s decision to let its currency devalue versus the U.S. dollar. This was read by global markets as tacit acknowledgement by the Chinese authorities that China’s growth was flagging and needed a lift from a weaker currency. Given the leading role that China has played in driving global growth over the past decade, investors ran for the exits, fearful that a recession in China could trigger a global recession. Our response is “not so fast.” In China and the economies dependent on it, concern is completely justified by the facts. The “miracle” hyper growth phase of China’s economic development may very well be over, leaving China to manage a potentially difficult downshift into an extended period of much slower growth (slow growth, not zero growth). This could have serious, lasting implications for many emerging market economies and stock markets. That said, the implications for the U.S. are much more nuanced and the current level of investor concern may be unjustified and overdone. We think a strong case can be made that the U.S. economy can decouple from a Chinese slowdown. Some even argue that the U.S. economy will prove to be a net beneficiary of the cooling-off in Chinese and emerging market growth. This Outlook will look at the growth scenarios for China and China-dependent countries compared to the U.S.</p> <p>China</p> <p>China is experiencing a significant slowdown in its growth rate, a change that is having wide-ranging spillover effects. Year after year of double digit Chinese gross domestic product (GDP) growth helped power global growth over the past 15 years (Figure 1). Since the year 2000, the emerging markets’ share of the global economy has increased from above 45% to 60% now (Figure 2). Investors are rightly concerned about the impact of a Chinese slowdown on global growth, but we think that the brunt of this slowdown will be borne by China and its main suppliers (not the U.S.). China’s voracious appetite for commodities during its go-go days helped lift growth for many commodity and goods producing countries. Now that China’s growth is slowing, demand for these commodities is waning and prices are plummeting. This, of course, is devastating to the profitability of commodity producers and the countries dependent on them (e.g. Brazil, Russia, Indonesia, Malaysia, South Africa and Australia). The big question is: could this commodity deflation be good news for the U.S. consumer? We try to answer this question later in this Outlook.</p> <p>Figure 1:</p> <p>Source: Cornerstone Macro, Economic Research, October 11, 2015 (end date: 6/30/15). Year-on-year growth rate.</p> <p>Figure 2:</p> <p>Source: Cornerstone Macro, Econ</p>
Financial markets are a game
Asset Management
<p>Financial Markets Are A Game by EconMatters<br /> Forget about Market Multiples: Totally Meaningless Sell-Side [email protected]</p> <p>Anyone thinking about investing in financial markets should realize that most of the professionals who are on the inside, i.e., have power and access to information and capital to move markets, do not view financial markets as investment vehicles, decisions about P/E ratios, equity multiples, etc. but rather see financial markets as a giant game of making money.</p> <p>Financial Markets are Giant Criminal Playgrounds</p> <p>Consequently the first thing all ‘investors’ need to realize is that markets are crooked, always have been, and always will be despite year after year of new regulations trying to prevent ‘crooked behavior’! Once you understand that the market is a giant game, and you stop thinking about the market from a valuation sense or a fundamentals standpoint; your next task is to identify the rules of the game, or the way the game is being played during your ‘investment horizon’ as in, when you as an investor are risking your capital in the markets.</p> <p>Market Makers Never Risk Anything: They Make Markets Move Directionally</p> <p>Most of the games in the market are about fooling other investors and taking their money, but there are all types of games, some actually can benefit average investors who actually believe in the fundamentals and a fair market. The problem is that you as an average investor will be thinking that the fundamentals are why an asset is going up, which can be the case, but the party will end while you are still looking at the same fundamentals that are in place, and the game players have already sold the stock or asset and bought derivatives in the opposite direction because they are Making the party to be over, there is no guess work involved on their end as they are Market Makers!</p> <p>Sell Dungarees to the Gold Rush Crowds </p> <p>In short, fundamentals do not matter in financial markets! This is the hardest thing that investors have to learn about financial markets because they have been so conditioned to believe that the financial markets are based upon the fundamentals because of all the folks who sell shovels and axes to the market participants. The amount of money made off of the financial markets over its history probably surpasses the amounts of money made from financial assets. Again the game within the game.</p> <p>An Example of Game Playing</p> <p>I will give you an example of a recent game just to get your mind to start thinking in terms of the games behind the financial markets. So remember when the Federal Reserve was dovish at the September Meeting and the markets had sold off in a tizzy fit, don`t be fooled there was a game already in place, and it played out according to the predetermined script.</p> <p>What you have to realize is that this game, and the entire game of selling the markets off because of “China Turmoil” had very little to do with China and a whole lot to do with pushing the financial markets down into quarter end. So when the new money came into financial markets for the Christmas Rally of the 4th quarter the game players have a low base from which to work from and have a monster fourth quarter. Most of the real money is made in derivatives off of the movement in the core assets due to the massive amount of leverage that can be attained. Therefore if you know wher</p>
Daily Scan: Asian shares post best month in six years; Bank of Japan slashes growth, inflation forecasts
Capital Markets
<p>Updated throughout the day</p> <p>October 30</p> <p>Asian bourses turned in their best monthly performance in more than six years as dreams of stimulus propelled prices higher. Friday was a bit of bust -- Asia-ex Japan finished lower on Friday. And, ironically, the Nikkei 225 notched gains after the Bank of Japan declined to expand its stimulus program. Go figure. Here's what happened in October:</p> <p>Day<br /> Week<br /> Month</p> <p>Hang Seng Index<br /> -0.79%<br /> -1.89%<br /> +8.60%</p> <p>Hang Seng China Enterprises Index<br /> -0.41%<br /> -2.96%<br /> +10.54%</p> <p>Shanghai Composite<br /> -0.14%<br /> -1.36%<br /> +10.80%</p> <p>Shenzhen Composite<br /> +0.02%<br /> -0.82%<br /> +17.36%</p> <p>Nikkei 225<br /> +0.78%<br /> +1.46%<br /> +9.75%</p> <p>Straits Times Index<br /> -0.09%<br /> -2.33%<br /> +7.40%</p> <p>European bourses meanwhile are edging upwards, the U.K.’s FTSE 100 is currently up 0.05%, Germany’s DAX 30 is up 0.37%, and France’s CAC 40 is up 0.41%. As for Wall Street, S&amp;P 500 futures have so far climbed 0.32%.</p> <p>Here’s what else you need to know:</p> <p>RBS, BNP profits beat estimates. BNP Paribas’ third quarter net income rose to $2.01 billion, beating a $1.85 billion showing expected by analysts, while the Royal Bank of Scotland, despite a massive hit from litigation, misconduct and restructuring costs, posted $1.46 billion in attributable profit, thrashing forecasts of a $276 million loss. Reuters / Financial Times</p> <p>German retail sales miss forecasts. German retail sales grew 3.4% in September versus the previous year, a pretty good climb compared to August’s revised 2.1% growth rate. Unfortunately, it’s a hair shy of the 4.1% showing analysts had been expecting. Financial Times (paywall)</p> <p>Italian unemployment falls to two-year low. Things are looking good over in Italy. According to the nation’s statistics bureau, Istat, unemployment in the country fell to 11.8% – its lowest level since January 2013. Istat</p> <p>Bank of Japan stands pat. In an 8-1 vote, the Bank of Japan’s Policy Board decided to keep its stimulus program unchanged. Shortly after the closing bell, the bank also decided to slash its growth forecast and push back the time frame for its 2% inflation target. Bank of Japan (pdf)</p> <p>Samsung sells chemicals business to Lotte. In another chaebol to chaebol deal, South Korea’s Lotte Group is set to acquire Samsung’s chemical business for around $2.63 billion. The deal reportedly includes 31% of Samsung Fine Chemicals and 90% of Samsung SDI’s chemicals operation. </p>
Daily Scan: CVS dumps Valeant's Philidor pharmacy; 2-year Treasury yields rise sharply
Capital Markets
<p>Updated throughout the day</p> <p>October 29</p> <p>The U.S. Treasury market shrugged off the weak GDP for the third quarter, and turned tail at the very real threat of a December interest rate hike. The yield on the two-year note -- often viewed as a proxy for where the federal funds rate is heading -- rose to 0.728%, up from 0.707% on Wednesday, its biggest one-day move since February. Tuesday, the yield stood at 0.61%. (Yields rise when prices fall.) On Wednesday, the Federal Reserve dropped its concern about global weakness and strongly hinted that they may the economy is robust enough to raise rates. Economists were divided over whether the weaker-than-expected report on third quarter GDP would move the Fed. Growth fell to 1.5%  short of the 1.7% expectation. In the economy-is-fine column: Initial jobless claims came in at 260,000 for the week ending October 24 -- the 34th week in a row that the jobless claims remained below 300,000. Stocks edged down Thursday, with the Dow Jones Industrials off 0.1%. The Nasdaq fell 0.4%, and the S&amp;P 500 dropped 0.04%. Oil closed just over $46/barrel.</p> <p>Here’s what else you need to know:</p> <p>CVS terminates Philidor from Caremark program. CVS says that it found "noncompliance" in an audit of Philidor, a pharmacy associated with the embattled Valeant. Last week activist investor Andrew Left alleged that Valeant was using Philidor as a front for fraudulent activity. MarketWatch</p> <p>LinkedIn beat earnings expectations. The social media site reported earnings of 78 cents per share on $780 million in revenue, compared to the expected 46 cents per share on $756 million in revenue. Sales were up 37% from the previous year. Shares rose 10% in after hours trading with the news. CNBC</p> <p>A Boeing 767 caught fire in Florida. The plane was taxing for departure from Fort Lauderdale-Hollywood International Airport for Venezuela. The Dynamic International Airways Flight 405 suffered a fuel leak before catching fire on the runway around 12:30 p.m. Passengers were evacuated from the aircraft, and 14 were injured. CNN</p> <p>Paul Ryan elected 62nd speaker of the House. The Wisconsin representative takes over from Representative John Boehner. The 45-year-old Ryan is the youngest speaker since 1869, and is also the first speaker since 1989 to be elected in the middle of a congressional term. New York Times (paywall)</p> <p>Pfizer, Allergan may merge in biggest deal of year.  The combo would elbow aside the Anheuser-Busch InBev $104 billion pact to buy SAB Miller. 2015 is shaping up to be the hottest year for mergers. Pfizer has a market cap of $216 billion while Allergan is $112.5. The bankers win, whichever way you look at it. Wall Street Journal (paywall)</p> <p>Deutsche Bank to lay off 35,000, scotch dividend. Deutsche Bank CEO John Cryan told the press that he plans to reduce his firm’s full-time workforce by 9,000 and shut down the bank’s operations in 10 countries. The massive overhaul, once finished, will result the job losses. </p>
Some hedge funders take Halloween very seriously
Lifestyle, 4:01
<p>Last Halloween in New York City the Upper East Side home of hedge fund billionaire Philip Falcone struck fear in the hearts of neighborhood children, a probably a few adults too.</p> <p>Falcone and his wife Lisa Maria have been forced to tone down their haunted house this year after neighbors protested about creepy old lady holding a dead baby, a beheaded corpse, and a smoke breathing gargoyle, reports the New York Times. But the Falcones did bring back a hearse this year to park on the curb, as well as other "classic" decorations.</p> <p>Many neighbors in the Falcone's billionaire neighborhood have joined in the fun. Goblins, zombies, and bodies peep up from stoops on the Manhattan streets. A few blocks up from the Falcones, Avenue Capital's Mark Lasry has bloody, life-size dummies hanging from a balcony. Another nearby house has a two-headed girl with an army of rats standing on a doorstep.</p> <p>We know where we're going trick-or-treating this year!<br /> Photo: Rildo Moura</p>
Don't doubt the power of Apple
Capital Markets
<p>Apple continues to wow with continued reports of profit growth. And yet, analysts are skeptical of whether the company can keep it up. Ben Thompson of Stratechery scoffs at this, saying Apple knows exactly what they're doing. Here's part of Thompson's argument for the power of the iPhone:</p> <p> Reality #1: Smartphones are the most important products in people’s lives, which means that the willingness to pay for the “best” is higher than it is for just about anything else; relatedly, the smartphone budget is likely the last to be cut in any sort of economic tightening<br /> Reality #2: Nearly all iPhone users upgrade to new iPhones, while a significant number of Android users switch. Ergo, the more saturated the smartphone market becomes (and the more people appreciate just how important a smartphone is to their lives, per Reality #1) the better Apple does<br /> Reality #3: Apple’s increasing monopoly on the high-end of the market is creating a virtuous cycle that ensures they will own the high-end indefinitely. From an app perspective, new and updated apps launch first on iOS, which means people who care buy iPhones, which means future new and updated apps launch first on iOS. From a component perspective, Apple is increasingly the only manufacturer that can even afford to buy the best components, and they have massive scale which ensures they get first dibs on what is new. This, of course, further solidifies Apple’s hold on the high end, which only strengthens their position with component manufacturers further. From a broader hardware perspective, Apple’s scale means their costs are lower than any potential competitors, which means their investment in new technology like 3D Touch can be commensurately higher, which again, solidifies their hold on the high end, which increases their scale even more.</p> <p>Undeniably even people who don't identify as Mac users own iPhones, iPads, and other Apple products. Does Apple need to saturate the market, or can it continue growing with its existing core base?<br /> Photo: Világos Gergő</p>
Cooperman takes a 7.1% in Lionbridge Technologies
Hedge Funds
<p>Leon Cooperman and Glen Capital Partners have bought a 7.1% stake in translation services firm Lionbridge Technologies.</p> <p>With a total of $23 million of shares purchased with Glen Capital, Cooperman is now the third-largest stakeholder in Lionbridge, reports the Boston Business Journal. Lionbridge CEO Rory Cowan has a 6.3% stake in the company.</p> <p>Lionbridge currently trades for about $6 a share on the Nasdaq. In June the company announced a partnership with Californian Rocket Sound to produce voice production and translation for voice over services for video games. Lionbridge also acquired CLS Communication last year for $77 million. The company's current market capitalization is about $380 million.<br /> Photo: Insider Monkey</p>
Video: Third quarter GDP -- A blip or an omen of a slowdown?
Asset Management
<p>In an interview with CNBC,  Lindsey Piegza, Stifel Fixed Income Chief Economist, and David Lebovitz, JPMorgan Asset Management, offer opposing views on the slowdown in third quarter GDP, which came in at 1.5%, slightly less than expected. At the heart of the number: A reduction in inventories. Are inventories shrinking because CEOs are concerned about the consumer or is this a natural part of the business cycle and we can reasonably expect growth to resume at a higher pace in 2016?<br /> Chart: Bureau of Economic Analysis</p>