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With stocks on shaky ground, a promising ballast in bonds
Capital Markets
<p>Weekly Commentary Overview</p> <p> Stocks advanced last week, benefiting from mergers and acquisitions, and the recent drop in interest rates, a trend that continued last week.<br /> The gains we have seen in stocks, credit and even emerging markets in recent weeks have not been driven by signs of economic improvement, firming inflation or rising earnings.<br /> Instead, investors are once again taking solace in low rates and benign monetary conditions, which can and probably will persist for the remainder of the year. But that can only take the market so far.<br /> Meanwhile, another important trend is emerging: For investors looking for some longer-term ballast in their portfolios, particularly equity-centric portfolios, longer-duration bonds are reasserting their role as an effective hedge to equity risk.</p> <p>Stocks Advance, But on Wobbly Trends<br /> Stocks advanced last week, with the biggest gains in Asia. In the U.S., the Dow Jones Industrial Average rose 0.77% to 17,215, the S&amp;P 500 Index grew 0.94% to 2,033 and the tech-heavy Nasdaq Composite Index climbed 1.16% to close the week at 4,886. Equities continue to benefit from an active cycle of mergers and acquisitions. Last week's list included Dell's plans to buy hardware maker EMC and AB InBev raising its bid for SAB Miller.</p> <p>Stocks are also benefiting from the recent drop in interest rates, a trend that continued last week: The yield on the 10-year Treasury fell from 2.09% to 2.03%, and at one point dipped below 2%. German, Italian and Australian yields also dropped last week, as bond prices rose.</p> <p>Recent weeks have seen stocks, credit and even emerging markets start to recover. Unfortunately, the gains have not been driven by signs of economic improvement, firming inflation or rising earnings. Instead, investors are once again taking solace in low rates and benign monetary conditions, which can and probably will persist for the remainder of the year. But that can only take the market so far. Meanwhile, another important trend is emerging: For investors looking for some longer-term ballast in their portfolios, particularly equity-centric portfolios, longer-duration bonds are reasserting their role as an effective hedge to equity risk.<br /> Sugar High<br /> In most countries, interest rates are being held down by persistently low inflation. For example, the latest readings on Chinese inflation came in below expectations while U.K. readings turned negative for only the second time since 1960. Even in the U.S., producer prices are falling at the fastest pace since 2009.</p> <p>As realized inflation has remained stubbornly low, inflation expectations have also been stuck. For example, U.S. five-year inflation expectations fell to around 1.15%, down from 1.25% the previous week. With inflation expectations still falling, a 2015 rate hike by the Federal Reserve (Fed) looks increasingly unlikely; even the odds of an early 2016 hike appear to be fading.</p> <p>This has all helped keep bond yields low. But with bonds providing little appeal and short-term rates fast approaching their ninth calendar year at zero, investors are once again relying on stocks to do the heavy lifting in their portfolios. But this comes with the cost of escalating valuations: Since Sept. 30, the trailing price-to-earnings ratio on the S&amp;P 500 has risen by 10%.</p> <p>That said, while stocks have managed to rebound from their lows, the S</p>
Daily Scan: Asia ex-China shares fall; Europe lower ahead of ECB decision
Capital Markets
<p>Updated throughout the day</p> <p>October 22</p> <p>Good afternoon everyone. Asian shares finished the session lower Thursday, save for China, where stimulus bets led the Shanghai Composite up 1.45%. The Shenzhen Composite meanwhile – buoyed by tech shares – climbed 3.71%. Here’s how the rest did:</p> <p> Hang Seng Index: -0.63%<br /> Hang Seng China Enterprises Index: -0.46%<br /> Nikkei 225: -0.64%<br /> Straits Times Index: +0.44%<br /> Kospi: -0.98%</p> <p>Over in Europe, equities seem to be trending lower ahead of the ECB’s rate decision. The FTSE 100 is currently down 0.25%, the DAX – which climbed as much as 0.28% earlier – is currently up just 0.14%, while the CAC has slipped 0.13% so far.</p> <p>Here’s what else you need to know:</p> <p>Don't panic, says China, as outflows spike.  Recent outflows of money from China are “normal” and not a sign of panic capital flight, a senior official at the foreign exchange regulator said on Thursday, downplaying fears over growing outflows as the economy slows. SCMP</p> <p>U.K. retail sales beat estimates. U.K. retail sales rose sharply in September, punching in at 6.5% year on year versus a forecasted 4.7% climb. Month on month figures were also great, showing a 1.9% jump versus an expected 0.3% bounce. Interestingly, alcohol drove some of the gains. FXStreet</p> <p>South Korea rapper PSY in row with artist tenants.  PSY is fighting a legal battle with artist tenants who are reluctant to leave a building he owns in Seoul. The property dispute has struck a nerve in a country notorious for super-high rents that critics say are killing vibrancy in cities by spurring gentrification and evictions. SCMP</p> <p>China agrees $9.2 billion deal for U.K. nuclear power plant. The deal came in the wake of Chinese President Xi Jinping to Great Britain.  China General Nuclear Power Corporation (CGN) has entered into a deal with French state-owned energy firm EDF to acquire a one third stake in its Hinkley Point nuclear power plant in Somerset. The Telegraph</p> <p>Legoland heads to China. Merlin Entertainments has signed an agreement with China Media Capital to establish a Legoland park in Shanghai. It is part of a deal between the two to explore opportunities to build visitor attractions throughout China. BBC </p> <p>Singapore church leader pulled off $35 million fraud to support wife's failed singing career. The founder of a popular Singapore church, Kong Hee, has been found guilty of misappropriating more than $35.5 million in donations to support his wife's singing career, in a rare case of graft in the city-state. Aljazeera</p> <p>CIT chief John Thain to retire. John Thain, best known for leading Merrill Lynch during the financial crisis, will retire from CIT on March 31. He will remain onboard the lender as its chairman. CIT board member Ellen R. Alemany, will replace him as CEO. </p>
Daily Scan: Stocks fall at end of day; Wikileaks releases CIA director's emails
Capital Markets
<p>Updated throughout the day</p> <p>October 21</p> <p>Good evening. U.S. stocks dipped at the end of Wednesday after holding steady most of the day. The Dow ended with a 0.3% loss, the S&amp;P 500 fell 0.6%, and the Nasdaq dropped 0.8%. The health care sector took a hit after Valeant Pharmaceuticals was called a "pharmaceutical Enron" by Citron Research. General Motors reported $1.4 billion in profits for the third quarter, surpassing expectations. But, the car manufacturer did report a heavy $575 million charge last quarter as part of its $900 million settlement over criminal charges about its defective ignition switches. Boeing reported earnings of $1.7 billion last quarter, a 25% increase from the same time last year.  The Mortgage Banks Association application index is up 9% year-over-year -- but it's been volatile of late due to regulatory changes. Housing has been a bright spot this year -- though the refinancing boom appears to be over. All this comes in time for "Back to the Future Day" Wednesday, or the day that Marty McFly travels to in "Back to the Future Part II." When Marty travels to October 21, 2015 from 1985, he sees a number of technological advances including big screen TV and video chats. Seems like we're right on track.</p> <p>Here’s what else you need to know:</p> <p>WikiLeaks releases CIA director's emails. John Brennan's personal email account was reportedly hacked this week by a high school student. The Daily Beast</p> <p>Chinese diplomats shot in Philippines. Two Chinese diplomats were killed and a third wounded in a restaurant in Cebu. A woman who works at the consulate and her husband have been arrested. BBC</p> <p>Joe Biden will not run for president. Biden announced in the White House rose garden that it is too late for him to mount a successful campaign for the Democratic nomination. While Biden won't be a candidate, he said that he will be very vocal throughout the election, and that the next president needs to continue President Obama's work. Biden spoke about the need for more affordable college educations, relief for the middle class, and an end to bipartisan politics. The vice president says that he will focus heavily on cure for cancer as he wraps up his time in office. Biden's son Beau died of brain cancer in May.</p> <p>Speaker election date set. Current Speaker John Boehner announced that the internal Republican election for speaker will take place Oct. 28, and the floor election will be October 29. After chatting with the GOP Tuesday, Wisconsin representative Paul Ryan may be the front runner. Politico</p> <p>Pearson stock drops. The former owner of the Financial Times saw its stock fall 18% Wednesday after it announced that its earnings would be worse that expected. The company blames lower U.S. college enrollment on the slump. Reuters</p> <p>Syria's President Assad makes surprise trip to Moscow. This marks Asad's first known trip outside Syria since the uprising began in 2011. Assad went to visit President Putin secretly Tuesday evening to say thank you for Russia's support in battling rebel forces; the Kremlin released photos on Wednesday. Middle East watchers suggest that Moscow has now supplanted Iran as Syria's No. 1 ally. </p>
Wells Fargo benefits from Credit Suisse private bank closure
Capital Markets
<p>Wells Fargo struck a deal with Credit Suisse allowing Wells Fargo to recruit brokers from Credit Suisse's winding down private bank business, transitioning between the firms by early next year, reports The Wall Street Journal.</p> <p>Will the brokers take the bait? And if they do, what does this mean for the shrinking wealth management industry?<br /> Flickr: Prayitno / Thank you for (7 millions +) views</p>
Goldman dumps Indian asset management unit
Asset Management
<p>It's a quiet breakup, but Goldman Sachs is dumping its Indian fund management unit and Reliance Capital Asset Management is picking it up.</p> <p>Goldman's $37.5 million cash deal is the sixth exit of an asset management from India since 2013, reports the International Business Times. Morgan Stanley, Deutsche Bank, PineBridge, ING, and Daiwa Capital Markets have left the Indian mutual fund sector as the cost of acquiring assets has gone up, cutting into profits.</p> <p>Goldman employees in the ETF business will be offered employment opportunities at Reliance Capital. The deal makes Reliance Capital the sole provider for the government's central public sector enterprises ETFs, reports Live Mint. Goldman's existing ETFs will be rebranded as Reliance Capital's. Goldman says it will remain invested in Indian securities through regional and global funds.</p> <p>Goldman managed about $1.1 billion in India at the end of September. Reliance Capital had about $23.5 billion in assets under management at the same time, and ranks as the third largest fund house in India. The Indian mutual fund industry is worth about $202 billion.<br /> Photo: Kirill Tropin<br /> &nbsp;</p>
GM: Flat earnings or record profits? You decide
Capital Markets
<p>If you happen to conduct a Google search for GM earnings, here's what you will come up with:</p> <p>The stock market gives the nod to record earnings and robust sales of trucks and SUVs. The stock is now up 6.18% to $35.55. GM zoomed past expectations, posting $1.50/share vs the analyst bet on $1.18. Offsetting the gains: $1.5 billion in legal and recall costs.</p> <p>Photo: jm3</p> <p>&nbsp;</p>
Snapchat execs are disappearing
Venture Capital
<p>Blink and they're gone. Snapchat's executives are disappearing like their photos, with eight upper-level execs leaving in the last year.</p> <p>It's not unusual to see leadership shuffles in startups as competition is high for talented staff, reports Business Insider. But it may be a bit concerning that Snapchat can't keep execs on board. Only one of the eight now-departed leaders lasted longer than eight months.</p> <p>Is the super-young CEO Evan Spiegel to blame, or is this just the tech world we live in?<br /> Photo: AdamPrzezdziek</p>
Gangster describes heist in court
Lifestyle, 4:01
<p>No, not Bernie Madoff. Gaspare Valenti, one of the gangsters behind the infamous 1978 Lufthansa heist, put on a theatrical performance in court Tuesday, describing the "Goodfellas" crime in detail, writes the New York Times.</p> <p>The more than $6.25 million theft went unsolved for decades. "It's amazing; a robbery that big and nothing was ever discussed about where to go afterword," Valenti said in court. "Vinny [Asaro] yelled out, 'Bring it to my cousin's house!' And that's where we went, to my house." As his wife, mother, children, and sister slept, Valenti and the crew went through the goods. "I was separating gold chains and watches, the diamonds and the emeralds and rubies, just looking in the drawers, seeing how much there was," he said.<br /> Photo: petcor80</p>
Nailed It: This leveraged ETF is on fire
Asset Management
<p>Homebuilder stocks and exchange traded funds have recently been buoyed by a spate of encouraging data. Data out Monday show the National Association of Home Builders/Wells Fargo housing market index jump three points to 64, its highest reading in a decade.</p> <p>On Tuesday, it was revealed that September housing starts surged 6.5 percent, well ahead of the 1.4 percent increase expected by economists. Predictably, those data points and other are boosting homebuilder stocks and ETFs. For example, the $2.1 billion iShares U.S. Home Construction ETF (NYSE: ITB) is up 7.7 percent this year and resides at its highest levels in over eight years.</p> <p>Gains for homebuilders and stocks would be even more impressive if not for a slump that started in August and lasted well into September, but the aforementioned data points ...</p> <p>Full story available on Benzinga.com</p> <p>Photo: istock/PhilAugustavo</p>
Hedge funds post largest asset declines since ‘08
Hedge Funds
<p>Investors may have kind been to hedge funds during the third quarter, but apparently, the market was just too much for them:<br /> “Total global hedge fund capital posted the largest decline since the Financial Crisis in the third quarter, as global financial market volatility surged on uncertainty over US interest rates, China and M&amp;A transactions. Estimated hedge fund capital declined by $95 billion across all strategy areas to end the quarter at $2.87 trillion, as new investor capital inflows only partially offset performance-based declines.”<br /> The quarterly asset decline is supposedly the first since the second quarter of 2012 and the largest since fourth quarter of 2008, according to HFR. Inflows remained strong though, with three of the four main hedge fund strategies boasting net capital inflows for the quarter. Event-driven funds for example saw $5.4 billion in inflows while relative value funds punched in $2.9 billion. Macro funds however experienced $5.1 billion in outflows, largely due to the Fed cooking the emerging markets and China's slowdown hurting commodities.<br /> Photo: Lucas Stanley</p>