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Daily Scan: Stocks rise Wednesday but suffer worst quarter in four years; Government avoids shutdown
Capital Markets
<p>Updated throughout the day </p> <p>September 30</p> <p>Good afternoon.  U.S. stock markets rose Wednesday, but notch the worst quarter in four years, with the Dow Jones Industrial Average tumbling 7.6%. The Dow gained 1.5% on Wednesday, the S&amp;P 500 added 1.9%, and the Nasdaq added 2.3% after Chinese consumers registered a surprising amount of confidence in the economy. The Westpac MNI China Consumer Sentiment Indicator rose to 118.2 in September from 116.5 in August -- the best reading since May 2014. European markets rose about 2% on the report, shrugging off news that deflation was back as prices dropped 0.1%, largely the result of cheaper oil. Oil continues to hover just over $45/barrel.  On the schedule today:  at 7 p.m. Fed governor Lael Brainard will also address the St. Louis community banking conference. The economic fodder of the week: the jobs report for September, to be published Friday at 8:30 a.m. ET.</p> <p>Here's what else you need to know:</p> <p>Shutdown averted. The U.S. Senate approved a temporary spending measure, averting a government shutdown. The government will continue operating through Dec. 11 as Congress continues to debate funding policies. New York Times</p> <p>Janet Yellen says little during Wednesday speech. At a meeting for the Conference of State Bank Supervisors, Yellen refrained from commenting on the U.S. economy or monetary policy. Instead, she said small banks are "essential" to the economy and the Fed is working to not overburden community banks. Reuters</p> <p>U.N. raises Palestinian flag for the first time. At the ceremony in New York, President of the Palestinian Authority Mahmoud Abbas  repudiated the Oslo Accord, signed in 1993, saying Israel had violated the accords. Israeli Prime Minister Benjamin Netanyahu called Abbas' remarks "deceitful." In 2012 Palestine joined the Vatican with "non -member observer" status at the U.N. CNN</p> <p>M&amp;T Bank acquisition approved. The Federal Reserve approved M&amp;T's acquisition of Hudson City Bancorp after more than three years of regulatory review. The $3.7 billion deal is the longest-delayed U.S. bank deal of more than $100 million. Wall Street Journal (paywall)</p> <p>The MSCI Asia ex-Japan Index collapsed 19% in 3Q. China notched its worst quarter since 2008, losing roughly 29% since the start of July. Currencies also got slammed. Malaysia's ringgit tumbled 14% in the quarter and is off 26% year-to-date. The one bright spot: China's auto industry, which surged after the government halved sales taxes on small-engine cars. MarketWatch </p> <p>Volkswagen may evade criminal charges. VW has admitted to tampering with emissions tests to pass tough regulations for 11 million vehicles. The German carmaker may benefit from a legal loophole but the Justice Department is trying to figure </p>
Will Kyle Bass’s win lead to more hedge fund patent challenges?
Hedge Funds
<p>As the sting of hedge fund manager Martin Shkreli’s Turing Pharmaceuticals raising the price of a lifesaving cancer drug from $13.50 per tablet to $750, comes a victory for hedge fund manager Kyle Bass, who is challenging pharmaceutical patents and says his actions will lower drug prices.<br /> U.S. Patent and Trademarket Office rules with Kyle Bass<br /> In a victory for Bass, a tribunal at the U.S. Patent and Trademark Office was reported on Friday to have denied a request by Celgene Corp to sanction Bass and his Coalition for Affordable Drugs by throwing out their challenges to its patents.</p> <p>In an odd-twist on the Robin Hood concept, Bass had taken short positions in various drug companies and then challenged the validity of their patents, which as of Friday’s ruling will proceed in court. His actions could benefit consumers by making drugs cheaper, but at the same time enriching his hedge fund. The goal of the $2 billion Dallas-based Hayman Capital Management was to lower drug prices and profit on it in the process.</p> <p>"Profit is at the heart of nearly every patent," the Patent Trial and Appeal Board (PTAB) said in dismissing Celgene’s argument, noting that short selling was legal and regulated. "As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues."</p> <p>What will the fallout be from the Kyle Bass victory?<br /> In July Celgene claimed Bass was abusing the patent review process when he sold shares in the firm, profiting when the price dropped when a patent review is filed. If this hedge fund investment tactic is not deterred, other Hedge Funds could begin using patent reviews as part of an active investment strategy.</p> <p>In a statement to Reuters, a spokeswoman for Hayman Capital Management the PTAB can now turn to evaluating "challenges to Big Pharma patents that contribute to out of control prescription drug prices."</p> <p>While hedge fund managers are sometimes painted as the black hats in societal discourse, this case raises the question: is it possible for a hedge fund manager to engage in positive acts for the general population (in this case by lowering drug prices) and still make a profit? What is the implication of the ruling going forward? Could it impact research and development spending? Could this ruling lead to additional moves by hedge funds to challenge patents? We will watch the issue closely.</p> <p>This article was originally published by ValueWalk. <br /> Photo: ValueWalk</p>
Sold for $442m, how does Business Insider rank in the content boom?
Venture Capital
<p>VC-backed media outlet Business Insider has just been sold to German publisher Axel Springer (fresh from its failed bid for the Financial Times) in a deal valuing the business at $442 million.</p> <p>Springer - which held a 9% stake in the business via Axel Springer Digital Ventures - was one of 24 investors to back the content startup, according to CrunchBase.</p> <p>The others included the likes of RRE Ventures, Marc Andressen, Kohlberg Ventures , International Venture Partners , and notably Amazon CEO Jeff Bezos, who is reportedly retaining his stake.</p> <p>Business Insider managed to secure a healthly valuation but its not the largest in the recent content boom. A recent report by CB Insights ranked it ninth in a list of the largest valuations in the news and media space today.</p> <p>Many of these companies can be classed a startups, with venture capital firms and strategic investors funneling a reported $800 million into digital new and media start-ups over the past year.</p> <p>Vox Media and BuzzFeed are among those to reach unicorn status, putting them ahead of such old guard media giants as Forbes and the Washington Post. Here is CB Insights' media valuation ranking in full:</p> <p> Vice (2.5b)<br /> SNL ($2.23b)<br /> BuzzFeed ($1.5b)<br /> The Economist ($1.46b)<br /> Financial Times ($1.31b)<br /> Vox ($1b)<br /> Merger Market ($624m)<br /> Forbes ($475m)<br /> Business Insider ($442m)<br /> Refinery29 ($290m)<br /> Washington Post ($250m)<br /> ZY ($120m)<br /> .Mic ($100m)<br /> The Boston Globe ($70m)</p> <p>Photo: NexChange</p>
IMF warns of huge emerging market defaults
Capital Markets
As if the US Federal Reserve doesn’t have enough to weigh up as it vacillates about raising interest rates. The International Monetary Fund (IMF) has added another factor to the mix. Yesterday, it warned that higher US interest rates could cause a wave of default by companies in emerging economies and panic in global financial markets as liquidity evaporates, reports
Alibaba ups its stake and pumps $680m into India's Paytm
Venture Capital
<p>Alibaba has made yet another incursion into Indian e-commerce, chucking $680 million at Indian payments firm Paytm - alongside its financial affiliate Ant Financial - bringing their stake to 40%.</p> <p>Alibaba and Ant Financial are now the largest shareholders of One97 Communications, the firm behind Paytm, which is now valued at $3.4 billion, the Economic Times reports.</p> <p>Paytm offers a mobile wallet app, online phone credit recharge, and a shopping service. Its been working on synergies with Alibaba since the Chinese e-commerce giant first invested in February.</p> <p>The Indian payments firm has seen its services used by a number of big players in India's burgeoning e-commerce space including Uber and Snapdeal, another Alibaba investment.</p> <p>The firm was also part of a consortium - which also included SoftBank - that pumped $500 million into Snapdeal last month. It looks like Alibaba now has a formidable potion in the sector.</p> <p>&nbsp;</p>
Alejandro Agag, the man who swapped consulting for racecar driving
Lifestyle, 4:01
<p>Alejandro Agag, walks into the room with the confidence that only a man of many talents can do. He is a seasoned politician, former chairman of Addax Capital, and is now the CEO of Formula E, writes FinBuzz. </p> <p>Unlike the better-known Formula One auto racing series, in Formula E, officially called FIA Formula E Championships, only 100% electric-powered cars zoom around the track. The first series was held in Beijing in September last year.</p> <p>Before the turn of the century, Agag was better known as a politician, but now, most people associate him with sports car racing.</p> <p>After a lengthy political career in Spain, Agag moved to London 2002 and opened a consulting firm, later called, along with Ignacio Munoz Alonso, former CEO of Rothschild Bank in Spain. In 2008, he was named the Spanish businessman of the year.</p> <p>He was the first person to expand Formula One across Spanish media, and since has been involved in several high-level sponsorships and race industry deals, one of which is a sponsorship with Julius Baer, a Swiss private banking group.</p> <p>“My banking and finance background was essential for being able to put together sponsors. Formula E has an exclusive sponsorship package with Julius Baer now which is going to last several years. A number of other banks have approached us to invest but I let them know while they can’t invest right now in Formula E they can partner with the car teams and sponsor that way,” Agag explained.</p> <p>He sees his work at Formula E as a mix of work and pleasure.</p> <p>“I was already a part of Formula One, being a driver myself and finding drivers for them. Because of my background in finance and my involvement on the track, FIA had the idea for me to put together investors for Formula E,” he said.</p> <p>Formula E seeks to be the first carbon neutral automobile sport, and is committed to sustainable and innovative technology in the motor industry.</p> <p>“Formula E is my passion. It is the testing place of new technology and the gateway to the future of the automotive industry. At Formula E we care for the environment and hope for a world where (one day electric) cars will be the only ones allowed in city areas. Cutting back on pollution is essential as we become more aware of the damage we are doing to the world we live in,” he said, running his hands through his hair.</p> <p>I asked him what other technologies could replace electric for the Formula E car.</p> <p>“Hydrogen could be part of our technology in time but currently hydrogen still relies on a battery and you need a source of it.”</p> <p>Agag went on to say that whatever happens to the advancement in technology Formula E is here to stay.</p> <p>“Currently Formula One is more prestigious that Formula E but that’s because it has a history. One day, maybe fifty years from now, Formula E will be just as prestigious if not more so.”</p> <p>Formula E is hitting the road with a race in Shanghai next month and  one in Paris in April. It is in talks about holding the event in several  other cities in Asia and America.</p> <p>Agag no longer races but runs a test drive around the track before races and sometimes gives private tours to sponsors.  His choice of car is the BMW M18 and he also drives a Renault Zoe.</p> <p>Although originally from Spain, after fifteen years of living in the City, Agag considers London as his home. In 2002 he married the form</p>
Pimco links Fed, China, commodity deflation & market concerns
Asset Management
<p>Noting that scientist Ivan Pavlov trained dogs to salivate in anticipation of receiving a tasty reward, Pavlov’s experiments translate into the current market environment, a recent Pimco strategy note observed. Investors have become trained to react negatively simply at the anticipation of a Fed rate hike, and the Fed is accomplishing a task that hasn't been successfully executed in the postwar era, they note.<br /> Pimco: Fed is eliciting typical Pavlovian response, causing markets to shudder at the thought of a rate hike<br /> “In 2015, market volatility has been rooted in a phantom rate hike from the Federal Reserve, which throughout the year has been ringing a bell to warn markets that it is on the verge of raising interest rates for the first time since 2006,” Pimco’s market strategist Tony Crescenzi wrote in a note to investors. “Though it hasn’t happened, the Fed has elicited a typical Pavlovian response, causing markets to shudder at the thought and prompting a very significant chain of events that has rippled throughout global financial markets.”</p> <p>Crescenzi says that the Fed’s much anticipated rate hike isn’t the cause of market volatility, but notes that it has been a catalyst. Crescenzi says the most significant fallout from “the Fed’s phantom rate hike” can be seen in China, connecting two of the primary performance drivers of negative stock market performance. China’s unexpected move to weaken its currency and improve its export sector in August spurred substantial market volatility highlighted by a plunge in global equities prices.<br /> Pimco links Fed rate hike, China and commodity deflation<br /> Linking nervous investors to concerns regarding the August 10 Chinese currency devaluation and a potential September Fed rate hike, Cresenzi says the strengthening U.S. dollar caused China’s currency, the yuan, to move higher on an inflation-adjusted basis, doing so at a time when its economy was weakening.  “This is the opposite of what tends to happen and it is an undesirable outcome for a central bank seeking to stimulate economic growth by cutting interest rates…” he wrote.</p> <p>Cresenzi noted the strengthening U.S. dollar along with “the anxious anticipation of a Fed rate hike by investors throughout the world sparked a cascade of events,” which are all inextricably linked. The Fed, China and the last leg of the troika of market concerns is the decline in commodity prices, which tend to fall when the dollar strengthens.</p> <p>“That markets have moved so significantly on the prospect of a Fed rate hike exposes the fragility of the global financial system, which remains mired in a lengthy era of deleveraging,” he wrote. “It demonstrates the difficulty that central banks face in escaping crisis-era policies, including zero percent policy rates.”<br /> Former Fed Chair Bernanke reminds Pimco that coming off zero has never been accomplished successfully in the post-war era<br /> It is the zero interest rate trap that Cresenzi notes former Fed Chair </p>
Daily Scan: Asia closes its worst quarter since 2008, China autos soar
Capital Markets
<p>Updated throughout the day </p> <p>September 30</p> <p>Good evening. The bell has rung and China's stock markets have posted their worst quarterly losses since 2008, despite finishing in positive territory. The CSI300 - an index of the largest companies on the Shanghai and Shenzhen markets - lifted by a modest 0.8%, and the Shanghai Composite edged up 0.5%. These modest gains pale into insignificance against the roughly 29% both bourses have lost since the start of July.</p> <p>China's auto industry was the biggest winner in the quarter after the government halved sales tax on small-engine cars. Changan Auto, Great Wall Motor, and SAIC Motor surged 9.99%, 10.02%, and 3.94% respectively.  However. Beijing's recent stimulus efforts do not erase the fact that China's auto industry has had its worst year since becoming the world largest in 2009.</p> <p>Here is what else you need to know:</p> <p>Japan on brink of technical recession. Japan is on the verge of a technical recession. Industrial production for August — a crucial input into gross domestic product — unexpectedly fell by 0.5%on the previous month after a 0.6% fall in July. Financial Times (paywall)</p> <p>China arrests two Japanese citizens for spying. Japan's top government spokesman confirmed Wednesday that China has detained two Japanese citizens, after reports that they were arrested on suspicion of spying. The two were both picked up in May, one in Zhejiang province and the other in Liaoning. The New York Times (paywall)<br /> IMF warns of new financial crisis if interest rates rise. Rising global interest rates could prompt a new credit crunch in emerging markets, as businesses that have ridden the wave of cheap money to load up on debt are pushed into crisis, the International Monetary Fund has said. Guardian<br /> Climate change is going to be very expensive, says BoE chief. The governor of the Bank of England has thrown down the gauntlet to the fossil fuel industry with a blunt warning that investors face “potentially huge” losses from climate change action that could make vast reserves of oil, coal and gas “literally unburnable”. Financial Times (paywall)</p> <p>Russian legislature gives use of Syria force the green light. In a closed-door session of the Federation Council, Russia’s highest body of parliament, senators voted unanimously to to give President Vladimir Putin authorization to use military force in Syria. Washington Post<br /> Indonesia's Jokowi 'needs time' to tackle haze. Indonesian President Joko Widodo has said he needs time to tackle the forest-burning which creates a haze every year over South East Asia. He Indonesians were also victims of the haze, but it would take three years for results to be seen from efforts to end the huge annual fires. BBC<br /> Afghan forces fight to retake Kunduz from Taliban. Afghan forces have been battling Taliban fighters to retake the city of Kunduz, a day after it fell to the insurgents in their biggest victory since their removal from power in</p>
Daily Scan: Stocks steady; Flooding hits East Coast
Capital Markets
<p>Updated throughout the day</p> <p>September 29</p> <p>Good evening, U.S. stocks steadied a bit Tuesday, with the Dow posting a 0.3% gain. The S&amp;P 500 squeaked by with an additional 0.1%, and the Nasdaq fell 0.6%. Oil was up about 1%, closing just short of $45/barrel. The Stoxx Europe 600 lost 0.7% Tuesday. Glencore's shares rallied up to 20% Tuesday as the company assured investors its finances are solid. Valeant Pharmaceuticals is getting hit hard, and it's taking down Pershing Square Capital Management and ValueAct Capital Management with it. Valeant's stocks dropped 17% Monday, and continued to slide more than 5% Tuesday. Don't forget: the new month starts Thursday.</p> <p>Here is what else you need to know:</p> <p>Floods coming. Portions of 11 eastern U.S. states are under flood watches through late Thursday. Heavy rain is already hitting North Carolina and Virginia, and could spread up to New England. CNN</p> <p>Japan Tobacco to buy non-U.S. rights to Natural American Spirit. The Japanese company will purchase the cigarettes from Reynolds American for about $5 billion. Japan Tobacco's Japanese market is shrinking, and Reynolds is willing to hand over some of its debt after it acquired Lorillard for $25 billion in June. Wall Street Journal</p> <p>Pope's security breached. A 39-year-old man impersonated an officer and drove his black SUV along a motorcade to get access to Pope Francis on the JFK tarmac Saturday. The man arrived about 10 hours after the pope had left, but he said he wanted to give the pope his business card and talk to him about changing the world. CNN</p> <p>U.S. still on track for 2015 rate hike. William Dudley, president of the Federal Reserve Bank of New York, said Monday the central bank is likely to raise short-term interest rates this year, echoing Chairwoman Janet Yellen’s message last week. Wall Street Journal</p> <p>U.S. launches airstrike after Taliban assault on Afghan city. US forces carried out the airstrike on the northern Afghan city of Kunduz today after after Taliban insurgents fought their way into the major city. The Washington Post<br /> China angered by Hillary Clinton tweet on women's rights. From calling her a "big mouth" to making Monica Lewinsky jokes, China has reacted furiously at US presidential candidate Hillary Clinton's recent comments about China's record on women's rights. Clinton said in a tweet that China President Xi Jinping was "shameless" for hosting a UN conference on women's rights. BBC<br /> China’s offshore yuan softens versus US dollar. The offshore yuan softened against the US dollar today, at one point trading at a premium against the same day’s mid-price fix for the first time since November. At 6.3710 against the greenback, the offshore yuan was weaker by 130 basis points from Monday’s close, ending the currency’s longest winning streak in one month. South </p>
What happens when public pension funds go activist?
Asset Management
<p>As activist investing continues to spread in popularity, we've begun seeing studies that attempt to gauge whether activism actually creates value for shareholders or not. Public pension funds are starting to get in on the action, now becoming a formidable force in the activist arena as Proxy Monitor found that this year nearly one-fifth of all the shareholder proposals brought to Fortune 250 companies were sponsored by them.</p> <p>Now there's a new study that looks at whether public pension fund activism makes a difference or not. As it turns out, their activism and even ownership to some degree is correlated with lower stock returns.<br /> Stock returns fall when public pension funds go activist<br /> University of Tennessee Professor Tracie Woidtke analyzed the stock returns of companies that became the activist targets of public pension funds between 2006 and 2014. The Manhattan Institute's Proxy Monitor published her report on the topic as a companion to the regular Proxy Monitor report, and interestingly, she found a correlation between shareholder proposal activism by public pension funds and lower stock returns.</p> <p>She examined Fortune 250 companies that were targeted by shareholder proposals from five of the biggest state and municipal pension funds and learned that, on average, the companies' stocks underperformed the S&amp;P 500 Index by 0.9% in the year after the vote on the proposals. Just five big state or municipal pension funds dominate shareholder proposals:</p> <p>Also the number of proposals introduced by those five funds has climbed steadily over the last few years:</p> <p>The public pension fund's activist involvement that had the biggest negative impact on stock prices was CalPERS. The Manhattan Institute warned that the sample sizes for CalPERS, CalSTRS and the Florida fund were probably too small. However, they did have a big enough sample for the the New York State Common Retirement Fund, which also had a huge negative impact on share prices. Woidtke found that companies targeted by that fund saw their stock prices decline by 7.3% compared to the broader market.</p> <p>Proposals on social issues not supported<br /> Perhaps the main reason the New York State Common Retirement Fund's activist campaigns had such a huge negative impact on its targeted impact is because it began to aggressively push out proposals on social issues like political spending starting in 2010. As you can see from the graph, political spending or lobbying made up the lion's share of the fund's proposals over the last decade:</p> <p>There's a marked difference in the strategy employed by the State fund and that used by New York City pension funds, which is more balanced:</p>