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GM: Flat earnings or record profits? You decide
<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>
Chart toppers: Diversification, China and the Fed’s dual mandate
<p>Key Points</p> <p> Diversification is always (and especially now) essential<br /> Does the linkage between the U.S. and China’s markets reflect economic reality?<br /> Uncertainty around Federal Reserve (Fed) policy is heightened by its dual mandate: inflation and employment</p> <p>From time to time, instead of diving into a singular topic in these reports, I am going to do a“Chart Toppers” review, where I share some of the more interesting and relevant charts I’ve put together or seen on a variety of topics.</p> <p>In this first installment, I am going to highlight the merits of diversification with a slightly different take on a popular visual used in the investment management business for quite some time. Next I’ll hone in on the relationship between the US and Chinese stock markets and economies. Finally, I’ll try to spin a slightly different tale on the Fed’s two mandates: inflation and jobs.<br /> Diversification—an essential tool for investors’ financial (and emotional) well-being<br /> The chart below, which I often refer to as the asset class “quilt” chart, is a popular one used by a variety of investment management firm over the years. The common structure of this visual is to show a variety of asset classes from year-to-year, highlighting how they move in and out of favor—often the best performer in one year falls toward the bottom in the next year, and so on.</p> <p>What I thought would be interesting, given how volatile (and frustrating) the markets have been this year, would be to just look at 2015 to-date and rank a number of broad asset classes by monthly performance. As remarkable as these quilt charts look when ranking asset classes year-by-year, it’s even more remarkable what’s occurred this year.</p> <p>Wild Performance Swings This Year</p> <p>Source: Schwab Center for Financial Research with data provided by Morningstar, Inc., *as of September 30, 2015. Asset class performance represented by annual total returns for the following indexes: S&amp;amp;P 500® Index (US Lg Cap), Russell 2000® Index (US Sm Cap), MSCI EAFE® Net of Taxes (Int’l Dev), MSCI Emerging Markets IndexSM (EM), MSCI US REIT Index (REITs), S&amp;amp;P GSCI® (Commodities), Barclays U.S. Aggregate Bond Index (Core US Bonds), Barclays U.S. High Yield Bond Index (High Yld Bonds), Barclays Global Aggregate Ex-USD TR Index (Int’l Dev Bonds), Barclays Emerging Markets USD Bond TR Index (EM Bonds). Past results are not an indication or guarantee of future performance. Returns assume reinvestment of dividends, interest, and capital gains. Indexes are unmanaged, do not incur fees or expenses, and cannot be invested in directly.</p> <p>As you can see at first glance, there is no discernible pattern. In fact, look at the first four months of the year. Commodities went from last place, to first place, to last place, and then back to first place…all just in the first four months of the year! Real estate investment trusts (REITs) had a similar pattern, but in the opposite direction. Commodities ranked at the top twice, while at the bottom four times; while REITs ranked at the top four times, but at the bottom twice. Small cap stocks also topped the rankings two months in a row; but during five of the other</p>
Daily Scan: Shanghai stocks fall 3%; Credit Suisse to raise $6.3 billion
<p>Updated throughout the day</p> <p>October 21</p> <p>Good evening everyone. Champagne wishes and stimulus dreams may have sent Japanese indices to new highs Wednesday but somebody big must’ve had his stops hit over in the mainland as the Shanghai Composite – after climbing as much 0.62% earlier in the day – finished the session down a staggering 3.06% on purported “profit taking.” China’s Shenzhen Composite meanwhile tanked a massive 5.94% while the aforementioned Japanese indices – the Nikkei and the Topix – climbed 1.91% and 1.84% respectively.</p> <p>Over in FX, the Malaysian ringgit – weighed by oil’s recent slide – slipped another 1% while the kiwi – following a drop in whole milk powder prices – dipped 0.7%. The European markets meanwhile were mostly lower with the FTSE 100 down 0.2%, while the DAX and the CAC were both down around 0.5%.</p> <p>Here’s what else you need to know:</p> <p>Credit Suisse to raise $6.3 billion in capital. In a strategy update meant to strengthen its capital reserves, the Swiss bank announced that it plans to raise $6.3 billion through a CHF 4.7 billion rights offering and a CHF 1.35 billion private placement. It also plans to spin off its domestic Swiss business so it could “buy other banks,” and slim down its investment banking operations. Credit Suisse</p> <p>Watchdogs scramble to rescue Sinosteel. In a rare intervention in the bond market, China’s National Development and Reform Commission and the Assets Supervision and Administration Commission both stepped in to avert a potential default by the financially-strapped Sinosteel. Bondholders of the state-owned enterprise – who were looking to redeem up to 2 billion yuan on their principal – were told that the redemption date was moved to November 16. SCMP (paywall)</p> <p>Officials investigate former Sinopec chair over Angola deals. Anti-corruption investigators – in part of Xi Jinping’s three-year war against graft in the energy industry – are looking into the possibility that ex-Sinopec chairman Su Shulin led the state-owned oil major to overpay for its rights to an Angolan offshore oil field. Wall Street Journal (paywall)</p> <p>Japanese exports disappoint. Expecting a 3.8% gain, analysts were instead surprised with a 0.6% climb in exports. Imports however were slightly better than expected, coming in at -11.1% versus the forecasted -12%, but still way worse than August’s -3.1% reading. Financial Times (paywall)</p> <p>Kiwi credit card spending falls. Kiwi retailers sure won’t be happy about this. New Zealand credit card spending punched in its first decline for the year, falling 1.9% in September from a 1.1% climb the month before. Year on year, spending climbed just 7.3% - a huge drop from August’s record 10.5% rise. ForexLive</p> <p>CICC slashes IPO target. The China International Capital Corp (CICC), arguably one of the country’s top domestic investment banks, has slashed its Hong Kong IPO target from $1 billion to $800 million, citing weak valuations. The fact that several large firms such as China Huarong and China Re are set to IPO in the same month may have factored in as well. </p>
Daily Scan: Stocks slip as Yahoo disapoints; Paul Ryan pressured to run for speaker
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>October 20</p> <p>Good evening. Stocks closed lower Tuesday, after opening with a drop. The Dow fell 0.1%, as did the S&amp;P 500, and the Nasdaq fell 0.5%. The Stoxx 600 was down 0.4%. Will housing be a scene-stealer during earnings week? On Monday, the National Association of Home Builders reported its index touched a 10-year high. Even so, stocks could hardly muster enthusiasm as poor growth figures in China and weak energy prices made investors uneasy.  Fed Chair Janet Yellen spoke Tuesday morning at a ceremony honoring the first woman head of the Bureau of Labor Statistics, emphasizing the importance of accurate economic data. She did not comment on the current economic condition.</p> <p>Here’s what else you need to know:</p> <p>Paul Ryan is feeling the peer pressure. House Republicans are meeting with the Wisconsin representative to discuss whether he will run for speaker. The GOP has been at a standstill since House majority leader Kevin McCarthy withdrew his name from the race to replace John Boehner two weeks ago. Boehner plans to resign at the end of the month, but says he will stay until a successor is named. New York Times</p> <p>Register your drones! U.S. Transportation Secretary Anthony Foxx says that a taskforce is looking into the creation of a drone registry, to create more accountability for the unmanned aircrafts. The agency fears that the number of drones will skyrocket as Christmas presents this year. BBC</p> <p>Yahoo's revenue drops. The company reported an 8.4% fall in adjusted quarterly revenue. The net profit was 8 cents per share, compared to $6.70 per share a year ago. Reuters</p> <p>Jim Webb drops out of Democratic race. The former Virginia senator is leaving the Democratic presidential race, but says he is considering running as an independent. Politico</p> <p>Russian air strike kills Syrian rebel leader. The strikes were a third attack by Russian war planes against the First Coastal Division Group, and in support of President Bashar al-Assad. A rebel commander, four other fighters, and at least 15 civilians were killed. The Syrian Observatory for Human Rights says the death toll is closer to 45 rebels and civilians. Reuters</p> <p>Housing starts in sixth straight month surpass one million. The September numbers were better than expected at 1.21 million vs 1.147 million, and were led by demand for rental units. Multi-family surged 18.3% to 466,000 units. That number is often volatile, but the overall trend points to a well-grounded recovery in housing.  CNBC</p> <p>Apple Music has 15 million users. Of that, 6.5 million are paying subscribers to the streaming service, and the other 8.5 million are on three-month trials. Apple Music launched June 30, and costs $9.99/month or $14.99/month for families. Wall Street Journal</p> <p>BNY Mellon beats estimates, but hold the champagne.</p>
Is Goldman making a statement by firing cheating junior executives?
<p>Perhaps most surprising about last week’s news that 20 Goldman Sachs analysts were dismissed from the elite banking organization for cheating was how easy it was for test administrators to catch the offenders — highlighting the fact that those cheating should have known their unsophisticated search tactics could be so easily tracked.</p> <p>Presumably tech savvy millennial Goldman Sachs recruits used traceable company computers to cheat on tests</p> <p>Goldman Sachs is more often than not the subtle bank that, on a relative basis, keeps its head above water out of the fray. It is perhaps for this reason that when Bloomberg News first reported that 20 entry level analysts were caught cheating on a basic exam, people took notice. Cheating on this exam was a practice Bloomberg reporter Sofia Horta E Costa had said in a broadcast interview occurred in the past across Wall Street without punishment, hence a degree of surprise. When Business Insider’s Julia La Roche reported Monday that the cheating was relatively easily to detect – Google searching for test answers on Goldman Sachs-controlled computers – it appeared that the assumed generally tech savvy millennial audience didn’t think much about the possibility of getting caught or being investigated. In fact, La Roche’s article contains statements that indicate dismay and incredulity that they would be held accountable for cheating on such an insignificant test. In other words, the “best and brightest” on Wall Street were surprised to have beeninvestigated and then dismissed for cheating in this particular instance. Had they assumed they would be monitored and investigated for cheating on the relatively inconsequential test one might expect their behavior to have changed.</p> <p>But is the cheating scandal and more specifically Goldman’s punishment for unethical behavior a sign of the times?<br /> History of Wall Street cheating from money laundering to inconsequential exams<br /> From 2008 onward, it can be documented that in the real world, large bank executives benefited from having investigations blocked and generally avoided consequence from what were illegal actions. Both the CBS News program 60 Minutes and PBS Frontline documented investigations into fraud surrounding the 2008 mortgage crisis had been blocked, and charges ranging from market manipulation to money laundering for terrorist organizations and drug cartels resulted in fines being paid generally by shareholders rather than punishment assigned to individual corporate executives. Just like the test cheaters, it can be argued that among some in the banking elite the very thought of being investigated for criminal behavior was incredulous.<br /> When the bank executives essentially operated without being held accountable for their actions, wha</p>
ECB defends QE plan
<p>Christian Noyer, a senior European Central Bank Council member, says that the quantitative easing program was "well calibrated" and doesn't need adjustment, reports Reuters. Analysts on the other hand are skeptical that the QE was implemented at the right time, and doesn't need some fine tuning. Looks like the game of "Central Bank wait-and-see" continues.<br /> Photo: jam_90s </p>
No rate cut down under
<p>The RBA minutes painted a pretty picture of Australia’s economy today, citing controlled inflation, a “rebalancing” away from the mining sector, and a surge in exports. More importantly, it telegraphed that the RBA currently is in no rush slash rates again. Still, the members seem to be pretty worried about “the key domestic sources of risk to financial stability,” the nation's local property markets:<br /> “Members further observed that the risks in commercial property and the property development sector were rising. Building approvals for new apartments remained very strong over 2015, even though rental markets appeared soft in some areas. The divergence between commercial property valuations and rents had widened further, with strong domestic and foreign investor interest for new and existing office buildings in particular, even though vacancy rates were quite high…The key domestic sources of risk to financial stability, and stability of the Australian economy more broadly, revolved around developments in local property markets. Members noted that growth in lending for housing had been steady over recent months and that there were some signs of an easing in the strong rate of increase in dwelling prices in Sydney, in particular, although trends had been more varied in a number of other cities.”<br /> AUD/USD climbed as high as $0.7276 following the release, however, swaps – still spooked by China – are still pricing in a 58% chance of a November rate cut.<br /> Photo: Michael McDonough</p>
Daily Scan: Chinese shares rebound; Canada elects new PM
<p>Updated throughout the day</p> <p>October 20</p> <p>Good evening everyone. A weird combo of stimulus bets, services sector growth, and margin lending increases helped Chinese shares out of their rut Tuesday with the Shanghai and Shenzhen Composites ending the session up 1.4% and 1.97%, respectively. Hong Kong however was a lot more subdued with both the Hang Seng and the Hang Seng China Enterprises Index tanking 0.37%. As for the rest:</p> <p> Nikkei 225: +0.42%<br /> Straits Times Index: +0.09%<br /> Kospi: +0.45%</p> <p>The European markets meanwhile seem to have taken a hit largely thanks to the China-fueled commodity rout. The FTSE 100 is currently down 0.1%, the DAX down 0.2%, and the CAC down 0.3%.</p> <p>Here’s what else you need to know:</p> <p>Canadian liberals make shock election win. Canada's Liberal leader Justin Trudeau rode a late surge to a stunning majority election victory on Monday, toppling Prime Minister Stephen Harper's Conservatives with a promise of change and returning a touch of glamor, youth, and charisma to Ottawa. Reuters</p> <p>Moody’s: Gulf states to run deficits in 2015-2016. They may be late for the “low oil is bad for the Gulf” train, but ratings agency Moody’s sure makes up for it with a little bit of shock and awe. The agency says that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – which all ran surpluses from 2010 to 2014 – are set to run a near 10% deficit in 2015 and 2016. Financial Times (paywall)</p> <p>Divided families reunite in North Korea. Hundreds of South Koreans have begun meeting family members in the North in a rare reunion event for families separated by the Korean War. The reunion, comprising a series of meetings over a week, is being held at a Mount Kumgang resort, at the border. BBC</p> <p>Chinese new home sales disappoint. Expecting a “golden September,” developers and investors were instead met with a broad drop in home prices in China’s tier-1 cities. Compared to August, primary home prices in Shanghai fell 0.9% in September, while Shenzhen and Guangzhou did far worse by tanking 3.5% and 5.6%, respectively. Beijing home prices continued to post gains, climbing 7.1% in September from the month before. SCMP (paywall)</p> <p>China to invest billions on British nuclear plant. In a landmark deal set to be announced on Wednesday, China is to take on a 33.5% share in the proposed $37 billion, French-led Hinkley Point nuclear power station in Somerset. The deal, which took months of negotiations with France’s EDF, is set to be Chinese Premier Xi Jinping’s “commercial centerpiece” during his visit this week. Financial Times (paywall)</p> <p>U.S. Treasury: Chinese capital outflows surged nearly 1000%. In its latest report to congress, the U.S. Treasury Department said that capital outflows from mainland China surged to $250 billion in the first half of the year, a massive jump from the $26 billion posted in the same period in 2014, adding that in July alone outflows may have reached $80 billion, and may have spiked as high as $200 billion in August. U.S. Treasury</p> <p>Deutsche accidentally paid hedge fund $6 billion.</p>
Asia lens on global ESG
<p>There are many ways in which a firm can construct the illusion of shareholder value creation (as they often do), while actually hurting it over the long term. Take, for example, a manufacturing business that might cut costs, boosting short-term profits by releasing untreated sewage into a river. Doing so will seemingly lift its short-term cash flows but will also substantially increase the variability of its long-term cash flows because the potential threat of regulatory actions, that may thwart business, is never far off. Similarly, a firm can cut back on research and development expenses to boost short-term profits. But that can often damage its long-term prospects.</p> <p>Therefore, a focus on solely short-term profit generation may allow observers to draw misleading conclusions about a firm’s long-term prospects. In accurately assessing a firm’s long-term prospects, it pays to understand the environmental and social impacts of its business practices on all stakeholdersinvolved, which could lead to better outcomes for shareholders in the long run. By stakeholders, we mean employees, a firm’s neighboring community, supply chain, customers and regulators in addition to shareholders. This is what the incorporation of Environmental, Social and Governance (ESG) factors in investment analysis purports to achieve. Businesses that meet ESG standards are generally businesses that make human or business activity less destructive to the environment, as well as promote positive social and economic developments. Therefore ESG focus is part of a focus on long-term shareholder value creation as companies that fit this bill may be better able to spot and execute on long-term growth opportunities. Equally importantly, such companies may be also better able to identify and manage risks effectively, potentially resulting in improved risk-adjusted outcomes for company shareholders.<br /> Asia: Act Locally, Impact Globally<br /> For investors looking to make investment decisions based upon ESG factors, Asia represents one of the best opportunities to gain exposure to companies that can make a long-term difference to the region and the world. There are a range of global ESG issues that cannot be addressed effectively and solved globally unless they are addressed and solved in Asia first. For instance, with respect to climate change, Asia today is the largest regional emitter of carbon. It emits approximately 2.5x the carbon that North America emits, and four times that of Europe.</p> <p>&nbsp;</p> <p>On the back of impressive growth over the last several decades, the Asia Pacific region accounts for 28% of global GDP and 31% of stock market capitalization. Asia’s growth has lifted hundreds of millions of people out of poverty and created a large and vibrant middle class. But an economic model that prioritized growth without regard to externalities has led to rapid deterioration of the environment.</p> <p>Read more at Advisor Perspectives<br /> Photo: NASA Goddard Space Flight Center</p>
Daily Scan: Weight Watchers stock soars; IBM disappoints; the $6B 'oops'
<p>Updated throughout the day</p> <p>October 19</p> <p>Good evening. We're off to a shaky start for the week, with Morgan Stanley in a big miss for its 3Q earnings -- $0.42/share  (adjusted) vs $0.66 estimates. U.S. markets start the week in a holding pattern following a strong close last week. The Dow fell 0.1% by midday, but was able to scrape up a 0.1% gain by close. The S&amp;P 500 added 0.03% after being low all day as well. The Nasdaq gained 0.4%, after an initial fall. Soft growth in China has hit energy shares giving a negative tone to the early morning trade. Investors will be likely be divining the strength of the economy this week through earnings reports. Bucking the trend: Weight Watcher's stocks more than doubled Monday after Oprah announced she is taking a 10% stake in the company and joining the board. The National Association of Home Builders' numbers are in, and we're doing a little happy dance. Sentiment is up 3 points to 64, compared with 54 points last October. Analysts had been ready for the index to be unchanged at 62 this month.</p> <p>Here’s what else you need to know:</p> <p>IBM's revenue disappoints. IBM reported Monday that its revenue fell for the fifth quarter in a row, and 2015 operating profit forecasts were dropped to $14.75-$15.75 per share from $15.75-$16.50. Shares were down 4.5% in after-market trading. Reuters</p> <p>Deutsche accidentally paid hedge fund $6 billion. A junior foreign-exchange trader accidentally transferred $6 billion to a U.S. hedge fund client's custody account in June, after he misunderstood directions. The trader paid out a gross amount -- not net -- as was intended. The error was corrected within 24 hours, but highlights some of the technology issues the bank has struggled with. Wall Street Journal</p> <p>CIA director's email possibly hacked. The FBI and Secret Service are looking into reports that CIA Director John Brennan and Department of Homeland Security Secretary Jeh Johnson's personal email accounts were hacked. The alleged hacker is a high school student who says he is critical of U.S. foreign policy and a supporter of Palestine. CNN</p> <p>"Star Wars" tickets go on sale Monday night. The latest chapter in the Star Wars saga is due out in December, but tickets go on sale after Monday Night Football October 19. The "Star Wars: The Force Awakens" trailer will also debut during the game between the New York Giants and the Philadelphia Eagles. CNN</p> <p>Polls open in Canada, and it's going to be a tight race. Incumbent Conservative Prime Minister Stephen Harper is vying for a fourth term, but it appears that Liberal leader Justin Trudeau, whose father was prime minister, is leading the polls. Left wing New Democratic Party's Tom Mulcair is also pulling strong support, but will likely fall behind the others. BBC</p> <p>Amazon attacks fake reviews. King Amazon is suing more than 1,000 people for posting fake product reviews on the site and "misleading" customers. In April, Amazon sued a number of websites for selling fake reviews as well.</p>