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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>
These ETFs should love the Pfizer-Allergan news
Asset Management
<p>In what could amount to the biggest takeover of a U.S. company in over a year, Dow component Pfizer Inc. (NYSE: PFE) is reportedly mulling an acquisition of specialty pharmaceuticals maker Allergan Plc (NYSE: AGN).</p> <p>"Pfizer recently approached Allergan about a deal, according to people familiar with the matter, with one of them adding that the process is early and may not yield an agreement. Other details of the talks are unclear," reports The Wall Street Journal.</p> <p>Allergan closed with a market value of about $113 billion on Wednesday. Pfizer's market value at Wednesday's close was nearly double that. New York-based Pfizer had nearly$30.3 billion in cash on hand at the end of the second quarter.</p> <p>As is par for the course with healthcare sector deal-making, a batch of exchange traded funds stand to benefit, particularly if ...</p> <p>Full story available on<br /> Photo: e-Magine Art </p>
China ends one-child policy for all families
Lifestyle, 4:01
<p>The Communist Party has lifted the one-child policy for all families in China. Now all families will be allowed to have two children.</p> <p>In 2013, Beijing softened the rule, allowing urban families to apply for the right to have a second child if both parents were only children and if their first child was a girl. Rural families have long enjoyed the "girl" exemption.</p> <p>The restrictions date back to 1979 when China was worried about overpopulation.</p> <p>The official government Xinhua news agency reported the announcement on Thursday at the conclusion of the plenum that meets every five years, saying the move was made to correct an imbalance in the population, the South China Morning Post reports. China has a shortage of women and its population is aging.<br /> Photo: Lori Scott</p>
Why inflation is lower than you think
Capital Markets
<p>Financial pundits routinely claim that inflation is much higher than the reported statistics. We hear, for example, that food prices have risen much faster than the roughly 1.5% increase in the consumer price index (CPI) over the past several years. Viewed over the longer term, however, inflation is far lower than reflected in the published data.</p> <p>The reason for this anomaly is that the CPI doesn’t reflect the rapid advances in technology and the new products and services that have benefited everyone.</p> <p>The implications are profound. For example, real GDP growth is greater than has been reported, and some claims of income inequality are misleading.</p> <p>This theme was the focus of two recent presentations I attended. On October 18, the economist Woody Brock hosted a private gathering of investment professionals from Australia and New Zealand, organized by the Portfolio Construction Forum, at his home in Gloucester, Massachusetts. On October 22, Rick Rieder, the CIO of fundamental fixed income at BlackRock, spoke at the CFA Institute Fixed-Income Conference in Boston.</p> <p>Let’s look at the distortions in the reported inflation statistics and the implications they have for policymakers.</p> <p>The problems with the CPI and PCE</p> <p>The CPI, which is administered by the Bureau of Labor and Statistics (BLS), and the personal consumption expenditure (PCE) index, which is the Fed’s preferred metric for measuring inflation, rely on tracking the prices of a basket of consumer goods. Those goods include food, clothing, energy and housing, which is the largest component of both indices.</p> <p>They differ in that the PCE maintains fixed weightings, whereas weightings in the CPI are adjusted over time. The CPI also incorporates “hedonic” adjustments; it assumes, for example, that if the price of beef increases rapidly, then consumers will adjust their tastes and purchase more chicken. As a result of the difference in weightings, over time the CPI reports lower inflation than the PCE.</p> <p>But the problem is that the hedonic adjustments do not fully reflect advances in technology.</p> <p>As Brock said, the published inflation data “seriously overstates inflation.”</p> <p>Technology advances are apparent in the quality of televisions, which has improved vastly over the past 50 years; compare the small black-and-white TV sets of the 1960s to today’s 60-inch high-definition flat-screen pictures. As Brock noted, the typical lifespan of light bulbs has increased from four months to nearly 20 years over the last couple of decades. Our chances of surviving a motor vehicle accident is five-times greater since the introduction of seatbelts and airbags.</p> <p>Read more at Advisor Perspectives.<br /> Photo: Lucas Stanley<br /> &nbsp;</p>
Simplicity wins for fintech
<p>Easy access, clean design, mobile capabilities. Large companies are realizing that new innovations don't have to be revolutionary. Sometimes simple is best.</p> <p>At a recent awards night hosted by innovation consultant Market Gravity, large established companies from airlines to credit cards to soccer clubs competed for the best new services and products. With more than twice as many nominations as last year across more industries, Market Gravity judges awarded companies for best innovation, best new product, best new service, best new venture, and social impact. Among the nominees and winners were fintech developments, including those from credit cards and existing giants like MasterCard and Barclays.</p> <p>Sometimes genius comes in simplicity, says Iain Montgomery, senior consultant at Market Gravity. Many new innovation programs are building on existing ideas and filling tangible holes, rather than creating something completely new. Focus in fintech has become more about the user experience. Visa, for example, developed a mobile location confirmation for travelers. Customers can confirm a payment abroad through their phone, rather than have their credit card put on hold the second a suspiciously fraudulent transaction is made. "You think you know everything, but you don't," says Montgomery of companies. There are always these small, pesky problems to solve.</p> <p>Western Union, who was awarded best new service, created a "stage and pay" money transfer to make use easier for customers. Western Union teamed up with Walgreens in the U.S. to make access to Western Union through existing photo kiosks, cutting the need for separate technology.</p> <p>Bank of Montreal (BMO) was nominated for best new service for its savings builder account. The account is the first high interest savings account in Canada to add bonus interest when customers save $200 or more each month. Other nominees included more personalization and confirming identity through finger prints and facial recognition.</p> <p>Most creative award, in our opinion, goes to Pornhub for its "wankband." The promo is a "renewable source of energy, powered by Pornhub's quality content." Strap it to your forearm, create energy, and use it to charge anything with a USB.<br /> Photo: Hey Paul Studios</p>