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Rothman: No hard landing for China
Asset Management
<p>While half of the world debates the veracity of China’s GDP growth data, Matthews Asia’s strategist Andy Rothman would rather that people focus on something much more important – the nation’s apparent shift from exports to consumption:<br /> “The figure is just a tad below the 7% pace of GDP growth for the first two quarters of this year, and is 0.3 percentage points slower than the 3Q14 pace of 7.2%—which was 0.6 percentage points slower than the 7.9% rate in 3Q13. This is the inevitable deceleration of China’s growth due to changes in demographics, slower growth in construction activity and the base effect. The financial media will likely be able to write headlines about the slowest GDP growth rates since the Tang Dynasty for many quarters to come. But is that really the most important part of the story?</p> <p>We are pleased to see that the rebalancing of China’s economy toward consumption and away from exports and investments continues to make significant progress. This rebalancing is key to our investment strategy. For the first time ever, services and consumption (the tertiary* part of the economy) accounted for more than half of China’s GDP, at 51.4%, up from 41.4% a decade ago. This mitigates weakness in manufacturing and construction (the secondary* part), and, if this rebalancing continues, it should mean that macro deceleration will be gradual.”<br /> That would be great, but unfortunately, his argument does have a few holes in it. For one thing, there was just no way services put on a good show in the third quarter. As the always astute Christopher Balding pointed out following the GDP release:<br /> “Service growth was boosted enormously in Q2 by the enormous increase in financial services from the stock market bubble. Given the collapse in the Chinese stock market in Q3, by almost any measure such as price level, margin lending, or trading volume, it seems shall we say puzzling that service growth remained so robust.”<br /> Consumer data meanwhile seems to be a little murky. Clothing and electronic outputs have not been great, which doesn’t seem simpatico with the supposed 10.9% climb in retail sales.</p> <p>Nevertheless, given how Matthews’ funds are doing – the Matthews China Dividend Fund returned 8.45% YTD compared to the MSCI China’s negative 3.44% – chances are these guys know a thing or two about what they're doing. Stay tuned.<br /> Photo: Jim Winstead</p>
Chart toppers: Diversification, China and the Fed’s dual mandate
Capital Markets
<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
Capital Markets
<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
Capital Markets
<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>
HBO nails startup life
Lifestyle, 4:01
<p>HBO's "Silicon Valley" is the most realistic TV or movie portrayal of the tech world in Silicon Valley according to entrepreneur and executives, reports The Atlantic. But outside of the blatant look at tech life, "Game of Thrones" and "Gossip Girl" are better at displaying the cutthroat behavior, misogyny, and power struggles that define the industry, insiders say. Ouch.<br /> Photo: SUB SONIX</p>
Is Goldman making a statement by firing cheating junior executives?
Capital Markets
<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>
Tiger founder gives $3.5M to UNC
Lifestyle
<p>Hedge fund legend and billionaire Julian Robertson has donated $3.5 million to UNC-Chapel Hill.</p> <p>Robertson, chairman and general partner of Tiger Management, is a 1955 UNC graduate, reports the Triangle Business Journal. The school says his donation will be reinvested in academics. Robertson has been a steady giver to UNC, creating a scholarship program in 2000 with a $24 million gift.<br /> Photo: Evonne</p>
ECB defends QE plan
Capital Markets
<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>
Charles Schwab continues ETF ascent
Asset Management
<p>Charles Schwab Corp. (NYSE: SCHW) was a late entrant to the exchange traded funds business, debuting its first ETFs six years ago, but the California-based brokerage giant is making up for lost time.</p> <p>At the end of the third quarter, ETF assets custodied at Schwab climbed 10 percent on a year-over-year basis to $237 billion, according to Schwab Third-Quarter Snapshot. Bond funds have been prolific asset gatherers this year with fixed income ETFs listed around the world now home to combined $500 billion in assets under management. Schwab is getting a piece of that action as more than half of the company's third-quarter ETF inflows went into bond funds with a third going into U.S. equity products, according to Schwab data.</p> <p>“RIA Clients captured 49% of the 12-month ETF flows, up from ...</p> <p>Full story available on Benzinga.com<br /> Photo: Got Credit</p>
Dodgy bitcoin rustling DEA gets over 6 years
FinTech
<p>Another Bitcoin case has come to a close and another name has been added to the crytopocurrency's hall of infamy: Carl Force. The dodgy DEA agent – whose nefarious misdealings during the Silk Road investigation were uncovered earlier this year – has been sentenced to 78 months in prison.</p> <p>Reuters reports that Force 'fessed up to charges of extortion, money laundering and obstruction of justice. U.S. District Judge Richard Seeborg said the scope of his betrayal was "breathtaking."</p> <p>Force was part of the team looking into Silk Road, the shady darknet drug marketplace that was shut down in October 2013,</p> <p>He told the judge:  "I'm sorry, I lost it and I don't understand a lot of it." When it comes to bitcoin he is probably not the only one. Which is why it's more than likely we see a few more scandals on the horizon.<br /> Photo: Vincent Diamante</p>