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Weekend Scan: FOMC to release minutes: Pacific pact near conclusion after seven years of talks
Capital Markets
<p>Earnings seasons starts up again this week, with Alcoa reporting earnings on Thursday. Investors will be looking for clues on how the Federal Reserve is interpreting economic data when the Federal Open Market Committee releases the minutes from its last meeting, also on Thursday at 2 p.m.</p> <p>Pacific trade pact near. The U.S. and 11 Pacific countries seemed on the verge of signing the Trans Pacific Partnership after agreeing on how to handle how long pharmaceutical companies should be able to control new biotech drugs. The trade talks have been ongoing since 2008 and any deal must still go through Congress early next year.  Reuters</p> <p>Syria's president says Russia air strikes are vital. Bashar al-Assaid said the West's air campaign in Syria and Iraq have hurt and are the source of th spread of terrorism.  Reuters</p> <p>Banks may shoulder some of Glencore's woes. The troubled mining and commodities giant struck a $1.4 billion deal with Chad over four years. Banks lent money for the upfront deal when oil was priced at $100/barrel. The loan was backed by oil shipments from Chad, not by cash flows at Glencore. Wall Street Journal (paywall)<br /> You won't believe this.<br /> Mice may help scientists find birth control pill for men. Women will probably rejoice. Vice<br /> Photo: Brookings Institute</p>
The richest US hedge fund managers
Lifestyle, 4:01
<p>This year 33 hedge fund managers made the Forbes 400 list of the richest people in America, reports Business Insider. David Diegel and John Overdeck, co-founders of quant fund Two Sigma Investments, are new additions to the list, with each having a net worth of about $2.8 billion. Bill Ackman, David Tepper, and Steve Cohen all had nice boosts to their personal net worth in the last year. Number one hedge funder, by a $4 billion lead, is still George Soros.</p> <p>Here are the 10 richest U.S. hedge fund managers:</p> <p> George Soros, Soros Fund Management- $24.5 billion, Forbes rank: 16<br /> Carl Icahn, Icahn Capital Management- $20.5 billion, Forbes rank: 22<br /> Ray Dalio, Bridgewater Associates- $15.3 billion, Forbes rank: 29<br /> James Simons, Renaissance Technologies- $14 billion, Forbes rank: 32<br /> Steve Cohen, Point 72 Asset Management (formerly SAC Capital)- $12 billion, Forbes rank: 37<br /> David Tepper, Appaloosa Management- $11.6 billion, Forbes rank: 38<br /> John Paulson, Paulson &amp; Co- $11.4 billion, Forbes rank: 41<br /> Ken Griffin, Citadel- $7 billion, Forbes rank: 69<br /> Bruce Kovner, Caxton- $5.2 billion, Forbes rank: 93<br /> Israel Englander, Millennium Management- $4.8 billion, Forbes rank: 108</p> <p>Photo: International Monetary Fund<br /> &nbsp;</p>
Are buybacks an oasis or a mirage?
Capital Markets
<p>Key Points<br /> 1. In 2014, the S&amp;P 500 Index’s dividend (1.9%) + buyback (2.9%) yield = 4.8%, but this yield was not realized by investors.<br /> 2. As in most years, in 2014 issuance of new shares—for management compensation, new investments, and funding mergers and acquisitions—exceeded buybacks.<br /> 3. The dilution rate for the U.S. equity market in 2014 was 1.8% compared to the historical dilution rate of 1.7% over the 80-year period from 1935 to 2014.<br /> 4. U.S. equity investors in aggregate—contrary to appearances—have not realized a benefit from the recent spate of stock repurchases.<br /> Like travelers in the desert searching for water, we survey the parched investment landscape looking for high-yielding assets to quench our thirst for investment income. Shimmering on the barren surface of zero real yields, is that a lush garden of stock buybacks that we spy on the horizon? We examine the impact on investors of the recent increase in buybacks using an approach introduced by Bernstein and Arnott (2003).<br /> In 2014, buybacks represented 2.9% of the S&amp;P 500 Index’s market capitalization. When this distribution of cash is added to the 1.9% dividend yield of the S&amp;P 500,1 it produces a dividend-plus-buyback yield of 4.8%. For yield-thirsty investors, this combination appears to be an oasis in the capital market desert. To be that oasis, however, buybacks must not be diluted by net new issuance. We scour a range of sources to tally new issuance, discuss why companies issue new stock, and explain the possible dilutive impact of this new issuance.<br /> Who’s Buying Back Stock?<br /> In 2013, S&amp;P 500 companies, the largest in the United States but nonetheless a subset of the market, spent $521 billion on buybacks. In 2014 that amount rose to $634 billion and moved higher still to $696 billion when total repurchases by all publicly traded companies in the U.S. market are included.2 The top 15 companies by repurchases are listed in Table 1.</p> <p>Six of the 15 top companies are in the tech sector: Apple, IBM, Intel, Cisco, Oracle, and Microsoft. Combined, these six huge cash-flow-generating companies are respo</p>
Fintech fights abandonment with easy access
<p>&nbsp;</p> <p>Fintech startups are taking a page from online retailers to keep users from leaving the site before they have completed their transactions.</p> <p>"Abandonment" is the bane of the industry. Potential users often leave apps before they complete the signup process or before they hit the "buy" button for all kinds of reasons. Today's startup entrepreneurs are working to improve the user experience by focusing on simplicity. The big hit of 2015 -- trading app Robin Hood -- has won big kudos for its streamlined look.</p> <p>Users want financial products that look and feel similar to the apps they're using on a daily basis, from Gmail to Facebook to Amazon, says Nikita Filippov, managing partner at Octoberry and developer of banking app Sense. Right now, "when you go down to the mobile bank [app], it looks like the 90's."</p> <p>At recent Finovate conferences, presenters hawked apps and ideas that focused on "frictionless" experiences. Here's what some of the hot startups are doing:</p> <p>&nbsp;</p> <p>Hedgeable (Best in Show, Fall 2015)</p> <p>"People don't like complicated," says Mike Kane, CEO and Master Sensei at Hedgeable. Hedgeable, private banking for millennials and Gen-X, displays the dozens of menu options a traditional private bank would, but with bright colors, symbols like a gas gauge for setting risk tolerance, word clouds, and bold, easy to click boxes. "People like visualizations," says Kane. The Hedgeable platform is social, a la Venmo. It also takes the online social offline, inviting users who invest on the platform to parties and events.</p> <p>Avoka (Best in Show, Spring 2015)</p> <p>"We create a very simple environment," says Don Bergal, Chief Marketing Officer at Avoka, which boasts one of the fastest mobile credit card signup processes -- a mere 90 seconds. Bergal says the company tries to figure out what will send users away prematurely. It's not totally intuitive. Sometimes it's just one question too many. Other times it's asking for a photo too early in the process. Retail sellers are the best at managing abandonment,  says Bergal. (But even retailers struggle: one study suggests the abandonment rate averages about 67%.) Financial service are also struggling to make the sign-on process fluid between units and services. "We try to create a user interface that doesn't look like the classic mobile bank," he says.</p> <p>Payswag</p> <p>"You have to take fintech and apply to the average, everyday person," says Max Haynes, CEO of mobile app PaySwag. For PaySwag that means reaching the under-banked. Haynes was "stunned" to find that nearly half of under-banked people don't have an email address they check on a regular basis. But they do have a smart phone they use daily. "It's a simple revelation," he says, explaining that these mobile users also expect 24-7 coverage for everything from messaging to banking.</p> <p>Blooom (Best in Show, Fall 2014)</p> <p>The 2014 hit in New York still</p>
Let’s not get het up about systematic portfolio management
Capital Markets
<p>Various types of computer-driven trading are being blamed for volatility in securities markets. To some extent, this blame game is just newspapers selling newspapers. See a recent FT story here. That is, it sounds sensational to suggest that computers are polluting the securities markets.</p> <p>There is a serious side to this blame game: HFT (high frequency trading) is, in my opinion, pernicious to the rest of the market because it adds nothing of value and seeks to grab income by front running or misleading other algorithms. HFT could be dealt with by a simple small tax on each trade in a financial instrument. The tax would be designed not to obtain revenue but, as the late Professor James Tobin put it, to throw sand in the wheels of high-speed traders. Their activity simply would become uneconomic.</p> <p>A second type of computer-driven strategy that is more lately in the news (see the FT story linked above) is “systematic” trading that seeks to maintain a consistent volatility profile for a portfolio. That type of strategy requires that the portfolio reduce its exposure to volatility when volatility is high and increase its exposure to volatility when volatility is low. Some of the world’s most respected hedge funds engage in this type of strategy.</p> <p>It is easy to see that systematic strategies of this type might tend to increase volatility on the upside and decrease it on the downside. Thus, it is like other momentum strategies. But why should one be alarmist about such tendencies? The market knows about them. Traders can adjust to their presence. Long-term investors can ignore them.</p> <p>The problem appears to be that someone has foisted the idea that markets are supposed to be calm or consistent. But that is not always the nature of markets. Markets take wild swings when emotions seize participants or when information is potentially scary but not definitive. Those conditions can exist for fairly long periods of time. As Lord Keynes remarked, the market can stay irrational for longer than you can stay solvent. And during those periods of apparent irrationality, newspapers (using the term broadly) wonder what the regulators are doing to curtail the volatility and uncertainty.</p> <p>As a guy who believes in markets (not because they are either perfect or free but because they are better than the alternatives), I think uncertainty is a part financial life. As financial actors (as economists would call us), we compute the possibilities and place our bets.</p> <p>Systematic trading is no different from many other momentum strategies. The fact that its decisions are made by computers does not make the strategy any different or scarier, even if they are pro-cyclical.</p> <p>Although governmental policies that are pro-cyclical should be avoided, private parties should be allowed to make such bets. Other private parties should, of course, try to take advantage of those pro-cyclical bets. That’s what markets are for.</p> <p>Photo: Mike Licht</p>
Grad school: Steve Cohen style
Lifestyle, 4:01
<p>Graduate schools, while significantly more focused than undergrad programs, usually try to make their students well-rounded members of society. Not this one.<br /> “The program begins with classes in the fundamentals of finance and economics. Students study accounting, statistics, and economics.</p> <p>Around four months in, they graduate to more real-world pursuits: company research and modeling.</p> <p>For about 10 months, they then cover companies in various sectors under the guidance of the academy. Then they get to start rotating across porfolio-management teams.”<br /> Welcome to Point72 Academy, where the only thing that matters is grit.</p> <p>Launched by Steve Cohen’s Point72 Asset Management earlier this year, the academy is a “highly-selective and rigorous 15-month training program” dedicated to grooming futures Stevies for Point72, and according to Business Insider, unlike every school on Earth, the academy pays you for the privilege - and not at a bad rate at that:<br /> “Neither Mulvihill nor Donlon would disclose what the academy is compensating them. But Mulvihill said that, next to his bank-analyst pay, the academy's is ‘definitely comparable.’”<br /> That said, it sure doesn’t look easy. Admittance into the program doesn’t guarantee a job at vaunted hedge fund, and given the caliber of the people you’ll be competing with, that’s quite a tall order.</p> <p>They aim to hire most of the students though, as academy director Jaimi Goodfriend told BI:<br /> “If we want you, we will find a way to retain you.”<br /> If you’re interested, be sure to grab some cold weather gear. Just like Point72’s trading floor, the academy’s digs are kept cold to keep everyone on their feet.</p> <p>Now if only PTJ had something like this…<br /> Photo: Yuki Matsukura</p>
Tech dominates FT and McKinsey’s book of the year lineup
Lifestyle, 4:01
<p>Banking and economics titles may have dominated the FT’s business book of year award since its 2005 launch, but in tech-crazy 2015, things are a little different.</p> <p>Of the six books shortlisted for this year’s award, only Richard Thaler’s Misbehaving comes in straight from the economics front, while four of the five remaining titles blazing in from the wonderful world of tech:</p> <p> Digital Gold, Nathaniel Popper<br /> The Rise of the Robots, Martin Ford<br /> Losing the Signal, Jacquie McNish and Sean Silcoff’s<br /> How Music Got Free, Stephen Witt</p> <p>While Digital Gold – Popper’s take on the history of Bitcoin – surely looks interesting, Martin Ford’s alarming vision of a fully-automated future seems to be the tech favorite so far. It still has a long way to go to reach Thaler’s masterful take on behavioral economics though – Misbehaving currently has 46% of votes going for it, while The Rise of the Robots only has 25%.</p> <p>Which one's your favorite?<br /> Photo: Dominik Bartsch</p>
International economic week in review for Sept. 28-Oct.2; Japan flashing yellow, edition
Capital Markets
<p>For the fourth consecutive week, a major institution issued a negative report regarding global growth.This time it was the IMF, who, in a report titled, “Rise in Emerging Market Corporate Debt Driven by Global Factors,” noted the large build-up in emerging market debt may careen out of control as EM currencies decline and trade slows. Nonfinancial company debt in emerging economies increased from $4 trillion to $18 trillion between 2004 and 2014. Chinese raw material demand, low interest rates in developed countries and rising commodity prices spurred the trend. But as all three trends reverse course, companies that issued the debt face a potential triple whammy of declining home country currency values, declining revenue and increasing developed market interest rates negatively impacting their respective balance sheets. It’s possible this situation has started as some sovereign EM debt is already trading at higher levels seen in 2013’s “taper tantrum”.<br /> In a recent speech, Bank of Japan Governor Kuroda offered the following positive view of the Japanese economy:<br /> Japan's economy has continued to recover moderately with a virtuous cycle from income to spending operating in both the corporate and household sectors, although exports and production are affected by the slowdown in emerging economies. That is, in the corporate sector, profits have marked a record high and firms' fixed investment stance has been positive. In the household sector, wages have been growing -- as seen in the rise in base pay for two consecutive years in a situation where the unemployment rate has declined to the level that can be regarded as almost corresponding to "full employment" -- and private consumption has been resilient.<br /> His analysis is more hopeful than current statistics warrant. Governor Kuroda’s optimism is based on the Tankan survey:</p> <p>While these readings are positive, they are prospective, not commitment of funds. In fact, machinery orders are down in the 1H15:</p> <p>And although corporate profits are high, actual investment is not as strong as indicated:</p> <p>In the latest reading, large and medium/small non-manufacturers saw capital investment decreases of -3.1% and -5% respectively. The respective numbers for large and medium/small manufactures were -2.5% and +5.4%. And both data sets are far below pre-recession levels. As for consumers, although wages increased in the latest quarterly reading, consumption expenditures sharply decreased in the 2Q15:</p> <p>And the Governor’s statements stand in stark contrast to those of Etsuro Honda, a top aide to Prime Minister Abe, who stated Japan needed additional fiscal stimulus to insulate the country from China’s slowdown. This statement</p>
David Einhorn Greenlight historical investment returns
Hedge Funds
<p>&nbsp;</p> <p>David Einhorn Greenlight historical investment returns - rough yr - more on that topic here</p> <p>This story originally appeared in ValueWalk.<br /> Photo: Insider Monkey</p>
A fee war could be brewing for A-Shares ETFs
Asset Management
<p>Alright, let's not get too carried away, but one issuer did lower the annual expense ratio on its U.S.-listed China A-shares exchange traded fund. On Thursday, the CSOP FTSE China A50 ETF AFTY 2.6% saw its expense ratio chopped to 0.7 percent per year from 0.99 percent.</p> <p>Translation: Investors planning on making the CSOP FTSE China A50 ETF a long-term holding will now pay $70 for every $10,000 invested per year, down from $99 a year per $10,000 invested. Hong Kong-based CSOP Asset Management, AFTY's issuer, is the largest renminbi qualified institutional investor (RQFII) in the world.</p> <p>The fee cut for AFTY makes the ETF less expensive than the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF ASHR 2.49%, the largest U.S.-listed A-shares, by 10 basis points per year. ASHR is home to nearly $400 million in assets under management.</p> <p>Read more at Benzinga, here.<br /> Photo: U.S. Department of Defense Current Photos<br /> &nbsp;</p>