In the oil market, the “death cross” hasn’t signaled a long period of gloom and doom.
Oil futures are up roughly 5% on the New York Mercantile Exchange since the ominous trading pattern known to traders as the death cross emerged. The technical indicator, which occurs when a contract’s average price over the previous 50 trading sessions falls below the 200-day average, is often seen as a sign that a short-term decline is turning into a longer-term slump.
Nymex futures fell into that trap on Nov. 29, when the 50-day moving average dropped to $98.27 a barrel, just below the 200-day average. Oil prices have since bounced back on expectations of increasing demand as refiners return from maintenance season and the projected opening of a key Gulf Coast pipeline. Oil futures settled down 0.3%, or 31 cents at $97.34 a barrel.
But with the death cross still active, the oil market isn’t out of the woods yet, traders say. Despite some recent gains, market participants are still worried about a glut of U.S. supplies and the pending wind down of the Federal Reserve’s $85-billion-a-month bond buying program.
“Last week was a classic oversold bounce, the death signal still remains active,” said Adam Sarhan, chief executive of Sarhan Capital, a financial advisory firm.
Data from the Energy Information Administration showed that U.S. crude stockpiles stood at their highest end of November level since 1930, amid booming domestic output. A reduction of Fed stimulus, expected as early as this month, could push up the price of the dollar, making oil more expensive to buy with other currencies.
The last two death crosses in the oil market occurred in June 2012 and August 2011. Two weeks after the most recent cross happened, oil prices fell $7 a barrel in two weeks, before gaining $13 a barrel roughly eight months later. in the previous instance, futures fell nearly $10 in two months, before they rose near $100 barrel by late-December 2011.
Not everyone is buying that argument. Data from the Commodity Futures Trading Commission shows that money managers boosted their bets on rising crude prices to the highest level in six weeks on Dec. 3.
The bullish trend was recorded after the news that TransCanada Corp.'s expects to open the southern leg of its Keystone Gulf Coast pipeline in January. The move could potentially ease the bottleneck of crude oil in Cushing, Okla., the delivery point for the Nymex futures contract, and transport more fuel to refineries in Texas.
Meanwhile, stronger-than-expected economic data last week also showed signs of an improving U.S. economy and could suggest a pickup in oil demand.
United-ICAP senior technical analyst Brian LaRose said, “I think nothing of the death cross pattern….if it does play out it’s more coincidental more than anything,” adding that “it’s now the time of year when I look for gasoline to lead a pre-season rally ahead of the summer driving season.”
SÃO PAULO–The creator of the BRIC acronym says he hasn’t always been an optimist, but right now his enthusiasm for the global economy is running sky-high.
“During the 1990s I was bearish about the world because I was very worried about the U.S. current account,” Jim O’Neill said in a telephone interview on Friday.
That changed in the 2000s, when he first coined the BRIC acronym, and this decade is also looking bright, he says. “In some respects it is all about the U.S. and China swapping places, and it’s happening,” says Mr. O’Neill.
Manufacturing in the U.S. is starting to recover, while China is exporting less and driving up domestic demand. That makes for a healthier balance in the global economy.
“Compared to most people I speak to I seem to be still a lot more optimistic but it is a fallacy that I’ve always been optimistic.”
The former chief economist at Goldman Sachs — who left the bank earlier this year — is now taking a look beyond the BRICs to another set of countries likely to shine. That was for a series for BBC Radio about four emerging economies that could rise into the ranks of the top 10 global economies by 2050.
The anointed ones are Mexico, Indonesia, Nigeria and Turkey, or MINT: their uniting themes are favorable demographics and attractive economic prospects.
Yet they will never live up to the BRICs, he says, which will always remain much larger. In two years China alone creates more new wealth than the entire MINT gross domestic product combined. The largest economies in the MINTs are Mexico and Turkey, neither of which are expected to achieve China-like rates of growth, so the average is skewed. Nigeria, the smallest country in the group, is the one with most potential.
Curiously, however, the MINTs may have more in common with each other than the BRICs. While Brazil, Russia, India and China have gone to great ends to come up with a coordinated plan of action at global forums such as the G-20, there are always gaping differences. At last week’s World Trade Organization talks in Bali, India objected to a global trade pact supported by the other three nations.
“Mexico, Indonesia and Turkey all share very multi-dimensional trade patterns,” said Mr. O’Neill. People he spoke to in the MINT countries believe there is more natural affinity among MINTs than BRICs, he said.
The economist projects the BRICs will grow an average for 6.6% in the decade from 2011 to 2020, but that’s almost entirely down to China. He’s jokes that if he had to modify the BRICs at all, it would become the “C” — the only country that’s surpassed his expectations.
He’s very optimistic about the Chinese government’s efforts to move toward better quality growth at the expense of quantity. As a result, the pace of growth in China’s economy has come down somewhat, prompting concerns about the impact on the global economy. Mr. O’Neill says that China growing at a pace of around 7.5% is equivalent to the U.S. growing at 4% per year.
“People still don’t fully appreciate that,” Mr. O’Neill said.
There have been plenty of negative headlines on Brazil, Russia and India in the last few years. But that’s also been overblown, according to the banker. “If those countries show any vague acceleration, it is probably going to surprise people,” he said.
In the case of Brazil, the economist said he won’t be surprised if Brazil grows between 2.5% and 4.5% or 5%, next year. Quite a jump from 2012, when Brazil’s gross domestic product increased a revised 1.5%, still well below initial government projections of 4.5%. Economists in Brazil see growth of around 2.1% next year, according to the central bank’s latest weekly survey.
Mr. O’Neill says Brazil needs to adopt stronger supply side reforms and expects a pick-up in private investment in 2014 to drive a faster pace of growth.
As for China, the economist predicts GDP will probably grow between 7.5 to 8% in 2014.
The biggest story in the stock market in 2014 will be very, very local.
“Extricating ourselves from the post-2008 economic policy mix seems harder than imagined,” Markus Schomer, the chief economist at PineBridge Investments, wrote in the firm’s 2014 outlook. “That is both the lesson of 2013 and our key insight for 2014.”
There were two vivid examples of that this year, in the U.S. and in China, and the failure of leadership in both countries to change the policy mix illustrates why investors will need to keep a close eye on the political picture in the upcoming year. In the U.S., the Federal Reserve tried to ween the economy and markets off its quantitative easing policy, only to drop the effort after markets from New York to Delhi convulsed. In China, officials talked about changing the economy’s main driver from exports to domestic consumption, but failed the stimulate enough local demand for products.
Mr. Schomer stopped by the MoneyBeat desk to talk about his outlook, and the importance of local governments for investors in 2014.
While even the doomsayers aren’t predicting doom these days, Mr. Schomer points out that the U.S. government has played a political game of chicken with U.S. debt three times in the past few years, and may do so again in 2014. “Three times the U.S. Congress has taken the world’s largest economy to the brink of default – threatening to unleash a 2008-style market meltdown, which could spread rapidly through a global financial system that relies on U.S. Treasuries for collateral.”
In Mr. Schomer’s eyes, the real challenge is just for Congress to get far enough out of the way so that the business sector can finally “unleash” pent-up demand. “It is not hard to see why businesses are unwilling to invest and hire,” he wrote. The firm pegs U.S. GDP growth in 2014 at 2.6%, which will give the Fed enough leeway to “begin the high-wire act of normalizing monetary policy without hurting markets.”
But the firm has a pretty sublime outlook for investors. “We believe it is time to focus more on growth and less on current income,” wrote the firm’s Michael Kelly, global head of asset allocation. “As confidence grows that the Fed will end monetary accommodation only once sustainable growth is firmly established, thereby facilitating rising prices for risk assets, declining prices in risk-free rates should lead to a flight from safety, which helps to propel growth assets higher.”
This means that “the equity party is not over,” the firm’s Robin Thorn wrote. With the global economy finally showing a broad base to its recovery, he wrote, CEOs will “dare” to invest in the future. This will be attended by a continuing shift among investors from bonds to equities. “This is just the beginning of the trend,” he wrote. “There is a lot more to go.”
As for Treasurys, the market has already priced in a tapering of Fed stimulus, the firm thinks, and it sees a slow ascent in rates punctuated by a series of “discrete jumps.” It will be an important year for the bond market, albeit not as painful as 2013.
It’s been almost two weeks since Men’s Wearhouse proposed to buy Jos. A. Bank for $55 per share. Jos. A. Bank hasn’t responded yet, and on Thursday’s earnings call Neal Black, its CEO, said “I cannot give you a timeline of when that work will be completed to enable us to give a thoughtful response.”
That Jos. A. Bank will reject the bid as inadequate is all but certain. Targets almost never accept the first bid in an unsolicited deal. Bidders don’t even expect it. And the Jos. A. Bank shares closed on Friday more than $1.72 above the Men’s offer price.
Usually targets of a bid like Men’s want to reject the unsolicited bid quickly to discourage the speculation by arbitragers and other professional investors that the bid might go through. But this situation is a bit different since for many weeks there has been speculation over a combination of the Men’s and Jos. A. Bank’s business. After all, Jos. A. Bank kicked off the merger idea in September by bidding for Men’s at $48 per share. Men’s rejected that bid in October.
Here are four possible reasons Jos. A. Bank may be in no hurry to respond to the Men’s bid:
1. The Men’s February special meeting of shareholders. Each day that passes brings Men’s closer to the special meeting of shareholders that stockholder Eminence Capital is seeking to call for February 14. Assuming Jos. A. Bank still wants to buy Men’s, that meeting is Men’s greatest vulnerability. At the meeting, Eminence wants Men’s shareholders to change the by-laws to permit shareholders to remove directors without cause. If Jos. A. Bank has a bid on the table to buy Men’s at a significant premium over the stock’s unaffected trading price, most of the talk will shift from Men’s bid to buy Jos. A. Banks—which because of the Jos. A. Banks poison pill and staggered board couldn’t be completed on a hostile basis for quite some time—to whether the Men’s shareholders will revolt against their board. The by-law amendment will need the vote of two third of the shares, and if Eminence gets the vote Men’s will be severely weakened in defending a Jos. A. Bank bid.
The longer Jos. A. Bank waits to respond, the more the focus will turn to that meeting.
2. Putting together another bid for Men’s. When it announced its original $48 bid for Men’s, which Jos. A. Bank has now walked away from, some of the details of its financing were not disclosed. In addition, because Jos. A. Bank fairly quickly abandoned its attempt to buy Men’s after the Men’s rejection, assuming it wants to again bid for Men’s, Jos. A Bank may want to look more committed this time by starting a tender or exchange offer shortly after announcing a new bid. It might also want to jump on the Eminence bandwagon seeking to change the by-laws for a relatively quick assault on the Men’s board. Putting these elements together may take a bit of time. Delaying its response to the Men’s bid may give Jos. A Bank the ability to launch a more definitive renewed bid at the same time it rejects Men’s offer.
3. Negotiating a defensive acquisition. On Thursday’s earnings call Mr. Black said that Men’s is not the only potential opportunity Jos. A. Bank is looking at. If Jos. A. Bank were able to negotiate another major acquisition, that could make Jos. A. Bank less attractive to Men’s and/or make it harder for Men’s to finance its bid. Announcing a competing acquisition at the same time as rejecting Men’s bid could be an effective takeover defense.
4. Peace talks. There is always the possibility that Jos. A. Bank is holding back on blasting Men’s to accommodate confidential discussions to see if the two sides can work out their differences on management of a combined company and deal structure. Given each side wants to end up on top, this is probably the least likely reason for any delay. Nevertheless, if there is to be a deal between the two companies, the two sides will likely ultimately end up discussing these issues. Rather than risk being left with the short end of the stick after a multi-month battle-royal, the two managements might decide to see if the fight can be cut short with a compromise– particularly since both sides have admitted to the merits of a combination. A delay in Jos. A. Bank’s response to Men’s bid could function as an effective truce period to accommodate such discussions.
Perhaps taking two weeks or more to respond to an offer everyone knows Jos. A. Banks doesn’t want is only about a Jos. A. Bank’s need to devote all of its attention on the Christmas selling season. But it is more likely that the timing and substance of any response is being carefully planned to work to Jos. A. Bank’s strategic advantage.
Scott Minerd, a founding partner at Guggenheim Partners, heads the investment strategy at one the country’s most successful hedge funds. He is a very smart guy.
Even so, having just predicted that the Federal Reserve would start tapering its quantitative easing next week, I felt compelled during a meeting at WSJ’s offices on Friday to challenge Mr. Minerd’s view that the central bank will wait until March.
What he came back with was a useful bit of perspective from a seasoned investor: That in the grand scheme of things, three months is meaningless. By Mr. Minerd’s calculation, over time it will matter close to nothing to the economy if the Fed chooses to make the first, modest cut to its bond-buying program at its meeting in December, or whether it waits until January or March — the two other possibilities thought to be in play. (The vast majority of economists believe the Fed will have moved to reduce bond-buying by its meeting of March 13.)
Mr. Minerd, on the one hand, tends to believe the Fed won’t want to disrupt holiday shopping by moving a week before Christmas and feels it can afford to wait to see a few more months of data before taking action. I, on the other hand, think there’s been enough positive data for the Fed to move now and that with markets currently well behaved, the Fed will see an opportunity to send a signal next week that it is not beholden to them. (We both think January is difficult for the first cut in bond-buying because it would come in the last month of Ben Bernanke’s chairmanship at the Fed, making for an awkward handoff to his expected replacement, Vice Chairwoman Janet Yellen.)
But on the point about the relative significance of each option, Mr. Minerd is absolutely right. It’s not as if historians will look back on this moment and determine that the Fed’s most significant decision hinged on which month it would first peel back its stimulus. After all, we’re only talking about $5 billion – or $10 billion, max – in cuts to bond-buying. And as Mr. Minerd points out, the bond market has already priced in the idea that tapering will get underway sooner or later.
Still, here we all are – investors, financial analysts, journalists – obsessing over whether next week will see a relatively tiny reduction in the massive amount of monetary liquidity coming from the Fed.
That disconnect between economic reality and the investor community’s fickle mindset highlights the difficult balancing act that the Fed has created for itself. The central bank needs markets to behave as they want them to because they are the means through which it transmits monetary policy to the economy. Yet it saw during the summer selloff after the first round of taper talk in May that the smallest of hints about the smallest of policy shifts can have a profound impact on financial conditions – an almost doubling in the 10-year Treasury note’s yield and selloffs as much as 40% in emerging market currencies. Investors have their fingers on a hair trigger and that’s a problem.
Oh, how the Fed must wish we would all just shut up and relax. The taper is coming – whether it happens next week or toward the end of next quarter is no big deal.
If, after the strong December jobs report on Friday, you’re worried about the effect on markets of a reduction of monetary stimulus by the Federal Reserve, then you probably won’t want to consider the following:
Previous turns in the Fed’s interest rate cycle, most notably in 1994, have caused spectacular sell-offs in fixed-income markets, often hitting the weakest borrowers hardest. But the “hunt for yield” in global bond markets has led investors to pile up massive amounts of low-quality bonds and other credit exposures in the last year, and the rate of defaults on such exposures is suspiciously low, according to the Bank for International Settlements, the ‘central bank of central banks’ based in Basel, Switzerland.
The BIS has already warned about the risk of a repeat of 1994, and returned to the theme with gusto in its latest quarterly report, published on Sunday, warning that easy money policies have blurred perceptions of risk. Not only are yield premiums, or spreads, on high-yield (aka. junk) debt closer to their pre-crisis boom levels rather than their 2012 peaks, but the proportion of syndicated loans going to low-rated, highly-leveraged borrowers between July and November was around 40%–more than in the ‘bubble’ years of 2005-2007. Moreover, the first three quarters of the year saw a sharp rise in issuance of “Payment in Kind” notes, a traditionally highly risky instrument, to over $9 billion.
“We simply don’t know for how long low default rates will prevail,” the BIS said. “Low defaults drive down spreads; but low spreads can also drive down defaults…because lenders are more tolerant; and borrowers face lighter debt-servicing loads.”
If this is the process now at work, it added, “its sustainability will no doubt be tested by the eventual normalization of the monetary policy stance.”
That “normalization” will be a stern test of the efforts of global regulators–such as the BIS–to make the world a safer place in the wake of the 2008 crisis. The financial sector has warned repeatedly that many of those efforts will be ineffective or even counter-productive.
Having survived the summer taper scare, the industry is turning up the volume.
A market monitoring group assembled by the Washington, DC-based Institute of International Finance, one of the sector’s most prominent lobby groups, warns that liquidity in day-to-day trading has fallen to dangerously low levels, due to new rules designed to deter banks from making large bets on, among other things, bonds.
The withdrawal of traditional market-makers will ensure that any interest rate shock emanating from the Fed will be amplified by the lack of liquidity, the IIF warned Friday.
One possible flashpoint could be the market for U.S. corporate bonds, where the IIF warns that inventories carried by dealers have fallen by 80% from the peak of $235 billion in 2007 to the present. That’s despite the fact that the size of the U.S. corporate bond market more than doubled to $9.3 trillion in that period.
“This isn’t a prospective problem, this is happening right here and now,” says Kevin Nixon, head of regulatory affairs at the IIF. “Volatility has moved permanently to a higher plane.”
For Joe Public, this might come across as special pleading from an industry that has just struggling to get by in a world without a handsome implicit taxpayer-funded subsidy for the Too-Big-To-Fail crowd. He might certainly find it hard to believe that there is a problem with liquidity after five years in which advanced economy central banks have created $5 trillion of money from nowhere.
But, in the jargon, monetary liquidity is not the same as market liquidity. Much of that money created has gone into exotic instruments such as emerging market corporate debt and other segments which have tended to freeze up relatively quickly in previous times of stress.
As the BIS appeared to admit, we won’t know until the sell-off starts in earnest.
Barclays is warning investors to lighten up on U.S. stocks in favor of Europe and emerging markets.
Their call is rooted in the view that the Federal Reserve will face mounting pressure to tighten easy-money policies as the U.S. economy improves and inflation ticks higher.
Barclays heads into 2014 with an “underweight” view on U.S. stocks and “overweight” recommendations on shares from Europe and the emerging world, according to a research report shared with journalists Monday.
Investors have poured money into U.S. stocks funds at the fastest clip since the financial crisis this year, coaxed by the Fed’s easy-money policies that reduced the payout from bonds.
Markets were rattled starting in May when the Fed hinted that it could begin to wind down its $85-billion-per-month stimulus efforts “in the next few meetings.” Since then, the Fed has been trying to convey the message that it will continue to hold rates low even as it dismantles its bond buying program.
The story of stocks this year is that the “the market pulled forward expectations of rising rates [in May] and pushed them back again,” says Larry Kantor, Barclays’ head of research. Next year, though, “markets will start to price in inflation and ultimately tightening,” he says.
Dean Maki, Barclays’ chief U.S. economist, forecasts that the Fed will likely begin to draw down its bond-buying program in March, completing the process by September. The Fed will then likely raise rates staring in the middle of 2015, he says.
This year’s 27% gain for the S&P 500 hasn’t left the market looking exorbitantly priced, Barclays says. Rather, the biggest threat to stocks next year—ironically—is a faster-than-expected pickup in the U.S. economy. Faster growth could trigger rising wages and rents, spurring inflation that so far has been absent during the recovery.
Inflation worries would begin to put pressure on the Fed not only to “taper” but also to consider tightening its easy-money policies, says Michael Galvin, Barclays head of asset allocation research for the Americas.
Worries about tightening could stir up stock market volatility in the back half of next year, Mr. Galvin says.
And a tighter U.S. central bank policy would be at odds with the European Central Bank, which is expected to shore up their stimulus efforts. The relative cheapness of Europe’s stocks, combined with the prospect for more ECB stimulus, leaves Europe’s stocks ripe to beat the U.S. market, Mr. Galvin says.
Barclays still thinks the S&P 500 can still return 10% next year. Barry Knapp, head of U.S. equity portfolio strategy, favors owning energy producers and saying away from consumer staples and health-care stocks, which are most sensitive to rising rates.
And high-flying small-cap stocks are looking priced “on the high side,” Mr. Knapp says. The Russell 2000 Index of small caps is up 33% this year.
Abercrombie’s board of directors has given CEO Michael Jeffries more time on top of the teen retailer. The company’s board released details of a new contract in a regulatory filing Monday morning.
The big takeaway from the contract: Mr. Jeffries looks more secure in his position through at least Feb. 1, 2015, which could make a near-term sale of the company less likely. The regulatory filing says that Mr. Jeffries or the board can terminate his new contract after that date with 12 months of written notice.
Mr. Jeffries’ employment contract was set to expire on Feb. 1, 2014. Some investors, including Engaged Capital, have been pushing for his ouster and asking the board to look for a successor. Engaged Capital has said that under a new leader, Abercrombie could be a good candidate for a buyout.
Engaged Capital did not have an immediate response to the contract.
Investors clearly think Mr. Jeffries new c0ntract could dissuade buyers. Abercrombie’s stock traded down nearly 4% Monday. It has been moving up on rumors of a buyout.
Abercrombie has been struggling in recent years, losing interest from its core teen audience. Abercrombie appears to be trying to reverse, stating on recent calls with investors that it plans to offer more sizes and colors in its clothing as it attempts to compete with the surge of fast-fashion stores. The company also announced Monday morning that its executive vice president of merchandise will retire in the spring of 2014.
Although the contract extends Mr. Jeffries’ contract specifically for a year, it doesn’t give him a specific termination date. His previous two contracts had three and five year terms respectively.
Mr. Jeffries’ base salary is also unchanged at $1.5 million. He historically has had lucrative paychecks from the retailer. The Wall Street Journal reported that in 2011, he took home $48 million.
The company also put a leash on Mr. Jeffries use of Abercrombies’ aircraft. He can expense up to $200,000 of personal travel each year for “security purposes.”
For Mr. Jeffries, that $200,000 is a big step down from his personal travel on Abercrombie’s jet several years ago. In April 2010, Abercrombie paid Mr. Jeffries $4 million to cut his personal use of the corporate jet.
By at least one count, the number of initial public offerings in 2013 is about to rise to the most since the dot-com era, marking yet another sign of the equity market’s strength his year.
Ten U.S.-listed IPOs are scheduled for this week, which would bring the year-to-date count to 220, exceeding the 213 total in 2007 and 217 in 2004, according to IPO research firm Renaissance Capital. That’s still a ways off from the heady numbers of the tech-bubble years. For example, 406 companies went public in 2000 and 502 in 1996, according to Renaissance.
The rebound in IPOs represents yet another hallmark of investors’ recent demand for U.S. stocks. Rising valuations have persuaded many private company directors that the time is right to raise cash by selling shares. In many cases, private-equity and venture-capital investors have used the rally to harvest gains from past years’ investments.
Deals scheduled for this week include a roughly $2.2 billion IPO by hotelier Hilton Worldwide Holdings Inc. and a $779 million debut by foodservice company Aramark Holdings Corp.
The next few days are also slated to feature IPOs by dividend-paying businesses that produce steady cash flow by storing, transporting or otherwise dealing with energy products.
For example, Valero Energy Partners LP, an oil pipeline and terminal operator structured as a master-limited partnership, is set to raise about $300 million. Cheniere Energy Partners LP Holdings LLC, which owns assets used to convert natural-gas liquids to gas, is schedule to raise $600 million.
Renaissance Capital’s count excludes special-purpose acquisition companies, closed-end funds, non-operating trusts and companies going public with a market value of less than $50 million. Sliced other ways, the data show an IPO calendar that still trails 2007, but by all accounts, it will be the most active year for such activity since the financial crisis.
The S&P 500 is up 27% in 2013, having logged a series of all-time highs, most recently on Monday. The Russell 2000 index of small-company stocks has rallied 33%.
In assessing the future strategic direction of HSBC, it is worth remembering where the bank has come from.
The early 2000s was an unhappy time for HSBC. Its rivals were raking the cash in, mostly thanks to their high-octane investment banking operations, and the U.K. bank did not want to get left behind. It hired John Studzinski, a star dealmaker from Morgan Stanley, to lead an ambitious drive into mergers and acquisitions. But by 2006 Mr. Studzinski was gone, his three-year-long attempt to hire top rainmakers and bed them into the HSBC culture having ended in expensive failure.
Stuart Gulliver, who had co-run the investment banks with Mr. Studzinski but with primary responsibility for the traditionally strong markets unit, was left in sole charge (he is now the group chief executive). He quickly decided to make a virtue out of a necessity by downgrading HSBC’s ambitions in advisory and underwriting and instead playing to the bank’s strengths. These included an impressive global reach, especially in emerging markets, and, crucially, a strong roster of corporate lending relationships.
Mr. Gulliver recognized that HSBC could have a future in corporate and investment banking but only if it focused on the “corporate bit.” The unit even stopped calling itself an investment bank and instead adopted the current moniker: global banking and markets. It was partly an indication that HSBC was embracing the less glamorous corners of wholesale finance like securities lending and cash management, which were soon moved onto the same platform as banking and markets.
At the time, it all sounded quite boring. But, in the fickle world of banking fashions, boring has become the new interesting. It’s all very well having a top-notch advisory franchise, but if nobody is acquiring, or merging with, anything then you just have a lot of very expensive bankers sitting around twiddling their thumbs. On the other hand, companies always need cash and they always need to manage it.
Providing loans and transactional services allows banks to really get under the skin of the clients, to understand their day-to-day operations and, maybe, if they are lucky, get an opportunity to underwrite a capital markets offering or provide some strategic advice. But that only works if the corporate and investment banking arms are talking to each other.
That is why a lot of banks have started to do an HSBC. Citigroup, for example, started to integrate its corporate and investment banking units nearly four years ago and, last year, J.P. Morgan announced it was going to pull together its investment bank, treasury and securities services, and global corporate bank divisions.
Last week, Deutsche Bank analysts produced a report that looked at which investment banks had gained the most market share in the year to date while assessing three variables: the size of the firm, where it was based (the U.S., Europe or Asia) and its business model. Deutsche found, to its surprise, that size and geography had little bearing on how well individual banks were doing in fixed income, still the industry’s main revenue driver.
The most important factor was business model, with commercial banks winning out over broker dealers. HSBC, Citigroup and J.P. Morgan were named as the clear fixed-income winners for the year to date and the banks most likely to increase their market share in 2014. Reports of the universal banking model’s death have, it seems, been greatly exaggerated.
So why would it start to unpick a business model that is beginning to really come into its own? One answer could be that it has seen the regulatory writing on the wall: perhaps the Vickers Commission in the U.K., the Liikanen Report in Europe and Dodd-Frank in the U.S. really will spell an end to universal banks and HSBC is pre-empting the inevitable.
Nevertheless it is hard to see how spinning off its U.K. arm would solve HSBC’s regulatory headaches. At the very least, it would have to be the first step in a much broader tactical retreat and the start of a very significant deviation from the path Mr. Gulliver set the bank on nearly eight years ago.
This year has tripped up many currencies watchers. The resilience of the euro, the long pause in the yen’s slide, the rally in sterling, and the collapse in the Norwegian krone have created a lot of head-scratching.
With the end of the year fast approaching, here’s a rundown of some top picks and trading themes for 2014.
Michael DePalma, chief investment officer of currency strategies at in New York at Alliance Bernstein, which manages $446 billion of assets globally:
Mr DePalma says the dollar should be a winner in 2014 given the U.S.’s better fundamentals than the rest of the developed world and likelihood the Fed tapers its bond-buying program.
“After the dollar, you don’t have many choices in G10, but the pound is one we would expect to find near the top of the outperformance pack next year,” says Mr DePalma. In contrast, the yen is expected to weaken, but by how much depends on the aggressiveness of the BOJ, added Mr DePalma.
James Kwok, head of currency management at Amundi Asset Management, which oversees around €750 billion ($1.029 trillion) of assets:
Mr Kwok says there will be different drivers for G10 and emerging market currencies in 2014. “I suspect some G10 countries will talk down their currencies or cut interest rates even closer to zero or do more quantitative easing. In the end, several countries want to have a weaker currency in order to stimulate growth,” Mr Kwok says. Canada and Japan are two countries that stand out as wanting weaker currencies, while the pound is an exception, Mr Kwok adds. In emerging markets, 2014 is all about elections, Mr Kwok says, noting some of the countries that have been struggling this year, such as India, are due to hold elections next year.More In 2014 Outlook
John Normand, head of FX & international rates strategy at J.P. Morgan Chase, the world’s sixth largest FX dealing bank:
Mr. Normand says expectations of rate rises in the U.K. will support sterling. “The Bank of England could be an early mover,” he says. The pound remains an unattractive currency based on long-term fundamentals, but “it has a large current account deficit, and you can only counter that if rates are on a clear upward path, and right now, they are,” Mr Normand said. “We are expecting to see higher policy rates only in countries that cause less critical systemic impact such as Norway and New Zealand. The Australian dollar and Swedish krona are vulnerable.”
Abi Oladimeji, a London-based portfolio manager and head of investment strategy at Thomas Miller Investment, which manages more than £2.5 billion ($4.1 billion) of assets:
Mr. Oladimeji says the themes that have driven FX markets this year will do so in 2014 as well. “That’s relative macro-economic performance, relative assessment of monetary policy outlook and the ebbs and flows of investor sentiment,” says Mr Oladimeji. In G10, sterling could strengthen over the coming quarters, particularly if U.K. data continues to surprise on the upside, underpinning market expectations for a policy change. “How the Fed manages the reduction in monetary stimulus will be the key thing for the dollar next year,” Mr Oladimeji adds.
Currency strategists at BNP Paribas:
Strategists at the French bank say 2014 will be the year of dollar strength. “The Fed’s scaling back of asset purchases, in itself, is unlikely to be the catalyst for dollar gains, rather we expect the dollar to be pushed up by the underlying growth of the U.S. economy that prompts the Fed’s “tapering”. It notes the yen and Swiss franc will be particularly vulnerable to dollar strength. The pound is also one of BNP Paribas’ top picks for 2014 and will be one of the few currencies to outperform the dollar next year. “The U.K.’s economy’s recent strong performance is set to continue,” says the French bank, noting expectations for growth to reach 2.7% in 2014, the strongest among the G10.
Axel Merk, head of Merk Investments, which manages around $600 million of assets:
Central banks will continue to have a major influence in currency markets next year, says Mr, Merk. “I continue to be very positive on the euro,” he says, noting it’s unlikely the European Central Bank will take any action. “QE is not going to fly in the euro-zone, all Mario Draghi can do is talk down the euro,” says Mr Merk, who thinks that Mr. Draghi is unlikely to succeed at that.
In emerging markets, the weaker countries such as South Africa and Brazil are going to continue to face challenges in 2014. “They have missed their time to engage in serious structural reform. If we are going to have volatility induced by the Fed, which I think we will get, those weaker countries will suffer,” added Mr Merk.
Currency strategists at Barclays:
Strategists at the U.K. bank say further yen weakness is likely in 2014 on expectations for further monetary stimulus. “Mostly in line with the consensus, we expect the BoJ to make additional purchases of risky assets and long JGBs while extending the period of easing at the April meeting,” says Barclays. It forecasts the dollar to rise to Y107 against the yen in three- to six-month horizon. In contrast, the third-largest FX dealing bank expects the pound to outperform other G10 currencies. “The composition of growth suggests that the U.K. is returning to the pre-crisis consumption driven growth model, fueled by a resurgent housing market, more constructive BoE regulation of the banking industry, fiscal austerity delays, and a government focus on chasing stronger ties with China,” Barclays added.
Paul Lambert, head of currencies at Insight Investment in London, which manages around $450 billion of assets:
Mr. Lambert says relative monetary policy will continue to be one of the key drivers in FX markets. “We think the Fed has given us a steer that they don’t like the cost/benefit of QE at the moment so want to exit and I think the data context in which they do that will determine the impact of U.S. monetary policy on currency markets,” says Mr Lambert.
Among the other major central banks, Mr Lambert expects the BOJ to ease monetary policy further in 2014, while the ECB stays fairly neutral, so not easing or tightening policy. “As long as data in the U.K. continues to follow the path it’s been on for last six months, this will create speculation that the BOE will have to fight expectations of tightening.”
Currency strategists at Societe Generale:
The French bank’s strategists expect the dollar’s slow recovery to continue next year, as the U.S. economy leads the global recovery and the Fed takes its first steps towards the exit.
Although, a dovish Fed could hamper dollar gains, the currency will win “by elimination, as emerging market economies face deleveraging, commodity prices (and currencies) remain stuck in the mud, and some developed market central banks are mulling further easing,” the French bank says.
Meanwhile, the Bank of Japan is likely to expand monetary policy further, as the Fed tapers.
“This monetary policy divergence will propel the dollar higher against the yen into year-end,” Societe Generale says, resulting in its recommendation to participants to buy the dollar against the yen, targeting the Y110 level. In emerging markets, the prospect of the Fed tapering bond buying in March could trigger another correction in the developing world. As a result, it’s best to favor defensive currencies such as the Taiwan dollar, Czech koruna, Singapore dollar and Israeli shekel at the start of the year, as these are likely to outperform their peers during the selloff.
“From April onwards, the so-called ‘liquidity currencies’ such as the Indian rupee, Turkish lira and South African rand, which tend to be more sensitive to risk aversion, should outperform as investors ‘will have fully priced in the completion of QE tapering’ by then.”
The stock market’s rally to all-time highs in 2013 has been defined by an improving economy, an accommodative Federal Reserve and record corporate profits.
The S&P 500 trades above 1800, up 26% this year, and has repeatedly set fresh all-time highs. With the end of the year approaching, Jason Trennert, founder of Strategas Research Partners in New York, offers a look at some of this year’s themes and what they mean for stocks heading into 2014.“YOU’RE NOT JUST FIGHTING THE FED”
The Federal Reserve’s $85 billion-a-month bond-buying program has been a major driver of the stock market rally. But as the chart below shows, it’s not just the Fed that has been attempting to stimulate the economy. Central banks around the globe, from the Bank of England to the European Central Bank to the Bank of Japan, have launched policies designed to kickstart economic growth. Even as the Fed may start trimming its bond purchases later this month or early next year, global monetary policy remains very easy. The old Wall Street adage is “don’t fight the Fed.” But as Mr. Trennert points out, it’s now more like don’t fight the world’s central banks.BUBBLE TALK
Lots of bubble chatter has permeated the markets in recent months as major stock indexes have soared to record highs. The worry is stocks are displaying characteristics emblematic of the 2000 and 2007 bubbles, when stocks capped huge rallies with sharp tumbles. The chart below tries to squelch some of the bubble talk. The S&P 500′s rolling 10-year returns have recently “turned up from a secular low,” says Mr. Trennert. This trend is supposed to smooth out some of the volatility and offer a big-picture look at the market from a longer time horizon. If anything, this chart shows stocks remain far from bubble territory.CORPORATE CASH
Companies have been accumulating cash piles for years following the depths of the financial crisis. Mr. Trennert notes that corporate cash on the balance sheets of U.S. non-financial companies (as a percentage of total assets) sits at levels that were last consistently seen in the 1960s. Cash and cash-equivalents held by U.S. corporations, excluding financial companies, stood at $1.93 trillion in the third quarter of 2013, according to a report released Monday by the Federal Reserve, up from $1.81 trillion the previous quarter.
Companies have been deploying some of their cash by increasing share buybacks and paying out bigger dividends. But merger-and-acquisition activity remains slow, a sign that companies still remain cautious in the slowly growing economy.MARGIN DEBT
Investors are once again borrowing record amounts against their brokerage accounts. Rising levels of margin debt are generally seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. But some see the increase as a sign of speculation, particularly if the borrowed money is reinvested in stocks. Margin debt proved to be an early warning sign of a market top in 2000 and 2007, but this time Mr. Trennert says it is a “coincident” indicator with the S&P 500.
In October, investors borrowed $412.5 billion against their portfolios, exceeding September’s record of $401.2 billion, according to the New York Stock Exchange, and up 25% from the end of last year. The Big Board’s member brokerage firms report the level of borrowing, known as margin debt, held against client accounts monthly.2013 RECAP
And finally, Mr. Trennert offers Strategas’s year-in-review chart, highlighting all of 2013′s major market events and the sway they had on the rally. The final event — taper talk picks up — is the big theme to watch through next week’s Fed meeting and beyond. As we wrote in today’s Morning MoneyBeat, job growth may be good enough for the Fed to start tapering, but inflation may be weak enough for the central bank to stay the course. The Fed’s meeting, scheduled for Dec. 17-18, should offer some insight into how the central bank plans to act based on these dueling forces.
The smoldering fires of deflation continue to burn under the economy, and with every fresh – and increasingly weak – inflation report, it becomes clear the fire has not been put out.
Five years after the economy went bust, the recovery remains propped up by central bank fiat. Demand has not returned to match supply, and economies in the developed world continue to work at levels far below capacity. This is preventing the entire virtuous circle of growth from taking root.
“The world has fierce disinflation or deflationary tendencies and we live in this world,” David Kotok, chairman and chief investment officer at Cumberland Advisors, told MoneyBeat. “I think it’s a serious risk.” There’s aren’t too many people who think that way – yet – but Mr. Kotok is not alone in that view.
Despite unprecedented efforts and trillions of freshly printed money, inflation in major developing economies is actually heading lower. The OECD reported last Tuesday that the inflation rate in the world’s largest economies fell for a third straight month - the rate for its 34 developed-country members fell to 1.3% from 1.5% in September. In the U.S., consumer prices in October were up just 0.9% from the previous October – the lowest rate of inflation since 2009, when the economy was in a deep tailspin. Friday’s PCE price index in the U.S. was up just 0.7% from a year ago.
Even in relatively stable Canada, disinflation is visible, with core inflation falling to 1.2% in October.
In five European countries, the OECD reported outright falling prices: Greece, Portugal, Spain, Sweden, and Switzerland. Deflation may be good for bargain-conscious Europeans, but it brings with it a host of nasty problems for the capital markets. Its bad for existing debts, since their “real,” or inflation-adjusted, costs rise. Lower prices squeeze corporate profits, which drives down stock prices, and in general hampers economic growth. It changes consumer behavior – and consumers are already conditioned to look around for the lowest prices they can find.
This leaves the world’s central banks caught in a position of trying to promote stability and growth while the deflation fires remain burning underground. It reminds us of the coal-mining town of Centralia, Pennsylvania. The eastern Pennsylvania town was virtually abandoned in 1982 after smoldering mine fires – fires that had been burning for nearly two decades – started to consume the town. That’s where the world’s central banks find themselves right now – trying to keep those fires from bursting up from underground (those Centralia fires, incidentally, are still burning, 30 years later.)
The economy is still mired in a long deleveraging wave, noted Mr. Kotok, that has several more years to run and is a “deflationary force.” Governments at the state and local level are still retrenching (think Illinois and Detroit, for example) and reneging on pensions and other obligations. Net employment is still shrinking, as evidenced by the decades-low labor force participation rate. This is forcing consumers to cut spending and boost savings, which also has a deflationary effect. “All those things remove pressure for rising prices,” he said.
“There is a serious risk of disinflation or deflation,” said Satyajit Das, author of the book “Extreme Money.” Despite the efforts of the Fed and other central banks in increasing the money supply, the rate of change in the money supply, the so-called velocity of money, has slowed, Mr. Das noted. That slowdown offsets the increase in the money supply. “Where the money has flowed into the wider economy it has not significantly increased economic activity.”
“Inflation also requires an imbalance between supply and demand,” he said. “Most developed economies have an ‘output gap’ (the amount by which the economy’s potential to produce goods exceeds total demand) ranging from 2% to 8%, reflecting lower demand by also excess capacity.”
Deflation is so dire, central bankers are loathe to even say the word; it’s like a central banker’s “Candyman,” a ghoul that comes alive if you utter its name. Better not to even talk about it, push inflationary policies, and hope the whole thing sorts itself out. It’s not quite working out that way, though.
“Despite nearly five years of zero interest rates in most developed economies, several rounds of quantitative easing, forward guidance and other extraordinary policy measures, deflationary pressures are on the rise again,” the forex team at BCA Research wrote. While the firm thinks the Fed and other central banks will squelch the deflationary trend, “it could take a further escalation of deflation fears.” That could force the banks, they said, “to either maintain or increase the monetary stimulus.”
The Fed, after all, has two mandates: to promote maximum employment and maintain stable prices. Nobody much worried about the second mandate when inflation seemed under control. But the falling inflation rates are definitely a topic of debate at the Fed, Mr. Kotok said. The problem for the bank is that the “bang for the buck” from its quantitative-easing programs have progressively lessened.
“I’m not sure you get much benefit now, and I think that’s a debate at the Fed.”
Money managers often caution their clients that past performance is not a good indicator of future price action. But after a relatively bruising year for government debt markets, many investors and analysts are suggesting sticking to the few markets that did well in 2013, such as short-dated Italian and Spanish bonds, and pruning holdings of the ones that didn’t—haven government bonds such as U.S. Treasurys and German Bunds.
Here is what a selection of investors and analysts reckon is going to happen in bond markets next year:
Scott Thiel, head of the Global Bond Team at BlackRock:
We continue to think it likely that the ECB will announce a new long-term refinancing operation (LTRO) in early 2014, though President Mario Draghi downplayed the urgency of such measures and emphasized that any additional liquidity provision would have to involve incentives for lending to the real economy. We are currently short or underweight German Bunds in our portfolios versus long or overweight positions in certain semi-core countries. In the last few days both Moody’s and Standard & Poor’s improved Spain’s outlook from negative to stable, while retaining their BBB- and Baa3 ratings respectively. We remain supporters of peripheral European government bonds and actively trade our positions here based on both fundamental and strategic drivers. Currently we prefer to express our views via Portugal, Slovenia, Ireland and Italy.More In 2014 Outlook
Iain Stealey, portfolio manager at JPMorgan Asset Management:
“We will continue to see assertive government policy and central banks continuing to be active in 2014. Positioning is a concern but at the moment, investors are being paid for picking risk. If you believe that the euro zone will not break up and the ECB will provide firepower in times of trouble, Spanish and Italian bonds can rally further. We have an overweight position in Italy and Spain relative to Germany. The concern is that growth in Southern euro-zone countries does not pick up and deflation takes hold, which will raise concerns over debt sustainability.”
Valentijn van Nieuwenhuijzen, head of multi-asset strategy at ING Investment Management:
We continue to expect a global recovery as policy action has reduced tail risks. We prefer equities, cyclical stocks and European and Japanese stocks. We are cautious on Treasurys, investment grade credit and emerging markets.
Peter Goves, interest rate strategist at Citigroup:
The setting of sluggish EMU growth and low inflation all points to relatively low core EMU yields and outperformance vs the U.S. We believe 10-year Bunds are likely to trade around 1.7%-1.8% in the quarters ahead. Although we are constructive on periphery spreads overall, on a cross market basis, we believe there is a compelling case for Spain to outperform Italy over the medium term. we expect Spain to trade inside Italy by as much as 25 bps, and hence outperform around 50 bps from current levels.
Christoph Rieger, head of interest rate strategy at Commerzbank:
The ECB should succeed in its battle to shield yields in the euro zone from Fed tapering risks. We expect 5-year Spanish yields to fall below 2% and 10-year spreads over Bunds below 200 bps while 10-year U.S. Treasury yields should move above 3%. While Portugal’s market return will likely become a bumpy affair next year, we believe that price concessions should remain temporary. We therefore expect Portugal to become the best performance among euro-zone sovereigns.
Whatever steps the ECB takes next in its monetary policy, they can only comfort longs at the front end. With core inflation trending down, the ECB will have to act proactively and remain firmly dovish at least. We still like outright longs on the short end of euro area peripherals, into early 2014, before revising. Spreads have narrowed heavily; some stability in itself merits holding the risk. It remains too costly to avoid holding yield, despite the risk, with muddle-through politics, even with well justified fears of country instability in some years.
Kedran Panageas, interest rate strategist at JPMorgan
From a macro perspective, 2014 is likely to look much like the second half of 2013. We expect global growth to continue to accelerate, driven by less fiscal austerity, accommodative monetary policy, competitiveness gains in peripheral Europe, supportive euro-zone policy and limited headline/political risks. The 10-year German Bund yield is forecast to end 2014 at 2.25% while the corresponding gilt yield is tipped to rise to 3.65%. Ten-year bond yields in Italy and Spain are both forecast to decline to 3.90% by the end of 2014.
Harvinder Sian and Michael Michaelides, interest rate strategists at RBS
The consensus is bearish but we do not expect a bearish breakout of 10-year Bunds to much higher yield levels. Target our fair value of 1.50%. The European periphery will also benefit from the ECB being in play for more easing measures. A refi cut does little but stokes moves out of Bunds into semi-core. We like Spanish government bonds over Italian bonds. We see Spanish ratings upgrade risk on reform while Italy risks a possible downgrade on no reform and recession. We think Spain follows an Ireland narrative.
Scott Minerd, the global chief investment officer of Guggenheim Partner, is the smallest of the so-called bond market kings, but his fund is winning in 2013.
Guggenheim has seen $1.4 billion in inflows to its bond funds this year after posting returns between 2% and 9% in its five main taxable bond funds in 2013, according to Morningstar. (Its muni bond fund is down about 6% this year).
Meanwhile, funds run by the other bond kings, Bill Gross’s PIMCO and Jeffrey Gundlach’s Doubleline, have seen assets under management in their bond funds shrink after generating losses so far in 2013 in most of these funds.
Given his outperformance this year, MoneyBeat asked Mr. Minerd for some predictions for 2014. Here they are:
Major investment banks warn that global equities are entering into the mature stage of a bull market. But the general theme is that there’s still plenty of upside.
HSBC notes that equities in Europe have risen 30% over the past two years despite depressed earnings and problems in the euro zone.
“Is this the time to take a more a cautious stance? Not in our view,” it writes in a note.
This is echoed by other banks, which expect per-share earnings growth next year to hit double-digit percentages–in fact it’s hard to find a bank which isn’t predicting at least 10%–amid an improving revenue environment and margin expansion.
“Much will depend on earnings growth since we no longer rely on valuation expansion as the main driver of returns,” writes Goldman Sachs.
Here’s a roundup of some of the major equity strategies banks are adopting for the year ahead:
UBS: “Go cyclical, go domestic, go cheap” in 2014, advises UBS.
The bank notes that European cyclicals have outperformed defensives by 10% since April, while stocks deriving more than 60% of revenues from the euro zone have outperformed by 8% since July. UBS recommends banks and diversified financials, saying earnings momentum is improving here. Capital goods and media should benefit from a pickup in business investment but UBS recommends avoiding staples, citing among other negative earnings momentum and still-full relative valuations.
HSBC: “We remain positive on European equities and our case is founded on four pillars: attractive valuations, signs that we are close to the bottom of the earnings cycle, the prospect of a further policy boost from the ECB and the lack of signs that investors are becoming over-confident.” HSBC’s recommendations include energy, materials, banks, transport, food retail, insurance and telecoms. Meanwhile, it is staying away from food and beverage, autos, media, technology hardware, household products and consumer durables and services among other sectors.More In 2014 Outlook
Morgan Stanley: Morgan Stanley expects equity valuations to rise further in the early part of next year, driven by a further drop in the euro-zone crisis’s risk premium and equity inflows. “We are optimistic on European equities for next year, although a probable inflection point in monetary policy provides for heightened uncertainty along the way,” writes the bank.
Morgan Stanley’s recommendations for 2014 include stocking up on Germany and pulling back on France, as well as putting more money into Spain and less into Italy. By sector, the bank favors staying more heavily invested in banks and insurers—which it calls “value sectors with growth”–and less in sectors that act as proxies for bonds, like energy and utilities. Globally, it favors lessening exposure to the European Union and adding to U.S. or China exposure. It also favors sectors like healthcare and software, which it says are growth sectors with attractive valuations. Morgan Stanley expects a “solid pickup in corporate activity.”
Goldman Sachs: Goldman—which continues to be bullish on equities—says it’s looking to gain exposure to domestic European growth through banks, recruitment, and U.K homebuilders; to gradually rising bond yields through insurance investments; to global growth through technology and autos and luxury goods; and to what it calls “under-valued potential” through healthcare. The investment bank will continue to avoid the food and beverage sector as well exposure to resources, industrial goods and services and chemicals. Goldman’s overarching strategy is to find companies with reasonable yield plus dividend growth prospects, as the bank notes that a trend towards hoarding cash is likely to reverse as risk premiums moderate. It is biased towards developed markets.
Deutsche Bank: “The best moments to buy equities are when credit growth is negative and the credit impulse has the potential to turn positive and this is where we are in Europe,” says Deutsche Bank. “We also believe that there has been a complete loss of confidence in the earnings cycle such that there is an enormous amount of surprise potential now built into earnings.” Deutsche Bank favors both globally exposed and domestically exposed cyclicals. By country, the bank says it has as preference for the Eurostoxx: “While we see a lot of potential in Southern European markets we also see the DAX as an opportunity given our outlook for global growth, the strong domestic story there and the fact that it sits at a substantial discount to Europe now.”
J.P. Morgan Chase: “Thematically, while emerging market plays have underperformed the developed markets by almost 40% in the last two years, and it is therefore tempting to look for their rebound, we advise investors to remain underweight emerging market exposure for the third year in a row,” says the bank. Like several of its peers, J.P. Morgan recommends financials, healthcare and consumer discretionary, while it looks to lessen exposure to consumer staples, energy and materials. It expects 10% per-share earnings growth next year for the euro zone.
Mutual funds’ support for corporate political disclosure reached a new high in 2013, according to a ten-year analysis by the Center for Political Accountability. Forty large US mutual fund families voted in favor of corporate political spending disclosure an unprecedented 39% of the time, on average.
CPA’s review of mutual fund votes looks at how 40 of the largest U.S. fund families voted on 276 shareholder requests for disclosure of corporate political contributions at U.S. companies over proxy seasons from 2004 to 2013 (covering shareholder meetings from 1 July 2003 to 30 June 2013). Together, these fund families manage around $3.3 trillion in U.S. securities, according to Morningstar® fund data, and control a large portion of the shareholder vote in US securities.
Bankruptcy law in the United States, which serves as an important precedent for the treatment of derivatives under insolvency law worldwide, gives creditors in derivatives transactions special rights and immunities in the bankruptcy process, including virtually unlimited enforcement rights against the debtor (hereinafter, the “safe harbor”). The concern is that these special rights and immunities grew incrementally, primarily due to industry lobbying and without a systematic and rigorous vetting of their consequences.
This type of legislative accretion process is a form of path dependence—a process in which the outcome is shaped by its historical path. To understand path dependence, consider Professor Mark Roe’s example of an 18th century fur trader who cuts a winding path through the woods to avoid dangers. Later travelers follow this path, and in time it becomes a paved road and houses and industry are erected alongside. Although the dangers that affected the fur trader are long gone, few question the road’s inefficiently winding route.
Sysco agreed to acquire fellow food-services distributor U.S. Foods in a stock-and-cash deal valued at roughly $3.5 billion, a move Sysco expects will complement its core offerings and increase its geographic footprint. Sysco shares surged 27% at $43.55 in premarket trading.
Medical products maker Hologic named Stephen P. MacMillan as its new president and chief executive, replacing Jack W. Cumming, as the company also unveiled a deal to name two of activist investor Carl Icahn‘s nominees to its board. Shares rose 2.7% to $22.90 premarket.
Coal producer Alpha Natural Resources agreed to sell its 50% interest in its Alpha Shale Resources joint venture to Rice Energy for $300 million in cash and stock. Alpha and Rice Energy formed the venture in 2010 to develop a portion of Alpha’s Marcellus natural gas holdings in Greene County, Pa. Shares edged up 2.9% to $6.76 premarket.
McDonald's Corp.'s global same-store sales rose 0.5% in November, with European restaurants making up for weakness in the U.S. and Japan. McDonald’s, the world’s largest fast-food company, continues to struggle with a soft global economy that has caused consumers to pull back on restaurant spending. Shares slipped 0.7% to $96.12 premarket.
Acura Pharmaceuticals Inc. said the Food and Drug Administration agreed to further review a recent study of the company’s abuse deterrent technology and provide a definitive response on whether the results will be considered acceptable for submission in a new drug application. The company’s shares jumped 12% to $1.90 premarket.
QEP Resources Inc. agreed to acquire oil and gas properties in the Permian Basin for roughly $950 million, a move that is expected to diversify the company’s exploration and production footprint. The company also is planning to divest itself of a number of noncore exploration-and-production assets in the Midcontinent region during the first half of next year. Shares rose 3.3% to $32.46 premarket.
Drilling-services company Layne Christensen Co. swung to a steeper-than-expected fiscal third-quarter loss as it posted red ink in its mineral services and geoconstruction segments. Shares dropped 4.5% to $15.02 premarket.
The U.S. Food and Drug Administration approved on Friday a new treatment for hepatitis C infections that promises to cure more patients in a fraction of the time required by current therapies, while giving Gilead Sciences Inc. a potential blockbuster. Shares of Gilead rose 4.1% to $77 in premarket trading.
Forest City Enterprises Inc. swung to a fiscal third-quarter profit on a gain tied to a joint venture, while funds from operations swung to a loss on project costs. The owner of high-profile commercial and residential properties in cities including New York, Boston and Philadelphia has reported mixed results in recent quarters.
A roundup of blog posts and articles from around the web.
Heady rally is unlikely to repeat next year — E.S. Browning
Jobs get all the attention, but inflation is the wild card in the Fed’s taper debate – Morning MoneyBeat
Who is hiring (and who isn’t) in five charts — Justin Fox
FIve reasons hedge funds underperform — Barry Ritholtz
Bargains beckon funds to Europe with S&P 500 past prime — Bloomberg
Beating the market, as a reachable goal — Jeff Sommer
Gold: Gilded or gelded? — Brendan Conway
Stock splits have gone Splitsville — Jason Zweig
What to look for in the week ahead — Calculated Risk
“Upstairs” trading draws more big investors — WSJ