>>> Barrons Saturday summary: Positive on AMAT, LRCX, CNK, BWA, BKS; cautious on

Barrons Saturday summary: Positive on AMAT, LRCX, CNK, BWA, BKS; cautious on for-profit education companies APOL, STRA, CPLA, LOPE, BPI 

- Cover story: The best income ideas for 2015 include bonds, dividend stocks, real estate investment trusts, master limited partnerships, preferred stocks, closed-end funds, and business development companies; 

- Tech Trader: Positive on AMAT, LRCX: Shares of companies that make the equipment used to manufacture chips have ended a second year of outperformance, and could see large gains in 2016 even if they remain flat this year; 

- Trader: The S&P rose 11.4% in 2014 and returned 13.7%, compared to 29.6% and 32.4% respectively in 2013; Positive on CPA: Panama-based airline has good management, stable operating margins, and excellent long-term growth potential, and its recent share price drop more than discounts potential concerns; Big-caps soundly beat small-caps in 2014, a trend that could continue in 2015; 

- Features: 1) Positive on CNK: Worlds largest movie theater chain by attendance underperformed the broad market in 2014, but it generates strong cash flow and offers a generous dividend, and a series of upcoming blockbusters could give it a boost; 2) Positive on BWA: Recent selloff offers an opportunity to invest in a company with higher returns and better growth prospects than its peers, and at a valuation well below historic levels;

- Follow-Up: Positive on BKS: Bookstore chain combines a low stock-market valuation with a solid fundamental story that is still underappreciated, and deals with MSFT and PSO could clear the way for it to separate its Nook business from other operations; Negative APOL, STRA, CPLA, LOPE, BPI: For-profit education companies continue to face problems on many fronts, including proving the value of their degrees, and Grand Canyons Michael Clifford says the sector is dead; 

- European Trader: Positive on Renault: Shares of French automaker are set to rise as it increasingly benefits from its alliance with Nissan and a new production plan; 

- Asian Trader: India investors could face problems if Prime Minister Modis agenda takes longer than planned to implement or is substantially altered, especially given global markets growing aversion to risk; 

- Emerging Markets: Emerging market securities are on sale, none more so than a handful of closed-end bond funds; David Tepper of Tepper Capital Management likes closed-end funds that trade at deep discounts (Positive on FAX, MSD, ESD); 

- Streetwise: Positive on AMG: Money-management firms business model is based on buying stakes in boutique asset managers and taking a hands-off approach to their operations, and its one of the more promising bets in the sector.

(BFW) Germany’s Gabriel Warns of Destabilizing Russia, Bild Says



Germany’s Gabriel Warns of Destabilizing Russia, Bild Says
2015-01-04 11:10:30.689 GMT


By Oliver Suess
(Bloomberg) -- Regarding European Union sanctions imposed
on Russia over Ukraine: “The goal was never to pitch Russia
into economic and political chaos,” German Economy Minister
Sigmar Gabriel is cited by Bild am Sonntag newspaper as saying
in interview.
* “Those who want this are provoking a much more dangerous
situation for all of us in Europe. After all, Russia is a
nuclear power”: Gabriel in Bild
* “On the contrary, the sanctions imposed up until now were
only aimed at getting Russia back to the negotiating table.
Those who now want to further economically and politically
destabilize Russia are following an entirely different
agenda. Some of them in Europe and others in the U.S. want
to see the old superpower rival definitively down and out”:
Gabriel in Bild
* “We want to help resolve the conflict in Ukraine but don’t
want to force Russia to its knees”: Gabriel in Bild
* Russia needed as a partner to deal with issues such as fight
against Islamic State in Iraq, civil war in Syria and Iran’s
nuclear program, Gabriel says
* Gabriel says while he would like Russian President Vladimir
Putin to attend a G-8 meeting in Germany this year, he has
little hope the Russian leader will attend the summit
* NOTE: Gabriel is member of Social Democratic Party which
serves as junior coalition partner to Chancellor Angela
Merkel’s Christian Democratic bloc
* NOTE: Germany’s Gabriel Says High Energy Costs Threatening
Jobs: Bild
* NOTE Jan. 3: Germany’s Gabriel Sees Flaws in Decade-Old
Welfare Reform: Bild


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First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Oliver Suess in Munich at +49-89-244478-804 or
osuess@bloomberg.net
To contact the editors responsible for this story:
Mark Bentley at +49-699-204-1262 or
mbentley3@bloomberg.net
Leon Mangasarian

(ANA) SYRIZA's central committe approves Tsipras' proposals; Standing



SYRIZA's central committe approves Tsipras' proposals; Standing
2015-01-03 17:49:11.27 GMT

Jan. 3 (ANA-MPA) -- The central committee of main opposition Radical Left
Coalition (SYRIZA) completed its meeting on Saturday evening, after adopting
the proposal by President Alexis Tsipras which included, among others, a
policy of forming alliances.

The Leftist Platform, which during the meeting had voiced many objections for
the participation of several independent MPs or former PASOK officials, didn’t
participate in the final vote.

The issue of finalising the list of candidates to be included in the party's
tickets is expected to be completed over the next three days with a few
frictions but without serious problems, party sources said, adding that a
middle ground will be achieved and SYRIZA will come out of this process
stronger.

A meeting of the party’s Standing Conference will follow in the evening, which
will open with a speech by Tsipras.

© ΑΠΕ-ΜΠΕ ΑΕ. Τα πνευματικά δικαιώματα ανήκουν στο ΑΠΕ-ΜΠΕ ΑΕ και
παραχωρούνται σε συνδρομητές μόνον για συγκεκριμένη χρήση.

-0- Jan/03/2015 17:49 GMT

(BN) Germany Sees Greek Euro Exit as Manageable Outcome, Spiegel Says



Germany Sees Greek Euro Exit as Manageable Outcome, Spiegel Says
2015-01-03 20:27:17.173 GMT


By Patrick Donahue
(Bloomberg) -- German Chancellor Angela Merkel’s
administration sees a potential Greek exit from the euro area as
manageable, Der Spiegel reported, citing unidentified government
officials in Berlin.
Merkel and Finance Minister Wolfgang Schaeuble both view
the shared-currency area as capable of withstanding Greece’s
departure, a scenario that would become almost unavoidable if a
new government led by Syriza’s Alexis Tsipras were to renege on
spending cuts and fail to service the country’s debt, according
to the Hamburg-based magazine.
Greece will hold early elections on Jan. 25 after Prime
Minister Antonis Samaras, whose New Democracy party has led a
government since mid-2012, failed to draw parliamentary backing
for a new head of state. Polls show New Democracy and Pasok,
Greece’s two main parties over the past four decades, trailing
Tsipras’s anti-austerity Syriza alliance.
Syriza has pledged to renegotiate payment terms on bailout
loans to Greece and seek a writedown on its national debt.
German Finance Ministry spokesman Martin Jaeger said by
phone that he wouldn’t comment on “speculative scenarios.” The
ministry referred to a Dec. 29 statement by Schaeuble, who said
there was no alternative to Greek efforts to overhaul the
economy, which are “bearing fruit.”

‘Become Difficult’

While Germany will continue to support the Mediterranean
country, “if Greece chooses a different path, it will become
difficult,” Schaeuble said in the statement. The new government
must stand by agreements made by its predecessors, he said.
Merkel spokesman Georg Streiter also referred to the
Schaeuble statement.
Accepting Greece’s exit from the euro area would mark a
reversal of Merkel’s position throughout the currency bloc’s
debt crisis, which erupted in Greece in 2009.
The threat of contagion has since diminished, Spiegel cited
the government officials as saying. They pointed to the recovery
in Ireland and Portugal, two euro nations that sought bailout
assistance, as well as the strength of the currency area’s
backstop fund and the establishment of a bloc-wide banking
union, the magazine reported.

For Related News and Information:
Why Greek Spillover to Euro Area Will Be Contained This Time
Samaras Has Four Weeks to Trump Syriza on Economic Vision
Greek Polling Points to Coalition as Voters Reject Establishment
Top government articles: TOP GOV <GO>
Top economy stories: TOP ECO <GO>
Top news on Greece: TOP GR <GO>

--With assistance from Nicholas Comfort in Frankfurt.

To contact the reporter on this story:
Patrick Donahue in Berlin at +49-30-70010-6220 or
pdonahue1@bloomberg.net
To contact the editors responsible for this story:
Alan Crawford at +49-30-70010-6237 or
acrawford6@bloomberg.net
Balazs Penz, Nancy Moran

(BN) *TSIPRAS SAYS GREEK DEBT IS NOT SUSTAINABLE, NEEDS RESTRUCTURING



BN 01/03 17:46 *SYRIZA LEADER TSIPRAS COMMENTS IN EMAILED SPEEECH TRANSCRIPT
BN 01/03 17:46 *TSIPRAS SAYS SYRIZA WANTS WRITEDOWN ON NOMINAL VALUE OF GREEK
BN 01/03 17:46 *TSIPRAS SAYS GREEK DEBT IS NOT SUSTAINABLE, NEEDS RESTRUCTURING
BN 01/03 17:45 *TSIPRAS SAYS TRUE MENACE FOR EUROPE IS MERKEL'S POLICY

Tsipras Says Greek Debt Is Not Sustainable, Needs Restructuring
2015-01-03 18:06:13.496 GMT


By Nikos Chrysoloras and Paul Tugwell
(Bloomberg) -- Syriza’s win in forthcoming Greek snap
elections will pave way for progressive policy change in Europe
against German Chancellor Merkel’s austerity, party leader
Alexis Tsipras says according to e-mailed transcript of speech
in Athens today.
* Podemos in Spain, Sinn Fein in Ireland to follow
* Syriza will guarantee bank deposits, commit to a primary
budget balance
* Syriza will put an end to social tragedy, nightmare of
austerity
* By voting Syriza, Greek people will make Greece example of
progressive developments in Europe
* Syriza rejects logic of unrealistic primary surpluses
* Germany had most of nominal value of debt written off in
1953, same should be done for Greece in 2015
* Syriza not seeking nor planning to break with European
partners, but to put end to economic and social absurdity of
memoranda and austerity
* Syriza seeks within framework of EU and European
institutions to achieve realistic deal on servicing debt,
developing real economy
* Syriza will conduct sincere, resolute negotiation on debt
* Syriza govt program is complete, ready
* Syriza wants quantitative easing by direct purchase of govt
bonds by ECB
* NOTE: Earlier, Greek PM Samaras Says Syriza Afraid of Return
to Stability Link


Link to Company News:{2539Z GR <Equity> CN <GO>}
Link to Company News:{1004Z GA <Equity> CN <GO>}

For Related News and Information:
First Word scrolling panel: {FIRST<GO>}
First Word newswire: {NH BFW<GO>}

To contact the reporter on this story:
Nikos Chrysoloras in Athens at +30-210-7419022 or
nchrysoloras@bloomberg.net

To contact the editor responsible for this story:
Paul Tugwell at +30-210-74-19-073 or
ptugwell1@bloomberg.net

>>> Q1 European timeline of Key Risk Event : ECB / Greece...

22/01 : ECB Monetary Policy Decision
25/01 : Greek Natioanl Elections
26/01 : Eurogroup Meeting
16/02 : Eurogroup Meeting
28/02 : Bailout extension Expires
5/03 : ECB Monetary policy Decision
9/03 : Eurogroup Meeting
During the month of March : Grek national elections if first attempt fails

From: thechek@mac.com At: Jan 3 2015 20:27:40
To: LAURENT CHEKROUN (MAKOR SECURITIES LLP)
Subject: Fwd:>>> Q1 European timeline ECB / Greece...

>>> Lenovo unaware of rumour that Compal may acquire stake (translated)

Lenovo unaware of rumour that Compal may acquire stake (translated)
Story
Lenovo, the listed Chinese computer maker, is unaware of the market rumour that said Taiwan-based laptop manufacturer Compal may acquire a stake in the company, the Hong Kong Economic Journal reported, citing Lenovo management.

The Chinese language HKEJ report cited a report from the Economic Daily News in Taiwan that Compal may acquire a stake in Lenovo in order to ensure continuous business orders from Lenovo. The EDN report said a spokesperson from Compal declined to comment on the news, while Lenovo management told the HKEJ that s/he has never heard that Compal plans to take a stake in the company.


Lenovo reported revenues of USD 20.87bn for the six months ended September 2014.

Hong Kong Economic Journal

NYT : Oil Price Slump May Spur European Oil and Gas Deal-Making

Oil Price Slump May Spur European Oil and Gas Deal-Making

There was $383 billion in mergers and acquisitions in the oil and gas sector last year, as of Dec. 11. Yet Europe has largely missed out: About three-quarters of the targets have been in North America, according to Thomson Reuters data. Shale has played a big role. In 2015, oil and gas bankers in Europe will get a bigger slice of the action.

The sharp drop in the price of crude oil, to around $60 a barrel, will make it harder to get deals done in the short term. It makes everyone more cautious. Buyers worry that prices can fall further, while the seller’s instinct is to hold out for a recovery. The last big fall in oil prices, at the end of 2008, was too short to push a big merger and acquisition wave.

But if the current oil price persists, financial stress may make small players vulnerable. Net debt at explorers including Afren, EnQuest, Premier Oil and Tullow Oil could all reach three times earnings before interest, taxes, depreciation and amortization, or more, if oil remains at $60 through 2015, Barclays estimates.

Cash-rich Repsol of Spain already took the plunge with an $8.3 billion bid last month for the Canadian oil and natural gas producer Talisman Energy. Chinese companies, active in the past, have a lot on their plate with big capital commitments, but buyout groups have raised billions of dollars to invest, including in energy infrastructure assets.

All-stock defensive mergers of the type seen in the late 1990s are possible, too. This has already started on a small scale with Ophir Energy’s all-share takeover of Salamander Energy. The industry has a cost problem that cannot be met forever by shrinking capital expenditures and selling assets. BP’s former chairman, John Browne, wrote in his memoir that a merger with Shell, pondered while he was at the helm, might have delivered $9 billion in annual synergies.

BP faces big liabilities in the Gulf of Mexico and volatility in Russia. BG Group of Britain has long been a target, and the new chief executive starts in March. It’s not clear that Shell, the wallflower in the 1990s, will make a move. Exxon and other majors in the United States might be tempted. Either way, chances are Big Oil will get even bigger next year.

WSJ : What the World Will Speak in 2115

What the World Will Speak in 2115
A century from now, expect fewer but simpler languages on every continent

In 1880 a Bavarian priest created a language that he hoped the whole world could use. He mixed words from French, German and English and gave his creation the name Volapük, which didn’t do it any favors. Worse, Volapük was hard to use, sprinkled with odd sounds and case endings like Latin.

It made a splash for a few years but was soon pushed aside by another invented language, Esperanto, which had a lyrical name and was much easier to master. A game learner could pick up its rules of usage in an afternoon.

But it didn’t matter. By the time Esperanto got out of the gate, another language was already emerging as an international medium: English. Two thousand years ago, English was the unwritten tongue of Iron Age tribes in Denmark. A thousand years after that, it was living in the shadow of French-speaking overlords on a dampish little island. No one then living could have dreamed that English would be spoken today, to some degree, by almost two billion people, on its way to being spoken by every third person on the planet.

Science fiction often presents us with whole planets that speak a single language, but that fantasy seems more menacing here in real life on this planet we call home—that is, in a world where some worry that English might eradicate every other language. That humans can express themselves in several thousand languages is a delight in countless ways; few would welcome the loss of this variety.

ENLARGE
YAREK WASZUL
RELATED READING

You Heard ’Em Here First: Words of 2015
But the existence of so many languages can also create problems: It isn’t an accident that the Bible’s tale of the Tower of Babel presents multilingualism as a divine curse meant to hinder our understanding. One might even ask: If all humans had always spoken a single language, would anyone wish we were instead separated now by thousands of different ones?

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Thankfully, fears that English will become the world’s only language are premature. Few are so pessimistic as to suppose that there will not continue to be a multiplicity of nations and cultures on our planet and, along with them, various languages besides English. It is difficult, after all, to interrupt something as intimate and spontaneous as what language people speak to their children. Who truly imagines a Japan with no Japanese or a Greece with no Greek? The spread of English just means that earthlings will tend to use a local language in their own orbit and English for communication beyond.

But the days when English shared the planet with thousands of other languages are numbered. A traveler to the future, a century from now, is likely to notice two things about the language landscape of Earth. One, there will be vastly fewer languages. Two, languages will often be less complicated than they are today—especially in how they are spoken as opposed to how they are written.

Some may protest that it is not English but Mandarin Chinese that will eventually become the world’s language, because of the size of the Chinese population and the increasing economic might of their nation. But that’s unlikely. For one, English happens to have gotten there first. It is now so deeply entrenched in print, education and media that switching to anything else would entail an enormous effort. We retain the QWERTY keyboard and AC current for similar reasons.

Also, the tones of Chinese are extremely difficult to learn beyond childhood, and truly mastering the writing system virtually requires having been born to it. In the past, of course, notoriously challenging languages such as Greek, Latin, Aramaic, Arabic, Russian and even Chinese have been embraced by vast numbers of people. But now that English has settled in, its approachability as compared with Chinese will discourage its replacement. Many a world power has ruled without spreading its language, and just as the Mongols and Manchus once ruled China while leaving Chinese intact, if the Chinese rule the world, they will likely do so in English.

A Chinese teacher gives an English lesson to students in the Gansu province of northwest China in July 2013. Some have predicted that Mandarin Chinese will eventually become the world’s language, but its elaborate tones are too difficult to learn beyond childhood. ENLARGE
A Chinese teacher gives an English lesson to students in the Gansu province of northwest China in July 2013. Some have predicted that Mandarin Chinese will eventually become the world’s language, but its elaborate tones are too difficult to learn beyond childhood. IMAGINECHINA/CORBIS
Yet more to the point, by 2115, it’s possible that only about 600 languages will be left on the planet as opposed to today’s 6,000. Japanese will be fine, but languages spoken by smaller groups will have a hard time of it. Too often, colonialization has led to the disappearance of languages: Native speakers have been exterminated or punished for using their languages. This has rendered extinct or moribund, for example, most of the languages of Native Americans in North America and Aboriginal peoples of Australia. Urbanization has only furthered the destruction, by bringing people away from their homelands to cities where a single lingua franca reigns.

Even literacy, despite its benefits, can threaten linguistic diversity. To the modern mind, languages used in writing, with its permanence and formality, seem legitimate and “real,” while those that are only spoken—that is, all but a couple hundred of them today—can seem evanescent and parochial. Few illusions are harder to shed than the idea that only writing makes something “a language.” Consider that Yiddish is often described as a “dying” language at a time when hundreds of thousands of people are living and raising children in it—just not writing it much—every day in the U.S. and Israel.

It is easy for speakers to associate larger languages with opportunity and smaller ones with backwardness, and therefore to stop speaking smaller ones to their children. But unless the language is written, once a single generation no longer passes it on to children whose minds are maximally plastic, it is all but lost. We all know how much harder it is to learn a language well as adults.

In a community where only older people now speak a language fluently, the task is vastly more difficult than just passing on some expressions, words and word endings. The Navajo language made news recently when a politician named Chris Deschene was barred from leading the Navajo nation because his Navajo isn’t fluent. One wishes Mr. Deschene well in improving his Navajo, but he has a mountain to climb. In Navajo there is no such thing as a regular verb: You have to learn by heart each variation of every verb. Plus it has tones.

That’s what indigenous languages tend to be like in one way or another. Languages “grow” in complexity the way that people pick up habits and cars pick up rust. One minute the way you mark a verb in the future tense is to use will: I will buy it. The next minute, an idiom kicks in where people say I am going to buy it, because if you are going with the purpose of doing something, it follows that you will. Pretty soon that gels into a new way of putting a verb in the future tense with what a Martian would hear as a new “word,” gonna.

In any language that kind of thing is happening all the time in countless ways, far past what is necessary even for nuanced communication. A distinction between he and she is a frill that most languages do without, and English would be fine without gonna alongside will, irregular verbs and much else.

These features, like he versus she, certainly don’t hurt anything. A language isn’t something that can be trimmed like a bush, and children have no trouble picking up even the weirdest of linguistic frills. A “click” language of southern Africa typically has not just two or three but as many as dozens of different clicks to master (native speakers have a bump on their larynx from producing them 24/7). For English speakers, it seems hard enough that Mandarin Chinese requires you to distinguish four tones to get meaning across, but in the Hmong languages of Southeast Asia, any syllable means different things according to as many as eight tones.

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But the very things that make these languages so fabulously rich also makes it hard to revive them once lost—it’s tough to learn hard stuff when you’re grown, busy and self-conscious. There are diligent efforts to keep various endangered languages from dying, but the sad fact is that few are likely to lead to communities raising children in the language, which is the only way a language exists as its full self.

Instead, many communities, passing their ancestral language along by teaching it in school and to adults, will create new versions of the languages, with smaller vocabularies and more streamlined grammars. The Irish Gaelic proudly spoken by today’s English-Gaelic bilinguals is an example, something one might call a “New Gaelic.” New versions of languages like this will be part of a larger trend, growing over the past few millennia in particular: the birth of languages less baroquely complicated than the linguistic norm of the premodern world.

The first wave in this development occurred when technology began to allow massive, abrupt population transfers. Once large numbers of people could cross an ocean at one time, or be imported by force into a territory, a new language could end up being learned by hordes of adults instead of by children. As we know from our experiences in the classroom, adults aren’t as good at mastering the details of a language as toddlers are, and the result was simpler languages.

Vikings, for example, invaded England starting in the eighth century and married into the society. Children in England, hearing their fathers’ “broken” Old English in a time when schooling was limited to elites and there was no media, grew up speaking that kind of English, and the result was what I am writing now. Old English bristled with three genders, five cases and the same sort of complex grammar that makes modern German so difficult for us, but after the Vikings, it morphed into modern English, one of the few languages in Europe that doesn’t assign gender to inanimate objects. Mandarin, Persian, Indonesian and other languages went through similar processes and are therefore much less “cluttered” than a normal language is.

The second wave of simplification happened when a few European powers transported African slaves to plantations or subjected other people to similarly radical displacements. Adults had to learn a language fast, and they learned even less of it than Vikings did of English—often just a few hundred words and some scraps of sentence structure. But that won’t do as a language to fully live in, and so they expanded these fundamentals into brand-new languages. Now these languages can express any nuance of human thought, but they haven’t existed long enough to also dangle unnecessary things like willfully irregular verbs. These are called Creole languages.

It’s far easier to manage a basic conversation in a Creole than in an older language. Haitian Creole, for example, is a language low on the complications that make learning Navajo or Hmong so tough. It spares a student from having to know that boats are male and tables are female, which is one of the reasons that it’s so hard to master French, the language from which it got most of its words.

Creole languages were created world-wide during the era that the textbooks call Western “exploration.” African soldiers created an Arabic Creole in Sudan; orphans created a German one in New Guinea. Aboriginal Australians created an English Creole, which was passed on to surrounding locations such as, again, New Guinea, where under the name Tok Pisin it is today the language of government for people speaking hundreds of different native languages. Jamaican patois, South Carolina’s Gullah and Cape Verdean are other examples.

ENLARGE
YAREK WASZUL
Modern population movements are now creating a third wave of language streamlining. In cities world-wide, children of immigrants speaking many different languages are growing up speaking among themselves a version of their new country’s language that nibbles away at such arbitrary features as irregular verbs and gendered objects. It’s a kind of compromise between the original version of the language and the way their parents speak it.

Linguists have no single term yet for these new speech varieties, but from Kiezdeutsch in Germany to “Kebob Norsk” in Norway, from the urban Wolof of Senegal to Singapore’s “Singlish,” the world is witnessing the birth of lightly optimized versions of old languages. These will remain ways of speaking that are rarely committed to the page. Yet as we know from languages like Yiddish, this will hardly disqualify them as thriving human languages.

This streamlining should not be taken as a sign of decline. All of the “optimized” languages remain full languages in every sense of the term, as we know from the fact that I’m writing in one: An Old English speaker who heard modern English would consider it confounding and “broken.” That any language has all irregular verbs, eight tones or female tables is ultimately a matter of accident, not design.

Hopefully, the languages lost amid all of this change will at least be described and, with modern tools, recorded for posterity. We may regret the eclipse of a world where 6,000 different languages were spoken as opposed to just 600, but there is a silver lining in the fact that ever more people will be able to communicate in one language that they use alongside their native one.

After all, what’s peculiar about the Babel tale is the idea of linguistic diversity as a curse, not the idea of universal comprehension as a blessing. The future promises both a goodly amount of this diversity and ever more mutual comprehension, as many languages become easier to pick up, in their spoken versions, than they once were. A future dominated by English won’t be a linguistic paradise, in short, but it won’t be a linguistic Armageddon either.

Barron's : A Contrarian View of Emerging Markets

A Contrarian View of Emerging Markets
An interview with Brian Singer, head of dynamic allocation strategies at William Blair in Chicago.

The vast majority of mutual fund managers are bottom-up stock or bond pickers. While they pay attention to macroeconomics, it isn’t their focus. Brian Singer, co-manager of the William Blair Macro Allocation fund (ticker: WMCNX), approaches portfolio management differently. He does keep an eye on valuations, but macro themes are a big part of his playbook, as well. For Singer, a big focus in recent years has been currencies, long and short, and he has reduced his exposure to stocks and bonds. Based in Chicago, Singer, 54, heads the dynamic allocation strategies team at William Blair, where he has worked since 2011. He had a similar role at UBS, his employer for many years. In his current job, Singer oversees about $1.2 billion, $950 million of which is in the mutual fund. The fund, which has a five-star rating from Morningstar, aims to offer its shareholders diversification away from traditional stock and bond holdings. Its three-year annual return of 9.84% beats its Morningstar category average by more than five percentage points, putting it in the top 5% of multi-alternative funds over that stretch. Barron’s recently spoke to Singer by phone to hear his thoughts about his portfolio, how he has changed it, and what’s ahead for the New Year.

Barron’s: Unlike many fund managers, you have a top-down approach. Tell us about your key macro themes.

Singer: We have five major macro themes that shape our thinking in running this fund. The first one is currency. We’re taking most of our active risk in currencies now, owing to relatively extreme divergent central bank activity. The second one is global economic growth. There are a lot of discussions about the “new normal,” secular stagnation, and low growth. Generally speaking, our views are not inconsistent with the market over the next couple of years. But our sense is that the fears that get priced into the market vary quite dramatically and provide investing opportunities. That leads us to be somewhat long in our exposure to a positive growth surprise on a global basis.

Enlarge Image

“We have consistently been bringing our equity exposure down to manage risk.” —Brian Singer Photo: Bob Stefko for Barron’s
The third theme is geopolitics. Unlike the careers of almost every investor out there that were dominated by the Cold War and the post–Cold War U.S. hegemony, systemic change is the new norm. And geopolitics drives asset prices. We need to keep that on our front burner. Another theme is that we are on the backside of the commodity supercycle. And the final one is interest rates. Our view a few years ago was that quantitative easing would ultimately lead to inflation. However, the longer we have quantitative easing, the more uncertain the outcome becomes, whether it’s significant price inflation or debt deflation. So we have reduced our short interest-rate exposure.

Explain how you go about running this fund.

Our decisions are all based on fundamental valuation, which, in the case of assets, we define as the present value of future cash flows. For currencies, it is purchasing-power parity, which is a way to value one currency against another. That’s the starting point. Where prices deviate from fundamental values, there are potential opportunities to invest in. However, we are well aware that prices deviate from fundamental values over periods that can last a few years, and we have to navigate those periods. That involves understanding the conventional wisdom that drives prices, either away from or toward fundamental values. And that’s what leads to the long and short positions in our portfolio.

Where do you stand on stocks?

We have a long position in equities, but it is about half of what it would be if we just acted on pure valuation metrics. The reason for that is we perceive heightened risk in global capital markets, and we have reduced that long position. It currently accounts for about 40% of the portfolio on a net basis, factoring in the longs, shorts, and options—about half of the equity position we had 18 months ago. The long positions are primarily in Europe and emerging Asia. We have consistently been bringing our equity exposure down to manage risk.

Is that because you see a lot less value in global equities than you did 18 months ago?

Absolutely. A lot of the value has disappeared, and you can actually isolate that to a couple of countries. One is Japan. When we look back at Shinzo Abe being elected prime minister in 2012, Japanese equities were very, very cheap, and his three arrows of reform pushed Japanese equities up to their fundamental values. We had a 15% position in Japanese equities at the end of 2012, and we’ve brought that down to roughly zero. The other region where we have cut our equity exposure is the U.S. Generally speaking, the world has viewed the U.S. as the only source of growth and stability. The response has been to invest in U.S. equities as the safest of the equity markets. That has driven U.S. stocks to what we believe is slightly above fundamental value. We brought our position down from 20% to 25% of the portfolio two years ago to around zero now. We’ve maintained a position in Europe and in emerging markets, mainly Asia, excluding Japan, for most of this period.

What makes European stocks attractive?

In the European monetary union, equity prices are about 30% to 40% below fundamental value. The primary areas of opportunity are the United Kingdom, Italy, Spain, and the Netherlands. Italy and Spain are perhaps the most interesting because there has been a drive for growth and stability in the stock market, but Italy and Spain have been, in effect, the antithesis of growth and stability. That conventional wisdom has led market participants to keep equity prices in those two countries below what we see as fundamental value. That’s why there are opportunities there as far as valuation. But we are keeping some of these positions below what pure valuation would suggest they should be.

Which sectors are attractive?

On a global basis, we’re mildly long financials and now energy, where stocks have sold off amid falling oil prices, and we are mildly short the industrial sector. And we are also leaning a little bit more toward value stocks, which look a little bit more attractive based on our analysis, and a little bit more away from growth stocks.

Turning to credit, how are you positioned?

Just to be clear, when I speak about credit, we separate interest-rate risk from credit-spread risk. That’s why we can be short interest-rate risk and long credit-spread risk at the same time. In terms of our portfolio, in aggregate, factoring in longs and shorts, we are short sovereign bonds around the world. In fact, our net global sovereign-bond short position is 14.4% of the portfolio. We are long the U.S. bond market, but we are short other markets, including those in Europe and Japan.

How have your changed your exposure to credit spreads?

About 15% of the portfolio is long credit spreads, but it has come down significantly as spreads have narrowed. We have sold most of our high-yield credit-spread exposure, which we took from about 15% of the portfolio 18 months ago down to about 2% or 3% now. We have some U.S. investment-grade bonds, about 10% or 12% of the portfolio.

So that, combined with what’s left of the high-yield holdings, makes up our credit-spread holdings. We also have eliminated our mortgage-backed-securities holdings, again owing to valuation. And we don’t have any municipal-bond exposure. Our credit portfolio has become higher quality, and it’s much smaller.

You will notice there is a theme here, which is that we were very long the macro theme of real gross-domestic-product growth globally. We are still long that theme, but we’ve brought it down considerably and focused it more on what we believe are mispricings across Europe, as evidenced by our equity holdings there. But we’ve also dialed back the growth theme in credit, an example of which is our lightening up on high yield.

Tell us more about how you are playing the uncertain growth theme?

As I noted earlier, even though there are valuation opportunities out there, and there are often discrepancies between prices and fundamental values, a key driver of our strategy is big macro themes. One of which is the uncertainty of real GDP growth. It is something that everybody is talking about—whether it is the new normal, as some have described it. Everybody is talking about the poor global growth outlook, and that has been priced into equity markets to a significant degree. As the market has accommodated that view, and investors have shifted away from the riskier markets to the one in the U.S., it has created an environment where we de-risked the portfolio—i.e., lowering our overall exposures to equities and bonds. But this has led to opportunities. For instance, there is excessive concern about the euro zone’s growth, and that’s why we’ve left some of our equity exposure there.

Emerging markets are another area of concern. That has caused prices to come down, relative to fundamental values, and has created opportunities, especially in markets that are commodity importers or energy importers—notably the Southeast Asian emerging markets such as China, Taiwan, and Korea. So we’ve reduced our equity holdings, and we’ve concentrated the equity exposure in Europe and Asian emerging markets. We’ve also reduced our exposure to growth through changes to our credit holdings, focusing much more on investment-grade credits.

How would you sum up how you’ve repositioned the entire fund?

For us, the past year or two has been about migrating from taking market risk to taking currency risk, and we’ve reduced our overall exposure to equities and bonds. Supplanting that has been an increase in our currency positions.

Why is currency such an important theme?

Central banks around the world are moving in very different directions. They are diverging in their policies, and currency in that environment becomes much, much more important than it has been since the early 1970s. Tom Clarke, who is the co-manager of this fund, does tons of work with me on currency. For us, the divergence of monetary policies among central banks around the world means that the focus on currency will be a critical aspect of any global portfolio’s performance in 2015 and beyond.

How have your positioned the portfolio in terms of currency?

We are short the Swiss franc, the euro, the Australian dollar, and the New Zealand dollar. First and foremost, it is valuation driven by a core analysis of purchasing-power parity, which, as I mentioned earlier, is a way to compare currencies with one another. Those exchange rates are not consistent with relative prices of tradable goods and services. That’s the valuation opportunity. Second, there are those significant differences in central-bank policies. We are short the Swiss franc and other developed-country currencies, and those central banks have inflated their balance sheets. That has put pressure on those currencies. In contrast, our big long positions are in the Southeast Asian currencies, predominately the Chinese yuan, the Indian rupee, the Malaysian ringgit, and the Indonesian rupiah. Those central banks have not bloated their balance sheets, and those currencies are cheap, relative to fundamental values.

Another currency theme is the commodity supercycle, which we believe we are on the backside of. The currencies I mentioned as long positions, including India and China, are beneficiaries of declining commodity prices. On the other hand, you would generally expect the Australian and New Zealand dollars to be hurt by declining commodity prices. The final element as far as currency is regulatory differences. The regulatory environment, on a relative basis, is improving in many of those developing economies, including India and Indonesia. We’ve found that playing the currency is more beneficial than being exposed to the equity markets in those countries.

How about a couple of examples of how you combine your long and short themes?

Going into 2013, we were net long Japanese stocks. We had an equity exposure of about 15%, but we were net short the yen by about 15%. As a result, we were able to take advantage of the equity-market appreciation from quantitative easing and the yen depreciating, also from quantitative easing in Japan. Similarly, today in the euro zone, we are long the equity markets.

We have not only hedged out our currency exposure there, but we’ve also gone net short. We benefit if the equity market does well and when the currency depreciates. What happens to most investors in this environment is that they benefit from the equity-market appreciation, but the gain is mitigated by a depreciation in the currency, and that’s what happened to many people who invested in Japanese equities. This gives us the opportunity to take advantage of both assets and not just watch gains get washed away by a currency depreciation.

Thanks, Brian.