>>> US Close Dow +0,35% S&P +0,27% Nasdaq -0,02% Russel 2000 -0,41%

Closing Market Summary: Blue Chips Post Gains Despite Afternoon Dip

The stock market ended the midweek session on a mixed note. Blue chip listings bolstered the Dow Jones Industrial Average (+0.4%) and S&P 500 (+0.3%), while the Russell 2000 (-0.4%) and Nasdaq Composite (-0.02%) underperformed.

Equity indices began the day in the red, but wasted no time regaining their flat lines. Small-cap stocks were not as fortunate as the Russell 2000 spent the day in the red.

Upon returning into positive territory, the key indices were confined to narrow ranges until the minutes from the July FOMC meeting crossed the wires. The minutes revealed that many officials saw recent job gains as a potential reason to bring forward the first fed funds rate hike; however, most officials showed preference for waiting for more evidence before changing their outlook on rates.

The minutes were followed by a retreat among equities, but the slide was not sustained. The S&P 500 was trading at a fresh session high within an hour of the release. Treasuries, meanwhile, slumped in reaction to the discussion on rates. The 10-yr note fell seven ticks with its yield climbing three basis points to 2.43%.  

Eight sectors ended in the green with industrials (+1.0%) spending the entire session in the lead. The cyclical sector was supported by Dow components Boeing (BA 127.35, +1.77) and General Electric (GE 26.36, +0.31) as the two added 1.4% and 1.2%, respectively. Despite the strength in the two names, the broader PHLX Defense Index (+0.9%) ended just behind the sector. Similarly, transport stocks could not keep pace with the sector as the Dow Jones Transportation Average added 0.6%.

Also of note, shares of Hertz (HTZ 30.33, -1.23) endured quite the roller coaster ride. The stock settled at $31.56 yesterday, but fell all the way to $27.47 this morning after the company said it expects to fall short of its full-year guidance, which was withdrawn. The stock spent the bulk of the day inching off its low with a big boost coming after Carl Icahn disclosed a stake in the company and said he may seek a seat on the board. Hertz ended the session with a 3.9% decline.

The consumer discretionary sector (+0.5%) finished in second place after a handful of retailers reported their quarterly results. American Eagle (AEO 12.98, +1.39), Lowe's (LOW 52.33, +0.81), and PetSmart (PETM 70.52, +0.82) all reported better than expected results, while Target (TGT 60.33, +1.08) and Staples (SPLS 11.32, -0.30) met expectations, but issued cautious guidance. For its part, the SPDR S&P Retail ETF (XRT 87.68, +0.63) gained 0.7%.

Elsewhere, the financial sector (+0.3%) was the only outperformer of note, while the remaining sectors finished near their respective flat lines. Bank of America (BAC 15.52, +0.07) was in the headlines after the Wall Street Journal reported the bank is nearing a $17 billion settlement with the Department of Justice over the sales of mortgage-backed securities.

Participation remained on the light side with just under 530 million shares changing hands at the NYSE.

Economic data was limited to the weekly MBA Mortgage Index, which rose 1.4% to follow last week's 2.7% decline.

Tomorrow, weekly initial claims will be reported at 8:30 ET (consensus 308K), while Existing Home Sales for July (consensus 5.00 million), August Philadelphia Fed Survey (consensus 15.5), and July Leading Indicators (expected 0.7%) will all be released at 10:00 ET.
  • Nasdaq Composite +8.4% YTD 
  • S&P 500 +7.5% YTD 
  • Dow Jones Industrial Average +2.4% YTD 
  • Russell 2000 -0.5% YTD.

>>> Hewlett-Packard reports EPS in-line, beats on revs; guides Q4 EPS in-line

--> HPQ Trading near closing level, traded higher and now lower

Hewlett-Packard reports EPS in-line, beats on revs; guides Q4 EPS in-line
Reports Q3 (Jul) earnings of $0.89 per share, excluding non-recurring items, in-line with the Capital IQ Consensus Estimate of $0.89; revenues rose 1.0% year/year to $27.59 bln vs the $27.06 bln consensus.

Co issues in-line guidance for Q4, sees EPS of $1.03-1.07, excluding non-recurring items, vs. $1.05 Capital IQ Consensus -- narrows FY14 EPS to $3.70-3.74 from $3.63-3.75 vs. $27.6 bln.

Segment results:
Personal Systems revenue was up 12% YoY with a 4.0% operating margin. Commercial revenue increased 14% and Consumer revenue increased 8%. Total units were up 13% with Desktops units up 9% and Notebooks units up 18%.
Printing revenue was down 4% YoY with an 18.4% operating margin. Total hardware units were down 5% with Commercial hardware units down 2% and Consumer hardware units down 6%. Supplies revenue was down 5%.
Enterprise Group revenue was up 2% YoY with a 14.0% operating margin. Industry Standard Servers revenue was up 9%, Storage revenue was down 4%, Business Critical Systems revenue was down 18%, Networking revenue was up 4% and Technology Services revenue was down 3%.
Enterprise Services revenue was down 6% YoY with a 4.1% operating margin. Application and Business Services revenue was down 4% and Infrastructure Technology Outsourcing revenue declined 8%.
Software revenue was down 5% YoY with a 21.2% operating margin. License revenue was down 16%, support revenue was flat, professional services revenue was down 3% and software-as-a-service (SaaS) revenue was up 8%.
HP Financial Services revenue was down 3% YoY with a 1% increase in net portfolio assets and a 14% increase in financing volume. The business delivered an operating margin of 9.2%.
HP also utilized $582 million of cash during the quarter to repurchase ~17.5 million shares of common stock in the open market. HP exited the quarter with $14.8 billion in gross cash.

>>> BHP Billiton assets could interest Glencore

BHP Billiton assets could interest Glencore

Glencore, the Swiss natural resources giant, could be interested in acquiring some of the assets which BHP Billiton plans to spin off, reported The Australian.

According to the report, Glencore CEO Ivan Glasenberg was cited as saying that some of BHP's assets such as its Columbian nickel mine Cerro Matoso and South African coal, were good assets and were non-core for BHP. He added that certain BHP assets had a possibility of being a better fit with Glencore’s mine-to-market business model.

BHP announced this week that it would be spinning off some of its assets into a new, listed company, added the item.

The paper stated that Glencore is also interested in the Simandou iron ore project in Guinea. Glasenberg said that the asset would interest the company if Guinea is able to arrange the infrastructure..

Glencore reported a net profit of USD 1.7bn in 1H14, noted the item.


Source The Australian

FT : M&A boom must evolve to create growth (M. El-Erian)

M&A boom must evolve to create growth

Expansion in labour and investment must be the aim of mergers
Huge cash buffers, together with cheap and plentiful financing, are fuelling a merger and acquisition boom that has delivered sizeable windfalls for investors. To sustain these gains, however, real economic growth will need to materialise from what, at least so far, remains a phenomenon dominated by financial engineering and mostly short-term objective maximisation.

The numbers are unambiguous. After a hyper-cautious period triggered by the trauma of the 2008 global financial crisis, companies are increasingly putting their record cash holdings to work – so much so that the herd instinct has shifted from prudent accumulation to concern about being seen to be just sitting lazily on cash.
The result is an accumulation of M&A activity that could end this year double that of last year and approximating a level last seen in the boom days of 2007. And, judging from recent deal announcements, not even the derailment of big acquisitions such as Time Warner by Fox and T Mobile US by Sprint and SoftBank acts as much of a deterrent.


The great enabler is the multiyear string of strong corporate profitability achieved through a combination of higher revenue, improving productivity and substantial cost savings. According to data from the US commerce department, at $1.7tn, after tax corporate profitability in 2013 amounted to a record share of GDP. Given developments so far this year, the 2014 levels are likely to be even higher.
Investing cash reserves
Initially, a significant portion of the record earnings was retained and deposited in bank accounts by boards and chief executives still traumatised by the 2008-09 near-death experience caused by the credit freeze that followed the collapse of Lehman Brothers and the Great Recession that ensued. But with ultra low interest rates depressing the income earned on this cash, companies found it increasingly difficult to resist calls for better deployment of record cash reserves.
As activist investors put even greater pressure on managements, companies started giving more money to shareholders through higher dividends and stepped up share buybacks. More recently, they have also engaged on an M&A boom, taking advantage of two other important enablers: readily available loan and bond financing and cheap borrowing terms.
As powerful as these enablers have been, they are yet to trigger the scale and scope of activities that materially improve the overall prospects for the economy and increase overall prosperity. Specifically, the corporate motivations underpinning the M&A boom have been much more defensive than offensive.
Very few deals have been driven by ambitious and realistic expansion plans, rather they are motivated by the desire to squash competition, especially that coming from smaller companies that do not benefit as much from cheap financing and ample cash, or by “inversions” that allow companies to reduce tax liabilities through a change in legal domicile. As such, the resulting economic gains for society pale in comparison to the financial gains that materialise for two particular groups.
Consolidating gains
First, are the facilitators of dealmaking. These teams of investment bankers, lawyers and accountants walk away with substantial fees and business referrals.

Second, financial investors whose gains are ranked as follows, starting with those earning the most: (i) shareholders in companies that are being taken over at a significant premium to their market prices and, sometimes, to almost all conceivable measures of their net present value because they allow for gains elsewhere (eg, reductions in tax liabilities or the elimination of downward pricing pressure); (ii) skilful M&A arbitrageurs who capture the value convergence between the acquiring and acquired companies; and (iii) the equity market as a whole, which benefits immediately and directly from higher demand emanating from the accelerated infusion of corporate cash and the rise in debt issuance (this, by the way, effectively dilutes bond holders who, currently obsessed by a search for yield, seem neither to notice nor care).
To maintain and consolidate these gains, the current M&A boom needs to evolve into something more meaningful in terms of production expansion, labour hiring, and investing in new plant and equipment. Absent is that it could well go down in history as yet another M&A bust. Should this materialise, the costs are unlikely to be incurred by the deal facilitators nor the sophisticated investors and arbitrageurs who are quite good at exiting before the bust. It will be incurred by the average investors, especially those being sucked in late by all the market chatter that M&A booms fuel, as well as by economies that would risk facing yet another headwind to growth and job lift-off.

>>> Japan is looking at ways to set aide ¥1.0T in funds in the 2015 budget to bu

Japan is looking at ways to set aide ¥1.0T in funds in the 2015 budget to build a stimulus fund - Nikkei News 

The cash reserve, to be earmarked in next fiscal year's budget, would enable the government to act flexibly to kick-start the economy if the tax is in fact raised as scheduled. The money can be spent on any stimulus measures, including public-works projects and subsidies for small and midsize businesses, depending on economic conditions. - Source TradeTheNews.comdepending on economic conditions.

>>> MINUTES OF THE JULY 29-30 FOMC MEETING: Felt labor market had been faster th

MINUTES OF THE JULY 29-30 FOMC MEETING: Felt labor market had been faster than expected, conditions noticeably closer to normal 

- Participants disagreed about the amount of slack in labor market 
- Most participants supported reducing or ending re- investment sometime after the first increase in the target range for the federal funds rate. A few, however, believed that ceasing reinvestment before liftoff was a better approach because it would lead to an earlier reduction in the size of the portfolio. Most participants continued to anticipate that the Committee would not sell MBS, except perhaps to eliminate residual holdings. However, a couple of participants preferred to sell MBS in order to unwind the effect of the Federal Reserve's holdings on mortgage rates relative to other interest rates more rapidly than would occur as a result of repayments of principal alone. Some others noted that, given the uncertainties attending the normalization process and the outlook for the economy and financial markets, it could be helpful to retain the option to sell some assets. 

- Appointed Communications Subcommittee, chaired by Vice Chair Fischer 

- Economic activity rebounded in the second quarter. Household spending appeared to be rising moderately, and business fixed investment was advancing, while the recovery in the housing sector remained slow. Fiscal policy was restraining economic growth, al-though the extent of the restraint was diminishing. The Committee expected that, with appropriate policy accommodation, economic activity would expand at a moderate pace with labor market indicators and inflation moving toward levels that the Committee judges consistent with its dual mandate. 

Members discussed their assessments of progress--both realized and expected--toward the Committee's objectives of maximum employment and 2 percent inflation and considered enhancements to the statement language that would more clearly communicate the Committee's view on such progress. Regarding the labor market, many members concluded that a range of indicators of labor market conditions--including the unemployment rate as well as a number of other measures of labor utilization--had improved more in recent months than they anticipated earlier. They judged it appropriate to replace the description of recent labor market conditions that mentioned solely the unemployment rate with a description of their assessment of the remaining underutilization of labor resources based on their evaluation of a range of labor market indicators. In their discussion, some members expressed reservations about describing the extent of underutilization in labor resources more broadly. In particular, they worried that the degree of labor market slack was difficult to characterize succinctly and that the statement language might prove difficult to adjust as labor market conditions continued to improve. Moreover, they were concerned that, despite the improvement in labor market conditions, the new language might be misinterpreted as indicating increased concern about underutilization of labor resources. At the conclusion of the discussion, the Committee agreed to state that labor market conditions had improved, with the unemployment rate declining further, while also stating that a range of labor market indicators suggested that there remained significant underutilization of labor resources. Many members noted, however, that the characterization of labor market underutilization might have to change before long, particularly if progress in the labor market continued to be faster than anticipated. Regarding inflation, members agreed to update the language in the statement to acknowledge that inflation had recently moved somewhat closer to the Committee's longer-run objective and to convey their judgment that the likelihood of inflation running persistently below 2 percent had diminished somewhat. 

- Many participants continued to attribute the subdued rise in wages to the remaining slack in the labor market; it was noted that the elevated level of relatively low-paid part-time workers was holding down overall wage increases. Several other participants pointed to reports that wage pressures had increased in some regions and occupations that were experiencing labor shortages or relatively low unemployment. However, a couple of participants indicated that the pass-through of labor costs has been more attenuated since the mid-1980s and that wage pressures might not be a reliable leading indicator of higher inflation. 

-. One member, however, objected to the guidance that it would likely be appropriate to maintain the current range for the federal funds rate for a considerable time after the asset purchase program ends because it was time dependent and did not recognize the implications for monetary policy of the considerable progress that had been made toward the Committee's goals.

(Hedge Fund Wisdow) Q2 2014 - 13F Filing analyse (Full doc attached)

>>> Consensus New Positions
* Allergan (AGN): This was by far and away the most popular new buy among hedge funds in this issue.
Farallon Capital, Viking Global, Perry Capital, and Paulson & Co were all out establishing new stakes.
Expanding AGN activity beyond the scope of this newsletter, tons of other hedge funds were buying as well:
York Capital, Steadfast Capital, Senator Investment Group and more. At the end of Q2, Allergan’s shareholder
list basically became a “who’s who” of hedge funds. This has mainly become an arbitrage play as Valeant
Pharmaceutical (VRX) has been trying to buy AGN, but AGN management has rejected the offers. Bill
Ackman’s Pershing Square is the large activist AGN shareholder leading the charge here.
* DirecTV (DTV): This is yet another arbitrage related purchase as the company received a takeover offer from
AT&T (T). Hedge funds that bought DTV shares include Passport Capital, Farallon Capital, and Paulson &
Co.
* Covidien (COV): Do you see a theme this quarter? In yet another arbitrage related play, hedge funds were
gobbling up shares of Covidien (COV) as the company received a takeover offer from Medtronic (MDT).
Soros Fund, Farallon, and Paulson & Co purchased COV during Q2.
* Ally Financial (ALLY): Ally Financial completed its intial public offering (IPO) during the quarter.
However, some hedge funds already owned positions in Ally’s capital structure prior to the IPO. So while their
equity stakes are new, some funds have been involved in this name for some time. Soros Fund, Paulson, Perry,
and Third Point all show equity positions now.
* Google (GOOG): This stock appears on this list purely for informational purposes. This wasn’t a consensus
open market buy. Instead, Google had a stock split during the quarter and decided to payout shareholders in a
new shareclass. That new shareclass inherited the ticker GOOG and the old shareclass switched tickers from
GOOG to GOOGL. Throughout the issue, you’ll see numerous funds with ‘new’ positions in GOOG shares,
but this is just the new shareclass showing up in their filing that they received from the split.

>>> Consensus Increase Positions
* Actavis (ACT): This tax inversion play has been popular among hedge funds lately. During the second
quarter, Omega Advisors, Viking Global, Lone Pine Capital, Soros Fund and JANA Partners all added to their
pre-existing positions in the name.
* eBay (EBAY): This e-commerce giant has become somewhat of a value play as shares have slumped and
traded sideways. Perry, Omega, Soros, and Carl Icahn were all out buying more shares during Q2.
Additionally, Seth Klarman’s Baupost Group disclosed a new position in the company. eBay’s most valuable
asset is considered its payments platform, PayPal.
* Liberty Global (LBTYA): Hedge funds have been bullish on John Malone’s European cable conglomerate
that is consolidating the industry. Maverick Capital, Coatue Management, Soros Fund, and Berkshire
Hathaway were all out increasing their exposure during Q2.
* Valeant Pharmaceutical (VRX): Shares of VRX fell for two reasons during the quarter. Firstly, some short
sellers started attacking the stock, questioning the company’s accounting surrounding its roll-up strategy.
Secondly, arbitrage short selling pressured the stock as well. Once VRX announced its bid for Allergan
(AGN), arbitrageurs went long AGN and short VRX. Since this proposed deal is payable partially in stock, the
classic merger arbitrage playbook is to buy shares of the company being acquired and to short the acquirer’s
stock. Due to this selling pressure, many non-arbitrage related hedge funds utilized the dip to add to their long
positions in VRX. These funds include Lone Pine, Viking, Maverick, and Soros.
* General Motors (GM): After the company had a rough first quarter, shares largely languished around the
same levels. Some hedge funds decided to beef up their positions, such as Glenview Capital, Appaloosa
Management, Berkshire Hathaway, and Soros Fund. However, in reality GM was more of a ‘mixed activity’
name. As you’ll see on the next page, numerous funds were out selling as well.


>>> Consensus Sold Positions
* Dollar General (DG): Hedge funds that exited their DG stakes include Omega, Farallon, Passport, Pennant
Capital, and Soros Fund. After quarter end, the company just recently announced a bid for Family Dollar
(FDO), which rival Dollar Tree (DLTR) has also made a bid on.
* UnitedHealth Group (UNH): The following hedge funds removed this stock from their portfolio during the
second quarter: Bridger Management, Glenview Capital, and Soros Fund.
* MetLife (MET): This stock was sold by Appaloosa Management, Tiger Management, and Viking Global
during Q2.
* Google (GOOGL): As detailed a few pages ago, Google had a stock split during the quarter and paid out
investors in a new shareclass. The new shareclass inherited the GOOG ticker, while the old shareclass was
given the GOOGL ticker. After the split, some hedge funds such as Blue Ridge Capital decided to consolidate
their holdings into one shareclass as they liquidated their GOOGL shares and retained their GOOG shares.
Other hedge funds decided to merely liquidate their positions altogether.
* General Motors (GM): While many funds sold GM entirely (JANA Partners, Passport, and Paulson), this
stock was realistically more of a ‘mixed activity’ name. As you saw on the page prior, a number of hedge
funds in this issue were also out buying as well.

>>> Consensus decreased Positions
* American International Group (AIG): This stock appears on this list for the third straight quarter. Hedge
funds continue to trim their stake as the discount to book value slowly narrows. And while this was a
consensus decrease name, keep in mind that many of the hedge funds that were selling still own quite sizable
stakes in AIG. As the price has appreciated, their position sizes have gotten larger so they could also be
trimming merely for portfolio construction/risk management reasons as well. Appaloosa, Pennant, Omega,
Blue Ridge, and Fairholme sold some shares in Q2.
* Liberty Global (LBTYK): The quarter prior, this non-voting ‘K’ shareclass was created and paid out to
owners of Liberty Global’s LBTYA shares. After this occurred, it looks like many funds were out increasing
their stakes in LBTYA and reducing their exposure to LBTYK. Funds that cut exposure to the ‘K’ shares
include Third Point, Maverick, Lone Pine, and Soros.
* Citigroup (C): Funds that reduced their exposure to Citi during the second quarter were Blue Ridge, Glenview,
Omega, and Appaloosa.
* Crown Castle International (CCI): In Q2, Viking, Soros, Glenview, and Lone Pine all trimmed their stakes
in this wireless tower operator as shares largely traded in a sideways range.
* Citrix Systems (CTXS): Tiger Management, Perry Capital, Third Point, and Soros Fund all cut back their
position sizes in Citrix during the second quarter.

FT : Fed to give warning on rates rise

Fed to give warning on rates rise

The US Federal Reserve will provide greater details about the normalisation of monetary policy well before interest rates rise, according to the minutes of its July meeting. Members of the Federal Open Market Committee were generally supportive of proposals outlined by Fed staffers for implementing and communicating monetary policy once the Committee begins to tighten the stance of policy. "Participants agreed that the Committee should provide additional information to the public regarding the details of normalisation well before most participants anticipate the first steps in reducing policy accommodation to become appropriate," said the FOMC minutes. The FOMC minutes "stressed the importance of communicating a clear plan while at the same time noting the importance of maintaining flexibility so that adjustments to the normalisation approach could be made as the situation changed and in light of experience." While Wednesday’s release of the minutes are important, they are backwards looking. Analysts are keen to hear what Fed chairwoman Janet Yellen will be saying on Friday at the monetary policy conference in Jackson Hole, Wyoming. Ms Yellen is scheduled to talk about the labour markets, a crucial indicator of when the Fed could begin raising interest rates. The July meeting minutes revealed policy makers believed the labour market had improved at a faster than anticipated rate over the past year. But they remained concerned about "still-elevated levels of long term unemployment and workers employed part time for economic reasons as well as low labour force participation." Policy makers differed in their assessments of the remaining degree of labour market slack and how to measure that factor. The minutes noted: "Many participants continued to see a larger gap between current labour market conditions and those consistent with their assessments of normal levels of labour utilisation than indicated by the difference between the unemployment rate and estimates of its longer-run normal level." The minutes also suggested that policy makers anticipate a slow rise in price pressures noting: "several participants continued to believe that inflation was likely to move back to the Committee’s objective very slowly, thereby warranting a continuation of highly accommodative policy as long as projected inflation remained below 2 per cent and longer-term inflation expectations were well anchored." But the impressive annualised 4 per cent growth rate for the economy during the second quarter has had some economists arguing for the Fed raising rates sooner. At the last Fed meeting, Philadelphia Fed president Charles Plosser was the first to dissent on keeping rates low, arguing that there had been "considerable economic progress". July marked the sixth straight month of the US adding more than 200,000 jobs, but the solid rate of growth had slowed from June and didn’t reflect the kind of rapid pace of improvement that would’ve put pressure on the Fed. Wage growth also remained stagnant, which has disappointed policy makers. European Central Bank President Mario Draghi is also scheduled to speak at Jackson Hole. Investors will be keeping an eye out for any mention of the possibility of a US-like quantitative easing policy, which has been debated in Europe but so far, the ECB has declined to pursue. The Fed also reduced its monthly asset purchases at last month’s meeting from $35bn to $25bn – in line with its intention to end purchases under quantitative easing altogether in October.