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WSJ : Treasury Officials Preparing Options to Address Tax Invers

Treasury Officials Preparing Options to Address Tax Inversions

Current Timetable Likely Means White House Action on Inversions Is Several Weeks Away

Treasury officials are working through different ideas and the recommendations aren't expected to be made imminently, the official said. Still, the process, and recent comments by President Barack Obama on the matter, appear to increase the likelihood that the Obama administration will take some concrete steps to either prevent companies from making the reorganizations, or to remove some of the benefits from such moves.

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This process likely pushes the timeline for White House action into September. Changes could range from concrete rules to proposals that take months to implement. But the interim Treasury process isn't expected to take "months," the Treasury official said.

Inversions are complicated tax deals, but they are popular because they essentially allow a U.S. company to transfer certain operations—the "headquarters"—overseas to a low-tax nation, such as Ireland. The company then no longer has to pay the higher U.S. tax rate on certain earnings, though the corporate relationship between the foreign headquarters and the U.S. operations can be extremely complex.

After a wave of tax inversion deals, with more expected in the coming months, the White House several weeks ago called on Congress to take steps to prevent companies from pursuing inversions.

Although Democrats and Republicans have said tax inversions should be deterred, they have much different views on how to proceed. A number of Democrats in Congress believe lawmakers should pass a stopgap measure to deter companies from pursuing these deals, while a number of Republicans have said the only way to stop inversions is through a comprehensive overhaul of the tax code.

After several weeks of waiting for Congress to move, the White House recently announced it would consider taking interim steps on its own. Tax experts have varying views on what steps the Obama administration could take. Some believe the White House's powers are relatively limited, given how Congress already has tried to address inversions through law. But others believe the White House has ample flexibility to step in and have raised a number of different ideas for administrative actions, including steps to address earnings stripping, the taxation of interest, and the treatment of debt and equity,

Businesses, lawyers, and tax advisers are watching the White House process closely, as several more "inversion" deals are expected to be rolled out in the coming weeks.

>>> Asian Update

Asian Market Update: NZD weighed down by downgrade of GDP by New Zealand Treasury, decline in quarterly PPI

***Economic Data***

- (NZ) NEW ZEALAND Q2 PPI OUTPUT Q/Q: -0.5% V +0.9% PRIOR; PPI INPUT Q/Q: -1.0% V +1.0% PRIOR; Largest decline in 7 quarters for both measures

- (NZ) NEW ZEALAND Q3 TWO-YEAR INFLATION EXPECTATION: 2.23% V 2.36% PRIOR

- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 112.5 v 108.5 prior

- (KR) SOUTH KOREA JUL PPI Y/Y: 0.2% (2nd straight rise; largest increase since Sept 2012) V 0.1% PRIOR

***Index Snapshot (as of 02:30 GMT)***

- Nikkei225 +0.9%, S&P/ASX +0.6%, Kospi +0.8%, Shanghai Composite +0.1%, Hang Seng +0.3%, Sept S&P500 +0.1% at 1,969

***Commodities/Fixed Income/Currencies***

- Dec gold +0.1% at $1,300, Oct crude oil +0.2% at $93.97/brl, Sept Copper flat $3.11/lb

- GLD: SPDR Gold Trust ETF daily holdings rise 2.1 tonnes to 797.7 tonnes (first rise since July 23rd)

- JGB: (JP) Japan's MoF sells ¥1.09T in 1.5% (1.5% prior) 20-year JGBs; Avg yield: 1.342% v 1.409% prior; bid-to-cover: 3.62x v 3.77x prior

- (CN) PBoC to drain CNY30B in 14-day repos (7th consecutive drain)

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1548 v 6.1528 prior setting (weakest setting since Aug 7th)

***Market Focal Points/Key Themes***

- US markets staged impressive gains and sentiment has carried over to Asia as perception of continued de-escalation in Ukraine takes hold. On Monday, Russia was able to secure an agreement in Berlin talks pertaining to delivery of humanitarian aid, even as progress toward a ceasefire remains limited. Military standoff continued in the region, with reports of "dozens" of refugees from Luhansk killed as they were attempting to escape bombardment.

- Pres Obama spoke on situation in Iraq, reiterating US will continue to pursue long-term strategy to turn tide against ISIS and carry on limited missions providing humanitarian support on Mt Sinjar and protecting US advisors on the ground. Obama also clarified that "US does not serve as Iraqi Air Force", and that a new govt in Baghdad will have to strive to be inclusive and appeal to Shias, Sunnis and Kurds. Elsewhere in the Middle East, Hamas and Israeli negotiators have both agreed to a 24-hour extension of truce, even as earlier Arab press reports suggested the two sides secured a multi-week ceasefire.

- NZD fell as much as 50pips from session higs below $0.8430 after a steep decline in Q2 PPI as well as a downgrade of economic projections from the Treasury's pre-election fiscal update. NZ Treasury cut Fy14/15 GDP target from 4% to 3.8% and also lowered budget surplus projections for the current FY to to NZ$297M v NZ$372M prior. Inflation expectations were also lowered by a decimal in the current and next year to 1.7% and 2.4% respectively. Lastly, RBNZ Q3 inflation survey lowered 1-year inflation expectation from 2.08% to 1.96% and 1-year GDP target to 3.1% from 3.3%. Note that the next Fonterra auction is expected in early US hours on Tuesday.

- In Australia, RBA policy meeting minutes from earlier this month were largely a reflection of reiterated statement and overall assessment. RBA once again noted that GDP likely slowed to more modest pace in Q2 and inflation pressures would ease but remain consistent with targets. AUD got a slight lift on the minutes release as traders did not find any dovish hints on currency, with AUD/USD rising about 15pips above $0.9340. BHP will put out its FY14 results that will feature a spinoff of unwanted assets for as much as A$14B.

- In notable Chinese press reports, State Information Center think tank speculated that all China non-Tier-1 cities would remove home purchasing curbs by the year end. Separately, CCB clarified that mortgage policy has not changed in Shanghai, which ran counter to overseas reports that CCB would re-define "first home mortgages" in a bid to stimulate more housing demand.

***Equities***

US markets:

- SKH: To merge with Genesis HealthCare in a stock transaction; +48.1% afterhours

- ARO: Guides Q2 -$0.45 to -$0.42 (ex charges) v -$0.59e, R$396.2M v $403Me; +4.9% afterhours

- RAX: Blue Harbour takes 6.5% active stake - financial press; +3.2% afterhours

- URBN: Reports Q2 $0.49 v $0.49e, R$811M v $806Me; URBN: Exec: gross profit could continue to deleverage during Q3 - conf call; -0.6% afterhours

- JMEI: Reports Q2 $0.12 v $0.12e, R$154.4M v $152Me; -2.9% afterhours

Notable movers by sector:

- Consumer Discretionary: Midea Group 000333.CN +1.9% (H1 results); Sichuan Changhong Electric 600839.CN -1.1% (H1 results); Skymark Airlines 9204.JP +27.8% (AirAsia may acquire stake)

- Financials: China Shenhua Energy 1088.HK +1.3% (July production results); Guoyuan Securities 000728.CN -2.1% (H1 results)

- Materials: Arrium Ltd ARI.AU +8.3% (FY14 results); Toll Holdings TOL.AU +4.1% (FY14 results)

- Energy: Kansai Electric Power 9503.JP +2.6% (plans to raise power rates)

- Industrials: Mitsubishi Heavy 7011.JP +2.3% (to increase sales through M&A activity); Amcor Ltd AMC.AU +4.2% (FY14 results); Transpacific Industries Group TPI.AU -7.1% (FY14 results)

>>> US After Hours

After Hours Summary: ARO +6.5%, PDLI +4.6%, APP +0.5%, JMEI -4.9%, URBN -1.8%, PWRD -1.4% following earnings/guidance

After Hours Gainers: Companies trading higher in after hours in reaction to earnings: ARO +6.5%, PDLI +4.6%, APP +0.5%

Companies trading higher in after hours in reaction to news: SKH +44.9% (to combine with Genesis HealthCare in 100% stock transaction), RAX +3.6% Blue Harbour Group confirmed a 6.4% active stake in 13D filing), CTSH +1.6% (Lone Pine Capital disclosed a 5.3% passive stake in 13G filing), WPX +1.2% (announced it has executed multiple agreements; to sell its remaining mature, coalbed methane holdings in the Powder River Basin for $155 mln in cash), AFG +0.9% (increased annual dividend 14% to $1.00 from $0.88 per share), AMGN +0.6% (announced positive top-line results from second Phase 3 study of AMG 416 for the treatment of secondary hyperparathyroidism: meets primary and all secondary endpoints)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: JMEI -4.9%, URBN -1.8%, PWRD -1.4%

Companies trading lower in after hours in reaction to news: ONTY -6.5% (disclosed that Phase 1/2 study of tecemotide in patients with lung cancer did not meet its primary endpoint, no treatment effect seen in secondary endpoints), CLR -0.8% (Board declared a 2:1 stock split to be issued in the form of a stock dividend)

WSJ : Electrolux Still Talking With GE Over a Sale of Appliances Unit

Electrolux Still Talking With GE Over a Sale of Appliances Unit

Swedish Company Seems to Be Gaining Strength in Competition to Buy the Business

Around the time General Electric Co. GE +1.68% executives were closing a deal to buy rival Alstom SA ALO.FR +1.33% 's power business in France, the conglomerate was already entertaining visitors interested in buying its appliance business back in the U.S.

The guests were from Sweden-based Electrolux, ELUX-B.SK +1.03% and they had arrived at Appliance Park, GE's longtime manufacturing complex in Louisville, Ky., to kick the tires of the unit that makes such GE-branded white goods as dishwashers and microwaves, people familiar with the matter said.

In the weeks since, Electrolux has emerged as a formal suitor, the companies have said, and the length of the courtship indicates talks may be further along than thought.

"Electrolux is rising to more prominence," one person close to GE said. But the person added, there is "no speeding to conclusion."

GE has said it is talking to Electrolux and other parties.

The June visit by Electrolux officials sparked interest in Louisville from local media outlets, raising the question of whether the unit, which has 6,000 workers at Appliance Park, could be up for sale. The tour was part of the officials' "diligence and evaluation" of the appliance business, the person close to GE said.

GE had prepared to sell off the appliance business in 2008, hiring Goldman Sachs GS +1.54% to run the sale, but ultimately pulled back as the economic crisis deepened and the pool of potential bidders dried up.

Since then, GE has invested nearly $1 billion to modernize its appliance product lines, the company has said, but people familiar with the company's strategic thinking say that a sale of the unit was never fully off the table, assuming the company could find a bidder offering a good price.

GE doesn't report earnings for its appliance business alone, but the Appliance and Lighting unit reported $381 million in profit in 2013 on sales of $8.3 billion. That makes the business the third-smallest of the conglomerate's seven industrial business lines by revenue. It also makes it a prime target for sale as GE continues efforts to pare low-margin businesses and focus its efforts on such heavy industrial products as jet engines, power turbines and oil industry equipment.

South Korea's LG Electronics Inc., 066570.SE -0.39% Samsung Electronics Co. 005930.SE -0.87% and Arcelik AS ARCLK.IS +0.41% of Turkey also remain in the mix of possible buyers, the person close to GE said. Meanwhile, five-year-old startup Quirky Inc. has teamed up with private-equity firm Blackstone Group BX -0.51% LP to work on a possible bid, another person familiar with the matter has said.

GE has been approached by at least one other "very serious, qualified bidder" in the past several weeks, but has so far been relatively unresponsive to overtures, another person briefed on the discussions said. It is unclear, this person said, whether that means GE and Electrolux are far along the road to a possible deal. Another person familiar with the matter said GE has made progress toward a potential sale, but would remain "open-minded" toward other bidders.

NYT : Bitcoin’s Price Sinks, but Causes Little Alarm Among Traders

Bitcoin’s Price Sinks, but Causes Little Alarm Among Traders

Bitcoin is showing signs of weakness, if only temporarily.

On Monday, the price of Bitcoin dropped 12 percent, to $435.60 from $492.95, according to the virtual currency website CoinDesk, its lowest value since May and far below its peak of about $1,150 last year.

Also on Monday, the price briefly plunged to $309 on BTC-e, an exchange with shadowy backing, although it may have been the result of a glitch and the price quickly recovered to where it was trading before.

The virtual currency had regained some of its value by Monday afternoon, trading around $460.

Bitcoin’s price has been trending downward in recent weeks, but the latest decline after a period of relative stability comes as new regulations and general stock market malaise have taken hold.

New York State’s proposed regulation of virtual currency companies, the Consumer Financial Protection Bureau’s recent warning against digital money and the Bitcoin market’s lack of liquidity may all have contributed to the recent drop, experts said. Europe is also expected to issue rules for Bitcoin.

Those familiar with Bitcoin shrugged off the latest price movement, which they said was well within the typical range for the currency.

“This is just how Bitcoin trades, for better or worse,” said Barry Silbert, who oversees a Bitcoin investment fund through his company, SecondMarket. “This is normal — par for the course.”

Bitcoin’s wild price swings, however, can be jarring, particularly for those who are new to virtual currency. Since Bitcoin was introduced in 2009, its value has gone from just a few dollars to more than $1,000. In any given day, the currency’s price can fluctuate by more than 5 percent.

What makes the recent decline notable is the relative calm that preceded it. The price has hovered around $600 since June and has not fallen below $500 since May, according to CoinDesk.

“What was surprising in some ways was the period when Bitcoin was trading around $600 and not losing much price,” said Steven Englander, a research analyst with Citigroup. “The stability probably means that there isn’t much going on.”

Bitcoin is not the only alternative currency to experience a decline in recent days. So-called altcoins — including Litecoin, which has the second-highest market capitalization behind Bitcoin — have fallen in value across the board, according to the website CoinMarketCap.

A number of recent developments could be influencing Bitcoin’s price. In July, New York became the first state to propose regulations for virtual currency companies. The regulations, introduced by the Department of Financial Services, include rules on consumer protection, the prevention of money laundering and cybersecurity. A “BitLicense” would be required for Bitcoin exchanges and for companies that secure, store or maintain custody or control of the virtual currency on behalf of customers, which some supporters fear is much too broad.

Last week, another regulatory agency, the Consumer Financial Protection Bureau, issued a warning on virtual currency, further igniting fear in the Bitcoin world over possible restrictions.

“Overall, the sense is that regulation is going to impede the growth of Bitcoin, which is contributing the negative sentiment,” said Gil Luria, an analyst at Wedbush Securities. “What’s been weighing on Bitcoin more are shorter-term concerns about whether Bitcoin can develop.”

(Mr. Silbert, the investor, said these regulatory developments amounted to little more than “noise,” and were not likely to have played a big role in Bitcoin’s price movement.)

Analysts and seasoned Bitcoin supporters may not be concerned about the recent dive, but the volatility of late is probably not helping push the currency into the mainstream, experts said. Unlike investors, who often bet on such price swings, more casual users are less likely to adopt a currency whose value is so unpredictable.

“The range of fluctuations in Bitcoin has a dampening effect on consumer enthusiasm,” Mr. Luria said.

This could spell trouble for the growing list of merchants, including Overstock and Dell, who have started accepting Bitcoin as a payment option. Retailers themselves are immune to Bitcoin’s volatility because they accept Bitcoin through a third-party payment processor, which immediately converts the currency to dollars. For consumers to transact in Bitcoin, however, they must hold some of the currency, making them susceptible to any change in price.

Since Bitcoin was introduced in 2009 by a programmer, or group of programmers, it has become increasingly more popular, particularly among investment firms and entrepreneurs. But in part because of its unpredictable price, consumers have remained reluctant to embrace the currency.

And experts, for the most part, do not expect this volatility to go away anytime soon. For one, there is a wide range of possible outcomes for the currency, so any small change in perception can drive a big price swing. In 10 years, for example, one Bitcoin could be worth millions of dollars if it becomes the global capital of trade. But it could also be worth next to nothing if its development is staunched by strict oversight.

“It’s very hard to come up with a fundamental value for Bitcoin,” said Mr. Englander, the Citigroup analyst. “What really defines the price is its reputation and expectations for the future.”

WSJ : Apple's New iPhone Could Crack GT's Stock

Apple's New iPhone Could Crack GT's Stock

Apple's AAPL +1.20% interest in sapphire has led investors to take quite a shine to GT Advanced GTAT +5.01% Technologies. Its value has tripled in the past year. But the coming iPhone 6 launch may dim that luster.

GT is building a manufacturing facility in Arizona in partnership with Apple to produce sapphire material for the iconic company's devices. The next iPhone, expected to hit stores in late September, will reportedly use sapphire to make its screen tougher and more scratch-resistant.

Apple hasn't announced details of its next device. But leaks about a new screen design have set a high bar for GT to ramp up a new business—and quickly.

Historically, the company has sold manufacturing equipment to producers of sapphire and other materials, but the venture with Apple will turn GT into a sapphire supplier in its own right. The Arizona plant is nearly complete. GT said on its last earnings call that the facility is beginning to shift to volume production, though it doesn't expect "full operational efficiency" there until early next year.

That timing suggests GT may not be the sole supplier of sapphire for the iPhone 6, should that device incorporate the new display material. But the company still has some big targets to hit in the near term: About 88% of GT's full-year revenues will have to come in the second half if it is to meet its current projection.

And despite Apple's public commitment to the partnership, the deal still carries risk. Apple isn't locked into taking any specific volume from GT, which means it can still shop elsewhere. The deal also places some limits on sapphire-producing equipment that GT can sell to its other customers, though GT hasn't shared any further details on this.

Apple is expected to announce its new iPhone on Sept. 9. UBS estimates that GT's stock could swing as much as 10% up or down that day on the news. The shares now trade at more than 30 times forward earnings. Corning, GLW +1.02% which makes the Gorilla Glass material used in many current smartphone models that could end up being displaced by sapphire, trades at 13.3 times forward earnings.

GT has a strong position with a promising technology. But its lofty valuation also assumes the company can deftly handle the industry's most demanding customer.

>>> US Close : Dow +1,06% S&P +0,83% Nasdaq +0,97%

Closing Market Summary: Cyclical Sectors Rally to Start the Week

The stock market began the new trading week on an upbeat note with small caps leading the charge. The Russell 2000 gained 1.5%, while the S&P 500 advanced 0.9% with eight sectors posting gains.

Equity indices surged out of the gate and spent the entire afternoon in narrow ranges near their highs. Although the Russell 2000 paced the rally, the small-cap index could not climb above its 50-day moving average (1159), which served as resistance.

The opening push took place after the reports that weighed on risk sentiment on Friday were refuted over the course of the weekend. To recap, comments made by Ukrainian officials on Friday suggested that a direct confrontation took place between Russian forces and Ukrainian troops, but those accounts were called into question by several parties, including the White House.

In addition to boosting equities, the news weighed on safe-haven assets. The 10-yr note spent the day in a steady retreat, which pushed its yield up five basis points to 2.39%. Similarly, Germany's 10-yr note retreated, which sent its yield back above the 1.0% mark to 1.01%.

Cyclical sectors displayed broad strength as five of six growth-oriented groups finished ahead of the broader market. The industrial sector (+1.5%) seized the lead in the early going and held on until the close with help from transport stocks. The Dow Jones Transportation Average jumped 1.7% to extend its August gain to 3.2%. Airlines led with United Continental (UAL 47.84, +1.83) climbing 4.0%.

Elsewhere, the top-weighted sector—technology (+1.1%)—also finished ahead of the S&P 500 even as chipmakers were unable to keep pace after Goldman Sachs downgraded the entire semiconductor space. The PHLX Semiconductor Index was limited to a modest gain of 0.5%. However, large cap components picked up the slack with the likes of Apple (AAPL 99.16, +1.18) and Google (GOOGL 592.70, +8.99) ending higher by 1.2% and 1.5%, respectively.

Also of note, the consumer discretionary sector (+0.9%) benefitted from M&A activity as Dollar General (DG 64.14, +6.68) offered to acquire Family Dollar (FDO 79.81, +3.75) for $78.50/share, which represents a 3.2% premium to Friday's closing price.

Despite the broad strength, one cyclical group spun its wheels throughout the session. Specifically, the energy sector (+0.3%) ended near its flat line, while crude oil fell 0.9% to $97.31/bbl.

On the countercyclical side, telecom services (-0.1%) and utilities (-0.2%) registered slim losses, while consumer staples (+0.6%) and health care (+0.8%) finished a bit behind the broader market.

Participation was below average with fewer than 600 million shares changing hands at the NYSE.

Economic data was limited to the NAHB Housing Market Index for August, which rose to 55 from 53, while the consensus expected the reading to hold at 53.

Tomorrow, July CPI (consensus 0.1%), July Housing Starts (consensus 964K), and Building Permits (consensus 1.001 million) will all be reported at 8:30 ET.

Nasdaq Composite +7.9% YTD

S&P 500 +6.7% YTD

Dow Jones Industrial Average +1.6% YTD

Russell 2000 -0.5% YTD

WSJ : Treasury Officials Preparing Options to Address Tax Inversions