Barron's : Visteon: In the Driver's Seat

--> Visteon's shares, recently in the mid-$80s, could reach $100 within 12 months, as the company's results improve and it buys back stock.

Visteon: In the Driver's Seat

The road ahead looks much smoother for restructured auto supplier Visteon, as a simplified strategy promises to end years of disappointing results.

When Tim Leuliette emerged from the boardroom to lead Visteon in August 2012, the auto supplier had swerved into a ditch. Two years out of bankruptcy, it had run through a chief executive, and its stock was languishing in the $30s, after trading as high as $75 the year before. Hedge funds and "special situation" investors were agitating for management to sell assets or even the whole company to boost the share price.

Soon after Leuliette became CEO, one such investor, anxious to cash out, asked him, "Can you get the stock to $50?" Leuliette's reply: "It's not important that I sell assets to get to $50. I can get you to $50, $60, or $70. There is a strategy here. Give us time."

And Leuliette delivered. Visteon hit $50 by Christmas of that year. In fact, Leuliette, a veteran of the auto-supply business and a Visteondirector since 2010, has driven the stock (ticker: VC) to a recent $86, more than doubling since he took charge; the shares hit a high of $89 in January on improving quarterly results. Leuliette & Co. moved quickly to simplify the company, selling lower-margin operations such as lighting (which fetched $72 million) to focus on climate control and electronics, operations with higher growth opportunities and higher margins.

BEFORE JOINING VISTEON in 2010, Leuliette, now 64, was CEO of DURA Automotive, where he'd run various international operations. Now, he's steering the Van Buren Township, Mich.–based Visteon toward emerging markets, particularly in Asia. Auto production there, estimates LMC Automotive US, will grow 6.5% this year, versus 4.2% globally. In North America, output this year is expected to climb 3%; in Europe, just 1.3%. The Asia region generated 46% of Visteon's $7.4 billion in revenue last year, up from 30% six years ago. North America accounted for 19%, down from 61% before the bankruptcy, with Europe at 30%. Visteon's biggest customer is Hyundai/Kia, which contributes 33% of its revenue. No. 2, at 28%, is Visteon's former parent, Ford Motor (F).

Shares of auto suppliers have been on a roll, their business bolstered by higher auto production in most of the world. Harman International (HAR), for example, is up 150% over the past year. Visteon rose 50%, but bulls think the shares could roll to $100 within 12 months for a gain of almost 20%. The stock is likely to be fueled by steadily improving quarterly profits, plus the sale of Visteon's underperforming interior business.

After a transition period that Leuliette calls "paint-up, clean-up, and fix-up time," Visteon has strong momentum and a $900 million order backlog, which gives management confidence it can hit its goal of $9.7 billion of revenue by 2017. That also should boost investors' confidence that the company will meet or even beat the $155 million, or $3.50 a share, in earnings that Wall Street expects this year, and the $5.33 forecast for 2015. Visteon earned $6.48 a share last year, not including gains on asset sales, on an 8% uptick in revenue. This year, revenue is likely to come in at $8 billion.

IT HAS BEEN A BUMPY ride for Visteon since it was spun out in 2000 by Ford, which had created the company out of its internal-parts operations in 1997. The auto supplier filed for bankruptcy protection in May 2009 after losing more than $600 million the prior year. Sixteen months later, it emerged leaner with $2.1 billion less debt, but then hit the pothole of the global recession. Donald Stebbins, who became CEO in 2008, resigned in 2012 as the stock sputtered.

"Embedded in the company were very good assets that were lost in the noise" of a complex structure, says Leuliette. Along with overseeing the sale of the lighting business, he unloaded the company's 50% stake in China's Yanfeng Visteon Automotive Trim System, for $1.15 billion; consolidated its YFV Electronics into Visteon's electronics segment; and essentially put its interiors business, which generated $1.3 billion in sales last year, on the block. The business has been hurt by lower production volumes in South America.

Not that long ago, "Visteon was an $18 billion conglomerate with seven different product lines," says Chief Financial Officer Jeff Stafeil. "Today, we have gone from a very complex entity to climate and electronics, two businesses with high growth rates and high technology, [benefiting] from tail winds from regulations and consumer preference."

Climate and electronics generate more than 80% of Visteon's revenue. Climate, which includes heating, ventilation, air-conditioning, and power-train cooling systems, last year grew 14%, to $4.9 billion. Visteon is the No. 2 player in the global climate market, with a 13% share, behind Japanese giant Denso (DNZOY).

Visteon scored over $1 billion of contract wins last year, due in part to products like the centrifugal air compressor, which aids fuel efficiency in cars. The climate division boasts 10% profit margins, and management is confident that its sales can expand by 7% annually for the next four years, with the aid of new products.

VISTEON'S ELECTRONICS UNIT makes infotainment and driver-information systems. The business grew 14%, to $1.5 billion last year, has an 8.3% margin, and could expand at a double-digit pace in coming years. Visteon is focusing hard on the fast-growing cockpit-electronics market, where it holds a 10% share, behind Germany's Continental (CTTAY). Visteon and its rivals are trying to produce automotive infotainment and safety-alert systems that essentially turn cars into rolling smartphones, while remaining simple to use and not distracting the driver—a combination that no one has yet been able to offer.

Guggenheim Securities analyst Matthew Stover bases his $100 price target for the shares on the value of Visteon's assets. He views the climate division as worth more than $2.6 billion, or about $54 a share. That valuation takes into account Visteon's 70% stake in Halla Visteon Climate Control (018880.Korea). He pegs the value of Visteon's electronics segment at $27 a share, including the purchase price for JCI Electronics, as well as other items such as net cash and tax shields which he thinks are worth $19 a share.

Visteon looks inexpensive, trading at 6 times earnings before interest, taxes, depreciation, and amortization, while the auto-supplier group fetches 7.1 times. And Stover and other bulls on the stock say the supplier's earnings per share could grow at a 25% clip, over the next four years, outpacing its rivals.

Leuliette evidently agrees that Visteon shares are attractive. He plans to soon use the $875 million remaining in its share-repurchase program to "aggressively" buy back stock. At the end of the fourth quarter, Visteon had $1.7 billion of cash on its balance sheet against $730 million in debt.

If Visteon's prospects pan out, shareholders will be sitting in the driver's seat.

RTR - French satellite image also shows possible plane debris, Malaysia says

French satellite image also shows possible plane debris, Malaysia says

(Reuters) - New French satellite images show possible debris from a missing Malaysian airliner deep in the southern Indian Ocean, Malaysia said on Sunday, adding to growing signs that the plane may have gone down in remote seas off Australia.

The latest lead came as the international search for Malaysia Airlines Flight MH370 entered its third week, with still no confirmed trace of the Boeing 777 that vanished with 239 people on board.

"This morning, Malaysia received new satellite images from the French authorities showing potential objects in the vicinity of the southern corridor," the Malaysian Transport Ministry said in a statement. "Malaysia immediately relayed these images to the Australian rescue co-ordination center."

Australian Prime Minister Tony Abbott said there was "increasing hope" of a breakthrough in the hunt for the plane on the strength of Chinese and Australian satellite images of possible large debris in the southern search area.

The French Foreign Ministry said radar echoes from a satellite put the new debris finding about 2,300 km (1,430 miles) from Perth, without giving a direction or a date.

The debris in the Australian image was about 2,500 km southwest of Perth and the Chinese sighting, captured two days later, was around 120 km (75 miles) "south by west" of that.

"These elements have immediately been passed on to the Malaysian authorities," the ministry said in a statement. "France had decided to mobilize complementary satellite means to continue the search in the identified zone."

Flight MH370 vanished from civilian radar screens early on March 8, less than an hour after taking off from Kuala Lumpur on a scheduled flight to Beijing.

An international force resumed its search efforts on Sunday, zeroing in on two areas around where the sightings were made in an effort to find the object identified by China and other small debris, including a wooden pallet, spotted by a search plane on Saturday.

The Australian rescue co-ordination center sent out eight aircraft - four military and four civilian - to the southern corridor.

"The weather in the southern Indian Ocean is much clearer today than the past couple of days, allowing for the full spectrum of electronic and visual of search capability," Commander William J. Marks, spokesman for the U.S. 7th Fleet, said in an email.

China said the object it had seen on the satellite image was 22 meters long (74ft) and 13 meters (43ft) wide, floating in some of the most inhospitable sea territory on Earth.

It could not easily be determined from the blurred images whether the objects were the same as those detected by Australia, but the Chinese photograph could depict a cluster of smaller objects, said a senior military officer from one of the 26 nations involved in the search for the plane.

The wing of a Boeing 777-200ER is approximately 27 meters long and 14 meters wide at its base, according to estimates derived from publicly available scale drawings. Its fuselage is 63.7 meters long by 6.2 meters wide.

HIJACK OR SABOTAGE?

Investigators believe someone on the flight shut off the plane's communications systems, and partial military radar tracking showed it turning west and re-crossing the Malay Peninsula, apparently under the control of a skilled pilot.

That has led them to focus on hijacking or sabotage, but they have not ruled out technical problems. Faint electronic "pings" detected by a commercial satellite suggested it flew for another six hours or so, but could do no better than place its final signal on one of two vast arcs.

The lack of solid news has meant a prolonged and harrowing wait for families of the passengers, who have complained both in Beijing and Kuala Lumpur about the absence of information, many breaking down with grief. Most of the passengers boarding MH370 were Chinese.

The Malaysian statement said a "high-level" team briefed relatives in Beijing on Sunday in a meeting that lasted more than six hours.

While the southern arc is now the main focus of the search, Malaysia says efforts will continue in both corridors until confirmed debris is found.

"Hopefully we will eventually provide some sort of closure or at least understanding of what happened on board Malaysian Airlines Flight MA370," Australian Deputy Prime Minister Warren Truss said. "The search will continue and will continue as long as there's hope."

A flock of birds shattered the windshields of a Malaysia Airlines jet as it landed in the Nepali capital, Kathmandu, but all 180 passengers and crew were safe, an airport official said on Sunday.

The birds hit the Boeing 737 late on Friday, Ratish Chandra Lal Suman, chief of the Civil Aviation Authority Nepal, said.

Barron's : Everest: Getting Selective With Emerging Markets

Everest: Getting Selective With Emerging Markets

Everest Capital's founder explains his fund's index-beating approach to emerging and frontier markets.

Slowing growth in countries like Brazil, China, and India has shifted the spotlight to some less appealing aspects of these once-darling economies. Some investors haven't liked what they've seen, withdrawing $53 billion from emerging-market equity funds since early 2013, according to EPFR Global.

But Marko Dimitrijevic, 54, who runs a hedge fund firm dedicated to global and emerging-market investing, is unfazed. The founder of Everest Capital, which oversees $2 billion in assets from Singapore and Miami, is adept at weathering choppy waters—in volatile emerging markets and as a published photographer of sharks and whales. Dimitrijevic began investing in emerging markets before Russia had a stock market or China was on investors' radars. Having survived 1998's currency devaluations and 2008's financial crisis, he cautions against ignoring emerging markets—or treating them alike.

Swiss-born Dimitrijevic, who is fluent in six languages, chooses his words carefully. The same goes for investments, with Everest marrying a macroeconomic approach with stock-picking. The flagship Everest Global Capital fund returned 41% last year, compared with a 23% gain for the MSCI All Country World Index. Since inception in 1990, it has averaged a 12% return annually, more than four percentage points better than the index.

The fund has about 40% invested in the developed world, slightly less than a year ago, and 30% each in frontier and emerging markets. Barron's spoke with Dimitrijevic by phone in Miami to discuss opportunities in China and India and reasons to invest in smaller emerging and frontier markets.

Barron's: Some strategists are cutting allocations to emerging markets. What do you think?

Dimitrijevic: Taking emerging markets as one concept and making predictions on the group is not going to work anymore. The one-way trade, where most emerging markets did well between 2002 and 2008, was more of an aberration. Many emerging markets have emerged, so differentiation is becoming very important. Last year was a good example, with markets like Taiwan up and others down tremendously. You're going to have to be very selective, but to ignore emerging markets is dangerous.

Why?

The market cap, even though it has underperformed, is larger than that of Japan, the United Kingdom, and Germany combined. While some larger emerging markets are not growing as fast, they are still growing faster than developed markets. If anything, they're just going to become much larger; it's the same, but on steroids, for frontier markets.

Last year's currency declines sparked concerns about a 1998-type crisis. What's changed since then?

Most currencies in emerging markets are now floating, so you didn't have a crisis last year in many of the countries that had significant currency adjustments. With some exceptions, overall indebtedness and import coverage is also much stronger than in 1998. Because of lessons learned from that period, many countries did not use reserves to defend their currencies. Rather, some raised rates and endured an adjustment period. The market is differentiating between India and Indonesia, which have taken such steps, and Brazil and Turkey on the other side.

Brazil's economy has struggled recently. Could coming presidential elections be a turning point?

I'm afraid not. Brazil looks a bit better, but it's not a strong positive endorsement from an economic standpoint. It faces a lot of structural issues like infrastructure and extremely heavy bureaucracy that makes it hard to get things moving. But I can see Brazil muddle through. There are still interesting companies in education and insurance, which are going to be very good sectors. Education, for example, is an area benefiting from government policy rather than getting hurt by it.

Mexico seems like the opposite situation.

It is clearly doing a lot of things right. The government struck an agreement with leading parties to pass various reforms, approving new legislation for education, fiscal, telecom, and energy. [Energy] offers the most potential to increase growth.

Is there a but?

From a stock-picking standpoint, it is more challenging because of the way the [Mexico] index is constructed. Some heavyweights like América Móvil [ticker: AMX] are actually more challenged by reforms than helped by them. But infrastructure is attractive because energy reform will result in stronger demand for cement.

Speaking of reforms, what about China?

People who expect a big implosion soon will be disappointed, and those who expect terrific reforms soon will be disappointed. I don't expect things to be like before, but they will do it the Chinese way: Cross the river a rock at a time.

What does that mean for the market?

There probably won't be a lot of volatility in the real economy, but there will be continuous volatility in financial markets as people try to read the tea leaves. You have to be very selective.

What looks good?

Chinese Internet and defense-related stocks are going to do very well. The Internet is very disruptive to China. The growth of Internet retailing is going to confound people, and some bricks-and-mortar companies may suffer in China faster than in the West. The central budget for defense will rise about 12% this year and is expected to grow 10% annually for the next five years. We've seen anxiety over the Japanese/Chinese relationship increase recently, which will result in stronger investment in the sector.

India's economy has been in a rut. What do you like?

India has world-class companies, like Tata Motors [TTM]. What they have done with Range Rover and Jaguar is amazing. The new Range Rover has a nine-month wait list in some markets, and Jaguar is coming up with a new lineup. But it's really more an opportunity outside India. The India domestic story is more challenging.

Why should investors consider frontier markets?

A lot of people focus on what China does, what it means for the world economy, and if it is slowing or not. Today, the gross domestic product of frontier markets is bigger than China, and many of these countries are growing as fast or faster. Yet, the market cap of frontier markets is small—about $2.5 trillion. It's not insignificant and still bigger than Germany. A chief investment officer would get fired if he said my mandate is all over the world but not in Germany.

Frontier markets are up 9% this year, on top of a 21% gain in 2013. Is there more upside?

Frontier markets are just at the beginning of a rerating phase,and the opportunity is quite different than in larger emerging markets. Frontier markets are much closer to mainstream emerging markets 15 years ago. In some of those markets, you can do quite well from a macro approach because you're in a much earlier stage of development. In some companies, you'll have five, seven, maybe 10 years of superior growth.

But isn't liquidity an issue?

Yes. If you're investing in frontier markets and want daily liquidity through an exchange-traded fund, you shouldn't invest in frontier markets. We match the liquidity of our investments with that of the underlying vehicle. Any fund with less than a month of liquidity is going to be trouble one day.

Africa has gotten a lot of attention lately. What has that done to valuations?

It's clearly a theme that caught on with retail-oriented funds and that pushed valuations into unattractive territory for some of the more obvious consumer franchises, whether food or breweries. We took advantage of that to reduce our exposure to some of those and redeployed it in other sectors. Banking is another way to capture the increase in consumption. As you get richer, you start using more banking services, and you can get these stocks for much cheaper valuations than some of the more obvious consumer stocks. We own some banks in Nigeria and Rwanda, some breweries like Bralirwa [BLR. Rwanda], and have investments in oil and gas.

What else is attractive?

We think Saudi Arabia is the largest opportunity within emerging markets.

Aren't there foreign-holding restrictions?

Yes. But for those like us who can get it, it is a vibrant economy. The market is close to $500 billion in market cap, larger than Mexico or South Africa, but it falls in the no-man's world of indexes—neither in frontier or emerging-markets indexes. It has a young population earning good income. Anything consumer-related is going to have a tail wind for several years to come. We own Alhokair [ALHOKAIR.Saudi Arabia], one of the biggest apparel retailers in the midprice fashion category. Saudi remains one of the most underpenetrated apparel markets. Sales per capita are about $350, which is 25% below the emerging-markets average even though GDP/capita is quite high at $25,000. There is a growing focus on shopping as a form of entertainment, and Alhokair, which offers about 80 brands including Zara, has prime locations.

Why should investors look beyond the usual emerging markets?

It's just a bigger sandbox. If you limit yourself to indexing, you have a big swath of Chinese banks and state-controlled energy companies across the emerging-markets world. It's not necessarily where the next opportunity is going to be. If you limit yourself to the frontier market index, Kuwait has a 30% weight. [Kuwait] is 5% of our frontier-markets universe, so it's completely lopsided in the index.

You have to broaden your horizon because the index is not a representation of reality. There are over 1,000 liquid companies in our universe and great themes and companies, but you won't capture that by buying and holding an ETF.

How do you feel about the U.S.?

The base case is moderate growth. Real unemployment will decline, but structural issues will make it difficult to come down substantially. As a result, the Fed will keep its low-rate policy, so the economy will be neither too hot or too cold. Markets will move in lock step with earnings, so probably high single digits, maybe low double-digit returns.

What do you like in the U.S.?

Solar, including companies like SunEdison [SUNE]. The cost of solar modules, the biggest single component in a solar-power project's cost, has fallen about 85% in the past five years. The all-in cost of these projects has declined over the past decade to a point where in many areas, even globally, newer solar projects offer an equivalent cost of electricity that is as good or better than prevailing grid rates, even without incentives. Countries like China and India are committing more resources toward clean sources of energy to combat pollution, with solar a key beneficiary.

We also own XPO Logistics [XPO], a freight-logistics and brokerage-services firm. It is consolidating the U.S. freight-brokerage market, which has about 10,000 players. About 90% of them are small and lack the capital to scale, which typically makes them willing sellers. XPO's management has extensive experience and a successful track record with prior consolidation.

>>> Barron's : Summary AAPL, MSFT, VC, PFG, YHOO...

Barron's Saturday summary: positive on AAPL, MSFT, VC; cautious on PFG, YHOO

Cover story: Barrons 10th annual list of the Worlds Best CEOs; New to the list are Richard Anderson of DAL, Mark Donegan of PCP, Reed Hastings of NFLX, John Martin of GILD, Leonard Schleifer of REGN, Masayoshi Son of Softbank, Jeffrey Sprecher of ICE, and Mark Zuckerberg of FB. 

Features: 
1) Positive on AAPL: A new iPhone with a larger screen to better compete against offerings from Samsung could boost Apples second-half earnings by 10-15% and give users a new reason to upgrade, lifting shares by 20% or more, while a buyback could also be in the works; 
2) Cautious on PFG: Current share price doesnt reflect companys attractive long-term position as a global money manager, and if multiple were accorded it following that viewpoint, shares would be worth 25% more; 3) Positive on VC: Shares, now in the mid-$80s and cheaper than rivals such as HAR, JCI, and DLPH, could reach $100 in the next 12 months as results improve and company buys back stock. 

Tech Trader: Positive on MSFT: Companys decision to offer Office for the AAPL iPad was a good one, but despite the fact Office is a cash cow, cloud computing is the key to the companys future; that market is in an early, evolutionary phase and will eventually coalesce around a few top vendors, presenting an opportunity for Microsoft. 

Trader: Positive on TGT: In a market where few stocks of strong, reliable, dividend-paying firms are cheap, Target looks attractive despite recent hit to its reputation from data breach; Positive on TWTR: New report from Markit finds that some tweets provide the basis of important, short-term sentiment indicators, and when properly collected, scrubbed, and analyzed, can help build a trading portfolio that beats the market; Cautious on CWH: If shareholder vote to replace entire board holds up, shares could eventually reach $30 from current $22. 

Small Caps: Positive on MDR: At current prices, shares already reflect concerns about execution problems and cost overruns due to expansion of fleet capabilities, and they could be poised for gains over the next 18 months. 

Mutual Funds: Interview with David Rolfe, Portfolio Manager, RiverPark/Wedgewood Retail Fund (top ten holdings: BRK.B, AAPL, ESRX, QCOM, CTSH, EMC, MTB, CMI, SRCL, PRGO); Interview with Marko Dimitrijevic, Founder, Everest Capital (top picks: XPO, SUNE, TTM, Brasseries et Limonaderies du Rwanda, Fawaz Abdulaziz Alhokair). 

Follow-Up: Cautious on YHOO: Shares are up mostly because of strength of Alibaba stake, which for now gives chief Marissa Mayer breathing room to implement her strategies, but its hard to see the formula turning Yahoo into a media force anytime in the near future, much less returning it to its former glory; Positive on MSG: If new Knicks president of basketball operations Phil Jackson is allowed free rein in his five-year deal, shares could rise 25%. 

European Trader: Positive on Gtech: Recent earnings disappointed, but company could generate good returns for shareholders by consolidating dominance in Italy, winning more contacts in the U.S. and in international markets, and eking out fatter profit margins. 

Asian Trader: Positive on Bank of China: As Chinas credit conditions worsen, bank seems to be the safest pick among countrys big players, partly due to overseas operations that wont be affected by domestic economic slowdown. 

Emerging Markets: Russia faces a number of economic challenges, including corporate governance issues, high interest rates, an aging population, and reliance on commodities, making it hard to forge an investment strategy (Positive on Magnit; Negative on Pharmstandard, Surgutnetflogas). 

Commodities: Ukraines farmers are using wheat and corn to hedge against the risk of a currency crisis, and the uncertainty has the potential to drive prices even higher in markets worried about countrys supplies. 

Streetwise: What really unnerves investors, says Kopin Tan, is how the U.S., which led the world into quantitative easing, may have to lead the world into monetary tightening.

>>> Quarterly survey of Japanese CEOs predicts a small impact from the consumpti

Quarterly survey of Japanese CEOs predicts a small impact from the consumption tax increase going into effect April 1st - Nikkei
- Among the 148 respondents, 70.2%, said they expect a sales downturn of less than 5%, or none at all, in FY14, which runs through March 2015. 
- A majority (55.4%) expects Japan's economy to improve or show signs of impending improvement by Sept, and that number grows to 74.3% by Dec. - 46.6% of CEOs said they are actively looking for M&A targets, up 4 percentage points from a year ago. 

**NOTE: the last time the consumption tax was raised -- from 3% to 5% in 1997 -- sales rose sharply in the month ahead of the increase and then fell 8% the month after it went into effect and sales of big ticket items like autos and appliances were depressed for an extended period.

>>> Fed's Stein : Concerns about financial stability should impact monetary poli

Fed's Stein (moderate, FOMC voter): Concerns about financial stability should impact monetary policy; if the bond market indicates abnormal rise in risk taking then the Fed should tighten policy even at the risk of potential unemployment consequences
- "I am going to try to make the case that, all else being equal, monetary policy should be less accommodative -- by which I mean that it should be willing to tolerate a larger forecast shortfall of the path of the unemployment rate from its full-employment level -- when estimates of risk premiums in the bond market are abnormally low." 
- These comments are conjectural and not meant as a comment or critique of current Fed policy.

>>> Weekly Market Update: Janet Yellen's World

Weekly Market Update: Janet Yellen's World

- This was the week that Janet Yellen put her stamp on global markets. The Fed tapered again in Wednesday's rate decision and dropped its 6.5% unemployment threshold, surprising nobody. But during the post-decision press conference, Yellen suggested the Fed would consider hiking rates as soon as six months after the end of QE3. Under a strict interpretation, if asset purchases end in November of this year as expected, rate hikes would arrive in the second quarter of 2015. Global markets were very choppy in the remainder of the week as participants recalibrated positions and worked out the implications of Yellen's verbal guidance. In other news, Russia absorbed Crimea and incurred retaliatory sanctions from the US and EU. In China, the PBoC widened the daily yuan trading band to 2% from 1% and appeared to continue its campaign to halt hot money inflows. The impact of data reports was pretty muted overall. For the week, the DJIA gained 1.4%, the Nasdaq rose 0.7%, and the S&P500 added 1.3%, touching a fresh record level on Friday before retreating from highs.

- In the statement accompanying Wednesday's rate decision, the FOMC formally dropped the 6.5% unemployment threshold. In its place, the FOMC said that in determining how long to maintain ultra-low rates, assessment of progress "will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments." Many observers seemed to believe that Yellen's six-month comment was a slip of the tongue and was not intended to reshape forward guidance, especially after the Fed just dropped its quantitative unemployment threshold. Moreover, Yellen was emphatic that markets should not make strict interpretations and reiterated what all of her colleagues and former chair Bernanke have repeated again and again: the first rate hike is highly data-dependent and will reflect a "balanced judgment" about prospects both for labor market slack and inflation pressure.

- Minneapolis Fed President Kocherlakota was the sole dissenter to the FOMC decision. Kocherlakota has tended toward the dovish end of the spectrum and his dissent was rooted in concerns about the labor market. He warned that the new guidance weakened the Fed's commitment to its 2% inflation target and does not provide any information on the speed at which the Fed wants to reach full employment. St. Louis Fed President Bullard said that Yellen's comments on the timing of rate hikes was not a change in policy and was simply referring to market expectations about what was meant by a "considerable period."

- US bond traders reacted to the Fed statement swiftly by aggressively selling the middle and short end of the US curve. Ultimately the Fed offered up very little in the way of new information regardless, expectations have crept in for a little tighter policy next year; 2015 fed fund futures are now fully pricing in at least a 50 basis point rise in rates to begin by mid-summer. Previously traders had seen a greater likelihood of only 25 basis point hike to come sometime in the middle part of the second half. The 5-year/30-year spread has compressed to its flattest level since the summer of 2012. For the week the rate on the 30-year has climbed only marginally and the 10-year continues to hold near 2.75%, backing up a modest 10 basis points, while the 5-year is up some 20 basis points. Supply looms next week: $96B in 2-, 5- and 7-year notes could be challenging and keep pressure on the belly of the curve. Note that spot gold sank in the second half of the week, giving up 3.5% after the FOMC decision.

- The Fed released the first component - stress test results - of its Comprehensive Capital Analysis and Review (CCAR) this week. Twenty nine of 30 banks passed the severely adverse scenario, which included a 4% jump in the unemployment rate, 4.75% negative GDP growth, a 50% decline in equity prices and a 25% decline in real estate prices. Zions Bancorp was the only institution that would not remain well-capitalized with Tier 1 common equity ratios of at least 5.0% under the stress scenario. The second component of CCAR, including the Fed's evaluation of each firm's capital plans, dividends and buybacks, will be disclosed Wednesday, March 26. Thanks to CCAR and higher rate expectations, both regional and tier-one banks saw robust gains this week, with the exception of Zions, whose shares lost nearly 5% on Friday.

- Russia formally absorbed Crimea this week, drawing US sanctions against various high-level Russian officials and a few selected institutions, most notably Bank Rossiya, a key firm used by the Putin regime and Geneva-based Gunvor, the world's No. 4 oil trading company. The European Union discussed possible sanction options but has taken little concrete action against Russia besides freezing military ties and sanctioning a few individuals. The EU also signed the political sections of the association agreement with Ukraine. Both S&P and Fitch have cut their sovereign outlooks on Russia to negative.

- FedEx missed earnings and revenue expectations in its third quarter report, and like so many firms before it blamed the weather. FedEx's CEO stated that "historically severe winter weather significantly affected our third quarter earnings. On days when the weather was closer to normal seasonal conditions, our volumes were solid and service levels were high." Nike reported very good third quarter results, but made troubling comments during its conference call, warning that FX headwinds would continue to reduce EPS in Q4 and into 2015, and would reduce FY15 earnings. Oracle missed top- and bottom-line expectations slightly in its third quarter and its fourth quarter outlook was also a bit soft. Analysts highlight the firm's high spending levels to catch up with a horde of cloud computing rivals.

- Ahead of March quarter earnings season, AK Steel and Nucor both offered their customary pre-earnings guidance statement. Both firms warned that EPS would be well below expectations, citing extreme weather that has disrupted customer demand. AK also cited a planned blast furnace outage and legal settlement charges.

- EUR/USD made a few last stabs at 1.3950 early this week before the FOMC decision reversed sentiment and strengthened the greenback. The pair hit two-week lows around 1.3750 on Thursday. The yen weakened in a more restrained fashion after the FOMC, rising from 101.60 to around 102.60 before strengthening a bit through week's end.

- The Chinese Yuan has now given back all of its 2013 gains as the PBoC lets the currency weaken further to curb hot money inflows. Last weekend, the PBoC widened its daily yuan trading band from 1% to 2%. USD/CNY spent most of the week above 6.20, raising concerns about a specialized financial product, originally used to hedge foreign exchange risk, called a trade redemption forward contract (RFC). The contract pays investors if the yuan remains strong and will start costing dearly as USD/CNY weakens past 6.20. In a report out recently, Morgan Stanley wrote there had been $350 billion RFCs sold since the beginning of 2013 and $150 billion might still be outstanding.

- Japan announced another trade deficit which was wider than expected but still smaller than the past three months on adjusted basis. Both exports and imports were up in high-single digits, for a 12th and 16th consecutive rise, respectively. Trade components also showed some improvement, with double-digit y/y exports increase to Asia, China, and Europe as well as a 6.4% drop in the bill for crude oil imports.

>>> US Close Dow-0,17% S&P-0,30% Nasdaq-0,98%

Closing Market Summary: Stocks End Strong Week on Cautious Note

The stock market finished an upbeat week on a lower note with the tech-heavy Nasdaq Composite losing 1.0% while the S&P 500 shed 0.3% with four sectors ending in the red.

Equities began the day on a strong note with no economic data to influence the trading sentiment; however, quadruple witching and index rebalancing contributed to additional volatility and volume. With nearly two billion shares changing hands at the New York Stock Exchange, today's final volume was less than 500 million below the 2.44 billion collective total registered between Monday and Thursday.

The S&P 500 surged out of the gate, notching a fresh intraday record high at 1884.00, but was unable to establish a new closing high above the March 7 settlement of 1878.04. After spiking at the open, the benchmark average spent the rest of the session in a steady retreat.

While the S&P 500 did not slip into the red until just before 14:00 ET, the Nasdaq underperformed from the open, making its first appearance in negative territory around 10:00 ET. Biotechnology pressured the index from the early going with the iShares Nasdaq Biotechnology ETF (IBB 246.01, -12.24) spending the session in a steady slide before settling lower by 4.7% on heaviest volume since October 2005. The ETF ended 9.9% below its February high, trimming its 2014 gain to 8.4%. In addition to pressuring the Nasdaq, biotechnology contributed to considerable weakness in the health care sector (-1.5%), which ended well behind the remaining nine sectors.

Although no other sector posted a loss larger than 0.6%, other top-weighted groups like technology (-0.5%) and consumer discretionary (-0.6%) underperformed while financials (+0.01%) finished a bit ahead of the broader market after being up as much as 1.1% at the start of the session.

Losses in the technology sector were paced by chipmakers with Intel (INTC 25.17, -0.25) falling 1.0% while the broader PHLX Semiconductor Index lost 0.9%. On the software side, shares of Symantec (SYMC 18.20, -2.71) caught a virus, plunging 12.9% after the company unexpectedly terminated Chief Executive Officer Steve Bennett, naming Michael Brown interim president and CEO.

Elsewhere, the discretionary space was pressured by homebuilders and Nike (NKE 75.21, -4.06). Top-weighted homebuilders posted losses across the board with the iShares Dow Jones US Home Construction ETF (ITB 24.17, -0.40) slumping 1.6%. For its part, Nike tumbled 5.1% after its cautious outlook overshadowed above-consensus earnings and revenue.

Even though three of the four largest sectors underperformed notably, the broader market was kept from registering additional losses by the relative strength among the second-tier sectors. Consumer staples (+0.03%), energy (+0.3%), and industrials (+0.1%) all finished ahead of the broader market. Materials (+0.5%), telecom services (-0.03%), and utilities (+0.8%) also ended ahead of the S&P 500, but their impact was limited since three sectors account for just 9.9% of the entire market.

With stocks under pressure, participants displayed demand for volatility protection, sending the CBOE Volatility Index (VIX 15.00, +0.48) higher by 3.3% after the near-term volatility measure tested early March lows at the start of the session.

Treasuries spent the entire day in a steady climb from their morning lows. The benchmark 10-yr yield fell three basis points to 2.74%.

* Russell 2000 +2.8% YTD  * Nasdaq Composite +2.4% YTD  * S&P 500 +1.0% YTD  * Dow Jones Industrial Average -1.7% YTD 

(Makor) Special Sits: Verifone - from BUY TO HOLD (+65% over one year)

Special Situations: Verifone Systems (PAY US)

trade action flash - HOLD - $35 mid-point tgt reached /+65% PAY US: US$ 34.9 March 21, 2014 We downgrade our recommendation on Verifone (PAY) from buy to hold as the stock has moved from $21 to about $35, our initial target range established a year ago, and thus providing a 65% return. Moreover, the stock now appears expensive vs. Ingenico, its main competitor. FULL REPORT ATTACHED