TheChek News Flow

Israel willing to strike Iran on its own, says ex-security chief

As the US and other world powers resume pursuit of a diplomatic solution to Iran’s nuclear programme, Israel’s outgoing national security chief has joined other officials in sounding a tough warning, insisting that the Jewish state has the ability to strike the Islamic Republic and is willing to go it alone. In an interview with the Financial Times, Yaakov Amidror, who stepped down last month, said Israel could halt Iran’s nuclear weapons capability “for a very long time”, and added its air force had been conducting “very long-range flights . . . all around the world” as part of preparations for a possible military confrontation with Iran.

“We are not the United States of America, of course, and believe it or not they have more capabilities than us,” Mr Amidror said. “But we have enough to stop the Iranians for a very long time.” Mr Amidror’s comments are the latest in a series of strong – and at times belligerent – remarks by Israeli government officials, who are in open disagreement with the US about the negotiations to get Iran to freeze its military nuclear capability. A new round of talks will open in Geneva on Wednesday. Israel opposes the notion of an interim deal between Iran and world powers that falls short of dismantling Iran’s nuclear programme entirely. Benjamin Netanyahu, the prime minister, last week gave one of his strongest hints yet that Israel might strike Iran when he said that a “bad deal” was liable to lead to war. The US has consistently opposed an Israeli attack on Iran. Washington fears a unilateral strike would prompt huge retaliation against Israel, particularly from Iran’s Lebanon-based ally Hizbollah, as well as possible Iranian reprisals against US military installations in the Gulf. Officials and analysts in the US and Israel also say Israel acting alone would inflict less damage to Iranian nuclear facilities than a US-led operation. While the Pentagon has made available to Israel a broad range of military technologies, one of the weapons it has held back is its new generation of “bunker-buster” bombs. Military analysts believe it is the only weapon potentially able to destroy Iran’s uranium enrichment facility at Fordow, which is buried deep under a mountain. Mr Amidror, when asked whether Israel’s military capability included the ability to strike Iran’s underground nuclear installations, said: “including everything”, but declined to elaborate. “We are not bluffing,” Mr Amidror said. “We are very serious – preparing ourselves for the possibility that Israel will have to defend itself by itself.” He said Israel’s preparations for possible conflict included long-range flights to ready Israeli pilots for possible missions to Iran. “From here to Iran, it is 2,000km, and you have to be familiar with such destinations,” Mr Amidror said. He added: “All those who have radar cover of the Middle East know what we are doing.” He said that the flights had been taking place “for a few years”. Mr Amidror, a two-star general, served as Israel’s national security adviser for two and a half years, longer than any of his predecessors. He has known Mr Netanyahu since 1969, when they took an intelligence course together near Tel Aviv. When asked whether he was convinced the Israeli prime minister had it in him to take unilateral military action, he said: “If you ask about him personally as a prime minister, he is ready to take such decisions. The answer is a clear yes.” He added: “The situation will be the determining factor for any prime minister. The situation will dictate actions.” Israel is thought to have a nuclear weapons arsenal of its own, which it has never acknowledged. It sees Iran’s pursuit of a nuclear bomb as a threat to its existence and says a nuclear-armed Iran would threaten other countries – including the US – and draw the region into a new arms race. “It is not just a threat to Israel, it is a threat to the whole of the Middle East and, towards the end of this decade, to the world,” Mr Amidror said. “But we cannot count on others to do the job if the others don’t want to do the job.” If Hizbollah were to retaliate by firing missiles and rockets at Israel, Mr Amidror indicated that Israel must be prepared to undertake a ground operation in Lebanon to root out those doing the firing. “We will have to be ready to use ground forces to go into the urban centres and to deal with the people who are launching the rockets, and to destroy the rockets and launchers,” he said.

Bubble Trouble?

Social media and cloud-related stocks seem stretched to bursting, but big blue chips still look attractive. Our 13 picks.

Going into the final six weeks of the year, the major U.S. stock markets have already registered 20%-plus gains, and most are at or near record levels. The benchmark Standard & Poor's 500 is up 26% to 1798, finishing the week at a new high. This is the best year for the S&P since 2003. Small stocks have soared even higher, with the Russell 2000 index up 31%. And the workhorse Dow Jones Industrial Average ended the week at a record 15,961, having moved up almost 22%.

The widespread gains have prompted talk of a bubble similar to ones in 2000 and 2007. And in certain pockets of technology, including social media and cloud-related companies, that is no doubt true. Highfliers like Twitter (ticker: TWTR), LinkedIn(LNKD) and Workday (WDAY) all look overextended. And in the strongest IPO market since 2007, shares of up-start restaurant chains Noodles & Co. (NDLS) and Potbelly(PBPB) are rich enough to give you heartburn.

But big blue chip stocks, including large financial, technology, and energy companies, still look attractive. The S&P 500 is valued at 16 times projected 2013 operating profits of $109 and at 15 times estimated 2014 earnings of $120. Those price/earnings ratios are about equal to the long-run average. Even if next year's earnings growth is closer to this year's projected 5% than to the aggressive current estimate of 10%, the S&P 500 forward P/E is 15.6, which doesn't look excessive at a time of near-zero short-term rates, a 2.71% yield on the 10-year Treasury note, and sub-6% average yield on junk bonds. The S&P 500 dividend yield is 2%, but the earnings payout ratio is historically low at about 35%, meaning companies have room to further boost dividends. "The first stage of the bull market was a revaluation to something resembling reasonable levels as it dawned on investors that the world wasn't going to end," says Stephen Auth, chief investment officer at Federated Investors. "The second stage began this summer with a transition to the view that the economy is accelerating and that earnings are poised to increase significantly in the coming years."

Tom Lee, the bullish JPMorgan strategist, says "We're in a secular bull market that will last at least another three years." Adds Jim Paulsen of Wells Capital Management, "If inflation stays at 3% or less, the market P/E could get into the 20s."

(For a differing view, see the interview with GMO's Ben Inker, "Bright Spots in a Pricey Market.")

Auth, who has been one of the most bullish analysts in Barron's periodic surveys of Wall Street strategists, thinks the S&P 500 could hit 2000 by the end of next year, about 11% above current levels.

Among major asset classes, stocks are by far the best, he says. "The fundamentals are good for stocks and terrible for everything else: bonds, commodities, and cash." Treasury and junk-bond yields are at historically low levels, while slowing growth in China and much of the developing world is cooling demand for a range of commodities, which are in the red this year based on broad-based indexes.

Barron's consistently has been bullish on the stocks in recent years, starting from the market low in March 2009 ("Ouch! That Hurt," March 9, 2009) and including a cover story early this year when the Dow industrials traded around 14,000 ("New Highs in Sight," February 4).

One of the biggest coming challenges for stocks is the likely curtailment of the Federal Reserve's aggressive bond purchases during 2014. When Federal Reserve Chairman Ben Bernanke raised the prospect of "tapering" in the spring -- an action that the Fed has since postponed -- stocks stumbled. But Auth argues stocks can appreciate in 2014 in the face of higher bond yields.

THERE ARE PLENTY of reasons for caution. Margin debt has risen to record levels, investor complacency is high with the VIX index -- a gauge of volatility known as the "fear index" -- near a 10-year low, and many professional investors are raising cash or hedging their portfolios. Warnings about bubble-like conditions are coming from the likes of BlackRock CEO Larry Fink and longtime bull Warren Buffett who said two months ago, when the S&P was 5% below current levels, that he's "having a hard time finding things to buy." That said, last week Berkshire Hathaway (BRKA) disclosed that it had taken a $3.45 billion stake in ExxonMobil (XOM).

Barron's Roundtable member Scott Black of Delphi Management in Boston notes this year's bull move is different because "the market hasn't left anything behind." All major sectors of the stock market have rallied this year, a contrast to the situation in 1999 and 2000 when technology soared and most other areas of the stock market trailed badly. Among the few weak spots in 2013 are coal and gold shares.

Another laggard has been real-estate investment trusts, which have risen just 5% including dividends, as measured by the MSCI U.S. REIT index. That's behind telecom, utilities, and master limited partnerships. REITs appear to be one of the most attractive income-oriented sectors of the stock market given average dividend yields of about 4%, the prospect of mid-single digit annual profit growth and some inflation protection.

The case for small and mid-cap stocks is harder to make after outsize gains this year and more than a decade of outperformance relative to their larger brethren. The median mid-cap stock in the S&P MidCap 400 has a market value of about $3.4 billion while the median issue in the S&P SmallCap 600 is just under $1 billion.

"Small caps are awfully expensive on an absolute basis and relative to large-cap stocks," says Bank of America Merrill Lynch strategist Steven DeSanctis. He calculates that the Russell 2000 index is valued at about 18.5 times forward earnings. The small-cap benchmark historically has had a higher P/E than the S&P 500, but the spread has averaged less than one multiple point. The gap, based on 2014 earnings estimates, is now more than two points.

DeSanctis's work shows that when small stocks have been this expensive -- dating back to 1979 -- the return in the subsequent 12 months has averaged a negative 1% and they have trailed large-cap stocks by about five percentage points. Black agrees, noting that small- and mid-cap indexes look overpriced and that large-cap stocks are fairly valued. "It's getting especially difficult to find good value among small and mid-cap stocks," he says.

One indication of how scarce bargains are in the small- and mid-cap arenas is that there are just 10 stocks in the S&P mid-cap index with P/Es of 10 or lower based on estimated 2013 earnings and just 14 such stocks in the S&P small-cap index. There are 21 sub-10 P/E stocks in the S&P 500 with the largest representation from financials, includingMetLife (MET), Prudential Financial (PRU), and Capital One Financial (COF), and technology, such as Hewlett-Packard (HPQ), Western Digital (WDC), andMicron Technology (MU).

What still looks reasonable in a record-high market? JPMorgan's Lee favors large-cap technology stocks. So does Black, who has recommended Qualcomm (QCOM) andOracle (ORCL). Most big tech stocks still trade for low double-digit P/Es based on 2014 earnings -- below the market multiple -- and carry dividend yields of 2% or more.

GROWTH IS A PROBLEM. Cisco Systems (CSCO) gave surprisingly weak guidance of an 8% to 10% revenue drop in its current quarter in conjunction with its quarterly earnings report last week, prompting a 11% drop in its shares Thursday. AndInternational Business Machines (IBM) has been beset by consistently weak revenue.

The big-cap tech growth challenge, however, appears to be reflected in stock prices and P/Es. And the effective P/Es for stocks like Apple (AAPL), Cisco, and Microsoft (MSFT) are even lower than they appear thanks to huge cash positions. Apple's P/E, for instance, falls to about nine from 12 when factoring in its $143 a share in cash, which is nearly 30% of its $525 share price.

Not surprising, activists like Carl Icahn are pouncing, trying to unlock some of the value in these behemoths. A less aggressive activist, ValueAct Capital, has been involved with Microsoft. Its shares are up 20% since CEO Steve Ballmer's August announcement that he plans to step down amid expectations that his successor will take shareholder-friendly actions to boost earnings like selling the company's unprofitable search engine Bing and cutting bloated costs.

Cisco could become the next activist target in tech. Investors could push Cisco to use its great balance sheet -- with about $6 a share in net cash and investments, or 30% of its current stock price of $21 -- to return more cash to holders. Change could come at Cisco with longtime CEO John Chambers facing greater criticism. Cisco's P/E is around 10 based on reduced current-year profit estimates.

Many big financials have stalled after early-year gains and trade for around 10 times next year's projected earnings. JPMorgan Chase (JPM) may finally be getting past its legal woes and that could drive its share price, now $54, above $60 in 2014. The bank's core franchises -- investment banking, trading, commercial and consumer banking, credit cards, asset management and private banking -- look better than ever. That's not reflected in its rock-bottom P/E of nine based on estimated 2014 earnings. The shares yield nearly 3%.

A well-managed Wells Fargo (WFC) has a lucrative consumer-banking business and a big fan in Buffett, whose Berkshire Hathaway has steadily added to its stake in recent years. Berkshire holds over $19 billion worth of Wells Fargo, making it Buffett's single largest equity investment.

The two largest U.S. energy companies, ExxonMobil and Chevron (CVX), have trailed the market this year mostly because investors worry about the high cost of maintaining -- and expanding -- their huge reserve bases. Those problems are reflected in their share prices with Exxon, at $93, trading for 12 times estimated 2013 earnings, and Chevron, at $120, carrying a 10 P/E. Both yield around 3%.

THREE DEFENSIVE LAGGARDS this year have been AT&T (T), Southern Co.(SO), and Simon Property Group (SPG), the country's largest REIT. AT&T has a bond-like 5% yield -- its dividend may be lifted by about a penny per quarter soon -- and seems capable of mid-single earnings growth thanks to its large wireless business.

Simon, a mall REIT, has one of the industry's best management teams, ample free cash flow in excess of its dividend that goes toward expansion and a history of regular dividend increases, including a recent hike in the quarterly payout to $1.20 from $1.15. At $152, the shares yield 3.2%. Southern, a slow-growth electric utility has been hurt by cost overruns at new power plants, but its dividend yield, at 4.8%, appears to be secure.

Caterpillar (CAT) and Deere (DE) have bucked the upward trend in most big industrial stocks this year and now have some of the lowest P/Es in that group. Weakness in North American farm prices -- corn is down 30%, to $4.30 a bushel, this year -- has weighed on Deere, while tough conditions in the global mining industry have hurt Caterpillar. Both are world-class companies that are exposed to strong long-term trends in agriculture and infrastructure development.

Although there has been some cooling lately in the stock market's hottest sectors, mainly Internet, social media, and cloud computing, the marquee stocks still are up sharply for the year (see table below.). Many of these stocks have little or no earnings and thus are being valued on revenues and some dubious financial measures, notably earnings before interest, taxes, depreciation, and amortization (Ebitda) and adjusted earnings per share. Both these figures exclude often high costs associated with restricted stock grants to employees. It's tough to make a strong case for any of them at current levels.

Twitter is an extreme example. At $44, it's valued at about $31 billion with an enterprise value (market value minus net cash) of around $29 billion, based on a fully diluted share count of around 705 million shares. That's more than 25 times projected 2014 sales, more than double the rich valuations of Facebook (FB), LinkedIn, andZillow (Z). The S&P 500 is valued at less than two times sales.

Twitter isn't expected to be profitable until 2015 or 2016, though some think it could top $1 a share in earnings by 2017. That means it trades for 40 times on potential profits four years out. Twitter has enticing potential with its ad-targeting capabilities to its 232 million subscribers based on their demonstrated interests, but that's more than already reflected in its share price. A sevenfold rise in revenue between 2013 and 2017, which is what the Street is expecting, could be tough to achieve.

TWITTER ALSO IS A MAJOR OFFENDER when it comes to excessive employee stock grants. It issued over 50 million shares of stock to employees this year, whose value exceeds current-year projected revenue of about $650 million. That's based on the pre-IPO grant prices of around $20, not the current market price.

Analysts generally exclude the high cost of those grants, which typically vest over a four-year period, from Ebitda and adjusted earnings calculations even though the stock is equivalent to cash -- and viewed as such by employees. GAAP earnings properly require stock compensation to be treated as the expense. That's why GAAP earnings are a better financial measure than non-GAAP, or adjusted, earnings. Outside of the tech and biotechnology industries, companies rarely try to exclude restricted stock from their expenses.

Cloud-computing stocks have similar valuations to social networking shares. Industry leader Salesforce.com (CRM) doesn't earn a profit based on GAAP earnings that includes its stock compensation expense and yet it has a market value of $34 billion. Other hot plays with 2014 price/sales ratios above 10 and no GAAP earnings include Workday,NetSuite (N), and ServiceNow (NOW). One skeptic on some of the cloud stocks has been veteran tech manager Paul Wick, who runs the Columbia Seligman Communications and Information fund (SLMCX; see "Keep Your Head -- and Money -- Out of the Clouds," Sept. 30).

The Value Seekers

Daniel O'Keefe and David Samra scour the world for the most attractive value stocks for their Artisan Partners funds.

With the distinction between U.S. and international companies increasingly blurring, Daniel O'Keefe and David Samra, managers of the top-rated, $10.5 billion Artisan International Value fund (ticker: ARTKX), branched out six years ago, startingArtisan Global Value fund (ARTGX). The fund has grown to $1.1 billion in assets—but the strategy has a total of $12.3 billion, including institutional money managed along the same line.

"It has become almost impossible to allocate between international and the U.S.," says O'Keefe, 43 years old, who is Global Value's lead manager. "In many cases, all you are doing is allocating capital based on where the company is listed, and not where it is generating profits. It becomes a false distinction."

Global Value uses the same strategy the pair honed at International Value and applies it without regard to location. They're looking for firms that trade at steep discounts to underlying value, with strong balance sheets and savvy management.

The result: A focused portfolio, with just 44 stocks, recently tilted toward the U.S., where top picks include Oracle (ORCL),Bank of New York Mellon (BK), andMicrosoft (MSFT)—and, to a lesser extent, Europe, where holdings include Tesco (TSCO.UK) and Royal Bank of Scotland (RBS). They've largely steered clear of emerging-markets stocks, though many of their multinational holdings get some of their profits or revenues there, and they've currently got minimal exposure to Asia. Over the past three years, Global Value has trounced most of its world-stock competitors, returning an average annualized 16.5%, versus 10.3% for the category, according to Morningstar.

Samra and O'Keefe first met in the summer of 1997, when they joined Chicago-based Harris Associates, investment advisor to the Oakmark funds, within days of each other. Samra, 49, has a bachelor's in finance from Bentley College and an M.B.A. from Columbia University, and previously worked as a portfolio manager at Montgomery Asset Management. O'Keefe, who studied philosophy at Northwestern University, moved into the money-management business after working as an analyst at Morningstar. In the early '90s, O'Keefe recalls, he was hooked after interviewing value-stock legend Wally Weitz for one of his first Morningstar reports.

"One does not become a value investor unless you really have the personality for it," Samra says. "You end up owning things like Oracle and Tesco, where you are banging your head against the wall because the valuation is cheap and you can see that you would make money if the news would just get a little better. Most investors are psychologically ill-prepared to deal with that kind of negative information flow on a daily basis…. Dan and I have the kinds of personalities that lend themselves to it."

While at Oakmark, the two honed their value investing style. But they knew that Oakmark's star manager, David Herro, who has run the Oakmark International fund since 1992, wasn't going anywhere. So in May 2002, they moved to San Francisco and joined Artisan Partners. At Artisan, Samra and O'Keefe were able to carve out their own space, first with International Value, launched a few months after their arrival, and then with Global Value, founded in 2007.

*All returns are as of Nov. 13, 2013; three- and five -year returns are annualized. ** As of Oct. 31, 2013. Sources: Morningstar; Artisan Partners The timing was inauspicious: The nascent strategy tumbled 29.3% in 2008 as stocks tanked, but those plummeting prices gave the duo easy pickings to buy. "Every development in the news was a reason to sell. It created a huge valuation opportunity," O'Keefe recalls. Four years ago, the overall portfolio traded at around 11 times depressed forward earnings, compared with a P/E of 14 today.

WEALTH MANAGERS R.W. ROGÉswitched from International Value, where they'd first invested in 2004, to Global Value, where they now have $10 million of clients' assets, in an effort to gain flexibility. "They're firing on all cylinders," says Steven Rogé the firm's director of research. "Artisan lets these guys operate as an autonomous entity so you don't get a watered-down version of the asset manager."

O'Keefe and Samra are still finding pockets of opportunity. While Samra and O'Keefe shunned financials leading up to the crisis, they have been snapping some up on the cheap. "As the recession proceeded, and the banking system started to recapitalize, valuations became attractive," says O'Keefe.

The financials they've bought run the gamut from Bank of New York, the U.S. trust bank, which generates a lot of fee income and is the fund's third-largest holding, to Royal Bank of Scotland, the battered U.K. bank. Financials account for 32% of the Global Value portfolio—the single largest sector.

O'Keefe and Samra also like out-of-favor tech giants like Oracle, the fund's largest holding, and Microsoft. Oracle, O'Keefe figures, trades at around 11 times estimated earnings, and could go to a P/E of 15, while rising profit margins will increase those future earnings. Microsoft, meanwhile, trades at a similarly low multiple, yet is increasing its earnings and has about $8 a share of net cash. "These companies are integral to the efficiency and productivity of the corporations they serve," O'Keefe says, "yet they trade based on near-term quarterly movements in guidance, instead of as the hugely entrenched, steady cash-generating businesses they have evolved into."

Another battered stock they like: Tesco. In the past few years, Tesco lost market share in the U.K. and its international expansion turned to retreat. But it's refocusing under the current CEO, and shares are cheap at just 11 times earnings. "In the U.K., Tesco is everywhere," O'Keefe says. "It's more dominant there than Wal-Mart is in the U.S."

With value stocks like these, a payoff can take time, and Samra and O'Keefe will wait with you: Most of their money is invested in the firm and their funds.

China’s biggest investment bank is taking another leaf from the Goldman Sachsplaybook by creating a fund to back new and established hedge fund managers in China. Citic Securities Futures, part of the Citic Securities group, has established a Rmb2bn ($330m) fund of seed capital that will invest in local hedge funds, according to Jackie Fan, general manager of the bank’s innovation department. The asset management arm of another local brokerage, Hwabao Securities, is launching a similar fund with Rmb1bn to invest in partnership with KKM Capital, a Shanghai company dedicated to helping Chinese hedge fund managers set up businesses. There is growing interest in hedge funds in China as the nation’s wealthy look for more ways to invest their money and slow but steady financial reform offer budding managers more ways to play the markets. China has seen the fastest growth in new billionaires in recent years. It is now home to more than one in three of the wealthy individuals in the Asia-Pacific region excluding Japan, and the riches of those Chinese grew by 16 per cent to $3.1tn last year, according to Royal Bank of Canada and Cap Gemini. Citic Securities has seeded and bought stakes in funds before – putting $20m into Hong Kong-based VisionGain Capital in 2008, for example. Mr Fan announced Citic Securities Futures’ seed fund at gathering for investors and quantitative hedge fund managers in Shanghai last week called Battle of the Quants. Kenny Li, chief executive of KKM, who also helped organise the conference, said the Hongkuo district of Shanghai was working hard to attract more funds by trying to create a "hedge fund park" in the Citic Plaza on North Sichuan Road. "They are still working on a programme to help foreign managers set up, but for local guys they are offering big rental rebates and tax rebates for the business and the senior management to try and draw more people here," he said. Rents are already up to 40 per cent cheaper than in the Lujiazhui financial district in Pudong, which is south of Hongkou on the opposite side of the river, Mr Li said, while the tax rebates could be for 70 per cent of tax paid or more. Greater China focused hedge funds have had a strong year and are up 11.24 per cent in the first nine months of the year, according to Eurekahedge, a research group. Many of these funds are based offshore in Hong Kong because it is easier and cheaper to raise money, to short sell stocks and to trade other markets. Brian Ingram, who researches investment managers in China for a joint venture between Ping An and Russel Investments of the US, said that there were a growing number of impressive hedge fund managers inside China. "There is enough diversity of good managers to build a multi-manager portfolio, but not with much capacity," he said. "Even investing just $100m at the moment would be challenging." The Chinese securities regulator is loosening the restrictions within China. The watchdog has begun to allow some insurers to invest in futures markets and hedge funds, and it has been expanding the number of individual stocks that managers can short while encouraging brokerages to expand their securities lending businesses. Six foreign hedge funds also recently obtained approval to raise money onshore from Chinese investors for the first time – Canyon Partners, Citadel, Man Group, Oak Tree, Och-Ziff Capital Management and Winton Capital Management.

SAN FRANCISCO — If you post something on Facebook, let there be no doubt that it can end up as an ad shown to your friends and acquaintances. Facebook pressed forward on Friday with official changes to its privacy policies, first proposed in August, that make the terms of using Facebook more clear than ever: By having an account on the service, its 1.2 billion global users are allowing the company to use their postings and other personal data for advertising.

And teenagers are no exception. Although the company deleted language that said parents were implicitly consenting to ads featuring their children’s posts by letting them use Facebook, the company said it was already getting that permission when teenagers sign up to use the service.

After the proposed changes were originally announced, they drew an outcry from many users, some privacy groups and members of Congress, and prompted the Federal Trade Commission to scrutinize the company’s plans.

"Your feedback was clear — we can do better — and it led to a number of clarifying edits," the company wrote in a blog post on Friday announcing the final version of the policies, which went into effect immediately.

But in the end, the edits didn’t add up to anything major, according to both the company and its critics.

The new terms of use do not affect a separate change that the company announced last month that allows teenagers to post status updates, videos and images that can be seen by anyone, not just their friends or people who know their friends.

However, Friday’s change does fit into a broader pattern: Facebook is pushing its users to share more data while also making that information easier to find. That is raising public awareness of just what it means to post content on the service.

"Every day, people post billions of pieces of content and connections into the graph and in doing this, they’re helping to build the clearest model of everything there is to know in the world," Facebook’s chief executive, Mark Zuckerberg, told Wall Street analysts in a conference call last month. "This has the potential to be really powerful, but right now, we actually do very little to utilize the knowledge that people have shared to benefit everyone in our community."

Facebook is promoting sharing mostly as a way to make the service more useful. The company’s graph search tool, for example, mines user posts to help people find, say, restaurant recommendations posted by a friend. Public posts by teenagers let them spread their views to a wide audience.

But Facebook also has big business motivations for finding ways to show the 1.2 trillion posts on its service more frequently and to more people: The more time people spend on Facebook, the more advertising they see and the better targeted those ads can be.

One of its most important advertising products, called sponsored stories, involves rebroadcasting user posts praising a company’s product to their friends. Advertisers find such endorsement ads very appealing because people tend to trust recommendations from friends over other types of ads.

So if someone posted "Just had a great seafood feast at Red Lobster" or even just hit the like button on the chain’s Facebook page, the restaurant company might pay to make sure that post, or sponsored story, showed up high in the Facebook feeds of that person’s friends.

Facebook has maintained that its previous terms of use granted it the right to use a person’s name, face and posts in ads sent to other people in that user’s social network. But with the new policy, the company has replaced vaguer language with more specific wording that clarifies its policies.

A coalition of privacy groups and Senator Edward J. Markey, Democrat of Massachusetts, had complained about the language, saying the new terms could violate a 2011 consent decree between Facebook and the F.T.C. requiring the company to clearly inform users before exposing their data to new audiences.

The F.T.C. began an inquiry into the most recent changes, but apparently raised no strong objections.

"Commission investigations and deliberations are nonpublic, therefore we cannot comment on any particular case," said Jay Mayfield, an agency spokesman, in a statement. "However, the F.T.C. rigorously monitors compliance with all of its orders, and that includes reviewing any material changes to the privacy policy of a company that is under a privacy order."

Senator Markey, who joined several other lawmakers in introducing a "Do Not Track Kids" bill on Thursday, said in a statement that Facebook’s decision not to shield teenagers from advertising underscored the need for Congress to act. Currently, the law only restricts advertising to children under age 13.

Facebook said it changed the language in its terms of use partly in response to a class-action lawsuit against the company, settled in August, that contended it had not properly disclosed to users how their comments about products and other personal information would show up in ads.

While Facebook has clarified its disclosures, it has not yet put into effect two other important provisions of the settlement that would give users more control over how their information is used in sponsored stories.

One provision requires the company to give parents the ability to prevent their children’s information from being used in such advertising.

The other would allow all users to see if Facebook had turned any comments they had made on the service into a sponsored story ad and allow them to opt out of future broadcasting of that ad.

"The innovative controls we agreed to in connection with the settlement take time to build," said Jodi Seth, a Facebook spokeswoman. She offered no timetable for introducing them.

Independent panel overhauling Japan public pension fund is expected to recommend changes that allow the funds to be invested more aggressively; report could be released as soon as Nov 20th - Japan press - Japan's $1.2T Government Pension Investment Fund (GPIF) is the world's largest pool of pension money. It is currently overseen by Japan's health ministry which requires the funds be kept in a small range of very conservative investment options. - The panel of 7 financial experts that have been working on an overhaul of the GPIF's rules since July are expected to loosen strictures that will allow the funds to move into higher yield investments and away from heavy investments in very low yielding government bonds. Reforms at the GPIF are expected to lead other Japanese pension funds to follow suit which could unleash significant funds into new investments in global markets. - The panel is expected to recommend that the GPIF be allowed to control its own investment decision, taking it out from under the thumb of the conservative Health Ministry which heretofore had to approve all of its major investment decisions. Hand in hand with this, the panel is also expected to recommend the GPIF seek out less conservative investments than those mandated by the Health Ministry. The third main recommendation of the independent panel will be to push the GPIF to expand its benchmarks for passive stock investments from the Topix, which tracks only the 1,000 stocks in the TSE's first section. It will also maintain its early recommendation, issued in September, that the GPIF expand its bond-heavy portfolio into higher returning sectors like real estate, equity, and commodities. - The goal of the recommendations is to boost the returns on Japanese pension funds which have showed annual returns of little more than 3% over the last decade, half of those seen from US public pension funds. - The goal of the recommendations is to boost the returns on Japanese pension funds which have showed annual returns of little more than 3% over the last decade, half of those seen from US public pension funds.

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BlackBerry Holder Fairfax Reports 17.7% Stake Amid Debentures 2013-11-15 22:47:12.476 GMT

By Hugo Miller Nov. 15 (Bloomberg) -- Fairfax reports 17.7% stake in BlackBerry, representing bond investment of $250m plus option to invest another $250m within 30 days of transaction closing, said Fairfax President Paul Rivett. * Share count went to 101.9m from 51.9m * NOTE: Nov. 13, Fairfax Announces Acquisition of Convertible Debentures of BlackBerry * NOTE: Nov. 7, BlackBerry Bonds Attract Investment From Qatar, Brookfield Link to filing

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--With assistance from Allan Lopez in New York. Editor: Joanna Ossinger

To contact the reporter on this story: Hugo Miller in Toronto at +1-416-203-5724 or hugomiller@bloomberg.net

To contact the editors responsible for this story: Joanna Ossinger at +1-212-617-7789 or jossinger@bloomberg.net; Nick Turner at +1-212-617-6783 or nturner7@bloomberg.net

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Enel Studying De-Listing of Endesa Amid Overhaul, Corriere Says 2013-11-16 11:03:01.793 GMT

By Tommaso Ebhardt Nov. 16 (Bloomberg) -- Enel SpA plans to shorten chain of control as part of company’s reorganization aimed at cutting debt and boosting dividends for main holding, Il Corriere della Sera reports without citing anyone. * Pool of banks, including Santander, working on plan: Corriere * NOTE: Enel owns 92% of Endesa SA, Bloomberg data

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--Editor: Tommaso Ebhardt

To contact the reporter on this story: Tommaso Ebhardt in Milan at +39-02-8064-4231 or tebhardt@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at +49-30-70010-6232 or cthomas16@bloomberg.net

Closing Market Summary: S&P 500 Books Sixth Consecutive Weekly Advance

Equities registered modest gains as the S&P 500 added 0.4%, registering its sixth consecutive weekly gain. The benchmark index spent the bulk of today's quiet session inside of a four-point range until the now-familiar final-hour rally sent the index to a fresh nominal record high of 1798.18. The Dow Jones Industrial Average (+0.5%) outperformed as all but five components finished in positive territory. All ten sectors registered gains with energy (+0.7%) and materials (+0.6%) ending in the lead. The energy sector received support from Exxon Mobil (XOM 95.27, +2.05), which rallied 2.2% after Berkshire Hathaway disclosed a 40.1 million share stake in the largest sector component. On a related note, crude oil ended little changed at $93.82/bbl after spending the entire session near its flat line. Meanwhile, the other commodity-related sector, materials, was underpinned by steelmakers as the Market Vectors Steel ETF (SLX 49.04, +0.49) gained 1.0%. Similar to crude oil, the underlying commodities ended little changed. Goldfutures added $1.00 to $1287.50/ozt while copper futures ticked up one cent to$3.1715/lb. Other cyclical sectors were more of a mixed bag as financials (+0.5%) outperformed while consumer discretionary (+0.3%), industrials (+0.3%), andtechnology (+0.3%) lagged. Speaking of technology, the tech-heavy Nasdaq (+0.3%) underperformed as participants displayed limited buying interest in some momentum names like Facebook (FB 49.01, +0.02), Priceline.com (PCLN 1139.53, +2.09), and Tesla (TSLA 135.45, -2.15). In addition, the largest Nasdaq component, Apple (AAPL 524.99, -3.17) lost 0.6%. With regard to countercyclical sectors, consumer staples (+0.2%) underperformed while health care (+0.6%), utilities (+0.6%), and telecom services (+0.5%) ended ahead of the broader market. Treasuries registered modest losses as the 10-yr yield ticked up one basis point to 2.70%. Light volume has been a recurring theme throughout the week, but today's options expiration prevented another below-average finish as just under 800 million shares changed hands on the floor of the New York Stock Exchange. On the economic front, wholesale inventories increased 0.4% in September after increasing an upwardly revised 0.8% (from 0.5%) in August (consensus +0.3%). The strong gain in wholesale inventories in September, along with the large upward revision to August, will likely result in a sizable upward revision to third quarter GDP. The Bureau of Economic Analysis assumed that wholesale inventories fell 0.1% in September, which was obviously well below what actually occurred. Export prices, excluding agriculture, ticked down 0.4% in October after increasing 0.3% in the prior reading. Excluding oil, import prices were unchanged, which followed last month's uptick of 0.2%.

Separately, industrial production levels fell 0.1% in October after increasing an upwardly revised 0.7% (from 0.6%) in September (consensus +0.1%). All in all, industrial production held up well in October considering the dire predictions that were associated with the government shutdown. In fact, the government shutdown seemed to have no negative effects on the entire industry. The contraction in industrial production can be completely attributed to normal and cyclical fluctuations in utilities and mining. Utilities production dropped -1.1%, but that type of decline was expected following an unusually strong September (4.5%) gain. Mining production fell 1.6%, which, again, was a normal pullback after six consecutive months of gains.

Lastly, the Empire Manufacturing Survey for November registered a reading of -2.2, which was down from the prior month's reading of 1.5. Economists polled by expected the survey to improve to 4.3.

Weekly Market Update: Dovish Yellen Pledges to Keep the Good Times Rolling

- The DJIA and the S&P500 pushed out to fresh all-time highs this week as Janet Yellen affirmed her dovish proclivities during an initial round of Senate confirmation testimony. In China, the Third Plenum of the Communist Party unveiled a raft of reforms which are still being digested. Third quarter Europe GDP data indicated that economic stagnation remains a big problem for the euro zone. US industrial production dipped slightly in October, although the declines in output at power plants and mines were nearly offset by gains in manufacturing output. WTI crude prices sank further, dipping briefly below $93 to the lowest price since June. The front-month contract closed out the week lower, for the sixth weekly decline, its longest losing streak in a decade and a half. Despite lackluster earnings reports from some marquee names like Cisco and Walmart, stocks continued to melt up, and for the week the DJIA gained 1.3%, the S&P500 added 1.6% and the Nasdaq rose 1.7%.

- In her first public appearance as nominee to succeed Bernanke, Yellen testified before the Senate Banking Committee on Thursday and confirmed her intention to keep the monetary policy easy while also actively denying that QE was blowing asset bubbles. Yellen reiterated familiar positions: unemployment remains too high, inflation is well below the 2% target and QE is effective but cannot go on forever. Note that the WSJ's Hilsenrath published a piece asserting that the FOMC has moved closer to lowering its unemployment threshold to 5.5% or 6.0% from 6.5% presently, in its quest to keep interest rates low even as it rolls back QE. Among other Fed speakers this week, the usually moderate Atlanta Fed President Lockhart suggested that the FOMC could still begin tapering QE in December, though the decision remains data dependent.

- In China, the newly-installed leadership wrapped up a landmark four-day Central Committee meeting on Tuesday. The meeting had been watched closely after President Xi indicated the politburo would endorse a range of economic and social reforms. Beijing issued a rather vague communique on Tuesday, but more extensive coverage of the reforms emerged in the Chinese press on Friday. Reforms include a partial roll-back of the one child policy, allowing more privatization of the state-controlled banking system, greater CNY convertibility, and extensive land ownership reforms, among other issues.

- Shares of Cisco lost about 8% on the week after the company reported lower-than-expected Q1 revenue and offered very weak Q2 revenue guidance. Executives warned that this revenue downturn is different from the slide seen in early 2009, citing softness in emerging market demand, especially in China. Additionally, Cisco said this demand slowdown will be felt across the industry. Shares of Hewlett-Packard and other Cisco competitors and suppliers saw pressure after the report as well.

- Mega retailer Walmart's Q3 earnings report failed to impress the street. Walmart more or less met expectations in the quarter, but also trimmed the top end of its FY14 guidance range. Comps were down y/y, with the exception of Sam's Club. Macys reported excellent gains in its Q3 report, with earnings up more than 30% y/y, although revenue growth was much more modest. Top- and bottom-line results beat expectations. Executives made upbeat comments about the firm's Q4 outlook, including its view of the upcoming holiday season. Meanwhile shares of department store name Kohls slid sharply after it missed top- and bottom-line expectations and cut its full-year forecast.

- Bill Ackman's Pershing Square Capital acquired stakes in both Fannie Mae (9.98% stake) and Freddie Mac (9.77% stake). According to filings, Ackman wants to talk with the GSEs' executives about how the firms are run in light of the proposal from Bruce Berkowitz's Fairholme Capital Management. Fairholme said Wednesday it would like to buy choice parts of the bailed-out mortgage-finance giants Fannie Mae and Freddie Mac from the government in a recapitalization valued at $52 billion. In 13F quarterly holdings filings Berkshire disclosed a new stake in Exxon, Third Point (Dan Loeb) confirmed a stake in Fedex, and Carl Icahn confirmed a nearly 3.9M share stake in Apple.

- In deal news, Shire struck a deal to acquire ViroPharma for $50/share in cash, valuing the company around $4.2B. ViroPharma makes Cinryze, a treatment of the rare immune disorder hereditary angioedema. Analysts say we should expect more deals for companies making treatments for rare conditions as big pharma looks to replace revenues lost over the patent cliff. Jos. A. Bank terminated its $48/share offer to acquire Men's Wearhouse after MW refused to engage in negotiations. Jos. A. Bank offered to continue negotiations in the future. Eminence Capital LLC, MW's largest shareholder, expressed disappointment that the board had failed to engage in discussions, accused directors of ignoring their fiduciary duties and requested a special shareholder meeting.

- EUR/USD began the week around the pivotal 1.3400 level and moved higher with little conviction to just shy of the 1.3500 level on Friday. Weak preliminary GDP figures out of Europe only temporarily hindered the euro: French GDP growth turned negative, Germany eked out +0.3% growth while overall Eurozone growth was +0.1%, its second month of tepid expansion. GBP/USD fell to two-month lows below 1.5870 after the October UK inflation data came in below expectations, but bounced back after the better October UK employment data. The BoE's Quarterly Inflation Report moved up the BoE's forward guidance unemployment threshold by one year -- the BoE now sees unemployment hitting 7% in Q3 of 2015, from the prior Q3 of 2016 forecast. USD/JPY weakened to two-month lows above 100. Dealers were focused on the spread between US and Japanese 30-year bond, which spread out to the widest level since 2011.