NY Post : Lessons to learn from the infamous ‘Black Monday’ crash

Happy anniversary, investors.

Thirty years ago, on Oct. 19, 1987, there was the infamous Black Monday stock market crash, which wiped out 22.6 percent of the Dow.

It’s the one your parents and grandparents speak of. On that fateful day, the aftershocks of the Dow losing 508 points, to close at 1,738, were felt up and down Wall Street’s trading floors — and later, in its taverns.

If you’re married, every anniversary is all-important, and if you invest, have a 401(k), IRA or a pension, this one is, too.

It wasn’t just the stock market that was supposed to suffer irrecoverable damage 30 years ago. Many believed the entire economy would never be the same.

Actually, neither of those prognoses came to pass. The economy never slipped into a deep, dark 1929-like depression, nor did we even have any negative quarters.

In 1987, the market leaders were GM, Kodak, Unisys and IBM, among others. Many of those companies have lived on and had terrific times; others have gone the way of the film camera.

Back in 1987, Japan ruled the world with its wondrous manufacturing facilities, cut-throat car pricing and never-before-seen quality.

The closest thing we have had to The Crash since that date was the Flash Crash, which took place at 2:45 p.m. on May 6, 2010, wiping out almost a trillion dollars of value in minutes, then gaining almost all of it back in the subsequent minutes.

So it seems clear to me that the next big hiccup in the market will come from some sort of technological interference, hackers, or robots gone rogue.

It’s vitally important to remember that it took a confluence of events to create that distressing day in 1987.

It takes strength to suppress one’s innate emotions and buy during crashes and panics. It will feel wrong — it is supposed to — and it may even be wrong, initially.

But a buy of the S&P 500 on Black Monday has returned 2,120 percent since the crash, and that would make for a very happy anniversary!

FT : Asset managers fear UK will suffer Brexit jobs exodus

Asset managers fear UK will suffer Brexit jobs exodus
Headcount at fund houses could drop 23% over three years, according to one estimate



Thousands of job losses are expected across the UK’s £7tn asset management industry as a result of Brexit, according to two surveys that will add to concerns about the City of London’s future position as a global financial centre.

Asset management companies employ around 37,000 staff directly in the UK, with a further 55,000 working in related back- and middle-office roles that investment companies often outsource, according to the Investment Association, the trade body.

UK fund managers think that 16 per cent of asset management jobs based in Britain could move to other financial centres by the end of 2020, according a survey of 300 managers and investors by MJ Hudson, a London-based consultancy.

Investors outside the UK are even more pessimistic. They expect close to a quarter (23 per cent) of the UK asset management industry’s headcount to move over the next three years. Job losses on this scale would result in a significant hit to UK tax revenues and have a knock-on impact on other sectors, a problem that has featured little in the Brexit debate so far.

Only one respondent in MJ Hudson’s survey expected to see headcount across the UK’s investment industry rise by 2020.

The CFA Society of the UK last week released the results of a survey of 1,100 investment professionals that painted a similarly worrying picture. Just four in 10 of the EU nationals polled said that they planned to continue working in the UK after Brexit, while 16 per cent said they planned to leave. The remainder (42 per cent) were undecided.

Investment professionals from outside Europe were noticeably more optimistic. Around 69 per cent of the respondents holding non-EU passports, mainly Asians and US citizens, said they planned to work on in the UK.

Nine out of 10 EU respondents said the City of London’s competitiveness had deteriorated as a result of the Brexit vote, a conclusion that was shared by 71 per cent of British respondents.

FT : Asset management task force discusses post-Brexit policy

Asset management task force discusses post-Brexit policy
City minister Stephen Barclay meets industry leaders amid concerns over split from EU

The UK government has met top asset management executives to discuss post-Brexit policy as concerns mount over stalled negotiations with the EU and moves by the country’s £7tn investment industry to strengthen operations on the continent.

On Wednesday, Stephen Barclay, the City minister, convened a task force with the heads of eight of the UK’s largest fund houses, including Keith Skeoch of Standard Life Aberdeen, Peter Harrison of Schroders and Mark Zinkula of Legal & General Investment Management.

During an hour and a half-long meeting, the group discussed concerns about Mifid licences granted by the UK regulator, which enable funds to be sold to European clients, as well as so-called delegation, which allows funds domiciled in one country to be managed by people in another. These could become void if Britain loses access to the single market.

The group will meet Mr Barclay, who supported the Leave campaign during last year’s referendum, every quarter for two years as part of a government push to allay criticism that it is ignoring corporate Britain’s concerns about leaving the EU.

Many asset managers with operations in the UK have boosted their businesses in the EU in case of a hard Brexit. Jupiter, M&G, LGIM, Intermediate Capital Group, Blackstone and Legg Mason are among the companies that have applied for additional licenses from EU-based regulators and hired staff or established offices on the mainland.

Mr Barclay’s task force examined ways of halting this shift by improving the UK’s competitiveness. It discussed fintech, alternative investments and global trading opportunities, in addition to licences and regulation, according to people who attended the meeting.

The Financial Conduct Authority, which last month announced a new hub to speed up the authorisation of mutual funds in the UK, sent Chris Woolard, director of strategy and competition, and Megan Butler, director of supervision, to the meeting.

“The task force will play an important role in informing effective policy developments,” Mr Barclay said. “As a government, we are determined to work closely with the financial services sector to ensure it remains a leading global centre, including in asset management.”

The mood in the City deteriorated this month after a stand-off between the UK and EU over Britain’s financial contribution to the bloc during a transition period.

The government is concerned that further uncertainty could prompt an exodus of investment managers and funds — especially as Paris, Frankfurt and Dublin step up efforts to woo the industry.

TheCityUK, the main lobby group for financial services companies, warned this week that it was critical for the financial and professional services industries to have “urgent clarity” on transitional arrangements. According to a survey by the CFA, the organisation for chartered financial analysts, fewer than half of European investment managers are confident they will continue working in the UK after Brexit.

According to one person on the task force, Mr Barclay “seemed to understand the issues”.

“His hope is that the group will have sufficient focus on trying to steer the asset management industry successfully through Brexit and seize the opportunities after leaving the EU, rather than seeking to address too broad an agenda,” the person said.

The task force also includes Andrew Formica of Janus Henderson, Maarten Slendebroek of Jupiter Asset Management, Andrew Carter of Royal London Asset Management, Mike O’Shea of Premier Asset Management, Anne Richards of M&G Investments, and Sean Hagerty of Vanguard.

Other participants include Andrew Warwick-Thompson of the Local Government Pension Scheme, Catherine Howarth of ShareAction, Chris Cummings of the Investment Association and Gwyneth Nurse, director of financial services at the Treasury.

>>> Barron's weekend summary: cover on concerns about FB, AMZN & GOOGL; positive

Barron's weekend summary: cover on concerns about FB, AMZN & GOOGL; positive features on COH, CZR, DWPW 
* Cover story: FB, AMZN, and GOOGL are key drivers of recent stock market highs, but regulators are beginning to challenge the way they dominate their respective sectors; Beyond antitrust issues, there is concern about the huge amounts of personal data they store, and these challenges could affect their valuations. 
* Features: 1) Positive on COH: Handbag maker, which is set to rebrand itself as Tapestry (TPR), is finally on the right track after years of declining sales, and shares could return 30% during the next 12 months; 2) Positive on DWDP: As chief executive Edward Breen restructures the company, the shares could post gains of as much as 15-30% over the next year, including dividends; investors should buy before it splits into three businesses; 3) Positive on CZR: The largest U.S.-focused gaming company has emerged from a difficult bankruptcy with a stronger balance sheet and less debt, and under a quality management team it appears poised for growth. 
* Trader: Optimism about the market refuses to be dented, and “there’s little evidence to suggest that dips in the market shouldn’t be bought” as it continues to slowly move upward; With Japan’s economy growing more consistently than it has in a decade, the market seems poised to break out; The fact that UAL can get pounded for poor earnings while AAL and DAL drop just a little suggests the market is distinguishing between the carriers. 
* Interview: Laura Geritz, manager of Rondure New World and Rondure Overseas “has a laserlike focus on stock analysis and a deep conviction that the best returns can be found overseas” (picks: WH Smith, SBUX, Create SD Holdings, Matsumotokiyoshi, Cosmos Pharmaceutical, Aselsan, Bharat Electronics). 
* Profile: Stephen Liberatore, manager of TIAA-CREF Social Choice Bond, which has averaged an annual return of 3% during its five-year existence and beats 88% of all intermediate-term bond funds (top sectors: foreign government/corporate USD denominated bonds, U.S. agency & U.S. Treasury, municipal, mortgage-backed securities). 
* Follow-Up: MS “hasn’t abandoned investment banking and trading even as it’s reduced its dependence on those volatile units,” and the firm has been a top player in mergers and acquisitions this year. 
* European Trader: Cautious on Deutsche Lufthansa: Carrier will benefit from the collapse of Air Berlin, but the real reasons to buy are its recent five-year deal with pilots, its stellar reputation, and strong demand. 
* Asian Trader: Positive on Samsung Electronics: Company has gotten past its Galaxy Note 7 problems, and shares—up 50% this year, better than AAPL—are still cheap. 
* Emerging Markets: China’s onshore bond market is opening up rapidly amid Beijing’s financial reforms, and global and emerging market indexes are expanding to include Chinese bonds. 
* Commodities: “Gold has outperformed mining shares so far this year, but the tide may turn in coming months if mining companies report strong results and optimism rises over the outlook for precious-metals prices.”

(ZH0 Mauldin: "Investors Ignore What May Be The Biggest Policy Error In History"

Mauldin: "Investors Ignore What May Be The Biggest Policy Error In History"

My good friend Peter Boockvar recently shared a chart with me. The University of Michigan’s Surveys of Consumers have been tracking consumers and their expectations about the direction of the stock market over the next year. We are now at an all-time high in the expectation that the stock market will go up.

The Market Ignores Monetary Uncertainty
It is simply mind-boggling to couple that chart with the chart of the VIX shorts (I wrote about the VIX craze in this this issue of Thoughts from the Frontline).
Peter writes:
Bullish stock market sentiment has gotten extreme again, according to Investors Intelligence. Bulls rose 2.9 pts to 60.4 after being below 50 one month ago. Bears sunk to just 15.1 from 17 last week. That’s the least amount since May 2015. The spread between the two is the most since March, and II said, “The bull count reenters the ‘danger zone’ at 60% and higher. That calls for defensive measures.” What we’ve seen this year the last few times bulls got to 60+ was a period of stall and consolidation. When the bull/bear spread last peaked in March, stocks chopped around for 2 months. Stocks then resumed its rally when bulls got back around 50. Expect another repeat.
Only a few weeks ago the CNN Fear & Greed Index topped out at 98. It has since retreated from such extreme greed levels to merely high measures of greed. Understand, the CNN index is not a sentiment index; it uses seven market indicators that show how investors are actually investing. I actually find it quite useful to look at every now and then.
The chart below, which Doug Kass found on Zero Hedge, pretty much says it all. Economic policy uncertainty is at an all-time high, yet uncertainty about the future of the markets is at an all-time low.

Why This Is Happening Now
At the end of his email blitz, which had loaded me up on data, Dougie sent me this summary:
  • At the root of my concern is that the Bull Market in Complacency has been stimulated by:
  • the excess liquidity provided by the world’s central bankers,
  • serving up a virtuous cycle of fund inflows into ever more popular ETFs (passive investors) that buy not when stocks are cheap but when inflows are readily flowing,
  • the dominance of risk parity and volatility trending, who worship at the altar of price momentum brought on by those ETFs (and are also agnostic to “value,” balance sheets,” income statements),
  • the reduced role of active investors like hedge funds – the slack is picked up by ETFs and Quant strategies,
  • creating an almost systemic "buy the dip" mentality and conditioning.
  • when coupled with precarious positioning by speculators and market participants:
  • who have profited from shorting volatility and have gotten so one-sided (by shorting VIX and VXX futures) that any quick market sell off will likely be exacerbated, much like portfolio insurance’s role in a previous large drawdown,
  • which in turn will force leveraged risk parity portfolios to de-risk (and reducing the chance of fast turn back up in the markets),
  • and could lead to an end of the virtuous cycle – if ETFs start to sell, who is left to buy?
On the Brink of the Largest Policy Error
The chart above, which shows the growing uncertainty over the future direction of monetary policy, is both terrifying and enlightening. The Federal Reserve, and indeed the ECB and the Bank of Japan, went to great lengths to assure us that the massive amounts of QE that they pushed into the market would help turn the markets and the economy around.
Now they are telling us that as they take that money back off the table, they will have no effect on the markets. And all the data that I just presented above tells us that investors are simply shrugging their shoulders at what is roughly called “quantitative tightening,” or QT.
In the 1930s, the Federal Reserve grew its balance sheet significantly. Then they simply left it alone, the economy grew, and the balance sheet became a nonfactor in the following decades. I don’t know why today’s Fed couldn’t do the same thing.
There really is no inflation to speak of, except asset price inflation, and nobody really worries about that. We all want our stocks and home prices to go up, so there’s no real reason for the central bank to lean against inflationary fears; and raising rates and doing QT at the same time seems to me to be taking a little more risk than necessary.
And they’re doing it in the midst of the greatest bull market in complacency to emerge in my lifetime.
Do they think that taking literally trillions of dollars off their balance sheet over the next few years is not going to have a reverse effect on asset prices? Or at least some effect? Is it really worth the risk? Remember the TV show Hill Street Blues? Sergeant Phil Esterhaus would end his daily briefing, as he sent the policemen out on their patrols, with the words, “Let’s be careful out there.”

>>> Piaggio Aerospace sale of commercial aircraft division to Chinese investment

Piaggio Aerospace sale of commercial aircraft division to Chinese investment fund delayed after Italian government exercises 'golden power' provisions

Piaggio Aerospace's sale of its commercial aircraft division to a Chinese investment fund is to be delayed after the Italian government exercised the so-called "golden power" provisions on national security grounds, Italian-language daily La Repubblica reported. The report cited the Italian Minister of Defence Roberta Pinotti who said that the sale would only take place after it was ascertained that the sale would not affect national security and the potential loss of industrial know-how.
The report, without citing sources, said that the more likely motive to the suspension of the sale was a desire to protect jobs at the commercial division, which manufactures the P180 executive jet.
The report added that Abu Dhabi sovereign wealth fund Mubadala, which owns Piaggio Aero, is pushing for the sale of the commercial aircraft division

>>> US : This week's biggest % gainers/losers

This week's top 20 % gainers
  • Healthcare: SPPI (19.32 +44.61%), CRBP (7.75 +13.97%), CYH (6.44 +11.61%), THC (14.66 +11.48%), TXMD (5.11 +11.46%)
  • Materials: VHI (3.36 +14.68%)
  • Industrials: GWW (207.81 +14.78%), SALT (8.2 +13.1%),
  • Consumer Discretionary: SKX (33.99 +39.59%), ASNA (2 +12.36%), EXPR (6.62 +12.2%), BOOT (8.3 +11.71%), SCSS (33.99 +10.97%)
  • Information Technology: TEAM (50.01 +26.16%), SYNT (24.22 +24.88%), NPTN (5.46 +15.43%), CREE (33.82 +15.17%), ADBE (175.46 +13.99%)
  • Energy: CLD (4.58 +25.14%)
  • Utilities: TERP (13.56 +13%)

This week's top 20 % losers
  • Healthcare: ARDX (5.55 -23.71%), MNKD (4.13 -21.85%), TRVN (1.76 -19.63%), CELG (121.4 -11.04%)
  • Materials: KLDX (3.22 -16.15%), HMY (1.66 -11.7%)
  • Industrials: UAL (59.9 -11.35%)
  • Consumer Discretionary: TACO (12.65 -16.61%), CTRP (48.43 -12.25%)
  • Information Technology: SNCR (11.43 -19.22%), BMI (43.8 -14.79%), BHE (30.5 -14.08%), NCR (33.05 -11.96%), AAOI (41.41 -11.91%), MTSI (36.99 -11.06%)
  • Financials: VIRT (14.3 -16.13%)
  • Energy: KEG (10.58 -14.75%), FMSA (3.88 -14.73%), SPN (8.85 -12.98%)
  • Consumer Staples: SVU (15.03 -25.59%)

9to5: KGI: About 3 million iPhone X units will be available for launch, producti

KGI: About 3 million iPhone X units will be available for launch, production improving in November

With iPhone 8 now on sale, all eyes are on the upcoming iPhone X. A morning report from KGI reiterates production issues we’ve been hearing about the iPhone X, indicating that only 2-3 million units will be shipped for sale before the launch on November 3rd (preorders open a week from today).

KGI points to supply shortages for several components including circuit boards for the iPhone X antenna and wide angle camera, and the depth-sensing Infrared dot projector.

We’ve seen many publications suggest that Apple suppliers are facing difficulties ramping production of the iPhone X. In many aspects, the phone features radical redesigned parts which have not been mass-produced at scale before, so poor initial yields are somewhat to be expected.

Several reports in the past have said the 3D sensor production is the reason for the holdup; today’s KGI report mentions the dot projector but says there are other components in even shorter supply to be aware of.

Ming-Chi Kuo says the ‘biggest hurdle’ for iPhone X shipments is actually the flexible printed circuit board for the antenna system. He says special materials, processes and stringent tests are required for Apple to sign off on produced iPhone X antenna components, with much higher specifications than iPhone 8 or other models.

One supplier, Murata, was originally planned to satisfy most of the orders for the antenna PCB but has failed to meet Apple’s requirements. As such, another supplier is now believed to be manufacturing all antenna boards for the first few months.

The wide angle camera circuit board is considered the next biggest bottleneck in the report. KGI says that Apple’s camera system for iPhone X uses separate PCBs for the telephoto and wide angle lenses, which is unlike designs from Samsung phones. As such, it appears suppliers have hit issues manufacturing the ‘unique’ boards at volume.

Regarding the dot projector, KGI says previous problems relating to detection of human faces in certain conditions have now been resolved and shipments are set to ramp up significantly.

Given that Apple usually sells more than ten million phones in opening weekend sales alone, availability of just 2-3 million units for the launch is unlikely to satisfy customer demand for iPhone X. As such, be prepared for the Apple Store to quickly go out of stock when the devices go up for sale.

Some good news is that KGI believes production of the circuit boards and dot projector will be able to increase drastically across November which should allow Apple to increase iPhone X output quickly after the release.

That being said, KGI has dropped estimates for initial fourth quarter shipments from 30-35 million to 25-30 million units. In the first quarter of 2018, though, KGI believes shipments could increase by as much as 50%.