>>> Barrons weekend summary: Positive on BMY, CELG, HEI, AABA ; Cautious on NVDA

Barrons weekend summary: Positive on BMY, CELG, HEI, AABA ; Cautious on NVDA, INTC, IRBT, TXN, Central Banks & Bitcoin 
* Cover story: Cryptocurrencies such as Bitcoin are thriving despite the fact they are barely recognized by the SEC; “Even if Bitcoin ultimately falls apart or crashes, its underlying technology—known as ‘blockchain’—is likely to disrupt financial markets for years to come”; 

* Tech Trader: Cautious on INTC, NVDA: A revolution in the chip industry could upend established players as companies such as GOOGL, which have never been involved in semiconductors, become their own chip houses and numerous startups bring fresh competition. 

* Trader: After leading the market higher this year, tech stocks are slowing down, but that doesn’t mean the Nasdaq’s rally is over; The acquisition of SPLS by private equity firm Sycamore Partners won’t put an end to troubles in the retail sector; Cautious on IRBT: Company faces headwinds from rivals Ecovacs and SharkNinja, and shares could fall to a multiple more in line with other appliance vendors. 

* Profile: Christopher Beck of the Delaware Small Cap Value fund focuses on cash flow and capital spending and is leery of companies with too much debt (top 10 holdings: EWBC, BERY, MTZ, SNPS, SIGI, HBHC, WBS, OLN, TSE, FUL). 

* Interview: Evan Lorenz of Grant’s Interest Rate Observer says he isn’t finding as many cheap, defensible longs with good balance sheets that the publication can recommend (pick: Fibra Uno; pans: KHC, WHR, Canadian Apartment). 

* Features: 1) Bitcoins are a speculative investment, and there are number of ways to invest in them, though no U.S. exchange-traded funds track them; Michael Novogratz, formerly of Fortress Investment Group, says the market cap could reach $5T in five years, up from $42B today; 2) Positive on BMY: Shares of company are down on disappointing trials, but investors are ignoring lucrative potential markets, and the shares could return 25-40% during the next two to three years; 3) Cautious on TXN: Though the stock’s price/earnings ratio remains near a historical average, shares are up 25% and could rise another 20% or more based on strong margins, high cash flow, and dominant market positions; 4) The cable and wireless sectors are likely to see a round of dealmaking among all but market leaders Comcast and CHTR, and one or more cross-industry combinations appear likely. 

* Small Caps: Positive on HEI: Company that provides replacement parts for the airline industry has thrived for more than 50 years, and its earnings and stock price should compound at a mid-teens rate in coming years. 

* Follow-Up: Positive on CELG: Pharma sees the potential for $21B in yearly revenue, nearly double what it booked last year, if results from 17 late-stage trials are positive; Positive on AABA: Shares trade at a 30% discount to the value of the company’s assets, and investors could benefit from catalysts such as tax reform or aggressive share repurchases. 

* European Trader: Positive on Sanne Group: Fund-administration outsourcing firm is tapping into the lucrative market of managing the myriad regulatory demands faby financial services companies. 

* Asian Trader: Beijing’s move to open the Shanghai and Shenzhen stock connect platforms has undercut Hong Kong’s big selling point as an intermediary for foreign investors in China. 

* Emerging Markets: “Emerging market debt, which boasts an average yield of about 6%, has had record inflows and healthy returns this year,” and the trend is likely to continue over the next seven years. 

* Commodities: Some market pundits think a falling dollar and global political turmoil could give gold a boost in the second half of the year. 

* Streetwise: Story says the era of extraordinary central bank support—the result of which is record-high stock and bond prices, but modest economic growth—may be about to end.

(ZH) The Swiss National Bank Owns $80 Billion In US Stocks - Here's The Catch

The Swiss National Bank Owns $80 Billion In US Stocks - Here's The Catch
Switzerland is a small country of just 8 million people, but they make an outsized impact on economics and finance and money.

Because Switzerland is considered a safe haven and a well-run country, many people would like to hold large amounts of their assets in the Swiss franc. This makes the Swiss franc intolerably strong for Swiss businesses and citizens.


So the Swiss National Bank (SNB) has to print a great deal of money and use nonconventional means to hold down the value of their currency. Their overnight repo rate is -0.75%.

That’s right, they charge you a little less than 1% a year just for the pleasure of letting your cash sit in a Swiss bank deposit.

Switzerland Is Buying US Stocks on an Enormous Scale


And the SNB is buying massive quantities of dollars and euros, paid for by printing hundreds of billions in Swiss francs.

The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).

They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.

Think about this for a moment: They have about $10,000 in US stocks on their books for every man, woman, and child in Switzerland, not to mention who knows how much in other assorted assets, all in the effort to keep a lid on what is still one of the most expensive currencies in the world.

Switzerland is now the eighth-largest public holder of US stocks. It has got to be one of the largest holders of Apple.

What Happens When There Is a Bear Market?
Who bears the losses?

Print just more money to make up the difference on the balance sheet? Do we even care what the Swiss National Bank balance sheet looks like? More importantly, do they really care?

We all remember European Central Bank President Mario Draghi’s famous remark, that he would do “whatever it takes” to defend the euro. We could hear the Swiss singing from the same hymnbook soon.

Central Banks and Governments Exacerbate the Bubble
The point is that central banks and governments are flooding the market with liquidity all over the world.

That’s showing up in the private asset markets, in stock and housing and real estate and bond prices. It creates an unquenchable desire for what appear to be cheap but are actually overvalued assets—which is what creates a Minsky moment.

Now, remember what Minsky said: When an economy reaches the Ponzi-financing stage, it becomes extremely sensitive to asset prices. Any downturn or even an extended flat period can trigger a crisis.

While we have many domestic issues that could act as that trigger, I see a high likelihood that the next Minsky moment will propagate from China or Europe. All the necessary excesses and transmission channels are in place.

The Great Reset Is Close
The hard part, of course, is the timing. The Happy Daze can linger far longer than any of us anticipate. Then again, some seemingly insignificant event in Europe or China—an Austrian Archduke’s being assassinated, or what have you—can cause the world to unravel.

It’s a funny world.

Our central banks and governments exhibit unmistakable herd behavior and continue to do the same foolish things over and over. They never really intend to have the crisis that ensues.

Remember Farrell’s Rule 3: There are no new eras. The world changes, but danger remains. Gravity always wins eventually. It will win this time, too. And when it does, we will begin to undergo the Great Reset.

WSJ : Wall Street Strategists Forecast Most-Bearish Second Half Since 1999

Telecom Argentina, Cablevisión Announce Merger
Announcement from Argentina’s leading internet service providers comes ahead of the opening of the country’s telecommunications sector next year

BUENOS AIRES— Telecom Argentina TEO 3.56% and Cablevisión, two of Argentina’s leading telecommunications and internet service providers, said they plan to merge ahead of the opening of the country’s telecommunications sector next year.
The merger, announced late Friday, would allow the companies to offer so-called quadruple play services, including fixed-line and mobile communications as well as broadband and television programming. The deal, approved by the boards of both companies, would have to be approved by shareholders and regulators
“The combination of the two companies will strengthen their investment in modern, mobile technology infrastructure as well as the build out of a high speed fiber optic network,” Telecom Argentina said in a statement.

Telecom Argentina is owned by Fintech Advisory, a firm run by David Martínez, a Mexican-born investor who already holds a 40% stake in Cablevisión.
News of the merger comes six months ahead of Argentina’s plan to allow companies here to offer quadruple play services, which have been largely prohibited in Argentina.
It also comes ahead of a key midterm congressional election in October in which former President Cristina Kirchner will compete for a Senate seat. Mrs. Kirchner’s government heavily regulated the media and telecommunications industry, passing a landmark law that put new limits on media companies, particularly Grupo Clarín ,which holds a 60% stake in Cablevisión.
Mrs. Kirchner portrayed Grupo Clarín as an all-too-powerful political actor that needed to be downsized to give competing media outlets greater influence. Grupo Clarín has said the Kirchner administration was trying to muzzle independent media.
Media regulation is a politically charged topic in Argentina and any move by regulators to approve the merger could become political fodder during the congressional campaign. Analysts say the election will be seen as a referendum on the more market friendly policies of Mrs. Kirchner’s market-friendly successor, Mauricio Macri.
President Macri says Mrs. Kirchner’s media policies stymied investment and favored companies that promoted her agenda. Indeed, her administration distributed a disproportionate amount of state funding to media outlets that offered her favorable coverage. Mr. Macri has moved to boost investment in the sector and is trying to woo foreign companies.
The merger would provide the companies with a roughly 55% market share in broadband services, according to Enrique Carrier, an industry analyst. It would also pose a challenge to Claro, a unit of Mexico’s América Móvil SAB , and the local unit of Spain’s Telefónica SA .

“This implies the creation of a single company capable of offering quadruple play and it will also be a player which is strong in each of those services,” Mr. Carrier said. “That would give the company a dominant position in broadband and give it an advantage over competitors such as Telefónica, which doesn’t offer television services and Claro, which doesn’t have a broadband network."

    (ZH) Wall Street Strategists Forecast Most-Bearish Second Half Since 1999

    Wall Street Strategists Forecast Most-Bearish Second Half Since 1999


    by Tyler Durden
    Jul 1, 2017 1:20 PM
    TwitterFacebookReddit

    Despite a hiccup in the last week or so, global stocks survived as the best-performing asset class of the year (with the MSCI All-Country World Index wrapping up its best first half in 19 years)...
    But, as Bloomberg reports, Wall Street strategists are fighting historic odds when urging investors not to chase the rally in the U.S. stock market.

    They’re predicting the S&P 500 Index will see momentum fade in the second half after shares climbed 8.2 percent for the best first-half performance since 2013.

    The average year-end prediction, 2,439, represents a 0.6 percent increase by December, the least bullish forecast at this time of year since 1999, data compiled by Bloomberg show.
    Among the 20 strategists surveyed by Bloomberg, stretched valuations and decelerating profit growth are often cited as reasons for caution. Yet stocks have shrugged off everything from monetary tightening to oil’s slump to drama at the White House, surging past Wall Street forecasts that at the start of the year were the least bullish in more than a decade.
    Of course there are always those who remain serial extrapolators...


    Laszlo Birinyi, a steadfast bull during the eight-year equity rally, said the prevailing caution among strategists is one reason why he’s optimistic. The president of Birinyi Associates Inc. recently said his firm would buy calls betting on the S&P 500 to reach 2,500 by September.

    “Wall Street continues to be unenthusiastic regarding the market,” Birinyi wrote to his clients this week. “New highs are generally greeted with a yawn. Especially encouraging is the fact that investors have cash,” he said. “As the year proceeds, we are actually feeling better about the market.”
    Others are sticking to bearish calls.


    Tom Lee, Fundstrat Global Advisors co-founder who’s the most bearish with a prediction of 2,275, last week slashed his S&P 500 earnings forecasts for this year and next, citing weaker inflation, rising labor costs and a delay in President Trump’s growth agenda.
    And while VIX just had its biggest intraday surge since last year’s Brexit vote result, it just posted its second quarterly decline, with a 7.5% drop. The VIX came within 5% of its record low earlier in June and averaged 11.4 in the past three months, the lowest quarterly average since 2006.

    And it is not just US equities that are concerning, the cost to hedge against European stock swings just saw its biggest monthly surge since January 2016.
    The VStoxx Index jumped 21 percent in June, reaching its highest level since before the French election in April. The Euro Stoxx 50 Index is poised for a quarterly decline on growing speculation the region’s central banks will tighten policy -- something that would likely trigger market turmoil in the medium term, JPMorgan said.
    Of course Wall Street strategists aren't alone in their skepticism of US equity exuberance...
    "Transitory"

      FT : Daniel Loeb: Master of the universe makes a comeback

      Daniel Loeb: Master of the universe makes a comeback

      The surf-loving founder of Third Point now has Europe in his sights

      At a lavish annual hedge fund conference in Las Vegas that attracts some of the biggest players in the industry, a familiar name was on the agenda earlier this year. But unlike in previous years, this time there was a stipulation: Daniel Loeb would be speaking off the record.

      Mr Loeb, the 55-year-old sharp-tongued activist investor and founder of Third Point, is not usually one to censor himself. Two years earlier, at the same conference, he took a swipe at Warren Buffett for the “wide disconnect” between what he practices and preaches regarding hedge funds.

      He has sued Sotheby’s, the auction house, helped oust the chief executive of Yahoo and publicly targeted companies ranging from Dow Chemical to Sony. But Mr Loeb’s latest investment, a stake in Nestlé worth about $3.5bn, reflects the more tempered persona that the once-fiery investor has adopted of late. There were no angry letters to the board or demands for inept management to step down. The stake was announced in a letter to Third Point investors earlier this week with a list of requests: the Swiss food group should sell its remaining 23 per cent shareholding in L’Oréal; boost its debt to buy back shares; and set a formal profit margin target of 18 to 20 per cent by 2020. Many of those may have already been set in train by Nestlé chief executive Mark Schneider, who is still in his first year in the role and is working on plans to revamp the conglomerate.


      Mr Loeb, a health buff and yoga fanatic who often retweets the Dalai Lama’s inspirational quotes, has not necessarily chilled out in the third decade of his fund’s operation. Yet activism has changed as the strategy has grown commonplace. Boards are more willing to engage, so the public foot-stomping by some activists has faded, while institutional investors are more ready to vote in line with activists, and even to court them.

      While Mr Loeb and investors such as Carl Icahn and Bill Ackman championed public battles with companies, a group of funds, including Europe’s Cevian Capital and San Francisco-based ValueAct, employed a “constructivist” style of activism, where they sought to engage management behind the scenes in the hopes of driving change that way. It’s an approach Mr Loeb is increasingly adopting — and one that is more commonly deployed in Europe, a region he and other activists have in their sights.


      But the Nestlé stake is also the largest investment Mr Loeb has ever made, and shows that even multinational conglomerates are not immune to being targeted by activist shareholders. Third Point, which manages $18bn, raised another $1bn in a special purpose vehicle to purchase the stake.

      Activism has been experiencing a resurgence in the past year after the high-profile struggles of Valeant, a US drugmaker whose shares plunged after it was targeted by activists, and Bill Ackman’s ill-fated campaign against Herbalife had led some investors to go sour on the strategy.

      Mr Loeb, too, has been making a comeback. After his fund returned more than 20 per cent in 2012 and 2013, returns fell to 5.7 per cent in 2014 and were down 1.4 per cent in 2015 and returned 6.1 per cent last year. But Third Point’s master fund was up 10 per cent at the end of May and assets have returned to a previous peak of $18bn.

      Mr Loeb, who is estimated to be worth about $2.9bn, started his fund in 1995 in the weight room of David Tepper, the founder of the hedge fund Appaloosa Management, with a desk he found on the side of the road and a few million he raised from family and friends.

      Born in 1961 in Santa Monica, California, to a high-powered lawyer and a historian, Mr Loeb always seemed to have an entrepreneurial streak. In high school, he started a skateboard company called “B Industries”. He attended the University of California at Berkeley before graduating from Columbia University in New York with a degree in economics. He cycled through jobs in finance over a decade from the mid-1980s to mid-1990s, first at the private equity firm Warburg Pincus, then in corporate development at the record label Island Records, and later at Jefferies and Citigroup.

      In the pantheon of masters of the universe, Mr Loeb is one of the more colourful — an avid surfer who has cited the rapper Tupac in his investment letters and once challenged a group of former navy Seals to a half iron triathlon to raise money for charity. When Third Point celebrated its 20-year anniversary in 2015, its invitation letters featured a younger Mr Loeb on the cover of a fake rap album entitled “2 Legit 2 Quit”.

      He is married with three children and reportedly spent a then-record-breaking $45m in 2005 on an Upper West Side penthouse. He also owns a yacht he bought from former Citigroup chief executive Sandy Weill and a palatial home in East Hampton.

      With the Nestlé stake, Mr Loeb has also shown his readiness to tackle Europe as opportunities in the US dwindle. People close to Third Point say the fund is increasingly looking towards the continent as the eurozone stabilises following the election of Emmanuel Macron in France.

      But Mr Loeb has been burnt before when wandering into new territory — for example in Japan, where he targeted Sony, proposing that the company split in two. But Sony did not heed his demands and the share price continued to fall. Nevertheless, Third Point sold the stake at a profit in late 2014.

      >>> Groupe SAF majority stake acquired by Oaktree Capital Management

      Groupe SAF majority stake acquired by Oaktree Capital Management

      PE firm Oaktree Capital Management has acquired a stake in the French helicopter services provider Groupe SAF, according to an announcement from existing investor Bpifrance which remains a minority backer alongside BNP Paribas Developpement, and Credit Agricole des Savoie Capital. The French-language item noted that Amundi Private Equity Funds and Portuguese United Helicopter Service exited the capital.

      News portal Capital Finance noted that Oaktree took a 49.9% stake while the existing investors reduced their stake from 70% to 44%. The management team, led by Christophe Rosset, retains circa 6%.

      The finalization of the transaction, which is expected in the coming weeks, is subject to administrative and regulatory approvals.

      SAF Helicopters has a headcount of 220 people and posted EUR 42m consolidated turnover in 2016. It offers rescue and protection, aerial work, passengers transport, maintenance and training services.

      The vendors were advised by UBS, Shan Finance, Cabinet Lamartine, and De Pardieu Brocas Maffei. Oaktree was advised by KPMG, ERM, Lockton, Hottinguer, Willkie Farr & Gallagher, 8 Advisory, Mayer Brown, and AT Kearney. Bichot & Associes acted as legal counsel for Bpifrance. Cabinet Goutagny and Adamis served as lawyer for the management team.

      Barron's : Sanne Group Thrives in a Rising Tide of Regulation

      Sanne Group Thrives in a Rising Tide of Regulation
      The Jersey-based Sanne Group benefits from the trend toward outsourcing, cross-border investment, and a post-Brexit Europe.

      Financial regulation is a complex and expensive burden for many fund managers, but it’s paying dividends for some investors.

      FTSE 250–listed Sanne Group (ticker: SNN.UK) is a fund-administration outsourcing business that is currently tapping into this lucrative market by offering to take over the tangle of regulatory demands that finance firms increasingly face. Its track record is impressive.

      Sanne went public just over two years ago following an initial public offering that priced its shares at two pounds ($2.53) each. Today, the stock trades at £6.38, more than three times the IPO price. While it has slipped below its peak value more recently, falling 2.8% over the past three months, it has gained almost 46% over the past year.

      Rory McPherson, head of investment strategy at British fund firm Psigma Investment Management, says that the stock should continue to benefit from a continuing trend toward outsourcing fueled by increasing regulation, cross-border investment, and demand for independent oversight. “We also think it provides a good hedge against the increasing complexity of regulations likely to arise from Brexit negotiations,” he adds, particularly if reporting requirements and legislation grow more onerous in the United Kingdom following its divorce from the European Union in 2019.

      “This is added to the additional regulation already on the way from MiFID II and Solvency II,” McPherson says.

      MiFID II is the latest version of the EU’s Markets in Financial Instruments Directive, updated in the aftermath of the financial crisis and covering instruments ranging from derivatives to bonds. Solvency II sets out EU rules aimed at the insurance industry, intended to harmonize consumer protection across the EU, to update supervision and ensure that risks are adequately managed.

      “We think the recent lull in the share price represents a good entry point to a long-term structural growth story,” McPherson says. “News flow has been light since they reported in March, but we expect momentum in the story to continue. As management noted in its recent presentation, organic growth has followed historical trends, with 60% of new business coming from existing customers and 40% from new.”

      In March, Sanne reported a sixfold jump in 2016 pretax profit to £15 million from £2.4 million a year earlier, as revenue rose 40%, to £63.8 million.

      Sanne made a number of strategic acquisitions during the past year to extend its global reach, pushing it into faster-growing markets and extending the range of the services it offers.

      Last November, Sanne bought the Mauritius-based fund administration business IFS Group for $127.3 million. When the deal was announced, Sanne said it would boost earnings immediately, with IFS at the core of a new stand-alone division operating as the company’s emerging-markets-focused platform, helping it to plug into growth opportunities in Asia and Africa.

      SANNE’S MOVE INTO EMERGING MARKETS through IFS—which also provides access to the fast-growing U.S. outsourcing market—means that management’s expectations of 15% annual organic revenue growth should be sustainable over the medium term, McPherson says. Meanwhile, its established jurisdiction on Jersey, one of the Channel Islands, saw a 30% increase in private-equity funds under administration in the last three months of 2016 to about £60 billion.

      “Structural growth trends within the industry show little sign of slowing, and so we believe Sanne should be relatively well insulated from ongoing macroeconomic uncertainty,” he says. “With 90% recurring revenues, high margins, and the opportunity to continue to consolidate fragmented end markets, we believe the current valuation is undemanding.”

      The stock trades at 25 times next year’s earnings, which McPherson expects to come down to 20 times by the end of 2018, when the company will have paid down the debt from the IFS acquisition. The dividend yield, at 1.5%, is low, making it very much a growth stock, but that’s still up 35% in the past year.

      “While one may be put off by the strong performance of the shares since it floated in 2015, we note that it has only kept up with the earnings delivered, and there is nothing to suggest this trend won’t continue,” McPherson says.

      Investec analyst Daniel Cowan has Sanne as a Buy with a £7.35 price target, almost 16% above its current level. “Sanne sees a strong pipeline of further new business opportunities in its core alternatives-focused business divisions (debt, real estate, private equity, and hedge funds). The group also continues to review potential acquisitions, with evidence of recent further industry consolidation,” he writes.

      He describes the company’s balance sheet as being in good shape. Sanne had net cash of £49.2 million at the end of 2016, and Cowan estimates underlying net debt at £22.5 million, including the cash it raised to buy IFS.

      NY Post : Warren Buffett casts big shadow in banking world

      Warren Buffett’s Berkshire Hathaway is now the largest single shareholder of Bank of America — but that’s not the only piece of Wall Street he owns.

      Buffett, 86, is also the biggest shareholder of Wells Fargo, with a little under 10 percent of the San Francisco bank, and US Bancorp, a Minneapolis bank that’s among the largest in the country.

      In addition to those holdings, he’s also the seventh biggest owner of Goldman Sachs and Bank of New York Mellon — and the eighth largest shareholder of M&T Bank, a Buffalo bank with $16.5 billion in assets.

      While he has a powerful voice in the boardrooms of a handful of the world’s biggest banks, none of his stakes are more than 10 percent — the threshold where additional regulation by the Federal Reserve kicks in.

      Buffett, who tends to get listened to when he speaks, has been more of a passive investor in banks, but can have a major sway in how banks operate, said Dick Bove, analyst at Rafferty Capital Markets.

      “Based upon his public statements, he’s a strong believer in what the bank regulators believe, which is that banks should stick to banking,” he said.

      While Buffett was instrumental in removing John Stumf as CEO of Wells Fargo in the wake of the fake accounts scandal, he probably won’t be piping up too much any time soon.

      “Why would you worry more about Warren Buffett than some mutual fund complex?” one prominent banking lawyer told The Post.