Barron's weekend update: positive on BKD
Cover story: A Hillary Clinton win in the presidential race "would be easily digested by markets because of her mostly moderate instincts and predictable policy prescriptions"; U.S. multinationals such as GE, MON, and DE would likely benefit because Clinton has shown no signs of being a protectionist.
Features: 1) Sectors including biotech, energy, and even defense stocks could benefit from a Donald Trump presidency, because he is calling for less regulation on a variety of industries; 2) Positive on VOD, Deutsche Telekom, NVS, Nestle, NGG: Five European stocks have yields ranging from 2-5%, and could get a boost as European investors seek alternatives to ultralow, or negative, government bond yields; 3) Positive on BKD: Company faces a number of issues, including a slowdown in new construction in senior housing, but shares already appear to reflect these concerns, and they could rise 30% or more.
Tech Trader: Cautious on IBM: Tech company has contributed to the impression that it's failing in the cloud sector because it doesn't indicate what cloud revenue is new business; A lack of information from players such as MSFT and GOOGL about their cloud businesses has forced analysts to compile their own estimates.
Trader: "The more stocks go up, the more those sitting on the sidelines will be forced to capitulate and join in," says Douglas Cote of Voya Investment Management; A rise in three names-MMM, IBM, and UNH-accounted for almost 50% of the Dow's 7% gain as of Thursday; Cautious on PAY: Company's valuation is near an all-time low, with the stock trading at big discounts to its own history, rivals, and the market; Positive on AMZN: Retailer is likely to benefit from back-to-school shopping-22% of respondents to a Civic Science poll say they'll do a quarter or more of their shopping online.
Small Cap: Positive on SSP: Broadcaster faces slower-than-expected political spending this year, but a recent selloff looks like an opportunity, and long-term prospects are good.
Follow-Up: Positive on CAT: An earnings recovery could take two more years to begin, but when it happens it should be strong, and patient investors should stick with the shares; Positive on BDX: Shares of medical-equipment maker could rise by 10% during the next 12 months following a string of strong revenue and earnings gains; Cautious on ECL: Shares are up 48% during the past three years, but with sluggish growth and some industry headwinds, it could be time for investors to take their profits.
European Trader: Positive on FirstGroup: Shares of transport group have rebounded following a drop in the wake of the Brexit vote, and its profit picture shows signs of brightening.
Asian Trader: Cautious on Idea Cellular: Indian consumers have embraced smartphones, but they shy away from high-priced data plans, a problem for the country's No. 3 carrier.
Emerging Markets: With state-run deficits amounting to 10% of GDP for three years straight and failures by the central bank to prop up its currency, Egypt badly needs a bailout from the IMF. Commodities: Easing concerns about the global economy this year have halted the long slide in copper prices-though the support isn't likely to last.
Streetwise: Profits in technology and healthcare continue to grow at double-digit rates, and it wouldn't take much outperformance for them to attract momentum investors, which would give them a boost.
Weekly Update
Dow +0.18% S&P +0.05% Nasdaq +0.23% Russell -0.12% Brazil +1.11% Nikkei +4.09% Hang Seng +2.80% CSI +2.78% Shanghai +2.49% Erostoxx+2.40% FTSE+1.80% CAC+2.03% Dax +3.34% Ibex+2.07% MIB +2.23% SMI +1.23%
The DJIA and the S&P500 both notched fresh all-time highs this week and the Nasdaq came very close to record levels as markets kept melting up in the August heat. Crude prices saw their second week of gains off the late July low, providing an assist to higher US equity valuations, while the dollar is gradually softening. Trading volumes were about 20% below average. In the US, decent retail sector earnings were seen, with the quarterly earnings season coming to a close. Economic data was less than stellar, with the July retail sales report flat after three months of solid gains. Both the July PPI report and the import prices data showed inflation losing steam again. The focus in both Japan and China was on the possibility of fresh central bank action to help prop up growth, while in the UK, the Bank of England had trouble finding enough bonds to purchase under its restarted QE program. For the week, the DJIA gained 0.2%, the S&P500 edged up less than 0.1% and the Nasdaq added 0.2%.
Macro :
- U.S. Declares Public Health Emergency in Puerto Rico on Zika
- Lyft Said to Rebuff Takeover Approach From GM: The Information
- Brazil’s Diniz Says Tax Raise Necessary to Fix Economy: Estado
- Encore of Low Volatility Betrays Yellen, Trump Risks: Analysis
- The Tokyo Whale’s Unstoppable Rise to Shareholder No. 1 in Japan
- Brexit May Be Delayed as U.K. Struggles to Set Up New Ministries
- Record hedge fund bets against sterling
Keep an eye on :
- AIR FP : SpaceX’s Falcon 9 Rocket Lifts Off Carrying JCSAT-16 Satellite
- AMZN US : Amazon July Comp Sales Up 6.4%, EBay Up 3.5%: ChannelAdvisor
- AAL LN : Anglo American Asked by Top Investor to Sell S.A. Ops: S. Times
- EZJ LN : takeover chatter about a PE interested
- ENGI FP : Engie Delays Restart of Tihange-1 Belgian Reactor to Aug. 14
- ETO LN : KKR Said to Consider Entertainment One Offer After ITV Rejection
- GOOGL US : Google Loses Bid to Dismiss Privacy Suit Over Gmail
- ILD FP : Inwit Interested in Managing Iliad Towers: Cicchetti to Il Sole
- INW IM : Inwit Interested in Managing Iliad Towers: Cicchetti to Il Sole
- LHA GY : Lufthansa, Pilot Union End Negotiations Without Accord
- MAERSK DC : Maersk to Unveil New Strategy at End of 3Q, Berlingske Reports
- MGGT LN : Elliott Management Contacting Other Meggitt Holders: Telegraph
- NESN VX : Nestle CEO Sees Strong Franc as Obstacle to New Swiss Plants: SZ
- PNL NA : Bpost no longer in talks with PostNL
- POP IM : Popolare Milano’s U.S. Investors Increase Stakes: Corriere
- RTN LN : New CEO could led a business through a takeover - Telegraph
- RTN LN : The Restaurant Group strategy review to recommend sale of 40 restaurants - The Times
- SGE LN : Sage Data Breach May Affect Information of 300 Users: FT (Yday)
- SKY LN : Sky Said Planning to Start ‘Now TV’ Service in Spain: Telegraph
- VOW3 GY : VW Probing Cars That Can Be Opened With Fake Remote: BBC (Yday)
- VOW3 GY : VW Gets Go-Ahead of German Transport Authority to Modify EA189
- WMH LN : Rank, 888 Said Weighing Improved William Hill Bid: Telegraph
Half of big banks unprepared for accounting shake-up
Nearly half of big banks around the world are unprepared for an international accounting standard due to take force in less than two years, even as they expect provisions for bad loans to soar as a result of the new rules.
A poll of 91 banks across the globe — excluding US banks that are governed by their own rules — has found that 46 per cent of those surveyed do not believe they have enough resources to deliver changes by the 2018 implementation date, with a significant minority going on to say there were not enough skilled candidates in the market to hire.
With less than 18 months to go before the change, nearly two-thirds of banks are unsure how the rules might impact their balance sheets, according to Deloitte, which undertook the global survey.
The rules force banks to have a provision on their balance sheets for expected losses in the future rather than actual losses already suffered.
Those banks that have made the calculations reckon the rules will result in a surge of at least 25 per cent in total impairment provisions across all asset classes.
Banks are also forecasting that the rules, dubbed IFRS 9, will cause their capital ratios to deteriorate: they are expecting core tier one capital — one of the most keenly watched metrics of the health of a bank’s balance sheet — to decrease on average by half a per cent as a result of moving to the new standard, according to Deloitte.
Uncertainty is not limited to the banking industry: 99 per cent of respondents said their local financial regulator had yet to say how they might incorporate IFRS 9 numbers into regulatory capital requirements.
IFRS 9 is part of a suite of measures by the International Accounting Standards Board to overhaul accounting since the financial crisis. The reform package is an attempt to increase regulatory co-operation between the US and international standard setters. Converging the different corporate reporting frameworks has been fraught.
By moving from an “incurred loss” to an “expected loss” model in 2018, under IFRS 9 the regulators hope to avoid the problems that occurred during the crisis, when banks could not book accounting losses until they happened, even though they could see them coming. This should help to keep banks properly capitalised for the loans they have made.
UK banks have experienced historically low impairments recently because of the record low interest rate.
However, there are some concerns that if economic growth were to stall following the Brexit vote, impairments could go up even without the new rules.
Steven Hall at KPMG said the estimated increase in provisions as a result of IFRS 9 was actually “cautious”.
“IFRS 9 will be almost as difficult to implement as it is to say,” he said. “Firms need to consider a range of future scenarios, and in today’s uncertain economic environment assessing the impact of that is not an easy task.”
Mr Hall has called for a grace period during which the new systems might be tested and embedded.
Renzi should make a hard push for stimulus
Brussels must be lenient so long as Italy presses ahead with reform
There is no respite for Matteo Renzi, Italy’s prime minister. Having just dodged a bullet by orchestrating a private capital injection, instead of a politically toxic public intervention, to save Monte dei Paschi di Siena, Italy’s third-largest bank, Mr Renzi is faced with a sharp slowdown in the country’s economy.
According to data released on Friday, Italy’s gross domestic product was flat in the second quarter of this year as growth ground to a halt after five consecutive quarters of gains. The country’s economic performance dragged down the eurozone as a whole and was unflattering compared with most of its peers in the 19-member currency bloc.
Such a dispiriting lack of growth will be gnawing at Mr Renzi for several reasons. It will make it much harder for Italy’s banks to work through their large stocks of non-performing loans, which — despite the recent MPS deal — are still lurking in the background as a big source of financial vulnerability.
In addition, flat output — in combination with deflation — makes it even more difficult for Italy to meet EU-mandated fiscal targets and pare down its high debt-to-GDP ratio.
The third reason is political. Mr Renzi has staked his tenure in office on a referendum on constitutional reform to be held in the autumn, by threatening to resign if he loses. The prime minister has since acknowledged that it was a “mistake” to personalise it in such a way — to the detriment of a debate on the actual merits of reform. But the damage may be done.
Opposition parties have pounced on the opportunity to make the referendum an up-or-down vote on Mr Renzi’s increasingly unpopular government. Many Italians will see it the same way. So any weakness between now and the November poll will only hurt Mr Renzi’s odds of survival.
Against this gloomy background, Mr Renzi is considering ways to deliver a jolt of stimulus to the faltering economy. Of course, he has an incentive to do so because of the threat the referendum now poses to him. The needs of the Italian economy should, however, be paramount to avoid the risk of a new Italian recession, with ripples spreading across the eurozone.
Despite the fact that his space for fiscal manoeuvre has only become tighter with the economy flatlining, Mr Renzi should push to get as much leeway as he can out of Brussels. So far, Italy’s recovery has been fuelled largely by monetary stimulus, on the back of the European Central Bank’s bond-buying programme. There is, though, a strong case for fiscal expansion to step in at this point.
To be sure, any stimulus would need to be well crafted. Mr Renzi has shown a tendency towards politically motivated gimmicks and Italy generally has a poor record when it comes to spending money efficiently. An acceleration in broad-based income tax cuts, planned for 2018, would be one option.
The EU’s reaction will be key. But having shown leniency to Spain, Portugal and France for their fiscal sins in recent months, Brussels cannot in good conscience turn around and take a tough stance against Italy, particularly with the 10-year Italian government bond yield grazing 1 per cent — far from alarming levels.
One condition, however, must be that Mr Renzi continues his push for structural reforms. After a flurry of activity in 2014 and 2015, his drive for change has slowed this year as his political troubles have mounted. Once the referendum is behind him, Mr Renzi must stop dawdling and stay true to the promises he has made to reform the economy.
David Tepper’s hedge fund exits Facebook, Delta and others
David Tepper’s Appaloosa hedge fund is so over Facebook.
The fund completely exited its position in the tech darling during the second quarter, it disclosed in a regulatory filing on Friday — after being in the stock for less than a year.
Tepper also exited Bank of America, Cabot Oil & Gas, Delta Airlines, Pfizer and Valeant Pharmaceuticals during the quarter.
Page Six has reported that someone impersonating Tepper is trolling Facebook trying to win dates with women.
It is not known if the troll had any impact on Tepper, known to be a private person, exiting the stock. Tepper could not immediately be reached for comment.