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Tougher approach seen largely as response to increased regulatory scrutiny

Merrill Lynch is shaking up the ranks of its 14,000 brokers with what appears to be a zero-tolerance message about breaking key company rules.

Merrill Lynch is shaking up the ranks of its 14,000 brokers with what appears to be a zero-tolerance message about breaking key company rules. The new, tougher approach is seen largely as a response to increased scrutiny from regulators and heightened oversight by the brokerage itself.

The message was delivered in dramatic fashion: In September and again last month, the Bank of America Corp.-owned brokerage fired longtime financial advisers handling very large and lucrative accounts. According to the firm, they had violated its policies for dealing with clients and handling transactions. In both cases, Merrill surprised the advisers—and many of their colleagues—by opting for immediate termination over a less severe sanction that would have allowed them to remain on the job.

In the more recent case, Tom Buck, an Indiana-based adviser who oversaw $1.3 billion in assets, lost his job in early March. A 33-year veteran of the firm, Mr. Buck was considered a model for success at Merrill by people who had worked with him, other advisers have said.

But when the 61-year-old adviser showed up to work March 4 to attend what he thought would be a routine meeting with his managers, he was instead fired and escorted from the building before the day’s end, Mr. Buck said in an interview.

His daughter, Ann Buck, a cheerleader for the Indianapolis Colts as well as an adviser who worked alongside her father, voluntarily resigned, according to Mr. Buck’s attorney, Brian Hamburger.

In a termination notice posted on Mr. Buck’s so-called U5 filing and viewed by The Wall Street Journal, Merrill said it dismissed him for “conduct including failing to discuss service level and pricing alternatives with a customer, providing inaccurate information to firm management during account reviews regarding this issue, mismarking bond cross-trade order tickets as unsolicited and providing information to a client during an active account review that did not correspond to the firm’s records.” A U5 typically explains a broker’s departure or dismissal.

All of that, Merrill said in the filing, resulted in “management’s loss of confidence.” The firm began its review of Mr. Buck a day before the dismissal, according to the filing.

Mr. Buck, a perennial on the closely followed Barron’s Top Adviser rankings, taking the No. 1 spot in his home state of Indiana every year since 2010, said he doesn’t plan on disputing the language. He said in the interview that he wants “to go forward and take care of his clients” now.

He described the firing as a “kick in the gut,” and said the issues raised by Merrill weren’t brought to his attention before the day he was fired. He says he is now evaluating a couple of options and plans to resume his practice “soon.”

Merrill had no comment on Mr. Buck’s firing.

In the past, brokerages leaned toward giving second chances to their so-called top producers, perhaps putting a letter of reprimand in their file, ordering that they submit to closer supervision or a suspension, depending on the alleged offense. The new, tougher approach is seen largely as a response to closer regulatory scrutiny of brokerages.

“Gone are the old days where someone who was a big producer or a significant force could act with impunity,” said Robert Plaze, a former deputy director of the Securities and Exchange Commission’s Division of Investment Management who is now an attorney at Stroock & Stroock & Lavan LLP. “If an adviser is breaking policies, even if it doesn’t violate the law, it opens up the adviser to an enforcement action.”

But it also gives the firms a big advantage in terms of winning over the fired advisers’ clients, industry recruiters point out.

“Merrill Lynch has been in contact with my clients, reassigning them to other advisers and using this past month to their best advantage,” said Mr. Buck.

In September, Merrill terminated advisers Stephen Brown and James Goetz, based in Rochester, N.Y., who had 40 years of combined service at the brokerage and $2.5 billion in client assets under management. They were dismissed for what the firm says was “conduct related to not disclosing private securities transactions, including transactions alongside clients,” according to their BrokerCheck, Finra’s database on brokers and financial advisers.

Messrs. Brown and Goetz dispute the termination and Merrill’s reasoning for it, according to their attorney, Thomas Lewis. His clients are in arbitration with the firm, which wants Mr. Brown to repay a portion of a retention bonus he received. The circumstances of the firing are being aired in those closed hearings, Mr. Lewis said.

Mr. Lewis said Merrill “rushed to judgment” after questions arose around Mr. Brown’s investments in local private companies. Several of his clients, who are ultrawealthy and were close friends of Mr. Brown, were also investors in some of these companies.

“The penalty did not fit the allegations,” said Mr. Lewis, adding that both his clients claim the behavior was approved by Merrill.

Merrill also had no comment on Messrs. Brown and Goetz’s firings.

Like Mr. Buck, Merrill reassigned their clients, while the two fired advisers were unable to find work until the brokerage formally posted its reasons for the termination, Mr. Lewis said.

It isn’t clear why Merrill opted for the harsher penalties in either instance. A spokesman for the firm declined to comment for this article.

However, current and former Merrill employees say the company effectively sent a message to its employees: Shape up or else.

A Merrill branch manager based on the East Coast said there is a “zero tolerance” atmosphere for any type of risk at the firm right now and that other, less notable firings have taken place the last couple of years that may have been dealt with less harshly several years earlier. It has caused him and others to look over their shoulders more to avoid any run-ins with compliance personnel, the manager said.

Securities attorneys said that attitude is taking a greater hold in the industry. Even small violations, such as poor record keeping or email retention, are drawing stricter penalties, attorneys say.

“A firm might’ve addressed a relatively minor infraction with an internal review or a censure maybe,” said Rob Skinner, an attorney with Ropes & Gray, while speaking broadly about the industry. “With regulators bearing down increasingly on relatively minor sanctions, it’s an incentive for brokerages to do some shortsighted things because the negative impact of an enforcement preceding is potentially huge.”

Tougher approach seen largely as response to increased regulatory scrutiny

Merrill Lynch is shaking up the ranks of its 14,000 brokers with what appears to be a zero-tolerance message about breaking key company rules.

Merrill Lynch is shaking up the ranks of its 14,000 brokers with what appears to be a zero-tolerance message about breaking key company rules. The new, tougher approach is seen largely as a response to increased scrutiny from regulators and heightened oversight by the brokerage itself.

The message was delivered in dramatic fashion: In September and again last month, the Bank of America Corp.-owned brokerage fired longtime financial advisers handling very large and lucrative accounts. According to the firm, they had violated its policies for dealing with clients and handling transactions. In both cases, Merrill surprised the advisers—and many of their colleagues—by opting for immediate termination over a less severe sanction that would have allowed them to remain on the job.

In the more recent case, Tom Buck, an Indiana-based adviser who oversaw $1.3 billion in assets, lost his job in early March. A 33-year veteran of the firm, Mr. Buck was considered a model for success at Merrill by people who had worked with him, other advisers have said.

But when the 61-year-old adviser showed up to work March 4 to attend what he thought would be a routine meeting with his managers, he was instead fired and escorted from the building before the day’s end, Mr. Buck said in an interview.

His daughter, Ann Buck, a cheerleader for the Indianapolis Colts as well as an adviser who worked alongside her father, voluntarily resigned, according to Mr. Buck’s attorney, Brian Hamburger.

In a termination notice posted on Mr. Buck’s so-called U5 filing and viewed by The Wall Street Journal, Merrill said it dismissed him for “conduct including failing to discuss service level and pricing alternatives with a customer, providing inaccurate information to firm management during account reviews regarding this issue, mismarking bond cross-trade order tickets as unsolicited and providing information to a client during an active account review that did not correspond to the firm’s records.” A U5 typically explains a broker’s departure or dismissal.

All of that, Merrill said in the filing, resulted in “management’s loss of confidence.” The firm began its review of Mr. Buck a day before the dismissal, according to the filing.

Mr. Buck, a perennial on the closely followed Barron’s Top Adviser rankings, taking the No. 1 spot in his home state of Indiana every year since 2010, said he doesn’t plan on disputing the language. He said in the interview that he wants “to go forward and take care of his clients” now.

He described the firing as a “kick in the gut,” and said the issues raised by Merrill weren’t brought to his attention before the day he was fired. He says he is now evaluating a couple of options and plans to resume his practice “soon.”

Merrill had no comment on Mr. Buck’s firing.

In the past, brokerages leaned toward giving second chances to their so-called top producers, perhaps putting a letter of reprimand in their file, ordering that they submit to closer supervision or a suspension, depending on the alleged offense. The new, tougher approach is seen largely as a response to closer regulatory scrutiny of brokerages.

“Gone are the old days where someone who was a big producer or a significant force could act with impunity,” said Robert Plaze, a former deputy director of the Securities and Exchange Commission’s Division of Investment Management who is now an attorney at Stroock & Stroock & Lavan LLP. “If an adviser is breaking policies, even if it doesn’t violate the law, it opens up the adviser to an enforcement action.”

But it also gives the firms a big advantage in terms of winning over the fired advisers’ clients, industry recruiters point out.

“Merrill Lynch has been in contact with my clients, reassigning them to other advisers and using this past month to their best advantage,” said Mr. Buck.

In September, Merrill terminated advisers Stephen Brown and James Goetz, based in Rochester, N.Y., who had 40 years of combined service at the brokerage and $2.5 billion in client assets under management. They were dismissed for what the firm says was “conduct related to not disclosing private securities transactions, including transactions alongside clients,” according to their BrokerCheck, Finra’s database on brokers and financial advisers.

Messrs. Brown and Goetz dispute the termination and Merrill’s reasoning for it, according to their attorney, Thomas Lewis. His clients are in arbitration with the firm, which wants Mr. Brown to repay a portion of a retention bonus he received. The circumstances of the firing are being aired in those closed hearings, Mr. Lewis said.

Mr. Lewis said Merrill “rushed to judgment” after questions arose around Mr. Brown’s investments in local private companies. Several of his clients, who are ultrawealthy and were close friends of Mr. Brown, were also investors in some of these companies.

“The penalty did not fit the allegations,” said Mr. Lewis, adding that both his clients claim the behavior was approved by Merrill.

Merrill also had no comment on Messrs. Brown and Goetz’s firings.

Like Mr. Buck, Merrill reassigned their clients, while the two fired advisers were unable to find work until the brokerage formally posted its reasons for the termination, Mr. Lewis said.

It isn’t clear why Merrill opted for the harsher penalties in either instance. A spokesman for the firm declined to comment for this article.

However, current and former Merrill employees say the company effectively sent a message to its employees: Shape up or else.

A Merrill branch manager based on the East Coast said there is a “zero tolerance” atmosphere for any type of risk at the firm right now and that other, less notable firings have taken place the last couple of years that may have been dealt with less harshly several years earlier. It has caused him and others to look over their shoulders more to avoid any run-ins with compliance personnel, the manager said.

Securities attorneys said that attitude is taking a greater hold in the industry. Even small violations, such as poor record keeping or email retention, are drawing stricter penalties, attorneys say.

“A firm might’ve addressed a relatively minor infraction with an internal review or a censure maybe,” said Rob Skinner, an attorney with Ropes & Gray, while speaking broadly about the industry. “With regulators bearing down increasingly on relatively minor sanctions, it’s an incentive for brokerages to do some shortsighted things because the negative impact of an enforcement preceding is potentially huge.”

Connected cars: Tyred and wired

As the automobile becomes smarter, makers face a future where profits lie in technology more than metal

When Louise Chandler, a 31-year-old nurse from Surrey, hit a kerb in her Renault Clio in July 2013, it broke the rear axle, sending her spinning across the road and setting off the airbag. Moments later, she received a phone call. It was her insurer.

“It was surreal,” she says. “I was all shaken up, had just been hit in the face and could not understand how on earth my insurer knew what was going on.”

The answer lay in a small black box located beneath the dashboard. This Sim card-enabled device instantly sent Ms Chandler’s location and the force of impact to her insurance company, which then phoned for an ambulance.

The connected car is already saving lives. Now big business is wondering what else it can do. Insurers, telecommunications companies and advertisers are all racing to tap the commercial potential presented by vehicles that can reveal their location, speed and more.

Some possibilities are fun: a music streaming service could suggest tracks based on the picturesque stretch of country lane the car is navigating. Advertisers, for years confined to radio jingles and roadside billboards when marketing to motorists, are salivating at the prospect of beaming tailor-made adverts to the car’s captive audience.

But drivers and carmakers may be wary of such intrusions. And how will carmakers keep so much personal data safe, avoid driver distraction and even prevent a cyber attack?

“I don’t want a hacker turning the wheel 90-degrees when I’m driving at 60mph,” says a former industry CEO.

More than 104m cars are expected to have some form of connectivity by 2025, according to the consultancy EY — more than the 87m light vehicles sold worldwide last year. Already, as much as a quarter of the cost of building a car today is related to software.

The market for telematics hardware, mobile car data plans and critical services such as vehicle-to-infrastructure communication could be worth $23bn by the end of the decade, according to Exane BNP Paribas. Connected car media, such as navigation and music streaming, could be worth the same amount on top, says GSMA, the telecoms industry body.

And that is before the autonomous car pulls up. Self-driving vehicles — expected to debut before the end of the decade — would give media companies and advertisers potentially unlimited access to the time spent behind the wheel. “Once you have the driverless car, the user is almost killing time,” says Phil Harrold of PwC. “Then the connected car comes into its own.”

Tech companies want in, particularly Google, which is working on a self-driving car, and Apple, which has started an automotive project. This has sparked a flurry of activity in the car industry, which critics say only innovates when pushed by new entrants or regulators.

The manufacturers are wary of handing too much power — and profitability — to Silicon Valley. “The customer, when he’s sitting in the car, is our customer,” says Rupert Stadler, chief executive of Audi. “And we have a lot of ideas how to entertain him, how to serve him, how to create added value for him.”

Car companies are keen to avoid the fate of PC makers, who were squeezed as value shifted to cloud-based services. They fear that the future value of the car will be in technology and services, not the metal they have been engineering for decades. “We want this pipeline into the car so that we can come up with new services,” says Karl-Thomas Neumann, head of General Motors’ European arm. “[I]t will create an intimacy with our customer we never had before.”

Ford said in March that it would start over-the-air updates that allow the car to download software fixes — something Tesla, the electric carmaker co-founded by Elon Musk, has pioneered. But mainstream carmakers are frightened of opening a door that could allow malware to be installed. “The key challenge for all of us . . . is to know how to make sure we can protect customer data,” says Didier Leroy, a Toyota vice-president.

Wired cars 1

The average premium car today has more than a mile of cables, between 50 and 70 control units and the computing power of 20 advanced PCs. But only the black box unit, the rooftop WiFi hotspot and the driver’s smartphone can send and receive data beyond the car itself. The black box feeds into the network of sensors and control units in the car, which handle functions such as the airbags and brakes. Carmakers insist on firewalls that segregate the critical internal mechanical parts on the network from the non-critical control units, such as infotainment systems.

Wired cars 2

Transport infrastructure

Many carmakers are exploring the potential of “intelligent transport systems” that could warn drivers of traffic jams or hazards further up the road. Brussels also wants all new cars sold in the EU to feature an eCall automatic distress signaller to alert emergency services in the event of an accident.

Other vehicles

Vehicle-to-vehicle communication would allow cars to “talk” to each other — say, to alert the trailing driver when the car in front is about to change lanes — or receive motorcycle warnings, helping to increase awareness and safety

Insurance

“Black box” telematics devices in cars are changing motoring policies, offering insurers more information about how risky their customers are behind the wheel and pushing down premiums for drivers who can prove themselves to be careful.

Manufacturer

Carmakers can wirelessly monitor the inner workings of the car by accessing onboard controllers via the telematics unit. This offers big benefits for manufacturers. Potential recall issues can be spotted early; minor software glitches can be fixed simply with an over-the-air update.

Internet

A WiFi hotspot on the roof allows the car to connect to the internet for web browsing, communication or streaming media content. General Motors’ OnStar service offers 4G LTE that allows streaming at 10 times the speed of 3G for up to seven in-car devices.

Wired cars 3

1. Engine Ford’s new S-Max people carrier comes with an intelligent speed limiter that uses a camera mounted on the windscreen to scan traffic signs and adjust the throttle

2. Headlights Valeo’s matrix beam technology employs front-mounted cameras that detect approaching vehicles and turn on and off individual luminous pixels, so the car has constant full-beam at night without dazzling other drivers

3. Chassis VW’s adaptive chassis creates a comfortable or sporty feel for drivers, using sensors in the wheels to react to road conditions and adjust the shock absorbers

4. Brakes Advanced emergency braking uses front-mounted lasers to detect stationary objects and engage the brakes. Stability technology can also engage the brakes to avoid spin-outs

5. Suspension A 2014 wireless update for Tesla owners introduced location-based air suspension, which remembers pot holes and steep driveways and automatically adjusts road clearance

6. Tyres Sensors embedded within tyres detect air pressure and temperature. The car can sense if you have a puncture and, linking in with the navigation system, summon a breakdown service or guide you to the nearest garage

7. Grille Becomes the eyes of the connected car. Ultrasonic cameras and radar systems power safety features based on the movement of other objects and vehicles, such as automatic emergency braking and adaptive cruise control

8. Seats Include sensor mats embedded in the foam that detect the weight of the passenger and tell the airbag how much force to deploy with. Cameras can also be used to create a profile of the passenger and help distinguish adults from children

9. Head-up display Many premium cars offer a feature that projects information on to the windscreen as if it is “floating” in front of the eyes of the driver. Information ranges from navigation to pedestrian detection

10. In-car camera Carmakers are working on ways of making sure the driver is paying attention at all times. Toyota and GM are both developing eye and head-tracking technology that uses a driver-facing cockpit camera. Other suppliers, including Valeo, are working on facial recognition

11. Steering wheel Sensors in the steering wheel can detect heart rate to warn of irregular rhythms, pick up signs of fatigue, anger or nervousness and even — through perspiration in the hands — measure blood-alcohol content

12. Centre-stack The hub of the vehicle for media, communication and navigation. Apple and Google have developed platforms.

13. Locks Modern premium cars offer near-field communication, unlocking the car even if the key is in the driver’s pocket. Smartphones can start cars remotely, activate the horn or flash the headlights

14. Comfort Many of the latest cars make it possible to control in-car heating or air conditioning from inside the home. Ford is also working with Nest, the smart-home company, on ways of getting the car to talk to the home thermostat

The unexpected meeting would be "an informal discussion of Greece's reform plan", the finance ministry said in a statement. Varoufakis will meet U.S. Treasury officials on Monday, a Greek government official said.

Greece is fast running out of cash and its euro zone and International Monetary Fund lenders have frozen bailout aid until the leftist-led government reaches agreement on a package of reforms.

Talks with lenders have been have been tense and slow-moving. Greek officials suggested this week that the government would prioritize spending on wages and pensions over meeting the conditions necessary to unblock a roughly 450 million euro loan tranche to the IMF due on April 9, making markets nervous and reviving fears of a Greek default.

Athens denied that was its stance, with government spokesman Gabriel Sakellaridis saying there is "no chance that Greece will not meet its obligations to the IMF" and assuring that the reforms would be further specified.

Greece has not received bailout funds since August last year and has resorted to measures such as borrowing from state entities via repo transactions to tide it over.

After a first set of planned measures failed to impress lenders, the government sent a more detailed list to institutions representing the creditors -- the European Commission, the European Central Bank and the IMF -- on Wednesday.

But the list arrived too late to be discussed by euro zone deputy finance ministers, who can decide whether to grant new loans to Greece, at a teleconference on Wednesday afternoon.

EU officials have said that progress had been made in talks but more work was needed for a deal to be reached.

Athens has its hopes set on another meeting of euro zone deputy finance ministers on the afternoon of April 8 and on the morning of April 9.

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Selon le PDG du cimentier Lafarge, l'accord de fusion ne bougera plus. Une annonce qui répond au scepticisme affiché de certains actionnaires.

Le patron du cimentier Lafarge Bruno Lafont assure samedi 4 avril dans Le Monde qu'il n'est pas question de modifier à nouveau le projet de fusion avec le suisse Holcim, déjà remanié sans contenter tous les actionnaires.

"Les parités financières ne bougeront pas, la gouvernance non plus", a-t-il dit, estimant que la modification du projet consentie le 20 mars était suffisante.

"Onze mois après le premier projet, les conditions de marché avaient un peu évolué, et nous l'avons donc amendé, tout en préservant le principe d'une fusion entre égaux", a expliqué Bruno Lafont, qui n'aura pas les commandes opérationnelles du futur ensemble.

A propos du futur patron, il plaide pour le choix d'un "expert du ciment connaissant déjà bien le métier et l'entreprise".

Un patron et une "nouvelle culture"

Dans le Financial Times samedi 4 avril, un dirigeant de Groupe Bruxelles Lambert, l'une des holdings du milliardaire belge Albert Frère et actionnaire principal de Lafarge, réclame lui un patron capable d'insuffler une "nouvelle culture".

"Il faudrait quelqu'un doté d'une expérience différente et d'un profil international", dit Gérard Lamarche, administrateur délégué de la société.

Lafarge et Holcim avaient trouvé le 20 mars un accord censé sauver leur projet de fusion, qui revoyait les conditions des échanges de titres, désormais 9 actions Holcim contre 10 actions Lafarge au lieu d'une parfaite parité. Et qui confiait à Bruno Lafont le rôle de coprésident du futur géant du ciment.

Des actionnaires ont prévu de voter contre

Ces aménagements n'ont toutefois pas convaincu tous les actionnaires. Selon l'agence Bloomberg, le deuxième actionnaire d'Holcim, la société russe Eurocement qui en possède 10,8%, prévoit de voter contre le mariage lors d'une assemblée générale en mai.

Selon Le Monde, le troisième actionnaire d'Holcim, Harris Associates, réserverait encore sa réponse. Bruno Lafont a cependant assuré au quotidien du soir que "la fusion n'était pas en danger".

The hard-hit shares rebounded in the first quarter; Brazil still disappoints.

Stocks in developing economies were a pretty good place to be in the first quarter.

The MSCI Emerging Markets Index rose 1.9%–reflecting price returns converted to dollars–in the first quarter, while the Standard & Poor’s 500 index was up 0.4%.

The devil was in the details. Latin America, off 10%, was down for the count in the latest quarter. Eastern Europe was a surprise winner, with a gain of 11%, powered by Russian and Hungarian equities. Asia showed strength, too (up 5%), though for all the hype about India’s gross-domestic-product growth surpassing that of China, the latter’s stocks shone brighter in the latest quarter. (For more on China, see this week’s Asian Trader column.)

The first three months of 2015 were volatile. A total of 24 central banks cut rates to fight disinflation. The Federal Reserve indicated it could raise rates this year and the dollar strengthened. For emerging markets, the net result was weak currencies and a bout of selling.

RUSSIA WAS A NOTABLE EXCEPTION. Its massive ruble devaluation came in December, creating an opportunity for bottom-fishing equity investors in the first quarter; the MSCI Russia Index rose nearly 19%. U.S.-traded shares of Sberbank (ticker: SBRCY) were up roughly 30% for the year. Granted, Russian shares are off 29% in the last year, but the first quarter represented a change in direction.

Turkey headed in the wrong direction, tumbling 16% and erasing fourth-quarter gains. As the dollar strengthened, the lira tanked. And despite a decline in its current account deficit, Turkey remains vulnerable to higher U.S. rates.

Enlarge Image

With January’s election of a leftist-controlled coalition of euro-zone bulldogs, fear about a Greek exit remains high. The economy has been relegated to emerging-market status and teeters near bankruptcy, so you would think it couldn’t get worse. But it did. The Greek market was the worst emerging performer in the quarter, down nearly 30%, and 64% over 12 months.

Equities in Latin America also tumbled, and Colombia and Brazil were the notable losers (see table). In Brazil, the commodity-driven export economy continues to struggle as China’s demand wavers. The expanding scandal at state-controlled energy giant Petroleo Brasileiro (PBR) isn’t helping. President Dilma Rousseff insists leaders knew nothing of alleged bribery, but Brazilians took to the streets last month to demand her impeachment.

Looking ahead, with money already flowing out of higher-risk countries, “emerging markets are going to be more resilient to rising interest rates in the U.S.,” says David Ruff, a portfolio manager on the Forward International Dividend Investor Fund (FFINX). He expects some defaults in dollar-denominated corporate bonds in energy and favors oil importers, especially the Philippines, whose market rose 9% in the quarter. As always, owning a basket is safest, but the temptation to pinpoint winners never ceases.

Skeptics of China’s bull market are overlooking some important facts. Why the rally could take shares 12% higher in three months.

China’s $4 trillion stock market is easily one of the best-performing major markets this year. The Shanghai Composite Index has risen by another 18%, after a 30% jump in the last six weeks of 2014.

This is worrisome, critics say. Almost all of the gain has come from higher trading multiples rather than earnings increases. Analysts have been cutting their profit forecasts. Meanwhile, the Shanghai stock market is now 30% more expensive than Hong Kong-listed Chinese equities, despite a trading link between the two.

What drives the difference in valuation?

Shanghai is in a bull market, with room to run. Citi Research estimates that the Shanghai Index may rise 12% to 4500 this quarter. Propelling the market are retail investors. China’s securities regulator says, on average, over 100,000 new stock accounts were opened every day this year. In the week ended Mar. 27, the Chinese opened a record 1.7 million new accounts. As a result, retail investors generated 90% of the trades this year, up from their historical average of 80%.

Two themes are driving this enthusiasm for equities. First, by cutting interest rates, Beijing is signaling that its priority has shifted from structural reform to stabilizing growth. Second, Chinese money has to go somewhere now that the real-estate boom is over.

IT IS THEREFORE NO SURPRISE that Shanghai’s daily trading volume is equal to around 2% of its total market cap, whereas Hong Kong’s volume amounts to less than 0.5%. Most Chinese investors trade within Shanghai because they don’t have the minimum of $80,000 in their trading accounts needed to participate in the trading link to Hong Kong.

Shanghai isn’t too expensive yet. The Shanghai Composite Index trades at 13.8 times forward earnings, shy of its 10-year average of 14.4 times, on the back of 10.3% expected earnings growth this year.

UBS strategist Wenjie Lu looked at the last seven Shanghai market “bubbles.” On average, the Shanghai Index took 13 months to climb to its peak and three months to dive to lows. The shortest rise was six months in 1992. We are only in the fifth month of this rise. Lu says China’s bull runs usually end for one of two reasons: Either Beijing tightens regulations, or a massive supply of new stock hits the market.

The latter is the bigger problem. Over the next few weeks, 44 IPOs are scheduled, seeking 24 billion yuan ($3.9 billion), according to Chinese data provider Wind. The IPO market is a dinosaur from China’s command economy. Unlike the U.S., where any firm can go public if it meets the SEC’s financial standards, in China, Beijing picks the companies. Beijing also keeps IPO valuations low. Bloomberg last week reported that few companies go public for more than 23 times earnings, and the 68 companies that started trading this year have surged about 200% on average.

Implicit approval from Beijing and instant investment profits make IPOs very popular and they are often over 100 times subscribed. That can drain liquidity from the rest of the market.

Beijing recognizes the flaws and talks about IPO reform, possibly by year end. But it needs to be quick, or China’s masses may be disappointed again.

Caterpillar, Philip Morris, Duke Energy and others offer high yields and potential for growth.

There still is plenty of yield left in the stock market. We identified 10 high-quality stocks in the Standard & Poor’s 500 index that carry dividend yields of 3.5% or more, based on a screen from S&P Dow Jones Indices longtime index analyst Howard Silverblatt. The list includes familiar companies like General Electric (ticker: GE), Caterpillar (CAT), McDonald’s (MCD), and Dow Chemical (DOW).

This admittedly is a selective tally, since there are about 60 companies in the S&P 500 with yields of 3.5% or more. To make our cut, each company needs to cover its dividend from estimated 2015 earnings. That test eliminated a group of energy companies, including Chevron (CVX) and ConocoPhillips (COP). Most of the Big Oils are borrowing money this year to maintain their 2015 payouts, given low energy prices. We also excluded real estate investment trusts and master limited partnerships, which are valued differently than regular corporations using cash-flow measures rather than reported earnings.

A 3.5% yield is ample when the 30-year Treasury bond yields just 2.5%. Assuming the dividends hold, investors don’t need a lot of capital appreciation to generate a mid-to-high single-digit annualized return. Many of the stocks also have been laggards in the past year, trailing the nearly 10% gain in the S&P 500. Naysayers argue that yield-rich stocks often offer little growth.

AT&T (T) tops the list with a 5.7% yield. It’s out of favor on Wall Street because of investor worries about its position in a more competitive wireless market. Those fears seem to be captured in the stock, now trading around $33, or 13 times estimates 2015 profit. AT&T does cover its dividend from both earnings and free cash flow, and it’s banking on benefits from its planned merger with satellite-TV operator DirecTV (DTV) in the first half of this year. The dividend matters to AT&T. “Saying the dividend is important to us is an understatement…we are committed to it,” AT&T CFO John Stephens said earlier this year.

Rival Verizon Communications (VZ) is in better shape due to a stronger position in the wireless market. At $49, Verizon trades for 13 times estimated 2015 earnings and yields 4.4%.

Few companies have suffered more from the almighty dollar than Philip Morris International (PM), the global cigarette giant that generates nearly all of its revenue outside of the U.S. The stock, around $77, is near a 52-week low. The company is expected to earn $4.30 a share this year, down from $5.02 in 2014 and reflecting a hit of about $1.40 from a weaker dollar. Morgan Stanley analyst Matthew Grainger wrote recently that the dividend looks “secure” even if the dollar continues to rise. The stock has badly trailed U.S. cigarette makers like Altria Group (MO) and Lorillard (LO), despite its better growth prospects due to exposure to many emerging markets.

Duke Energy (DUK), one of the country’s largest electric utilities, trades for 16 times projected 2015 earnings and yields 4.1%. Bernstein analyst Hugh Wynne sees a total return of 8% annually in the coming years, driven by 5% yearly growth in earnings from an expanding rate base and an increasing dividend.

General Motors (GM) has gotten more investor friendly this year, unveiling a boost in its dividend and an increased share-repurchase program after activist pressure. GM shares, at $37, now yield 3.9%, based on the new $1.44 annualized dividend. This year and next, GM may return about 10% of its market value to holders in dividends and buybacks, according to Sterne Agee analyst Michael Ward. GM trades for just eight times estimated 2015 profit of $4.60 a share.

Caterpillar, whose shares trade around $80, is near a multiyear low. The weakness reflects falling earnings estimates and weakness in key mining and energy markets. The stock doesn’t look cheap at 17 times estimated 2015 projected earnings, but this year’s expected profit of $4.75 a share is way below peak earnings of over $8 in 2012. Caterpillar has one of the highest dividend yields and highest free-cash yields among its peers. Barclays analyst Andy Kaplowitz wrote recently that the company could become an activist target unless it takes self-help actions, including better inventory management, cost reductions, and a higher stock buyback.

Given its well-documented troubles, McDonald’s, whose shares trade around $96, isn’t a bargain at almost 20 times estimated 2015 earnings. However, there is plenty McDonald’s can do for holders beyond menu fixes and other restaurant-level changes. These include cutting high corporate overhead and potentially monetizing real estate, according to JPMorgan analyst John Ivankoe.

Dow Chemical is moving to slim down amid activist pressure. An industry leader trading around $48, Dow Chemical could see profits rise to $4 a share next year from about $3 this year as new chemical plants are completed. Seagate Technology (STX) is following a solid playbook for a dominant company in a mature industry: return cash to holders in dividends and buybacks. One of the two top makers of disk drives, Seagate, at $52, trades for 11 times estimated 2015 earnings and yields 4%.

General Electric remains a work in progress as the company shrinks its outsize financial-services business to emphasize its core manufacturing operations. A laggard due to fears about its exposure to the energy sector, GE looks appealing, trading for under 15 times estimated 2015 earnings and yielding 3.7%.

Bargaining with the Great Satan

The consequences of the agreement on Iran’s nuclear programme for a Middle East in turmoil

FOUR places: four contrasting snapshots of a relationship. In Lausanne, Iranian and American delegations are ensconced as diplomatic partners at the Beau Rivage hotel: after eight days of talks, they reach agreement greatly limiting Iran’s uranium-enrichment programme in exchange for the gradual lifting of sanctions.

In Tehran, Iranians watch President Barack Obama in the White House explaining the reasons for the deal. It is the first time an American presidential speech has been shown live on Iranian television.

In Tikrit, and the skies above it, the two countries are undeclared allies: the war against the jihadists of the so-called Islamic State (IS) sees America providing air power while Iran marshals the ground forces, especially the Shia militias.

In Yemen they face off as adversaries in a proxy war: America provides intelligence and logistical help to the Saudi-led military intervention to repel the Houthis, Shia fighters backed by Iran.

Which snapshot gets closest to the truth: are America and Iran old-new friends, or fated always to be foes? The answer will colour any judgment on the outline of a nuclear accord reached by Iran and the so-called P5+1 powers—America, Russia, China, Britain, France and Germany—in lengthy talks on April 2nd. If the Islamic Republic remains a regional threat, legitimising it as a threshold nuclear state is a high cost to pay for a slightly extended “breakout time” should it decide to cross that threshold. But if Iran is showing a new post-revolutionary responsibility, then the deal is the start of a rapprochement between countries whose rivalry has scarred the region but whose interests may, in at least some places, be aligned.

Provisions about centrifuges, fuel rods and inspection regimes, important as these are, are not the whole story. There is also much history. Iran’s Islamic revolution of 1979 transformed America’s dealings with the Middle East. The departure of the Shah, the triumphant arrival of Ayatollah Ruhollah Khomeini and the seizure of more than 50 American embassy staff as hostages marks the start of modern Islamic radicalism. It turned America into a permanent military player in the Muslim heartland, and a permanent target of hatred. It was, after all, Iran’s proxies in Lebanon who introduced suicide-bombings to the region, with powerful attacks on American, French and Israeli forces in 1983.

The chain of events to today’s troubles runs thus: seeking to avoid the spread of the revolution, Western and Arab states backed the Iraqi dictator, Saddam Hussein, in the war he launched against Iran in 1980; Western navies patrolled the Gulf to protect oil tankers; after that war ended an emboldened Saddam invaded Kuwait in 1990; some of the American forces that led the alliance which removed him stayed in Saudi Arabia to contain Iran and Iraq; that presence was used as justification for al-Qaeda’s attack on September 11th 2001; George W. Bush rashly decided to finish the job that his father had supposedly left undone and invaded Iraq to get rid of Saddam in 2003; the subsequent occupation brought forth a jihadist resistance that transformed itself into today’s IS.

If a nuclear agreement could begin to reverse this baleful dynamic, it could help push the Middle East to the “new equilibrium” Mr Obama talked about to the New Yorker last year. As he told another interviewer, political engagement might also moderate Iran over time.

A secret longing?

His harshest critics think Mr Obama is pursuing a reckless grand bargain to turn Iran into a partner, an arrangement in which America could set aside some of the burden in the region and Iran would take up the role as regional hegemon that it enjoyed in the days of the Shah. Iran’s political and military influence is already palpable across the region, and growing.

America’s military collusion with Iran in Iraq; its reluctance to act against Iran’s Syrian client, Bashar Assad; its silence about the encroachment of Iranian power in Yemen—all this suggests that Mr Obama wants “to encourage and augment Iran’s potential as a successful regional power and as a friend and partner to the United States,” according to a recent article by Michael Doran, a Bush-era Pentagon and National Security Council official. In his enthusiasm, the charge goes, Mr Obama is forsaking long-standing alliances with Israel and the Arab monarchies. Israel’s prime minister, Binyamin Netanyahu, has no doubt this is the case. He was cheered in America’s Congress last month when he said that a deal in Lausanne would pave Iran’s path to a bomb. Iran had already “devoured” four Arab capitals—Baghdad, Damascus, Beirut and Sana’a. The Yemeni adventurism, he argued, could let Iran threaten the entrance to the Red Sea, as well as the entrance to the Gulf which it already overlooks, thus putting its fingers on two of the world’s naval choke-points.

Arab leaders are quieter about making such points, but agree with them wholeheartedly. According to a leaked diplomatic cable, in 2008 King Abdullah of Saudi Arabia was already urging America to attack Iran and “cut off the head of the snake”. In March the Saudis cast off their usual caution and took on the snake, or at least its tail, in Yemen. They are leading a ten-member coalition of Sunni states that is bombing the Houthis.

The Muddled East strategy

A less hostile interpretation of Mr Obama’s actions is possible, and more persuasive. Mr Obama was elected promising to reduce America’s role in the Middle East, and sees no evidence that changing tack would actually do much good. Thus his decision to withdraw from Iraq and Afghanistan; his “lead from behind” policy in Libya in 2011; and his reluctance to strike Syria in 2013 without congressional approval.

When he has acted, it has been to stave off disaster at minimum cost. So he ordered air strikes, with a small ground presence, to halt the march of IS when it seemed Baghdad might fall. And he has come close to a deal that may substantially delay, but will not necessarily halt, Iran’s nuclear ambition. By supporting the Saudis in Yemen, he proves that he is not beholden to Iran.

On this analysis the blame for Iran’s increased power goes not to Mr Obama’s caution, but to his predecessor’s toppling of Saddam and the Taliban with insufficient thought of the consequences. Gary Samore, a former Obama administration nuclear negotiator, reckons that Mr Obama’s strategy is “a reflection of the crazy, mixed-up Middle East. He is trying to muddle through a mess of unresolvable problems, most of which are the consequence of the Arab spring.” Unwilling to commit troops, the only option is “to let them fight it out, and occasionally place his thumbs on the scale.” Now that Iran is fighting IS, and Saudi Arabia the Houthis, Mr Obama’s attempt to let the countries of the region deal with their problems might seem vindicated—though it condemns many to untold violence which may well turn against America, or its interests.

It is certainly true that, in the aftermath of the occupation of Iraq and the Arab spring, the region is a bloody mess. Some compare the agonies of the region to Europe’s calamitous Thirty Years War: a bewildering conflict involving religion, meddling outsiders and great cruelty.

There are four Arab civil wars under way—Iraq, Syria, Libya and Yemen—with multiple divisions over religion, ideology, ethnicity and class. The sectarian rift—in which Iran supports the Shias and their allies, while Saudi Arabia backs at least some of the Sunnis—has become more pronounced. It is most apparent in Iraq, where the government is dominated by Shias and is closely aligned with Iran; most Sunni areas have been taken over by IS jihadists.

In Syria President Bashar Assad’s Alawite minority sect, regarded as an offshoot of Shia Islam, dominates the government and is propped up by Iran and is Lebanese proxy, Hizbullah. The Syrian rebels are mostly Sunni and but fragmented into myriad groups, among them IS, Jabhat al-Nusra (affiliated to al-Qaeda) and many more. Many of the rebels are supported by America and Sunni states in often murky relationships.

In Yemen the link between the Houthis (followers of the Zaydi branch of Shia Islam) and Iran (devotees of the Twelver branch) is perhaps least clear. The former president, Ali Abdullah Saleh, a Zaydi who is now allied with the Houthis, was previously backed by Saudi Arabia. Nevertheless, Syria has drawn a red line in Yemen and all sides now see it as the newest battleground between Sunnis and Shias. That said, the first Saudi intervention after the Arab spring, in 2011, was on behalf of the Sunni monarchy in Bahrain, where the Shia-majority population was demanding more democratic rights.

Where there is no sectarian divide and Iran does not play a role, the Sunni powers are often divided among themselves, particularly over the role of political Islam. Saudi Arabia and the United Arab Emirates support the Egyptian strongman, Abdel-Fattah al-Sisi, against the Muslim Brotherhood, which is backed by Turkey and Qatar. The same two groupings support rival governments in Libya. But in Yemen they have all united to confront the Houthis. The rise of Iran has even pushed the Sunni Arab regimes closer to Israel.

Iranian pragmatists like to boast of their country’s growing influence, even as they claim that its belligerence is a response to Western and Arab pressure. Nevertheless, a nuclear deal, says Hossein Mousavian, a former Iranian diplomat, “will make Iran less aggressive”, and strengthen moderates around President Hassan Rouhani, whose primary concern is to revive the sanctions-crippled economy. Some think Mr Rouhani might even succeed the ailing Ayatollah Khamenei as Supreme Leader. For now, though, Mr Khamenei is adamant that a deal will not lead to a rapprochement with America: “No way!” he told a crowd of students chanting “Death to America” last month.

A nuclear deal might over time help to moderate Iran. But it also might increase the region’s instability. One risk is that Iran will cheat, or that hardliners will test the limits of the commitments. Another is that Mr Obama may be prevented by a sceptical Congress from delivering the relief from sanctions that he has promised, or that his successor will repudiate the deal.

Freed from some sanctions, and perhaps feeling immune from an American (or Israeli) military strike, Iran might be emboldened to extend its reach even further, an option which Mr Khamenei might see as a way to mollify hardliners. Or perhaps America’s allies, feeling estranged, will turn more aggressive. In Israel, there is renewed talk among military officers of bombing Iran’s nuclear sites at the first sign of a violation. John Bolton, a hawkish former Bush administration official, has urged Israel to attack soon. Saudi Arabia and the other Arabs might do more to confront Iran, perhaps by trying to strengthen rebels in Syria that have made recent gains. Saudi Arabia has given notice that it will seek to match whatever uranium-enrichment capability Iran is allowed to keep—legally, of course. It lacks skilled engineers, but it might be able to buy the know-how from, say, its close ally, Pakistan (whose scientists sold centrifuge designs to Iran and Libya). Turkey is unlikely to want to be left behind. So a nuclear deal designed to prevent the spread of nuclear weapons might instead promote the proliferation of nuclear threshold states. Some argue that America should extend its nuclear umbrella to its Middle Eastern allies to reassure them.

Negotiating the nuclear agreement might be the easy part for Mr Obama. Harder will be the task of selling the deal to sceptics at home and in the region. Harder still might be to manage the political and military fallout.