(BFW) Fed Rate Cuts ‘Not Impossible,’ Morgan Stanley Fund Manager Says



Fed Rate Cuts ‘Not Impossible,’ Morgan Stanley Fund Manager Says
2015-03-26 05:22:36.979 GMT


By Benjamin Purvis
(Bloomberg) -- Michael Kushma, chief investment officer for
fixed-income at Morgan Stanley Investment Mangement, speaks at
an event in Sydney.
* Says while the Federal Reserve is likely to increase its
benchmark interest rate, it’s “not impossible” that the
U.S. central bank could reduce rates further before raising
again
* “The ECB has made clear that you can move rates negative
and it’s not disastrous for an economy or a financial
system, at least modestly negative interest rates,” he says
* Fed could raise rates in September this year or March next
year, although “it’s completely up in the air right now
exactly when that materializes,” Kushma says
* Sees greenback rising in value over longer term
* Says that while “there are no bargains in bonds” they’re
not “too far away from fair value”
* Kushma favors assets linked to cyclical recovery such as
high-yield debt; he also likes asset-backed securities and
selected emerging markets



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To contact the reporter on this story:
Benjamin Purvis in Sydney at +61-2-9777-8657 or
bpurvis@bloomberg.net

To contact the editor responsible for this story:
Adam Haigh at +61-2-9777-8635 or
ahaigh1@bloomberg.net

>>> US After Hours : FIVE +4.9%, RHT +4.6%, PVH +1.3%, PSUN -5.

After Hours Summary: FIVE +4.9%, RHT +4.6%, PVH +1.3%, PSUN -5.9%, RARE -2.9%, VRNT -2.3% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: FIVE
+4.9%, RHT +4.6%, PVH +1.3%, FNV +1.0%, WOR +0.7%, INOV +0.7%, AXP +0.2%, SXC +0.1%

Companies trading higher in after hours in reaction to news: VICL +15.7% (expanded infectious disease portfolio with the addition of a novel antifungal, ASP2397, in-licensed from Astellas Pharma), RHT +4.6% (announced $500 mln stock repurchase program; co also reported earnings), MDT +1.4% (announced the publishing of new data in JAMA Surgery demonstrating cost savings and reduced patient hospital stays following minimally invasive surgery), MKC +0.7% (authorized new $600 mln share repurchase program), MMM +0.7% (filed patent infringement lawsuit against Danville Materials)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: PSUN -5.9%, RARE -2.9%, VRNT -2.3%, GWR -1.1%, ASND -0.7%

Companies trading lower in after hours in reaction to news: SCMP -9.5% (announced a proposed underwritten public offering of shares of its class A common stock by selling stockholders; details not disclosed), FF -8.9% (disclosed it received a notice from Procter & Gamble (PG) terminating a purchase agreement), GWR -1.1% (entered into a $2.8 bln credit facility; co also lowered Q1 revenue guidance) 

>>> US Close

Closing Market Summary: S&P 500 Falls Below 50-Day Moving Average

The stock market registered its third consecutive decline on Wednesday with the S&P 500 ending lower by 1.5%. The benchmark index settled below its 50-day moving average (2,067) while the Nasdaq Composite (-2.0%) underperformed throughout the day.

The S&P 500 hovered near its flat line during the opening hour, but high-beta groups like biotechnology, chipmakers, and transport stocks began showing weakness early on and continued their retreat throughout the day. As a result, eight sectors settled in the red with five ending behind the benchmark index.

Most notably, the technology sector surrendered 2.7% with chipmakers enduring even more aggressive selling. All 30 components of the PHLX Semiconductor Index (-4.6%) finished in the red with ARM Holdings (ARMH 49.90, -3.31) and Lam Research (LRCX 72.75, -6.01) leading the slide with respective losses of 6.2% and 7.6% while heavyweight Intel (INTC 29.89, -0.90) tumbled 2.9%.

The sharp losses within the tech sector pressured the Nasdaq while biotechnology also weighed on the index. The iShares Nasdaq Biotechnology ETF (IBB 341.30, -14.65) slumped 4.1%, extending its week-to-date loss to 6.9%. Meanwhile, the health care sector (-1.8%) outperformed in the early going, but settled among the laggards. Shares of Merck (MRK 58.26, -0.37) contributed to the opening strength after announcing a new $10 billion share repurchase program, but ended lower by 0.5%. For its part, the health care sector narrowed its March gain to 0.8% while the remaining nine groups are down at least 1.1% for the month (consumer discretionary).

Elsewhere among countercyclical groups, the consumer staples sector (-0.2%) slipped into the red during the final hour, but still finished well ahead of the broader market thanks to a 34.9% surge in the shares of Kraft (KRFT 83.15, +21.83) after the company agreed to merge with H.J. Heinz. KRFT shareholders are expected to receive a special dividend of $16.50 when the deal closes.

Also of note, the industrial sector (-1.7%) lagged throughout the session amid broad weakness in transport stocks. The Dow Jones Transportation Average slid 2.0% to widen its Q1 decline to 4.6%. Airlines paced the retreat with four of five carriers losing more than 3.0%.

On the upside, the energy sector added 1.2% thanks to daylong strength in crude oil that sent the energy component higher by 3.5% to $49.19/bbl. WTI crude received a measure of support from dollar weakness as the Dollar Index (96.88, -0.32) slipped 0.3%.

Interestingly, Treasuries retreated alongside equities with the 10-yr yield climbing five basis points to 1.92%.

Economic data was limited to Durable Orders and MBA Mortgage Index:
  • Durable goods orders declined 1.4% in February after increasing a downwardly revised 2.0% (from 2.8%) in January while the consensus expected an increase of 0.4% 
    • Aircraft orders, which played a major role in the overall orders increase for January, reversed direction in February. Total aircraft orders -- defense and nondefense -- declined 14.0% in February after increasing 68.1% in January 
    • Excluding transportation, durable goods orders declined 0.4% in February after declining a downwardly revised 0.7% (from 0.0%) in January. The consensus expected these orders to increase 0.3%. 
  • The weekly MBA Mortgage Index rose 9.5% to follow last week's 3.9% decline 
Tomorrow, weekly Initial Claims (consensus 290K) will be reported at 8:30 ET.
  • Nasdaq Composite +3.0% YTD 
  • Russell 2000 +2.4% YTD 
  • S&P 500 +0.1% YTD 
  • Dow Jones Industrial Average -0.6% YTD

FT : Trio of deals show danger of power-wielding investors

Many companies across Europe are effectively run by their largest shareholders. A trio of deals under discussion clearly demonstrate the dangers of this model.
At Vivendi, a US investor is agitating for the French media group to hand over more cash to shareholders and to spin off Universal Media Group, the world’s largest recorded music company. Peter Schoenfeld says UMG’s long-term profitability is “obscured” at present, and that half of Vivendi’s estimated €18bn in liquid assets by the end of 2015 should be paid out to investors.

Vincent Bolloré, though, Vivendi’s largest shareholder, with 8 per cent, and its chairman since last year, has vowed to create a media conglomerate, and its chief executive says UMG would be sold “over my dead body”. Mr Bolloré’s influence on Vivendi’s future could be increased further by a new French law that would give longer-term shareholders such as him twice as many votes as new investors.
Meanwhile, China National Chemical Corp’s agreement with the controlling shareholders of Italy’s Pirelli has paved the way for a €7bn takeover of the “Prada of the tyre industry”. CNCC will acquire the holding company Camfin, which owns 26 per cent of Pirelli, as a first step, before launching a full takeover of the group. While the Chinese will become owners, the terms of the deal allow Marco Tronchetti Provera, who owns half of Camfin and has been Pirelli’s chairman and chief executive for more than 20 years, to remain at the head of the group until 2021.
Across the Alps, Thomas Schmidheiny, board member and former chairman of Holcim, whose family founded the Swiss cement group and still owns 20 per cent of the shares, is supporting the takeover of Lafarge, its French rival. The deal will facilitate the dilution or even departure from Holcim’s shareholder register of Russia’s Filaret Galchev and his Eurocement group, which has built up an 11 per cent stake. It will also guarantee the Schmidheinys’ legacy by creating a behemoth in the form of the world’s largest cement group, one unlikely to be the target of any “undesirable” buyer in the future.
At all three companies, the stance of the board members cum largest shareholders has some logic. But is it fair on minority investors?
Vivendi has slimmed down in order to bulk up in future and says the “American hedge fund” just wants to dismantle the group and lay hands on its cash. The media group has promised to return €5.7bn to shareholders over the next three years via dividends and a large share buyback. But Mr Bolloré’s vagueness about how it will spend the rest of its cash has frustrated smaller investors and its buyback programme will be at a maximum price per share of €20. On Tuesday the shares closed at more than €23.

Holcim and Lafarge need to reduce their footfall in low-margin countries. But a lack of information means it is difficult to tell if the sale of many of their European assets as part of the takeover is a good deal for shareholders or not. And although the companies are promising savings of €1.4bn a year, synergies are easily predicted, challenging to deliver and notoriously difficult to measure. Finally, making any company so large that it is bulletproof to any future approaches is no guarantee of good management.
Pirelli would get much-needed access to the Chinese market from CNCC. But Mr Tronchetti Provera knows that without a transformative deal such as this, the tyremaker would become a target and has struck deals with a sequence of different investors in the hope of getting the outcome he wants, most recently Russian oil group Rosneft. The falling oil price, not to mention sanctions against Russia, put paid to those hopes, but CNCC has stepped up to the plate. It plans to offer €15 a share to take over the rest of Pirelli, but since the shares closed at €15.40 before the confirmation of the deal, that would suggest an offer without any premium. Given the other large shareholders on the register include the supportive Benetton family, it will be hard for smaller Pirelli investors to hold out.
Both Pirelli’s and Holcim’s deals are ones in which the leading shareholder and a compliant board have sought a partner to ensure any deal of which “their” company is the subject is the one they want. Mr Tronchetti may come to rue the day he ushered in a Chinese chemicals company as a white knight, and the revived Holcim takeover of Lafarge still looks troubled. But minority shareholders are likely to feel the pain first.

WSJ : Let’s Automate All the Lawyers?

Shakespeare once wrote, “The first thing we do, let’s kill all the lawyers.” But a more likely future is automation. The legal profession has been one of the least aggressive adopters of technology in the past, and in many ways the field resembles the law as practiced a 100 years ago. But it’s on the verge of a major transformation involving automation and the use of technology to make intelligent legal decisions. The legal profession, already suffering from an excess of supply over demand, could be decimated unless lawyers embrace smart machines much more than in the past.

The law is a profession based on rules, procedures, evidence, and precedent. It turns out that intelligent technologies are increasingly able to codify these decision criteria into automated and semi-automated systems. Rules and procedures have long been at the core of artificial intelligence. Judgment can be captured through statistical analysis and algorithms. Precedent is encoded in documents that can increasingly be read and analyzed by machine.

The bellwether application for this assault on the profession has been “e-discovery,” a process used in litigation and government investigations in which documents in electronic form—either paper documents or documents originally in electronic formats like e-mails—are analyzed for their relevance to legal proceedings. E-discovery first led to expensive law firm associates reading online documents, then to much cheaper “contract document review” lawyers. Now the reading and analysis are being done by computer. “Predictive coding” algorithms can make an assessment—often quite accurate—of the likelihood that a document will be relevant to a case. Human lawyers end up needing to read far fewer documents as a result.

There are a variety of other intelligent systems that can take over other chunks of legal work. One system extracts key provisions from contracts. Another decides how likely your intellectual property case is to succeed. Others predict judicial decisions, recommend tax strategies, resolve matrimonial property disputes, and recommend sentences for capital crimes. No one system does it all, of course, but together they are chipping away at what humans have done in the courtroom and law office. Robert Weber, IBM Corp.IBM -1.83%’s outgoing general counsel, recently stated that the company’s Watson “cognitive computing” system could take over a substantial portion of the work done for IBM by external lawyers.

Despite the slow pace of legal technology adoption (other than in e-discovery, which has caught on rapidly), these smart systems are likely to mean that many legal tasks will not be performed by homo sapiens with law degrees. If you went to a low-ranked law school, for example, contract document review was one of the few options open to you for employment, and while there are still such jobs, they’re being chipped away by predictive coding.

The alternative, as I have argued here in other columns, is for lawyers to augment the work of smart legal technologies rather than be automated by them. Smart lawyers should learn what these technologies can do and use them to augment their own work. In e-discovery, for example, I was told by Adam Bendell, an attorney and the chief innovation officer and e-discovery expert at FTI Consulting, that there’s a great opportunity for senior attorneys to use predictive coding insights in planning their trial strategies. Instead, they’re largely using the technology to save money.

Some people have already succeeded in playing the augmentation game. I interviewed two successful lawyers in different positions relative to smart legal technologies. One, Alex Hafez, was a contract document reviewer for several years. He’d previously been an intellectual property lawyer at a mainstream firm on the partnership track, but was derailed by the financial crisis. The contract work kept the wolf away from the door, but he found it less than stimulating. More importantly, he worried that his job would eventually be automated out of existence.

So Hafez set out to remake himself as an e-discovery expert, undertaking a series of educational activities:

He gave up audiobook novels and switched to podcasts about e-discovery;
He read eDiscovery for Dummies (yes, there is such a tome);
He forked over $3000 to attend the weeklong “Georgetown eDiscovery Training Academy” (while also giving up $2000 in weekly earnings);
He took a two-day program to qualify as an administrator of an e-discovery software vendor’s program, which he found “boring” but “incredibly informative;”
He hired a resume consultant to spiff up his on-paper credentials, and signed on with an eDiscovery recruiting service.
This story does have a happy ending. Mr. Hafez got a permanent job as a Senior eDiscovery Project Manager for a large vendor in the field. His story suggests that augmentation is a viable prospect for anyone willing to put in the time and effort to master a new, automation-driven field. The needed knowledge is out there; it just takes considerable initiative to master it.

Even lawyers who are in mainstream law firms will eventually need to address these technologies. One who has already done so is Ralph Losey, a senior partner at Jackson Lewis P.C, a large national labor and employment law firm. Mr. Losey became a lawyer in 1980, when computerized legal research was just beginning. He immediately gravitated toward it—he’s a computer hobbyist—and could help his case teams find any law or document it needed. Mr. Losey eventually abandoned commercial litigation for a full-time e-discovery focus as a senior litigator. In addition to serving clients and his firm on these topics, he also writes a blog, has taught e-discovery at a law school (where such courses are still relatively rare), and is widely viewed as a leader in the e-discovery field.

Mssrs. Bendell, Hafez and Losey provide conclusive evidence that augmentation of intelligent legal technology is absolutely possible and that it leads to successful careers. They’re in the vanguard of a transition that many lawyers will have to make if they want to keep their jobs. They’re winning the “race against the machine” by running alongside it.

Thomas H. Davenport is a Distinguished Professor at Babson College, a Research Fellow at the MIT Center for Digital Business, Director of Research at the International Institute for Analytics, and a Senior Advisor to Deloitte Analytics.

TechCrunch : GrabTaxi, Uber’s SoftBank-Backed Rival In Southeast Asia, Tests Cou

GrabTaxi, Uber’s SoftBank-Backed Rival In Southeast Asia, Tests Courier Service

GrabTaxi, the Uber rival backed by SoftBank, is trialling a next-day delivery service as it experiments with logistics-related offerings beyond its core taxi-hailing business in Southeast Asia.

The ‘Parcel-Document’ service quietly went live in Bangkok, Thailand, this week in partnership with e-commerce company AlphaFAST. GrabTaxi customers can summon a courier inside the GrabTaxi application in the same way that they’d order a taxi (see below). The document will be delivered the next day if booked before 3pm. It is initially charged at a flat rate: paperwork and documents cost 35 THB (just over $1), while parcels are 35 THB to 70 THB based on size.

GrabTaxi works with regular taxis and limousine private hire cars for its GrabTaxi and GrabCar services, but the company is using AlphaFAST’s fleet of scooters for this pilot.

GrabTaxi actually has a motorbike taxi service in Vietnam — that’s another of its trials — so it seems conceivable that the two could be compatible in the future, should it choose to launch them in new cities.

GrabTaxi declined to comment on record about this experiment, but, since it is leaning on a partner for resources, this looks like a low risk way to gauge demand for delivery services.

CEO Anthony Tan told TechCrunch that the firm would experiment with new services in the wake of SoftBank’s $250 million investment in it last December, and this is one of the first ideas to be floated. Another is Uber-like cashless payments, which is set to be trialled in Singapore.

Uber has offered bicycle couriers in New York, but ‘UberRush’ is yet to expand into Southeast Asia, or indeed any countries outside of the U.S..

GrabTaxi isn’t the only SoftBank-backed taxi app firm to take a leaf from the Uber playbook of late. Ola launched a food delivery service in four cities in India last week.

Telegraph : Europe blocks desperate Greek attempt to stay afloat

Europe blocks desperate Greek attempt to stay afloat
Eurozone says it is "legally impossible" to return €1.2bn in rescue funds to cash-strapped Athens

The Greek government will not receive €1.2bn (£883m) in European rescue funds after the bloc's officials ruled the Leftist government had no legal claims on the cash.
Athens requested a return of the funds it said were erroneously handed to creditors from Greece's own bank recapitalisation fund, the Hellenic Financial Stability Facility (HFSF).
The transfer was originally arranged by the previous Greek administration.
But eurozone offcials have blocked the claim, saying it is "legally impossible" transfer the money back to the debt-stricken country.
"There was agreement that, legally, there was no over payment from the HFSF to the EFSF," said a fund spokesman.
Germany's finance ministry was also reluctant to allow the release, claiming there was "no reason" to make the transfer.
The decision is a further blow to the Greek government's attempts to stay afloat over the next few weeks.
Athens has been scrambling to make repayments to its creditors and continue to pay wages and pensions. The government now faces another €450m cash squeeze at the beginning of April.

As part of its efforts to stay solvent, the Leftist government has also requested a €1.9bn transfer of profits held by the European Central Bank, from the holdings of its Greek debt.
So far, the ECB has rebuffed all Greek pleas to alleviate their cash squeeze. The central bank has moved to officially ban the country's banks from increasing their holdings of short-term government debt.
Greek banks are being kept alive through the provision of an expensive form of emergency liquidity (ELA) which is rapidly being used up as capital flees the country. The ECB decided to incrementally raise the limit on ELA to €71bn on Wednesday, according to reports.

WSJ : China Bank Blues Just Getting Started

Chinese banks are slowly admitting they have a few bad loans stuffed in their balance sheets. Investors should brace for more.

Two of the country’s big four state-owned lenders have now reported full-year 2014 earnings, and both showed rising costs from soured loans. Net profit, which for some time has grown in double digits, rose last year by just 8% for both Bank of China and Agricultural Bank of China, known as AgBank. Their figures show that a profit pothole formed at the end of the year, with implied fourth-quarter net profit rising just 5% for Bank of China and 4% for AgBank.

More worryingly, nonperforming loans for the year rose 37% at Bank of China and 42% at AgBank. Midsize lender China Citic Bank, which reported earlier this month, saw nonperforming loans rise 43%.

Bank of China’s relative outperformance may be due to its bigger overseas exposure. At 27% of total assets, its international book is bigger than any competitor. Its overall nonperforming loan ratio came to 1.18%, below average for the sector, but the domestic NPL ratio was 1.47%.

These numbers would look even worse if lenders weren’t actively disposing of nonperforming loans by selling them to the asset-management companies set up in the 1990s to bail out the banks. An AgBank executive told reporters Tuesday the firm sold more than 26 billion yuan ($4.2 billion) worth of nonperforming loans to these companies last year, at 37 cents on the dollar.

An industry-wide nonperforming loan ratio of 1.29% at the end of last year, up from 1% a year earlier, may not sound so bad. But few investors believe the figures.

So it could be seen as welcome news that the banks are recognizing problem loans and disposing of hopeless assets. The problem is that no one knows how bad things will get.

In all likelihood, China is only at the early stages of a negative credit cycle. Economic growth is still slowing, and conditions in the property market are worsening. AgBank told analysts it thinks nonperforming loans are likely to peak in the second half of this year or in 2016, according to Barclays.

Resilient net interest margins, which rose in 2014 for both Bank of China and AgBank, are unlikely to be maintained. Interest rate cuts, and the gradual loosening of deposit rates, will squeeze margins going forward. This could reduce overall bank earnings by up to 3.9% this year and 10.5% in 2016, according to Barclays. The situation would intensify if People’s Bank of China Gov. Zhou Xiaochuan is right that deposit rates could be fully liberalized by the end of this year.

Bulls argue that Chinese bank stocks are cheap, hovering around book value. But that has been the case for years. With the outlook darkening on interest rates and loan quality, there’s no relief in sight.