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BArrons : Best European Bets : Camox fund founder Jonathan Herbert has played lo

Best European Bets

Camox fund founder Jonathan Herbert has played lots of small-cap European shares to big gains this year while shorting some giants.

October Hedge Funds: Best, Worst, Biggest

Jonathan Herbert doesn’t share other investors’ deep anxiety about a recession in Europe.

One of the region’s best-performing equity hedge fund managers this year, the Swiss native runs the Camox fund, a value-driven long-short investor based in London. Herbert’s fund buys lesser-known small- and mid-cap European stocks that he believes are on the verge of faster earnings growth because of a product break-through or a turnaround in their business.

Leading performer Herbert has played a lot of small-cap European shares to big gains this year while shorting giants Danone and Unilever. Photo: Chris Gloag for Barron’s

“Even though Europe is mired in anemic growth, it really doesn’t matter because our companies are innovating and actively selling their products in China, Latin America, and the Middle East,” says Herbert, 42. “It’s paradoxical that many of our companies are exhibiting organic growth rates between 5% and 20%, when gross-domestic-product growth in Europe is basically at zero.”

Herbert looks for companies that dominate narrow global industries. Recent investments have included one in the aluminum auto-engine-parts business and another in enterprise software made specifically for banks. By his estimates—usually based on a multiple of enterprise value divided by earnings before interest and tax—his picks tend to trade at a 40% discount to their large-cap peers, and their organic growth rate is four times as fast. He’s short a number of big, household names.

The preference for small-caps has evolved over time for Herbert, who was raised in the French-speaking Swiss village of Cologny by an Israeli father and an American mother. He first became interested in the group while working as a stockbroker at Deutsche Bank and then at private bank Lombard Odier Darier Hentsch, in Zurich. He realized risk-averse institutional investors weren’t fully exploiting the opportunity.

“If you can capture that explosive growth in terms of investing in the company at the right point in time, and if the company is cheap enough that you have a margin of safety, that is where the money is to be made,” says Herbert, who has a joint master’s degree in economics and business administration from the University of Lausanne.

His Camox fund (derived from the Latin word for a breed of mountain goat native to the Swiss Alps) has posted outstanding returns this year, rising 24.77% through Sept. 30, according to fund tracker BarclayHedge. That is nearly six times the MSCI World Index’s meager 4.33% return in the same period. Over three years, Camox has returned 33.01% annualized, more than double the MSCI’s 16.80% return.

The gains helped boost assets under management to $255 million (205 million euros) by early October, from just $7.6 million when Herbert started with a single analyst in February 2008. Camox’s management fee ranges from 1.5% to 1.7%, plus a performance fee of 17% to 20%, depending on how long investors agree to lock up their money in the fund. Minimum investment is $500,000.

“He does not fall in love with stocks,” says Gilles Lambotte, a partner at Octogone Group, a financial advisory in Geneva that has invested in Camox. “He gets in and out with conviction.” In September, when euro-zone inflation fell to its lowest level in five years, Herbert believed “the market was slightly overvalued,” so he liquidated 25% of his portfolio. German stocks fell by 16% in subsequent weeks, so Herbert used the cash he’d raised to buy stocks.

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Camox currently has 25 long positions and six shorts. Among the bullish bets are Software (ticker: SOW.Germany). Herbert likes enterprise-software stocks because the companies collect monthly “maintenance charges” from customers—usually large companies that can’t risk a shutdown. In the second quarter, Software suffered a surprising decline in sales at its “middleware” unit, whose products tie together different databases. Middleware, for instance, is what allows the computer systems of law-enforcement agencies and airlines to work together to cross-check passenger lists for terror suspects. The revenue shortfall caused the stock to fall 33%.

But Herbert’s research found that the company had lost a senior sales executive and spent a lot of time seeking certification to work with the U.S. Defense Department, which hurt European sales. He’s betting sales will rebound. Camox bought shares at about €18 each, and by mid-November, the stock had risen to €21.50; he has a target of €40 over two to three years.

Another favorite is Temenos Group (TEMN.Switzerland) of Geneva, the largest producer of enterprise software for banks outside of the U.S. As European banks regain their footing—their solid scores on recent stress tests suggest as much—they can again afford to upgrade their information-technology systems. Foreseeing the banking rebound, Camox started buying the stock for about 16 Swiss francs ($16.64) in February 2012, right after it fell sharply. Since then, Temenos has nearly tripled, recently trading at CHF33.40 ($34.55); Herbert expects it to rise above CHF50.

By quizzing European companies about their suppliers and competitors, Herbert occasionally discovers companies scarcely covered by sell-side analysts. One example is Montupet, (MON.France), a manufacturer of aluminum components for car engines that suffered in 2009 when General Motors went bankrupt and orders fell. Herbert bought the stock in September 2013 for €22, anticipating a recovery in U.S. auto sales and an increase in outsourcing by German car makers. Backed by rising revenue and profits, the stock has nearly tripled, to €64. It could top €100 in two or three years, he says.

Among Herbert’s six short positions are large-cap European consumer stocks, including yogurt maker Danone (BN.France), and food and home-products giant Unilever (ULVR.UK). He thinks the shares of these dividend-paying, slow-growing companies are overpriced—selling for more than 20 times earnings—because European investors are scrambling for protection against a recession.

Shorting large-caps raises cash for Herbert to invest in smaller gems that are growing a lot faster. “As long as Europe doesn’t slip into a prolonged recession, our companies will do just fine—and prosper,” he says.

FT : Telecom Italia to assess possible merger of Brazil unit with Oi

The board of Telecom Italia has given the go ahead to management to look at the possibility of merging its Brazilian operations with those of smaller rival Oi, a deal that would shake up the wireless market in Latin America’s largest economy.

A combination of Telecom Italia’s Brazilian unit TIM Participacoes and Oi would be the largest mobile carrier in Brazil by subscribers, larger than Telefónica’s Brazilian unit.

The go-ahead comes as the battle for a leading position in Brazil’s telecoms market has been intensifying, particularly around the future of TIM Participacoes.

Spains’ Telefónica is acquiring GVT, the Brazilian broadband provider, from Vivendi for about $9bn and has been linked with a potential role in the purchase and break up of TIM Participacoes, in which Telecom Italia owns two-thirds. In September, Mexico’s América Móvil said it was in talks to bid for a controlling stake in TIM Participacoes along with Oi.

In a statement, the board said it had also requested management look at merging its Italian broadband operations with those of local player Metroweb, a city based broadband system owned by an Italian state investment fund.

Telecom Italia is struggling to find a strategic solution, potentially through a merger in Brazil, to offset falling revenues in Italy and also to find a solution to low broadband penetration at home.

“Telecom Italia identifies Metroweb as the partner with which is could quickly create the development plan for the new generation network in optic fibre at a national level,” the company said.

It has said in the past that Metroweb would be among its options as an acquisition target, emphasising that there needs to be consolidation in the domestic industry, but identified possible price and antitrust issues that would need to be solved.

High speed broadband penetration is low in Italy. Telecom Italia which controls a third of the mobile market trails in 4G with just 2 per cent of its subscribers on the fastest wireless standard.

(BFW) Soros Invests $200M in Endesa to Hold 1.5% Stake, Mundo Reports

Soros Invests $200M in Endesa to Hold 1.5% Stake, Mundo Reports
2014-11-22 10:47:22.599 GMT

By Katie Linsell
Nov. 22 (Bloomberg) -- Funds controlled by George Soros
invest $200m in Endesa share sale to hold 1.5% stake, El Mundo
reports citing people with knowledge of situation.
* NOTE: Enel Says Total Value of Endesa Offer EU3.13b

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Katie Linsell in Madrid at +34-91-700-9631 or
klinsell@bloomberg.net
To contact the editors responsible for this story:
Shelley Smith at +44-20-3525-2020 or
ssmith118@bloomberg.net
James Boxell

>>> Hawesko shareholder Margaritoff says takeover offer by Meyer is too low; Sch

Hawesko shareholder Margaritoff says takeover offer by Meyer is too low; Schiemann may be willing to sell (translated)

Hawesko shareholder Alexander Margaritoff has said the takeover offer for the wine trader by another shareholder, Detlev Meyer, is too low, Boersen-Zeitung reported.

The German daily cited Margaritoff, who holds a 30% stake in the company and is the son of its founder, as saying that Meyer, a board member, needs to raise his EUR 40 per-share offer in order to reflect the company's value.

Meyer's investment firm, Tocos, has a 29.5% stake in Hawesko and has stated that its takeover offer is valid until 22 December, the article noted. Meyer is seeking to become the largest anchor shareholder in Hawesko which had a EUR 465m turnover in its 2013 business year, according to the article.

The report noted that Michael Schiemann, whose investment firm Augendum has a 5% stake in Hawesko, informed Manager Magazin Online that he may be willing to sell his shares.

Source Boersen-Zeitung

Barron's : Intel Has 30% Upside

Intel Has 30% Upside

Intel has a 3 ½ -year lead on rivals in chip-making technology, which should pay off in prolonged growth.

Brian Krzanich’s second investor day as Intel ’s chief went decidedly better than his first. A year ago, when he said revenue this year would be little changed from last year, shares lost 5% in a day. That forecast proved conservative. Revenue is now expected to climb 6% this year to $55.8 billion on a stabilization of personal-computer sales and strong data-center growth. This past Thursday, Krzanich guided to mid-single-digit revenue growth next year. The Street had expected only 3%. Shares ended the day nearly 5% higher.

At $35.59, the stock (ticker: INTC) is now halfway to the five-year doubling we predicted last year (“The Stars Are Lining Up for Intel,” June 3, 2013). But don’t sell yet.

CEO Brian Krzanich has overdelivered on Intel’s growth, but Wall Street is not impressed. Only 40% of analysts recommend buying the shares. Photo: Kristoffer Tripplaar/Newscom

Intel stock is 7% cheaper than the Standard & Poor’s 500 index, relative to projected earnings for the next four quarters, according to FactSet. That’s where it was at the time of our earlier story and we continue to see promising signs.

Earnings estimates have been gradually rising, yet the shares have relatively few fans on Wall Street, suggesting plenty of popularity to be gained. Intel is strategically running a deep loss in its mobile-chip division in order to make up for its late start there. That’s a drag but also an opportunity. Merely shrinking those losses to break-even in future years will uncover earnings power in the rest of the company that is currently hidden.

As elevated capital spending reverts to ordinary levels, the result should be swelling free cash flow and more dividend increases like the one announced Thursday. Shares look likely to rise over 30%, to $48, over the next two years.

The skepticism on Intel—just 40% of analysts who cover the shares say to buy them—is understandable. Earnings per share are expected to climb 19% this year to $2.25, which looks like excellent growth, except that earnings first topped $2 a share back in 2010. That year, Apple introduced its iPad tablet computer, setting off fears, and early signs, that tablets would supplant notebook and desktop personal computers.

PC shipments suffered eight quarters of declining shipments until the second quarter of this year, according to market researcher Gartner. Some users switched to tablets for entertainment, but that shift peaked last year and replacement demand should now drive slow but steady PC growth, Gartner reckons.

This year, revenue for Intel’s PC Client Group is expected to climb 5.8% to $34.9 billion. Management forecasts flat volumes next year, but declining prices on a shift to more consumer computers from enterprise ones. That view could prove conservative, argues JPMorgan Chase, considering that Microsoft (MSFT) has a new operating system and new chips afford longer battery life for devices, including “2-in-1” convertible notebooks, and that the existing computer base looks creaky. An estimated 600 million machines are four or more years old.

The good news is no matter which type of computer users do their typing, poking, or swiping on, they’ll want to connect to distant and rapidly growing data sources. Revenue for Intel’s Data Center Group is expected to jump 25% this year to $14.1 billion. Starting next year, Intel predicts about 15% yearly growth through 2018.

NOW THE BAD NEWS: Intel is on track to ship a promised 40 million tablet chips this year, versus just a million or so two years ago. But its mobile division will likely lose about $4 billion in the process. That’s partly due to “contra revenues,” which are effectively rebates to spur demand while Intel closes the cost gap to rivals on low-end multifunction chips.

Next year Intel expects the division’s loss to shrink by only $800 million. But by then, it expects to sell a full range of tablet chips, ranging from cheap models called SoFIA, which have integrated wireless function, to pricier Cherry Trail chips for zippy performance at low power. Analysts see the mobile unit achieving positive gross profit margins by 2016.

That sets Intel up for a gradual rise to $4 a share in earning power, according to Credit Suisse analyst John Pitzer. That includes $1.50 to $1.90 a share for the PC group, $1.55 to $1.70 a share from data centers, and pocket change from both share repurchases and the shift toward new connectivity for ordinary devices—what’s come to be known as the Internet of Things. Mobile only has to break even or come close.

JPMorgan predicts Intel will exit next year with $3 a share of earnings in sight. A 30% rise over the next two years would put shares at under 16 times, about where they trade now relative to this year’s earnings estimate.

Investors who have been put off by delays in production ramps for Intel’s latest chips should focus on the broader picture. Intel has a 3½-year lead over rivals like Taiwan Semiconductor Manufacturing, IBM, and Samsung Electronics in cutting-edge chip-making techniques, says Pitzer. It has built that lead at great cost.

Capital expenditures are expected to total almost 20% of revenue this year, versus an average of 16% over the past two decades. But that figure should decline starting next year, which should unlock more free cash for dividends and share repurchases. A six-cent dividend increase on Thursday, to 96 cents a share per year gives the stock a 2.7% yield.

Barron's : Qualcomm and Intel: When Investors Prefer Safety to Innovation

Qualcomm and Intel: When Investors Prefer Safety to Innovation

Intel and Qualcomm presented great technology at last week’s investor meetings. But the Street is more interested in buybacks and dividends.

The world of technology is in the midst of amazing developments, but investors have little patience for what Bill Gates dubbed The Road Ahead. That was made clear last week by two presentations from the two greatest chip companies around, Intel and Qualcomm. Reading between the lines of Wall Street commentary, the central takeaway from each company was that billions of dollars in dividends and stock buybacks trump amazing innovations.

To their credit, the companies are keenly aware that investors are in a less futuristic mode, more concerned with risks than with opportunities. Qualcomm’s financial chief, George Davis, summed it up nicely for me last week: “People prefer return of capital in periods of uncertainty,” clarifying that he meant company uncertainty, not economic uncertainty.

Qualcomm (ticker: QCOM), which has formally committed to paying out 75% of its cash generated after capital investments, boasted that it actually paid back 93% in the fiscal year ended in September.

Intel (INTC), which raised its dividend 6% last week to an annual 96 cents, or 2.7% at a recent price of $35.59, is the emerging dividend story in the chip world, argued analyst Mark Lipacis of Jefferies in a note last week. Qualcomm, at $71.47, pays a slightly more modest 2.4%.

THE TWO HAVE DIFFERENT kinds of uncertainties. Intel missed the boat on mobile computing—smartphones and tablets—and is burning billions of dollars to catch up. And Qualcomm, the global leader in mobile communications chips, is being investigated by China’s government and is contending with some Chinese manufacturers that don’t want to pay the company royalties.

Intel this year repeatedly set modest expectations for its business, and it beat those expectations, helping its stock rise 37% year-to-date. Qualcomm, despite holding more of the keys to the future, is down almost 4%.

Both are relatively inexpensive for such phenomenal sets of assets, although on a relative basis, Qualcomm may be the better deal at the moment, trading at 12.5 times the $5.71 in earnings per share that analysts are modeling for 2015. Intel trades at 14.9 times the Street’s estimate of $2.39 per share.

Intel’s presentation, led by CEO Brian Krzanich, rehashed many points made in the past: that the company will take a more flexible approach to the market, aiming to sell for any device that computes and connects, versus a prior posture somewhat dismissive of smartphones and tablets.

But some aspects of the talk seemed to have almost been cribbed from Qualcomm. Krzanich said Intel can’t afford not to be competitive in wireless modem chips for mobile devices. “It is an asset that over time will become more and more valuable, more and more critical,” he said.

The leader in modems, Qualcomm, figured this out a long time ago.

The heart and soul of the Intel pitch was from the chip maker’s manufacturing guru, William Holt, who made a compelling case that Intel remains at the forefront of manufacturing transistors, the basic building block of any semiconductor. That has given Intel a multiyear lead over companies that manufacture the vast majority of chips for Qualcomm and others, including Taiwan Semiconductor Manufacturing (TSM).

But Intel’s chip-making prowess to date hasn’t led to large wins in mobile computing, and it’s not clear when exactly it will. So, the brightest part of the road map lacks tangible market results.

Indeed, Intel has been heavily subsidizing its chips for tablet computers. It expects to reduce those subsidies next year as its parts become more cost effective, perhaps cutting losses from $4 billion to something more like $3.2 billion in 2015.

Bernstein Research’s Stacy Rasgon, observing that Intel doesn’t expect to see positive gross profit in mobile chips until 2016, was blunt: “While they attempted to put a brave face on things, the business remains a horror show.”

For a more upbeat view of Intel, see “Chip Giant Intel has 30% Upside.”

QUALCOMM IN MANY WAYS had the better road map, but it couldn’t dissuade investors from focusing on the risks. The discussion of modem technology was breathtaking, a star turn for a virtuoso. And Qualcomm has innovation stretching as far as the eye can see.

That includes the next big thing, so-called LTE Direct wireless, where phones and tablets will be able to communicate with one another even without a cellular network.

Qualcomm also opened a new front in the battle, saying it will compete in the market for server chips, where Intel has commanding market share. This is a great idea, and Qualcomm can make it happen. And Intel has everything to lose with $14 billion in revenue annually from that market.

But parts of the road map were vague. In the area of the Internet of Things, where Qualcomm chips already reside in stuff such as smartwatches and connected cars, the company had nothing of substance to say as to how much money it may make over time. No one, including Qualcomm, really knows what volume and at what prices all these new connected things will sell; it’s just too immature of a market.

THE CHINA ISSUE loomed large, and the company’s comments did little to reassure. The sense conveyed by Qualcomm management is that they view themselves at the moment as prisoners of history, caught in Chinese President Xi Jinping’s broadly ambitious industrial policy to nourish national businesses by sometimes putting the screws to foreign competitors.

The most encouraging statement came from CEO Steve Mollenkopf. “If you look at where the Chinese OEMs want to go, they want to become exporters,” he observed. “And I think we’re a natural partner there, and I think those things will mean something to getting things resolved.”

How long will history run against Qualcomm? As Yogi Berra might have put it, history can last a long time.

Despite the risks, the presentations made clear that these are both stellar companies with superb teams. I think at some point William Holt’s shrinking transistors will, indeed, pay enormous benefits to Intel. And I believe Mollenkopf will steer Qualcomm through the gantlet of China without disastrous consequences.

Qualcomm may be the better buy for risk-prone types, but they’re both excellent investments.

FT : Google break-up plan emerges from Brussels

The European parliament is poised to call for a break-up of Google, in one of the most brazen assaults so far on the technology group’s power.

The gambit increases the political pressure on the European Commission, the EU’s executive arm, to take a tougher line on Google, either in its antitrust investigation into the company or through the introduction of laws to curb its reach.

A draft motion seen by the Financial Times says that “unbundling [of] search engines from other commercial services” should be considered as a potential solution to Google’s dominance. It has the backing of the parliament’s two main political blocs, the European People’s Party and the Socialists.

A vote to effectively single out a big US company for censure is extremely rare in the European parliament and is in part a reflection of how Germany’s politicians have turned against Google this year.

German centre-right and centre-left politicians are the dominant force in the legislature and German corporate champions, from media groups to telecoms, are among the most vocal of Google’s critics.

Since his nomination to be the EU’s digital commissioner, Germany’s Günther Oettinger has suggested hitting Google with a levy for displaying copyright-protected material; has raised the idea of forcing its search results to be neutral; and voiced concerns about its provision of software for cars.

Google has become a lightning rod for European concerns over Silicon Valley, with consumers, regulators and politicians assailing the company over issues ranging from its commercial dominance to its privacy policy. It has reluctantly accepted the European Court of Justice’s ruling on the right to be forgotten, which requires it to consider requests not to index certain links about people’s past.

The European parliament has no formal power to split up companies, but has increasing influence on the commission, which initiates all EU legislation. The commission has been investigating concerns over Google’s dominance of online search for five years, with critics arguing that the company’s rankings favour its own services, hitting its rivals’ profits.

“Unbundling cannot be excluded,” said Andreas Schwab, a German MEP who is one of the motion’s backers.

Margrethe Vestager, the incoming European competition commissioner, has indicated that she will listen to Google and various complainants before deciding on how to move forward with the antitrust inquiry into the company.

Ramon Tremosa, a Spanish MEP who is sponsoring the motion, said it was necessary to consider unbundling as a long-term solution, because the commission could not “ask the secret of [Google’s] algorithm”.

Google declined to comment. However, executives at the company are understood to be furious at the political nature of the motion and only became aware of the document in the past couple of days, after an MEP contacted Google for advice on its meaning.

One technology industry source with knowledge of the motion also called it a “politically-motivated campaign to do something that is a regulatory matter”. He added: “These guys are calling for the break-up of Google. That is not in proportion to the degree of concern articulated by the commission during its investigation.”

The draft resolution’s final text will be agreed early next week, ahead of a vote, which is expected on Thursday.

WSJ : Airwave Auction Bids Reach $34 Billion

Airwave Auction Bids Reach $34 Billion

Offers for Mid-Band Spectrum Suggest A Taxpayer Windfall, Steep Costs for Wireless Companies

The Federal Communications Commission’s auction of wireless spectrum licenses has collected $34 billion in bids, turning what was expected to be a relatively sleepy affair into a likely windfall for taxpayers and an enormous commitment of capital for the carriers.

The offers reflect the surge in wireless traffic as Americans increasingly watch YouTube videos, stream music and share photos with their iPhone and Galaxy smartphones. Companies including Verizon Communications Inc. and AT&T Inc. so far have met that demand by stitching together smaller purchases of spectrum since the government’s last big auction in 2008. Now, they are paying up to buy the crucial resource in bulk.

The auction, which is continuing, is poised to become the most lucrative ever in the U.S. The interest surprised many analysts, some of whom expected it to bring in less than half the current total. The communications industry had been more focused, said analysts, on a coming auction of spectrum now held by television broadcasters. That was recently pushed back to 2016, however, and there are concerns about further delays.

“This is happening because spectrum is the critical raw material for wireless data capacity, and it’s in short supply,” said Jonathan Chaplin, telecom analyst at New Street Research.

Spectrum works like lanes on the highway. Wireless carriers buy licenses to use it, and when growing traffic leads to congestion, they have to acquire more. The current auction has drawn participants including AT&T, Verizon and satellite broadcaster Dish Network Corp. , which already owns a lot of similar spectrum and says it wants to start offering cellphone service.

>>> US Close Dow+0,51% S&P+0,52% Nasdaq+0,24% Russell+0,14%

Closing Market Summary: Stocks End Upbeat Week On Higher Note

The major averages ended an upbeat week with modest gains despite pulling back from their early highs. The S&P 500 gained 0.5% while the Nasdaq Composite (+0.2%) underperformed.

The stock market—and specifically equity futures—donned their party hats in the early morning hours after two major central banks spiked the punchbowl. Most notably, the People's Bank of China announced its first rate cut in two years, lowering its deposit rate 25 basis points to 2.75% and trimming its one-year lending rate 40 basis points to 5.60%. The news boosted U.S. futures and European equities, while comments made by European Central Bank President Mario Draghi also contributed to increased risk tolerance.

Mr. Draghi served up another reminder that low eurozone inflation has become increasingly challenging and the central bank is ready to act fast if current trends continue. The euro (1.2390) responded by returning near its early November low, while the resulting greenback strength sent the Dollar Index (88.29, +0.70) to a fresh four-year high.

The Dollar Index finished near its best level of the day while equities endured a bit of a hangover following the early morning extravaganza. Despite the pullback, all ten sectors ended in the green with telecom services (+0.1%) bringing up the rear.

Cyclical sectors fared better than their defensively-oriented counterparts with commodity-linked groups posting solid gains. The strength in these areas could be traced back to the news of the rate cut in China that underpinned miners and steelmakers. Rio Tinto (RIO 47.51, +2.20) surged 4.9% while the broader materials sector (+1.3%) settled in the lead. As for steelmakers, the Market Vectors Steel ETF (SLX 41.08, +1.54) soared 3.9%.

Manufacturers of heavy machinery also rallied with Caterpillar (CAT 106.45, +4.36) jumping 4.3%. The Dow component gave a boost to the industrial sector (+1.0%), which ended among the leaders.

Also of note, the energy sector (+1.2%) rallied with help from crude oil, which rose 1.1% to $76.53/bbl. However, crude ended well below its early high in the neighborhood of $77.75/bbl.

Elsewhere, the consumer discretionary sector (+0.2%) could not hold its early gain amid weakness in select retailers. GameStop (GME 37.86, -5.67) fell 13.0% after missing earnings/revenue expectations and guiding lower while Gap (GPS 38.46, -1.68) lost 4.2% after reporting in-line with its warning from November 6 and lowering its earnings guidance for fiscal year 2015. High-beta sector components also lagged with Expedia (EXPE 84.69, -1.39) and Netflix (NFLX 360.28, -7.86) ending lower by 1.6% and 2.1%, respectively.

Similarly, technology (+0.2%) could only hold a slim portion of its opening advance with Apple (AAPL 116.35, +0.04), Intel (INTC 35.60, -0.35), and Microsoft (MSFT 47.96, -0.73) pressuring the top-weighted sector from its early high.

Interestingly, Treasuries spent the day in a steady advance from their morning lows. The 10-yr note ended at its best level of the day with the benchmark yield down three basis points at 2.31%.

Today's participation was ahead of recent averages with roughly a billion shares changing hands at the NYSE floor.

Monday's session will be free of notable economic data.

Nasdaq Composite +12.8% YTD

S&P 500 +11.6% YTD

Dow Jones Industrial Average +7.4% YTD

Russell 2000 +0.7% YTD

(ZH) Bullard Does It Again, Says Market "Misread" His QE4 Comment

Bullard Does It Again, Says Market "Misread" His QE4 Comment

Here we go again.

By now everyone, including 2 year old E-trade babies and Atari algos know, that the only reason the market soared from the October 15 bottom, a move which we showed was entirely due to multiple expansion and thus nothing to do with earnings and everything to do with faith in even more free central-planning liquidity (something the PBOC was all too happy to provide overnight), was James Bullard's casual "QE4" hint on Bloomberg TV.

Since then Bullard has become the punchline of every financial joke, as it has become far too obvious that the Fed will never allow even a regular 10% correction (October 15 halted the closing market drop at just under 10%).

And now that the market is at ridiculous all time highs and trading above 19x GAAP PE, far above the level when in September the IMF, the G-20, the BIS and even the Fed all warned of assets bubbles, here is Bullard once again, with a fresh mea culpa and a new attempt to jawbone stocks, only this time back down, because as Dow Jones reports, "Bullard Says Markets Misread Him In October Bond-Buying Dustup."

According to a DJ report, markets were rattled by comments Mr. Bullard made in a Bloomberg interview just ahead of the late October Fed policy meeting. He said the central bank might want to consider extending a bond-buying stimulus that was almost universally expected to end that month.

Then, after the meeting, Mr. Bullard praised the Fed's decision to end the bond purchases, and again argued in favor of interest rate increases next spring, at a point earlier than many investors and officials expect. There was sense of whiplash: that Mr. Bullard had within a short period shifted gears on monetary policy.

In a Wall Street Journal interview Thursday, Mr. Bullard attributed some of the confusion to the fact that many market participants didn't listen closely enough to what he said. He allowed that monetary policy making has become far more complex and thus more challenging to communicate. But he underscored an underlying consistency to his view, noting what he said about the Fed's bond-buying program hadn't altered his long-running view that short-term interest rates should be lifted off their current near zero levels next spring.

"If you actually go look at the [Bloomberg] interview and go look at what I said, one of the things I actually said was I'm not backing off my interest rate, my March interest view," Mr. Bullard said.

The idea that it might be a good idea to press forward for a bit longer with bond-buying was rooted firmly in the ominous market conditions that prevailed ahead of the October Fed meeting, the official said.

"Global markets were saying there was going to be a global recession. And one way for the Fed to react to that would be to delay the end of [bond-buying] and get more information," Mr. Bullard said.

So according to the brain behind the St. Louis Fed, a 9% drop in the S&P is indicative of an imminent global recession? And, one wonders, what does the subsequent 15% jump "say" about the global economy? Oh wait, Mr. Bullard, is only attuned to the moves down in the S&P, which are due to the market being wrong. However, when the market surges on hopes of more liqufity, the market is said to be right about an economic recovery.

Got it.

"Maybe global markets would have been right and maybe there would have been a global recession coming, in which case we would want to have plenty of leeway to react to that," he explained. It would have simply been a "low-cost" insurance policy to keep going with what was then $15 billion per month in bond purchases, get to the December Fed meeting, and see where things stood, he said.

But as it turned out, the market problems proved short-lived, recession fears abated quickly, so the factors facing Fed decision making changed, which in turn supported an end of bond-buying in October, as expected, Mr. Bullard said.

Then agan, this being Bullard, it is, sadly, all bullshit:

"I'm one that wants the committee to be nimble and be able to react to data that's coming in. So maybe it's more natural for me to say we can shade our position one way or another in response to macroeconomic developments" as they happen, Mr. Bullard said.

Sorry, James, have lost all credibility, but thanks to you all those others who have been correctly claiming that it is only the Fed that impacts asset prices were once and for all vindicated.

However, it appears that the FOMC comments have finally overriden Bullard, who will have zero leeway to comment the next time the market "plummets" by 9%. As a reminder, this is what the Fed explained about the next time there is a surge in volatility:

... members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. In the end, the Committee decided not to include such a reference.

Translation: Bullard had not been given the green light to comment and lead to the market surge which wiped out all mid-October losses. And now the Fed has explicitly warned that the next time the market swoons, nobody will be stepping in with casual, if snyde, QE X commentary.

Then again, we will believe it once we see it.