>>> US Close Dow+0,10% S&P-0,28% Nasdaq-0,33% Russell-0,41%

Closing Market Summary: Growth Concerns Pressure Cyclical Sectors

The major averages ended the Tuesday session on a mixed note. The Dow Jones Industrial Average (+0.1%) spent the bulk of the day near its flat line while the S&P 500 settled lower by 0.3%.

Stocks were pressured from the start, but the early weakness could be traced back to Europe where the European Commission lowered its GDP forecast for the region. The commission now expects 2014 GDP to grow at 0.8% (prior 1.2%) while the forecast for 2015 was lowered to 1.1% from 1.7%.

Also in Europe, a report from Reuters has revealed a potential power struggle at the European Central Bank. According to the report, ECB board members have been unhappy with President Mario Draghi effectively making some policy decisions on his own. Furthermore, the report claimed that up to ten out of 24 ECB members are not in favor of a sovereign QE program.

In all likelihood, the news of strong opposition to quantitative easing is why the euro climbed following the report. The single currency advanced to 1.2550 against the greenback, which contributed to a 0.4% decline in the Dollar Index (87.05, -0.25).

The downtick in the dollar did little to prevent crude oil from falling in response to the lowered growth outlook for the eurozone and lower export prices from Saudi Arabia. The energy component fell 2.0% to $77.13/bbl. For its part, the energy sector (-1.9%) spent the entire session at the bottom of the leaderboard.

The significant weakness in energy kept the market under pressure while other cyclical groups were mixed. Financials (+0.1%), industrials (+0.1%), and technology (unch) displayed relative strength while consumer discretionary (-1.3%) and materials (-1.0%) lagged.

Notably, the discretionary sector suffered from weakness among apparel names after Michael Kors (KORS 71.42, -6.57) issued disappointing comparable store sales guidance, which masked better than expected results. The stock tumbled 8.4%. Foot Locker (FL 53.63, -2.54) also weighed, falling 4.5% after announcing CEO Ken Hicks will be replaced by Richard Johnson. Homebuilders also pressured the sector with the iShares Dow Jones US Home Construction ETF (ITB 23.92, -0.26) ending lower by 1.1%.

Elsewhere, the industrial sector ended ahead of other cyclical groups thanks to gains among transport stocks. The Dow Jones Transportation Average added 0.4% with airlines leading the way after Delta Air Lines (DAL 42.32, +1.71) reported strong October metrics. However, the sector could not pull away from its flat line as growth concerns weighed on machinery stocks like Caterpillar (CAT 98.61, -1.61) and Joy Global (JOY 52.00, -0.31).

On the upside, the consumer staples sector (+0.5%) ended in the lead with help from upbeat earnings reported by Archer-Daniels Midland (ADM 49.54, +2.29). The health care sector (+0.1%) also finished in the green while telecom services (-0.2%) and utilities (-0.6%) registered losses.

Treasuries held intraday gains, but the 10-yr note returned to unchanged by the end of the session (2.33%). The long bond, meanwhile, ended in the green to lower its yield two basis points to 3.05%.

Participation was ahead of average with roughly 810 million shares changing hands at the NYSE floor.

Economic data was limited to the trade deficit and factory orders:
  • The September trade deficit widened to $43.00 billion from a downwardly revised $40.00 billion (from $40.10 billion) while the consensus expected the deficit to come in at $40.20 billion 
    • According to the advance estimate of Q3 2014 GDP, the BEA assumed that the trade deficit narrowed to roughly $38 billion in September. The upward surprise should result in a downward revision to third quarter GDP in the second estimate 
    • The goods deficit increased by $2.40 billion in September to $62.70 billion while the services surplus fell to $19.60 billion from $20.20 billion 
  • Manufacturing orders declined 0.6% in September after falling an upwardly revised 10.0% (from -10.1%), while the consensus expected a decline of 0.5% 
    • Durable orders fell 1.1% in September after declining 18.3% in August. That was a slightly stronger result than the 1.3% decline reported in the advance durable goods report 
    • Much of the decline in durable goods demand resulted from a 14.7% decline in aircraft orders. Excluding transportation, durable goods orders slipped 0.1% in September
Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while the October ADP Employment Change report (consensus 220K) will cross the wires at 8:15 ET. The day's data will be topped off with the 10:00 ET release of the ISM Services Index for October (consensus 58.0).
  • Nasdaq Composite +10.7% YTD 
  • S&P 500 +8.9% YTD 
  • Dow Jones Industrial Average +4.9% YTD 
  • Russell 2000 +0.1% YTD

WSJ : Siemens Continues to Carve Up Health Care

Siemens Continues to Carve Up Health Care
German Engineering Giant May Announce Hearing-Aid Unit Sale Before Annual Results This Week

Siemens AG Chief Executive Joe Kaeser is about to shed another part of the company’s health-care unit, while betting that the German engineering giant’s future lies with its energy business.

Siemens could announce as soon as Wednesday the sale of its hearing-aid unit to private-equity firm EQT Partners, in advance of reporting its fourth-quarter and annual results on Thursday, people familiar with the matter have said. The deal, potentially valued at more than €2 billion ($2.5 billion), would be the latest sign that Mr. Kaeser is preparing to exit the health-care business altogether, according to analysts.

Siemens declined to comment on plans for its health-care business.

The expected transaction follows Siemens’s recent decision to shed two other health-care units. The company in August outlined plans to sell its hospital information-technology business to U.S.-based Cerner Corp. for $1.3 billion. Siemens in July said it plans to sell its microbiology business to Beckman Coulter Inc., a subsidiary of Danaher Corporation. The microbiology disposal, estimated by analysts to be valued at €330 million, would allow Siemens to focus more on in vitro analysis, the core of its diagnostics business.

Over the past year, Mr. Kaeser has been working on shedding noncore businesses and streamlining divisions as part of a cost-cutting program and broader restructuring of the trains-to-medical-equipment giant. Last month, he separated its health-care business operationally from the rest of Siemens, creating what he called “a company-within-a-company.” Analysts said the move could be the first step toward divesting the rest of the health-care business.

Analysts expect Siemens Healthcare to report a 4% profit increase to €626 million for the quarter ended Sept. 30 on Thursday, according to a recent poll by The Wall Street Journal. They expect the energy unit’s profit to rise 7% to €601 million.

The disposal of the hearing-aid, microbiology and IT divisions would leave Siemens Healthcare focused primarily on medical imaging and diagnostics. Medical imaging—the health-care business’s most lucrative unit—manufactures products like CT scanners, MRI machines, and ultrasound technology.

Siemens and U.S.-based competitor General Electric Co. are the global leaders in medical imaging, each with market share of 28%, followed by Dutch electronics group Philips NV, at 23%, according to J.P. Morgan .

The imaging business generates a lot of cash for Siemens, but is growing slowly due to a weakening global market for health-care equipment and solutions, which J.P. Morgan estimates will grow by between 1% and 2% in 2014, with only a slight improvement next year.

Siemens and its rivals have all been squeezed by reduced government health-care spending across Europe in the wake of the eurozone debt crisis. The companies have also faced a slowdown in equipment spending in the U.S.—the world’s largest health care market—because the Affordable Care Act has mandated new funding priorities, limiting hospital resources for equipment upgrades.

GE and Philips, unlike Siemens, view health-care as central to their businesses.

“We are investing massively in IT, in making hospitals more efficient,” said Jean-Michel Malbrancq, president and chief executive of GE’s European health-care business. He said GE sees a health-care role for the Internet of Things, where the Web meets real-world equipment. “We play in a space where [some] competitors don’t play.”

Expensive technological shifts in the health-care sector could push Siemens to exit the health-care market while it is still very profitable, analysts have said. Emerging trends that will demand substantial investments include a greater focus on data analytics and molecular diagnostics.

Increased global competition and industry consolidation are other factors that could drive Siemens to shed its health care business through a spinoff, an initial public offering, or an outright sale, according to analysts.

A spinoff of Siemens Healthcare by 2016 might create more value for the company than an initial public offering, even though analysts expect Siemens to pursue an IPO.

An IPO would generate cash that could be invested in other acquisitions, said Andreas Willi, an analyst at J.P. Morgan. “Given the Siemens track record, I am not comfortable with Siemens investing a big amount of money and would rather see the proceeds going directly to investors in the form of a share in Healthcare,” he added. Analysts have said Siemens overpaid for its recently announced acquisition of U.S.-based oil equipment manufacturer Dresser Rand Inc., valued at $7.6 billion.

A spinoff or IPO could value the health-care business at more than €30 billion, said Christoph Niesel, a portfolio manager at Union Investment, a Siemens shareholder.

But according to a person familiar with internal deliberations at Siemens Healthcare, the business is “not working toward a deadline for complete separation.”

Some industry experts questioned whether a near-term divestment of the health care business would help Siemens’s overall growth prospects. “With the rest of Siemens not firing on all cylinders, the timing isn’t right” said one portfolio manager who follows the company.

Despite Mr. Kaeser’s efforts to focus on energy with planned acquisitions of Dresser Rand and the energy operations of Britain’s Rolls-Royce Holdings PLC, Siemens has said it expects lower margins for its gas turbine and power generation businesses over the next few years.

Analysts at Morgan Stanley expect Siemens’s profit margin for energy to be 13.2% when it reports its fourth-quarter results, compared with approximately 20% for its medical-imaging business.

WSJ : Some Hedge Funds Profit From Steep Decline in Oil Prices

Some Hedge Funds Profit From Steep Decline in Oil Prices
Taylor Woods Fund Gains 8% in October, Now Up 5% Year-to-Date

Some nimble energy investors are making money off the steep slide in oil prices, dodging the hit that financial markets and oil producers have suffered.

Hedge-fund managers including the team of George “Beau” Taylor and Trevor Woods, and Pierre Andurand are among those who have reaped profits during the selloff by correctly predicting that rising global crude-oil output would overwhelm the market and send prices lower. They placed bets, known as “shorts,” that prices in the futures market would fall, and were guided by research that closely tracked the flow of physical oil from wells and pipelines to storage tanks and refineries.

These oil bears came around to the view that prices north of $100 a barrel couldn’t be supported by tepid global demand growth when production was accelerating in Libya, Iraq and the U.S. Few oil-market strategists and traders predicted that oil prices, now down about 27% from a June peak, would fall at such a rapid pace at a time of steady, if slow, global growth. Many of these funds hung on their bets in the first half of the year, when they were in the red as oil prices were rising.

Success at these smaller and more specialized funds comes as so-called macro-investors, who try to predict global economic trends, have nursed losses on wrong-way oil bets this year.

Big-name fund managers are taking note. Hedge-fund titan Paul Singer expects oil prices to fall lower for several years more, thanks to strong U.S. supply, according to an investor letter.

“A lot of people who trade crude have a bullish bias,” said Ernest Scalamandre, managing member of AC Investment Management, which invests in several hedge funds. No big macro fund “really caught the big short move.”

RTR - UniCredit capital buffer 10.4 billion euros end-September - CEO

(Reuters) - UniCredit (CRDI.MI), Italy's biggest bank by assets, had a larger capital buffer at the end of September than that revealed in Europe's health check of the sector, the bank's chief executive said on Tuesday.

"At Sept. 30 we had a capital buffer of 10.4 billion euros (8.15 billion pounds) compared with the 8.7 billion unveiled in the stress tests," Federico Ghizzoni said at an event in Milan, adding that the difference came from some additional factors not included in the European Central Bank's tests.

(ZH) Paul Singer Slams The Fake World: "Fake Growth, Fake Money, Fake Jobs, Fake

Paul Singer Slams The Fake World: "Fake Growth, Fake Money, Fake Jobs, Fake Stability, Fake Inflation Numbers"

Alan Greenspan Bond Central Banks CPI Federal Reserve Global Economy Hyperinflation Monetary Policy Moral Hazard Real estate Reality recovery Unemployment Volatility
Excerpted from Elliott Management's Paul Singer letter to investors,

FAKING IT

Nobody knows when reality will overtake the rhetoric, lies, phony statistics, wishful thinking, fake prices and tiresome poseurs pretending to be world leaders. The situation is universal, a consequence of incompetent leaders and careless (or ignorant) citizenry. Global problems are continuing to mount, along with the risk that the consequences of years of bad policies and inept leadership compound (as sometimes happens) in a short window of time. Let us start by unpacking some current examples of fakery, and then try to explore the consequences.

Monetary policy.

Either out of ideology or incompetence, all major developed governments have given up (did they ever really try?) attempting to use solid, fundamental policies to create sustainable, strong growth in output, incomes, innovation, entrepreneurship and good jobs. The policies that are needed (in the areas of tax, regulatory, labor, education and training, energy, rule of law, and trade) are not unknown, nor are they too complicated for even the most simple-minded politician to understand. But in most developed countries, there is and has been complete policy paralysis on the growth-generation side, as elected officials have delegated the entirety of the task to central bankers.

For their part, the central bankers are proud and delighted to be providing the primary support for the global economy. Their training for this role took place in the decades before the 2008 financial crisis, when central bankers (led by “The Maestro,” Alan Greenspan) “deftly” headed off crisis after crisis. These policy responses “worked,” we were told, and they promised a new era of fine-tuning, moderation in markets and complete control of the economy by central bankers. The words in quotes are meant to be ironic, of course, because in fact, the Federal Reserve Board’s moves disguised hidden – but serious and real – future costs, which came due in 2008. The ensuing crisis introduced the term “moral hazard” (not meant to be ironic) into the mainstream, meaning that risks were taken by financial institutions and others seeking private reward, while the costs of the risks were borne primarily by the taxpayers. Central bank manipulation of prices and risk taking has become the norm over the last six years, because it is so hard for investors to see the downside. QE and ZIRP have been “free,” as far as most people are concerned, in terms of stability, asset price and economic growth, and economic recovery. “Free” in this context means devoid of future countervailing negative consequences. Unfortunately, this particular magic bullet is illusory – the negative consequences are in the early stages of revealing themselves.

Among the worst consequences of the delegation of responsibility from political leaders to central bankers has been the increasing arrogance of the latter group and their inability to understand the rapidly evolving nature of the world’s major financial institutions. Prior to the crisis, central bankers were unable to understand the risks that were building up in the global financial system and the economy. They did not see the 2008 collapse coming, nor did they perceive how fragile the system had become, or that the major financial institutions had become the largest and most leveraged hedge funds on earth.

This lapse was a catastrophic error, not just of execution but also of theory and structure. During the 2008 crisis, the central bankers (rightly) applied standard (more or less) responses to financial collapse (flooding the system with liquidity and reducing interest rates), which of course truncated the crisis and stabilized the system. But their inability to understand the financial system, or to take responsibility for their massive failures in causing/allowing the crisis to occur, has resulted in a seriously deficient economic recovery phase. Central bankers do not understand that it was their tinkering, manipulation, bailouts and false confidence that encouraged and enabled the insanity that led to the fragility and collapse. Partially as a result of that misunderstanding, the developed world has doubled down on the same policies, feeding the central bankers’ supreme self-confidence. Political leaders have been content to stand aside and watch the central bankers do their seemingly magical and magnificent work.

The believers in the wisdom of this central-banker-centric economic world have been crowing and gloating that those (like us) who have raised concerns about the risks posed by the post-crisis, monetary-dominated policy mix (inflation, distortions, growing inequality, lower growth) are just “wrong” and should apologize for a “massive error.” This, shall we say, “Krugmanization” of a substantial portion of the economics profession and punditocracy is in its triumphalist phase, and whether its smug non-stop “victory lap” ultimately represents an embarrassing high-water mark is for subsequent events to reveal.

However, let us look at the policies that have been implemented post-crisis (in the absence of the kind of solid pro-growth policies that we and others have been advocating) and compare them to the policies that were in place during the run-up to the 2008 crisis.

Pre-crisis, the Fed funds rate was 1% for 2-1/2 years. There was no asset buying by the central bank (QE), but the persistently low Fed funds rate fueled bubbles in leverage, real estate and structured products. The balance sheets and derivatives books of financial institutions went from crazy to colossally insane.
Following the crisis, the Fed funds rate has been effectively zero for six years, and QE has put several trillion dollars of government and mortgage debt on the books of the world’s major central banks. Indeed, a substantial portion of government spending in the past six years has been “financed” by QE. If the gibberish that passes for explanations of why this is not just money printing makes sense to you, then please give us a call so we can be educated. The explanation makes no sense to us.
ZIRP has allowed insolvent corporations to issue debt at almost no premium to government bond rates. Companies that should be shuttered or taken over and chopped up are instead able to pursue projects that should never have seen the light of day, and to create fake demand that essentially borrows growth (and jobs) from the future.

A good deal of the economic and jobs growth post-crisis is false growth, with little chance of being sustainable and self-reinforcing. It is based on fake money conjured by the Fed to buy assets at fake prices. What happens when interest rates are normalized and QE stops (and reverses) globally is a question that nobody wants to contemplate. The financial system is fragile, still ultra-leveraged and reliant upon a continuation of superlow interest rates. Thus, the appearance of stability and low volatility is also illusory.

Government economic data.

Some of the most important government data is unreliable, starting with inflation. Reported real GDP growth has been in the 2% annualized range for the last few years. The 4% annualized real growth rate reported for the second quarter of 2014 only reversed the terrible first quarter numbers, so year-over-year growth was still only in the 2% range for the twelve months ended June 30, 2014. Only if third and fourth quarter real GDP growth reaches 3% or higher, and only if that rate persists next year, will it be fair to say that the U.S. economy has finally recovered from the crisis (six tough years later).

But regardless of the purported results for the rest of 2014 and into 2015, all of the reported growth numbers are too high, because the official inflation number is too low. Over a long period of time, these figures have become politicized, always in the direction of under-reporting inflation. Constant repetition has resulted in most policymakers and economists now just accepting the adjustments and tricks that have become part of the reporting culture. From the notion that there is “core” and “non-core” inflation; to ignoring house prices and using “rental equivalence”; to “hedonic adjustments” according to which, if your computer is “better” than last year’s, then you should subtract an amount from the actual price every year to reflect that improvement, even though it is subjective and not really quantifiable; to a handful of other nonsensical adjustments, inflation is understated. Inflation is also distorted by the increasing gap between the spending basket of the well-off and that of the middle class (check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like).

Said differently, inflation is the degradation of the value of money. Money has no meaning beyond the value of the real things for which it can be exchanged. The inventions and tools of modern finance have made things look really complicated, but stripping inflation to its essence is critical to understanding what is real and what is false. The inflation that has infected asset prices is not to be ignored just because the middleclass spending bucket is not rising in price at the same rates as high-end real estate, stocks, bonds, art and other things that benefit from QE and ZIRP. Money is losing value in those areas. This is inflation, plain and simple. If and when the situation gets to be Argentina-like, with generalized increases across the entire spending spectrum, it will be clear to everyone. In the meantime, sadly, policymakers do not recognize the reality of the peculiar and sectoral inflation, in some cases massive and growing, that has been caused by money printing and bad policy.

Even apart from rising prices in high-end goods, all of this suggests that CPI inflation is being understated by some unknowable amount, which we estimate is between 1/2% and 1% per year. This is a big difference in a 2% or 2-1/2% per year reported real GDP growth environment. Middle class citizens who are paying more at the supermarket and for college tuition and for many other goods and services feel that inflation is higher than reported, but they lack access to reliable data. The well-off think that it is their exquisite good choices that enable them to sell their overpriced $10 million co-op apartment and buy a $20 million overpriced Hamptons beach home. Neither group is coming to grips with the insidious and tricky nature of modern inflation, and the government just uses its tone of complete confidence to ignore what citizens see with their own eyes.

Unemployment figures are also a source of faulty or misleading data. The headline currently reported unemployment rate of 5.9% is deeply misleading. A 35-year low in the workforce participation rate, a policy-driven transition from full-time to part-time jobs, and the transition from high-paying jobs to relatively low-paying service jobs, all combine to make the headline rate a poor measure of employment health. Support for our statement is provided by the data on real wages, which have been stagnant during the entire post-crisis period. These figures for trends in real wages avoid the distortions we have described above, and are consonant with the polling numbers which show that Americans believe their country is on the wrong track and that the future prospects for themselves and their children are poor.

Deleveraging.

The 16th Geneva Report on the World Economy (published in September of this year by the Centre for Economic Policy Research) says that the total burden of global non-financial debt, private and public, has risen from 60% of national income in 2001 to almost 200% after the crisis in 2009 and to 215% in 2013. Contrary to widely held beliefs, the world’s leading governments and financial institutions have not yet begun to de-lever, and the global debt-to-GDP ratio is still growing to record highs, even before taking into account entitlement programs.

* * *

Nobody can predict how long governments can get away with fake growth, fake money, fake financial stability, fake jobs, fake inflation numbers and fake income growth. Our feeling is that confidence, especially when it is unjustified, is quite a thin veneer. When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.

FT : Warnings from Japan for the eurozone

Warnings from Japan for the eurozone

Europe has been unwilling to address the structural excess savings of creditor countries

Japan is no longer governed by consensus. This is true at least of its monetary policy. Haruhiko Kuroda, governor of the Bank of Japan, launched still greater “quantitative and qualitative monetary easing” last week, with the backing of only five of the nine members of the Monetary Policy Committee.

The BoJ plans to purchase Japanese government bonds at an annual rate of Y80tn ($705bn), or 16 per cent of gross domestic product. The balance sheet of the central bank is set to jump towards 80 per cent of GDP (see chart). This would make the BoJ’s balance sheet relatively far bigger than those of the US Federal Reserve, European Central Bank and the Bank of England (see chart). In addition, the BoJ plans to lengthen the maturity of its asset purchases to between seven and 10 years.
The government pension investment fund has also announced that it will reduce its holdings of domestic bonds from 60 per cent of its portfolio to 35 per cent, while increasing its equity holdings (domestic and foreign) from 24 to 50 per cent. As a result, it will increase its holdings of Japanese equities by $90bn and of non-Japanese equities by $110bn. Indirectly, the BoJ is financing this by buying JGBs owned by the GPIF.
To justify its decision, the BoJ stated: “On the price front, somewhat weak developments in demand following the consumption tax hike [in April] and a substantial decline in crude oil prices have been exerting downward pressure.” As a result, it argues, there is a risk that “conversion of deflationary mindset, which has so far been progressing steadily, might be delayed”.
So will this reinforced attempt to end Japan’s entrenched deflation work? To answer, one needs to distinguish the direct effects from the signalling.
Japan charts
The purchases of equities by the GPIF might be significant. But it is hard to believe replacing JGBs with money in private portfolios would make much difference. Central-bank money can also be thought of as non-interest-bearing, irredeemable government debt. But 10-year JGBs yield less than 0.5 per cent. So the difference between the two forms of government “debt” is tiny, particularly since the BoJ intends to reverse its monetary expansion at some point.
This makes the signalling the main channel. The decision is intended to underline the seriousness of the BoJ. But the split in the MPC must undermine the effectiveness of the signal it seeks to give and so weaken its impact.
The BoJ is combating the consequences of a bad policy error that it, alas, supported. The decision to raise the consumption tax this year was mistaken: it was mistimed, since it was introduced before the desired shift in inflationary expectations to an annual rate of 2 per cent had been entrenched; it was a tax on private consumption, of which Japan has too little, instead of on private savings, of which it has too much; and it did not address the structural cause of the latter, which is the chronic financial surplus of the corporate sector (the excess of its gross earnings over investment).
Japan charts
Since Japan’s bubble economy collapsed in the early 1990s, the private sector has run a huge financial surplus, which has been the counterpart of the government’s deficit and the net export of capital (see chart). Today, nearly all that surplus is generated within the corporate sector. The government will be able to eliminate its own deficit, while avoiding a return to economic depression, if and only if spending rises elsewhere relative to incomes. A jump in net exports would be one possibility. A rise in investment would be another. A shift of income from corporations to households, and a rise in consumption by the latter, would be a third.
Could the BoJ’s monetary policy deliver such outcomes? Only up to a point. Negative real interest rates might permanently raise wasteful corporate investment. Negative real interest rates should also depreciate the exchange rate and so raise the current account surplus. Last week’s BoJ announcement weakened the yen by 4 per cent against the dollar between October 30 and November 4. Yet none of these shifts would directly tackle the structural problem in the corporate sector. Monetary policy would be no more than a palliative. Tax reform is needed – but the reform should include increased taxation of retained earnings rather than the government’s proposed reduction.
An alternative monetary policy does exist: direct financing of fiscal deficits by the central bank (also known as “helicopter money”). This would not eliminate the economic imbalances but would finance their consequences in the most direct way. Given Japan’s public debt overhang, however, such direct monetary financing of the government risks triggering an uncontrollable shift in expectations towards high inflation.
Japan charts
So what lessons should others, particularly the European Central Bank, learn from Japan’s predicament? The answer is: do not start from there.
The Japanese are where they are for three reasons. First, the Bank of Japan pursued too tight a monetary policy, especially in the early 1990s, to punish the sins of the bubble economy. Second, the government added too rapid a tightening of fiscal policy in 1997. Finally, the Japanese never dealt with structural excess savings in the corporate sector. These mistakes entrenched the disinflationary pressure that the BoJ now seeks to end with its desperate expedients.
All this has strong echoes today in the eurozone. Not least, the dominant attitudes are needlessly punitive. The eurozone has also been unwilling to address the structural excess savings of creditor countries. Yet what the eurozone should remember is that, regardless of economic outcomes, Japan will remain a functioning country with an utterly loyal citizenry. The eurozone does not possess such powerful advantages. It cannot even risk falling into anything close to Japanese deflation. But it is.

(MergerMarket) Altice secures financing from JP Morgan, CS and Deutsche for PT;

Altice secures financing from JP Morgan, CS and Deutsche for PT; Oi minorities disgruntled


Altice [AMS:ATC] has secured financing from JP Morgan, Credit Suisse and Deutsche Bank for its EUR 7.03bn bid for PT Portugal, confirmed a person close to the situation.

The cable and telecoms group is being advised by Goldman Sachs, Morgan Stanley and Perella Weinberg Partners on its bid.

Oi [BVMF: OIBR3], which is in the process of merging with Portugal Telecom SGPS SA (PT SGPS SA) [LIS:PT], early yesterday (Monday) morning received the binding bid from Altice for its Portuguese subsidiary PT Portugal. Oi released a statement saying it will analyze the bid.

A source close to a potential rival bidder complained that Altice is trying to dry up the investment banking market and has managed to get exclusives with the banks it is working with. Altice typically agrees exclusive contracts with banks, confirmed the person close.

The sale of PT Portugal may also see a backlash from Oi minority shareholders. But, according to a person familiar with Oi, there will not be a general shareholders' meeting to vote on the sale of PT Portugal, but only a private meeting between controlling shareholders, including Telemar, to decide.

Oi's minority shareholders are more disgruntled now than when the merger between Oi and PT was announced, according to one minority shareholder. "The merger was based on so many "synergies", and now they are selling the company, which proves that this was a scam to pay the debts of the controlling shareholders in Telemar at the expense of shareholders in general," claimed the shareholder.

While minority shareholders in Oi are not expected to have a say, shareholders in PT SGPS will not only have a say - they have veto power. PT SGPS SA, the holding company that before the merger owned PT Portugal and now owns a 25.6% stake in Oi, is the largest individual shareholder of Oi and is part of a shareholder pact that requires a unanimous vote on certain decisions.

A second person close to the situation believed the Portuguese shareholders may vote against Altice’s offer and that alternative offers were taking shape.

One of these is a consortium led by former PT (and Oi) CEO Zeinal Bava, who is bringing together some PT SGPS shareholders such as Bain Capital. Another is UK private equity group Apax with a group of Portuguese businessmen that are in talks with another large fund, the person said.

Apax is using Vieira de Almeida as its legal advisor. It is understood that Bain is working with Abreu Advogados.

>>> M.Kors conf call

Exec: Expect $1.5B in sales in Europe over the long term - conf call 
- Believe that Europe is the center of luxury brands
- Expect to open 50 more stores in Europe this year
- See the European market as "a very exciting piece of long term growth strategies"
- Expect $300M in long term Japan business
- Will open a 2nd flagship store in Japan in 1H FY15
- Will be taking South Korea business in-house from its current partner, Simone FC, by the early part of calendar 2016
- No expectation that the South Korean business will be immediately accretive to earnings
- North American market saw slower traffic than anticipated, similar to trend amongst competitors
- Moving offices from Hong Kong to London; all future annual meeting will be held in London

>>> Michael Kors beats by $0.11, beats on revs; guides Q3 EPS/rev in-line, comps

Michael Kors beats by $0.11, beats on revs; guides Q3 EPS/rev in-line, comps below; guides FY15 EPS above consensus, revs in-line, lowers comp guidance; announces $1 bln share repurchase (77.99)
Reports Q2 (Sep) earnings of $1.00 per share, $0.11 better than the Capital IQ Consensus Estimate of $0.89; revenues rose 42.6% year/year to $1.06 bln vs the $0.98 bln consensus.
  • Retail net sales increased 39.4% to $495.6 million driven by 121 net new store openings since the end of the second quarter of fiscal 2014 and a 16.4% increase in comparable store sales. Wholesale net sales increased 46.1% to $514.1 million and licensing revenue increased 42.8% to $46.9 million.
  • Gross profit increased 43.4% to $645.0 million, and as a percentage of total revenue increased to 61.0% compared to 60.8% in the second quarter of fiscal 2014.
  • The Company's Board of Directors has authorized a $1 billion share repurchase program.
Guidance
  • Co issues in-line guidance for Q3, sees EPS of $1.31-1.34, excluding non-recurring items, vs. $1.32 Capital IQ Consensus Estimate; sees Q3 revs of $1.27-1.30 bln vs. $1.29 bln Capital IQ Consensus, with low double digit comp increase vs. +16.7% ests.
  • Co issues guidance for FY15, sees EPS of $4.13-4.18, excluding non-recurring items, vs. $4.05 Capital IQ Consensus Estimate; sees FY15 revs of $4.3-4.4 bln vs. $4.37 bln Capital IQ Consensus; lowers FY15 comp guidance to mid teens from high teens.