Tough Year for Investors Goes Out on a Cheerless Note

TradeTheNews.com Weekly Market Update: Tough Year for Investors Goes Out on a Cheerless Note
Thu, 31 Dec 2015 16:15 PM EST

The week started off on a sour note as Chinese stocks tumbled on Monday after the latest industrial profits data declined for the sixth straight month. US data was mostly disappointing as well, with key regional readings in Chicago and Dallas dropping sharply. The 2-, 5-, and 7-year treasury auctions all showed poor results and dragged yields higher for the week. Crude oil prices dripped lower again and continued to exert influence on broader markets. US stocks alternated red and green in the post-holiday week as the S&P flipped back and forth from positive to negative on the year. For the week, the DJIA was down 0.7%, and the Nasdaq and S&P500 each lost 0.8%. For the year, the DJIA fell 2.2%, the Nasdaq gained 5.7%, and the S&P500 slipped 0.7%, its first losing year since 2011.

Early in the week, China reported November Industrial Profits at -1.4% y/y, its sixth straight decline. At the same time Japan announced its first decline in m/m retail sales in four months and first m/m drop in industrial production in three months. The poor economic data continued in the US as the Dallas Fed Manufacturing reading hit its lowest mark in seven months and the Chicago Purchasing Managers Index tumbled to its lowest in over five years. The Chicago PMI number was particularly disappointing because it showed big declines new orders, order backlogs and the employment index. The 42.9 reading for December was the seventh reading of the Chicago PMI this year that was below 50, indicating contraction. Weekly initial jobless claims were also disappointing, registering the highest number since July, though this may be attributable to holiday week volatility. On a brighter note, the December US Consumer Confidence reading beat expectations and showed a rise in the perception that job opportunities are "plentiful."

Interest rate futures fell hard on Tuesday following a very disappointing 5-year treasury auction. The 2-year yield reached its highest level since early 2010 to above 1.10%, the 5-year yield hit its high of the year above 1.79%, and the 30-year fell 2 points, putting the yield above 3.04%. The 2- and 7-year auctions that bookended the 5-year sale were also weak, perhaps attributable to the slow holiday week. Treasuries pared losses on Thursday after the higher than expected jobless claims. For the year, the 2/10-year yield spread narrowed to its smallest since 2008 as the treasury curve flattened: the 2-year yield jumped 38 basis points, while the 10-year yield was up only 8 basis points during 2015.

With relatively few corporate or macro developments during the week, broader markets were pushed around again by activity in the energy market. Saudi Arabia's 2016 budget plan showed that weak oil prices are hurting its fiscal situation, but despite that the energy ministry affirmed it would hold steady on its production policy. WTI and Brent crude are now trading in lockstep and each lost nearly 3% during the week, ending 2015 down by over 30% on top of last year's steep losses. That kept downward pressure on energy equities despite some bargain hunters picking through the wreckage. Cold weather finally swept across most of the US, helping natural gas achieve a sharp rebound this week, gaining more than 12%.

In the FX market, the dollar strengthened against the euro, emblematic of the year's move. For the week, EUR/USD peaked at just under 1.10 and ended around 1.086. For 2015, the euro fell 10.3% against the dollar, while the greenback gained a more modest 0.5% against the yen, though that was the fourth straight year the USD/JPY has risen.

On the M&A front, Carl Icahn won the bidding war for Pep Boys, cinching a deal at $18.50/share, valuing the auto service company at about $1 billion. Bridgestone said it would not go around again with another counteroffer. Media General shares lifted on Thursday on a report that Nexstar had raised the funds it needs to pursue a planned takeover offer. Another report said that Liberty Global and Vodafone may soon resume merger discussions, which could ultimately lead to a £140 billion deal.

Barrons Saturday summary

Barrons Saturday summary: Positive on GOOGL, FB, AMZN, NFLX, SIG, BLX, SALE, and some energy names; Cautious on POST, EEM, FNMA, FMCC
Cover story: GOOGL's YouTube may be more valuable than NFLX; Investors should look at it for three reasons:
1) YouTube is growing at an astonishing pace, with viewing time up 60% and mobile viewing doubling year over year, posing a major threat to traditional TV;
2) It has 15 times as many viewers at Netflix, and money is following them; revenue per average viewer could double in five years;
3) Alphabet is returning cash to stockholders and buying back shares.

Tech Trader: Positive on FB, AMZN, NFLX, GOOGL: So-called FANG companies will likely continue to prosper in 2016 as they generate better-than-average growth and prove they are in for the long haul; the companies will benefit from a winding-down of private-market investment in private companies with huge valuations, such as Uber.

Trader: Market breadth improved as investors went for oversold stocks, a positive sign since equity gains have been concentrated this year in a handful of mostly tech stocks that have risen by double and triple digits; A look ahead at 2016, which should see some small growth for S&P 500 companies, though revenue growth may be hard to find, while the biggest risk to stocks may be geopolitical; When choosing sectors for the new year, says Sam Stovall of S&P Capital IQ, "history shows you are better off owning the three best sectors of the previous year."

 Interview: Harvard history professor Niall Ferguson sees more trouble ahead for Europe, China-whose attempt to move to a true market economy will probably fail-and Saudi Arabia, which could see the kind of destabilization Iran did in the 70s; however, countries with cheap stocks and political stability could beckon investors.

Features:
1) Positive on SIG: Mainstream jeweler, parent of brands including Jared, Kay Jewelers, and Zale Corp., is increasing market share with aggressive ad campaigns, and it hasn't been hit by the strong dollar the way upscale firms such as TIF have;
2) Positive on VLO, TSO, SCTY, FSLR, OXY, EOG, VNQ; Cautious on FNMA, FMCC: Energy companies will benefit from the new government budget deal and could see shares climb through 2018, while the mortgage giants will see no relief;
3) Positive on BLX: Firm's Scientific Active Equity group's ability to collect and analyze data has given rise to new a kind of fundamental investing based detailed analysis of big data.

Small Caps: Cautious on POST: Cereal giant has been acquiring packaged-food companies and has largely avoided the downward trend in small-cap stocks, but its rich valuation and challenging environment mean investors should consider taking profits now.

European Trader: "Hopes are high for European equities in 2016, as favorable conditions point toward outperformance. But picking the right stocks will be more important than ever" (Positive on LYG, ING, Commerzbank, Societe Generale, RDSB, Repsol).

Asian Trader: "Asia looks at least as tough next year as in 2015, with little growth and a smoggy outlook. But currency investors can get double-digit returns by buying yen and selling yuan" (Positive on Mitsubishi Estate, Mitsui Fudosan; Cautious on Nikon, SoftBank).

Emerging Markets: Emerging markets should see a slow and tortuous recovery next year, with companies that undergo structural reform likely to have winning stock markets.

Commodities: Precious and industrial metals should keep falling in 2016 because of rising global supply, weaker demand in China, and a stronger dollar, and the overall commodity sector will remain troubled.

Streetwise: Positive on SALE: Shares of online coupon marketplace-which hasn't met investors expectations-are cheap, and investors will benefit even if the company moves "from bad to average."

Chipotle Suffers, Crude Awakening

TradeTheNews.com TradeTheNews.com Weekly Market Update: Chipotle Suffers, Crude Awakening
Thu, 24 Dec 2015 13:17 PM EST

**Economic data:
- (FR) France Nov Net Change Jobseekers: -15.0K v -10.0Ke; Total Jobseekers: 3.575M v 3.590Me
- (IL) Israel Nov Unemployment Rate: 5.4% v 5.3% prior
- (RU) Russia Gold and Forex Reserve w/e Dec 18th: $368.9B v $371.2B prior
- (US) Initial Jobless Claims: 267K v 270Ke; Continuing Claims: 1.195M v 2.20Me
- (MX) Mexico Nov Trade Balance: -$1.6B v -$2.2Be
- (MX) Mexico Nov Unemployment Rate: 4.0% v 4.3%e; Unemployment Rate (Seasonally Adj): 4.1% v 4.3%e
- (US) Weekly EIA Natural Gas Inventories: -32 bcf vs. -28 to -24 bcf expected range

Markets lulled into holiday mode on a shortened Christmas Eve trading day and ended flat, with no discernible sign of a Santa Claus rally. Jobless claims came in largely in line with estimates Thursday morning, and the dollar weakened against most major pairs. EIA natural gas inventories fell more than expected, sending prices higher briefly, but couldn't catch the same momentum as crude prices, which gained for the third straight day. In equity news, Omega's Leon Cooperman disclosed an increased stake in REXI, sending its shares up +28%, and Fiat Chrysler announced a recall of 350K SUVs in the US due to a vanity mirror wiring issue.

For the week, the markets shook off anxieties about rising Fed rates and problems developing in the high yield market, as well as concerns about the inconclusive Spanish election on Sunday, and equity markets lifted on light volume. For the week, the DJIA gained 2.5%, the S&P500 rose 2.8%, and the Nasdaq added 2.5%.

The third and final reading of third-quarter GDP showed the US economy grew at a 2% pace in the quarter. Expectations were for the reading to show the economy growing at a 1.9% pace in the third quarter, down slightly from the preliminary reading of 2.1% reported last month. The slight downgrade was triggered by a larger trade deficit and a smaller buildup in inventories. The November existing home sales report was somewhat concerning, as the annualized sales rate plunged more than 10% from October levels and undershot expectations by approximately the same percentage. The NAR cited a range of possible reasons for the surprisingly weak report, including new regulations that came on line last month, the lead-up to Fed rate hikes and a big rise in median home prices on a y/y basis.

Spain's general elections offered a consolation prize to the anti-austerity camp, but hardly delivered the upset some were predicting. The conservative, ruling Popular Party (PP) won the most seats, but lost its majority as two upstart parties divided the vote. PP ceded a number of seats to leftist, populist Podemos and centrist Ciudadanos, and will either have to look for a partner or attempt to form a minority government, increasing the chances of political turmoil. Spains IBEX index fell more than 3% on the inconclusive election result, while the bond market reaction was more muted: Spanish 10-year treasuries were up a maximum of 20 bps at their weakest on Monday, but had regained nearly half that amount by Tuesday. EUR/USD shrugged off the election almost completely.

In the first half of the week crude futures continued to slide, but with a new wrinkle. Within days of the US Congress lifting a 40 year old ban on oil exports, WTI and Brent prices converged, and by Tuesday Brent has lost its entire premium over WTI. After hitting fresh multi-year lows, crude rebounded sharply on Wednesday and Thursday, helped by an OPEC report forecasting higher oil prices over the long term and by a big draw in weekly DOE crude inventory data.

Nike reported another solid quarter with strong futures orders, but profit taking emerged after shares hit a new all-time high. In the tech sector, Micron mostly met expectations for its first quarter, but gave terrible guidance for Q2, pushing its growth story to the second half of the fiscal year. Home goods retailer Bed Bath & Beyond plumbed a new 52-week low after cutting Q3 guidance, indicating disappointing holiday shopping results. Shares of Chipotle puked again after the CDC announced a second strain of E.coli had sickened restaurant patrons in three new states.

On the M&A front, Pep Boys shares saw more gains as billionaire Carl Icahn is now in an all-out bidding war with Bridgestone. In raising his offer this week, Icahn said he would be willing to outbid Bridgestone by $0.10 a share on any bona fide offer from Bridgestone, up to $18.10/share. Carl Icahn's bid received FTC early termination approval, and now PBY awaits a counteroffer from Bridgestone expected later Thursday afternoon. The FTC rejected Staples' offer to revise its $6.3 billion acquisition of rival Office Depot, casting more doubt on the completion of a merger of the two largest office supply chains. Staples disclosed the FTC had rejected its offer to sell $1.25 billion of contracts in what it described as "an effort to create an acceptable remedy" to concerns that the combined company would have too much control of the commercial market for office supplies.

**Looking Ahead***
All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)
- 18:30 (JP) Japan Nov Jobless Rate: 3.2%e v 3.1% prior; Job-To-Applicant Ratio: 1.24e v 1.24 prior
- 18:30 (JP) Japan Nov Overall Household Spending Y/Y: -2.2%e v -2.4% prior
- 18:30 (JP) Japan Nov National CPI Y/Y: 0.3%e v 0.3% prior; CPI Ex-Fresh Food (Core) Y/Y: 0.0%e v -0.1% prior; CPI Ex Food/Energy (Core/Core) Y/Y: 0.8%e v 0.7% prior
- 18:30 (JP) Japan Dec Tokyo CPI Y/Y: 0.1%e v 0.2% prior; CPI Ex-Fresh Food Y/Y: 0.1%e v 0.0% prior; CPI Ex Food/Energy Y/Y: 0.6%e v 0.6% prior
- 18:50 (JP) Japan Nov PPI Services Y/Y: 0.4%e v 0.5% prior
- 23:00 (JP) BOJ Gov Kuroda speech

Friday events
- 00:00 (JP) Japan Oct Final Leading Index CI: No est v 102.9 prelim; Coincident Index: No est v 114.3 prelim
- 00:00 (JP) Japan Nov Annualized Housing Starts: 890Ke v 862K prior; Housing Starts Y/Y: +0.6%e v -2.5% prior; Construction Orders Y/Y: No est v -25.2% prior
- 03:00 (CN) Shanghai Futures Exchange (SHFE) Weekly Copper Stockpiles: No est v 179.6K prior
- 03:00 (RU) Russia Narrow Money Supply w/e Dec 18th (RUB): No est v 8.20T prior
- 20:30 (VN) Vietnam Q4 YTD GDP Y/Y: 6.6%e v 6.5% prior
- 20:30 (VN) Vietnam Dec Trade Balance: No est v -$200M prior; Exports YTD Y/Y: No est v 8.3% prior; Imports YTD Y/Y: No est v 13.7% prior
- 20:30 (VN) Vietnam Dec Industrial Production Y/Y: No est v 8.9% prior
- 20:30 (VN) Vietnam Dec YTD Retail Sales Y/Y: No est v 9.4% prior

Weekend data
- Sat: 20:30 (CN) China Nov Industrial Profits Y/Y: No est v -4.6% prior

Barrons Saturday summary

Barrons Saturday summary: Positive cover story on MSFT; positive on SNA, MON, and asset management stocks 

Cover story: Positive on MSFT: Under chief executive Satya Nadella, Microsoft's vast scale has become an asset rather than a liability, and the company is competing strongly with AMZN in the cloud and building new hardware that rivals AAPL's; Nadella "has captured Bill Gates' innovative style and the growth that often eluded Steve Ballmer," a formula that promises more upside. 

Features: 
1) Positive on BLK, IVZ, BEN, TROW: Asset managers' shares are down, but investors "are overlooking the industry's favorable characteristics, including modest capital requirements, high profit margins, and strong cash returns to shareholders"; 
2) Positive on SNA: Shares are up 25% this year, and "strong revenue growth, margin gains, and double-digit earnings increases will provide further fuel for the stock"; 
3) Positive on MON: Company's dwindling premium presents a good opportunity for investors, and fast growth in new areas could double earnings within three years. 

Tech Trader: Though Barron's correctly predicted that investors would reap gains from so-called FANG (FB, AMZN, NFLX, GOOGL) companies in 2015, older tech players such as WDC, STX, EMC, and NTAP didn't fare as well, partly because of fallout in the PC market. 

Trader: Weak oil prices and slowing global growth remain major concerns for investors, says Cameron Hinds of Wells Fargo Private Bank, and volatility might increase over the near term for other technical reasons; Four factors dogged stocks this year: lower commodity prices, a strong dollar, soft economic growth and currency devaluation in China; and the Fed's interest-rate hike; Unlike in 2014, the Trader's picks underperformed the market in 2015. 

Interview: David Levy, chairman of the Jerome Levy Forecasting Center, says that although the U.S. economy is in good shape, it's not strong enough to fend off weakening fundamentals elsewhere, especially emerging markets. 

Profile: Sonu Kaira, portfolio manager, Fidelity Blue Chip Growth fund, keeps 20% of his holdings in small and midsize companies that could see double-digit earnings growth (top 10 holdings: AAPL, GOOGL, AMZN, FB, GOOG, GILD, CRM, HD, V, AGN). 

Small Caps: Positive on PTEN: Driller is a standout in the troubled oil sector because of its defensive qualities, including financial strength and a fleet of modern, top-notch equipment that limit potential downside. 

European Trader: European stocks are finishing the year with solid gains, and the region is on firmer footing than it was 12 months ago. 

Asian Trader: Asia's weak performance in 2015 stems from a retreat by global investors "who couldn't envision strong corporate returns in most of the region and worried that emerging market countries with dollar-decimated debt would be hurt." 

Emerging Markets: Emerging markets took a hit this year from the decline in oil and commodities prices and weakening Chinese demand, and countries' domestic policy often did more damage than worry about the Fed. 

Commodities Corner: "The strength of the dollar will give no reprieve next year to already pummeled commodities markets."

Streetwise: VRX was the ultimate "myth-versus-market" company in 2015, and disproved hedge-fund manager Bill Ackman's claim that it would be the next Berkshire Hathaway. 

Liftoff At Last

TradeTheNews.com TradeTheNews.com Weekly Market Update: Liftoff At Last
Fri, 18 Dec 2015 16:08 PM EST

The Fed raised rates for the first time in nearly a decade, fulfilling the forecast of a 2015 rate liftoff in the final policy meeting of the year. The well telegraphed move initially sent equities higher as market participants were relieved to finally get the first rate rise under their belt. The greenback strengthened on the rate move, keeping pressure on already weak energy prices. Other central banks reacted as countries closely aligned with the US economy raised rates in tandem while the Bank of Japan created more monetary policy divergence by adding more stimulus. As the Fed rate hike sank in, stocks sold off into the weekend and for the week the DJIA ended down 0.8%, the S&P fell 0.3%, and the Nasdaq lost 0.2%.

After the Fed spent the last year talking about rate liftoff, it finally happened on Wednesday. A 25 basis point hike took the key rate off of the zero bound where it has been sitting since December 2008. Chair Yellen said that a rate rise acknowledges that considerable progress has been made in the economic recovery. Yellen managed to keep the rate decision collegial, getting a unanimous vote in support of the hike, and supporting it with a mostly dovish statement. The Fed specified that the rate hike path will be "gradual," maintaining its median 'dot chart' forecast for about four more rate hikes in 2016.

US Treasury markets saw sellers emerge ahead of the FOMC announcement. On Tuesday the 2-year yield backed up to 1.00% for the first time since 2010 and the 10-year rate consolidated around 2.30%. By Friday though, a post-FOMC sell off in equities helped push yields lower and resulted in a flatter US curve. The benchmark 10-year finished the week some 12 basis points below pre FOMC levels.

Manufacturing continued to be a sore spot for the US economy. The December Philadelphia Fed Business Outlook fell to its lowest level in two years. The Markit Manufacturing PMI reading declined with its new orders component registers the weakest reading since 2009. November industrial production steepened its sequential slide and the October was revised lower. On a positive note, US housing starts in November rebounded from a seven-month low and permits surged to a five-month high. November marked the eighth straight month that starts remained above 1 million units, the longest stretch since 2007 and growth was seen in the single family segments.

Other central banks reacted to the historic Fed liftoff from the zero bound. The day after the Fed move, the Mexico central bank raised its rate by 25 basis points to 3.25%. The Banxico said the rate move was aimed at preventing further peso depreciation and that it would focus on relative monetary policy stance with the US. The Chile and Colombia central banks also raised rates by a quarter point each. Meanwhile, the Bank of Japan highlighted the ongoing theme of monetary policy divergence by unexpectedly announcing a ¥300B boost to its ETF purchase program on Friday.

Political turmoil in Brazil spilled into the financial markets when Fitch cut its sovereign rating to junk, matching a downgrade by S&P earlier this month. The announcement was wrapped around continued soft economic data and a growing political crisis in which President Rousseff faces impeachment and the finance minister is said to be on the way out. In neighboring Argentina, new President Macri lifted long standing currency controls, effectively resulting in a devaluation of the currency and sending it lower by ~28% against the US Dollar.

After announcing a tentative deal early in the week, the US Congress moved to pass a $1.1T omnibus spending bill on Friday. House Republican and Democrat leaders scraped together enough votes to pass the compromise bill and the Senate followed suit. One notable feature of the bill is the repeal of the ban on US crude oil exports, which was traded for authorizing a five year extension of solar tax credits. Solar energy stocks performed very well on this development, even as the broader energy sector showed weakness again as crude oil plumbed new lows.

Oil prices came into the week sitting near a 7-year low around $35/bbl and continued to drift lower with no relief. News that Congress lift the oil export ban imposed four decades ago was more than offset by a surprise build to US oil inventories. WTI finished the week below $35 and is closing in on the December 2008 low of $32.40. Brent is even closer to the previous low of $36.20 hit in late 2008. Natural gas fared no better, continuing to hit fresh 13-year lows below $2.00 as the week wore on and unseasonably warm weather continued in the eastern part of North American.

Cheap fuel costs have failed to spark the economy and the DJ Transportation Average has remained a bugaboo for many investors. Knight Transportation gapped lower after cutting its Q4 outlook, weighing on trucking and logistics competitors. On Friday, FedEx quickly gave back all of the gains it made on its Q2 earnings report earlier in the week. Shares of UPS and FDX came under substantial pressure follow a report that Amazon is in talks to lease 20 cargo jets from Boeing so that it can launch its own air-cargo service to handle more of its own shipments. By Friday, the DJ Transportation Average fell to a new 2015 low below 7400, further spooking some old-school Dow theorists.

Various US corporations offered up initial FY16 forecasts, and some were not very well received. MMM shares slid after cutting this year's forecast and guiding next year towards the low end of consensus expectations. Kennametal dropped aggressively after management guided FY16 earnings down as much as 60%. Oracle continued growth in the cloud market failed to impress investors who sold off shares following its Q2 earnings report.

On Tuesday, embattled drug-maker Valeant announced a deal to distribute some of its medicines at a discount through Walgreens pharmacies. The very next day Valeant reset investors' expectations by cutting its 2015 forecast and guiding FY16 earnings below expectations. Shares surged more than 15% as the company looked to put to bed weeks of controversy surrounding alleged questionable business practices.

Deal flow slowed this week but there were a few notable developments. Newell Rubbermaid agreed to buy Jarden for $60/share in a cash-and-stock deal valued around $15 billion. For each Jarden share, Newell will pay $21 in cash and 0.862 of a share in Newell. The companies pegged the deal's total value at $15.4 billion, when including the convertible debt on Jarden's balance sheet. Avon confirmed a long speculated tie up when private equity firm Cerberus agreed to acquire an 80% stake in Avon North America, separating it from its parent company. Cerberus also agreed to take a 16.6% stake in the parent company. As part of Avon's strategic restructuring management confirmed they were suspending the quarterly dividend. The regulatory reviews of the Baker Hughes Halliburton deal continued to push ahead slowly. Both European and US regulators extended their decision time frames into next year.

Barrons Saturday summary

Barrons Saturday summary: Positive on XL and retailers; cautious on KMI 

Cover story: Ten market strategists surveyed by Barron's see moderate gains for the market in the year ahead; Based on their mean forecast, the S&P 500 will end next year at 2220, up 10 percent from Friday's close of 2012; Overall, the group was more cautious than in recent years past; Top picks include AVGO, GILD, V, GOOGL, COF, ROST, DIS, MMM. 

Features: 

1) Positive on M, JWN, RL, BURL: Shares of retailers have been marked down as the sector struggles, but they are likely to rebound next year because of strong long-term prospects; 

2) Cautious on KMI: Oil- and gas-pipeline operator has long been considered the industry bellwether, but now that its business model has been proved flawed, industry bulls argue it is an outlier because of its high level of debt; 

3) Positive on OAK, FMC, EQC, TRCO, HRG, ENR, CVA, ATU, KRNY, CKEC: Companies are Barron's favorite small- and mid-cap picks for 2016, with some on the list having potential upside of as much as 40-50%; 

4) Positive on XL: Shares of global insurer, which has pared down its operations and raised fresh capital in the wake of the financial crisis, could rise by as much as 25% next year. 

Tech Trader: Tiernan Ray looks at activist investing in the tech sector, noting that such investors "have no real ideas to contribute with regard to the development of great products and services, only tactics for creating noise to boost stock prices." 

Trader: The cost of capital is going up for corporate America, says Peter Boockvar of The Lindsey Group, along with tightening credit and monetary policy, and weaker earnings; Cautious on MW: Debt is a problem for clothing retailer following its acquisition of struggling Jos. A Bank, but the core Men's Wearhouse brand remains strong, and spinning off or shrinking Jos. A Bank could improve the balance sheet; Cautious on TEVA: Company still has to prove that asthma drug Reslizumab is safe for teenagers, but with a strong pipeline and the growing focus in the U.S. on price-friendly generics, shares could rise; - Anglo American: Shares have plunged by more than 70% since last spring amid an overall commodities rout, but more near-term risk means investors should stay away despite the low price. 

Interview: Ayako Hirota Weissman, co-manager, Horizon Asia Opportunity, likes Minor International, Genting Hong Kong, and Internet Initiative Japan. 

Profile: Chuck Bath, portfolio manager, Diamond Hill Large Cap fund, uses a forecasting technique to determine a company's intrinsic value (top 10 holdings: AIG, ABT, C, PFE, PG, UTX, JPM, MS, SYY, MDT). 

Follow-Up: Cautious on DIS: Company's new Star Wars movie is expected to be a major hit, but anything short of a stellar opening weekend could send the shares down; Cautious on JNS: The departure of head of fundamental fixed income Gibson Smith is a huge blow to the firm, where bond outflows could begin just as the equities division has turned a corner. 

European Trader: Positive on Unipol Group: Investors could see a windfall if financial-services holding company completes the simplification of its shareholding structure, while a tie-up with UnipolSai Assicurazioni could also boost shares. 

Asian Trader: Cautious on Lufax, Yirendai: Chinese peer-to-peer lending firms are "unicorns," and the sector has huge potential in China, but investors should be wary because they are managed with the same opacity that has created concerns about other Chinese companies. 

Emerging Markets: "Market-friendly political change may be happening fast in Latin America, but earnings at many companies won't catch up for a while in Argentina and Brazil." 

Commodities: Copper prices are already down because of lower demand in China, but some industry observers say a flood of new supply will drive prices down even further. 

Streetwise: GMCR's announcement it would be acquired by JAB Holding is good news for shareholders, but continues a ten-plus-year trend of stock market shrinkage. 

Global Equities Drown in a Sea of Crude

TradeTheNews.com Weekly Market Update: Global Equities Drown in a Sea of Crude
Fri, 11 Dec 2015 16:02 PM EST

OPEC's failure to do anything about the global crude glut drove oil prices to six-year lows this week. With prices falling, equity markets were dragged lower by a hard-hit energy sector. Moreover, the long-prophesied high-yield debt meltdown may be underway, as a notable fund specializing in junk bonds froze investor holdings and said it would wind down, causing a major selloff in HYG. Meanwhile, the FOMC meets next week and Fed fund futures are still predicting am ~80% probability of a small rate increase. Nevertheless, US Treasury markets saw aggressive buying through week's end after digesting a fair amount of new supply. Waning risk appetite pushed the US 30- and 10-year yields back below their 200-day moving averages by Friday. For the week the DJIA lost 3.3%, S&P500 dropped 3.8%, and the Nasdaq fell 4.1%.

WTI crude prices fell nearly 10% this week, dropping below $36, within striking distance of the January 2009 low near $33/bbl. Brent slipped 12% to below $38, even closer to its December 2008 bottom around $37/bbl. The primary catalyst was OPEC's muddled and contentious summit last week, with no action taken to stem the glut. In a report out on Friday, the IEA warned the supply glut would last until late 2016. With oil marking six-year lows, the Canadian Dollar has hit 11-year lows against the greenback, with USD/CAD at 1.3700. The ruble has fallen to 70.4 to the dollar, pips away from the August low of 70.8, with real worries about the Russian economy setting in.

Another big casualty has been shaky US high-yield debt markets. On Thursday evening, Third Avenue Management, a large mutual fund specializing in high-yield bonds, blocked investors from withdrawing funds, citing difficult trading conditions for its securities. The move highlights longstanding fears that too much money has piled into risky junk bonds. Third Avenue manages a total of $8 billion, and the remaining assets in the fund will be put into a liquidating trust and sold off gradually. The iShares HYG high-yield fund dropped 2% on Friday to four-year lows, extending the run lower that began in spring.

The BoE again left interest rates unchanged at 0.5%. The MPC voted 8-1 for no change, predicting that inflation would stay below 1% until the second half of next year. McCafferty was the dissenter to the decision for the fourth time, voting for a quarter-point rate increase. The minutes showed policymakers concentrated on the continuing subdued inflation environment. GPB/USD moved off the 1.5180 area to test the key level of 1.5110 on the announcement, but then rapidly headed back to 1.5180. GBP/USD notched three-week highs above 1.5230 on Friday as the dollar weakened.

The yuan was allowed to weaken to a four-month low this week, as USD/CNY slipped lower to levels last seen during the summer China FX panic. On Thursday, the PBoC set the midpoint rate at 6.4236 per dollar, 0.15% weaker than the previous fix, prompting the currency to open at its lowest level since August's 4% devaluation. Some traders suggested the bank was teeing up another devaluation, however on Friday the PBoC said it would alter its yuan management as part of Beijing's continuing push towards the goal of a free-floating currency. The PBoC said it would move to measure the yuan's value against currency basket rather than a peg to the dollar, for "better exchange rate stability."

Japan disclosed some brighter economic data this week, contrasting with an ugly Chinese trade report. Japan dodged a technical recession as the final Q3 GDP reading was revised up to +0.3% from the -0.2% preliminary showing. Separately, October leading indicator machine orders grew by over 10% y/y to a four-month high. With the somewhat brighter outlook, expectations for another round of BoJ easing were repriced as the Nikkei wrote that support for more measures at the bank was waning. The China November trade balance came in at a four-month low, with the decline in exports bigger than expected at -6.8% v -5.0%e while imports dropped a little less than expected at -8.7% v -11.9%e. The commodity meltdown certainly was unabated this week, however China November iron ore imports rose 22% and copper imports rose 9.5%.

South Africa was plunged into FX purgatory this week by the government's rash response to the ratings agencies. On December 4th, Fitch cut its assessment of South African public debt to just one notch above junk, and Standard & Poor's revised its outlook on SA's BBB- to negative. Both cited concerns about South Africa's slow rate of economic growth and spiraling public debt. Instead of heeding the warning, President Zuma compounded the damage by firing Finance Minister Nene and replacing him with an obscure MP. ZAR has been slipping lower against the dollar all year, but the pace has accelerated rapidly in December, with USD/ZAR moving to 15.80 from 14.00 at the beginning of the month, most of which accrued after Nene's demotion.

Commodity-producers were under pressure this week as many firms struggled to reconcile depressed stock prices with exaggerated dividends. Kinder Morgan shares swooned last week as investors predicted a dividend cut, and on Tuesday management slashed the payout by 76%, an even bigger reduction than many expected. Freeport-McMoRan suspended its dividend, further reduced its oil & gas capex and curtailed its copper mining operations in response to continued declines in commodity prices. The company said it was increasing curtailments in copper production to about 350 million pounds from 250 million. As investors began to question the reliability of dividends even from the stalwart oil majors, Chevron's CEO came out to say maintaining the company's nearly 5% dividend is the number one priority.

Yahoo scrapped its long-planned spinoff of shares in Alibaba after pressure from investors concerned about the tax risks of the transaction. Yahoo will instead explore a plan to spin-off assets and liabilities other than the Alibaba stake. The move comes after Yahoo's board convened last week to consider options for the company's future, including whether to press ahead with the Alibaba divestiture. Recall that activist shareholder Starboard last month called for the company to drop the Alibaba spinoff and instead sell its Web businesses.

DuPont and Dow Chemical agreed to a $130 billion, all-stock merger of equals. The companies took pains to highlight that the merged entity would rapidly be split into three publically traded companies, each of which would aggregate their respective agriculture, materials and specialty products assets. Under the terms of the deal, Dow shareholders will receive a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders will receive a fixed exchange ratio of 1.282 shares in DowDuPont for each DuPont share, leaving a 50/50 split ownership. Note that Dow will also be consolidating 100% control of its Dow Corning JV with Corning as part of the deal.

In other M&A news, Keurig Green Mountain agreed to be acquired by private equity firm JAB Holding for almost $14 billion. JAB Holding said it offered $92 for each share of Keurig, a whopping 78 percent premium to the stock's prior closing price. Note that Keurig's stock had fallen nearly 61 percent since the beginning of the year, as K-cup sales slumped. CP adjusted its unsolicited offer for Norfolk Southern to $32.86 in cash and 0.451 shares, from $46.72 in cash and 0.348 shares, although this hardly increased the consideration. NSC was unmoved, and said the proposal was still vastly undervalued. Fairchild disclosed that it had received an unsolicited offer valued at $21.70/share, above the $20/share transaction with ON Semiconductor agreed to back in November. Press reports suggested the offer came from China Resources Group.

Barron's Saturday summary

TradeTheNews.com Barron's Saturday summary: Positive on AA; Cautious on KMI

Cover story: Barron's picks its 10 favorite stocks for 2016 (Positive on AMCX, AAPL, CELG, CVS, DAL, DFS, EA, FL, GM, MHK); Next year, the broad stock market is likely to do better than in 2015; "Assuming similar growth next year, with a steady price/earnings ratio and 2% in dividends, stock investors could end up with a total return in the high-single digits."

 Features:
1) Cautious on KMI: Shares are down amid concerns the energy pipeline giant may have to cut its quarterly dividend of 51 cents to boost its leveraged balance sheet, a move that would be a major comedown;
2) Positive on AA: Shares took a hit following aluminum giant's announcement it would spin off value-added product divisions next year, but the market overreaction presents an opportunity to buy shares at a discount of more than 35% to intrinsic value;
3) Picks from investing professionals at this year's Sohn London conference (buy HMHC, MJN, Rolls Royce Holdings, TomTom International; sell ERIC, PFPT).

Tech Trader: Cautious on FIT: Maker of activity tracking bracelets "has red flags that make it a risky proposition," and a lockup expiration this month could dump more shares on the market if executives and early investors abandon ship.

Trader: "The market looks to be solidly inside the range it has inhabited all year, but the high number of huge daily moves this year and steadily weakening breadth suggest that all isn't as well as it looks"; Positive on MOS: The fertilizer sector has taken a hit, but company's valuation seems attractive, and a small rise in the global economy could revive shares; Positive on SKX: Shares are down, but the drop seems an overreaction to robust growth in the past few years, and the lower price offers investors a good entry point. Interview: Bob Michele of JPMorgan Asset Management is hedging currency exposure in much of his international portfolio and favors securities further out on the yield curve.

Profile: Stephen Peak, portfolio manager, Henderson European Focus fund, has guided it to returns of an average of 14% a year since its 2001 inception (top 10 holdings: BG, Nokia, ALU, ROG, AZN, TEVA, BAR, ASML, 7PI, NHH).

Follow-Up: To make China's currency more widely used, central banks, sovereign wealth funds, and private investors must stockpile more yuan assets as the country liberalizes its markets.

European Trader: Positive on Enel, LafargeHolcim: Companies are undervalued, but Katrina Dudley of the Franklin Mutual European fund says they are well-run cyclical businesses that have restructured and should benefit from a European recovery.

Asian Trader: Positive on LG Chem, Samsung SDI: Korean battery makers should gain as electric cars increasingly become mainstream, especially in countries such as China that are trying to curb pollution.

Emerging Markets: Things are looking bad in Greece, where stocks have fallen about 30% this year in what one observer calls a "dead market" that will have serious problems attracting investment.

Commodities: Heavy rains shortened the cotton-growing season and limited high-quality supply, making it one of the few commodities whose price gained in 2015.

Streetwise: Cautious on WLL: Shares have fallen 57% this year, but its bonds have held up, and shares could be worth acquiring because the company is cutting costs and will benefit when oil prices go up again.

Fed Headed for Higher Rates, ECB Stays Easy, Terrorism Hits US

TradeTheNews.com Weekly Market Update: Fed Headed for Higher Rates, ECB Stays Easy, Terrorism Hits US
Fri, 04 Dec 2015 16:13 PM EST

Policy divergence between Europe and the United States was thrown into high relief this week. On Thursday, the ECB extended its QE bond buying program to March 2017 and cut its deposit rate further into negative territory, as President Draghi said that Europe needed more support for longer. Then on Friday, the November US jobs report beat expectations with strength seen across all categories, all but requiring the Fed to hike rates at its policy meeting in two weeks. The other major financial event was the OPEC summit, where the cartel acknowledged the reality that its prior 30M bpd production ceiling was clearly being ignored by member states. OPEC refrained from actually setting a new production ceiling, though the organization's President eventually confirmed the current production level is around 31.5M bpd. Markets were forced to digest these key events against the backdrop of a horrific terrorist attack in San Bernardino CA. In a volatile trading week, the S&P500 ended up 0.1% and the DJIA and Nasdaq each gained 0.3%.

The November US jobs report was strong, with the non-farm total of +211K beating expectations and the unemployment rate steady at a seven-year lows of 5.0%. Average hourly earnings saw additional modest gains after a big jump in October. The report was the last big data point ahead of the Fed's two-day policy meeting in two weeks. Ahead of the jobs number, Fed Chair Yellen had said the labor market's progress was healthy enough to boost confidence that the Fed may reach its 2% inflation target soon. Economists at BNP Paribas said that after Friday's report it's "all systems go" for the Fed to raise rates in December.

As expected, the ECB cut its deposit rate another tenth into negative territory, to -0.30% and expanded its QE program. The central bank extended its bond buying program by six months to March 2017 and said it would begin buying regional government bonds, expanding the range of assets it can buy. Markets were apparently disappointed that the ECB failed to boost the monthly purchase amount of €60B, but Draghi defended the measures taken as "adequate." In addition, the ECB said it would also commence reinvesting principal as bonds mature, a move that Draghi later explained would add €680 in liquidity to the system by 2019 in a speech on Friday

The ECB announcements resulted in volatile price action across a variety of asset classes as markets appeared underwhelmed after weeks of buildup into the additional stimulus measures. EUR/USD was testing seven-month lows around 1.0540 in the lead-up to the decision but quickly took out 1.0900 as Draghi rolled out the new measures during the press conference. By mid-day on Thursday, EUR/USD topped out around 1.0980, a one-month high, before trading back below 1.0900 through week's end. Interest rates popped globally with several markets experiencing the sharpest back up in yields in many years. The German 2-year yield rose some 15 basis points after the ECB announcement while UST yields climbed as well. Equities were hit hard in Europe and pressured in the US as well until the solid November employment report sent US Indices surging on Friday.

Australia's central bank kept rates unchanged for the seventh straight meeting and largely reiterated the sentiment from last month's policy statement. The RBA still sees prospects for an improvement in economic conditions having firmed, inflation consistent with the target over the next 1-2 years, and AUD currency adjusting to commodity decline. The biggest change in the language was the admission of a large decline in capital spending in the mining industry.

Global industrial production PMI data was very mixed, with China remaining weak, the US looking soft and Europe possibly doing alright. The November Chicago PMI and Dallas Fed manufacturing indices were pretty soft, with the Chicago PMI back below 50 after seeing a move higher in October. Meanwhile, the November ISM manufacturing index sank below 50 into contraction, missing expectations and falling to its lowest level since June 2009. China's official manufacturing PMI was in contraction for the fourth month in a row, and the index marked a three-year low. Further slowdown in Key components of New Export Orders and Input prices revealed continued softness of external demand and also disinflationary pressures. Euro zone, Germany and France November manufacturing PMI indices met or beat expectations and moved up from October levels.

As expected, the International Monetary Fund has added the Chinese yuan to its Special Drawing Rights (SDR) basket of currencies. The yuan joins the US dollar, UK pound, Japanese yen and the euro in the basket, marking a major step toward normalization of China's position as a leading economic power, however analysts caution that it represents the IMF's opinion about which currencies are safe for asset managers to hold. Asset managers may end up seeing the IMF's decision as mainly political. Either way, it is also an important signal that China is ready to end its strategy of rapid investment-driven catch-up growth and further work towards raising domestic consumption.

The annual OPEC summit was among the most contentious in years. Saudi Arabia is now approximately 1.5 years into its campaign to lower oil prices to crush the US shale industry and consolidate its market share, and pressure was building on the Saudis to cut output while even inside the Kingdom there was said to be disagreement about what strategy to pursue. In the lead-up to the meeting, Iran argued that a majority of OPEC members supported an output cut, but other Gulf Arab countries stood with the Saudis (at the same time, Iran was insisting it did not need permission from OPEC to increase crude production). After an extended closed door meeting on Friday, OPEC delegates emerged to say that they would leave production levels unchanged (at the "actual" 31.5M bbd level, above the prior 30M bpd ceiling). The Secretary General said that they wanted to wait and see how the market develops over the next six months as Indonesia is welcomed into OPEC and Iran begins to ramp up its oil production as sanctions are lifted. WTI crude closed out the week around the $40/bbl mark.

Brazil's vast corruption scandal - over 140 businessmen and a host of politicians have been charged with bribery and money laundering - keeps penetrating higher levels of the government. On Wednesday, Brazil's lower house initiated impeachment proceedings against President Rousseff, accusing her Treasury of repeatedly borrowing money from government banks without legislative authority, in an attempt to mask deficits - rather than outright bribery or corruption. Within a month deputies must decide whether to pass the case to the senate, which requires a two-thirds majority. Senators would then have 180 days to try the president.

The November US auto sales growth was pretty weak. General Motors and Ford both widely missed expectations: Ford sales were +0.3% (v 3.2% expected) and GM's were +1.5% (+2.9% expected). Fiat Chrysler got closer to the mark with +3% sales (v +3.2% expected). Meanwhile, Volkswagen's sales declined 25% in the month, in the wake of the emissions cheating scandal.

There were no big M&A deals this week though some may be brewing. Avon shares rose on report that it is in talks to sell its North American business to Cerberus as soon as this month. Biotech name Relypsa shares surged on Friday on an unconfirmed report that Merck may be evaluating a bid.

Barrons Saturday summary

TradeTheNews.com Barrons Saturday summary: Positive on community banks, FDX, small cap stocks, STX, GRMN, QCOM, HPQ, IBM WDC, HOLX, CLC, SRPT ; cautious on European financial institutions, human resource tech space

Cover story: Discusses the prospect of impact investing and how many people believe it doesn't mean sacrificing returns in an effort to do good, and that such investments can be less volatile and outperform traditional financial benchmarks, especially in bear markets.

Tech Trader: Open-source software blockchain has the potential to remove multiple layers of processes and intermediaries in the sequence of steps that clear mobile payments, which could have an impact on credit-card networks such as V, MA, AXP, and DFS.

Trader: Economic data will be in focus this week as it could color the Fed's intentions in 2016; The outlook for community banks is brighter now that the Fed seems likely to raise rates, widening their net interest margins (Positive on HIFS, BANR, HSFNX); Positive on FDX as it could benefit from the increasing shift to online buying, and from its ability to pass along price increases.

Interview: Dan Veru, chief investment officer at Palisade Capital Management, says small caps have an advantage over their larger brethren because they rely more on domestic sales, avoiding currency risk (picks: SNA, CNC, QLIK).

Features: 1) Positive on STX GRMN QCOM HPQ IBM WDC: Shares of these tech stocks have taken a hit, but they have stronger prospects than many investors believe, and patient investors should see shares rebound; 2) Profile of Silver Creek founder Eric Dillon, who is looking at trillions of dollars of nonperforming loans on the balance sheets of European financial institutions, plus another trillion in non-core assets and real estate; 3) Positive on HOLX: Company focusing on women's health products has a new leadership team and has undergone a transformation following Carl Icahn's investment, and shares could reach $80 in three to five years; 4) Positive on Numericable-SFR: Management at France's largest cable-TV operator and No. 2 mobile-phone service provider is working to stem customer defections and attract users with a broad range of new offerings.

Small Caps: Positive on CLC as it has the potential to lower its cost structure while growing its business in a restructuring; share upside estimated near 20%

Follow-Up: Positive on SRPT: Pharma company appears to have the only drug for Duchenne muscular dystrophy that will be approved by the FDA following a negative review of rival BMRN's offering. European Trader: Positive on Persimmon, Barratt Developments, Taylor Wimpey: U.K. homebuilders are likely to get a boost from new government measures aimed at promoting homeownership.

Asian Trader: "The once-stable yuan is subject to expectations that it could weaken anywhere from 3% to 10% next year."

Emerging Markets: Positive on Coca-Cola Icecek, Magnit, Airports of Thailand, Pax Global Technology: Jean-Louis Scandella of Baring Asset Management says these four emerging-market stocks are "sleeping beauties" that should benefit from the growing middle class in developing markets.

Commodities: With oil oversupply showing no signs of easing, prices are likely to remain low for some time, with little relief from weather conditions or OPEC.

Streetwise: San Francisco-based cloud firm 1-Page "may be the most revolutionary company you've never heard of," and could disrupt companies in the human-resources space such as LNKD and MWW.

Turkey Tensions Strain Otherwise Quiet Market

TradeTheNews.com Weekly Market Update: Turkey Tensions Strain Otherwise Quiet Market
Fri, 27 Nov 2015 14:49 PM EST

Trading action was subdued this week as the US Thanksgiving holiday made markets sleepy. New growth and inflation data did nothing to deter the expectation of Fed rate liftoff in December. Global tensions briefly ratcheted up after Turkey shot down a Russian warplane that strayed into its airspace, further complicating the fight against ISIS in Syria. The euro continued to weaken in anticipation of the ECB monetary policy meeting next week where the central bank could expand its QE program and further cut key rates. Chinese stocks fell hard on Friday on a new round of crackdowns on brokerage houses, but stocks outside of China did not react significantly to the news. For the week, the DJIA lost 0.1%, the S&P500 was up less than 0.1%, and the Nasdaq edged up 0.4%.

Two more key pieces of the US monetary policy puzzle dropped this week: GDP and PCE inflation. There were no big surprises in the second reading of Q3 GDP. The main components met expectations, with the q/q annualized rate revised up to 2.1% from 1.5% in the advance reading, although this rate remains well below the final second quarter annualized GDP rate of +3.9%. Analysts chalked up the revision higher to an expansion of the inventory components of the data, offset by lower revisions to domestic spending components. Growth in the November Core PCE reading would have more or less clinched a December rate hike, but Wednesday's flat/lower core reading is a more ambiguous outcome. The y/y reading didn't budge from 1.3%, while the m/m figure was 0.046%, barely missing the rounding bar that would have left it flat. Inflation remains suppressed by lower energy costs, but the Fed has repeated ad nauseam that it will look past lower inflation from lower energy prices.

In other US data, the November Markit Manufacturing PMI index slipped to 52.6 from 54.1 in the prior month, putting the index at its lowest level in two years. According to Markit, domestic demand appears to be holding up well, but the sluggish global economy and strong dollar continue to act as dampeners on firms' order book growth. Echoing the slight declines in other US homebuilding data numbers, October existing home sales declined to 5.36M units from 5.55M units in September. The October durables were better than expected and the September figures were revised much higher.

Early on Tuesday, Turkey shot down a Russian SU-24 fighter-bomber on the Turkey/Syria border. The Turkish side claimed the aircraft entered Turkish airspace over the town of Yaylidag and said the plane was warned 10 times in the space of five minutes before it was taken down. Russian President Putin reacted with very harsh words, calling the move a "stab in the back" by "terrorist accomplices," with "serious consequences" for the Russia-Turkey relationship. The incident momentarily sent European equities lower and helped lift crude prices to two-week highs. Russia has followed up by moving a cruiser with anti-aircraft capabilities into the theater and announcing measures to discourage Russian tourism to Turkey. The Kremlin has also signaled it may take additional economic measures against Turkey.

The minutes from the late-Oct Bank of Japan policy meeting indicated the BoJ felt comfortable holding off on additional QE. All members agreed wage growth is somewhat slow, but most also noted the underlying inflation trend is improving. Members remain on edge about risks of slower growth due to FY17 sales tales tax hike. While the BoJ is not interested in more stimulus, the government is not holding back. There were press reports that the Abe cabinet has prepared a new draft plan to deal with low inflation. Tokyo intends to raise minimum wage by 3% next fiscal year and support capex by rewarding companies that invest in plants and equipment that improve energy use.

On Friday, the Shanghai Composite plummeted 5.5%, in its biggest decline since the August stock market tumult. Traders cited the report that Chinese officials are expanding their crackdown on brokerages including CITIC and Guosen Securities. US markets were unfazed by the drop in the Shanghai index, ending holiday shortened session around flat. Brazil shares took a hit this week when police investigating the ever growing Petrobras kickback scandal announced they had arrested the head of the ruling party in the Senate, Senator Amaral, as well as Andre Esteves, the CEO and controlling shareholder of BTG Pactual SA, Latin America's biggest investment bank.

Activist investors are targeting AIG and Alcoa. Back in late October, Carl Icahn pushed AIG to break itself up into three companies. This week, he said he would commence a consent solicitation for shareholders and may seek a board seat. Icahn disclosed that he has been talking with AIG CEO Peter Hancock, although he also indicated AIG's CEO was not taking his advice. AIG responded simply by noting the steps it has taken to streamline the businesses. At Alcoa, Elliott Management disclosed a 6.4% stake and said it was talking with management about steps to "maximize shareholder value," which might include selling its hydropower business, expanding margins, and follow through on splitting up the business.

After a flurry of press talk last week, Pfizer and Allergan have agreed to merge in a tax-inversion deal worth up to about $155 billion that will result in the world's biggest drug maker by sales. Allergan shareholders will be receiving $363.63 worth of Pfizer stock, or 11.3 shares per share. The new firm will retain the Pfizer name and Allergan's domicile in Ireland. Pfizer expects the combined firm to have an adjusted tax rate of 17-18%, lower than its current 25% rate.

Barrons Saturday summary

TradeTheNews.com Barrons Saturday summary: positive on WHR; cautious on ESRX

Cover story: SRPT and BMRN are seeking regulatory approval for drugs that could slow the progression of Duchenne muscular dystrophy, which affects about 15,000 to 20,000 boys in the U.S. and in Europe, and tens of thousands more around the world; The stakes are high in a battle that involves innovation, a strong advocacy community, skeptical regulators, and a huge market opportunity for investors; A successful family of DMD drugs could bring in $3B-plus in annual U.S. sales, and a similar amount abroad.

Features:
1) Positive on WHR: Appliance maker's shares have been shaken by a strong dollar and troubles in Brazil's economy, but investors have likely overreacted in sending down the shares, and those who buy now are likely to profit handsomely;
2) Cautious on PG: Consumer goods giant "is at a crossroads" as it tries to retain market share amid growing competition and lower demand, and new chief executive David Taylor needs to take radical action, such as a breakup;
3) Profiles of the 16 women who have made the Barron's list of Top 100 Women Advisors for 10 years in a row;
4) Cautious on ESRX: Company hasn't been affected by the problems facing VRX and HZNP, but questions remain about its commitment to cost-containment, a potential risk factor in its stock price;
5) Positive on GOOGL, CELG, SCHW, EA: Four companies could double their earnings per share by the end of the decade with growth not based on gimmicks, and shares could gain 20%.

Tech Trader: Cautious on SQ: Company faces a number of challenges, not the least of which are competitive threats from rivals such as PYPL and AAPL; While the company has reinvented a marketplace that PAY pioneered, questions about how fast it will scale up and what the payoff will be should give investors pause for now.

Trader: The market will be spurred on for the rest of the year by underperforming money managers trying to catch up and boost their annual return by buying during a bullish season for equities, says Jeffrey Saut of Raymond James; Positive on M: Shares are down almost 50% from highs in July, but for investors with a long-term focus, they look cheap, and a double-digit return could be in store; Cautious on LNCE: Shares of snack company appear overvalued, and could drop significantly if the company misses expectations next year.

Small Caps: Positive on MPW: Shares of hospital REIT are down, but they could stage a rebound next year and the 8% dividend looks secure.

Profile: Shawn Driscoll, portfolio manager, T. Rowe Price New Era fund, has departed from the fund's history of being a pure play on commodities by adding names that could benefit from falling commodity prices (top 10 holdings: PXD, CXO, XOM, TOT, OXY, XEC, EOG, EQT, RPM, ARG).

Interview: Larry Jeddeloh of the Institutional Strategist estimates that the growth rate of China's GDP is at about a 3%, as opposed to the 7% claimed by authorities there, and that there isn't much economic justification for the Fed to raise rates.

European Trader: The recent terror attacks in Paris didn't cause the French stock market to fall, and aren't likely to derail government reforms or slow down the country's growth trajectory.

Asian Trader: With semiconductors China's biggest import after oil, state-backed Tsinghua Unigroup is looking for deals and is said to have $47B to spend during the next five years.

Emerging Markets: A year after President Obama normalized relations with Cuba, the country's lack of a stock market and Marxist-Socialist economic model are keeping investors sidelined for now.

Commodities: Gold is down on expectations of a Fed interest-rate hike, and the metal is "likely to remain pressured in the next year's first half."

Streetwise: International relations expert John Mearsheimer of the University of Chicago says the impact of the Paris attacks could negatively effect the great post-World War II European experiment in liberalism.

Markets Undeterred by Terrorist Attacks

TradeTheNews.com Weekly Market Update: Markets Undeterred by Terrorist Attacks
Fri, 20 Nov 2015 16:03 PM EST

The week began with investors largely looking right past headlines related to the disturbing Paris terror attacks. European indices made up all of their losses from last week and US equities returned to gains after last week's retreat. A second straight quarter of negative GDP put Japan back into technical recession, marking another setback for PM Abe's grand plans for reviving his country's economy. A chorus of commentary from US Fed officials book-ended the Oct FOMC minutes midweek, and largely cemented expectations US rates could very well begin going up next month, but that they will only be rising at a very tempered pace. In Europe, ECB President Draghi amped up expectations for more easing, while the PBoC cut short-term borrowing rates, to some extent fulfilling expectations that Beijing would do more to help the flagging Chinese economy. The US Dollar remained buoyed by the divergent central bank outlooks, resulting in a fresh 7-month low in the Euro. WTI crude blipped below $40 briefly but held that level into week's end, while copper saw another fresh 6-year low. For the week the DJIA gained 3.4%, the S&P rose 3.3%, and the Nasdaq rebounded 3.6%.

The minutes from the last FOMC meeting sent fresh signals that the Fed is more and more confident that it will raise interest rates at the December meeting as long as job growth and inflation trends don't take a turn for the worse. Most officials at the October meeting anticipated that December "could well be" the time for rate liftoff. "Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting," read the minutes. The US Treasury curve flattened following the minutes and stocks surged as markets appeared more comfortable that they can handle a gradual rise in rates.

Japan preliminary third quarter GDP was negative for a second consecutive quarter (-0.2% q/q), marking Japan's first technical recession since mid-2014 (the last one followed the increase in the consumption tax as part of Abe's Three Arrows reform). Corporate capex spending did the most damage, falling -1.3%, while the soft JPY boosted exports in the quarter to +2.6% from -4.3% prior and consumption was nearly flat at +0.5%. The negative print further boosted expectations for more BoJ easing or a supplemental fiscal budget to address the slump, although the BoJ maintained its stance at its policy meeting on Wednesday. The BoJ maintained its annual pace of monetary base expansion at ¥80T and also kept its overall economic assessment unchanged, while it slightly tinkered with its inflation outlook. USD/JPY marked an eight-week high after the GDP and BoJ developments on Wednesday, touching 123.65 before tightening up into week's end.

In a speech on Friday, ECB President Draghi made his case for more easing in December (the ECB Council meets on December 3rd). While the speech largely reiterated his past themes, Draghi added subtle changes that suggested even headline inflation moving towards target will not be enough. He said the ECB needs to be confident that inflation will not only converge to, but also stabilize around levels close to 2% over the medium term, adding inflation stabilization for the first time to ECB forward guidance. Analysts said his remarks suggest the ECB may sustain monetary stimulus even if oil prices push headline inflation above the 2% target. They also highlighted that German inflation hawk Weidmann took a different tack, called lower energy prices more of a stimulus than a deflation signal. The euro kept weakening and closed the week below 1.0650 for the first time since April.

A pair of US housing industry indicators stepped away from their recent highs. The NAHB index of homebuilder confidence declined slightly in November, to 62 from a revised reading of 65 in October. The October reading represented the highest level since late 2005, for a cycle high. Analysts were unsurprised, even as the reading missed expectations, calling the dip back to September levels a heathy correction that was in line with sales and mortgage applications readings. The annualized pace of housing starts fell 11% to a seven-month low in October, although it's worth remembering that October marked the seventh straight month of starts above 1 million units, the longest stretch since 2007.

Two more major US retailers got a thrashing this week despite reporting merely mediocre quarterly results. Target met expectations on the top and bottom lines, reported a good-not-great 1.9% gain in comps and slightly adjusted its FY guidance. Best Buy beat EPS expectations and boosted margins y/y. Investors frowned on initial FY16 guidance that called for nearly flat revenue and a modest decline in the operating income. BBY fell 8% at its worst after reporting, while TGT was off 6% at its worst. Both names recovered into week's end. Home Depot and Lowes saw strong gains on the week thanks to very good comp sales growth and more limited earnings and revenue outperformance.

Big name IPOs made a comeback this week with the initial stock offerings of Square and Match Group. Early in the week, reports said that the companies were being advised to cut their IPO prices to ensure early investors would be happy and indeed Match priced at the lower end of its $12-14/share initial pricing range while Square priced at $9/share, well below its $11-13/share initial range. With their modest pricing, both IPOs saw a big pop on their first day of trading, and each managed to trade above their respecting initial pricing range.

On Thursday, UnitedHeath Group cut its FY15 guidance and offered a slightly soft initial outlook for FY16. The CEO said the company had suspended marketing for Affordable Care Act exchanges and could exit the Obamacare individual health plan business altogether because it is losing money on the business. UNH's shares fell 6% in the session and the comments dragged down most of the sector. Analysts suggested bigger losses may be in the pipeline for other healthcare insurance names more exposed to flawed exchanges.

In M&A news, Starwood Hotels agreed to be acquired by Marriot for $12.2 billion, mostly in stock. Together, the companies will operate or franchise 5,500 hotels with a total of 1.1 million rooms, in around 100 countries. The already shaky $6.3 billion Staples/Office Depot merger was looking worse after the New York Post reported that the FTC might finally block the deal due to antitrust concerns. Shares of ODP were down 12% on the week. Railroad Norfolk Southern received an unsolicited offer from Canadian Pacific valued at $46.72/share in cash and 0.348 fixed share exchange ratio. Norfolk's board described the deal as low-premium and highly conditional but did not reject it out of hand, and CP's leadership indicated they may be willing to increase their offer. Recall that CP tried and failed to buy CSX last year.

The US Treasury implemented stiffer anti-tax inversion merger rules in an attempt to make overseas deals designed to avoid US taxes more difficult. The new rules restrict US firms from inflating the size of the new foreign corporate parent, and thereby avoid the current rule that requires the former owners of the US firm to own less than 80% of the newly combined entity. The move threw a monkey wrench in the ongoing merger talks between Pfizer and Allergan, but did not derail them. At the beginning of November, talks between the two companies were active, while this week reports suggested the deal could be priced as high as $150 billion, for the biggest drug industry deal in history. There were fears the deal might die under the knife of the new Treasury rules, although CNBC's Faber pointed out that the new rules apply to transactions where continuing ownership is in fact 60-80%, and under current talk Pfizer would own 59% of the combined entity with Allergan.

Barrons Saturday summary

TradeTheNews.com Barrons Saturday summary: positive on EMR and GWR
Cover story: The stance of Donald Trump and some other Republican presidential candidates on China is wrong; If Trump were elected and imposed tariffs, he would risk a protectionist war similar to the one that led to the Great Depression; Contrary to Trump's statements, the renmimbi is fundamentally overvalued, not undervalued.

Features:
1) Positive on EMR: Company's move to spin off its network-power unit and divest some of its industrial-automation business will end up cutting sales but significantly boosting profitability;
2) Positive on NVDA, BBY, CTXS, TXN, DO, MSFT, CBG: Seven companies had big upside surprises in their latest quarterly reports and likely will see better days ahead, though investors should do more research before buying;
3) Positive on GWR: Small railroad stands to benefit if CP and NFKS merger, since they would likely have to divest some of their routes to meet antitrust requirements.

Tech Trader: Cautious on Match Group: Dating site being spun off from IACI will face questions about the sustainability of its business model and growing competition from new online rivals.

Trader: While many investors expected an end-of-year market flourish, says Terry Sandven of U.S. Wealth Bank Management, "the Santa rally actually happened in October"; Positive on CRC, MUSA, PSXP, PSX, MPC: Refinery spinoffs have been winners despite lower oil prices, partly because they benefit from lower feedstock costs and have been better able to showcase their value; Cautious on BHI: Shares could gain about 27% if a merger with HAL is approved, but "there is too much uncertainty here to take that bet."

ETF Special Report: Marco Cortazzo of Macro Consulting Group, Richard Bernstein of Richard Bernstein Advisors, Bill Greiner of Mariner Wealth Advisors, and Bob Smith of Sage Advisory Services share their insights into bond ETFs (Positive on HYG, PFF, CSJ, HYD, ISTB, SUB, SMMU, BSCI, IBMG, IBCC).

Profile: Sandy Rufenacht, head of Aquila Three Peaks Capital Management, seeks to determine how much free cash flow a company can generate 12 months ahead (top ten holdings: SCI, AMSG, CCK, SLGN, NLSN, PF, FIS, SEE, ARMK, LVLT).

Interview: Jim Rogers, international investor, says he has slowed down his investment activity, and says he sees limited opportunities in many markets and thinks mounting worldwide debt and too much easy money will lead to a global bear market.

Follow-Up: Positive on WY: Merger with PCL will create the country's largest private landowner, positioning the timber giant for long-term growth as the housing market improves; Positive on RELY: Recent drop in share price of aluminum recycler and acquisition-oriented firm has seen a drop in its share price, creating a good entry point for investors; Cautious on SUNE: Following another quarter of losses, company's "baroque business strategy" seems harder to justify, and shares could fall from $5 to $2.

European Trader: Positive on Bayer: German life-science company "is reorganizing and retrenching" and has a strong pipeline of drugs that are likely to boost margins and earnings.

Asian Trader: Positive on BIDU: Investors aren't giving the Chinese Internet search giant enough credit for its efforts to build an "online-to-offline" service, which promises to disrupt sectors such as travel agencies and restaurants.

Emerging Markets: Frontier markets such as Vietnam and Pakistan offer potential for investors, with smaller companies especially worthy of attention.
Commodities: Raw-sugar futures have risen by almost 50% since late August, and could keep going up amid continuing erratic weather in Brazil.

CEO Spotlight: NDAQ chief executive Bob Greifeld presides over "an increasingly high-tech company, one that has been transformed under his watch" with 25 markets across the world for stocks, derivatives, currencies, equities, commodities, and private companies.

Streetwise: If industrials were truly in a recession, profits should be declining, but they aren't; Among chief executives who have been in top positions in at least two other companies and who beat the S&P 500 and its peers during those tenures are LMCA's John Malone, TSLA's Elon Musk, DD's Ed Breen, and TPX's Scott Thompson.

Weekly Market Update

TradeTheNews.com TradeTheNews.com Weekly Market Update: Autumn Rally Vanishes
Fri, 13 Nov 2015 16:16 PM EST

US equities broke a six-week winning streak as global economic weakness finally caught up with the autumn rally. After last Friday's big October US jobs report, the reality of Fed rate hikes in December is starting to sink in, but at the same time, the US economic data out this week suggested that the US is hardly a bastion of strength even compared to the anemic global economy. Chinese October economic data was looking pretty poor, and a raft of European preliminary third-quarter GDP numbers were flat or up tenths of a percent. Commodity prices remained under pressure, with markets watching WTI crude move ever closer to $40/bbl. For the week, the DJIA fell 3.7%, the S&P500 lost 3.6% and the Nasdaq swooned 4.3%.

Press reports out this week indicated that the ECB Council was coming to a consensus that interest rates should be cut deeper into negative territory to support the flagging European recovery. The thinking appears to be that a dominant faction on the council wants to see a steeper cut to the deposit rate than current expectations for a ten basis point reduction. Expectations were high for President Draghi's speech on Thursday, however Super Mario merely reiterated his standing positions that QE will run beyond Sept 2016, if needed, and that the ECB is not short of instruments to achieve price stability. Most of Europe reported anemic preliminary third-quarter GDP numbers on Friday, further highlighting the dim prospects for the continent and handing the ECB doves the ammunition they were looking for. EUR/USD was mostly constrained within the 1.0700-1.0800 range for the week, retesting April lows.

The September JOLTS report gives the Fed even more evidence the US economy at or very near to full employment. The JOLTS survey beat expectations, rising to 5.53M and moving it back toward the record high of 5.735M in July. Analysts note that the quits rate has been stalled at 1.9% for the last six surveys, since the April report, arguing the reluctance of workers to quit and seek other (presumably better) jobs shows the labor market is still not entirely healed. Meanwhile, the weekly jobless claims report showed initial claims steady at recent 15-year lows.

October economic data out of Beijing further cemented the belief that the PBoC and the Chinese State Council would be forced to open the door to even more policy easing. China's October trade balance saw the highest surplus on record since 1995, however both exports and imports saw steep declines: Exports fell nearly 7%, the fourth month of decline, while imports fell an eye watering -19%. October CPI slowed to a six-month low of 1.3%. October industrial output slowed to a 7-month low, missing expectations, while urban asset investment hit new multi-year low. Meanwhile, China Securities regulator CSRC provided some stimulus of its own for Chinese equities, saying it was confident in its ability to reopen the China IPO market by the end of 2015 after a four-month suspension due to stability in financial markets.

Crude futures ended the week not far from their late August lows after an eight-session meltdown. WTI cratered came within pennies of $40 and Brent dipped to $44.50. The weekly inventory reports turned in another round of huge builds. Both Russia and Saudi Arabia reiterated their long-standing opposition to cutting production in order to support prices, strongly suggesting that chances of any sort of deal to trim production at the upcoming OPEC meeting is dead. In its monthly report, the IEA forecasted a 2016 slowdown in global demand. However, the strengthening USD and poor economic data reports out of China and Europe are likely the biggest factors behind crude's dramatic retest of its lows.

Alibaba provided 24 hours of running commentary on its big 'Singles Day' sales event, although investors were not impressed. Jack Ma shared that the total value of goods sold at the event was $14.3B, a 60% increase over the year ago total. Ma claimed the positive numbers were not just a good indicator for Alibaba, but also for China's shift to consumer-driven economy. Shares of BABA lost about 10% on the week, mostly reflecting the weaker data out of Beijing. Meanwhile, Amazon continued to notch all-time highs around $675, driven higher by positive analyst commentary.

Three major US retailers suffered double-digit percentage declines this week after reporting third-quarter results. The Gap lost over 10% on the week after warning investors in a preliminary report that it would miss expectations for the quarter on -3% comps. Macys shares cratered after it missed widely on revenue and cut its FY15, on -3.6% same store sales. In addition, Macys disclosed it would not pursue a REIT transaction to extract value from its real estate holdings, citing the many costs associated with the structure. Nordstrom lost nearly 17% on Friday after missing top- and bottom-line expectations and also cutting its FY15 guidance. JC Penny and Kohl's both beat expectations and turned in positive sales comps in the quarter, however shares of both firms have been dragged much lower by their competitors' failures.

Tech was not immune to earnings weakness either. Cisco reported quarterly results that were better than expected but shares sold off on weak guidance.

Homebuilders DR Horton and Beazer Homes reported strong fourth-quarter results. DR Horton's profits rose nearly 45% y/y and revenue gained 27% y/y, although the firm only just met expectations. Beazer's y/y gains in profits and revenue were considerably less, but still pretty positive. However, Beazer's new orders rate flat-lined in the quarter, while DR Horton continues to see double-digit gains.

In M&A news, AB InBev has formally launched its $100 billion-plus offer for SABMiller and agreed to sell the latter's stake in MillerCoors to help win regulatory approval. The deal would be one of the largest mergers in history, worth about £70 billion or $106 billion. Mylan failed in its bid to acquire Perrigo, falling short of the 50% threshold in its unsolicited tender offer. Troubled natural gas producer Apache Corp received and rejected an unsolicited takeover approach from Anadarko. Press reports also said that Syngenta was back on the block, having received and rejected a preliminary offer from ChemChina.