July 11-15: Banks Surprise and Stocks Soar

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"Prior to the financial crisis, all but 2% of the people in the Western world end up better off than people like them 10 years ago. But the world changes when you get a cohort of people that are no longer advancing." -Richard Dobbs, McKinsey

-0.1%

Effect of Brexit on US GDP, according to economists polled by the Wall Street Journal. US GDP is expected to clock in at 2.2% this year, versus 2.3% pre-Brexit. A big factor: over 40% of revenues from S&P 500 companies is made internationally, with a big chunk of overseas revenue coming from Europe.

NOTE: If article is paywalled, use Google to search for title or try accessing via mobile

EARNINGS:

A Boomlet in Lending Boosts JP Morgan, WSJ

JP Morgan led off 2Q bank earnings with a surprise. Its loan book across everything from commercial real estate to consumer lending rose 10% from a year earlier. Fixed income trading also saw a pop, perhaps because of good positioning for Brexit volatility.

M&A:
Bright Lights Focusing on AMC's Purchase of Odeon and UCI Cinemas, Dealbook

US-based AMC announced purchase of UK-based Odeon for 921 million pounds ($1.2 billion). AMC used Brexit as an opportunity to coerce private equity firm Terra Firma into a deal to sell. Odeon has been privately owned by Terra Firma since 2004.

MACRO:
In Advanced Economies, Two-Thirds of Population Have Seen Income Stagnate, WSJ
Across advanced economies, about two-thirds of the population (or more than a half billion people) earn the same as or less than their peers did a decade ago, according to McKinsey. This is a break from the post-WWII trend whereby most families improve on standard of living versus predecessors.

STOCK MARKET RALLY:
Buybacks Pump Up Stock Rally, WSJ
The Dow Jones average has notched four records in four days this week. There are concerns that results are based less on earnings and more on central bank policy and buybacks. Shares outstanding in the S&P 500 have fallen overall this year for the first time since 2011.

COMMODITIES:
IEA Sees Record Middle East Oil Supply as US Output Slumps, Bloomberg
Success seems to be nearing for OPEC's painful strategy of the last year, as they maintain high output and low prices to drive US producers out of the market. Oil prices have recovered more than 70% against a 12 year low set this January.

Vocabulary:

• helicopter money
• Treasury International Capital report
• Wang Jianlin
• Brexit
• Housing start

Calendar, July 18-22:

• Monday: Housing Market Index, Treasury International Capital
• Tuesday: Housing Starts
• Wednesday: MBA Mortgage Applications, EIA Petroleum Status Report
• Thursday: Jobless Claims, Philadelphia Fed Survey
• Friday: Baker Hughes Rig Count, PMI Manufacturing Index Flash

Last Week's Predictions: 1/3 All-Time: 27/54

1. CPI up: WRONG
2. Alcoa beats: RIGHT
3. Big financial M&A: WRONG

Weekly Predictions:

1. Dalian Wanda's bid for 49% of Paramount Pictures gets rejected by Viacom's board
2. Continued strong earnings from at least 2 more banks
3. Housing starts positive surprise

July 4-8: Post-Brexit Rush to Safe Assets Force Yields Down

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The current election cycle has been marked by mass protests, rallies, and deepening party lines. Regardless of who Americans are voting for, seven in ten say they feel the country is on the wrong track, according to the WSJ. Promises of wholesale economic growth from previous decades have widened gaps between rich and poor and left structural employment problems, leaving many Americans feeling left behind.

1.36%

The US 10-year government bond's lowest yield ever, hit earlier this week. In a global context, this yield is actually quite robust: according to Citi, around one third ($7 trillion) of all developed country sovereign debt now has negative rates, effectively charging lenders for borrowed money and paying borrowers for taking on risk.

NOTE: If article is paywalled, use Google to search for title or try accessing via mobile

CREDIT:

10-year Treasury Yields Hit Record Low, USA Today

The yield on the benchmark US Treasury bond hit an all-time low this past Tuesday, as investors fled post-Brexit to the lowest risk assets they could find, pushing up Treasury prices. Bond yields fall as prices rise.

M&A:
Dare to Dream: The Bank Mergers That Could Help Fix the Industry, Bloomberg

Stagnant growth and lower valuations would push most other industries into an M&A glut, but regulatory concerns about too-big-to-fail banks are pushing financials to stay smaller. But some particularly hard-hit banks are better situated than others to gain from merger activity.

DEMOGRAPHICS:
Election 2016 is Propelled by American Economy's Failed Promises, WSJ (paywalled)
The Wall Street Journal begins a multipart series examining why promises made in 2000 about how technology, trade, and competent central banking could maintain an indefinite period of US economic growth are now seen as oversimplified and incorrect, leading to extreme reactions among voters.

CHINA:
Brexit is Helping China Push Down the Yuan, WSJ (paywalled)
As China shifts to slower growth associated with a cleaner, services-led economic model and domestic consumption, weakening the yuan as a strategic move to keep exports competitive. But a weaker currency also means capital flight--over $550 billion of outflows are anticipated this year.

Vocabulary:

• leverage ratio
• RWAs
• Basel III
• capital flight

Calendar, July 11-15:

• Monday: Q2 Earnings Season begins, Labor Market Conditions index
• Tuesday: Job Opening and Labor Turnover Survey (JOLTS)
• Wednesday: Import/Export Prices, Beige Book, EIA Petroleum Status
• Thursday: Jobless claims, PPI
• Friday: CPI, Retail sales, Industrial production

Weekly Predictions:

1. CPI up as sustained oil prices ~$50 trickle down to consumers
2. Alcoa (AA) beats earnings for third straight quarter because of ongoing demand in US autos
3. One big M&A deal in financials is announced

Oct 5-9: Earnings Season Opens, Debt Dries Up

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Alcoa kicked off the Q3 earnings season with, as many expected, some pretty dismal numbers: for the second quarter in a row, the aluminium manufacturer missed sales and earnings estimates. Contributing factors cited were a slowdown in Chinese demand and a supply and energy glut. Alcoa has recently announced it will be splitting apart its Upstream and Value-Add businesses. (Zacks.com)

36x

The number of times larger that US student lending debt ($1.2 trillion) is than debt (bonds) issued by schools themselves ($32.7 billion) (WSJ)

NOTE: If article is paywalled, use Google to search for the title or try accessing via mobile

EQUITIES:

Demotion on Wall Street: Bond Traders Take a Back Seat, WSJ

"For the first time in at least half a decade, head count of traders and salespeople on equity desks in the first half of the year topped head count on bond-trading desks 17,300 to 17,100, according to research firm Coalition Ltd ... Overall revenue in fixed income remains larger, with $39 billion in fixed income traded by 10 of the biggest global banks over the first six months of the year, compared with $24.6 billion for equities."

CREDIT & GOVERNMENT DEBT

Central Banks Dump US Debt, WSJ

"In a dramatic shift in the $12.8 trillion US Treasury market, foreign official net sales of US Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July .. It was the biggest decline since data started being collected in 1978. A year earlier, foreign central banks had purchased $27 billion of US notes and bonds."

INDICATORS

Economists See US on Cusp of Full Employment, WSJ

"The US will be in a state of full employment within the first half of 2015, according to 56% of economists surveyed by the Wall Street Journal .. 'Full employment' is a term economists use to signify an economy in balance, where there is no longer cyclical economic weakness, but also no pressure pushing the inflation rate higher. The term doesn't signify an economy in which everyone has a job, let alone a good one ... Even as the unemployment rate has fallen in recent years, other signs of weakness have lingered. In particular, the share of Americans participating in the workforce declined. The rate declined in September to 62.4%, the lowest share since 1977."

M&A

Debt Markets Hold Key to Dell's Bold EMC Bid, WSJ

"Michael Dell is pressing ahead on a $50 billion-plus acquisition of data-storage giant EMC ... Following record or near-record debt issuance in recent years that supported the M&A surge, credit investors have lately become more fickle. In late September, JP Morgan cut a planned high-yield bond sale backing Altice's purchase of Cablevision for $1.5 billion, making up the difference by selling more debt on the loan market. Leveraged loans are viewed as safer than bonds because they are secured by corporate assets."

Vocabulary, People & Companies:

• EMC Corporation
• Going private
• Leveraged loans
• Full employment

Upcoming Calendar:

• Mo Oct 11: Columbus Day - equity market open, bond market closed; INFY 
• Tu Oct 12: NFIB Small Business Optimism index; CSX, JPM, JNJ
• We Oct 13: PPI-FD, Retail sales; BAC, DAL, NFLX
• Th Oct 14: Consumer price index, Jobless claims; UNH, MAT, GS
• Fr Oct 15: Industrial production, Consumer sentiment; GE, HON

Predictions from last time: 1/3 All-Time: 26/51

• $25B merger: CORRECT
• Oil falls: WRONG
• Bitcoin $242-238: WRONG

Weekly Predictions:

1. Honeywell beats
2. CPI falls
3. Another $25B merger

Sept 28-Oct 2: M&A Boom Showing Less Energy

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Northeastern US pipeline owner and manager Williams Companies agreed to be acquired by Energy Transfer Equity for $37.7 billion including debt and other liabilities, creating one of the largest energy companies in the world.

$13,600,000,000

Energy Partners' decline in price offered to William Companies between August and this past week, a 28% discount. Both companies have been affected by squeezed margins as a result of falling oil prices.

NOTE: If article is paywalled, use Google to search for the title or try accessing via mobile

M&A

Energy Transfer and Williams Cos. to Merge, MarketWatch

The deal will exchange ETE stock for shares of WMB at a price of $43.50, valuing WMB at around $32.6 billion not including debt. Williams had rejected a bid of approximately $50 billion early this summer, when oil was $60 a barrel. The deal unites two regional pipeline supervisors--ETE in central US, and WMB out of the northeastern Marcellus deposits.

BANKS & ASIA SLOWDOWN

Standard Chartered, Credit Suisse Face Equity-Raising Dilemma, WSJ

Both banks, heavily invested in Asian growth and the connected commodities boom, have drastically fallen in price as China rebalances its economy away from resource-heavy manufacturing. To meet requirements for minimum capital ratios, they are now faced with the decision to either issue new shares--heavily diluting existing shareholders--or selling off parts of the business.

INDICATORS

US Jobless Claims are Near Record Lows, Bloomberg

Jobless claims climbed 10,000 to 277,000 in the week ended Sept 27. This remains below the 300,000 level taken by some economists to indicate an improving job market. The four-week moving average, which smooths out fluctuations and considered a less volatile measure, decreased to 270,750, its lowest level since early August.

CREDIT

Investors Pul Back from Junk Bonds, WSJ

Expectations of a Fed rate hike in coming months is driving up the returns investors are demanding for corporate credit, threatening to derail the merger boom happening throughout 2015. Recent shortfalls in demand for bonds from Euro cable company Altice and chemical producer Olin will be supplemented by corporate loans, which require less spending and collateral from borrowers.

BEHAVIORAL FINANCE

Paying CEOs Big Bonuses for Stock Performance Doesn't Work: Cornell, Yahoo Finance

Total shareholder return (TSR) connects stock price gains and dividends paid to shareholders to CEO reimbursement. in 2004, 17% of S&P 500 companies had such plans in place; today, 50% have TSR plans. Yet a Cornell study says returns over the past 10 years does not demonstrate strong correlation between companies with TSR plans and outsized shareholder returns they're intended to encourage.

Vocabulary, People & Companies:

• junk bonds
• Marcellus shale
• Altice
• Williams Companies

Upcoming Calendar:

• Mo Oct 5: ISM non-manufacturing index; 3-, 6-month bill auction
• Tu Oct 6: International trade; Gallup US ECI
• We Oct 7: EIA petroleum status report; Consumer credit
• Th Oct 8: Jobless claims: FOMC minutes
• Fr Oct 9: Import/export prices; Baker Hughes rig count

Predictions from last time: 1/3 All-Time: 25/48

• 10-year yield rises: WRONG
• CARZ ETF falls: WRONG
• $25B+ merger announced: CORRECT

Weekly Predictions:

1. Another $25 billion+ merger
2. Oil prices fall
3. Bitcoin price within $2 of $240

Sept 21-25: Ruh-Roh for Das Auto

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Martin Winterkorn resigned as the CEO of Volkswagen after revelations last week by the EPA that the company had installed software in VW and Audi models designed to falsify emissions standards.

$7,270,000,000

Amount set aside by VW for charges connected to emissions scandal, which is said to affect as many as 11 million vehicles.

NOTE: If article is paywalled, use Google to search for the title or try accessing via mobile

VW CEO Resigns As Carmaker Races to Stem Emissions Scandal, WSJ

Volkswagen, which has 300,000 employees and 29 plants in Germany alone, is Europe's biggest automaker and an institution in German society--where every seventh job is connected to the auto industry. Volkswagen has lost almost 30% of its market value in the past week.

Janet Yellen Say Fed Is Likely to Raise Rates This Year, NY Times

Fed chair Janet Yellen's speech this week at the University of Massachusetts-Amherst revealed, through a series of graphs and diagrams, her perspective that various indicators of slack in the economy are tightening and that inflation should gradually return to trend over time at 2%.

Diageo: What Could the SABMiller-InBev Deal Mean?, Forbes

Following news of a $100 billion dollar merger between the world's 2 biggest brewers, some wondered how Diageo, the world's biggest distiller, would jump into the deal flow. With the deal set to take years to clear antitrust hurdles, Diageo is very excited about growth markets in Africa.

Vocabulary & People:

• S&P Case Schiller HPI
• ADP Employment Report
• Factory Orders
• Martin Winterkorn

Calendar:

• Mo Sep 28: Pending home sales index; Dallas Fed survey
• Tu Sep 29: S&P Case Schiller HPI; Consumer confidence
• We Sep 30: Chicago PMI; EIA petroleum status report; ADP employment report
• Th Oct 1: PMI manufacturing index; Construction spending
• Fr Oct 2: Employment situation; Factory orders

Predictions from last time: 1/3 All-Time: 24/45

• Industrial production up: WRONG
• MANU beats: CORRECT
• MTU misses: WRONG

Weekly Predictions:

1. 10-yr yield rises on Yellen's forecast
2. CARZ ETF declines on VW news
3. Another $25 billion+ merger is announced

May 4-8: Activists Abound

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Dan Loeb, founder of Third Point Management, took a swipe a Warren Buffett at the SALT Conference in Las Vegas last week. Activists have been in the news with two big conferences: SALT in Las Vegas last Wednesday and the Sohn Conference last Monday in Lincoln Center, Manhattan.

$112,000,000,000

Total amount of assets under management controlled by activist hedge funds as of 2014, according to JP Morgan

NOTE: If paywalled, search article title and access from Google

Hedge fund star Dan Loeb trashes Warren Buffett, CNN Money 

"I love how he criticizes hedge funds, but he really had the first hedge fund. I love how he criticizes activist investors, yet he was the first activist," said Dan Loeb to the sound of applause. "He thinks we should all pay more taxes but he loves avoiding them himself."

Factories sluggish but orders signal stronger outlook, Investor's Business Daily

"2015 had a rocky start: a soaring dollar shrank exports, a West Coast ports work stoppage snarled supply chains, and plunging oil prices dented energy firms' capital budgets. Yet key ISM indicators suggest that some headwinds are receding."

Europe: There's plenty of good news, and then there's Greece, CNN Money

"The quarterly growth rate of the 19 countries in the eurozone was stronger than either the US or UK managed in the first quarter. France outpaced Germany, Spain is on a roll, but Greece saw its economy shrink for the second consecutive quarter."

Vocabulary & People:

• hedge fund
• ISM
• activist
• Dan Loeb

Calendar:

• Mo May 11: Labor market conditions, 3-month bill auction; ACT, DISH, MBLY
• Tu May 12: NFIB Small biz optimism, Treasury budget; Z, GDDY 
• We May 13: Retail sales, Import export prices, Biz inventories; CSCO, M, SHAK
• Th May 14: Jobless claims, PPI; WB, SINA, MANU
• Fr May 15: Industrial production, Consumer sentiment; MTU

Predictions from last week: 3/3 All-Time: 23/42

• High consumer sentiment: CORRECT
• NFLX beats: CORRECT
• GS beats: CORRECT

Weekly Predictions:

1. Industrial production up
2. MANU beats on rising international popularity
3. MTU misses

Apr 6-10: The Mania Continues; Effects of Regulation

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Andrew Gould of BP and Jorma Ollila of Shell shake hands during a news conference announcing their companies' merger. Shell is offering $70 billion for BP in the biggest deal so far in 2015 and would create the world's largest independent producer of liquified natural gas (LNG).

$3,700,000,000,000

Highest annual M&A deal volume on record, which occurred in 2007. So far, this year is on pace to surpass the record

NOTE: If paywalled, search article title and access from Google

M&A:

Rising Optimism Fuels Deal Rebound, WSJ

"The two latest megadeals involving Mylan and Shell underscore the forces behind the M&A surge. Boardroom confidence is a crucial ingredient for deal-making and has bounced back after the economic crisis; rock-bottom interest rates make it cheap for companies to borrow money for takeover; and the dollar's strength is suggesting to some that deals in Europe denominated in a comparatively-cheap currency are increasingly appealing."

HIGH-FREQUENCY TRADING:

Virtu restarts IPO with plan to raise up to $314 million, Bloomberg

Virtu Financial had its IPO shelved earlier in 2014 amid the furor against high-frequency traders triggered by publication of Michael Lewis' Flash Boys. Now, shares are scheduled to price on April 15 at around $17 to $19 apiece on 16.5 million shares. At the high end of the price range, the company may be worth as much as $2.5 billion.

SHADOW BANKING:

Post-crisis risk casts a darkening shadow, WSJ

Shadow banking, an umbrella term for institutions that provide credit without being subject to the same reserve requirements and regulations of other banks, has risen in popularity since the financial crisis. The situation is eerily similar to before the financial crisis, when lightly regulated lenders became a key feature of risky lending practices that led to economic overextension and collapse.

INTERNATIONAL:

Swiss, Mexican bond deals represent milestones for debt, WSJ

Two unprecedented events occurred last week: Switzerland issued bonds that buyers are actually paying to hold, and Mexico issued bonds maturing in 100 years--paying a yield of 4.2%. The two events are being seen as harbingers of an era of extremely easy money that has a lot of assumptions of capital markets being turned on their heads.

MONEY MARKETS:

Repo market sees a lending shift as rules bite, WSJ
Just as is happening in other forms of credit provision, alternative lenders are stepping into the $2.6 trillion repo market, which provides short-term, "overnight" loans and liquidity to companies. Lendees are turning from traditional lenders to alternatives like pension funds and other money managers, who are disintermediating from banks and issuing loans directly to a new stream of clients.

Vocabulary & People:

• repo
• shadow banking
• beige book
• consumer price index

Calendar:

• Mo Apr 13: Treasury budget; PBY, PSG
• Tu Apr 14: PPI, Retail sales; CSX, INTC
• We Apr 15: Industrial production, Beige book; BAC, DAL, NFLX
• Th Apr 16: Housing starts, Jobless claims; AMD, AXP, GS, SLB
• Fr Apr 17: CPI, Consumeer sentiment; GE, HON, SYF

Predictions from last week: 1/3 All-Time: 20/39

• Chinese yuan strengthens: WRONG
• AA misses: WRONG
• Another candidate: CORRECT

Weekly Predictions: gathered at conclusion of weekly meeting

1. Higher consumer sentiment
2. NFLX beats estimates on higher subscriptions
3. GS beats estimates on trading revenue