The Efficiency of Point Spreads
Posted by Eddy Elfenbein on November 26th, 2017 at 2:35 pm

I’m enjoying a lazy Sunday watching football. I noticed something that might be of interest.

The New England Patriots are 16.5 favorites against the Miami Dolphins. That’s the widest spread for any team all year.

This is a reminder that point spreads are financial markets, just like what we see on weekdays. The oddsmakers don’t care who wins, they just want to make sure they have even money on both sides.

And like financial markets, the betting markets are pretty efficient. In the long run, the favorites and the underdogs are roughly even against the spread.

There is, however, a fairly minor exception and that’s games with very wide spreads, which brings us back to the Pats against the Dolphins.

I looked up the numbers, and since 1978, there have been 58 games where the spread is 16.5 or more points. The favorite has won 54 times and lost just four. (If you’re curious, in 54 games, the favorites were playing at home.)

However, against the spread, the favorite has only covered 20 times, while failing to cover 35 times. Three games were pushes. That’s an unusually wide margin. Bear in mind, of course, that these games don’t come up very often, a little more than once a year.

But it underscores an important point with markets and that’s that they have a tough time with extreme events. It seems that there’s a group of people, probably pretty small, that simply likes to take a side for the fun of it, and that slightly skews the results.

Update: Pats won by 18 (35-17).

Morning News: November 24, 2017
Posted by Eddy Elfenbein on November 24th, 2017 at 7:17 am

German Business Optimism Climbs to Record as Economy Booms

Net Neutrality Explained: What It Means (and Why It Matters)

Russia-OPEC Agree on Framework to Extend Oil Cuts

Oil Heads for Best Weekly Gain in Month on Keystone Disruption

Black Friday 2017: Your Best Bargain Might Be a TV

Uber’s Cover-Up of Its Massive Data Breach May Lead to E.U. Investigations

Mitsubishi Materials Adds to Japan Inc.’s Quality Problems

Tesla’s Newest Promises Break the Laws of Batteries

A Tesla Too Pricey? E-Bikes Offer Entry-Level Electric Transportation

A Power Plant Is Burning H&M Clothes Instead of Coal

Uber, Yandex Ride Services Can Merge in Russia, Regulator FAS Rules

Clariant Snubs Review Demand as Showdown With White Tale Looms

Why Tobacco Companies Are Paying to Tell You Smoking Kills

Howard Lindzon: Thank You Markets!

Mark Hines: Will Oil Hit $70 Soon?

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Morning News: November 23, 2017
Posted by Eddy Elfenbein on November 23rd, 2017 at 6:35 am

China War on Online Loans Makes Waves in New York

Euro-Area Growth Accelerates on Path to Decade-Best Performance

Britain to Hike Levy on Diesel Cars

Black Friday Is Eating Itself (Even in Britain)

FCC Plan to Roll Back Net Neutrality Worries Small Businesses

Bitcoin Breaks Through $8,000: Is It Still Time To Buy?

Elon Musk’s Giant Battery Set for Testing in the Australian Outback

Qualcomm: Cut And Thrust

Uber’s Messy Data Breach Collides With Launch of SoftBank Deal

Millennials’ Lust for Makeup is the Lipstick on the Retail Pig

`Junk’ Mines the Milken Era for Truths that Resonate Now

Lyft Raises Another $500 Million in Additional Round of Funding

Cullen Roche: What’s the Yield Curve Really Telling Us? and When Tail Risk Isn’t Tail Risk

Joshua Brown: The Year of Living Dangerously

Roger Nusbaum: A Financial Advisor Has Got to Know His Limitations

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Amazon’s Cloud Unit to Partner with Cerner
Posted by Eddy Elfenbein on November 22nd, 2017 at 12:45 pm

Amazon’s cloud unit to partner with Cerner: Sources from CNBC.

From CNBC:

Amazon’s cloud business, in its march toward $20 billion in annual revenue, has nabbed top clients in areas ranging from energy and technology to financial services and government.

Heading into its annual re:Invent conference in Las Vegas next week, Amazon Web Services has found a partner to help the company crack a massive industry that’s been slower to adopt the cloud: health care.

As part of his keynote at re:Invent, AWS CEO Andy Jassy is planning to announce that Amazon is teaming up with Cerner, one of the world’s largest health technology companies, to help health-care providers better use their data to make health predictions about patient populations, according to sources familiar with the matter.

The sources, who asked not to be named because the discussions are still in the final stages, said the partnership is initially focused on Cerner’s so-called population health product — HealtheIntent — which enables hospitals to gather and analyze huge volumes of clinical data to improve patients’ health outcomes and lower treatment costs.

Cerner did not provide a comment for this story, and AWS representatives didn’t respond to requests for comment.

Axalta Confirms Acquisition Discussions with Nippon Paint
Posted by Eddy Elfenbein on November 22nd, 2017 at 8:05 am

Press release:

“Axalta today confirmed that it is engaged in discussions with Nippon Paint regarding a potential acquisition of Axalta. Axalta will pursue such a transaction only if its Board of Directors determines that it is in the best interest of Axalta to do so. There can be no assurances that a definitive agreement between the parties will be reached or on what terms.”

Morning News: November 22, 2017
Posted by Eddy Elfenbein on November 22nd, 2017 at 7:04 am

Oil Climbs to Two-Year High as Stockpiles Fall Before OPEC Meets

NAFTA Talks Hit Wall as Mexico, Canada Push Back on U.S. Demands

Fed Debate Over Rate-Hike Pace in Focus Amid Strong Job Market

FCC Plans Net Neutrality Repeal in a Victory for Telecoms

AT&T Case Vaults Antitrust Chief From Obscurity to Spotlight

Blockchain Makes the World Interested in Finance’s Dullest Parts

Uber Reveals 2016 Data Hacking Affecting 57 Million Accounts

HP CEO Meg Whitman Reveals Why She’s Stepping Down

Samsung, LG Investors Unfazed by U.S. Trade Move on Washers

Ditching `Too Big To Fail’ Tag Only Solves Some Problems

U.S. Bribery Case Sheds Light on Mysterious Chinese Company

Twitter, It’s Time to End Your Anything-Goes Paradise

Ben Carlson: The Emerging Markets Performance Cycle

Cullen Roche: What’s the Yield Curve Really Telling Us?

Michael Batnick: Animal Spirits- Wave Pools and Market Inefficiencies

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Update on Axalta
Posted by Eddy Elfenbein on November 21st, 2017 at 10:53 pm

Here I thought Thanksgiving week was going to be quiet…

After hours today, shares of Axalta Costing System (AXTA) plunged 15% on news that it had ended merger talks with Akzo Nobel. I had warned that they were just talking and that no deal had been announced.

Then we learned that the reason they broke off talks was because Nippon Paint Holdings had made an all-cash offer for Axalta. Yeah, I can see how that would change things.

I think we can assume that Axalta gave Akzo Nobel a chance to beat that offer, and they declined. That’s all we really know at this point. AXTA rallied in the after-hours market and got to $35.29 which is a gain of 4.2% over Tuesday’s closing price. It was a wild ride for the stock and it all happened after regular trading had ended.

I don’t have much to add at this point. I hope to find out soon what price Nippon is offering. I also like the idea of an all-cash deal.

This is going to get interesting.

Reuters: Nippon Makes Deal for Axalta
Posted by Eddy Elfenbein on November 21st, 2017 at 6:18 pm

From Reuters:

Japan’s Nippon Paint Holdings made an all-cash offer on Tuesday to acquire Axalta Coating Systems, a source familiar with the matter said, prompting Axalta to end merger talks with Akzo Nobel.

Nippon’s offer came at a premium to where Axalta shares ended trading on Monday, the source said, asking not to be identified because the matter is confidential.

Nippon did not immediately respond to a request for comment, while Akzo Nobel and Axalta declined to comment.

No Deal for Axalta and Akzo Nobel
Posted by Eddy Elfenbein on November 21st, 2017 at 6:02 pm

From the WSJ:

Akzo Nobel and U.S. rival Axalta Coating Systems said Tuesday they abandoned talks to merge after failing to agree on terms for the proposed tie-up.

The companies didn’t detail reasons for the collapse. The Wall Street Journal first reported that the talks had ended.

The deal would have created a multibillion-dollar paints and coatings giant. Industries ranging from automotive to mining use coatings to prevent corrosion and improve durability.

The combination of the two companies could have boosted profit growth by lowering raw material costs, eliminating overlapping operations, expanding the combined entity’s products and adding new customers.

Now Akzo and Axalta face that challenge as separate companies at a time of rising raw material costs and sluggish demand. In the third quarter, Amsterdam-based Akzo reported a 13% drop in adjusted operating profit, hurt in part by higher raw material costs. Meanwhile, Axalta posted a 20% drop in adjusted net income in the same period, amid lower volumes in North America.

“We remain focused on our strategic options…to improve profitability in the future,” Thierry Vanlancker, Akzo Nobel’s chief executive, said in a statement.

Hormel Earns 41 Cents per Share
Posted by Eddy Elfenbein on November 21st, 2017 at 3:55 pm

This morning, Hormel Foods (HRL) reported fiscal Q4 earnings of 41 cents per share. That beat the Street by a penny.

For the year, Hormel made $1.57 per share which was down from $1.64 in 2016. The company had sales of $2.5 billion, which was down 5%. Organic net sales were up 5%. Cash flow from operations totaled $499 million. That’s up 34%. Operating margins were 13.2%.

For fiscal 2018, Hormel sees earnings between $1.60 and $1.70 per share.

“Fiscal 2018 represents a return to growth with the addition of three strategic acquisitions and contributions from innovative new items such as HORMEL® BACON 1TM fully cooked bacon and SKIPPY® PB BITES,” said Jim Snee, chairman of the board, president and chief executive officer. “The earnings power we are creating with acquisitions, major capital investments in value-added capacity, a supply chain reorganization, the union of the Grocery Products and Specialty Products segments, and an intense focus on strategic cost management sets us up for renewed earnings growth in 2018 and beyond.”

“We expect Refrigerated Foods, Grocery Products, and International to drive growth as Jennie-O Turkey Store continues to navigate difficult industry conditions,” Snee said.

Net Sales Guidance (in billions)
$9.40 – $9.80
Earnings per Share Guidance
$1.60 – $1.70

Fiscal 2018 net sales and earnings per share guidance exclude the pending acquisition of Columbus Craft Meats, which is expected to close in December. Total sales are approximately $300 million and the transaction is expected to be 2-3 cents per share accretive to earnings in fiscal 2018.

Shares of HRL had a very good day. They closed higher by 3.35%. At one point during the day, HRL was up close to 7%.