Stumpf Out at Wells Fargo
Posted by Eddy Elfenbein on October 12th, 2016 at 5:04 pm

Finally! John Stumpf is out as CEO of Wells Fargo.

Here’s the WSJ:

Wells Fargo & Co. Chairman and Chief Executive John Stumpf, under fire for the bank’s sales-tactics scandal and his own handling of its fallout, is stepping down from both roles, effective immediately, the bank said Wednesday.

Mr. Stumpf will be replaced as head of the third-largest U.S. bank by assets by President and Chief Operating Officer Timothy J. Sloan, who was widely seen as his heir apparent.

Mr. Stumpf won’t receive a severance package, the bank said. The board, at Mr. Stumpf’s own recommendation, had previously decided he should relinquish $41 million in unvested equity, one of the biggest-ever forfeitures of pay by a bank chief. He still retires with tens of millions of dollars earned during roughly 35 years at the bank.

Fed Minutes from their September Meeting
Posted by Eddy Elfenbein on October 12th, 2016 at 2:37 pm

The Federal Reserve just released the minutes from their last meeting. These minutes are usually pretty dull, and this latest batch is no exception.

Here’s a key passage and it highlights why I think rates will go up in December.

Members continued to expect inflation to remain low in the near term, but most anticipated that, with gradual adjustments in the stance of monetary policy, it would rise gradually to the Committee’s 2 percent objective over the medium term. Many members remarked that there were few signs of emerging inflationary pressures or that progress on inflation had been slow. A couple of other members pointed to recent readings on core CPI inflation as suggesting that PCE price inflation was close to meeting the Committee’s 2 percent inflation objective. Nonetheless, in light of the current shortfall of inflation from 2 percent, members agreed that they would continue to carefully monitor actual and expected progress toward the Committee’s inflation goal.

After assessing the outlook for economic activity, the labor market, and inflation, as well as the risks around that outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent at this meeting. Members generally agreed that the case for an increase in the policy rate had strengthened. But, with some slack likely remaining in the labor market and inflation continuing to run below the Committee’s objective, a majority of members judged that the Committee should, for the time being, await further evidence of progress toward its objectives of maximum employment and 2 percent inflation before increasing the target range for the federal funds rate. It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation. A couple of members emphasized that a cautious approach to removing accommodation was warranted given the proximity of policy rates to the effective lower bound, as the Committee had more scope to increase policy rates, if necessary, than to reduce them. Three members preferred to raise the target range for the federal funds rate by 25 basis points at this meeting. They cautioned that postponing policy firming for too long could push the unemployment rate markedly below its longer-run normal rate over the next few years. If so, the Committee might then need to tighten policy more rapidly, thereby posing risks to continued economic expansion. A couple of these members expressed concern about the potential adverse effects on the credibility of the Committee’s policy communications if the next step in the gradual removal of accommodation was further postponed.

Morning News: October 12, 2016
Posted by Eddy Elfenbein on October 12th, 2016 at 7:14 am

What The Heck’s Going On With The New Global Reserve Currency, The Chinese Yuan?

Eurozone Industrial Production Picks Up in August

China Car Sales Rise Sharply in September

Central Banks Consider Bitcoin’s Technology, If Not Bitcoin

Comcast Paying $2.3 Million to Settle FCC Probe

Ericsson Shares Plummet After It Warns on Profit and Outlook

Toyota Motor, Suzuki in Talks on Business Partnership

GM Buys Stake in Chinese Car-Sharing Company

Theranos Accused of Duping Investors in Tests, Performance

Amazon to Expand Grocery Business With New Convenience Stores

Alcoa Stock Tumbles as Profit, Revenue Miss Expectations

Google Bought A Company That Helps Brands Get Product Placements in YouTube Videos

The World’s Best IPO Has Gained 6,000%, But Analysts Say Stay Away

Jeff Carter: Make Bets Where Decision Making Is Intuitive, and Market is Inefficient

Cullen Roche: How the GOP Lost A Slam Dunk Election

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An Ultra-Rare Market Event Raises Questions
Posted by Eddy Elfenbein on October 11th, 2016 at 9:16 am

Morning News: October 11, 2016
Posted by Eddy Elfenbein on October 11th, 2016 at 7:14 am

Troubled China Credit Could Cost Banks $1.7 Trillion, S&P Says

Snooping in the Bathroom to Assess Credit Risk in China

Oil Drops From 15-Month High on Uncertainty Over Russian Stance

Egypt Stocks Fall on Signs of Deepening Rift With Saudi Arabia

Donald Trump Tried To Call Out Warren Buffett – He Probably Didn’t Expect This Response

Verizon CEO Says Evaluating Whether Yahoo Hack Had ‘Material Impact’

Why Twitter Shouldn’t Sell

Wells Fargo’s Cross-Selling Drama Weighs on Wall Street Earnings

What Walmart Must Do to Fight Back at Amazon

Samsung to Kill Off Note 7 After Second Round of Battery Fires

Tyson Foods, a Meat Leader, Invests in Protein Alternatives

The Small Business Health Insurance Roller Coaster – What Is Next?

Duke Energy Leaving Latin America Through $1.6 Billion in Deals

Howard Lindzon: The Hard Raise…I Know It Well

Josh Brown: The Obvious Follow-Up Question

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What Happened to Fearing the Fed?
Posted by Eddy Elfenbein on October 10th, 2016 at 4:37 pm

Last Week’s Strategy Call
Posted by Eddy Elfenbein on October 10th, 2016 at 1:57 pm

Here’s the audio from last week’s Strategy Call with John Schindler and me.

My line was a bit quiet so I started yelling by the end.

So I Guess Twitter’s Not Getting Bought Out?
Posted by Eddy Elfenbein on October 10th, 2016 at 10:15 am

WSJ: “How a Blogger Started His Own ETF”
Posted by Eddy Elfenbein on October 10th, 2016 at 9:26 am

From today’s WSJ:

How a Blogger Started His Own ETF
The decision by a blogger who has criticized ETF fees to start an ETF himself gave him insight into the process
By Simon Constable

Like a Broadway critic deciding to write a play, a blogger who complained about fund fees decided to start an exchange-traded fund. He discovered that keeping expenses low isn’t as easy as it seems.

Eddy Elfenbein decided last year to launch a fund based on the stock picks from his more than decade-old Crossing Wall Street blog, written from Washington, D.C. Mr. Elfenbein recommends 20 stocks on his buy list and then sticks with them through the next 12 months. Each year, he changes just five of the holdings for the next year.

Because of the success of his choices—he posts returns on his blog—he built up a Twitter following of around 25,000, many of whom asked over the years if he managed money.

His fund, AdvisorShares Focused Equity ETF, launched Sept. 21, 2016, under the ticker CWS, for Crossing Wall Street.

It isn’t just the Twitter-led impetus that makes the fund unusual; the fee structure is as well. Mr. Elfenbein has to beat the benchmark index or else give back part of his fee. If he exceeds it, he gets more.

He spoke with The Wall Street Journal about his experience setting up the fund. Edited excerpts of the conversation follow:

WSJ: When and why did you decide to do this?

MR. ELFENBEIN: I built a following based on what I recommended. If Twitter wasn’t around, I don’t know if this could have happened.

As the years passed, I had more people asking if I managed money, which I didn’t. So late last year I met with AdvisorShares [an actively managed ETF sponsor] to see if it was possible to develop a product that tracked the buy list.

WSJ: What surprised you about the process of starting an ETF?

MR. ELFENBEIN: I always complain about the fees for ETFs and mutual funds.

But when you are on the other end of the process creating a fund—with so many fees, lawyer fees, exchange fees, etc.—the question is how can we get them so low. [Currently the fund has annual expenses of 0.75%. That compares with an average expense ratio of 0.86% for actively managed U.S. stock ETFs, according to Morningstar Inc. data.]

I was also surprised by how little capital the fund needs to be viable. Advisor Shares points out that the patient is alive on the table if you have $20 million in the fund. Ideally, you would want to have more. With $50 million under management, then you’d have something that is chugging along.

WSJ: Will having an ETF get in the way of the blog?

MR. ELFENBEIN: No. I can write about the stocks I recommend, but I have to steer clear of anything that smacks of marketing the fund.

The ETF is going to track the buy list as closely as possible, with the picks equally weighted as much as SEC regulations allow. The positions will be rebalanced once a year. We have to keep a small cash position due to the mechanics of the fund; we’ll start with 2%.

WSJ: You’ve done something different in terms of the way you are going to be paid. Please explain.

MR. ELFENBEIN: There will be a fulcrum fee for me. My pay will be based on performance relative to the S&P 500. If the fund beats the benchmark, I get a bonus; if not, then I get a penalty. The size of the penalty is a based on a sliding scale and would result in a reduction in the fund’s expenses.

The hedge funds just get bonuses. If they miss their benchmark they don’t get penalized.

WSJ: Why an ETF instead of a mutual fund?

MR. ELFENBEIN: It just seems that investors are voting with their dollars. We are moving from the world of mutual funds to ETFs. There are tax benefits with the ETFs. [They are less subject to capital-gains taxes than mutual funds, for example.] I also like the fact that you can track the value during the day, whereas you can’t with a mutual fund.

Plus, a lot of funds are very secretive about what they own. I’m the opposite. My buy list is completely free. So you get the complete transparency that you get with ETFs.

Here’s an odd comparison: Years ago bands were trying to clamp down on bootleg tapes of concerts. The one group that was the opposite was the Grateful Dead, who reserved spaces for the people taping.

I don’t see how the transparency hurts me at all.

Morning News: October 10, 2016
Posted by Eddy Elfenbein on October 10th, 2016 at 7:05 am

Nobel in Economics Awarded to Oliver Hart and Bengt Holmstrom

China Unveils Plan to Cut Corporate Debt With Stock Swaps

Far From Stepping Back, Top Central Banks Are Set to Double Down

Titans of Finance Gather and Sulk Over Low Rates, Deutsche Bank

OPEC’s Quiet Man Is at Center of Cuts Deal Nobody Saw Coming

Twitter Shares Fall in Frankfurt After Deal Interest Cools

Inside Steven Spielberg and Jack Ma’s Strange Partnership Announcement

Sign of Thaw With Iran: American Cellphones Ringing in Tehran

Noble Group Surges as U.S. Energy Unit Sold to Calpine

Facebook Accused of ‘Picking and Choosing’ Tax Rules After Paying Just $5 Million in UK

Samsung Halts Production of Note 7 as Battery Problems Linger

Russian PM Signs Order Selling Bashneft to Rosneft

Elon Musk’s Magnificent Seven: How Dream Deal May Test Boardroom

Jeff Miller: Is This The End of the Earnings Recession?

Roger Nusbaum: Can You Rationally Process Market Events?

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