Express Scripts CEO George Paz to Retire
Posted by Eddy Elfenbein on September 10th, 2015 at 10:28 am

Yesterday, Express Scripts (ESRX) announced that its CEO, George Paz, will retire in May. The company’s president, Tim Wentworth, will replace him.

Wall Street is familiar with Wentworth, and the executive is “well positioned” for the industry’s challenges due to his experience with both specialty drugs and in sales, BMO Capital Markets analyst Jennifer Lynch said in a research note.

Leerink analyst David Larsen said in a separate note that Paz’s retirement announcement came earlier than expected, but Wentworth is “well suited” to lead the company.

“In our view the CEO change increases the likelihood that (Express Scripts) will consider a large strategic deal, and we believe investors will view this leadership change announcement favorably,” Larsen wrote.

Paz has done an excellent job running ESRX. He’ll still be there as non-exec Chairman. The stock initially rose but has now slipped back into the red. I assume traders are guessing whether the company has a greater likelihood of being bought out under Wentworth.

Morning News: September 10, 2015
Posted by Eddy Elfenbein on September 10th, 2015 at 7:07 am

BOE Unruffled by China, Markets Turmoil

What’s Behind The Big Declines In China’s PPI

China’s Response to Stock Plunge Rattles Traders

Justice Department Sets Sights on Wall Street Executives

Even Harvard B-School Alums Are Fretting Over Income Inequality

Dell Says To Invest $125 Billion in China Over Five Years

Netflix to Launch in Singapore, South Korea, Hong Kong and Taiwan

Alibaba Plays Down Worries of Hit on Consumer Spending as China Slows

How Apple Built 3D Touch

The U.S. Economy Is Just Starting to Tap Into a Big Source of Dry Powder

Mondelez to Boost Ad Spending, Healthier Offerings

The Rail Executive United Airlines Tapped to Lift Its Fortunes

Tesla P90D Review: Elon Musk Wants Your Sedan to Be Ludicrously Fun

Joshua Brown: Rates Traders Unconvinced of September Liftoff

Jeff Carter: Credentials, Who Needs ‘Em?

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Hilsenrath: Fed Not In Agreement on Rates
Posted by Eddy Elfenbein on September 9th, 2015 at 10:50 pm

Jon Hilsenrath has a piece in the WSJ saying that the members of the FOMC are not yet in agreement on the need to raise rates next week. The Fed meets again next week, on Wednesday and Thursday.

Investors see the hesitance. In futures markets, where traders make bets on the outlook for Fed policy, the market places a 74% probability on the Fed leaving its benchmark rate unchanged this month, according to the Chicago Mercantile Exchange. Futures market prices show traders see the probability of a move by December at greater than 60%.

Still, the case isn’t closed. Internal deliberations could move the Fed toward action next week. New twists in markets or economic data will shape discussions.

I’m not going to make a guess on what the Fed will do, but I would think the central bank would want a broad majority for its first rate increase in nine years.

Fed Vice Chairman Stanley Fischer sought during a central-bank conference in Jackson Hole, Wyo., late last month to push against the market’s view that a September increase had become much less likely. He and other officials have sought to keep their options open, and some advocate a move.

“I will not, and indeed cannot, tell you what decision the Fed will reach by Sept. 17,” Mr. Fischer said.

The market’s perception of what the Fed will do has changed since China devalued last month. But I strongly doubt that influenced Fed members.

If I were a voting member, I’d vote against a rate hike. As of yet, President Obama has not called for my advice.

The Fed’s decision isn’t a binary one—to act or not to act. Before every policy meeting Fed staff economists present officials with a variety of choices, typically three, including middle-ground options that navigate between Fed “hawks” who lean away from low interest-rate policies and “doves” who support easy money.

A middle-ground choice now could involve signaling more strongly the Fed’s intent to raise rates this year once officials become comfortable recent market moves aren’t a sign of deeper problems in the global economy.

“It would be reasonable, from my own perspective, to see interest rate increases sometime later this year—or an interest rate increase” if the U.S. outlook doesn’t deteriorate, Mr. Williams said.

I think the market doesn’t fully realize that the Fed could hike once or twice and then do nothing. The first increase will have the biggest impact on investor psychology. But in reality, 0.25% increases aren’t that much.

The S&P 500 Tests a 12-Day High
Posted by Eddy Elfenbein on September 9th, 2015 at 10:27 am

The Japanese stock market had an astounding 7.71% rally yesterday. This has helped U.S. stocks open higher this morning. The S&P 500 isn’t too far from 1993.48, which is its intra-day high for the last 12 trading days. The index has been as high as 1,988.63 today.

The VIX is starting to chill out as the market rises. The VIX is currently at 22. As I’ve said before, I’m looking for a close below 20 before I give the “all clear” signal.

In retrospect, the Chinese devaluation completely changed traders’ view of when a Fed rate hike would come. Before the devaluation, traders thought a September rate hike was probable. Now they don’t, but they think a December hike is likely. I’m not convinced the Federal Reserve cares what stock traders think, but the perception is that a rate increase has been delayed.

The Six-Month Treasury Yield Jumps
Posted by Eddy Elfenbein on September 9th, 2015 at 9:28 am

Yesterday, the yield on the six-month Treasury closed at 0.27%. That may not sound like a lot but it’s the highest yield in years. On June 19, less than three months ago, the six-month yielded 0.05%.

According to the Treasury’s website, the six-month yielded 0.27% on April 5, 2010. Before that, the six-month hasn’t yielded higher than 0.27% since August 8, 2009.

Obviously, the market is gearing up for a rate increase at some point; we still don’t know when yet. But remember that the yield is very low, and it’s still well below the rate of inflation.

Morning News: September 9, 2015
Posted by Eddy Elfenbein on September 9th, 2015 at 7:04 am

Japan’s Nikkei 225 Rises 7.7% for Biggest Gain Since October 2008

One Thing China Got RIght

China Changes GDP Data Calculation Method to Improve Accuracy

Citigroup Sees 55% Risk of a Global Recession Made in China

Merkel Says Reform Efforts of Euro Zone Countries Have Paid Off

Investment Strategies Meant as Buffers to Volatility May Have Deepened It

Apple to Show Off New iPhones, Apple TV on Wednesday

Instagram Opens Up to Advertisers Worldwide

McDonald’s to Use Eggs From Only Cage-Free Hens

Google to Start Testing Fresh Food and Grocery Deliveries

Intel to End Sponsorship of Science Talent Search

The Tiny Town That Hates Elon Musk and His Space-X Launches

United CEO Is Out Amid Inquiry at Port Authority

Roger Nusbaum: A Positive Start to the Week?

Cullen Roche: Have Savers Been “Punished” in the Low Interest Rate Environment?

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The S&P 500’s 200-DMA Is Tilting Lower
Posted by Eddy Elfenbein on September 8th, 2015 at 12:30 pm

Ryan Detrick points out a fact I hadn’t realized. After 870 days of rising, the S&P 500’s 200-day moving average is falling again. It’s simply the average of the preceding 200 days, which is about 10 months.

The 200-DMA is a simple metric, but the market has a good record of doing well when it’s above the 200-DMA and not so well when it’s below it.

Hedge Fund Is Gobbling up Treasuries
Posted by Eddy Elfenbein on September 8th, 2015 at 9:04 am

The WSJ has an interesting story on Element Capital. This is a hedge fund that’s been buying up U.S. Treasuries at a furious pace. Element is run by Jeffrey Talpins, “a former Yale University math whiz.”

Element had been shorting, or betting against, bonds in anticipation of higher interest rates but has been exiting from that wager, according to someone close to the matter. That is one reason the fund has been a big buyer of Treasurys lately.

But people who have worked with the firm or are close to Mr. Talpins said there is another reason: Element is among the last to embrace “bond-auction strategies,” trading maneuvers that have become less popular since the financial crisis.

These trades aim to take advantage of the effects of supply and demand in the $12.8 trillion Treasury market. Demand for these bonds often fluctuates based on factors including investor perceptions of economic growth and market risk, while supply can be affected by regular auctions of different-maturity Treasury securities. A burst of new supply tends to slightly depress prices for short periods, sometimes for less than an hour.

In the past, Wall Street dealers and hedge funds scored profits shorting “when-issued” bonds. These are contracts conferring the right to purchase Treasury securities when they are sold days later at auction. Then, these traders would buy bonds during Treasury auctions at the slightly lower prices and use these newly purchased bonds to close out their short sales.

The difference between the higher price at which they sold the Treasurys and the lower price they paid at auction was their profit.

There are a number of variations to this strategy, traders said. The maneuver involves a bet against bonds, so traders usually purchased hedges such as Treasury futures or interest-rate swaps to protect against rising bond prices while the trade was under way, said Tom di Galoma, head of fixed-income and rates trading at ED&F Man.

After the 2008 financial crisis, bank traders pulled back as regulators discouraged trading risks. Some hedge funds also began shying away from bond-auction strategies. Wall Street banks have significantly cut back their lending to hedge funds.

The pullback by rivals has left Element with a large presence in bond auctions to complement strategies such as in foreign-currency derivatives, people close to the matter said. In 2008, the firm gained 35%, these people say, even as financial markets crumbled. The next year, Element was up 79%. Last year it rose just 2.9%.

But it was up 18.5% through July of this year, an investor said, beating most hedge funds and overall markets. Some recent gains came from bullish wagers on the U.S. dollar, according to the person. The firm’s annualized average return has exceeded 20% since its launch, investors said.

There are dangers with the auction strategy. Once in a while, the prices of bonds being auctioned jump, rather than fall, for reasons such as bad economic news that prompts an investor flight to safety. Hedges sometimes don’t work out. And the strategy relies on inexpensive borrowing because each trade usually yields minimal profits.

In other words, there are no hacks in the market.

Morning News: September 8, 2015
Posted by Eddy Elfenbein on September 8th, 2015 at 7:06 am

Eurozone Growth Revised Up to 0.4% Growth in Second Quarter

ECB Quantitative Easing: Failure to Spark

Fresh Signs of a Steepening Industrial Downturn in China

Nikkei Erases 2015 Gains; Chinese Stocks Close Higher

Dollar Drops Versus Commodity Currencies With Fed Rate Bets Low

Bond Market Sends Fed All-Clear to Raise Interest Rates

Liar Loans Redux: They’re Back and Sneaking Into AAA Rated Bonds

U.S. Small-Business Confidence Improves a Bit in August, NFIB Says

Media General, Meredith To Combine To Create Meredith Media General: A New Powerful Multiplatform And Diversified Media Company

Amlin Ship Shape as Mitsui Takes the Helm

Patrick Drahi Positions Himself to Be a Player in U.S. Cable

JPMorgan Uses Its Might to Cut Costs in Credit Card Market

Verizon to Offer Free Mobile TV, With an Eye on Millennials

Jeff Carter: One Reason Why It’s Harder to Build Wealth

Joshua Brown: China is “Blotting Out the Sun”

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Morning News: September 7, 2015
Posted by Eddy Elfenbein on September 7th, 2015 at 7:11 am

Emerging Currencies Drop as Ambiguity on Fed Timing Hurts Stocks

China’s Forex Reserves Fall by Record $93.9 Billion on Yuan Intervention

Brazil’s Currency Drop Is Good News for Coffee Bears

Why the Oil Rout Isn’t Over

Eurozone GDP Could Move Oil Prices This Week

Something-for-Everyone Jobs Data Solidify Wall Street Fed Biases

Glencore to Sell as Much as $2.5 Billion Shares, Suspend Final Dividend

Uber China Raises $1.2 Billion in Ongoing Fundraising Round

MBK Partners Clinches Deal for Tesco’s Korean Operations

Toyota to Finance $50 Million ‘Intelligent’ Car Project

Boeing Left With No Net Jumbo-Jet Orders on Nippon Cargo Cutback

Toshiba Posts Net Loss, Plans Restructuring to Put Scandal Behind It

The Crowding-Out Effect of Gargantuan Movies

Investing for 10-80 year Olds…A Beginner’s Guide to Unbundling the Markets

Jeff Miller: Weighing the Week Ahead: Time to Revise Year-End Market Estimates?

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