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Fri, 24th March 2017

Anirudh Sethi Report

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Archives of “stock” Tag

Overnight US Market :Dow closed -238 points.(YTD is up 4.58% )

It has been 109 days since the market moved 1% either way.  All indices down over 1% today.

The US stock market hit the skids today on concerns about the Trump agenda for healthcare, taxes, regulation…you name it.
In the major indices:
  • The Nasdaq traded to new all time highs at the start of the day but ended the day down -1.83%. Ouch.
  • The S&P index fell by -1.24%. The high reached 2381.93. The low extended to 2341.90. The all time high for the S&P reached 2400.
  • The Dow fell by -1.14 points to 20667. It peaked above 21000.
All three indices are now down on the month with the :
  • S&P now down -0.83%,
  • The Dow down -0.69% and
  • The Nasdaq down -0.54%.
For the year, the indices are still higher so all is not lost.  Looking at the major indices, the:
  • Nasdaq up 7.63%
  • S&P up 4.70%
  • The Dow up 4.58%

Deutsche Bank Prices €8 Billion Stock Offering At 35% Discount

Two weeks after Deutsche Bank first announced it would raise €8 billion in capital as part of a comprehensive restructuring, the German lender on Sunday announced the terms of its upcoming massive dilution.

In a nutshell, Deutsche Bank said it will raise €8 billion ($8.6 billion) by selling stock at a 35% discount to Friday’s closing price in a rights offering. The TERP (Theoretical ex-right price) of €15.79, is based on the last closing price of €17.86. The transaction subscription price is €11.65. The Subscription price represents a 26% discount to TERP based on the March 17 closing price.

The mechanics of the offering: Deutsche Bank will issue 687.5 million new shares at €11.65 apiece, it said in a statement Sunday, in-line with the firm’s March 5 announcement on the planned sale. The offer compares with the stock’s closing price of €17.86 on Friday, and is almost 41% lower than where the stock traded when Bloomberg first broke the news of the imminent capital raising on March 3.

As part of the rights offering, DB shareholders may subscribe for 1 new ordinary share for every 2 existing shares held. The subscription rights expected to be traded on German exchanges March 21-April 4, and on NYSE March 21-31. As Bloomberg adds, the reference price for rights is expected to be approximately €2.07.

World Bank issues bond aimed at highlighting sustainable development

The World Bank is hoping to draw attention to the United Nations’ sustainable development goals with a sale of unusual bonds.

Payouts on the securities, which are relatively small, will be linked to the stock market performance of 50 companies considered to be making a significant contribution to the goals, including Nestle and Danone.

The World Bank has been making concerted efforts to promote global sustainability within financial markets and has previously sold green bonds and a sustainable development bond denominated in Chinese renminbi.

Sustainable development goals were created in the mould of the UN’s earlier Millennium Development Goal and encompass economic, social and environmental objectives such as gender equality and combating climate change.

Overnight :US Markets closed at sessions low.Dow closed -112 points

S&P down -0.59%

The US major stock indices are going out near lows levels
  • S&P index is closing at 2382, –14.15 points or -0.59%
  • NASDAQ composite index  closing at 5861.22, down -42.8 points or -0.73%
  • Dow is down -112.58 points to 21002.  That is down -0.53%
Caterpillar was a big drag on the Dow today as federal investigators raided corporate head quarters for tax documents.
Snap came to the market. The IPO was priced at $17 per share, and opened at $24.  It is closing at $24.48.
In the US debt market:
  • The 2 year not is trading at 1.312% up 2.8 bp. The yield is the highest in 7 years
  • 10 year yield is at 2.483% up 3 b

Norway’s oil fund up 6.9% in 2016

The world’s largest sovereign wealth fund overcame sluggish markets at the start of last year to deliver a return of 6.9 per cent in 2016.

Norway’s $905bn oil fund was boosted by strong stock markets in the second half of the year with equity investments returning 8.7 per cent. Fixed income returned 4.3 per cent in 2016.

Yngve Slyngstad, chief executive of Norges Bank Investment Management, the manager of the fund, said:

The fund had 62.5 per cent of assets invested in equities at the end of the year but is expected this spring to be given permission to increase that to 70 per cent. Fixed income assets accounted for 34.3 per cent and real estate 3.2 per cent.

When Buffet Breaks His Rules

Reading some headlines, I see that Buffet has “dumped Walmart” and “bought airline stocks” both of which seem to violate his rules: 1. to keep a stock forever and 2. never buy airlines.

It would seem that the math of such a big fund has forced him to change. Buying a small market value stock and riding the exponential growth once it succeeds no longer adds much to his returns. Since he is so diversified with such big companies hanging on forever gives market like returns and one is much more efficient by buying an index. So it would seem he is left with trying to time the market, on big companies and/or sectors, to add value to his shareholders.

My question is has he been successful when he has violated his rules in the past? Or does he like most of us get humbled by the markets when we try something new?

Berkshire Letter Highlights: Buffett Hates Hedge Funds, Likes Immigrants And The US Outlook

In its latest annual letter, released at 8am on Saturday, Warren Buffett’s Berkshire Hathaway said Q4 profit rose 15% on a rise in gains from investment. Net income rose to $6.29 billion, or $3,823 a share, from $5.48 billion, or $3,333 the previous year, while operating earnings, which exclude some investment results, were $2,665 a share, a slight miss to the $2,717 consensus estimate. In 2016, the 86-year-old billionaire added new companies to his assorted conglomerate portfolio, and completed the purchases of battery giant Duracell and aerospace supplier Precision Castparts,  which helped to boost profit in his company’s manufacturing segment.

Among other notably operational highlights, Berkshire said it had booked a $1.2 billion gain from converting its preferred stake in Dow Chemical to common stock, and that it had sold all of the Dow common it converted by Dec. 31. Berkshire also revealed that its massive holdings of Apple stock, which as of December 31, had risen to 61.2 million shares making Berkshire one of the Top 10 holders of Apple, was acquired last year for $6.747 billion, or an average of roughly $110 per share. The stake was valued at more than $8.3 billion as of Friday’s $136.66 closing price, leading to a $1.6 billion unbooked gain. In addition to apple, Berkshire’s other Top 15 investments are laid out below:

Ironically, even though Berkshire – along with Goldman and JPM – has been among the biggest beneficiaries of the “Trump rally”, with Berkshire Class A shares climibg 15% since Nov. 8, bringing the company’s market capitalization above $400 billion for the first time, beating the S&P’s 11% increase, there were no explicit mentions of Donald Trump’s name anywhere in the letter. There were, however, various veiled references to the new president.

Dividends in Japan double from financial-crisis low

Japan’s publicly traded companies continue to return more profit to shareholders, with dividends headed toward a record 11.8 trillion yen ($104 billion) for fiscal 2016.

Payouts are on track to rise for a seventh straight year, climbing 7% from fiscal 2015 and doubling from the fiscal 2009 low in the wake of the global financial crisis. More than 600, or roughly 30%, of the companies with March book-closings plan to resume or increase dividends, as overall corporate profit looks set to reach a new high this fiscal year. Figures are based on Nikkei calculations of distributed and planned payouts.

 KDDI boosted its projected full-year payout earlier this month to 85 yen per share, up 15 yen from a year earlier and 5 yen more than previously planned. The mobile carrier is expected to report a record profit on the strength of increased data revenue.

The recovery in the resource market has put trading houses and related companies in a position to raise dividends as well. Mitsubishi Corp. had reported its first-ever net loss in fiscal 2015, hit by impairment charges from resource concessions. But with earnings rebounding sharply, the company plans to hike the full-year payout to 70 yen per share — up 20 yen from the prior year and equal to the previous high.

Advantest is among those boosting its payout ratio, or the portion of profit distributed as dividends. The manufacturer of chip-testing equipment is lifting the minimum ratio to 30% from 20% on a consolidated basis.

“We need to raise shareholder returns in order to retain long-term investors,” President Yoshiaki Yoshida said.

Tokyo Seimitsu, which produces chipmaking equipment, will increase its payout ratio and raise dividends even though net profit is projected to decline.

Retail investors directly hold just under 20% of listed companies’ shares, based on surveys by the Tokyo Stock Exchange and others. This means roughly 2 trillion yen will flow into pocketbooks, helping to underpin consumer spending.

Increased dividends help improve capital efficiency, a factor that can lead share prices higher.

“The ability of Japanese companies to sustain generous shareholder returns will influence the direction of Japan’s stock market,” said Kengo Nishiyama of Nomura Securities.

Norway proposes major changes to $900bn sovereign wealth fund

Norway’s government has proposed making the biggest changes to the world’s largest sovereign wealth fund in decades, increasing its risk by investing about $90bn more in stock markets and cutting the amount of oil money it can use in the budget.

The $900bn oil fund should be able to invest 70 per cent of its assets in equities, up from the current 60 per cent, as the centre-right government backed proposals by both the fund itself and an expert group.

The shift, which needs parliamentary approval, would be significant for global markets as the oil fund on average already owns 1.3 per cent of every listed company. The increase in equities would come at the expense of bonds, as the oil fund, which has an investment horizon of a century or more, tries to increase its returns.