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It didn’t take long to escalate Iran-Saudi relations, or the lack thereof, following this weekend’s nuclear (non) deal. Moments ago Iran’s Fars news agency reported that Iran’s coast guards have seized two Saudi fishing vessels after they entered the Islamic Republic’s territorial waters, a provincial official announced on Wednesday. “Yesterday, the coast guards deployed in the country’s Southern waters came to spot two vessels in Iran’s protected waters in the South using electronic and optic tools and equipment,” Commander of Bushehr province Coast Guards Qalandar Lashkari said. He said that the Iranian coast guards rushed to the scene and were faced with two vessels which were illegally fishing in the Iranian waters under the Saudi flag.

It was not immediately clear if, as in the case of China’s air defense zone, the US promptly decided to drive a battleship in Iran’s territorial waters, just because it can. However, the Saudi response will certainly be just as acute.

Noting that 9 sailors were arrested thereafter, Lashkari said further investigation showed that the 9 people are nationals of different countries.

 

Also earlier this year, forces of the Islamic Revolutionary Guards Corps (IRGC)’s second naval zone seized another Saudi vessel and its four-strong crew after it illegally entered Iranian waters. The vessel was later expelled.

 

In a relevant event on January 3, Saudi Arabia detained 21 Iranian nationals who were aboard two boats near al-Harqus Island 42 miles (78 km) off the Saudi coast, the Saudi border guard said.

We may need before an Israeli boat is arrested, and mysteriously blows up, before the middle-east returns to its wild type irrational, militant state.

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• Winter storm lashes eastern U.S., threatens Thanksgiving travel (Reuters)
• Fed Reveals New Concerns About Long-Term U.S. Slowdown (BBG)
• Private equity keeps $789bn of powder dry (FT) – because they are “selling everything that is not nailed down”
• Merkel and SPD clinch coalition deal two months after vote (Reuters)
• Japan approves new state secrecy bill to combat leaks (BBC)
• CLOs are the new black: Volatile Loan Securities Are Luring Fund Managers Again (WSJ)
• Health website deadline nears (WSJ)
• Norway Debates $800 Billion Wealth Fund’s Investment Options (BBG)
• Set of global trade deals stalls (WSJ)
• Berlusconi To Learn Fate In Senate  (Sky)
• Silvio Berlusconi withdraws support from Italy’s government (FT)
• Thai Politician Leads Protesters to Defy Government (WSJ)
• Iran Deal Ripples Felt From Syria War Zones to Saudi Palaces (BBG)
• Iran opens contacts with oil groups (FT)
• Soccer World Cup Stadium Costs Soar by $435 Million in Brazil (BBG)

 

Overnight Media Digest

WSJ

* The Obama administration is moving to rein in the influence of tax-exempt groups in elections by creating rules to restrict their spending on a wide range of campaign-related activities.

* Cox Communications is considering jumping into the bidding for Time Warner Cable Inc according to people familiar with the situation, the latest twist in a fast-evolving takeover battle for the second-largest U.S. cable operator.

* Men’s Wearhouse Inc launched a surprise offer to buy rival men’s clothing retailer Jos. A. Bank Clothiers Inc turning the tables on its erstwhile suitor in what has become one of the year’s most colorful takeover dramas.

* Hewlett-Packard Co appeared to take a step forward in its latest turnaround effort with increased sales of corporate computers. But fiscal fourth-quarter revenue fell in each of its other units, highlighting ongoing challenges at the tech giant.

* After setting a deadline to fix the HealthCare.gov website, Obama administration officials have offered largely inexact measures of success. That has prompted Republicans to accuse the White House of moving the goal posts.

* Jon Horvath, the government’s star witness against Michael Steinberg, testified for the first time Tuesday, setting the stage for what will be pivotal testimony in the insider-trading case against the veteran SAC Capital Advisors LP portfolio manager.

* Vivendi SA’s board approved a plan to spin off its French telecommunication business next year and named top leaders to run the assets that will remain, pushing forward with its ambition to become a smaller media-focused firm.

* Investment funds aimed at individual investors are barreling into collateralized loan obligations, a complex and volatile type of security that was shaken by the financial crisis.

* The U.S. banking industry continued its recovery during the third quarter, reflecting the sector’s gradual rebound from the financial crisis, the Federal Deposit Insurance Corp said.

 

FT

Research group Preqin’s data shows that private equity firms are holding more cash for acquisitions and the value of unspent commitments to private equity funds has increased 12 percent since December 2012.

British Prime Minister David Cameron announced a crackdown on European Union immigration and said Europe has to reform to regain trust of its people.

The Serious Fraud Office may probe Royal Bank of Scotland under charges of criminal offence for systematically crushing smaller companies by forcing them out of business.

German power company RWE on Tuesday axed the 4 billion pound Atlantic Array project raising concerns over mixed signals that the UK energy policy was sending out to investors.

Spanish oil company Repsol has in principle agreed to accept a compensation of 5 billion pounds to settle dispute iver Argentine government’s seizure of its majority stake in YPF, according to sources.

Job search portal Adzuna says an upturn in construction has boosted vacancies in the south, making nine cities out of ten in southern England the best to get jobs.

 

NYT

* On Tuesday, Men’s Wearhouse abruptly turned the tables on Jos. A. Bank and bid $55 a share in cash to acquire its one-time suitor. It is rare for the prey to become the predator, a strategy that harks back to a 1980s corporate maneuver known as the Pac-Man defense.

* The star witness in the federal government’s insider trading prosecution of Michael Steinberg, once a senior trader at SAC Capital Advisors, told a federal jury on Tuesday why he was cooperating with prosecutors and testifying at the trial.

* The International Monetary Fund, convinced that Europe erred in forcing debtor countries like Greece and Portugal to bear nearly all the pain of recovery on their own, is pushing hard for a plan that would impose upfront losses on bondholders the next time a country in the euro area requests a bailout.

* The Securities and Exchange Commission announced a pair of enforcement actions on Tuesday, accusing Swiss company Weatherford International of bribery and a Detroit money market fund of fraud.

* Alfred Feld, the longest-serving employee at Goldman Sachs , with more than 80 years of service at the Wall Street bank, died on Monday in Palm Beach, Florida. He was 98. Feld was listed as a Goldman employee up until his death, although in recent years he came to work infrequently.

* Take-Two Interactive Software announced on Tuesday that it had bought back the stake held by Carl Icahn, compelling the resignations of three board members he was allowed to appoint.

* Applied Systems, a software company that focuses on the insurance industry, said on Tuesday that it had agreed to be acquired by the private equity firm Hellman & Friedman in a deal valued at $1.8 billion. The company is being acquired from Bain Capital, which purchased it for about $675 million in 2006.

* The Carlyle Group said on Tuesday that it would acquire the Diversified Global Asset Management Corporation, an independent hedge fund manager, the latest push by Carlyle into areas beyond its core leveraged-buyout bus
iness.

 

Canada

THE GLOBE AND MAIL

* Justin Trudeau is invoking the ghost of Jack Layton as he celebrates the Liberal Party’s strong showing in a series of by-elections, inflaming tensions with the New Democratic Party (NDP) and foreshadowing more negative politics between now and the 2015 general election.

* Higher mortgage rates and house prices have eroded the affordability of Canadian homes for the second quarter in a row. But the impact was largely confined to the markets for detached bungalows and single-family homes, which are becoming more of an unaffordable luxury in many parts of Toronto, Montreal and Vancouver, Royal Bank of Canada’s economics department suggests in a report to be released on Wednesday.

Reports in the business section:

* Sears Canada is laying off another 800 employees across its operations in the latest round of major cuts that have involved closing several of its highest profile department stores. The retailer said on Tuesday that most of the job losses would come from its repair parts and service business, where 712 staff are being eliminated over the next six months.

* While it continues to struggle in wealthier countries, BlackBerry Ltd is enjoying a surprising surge in Africa this year, offering a possible lesson in how the company could remain a competitive force in global markets with its cheaper devices.

NATIONAL POST

* An Ontario judge has ordered mercy for Martin McSweeney, the traumatized ex-boyfriend of Paul Bernardo victim Leslie Mahaffy, after the 38-year-old’s life descended into a legal nightmare that saw him lose his CSIS job and spend months in detention, all for allegedly sending an emotionally-charged message to his therapist.

* When all he wanted to do on Tuesday was raise his arms and hoist the C$5.2-billion ($4.9 billion) exclusive contract he had just announced with the NHL like it was a metaphorical Stanley Cup, Keith Pelley, president of Rogers Communications Inc’s media business, was peppered with questions about what the deal would mean for Canada’s media landscape.

FINANCIAL POST

* Real estate investment trusts, hampered by falling unit prices, have been squeezed out of the commercial property market over the last quarter by private investors, a new report shows.

 

China

CHINA SECURITIES JOURNAL

– The tax bureau of Shenzhen, a major southern Chinese city, said some property developers have dodged taxes by inflating expenses.

– Several investors, including private equity firm CDH, are interested in buying a strategic stake in real estate developer Greenland Group ahead of its planned Shanghai/Hong Kong dual listing.

CHINA DAILY

– Confucian thought, the basis of China’s education system for two millennia until the early 20th century, can still play a positive role in China’s development, President Xi Jinping said on a visit to the ancient sage’s hometown on Tuesday.

– There were over 69 million retirees (excluding civil servants) on the Chinese mainland by the end of 2012, according to data from the Ministry of Human Resources and Social Security. This was nearly double the figure in 2003.

CHINA BUSINESS NEWS

– China Mobile Ltd will launch 4G services next month, and will launch a new brand specifically for 4G.

– Microsoft had ended its partnership with TOM Online and will launch Skype services in China with new partner Guangming Founder.

PEOPLE’S DAILY

– China’s legal students and lawyers must learn from studying the people in order to contribute to building a legally governed socialist nation, an editorial in the official paper said.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

HP (HPQ) upgraded to Equal Weight from Underweight at Evercore
Isis Pharmaceuticals (ISIS) upgraded to Neutral from Underweight at Piper Jaffray
LATAM Airlines (LFL) upgraded to Neutral from Underperform at BofA/Merrill
Pzena Investment (PZN) upgraded to Overweight from Neutral at JPMorgan
UBS (UBS) upgraded to Outperform from Sector Perform at RBC Capital

Downgrades

Analog Devices (ADI) downgraded to Hold from Buy at Drexel Hamilton
Copa Holdings (CPA) downgraded to Sell from Neutral at UBS
Denny’s (DENN) downgraded to Neutral from Buy at Janney Capital
Intel (INTC) downgraded to Sector Perform from Outperform at RBC Capital
OGE Energy (OGE) downgraded to Hold from Buy at Jefferies
Signature Bank (SBNY) downgraded to Neutral from Buy at Sterne Agee
TiVo (TIVO) downgraded to Equal Weight from Overweight at Evercore
Tilly’s (TLYS) downgraded to Market Perform from Outperform at William Blair
Tilly’s (TLYS) downgraded to Neutral from Buy at Goldman

Initiations

Altisource Residential (RESI) initiated with a Buy at Deutsche Bank
Cedar Fair (FUN) initiated with an Outperform at FBR Capital
Chimerix (CMRX) initiated with an Overweight at Piper Jaffray
GW Pharmaceuticals (GWPH) initiated with an Overweight at Piper Jaffray
Insmed (INSM) initiated with an Overweight at Piper Jaffray
Merchant Bancshares (MBVT) initiated with a Buy at Sterne Agee
Nektar (NKTR) initiated with an Overweight at Piper Jaffray
Oi S.A. (OIBR) initiated with an Outperform at Bernstein
Qunar (QUNR) initiated with a Hold at Deutsche Bank
Repros Therapeutics (RPRX) initiated with an Overweight at Piper Jaffray
Ruckus Wireless (RKUS) initiated with a Buy at Stifel
SeaWorld (SEAS) initiated with a Market Perform at FBR Capital
Six Flags (SIX) initiated with a Market Perform at FBR Capital

HOT STOCKS

HP (HPQ) CEO Whitman said turnaround remains on track heading into fiscal 2014
Burger King (BKW) established JV with Groupe Olivier Bertrand in France
Crocs (CROX) said to be in discussions with Blackstone (BX), other firms, Bloomberg reports
Archer Daniels (AADM) announced enhanced commitments for GrainCorp acquisition
GNC Holdings (GNC) announced $500M share repurchase authorization
CME Group (CME) sold NYMEX building to Brookfield Office (BPO) for $200M
Frontline (FRO) won’t pay a dividend for Q3

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Frontline (FRO), Shanda Games (GAME), AeroVironment (AVAV), Zale (ZLC), Infoblox (BLOX), Tilly’s (TLYS), HP (HPQ), TiVo (TIVO), Analog Devices (ADI)

NEWSPAPERS/WEBSITES

• Amec is looking to acquire Foster Wheeler (FWLT), the London Times reports
• Sinopec (SHI), China’s largest refiner, is in early talks with Apache (APA) to buy a minority stake in a LNG project called Kitmat on Canada’s Pacific coast, sources say, the Wall Street Journal reports
• Amid all the talk about consumers moving away from old-school TV and towards streaming services, TiVo (TIVO) is still adding customers wanting to watch regular old TV, albeit with a digital twist. The company showed no signs of slowing growth in Q3 as it reported a big jump in subscriptions despite an increasing list of competitors, the Wall Street Journal reports
• Danaher Corp. (DHR) and Blackstone Group (BX) are pursuing a joint bid for chemicals manufacturer Ashland’s (ASH) water technologies unit, sources say, in a deal that could top $1.5B, Reuters reports
• Global banks and asset managers (GS, UBS) are opening hedge funds in Asia for the first time since the 2008 financial crisis, putting pressure on smaller firms that are already struggling to hold onto investors, Bloomberg reports
• International anger over the NSA’s Internet surveillance is hurting global sales by American technology companies and setting back U.S. efforts to promote Internet freedom. Disclosures of spying abroad may cost U.S.
  companies (IBM, INTC, AAPL, GOOG, CSCO) as much as $35B in lost revenue through 2016, Bloomberg reports

SYNDICATE

Acasti Pharma (ACST) files to sell common units and warrants
Global Brass & Copper (BRSS) files to sell 7.31M shares for holders
Pinnacle Foods (PF) files to sell 17M shares for holders

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/JcYx-sJbGYg/story01.htm Tyler Durden

One of the more painfully clueless observations made by pundits in recent weeks is that just because everyone is talking about a bubble, there can not possibly be a bubble.

Naturally, if one is tuned to only filter any bubble mentions, one will naturally have a cognitive bias of interpreting the world only through the eyes of “bubble watchers.” The flipside of course is that not everyone is a mindless member of the herd, rushing headlong into whatever precipice awaits lemmings just around the corner, and can still do simple math and recall what fundamentals looked like (as a reminder, forward multiples in 2007 looked very cheap too…before EPS for the S&P in 2008 plunged by over 50% which in retrospect would have made those forward multiples 100% higher).

But simple logic failure aside, what empirical evidence shows is that while there has been indeed a pick up in internet mentions of “stock bubble” according to Google Trends, it is still well below its prior high… hit in May 2007 and October 2007, just before and at the very peak of the last stock bubble.

We can only assume that the same pundits that somehow are getting airtime now, were the same ones who said in the summer of 2007 when the S&P had hit its prior, non-QE assisted all time high, that just because everyone is talking about a bubble there can’t possibly be a bubble…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/a8j8mbf6GgI/story01.htm Tyler Durden

It’s one thing to fade broad Goldman trade recommendations (and thus trading alongside Goldman and against muppets). It is, however, a gift from god when such a trade comes from none other than the greatest (once again, if you bat 0.000 or 1.000 on Wall Street you are great in both cases) FX strategist of all time: Goldman’s Tom Stolper, whose fades over the past 5 years have generated over 20,000 outright pips. So what does Stolper see? “All told, there are a number of reasons why the Canadian Dollar has scope to weaken. Some of these have been a factor for some time but the notable weakening in the external balance, the gradual shift in the BoC communication and the prospect of Fed tapering and the associated risks all suggest that 2014 may be the year when the CAD weakens more materially after many years in narrow trading ranges. In line with our recently changed forecasts, we expect $/CAD to rally to 1.14 on a 12-month basis, with a stop on a close below 1.01. This would imply a potential return of 7% including carry.” So one Goldman 2014 Top Trade generates a total return of 7% in 12 months – and one should do this why when one can make 7% in the Russell 2000 at its current daily pace of increase of 1.0% in one week. That said, the only question is: 1.01 in how many days?

From Goldman:

Top Trade Recommendation #3: Long $/CAD on external deficits, tapering risks

A weak external position suggestive of a weakening CAD

Since the Global Financial Crisis, significant external imbalances have built up in the Canadian economy. In 2008, the current account balance fell from a surplus of 1% of GDP to a deficit of 3% – and it has remained stable at this level since then. The main reason for this has been a decline in manufacturing exports, which fell by about 30% during the crisis. Employment in the manufacturing sector declined by about 20% during the crisis and has not recovered. On the commodity export side, the rise in crude production linked to tar sands in Alberta roughly offset the decline in the value of natural gas exports. The overall trade balance in energy-related products has remained unchanged during this period.

The decline in the Canadian current account position into deficit was initially funded easily. A strong banking sector that weathered well the GFC made Canada a safe haven currency with strong portfolio inflows. Early rate hikes in 2010 created a small interest rate differential in favour of the CAD and a particularly strong reserve diversification flow into Canada also contributed to solid capital inflows. From 2008 to 2012 the Canadian BBoP (= current account + portfolio flows + net FDI) remained very strong, recording a surplus of about 2% of GDP. But this has changed in 2013.

Over the past few quarters, capital inflows have slowed rapidly, pushing the BBoP into deficit of about 1% of GDP currently. Slowing reserve diversification has almost certainly contributed to this. According to the latest COFER data, EM central bank holdings of CAD have remained broadly stable in the first half of 2013 – a trend that has likely continued since. Without continued additional reserve diversification inflows, the CAD has likely lost one of the primary funding sources for the sticky external deficit.

Low inflation and weak exports to keep policy rates low

As Robin Brooks and Mike Cahill discussed in the latest Week Ahead piece for Canada, the weakness in exports has increasingly become a concern of the Bank of Canada (BoC), together with persistent low inflation. Markets have already revised substantially their expectations for monetary policy. Cumulative rate hikes priced through the end of 2014 have declined from about 50bp in September to around 5bp currently. Our forecast is for the BoC to stay firmly on hold until the Fed starts raising rates in 2016. That said, with house prices already very elevated, as documented by Hui Shan in a recent Global Economics Weekly, it is likely that private consumption will no longer be the kind of positive impulse to the economy that it was in the past, and we expect Canada’s growth in 2014 (2.1% on our forecast) to lag behind that of the US (2.9%) for that reason. In addition, as we have been flagging, CPI inflation has been stuck at the lower end of the BoC’s 1-3% inflation target band. This could become a more material issue for the BoC should inflation not move back towards the middle of the band in coming months. Again, our baseline is for the BoC to be on hold, but since the money market curve is pricing a small chance of hikes through end-2014, we see risks here also skewed to the downside. Again, this is supportive of CAD weakness.

It is also important to highlight that the Canadian Dollar remains clearly overvalued on our GSDEER fair value model. Combined with the weak current account position, there are therefore good fundamental reasons for a weaker CAD. Should a more accommodative policy by the BoC lead to a weaker CAD, it is unlikely that policymakers in other countries would complain about an explicit attempt by the Canadian authorities to gain an unfair competitive advantage.

Combining all these factors, we see good reasons for gradual CAD weakness to persist for idiosyncratic reasons. The kind of price action consistent with external weakness is a steady drift weaker and gradual underperformance relative to other major currencies, in particular the USD.

A possible sharp acceleration on Fed tapering

The reason why the down move in the CAD could accelerate notably would be the expectation for tighter monetary policy in the US. In particular a sell-off in intermediate rates in the US could lead to a widening interest rate differential at the 5-year point in the curve of the US.

Purely from an interest rate differential angle, this would likely add a factor in favour of a rising $/CAD. There is an additional risk that the sell-off extends into the front end of the US curve in response to stronger growth, as we discussed in some detail in the outlook for 2014. The risk of this scenario materialising is also linked to the asymmetric risks to interest rates, coming from very low levels. Running our Correlation Cruncher, we find that in recent months $/CAD has been almost twice as sensitive to a move in US 2-year rates as to the Canadian 2-year rate. Therefore, and if these correlations persist, even a simultaneous sell-off in Canadian front-end rates would remain a net negative event for the CAD.

Finally, it is worth putting the risk of higher US rates into the context of the external funding needs. It will likely become more difficult for Canada to attract the necessary inflows to fund the current account deficit if bond yields rise in the US.

External deficits, reserve flows, growth and tapering

All told, there are a number of reasons why the Canadian Dollar has scope to weaken. Some of these have been a factor for some time but the notable weakening in the external balance, the gradual shift in the BoC communication and the prospect of Fed tapering and the associated risks all suggest that 2014 may be the year when the CAD weakens more materially after many years in narrow trading ranges.

In line with our recently changed forecasts, we expect $/CAD to rally to 1.14 on a 12-month basis, with a stop on a close below 1.01. This would imply a potential return of 7% including carry.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/UrTa7WUbBU4/story01.htm Tyler Durden