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BitBeat: GAW Miners to Launch Bitcoin Challenger, Paycoin

Wall Street Journal MoneyBeat - 1 hour 2 min ago
Ramin Talaie for The Wall Street Journal

Welcome to BitBeat, your daily dose of crypto-current events, written by Paul Vigna and Michael J. Casey.

Bitcoin Latest Price: $377.33/ up 2.88% (via CoinDesk)

Crossing Our Desk:

Josh Garza, who has built what may be the world’s fastest growing bitcoin mining operation, is setting his sights set on something even bigger: “the cryptocurrency of the future.

That’s the claim made in a press statement Monday to mark the launch of the ICO (initial coin offering) of Paycoin, a digital currency that Mr. Garza’s GAW Miners company says will address “all the inherent shortcomings that have prevented bitcoin from achieving mainstream adoption.”

Paycoin, which was previously known as hashcoin, will follow the model of many so-called bitcoin 2.0 currencies. It will be issued according to a separate algorithm that acts as an additional layer of computing instructions on top of the existing bitcoin blockchain. Transactions in the new currency will be embedded into bitcoin transactions and so confirmed by the same “miner” computers that are perpetually maintaining bitcoin’s core blockchain ledger in return for rewards of freshly issued bitcoins and transaction fees. But as Mr. Garza explained in an interview, the Paycoin network will also have its own “controller” miners who will be rewarded for performing computing tasks intended to make Paycoin transactions more streamlined. These “controllers” will periodically bid for the right to perform this task, for which they will be rewarded in paycoins. In theory, their contributions to computing efficiency should allow Paycoin transactions to be confirmed and settled much faster than the 10-minute minimum that applies to bitcoin itself.

When the coin opens to the public on Jan. 2 with what Mr. Garza says will be an anticipated market capitalization of $250 million, the company will partly back that with a store of fiat currency worth around $100 million. While those funds won’t function as a 100% reserve, they will combine with added features within the Paycoin protocol, including a supply schedule that fluctuates depending on the level of miner demand, to reduce exchange-rate volatility and thus seek to resolve one of bitcoin’s biggest barriers to mass adoption.

In a move that could assuage bitcoiners that might accuse it of “centralization,” the company itself won’t sell “pre-mined” Paycoins for its own account but will from the outset join other miners in bidding for “controller” mining contracts.

Backing Mr. Garza is Stuart Fraser, Vice Chairman and Partner at Wall Street inter-dealer broker Cantor Fitzgerald LP, a long-time backer of Mr. Garza’s projects, including his first big venture, the Great Auk Wireless company, which sold broadband services to remote New England villagers.

Whether Mr. Garza can replicate his past success in this project remains to be seen. But Paycoin is poised to benefit from having one of the biggest mining operations behind it. It will also tap a passionate community of GAW clients, many of whom have purchased early rights to mine Paycoin and who debate and discuss the launch on a very active online forum run by the company.

According to Mr. Garza, his Bloomfield, Conn.-based company’s cloud mining operation is run out of a 180,000-foot Mississippi warehouse with 15MW electricity capacity. From there, it sells small “hashlet” cloud mining contracts to customers. The hashlets are differentiated and structured in such a way that clients can trade them on an exchange, where the price fluctuates depending the market’s view of  mining-profitability variables such as the bitcoin exchange rate, electricity prices and the rate at which competition for bitcoins is increasing within the network.

The service, which offered guarantees to overcome some of the customer relations problems of the delay- and lawsuit-prone bitcoin mining industry, now accounts for a whopping 50% of all new mining capacity coming online, he said.  After starting operations in the summer, GAW is on track to finish the year with $120 million in sales, he said.

–The array of new trading instruments for taking investment bets on bitcoin continues to expand.

Today, the North American Derivatives Exchange, or Nadex, announced that it planned to launch bitcoin binary options contracts in early December. A binary option is a derivative trading option for which there are two possible outcomes – typically, that a call or put option pays out a certain amount or that it pays nothing, depending on where an underlying asset’s price trades within a certain time frame.

Nadex’s bitcoin option contracts, which are pending approval by the Commodities Futures Exchange Commission, will be priced on the basis of TeraExchange’s Bitcoin Price Index, which it described as “the global benchmark for USD/XBT contracts.” (“XBT” is  that currency code that many platforms are now using to signify bitcoin.) TeraExchange launched a CFTC-approved bitcoin derivatives trading platform in September. 

In a press release, Nadex said it had “seen strong demand from retail traders looking for new ways to trade bitcoin.”

Contacts: paul.vigna@wsj.com@paulvigna / michael.casey@wsj.com@mikejcasey

Categories: Transactions

S.E.C. Settles Swiss Secrecy Case With HSBC

New York Times DealBook - 1 hour 29 min ago
The S.E.C. said a private banking unit in Switzerland failed to register before providing advice to American clients. The unit faces inquiries from other authorities around the globe.
Categories: Transactions

Sausage-Maker Wants to Set Record Straight on How Sausage Is Made

Wall Street Journal MoneyBeat - 2 hours 26 min ago

If Moneybeat had a bratwurst for every time a journalist used the line about “the sausage being made,” we probably could feed a ballpark full of hungry fans. But at least one Wall Street Journal reader takes exception to the phrase.

A November 17 Ahead of the Tape column about Tyson Foods Inc. used the cliché in a discussion about its recent acquisition of Hillshire Brands.  Elmer Hensler of Cincinnati, Ohio, age 84, saw it and felt the need to set the record straight.

Mr. Hensler knows a thing or two about meat as president and founder of Queen City Sausage and Provision Inc., which he founded nearly a half century ago. He says that, if you want to see good sausage being made, you can come and visit his factory. They use only the best cuts – a practice he says has faded as regulations have been eased.

“I’m the last man standing, and that’s because I don’t cheapen the product. If it costs more, I raise prices.”

One of nine children growing up on the west side of Cincinnati, Mr. Hensler found work in the city’s slaughterhouses and saved up enough to get into the meat business himself. His company’s bratwursts and mettwursts are the official sausages of the local baseball and football teams, the Reds and Bengals.

Mr. Hensler still comes to work every day and loves conducting personal tours of his operation. He typically doesn’t tell the staff in advance. Why? “Because there is nothing to hide. Seeing sausage made at Queen City Sausage is a wonderful experience,” he writes.

Without having visited the plant ourselves, we’ll have to take his word for it. Clearly, though, portraying all sausage making as unappetizing was the wurst thing one could say to Mr. Hensler.

Here’s Mr. Hensler’s letter in full. Click the image for a full-sized view.

Categories: Transactions

A Defense Against Hostile Takeovers Develops a Downside

New York Times DealBook - 2 hours 44 min ago
The “poison put” began as a well-intentioned way to protect debt holders, but like any good idea, it got a little out of hand, writes Steven Davidoff Solomon in the Deal Professor.
Categories: Transactions

Republicans Question DOJ’s Choice of ‘Activist Groups’ in Bank Settlements

Wall Street Journal MoneyBeat - 3 hours 18 min ago

Republican lawmakers are asking the Justice Department for more information on the agency’s mortgage-securities settlements with Bank of America Corp. and Citigroup Inc. this summer.

The lawmakers are questioning how the Justice Department determined that the banks, as part of the settlements, be required to donate money to housing counseling agencies approved by the Department of Housing and Urban Development.

The groups are meant to help homeowners avoid foreclosure. But in a letter dated Tuesday and reviewed by The Wall Street Journal, Rep. Bob Goodlatte of Virginia and Rep. Jeb Hensarling of Texas describe some of the nonprofits, such as National Council of La Raza and NeighborWorks America, as left-wing “activist groups.”

Rep. Bob Goodlatte
Associated Press

In their letter, the lawmakers also point out that Bank of America and Citigroup get extra credit toward meeting their consumer-relief obligations when they donate to the housing groups: a $2 credit for every $1 donated.  The banks get less credit for actions like forgiving mortgage principal for homeowners who owe more than their homes are worth.

“The settlements appear to serve as a vehicle for funding activist groups rather than as a means of securing relief for consumers actually harmed,” wrote Mr. Goodlatte, who is chairman of the House Judiciary Committee, and Mr. Hensarling, who is chairman of the House Financial Services Committee.

NeighborWorks’ board is chaired by top regulators from the Office of the Comptroller of the Currency, the Federal Reserve and other agencies. A spokesman said that NeighborWorks’ foreclosure-prevention program has helped 1.8 million homeowners since 2009.

“What we are about,” said spokesman Douglas Robinson, “is community development through access to quality housing.”

Lot Diaz, vice president of housing and community development at National Council of La Raza, said that any money the group might receive through the DOJ settlements would go directly to helping homeowners.

The Justice Department declined to comment.

The required donations are a relatively small part of the settlements. Bank of America is required to donate at least $20 million to the housing-counseling agencies, out of $7 billion set aside for consumer relief in its settlement. Citigroup is required to donate at least $10 million, out of $2.5 billion set aside for consumer relief.

The pushback underscores the difficulties of hammering out the blockbuster mortgage-securities settlements. Bank of America’s $16.65 billion settlement and Citigroup’s $7 billion settlement both required the banks to pay cash fines and also to spend money helping distressed homeowners. Consumer advocates and the banks have long registered differing complaints about such deals. Advocates have said that such settlements don’t always help the homeowners who need it most, or give the banks credit for actions they were going to undertake anyway. The banks have argued that they should be able to pay a greater proportion of their total penalty via consumer relief, which benefits consumers more directly – and is easier on the banks’ bottom line.

In the letter, the congressmen ask the Justice Department to respond with information about who decided the terms of the settlement agreement relating to the nonprofit groups, and whether the banks received any guidance over which particular groups should receive donations.

Categories: Transactions

17 Facts About Apple Now That It’s Worth $700 Billion

Wall Street Journal MoneyBeat - 3 hours 46 min ago
Associated Press

Apple Inc., the biggest company in the world, just reached a market value of $700 billion. That’s huge.

Part of what’s notable about the company’s size is just how far it’s climbed. When the dot-com boom was at its fullest bloom and Microsoft Corp. was the untouchable beast, the Redmond boys were 26 times as big as the geniuses from Cupertino. Today, Apple is 1.78 times as big as Microsoft.

Here are 17 more facts about the world’s most valuable company, compiled by the Dow Jones stats team.

1. Apple is on pace for its fourth straight record close today.

2. Since its IPO in December 1980, the market value of the company has risen over 50,000%.

3. From its first day close, the share price has risen 23,100%.

4. At the Nasdaq peak in March 2000, Microsoft and Exxon (the second- and third-largest companies in the S&P 500) were 26 and 13 times larger than Apple, respectively.

5. Currently, Apple is now 1.78 times the size of Microsoft and 1.75 times the size of Exxon.

6. Apple first passed Exxon Mobil (the largest company back in 2011) in market value on Aug. 10, 2011, and has continuously been larger than Exxon Mobil since Aug. 1, 2013.

7. Apple is bigger than all of the following companies combined: Google Inc., Samsung Electronics Co., HTC Corp., BlackBerry Ltd., Lenovo Group Ltd., Hewlett-Packard Co., Cirrus Logic Inc., SanDisk Corp., Sony Corp., Broadcom Corp. and Pandora Media Inc.

8. While the S&P 500 has not experienced a 20% pullback since March 2009, Apple has experienced a bear market in that time, falling 44.4% from September 2012 to April 2013.

9. The company is now up 113% from its recent bear low of $55.79 on April 19, 2013.

10. Apple has bought back more than 10% of its stock since September 2012. The share count for Apple has dropped from 6,574 million shares to 5,864 million shares in that time.

11. At its 2012 peak, Apple made up almost 5% of the S&P 500′s market cap. As of Aug. 19, 2014–the second time Apple reached its 2012 peak–it made up less than 3.5% of the S&P 500. As of November 20, it made up roughly 3.8% of the index.

12. The stock’s average annual growth rate over the past five years is roughly 32%. If Apple stock continues to grow at this pace it will become a $1 trillion company by early 2016.

13. Since Tim Cook became CEO on Aug. 24, 2011, Apple’s market value has risen 100%. Its share price has risen from $53.74 to $119.35, up $65.61 or 122%.

14. Apple is up 27% since its 7-for-1 stock split on June 9, 2014.

15. Month-to-date, it is up 10.5%, on pace to be its best month since July 2013.

16. Year-to-date, it is up 49%, on pace to be its highest annual percentage gain since 2010.

17. Of the 46 S&P 500 record closes this year, Apple has been up 32 of those 46 days.

Categories: Transactions

Twitter CFO Appears to Succumb to the ‘DM Fail’ While Talking M&A

Wall Street Journal MoneyBeat - 3 hours 56 min ago
Getty Images

Anthony Noto is one of us now.

Twitter ’s financial chief appeared to commit the classic “DM fail” on Monday when he publicly tweeted M&A chatter that looked like it was meant for a private direct message.

In the tweet, which has since been deleted, Noto tells the unknown recipient “we should buy them,” and that the unnamed company is “on your schedule” in mid-December. Kevin Roose, an editor at Fusion, pulled a lesson from the Savvy Social Media 101 textbook and wisely captured a screenshot.

Looks like Twitter’s CFO just had the first-ever M&A DM fail. pic.twitter.com/AuLxVOBJED

— Kevin Roose (@kevinroose) November 24, 2014

It’s hardly breaking news that a CFO is talking about possible mergers and acquisitions. It’s still confidential strategy, though, and a DM fail about deal news is a pretty rough baptism for Noto.

The games are on: Online sleuthers are see who Twitter executives are following lately to divine which company Noto was referring to. Others, meanwhile, are having a good go at Noto and the DM fail.

Rumor is that Twitter is in talks to buy company that would significantly reduce the number of user DM fails.

— danprimack (@danprimack) November 25, 2014

All yuks aside, it’s too easy to accidently tweet what was meant to be a private message. Noto is a new executive at Twitter, be he’s had an account since 2009, so he’s hardly one of the new sign-ups that have trouble figuring out all the actions, symbols and shorthand that is common in tweets. But the failed DM is a reminder that Twitter is still ironing out kinks in its user interface.

Categories: Transactions

Moody’s Cites Continuing Sovereign Debt Risks

Wall Street Journal MoneyBeat - 4 hours 28 min ago
Reaction to the Fed raising rates could be disorderly, says Moody’s.
Reuters

What will happen to global sovereign debt markets in 2015? Calmer waters? Well possibly, says Moody’s, but even barring major shocks it’s unlikley to be plain sailing.

The credit rating agency says there are four main risks to which sovereign debt is still vulnerable.

“The principal [risks] are the possibility of confidence shocks from the expected rise in U.S. interest rates, especially in the case of a disorderly market reaction, the impact of lower growth in China and the euro area, the overhang of geopolitical risks, and reform fatigue,” said Alastair Wilson, head of Moody’s Global Sovereign Risk Group.

He said that while higher U.S. growth should imply positive economic conditions for sovereigns across the globe with trade links to the strengthening U.S. economy, the picture could look less rosy for those countries further afield.

“Higher U.S. interest rates could encourage European and international investors to re-balance their portfolios in favour of U.S. debt at the expense of European bonds at a time when yields on European sovereign bonds are at historical lows,” he argues.

Anne Velot, senior credit portfolio manager at AXA Fixed Income agreed. “We expect to see major re-balancing in 2015 into higher yielding U.S. credit and out of Europe and elsewhere,” she said. Those comments came as yields on eurozone sovereign debt hit fresh lows on hopes that the European Central Bank will step up its stimulus measures.

Commenting on the euro zone, Moody’s said that although the European Central Bank’s willingness to expand its balance sheet is credit supportive, “its ability to stimulate growth and inflation at the current juncture is limited.”

The agency said that European growth is strongly correlated with growth in China, whose economy accounts for 13% of world GDP, and that it therefore forecasts growth across the euro area of only 1% in 2014 and 2015, rising to only 1.5% in 2016.

On structural reform, Moody’s said: “Governments across the world have identified structural reforms needed to enhance medium term growth. Their success will be an important medium term credit factor and, more immediately, a driver of investor confidence.”

But in Europe, there’s a problem.  “At the euro area level, the absence of fundamental reform to address the gaps in fiscal and economic governance that the crisis laid bare also remains an important constraint on sovereign ratings. These governance gaps represent a potential source of risk, should investor sentiment begin to turn more negative in response to other shocks,” it adds.

Moody’s also notes that geopolitical risks, such as those posed by the Russia/Ukraine crisis and the turmoil in the Middle East, will continue to pose a threat to investor confidence, but that the pressures should remain close to the trouble spots.

“Barring a significant escalation in tensions that has a broader impact on growth and capital flows, the impact on sovereign creditworthiness will continue to be limited to those governments in closest proximity to each crisis,” Moody’s wrote.

 

 

Categories: Transactions

How Big Is Apple’s Market Cap? Nation-State Big

Wall Street Journal MoneyBeat - 4 hours 30 min ago
Bigger than the Grand Canyon.
Bloomberg News

When looking to put Apple 's $700 billion market value into perspective, you need to think big. How big?

From the day that it first closed in 1980, Apple shares are up 23,000%, according the the Dow Jones stats team. The market cap is up 50,000% in that time frame. At the Nasdaq Composite’s peak in 2000, Microsoft Corp. and Exxon Mobil Corp. were 26 and 13 times larger than Apple, respectively. Today, Apple is 1.78 times the size of Microsoft and 1.75 times the size of Exxon.

So, assume you were Apple Chief Executive Tim Cook, and you decided to go out and have fun with that money, what could you buy? Just how big is Apple?

Bigger than the Grand Canyon; the entire National Park System in Arizona, in which the famous canyon lies, in fact, brings in only about $700 million for the state.

Bigger than the Empire State Building, which is worth less than $2 billion.

Bigger than raw naval power. You could buy the U.S. supercarrier USS Gerald R. Ford for only about $13 billion (and that’s after all the cost-overruns drove the price up from an initial $5 billion price tag).

Bigger than sports. You could buy all four major U.S. sports leagues – the NFL, MLB, NBA, and NHL – for about $66 billion.

More In Apple

Bigger than banking, at least European banking. Apple’s market cap is greater than the combined market cap of the 30-some odd biggest banks in the eurozone; but that’s been the case since at least 2011.

It’s bigger than Alibaba Group Holding Ltd. ($283 billion), Facebook Inc. ($206 billion), Cisco Systems Inc. ($138 billion), and Hewlett-Packard Co. ($70 billion) – combined.

In fact, we had a hard time coming up with things that Apple is not worth more than. We had to start looking at entire nations. If Apple’s market cap was a GDP number (and understand, this is simply for comparison’s sake), it would be the 20th largest economy in the world, ahead of Switzerland ($631 billion) and just behind Saudi Arabia ($711 billion).

In fact, if Tim Cook wanted, he could easily buy the Cowardly Lion costume from The Wizard of Oz ($3 million) and Sam’s piano from Casablanca ($3.4 million), both of which were sold at auction this week - 110,000 times over.

Categories: Transactions

SIG Deal Shows Private Equity’s Desire for Big Leveraged Buyouts in Europe

New York Times DealBook - 4 hours 46 min ago
The deal for the Swiss packaging firm SIG, one of Europe’s biggest leveraged buyouts in five years, is an indication of a shortage of big targets for private equity firms, Reuters Breakingviews writes.
Categories: Transactions

Apple’s Market Cap Tops $700 Billion

Wall Street Journal MoneyBeat - 4 hours 57 min ago
Drew Evans/The Wall Street Journal

As the world’s largest company, Apple Inc. keeps winning the battle against itself. It just cleared another major milestone: Its market valuation topped $700 billion for the first time Tuesday.

It’s the largest company in the world by a landslide. The next largest are Exxon Mobil Corp. and Microsoft Corp., with market caps of $405 billion and $392 billion, according to FactSet. They’re not even close to touching Apple.

While many questioned whether Chief Executive Tim Cook could keep the momentum going when he took over from Apple’s visionary founder Steve Jobs, the stock’s record speaks for itself. Apple’s stock is up 52% in 2014 and 136% since Mr. Cook succeeded Mr. Jobs in August 2011.

Apple’s gains have added a full percentage point to the overall S&P this year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Including Apple, the S&P 500 is up nearly 12%, or 11.96%, this year through Monday. Take Apple out of the equation, the index is up 10.87%.

Apple has added more than 5% to the S&P 500 information technology index, according to Mr. Silverblatt. Including Apple, it’s up 18.69% for the year. Without Apple, it’s up 13.16%.

Other big winners: The Vanguard Group Inc. and BlackRock Inc. are the largest institutional holders of Apple’s stock with 5.6% and 5.4% respectively as of Sept. 30, according to Capital IQ.

Carl Icahn‘s fund is the largest activist investor with a stake of 0.9%. Mr. Icahn, who has been agitating Apple to increase the amount of stock it buys back from investors, said on Oct. 9 that Apple’s shares were trading at “half price.” The company’s stock closed that day at $101.20. The stock is up nearly 18% since then.

If Mr. Icahn’s thesis that day was right, Apple’s stock and market cap has a long way to run.

Categories: Transactions

Veteran U.K. Investor Woodford Seals Second Biotech Deal in Days

Wall Street Journal MoneyBeat - 5 hours 21 min ago
Neil Woodford, who formerly ran Invesco , is a closely-watched U.K. investor.
Bloomberg News

Neil Woodford, one of the highest-profile fund manager in the U.K., is doubling down on early-stage biotech.

CF Woodford Equity Income, the fund launched by the U.K. equities veteran in June, has made an undisclosed investment in London-based startup Cell Medica Ltd. as part of a £50 million ($78.4 million) financing round to fund trials of its lymphoma treatment. Mr. Woodford had previously invested in the company when he ran Invesco Perpetual—which has also now increased its stake, along with Imperial Innovations PLC.

The deal comes hot on the heels of another. Last week Mr. Woodford bought $25 million of shares in Northwest Biotherapeutics , a developer of personalized cancer treatments based  in Bethesda, Md. Cell Medica and Northwest specialize in immunotherapies—treatments that exploit the body’s own immune response to fight disease.

Mr. Woodford left Invesco Perpetual after 26 years in March to launch his own company, bringing several investors with him. The fund attracted £1.6 billion when it launched in June and has since has grown to £3.37 billion.

For him, early-stage biotech is something of an investing sweet-spot. Pharmaceuticals stocks are a mainstay for the fund—AstraZeneca PLC and GlaxoSmithKline PLC are its two largest holdings, while Roche Holding AG, Sanofi S.A, and BTG PLC all make the top 20. Meanwhile, Mr. Woodford’s belief that European equities are overvalued has coincided with a vocal enthusiasm for the profits to be had from backing risky young ventures that has led him to buy stakes in a string of unquoted companies.

“We believe that investing in early-stage technology businesses can add meaningfully to the long-term performance of the fund,” he wrote in his blog. 

Development-stage healthcare groups in the portfolio include Oxford Nanopore, Cosmederm Bioscience, and Circassia Pharmaceuticals PLC, which floated in March. Though the fund holds unlisted holdings from other sectors, including broadband provider Gigaclear and online estate-agent Purple Bricks, they are outnumbered by healthcare plays.

Still, the amount of money Mr. Woodford can plough into startups is constrained by the rules of the Equity Income fund, which mandate that no more than 10% of holdings can be unquoted ventures (currently the figure stands at around 5%). Woodford Investment Management is planning to launch a follow-up fund, which will allow greater scope for investing in startups, as early as next year.

Categories: Transactions

Falcone Steps Down From Top Roles at Harbinger Group

New York Times DealBook - 5 hours 31 min ago
The hedge fund manager Philip A. Falcone will receive a lump sum payment of $20.5 million and $19.8 million in bonus money. In an email, he rejected speculation that he was in need of cash.
Categories: Transactions

Best Books for Investors: A Short Shelf

Wall Street Journal MoneyBeat - 6 hours 4 min ago

 

Getty Images

I’m often asked, especially as the holiday gift-giving season approaches, which books I recommend for investors.

I haven’t kept exact count, of course, but over the past quarter-century I have surely read (or tried to read) a couple thousand books on investing. Nearly all of them were a tragic waste of good trees. Most weren’t worth reading even a few pages of.

So I feel strongly that the usual article on “best investing books” has way too many entries and ends up suggesting good books you might read, rather than recommending great books you must read.

Here’s a list that I would still be comfortable with decades from now. Every book below has stood the test of time and, I’m confident, will remain useful for generations to come. You will quickly note that some aren’t even about investing. But they all will help teach you how to think more clearly, which is the only way to become a wiser and better investor. I’ve listed them alphabetically by author.

Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them

In clear, simple prose, Belsky and Gilovich explain some of the most common quirks that cause people to make foolish financial decisions. If you read this book, you should be able to recognize most of them in yourself and have a fighting chance of counteracting some of them. Otherwise, you will end up learning about your cognitive shortcomings the hard way: at the Wall Street campus of the School of Hard Knocks.

Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk

The late polymath Peter Bernstein poured a long lifetime of erudition and insight into this intellectual history of risk, luck, probability and the problems of trying to forecast what the future holds. Combining a stupendous depth of research with some of the most elegant prose ever written about finance, Bernstein chronicles the halting human march toward a better understanding of risk—and reminds us that, after centuries of progress, we still have a long way to go.

John C. Bogle, Common Sense on Mutual Funds

The founder of the Vanguard Group and father of the index-fund industry methodically sorts fact from fiction. Following his logical arguments can benefit you even if you never invest in a mutual fund, since Bogle touches on just about every crucial aspect of investing, including taxes, trading costs, diversification, performance measurement and the power of patience.

Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists

Neither light reading nor cheap (it’s hard to find online for less than about $75), this book is the most thoughtful and objective analysis of the long-term returns on stocks, bonds, cash and inflation available anywhere, purged of the pom-pom waving and statistical biases that contaminate other books on the subject. The sober conclusion here: Stocks are likely, although not certain, to be the highest-performing asset over the long run. But if you overpay at the top of a bull market, your future returns on stocks will probably be poor.

Richard Feynman, Surely You’re Joking, Mr. Feynman! or What Do You Care What Other People Think?

These captivating oral histories of the great Nobel Prize-winning physicist ostensibly have nothing to do with investing. In my view, however, the three qualities an investor needs above all others are independence, skepticism and emotional self-control. Reading Feynman’s recollections of his career of intellectual discovery, you’ll see how hard he worked at honing his skepticism and learning to think for himself. You’ll also be inspired to try emulating him in your own way.

Benjamin Graham, The Intelligent Investor

Originally published in 1949, called by Warren Buffett “by far the best book on investing ever written,” this handbook covers far more than just how to determine how much a company’s stock is worth. Graham discusses how to allocate your capital across stocks and bonds, how to analyze mutual funds, how to take inflation into account, how to think wisely about risk and, especially, how to understand yourself as an investor. After all, as Graham wrote, “the investor’s chief problem—and even his worst enemy—is likely to be himself.” (Disclosure: I edited the 2003 revised edition and receive a royalty on its sales.) Advanced readers can move on to Benjamin Graham and David Dodd, Security Analysis, the much longer masterpiece upon which The Intelligent Investor is based.

Darrell Huff, How to Lie with Statistics

This puckish riff on how math can be manipulated is only 142 pages; most people could read it on a train ride or two, or in an afternoon at the beach. As light as the book is, however, it is nevertheless profound. In one short take after another, Huff picks apart the ways in which marketers use statistics, charts, graphics and other ways of presenting numbers to baffle and trick the public. The chapter “How to Talk Back to a Statistic” is a brilliant step-by-step guide to figuring out how someone is trying to deceive you with data.

Daniel Kahneman, Thinking, Fast and Slow

Successful investing isn’t about outsmarting the next guy, but rather about minimizing your own stupidity. Psychologist Daniel Kahneman, who shared the Nobel Prize in Economics in 2oo2, probably understands how the human mind works better than anyone else alive. This book can make you think more deeply about how you think than you ever thought possible. As Kahneman would be the first to say, that can’t inoculate you completely against your own flaws. But it can’t hurt, and it might well help. (Disclosure: I helped Kahneman research, write and edit the book, although I don’t earn any royalties from it.)

Charles P. Kindleberger, Manias, Panics, and Crashes

In this classic, first published in 1978, the late financial economist Charles Kindleberger looks back at the South Sea Bubble, Ponzi schemes, banking crises and other mass disturbances of purportedly efficient markets. He explores the common features of market disruptions as they build and burst. If you remember nothing from the book other than Kindleberger’s quip, “There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich,” you are ahead of the game.

Roger Lowenstein, Buffett: The Making of an American Capitalist

This book remains the most comprehensive and illuminating study of Warren Buffett’s investing and analytical methods, covering his career in remarkable detail up until the mid-1990s. If you read it in conjunction with Alice Schroeder’s The Snowball, you will have a fuller grasp on what makes the world’s greatest investor tick.

Burton G. Malkiel, A Random Walk Down Wall Street

In this encyclopedic and lively book, Malkiel, a finance professor at Princeton University, bases his judgments on rigorous and objective analysis of long-term data. The first edition, published in 1973, is widely credited with helping foster the adoption of index funds. The latest edition casts a skeptical eye on technical analysis, “smart beta” and other market fashions.

Bertrand Russell, Sceptical Essays or The Scientific Outlook

Russell is Buffett’s favorite philosopher, and these short essay collections show why. Russell wrote beautifully and thought with crystalline clarity. Immersing yourself in his ideas will sharpen your own skepticism. My favorite passage: “When a man tells you that he knows the exact truth about anything, you are safe in inferring that he is an inexact man…. It is an odd fact that subjective certainty is inversely proportional to objective certainty. The less reason a man has to suppose himself in the right, the more vehemently he asserts that there is no doubt whatever that he is exactly right.” Think about that the next time a financial adviser begins a sentence with the words “Studies have proven that….”

Alice Schroeder, The Snowball: Warren Buffett and the Business of Life

With unprecedented access to Buffett, Schroeder crafted a sensitive, personal and insightful profile, focusing even more on him as a person than as an investor—and detailing the remarkable sacrifices he made along the way. If you read it alongside Lowenstein’s Buffett, you will have an even deeper understanding of the master.

Fred Schwed, Where Are the Customers’ Yachts? 

First published in 1940, this is the funniest book ever written about investing—and one of the wisest. Schwed, a veteran of Wall Street who survived the Crash of 1929, knew exactly how the markets worked back then. Nothing has changed. Turning to any page at random, you will find gleefully sarcastic observations that ring at least as true today as they did three-quarters of a century ago. My favorite: “At the end of the day [fund managers] take all the money and throw it up in the air. Everything that sticks to the ceiling belongs to the clients.”

“Adam Smith,” The Money Game

In the late 1960s, the stock market was dominated by fast-talking, fast-trading young whizzes. The former money manager George J.W. Goodman, who wrote under the pen name “Adam Smith,” christened them “gunslingers.” In this marvelously entertaining book, Goodman skewers the pretensions, guesswork and sheer hogwash of professional money management. Reading his mockery can help sharpen your own skepticism toward the next great new investing idea—which almost certainly will turn out to be neither great nor new.

Categories: Transactions

Here’s the Short Worldwide History of Inflation and Deflation

Wall Street Journal MoneyBeat - 6 hours 48 min ago
Everything’s cheaper everywhere.
Bloomberg News

Consumer prices are heading lower across much of the world.

And that’s been dragging down bond yields. They’ve fallen sharply again on Tuesday — particularly in the eurozone — continuing their relentless decline amid falling inflation, weakening economies and the promise of increasingly aggressive monetary policy.

But however hard central bankers keep pushing on the liquidity accelerator, the inflation dial is refusing to budge upward. And history suggests individual central banks might find it harder to prevent domestic deflation than seems to be commonly believed. This raises a crucial question: why is there generalized global deflation?

With the exception of a few very special cases–like Russia, currently suffering from sanctions, or Argentina and Venezuela, hit by anti-market domestic policies–global inflation has been on a downtrend. Between 1990 and 2013, global inflation averaged 11%, according to International Monetary Fund estimates. This year it’s expected to come in at 3.9%. Even in the low-inflation developed economies, price pressures have generally been downward, from an average of 2.3% per year between 1990 and 2013 to 1.7% in 2014.

This generalized downtrend mirrors the steady fall in bond yields, which puzzled central bankers in the years before the financial crisis.

But it wasn’t always thus. Intriguingly, the current deflation seems to be a global counterpart to the generalized inflation of the 1970s. Then, even low-inflation economies suffered big price rises. In 1973 and ’74, German inflation ranged above 7%, while Swiss consumer prices peaked at above 10% and in Japan, they hovered at 25% per year.

But these economies didn’t just suffer significant inflation during the 1970s. The early 1990s episode saw prices jump to above 5% in both Germany and Switzerland and even Japanese consumer prices were running at between 3% and 4% a year.

This past inflation throws the current state of the world into sharp relief. These days, people talk of Brazil reverting to its bad old inflationary ways because its consumer prices are rising at between 6% and 7% a year.

A number of arguments are made for why inflation was so rampant during the 1970s. There was the ending of the Bretton Woods fixed exchange rate regime at the start of that decade, followed by the oil crisis of 1973. Economies were considerably more manufacturing dependent than they are now and considerably more unionized.

So why deflation now?

The end of communism opened up China, South-East Asia and Eastern Europe all of which increased their manufacturing productive capacity in the process. India moved from socialism to become more of a market economy. Unions became increasingly peripheral everywhere. Oil and other commodity prices fell–at least during much of the 1980s and 90s. And then there’s the small matter of demographics. Populations in the developed world are ageing. And the number of children being born in the developing world is falling.

Some economists point to policy errors in the wake of the most recent financial crisis, which lengthened and deepened the downturn, particularly in the eurozone, and which became a significant headwind for other economies. But it’s not cut and dried that the responsibility for global deflation falls on the shoulders of certain central bankers.

The inflation of the 1970s came to an end when central bankers, led by the Federal Reserve’s Paul Volcker broke a vicious wage-price spiral. There’s some debate about whether his measures were unnecessarily harsh. But the result was falling inflation as other central banks and finance ministers followed the U.S.’s lead.

Then, inflation was global. Now it’s deflation.

Can the current cycle be broken the same way–with one central bank taking the lead and other policymakers following? Will the Fed’s response to the financial crisis–followed up by the Bank of Japan and, belatedly, by the European Central Bank–ultimately prove to be as successful as its response to inflation was in the early 1980s?

Policymakers certainly hope so.

Categories: Transactions

Deals of the Day: Goldman’s Big Year, Pressure’s on BofA

Wall Street Journal MoneyBeat - 7 hours 7 min ago

Deals of the Day is your one-stop-shop for the morning’s biggest news from the finance beat, including M&A, IPOs, banks, hedge funds and private equity. Here’s what’s happening today:

Mergers & Acquisitions

Goldman’s big year. Goldman Sachs Group Inc. is within striking distance of working on $1 trillion in M&A transactions globally this year. That’s a milestone that Goldman – or any other bank — hasn’t passed in a calendar year since 2007. [WSJ]

Next in line for a spinoff? Credit Suisse analysts have identified 35 large companies that could tap into the spinoff trend, which has seen companies shed unwanted or slower-growing divisions at a feverish pace. Among those on the list: J.M. Smucker Co., Oracle Corp., International Business Machines Corp. and Gamestop Corp. [WSJ]

What makes Smith & Nephew attractive? Stryker Corp. was forced by U.K. takeover rules this past spring to say it didn’t intend to make an offer for Smith & Nephew PLC after the company’s shares spiked on takeover rumors. Under those rules, Stryker was precluded from making an offer for six months. That ban ends Friday, and now there are reports that Stryker is weighing a $16 billion bid. There’s certainly plenty that makes the company an attractive takeout candidate. [WSJ]

Steinhoff  nabs Pepkor. Steinhoff International Holdings Ltd. said on Tuesday that it is buying a 92.34% stake in the discount-clothing retailer Pepkor Holdings Proprietary Ltd. for 62.8 billion South African rand ($5.73 billion), in a move that will expand its range as price-savvy consumers look for better, cheaper deals. [WSJ]

American Tower does Nigerian deal. Bharti Airtel Ltd , India’s biggest telecommunications company, has agreed to sell its telecommunications towers in Nigeria to American Tower Corp. for $1.05 billion. [WSJ]

Reinsurance deal with a twist. A $1.9 billion deal announced Monday between Platinum Underwriters Holdings Ltd. and RenaissanceRe Holdings Ltd. includes an unusual twist: It’s partly funded with a special dividend. In effect, RenaissanceRe  is partly paying Platinum’s shareholders with Platinum’s own cash. [WSJ]

Clarkson buys a rival. Clarkson PLC, the world’s largest shipbroker, said Tuesday it plans to acquire Oslo-based rival RS Platou ASA for a record £281.2 million ($440 million), in a move likely to kick off further consolidation in an industry struggling to cope with falling brokerage fees and asset prices. [WSJ]

Young Toys on the block. Asia-focused private-equity fund Headland Capital Partners Ltd. is seeking a buyer for Young Toys Inc., a fast-growing South Korean toy maker, in a deal that could be worth more than $250 million. [WSJ]

 

Buyside

How to harness a wildcatter. An investment firm run by John Raymond, the son of former Exxon chief Lee Raymond, has plowed about $3.2 billion into companies set up by former Chesapeake CEO Aubrey McClendon under a structure that lets it keep control. [WSJ]

 

Legal & Regulatory

Pressure on BofA. British regulators are pressuring Bank of America Corp. ’s European investment-banking arm to improve the way it manages risks, saying its current practices are “simplistic” and need to be retooled. [WSJ]

 

Categories: Transactions

Stocks to Watch: Wal-Mart, Home Depot, Tiffany

Wall Street Journal MoneyBeat - 7 hours 14 min ago
Bloomberg News

Among the companies with shares expected to actively trade in Tuesday’s session are Wal-Mart Stores Inc., Home Depot Inc. and Tiffany & Co.

Wal-Mart Chief Merchandising Officer Duncan Mac Naughton is expected to announce his departure from the retailer just days before Black Friday, people familiar with the matter said. Shares ticked up 0.4% to $85.73 in premarket trading.

Home Depot said Tuesday it faces at least 44 civil lawsuits in the U.S. and Canada related to a widespread data breach at the home-improvement retailer earlier this year. Shares ticked up slightly to $98.73 premarket.

Tiffany said sales rose in the most recent period as its biggest market, the Americas, posted robust growth, although the results fell below analysts’ expectations as the company’s Japan and Asia-Pacific markets delivered weaker performances. Shares rose 4% to $109.23 premarket.

Hormel Foods Corp. said sales in its key refrigerated foods and Jennie-O Turkey Store segments helped offset a slowdown in its specialty and grocery products segment in the fourth quarter. Shares fell 2% to $53.05 premarket.

Campbell Soup Co. said growth in its Bolthouse Farms segment helped results beat expectations in its November quarter, though the food company logged higher promotional spending and unfavorable exchange rates. The company also lowered the bottom end of its fiscal-year guidance. Shares edged down 0.9% to $44.21 premarket.

Cracker Barrel Old Country Store Inc. said earnings rose 25% in its fiscal first quarter, thanks to cost-cutting initiatives and higher menu prices. The company also raised its fiscal-year guidance. Shares rose 3.1% to $125 premarket.

Post Holdings Inc. reported a wider loss in the fourth quarter as the company recorded large one-time charges in its ready-to-eat cereal category and a supply chain disruption in its active nutrition segment. Shares dropped 7.5% to $34.31 premarket.

Brown Shoe Co. Inc. raised its guidance for the year ending in January on the footwear and accessories company’s strong wholesale results and steady improvement at its Famous Footwear chain during the latest quarter.

Valspar Corp. said its sales rose in the most recent period, lifted by a strong performance in the company’s coatings segment. The company also approved a $1.5 billion share repurchase plan and increased its quarterly dividend.

AOL Inc. said Chief Marketing Officer for Advertising Erica Nardini will step down at the end of the year and be succeeded by Allie Kline, formerly CMO of AOL Platforms.

Citigroup Inc. agreed to pay $15 million to resolve allegations it shared information selectively with clients, at times hosting “idea dinners” in which analysts offered opinions on stocks that diverged from their published views.

Minerva Neurosciences Inc. said president and chief scientific officer Remy Luthringer was appointed chief executive, replacing Rogerio Vivaldi.

Honda Motor Co.'s chief executive apologized for the company’s failure to report to U.S. regulators more than 1,700 incidents involving death or injury over the last decade, saying there had been “multiple mishandlings.”

BlackBerry Ltd. is targeting users of Apple Inc.'s (AAPL) iPhone with a new promotion, the “BlackBerry Passport Trade-Up Program.”

Casey's General Stores Inc. said it would revise its financial statements dating to 2012 and pay about $31.5 million in taxes to settle an accounting error tied to an ethanol excise tax.

Glencore PLC has struck a deal with Peabody Energy Corp. (BTU) to develop an open-cut coal mine in between existing operations run by the two companies in Australia’s New South Wales state.

Palo Alto Networks Inc. said its loss widened in the quarter ended October as rising expenses continued to outpace the cybersecurity company’s sales growth.

Salix Pharmaceuticals Ltd. has hired search firm Russell Reynolds Associates to help find independent directors to boost the size and skill set of its board.

Wet Seal Inc. said it has put together a team and hired an investment banker and a senior adviser to assist the struggling retailer as it considers its strategic options.

Categories: Transactions

Protecting the Technological Infrastructure of Our Capital Markets

Editor's Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [November 19, 2014], the Commission considers adopting Regulation Systems, Compliance, and Integrity (or Regulation SCI). These rules and amendments are intended to establish a foundational regulatory framework for the technological market infrastructure that has become increasingly intertwined with the functioning of our securities markets. The rules being considered for adoption today represent a clear improvement over the proposed version, which offered only a hollow promise that our markets would be safer, more resilient, and more stable.

Click here to read the complete post...

Categories: Governance

Lawyers as Professionals and Citizens: Key Roles and Responsibilities in the 21st Century

Editor's Note: Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an essay by Mr. Heineman, William F. Lee, and David B. Wilkins; the complete publication is available here.

We have written a detailed essay presenting practical vision of the responsibilities of lawyers as both professionals and as citizens at the beginning of the 21st century. Specifically, we seek to define and give content to four ethical responsibilities that we believe are of signal importance to lawyers in their fundamental roles as expert technicians, wise counselors, and effective leaders: responsibilities to their clients and stakeholders; responsibilities to the legal system; responsibilities to their institutions; and responsibilities to society at large. Our fundamental point is that the ethical dimensions of lawyering for this era must be given equal attention to—and must be highlighted and integrated with—the significant economic, political, and cultural changes affecting major legal institutions and the people and institutions lawyers serve.

Click here to read the complete post...

Categories: Governance

Goldman Flirts With Rare Milestone: A Trillion-Dollar Year for Deals

Wall Street Journal MoneyBeat - 7 hours 59 min ago

Goldman Sachs Group Inc. is within striking distance of working on $1 trillion in M&A transactions globally this year after picking up a string of mandates in Europe over the past days. That’s a milestone that Goldman – or any other bank — hasn’t passed in a calendar year since 2007.

AFP/Getty Images

After last week picking up mandates on $100 billion of deals in the U.S.  — working on oil services company Halliburton Co.’s agreement to buy industry peer Baker Hughes Inc. and Actavis PLC’s deal to purchase Botox maker Allergan Inc. –  this week “Merger Monday” came to Europe and Goldman repeated the feat of being named as adviser on all the headline transactions.

The bank is advising BT Group PLC on preliminary discussions to acquire Telefónica SA’s U.K. mobile business, O2, according to people familiar with the matter. No value has been put on any deal but analysts value O2 at around $14 billion.

The bank’s global head of telecoms, Simon Holden, is based in London.

Elsewhere in Europe, Goldman was on Monday named as financial adviser to Swiss packaging group SIG Combibloc on its agreed sale to Canadian conglomerate Onex Corp., which is valued at up to €3.75 billion; and to U.K.-based Salamander Energyon its roughly £314 million sale to Ophir Energy , with managing directors Andrew Fry and Nimesh Khiroya leading the deal team.

These mandates followed another big win for Goldman in the U.K. on Friday, when Friends Life named the bank as a financial adviser alongside corporate brokers Barclays and RBC Capital Markets on its proposed £5.6 billion all-share sale to insurer Aviva. The Goldman Sachs bankers on that deal were named as banking and insurance expert John Rafter, U.K. specialist Mark Sorrell and managing director Paul Miller.

The bank had so far advised on announced deals worth $967.3 billion in 2014, according to Dealogic. Goldman is first in both the global and European M&A league tables by deal value for the year so far.

–Giles Turner contributed to this article.

Categories: Transactions

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