A Manager of $42 Billion Fears Bubble in World’s Biggest Stocks

The world’s biggest companies could be hiding the biggest risks.

That’s because companies such as Amazon.com Inc. and Alibaba Group Holding Ltd are overvalued, according to Robert Naess, who manages about $42 billion in stocks at Nordea Bank AB, Scandinavia’s largest bank.

“I’m a bit worried about the valuation of these very popular companies,” Naess, portfolio manager, said in an interview in Oslo on Friday. “The big stocks have become more expensive. There’s danger of a bubble in them.”

Naess and his partner, Claus Vorm, quantitatively analyze thousands of companies, investing in those with the most stable earnings and avoiding expensive stocks, a strategy which has delivered a 10 percent return for the Global Stable Equity Fund this year. It has returned 12 percent on average in the past five years, beating 75 percent of its peers.

They prefer “boring” stocks, unlike the global behemoth technology companies that have led the global stock rally. Tech stocks sold off at the end of November, with the single worst day on record for the so-called FANG stocks. One of those stocks, Amazon, which has risen 55 percent this year, has a price-to-earnings ratio of 275 for 2017, compared with 18.2 on average for MSCI World Index.

“Long-term, 5-10 years, stocks that are expensively priced, such as Amazon, Tencent and Alibaba, will give a low return,” Naess, who also shuns Facebook, Inc., said. “I’m pretty certain that in the next 10 years the return on those will be lower than the market.”

The fund holds Apple Inc. and Alphabet Inc., which are “reasonably priced”. It has also bought a stake in Merck & Co., Inc. and increased in Amgen Inc., CVS Health Corporation and Walgreens Boots Alliance, Inc.

Naess sees about 12 percent upside for the global developed stock market in the next 12 months provided companies continue to deliver expected earnings growth.

“2018 looks OK,” he said. “Normally, I think the earnings estimates are too high. But I believe earnings estimate could be too low next year given earnings are so good this year.”

    Read more: http://www.bloomberg.com/news/articles/2017-12-11/a-manager-of-42-billion-fears-bubble-in-world-s-biggest-stocks

    The GOP Tax Plan Is Entering Its Make-or-Break Week

    The $1.4 trillion item on President Donald Trump’s wish list — a package of tax cuts for businesses and individuals that he has said he wants to sign before year’s end — is headed into the legislative equivalent of a Black Friday scrum next week.

    Senate Republican leaders plan a make-or-break floor vote on their bill as soon as Thursday — a dramatic moment that will come only after a marathon debate that could go all night. Democrats are expected to try to delay or derail the measure, and the GOP must hold together at least 50 votes from its thin, 52-vote majority in order to prevail.

    Their chances improved this week when Republican Senator Lisa Murkowski of Alaska said she’ll support repealing the “individual mandate” imposed by Obamacare — a provision that Senate tax writers are counting on to help finance the tax cuts. Murkowski had earlier signaled some reservations about the provision; and her support was widely viewed as a positive sign for the tax bill’s chances.

    Trump is scheduled to address Senate Republicans at their weekly luncheon Tuesday afternoon on taxes and the legislative agenda for the rest of the year, according to a statement from Senator John Barrasso, chairman of the Senate Republican Policy Committee. 

    The White House previously announced that the president would talk with Republican and Democratic congressional leaders at the White House the same day about an agreement on spending to keep the government open after funding expires on Dec. 8. David Popp, a spokesman for Senate Majority Leader Mitch McConnell, and Drew Hammill, a spokesman for House Democratic leader Nancy Pelosi, both said that meeting is still on the schedule.

    If the tax bill clears the Senate — a step that’s by no means guaranteed — lawmakers in both chambers would have to hammer out a compromise between their differing bills, a process that presents potential pitfalls of its own. For now, though, much of the Senate’s attention will focus on its legislation’s price tag.

    Three GOP senators — Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma — have cited concerns about how the measure would affect federal deficits. Independent studies of the legislation have found that — contrary to its backers’ arguments — its tax cuts won’t stimulate enough growth to pay for themselves. Both the Senate bill, and one that cleared the House earlier this month, would reduce federal revenue over a decade by roughly $1.4 trillion, according to the Joint Committee on Taxation.

    On Wednesday, a report from the Penn Wharton Budget Model at the University of Pennsylvania said the bill would reduce federal revenue in each year from 2028 to 2033. That finding would mean it doesn’t comply with a key budget rule that Senate Republican leaders want to use to pass their bill with a simple majority over Democrats’ objections.

    Budget Rule

    In essence, that rule holds that any bill approved via that fast-track process can’t add to the deficit outside a 10-year budget window. The JCT has already found that the Senate bill would generate a surplus in its 10th year because it has set several tax breaks for businesses and individuals to expire.

    But JCT hasn’t yet weighed in publicly on the revenue effects in subsequent years. Senate GOP leaders have expressed confidence that their proposal will satisfy the rule ultimately.

    Another potential stumbling block stems from the fact that Congress is trying to act on complex tax legislation under a tight, self-imposed timeline in order to deliver on promises from Trump, House Speaker Paul Ryan and McConnell.

    For example, Republican Senator Ron Johnson of Wisconsin has said he can’t support the current Senate bill because it would give corporations a tax advantage — a large rate cut to 20 percent from 35 percent — that other, closely held businesses wouldn’t get.

    ‘Change the Most’

    His concern centers on the Senate’s plan for large partnerships, limited liability companies, sole proprietorships and other so-called “pass-through” businesses. Under current law, these businesses simply pass their earnings to their owners, who pay income taxes at their individual rates — currently, as high as 39.6 percent, depending on how much they earn.

    Read more: A QuickTake guide to the tax-cut debate

    The Senate bill would provide pass-through owners with a 17.4 percent deduction for income — but in combination with other provisions, that would result in an effective top tax rate for business income that’s more than 10 percentage points higher than the proposed corporate tax rate.

    The House bill would use an entirely different approach, setting a top tax rate of 25 percent for pass-through business income, but then limiting how much of a business’s earnings could qualify for that rate.

    Reconciling those differences — and addressing Johnson’s concern — may be a complicated process. “That’s part of the equation that could change the most over the next few weeks,” Isaac Boltansky, senior vice president and policy analyst at Compass Point Research and Trading LLC, told Bloomberg Tax. “No one is planning around it yet. There is uncertainty across the board.”

    Meanwhile, the Obamacare issue looms in the background — threatening at least one GOP senator’s vote. Susan Collins of Maine said earlier this week that tax bill “needs work,” and “I think there will be changes.”

    The 2010 Affordable Care Act — popularly known as Obamacare — contained a provision requiring individuals to buy health insurance or pay a federal penalty. Removing that penalty in 2019, as the Senate tax bill proposes to do, would generate an estimated $318 billion in savings by 2027, according to the Congressional Budget Office. The savings would stem from about 13 million Americans dropping their coverage, eliminating the need for federal subsidies to help them afford it.

    Because many of the newly uninsured would be younger, healthier people, insurance premiums would rise 10 percent in most years, the nonpartisan fiscal scorekeeper found.

      Read more: http://www.bloomberg.com/news/articles/2017-11-24/trump-s-1-4-trillion-tax-cut-is-entering-its-make-or-break-week

      A hedge fund at Emerging Sovereign Group that has bet against the Chinese economy sunk about 62 percent this year through April.

      The Nexus fund dropped 8.2 percent last month, according to an email to investors seen by Bloomberg News. The April results mark at least the third consecutive month of negative returns for the fund.

      China bears have suffered as economic growth accelerated in the first quarter and officials have been guiding the yuan higher against the dollar in a move that’s caught market watchers by surprise. The Nexus fund gained 35 percent in 2015, profiting from moves by China’s central bank to devalue the yuan by the most since 1994. But the fund has underpeformed since 2016 when it dropped 15.5 percent, Bloomberg has reported.

      ESG is run by co-founders Kevin Kenny, Mete Tuncel and Jason Kirschner, who bought out Carlyle Group LP’s 55 percent stake and took full control of the firm in October. Most of the assets at ESG, which managed $3.5 billion as of December, are in two of its other funds.

      A spokesman for New York-based ESG, which started in 2002 with seed capital from Julian Robertson’s Tiger Management, declined to comment. 

      Puerto Rico Winner

      Candlewood Investment Group’s Puerto Rico SP fund gained 5.7 percent in the first two weeks of May, bringing year-to-date returns to 9.4 percent, according to an investor update seen by Bloomberg. The $105 million fund targets securities including general-obligation bonds, or GOs, and other opportunistic areas within the Puerto Rico municipal bond market. Puerto Rico declared a form of bankruptcy in May.

      "There have been several recent events which we believe confirm our investment positioning and thesis," the $1.2 billion firm said in a separate letter for April. "The most notable was the Commonwealth’s restructuring proposal which clearly prioritized GO and GO guaranteed debt above other bondholders."

      Michael Ardisson, partner and director of business development at Candlewood, declined to comment.

      Millennium Underwhelms

      Millennium Management’s main fund has been posting middling results this year along with its multistrategy peers. The Millennium International fund returned 0.3 percent in April to bring returns for the first four months of the year to an estimated 2.5 percent, according to an investor update seen by Bloomberg.

      Hedge Fund Research Inc.’s multistrategy index rose about 2 percent in that time, as did hedge funds on average.

      The largest driver of the Millennium fund’s performance last month was the relative value fundamental equity strategy, which gained 0.2 percent on the strength of the technology, financials and health-care sectors, the update shows. A spokeswoman for the $35 billion firm run by Izzy Englander declined to comment.

      Read more: http://www.bloomberg.com/news/articles/2017-05-23/esg-china-fund-drops-62-as-candlewood-puerto-rico-pool-jumps-9

      Blame Hipsters for Making These Foods More Expensive

      Hipsters have been blamed for polarizing trends from jeans to facial hair. Now they’re making it more expensive to enjoy breakfast.

      Blame it on unicorn toast, whose rapid spike in popularity has contributed to a surge in cream cheese prices. There’s also other fads like avocado toast and exotic coffee drinks that have driven up costs for avocados and vanilla beans. Even cauliflower, a staple in the vegan diets favored by some hipsters, is near a record high.

      Unicorn toast features bread topped with cream cheese and various food colors or super-food powders swirled in, and Instagram is loving it. Unfortunately, it isn’t the cheapest to recreate as cream cheese prices have risen 31 percent over the past year.

      It’s even worse with avocados, where a 22-pound box of Hass avocados from the state of Michoacan, Mexico’s biggest producer, now costs more than double what it was a year earlier and is the highest in data going back 19 years.

      Cauliflower’s rise from vegetable afterthought to darling of the vegan and gluten-free diet has already contributed to a spike in Canada’s consumer prices. In the U.S., prices have tripled in a little more than a year, thanks in no small part to trendy recipes like cauliflower rice and cauliflower crust pizza. The vegetable’s price has come down from its peak, but is still higher than the historical average.

      Vanilla’s price rise might be better laid at the feet of corporate America, but hipsters can’t be absolved entirely. Starbucks Corp.’s attempt to tap into the seemingly bottomless appetite for all things unicorn — Frappuccino anyone? — has sent the cost of the bean within striking distance of a record.

      And Starbucks itself is sitting near all-time highs as it profits from these trends. When the company released earnings late last week, it singled out the success of its Unicorn Frappuccino.

      If Starbucks is any example, the quick capitalization on these popular trends by major companies isn’t going away.

      “What happened with Unicorn, drove significant traffic, incrementality, awareness, brand affinity,” Starbucks Chairman Howard Schultz said on a call to discuss the company’s most recent earnings report.“Stay tuned, because we have a lot more coming.”

      Read more: http://www.bloomberg.com/news/articles/2017-05-03/from-unicorns-to-avocado-toast-hipster-fads-jack-up-food-prices