Morning News: May 11, 2018
Posted by Eddy Elfenbein on May 11th, 2018 at 7:03 am

US Sanctions Cause Kremlin-Linked Russian Tycoon To Have To Give Up His Private Jets

What to Watch For in President Trump’s Long-Awaited Drug Price Speech

FCC Hits Robocaller With $120 Million Fine But the Calls Probably Won’t Stop Anytime Soon

The Real Winner in Apple’s New Credit Card Deal Might Surprise You

Nvidia Reveals Crypto Sales for First Time and Predicts Big Drop

Dropbox Revenue Increases as It Lands More Paying Users

Wall Street Is So Sure MoviePass Will Fail, It’s Become Incredibly Expensive to Short

Apple Leaves Overseas Cash Out of Its Latest Quarterly Report

Skechers Says In New Lawsuit It Was Harmed By Adidas Paying Players Under The Table

Snapchat Has Started Rolling Back its Redesign, as Research Shows How Wildly Unpopular it was With Millennials

Elon Musk Offers Free Rides in His New Boring Tunnel

Barclays CEO Jes Staley Fined $870,000 For Trying to Unmask An Anonymous Whistleblower

Michael Batnick: The Blame Game

Jeff Carter: The Bond Gods

Blue Harbinger: Do You have a Strategy?

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Book Review: When the Wolves Bite
Posted by Eddy Elfenbein on May 10th, 2018 at 10:31 am

“I wouldn’t do business with you if you were the last man on Earth.” So said billionaire Carl Icahn on live television to fellow billionaire Bill Ackman.

On January 25, 2013, for 27 riveting minutes of uninterrupted television, world financial markets came to a halt as two of the wealthiest men on the planet tore into each other. It was great TV.

The brawl was vicious, personal and highly entertaining. The supposed subject of their discussion was an unlikely one: Herbalife, a nutritional-supplements company. On its prospects, they viscerally disagreed; Icahn was long and Ackman was short.

Typically, portfolio managers speak in measured tones. Not this time. These two men loathed each other, and they weren’t shy about expressing it. Naturally, Wall Street loved it. During the segment, trading volume dropped 20%.

Coolly presiding over the mayhem was CNBC anchor Scott Wapner, who details the full story in his fun and engaging new book, “When the Wolves Bite: Two Billionaires, One Company and an Epic Wall Street Battle.”

Here’s the TV segment. If anything, Wapner downplays the zaniness. As the insults started to fly, you can hear traders hooting in the background. At one point, Wapner has to remind Icahn, a billionaire 20 times over, that “bullshit” is inappropriate for cable TV.

Wapner explains how the Ackman/Icahn kerfuffle long predated their on-air brawl. Years earlier, Ackman felt Icahn had screwed him out of millions in a stock deal, and the courts agreed. Icahn, the cantor’s son from Queens, didn’t take the loss well. “I couldn’t figure out if he was the most sanctimonious guy I ever met in my life or the most arrogant.”

Despite their feud, or perhaps driving it, the two men aren’t terribly dissimilar. They’re both rich, very smart and incredibly driven. Both are also “activist investors,” which is the new, more respectable name for “corporate raiders.”

Ackman made his name by shorting MBIA, the mortgage insurer. He chose right and made a fortune. Icahn, whose voice still carries the pugnacity of his native Queens, is a legendary investor. Five years ago, the cover of Time magazine labeled Icahn the “Master of the Universe.”

The story picks up speed in 2012, when Ackman and his Pershing Square hedge fund decide to take a $1 billion short position in Herbalife, the multilevel marketing company. Under the leadership of their ebullient CEO Michael O. Johnson, Herbalife sold diet shakes and teas, mostly to Hispanic customers. Like many MLM firms, the strategy was to get to new people to sign on as distributors who then had to buy more products. The new distributors were then encouraged to sign on still more distributors.

This left the question, “Were Herbalife’s sales real, or were they just selling to their own distributers?” In May 2012, before Ackman initiated his short, the stock got pummeled after David Einhorn queried management on precisely this topic. They fumbled their answer, and Wall Street’s judgment was brutal. The next day, shares of Herbalife plunged 40%.

On balance, history suggests that Herbalife is indeed a legitimate enterprise, if perhaps an unseemly one. But Ackman’s thesis was that the whole thing was a sham and a Ponzi Scheme. He used the media and an investor conference to relentlessly criticize Herbalife. That’s what irritated Icahn. He objected to Ackman’s bear-raid tactic of taking an outsized short position and then scaring the bejesus out of everyone. In response, Ackman accused Icahn of using the same tactics.

Wapner is a skilled storyteller, and the book has its tragicomic moments. By 2014, the battle started to turn against Ackman. At one investor conference, Ackman slammed Harbalife for more than two hours, and the shares soared 25% that day. Herbalife was so creeped out by Ackman’s obsession that they commissioned a psychological evaluation of him, looking at his desires and motivations, the same way the FBI profiles serial murderers.

“This guy Ackman,” to quote Icahn, seemed possessed. The more he lost, the more defiant he became. He even compared Herbalife’s evasions to the Nazis’ “big lie.” As Herbalife rallied, Icahn increased his already massive fortune, but causing Ackman pain seemed the greater reward.

One of the more disquieting details in the book is the way big investors manipulate the media. In fact, Ackman was able to marshal much of the political system against Herbalife. Apparently, if you have enough cash to spend, it doesn’t seem terribly difficult to weaponize social justice in the cause of your portfolio. I have to wonder where else this dynamic exists.

The judgment of Wall Street is clear: shares of Herbalife are up more than 64% so far this year. As entertaining as the Herbalife story is, it’s also just baffling. What drove these men? Why was Ackman so darn relentless? Why did he short Herbalife after Einhorn gave it such a haircut? It’s odd that a battle over a nutritional-supplements company is tinged with Greek drama. When egos are in play, all the money in the world isn’t enough.

Barry Ritholtz on Fund Fees
Posted by Eddy Elfenbein on May 10th, 2018 at 9:25 am

Yesterday, Barry Ritholtz had an incisive column on the evolving nature of fees in the investment world.

Today, he added:

I (of course!) ran long, and the editors cut my blathering down to a more manageable 800 or so words. But some background of how this came about, along with a few things that did not make the final cut are worth sharing.

First, Peter Boockvar introduced me to Andrew Wellington a while ago (Andrew is Lyrical’s CIO and co-founder). I have been mulling over his thoughts for a while. Lyrical charges a 0.75% management fee, and 25 percent of the outperformance versus the benchmark (there is also a bigger cap weighted 0.45% + 25% of alpha version).

I like the 0.75% + 25% of alpha versus 2.00% plus 20% of beta + alpha

And, the combination of outperformance and $9 billion in assets impressed me, making me think these fees could be a bigger force in both active management and alternative investments.

Exchange traded funds are not immune from this fee pressure either: I also spoke with Eddy Elfenbein, who manages the first ETF that charges a variable fee. The active concentrated CWS (Crossing Wall Street!) fees flex as they either beat its index or not. He is aligned with his shareholders in that he makes less when his model does not out-perform. “I wanted to show our investors that I have skin in the game, and my interests are aligned with theirs. If we beat the index, I get a bonus. If we fall short, they get a savings. It’s that simple.”

Morning News: May 10, 2018
Posted by Eddy Elfenbein on May 10th, 2018 at 7:10 am

Iran’s Door to the West Is Slamming Shut, and That Leaves China

Oil Traders Prepare to Cut Iranian Crude on Trump Sanctions

‘Humbling’ U.S. Settlement Clears Crisis-Era Hangover for RBS

One of the World’s Biggest Phone Firms Is Stopping Operations Because of a Ban on Buying

Mulvaney Downgrades Student Loan Unit in Consumer Bureau Reshuffle

California Takes Big Step to Require Solar on New Homes

Apple Scraps $1 Billion Irish Data Center Over Planning Delays

Struggling Tesla Faces an Investor Insurrection

Nvidia’s $18 Billion Rally Burns Bears Just in Time for Earnings

Alexa and Siri Can Hear This Hidden Command. You Can’t.

Expectations Capped, Wells Fargo Investors Await Details on Costs

Anbang Insurance Founder’s Stunning Fall Ends With 18-Year Prison Term

Lawrence Hamtil: Revisiting the Case For An Equal-Weighted EM Strategy

Joshua Brown: The Drawdown Blues

Animal Spirits: Tesla Hathaway

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Morning News: May 9, 2018
Posted by Eddy Elfenbein on May 9th, 2018 at 7:04 am

European Companies Rushed to Invest in Iran. What Now?

The Senate May Begin Restoring Net Neutrality Today—Or Kill It for Good

Vodafone’s $22 Billion Liberty Deal to Reshape European Telecom

SoftBank CEO Accidentally Announces That Walmart Has Beaten Amazon in the Battle to Buy Flipkart

Jobs Platform Glassdoor to Be Acquired by Japan’s Recruit Holdings for $1.2 Billion

Dish Network Quarterly Revenue Misses Estimates on Pay-TV Losses

Parks, ‘Black Panther’ Propel Disney Earnings Past TV Decline

Disney CEO Is Upbeat About Deal With Fox

MoviePass Owner’s Cash Runs Low With $9.95 Monthly Deal Taking Toll

What Is Blockchain? New Facebook Unit To Explore Tech Behind Bitcoin

Toyota’s Upbeat Profit Forecast, Stock Buyback Lift Shares

Tesla Urged to ‘Raise Its Game’

Nick Maggiulli: Why Winners Keep Winning

Ben Carlson: Lawmakers Don’t Understand How Buybacks Work

Michael Batnick: Should I Time the Market?

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Oil Breaks $70
Posted by Eddy Elfenbein on May 8th, 2018 at 10:43 am

For the first time since 2014, oil is above $70 per barrel. Two years ago, oil got as low as $26. We’re obviously waiting on the president’s decision about the Iran deal.

Interestingly, oil prices and the share prices of energy stocks had diverged. Here’s a chart showing oil (in red) and the Energy Sector divided by the S&P 500 (in black). Only recently have energy stocks seen a bounce in relative terms.

It’s almost as if the stock market doubted the oil rally would last. Then they finally threw in the towel.

Morning News: May 8, 2018
Posted by Eddy Elfenbein on May 8th, 2018 at 7:09 am

Australia Plots Early Return to Surplus By Defying Global Forces

Should the Fed Create `FedCoin’ to to Rival Bitcoin? A Former Top Official Says `Maybe’

Comcast Is Still Trying to Bust Up the Fox-Disney Marriage. Here’s How They Could Do It

Shire (SHPG) Agrees to Be Acquired by Takeda for $62 Billion

The 13 Best Warren Buffett Quotes from the Berkshire Hathaway Meeting

T-Mobile, Sprint Come Up Short in Making Their Case For A Wireless Merger

Alibaba Buys Rocket Internet’s Daraz to Expand its E-commerce Empire into South Asia

Dimon Lays Out 100-Year China Vision With Trade Spat on Horizon

Goldman, Wells Fargo Look to Credit Cards for Bigger Returns

Icahn, Deason Want Bid Of At Least $40 Per Share For Xerox

Amazon’s Prime Video Service Has A Weird Problem — People Are Paying For It But Aren’t Watching It

Elon Musk Wants to Fill Warren Buffett’s `Moat’ With Candy, But It Still Holds Water

Michael Batnick: The Compound

Roger Nusbaum: Has The Bear Arrived?

Howard Lindzon: Momentum Monday …The Only Thing Not Working is Complaining

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Cerner Bounces Back
Posted by Eddy Elfenbein on May 7th, 2018 at 10:04 pm

After last Wednesday’s close, Cerner (CERN) released a disappointing earnings report. At one point early in trading on Thursday, Cerner was down over 10%.

The stock rallied during much of Thursday. It then closed higher on Friday and again today. In fact, shares of CERN are actually slightly higher now than they were before the earnings announcement.

Sometimes this game makes no sense.

Wabtec to Reaffirm Guidance
Posted by Eddy Elfenbein on May 7th, 2018 at 12:05 pm

Here’s a press release from Wabtec (WAB):

Wabtec Corporation (WAB) today plans to affirm the following at its Investor Day:

In 2018, revenues are expected to be about $4.1 billion, earnings per diluted share are expected to be about $3.80 excluding estimated restructuring and integration charges, operating margin is expected to be about 13.5 percent, and the company expects cash flow from operations to exceed net income for the year.

The company’s long-term vision is to average double-digit growth in revenues and earnings per diluted share through the business cycle, with its operating margin expected to improve about 100 basis points annually, and cash from operations expected to exceed net income annually.

Here’s the investor presentation.

FactSet Raised Dividend by 14%
Posted by Eddy Elfenbein on May 7th, 2018 at 9:59 am

This morning, FactSet (FDS) announced that it raised its dividend by 14%. The payout will rise from 56 to 64 cents per share. This is the 13th year in a row that FDS has raised its dividend.

The dividend will be paid on June 19 to holders of record at the close of business on May 31.