Month: December 2012

Usmanov ready to take control of Arsenal

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The second-largest shareholder of UK soccer team Arsenal has told CNBC that he is ready to do all he can to help the team and is ready to take control of the club and buy the remaining shares.

Russian billionaire Alisher Usmanov currently owns 29.9 percent of the club, after buying former vice-chairman David Dein’s stake in 2008 for 75 million pounds (USD 122 million). But Usmanov has been locked in a battle with Arsenal’s major shareholder Stan Kroenke, who has refused any kind of dialogue with Usmanov and denied him a seat on the board, a decision Arsenal manager Arsene Wenger is believed to have backed.

“I want to take this opportunity to just reaffirm that in order to help the team, we would be ready to buy more shares, to buy control, to buy all shares,” he told CNBC Thursday in Moscow.

“We are ready to do all that we can in order to help the company, in order to consider any form of cooperation or ownership with the team.”

Uzbek-born Usmanov said he doesn’t want to be a member of the board as it currently stands but it “rankles” him that one of the major shareholders isn’t part of the decision making process.

(Read More: Russia’s Richest Man Usmanov: Wait For Next Facebook Surge)

Arsenal, without a trophy since 2005, has faced heavy criticism this season after key players left the club without being replaced with high profile recruits. Results also haven’t gone its way, although the team stands fifth in the Premier League and still remains in Europe’s premier competition, the Champions League.

Selling star striker Robin Van Persie to league leaders Manchester United was a mistake, according Usmanov, but he confirmed that he wouldn’t interfere with Arsene Wenger on transfer decisions if he had a greater say at the club. He also said Wenger “doesn’t have enough support”.

(Read More: Abramovich’s Management Style Raises Many Questions)

Reported by Forbes magazine to be Russia’s richest man, Usmanov made his money in the timber and mining industry as well as investments in other sectors. He told CNBC it would be his dream to take control of the club and described Wenger as “one of the best coaches in the world”.

“If I have big stake in Arsenal, of course I have my opinion about what our team must do,” he said. “For example in commercial side, I think there are also many questions about [effectiveness] of the commercial management of Arsenal. But we will see, we will wait. Maybe when I wake up someday I’ll have this Arsenal club.”

“I want to talk with every Arsenal fan. I am with you. I’m one of you. I’m ready to help the club with anything what I can.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Monti to enter ring in fight for Italy’s leadership

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Mario Monti will take part in Italy’s elections in February, media reports said on Thursday, confirming speculation that the Italian prime minister will join a centrist group and remain in politics to lead Italy out of the debt crisis.

The Financial Times reported that Monti indicated his intention in a meeting on Wednesday with Pier Ferdinando Casini, head of the small UDC party, and Luca Cordero di Montezemolo, the head of Ferrari who has launched his own civic movement in support of the prime minister. It cited three sources close to the talks.

Italian daily La Repubblica reported on Thursday that Monti would most likely announce his plans for the country, outlined in a “road map”on Sunday morning.

Monti’s unelected technocrat government came to power just over a year ago when former Prime Minister Silvio Berlusconi was forced out of office. But when Berlusconi’s center-right party withdrew parliamentary support for the government earlier in December, Monti announced he would step down, paving the way for early elections. That decision alarmed many investors, who had welcomed Monti’s arrival a year ago. His commitment to fiscal and structural reforms calmed financial markets this year and helped to lower Italy’s alarmingly high borrowing costs.

However, Italy’s debt is still the second-highest in the European Union at 120 percent of GDP (gross domestic product). Economic output has fallen for five consecutive quarters and growth remains elusive.

Monti’s centrists would face Berlusconi’s conservative”People of Freedom” party as well as Pier Luigi Bersani‘s center-left Democratic Party. Bersani told CNBC in an interview last week that he would continue to implement the reforms started by Monti.

While it is unlikely Monti will win a majority and wield thesame kind of power again, he could upset his rivals by offering voters analternative. The move will also be welcomed by other European leaders, who have been keen to see Monti run for election.

“Monti taking power was important – suddenly there was an Italian politician that European leaders felt they could work with,” Ben May,European Economist at Capital Economics said.

He warned however that Monti’s achievements in Italy had been talked up to a certain extent – both by his government and by other European leaders who are acutely aware that Italy is “too big to fail”.

“It is too early to say that what Monti has done will have a radical effect on the Italian economy,” May said. But “Italy is such a big economy that it would be unwise to talk down its prospects. That could have a big impact on the markets.”

Monti was forced to postpone a press conference on Italy’s 2013 budget initially set for Friday after members of Berlusconi’s conservatives delayed their approval of the plan. He is not expected to make an announcement on his future in politics before the budget deal is approved.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Greenberg: Worst CEO of 2012

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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I’ve been doing this “Worst CEO List” for years, and this one is among the toughest. (Read More: The Worst CEOs for 2012)

The “please name” list was long, thanks to my Twitter and Facebook followers, and included Meg Whitman of (Hewlett-Packard (nah, she did great building eBay and inherited a mess at HP!) and Chesapeake CEO Aubrey McClendon (definitely deserving, especially after reading this Reuters piece.)

The metrics for landing on my list are many; the stock price is only one variable. Yes, the choice is always subjective. And, yes, it’s easy to be an armchair CEO when the most I’ve done is co-run a two-person business that lasted for two years.

But I’ve also been observing and writing about the good, bad and ugly among businesses for around 40 years and have watched one too many CEOs get a free pass.

Good CEOs are easier to pick, and not just because of the stock price (which a CEO can’t control) or fundamentals, which if genuine can be finicky. But because of a clear strategy and, ultimately, the level of execution. Look no further than Howard Schultz of Starbucks, Frank Blake of Home Depot, the recently retired Jim Sinegal of Costco or the recently departed Apple titan Steve Jobs, as prime examples.

Or Jeff Bewkes of Time-Warner or my ultimate boss, Brian Roberts, of Comcast. (Yeah, it’s a conflict to mention him, but get over it!). Or Ajaypal Banga of MasterCard and J. Crew’s Mickey Drexler.

And despite the ongoing bull-bear fight over his stock, it’s hard to leave Jeff Bezos of Amazon off the Best CEO List. What a remarkably disruptive execution on a plan that so many others could only make work on paper, not practice.

But Worst CEO? I anguished over my pick more than usual this year, flip-flopping on my top choice until the very last minute.

In the end, the worst CEO can be none other than Andrew Mason of Groupon, whom I picked as my front-runner earlier this year.

Before we get into the reasons, those who made my final cut:

Steve Ballmer of Microsoft. (Truth be told: For a few moments, as I argued with myself during the writing process, he took the No. 1 spot.) This is more of a cumulative call, culminating with Windows 8, which hasn’t exactly knocked the cover off the ball (or moved the needle in PC sales, as Ballmer had predicted it would do.)

Its miserly low-single-digit gain lagged the SandP 500’s roughly 12.5 percent gain this year. Worse, since Ballmer took control on January 1, 2000, Microsoft’s shares have sunk by more than 40 percent. (Read More: Top Turnaround CEOs of 2012: Battley)

And let’s not forget this year’s write-off of almost the entire $6.3 billion spent on buying online advertising company aQuantive in 2007 – an egregious misstep that would get plenty of CEOs fired.

Yet, for all of the talk of Windows, it’s only 25 percent of the business. Under Ballmer Xbox has excelled and the less-sexy but stickier “server and tools” segment for businesses grew to help buffer any slowdown in Windows.

But that’s the point: Microsoft has largely become the equivalent of a lumbering, cash-rich, unregulated utility. Yet, with all of its cash – $53.6 billion (including debt) at last count – Microsoft pays a dividend that currently yields a paltry 3.4 percent. There hasn’ even been a special dividend.

Maybe he’s not the worst, but Ballmer deserves to be called out and including him on this list is one way to do it.

Ron Johnson of JC Penney, clearly the top choice of many. Despite his pristine history at Apple, Johnson has made plenty of blunders at Penney, starting with providing sales and earnings guidance for this year – overzealous guidance, at that – which has since been withdrawn. And for good reason: Comp-store sales last quarter plunged an astonishing 26 percent. But to his credit, Johnson also said from Day One the Penney turnaround, if he can pull it off, will be a multi-year process. I’m willing to cut him some slack. (Read More: J.C. Penney Turnaround in Doubt as Sales Plummet)

The management style of Zynga‘s Mark Pincus has rubbed many inside the company (based on a revolving door of executives and game developers ) and investors (its stock has tumbled 75 percent since going public) the wrong way. I believe he suffered from the blind hubris that often comes with an egregiously overpriced stock offering. In retrospect, as this Wall Street Journal piece articulates well, beyond going public it appears there was a lack of strategy that defines a exceptional CEO. And in this case, exemplifies one of the worst. (Read More: Mark Pincus Loses $4 Million a Day for Seven Months)

Antonio Perez of Eastman Kodak, on this list for the second consecutive year. The difference between this year and last? Kodak hadn’t filed for bankruptcy, which it did last January. Yet, remarkably, Perez wasn’t fired for overpromising, under-delivering and, ultimately, leading the already downward-spiraling company over the solvency cliff. Perez inherited a tough hand in 2005, when he took the top job. Since then he has dangled one carrot after another in front of investors (an ill-times entry into the consumer printing business and an overly optimistic valuation of Kodak’s patents.) Both have been losing bets. (Read More: Kodak Did Not Mislead Investors Before Bankruptcy-Court)

Which brings us to Mason: Without question Groupon was the most over-hyped IPO debacle of recent years, with a slide of 80 percent making it an even bigger loser than Zynga. And unlike Pincus, who has an admirable background starting companies, Mason has none.

He’s a software developer who stumbled on the idea for Groupon and, by default, became CEO.

The mistake, no doubt, was not transitioning him out of the CEO role once the company decided to go public. Most entrepreneurs can make that transition and make it well; the good ones know when to step aside. (Read More: Groupon’s Andrew Mason Isn’t Firing Himself)

His incompetence as a CEO was obvious from the initial public offering filing – in a letter to “potential” shareholders that argued “we don’t measure ourselves in conventional ways.”

From that point on it became obvious that Groupon was headed for trouble as a public company.

Since then, the company has hasn’t just floundered, but flopped. It’s even had a series of accounting restatements. It now appears to be a public company in search of a business that (fingers crossed!) may work. Or (fingers and toes crossed) may get taken out of its misery by being acquired. On top of that Mason’s goofball antics, which can come off more like a big kid than company leader, almost make a mockery of corporate leadership — especially for a company with a market value of more than $3 billion. It would be excusable, even endearing, if the company were doing well (think Herb Kelleher of Southwest Airlines) but it’s not. Sales growth is through the floor.

The only surprise (and I really hate to sound so harsh) is that Mason is still on the job. That’s why nobody is more deserving to be named this year’s Worst CEO.

-By CNBC’s Herb Greenberg; Follow him on Twitter:@herbgreenberg and Google Follow Herb Greenberg on Google Plus

Subscribe to Herb at http://www.facebook.com/herb.greenberg

Questions? Comments? Write to HerbOnTheStreet@cnbc.com

Disclaimer

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Is investor optimism over Indian stocks out of whack?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian equities have had a bumper year, surging more than 25 percent year-to-date, driven by foreign inflows and optimism surrounding the government’s recent reform action, and strategists expect the euphoria to spill into next year, forecasting gains of up to 20 percent for stocks in 2013.

Banks including Standard Chartered and Morgan Stanley predict the benchmark Bombay Sensex will breach its lifetime high of 21,206 hit in 2008 by the end of next year supported by easing in domestic monetary policy and positive earnings growth. The former sees the index reaching 22,000, while the latter forecasts it will touch 23,097 – marking a rise of 14 percent to 19 percent from current levels.

However, given that growth in Asia’s third largest economy is looking to come in at a below-trend 6-6.5 percent next year, together with a volatile currency and the threat of a credit rating downgrade, are these investor expectations out of whack?

“In the near term, there isn’t a real trigger for the market – valuations are no longer hugely attractive and the rupee is no longer massively undervalued,” PK Basu, managing director and chief economist at Daiwa Capital Markets told CNBC.

A cheaper rupee has attracted foreign investor flows into the market. Foreign institutional investors make up around 28 percent of market turnover, according to data from Kotak Securities, and this year foreign inflows touched over USD 20 billion, the second highest since their entry into Indian capital markets in 1992. In 2010, over USD 29 billion entered the market, while last year there was a net outflow of USD 358 million.

However, the currency has strengthened more than 4 percent against the dollar since hitting a record low in June and this could impact foreign inflows. Plus, the heavy involvement of foreign players in the market could be a double-edged sword, as a bout of risk aversion or a pullback in global liquidity could lead to heightened volatility for Indian stocks.

(Top Performing Currency in 2013? Not What You Think)

Getting Pricey

Also, Indian stocks have become expensive compared to their peers. The Sensex is trading around 14.5 times forward earnings, up from 12 times a year ago. Major regional markets including China’s Shanghai Composite and Japan’s Nikkei 225 are trading at 11 and 12.5 times forward earnings, respectively.

“Valuations have become fairly expensive for most stocks, domestic consumption related plays in particular are trading above their historical averages,” said Sanjeev Prasad, senior executive director at Kotak Institutional Equities. Big companies in the consumer space including ITC and Hindustan Unilever, for example, are trading at forward price to earnings ratios of 26 and 31, respectively, considerably higher than their historical averages of 22 and 26, said Prasad.

“For other sectors including IT and metals, which depend on the state of the global economy, I don’t think you can expect upside earnings surprises there. 2013 doesn’t look like it’s going be a great year in terms of growth,” he added.

Prabhat Awasthi, head of equity research, Nomura India, who is underweight the country’s stocks, agrees the market is overly optimistic on its earnings expectations for Indian corporates next year.

For the fiscal year 2013-2014, the market expects earnings growth of about 15 percent for companies that make up the index, said Awasthi, who however, sees earnings growth coming in lower at 10-11 percent.

“We don’t think there will be an earnest earnings recovery… economic growth will bottom out next year, but there won’t be massive growth,” he said. In this fiscal year that ends in March 2013, earnings growth for the 30 companies that make up the Sensex will come in at 5 percent, much lower than initial estimates of 18 percent, according to Nomura.

Awasthi argues that current stock prices have already priced in a revival of capital expenditure activity – a big driver of economic growth – but investors will likely be disappointed.

“Policy announcements made by the government so far are not significant enough to spur investments meaningfully in the near term,” Awasthi added, noting that there is a two-year lag between project planning and execution.

In September, the Indian government allowed foreign investment into the retail, aviation and broadcast sectors in the hope of kick-starting the economy, which has seen growth languish around 5.5 percent this year, a far cry from the 8-9 percent growth rates seen just a few years ago.

Morgan Stanley India equity research head, Ridham Desai, on the other hand, believes the market will be powered by earnings growth of 19 percent next year, helped by improving money supply growth, lower interest costs and slowing pace of commodity price increases.

According to Desai slower global growth would impact commodity prices, helping tame inflation and benefiting corporate margins. “We think that earnings growth is likely to improve over the next 4-6 quarters,” he said.

Eye on Reforms

Beyond corporate earnings, one factor that will be critical to investor confidence next year is economic reforms.

While the government has stepped up initiatives to boost growth and trim its deficit, a continuation of reforms next year is pivotal to holding up the positive sentiment, said analysts.

(Read more: India Declares, ‘We’re Back in Business’)

“We’ve seen a rise in FDI (foreign direct investment) limits in a few sectors but barring that nothing much has changed. What is key is whether the political system is conducive for more reforms to tackle structural problems in the economy,” Prasad said.

In the year leading up to the general elections in 2014, some analysts fear that the government may turn more populist. The country’s 2013-2014 budget, due in March, will provide a clear indication of how far the government is willing to go with reforms.

Fund manager Sameer Arora of Helios Capital, who sees India’s 50-share Nifty index moving up 10-20 percent next year, is confident that the reform momentum will carry on, pointing to the government’s success in getting the parliament to vote in favor of FDI in multi-brand retailing on December 7.

Lower Borrowing Costs

Barring political headwinds, Clive McDonnell, strategist at Standard Chartered, projects the equity market will be in for a solid year in 2013, supported by interest rate cuts, which will reduce the cost of capital, as well as from easing inflationary pressures – a positive for profit margins. The bank, which is overweight on India, forecasts the Sensex will rise over 14 percent next year.

Standard Chartered economists expect inflation in India to moderate from 7.8 percent in 2012 to 6 percent in 2014, providing room for policymakers to reduce rates by up to 100 basis points in the year ahead.

The Reserve Bank of India on Tuesday held the benchmark interest rate at 8 percent, as expected, but indicated that it would shift its focus towards supporting growth as inflationary pressures ebb.

(Read more: What Will It Take for India to Cut Rates?)

Further monetary easing in the West and in Japan, which is expected to embark on an aggressive easing program under its new leader Shinzo Abe, will lead to more inflows into Indian equities, said analysts.

“We forecast foreign portfolio inflows (into emerging markets) to increase to USD 42 billion (in 2013). Flows will particularly benefit India, which has a higher than average reliance on foreign portfolio inflows,” said McDonnell.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why falling yen may trigger rise in Asian stocks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Japanese yen has fallen about 6 percent over the past one month, and is expected to weaken further as Japan`s new leader Shinzo Abe pushes the central bank to ease more aggressively.

While a weaker yen is expected to increase the Japanese economy`s competitiveness, it`s also likely to boost sentiment for Asian equities, said analysts.

“The clearest outcome of a weaker yen could be potentially a more robust Japan and that could lift the rest of the region,” said Andrew Pease, global head of investment strategy with Russell Investments in Sydney.

“My guess is that the dominant impact of yen depreciation on Asian shares would be positive if it means an end to Japanese deflation and a stronger Japanese economy that is a demand engine for the rest of the region,” he added.

(Read more: BOJ to Mull 2% Inflation Target as Abe Turns Up Heat)

Already, sentiment for Asian stocks is more positive since Abe started calling for the Bank of Japan (BOJ) to up their inflation target to 2 percent, with the MSCI Asia Pacific Index gaining about 8 percent since mid-November.

The Nikkei 225, meanwhile, climbed more than 2 percent on Wednesday, breaking through the 10,000-point barrier for the first time since early April. The index has gained about 14 percent since November 15, buoyed by Abe`s comments and hopes that a weaker yen will help the country`s corporate sector.

“A weaker yen should help Japanese exporters better compete with the Korean and other Asian exporters,” said Audrey Goh, investment analyst with Standard Chartered in Singapore. “It should also be positive for Japanese companies who have significant production overseas, as they will be able to bring back better earnings.”

The yen, viewed as a safe haven since the global financial crisis, has remained stubbornly strong despite the central bank`s attempts this year to expand its asset purchase program.

However, with the victory of Abe`s Liberal Democratic Party (LDP) in Sunday`s elections, the tide could finally be turning on the yen. The BOJ, which is meeting on Thursday, is expected to ease again and also adopt the new inflation target by January.

(Read more: Just How Low Will the Yen Go?)

“We argue that the probability of Japan adopting QE (quantitative easing)-like policies is increasing,” said Herald van der Linde, head of equity strategy with HSBC. “We could see flows out of Japan moving into the rest of Asia, which could have quite an implication for Asian stock markets.”

The flip side of a weaker yen, however, could be a withdrawal of investments by Japanese firms from the rest of Asia, Standard Chartered`s Goh said. It is early days, but that could be something to watch, she said.

“The strong yen over the last few years has resulted in significant outflow of investments by Japan companies, particularly into Southeast Asia,” she said. “Whether this will reverse gradually over time will depend on whether the weakness in yen is sustained, and if there is any structural reform to the domestic economy.”

Copyright 2012 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Even gold bull Jim Rogers is turning cautious

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With gold prices being hammered in recent weeks, and trading near four-month lows on Wednesday, longtime gold bull Jim Rogers is sounding a word of caution, saying it’s possible the correction in bullion may continue into the new year.

“Just be careful, there’re too many bulls, including me, but I’m very cautious,” Rogers told CNBC. “Gold is having a correction- it’s been correcting for 15-16 months now- which is normal in my view, and it’s possible that [the] correction is going to continue for a while longer.”

Gold prices have been gaining for over 12 straight years now, Rogers noted, adding that the safe haven asset has only seen a major correction once in that time period, during the global financial crisis back in 2008 when bullion fell 32 percent.

“Most things correct 30 percent every year or two, even in big bull markets – 30 percent corrections are normal and yet gold has only done that once in the past 12 years,” Rogers said. “Gold on any kind of historic market basis is overdue for a nice correction.”

Gold regained some strength on Wednesday after falling to its lowest level since August in the previous session of USD 1,661.01. Analysts said the progress in US “fiscal cliff” talks has dented gold’s safe haven appeal, as investors turn to equities.

Still, the precious metal, which is up around 0.3 percent so far this year, is nowhere the near the USD 2,000 mark many bulls had predicted it will hit by the end of this year. There were hopes the flood of cheap money unleashed by the Federal Reserve’s quantitative easing would drive gold prices higher.

(Read more: Gold to Hit $2,000 by Year-End: Merrill)

Rogers said that despite many governments around the world embarking on monetary easing and “debasing currencies” which would typically drive investors to real assets like gold, India – the largest consumer of gold globally – could pose a threat to the price if it pulls back on demand.

Earlier this year, India’s finance minister singled out gold and precious metals imports as primary drivers of the country’s current account deficit, prompting the government to respond by doubling import duty on gold.

(Read more: Why India’s Appetite for Gold Is Something to Worry About)

“India’s got a big balance of trade deficit – some Indian politicians are starting to blame it on gold,” Rogers said. “[If they] figure out a way to cut or crimp imports of gold – if something like that happens, that will be a big shock to all those bulls on gold and who knows how low it can go.”

Rogers, who is not buying gold right now and has even hedged some of his gold, said he’s still bullish on the commodity in the long term, and expects its value to be much higher in the next decade.

“If gold goes down – I hope I’m smart enough to buy more. If it goes down a lot, I hope I’m smart enough to buy a lot more,” he said.

– By CNBC’s Rajeshni Naidu-Ghelani.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Pro eyes ‘good growth’ in bruised Apple shares

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Apple shares have shed roughly a quarter of their value since hitting USD 705 in September, but one analyst still sees growth opportunities for the tech company, particularity in the smartphone market.

The stock has plummeted amid investor worries about its gross margins and its long-term growth prospects following the iPhone 5 release, the latest installment of the company’s popular smartphone. (Read More: Defying Growth Concerns, iPhone Sales Soar in China)

“But we do think at the valuation here, (it’s) still a good growth company,” said Mike Walkley, managing director and communications technology analyst at Canaccord Genuity. “We have a ‘buy’ still on the stock, but we did lower our price target.”

Walkley lowered his target to USD 750 from USD 800 in a recent report. This forecast is based on a 13 times multiple of fiscal-year earnings per share estimate for 2014.

“Basically on our checks we have seen the iPad mini cannibalize the iPad 4 more than we initially thought, so that’s really where we cut some of our numbers,” he said.

He added that the iPhone, which accounts for less than 20 percent of the smartphone market share, still has growth opportunities ahead as it faces competition from lower-priced offerings and phones that operate on Google’s Android operating system.

Following the launch of the iPhone 4s, Walkley said store surveys showed a tapering off of Samsung sales. But these checks now show that Samsung has “held in there” following the iPhone 5, which he said has “been of surprise for us” and suggests that consumers like the Samsung model’s larger screen and innovation.

In Canaccord Genuity’s research note, analysts mentioned that reduced iPhone 5 orders for the March quarter could indicate an earlier launch of an iPhone upgrade in the June quarter. Walkley thinks Samsung could also release the Galaxy 4 smartphone earlier than expected.

“As these two titans get more and more aggressive with product cycles, we think it could be good for both companies and the industry,” he said.

And he noted that there is “still a lot of share to be taken from struggling companies, such as Nokia, Research In Motion, and others.

-By CNBC.com’s Katie Little; Follow her on Twitter @ katie_little

Additional News: Samsung Drops Attempt to Ban Apple Sales in Europe

Additional Views: Where Will Apple Go Next?

Disclosure: Canaccord Genuity is a market maker or liquidity provider in the securities of Apple.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Japan’s deflation battle: Why this time is different

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While only time will tell whether Japan’s incoming Prime Minister Shinzo Abe wins the war he has declared against deflation, one thing is clear, say analysts, the central bank will be pushed to be far more aggressive than it has ever been.

“They (Abe and his Liberal Democratic Party) have all the power that they want,” Nicholas Smith, director and strategist with CLSA in Tokyo said after the opposition LDP’s landslide victory over the weekend.

“He’s talking aggressive monetary policy, fiscal policy and a weakening of the yen. The important thing is not whether they will execute and whether they will be able to execute, but just how far they will go with this. I think we should be frightened about how much they do, rather than how little,” Smith added.

The Bank of Japan (BOJ) has so far eased policy four times this year by expanding its asset buying program, which currently stands at 91 trillion yen (USD 1.1 trillion), but these measures have been ineffective in boosting the economy struggling with recession, reversing deflation and weakening the yen.

In his election campaign Abe, who will be serving as prime minister for the second time after leaving office five years ago, pledged to pressure the BOJ to ease more aggressively in a bid to inject new life into the world’s third-largest economy. Abe is aiming for a higher inflation target of 2 percent instead of the current 1 percent goal set by the BOJ.

In the month before the December 16 elections Abe’s comments have lifted investor sentiment, with the up more than 12 percent. Talk of aggressive easing also saw the safe-haven shed 5 percent against the US dollar.

On Monday, a day after the LDP surged to power winning a majority in Japan’s lower house of parliament, Japanese shares hit an eight and a half month high, while the yen touched a 20-month low.

The BOJ is meeting next on Thursday and may expand its asset-purchase program by another 5 to 10 trillion yen, Reuters reported. The last time they eased was in October, and then too they had expanded their bond buying by about 10 trillion yen.

Whatever the outcome of Thursday’s meeting, the long-term trend is clear. The BOJ will not be as cautious as it has been, said Ray Attrill, co-head of forex strategy at National Australia Bank in Sydney.

“I think the days of the BOJ being able to maintain its current cautious stance towards monetary easing is certainly numbered,” Attrill said. “The new government has the right to appoint the new governor and the two new deputy governors whose terms expire next March and April, respectively. And we have two BOJ board members who have been appointed because of their explicit support for much more aggressive policy earlier this year.”

Jesper Koll, managing director and head of Japanese equities at JPMorgan Securities Japan, agreed that Abe will have a lot to prove this time around as prime minister. He is expected to be voted in by parliament on December 26.

“This man Abe is driven, he’s focused. He’s on a vendetta to prove to the world. And the super-majority they got, this landslide victory sure is a very strong mandate. Watch out. An all-out attack on deflation is on its way to Japan,” Koll added.

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Just how much more can the yen fall?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

A sweeping victory for Japan’s opposition Liberal Democratic Party (LDP) in elections over the weekend sent the safe-haven yen tumbling to a 20-month low on Monday, and strategists expect the currency to continue its slide under the leadership of Shinzo Abe, a proponent of aggressive easing.
Some analysts expect the to fall up to 7 percent against the US dollar next year, after being in a downward trend over the past three months.

“The (election) result is clearly as convincing as many people had hoped it would be. From a policy perspective, the LDP is going to get its way. The pressure on the Bank of Japan (BOJ) is going to mean that we will see some meaningful policy steps,” Ray Attrill, global head of currency strategy at National Australia Bank told CNBC.

Attrill expects dollar-yen to touch 85 before December 31, before falling to 90 by the end of 2013 – 7 percent lower from current levels.

Japan has struggled to stem the rise in the yen this year, as the currency has been a favored destination for safe haven flows amid uncertainties in the US and euro zone.

A stronger yen has dented the competitiveness of the country’s export sector, posing a threat to its fragile economy. However, LDP head Shinzo Abe’s pledge to push the BOJ to aggressively ease monetary policy has seen the currency fall nearly 5 percent against the greenback in the month leading up to the December 16 election.

Abe, who is expected to be sworn in as prime minister on December 26, has threatened to revise a law guaranteeing BOJ’s independence, if he cannot get the central bank to embark on bolder monetary easing, Reuters reported.

The BOJ is set to face a change of leadership next year, when the term of current governor Masaaki Shirakawa – regarded as cautious in his approach to monetary policy – expires in March. The government will appoint the new governor with the approval from both houses of parliament.

Osamu Takashima, chief Japan forex strategist with Citibank expects the yen will continue to weaken in anticipation that the new BOJ governor will implement further easing, he said, forecasting the currency to fall to 85-86 early next spring.

In addition to expectations of a more accommodative monetary policy, Takashima said that the new government’s ambitions to engage in an expansive fiscal stimulus program to bolster growth will also put pressure on the yen.

The LDP has promised to boost public works and talks of spending 200 trillion yen (USD 2.4 trillion) on projects over the next decade – about 40 percent of Japan’s economic output.

The safe-haven yen tumbled to a 20-month low on Monday after a sweeping victory for Japan’s opposition Liberal Democratic Party (LDP), and strategists expect the currency to continue its slide under.

Takashima said this could lead to an increase in imports in mid-2013, and a further deterioration of the trade balance, which would be negative for the currency.

External Forces

In addition to political forces weighing on the yen, Mitul Kotecha, head of global forex strategy at Credit Agricole CIB, said an additional risk for the currency stems from a rise in US government bond yields.

“If US bond yields moved higher compared to Japanese government bonds, that would be negative for the yen,” he said.

Currently, the spread between the two-year US Treasury note and the Japanese equivalent is 13 basis points. However, if the recovery in the United States is better-than-anticipated, this would push Treasury yields higher and lead Japanese investors into the US debt market in search for better value, Kotecha said.

Jonathan Cavenagh, senior forex strategist at Westpac Institutional Bank agrees that the combination of higher US government bond yields, aggressive monetary easing in Japan and a further deterioration in country’s current account balance, would weigh further down on the yen.

However, in the short-term, he said risks surrounding the “fiscal cliff” – a series of tax increases and spending cuts that will kick in on January 1, unless US lawmakers arrive at a solution – will cap further downside in the currency as people continue to prefer the yen over the dollar. He added that investors are now taking profits on their short yen positions, which will also limit weakness in the yen.

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The Fed is buying time – Why?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

There is nothing substantively new in the US Federal Reserve’s latest statement on its data-driven policy settings. Labor market conditions, actual inflation and inflation expectations have always been the key considerations in Fed’s interest rate decisions.

The question now is: if that is so, why the Fed considered it necessary to say what the “Fed watchers” have known all along, i.e., policy actions will respond to changes in these key variables. I see a number of reasons for that.

Complicating the Guessing Game

First, the Fed is trying to anchor inflation expectations in order to keep long-term interest rates as low as possible for as long as possible – a task that will be increasingly difficult as the economy continues to strengthen in the months ahead. We have seen that already: in spite of its “Operation Twist,” yields on a 10-year Treasury note have crept up more than 20 basis points since mid-November.

That is an unsettling development at a time when the economy continues to grow well below its noninflationary potential. The 10-year Treasury note is a benchmark for credit costs affecting consumer spending, housing demand and business investments – about 82 percent of the US economy.

Second, announcing a specific unemployment rate (6.5 percent) as the main trigger for policy change is a clever move. Indeed, since labor market conditions are a lagging business cycle indicator, the Fed will have more time to let the upswing take hold before initiating the next phase of credit restraint.

Third, indicating an array of economic data to drive interest rate decisions will complicate markets’ guessing about what – and when – the Fed might do to change its policy stance. Especially since the Fed also said that its decisions would be influenced by data other than labor market conditions and price stability. All that may give the Fed more time to pursue a course of action before markets absorb the new information and adjust investment positions accordingly.

Fourth, a prolonged period of easy credit conditions is needed to offset the depressive impact of tightening fiscal policies. “Fiscal cliff” and budget sequestrations (automatic spending cuts) are possible fiscal outcomes. But, whatever happens, higher taxes and declining government outlays are inevitable to reduce budget deficits, and to stop and reverse the growth of public debt.

Impaired Policy Transmission

As I wrote in an earlier post (After the Fed’s “Twist” Comes a Hard Turn), the Fed is trying to guide the economy from a crisis-ridden lackluster recovery to a path of stable and sustained growth while its policy impact is still hindered by problems in credit channels.

For example, banks’ excess reserves (the money banks can lend) in early December stood at USD 1.4 trillion, a huge increase from pre-crisis monthly averages of USD 1.5-2 billion. In spite of that enormous mass of loanable funds, the latest data for banks’ consumer lending show an annual increase of only 2 percent. And the Fed is reporting that borrowers’ access to a wide range of credit facilities is severely constrained by overly strict lending conditions.

There are two problems here. Banks are rebuilding their capital base by lending money to the government, and the banks’ borrowing from the Fed’s discount window shows that the US financial system is still convalescing from a disastrous financial crisis.

Banks normally accumulate large holdings of default-free Treasury securities during recession recoveries because they have to clean up the bad loans and strengthen their balance sheets. The shorter and the shallower the recession, the shorter the period during which banks keep buying bonds before going back to their core business of consumer and business finance.

The fact that banks are still using most of the liquidity supplied by the Fed to buy Treasury securities rather than lend to the private sector indicates the extent of damage they suffered during the Great Recession.

And the damage is still there: banks’ borrowed reserves (the funds banks obtain from the Fed’s discount window) in early December were nearly USD 1 billion – a five-fold increase from the pre-crisis monthly averages of USD 150-200 million. Clearly, the Fed continues to do some distress lending to stabilize the financial system, even though the current situation is an enormous improvement compared with USD 700 billion the Fed was supplying to prop up the failing banking system at the height of the financial crisis in November 2008.

Time Needed to Unclog Credit Channels

All this shows that credit markets are not working properly because most of the Fed’s aggressive monetary stimulation is not reaching businesses and households. At some point, the process of financial intermediation will be fully reinstated, but that will only happen after the banks rebuild their capital base, and after they further reduce the recourse to the Fed as a lender of last resort.

We are approaching that point, but the banks’ weak consumer lending indicates that it may still be months (not years) before we begin to see a strengthening impact of monetary policy on household consumption and business investments.

Investors should keep in mind the problems posed by financial system’s post-recession adjustments before falling for vacuous arguments that monetary policy is ineffective. There is no “pushing on the string” or “liquidity trap” here. It is just a matter of time until the recovering banks are able to go back to finance consumer and business spending. That is now taking longer than usual because of the severity and duration of the financial crisis.

Watch the Fed’s Money Market Operations

Of all the central banks around the world I have been following, the Fed is by far the easiest one to monitor. It provides a large number of data on its operations and credit market conditions on a daily, weekly and monthly basis. There are also policy statements after each of eight annual meetings of the Fed’s rate-setting committee (FOMC) and detailed semi-annual congressional testimonies. No transparency problems here.

Investors interested in regularly updated information about labor markets, inflation and general business conditions can consult the Fed’s “beige book” – a compendium of regional economic surveys serving as the main analytic input to FOMC meetings.

But if you want a shortcut to see how the Fed is actually reacting to data on employment, costs and prices, watch its daily money market operations and the pattern they form over a week or two.

That will give you plenty of advance warning about an incipient policy change. The Fed always carefully prepares its interest rate decisions in order to avoid excessive market fluctuations.

You can also watch this post.

Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.

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