The chase by Frances Horodelski:

The week is a quirky one 
The chase by Frances Horodelski:

Today is the 181st day of the year. There are 184 days left in 2014 – make the best of it.

The week is a quirky one with the Canadian markets closed tomorrow and U.S. markets closedon Friday (with an early close on Thursday). Trading will likely be quiet however there are two big events – the ECB and U.S. jobs reports both on Thursday. Today we have Canadian April GDP as well as a number of U.S. data points including Chicago Purchasing Managers index and pending home sales.

My weekend reading brought the word ‘recession’ to mind. There were a couple of reasons. First, there is a table floating through the internet that ranks the worst quarterly U.S. GDPprints in history and notes that every last one of them were associated with a recession. The first quarter of 2014 is the 17th worst in that history. Second, Zacks Research highlights thatnegative growth doesn’t necessarily mean negative stock market moves. Third, when the first look at the Q1 GDP came out in April, I remember hearing the bulls says “yea, it was weak, but look at consumer spending, it was strong as Americans spent on energy and healthcare…..” Well, in the most recent quarterly numbers, healthcare went from a contributor to GDP to a drop of more than 6%. What! Finally, right now using Google trends, I note that the word recession is hardly spoken at all (the word stagflation is at the bottom too). Be careful out there.

On this quasi-Canadian holiday, things of note include: 1) A Reuters story highlighting M&A running at a seven-year high. The analysis shows $1.7 trillion in deals globally on a year to date basis (Bloomberg calculation puts it at $1.58 trillion). 2) The Globe & Mail is reporting that media companies disagree with each other “over consumer choice and support for local programming” as the CRTC is gathering information and views under its “Let’s Talk TV” initiative. Hearings are scheduled for September. For reference, based on 2013 results, media represents 11.5%, 13.3% and 21.1%, respectively for BCE, Rogers and Shaw Communications. 3) As Scotland winds down into the September vote on independence, there is a report that Scotland has 80.3 trillion cubic feet of gas and 6 billion barrels of oil. Right now, polls show those in favour of independence are running at 37%, undecided 12%. 4) A technical comment from a recent bear (Richard Ross at Auerbach Grayson) notes that the Dow’s 1.7% year to date performance is in sharp contrast to +10.47% and 16.5%, respectively for the transports and utilities.

In other items, U.S. Steel is being removed from the S&P 500, effective July 1, to be replaced by Martin Marietta. Quarterly expectations for second quarter earnings (and the second quarter starts tomorrow) are being reduced at the slowest pace since Q1 2011. Analysts have cut expectations by only 1.5% on average – are they more realistic or too optimistic? We’ll see when things begin on July 8th when Alcoa releases results. Corporate preannouncements are also running at lower levels with the Q2 ratio of negative to positive outlooks currently running at 4.17 versus 6.88 in Q1 and 6.13 in Q2 2013.

Finally, in the news is GM Toronto dealers suing General Motors for lack of financial help from the car dealer; Kenneth Feinberg will be laying out compensation details for victims of the faulty ignition switch at 10 am ET. On BNN we’ll be looking at M&A, oil, second half opportunities, high flying with consumer drones, anti-spam and our regular update on the C-suite survey.

Enjoy.

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Tuesdays Selloff-What Happened?

Portfolio managers are hungry for bonds, apparently. Yesterday’s sell-off in equity markets attributed, to among other things, a desire to rebalance towards bonds after stocks have handily outperformed in the quarter according to traders citing a Goldman Sachs report. GS estimates $7.7 billion worth of equities were for sale (maybe as high as $12 billion) with the proceeds shifting to bonds. Or maybe it was the Ukrainian helicopter that was shot down in the eastern part of the country by rebels. Or the Syrians coming over the Iraqi border. Or – Charles Plosser in a speech saying the Fed should raise rates next quarter! Or – just taking a little off the table – especially in the energy space. We’ll see what the follow-through is today.

Cash is King. In a recent report from Factset, after reviewing all the Q1 data for S&P 500 companies they note that cash stood at $1.34 trillion or up 6.6% year over year. However, because Verizon purchased Verizon Wireless in the quarter – cash fell 4.7% quarter to quarter, the first quarterly drop since Q2 2012. Two other items of note from the report. Capital expenditures rose 6.2% after a miserable 1.5% over the past four quarters. Free cash flow rose 9% and distributions to shareholders (dividends and buybacks) rose 46%. A potential caution – debt issuance rose for the 15th straight quarter – running at the second-highest quarterly level. Most cash is held by IT companies, and Microsoft is right at the top of the list of all companies with $88.4 billion in cash and investments. Apple dropped to No. 5 with $41.35 billion.

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Retailers To Be Replaced By Online Sellers- Days Numbered?

Your days are numbered, top online entrepreneur tells retailers

June 20, 2014 3:41am

PARIS - The founder of Rocket Internet, the German venture capital company behind dozens of online start-ups, warned the retail industry on Thursday that e-commerce and smartphones would mean there will be little future for stores in emerging markets.

Oliver Samwer, 40, told the annual summit of the Consumer Goods Forum (CGF), an industry network of some 400 retailers and big brands from 70 countries, that many of them risked being left behind as the growth of e-commerce accelerates.

 

"You only have stores because there was no Internet, but that does not mean there is a right to have a store," Samwer said, adding that traditional retailers focused too much on older shoppers and not enough on smartphone-savvy youngsters.

 

"What you fear will come much faster," he warned.

 

Rocket Internet is bidding to create the largest internet empire outside the United States and China, seeking to replicate the success of Amazon and Alibaba in markets the U.S. and Chinese e-commerce groups have yet to dominate, such as Africa, Latin America and Russia.

 

After his speech, Samwer traded blows about whether stores will survive, in a panel discussion with Mark Price, managing director of British grocer Waitrose, who introduced himself to Samwer saying: "Hi - I'm Mark, I'm a dinosaur."

 

Samwer founded Rocket Internet in 2007 with his brothers Marc and Alexander and it is already active in 102 countries, making revenue of $1 billion in 2013 via online fashion stores including Dafiti in Latin America and Lamoda in Russia, as well as Jumia for general merchandise in Africa.

 

Sources have told Reuters the company is considering a stock market listing in Frankfurt later this year which could value it at up to 5 billion euros ($6.8 billion), as buoyant capital markets have encouraged a flurry of e-commerce flotations this year, with most focus on Alibaba.

 

Samwer said the stock market value of Amazon and Alibaba would soon dwarf the world's biggest retailer Wal-Mart.

 

"What would you buy for your children? I would buy Amazon and Rocket (shares)," he said, adding he believed French retailer Carrefour would have been better off buying a stake in Alibaba than trying to open stores in China.

 

ONLY 10 PERCENT LEFT OFFLINE?

 

Noting that 75 percent of the world's population lives in the markets Rocket is targeting, Samwer said e-commerce had even better prospects in emerging markets than in developed economies, as online sites do not have to compete with such established stores.

 

"If you don't have to share with offline, your percentage will be much higher," he said. "It will all move online, you will have 10 percent left that will not move online."

 

Samwer said Rocket Internet ventures around the world already had 44 million fans on Facebook, more than Nike and Apple combined, noting that the cities with the most active users of Facebook are Bangkok, Jakarta and Istanbul, with none of the top 10 cities in the United States.

 

Deutsche Post, the world's largest postal and logistics company which is profiting from booming deliveries for online retailers, predicts e-commerce could account for up to 40 percent of total trade by 2025 in developed countries, from under 10 percent in most markets now, and up to 30 percent in emerging markets, up from a tiny fraction today.

 

The Samwers have raised hundreds of millions of dollars of funding for Rocket Internet and its ventures, including from Swedish investor AB Kinnevik, billionaire American industrialist Leonard Blavatnik, JP Morgan Asset Management and retailers like Tesco and Germany's Tengelmann and Rewe.

 

Before founding Rocket, the Samwers had success with German online auction site Alando, which they sold to eBay and mobile phone content provider Jamba which they sold to VeriSign .

 

Rocket Internet also helped launch Zalando, Europe's biggest online fashion retailer, which is considering its own stock market listing. Rocket is no longer invested in Zalando, but the Samwer brothers' European Founders Fund still owns 18 percent. ($1 = 0.7368 Euros)  — Reuters

Individual Investors ...the love in equities plummeted in the most recent period to 35.1% - down almost 10 points.

The chase by Frances Horodelski:

Yo! A fast growing app that just received a million-dollar infusion and lit up Twitter yesterday as everyone was saying “Yo” because that’s all it does. Another thing I don’t understand?

Looking for a melt-up? David Rosenberg notes that at previous market highs, mutual and ETF fund flows on a five-year average basis were running at $20 billion in 2000 and $15 billion in 2007. Today, flows are closer to $8 billion underscoring the lack of individual investor involvement in this bull market and as they return, a melt-up is possible. On the other hand, according to Walter Murphy, a former Merrill Lynch technician, the ratio of household financial assets (read: investments) to total assets is 70.4%. Previous secular peaks (1960s and 2000s) the ratio was 70.3% and 70%, respectively. Mr. Murphy suggests that in his view, investors are already “all-in”. And while new highs are likely in the coming months it might be a grind rather than a melt-up. Meanwhile, the American Association of Individual Investors are seeing thelove in equities as bullishness plummeted in the most recent period to 35.1% - down almost 10 points.

Toronto has finally joined the “all-time high” camp surpassing the June 18, 2008 high by 36 points to close yesterday at 15,109.20 (although still below its intra-day high of 15,154.77 achieved also in June of 2008). The winners since 2008: Valeant, Catamaran, Alimentation Couche-Tard and Linamar. Losers: Nortel, YPG Financing, Niko Resources and Mercator Resources and BlackBerry. And despite this year’s 20% return in the energy sector, patient investors are still waiting to achieve the June 2008 levels – energy is still down 16% from six years ago. And remember, for those who invested in an index ETF on June 18, 2008 are now – flat on six years (excluding dividends).

Speaking of BlackBerry, it is the company’s annual general meeting and fourth quarterly report day. Amber Kanwar is in Waterloo covering the story for BNN and will interview John Chen. The results show a beat on the bottom line (a smaller loss than expected), revenues slightly above expectations, a cash build although net of a tax refund and real estate proceeds, there was a cash burn of $255 million in the quarter but better than the burn of $784 million in the last quarter. Stock is up 10% in the pre-market.

What do courgettes and peas have in common with gold? According to the World Council in its report released today - confusion! Courgettes (zucchini) and peas are fruits but are used as vegetables. Gold suffers from a “similar kind of category confusion” – it features in commodity indices but responds to different economic factors, it is less volatile and has a lower correlation to the business cycle. The council believes it is the ideal “alternative investment”.

Calendar watch including the weekly jobless claims, U.S. Philadelphia Fed Index, earnings from Oracle, a couple of major consumer conferences (Deutsche Bank in Paris and Jefferies in Nantucket), and a lot of annual meetings including Quebecor, Martinrea, H&R Reit, and Great Canadian Gaming. We’ll continues to watch VRX/AGN as well asGE/Alstom/Siemens/Mitsubishi.

Finally, the world is a happy place today. Mrs. Yellen did not mis-step yesterday. Markets responded to the lower for longer implications of the “dots” despite a slight shift upwards in expectations for 2015 and 2016. Equity market valuations are within “normal” ranges according to the chair of the FOMC. We’re getting the follow through from new highs on the S&P 500 yesterday as pretty much every equity market around the world is in the green (Italy +1%) with the exception of Chinese equities which have an tendency to get their own way. All the major currencies are higher and most bond markets have prices up, yields down.

Enjoy.