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If you think bonds are too dangerous now, think again

A short-term bond fund might work for you if you’re looking for income.

You’ve probably read recent headlines telling you to stay away from bonds because interest rates are rising. But such conventional wisdom might not make sense if you are looking for income and have the patience to stick with a long-term strategy.

The CM Advisors Fixed Income Fund CMFIX is a short-term bond fund managed not only for current income and capital preservation, but also to take advantage of opportunities in the market to scoop up discounted securities. That can add significantly to long-term total returns through economic cycles.

The mutual fund has a five-star performance rating, the highest, from Morningstar. We spoke with James Brilliant, the fund’s manager, about its strategy.

But, first, here’s some background:

The inverse relationship between interest rates and bond prices

The “problem” when interest rates rise is that the market values of bonds fall, so that their yields will match those of newly issued bonds with similar maturities and credit ratings. If you buy your own bonds for income and hold them to maturity, this is not an issue. You will continue to receive your income and will be paid the face value when they mature. You might have purchased your bonds at a premium or a discount, but you know before buying how much of a gain or loss you will have on the investment when the bonds mature.

“Unfortunately, there are a lot of investors who don’t understand the risks inherent in their decisions to chase yield.” (James Brilliant, portfolio manager for the CM Advisors Fixed Income Fun)

But what if you want income and wish to preserve capital, and don’t want to manage your own bond portfolios? At this time, what may be appropriate for part of your portfolio is a short-term bond fund. The yield will not be spectacular, but volatility will be relatively low, and as bonds held by the fund mature, its yield will rise as the money is invested in newer, higher-yielding paper.

Fund strategy and performance

The CM Advisors Fixed Income Fund has a 30-day yield of 1.90%. The fund’s objective is to provide income, preserve capital and boost total returns by taking advantage of special opportunities. In an interview on Feb. 6, Brilliant said his team screens for bonds “that have been sold off relative to their underlying fundamentals.”

“We can look back a year ago and see credit spreads for corporate bonds [over U.S. Treasury securities with similar maturities] widened, especially in the materials, energy and industrial sectors,” he said. When the interest-rate spreads for those sectors widened, the fund bought investment-grade bonds at discounted prices, and enjoy gains in market value when the spreads “subsequently narrowed,” he added.

Brilliant went on to say that following recessions, as the U.S. economy recovers, there are typically three cycles of widening and narrowing spreads for corporate bonds, which present opportunities to supplement income with capital gains.

At this point, corporate-yield spreads have compressed to the point “where they look expensive.” However, “at the same time, we have a higher average coupon rate relative to the duration,” Brilliant said.

The fund can purchase high-quality bonds anywhere in the world, but the fund is mainly invested in the U.S. As of Dec. 31, 44% of the fund was invested in U.S. Treasury securities, with 8% in cash and the rest in investment-grade bonds.

Among the top 10 holdings of the fund were bonds issued by Cloud Peak Energy CLD with a coupon [interest rate based on the face value of the bond] of 8.5% due Dec. 15, 2019; Great Lakes Dredge & Dock Corp. GLDD   7.375% due Feb., 1, 2019; and Alcoa Inc. AA 5.87% due Feb. 23, 2022.

The fund has $65.6 million in total assets, while CM Advisors manages $1.2 billion, mainly in individual accounts, from hits headquarters in Austin, Texas. Brilliant said the fund’s relatively small size enables it to take advantage of discounted sectors in ways that “wouldn’t move the needle” for giant bond funds.

Here’s how the fund has performed over long periods. The following figures include cash dividends and price changes, through the end of 2016:

So the fund underperformed the index for three and five years, but it more than doubled the index in 2016 and outperformed over the two longest periods.

Here’s a different set of average performance figures from Morningstar, through Feb. 3:

So we see a similar pattern, with recent outperformance and the fund beating the index for average 10-year return.

When asked whether investors might be better served by looking for significantly higher yields with dividend stocks or preferred stocks, Brilliant said: “Unfortunately, there are a lot of investors who don’t understand the risks inherent in their decisions to chase yield.”

During 2016, investors did just that, bidding up prices for utilities and other dividend stocks to high levels relative to earnings. Some investors won’t be able to bear the inevitable price volatility, setting up major losses.

Article and media originally published by Philip van Doorn at marketwatch.com


Russian Banker’s $25 Million Bonus

How a Russian Banker’s $25 Million Bonus Led to 12 Years in Jail

  • Ex-Otkritie trader Urumov sentenced in $150 million fraud case
  • Wife Yulia Balk was acquitted of one count of money laundering

After a London judge told George Urumov he’ll spend the next 12 years in jail for cheating his employer out of almost $150 million, the former trader turned his head to the gallery to try to catch his wife’s eye.

Until two days earlier when Urumov was found guilty of fraud and money laundering and Yulia Balk was acquitted, their lives were intertwined in more ways than most couples bargain for. Parents of a six-year-old child, they both faced charges related to an intricate scheme orchestrated by Urumov and a couple of colleagues to siphon millions of dollars from Otkritie Financial Corp. through fraudulent Argentine bond trades and bonus manipulation.

Proceeds from the 2010-2011 scam were used to fund their luxurious lifestyles. For Urumov and Balk, in their early 30s at the time, that included paying for a 19 million-pound ($24 million) house on one of London’s most-prestigious streets. Their fairy tale of opulence ultimately proved short-lived when Urumov found himself at the center of a six-year legal battle that implicated his wife and has since left the former millionaire completely broke.

Last week, a jury let Balk walk free and Urumov, now 37, was handed one of the longest sentences ever received by a banker for fraud in the U.K. Vladimir Gersamia, formerly of Threadneedle Asset Management, was also slapped with a seven-year jail term.

The tale of how Urumov went from being a star trader whose CV boasted stints at HSBC Holdings Plc and Lehman Brothers Inc. to a criminal entangled in what a judge three years ago dubbed "a brazen and carefully orchestrated deceit" begins and ends with greed.

Stealing Money

The year before Urumov started stealing money from Moscow-based Otkritie, he earned $2 million including bonuses as executive director for emerging markets fixed-income at Knight Capital Europe Ltd. in London. If he hadn’t exited that contract early to join the Russian lender in 2010, Urumov’s gross pay would have topped $10 million.

But the Cass Business School and London School of Economics alumnus had a bigger reward in mind. Within months of joining Otkritie to expand its fixed-income division to London, Urumov had swindled close to $40 million for himself.

By that point Urumov, who was born in 1979 in Ossetia, then part of the Soviet Union, made a name for himself as a nimble and clever trader. He managed a five-member team at Knight Capital and was revered among peers in the City of London. Lawyers for the prosecution described Urumov as a "forceful personality" whose gushing self confidence enabled him to carry out the fraud surreptitiously.

$25 Million Bonus

Underpinning his audacious pursuit of wealth, prosecutors said Urumov requested a $50 million signing-on bonus from then Otkritie Chief Executive Officer Roman Lokhov over a meal at London’s Coq D’Argent restaurant, in exchange for moving his team at Knight Capital to the Russian lender. Lokhov eventually agreed to half that amount, assuming Urumov would split the sum evenly with the four bond traders he was bringing with him.

But Urumov had a cunning plan, according to testimony heard during the four-month trial. He kept more than $20 million for himself, of which $12 million went to pay off bribes to two Otkritie employees who helped him get the job. One of the men, Sergey Kondratyuk, was convicted in Switzerland of fraud and released in 2013 after serving a short prison term. Prosecutors believe the other, Ruslan Pinaev, is living in Israel and has so far evaded extradition to Switzerland.

Then, barely five weeks into his new post, Urumov and his colleagues started telling their bosses they were trading Argentine warrants, a type of derivative, in dollars when in actuality the deals were executed in pesos.

Fradulent Trades

The Argentine currency was running at about four to the greenback when the trades took place in 2011, so Otkritie paid four times too much, and the men walked away with $100 million of illicit earnings. The jury heard how they covered their tracks by changing the currency listed in electronic records and even convinced Gersamia at Threadneedle to confirm the false valuation.

The money was funneled through offshore bank accounts and the men splurged their ill-gotten gains on Ferraris, pink and yellow diamonds, and luxury properties. Urumov and Gersamia were arrested and charged in 2015 along with former Otkritie trader Alessandro Gherzi, who was cleared of any wrongdoing last week. The Russian bank, meanwhile, has recovered more than $100 million in damages.

At his sentencing Friday morning, Urumov was clad in a disheveled overcoat and looked resigned to his fate. It was a sharp contrast to the smart casual attire and radiating confidence he’d exhibited while trying to convince the jury that he was a victim, blackmailed by his colleagues. Urumov’s lawyer, David Campbell, didn’t respond to an e-mail requesting comment.

Greedy Motivations

In the end, Urumov’s attempts to absolve himself fell on deaf ears. In her closing remarks, Judge Deborah Taylor accused him of creating a "smoke screen of falsehoods" and denounced his "disdain and disregard."

A few minutes later Urumov locked eyes with his ashen-faced wife seated in the back of the London courtroom. The two married in 2007 after studying together at LSE and had a child in 2010 just before the fraudulent plot was conceived. The one charge against Balk, linked to money laundering, was dropped. But the consequences of Urumov’s greed were abundantly clear. A trader who once earned millions in legitimate salary is on course to spend his forties in jail and, according to his lawyer Henry Blaxland, his family now lives off the financial support of relatives.

"You Urumov were at the center of this series of conspiracies, and motivated yourself by greed," Judge Taylor said.

Article originally published by Jeremy Hodges at bloomberg.com

 


General Motors

GM plans to invest at least $1 billion in U.S. factories, adding 1,000 jobs

General Motors Co. this week will announce plans to invest at least $1 billion across several U.S. factories, two people familiar with the plan said, a move aimed at underlining its commitment to U.S. manufacturing jobs in the wake of President-elect Donald Trump’s criticism of the auto maker’s imports from Mexico.

GM’s GM,  announcement could come as early as Tuesday, the people briefed on the plan said. The company will cite a number of new jobs in excess of 1,000 stemming from the investment but doesn’t plan to specify which of its factories are in line for more work, one person said.

The move comes days after Trump publicly ratcheted up pressure on the nation’s largest auto maker. During his press conference last week, the president-elect thanked Ford Motor Co. and Fiat Chrysler Automobiles for recently announced U.S. investment plans that are expected to create a combined 2,700 jobs. He then turned up the heat on GM to follow suit.

In an interview Monday, GM general counsel Craig Glidden declined to confirm specifics of the announcement but said any investment the company might disclose has been long planned and isn’t a response to pressure from Trump.

Article originally published by Mike Colias at marketwatch.com


5 overlooked stock picks for 2017 from top fund managers

Ready to play the new commodity cycle? Or maybe buy into Trump’s defense-spending plans? Or even bet on one of Europe’s most hated airlines?

According to a group of top fund managers, those plays are likely to offer you some of the best returns for the next year. Speaking at the Sohn Conference in London earlier in December, 14 fund managers from the U.S. and Europe each unveiled their top investment calls for the next year to a group of around 450 investors.

How to benefit from president-elect Donald Trump’s expected fiscal policies was a major topic at the conference, but continued optimism over the commodity sector also featured highly among fund-manager favorites.

Here's a list of some of the most interesting calls from the annual conference:

Ryanair

Irish low-cost carrier Ryanair Holdings PLC RY4C, RYAAY  usually divides opinion among passengers, but as an investor you only really need to care about one thing: Its potential to continue to expand and make money for shareholders, said Adrian Croxson, partner at Och-Ziff Capital Management.

“To put it simply, we think that the net income could double over the next couple of years and we think shares will [jump],” he said.

Croxson points to two key factors behind his Ryanair call:

1) The company’s cost structure is significantly lower than other airlines, including rival easyJet PLC EZJ. That allows it to sell tickets at a cheaper price and continue to win over more passengers.

2) Market share. Ryanair is already Europe’s largest airline with a market share pf around 15%, but with an expanded route network to more popular airports coupled with continued low prices, Croxson expects the airline to control 25% of the European market in coming years.

Charter Communications

U.S. cable-TV provider Charter Communications Inc. CHTR  has the potential to “double or triple” in value in coming years, as the company continues to grow “its top-line strongly through subscriber growth and pricing,” according to Chris Hohn, founder of TCI Fund Management.

That’s on top of an already impressive 44% gain in 2016.

“Charter has not achieved its potential,” the top European hedge fund manager said.

What’s also making the company attractive is what Hohn predicts will be an “inevitable” takeover bid from rival Verizon Communications Inc. VZ

Rio Tinto

The London-listed mining giant Rio Tinto PLC RIO has soared 59% year-to-date, but the stock still has room to rally, said Robert Bishop, founder of Impala Asset Management.

“Rio Tinto is a large cap, high-quality play on the beginning of the new commodity cycle,” he said.

“We’ve just been through a five-year bear market in metals prices, which was the longest in 35 years ... There’s minimum new capacity coming on stream over the 2017-2019 time-frame, so I really believe we are in the early days of a commodity cycle.”

Bishop also said Trump’s infrastructure spending plans are likely to drive up demand for industrial metals, and are particularly bullish for copper, which is one of Rio Tinto’s key products.

Autoliv

Swedish-American Autoliv Inc. ALV, ALIVSDB  is in a sweet spot to grow its dominance in the airbag and seat-belt market, setting the stock up for a significant rally over the next two years, according to Erik Karlsson, founding partner and chief executive of Bodenholm Capital.

“We see a 100% upside in our Autoliv investment over the next two years,” he said.

Autoliv already sits on 38% of the market, but is almost guaranteed to grow its share to 50% due to serious problems at its main competitor Takata Corp. 7312, Karlsson said. Takata was recently forced to recall millions of air bags after a number of product failures that were linked to deaths and injuries.

Since those events, Autoliv has won 55% of all new orders, which means the market share should start to accelerate in the second half of 2017 and well into 2019, the Bodenholm fund manager said.

Karlsson was so sure about his call that he promised to donate 1,000 pounds ($1,268.70) to the Sohn foundation for every investor at the conference that buys Autoliv before Christmas but then loses money on the stock over the next 12 months.

Leonardo - Finmeccanica

Italian defense and aerospace company Leonardo-Finmeccanica SpA LDO  is another company that’s likely to benefit from a Trump win in the U.S. Elif Aktug, a senior investment manager at Pictet Asset Management, said the new president is likely to increase military spending, providing a boost to defense companies that have struggled in recent years.

What makes Leonardo stand out in the industry, she said, is its rise from the ashes under new CEO Mauro Moretti that has succeeded with a much-needed restructuring program.

She estimates the stock has potential to rally to €24.30 in coming years, a more than 80% upside from the €13.49 it currently trades at.

“If you’re looking for a deep-value cyclical, which has been penalized for being Italian — although only 15% of its revenue comes from Italy — which benefits from the secular trend of increased spending in defense, which will also benefit from a cyclical upturn in the helicopter market, a fantastic management team and [huge] upside, I suggest you take a look at Leonardo,” she said.

Article and media originally published by Sara Sjolin at marketwatch.com


How Trump and Brexit are shaking up investment portfolios for 2017

A lot of things happened in 2016 that most people didn’t see coming: Prince and David Bowie died. The Chicago Cubs won the World Series for the first time in 108 years. And among economic and political shockers, the U.K.’s vote to abandon Europe’s trade bloc, dubbed “Brexit”, and Donald Trump’s stunning presidential win, despite polls that indicated both outcomes were unlikely, left financial markets gobsmacked.

The lessons for investors from the litany of 2016 surprises for next year: Brace for a whole new trading landscape as the political bombshells sink in with policy makers.

Analysts say the rising populism sweeping across the U.S. and Europe is forcing politicians and central bankers to shift their focus and priorities, portending a sea change to the regime investors have grown accustomed to since the financial crisis.

“Central banks were in the driving seat, but what we’ve learned this year is that there’s this saturation with monetary policy. At a high level, people are starting to see that monetary policies have mainly benefited asset prices and not the real economy,” said Mislav Matejka, J.P. Morgan’s chief European equity strategist.

“So there’s this shift now in focus away from monetary easing and [quantitative easing] towards more fiscal easing, more infrastructure spending, a bit more support in the final demand. And I think that will probably be the ongoing theme going into next year,” he added.

Goodbye to bond rallies, hello to bank stocks

And that’s where it becomes interesting for investors. The change of tune likely signals a farewell to a protracted period of ultralow interest rates and a multiyear bull market for bonds, and instead a hello to stocks that will benefit from higher growth and rising interest rates. Bond prices move inversely to yields, so when bonds sell off, yields move higher.

That’s a particularly beneficial scenario for the banking sector because higher rates and a so-called steepening yield curve in government bonds means banks can charge more for long-term loans than they pay to fund themselves in the short term. The yield curve refers to a plot of bond yields by their maturity.

Matejka said fund managers who have outperformed the market over the past six or seven years have succeeded by focusing on companies with dividend yields, solid cash flows, certainty and visibility—basically so-called “bond proxies.” Bond proxies are stocks, including those in sectors such as telecommunications, real estate and utilities, that offer dividends but limited growth prospects, which can be attractive in a yield-parched environment.

“With this shift now, the bondlike equities—the safer stuff, the yield plays—will get left behind and we should start to see a rebound in the reflation plays, particularly the financial sector,” he said. “There’s a big shift beneath the market surface that started 2-3 months ago, but we think it will continue.”

Policy shift ‘supercharged’ by Trump win

Financial stocks have already soared since Election Day, boosted by expectations U.S. President-elect Donald Trump will make good on his promises to boost fiscal spending and lower taxes. That combination should spur inflation and lift interest rates, which usually is a good sign for bank earnings. Moreover, he has vowed to loosen regulatory oversight on Wall Street and cut taxes.

The SPDR S&P Bank ETF KBE, +1.43%  has rallied more than 24% since the vote, while Stoxx Europe 600 Banks Index FX7, -0.51%  is up 15%. But the sector likely isn’t done rallying, according to J.P. Morgan Chase & Co., whose analysts are maintaining the financial sector as their key equity call for 2017, with the equivalent of buy ratings on banks in Japan, the U.S. and Europe.

“If you look at banks, the direction of bond yield is key. If bond yields keep moving up as we expect, this rotation into value and out of growth should continue and financials will be the big winner,” Matejka said.

J.P. Morgan’s upbeat tone on the banking sector is echoed by researchers at Citigroup.

More political risks loom

There are caveats to the upbeat forecasts, however. As much as Brexit and Trump unexpectedly have brightened the outlook for stocks, the same underlying dissatisfaction is still brewing in other countries and holds the potential to deliver shocks to the financial system. Most recently, the Russian ambassador to Turkey was killed on Dec. 19 and a series of attacks in Europe raised the specter of terrorism and geopolitical unrest fomenting around the globe.

Against that backdrop, the emergence of populism around the globe is likely to result in more changes to political leadership, with a spate of upcoming elections in France and Germany and elsewhere on the horizon.

France holds its presidential election in the spring, while the Germans head to the polls in September. Some analysts fear an election in Italy, after Prime Minister Matteo Renzi resigned following a rejection of constitutional reforms he championed, could pave the way for euroskeptic and antiestablishment parties to gain more power.

“We remain concerned about political risks. We suspect that a populist outcome in next year’s French presidential election would be much less equity market friendly than the Brexit or Trump votes,” Citigroup analysts said.

Article and media originally published by Sara Sjolin at marketwatch.com


China clears key hurdle to buy Chicago Stock Exchange

China clears key hurdle to buy Chicago Stock Exchange

China just moved a step closer to acquiring one of America's oldest stock exchanges, despite security concerns raised by some in Congress.

This week a U.S. panel that examines foreign deals for potential national security concerns cleared the purchase of the 134-year-old Chicago Stock Exchange by a China-led group of investors.

 The Chicago Stock Exchange said the Committee on Foreign Investment in the United States (CFIUS) decided there are "no unresolved national security concerns" over the deal, which was first announced in February.

A U.S. Treasury spokesperson declined to comment, citing policy not to disclose information about specific CFIUS cases.

Representatives for CFIUS did not respond to a request for comment on the news, which was first reported by Reuters.

The acquisition by China's Chongqing Casin Enterprise Group still faces SEC approval. If cleared, the deal would give China a foothold in the vast American stock market, the largest in the world.

The struggling Chicago Stock Exchange is far smaller than the Nasdaq (NDAQ) and the iconic New York Stock Exchange. Earlier this year it accounted for just 0.5% of U.S. trading.

chicago stock exchange building

Still, some lawmakers raised security concerns about Chinese investors buying into the U.S. equity market.

Dozens of members of Congress wrote a letter in February urging the deal receive tough scrutiny and get blocked if the buyer had close ties to the Chinese government.

The Chicago Stock Exchange transaction was proposed during a different atmosphere.

Since then, President-elect Donald Trump and China have clashed over the U.S. position that Taiwan is part of "one China." Beijing has said it is "seriously concerned" by Trump questioning this long-standing policy. Trump has also accused China of devaluing its currency, even though Beijing is spending heavily to keep the yuan from falling too quickly.

Trump was very critical of China's trade tactics during the presidential campaign, threatening to slap a 45% tax on Chinese goods coming into the U.S.

If the Chicago Stock Exchange deal is cleared, it won't be the first instance of foreign ties to a U.S. exchange. In 2007, Nasdaq merged with OMX, a Nordic exchange, becoming Nasdaq OMX Group. The exchange has since changed its name back to Nasdaq.

The Chicago Stock Exchange is minority controlled by a group that includes Bank of America (BAC), E*Trade (ETFC), Goldman Sachs (GS) and JPMorgan Chase (JPM).

Article and media originally published by Matt Eagan at money.cnn.com


make money in 2017

Here’s where contrarian investors plan to make their money in 2017

It’s effectively the last Friday before Christmas, and not much is stirring. That means it could be the start of the holiday exodus, when investors pocket their gains and get ready to deck the halls.

Of course, some are probably going to hang around just to see history made — that is, the Dow hitting 20,000. This could be the day. (More in our chart of the day)

“The last potential banana skin this side of Christmas has finally been cleared, and there really is very little to stop equity markets going higher,” Interactive Investor’s Lee Wild says in a note.

Among those who will be toasting their good fortune are the contrarians, whose global stock-picking strategy has delivered a 31% year-to-date gain, according to Citi strategists. That’s the third best yearly performance since 1998, say Robert Buckland and his team. The most successful call was for a rebound in commodity stocks.

It could be argued that contrarians were due a big payout after three straight years of seeing their strategy underperform, says Buckland. Still, it’s worth a peek at their 2017 strategy, which happens to be our call of the day.

In short, that group of investors will get more defensive and call a reversal of this year’s trades.

“On an asset class level, they will try to call a downturn in oil prices and equities. They are long U.S. Treasurys,” notes Buckland.

“Contrarian stock pickers will be calling for an upturn in health care stocks. They will be bearish on commodity and IT stocks,” he says. In particular, Buckland mentions Eli Lilly LLY, CVS Health CVS, , BHP Billiton BHP, BLT and Hewlett Packard Enterprise HPE.

Follow the rebels? Not so fast. “We think it is too early to put on the defensive strategy that a contrarian would currently be adopting,” says the Citi team. The team expects oil prices and stock prices to be higher, and Treasury yields to keep rising into 2017.

Here’s another big contrarian move you can make for next year, along with some “outrageous” predictions, such as health-care stocks falling 50%.

Key market gauges

It’s quiet out there, with small moves the theme of the morning. Dow YMH7, S&P 500 ESH7  and Nasdaq-100 NQH7  futures are rising. The Dow DJIA the S&P 500 SPX  and the Nasdaq Composite COMP closed higher Thursday. Just marginal gains are on tap for the week across all indexes.

Crude CLF7  is up, while gold GCG7 has stabilized, but facing its sixth-straight weekly loss. The dollar DXY  is pulling back a bit. See Market Snapshot column for the latest action.

The chart

Stocks are likely headed for a cooldown once the Dow industrials hits 20K, predicts Mark Arbeter. He points to the 14-day relative strength index for the Dow, currently sitting at 87.40. A level above 70 indicates overbought or overvalued territory (see an explanation here).

The president of Arbeter Investments says the last time the Dow was that extended on a daily basis was back in November 1996, after which the index fell for the next 14 days.

Lack of historical precedents aside, Arbeter “can’t find a better reason for a pullback than the Dow near 20,000, accompanied by the most overbought index condition in 20 years,” he says in his newsletter. Here’s his Dow chart:

The stat

Negative $18.3 billion — That’s the amount of Treasury bonds and notes bought in October, according to fresh data from the U.S. Treasury Department. In other words, “private” foreign investors sold $18.3 billion more than they bought, explains Wolf Street’s Wolf Richter.

China was the biggest seller, he says, expanding on what this all means here. His chart (from Trading Economics) puts the selling in perspective:

The buzz

Netflix NFLX has struck an exclusive deal with Bollywood star Shah Rukh Khan.

Oracle ORCL  shares fell late Thursday after the software maker just met Wall Street forecasts. One thing we learned: Oracle isn’t beating Salesforce CRM  and Amazon AMZN  when it comes to the cloud. Is it really a good time for Oracle CEO Safra Catz to join Trump’s transition team?

Americans returned goods worth $261 billion to retailers last year, more than Apple’s AAPL annual revenue.

Disney’s DIS  “Rogue One: A Star Wars Story” hits the box office this weekend, and is expected to earn $300 million in that worldwide debut. Twitter is already having kittens about it:

Fresh U.S. data showed housing starts tumbling and building permits down as well.

The quote

“I think there is no doubt that when any foreign government tries to impact the integrity of our elections ... we need to take action. And we will — at a time and place of our own choosing. Some of it may be explicit and publicized; some of it may not be.” — President Barack Obama.

The outgoing commander in chief made a thinly veiled threat to Russia over cyber-hacking during the election in an interview with NPR. He will hold a press conference on Friday.

This was Trump earlier Thursday:

Article and media originally published by Barbara Kollmeyer at marketwatch.com

 


Two traders arrested over alleged manipulation

Two traders arrested over alleged manipulation of more than 2,000 stocks

Joseph Taub and Elazar Shmalo allegedly used dozens of accounts at several brokerage firms in bouts of manipulative trading activity.

Two New Jersey-based traders were arrested on Monday for allegedly manipulating prices of more than 2,000 New York Stock Exchange- and Nasdaq-listed shares resulting in more than $26 million in illegal profits over a two-year period.

Regulators, law enforcement, and the exchanges use technology to see, and track, manipulative trading that, in this case happened more than 23,000 times and often lasted just a few minutes. Joseph Taub, 37, of Clifton, New Jersey, and Elazar Shmalo, 21, of Passaic, New Jersey sometimes controlled at least 80% of the volume of a targeted stock and traded in several accounts simultaneously, the regulators said.

The scheme, says the Securities and Exchange Commission and the U.S. Attorney’s office in New Jersey, was sophisticated. Taub, a registered broker, and Shmalo, who is unemployed, allegedly coordinated trading in more than $10 billion worth of securities in dozens of brokerage accounts.

 The complaint filed against Taub and Shmalo by the U.S. Attorney says they looked for companies with low trading volumes and then entered numerous trades using “helper” accounts that signaled false information to the market, artificially inflating their prices. Later they sold the shares in “winner” accounts at the artificially inflated prices after accumulating positions at lower prices.

Taub and Shmalo, and additional unnamed conspirators, relied on pre-arranged and coordinated trading among dozens of brokerage accounts they controlled, according to the SEC and DOJ. Taub, according to the SEC and DOJ, was the ring leader, funding many of the accounts that were not in his name and using two companies he controlled , EAC Capital LLC and LNW Direct LLC, to make some of the trades. Some accounts were held in the Taub and Shmalo names while others were in the names of family members. Many of the accounts were “straw” accounts, opened in the names of individuals who neither controlled the accounts nor traded the securities in an attempt to conceal the scheme from regulators and law enforcement.

The trading allegedly was carefully coordinated, using the “helper” account to place multiple small orders in a stock to create upward or downward pressure on the stock price. The “winner” account was primarily used to purchase and sell larger quantities of stocks at prices that had been affected by the manipulative orders in the helper account. The helper and winner accounts were almost always held at different brokerage firms.

Brokerage firms frequently questioned Taub and Shmalo about apparently manipulative trading patterns in the accounts such as wash trades, spoofing, and/or layering and sometimes closed the accounts. Layering is when a trader places non-bona fide orders to buy or sell securities in order to move the price of a security up or down and then quickly cancels them before they are executed. A wash trade allows the trader to create the illusion of volume by simultaneously selling and buying the same stock. Spoofing is when a non-bona fide orders are entered to encourage other traders to place orders that the original trader can exploit after canceling the fake order and entering an order on the opposite side of the market.

When brokerage firms closed the accounts after suspecting illegal manipulation, Taub and Shmalo simply switched to new firms and opened new accounts in other “straw” names. They also put off the inquiries by pretending to be unaware of the violations, in one case apologizing and saying “I’ll make sure it doesn’t happen again.”

Taub and Shmalo are each is charged with one criminal count of conspiracy to commit securities fraud which carries a maximum potential penalty of five years in prison and a fine the greater of $250,000 or twice the gain derived from the offense or twice the loss caused by the offense. The two men are scheduled to appear before U.S. Magistrate Judge Steven C. Mannion in Newark federal court.

The SEC did not identify an attorney yet for either man. The SEC charges Taub and Shmalo with violating and aiding and abetting federal securities laws and sought a return of the illegal profits plus interest and penalties.

Article and media originally published by Francine McKenna at marketwatch.com


Five major U.S. stock-index

Stock benchmarks just did something they haven’t done in nearly 20 years

Dow, S&P 500, Nasdaq Composite, Russell 2000, Dow transports all close at all-time highs on the same day.

Five major U.S. stock-index benchmarks finished at records on the same day—something that hasn’t happened in more than 18 years, according to Dow Jones data.

On Thursday, the Dow Jones Industrial Average DJIA, +0.33%  closed up 65 points, or 0.3%, at 19,614.81. It was the 13th record finish for the blue-chip gauge since the election.

 The S&P 500 index SPX, +0.22% gained 0.2% to end at a record 2,246.19 and the Nasdaq Composite Index COMP, +0.44% wrapped up 0.4% higher at a record 5,417.36, marking its first record since Nov. 29 and joining the other two stock gauges which finished at all-time highs Wednesday.
Meanwhile, the Dow Jones Transportation Average DJT, +0.53% also extended its climb to new heights, ending at a fresh record of 9,421.08, while the Russell 2000 index RUT, +1.60% a gauge of small-capitalization stocks, also closed at a record of 1,386.37. It was the first time all five of those benchmarks scored a record close since March 16, 1998.

Equities have been a record-setting run on the back of the belief that President-elect Donald Trump will implement pro-business policies and boost the economy.

Article and media originally published by Mark DeCambre at marketwatch.com