The Dow, the S&P 500 and the Nasdaq all touched record highs again on Monday. But the market’s strength belies the fact that some of the biggest – and presumably smartest? – traders are heading for the exits. Reuters reports George Soros, Jeffrey Grundlach, Carl Icahn and David Tepper were among the billionaire hedge fund managers who slashed their long equity positions in the second quarter, according to regulatory filings.
Business Insider is reporting that James Litinsky of JHL Capital has written investors that he would rather be investing in the dark days of 2008 than today. “When people think about inflation they often envision a situation like Venezuela, where there are skyrocketing prices and severe shortages of basic goods and services,” he writes. “Global central banks have given us another kind of inflation, currently isolated to financial assets. They have printed so much money and so severely manipulated market prices that there is a Venezuela happening in the capital markets.”
But Warren Buffet still sees value out there. He upped his stake in Apple during the second quarter by adding 15 million shares worth $1.45 billion.
Meanwhile, Aetna said it will pull out of 11 of the 15 state health exchanges where it operates, dealing another blow to Obamacare. Details below.
• VW Edges Closer to Criminal Charges
After nearly a year of looking, the Department of Justice appears to have found evidence of criminal wrongdoing at Volkswagen. The Wall Street Journal reported that VW and federal prosecutors have held preliminary talks over the matter and aim to reach a settlement by the end of the year. It isn’t clear what criminal offense would be cited, or what the additional penalties could entail, over and above the $15 billion it agreed to pay to settle civil claims from regulators and customers in June (a number that will rise as VW works out how to fix the remaining 15% of vehicles not yet covered. Nor is it clear whether the DoJ plans to file extradition requests for individual VW employees to face prosecution. Ex-CEO Martin Winterkorn is already being investigated in Germany on suspicion of having criminally manipulated the company’s share price by failing to disclose news of the scandal in a timely manner. WSJ, subscription required
• Aetna Deals Obamacare Another Blow
Aetna dealt another blow to President Barack Obama’s signature health care reform plan, saying it will pull out of 11 of the 15 state exchanges where it operates, after losing $430 million since the exchanges opened in 2014. Delaware, Iowa, Nebraska and Virginia were the four states it spared. The company said that exchange customers are turning out to be sicklier and costlier than expected, and that not enough healthy, younger people are paying in to the scheme to balance the risk pool. It’s a familiar lament from the health insurance sector. It comes a month after the Department of Justice blocked its plans to merge with Humana, a deal that Aetna had hoped would help restore its margins. Reuters
• Passive-Aggressive Activism At Morgan Stanley
Activist hedge fund ValueAct Capital Management said Monday it has taken a 2% stake in Morgan Stanley for $1.1 billion, but rather than castigate management and push for a strategic revamp, it said its action was driven by the “extraordinary discount” on its stock applied by investors who didn’t appreciate its progress in moving to an asset-light, fee-driven business model. The market says Morgan Stanley’s assets are only worth 70% of what the bank thinks. ValueAct’s faith in ‘jam tomorrow’ is all the more remarkable for the fact that Morgan Stanley’s return on equity hasn’t hit 10% in a decade, thanks to tighter regulation (notably higher capital requirements) and to ultra-low interest rates that have depressed lending revenues. The Federal Reserve of course may change its stance on one or both of those things, but they’re hardly things that Morgan Stanley can do much about. ValueAct’s involvement at least puts pressure on it to deliver what it has promised. Fortune
• A Budding Megamerger in Gases
Praxair Inc. is in preliminary talks to merge with Linde AG of Germany, in a deal that would create the world’s biggest maker of industrial gases, The Wall Street Journal reported. The two have combined revenues of over $30 billion but would likely be forced to sell off some operations to appease antitrust regulators, given the existing degree of concentration in the sector. The talks are a strategic response to the recent merger between France’s Air Liquide and Airgas Inc. Shares in the two companies rose by between 4%-5% in response to the report, on the hope that the combined entity would have more pricing power and a more efficient cost base. Consultants P&S say the global market for industrial gases should grow by an average of 6% a year through 2022, driven by demand from the refining sector in emerging markets, as well as the healthcare and food packaging sectors. WSJ, subscription required
Around the Water Cooler
• Google Launches Video Calling App Duo
Google’s answer to Apple Face launches today. Named Duo, the new app is expressly designed for mobile platforms and is available on both Android- and iOs-driven phones. Whether it will make big inroads into an already crowded marketplace (populated, not least, by Google’s own Hangouts app) is anyone’s guess. It appears to be a slimmed-down variant of Hangouts, unavailable on desktop and with no conferencing capability, but one that ‘does one-on-one video hat very well,’ according to the tech blogs. Duo is one of two new messaging apps that Google unveiled at this year’s developer conference. There’s still no date for the roll-out of the AI-enhanced text messaging app, Allo. The Verge
• Hackers Claim They Have NSA Code for Sale
Hackers claim to have stolen attack code from a team of sophisticated cyber spies known as “the Equation Group,” widely believed to be associated with the National Security Agency. The hackers intend to sell their ill-gotten assets to the highest bidder in an online auction conducted in the crypto-currency Bitcoin. Although the alleged breach could just be an extravagant hoax, some experts who reviewed a preliminary data dump that was teased alongside a garbled sales pitch said the files look authentic. The assets include code allegedly designed to target firewalls and equipment produced by Cisco, Juniper Networks, Fortinet and Topsec, a Chinese firm. They appear to date back to June 2013, and names are consistent with NSA programs leaked by whistleblower Edward Snowden that year. Fortune
• BHP Billiton Puts Worst Ever Year Behind It
The number is backward-looking but still worth mentioning. BHP Billiton, one of the world’s biggest mining groups, lost a bigger-than-expected $6.39 billion last year, the result of thinking that the Chinese-driven commodities boom would last forever, and of the fatal Samarco dam disaster in Brazil. Like its rivals Glencore, Rio Tinto and Anglo American, BHP’s share price is coming off the floor as commodity prices bottom and balance sheets are trimmed. BHP, which has also taken some big hits on its shale plays in the U.S., warned that it expected prices to stay low and volatile in the short term, against a background of sustained overcapacity in coal and steel in China, but said it still expected free cash flow to double this year. Fortune
• Guess Who’s Still Managing to Raise Prices
Stock markets are down this morning after San Francisco Fed President John C. Williams warned that the Federal Reserve needed a higher inflation target—a message interpreted as “the Fed should keep interest rates lower for longer,” even though that’s not what he said. But although the world may continue to be stalked by deflation, at least someone is still capable of making price increases stick. The New York Times cites a report by Citigroup’s Private Bank saying that law firms’ revenue rose an average 4.1% in the first half of the year, due largely to higher billing rates rather than greater demand for their services. There’ll be more pressure on billing rates in the second half as some big increases in junior lawyers’ salaries start to kick in. Hmmm. NYT