Quartz Daily Brief—Asia edition—Gaza war resumes, Pakistan’s standoff, ISIL’s message, car thieves

Quartz - qz.com
Good morning, Quartz readers!

What to watch for today

The Gaza war reignites. Hostilities resumed as rockets from Gaza hit Israel around eight hours before the 24-hour ceasefire was set to expire at midnight. Israel launched airstrikes in response that killed a woman and child. Peace talks in Cairo have collapsed and Israel has called its negotiators home.

The standoff in Pakistan intensifies. After opposition politician Imran Khan led his supporters through physical road blocks into Islamabad’s “Red Zone,” he called on them to make a “Tahrir Square” outside parliament to pressure prime minister Nawaz Sharif to step down.

A spotlight on US and UK interest rates. The Fed and Bank of England release minutes from their July and August meetings, respectively. Both will provide insight into when an interest rate hike is likely as the US is approaching its inflation goal (paywall) and Britain’s economy is showing mixed signals.

Brazil’s election gets a fresh jolt of energy. The Brazilian Socialist Party is expected to announce Marina Silva as its presidential candidate, after Eduardo Campos died in a plane crash last week. A poll last week showed that Silva, a former environment minister who was Campos’s vice-presidential running mate, could beat the incumbent, Dilma Rousseff.

Hewlett-Packard and Staples will report. Computing giant HP is restructuring, and revenue is expected to fall by 0.8%. Staples, the biggest US retailer of office supplies, has had a difficult year with competition from companies like Amazon, Walmart and even local drugstores. Revenues are expected to decline by 2.9%.

While you were sleeping

Good and bad news for Shinzo Abe. Japan’s trade deficit widened (paywall) again as imports rose 2.3%. Still, Japan’s exports rose for the first time in three months, a sign that overseas demand is recovering. Automobile and electric machinery shipments were the main growth contributors. Last month’s unexpectedly wide trade deficit raised serious doubts about prime minister Abe’s growth strategy (paywall).

Steve Ballmer left Microsoft’s board. Ballmer, who stepped down as Microsoft CEO in February, is quitting the company’s board too after 14 years. But don’t feel sorry for him: He owns more Microsoft stock than Bill Gates, and has a new basketball team to play with.

ISIL’s gruesome message. The group released a video showing the beheading of a man they identified as American journalist, James Foley. US intelligence is working to verify the video’s authenticity. The group also threatened to kill journalist, Steven Sotloff, unless the US stops bombing northern Iraq. Saudi Arabia’s highest religious authority, the grand mufti, pronounced ISIL  “enemy number one” of Islam.

Record high for Apple. The tech company’s stock closed at an all-time high of $100.53 a share. Apple’s shares have nearly doubled since April 2013, and the new iPhone 6, which will be released in September, will likely only strengthen the growth.

Ukraine’s forces inched closer to Donetsk. Government troops captured a town near the rebel-held city. Heavy fighting continued in Luhansk, near where 15 bodies have been recovered so far after Monday’s strike on a refugee convoy; separatist rebels are still denying they were behind it. The Ukrainian and Russian presidents are set to meet next week.

The Liberian government declared a curfew. In an attempt to contain the Ebola outbreak, the country hardest hit by the current crisis has introduced a curfew from 9pm to 6am in Monrovia and quarantined a slum. According to the latest WHO figures, the outbreak has killed 1,229 people.

Quartz obsession interlude

Leo Mirani on why every smartphone app seems to want you to turn on notifications. “Smartphone users who turn on notifications use those applications far more often than people with alerts turned off. They are also much less likely to use an app only once before abandoning it. ‘On average, 62% of users will return to the app the following month if they are being engaged with push messaging, whereas only 32% of users will return if not prompted with push,’ according to Localytics.” Read more here.

Matters of debate

America does not value black lives. That’s the message sent when police kill an unarmed black man with no repercussions.

Central bankers are contributing to a peculiar calm in global markets. Their loose monetary policy is encouraging investors to take more risks through bonds and equities.

The EU should challenge China on disputed waters. Europe can’t rely on the US alone to guarantee freedom of the high seas.

Harry Potter shaped the Millennial generation’s politics. Because of Harry and his friends, an entire generation is more likely to support equality and less likely to tolerate authoritarianism, violence, and torture.

Surprising discoveries

The Honda Accord was the most stolen car in the US. Car thieves prefer less fancy cars because they’re easier to take apart and sell in parts.

Richard III drank a bottle of wine daily. Studies of his teeth and bones show he also had a fondness for eating swan, heron, and egret.

A hard-to-refute reason for canceling the Economist. One reader spent less time reading in the bathroom, with positive health effects.

Chechnya’s president interrogated 1,000 villagers about his lost iPhone. Well, he needed it; he’s famous on Instagram, after all.

A Superman comic is worth at least $2 million. With five days left to go, an eBay auction could easily beat the last record for a copy of the series, which was $2.16 million.

Passport officers aren’t foolproof. Untrained college students had the same error rate as trained officers in matching a face to a passport photo.

Our best wishes for a productive day. Please send any news, comments, swan recipes, and nice cars to hi@qz.com. You can follow us on Twitter here for updates throughout the day.

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Quartz Daily Brief—Scotland’s independence, Japan’s economy, African debt, Disney villains gone soft

Quartz - qz.com

Good morning, Quartz readers!

What to watch for today

Scotland’s independence campaign kicks off. Supporters claim leaving the UK would boost the Scottish economy by £5 billion a year, while opponents cite the cost of building a new state and creating new policies. The BBC has a nice sentiment tracker on the referendum, which will be held on September 18.

Sparks fly in Singapore. The annual security summit known as the Shangri-La Dialogue will kick off with a keynote speech from Japan’s nationalistic prime minister, Shinzo Abe. He is expected to confront China about its increasingly assertive stance in the South and East China Seas.

Bad news in Brazil. The country’s statistics agency is on strike, but it will still release GDP data showing that growth nearly ground to a halt in the first quarter. Amid ongoing protests against the money being spent on the World Cup, the main federal workers union is set to discuss joining the work stoppage.

While you were sleeping

Microsoft’s Steve Ballmer agreed to buy the Los Angeles Clippers. The former CEO will  pay a record $2 billion for the NBA team that was thrown into chaos by a recording of owner Donald Sterling making racists statements. The deal, negotiated with Sterling’s estranged wife, could face legal obstacles if he opposes the sale.

Li Ka-shing agreed to buy Envestra. The Hong Kong mogul’s Cheung Kong Group $2.2 billion for the Australian natural gas distributor, after beating rival APA’s bid. The company owns 23,000 km (14,000 miles) of gas pipelines that supply to customers in Victoria and South Australia.

Japan’s economy took a tax hike hit. Industrial output growth fell 2.5% in April as consumers kept their wallets shut in response to a steep increase in the sales tax. Because of the hike, consumer prices rose 3.2%, the biggest rise in 23 years.

Google begrudgingly accepted an EU privacy ruling. But CEO Larry Page told the Financial Times that giving individuals “the right to be forgotten” could damage startups and strengthen oppressive governments (paywall).

The US meat wars got even meatier. Tyson Foods, the US’s biggest meat processor, offered to buy Hillshire Brands for $6.8 billion, trumping a lower bid from Pilgrim’s Pride and setting up a possible bidding war.

Ford pulled a GM. The carmaker recalled 1.4 million vehicles, citing problems with power steering, lights that could short-circuit or spontaneously combust, and floor mats that get stuck under gas pedals. Rival automaker General Motors has recalled 16 million vehicles this year.

The IMF told Africa to take it easy. Christine Lagarde, the International Monetary Fund’s boss, warned that Africa could derail its recent period of growth and stability if it takes on too much debt (paywall). Investors have been flocking to high-yield African bonds.

Quartz obsession interlude

Tim Fernholz on why US companies can earn $51 billion in the Cayman Islands even though its GDP is only $3 billion. “The foreign subsidiaries of US corporations made $94 billion in Bermuda in 2010, the latest year we have data for. That’s incredible work, since only $6 billion of goods and services were produced on the island that year. What does that tell us? It tells us that something fishy is going on.” Read more here.

Matters of debate

Rising housing prices will upend Britain’s class system. The middle class will no longer be able to afford a house and private education.

The sharing economy is feeding off economic misery. It encourages people to become part-time cabbies and hoteliers out of necessity.

To spot the next bubble, follow the Harvard grads. They tend to flock to the plushest pastures, and “the getting looks best right before a crash.”

Disney’s villains have gone soft. Modern bad guys now have redeeming qualities and back-stories.

India and Pakistan may be at the beginning of a beautiful friendship. As long as the US keeps out of it, that is.

Surprising discoveries

A restaurant reservation may soon cost you… With an app as the middleman, of course.

…And so will that seat upgrade. Cathay Pacific is contemplating introducing auctions for empty premium seats.

Dots is back, and it’s better than ever. The addictive game now has characters and levels.

The modern man needs a “man bra.” For holding all his wearable tech, of course.

Our best wishes for a productive day. Please send any news, comments, favorite Disney villains, and Dots high scores to hi@qz.com. You can follow us on Twitter here for updates throughout the day.

You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.

CWS Market Review – September 6, 2013

September 6, 2013

“Sometimes your best investments are the ones you don’t make.” – Donald Trump

The Labor Day weekend is behind us, and the stock market has so far shaken off its August blues. The S&P 500 has rallied for three straight days this week and is back over 1,655. In fact, the index is getting close to breaking above its 50-day moving average. Since August 16, we’ve closed below the 50-DMA every day but one.

Now all eyes are on the Federal Reserve and what it will do at its next meeting on September 17-18. Make no mistake, this is the most-anticipated FOMC meeting in years. The bigwigs inside the central bank have more than hinted to us that we can expect a paring back in the Fed’s asset-buying program. Of course, no decision has been made yet. Plus, even if there is a tapering announcement, we still don’t know how much it will be. Either way, over the next two weeks, you can expect a lot of opinion-makers opining on what the Fed’s opinion ought to be.

Fortunately for us, we don’t have to fret over such decisions. Our strategy remains the same. We’re focusing on high-quality stocks going for good prices, and it’s working. Despite the August slump, our Buy List holds a nice 4.7% lead over the S&P 500 for the year. By the way, did you notice the nice rebound in Ford (F)? The automaker just reported its best sales months since 2006.

In this week’s CWS Market Review, we’ll preview the upcoming Fed meeting. I also want to cover the terrible deal Microsoft (MSFT) just struck with Nokia (NOK). (I really wish awful dealmakers like Steve Ballmer were in my fantasy football league.) I also want to share with you some names that I’m considering for next year’s Buy List. Plus, I want to touch on the very good ISM reports from this week. But first, let’s look at what Ben Bernanke and his crew at the Fed have in store for the economy, Wall Street and our Buy List.

Countdown to the September FOMC Meeting

The Federal Reserve meets again in two weeks, and this meeting is a biggie. Without making anything definite, Fed officials have used speeches and the media to hint that an announcement of tapering bond purchases is on the table.

Here’s where we stand. Since short-term interest rates are already close to 0%, the Fed has had to use its bond buying as an extra-special tool to help the economy get back on its feet. The Fed has also said that it will stop the bond buying first before it considers raising short-term interest rates. The Fed’s policy is that it won’t raise short-term rates until unemployment falls to 6.5%, which they don’t see happening until the middle of 2015, at the earliest.

So has the bond-buying program worked? That’s hard to say, and to some extent, I don’t care. At the least, we can say that the program has correlated with a recovery in the housing market and a surge in U.S. auto sales. The big winners in the stock market for the last year have been anything at the intersection of consumer finance and large-ticket consumer items. In plainer words, stuff people buy with borrowed money. That’s why the Consumer Discretionary ETF (XLY) and stocks like Visa (V) have done so well.

The stock market has been gradually rewarding riskier investments lately at the expense of safer areas. For example, utilities and consumer staples have been rather weak, but industrials have been strong. While financial stocks have been big winners since late 2011, they’ve been underperforming lately. I think this market shift is in anticipation of improved economic growth.

I think it’s a mistake to assume that the entire economy has been aided by steroids from the Fed. More than a few folks on Wall Street think that once the Fed’s assistance is gone, stock prices are due to crash. I disagree. The economy appears to have reached escape velocity, where every improvement builds on what came before. Analysts on Wall Street expect to see earnings growth of over 12% for Q3, and over 25% for Q4. If those forecasts are in the ballpark, then the stock market is still cheap.

What’s really shocked people, including myself, is the rout in the bond market. As we look back at the 2013 investing year, May 2 may turn out to be the key date. That’s when the bond market started to turn south in a big way. Except for very short-term rates which haven’t budged, most Treasury yields are at two-year highs, and they continue to rise. On Thursday, the yield on the ten-year Treasury broke 3% for the first time since July 2011.

Consider that the yield on the five-year jumped from a measly 0.65% in early May to 1.85% by Thursday’s close. Of course, in absolute terms, that’s still a puny yield, but it’s a big turnaround from what we’ve seen. It’s hard to believe that in the spring of 2011, the five-year was inching up over 2.35%.

The rise in yields has been greatest with the seven- and ten-year bonds (more than 130 basis points for each). Interestingly, short-term yields haven’t moved. What’s also caught my eye is that the spread among the longer-dated bonds has actually narrowed a bit. In early May, the 30-year yield was 116 basis points higher than that of the 10-year; now it’s down to 90 basis points. The biggest impact on the yield curve is happening in the middle.

As I explained in last week’s issue , I don’t believe the downturn in the bond market is due to fears of inflation or of the Fed’s shutting off the spigots. Instead, the higher yields are actually in anticipation of an improving economy. We got more evidence of that this week with a very strong ISM report on Tuesday. Then on Thursday, we learned that the ISM Services Index hit its highest level since 2005. We should also add the great sales report from Ford to the positive economic news pile.

So what’s all this mean? It seems that in May, the market saw Fed rate increases as being a long way off. Now it doesn’t. In May, the futures contract for the Fed funds in July 2015 rates got to $99.72. Recently, it’s been as low as $99.13. That’s a big shift.

I suspect that traders are probably getting ahead of themselves in predicting any rate increases. The Fed has said it wants to see unemployment down to 6.5% before it starts raising rates. I’m writing this early on Friday, ahead of the August jobs report, so I don’t know what the results will be (check the blog for updates), but we’re still a long way from 6.5%. The key for investors to understand is that the Fed isn’t going away anytime soon.

We don’t have much hard evidence yet on how the economy has performed during the third quarter. The ISM reports offer some clues, and the August jobs report will shed some light. The ADP report on Thursday showed an increase of 176,000 jobs last month, which nearly hit consensus on the nose.

Investors should continue to favor high-quality stocks. Our own Harris Corp. (HRS) got off to a shaky start this year, but has been impressive lately. We recently got a 13.5% dividend increase, and the stock hit a new 52-week high on Thursday. Later this month, three of our Buy List stocks are set to report: Oracle (ORCL), FactSet (FDS) and Bed Bath & Beyond (BBBY). I’ll preview these reports in greater detail in next week’s issue, but the one that’s concerning me is Oracle. The last two reports have been duds, and I’m very reluctant to go against Larry Ellison, but I want to see solid performance in this report. Speaking of large-cap tech stocks, let’s look at the big story from this past week.

Microhard: The Awful $7.2-Billion Deal with Nokia

On Labor Day, Microsoft (MSFT) announced that it’s buying Nokia‘s (NOK) devices and services unit for $7.2 billion in a deal that includes Nokia’s patents. I think this is another one of Steve Ballmer’s lousy deals, and traders agreed with me. Shares of MSFT dropped more than 4.5% on Tuesday, which erased the entire surge from Ballmer’s retirement announcement. The stock has lost more than $18 billion in market value since the $7.2 billion deal was announced.

To quote myself, it’s usually a bad sign when news of your resignation causes a market-value increase of $24 billion. This latest deal shows us why the market so distrusts Ballmer. I’m afraid this is another in a long line of bad deals for Microsoft. Ballmer wasn’t joking around when he said he wants MSFT to be a devices company. You have to wonder how much longer the “soft” will be a part of Microsoft.

The Nokia deal is a deal made from weakness, and that’s usually a bad sign. On one level, it makes sense in that it brings together Windows 8 with its biggest hardware supporter. I suppose they think they can replicate the Google-Apple model. I’m not sure what was going to happen. Perhaps Nokia was going to ditch MSFT and go with Android, or maybe NOK was going to declare bankruptcy. That’s not unthinkable. The stock is still down more than 90% from its tech-bubble high. It’s very probable that Microsoft saw only bad scenarios unfolding and decided to make a move. Most importantly, I’m not sure why MSFT can succeed where Nokia has failed.

Microsoft is still on my Buy List, and will be until the end of the year. I’m very unhappy with this recent decision. The only positive I can say is that the Nokia deal isn’t that big relative to MSFT’s overall position. It comes to about 86 cents per share. Microsoft is sitting on a cash position of $61 billion, so this doesn’t exactly stretch their finances.

I added MSFT to the Buy List this year, and I’m not sorry I did. I still think the stock was going for a discount relative to its fair value. I also expect to see Microsoft raise its quarterly dividend later this month. The current dividend is 23 cents per share. I’m expecting an increase to 26 cents. Going by Thursday’s closing price of $31.24, that comes to an annual yield of 3.33%. I’m going to lower my Buy Below price on Microsoft to $34 per share.

Ten Candidates for Next Year’s Buy List

Now that we’re in the final third of 2013, I wanted to pass along a few names that I’m looking at as candidates for next year’s Buy List. As usual, I’ll add five new stocks and delete five current ones.

Please understand, this is just a preliminary list, and I won’t finalize next year’s Buy List until mid-December. There are currently ten stocks that I’m keeping a close eye on; IBM (IBM), CVS Caremark (CVS), Tupperware (TUP), Express Scripts (ESRX), DaVita (DVA), Varian Medical Systems (VAR), AutoZone (AZO), United Stationers (USTR), Bio-Reference Labs (BRLI) and St. Jude Medical (STJ).

Honestly, that list is heavier on healthcare than I would prefer, but that’s where I’ve been seeing high-quality bargains. I plan to have another list of next year’s candidates before the official list comes out in December.

Before I go, I want to make a few small adjustments to our Buy Below prices. In addition to lowering Microsoft‘s (MSFT) Buy Below to $34 per share, I also want to drop WEX‘s (WEX) down to $89. Nothing’s wrong with the stock. I simply want our buy ranges to reflect last month’s pullback. I also want to raise Ross Stores‘s (ROST) Buy Below by $1 to $71 per share. ROST has been doing very well for us.

Lastly, I’m raising CR Bard‘s (BCR) Buy Below to $119. The company just picked up Rochester Medical for a cool $262 million. Bard is paying $20 per share for Rochester, which is a 44% premium. This looks to be a smart deal, and BCR rallied on the news. Bard looks very good here.

That’s all for now. Next week, we’ll get important reports on retail sales and consumer credit. On Thursday, the Treasury Department will update us on how the budget deficit looks for this fiscal year, which concludes at the end of this month. This looks to be the government’s lowest budget deficit in five years. Of course, that’s comparing apples to trillion-dollar oranges. Still, this year’s deficit is projected to come in at a mere $680 billion. That’s nearly 38% below last year’s red ink. I want to see this trend continue. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 for the last six years in a row. This email was sent by Eddy Elfenbein through Crossing Wall Street.

Quartz Daily Brief—Central bank action, Yum! loses appetite, regrown memories

Quartz - qz.comGood morning, Quartz readers!

What to watch for today

Will the US jobs cheer continue? Initial jobless claims will offer clues into the strength of the US labor market recovery.

Big shakeup at Microsoft. CEO Steve Ballmer is reportedly looking to reorganize the company into software and devices divisions, a move that may involve moving a lot of high-ranking executives around. Ballmer may also change the way the company reports its earnings.

Paging Larry at Sun Valley. The annual Allen & Company media and technology conference is filled with the usual A-List names—including a “beaming,” newly single Rupert Murdochbut not Google CEO Larry Page, who has a chronic illness that affects his vocal cords and breathing.

While you were sleeping

The Bank of Japan stood firm. It announced no new changes to its monetary easing policy and reiterated its view that prices will rise 1.9% in the year starting April 2015. It trimmed some other forecasts, projecting inflation 0.6% this year and 1.3% in the following 12 months. South Korea also kept rates steady at 2.5%.

Bernanke isn’t ready to taper quite yet. He said after a speech in Massachusetts that “highly accommodative” monetary policy was necessary in the immediate future. The dovish comments sent Asian markets higher, but minutes released from the most recent Fed meeting showed that around half the committee advocated cutting off the bank’s $85 billion monthly stimulus spending by the end of the year.

Some answers on the Quebec rail disaster. The head of a company that operated a runaway train filled with oil that killed up to 50 people in an explosion apologized for the incident and said the most likely cause was an improper use of handbrakes. The engineer who set the brakes has been suspended without pay.

American retailers’ watered-down proposal for Bangladesh factories. 17 North American retailers including Walmart and Gap unveiled a five-year worker safety plan that included annual factory inspections and a $42 million fund. They had deemed a European plan, announced on Monday, too binding.

Smithfield’s CEO tried to set the record straight. Larry Pope appeared in front of a senate committee to answer questions about the US pork producer’s takeover by China’s Shuanghui International. Some lawmakers are concerned that the largest Chinese takeover of a US company would set a precedent, threatening US jobs and food security.

Yum! Brands wasn’t so tasty in China. The owner of KFC, Taco Bell and Pizza Hut reported a 15% drop in second quarter earnings (paywall) as food scares in its large Chinese market took a toll on sales, making the promise of other markets like India look ever more alluring.

Australian jobs stats weren’t great. Unemployment climbed to 5.7% in June, above analyst expectations. The number of full-time jobs decreased, as more people found part-time work instead.

Quartz obsession interlude

Gwynn Guilford on why China’s slowdown could be great for the US. “It’s unlikely any global player will emerge with the voracious appetite for US Treasurys that China has had. But that might be fine. Why? Because America might need to borrow less. And that means it will need fewer borrowers of its debt.” Read more here.

Matters of debate

US immigration reform can still get past the opposition. But only by removing the crucial path to citizenship.

Energy prices shouldn’t be rising so fast. It’s traders who are pushing them up.

Minimum wages should be tied to average hourly wages. It’ll help the lowest earners reap the benefits of rising productivity.

Fighting terror will get trickier. As the US scales back in the “war on terror,” al-Qaeda and its mutations have decentralized and spread.

Round tables are the best way to boost collaboration at work. Those who sit in angular arrangements are likely to be more self-centered.

Surprising discoveries

90 is the new 80. A new study shows that those born in 1915 are more likely to live longer and have better mental faculties than those born a decade earlier.

ADHD drugs don’t boost grades. The drugs improve attention, focus and self-control, but don’t translate to academic success.

Our solar system has a tail. It’s 8 billion miles long and looks like this.

A Polish startup claims to predict soccer games with 90% accuracy. Next goal: predicting the scoreline.

These worms can regrow their decapitated heads.  And stranger still, their memories too.

Our best wishes for a productive day. Please send any news, comments, collaboration-boosting furniture and regrown memories to hi@qz.com. You can follow us on Twitter here for updates during the day.

You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.