Opening Bell: 6.26.17

Dan Loeb takes a bite out of Nestle; stress test results aren't as tidy as you think; Sports Illustrated stretches the definition of "swimsuit"; and more.
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Third Point LLC

Courtesy Third Point LLC

Nestle Targeted by Dan Loeb in Activist’s Biggest-Ever Bet (BBG)
Dan Loeb has amassed a $3.5 billion stake in Nestle SA, targeting Europe’s largest company in the biggest bet of his two-decade career as an activist investor. Third Point, Loeb’s hedge fund, owns about 40 million shares in the Vevey, Switzerland-based company, according to an investor letter released Sunday after Bloomberg first reported the position. The fund encouraged Nestle to sell its stake in cosmetics maker L’Oreal SA, increase leverage for share buybacks and adopt a formal profitability target, among other suggestions. “It is rare to find a business of Nestle’s quality with so many avenues for improvement,” wrote Third Point, which holds a 1.3 percent stake.

Why Apple and J.P. Morgan Are Chasing Venmo (WSJ)
Venmo was an afterthought for PayPal when it acquired the service as part of a roughly $800 million deal for Braintree Payments Solutions LLC in 2013. Braintree’s primary business was enabling tech companies like Uber Technologies Inc. and Airbnb Inc. to accept online and mobile payments. Braintree had paid around $26 million for Venmo in 2012.

Fed’s stress tests raise concern over financial safety standard (FT)
Brian Kleinhanzl, analyst at KBW, said Goldman’s relatively low SLR score meant the bank may get the green light from the Fed only for lower capital returns than he had expected. Richard Ramsden, analyst at Goldman, said the new standard had also become the “binding constraint” for JPMorgan Chase as it calculated its capital returns to shareholders. Meanwhile, analysts at Evercore ISI said State Street’s stress test performance under the SLR, as well as the related tier 1 leverage ratio, was “too close for comfort”.

Quants Rule Alpha's Hedge Fund 100 List (II)
Need more proof that the geeks are ruling the world these days? Look no further than the 2017 Hedge Fund 100, Institutional Investor Alpha's 16th-annual ranking of the world's 100-largest hedge funds by assets. Whil the total managed by these firms declined from the previous year, several quantitatively focused firms climbed several notches in the ranking and in some cases grew their assets by double-digit percentages.

This Is What A Bubble Looks Like: Japan 1989 Edition (The Fat Pitch)
In 1986, required reading for anyone in business was David Halberstam's best-seller, The Reckoning, detailing the story behind the seemingly unstoppable rise of Nissan and demise of Ford. In the same year, Ron Howard and Michael Keaton made a hit movie, Gung Ho, about a company foisting its Japanese management techniques on a US auto manufacturer. Yes, people went to the movies to see why Japan was so good at what they did.

The $1.5 Trillion Business Tax Change Flying Under the Radar (WSJ)
Republicans looking to rewrite the U.S. tax code are taking aim at one of the foundations of modern finance—the deduction that companies get for interest they pay on debt. That deduction affects everyone from titans of Wall Street who load up on junk bonds to pay for multibillion-dollar corporate takeovers to wheat farmers in the Midwest looking to make ends meet before harvest. Yet a House Republican proposal to eliminate the deduction has gotten relatively little sustained public attention or lobbying pressure.

Stock Picking Is Dying Because There Are No More Stocks to Pick (WSJ)
In less than two decades, more than half of all publicly traded companies have disappeared. There were 7,355 U.S. stocks in November 1997, according to the Center for Research in Security Prices at the University of Chicago’s Booth School of Business. Nowadays, there are fewer than 3,600. A close look at the data helps explain why stock pickers have been underperforming. And the shrinking number of companies should make all investors more skeptical about the market-beating claims of recently trendy strategies.

In Long Run, There’s No Such Thing as an Einstein Investor (NYT)
The problem is that the world is too complex for any method to work all of the time. The economist Alfred Marshall, then of Cambridge University, wrote in his 1890 textbook “Principles of Economics”: “Although scientific machinery should be as definite as possible, at the same time it should be flexible.” He added, “There is so much variety in economic problems, economic causes are intermingled with others in so many different ways, that exact scientific reasoning will seldom bring us all the way to the conclusion for which we are seeking.”

SI Swimsuit Is Apparently Phasing Out Those Inconvenient Swimsuits (Deadspin)
The swimsuit issue outsells the average SI issue by some vast amount, supporting the whole financially-fraught institution. (No one there likes admitting this. When we once referred to the annual issue as Boobs: The Great Subsidy, a number of SI people registered their discontent.) Yes, the models sign off on presumably ghostwritten essays about how they feel empowered by being naked on the beach—good for them!—but the point seems to largely be to give SI companymen and -women a nice talking point to defend their creep-o product. (When we get pissy, defensive letters from otherwise smart employees, they invariably bring up the empowerment.)

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Paulson Leads Funds to Bermuda Tax Dodge Aiding Billionaires (Bloomberg) A decade after the U.S. Internal Revenue Service threatened to crack down on what it said were abuses by hedge-fund backed reinsurers, more high-profile money managers are setting up shop in tax havens. Paulson, SAC Capital Advisors LP’s Steven A. Cohen and Third Point LLC’s Daniel Loeb have started Bermuda reinsurance companies since 2011, following a similar Cayman Islands venture by Greenlight Capital Inc.’s David Einhorn. Options Activity Questioned Again (WSJ) Over the past year, unusually large positions were established shortly in advance of news that moved shares of Nexen Inc., Youku Inc., Human Genome Sciences Inc., Constellation Brands Inc. and, most recently, CBS Corp. All turned profitable after the news. A spokeswoman for the SEC, which regulates stock and options trading, said the agency would neither confirm nor deny the existence of inquiries into trading tied to those companies. No charges have been filed in the Heinz case, which was linked to a Swiss trading account, but the move to freeze the assets is one of the fastest enforcement actions ever filed by the agency, according to officials. The SEC said Friday that the timing and size of the trades were highly suspicious given the account had no history of trading in Heinz securities in the last six months. Prosecutors, Shifting Strategy, Build New Wall Street Cases (Dealbook) Criticized for letting Wall Street off the hook after the financial crisis, the Justice Department is building a new model for prosecuting big banks. In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations...The new strategy first materialized in recent settlements with UBS and the Royal Bank of Scotland, which were accused of manipulating interest rates to bolster profit. As part of a broader deal, the banks’ Japanese subsidiaries pleaded guilty to felony wire fraud. Russians Wade Into the Snow to Seek Treasure From the Sky (NYT) Ever since the meteor exploded somewhere over this impoverished Siberian town, Larisa V. Briyukova wondered what to do with the fist-size stone she found under a hole in the roof tiles of her woodshed. On Monday, a stranger knocked on her door, offering about $60, Ms. Briyukova said. After some haggling, they settled on a price of $230. A few hours later, another man pulled up, looked at the hole in the roof and offered $1,300. “Now I regret selling it,” said Ms. Briyukova, a 43-year-old homemaker. “But then, who knows? The police might have come and taken it away anyway.” On Friday, terror rained from the skies, blowing out windows and scaring people over an enormous swath of Siberia. But by Monday, for many people what fell from the sky had turned to pure gold, and it touched off a rush to retrieve the fragments, many buried in deep February snows. Many of those out prospecting looked a lot like Sasha Zarezina, 8, who happily plunged into a snowbank here in this village of a thousand, laughing, kicking and throwing up plumes of powdery snow. Then she stopped, bent over and started to dig. “I found one!” she yelled. A warm breath and a rub on her pants later, a small black pebble, oval like a river rock, charred and smooth, was freed of ice. While trade in material from meteorites is largely illegal, there is a flourishing global market, with fragments widely available for sale on the Internet, usually at modest prices. At least one from the recent meteor was available on eBay on Monday for $32, and there is a Web site called Star-bits.com devoted to the trade — much to the displeasure of scientists and the countries where the objects were found. UK's Lloyds fined $6.7 million for mis-sold insurance (Reuters) Britain's financial regulator on Tuesday fined Lloyds Banking Group 4.3 million pounds ($6.7 million) for failing to handle complaints relating to insurance sold on loans and mortgages properly. The Financial Services Authority (FSA) said failings in the bank's systems and controls resulted in up to 140,000 customers experiencing delays in receiving compensation for being mis-sold payment protection insurance (PPI). Horsemeat Scandal Draws in Nestlé (FT) Switzerland-based Nestle on Monday removed pasta meals from shelves in Italy and Spain and suspended deliveries of all processed products containing meat from German supplier, H.J. Schypke, after tests revealed traces of horse DNA above 1 per cent. Nestle said it had informed the authorities. Is Berlusconi Getting a Poll Bounce From Tax Evaders? (CNBC) The media mogul, who has been convicted of tax fraud, has promised to introduce a tax amnesty for evaders if elected and to abolish the real estate tax. Swelling U.S. Labor Force Keeps Fed at Ease (Bloomberg) In the short run, the larger labor force will have an unfortunate side effect: It will slow the fall in unemployment. Mellman sees the jobless rate dropping to 7.5 percent by year- end from 7.9 percent now. It fell 0.7 percentage point in 2012. In the longer run, a bigger supply of labor is good news because it swells the pool of Americans available and willing to work, enhancing the economy’s potential to grow, according to Julie Hotchkiss, a policy adviser at the Federal Reserve Bank of Atlanta. It also has a silver lining for investors. 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Opening Bell: 7.27.16

Goldman is sued in U.S. over merger linked to Malaysia's 1MDB; Dan Loeb had a nice little first half; Man leaves clothes in pub as he goes to get cash; and more.