June 19, 2013 Update

DJIA:15,318 S&P 500:1,651 NASDAQ:3,482 Gold:$1,367 Oil:$98.81 EURO:$1.34 YEN:95.14

A Quest for Universal Truths

During a lecture I recently attended, I was shocked to hear the host admitting that insider information was the only way to maintain consistent returns because of the “universal truth” that market behavior is unpredictable. The industry professional continued to warn us that sales & trading was a terrible profession because, unless you were Steve Cohen, it was highly unlikely that any of us would go on to succeed in a business based on illegal activity. In light of recent crackdowns, the point he was conveying was clear. But to say the only market-related “universal truth” is unpredictability is rubbish, for an arbitrage market yields the most predictable and legal trade there is. The host’s mistake symbolizes the current “risk on-risk off” environment, in which people are so risk averse that they have closed their minds completely to trading because they believe it is not worth the risk. I couldn’t disagree more. I think the universal truth about the markets is not that they are unpredictable and, therefore, impossible to beat. I think the universal truth about market can be found in a combination of knowledge and risk. All investors want to beat the market, but few are willing to take on the risk and complete the research to do so. I believe this sentiment is exactly what the host was missing from his speech- encouragement for future investors to explore new ideas in a modernizing, and risky, market place that he was clearly not comfortable trading in. Without risk there is no return, regardless of the environment, and that is the universal truth. 

Domestic News

• Market Update Futures are moving timidly higher as investors await the FOMC’s decision on monetary policy. 
• Rubin Schron’s privately help NY company, Cammeby’s International Group, offered $2B for The Empire State building, which is a bid below the $2.33B after-debt appraisal value placed on it last summer. 

International Updates

Asia

• Market Update Asian markets are mostly lower ahead of FOMC meeting, with Japanese equities in the green after exports came in better-than-expected at 10.1%.
• HSBC cut its Chinese growth forecast for 2013 and 2014 to 7.4% based on performance impairing reform movements and consistent weaker-than-expected economic data flows. 

Europe

• Market Update Markets generally trading downwards as investors remain cautious about the FOMC’s monetary decision. 

Corporate

• Carl Icahn made a bid to take control of Dell (DELL) in which he nearly doubled his stake and asked that the company launch a $14-per-share tender offer for 1.1B shares.  
• Eli Lilly’s (LLY) antipsychotic drug, Zyprexa is being investigated by the FDA after it triggered two patient deaths. It generated $1.7B in sales in FY12.
• Shares in News Corp. (NWS) that will be split on 6/28, fell 3% to $14.55 today in Sydney after opening lower-than-anticipated (below $15). The selloff spread to 21st Century Fox’s stock, which dropped 6.9% to $30.53. 
• Verizon (VZ) announced its’ interest in acquiring Wind Mobile, a Canadian peer. VimpelCom (VIP), Wind Mobile’s largest owner, has asked for $500M. 

Commodities

• Oil rises ahead of inventory. 
• Gold trading down from fear of tapering.