Tim Cook Spits on David Einhorn’s Lawsuit, Calling It a Side Show

“Apple’s CEO Tim Cook on Tuesday rebutted criticism that his company was too tight-fisted with the $137 billion in cash it has amassed over the years, saying the tech giant “does not have a Depression-era mentality” preventing it from returning money to shareholders.

Wading into a controversy that was bought to a head last week by fund manager David Einhorn, Cook touted his company’s investment in product development and research. The CEO rejected the basis of a lawsuit filed by Einhorn that the fund manager asserts will restrict Apple’s ability to distribute its excess cash to its investors.

(Read more: Apple Pushes Back Against Einhorn Allegations of Cash Hoarding)

“Frankly I find it bizarre that we would find ourselves being sued for doing something that’s good for shareholders,” Cook told the Goldman Sachs’ Technology and Internet Conference. He branded Einhorn’s lawsuit as a “a silly sideshow.”

Countering Einhorn’s pointed criticism that the company was behaving like his cash-hoarding grandmother who lived through the Depression, Cook said his company invested $10 billion in capital expenditures last year, and would do the same this year.

“We do have some cash, but it’s a privilege to be in this position …where we can seriously consider returning additional cash to our shareholders.”

He nevertheless said that Apple would “thoroughly consider” Einhorn’s proposal to return cash to shareholders….”

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“Goldman Sachs CEO Lloyd Blankfein gave his state of union on CNBC’s “Street Signs” Tuesday, saying the political environment remains difficult as Washington grapples with the sequester but the “economic underpinnings are actually better than they have been for some time.”

“We could be on the threshold of a bull market,” Blankfein said.

The Goldman executive listed extremely low interest rates, a “terrific” energy situation which can drive manufacturing and create jobs, and an ongoing turnaround in housing. But he cautioned that the U.S. needs policies to make sure it can benefit from those advantages.

(Read More: What Is Goldman Sachs?)

“A million things that can go wrong but what people under-assess is things could go right,” Blankfein said. With the U.S. stock market flirting with all-time highs, he added, “The equity market could very have it right.”

(Read More: Goldman Sachs Downgrades Global Stocks as Rally Stalls)

Blankfein’s comments come hours ahead of President Barack Obama’s State of the Union address Tuesday evening.

The U.S. has also made significant progress on dealing with its debt and deficits, Blankfein said, but there is more work to be done. He noted that with sequestration, tax increases and other measures, politicians have cut nearly $2.6 trillion — still far below the $4 trillion needed.

“When you look through it, come hell or high water, we’re going to have $2.6 trillion” in cuts, he said. “It’s not where we should be but it’s not nothing.”

He also expects a pickup in merger activity. “My expectation generally would be for where we are in the economic cycle, given the level of interest rates — which are very, very low — and equity market values which are high and moving higher — we think there should be more activity now generally than we’re seeing,” Blankfein said….”

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“As Brazil remains a laggard in Latin America, more U.S. investors are pulling money from funds that track the emerging-market giant.

But portfolio managers aren’t convinced that such a shift is short-term performance chasing. Rather, they see longer-term political and economic problems facing Brazil.

“The immediate problem is that China looks less likely to turn into Brazil’s long-term savior,” says Lee Munson, chief investment officer at Portfolio LLC, an advisory firm in Albuquerque, N.M. that manages about $200 million in assets. “But the bigger picture is that people are realizing there are other intriguing markets in Latin America.”

The $9 billion iShares MSCI Brazil ETF (EWZ), the most popular of its kind tracking Latin America, saw outflows of $269.4 million in the three months through January, according to Morningstar. In contrast, the iShares MSCI Mexico (EWW) attracted $596 million in net inflows while the iShares MSCI Peru (EPU) had $117.1 million in positive flows during that same period. Another member of BlackRock Inc.’sBLK +0.03% (BLK) iShares family covering Chile also has been racking up inflows.

Meanwhile, the performance of the large-cap dominated Brazil ETF has been badly lagging many of its smaller regional rivals, both in the past 12 months as well as the last three years.

“Brazil has some strong cross currents that are developing into real head winds for investors,” says Paul Christopher, chief international investment strategist at Wells Fargo WFC +0.69% Advisors. The advisory arm of San Francisco-based Wells Fargo & Co. (WFC) runs about $8 billion in assets through ETF-managed portfolios….”

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“According to the latest Monthly Treasury Statement, the U.S. posted a budget surplus of $2.88 billion in January.  Economists surveyed by Bloomberg were expecting a deficit of $2.0 billion.

According to Reuters, this is the first January budget surplus in five years.

Receipts were $272.2 billion while the spending was $269.3 billion.  This is important to remember, because budget deficits and surpluses aren’t just about spending levels.  Indeed, growth plays just as important a role.

Economists have been expecting the January report to benefit from the recent expiration of the payroll tax cut.  However, this report nevertheless surpassed expectations….”

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“Ray Dalio who runs the world’s biggest hedge fund at Bridgewater Associates, said a few weeks ago at Davos that 2013 would be the year when large amounts of cash moved into markets, and that investors should position for price appreciation in risky assets.

 

Today, Bloomberg’s Kelly Bit has details from one of the secretive firm’s recent client conference calls, which fleshes out the firm’s bullish thesis in a bit more detail.

Bit says that on the call, Bridgewater co-CIO Bob Prince told clients, “You want to be borrowing cash and hold almost anything against it.” …”

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“Blackstone Group LP hired Anthony Maniscalco to help run a new business that will buy stakes in hedge-fund managers, said three people familiar with the plans, as the firm tackles an investing area where institutions such as Goldman Sachs Group Inc. have had mixed results.

Maniscalco, 42, previously head of alternative-asset management in the investment-banking group at Barclays Plc in New York, will be part of the team that evaluates and strikes deals with fund managers, said the people, asking not to be named because the information is private.Peter Rose, a spokesman for New York-based Blackstone, which has $46.1 billion in its hedge-fund group, declined to comment on the hires….”

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” “This is not a fluke: almost all of the underlying determinants of inflation point to weakness,” writes BofA Merrill Lynch economist Ethan Harris in a note to clients today.

For all of the talk of rising government bond yields and predictions for when the Federal Reserve will taper back its bond buying, Harris says, deflation is still a bigger risk than higher inflation – and disinflation could cause the Fed to actually ramp up QE if it continues.

Several key measures of inflation are actually headed lower, and have yet to bottom out, according to Harris.

“This, along with the fiscal shock, is a good reason to fade the bond market sell-off,” he writes.

The chart below shows Core CPI, Core PPI, Median CPI (calculated by the Cleveland Fed), Core PCE, and Trimmed PCE (calculated by the Dallas Fed).

 

 

Harris cites six forces weighing on inflation, summarized below:

• Spare capacity: Official estimates for the U.S. output gap, the difference between potential GDP and actual GDP, range from 3.6 to 5.6 percent – the widest since the 1982 recession. Moreover, the unemployment rate, at 7.9 percent, is still well above BofA’s estimate for the inflation-neutral rate (6.3 percent).
• Labor costs: High unemployment is keeping downward pressure on wages and salaries. Harris says that excepting for a distorted number in Q4, unit labor costs have been “essentially flat” over the past year.

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U.S. equities started off to the downside, but not by much. Markets quickly pared losses as the DOW looked past a revenues miss on $KO and the NASDAQ looked past weakness in $AAPL created by Citi and Tim Cook not giving what some investors wanted in way of a dividend paying preferred stock.

No economic data was available to sway the markets, but comments from the G-7 about being conscious as to not creating a currency war has probably got markets in a good mood. We did have some decent earnings out of $KORS and $MAS.

Oil is up over $97 per barrel while gold is down on the day.

The excitement is happening at the $GS technology conference.

Europe managed to close in the green adding to early gains that pared opening losses.

Lastly, some comments out of Fed representatives may also have the markets in a pleasant mood.

 

Market update

[youtube://http://www.youtube.com/watch?v=mpaPBCBjSVc 450 300]

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“A multinational security firm has secretly developed software capable of tracking people’s movements and predicting future behaviour by mining data from social networking websites.

A video obtained by the Guardian reveals how an “extreme-scale analytics” system created by Raytheon, the world’s fifth largest defence contractor, can gather vast amounts of information about people from websites including Facebook, Twitter and Foursquare.

Raytheon says it has not sold the software – named Riot, or Rapid Information Overlay Technology – to any clients. But the Massachusetts-based company has acknowledged the technology was shared with US government and industry as part of a joint research and development effort, in 2010, to help build a national security system capable of analysing “trillions of entities” from cyberspace…..”

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“It’s 2013, and Wall Street still doesn’t seem to understand that emails and privacy typically don’t mix well.

Last week, the Justice Department filed a lawsuit against S&P accusing the ratings agency of knowingly increasing its ratings on the mortgage investments that helped launch the U.S. into the 2008 financial crisis. In numerous internal emails released with the lawsuit, S&P analysts made claims suggesting that they were very aware of how little quality control was valued at S&P.

This is far from the first time that Wall Street workers have incriminated themselves with emails they assumed no one other than the recipient would ever see. From the infamous “Fabulous Fab” email to Lehman Brothers employees referring to assets that they were publically promoting as “goat poo,” it seems people in the financial industry have a knack for making fools out of themselves all over the World Wide Web.

Here is our roundup of 9 of the most incriminating things traders have allegedly said via email…”

Full e-mail list

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“We have tracked the key short interest changes as of January 31 in the following large cap stocks: General Electric Co. (NYSE: GE), Nokia Corp. (NYSE: NOK), Bank of America Corp. (NYSE: BAC), Verizon Communications Inc. (NYSE: VZ), Alpha Natural Resources Inc. (NYSE: ANR), McDonald’s Corp. (NYSE: MCD), Apple Inc. (NASDAQ: AAPL), Research In Motion Ltd., Microsoft Corp. (NASDAQ: MSFT), Dell Inc. (NASDAQ: DELL), Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) and Cisco Systems Inc. (NASDAQ: CSCO)………

BlackBerry remains the most heavily shorted of these active stocks, name change notwithstanding. Dell’s short interest fell dramatically in the days leading up to the buyout offer from Michael Dell and his partners. GE’s rise in short interest is likely due to investors’ belief that the company will not repeat its strong fourth-quarter showing. Finally, McDonald’s has been having trouble meeting expectations for monthly sales, and shorts are taking advantage of that.”

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“The Chinese are coming, the Chinese are coming. And they’re snapping up U.S. companies along the way.

Chinese entities agreed last year to spend more than $10 billion buying all or part of 46 companies here, according to Dealogic. That value exceeds all the deals inked from 2009 through 2011 combined, The Wall Street Journal reports.

In addition, Chinese firms announced $23 billion worth of deals for Canadian companies or stakes in 2012.

China is staying away from big companies and ones involved with defense or important technologies to avoid rejection by the U.S. government, after some earlier failures.

Most of the concerns China is targeting are small — under $500 million — and closely held in order to increase the odds of being approved.

Last week, the government approved Wanxiang America’s purchase of battery maker A123 Systems for $257 million.

“You just need to understand the rules, follow the rules, be very transparent and let them make the decision,” says Pin Ni, president of Wanxiang America, who started the U.S. offshoot of China’s Wanxiang Group out of a home office in Chicago.

Among the biggest deals last year was one to sell the movie-theater chain AMC Entertainment Holdings to Wanda Group for $700 million….”

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“Investor fraud is increasing, as yield-hungry investors embrace exotic financial products and speculative bets.

“Since the crisis, we’ve seen more and more people reaching out into different types of exotic investments that are a big concern to us,” said William Galvin, the Massachusetts secretary of the commonwealth, according to The New York Times.

For instance, Massachusetts ordered LPL Financial, a large brokerage firm, to pay $2.5 million for improperly selling non-traded real estate investment trusts (REITs). …”

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“The Federal Reserve’s aggressive easing of monetary policy is warranted given the still-battered state of the U.S. labor market, Fed Vice Chairwoman Janet Yellen said on Monday.

In an address to the politically influential AFL-CIO, the largest U.S. labor group, Yellen, a potential successor to Fed Chairman Ben Bernanke next year, focused on the unusually weak nature of the economic expansion.

“The gulf between maximum employment and the very difficult conditions workers face today helps explain the urgency behind the Federal Reserve’s ongoing efforts to strengthen the recovery,” Yellen said.

“We have taken, and are continuing to take, forceful action to increase the pace of economic growth and job creation.” …”

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“Apple and Google are enemies and partners at the same time due to asymmetric competition. According to a report from Morgan Stanley, Google could pay more than $1 billion in 2014 to remain the default search engine on iOS. In 2009, Google paid only $82 million for the privilege. Analyst Scott Devitt believes that it is a per-device deal growing every year.

For every dollar of revenue Google makes on iOS thanks to advertising and data collection, Apple gets 75 cents from Google. The number is only going to increase in the coming years if iOS sales keep growing.

To put it into perspective, the Mozilla Foundation should get $400 million in 2014. Google remains the main contributor to the organization as one can read in Mozilla’s reports. Opera is another longstanding partner, but Morgan Stanley doesn’t give figures for this deal.

Over the years, Apple has gotten more revenue from Google as Microsoft has been pushing very hard and bidding to make Bing the default search engine. For example, Bing is now the default provider on Nokia and BlackBerry devices. Money is a major incentive for Apple. But selling aGoogle-free iPhone could dictate the company’s next move….”

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“A little victory both for Amazon and the world of virtual commerce, today: the online retailer has topped the ranking for best reputation in a poll of 14,000 U.S. consumers, according to Harris Interactive. Apple, which was last year’s winner, slipped down to number-two. At number four, Google was the other tech company to make the top-five in the Harris Poll, now in its 14th year, with Disney (#2) and Johnson&Johnson (#5) rounding out the close list. The full report is embedded below.

Technology also stood out in the rankings in another way: it topped Harris’ list of industries for overall reputation dominance, with a 79% positive reputation. Another marker of how tech continues to become increasingly mainstream.

Consumers are asked to give their assessment on how well companies do in the areas of products and services; financial performance; workplace environment; social responsibility; vision and leadership; and emotional appeal. In these rankings, Amazon topped the list for emotional appeal, where it ranked some five points ahead of any other company, “despite an entirely virtual relationship with the public.”

And crucially, at a time when Amazon is getting more involved in its own-brand hardware and business and consumer cloud services, it also beat out others in the category of products and services. There were some hints of how this might play out back in September, when Apple only just narrowly beat out Amazon for highest reputation ranking for its iPad tablet line versus Amazon’s Kindle Fire tablets, based on a similar poll from JD Power…..”

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“…….It is important to remember that outside of the 2008 shock, the Debt Ceiling Debate and consequent US Debt Downgrade in Summer 2011 created the biggest volatility event of the past two decades.

 

Volatility metrics show that the market is extremely complacent heading into these events.   Equity volatility and skew are trading near multi-year lows (5th percentile or less over past two years), while many market indices are making new multi-year highs.  From a positioning standpoint, net exposures are higher than any time in 2012 while hedges are at multi-year lows.  Total SPX Put Open Interest has fallen from 9.5mm contracts to 5.7mm contracts in the past month – This is the lowest level of puts outstanding for the S&P500 since June 2009.  The bottom-line is that we are heading into a potential multiple-standard deviation volatility event with the price of options at their lows and market exposures/equity prices at their highs.

Below, we look at 3Q11 changes in price, front month put implied volatility, and 90-day realized volatility across asset classes to assess the best hedge for the upcoming debt ceiling debate.  We highlight some of our favorites – IWM puts, VIX call spreads and HYG puts – but lay out the full list below.

1)      IWM Puts —  Beta underperforms when the market gets volatile.  Summer 2011 saw IWM fall 22% vs the SPY falling 14%. However, the current volatility premium of IWM over SPY is only 3 vol points – which means you can get IWM beta on the cheap.   Currently IWM is trading on a 17 vol – in 3Q11 it rallied from 20 vol to 49 vol.  This means you not only won on deltas, but you had a vol explosion.  IWM March 82 puts for $1.30.

2)      VIX Call Spreads – Given its convexity, VIX knocks the competition out of the water when it comes to panic moves in the market.  VIX rose 160% during 3Q11.  VIX volatility is now trading at two year lows, which makes upside call spreads look interesting.  This could also be a good play on a run-up in volatility ahead of sequester/budget talks – similar to what took place at the end of the year ahead of the fiscal cliff.  VIX March 20-30 Call Spread for $1.30.

3)      HYG Puts – The High Yield ETFs have seen one of the largest price appreciations/inflows since Summer 2011 (+15% in that time).  The average junk yield is now below 6% and the space seems crowded and susceptible.  HYG protection has fallen dramatically– Put Open Interest fell from 270k contracts to 150k contracts in the past month as almost all fund protection was centered in December 2012.  HYG options are trading on a 6 volatility –implied vol got to over 18 and HYG fell 8% in 3Q11.  HYG March 92 Puts cost $1.05 – a 3% break-even….”

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“Teva won a court case that will allow it to sell a generic version of Bristol’s Baraclude, for hepatitis B, which had $1.4 billion in global sales last year.

A Bristol spokeswoman writes:

The U.S. District Court of the District of Delaware issued an opinion that the composition of matter patent covering the entecavir molecule is invalid as obvious.

We are disappointed in the Court’s decision and believe it is incorrect. We are in the process of reviewing the Court’s decision for the purposes of our appeal and will be evaluating our legal options.

Entecavir is the active ingredient in Baraclude. Baraclude is an antiviral medicine developed as part of Bristol-Myers Squibb’s commitment to improving treatment outcomes for patients with viral hepatitis. Baraclude is approved in the United States to treat patients with chronic hepatitis B in adults who have active virus and liver damage.

How big a deal is this? Not huge, says ISI Group analyst Mark Schoenebaum, who had the first report I saw of the news….”

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“LONDON—An internationally agreed, comprehensive overhaul of rules is needed if governments are to be able to continue to tax companies without resorting to unilateral action that would damage investment and economic growth, the Organization for Economic Cooperation and Development said Tuesday.

As governments in many developed countries look to boost their revenues to cut high budget deficits and debt, the strategies that companies with operations in a number of different countries use to minimize their tax bill have come under heightened scrutiny.

Led by the U.K., Germany and France, governments have begun to discuss how to stop big multinational companies from using legal loopholes to shift their profits to low-tax countries.

In a report prepared for a meeting of finance ministers from the Group of 20 largest economies in Moscow next Friday and Saturday, the OECD said that while corporate tax revenues haven’t fallen in recent years, there is evidence that the practice of recording profits in low tax jurisdictions rather than where revenue is generated—a practice known as profit shifting—is increasing.

It warned that the practice poses a threat to the ability of governments to tax any company, since the perception that large multinationals can avoid paying their fair share will erode compliance more broadly.

“If other taxpayers [including ordinary individuals] think that multinational corporations can legally avoid paying income tax it will undermine voluntary compliance by all taxpayers—upon which modern tax administration depends,” the OECD said.

The OECD also said that it would be impossible, and potentially damaging, for individual governments to act alone to prevent profit sifting.

“Unilateral and uncoordinated actions by governments responding in isolation could result in the risk of double—and possibly multiple—taxation for business,” the OECD said. “This would have a negative impact on investment, and thus on growth and employment globally.”

The OECD said corporate tax regimes haven’t responded to changes in the way businesses operate, both because they are “grounded in an economic environment characterized by a lower degree of economic integration across borders” and because the nature of cross-border transactions has changed….”

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“DreamWorks Animation’s Summer 2013 Film Turbo Speeds onto the Streaming Service

LOS ANGELES , Feb. 12, 2013 /CNW/ – Netflix, Inc. (NFLX) and DreamWorks Animation SKG, Inc. (DWA) today announced they will create the first ever Netflix Original Series for kids. Based on the highly-anticipated DreamWorks Animation movie Turbo, premiering in theaters this summer, the Netflix series Turbo: F.A.S.T. (Fast Action Stunt Team) debuts exclusively this December in the United States and across the globe in the 40 countries where Netflix offers its service.

“Families love Netflix, so creating an original series for kids was a natural for us. And we’re doing it in a big way by adapting Turbo, this year’s DreamWorks Animation summer tentpole movie,” said Ted Sarandos, Chief Content Officer of Netflix. “DreamWorks Animation has a long track record of creating incredibly successful characters and stories that delight people of all ages. We’re thrilled to add Turbo the series as well as all new DreamWorks Animation films, starting with their 2013 slate, to Netflix.”

“Netflix boasts one of the largest and fastest-growing audiences in kids television. They pioneered a new model for TV dramas with House of Cards, and now together, we’re doing the same thing with kids’ programming,” said DreamWorks Animation’s Chief Executive Officer, Jeffrey Katzenberg . “DreamWorks is thrilled to be part of the television revolution.”

DreamWorks Animation’s Turbo is a high velocity 3D comedy about an ordinary snail who dares to dream big – and fast. After a freak accident miraculously gives him the power of super-speed, Turbo kicks his dreaming into overdrive and embarks on an extraordinary journey to achieve the seemingly impossible: competing in the Indianapolis 500. The film, which stars Ryan Reynolds , Paul Giamatti, Michael Pena , Luis Guzmán, Bill Hader , Richard Jenkins , Ken Jeong , Michelle Rodriguez , Maya Rudolph , Ben Schwartz , Kurtwood Smith, Snoop Lion and Samuel L. Jackson , comes to theaters on July 19, 2013 ….”

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