“Japanese biotech ventures promising to make jet fuel from algae and to produce synthetic cartilage are soaring in Tokyo trading as cash pumped into the economy by the central bank cascades into speculative investments.

Five of the 10 best-performing stocks this year traded on JASDAQ, which has lower minimum profit requirements than Japan’s main bourse, are biotech firms.

The companies have surged as the Bank of Japan last month voted to double debt-buying to more than 7 trillion yen ($68 billion) a month to achieve 2 percent inflation in two years. Prime Minister Shinzo Abe’s proposal this month to provide 110 billion yen in support to stem cell research over the next 10 years is also helping the shares.

“The market expects quantitative and qualitative easing to continue long term, boosting liquidity and drawing investors to speculative shares like biotech,” said Kazuyuki Terao, chief investment officer at Allianz Global Investors Japan, in an interview. “Abe raised health-care reform as a part of his growth plan and that’s also supporting the buy.”

Japan’s regenerative medicine market will probably increase by 62 times to 1.6 trillion yen by 2030 from 26 billion yen in 2012, the economy ministry estimates.

D. Western Therapeutics Institute Inc., a maker of medicines for glaucoma and blood clots, surged 23 percent today as of the close of Tokyo trading, making it the best performer on the JASDAQ Index this year, soaring 19-fold. The company has formed a partnership with Tokyo-based Wakamoto Pharmaceutical Co. to develop eye treatments.

Algae Fuel….”

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“Japan’s new approach to reflating its economy – termed “Abenomics,” after Japanese Prime Minister Shinzo Abe – involves three components: unprecedented monetary stimulus, a big boost to government spending, and structural reforms designed to make Japanese industry and institutions more competitive.

These are referred to as the “Three Arrows” of Abenomics.

The Japanese government has already announced plans for the first two “arrows” on the fiscal and monetary fronts. Structural reforms, on the other hand, had not yet really come to the fore of the discussion until today.

Overnight, Abe announced some plans. Reuters has the details:

The latest tranche of Japan’s growth strategy will aim to triple infrastructure exports and double farm exports by 2020, as well as boost private investment, Prime Minister Shinzo Abe said on Friday.

The government will set a target for domestic private-sector investment of 70 trillion yen ($687 billion) annually, Abe said in a speech to business executives and academics, the level before the 2008 financial crisis and up about 10 percent from the current figure.

The details, of course, aren’t fully fleshed out…”

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“F. Scott Fitzgerald wasn’t entirely right. The very rich are different from you and me—but not by much.

A new study offers a comprehensive look at the portfolios and investment decisions of several hundred of the wealthiest families in the U.S. Every investor, rich or otherwise, can learn from how these people make the most of their advantages—and from how they mess up.

These households, with an average net worth of roughly $90 million, invest intelligently, for the most part, spreading their bets widely, seldom trading and keeping their investing taxes to a minimum.

But the superrich also commit rookie mistakes. Their approach to diversification might not always be ideal. They chase investment fads like dogs chasing parked cars. They freeze with fear just when bravery is most likely to be rewarded. Maybe the “smart money” isn’t so different from the middle-class “dumb money” that Wall Street likes to mock.

Three economists—Enrichetta Ravina of Columbia Business School, Luis Viceira of Harvard Business School and Ingo Walter of New York University’s Stern School of Business—analyzed the holdings and trades of more than 260 ultrawealthy families between 2000 and 2009. The data came from an unnamed private company that consolidates account information for the wealthy.

What have these rich investors gotten right?…”

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“The Bank of Korea cut interest rates, following the lead of policy makers in Australia, Europe and India this month, as strength in the won and weakness in the yen dim the outlook for the nation’s exports.

Governor Kim Choong Soo and his board lowered the benchmark seven-day repurchase rate to 2.5 percent from 2.75 percent, the central bank said in a statement in Seoul today. Six of 20 economists surveyed by Bloomberg News predicted the move while the remainder forecast no change. Kim supported a cut after opposing one last month.

As central banks around the world move to counter currency appreciation, the won’s 24 percent jump against the yen in six months is hampering South Korean exporters of autos and electronics and aiding their Japanese rivals. In Seoul, ruling New Frontier Party floor leader Lee Hahn Koo yesterday urged a “more active role” for the BOK, adding to political pressure that the central bank resisted last month.

“Japan’s policies must have played a very big role in today’s decision,” said Huh Kwan, a Seoul-based fixed-income trader at Korea Investment & Securities Co., one of South Korea’s 20 primary dealers. “The cut can be seen as action to ease a worsening impact on exports.”

The won was little changed against the dollar, trading at 1,086.65 as of 11:44 a.m. in Seoul. The Kospi stock index rose 0.8 percent.

China, Australia

Across the Asia Pacific region, data gave a mixed picture. China reported inflation below the government’s 3.5 percent target and the steepest decline in producer prices in six months, highlighting weakness in the world’s second-biggest economy. Australian employers added more than four times as many jobs as analysts estimated, sending the local currency higher…..”

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“Portugal is selling 10-year (GSPT10YR) bonds for the first time in more than two years as it seeks to regain full access to debt markets following its 2011 bailout.

The new securities due in February 2024 may yield 400 basis points more than the mid-swap rate, according to a person familiar with the matter who asked not to be identified because they’re not authorized to speak about it. Investors have so far indicated interest in excess of 4 billion euros ($5.23 billion), though the offer size of 3 billion euros will not be increased, the person said….”

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“French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies.

“We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”

The gap between the French Socialist finance chief’s view and the election-year positioning of Germany’s Wolfgang Schaeuble underscores the divergence between their economies and the wrangling that has marked the crisis fight since Francois Hollande replaced Nicolas Sarkozy as French leader a year ago.

Coalition lawmakers in Germany are pushing back against the two-year extension for France to meet European Union deficit rules floated by Olli Rehn, the EU economic and monetary affairs commissioner.

“We made it clear to our government, the chancellor and finance minister that in the case of France a one-year delay to 2014 to fulfill the euro’s deficit rules is the absolute limit for us,” Norbert Barthle, budget-policy spokesman for Schaeuble’s Christian Democratic Union, said in a May 3 telephone interview from his constituency in southwestern Germany. “France must show that it’s willing to tackle structural reforms.”

Merkel’s Campaign…”

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“India cut interest rates for a third straight meeting to revive growth, extending the only reduction in borrowing costs among major emerging nations this year.

Governor Duvvuri Subbarao lowered the repurchase rate to 7.25 percent from 7.50 percent, theReserve Bank of India said in Mumbai today, as 33 of 40 analysts in a Bloomberg News survey predicted. One forecast 7 percent and the rest no change after quarter-point reductions in both January and March….”

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“Peer-to-peer lending platform Lending Club is announcing a huge new investor today: Google. Google and existing investor Foundation Capital have put $125 million in Lending Club, which was valued at $1.55 billion in the round. As part of this investment Google will take an observer seat on the Lending Club Board alongside existing Board members including Kleiner Perkins’ Mary Meeker, ex-chairman and CEO of Morgan Stanley John Mack and former U.S. Treasury Secretary Larry Summers.

The investment by Google came as part of a secondary transaction whereby new and existing investors acquired shares from existing investors. Last year, Lending Club raised $17.5 million from Kleiner Perkins, bringing its total outside investment to just under $100 million. Because this is a secondary round, there is no new money being raised, as Google and Foundation are buying out existing early investors.

Lending Club, which brings together lenders and borrowers who want to cut out banks in the process of investing among peers, has facilitated a total of $1.65 billion in loans. In the last quarter, Lending Club saw $350 million in loans made through the platform, and has generated 22 consecutive quarters of positive returns. Lending Club expects to issue $2 billion in loans this year alone.

The company’s wholly-owned subsidiary LC Advisors, an SEC Registered Investment Advisor, has launched several funds in the last 2 years and now has more than $450 million in assets under management….”

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“Several weeks after the end of each fiscal quarter, the SEC requires hedge funds and many other major investors to file 13Fs which disclose many of their long-equity positions in U.S. stocks as of the end of that quarter. These filings come shortly after an investor buys 5% of a company’s outstanding shares, and can therefore provide initial ideas from these investment managers for further research. Here are five stocks which hedge funds have bought recently:

Billionaire George Soros reported a position of over 17 million shares in J.C. Penney JCP +2.99% , the troubled retailer backed by Bill Ackman’s Pershing Square. Revenue fell 25% in J.C. Penney’s most recent fiscal year compared to the previous one, with resulting operating losses of about $1 billion; the CEO recently left the company following what has been a failed turnaround.

Wall Street analysts are forecasting continued net losses this year and next year, though the consensus is that the company will improve over that time frame. Soros’s involvement is interesting, but we still wouldn’t consider J.C. Penney a buy right now.

Blue Mountain Capital Management, which is managed by Andrew Feldstein and Stephen Siderow, had not owned any shares on Lexmark LXK +0.03% at the beginning of 2013, but has since purchased 3.6 million shares, giving it 5.6% of the company.

Lexmark rose after its first-quarter results beat expectations, even though revenue was down 11% vs. a year earlier and earnings-per-share (EPS) fell by 36%. The sell-side is bullish, with the stock trading at eight times forward-earnings estimates, though we would be skeptical of their optimism. We would note that Lexmark pays a dividend yield of 4.7% at current prices and dividend levels.

Billionaire Ken Griffin’s Citadel Investment Group has bought additional shares of Halcon Resources HK -11.20%, giving the fund a total of over 18 million shares in its portfolio. Halcon is a $2.5 billion market cap oil-and-gas-exploration-and-production company; despite the fact that its production mix is about 70% oil (which currently has a more favorable market environment than natural gas), it experienced an operating loss in 2012 due to higher costs. The forward-earnings multiple is only nine, but we think that we would prefer to look at other shale E&P companies such as Continental CLR -0.74%  and KodiakKOG -1.89% …..”

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The ECB cuts rates for lending, refinancing, while keeping deposit rates at zero.

European markets had no interest and have sold off since the decision.

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“Dividend stocks are soaring, thanks to the Federal Reserve’s low interest-rate policy, and some experts wonder whether these stocks are becoming overvalued.

For example, Procter & Gamble carries a 3.1 percent dividend yield and is expected to register earnings-per-share growth of 6 percent this year. Meanwhile Google has no dividend, but is expected to produce earnings growth of 18 percent this year.

So which stock has the higher price-earnings ratio? P&G at 18. Google’s ratio is 16.6.

It’s all about the dividend. Many slow-growing companies with dividends are receiving more attention from investors than fast-growing companies without dividends are.

“You have these tech companies that have double-digit earnings growth, no debt, huge cash balances and they’re trading at 12 times forward earnings, while you have a utility in Ohio at 16 times earnings,” James Swanson, chief investment strategist at MFS Investment Management, told The Journal.

“If you don’t think there’s a recession coming, how far do you go with this game?”

The boost in valuations of dividend companies, sparked by yield-hungry investors, is “the biggest glaring discrepancy I see in the market,” he said.

Donald Taylor, a portfolio manager at Franklin Templeton Investments, believes this price discrepancy will last for a while.

“The macro environment that has caused utilities and telecoms, as well as consumer staples, to be expensive relative to history … is not at all likely to change anytime soon,” he noted.

“This is not a product of equity investors buying defensive stocks and hiding out,” Chris Wallis, chief investment officer of Vaughan Nelson Investment Management, told The Journal.

“What we have is money that had typically gone to fixed income now coming into equities,” he added. “They’re looking for bond substitutes and it doesn’t mean that the money is going to exit and go either to cyclical stocks or go to cash. I think it’s going to stay where it is.”

Income-seeking investors don’t have an attractive set of choices in front of them, according to Michael Aneiro of Barron’s….”

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“Google, as many researchers know well, is more than a search engine—it’s a remarkably comprehensive barometer of public opinion and the state of the world at any given time. By using Google Trends, which tracks the frequency particular search terms are entered into Google over time, scientists have found seasonal patterns, for example, in searches for information about mental illnesses and detected a link between searching behavior and a country’s GDP.

A number of people have also had the idea to use these trends to try achieving a more basic desire: making money. Several studies in recent years have looked at the number of times investors searched for particular stock names and symbols and created relatively successful investing strategies based on this data.

A new study published today in Scientific Reports by a team of British researchers, though, harnesses Google Trends data to produce investing strategies in a more nuanced way. Instead of looking at the frequency that the names of stocks or companies were searched, they analyzed a broad range of 98 commonly used words—everything from “unemployment” to “marriage” to “car” to “water”—and simulated investing strategies based on week-by-week changes in the frequencies of each of these words as search terms by American internet users.

A listing of the 98 words used in the study, from most effective at predicting market declines (debt) to least effective (ring). Image via Scientific Reports/Preis et. al.

The changes in the frequency of some of these words, it turns out, are very useful predictors of whether the market as a whole—in this case, the Dow Jones Industrial Average—will go down or up (the Dow is a broad index commonly considered a benchmark of the overall performance of the U.S. stock market).

The strategy was relatively straightforward: The system tracked whether a word such as “debt” increased in search frequency or decreased in search frequency from one week to the next. If the term was suddenly searched much less frequently, the investment simulation bought all the stocks of the Dow on the first Monday afterward, then sold all the stocks one week later, essentially betting that the overall market would rise in value.

If a term such as “debt” was suddenly searched much more frequently, the simulation did the opposite: It bought a “short” position in the Dow, selling all its stocks on the first Monday and then buying them all a week later. The concept of a “short” position like this might seem a bit confusing to some, but the basic thing to remember is that it’s the exact opposite of conventionally buying a stock—if you have a “short” position, you make money when the stock goes down in price, and lose money when it goes up. So for any given term, the system predicted that more frequent searches meant the market as a whole would decline, and less frequent searched meant it would rise.

During the period of time studied (2004-2011), making investment choices based on a few of these words in particular would have yielded overall profits several times higher than a conservative investment strategy of simply buying and holding the stocks of the Dow for the entire time. For example, basing a strategy solely on the search frequency of the word “debt,” which turned out to be the single most profitable term in the study, would have generated a profit of 326% over the seven years studied—compared to a profit of just 16% if you owned all the stocks of the Dow for the whole period….”

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What a sick trade in such a short period of time….

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“Activist hedge fund ValueAct Capital took a $2 billion stake in Microsoft, its CEO Jeffery Ubben announced at an investment a conference in New York, today.

He explained the investment by saying, “In three to five years, which is our time horizon, we’ll stop talking about PC cycles and instead talk about Microsoft as the largest cloud-computing company in the world.”

For his sake, let’s hope so. The PC business is imploding, so Microsoft’s traditionally lucrative Windows business is flattening, and could start shrinking soon.

Microsoft has two other businesses that are doing well — Servers and Tools and the Business Division, which is home to Office. Those businesses are strong enough to offset Windows, for now.

Microsoft’s stock has been flat for the longest time. A lot of investors have been tempted by it, believing there is value to be unlocked. So far, they’ve been wrong.

Microsoft is up 12% year to date, and rose 4% on today’s news. It closed at $30.83….”

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“Pacific Investment Management Co.’s top debt picks are utility and energy companies that will benefit as China shifts to a consumer-driven economy, while indebted companies tied to the old export-led model suffer.

“We put our highest conviction in utility and energy sectors,” Raja Mukherji, Hong Kong-based head of Asian credit research at Pimco, manager of the world’s biggest bond fund, said in an e-mail interview on April 12. A shortage of energy resources and undeveloped distribution networks for consumers “creates opportunities if we can invest in the future winners early,” he said.

Utility and energy bonds gained 0.7 percent and 0.8 percent this year through April 18, the second- and third-worst performers among 12 Chinese sectors tracked by Bank of America Corp. That compares with a 2.6 percent return for real-estate bonds and an average of 2 percent for all dollar-denominated Chinese debt. Energy bonds handed investors a 37.4 percent return, topping an index average of 24 percent during China’s economic slowdown from April 2010 to September 2012.

Fitch Ratings Ltd. cut China’s sovereign ranking this month and Moody’s Investors Service lowered its outlook to stable from positive, citing risks from rising debt loads and the potential impact on the economy. LDK Solar Ltd. failed to fully pay notes last week after rival solar panel producer Suntech Power Holdings Co. defaulted on $541 million of bonds on March 15.

Slowing Economy…”

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“NEW YORKActivist investor Nelson Peltz has disclosed stakes in Mondelez (MDLZ) and PepsiCo (PEP), following earlier reports that the billionaire could be pushing for a marriage between the sweet and salty snack giants.

In a statement early Friday, PepsiCo said that it has held meetings with Peltz’s Trian Fund Management in recent weeks to consider its “ideas and initiatives” for long-term growth. A spokesman for Mondelez wasn’t immediately available say whether the company has met with Trian as well.

A representative for Trian declined to comment.

Peltz’s disclosures come at a sensitive time for the two U.S. food and drink makers. Mondelez, which makes Oreo cookies and Cadbury chocolates, has stumbled in its first quarters as an independent company after splitting from Kraft Foods. But in a short statement, the company noted that it has “created significant value through our transformation.” ….”

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“Brazil’s central bank raised its benchmark rate for the first time since July 2011, as policy makers seek to slow inflation levels jeopardizing an economic recovery.

The bank’s board, led by President Alexandre Tombini, voted 6-to-2 to increase the Selic rate 25 basis points to 7.50 percent from a record low, matching the median forecast from 58 economists surveyed by Bloomberg.

Policy makers said that “the high level of inflation” and “resilience of inflation” required a response, which was tempered by the central bank’s recognition that “external uncertainties” also required “that monetary policy be managed with caution,” according to the board’s statement posted on Banco Central do Brasil’s website.

President Dilma Rousseff’s government is facing renewed pressure to contain consumer prices after annual inflation in March breached the central bank’s target range for the first time since November 2011. Rising prices are sapping purchasing power and eroding demand even after officials cut taxes on consumer goods and lowered the Selic to 7.25 percent in October. Retail sales in February fell for the second time in three months.

“Inflation has clearly become detrimental to growth,” Gustavo Rangel, chief Latin America economist at ING Bank NV in London, said in a telephone interview before today’s decision. “Both the retail figures and investors’ confidence levels are signaling that inflation is a big concern.”…”

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