Daniel Loeb’s Plan to Split $SNE Seen as a HUGE Opportunity

“Billionaire investor Daniel Loeb’s proposal to separate Sony Corp. (6758)’s movie, music and TV businesses would give the Tokyo-based company a chance to join the 3 1/2-year media rally it has missed.

Loeb, founder of Third Point LLC, yesterday recommended selling as much as 20 percent of Sony’s entertainment unit in an initial public offering that would free it from the struggling electronics business. As an independent company, the maker of “Spider-Man” movies would benefit from more disciplined management, investor attention and fatter profits, giving a $6.1 billion lift to Sony’s market value, he wrote in a letter to Chief Executive Officer Kazuo Hirai.

The move from Sony’s largest shareholder comes as media stocks surge to all-time highs amid growing optimism that makers of films and television shows will weather a decline in home-video sales by signing online outfits like Netflix Inc (NFLX). and Amazon.com Inc. (AMZN) as distributors. With Sony the top-grossing U.S. film studio last year with year with $4.4 billion in worldwide ticket sales, the spinoff could boost the value of its entertainment unit as much as 50 percent, according to Paul Sweeney, a senior analyst at Bloomberg Industries.

“Media stocks have been ripping over the past three-and-a-half years,” said Sweeney, who estimates Sony’s entertainment units, valued at an implied $8 billion, could fetch as much as $12 billion. “Investors have a hard time valuing those businesses within the greater Sony conglomerate.”

Entertainment Boom

Media stocks including Walt Disney Co. (DIS), Lions Gate Entertainment Corp. (LGF) and CBS Corp. (CBS) are at or near all-time highs. Since January 2010, the S&P 500 Media Index has more than doubled, while Sony, with one of the world’s largest collections of movie, television and music businesses, has declined 28 percent….”

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“Asian shares rose as stocks in Japan climbed to their highest level since December 2007 and yields on the nation’s 10-year bond advanced to the most in more than a year. South Korea’s won declined and palladium retreated.

The MSCI Asia Pacific Index added 0.8 percent at 1:12 p.m. in Tokyo as Japan’s Nikkei 225 Stock Average jumped 1.9 percent, breaching 15,000 for the first time since January 2008. Standard & Poor’s 500 Index futures were down 0.1 percent after the equity gauge advanced to a record yesterday. The yen rebounded from a 4 1/2-year low, while the won retreated 0.7 percent. The dollar traded near the strongest in five weeks against the euro as U.S. 10-year Treasury yields headed toward 2 percent for the first time since March. Japan’s 10-year rate climbed as high as 0.92 percent.

Sony Corp. surged as much as 14 percent as billionaire Daniel Loeb’s Third Point LLC hedge fund pushes for the Xperia smartphones and Bravia televisions maker’s breakup. Toyota Motor Corp., the world’s biggest carmaker, rose to pace gains among Japanese exporters, boosted by signs of recovery in the U.S. economy and a falling yen. Data on U.S. April producer prices and first-quarter euro zone GDP are due later today with the former expected to show declines from March, according to a Bloomberg News survey of economists.

“Momentum is building for a global stock rally,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-biggest lender. “Downward pressure on the yen against the dollar is strengthening, boosting earnings outlooks, especially for exporters.”

Toyota, Yamaha

About two stocks rose for every one that fell in the MSCI Asia Pacific Index. Toyota increased 2.4 percent while motorcycles maker Yamaha Motor Co. advanced 8.4 percent. The MSCI Asia Pacific Index has gained 11 percent this year versus a 16 percent rally by the S&P 500 and a 9.3 percent advance by the Stoxx Europe 600 Index.

Hong Kong’s Hang Seng Index advanced 0.5 percent, rebounding from its biggest two-day drop in a month. Li & Fung Ltd. jumped 7.4 percent after UBS AG raised its investment rating on the maker of toys and clothing. Sun Hung Kai Properties Ltd. gained 1 percent after the city said it will offer two residential sites for development.

Yen, Won

The U.S. dollar traded at $1.2934 per euro from $1.2920 yesterday when it touched $1.2912, the strongest since April 5. The currency has gained as improving sentiment toward the U.S. economy spurred speculation the Federal Reserve will reduce stimulus.

The yen gained 0.3 percent to 102.16 against the greenback after sliding to 102.43, matching the weakest since October 2008. The yen’s 14-day relative strength index versus the dollar was at 29.8603, below the 30 level which indicates an asset’s price has fallen too rapidly and may be poised to reverse course….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

“The Dow Jones Industrial Average has been increasing aggressively all year, and investors see no end in sight. The Dow ETF (DIA) is now over $150 and at an all-time high. Arguably, central banks have started to buy equities, and because they tend to be attracted to safer investments, we could surmise that central bank equity investments are targeting the Dow Jones Industrial Average as well. But are they right to do so?

Historically, the Dow Jones Industrial Average has been comprised of safer equity investments, companies capable of weathering substantial hits to the stock market, but more importantly, companies with business models that have been proven to work over time.

Given what we all have known about the DJIA in the past, and what we know about its composition today, we can still agree that the companies that comprise the index are solid companies that are likely to withstand major economic catastrophe, but at a certain point, valuation must come into play. In this specific instance, it is a concern….”

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“Top real estate investor Sam Zell is predicting stocks will soon tumble.

“Right now you are buying at an all-time high,” Zell said at a hedge fund conference in Las Vegas, according to Fortune magazine. “And there are times when stocks hit a high, and then go higher, but that’s when you have a good economy.”

Stocks are up 15 percent so far this year and the Dow Jones Industrial Average has passed 15,000 for the first time. But while stock prices are booming, underlying fundamentals remain weak, said Zell, chairman of Equity Group Investments, noting his own companies are still struggling to increase revenues.

Editor’s Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

“The current euphoria in the stock market will be adjusted,” Zell stated, Fortune reported. “And I hope that’s all that happens.”

Besides the weak U.S. economy, other causes for concern are the turmoil in the Middle East and the Bank of Japan’s push to re-energize its economy by increasing inflation.

“That’s not QE [quantitative easing],” he said of Japan’s policy. “I don’t know what you call it.”

Zell believes the housing market might also be in a bubble, as large investors are buying houses in large quantities, pushing up prices. They might end up losing money, warned Zell, who noted that managing houses is more difficult that owning apartment buildings…”

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“Last July, when stocks weren’t doing so hot and the Dow Jones Industrial Average rested below 12,900, Seth Masters, chief investment officer of Bernstein Global Wealth Management, made a bold call.

He predicted the Dow would reach 20,000 by the end of the decade. And he’s sticking to his guns, The New York Times reports, even though the prediction isn’t quite so controversial with the Dow closing at 15,091 Monday.

“It seems we’re somewhat ahead of schedule, but I think we’re still on track for Dow 20,000 by the end of the decade,” Masters told the paper. “The odds have just gotten better.”

He still thinks stocks are cheap as compared with bonds.

“It’s not that the expected return on stock right now is really that high,” he said. “It’s that the return on government bonds is indubitably very low.”

The 10-year Treasury yield stood at 1.92 percent early Tuesday morning.

To be sure, the rise in stocks won’t be straight up, Masters says. “I don’t think the path to Dow 20,000 will be linear. … There will be declines, you can count on that.” …”

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SOURCE
NYSE

NASDAQ

AMEX

Upgrades – MDRX, DF, CPA, ELX, FIO, KR, NSM, WLP, YHOO,

Downgrades  – AVG, CI, CREE, KBH, MPEL, MNST, RYL, SCTY, VVUS,

In Play ,

On the Wires 

“JP Morgan‘s Tom Lee is one of the most accurate strategists on Wall Street, having nailed the S&P 500’s path in 2012.

In his brand new note to clients, he offers his list of “23 Ideas For The Next 3-6 Months.”

“Our base case in the short term sees equities higher through the end of 2Q and Cyclicals outperforming (dead cat bounce, 1Q laggards leading in 2Q, etc.),” he wrote. “However, there is a case to be made that Cyclical leadership will likely be a three- to five-year story with Technology, arguably the least consensus, therefore perhaps best positioned”

Lee’s picks run the gamut from biotech to semiconductors to retail.

The group boasts an average 2013 estimated price-to-earnings ratio of 12.3x and an average upside potential to their target prices of 13%.

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“The boom in North American energy (primarily related to shale in the US and oil sands in Canada) is one of the biggest stories in the global economy.

A new report from The International Energy Agency (IEA) agency discusses the consequences of the boom in dramatic fashion, arguing that it’s as big of a deal for the world oil market as the rise of China was over the last 15 years.

The report describes the US supply “shock” as that is sending “ripples” throughout the world, affecting every aspect of the market.

This chart from the report drives home how significant the expansion of North American supply (dark green bar) will be relative to the growth expected from the rest of the world in the next few years.

IEA

Here’s the key part from the press release announcing the report:

The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) released today. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined….”

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“David Tepper is on CNBC arguing that stocks are still a buy.

During his appearance, he held up a chart from the blog Liberty Street Economics, which is a blog hosted by the New York Fed.

The chart he shows shows the Equity Risk Premium, which is the gap between expected return on stocks vs. bonds.

Based on traditional measures of the Equity Risk Premium (ERP) stocks are about as cheap as they’ve been in 50 years, a function somewhat of ultra-low bond yields.

From the Liberty Street Economics blog, here’s an explanation of the ERP and the chart which shows that stocks are really cheap.

We surveyed banks, we combed the academic literature, we asked economists at central banks. It turns out that most of their models predict that we will enjoy historically high excess returns for the S&P 500 for the next five years. But how do they reach this conclusion? Why is it that the equity premium is so high? And more importantly: Can we trust their models?

The equity risk premium is the expected future return of stocks minus the risk-free rate over some investment horizon. Because we don’t directly observe market expectations of future returns, we need a way to figure them out indirectly. That’s where the models come in. In this post, we analyze twenty-nine of the most popular and widely used models to compute the equity risk premium over the last fifty years. They include surveys, dividend-discount models, cross-sectional regressions, and time-series regressions, which together use more than thirty different variables as predictors, ranging from price-dividend ratios to inflation. Our calculations rely on real-time information to avoid any look-ahead bias. So, to compute the equity risk premium in, say, January 1970, we only use data that was available in December 1969…..”

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“More than 10,000 private messages sent between users of Bloomberg’s financial terminals have leaked online, undermining the company’s attempts to restore faith in its ability to keep client data confidential as it scrambles to allay clients’ privacy concerns.

Two long lists showing confidential Bloomberg messages between traders at dozens of the world’s largest banks and their clients have been online for several years, the Financial Times has learned.

The documents from one particular day in 2009 and also from 2010 contain messages sent in by clients so Bloomberg could extract price data for their use on bonds, credit default swaps and other financial products from traders’ messages….”

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“WASHINGTON (Reuters) – A gauge of confidence for small businesses rose in April to its highest in six months, a sign of resilience in an economy beset by Washington’s austerity drive.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index rose 2.6 points to 92.1, the highest reading since October.

About half the gain was because businesses expect better business conditions over the next six months. Firms also were more optimistic about creating jobs and about sales….”

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“Verizon Wireless, the mobile-phone joint venture of Verizon Communications Inc. (VZ) andVodafone Group Plc (VOD), plans to pay a $7 billion dividend to its co-owners, defusing a source of tension between the two companies.

Verizon, which owns 55 percent of the business, will receive $3.85 billion, while Vodafone, owner of the rest, will get $3.15 billion, according to a filing yesterday. The dividend will be paid on June 25….”

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story developing

“West Texas Intermediate traded near the lowest level in more than a week on forecasts that U.S. supplies climbed to the highest since at least 1931 amid production the IEA said is “transformative” for world markets.

Futures fell for a fourth day in New York on speculation that rising supplies will counter signs of an economic recovery. Crude inventories probably increased 450,000 barrels to 396 million in the week ended May 10, according to a Bloomberg News survey before Energy Department data tomorrow. Growth in North American production will be as significant for markets asChina’s economic boom, the International Energy Agency said.

“Supply-demand is skewed to the oversupply side,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark. “There is currently a lot of spare capacity and global crude overproduction. The multi-decade high in U.S. supply will keep weighing on WTI.”

WTI for June delivery was at $94.53 a barrel, down 64 cents, or 0.7 percent, in electronic trading on the New York Mercantile Exchange at 12:21 p.m. London time. The volume of all contracts traded was 5 percent above the 100-day average. Prices fell 87 cents to $95.17 yesterday, the lowest close since May 2.

Brent for June settlement on the London-based ICE Futures Europe exchange lost 74 cents and was at $102.08 a barrel. The European benchmark grade was at a premium of $7.40 to WTI futures. The spread was $7.65 yesterday, the narrowest based on closing prices since January 2011.

Cushing Supplies…”

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“The European Central Bank set up a clash with Germany as Executive Board member Joerg Asmussen pushed back against the country’s incremental approach to building a banking union.

Asmussen called today for the European Union to create a central agency and a common backstop for handling failing banks by “the summer of next year.” This is in marked contrast to warnings from German Finance Minister Wolfgang Schaeuble that the bloc cannot venture into such territory without changing its current treaties, and should instead target a less ambitious, networked approach.

“We want a single European resolution regime together with a single resolution agency and a single resolution fund that is financed by a levy on the banking industry,” Asmussen told reporters in Brussels before a meeting of EU finance chiefs. This should happen in parallel with the ECB’s planned assumption of bank oversight powers next year, he said.

EU leaders began work on a banking union last year to break the cycle of contagion between nations and their banks that has plagued the euro area since the region’s financial crisis emerged in Greece in 2009. They started by giving the ECB oversight powers, and committed to accompany this with a single “mechanism” for bank failures.

Single Pool…”

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“Copper fell the most in almost two weeks in London amid signs growth is slowing in China, the world’s biggest consumer of the metal, as inventories swell.

China’s economy will expand 7.6 percent this year, JPMorgan Chase & Co. said today, cutting its estimate from 7.8 percent a day after a report showed industrial production in the nation expanded less than predicted by economists. Copper stockpiles monitored by the London Metal Exchange increased the most in four weeks, according to daily figures.

“The market is well supplied, and China is not growing as fast as everyone was hoping,” David Wilson, an analyst at Citigroup Inc. in London, said by phone.

Copper for delivery in three months slid 2.3 percent to $7,241 a metric ton by 11:32 a.m. on the LME. Prices dropped as much as 2.4 percent, the most since May 1. Copper for delivery in July fell 2.2 percent to $3.287 a pound on the Comex.

The metal also retreated as European Union statistics showed industrial production in the euro area dropped 1.7 percent on the year in March, the 17th decline in a row….”

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“Emerging-market stocks advanced for the first time in four days as a stronger yen boosted exporters, offsetting the biggest drop in Chinese shares in three weeks and a slide in Russian commodity producers.

LG Electronics Inc. (066570), which got 22 percent of its 2012 revenue from North America, rose the most in a month in Seoul. Hyundai Motor Co. (005380) added 2.7 percent as an appreciating yen eased concerns about a loss of competitiveness to Japanese rivals. Emaar Properties PJSC surged 3.1 percent, helping lift Dubai’s benchmark index to the highest since October 2009 as the real estate market outlook improved. OAO Severstal, a Russian steelmaker, fell for a third day as industrial metals declined on concern Chinese demand may weaken.

The MSCI Emerging Markets Index rose 0.1 percent to 1,043.23 as of 12:50 p.m. in London. The yen strengthened from the lowest level in more than four years against the dollar, benefiting companies that compete with Japanese exporters. JPMorgan Chase & Co. cut its growth outlook for the Chinese economy following data yesterday that showed industrial production missed estimates and fixed-asset investment unexpectedly slowed last month.

“Asian exporters are doing well because there is a view the yen weakening is done in the short-term,” Michael Wang, an emerging-market strategist at Amiya Capital LLP in London, said by e-mail. Concerning China, “there are worries about data still being weak — bad for Russia and Brazil,” he said….”

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