Biography
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Dan joined FT Alphaville in September 2013, after stints on Lex and as the FT’s Investment Correspondent in New York where he wrote about hedge funds, asset management and markets.

Before that Dan worked briefly at the Investors Chronicle, and has at one point or another carried furniture, sold kids books on doorsteps, and painted but not really decorated.

He also spent four years loitering in Citigroup’s equity research department where he picked up a few ideas about the value of luck, timing and a catchy pitch.

Dan likes interesting charts, short sellers and descriptive triplets. He wants to know more about Europe’s banks, thinks the bond markets are going to be a lot of fun, and finds the whole idea of active fund management mildly amusing.

Send him ideas or even call him up, he’ll write about almost anything (except gold).

 

Contact Dan McCrum

The (early) Lunch Wrap

Isis claims to execute US journalist || Missouri Police break up peaceful protest || Balmer departs Microsoft board || BoE unanimity ends || Sterling rises || Russia hits Carlsberg || Glencore profit, buyback || Stocks flat Read more

Apple watch watch: wrist excitement delayed

The lack of smoke signals and reports of millions of wearable devices actually going into production have led KGI Securities to declare:

We believe the launch of iWatch could be postponed to 2015.

 Read more

That was nuts. Is this the crash?

From Bloomberg:

London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil.

London values fell 5.9 percent from the previous month to an average 552,783 pounds ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9 percent, a record for an August.

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Valeant and the IRS

Buried in page 27 of Valeant’s recent quarterly regulatory filing was some potentially significant news: the pharmaceutical company, currently pursuing a $53bn hostile takeover of Allergan, is under investigation by the Internal Revenue Service.

According to people familiar with the situation a number of individuals, including former senior executives, have raised concerns with the IRS, which has been holding an inquiry into the company for the last two years. The probe by the Large Business and International division of the agency has included an examination of Valeant’s tax arrangements following the 2010 merger with Canadian Biovail, a so-called “inversion” deal that enabled the former US company to dramatically reduce its tax bill. Read more

The (early) Lunch Wrap

Russian convoy at Ukraine border || Alibaba reports accounting regularities at film unit || China banks raise capital || Markets: stocks and bonds rise Read more

Germany joins the 1 per cent club

Bloomberg:

GERMAN 10 YEAR YIELD UNDER 1% ~ 1st TIME EVER

Trading ever so slightly above 1 per cent at pixel time, but near as dammit to 1 per cent for anyone not inclined to multiple decimal places. Read more

Eurozone stops, waits for ECB

Germany shrank, and France stagnated in the second quarter. Italy we’ve all agreed not to talk about until Matteo Renzi waves his magic liberalisation wand, right? Here’s the FT:

The data from the currency bloc’s two largest economies came as the embattled French government said the disappointing growth meant it would miss its budget deficit this year and halved its gross domestic product forecast for 2014.

Germany’s economy, which provides more than a quarter of the euro area’s output, shrank 0.2 per cent between April and June, according to official figures. The French economy recorded zero growth during the period.

 Read more

The inside is getting out

Some board members are not the best judge of value when it comes to their own stock, but overall you might expect buying by insiders to be a good sign. That theory has prompted Citi to take a look at purchases by directors, as they try to work out whether stock markets are overvalued.

More on the details below but to cut to the conclusion, the data is inconclusive for the UK, while European boardrooms do not appear to be flush with confidence. Read more

Illiberating Hungary

There has been a lot of international politics around, so it may have been easy to miss events in one of Europe’s smaller economies, Hungary.

Some attention may be warranted. Viktor Orban, the prime minister, recently used a speech to a gathering of the Hungarian minority in Romania to announce his desire to create an “illiberal state” and a “work-based society”.

Combined with other policy developments, and the continuation of several constitutional changes that have entrenched the right wing Fidesz party’s grip on the country, international investors might start to feel queasy. One Eastern European expert and long time resident we spoke to was acting on his own advice to clients, and has put his Budapest apartment on the market. Read more

The (early) Lunch Wrap

Balfour Beatty rejects Carillion || RBS to offload Coutts International || Buzfeed valued at $850m || Kurds retake ground as Iraq politicians fight || Stocks rise Read more

A mere trickle of flows, so far

Outflows from US high yield bond exchange traded funds slowed last week, according to JP Morgan, so that mini-correction in debt markets may have run its course.

Keep an eye on US stocks, however, as the mini-correction there has only seen 0.5 per cent of the assets in equity ETFs withdrawn since June 24th, leaving further outflows as a potential source of vulnerability, in the judgement of strategist Nikolaos Panigirtzoglou. Read more

Under-settlement risk at Quindell

Quindell, the UK’s first large listed law firm that started life as a country club before expanding into telecoms, technology, insurance and law, is unusual. Indeed, the company presents risks that we suspect investors, accountants, directors and regulators are unused to thinking about.

One of those for auditor KPMG to ponder is revenue recognition, something we explored in a previous post.

Another is “under-settlement risk”, which leads to a fundamental question: can Quindell ensure that it does the best possible job for its clients while growing at a breakneck pace and meeting promises to stock market investors? Read more

Abil nadir and kudos to Conatus

Short sellers have to be patient, but lest we forget a round of applause please to David Stemerman of Conatus Capital for his call to short Africa Bank, the South African listed lender.

The hedge fund manager used his slot at the 2013 Ira Sohn Conference in New York to offer what now looks like a prescient warning. From the FT at the time:

David Stemerman of Conatus was concerned about South Africa, where he said a boom in unsecured lending threatened to turn to bust.

He picked out one institution, African Bank, where he said profits were highly susceptible to a rise in bad loans. He painted a picture of a country where most borrowers needed new loans just to meet the payments on old ones to stay afloat: “Net income after debt service is negative for almost all income groups.”

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“He admired Frank Timis as courageous and clever at marketing”

It seems like a good time to dust off the 2010 thoughts of the US ambassador in Sierra Leone on African Minerals, preserved for posterity in the Wikileaks batch of diplomatic cables. (H/T to the FT’s Christopher Thompson).

They tell a story that might have been:

Oluniyi Robbin-Coker, an economic advisor to Koroma, told Ambassador Cheshes January 27 that African Minerals’ activities were, “of course, speculation.” He noted that the company’s share value in London had jumped twenty-fold over the year 2009 (from 20 pence to 405 pence), although the company had no track record for taking a large mine to full production.

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Herbalife and some big numbers

The current share price of $49, down more than a third so far this year, is not one of those big numbers for Herbaflie. However John Hempton, has spotted some numbers that he thinks could make a difference.

The manager of Bronte Capital, one of the most prominent bulls on the stock, has outlined the number of meals he thinks Herbalife sells in a year. From that he has extrapolated the number of customers it needs to eat them. Hey presto, it is far too many for the pyramid scheme allegation to stick, he argues.

There may be something to it, but it would be a surprise revelation at this stage of the debate, and a few assumptions demand some closer interrogation first. Read more

July was great, says Quindell

Everything is on track, according to Quindell.

The Board reports that the Group has met all its key performance indicators for July (cash conversion, adjusted EBITDA and adjusted EPS)

On the cash flow front the month was one of operating inflows, as defined by Quindell. Although the statement also mentions one wrinkle:

Certain contracts being restructured to ensure the optimum return on cash resources but both profit and cash guidance are not dependent on any upside from these initiatives

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African Minerals and “certain general corporate information”

African Minerals, the Sierra Leone iron ore miner founded by Frank Timis, has released an update on its financial situation and “selected additional information”.

The company, whose auditors have raised questions about its status as a going concern dependent upon the level of the iron ore price, needs to refinance and the document has been produced as a precursor to that process.

Prospective lenders will no doubt read with interest the sections from page 39 onwards about a recent internal investigation conducted into African Mineral’s relationship with Global Iron Ore — an entity that received large settlement payments from the miner to end marketing contracts in 2012. Read more

Small, or dancing on pinhead small?

Ken Fisher, Forbes columnist and money manager billionaire, took to the pages of the FT in June to poke advocates for small listed companies in the eye.

You don’t want to hold speculative stocks late in a bull market. Don’t be seduced by the siren song of small beats all.

The idea that a collection of small capitalisation stocks are always a better investment than a collection of stodgy and safe big companies is a myth, he wrote.

Macquarie, however, went away and had a look at the data, and they disagree. Although the better conclusion might be about the nature of these types of arguments more broadly. Read more

On the RAC for cash

Two Quindell related pieces worth reading on Monday. One is the FT story on the deal with the RAC to put tracking devices in cars, where plans to revolutionise insurance have run off track:

Quindell and RAC announced their joint venture Connected Car Solutions in April, with the aim of installing more than 2m black boxes at a rate of 50,000 per month, starting from July.

However, installation of the so-called telematics devices in consumers’ vehicles is yet to start, and talks about restructuring the tie-up have stalled, said people familiar with the project.

 Read more

The hare gets rich while you don’t. Back the passive tortoise

Nomura, as part of an excellent report looking at various aspects of active versus passive investment management, have considered Warren Buffett’s famous bet that an index fund will beat a fund of hedge funds over ten years.

Buffett is winning, and the bank’s conclusion is that this is very far from a fluke:

In our view, alternative assets as a group show consistently poor performance. Beta is high. Alpha is near zero, if not negative. Correlation with standard asset classes is high. Return and diversification benefits are negligible.

More on that below, but first note the proportion of pension fund fees going to the alternative investment fund managers. Never have so few been paid so much by so many for doing so little. Read more

The (early) Lunch Wrap

RBS warns about bonus cap || ArcelorMittal profit warning || Direct Line special dividend || Norway driller sees Russian opportunity despite sanctions || Iberia to but new aircraft || UK manufacturing slows || Japanese to live forever || Stocks down Read more

Most hedge funds fail

That conclusion, and its consequence — picking good hedge funds that will survive is beyond the ability of big investors like pension funds — has been the central point of this series about hedge fund zombies.

However, reading John Lanchester in the New Yorker on how the jargon of finance obscures and reverses the meaning of words, the simple clarity of the message was striking:

Most hedge funds fail: their average life span is about five years. Out of an estimated seventy-two hundred hedge funds in existence at the end of 2010, seven hundred and seventy-five failed or closed in 2011, as did eight hundred and seventy-three in 2012, and nine hundred and four in 2013. This implies that, within three years, around a third of all funds disappeared. The over-all number did not decrease, however, because hope springs eternal, and new funds are constantly being launched.

 Read more

This is nuts. When’s the crash?

This valuation will self destruct in ten, nine…

Snapchat is worth $10bn, according to Alibaba. The yet to list Chinese ecommerce company is in talks to inject a round of financing that would make the company worth as much as Dropbox and and Airbnb, reports BloombergRead more

The (early) Lunch Wrap

GKN earnings and dividend up || Renault hit by Russian weakness || Morrison boardroom changes || Next profits up || UK mortgage approvals higher than expected || Markets softer Read more

A small and significant problem

A small squall or a broad based pall? BCA Research have spotted that small capitalisation stocks have been under pressure all around the world, in the US, Europe, Japan Asia and even, say they, the UK.

The reason, BCA suggests, is wage costs. Read more

Dryness alert, the Liquid-o-Meter siren has sounded

RBS have joined the chorus of concerns about dangers in credit markets from thin trading volumes and a lack of risk takers making markets.

The bank also, it turns out, has a measure for trading lubricacity:

Our Liquid-o-Meter shows liquidity in the credit markets has declined around 70% since the crisis, and it is still falling. We define liquidity as a combination of market depth, trading volumes and transaction costs: all have worsened. We also measure the premium for illiquidity: it is at a record low, meaning investors are not getting paid to take liquidity risk.

 Read more

The Herbalife debate, shifted

So, Bill Ackman cried on Tuesday at the end of a presentation the showman investor had said will define his career. He remains committed as ever to what he first trailed as “the patriotic short”. For better or worse the reputation of his hedge fund, Pershing Square, will be hard to disentangle from this campaign to shut down Herbalife, the multi-level marketing company he has said is a fraud.

What did we learn, then, in 250 slides over the course of three hours?

Actually quite a lot about the way a pyramid scheme targeting the very poor can work. Read more

The (early) Lunch Wrap

Japan trading houses look to sell coal assets || Metro bank attracts deposits || Iberdrola hit by energy reforms || Calstrs calls for Trian seat at Pepsi || Flights to Tel Aviv halted || Stocks up Read more

Ackman and the 100 Club

Bill Ackman’s presentation in December 2012 was an attempt to simultaneously teach the world what a pyramid scheme looks like and explain why he thinks Herbalife is a such a diabolic endeavour. What he delivered on Tuesday in New York was very different.

In a presentation targeted squarely at his critics, Mr Ackman attempted to explain how Herbalife works in practice. Drawing on work by undercover teams in several countries, he made the case for how the company has adapted the pyramid scheme model to draw in recruits from the world’s poor. Read more

A Herbalife Pre-response

Pershing Square, the hedge fund dedicated to the destruction of Herbalife for truth, justice and a tidy profit, will hold a presentation on the subject of Nutrition Clubs run by the multi-level marketing company shortly on Tuesday.

In advance of that Herbalife has released a summary of its own research, a report prepared by a former FTC advisor on the company’s business model. Walter H. A. Vandaele of Navigant Economics:

assessed whether Herbalife’s operations appropriately are classified as a beneficial, legitimate Multi-Level Marketing (“MLM”) firm.

Spoiler: it is legitimate. Read more