Goldman on High Frequency Trading

There’s only one bank that’s come out publicly against high frequency trading, and that’s Goldman Sachs.

It’s not an easy thing to do. Banks work with high frequency trading firms to execute orders, they also have their own dark pools — private, anonymous exchanges that have become a part of the new market ecosystem synonymous with HFT. Goldman’s dark pool is called Sigma X.

So why would a bank take on HFT?

Because Goldman bank believes it’s hurting their equities trading business, which has been on the decline for some time now. And as the WSJ’s Justin Baer and Scott Patterson point out, the bank would rather have a healthy stock trading business that can make it billions of dollars than a dark pool that only brings in hundreds of millions of dollars.

Thursday morning’s first quarter earnings numbers say it all. Goldman is losing stock trading share to its rivals. In Q1 2014, the bank made $416 million trading equities for clients. That’s down 49% from the same time in 2013 when the bank made $809 million.

In 2013, a year when the price of stocks exploded, Goldman’s client stock trading revenue fell from $3.2 billion in 2012 to $2.6 billion.

Arch rival Morgan Stanley, on the other hand, has seen it’s equity sales and trading rise 16% over the last year, and 24% over the last quarter.

Obviously for the biggest baddest bank on Wall Street, this is worrisome. The bank is not only losing market share in equity sales, but also its dark pool has lost its share of the market as rivals from Barclays, Deutsche Bank and Morgan Stanley have entered the market.

So once big institutional clients — the mutual funds and hedge funds that HFT firms love to pick off when they notice the institutionals’ big block trades in the market — started complaining about HFT, Goldman knew it was time to change their strategy.

Patterson and Baer reported that at a meeting in London several weeks ago, Goldman’s institutional clients voiced concerns that are now familiar thanks to Michael Lewis’ book, ‘Flash Boys‘.  They said that they felt HFT firms were given an unfair advantage and that the market was too opaque, complicated and dangerous.

That’s when Goldman started sending around internal memos asking for commentary on market structure, and COO Gary Cohn wrote the anti-HFT op-ed that shocked people across the Street.

In the op-ed, he mentions one more issue that has Goldman worried about HFT. The bank is known for having some of the best technology in finance, but last August a glitch in its software sent erroneous quotes into the market and cost the bank $100 million. And Goldman doesn’t lose $100 million.

From Cohn’s op-ed:

The economic model of the exchanges, as shaped by regulation, is oriented around market volume. Volume generates price discovery and liquidity, which are clearly beneficial. But the industry must recognize how certain activities related to volume can place stress on a market infrastructure ill-equipped to deal with it.

In other words, exchange software is now so complicated that it is not something a firm can do as a side show — it has to be the main event. 

Read more: http://www.businessinsider.com/why-goldman-sachs-2014-4#ixzz2zFx4Mt9a

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OPKO Health NR – Aquisition

OPKO Acquires Next Generation Dry Powder Inhaler to Treat Respiratory Disorders

OPKO HEALTH INC(OPK:NYSE, US)

BuySell
8.20USDDecrease0.13(-1.56%)Volume: 
Average
As of 17 Apr 2014 at 11:53 AM EDT.  

QUOTE DETAILS

Open 8.29 P/E Ratio (TTM)
Last Bid/Size 8.19 / 12 EPS (TTM) -0.33
Last Ask/Size 8.20 / 20 Next Earnings 5 May 2014
Previous Close 8.33 Beta 1.01
Volume 1,351,913 Last Dividend
Average Volume 3,501,287 Dividend Yield 0.00%
Day High 8.37 Ex-Dividend Date
Day Low 8.12 Shares Outstanding 412.9M
52 Week High 12.95 # of Floating Shares 221.0759M
52 Week Low 6.14 Short Interest as % of Float 21.06%

Inspiromatic™ Improves Drug Delivery, Monitors Patient Inhalation and Provides Real-Time Patient Feedback

MIAMI–(BUSINESS WIRE)– OPKO Health, Inc. (NYSE:OPK) has entered into a definitive agreement to acquire Inspiro Medical Ltd. (“Inspiro”), an Israeli medical device company developing a new platform to deliver small molecule drugs such as corticosteroids and beta agonists or larger molecules to treat respiratory diseases. Inspiro’s Inspiromatic™ is a “smart” easy-to-use dry powder inhaler with several advantages over existing devices.

Inspiromatic™ offers improved drug deposition to the lower airways of patients and real time data for patient compliance monitoring. The device has an internal microcontroller and flow sensor that controls the delivery of the medication and, using micro-pump technology, dispenses the drug particles at the right speed without the need for forceful inhalation. It also provides instant feedback to the patient with a green or red flasher light to indicate proper inhalation and a beeper after the dose has been delivered. For physicians, Inspiromatic™ provides a built-in logger that stores patient use data for easy access and transmission by electronic devices such as smart phones.

In a recently completed, First In Man double blinded clinical study conducted in 30 asthmatic children comparing Inspiromatic™ to a market leading dry powder inhaler, Inspiromatic™ demonstrated superior pulmonary delivery of the active drug.

“We are pleased to add this next generation inhaler to OPKO’s growing product portfolio,” stated Phillip Frost, M.D., OPKO’s CEO and Chairman. “We expect this innovative device to play a valuable role in the improvement of therapy for asthma, chronic obstructive pulmonary disease, cystic fibrosis and other respiratory diseases. We plan to use the Inspiromatic™ device to test the inhaled form of OPKO’s new sulfated disaccharide drug against these disorders. This drug product is still undergoing pre-clinical testing prior to submission of an IND, but animal data indicates safety and efficacy for both inhaled and orally delivered forms. Of course, we believe that Inspiromatic™ can improve outcomes of treatment with other drugs, those presently available in more ‘standard’ type inhalers, as well as new inhalation drugs being developed. This acquisition fits our strategy of developing new products that address large markets in need of more effective therapeutic solutions.”

Nimrod Kaufmann, CEO and Co-Founder of Inspiro, commented, “We are extremely proud of Inspiro’s success in bringing our smart Inspiromatic™ respiratory drug-delivery device to market. With Inspiro now a part of OPKO, we will be able to help more people faster. Inspiro joining OPKO is a big win for the shareholders of both Inspiro and OPKO, as well as good news for our patients and physicians.”

Eran Feldhay, M.D., CEO of Trendlines Medical, Inspiro’s largest shareholder, added, “The acquisition of Inspiro is our third exit in eight months, all to U.S.-based multinational corporations. This success brings continuing confirmation of the strength of the Trendlines team in fulfilling our vision of creating and developing companies to improve the human condition. We are very pleased to see OPKO take the Inspiro opportunity forward.”

Trading Alert : Warren Resources

Volume and price moving higher on this undervalued play

 

WARREN RESOURCES INC(WRES:NASDAQ, US)

BuySell
5.20USDIncrease0.39(8.11%)Volume: 
Above Average
As of 17 Apr 2014 at 10:36 AM EDT.  

QUOTE DETAILS

Open 4.81 P/E Ratio (TTM) 11.5x
Last Bid/Size 5.20 / 2 EPS (TTM) 0.42
Last Ask/Size 5.21 / 10 Next Earnings 5 May 2014
Previous Close 4.81 Beta 2.32
Volume 876,420 Last Dividend
Average Volume 592,419 Dividend Yield 0.00%
Day High 5.25 Ex-Dividend Date
Day Low 4.81 Shares Outstanding 73.1M
52 Week High 5.27 # of Floating Shares 69.65162M
52 Week Low 2.46 Short Interest as % of Float 2.00%

Google Update

Shares in Google have dropped 5% despite the technology giant reporting a first-quarter profit rise of 3%.

Profits were $3.45bn (£2.05bn), but investors are preoccupied by Google’s inability to maintain advertising prices.

A widely watched measure, the average “cost per click”, was down 9% from a year earlier.

Another weak spot highlighted in the report was the firm’s discounted sale of Motorola Mobility to Lenovo.

Google sold the smartphone maker to Lenovo in January for close to $3bn, after paying $12.5bn for the firm less than two years ago.

Despite investors’ reaction, Google’s chief executive, Larry Page, was upbeat: “We completed another great quarter,” he said in a statement.

“We got lots of product improvements done, especially on mobile. I’m also excited with progress on our emerging businesses.”

However, Google continues to struggle with its ability to charge advertisers higher prices for mobile ads, which are increasingly important with more and more consumers accessing Google’s browser through their smartphones.

Advertisers have proven reluctant to pay as much for ads on mobile screens compared to Google’s bread-and-butter desktop ads, which have been the main revenue generator at the firm.

Rates for mobile ads can be half as much as on personal computers, according to Needham & Co analyst Kerry Rice.

However, Google expects mobile ad prices to catch up with PCs eventually as it becomes easier for consumers to buy products using mobile devices, Google chief business officer Nikesh Arora said.

‘A little bit dodgy’

Google has greatly diversified its portfolio of products in recent years, speculatively branching out into phonesdronesGoogle Glass, and even thermostats and fire alarms, CNet technology analyst Larry Magid said.

“Some of these crazy ideas need to become less crazy and more profitable,” he told the BBC. “Their core business, what really brings in the money, that’s beginning to get a little bit dodgy for them.”

Google’s results were not the only ones to disappoint investors on Wednesday.

Technology giant IBM reported its lowest quarterly revenue in five years.

IBM attributed the drop in revenue, which went down 4% to $22.5bn, to weak hardware sales.

Enterprise technology spending has shifted away from traditional computing giants as governments and corporations move towards online services, large-scale data analysis and IT security, FBR analyst Dan Ives said.

Shipping Giants Work Together To Overcome Slump

apag-Lloyd AG signed a binding agreement to take over most of Chilean rival Cia. Sud Americana de Vapores SA (VAPORES)’s assets and become the fourth-largest container shipping company in the world.

CSAV, controlled by Chile’s billionaire Luksic family, will own a third of the shares in the new company that combines Hapag-Lloyd’s 151 vessels with CSAV’s fleet of about 50, according to a Chilean regulatory filing yesterday. The Luksics, German billionaire Klaus-Michael Kuehne and the City of Hamburg will own 75.5 percent and control the new company.

Kuehne and the Luksics are combining to compete on more equal terms with industry leader A.P. Moeller-Maersk A/S after an oversupply of vessels coincided with slowing demand to produce a prolonged slump in the container shipping business.

Hapag-Lloyd, which had a loss of 97.4 million euros last year ($135 million), will reap annual savings of about $300 million, CSAV Chief Executive Officer Oscar Hasbun said on March 21. The companies signed a memorandum of understanding in January. The combined company, with annual revenues of $12 billion, will strengthen its presence on Europe-Latin America and Latin America-Asia routes.

Hapag-Lloyd CEO Michael Behrendt, who retires at the end of June, has said an IPO may take place in 2015 once conditions in the shipping industry normalize. German tour operator TUI AG (TUI1), which holds a 22 percent stake in Hapag-Lloyd, may use the stock sale as an exit, as the Hanover-based company has repeatedly said it wants to divest the holding.

TUI Strategy

With the deal reducing its stake, TUI is getting closer to an exit from the container shipping business, CEO Fritz Joussen said in an internal statement obtained by Bloomberg News. TUI has a “binding understanding” with the other Hapag-Lloyd shareholders to list the shipping company next year and has the right to sell stock in a private placement in the run-up to the IPO, Joussen said.

CSAV will buy shares worth 259 million euros in a 370 million-euro capital increase that will boost its stake in Hapag-Lloyd to 34 percent from about 30 percent. The German company will carry out a second sale of new stock for 370 million euros coinciding with the IPO on the German exchange.

Shares in CSAV rose 0.5 percent to 27.7 pesos in Santiago.

J&J Update

J&J beats forecasts as new drugs shine, shares jump

1 hour ago – Reuters
J&J beats forecasts as new drugs shine, shares jumpBy Ransdell Pierson

(Reuters) – Johnson & Johnson <JNJ.N> reported quarterly earnings well above expectations, as strong sales of new drugs offset weak demand for consumer products and medical devices, and the company slightly raised its full-year profit view.

Shares were up 2.5 percent in premarket trading.

J&J on Tuesday said it earned $4.73 billion, or $1.64 per share, in the first quarter. That compared with $3.5 billion, or $1.22 per share, in the year-ago quarter, when the diversified healthcare company took a big litigation charge.

“Strong pharmaceuticals results showcased a very strong 2014 start for J&J,” said Morningstar analyst Damien Conover, referring to sales growth of almost 11 percent for prescription medicines in the quarter. He cited especially strong sales of immunology medicines and for the company’s recently approved Olysio treatment for hepatitis C.

The hepatitis drug, known as Sovriad in many countries outside the United States, was approved by U.S. regulators in November and captured global sales of $354 million in the first quarter – putting it on track to become a blockbuster product later this year.

The company handily beat earnings forecasts because newer drugs have very high profit margins, Conover said. “They amplified the affect on the company’s bottom line.”

But J&J’s other business units failed to impress. Sales of medical devices and diagnostics were flat at $7.06 billion, hurt by lower prices associated with competitive bidding in the U.S. Medicare insurance program for the elderly and disabled.

Global sales of consumer products fell 3.2 percent to $3.56 billion, as many over-the-counter medicines remain unavailable due to earlier product recalls in the United States.

J&J says it now expects full-year earnings of $5.80 to $5.90 per share, up from its prior forecast of $5.75 to $5.85 per share given in January.

Excluding special items, J&J earned $1.54 per share. Analysts, on average, were expecting $1.48 per share, according to Thomson Reuters I/B/E/S. Sales rose 3.5 percent to $18.1 billion in the quarter, topping Wall Street forecasts of $18 billion.

Global sales of prescription drugs jumped to $7.5 billion. Sales of Simponi, a drug for rheumatoid arthritis, rose 9.3 percent to $259 million, while sales of psoriasis treatment Stelara soared 32 percent to $456 million.

J&J shares were trading at $99.50 in premarket trading, from their closing price on Monday of $97.14 on the New York Stock Exchange.

Quicksilver Alarm Bells

My  recent column suggested watch and wait . a number of readers replied they were committed and certain .

I am watching and the market has yet to bless KWK .

Here is an extract from a Seeking Alpha article warning that Quicksilver and Forest Oil face such pressures that bankruptcy may be in the future.

  • The high natural gas price has trapped both companies which have loaded their balance sheets with a lot of debt.
  • Both companies have tried to deleverage their balance sheets over the last 12 months.
  • They still have a long way to go in order to strengthen their weak balance sheets.
  • A bankruptcy is not out of the question.

Valuation Results

Both Quicksilver and Forest have a lot of work to do on the debt front. Those investors who ignore the debt hurdle or try to put it aside, are making a huge mistake. In fact, both companies carry scary debt to CF ratios that threaten their survival, considering also the fact that the natural gas price is inflated currently and will not stay at the current levels of $4.5/MMbtu for long.

Q2 Holdings

QTWO : NYSE : US$13.68
BUY 
Target: US$17.00

COMPANY DESCRIPTION:
Q2 Holdings provides a cloud-based platform for
customer facing web and mobile banking solutions for
regional and community financial institutions. The
platform enables users to pay bills, check balances,
transfer funds, and deposit checks through a unified
online platform or mobile device. Q2 was founded in
2004 and is headquartered in Austin, TX.

All amounts in US$ unless otherwise noted.

 

GROWTH; INITIATE WITH BUY, $17 PT
Investment thesis
In our opinion, Q2 Holdings could be one of the quiet winners of the recent IPO
class. The firm sells customer-facing banking applications, competing largely
with legacy software vendors and aging custom code. Q2 signs 5+ year
subscriptions (excellent visibility), is growing revenues ~30%, but won’t likely
break even until sometime in 2017. If Q2 can articulate and demonstrate a
clear and consistent path to profitability, the stock could get re-valued into the
25%+ growth SMID cap cloud cohort, which implies a 7-9x forward revenue
multiple. As is our custom, our price target is more conservative and assumes a
modest deterioration in the EV/revenue multiple, but a 20% appreciation in the
face of 30% revenue growth. We are initiating coverage of QTWO with a BUY.
Investment highlights
 An upgrade cycle is underway. Regional and community financial
institutions (RCFIs) are increasingly becoming viable competitors to the
national mega-banks – this means that they too need online and mobile
banking functions and sleek, next-generation user interfaces. Enter Q2.
 Legacy competition. Being founded in the mid-2000s, Q2 has the
advantage of being constructed on a unified, cloud-based platform with a
mobile-first development mentality. The firm competes either with vendors
like Digital Insight (NCR) and First Data, who are attempting to morph
timeworn applications, or oftentimes in-house, custom-built code.
 Attractive micro-economics. Q2 signs 5+ year initial deals, dollar-based
retention including upsell tops 125%, and the firm crosses into profitability
after 1.8 years of a new customer relationship. This means that in the near
term at least, the faster Q2 adds clients, the more money they will lose.
 What it means for the numbers. From the firm’s roughly $65M run rate,
we expect Q2 to be a ~30% revenue grower for the next several years.
Gross margins should scale from ~40% this year to 60%+ with scale, and
Q2 should become cash flow and EBITDA profitable sometime in 2017.

magicJack VocalTec Ltd.

CALL : NASDAQ : US$18.86

BUY 
Target: US$24.00 

COMPANY DESCRIPTION:
The company is the inventor of lightweight, VoIP-based
magicJack devices that allow customers to make phone
calls by plugging into the USB port on a computer or into
a power adapter and high-speed Internet source. The
company is headquartered in Netanya, Israel.

All amounts in US$ unless otherwise noted.

 

Telecommunications
MANAGEMENT ROADSHOW INSPIRES
CONFIDENCE – SLIGHTLY ADJUSTED ESTIMATES
Investment recommendation
On the road with the management of CALL as they continue to outline how they are repositioning the company.

Management discussed initiatives enacted to improve
customer care and ease the customer renewal process since last year.
They are also considering a return to the former pricing plan (12
months). Soon we expect to see the launch of a new device with a
revised advertising campaign that could return the company to strong
top-line growth. Over the next five years we continue to expect industry
voice telephony pricing will continue to compress and for the company
to continue to gain market share.
Investment highlights
 Less advertising drives Q1/14 higher EBITDA (EPS) – We now
believe the company spent significantly less on advertising than we
initially expected as we await the product refresh. As a result, Q1/14
profitability will likely be greater than we expected but on lower
revenues. We have adjusted estimates accordingly.
 Product refresh should better integrate App – With the refresh,
which could be launched in weeks, we expect a full refresh of the
App. In fact, the company just unveiled an updated, rebranded
version for Android. The refresh aims to improve integration with
the device, lowering churn and driving higher revenue growth.
 Transition continues, 2014 inflection – It’s increasingly clear the
direct competitor (Vonage) is not significantly impacting the market.
With the product refresh that should come in early May, we believe
it is likely that the company returns to double-digit revenue growth
this year.

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