The Daily Alpha - 09.30.2015

The Daily Alpha - 09.30.2015

Garrett Baldwin

Here's Today's Alternative Thinking on India’s Growth Potential, Government’s Student Loan Mishaps, Stock Picker’s Blues, Private Equity’s Summer Vacation, and More Bad News for CNBC.

“We are committed to providing (Indian startups) with the support needed to help propel them forward in the competitive Indian region.”

Startup investing is obviously all the rage out on the West Coast of California. HBO just released Alexandra Pelosi’s short documentary San Francisco 2.0, a 40-minute dive into the impact of technology companies’ accent on the City by the Bay. If you haven’t seen it, it’s definitely worth a watch.

But there’s another place where technology investment is poised to change the dynamic of a nation: India. This week, Qualcomm announced plans to invest $150 million into startup companies based in India though its Qualcomm Venture fund. (Side note: Yahoo consensus has a QCOM one-year stock price target of $72.20 – that’s more than 26% from yesterday’s closing price.)

Qualcomm’s investment is part of a broader story of what is happening in India right now. While Brazil, Russia, and China are weighing down global sentiment, there’s a lot to like about India’s potential economic breakout.

As noted in previous issues, India offers intriguing investment opportunities.

Chicago Federal Reserve Senior Advisor William Strauss said last month at an Ideas Conference in the Windy City that the nation has “nowhere to go but up.

It’s a great environment for startups, despite bearish sentiment from investors due to the nation’s economic ties to China.

Right now, the nation’s Prime Minister has put policies in place to strip red tape and spur economic development. Yes, there will be growing pains, but 7% annual growth and the embracing of market-based solutions bodes well for its technology, agricultural, energy (both clean and carbon-based) and industrial sectors.

Meanwhile, anyone looking for a possible investment play in the India market might want to consider a Mumbai-based automotive giant, particularly in the wake of Volkwagen’s emissions scandal. Our friend Peter Krauth offered a contrarian play earlier this month that he called a “screaming buy.”  

Check it out here.

“We’re fully aligned with both the lender and the borrower.”

Speaking of startups, Credible – which operates a marketplace for student loans and refinancing – announced it raised $10 million in a Series A round.

It might not seem like much, but it’s evidence of further momentum in the peer-to-peer lending space. Not a lot of people recall that when the poorly named Affordable Healthcare Act was passed in 2009, a provision also allowed the U.S. government to effectively take over the student loan market. Anyone who went to graduate school – and relied on student loans in the wake of the law’s passage – pretty much had to rely on Stafford loans at 6.8% and Plus loans with even higher interest rates if they surpassed certain borrowing thresholds. 

As one can expect, the government takeover failed miserably with high default and delinquency rates. In addition, the student loan bubble inflated beyond more than $1 trillion under the government’s oversight.

The rise of peer-to-peer lending in the space has been very successful. Defaults are declining, more financial education is being provided to borrowers, and employers have even added loan refinance matching as a creative benefit.

Oh, private sector…

“Large, focused bets on single companies can lead to huge returns for managers when they go well, but destroy years of gains when they go wrong.”

Yes, stock picking is a dangerous game.

As it turns out, the Monday selloff in Valeant Pharmaceuticals hurt more than just the portfolio at Bill Ackman’s Pershing Square Capital Management.

Jeff Ubben’s ValueAct and John Paulson’s Paulson & Co took body blows this week.

As the Financial Times explains, single stock bets are hammering a lot of big names in the hedge fund space in recent months. Perhaps they should have listened to Modern Trader’s warning in August to “Sell Stocks Now.” You can read the 10 reasons why we recommended that investors might want to lessen their exposure to equities right here. 

Yesterday, we found out that this feature editorial is a finalist for the Best Feature Article award with min (Magazine Industry Newsletter). Be sure to check it out. 

“Private equity deal activity was down in the third quarter.”

New data from Pitchbook suggests that school was out for private equity deals over the last three months. 

The company blog offered an interesting visual of PE deals from Q3.

Roughly $262.7 billion was invested into 1,353 global private equity deals in the most recent quarter. That’s down from $298 billion and 1,768 deals in the same period last year. Warren Buffett’s reverse Kraft Foods and Heinz merger was the largest deal for the period, while Blackstone Group took the title for most active firm over the last three months.

The data shows that 75% of funds reached their funding targets…

It seems there’s no shortage of money for the wealthiest Americans. This morning, the University of Chicago announced its second-largest gift in school history, a $100 million gift for a global conflict resolution research center. The gift came from the family foundation of Thomas Pearson, a leader of PE firm Cohesive Capital Partners. 

 "I think earnings are misstated and sort of a complete mirage.”

Donald Trump supporter Carl Icahn told CNBC today that he sees painful times ahead for ordinary Americans. In an interview with the network today, Icahn said that the market was in “dangerous territory.”

Here’s the Icahn skinny.

Icahn has been making headlines in recent days after he released a video called “Danger Ahead” on his website and said that the Federal Reserve’s financial engineering will create headwinds for the U.S. economy. He also had several warning about income inequality.

But here’s the bigger question from his CNBC appearance: Did anyone see it?

That’s because Fox Business is starting to make a very serious run at America’s greatest broadcasting car crash, the Consumer News and Business Channel (CNBC). For the very first time, a program on Fox’s market news channel has beaten a CNBC program in total monthly viewers.

Lou Dobbs Tonight beat CNBC’s whirlwind of nightly shows that includes West Texas Investors Club and The Profit in the 7 p.m. EST slot.

CNBC’s decline has been noted in the Alpha Pages for some months. Our friend Doug Litowitz crafted an extremely powerful piece recently about how hedge funds have largely tuned out the network’s “insight,” and Modern Trader featured a deeper examination into how guests and its self-anointed experts are the real “False Prophets” of the financial markets.

You can read Doug’s piece about CNBC right here, and be sure to read (for free)the July debut issue of Modern Trader, which was recently nominated for an Eddie Award for best magazine editorial. Inside, you’ll find the actual voices whom you should follow for the best market insight.

That’s all for today.

Be sure to check back tomorrow as we prepare for September’s unemployment announcement and more economic data from China.


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