P2JW300000-2-C00100-1--------XA CMYK Composite CL,CN,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SC,SL,SW,TU,WB,WE BG,BM,BP,CC,CH,CK,CP,CT,DN,DR,FW,HL,HW,KS,LA,LG,LK,MI,ML,NM,PA,PI,PV,TD,TS,UT,WO Netflix Gets Lost In Translation Purge Is On at Banamex HEARD ON THE STREET C8 Citi’s Mexico Subsidiary Cleans House GLOBAL FINANCE C3 © 2014 Dow Jones & Company. All Rights Reserved. THE WALL STREET JOURNAL. ** Last Week: DJIA 16805.41 À 425.00 2.59% S&P 1964.58 À 4.12% NASDAQ 4483.72 À 5.29% Monday, October 27, 2014 | C1 10–YR. TREAS. g 21/32, yield 2.273% OIL (new)$81.01 g $1.05 EURO $1.2671 YEN 108.16 Bad Breaks Bite Bond Bears Darker Global View Leads Investors to Rethink Likelihood of Debt-Market Slump BY TOM LAURICELLA AND CYNTHIA LIN The bond bears may have to wait a little longer. A less-rosy global economic outlook and fading inflation expectations have many investors believing that the long-predicted downturn for ABREAST OF U.S. Treasury THE MARKET bonds is still a while off. It is a change from just a few months ago, when many strategists and investors were predicting that a 30-year bull market in Treasurys was close to an end. They expected prices would fall sharply this year, sending yields higher. But in a pattern that has become familiar since the financial crisis, the reverse happened. Ten-year Treasurys are near their lowest yields in 17 months, and investors expect they will probably remain there. Not only were many investors caught off guard by rising bond prices, but those with big bets against Treasurys got burned. Driving the latest leg of the rally was a combination of weak economic data out of Europe and China, tepid U.S. indicators and geopolitical strife. The scramble for safety, which took the yield on the 10-year note to 1.85% in intraday trading on Oct. 15, has forced many market strategists to lower their rate forecasts, even though some still see a strengthening U.S. economy pressuring yields higher. Yields have crept up slightly since midOctober, finishing last week at 2.27%, compared with 3% at the end of last year. When bond yields rise, prices fall. “This is not what we expected,” says Jennifer Vail, head of fixed income at U.S. Bank Wealth Management. “We thought we’d end the year well above 3%.” Her team has been modifying its forecast lower throughout the year, and now sees the 10-year note yielding 2.65% at year-end. This week will bring several pieces of new information that will help determine whether bond bears could pounce. On Wednesday, the Federal Reserve will reveal its latest monetarypolicy decision; the central bank is expected to announce it has ended the bond-market purchases it has been using to ease monetary policy. On Thursday, the first reading on U.S. third-quarter gross-domestic-product growth is due. On Friday comes a report on personal income and spending, Please turn to the next page Slipping The price of copper has fallen even as stockpiles in London Metal Exchange warehouses have declined. LME three-month copper futures Warehouse supplies $8,000 a metric ton 400,000 metric tons 7,500 Friday $6,696 200,000 6,500 100,000 6,000 0 2014 Illustration by John Ritter BY ROB COPELAND Keith Meister takes things personally. The burly and at times combustible hedge-fund manager, tipped off that his expensive coup d’état of the board of corporate landlord CommonWealth REIT could be imperiled by a proposed last-minute tweak to Maryland state law, didn’t just send one of his 24 employees: He flew down to Annapolis himself last April to lobby against it. Months later, mired in related shareholder lawsuits there and in Delaware, Mr. Meister appeared in court himself for nearly every hearing. Mr. Meister’s eventual triumph at CommonWealth—as well as quieter efforts to transform companies ranging from the energy-pipeline operator Williams Cos. to lender Fidelity National Financial Inc.—is earning the former right-hand man to Carl Icahn a reputation of his own. The 41-year-old’s hedge-fund firm, Corvex Management LP, bankrolled partly by about $1 billion from George Soros, is also outperforming nearly all of its activist-investor peers. “He’s very competitive, and he’s very emotional,” said Related Cos. Chief Executive Jeff Blau, who invested personally in Corvex after his development company teamed up with the firm against CommonWealth, which has since changed its name to Equity Commonwealth. “He treats the capital in the fund like it’s his own.” New York-based Corvex has more than tripled in size over the past two years to nearly $7 billion, including money from Mr. Soros and deep-pocketed investors like Blackstone Group LP, according to investor documents and people familiar with the fund. The burgeoning war chest has the ex-Harvard University strong safety on the offensive. His latest salvo this month was a public attack on wireless tower operator Crown Castle International Corp., in which Mr. Meister told the company to “embrace change now.” Mr. Meister laid out two solutions for Crown Castle: boost its Please turn to the next page Thursday 159,550 2014 Source: London Metal Exchange The Wall Street Journal Single Buyer Holds Mountain of Copper By Sarah Kent, Ese Erheriene and Ira Iosebashvili Manager’s Combative Style Pays Off 300,000 7,000 A single buyer has snapped up more than half the copper held in London Metal Exchange warehouses, giving it control over a crucial source of supply and raising concerns among traders about the potential for higher prices. Keith Meister See more at WSJMarkets.com On several occasions in the past month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses, equal to about 140,000 tons, or enough to make the copper parts of the Statue of Liberty more than 1,700 times. As of Wednesday, the buyer owned between 50% and 80% of copper held in warehouses, according to the most recent exchange data. At today’s prices, a 50% to 80% share of LME copper inventories would be worth anywhere from roughly $535 million to about $850 million. Although the exchange doesn’t identify the owners of metals, eight traders and brokers working for different firms active on the LME said they believe Red Kite Group, a London hedge-fund manager that focuses on metals trading, was the one buying. One of the brokers said that when he needs to buy copper for clients, contacts in the market refer him to Red Kite, indicating the fund is sitting on a large pile of metal. Red Kite declined to comment. Banks often hold large portions of the metal in LME-licensed warehouses on behalf of clients, but a hedge fund holding that much copper is less common, traders and brokers say. The London Metal Exchange, owned by Hong Kong Exchanges & Clearing Ltd., doesn’t limit how much metal a single trader may hold in its warehouses, and says that it has mechanisms in place to prevent market squeezes—a situation in which holders of a large share of the supplies use their position to jack up prices. For example, it requires a company with a dominant position to lend metal for short periods and it caps the amount of money that can be charged for that service. “The LME constantly monitors its markets to ensure that trading is orderly,” a spokeswoman for the LME said. The LME’s “lending guidance” system “is the most effective way to manage pressure arising from dominant positions in our market.” Prices ticked higher last week in response to positive economic news from China, the world’s biggest consumer of the metal. They remain below their levels at the start of the year because demand has been sluggish and production capacity is expected to increase. The official price of copper for delivery in three months on the LME was $6,696 on Friday. The metal’s owner could be wagering that global copper supplies will tighten, causing prices to shoot up, analysts say. The price of copper traded on the LME is used as a global benchmark, and metal users rely on the exchange’s warehouses for emergency supplies. If one firm owns most of that spare supply, it can charge higher prices to buyers, analysts say. “There’s no reason for anyone to be holding 70% of the stocks of the commodity,” said Jessica Fung, head of Commodities Metals at BMO Capital Markets. Established in 2004, Red Kite is now run by two of its founding partners, Michael Farmer and David Lilley, both alumni of the German industrial conglomerate Metallgesellschaft AG, Please turn to page C5 AHEAD OF THE TAPE | By Spencer Jakab Shareholders were shocked—shocked!—that Cliffs Natural Resources Inc.’s loss in the second quarter was twothirds larger than expected. Not really. Like Captain Renault, they had seen it all. A month later, activist shareholder Casablanca Capital LP installed a new chief executive, Lourenco Goncalves. The roller-coaster ride of iron-ore prices in the last decade has made for wild swings for the largest U.S. miner of the steelmaking material. These days, it takes fairly surprising news to get much reaction from shareholders. Since 2009, the company’s average “miss” or “beat” relative to analyst expectations for earnings has been 28%. The most recent earnings disappointment at Cliffs in July caused less than a 3% drop in the stock price. The company’s announcement of a $6 billion asset write-down on Oct. 17 prompted a bit more shock; the stock fell 8%. It has fallen 64% this year amid a 40% slide in iron-ore prices. Not Digging It Cliffs Natural Resources earnings $6 a share 5 Consensus estimates ; 4 3 2 1 0 –1 2012 ’13 ’14 Source: FactSet Monday’s release of thirdquarter results has the potential to spark at least a brief bounce in the shares. Analysts, on average, see a loss of 7 cents a share, down from a profit of 66 cents a year ago, though some still expect a profit. Costs are coming down, and volumes may have improved from the second quarter. More significantly, there could be word from management on the sale of assets such as mines in Australia. Cliffs hired banks to sell that business and its U.S. metallurgical coal business. A cut earlier this month in its credit rating to below investment grade, or “junk,” by Standard & Poor’s, and the threat that the asset write-down could force Cliffs to violate loan covenants, may hasten a deal. That is despite Mr. Goncalves’s insistence there is “no ticking clock.” The impact of any pleasant news will be magnified by a squeeze on those betting against the stock. Some 42% of shares outstanding, equal to six days of turnover, were sold short recently by investors hoping to buy them back later at a cheaper price. But noncore asset sales won’t help if the iron-ore market remains swamped with supply. Far better would be a bid for the entire company. For shareholders weary of gutwrenching volatility, it could be the beginning of a beautiful friendship. But that would really be gambling. Email: tape@wsj.com INDEX Closed-End Funds............................................... C3 Global Finance........................................................ C3 International Stock Indexes........................ C6 Bonds, Rates & Yields............................... C6 Currency Trading................................................. C2 Heard on the Street.......................................... C8 Money Rates.......................................................... C3 New to the Market..................................... C6 Ticker/Calendar.............................................. C2 IT GIVES OTHER ETFs AN INFERIORITY COMPLEX. * Assets as of 9/30/2014. The second largest ETF had assets of $61B as of 9/30/2014. Average daily trading volume over the last three months for SPY was 98,749,400 shares as of 9/30/2014. Data subject to change. (Source: Bloomberg.) Before investing, consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus, which contains this and other information, call 1.866.787.2257 or visit www.spdrs.com. Read it carefully. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. The SPDR S&P 500 ETF is an exchange traded fund designed to generally correspond to the price and yield performance of the S&P 500 Index.™ “SPDR” and S&P 500 are registered trademarks of Standard & Poor’s Financial Services, LLC (“S&P”) and have been licensed for use by State Street Corporation. No financial product offered by State Street or its affiliates is sponsored, endorsed, sold or promoted by S&P. ALPS Distributors, Inc. is distributor for SPDR S&P 500 ETF, a unit investment trust. IBG-12736 P2JW300000-2-C00100-1--------XA Cliffs Is Still the Same Old Story With over 180 billion dollars in assets, the SPDR® S&P 500® ETF is one of the largest and most actively traded securities in the world.* It’s no wonder it makes other ETFs feel small by comparison. For more information, visit spdrs.com. Bloomberg News MOVING THE MARKET C2 | MONEY RATES C3 | IPO SCORECARD C6 Composite MAGENTA BLACK CYAN YELLOW