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No Surprise From Fed as Poll Shifts Roil Markets

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The Federal Reserve signaled an interest rate next month while the stock market shows signs of technical weakness along with crude oil and junk bonds. Sounds like 2015?

Except for one thing. There’s something happening Tuesday, what was it? Oh yeah, an election.

To the surprise of absolutely nobody, the Federal Open Market Committee voted to hold interest rates steady at the end of their two-day meeting Wednesday while deciding the case for a rate hike “has continued to strengthen.” Without putting a timetable on that—as the FOMC had ahead of its initial one-quarter percentage point increase last December—the federal funds futures market placed a 78% probability of a similar move next month, to a target range of 0.5%-0.75%.

The only slightly unexpected change was that there were only two dissents on the FOMC instead of the three at the previous meeting in late September. Esther George and Loretta Mester, presidents of the Kansas City and Cleveland regional banks, again called for an immediate rate hike while their counterpart in Boston, Eric Rosengren, withdrew his objection to standing pat this time.

Where Will Stocks Be Four Years From Now?

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In four years—November 2020—the stock market is likely to be no higher than it is today.

No, this is not another forecast based on the presidential election-year cycle.

Instead, it comes from a market-timing model that is one of the select few of the many hundreds I have monitored over the past four decades that has actually beaten the stock market. It does this by increasing and decreasing market exposure at optimal times. Most market-timing models, by contrast, are no better than a coin flip.

This market-timing system is based on a single number that appears each week in the Value Line Investment Survey, a newsletter published by Value Line, an investment research firm based in New York. Its analysts closely monitor some 1,700 stocks, and the number—known as VLMAP, for Value Line’s Median Appreciation Potential—represents the median of the estimates made by those analysts of how much those stocks will gain over the next three to five years.

Market timers use the VLMAP to project where the stock market will be in four years, the midpoint of the analysts’ three-to-five-year horizon.

Could Apple Buy Time Warner? Would It? Should It?

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AT&T has already offered $85 billion for Time Warner, but that deal is far from final, and some folks thinkApple should jump in and steal the prize.

Bankers at Goldman Sachs are pushing Apple to make its own bid, according to a report in the New York Post over the weekend. Apple has plenty of cash to make the deal. Or it could probably choose to raise the money, instead.

It’s not unheard of for big deals to get broken up by a better, more attractive offer. Apple would just have to offer Time Warner a lot more money than AT&T already has.

The bigger question is why would Apple make the move? The company has never made big acquisitions before. Its largest ever deal was a $3 billion purchase of Beats Electronics, the headphone maker and streaming music firm, in 2014.

4 Chinese Stocks Taking on the World

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Beijing’s policy of encouraging Chinese companies to go global is gathering momentum as the Middle Kingdom’s slowing economy prods many to seek out foreign markets in pursuit of growth.

ChemChina’s blockbuster $43 billion acquisition of Swiss agricultural chemicals giantSyngenta is the flag-bearer of the growing global ambitions of Chinese companies keen to expand their markets, acquire cutting edge technologies and burnish their bona fides as players on a global stage. Going global makes sense: China’s economy is expanding at half the pace it enjoyed during the halcyon days of double digit growth, the currency is weakening and the world’s most populous nation is getting older.

Investors should follow that cue and keep a close eye on those companies taking the bold leap beyond China’s shores to take on some of West’s biggest companies that have long dominated many industries. Alan Wang, investment director at Hong Kong-based fund manager Value Partners, is one stock picker watching those stocks looking globally for growth. “Investors are worried about China’s slowdown. If you buy a company with a pure China demand focus, they won’t do well if the Chinese economy continues to deteriorate.” Wang sees opportunities in sectors like high-end manufacturing, or Chinese firms that have big, “tier one” customers like Ford, Apple andNike.

Barron’s Asia has run the rule over Chinese companies eyeing fame and fortune away from their home turf. We’ve identified four stocks that look attractive based on earnings prospects, yield and valuations.

Using Stock Options to Generate Income

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Generating income is one of the biggest challenges facing investors. Interest rates have been unusually low since the crisis of 2008-2009 nearly brought down the financial system. The Federal Reserve may increase rates this December, but that will do little for anyone who earns a pittance of interest on their bank deposits or bonds.

Yet there is a way to enhance, and even create, an income stream for yourself: stock options.

Most people associate options with risky investments, but that misconception largely reflects the media attention given to speculators. Because options can be used to potentially make a lot of money while putting up only a small amount, some investors make wild-eyed trades because they have heard investment charlatans talk about triple-digit returns.

More Reasons to Worry About the Stock Market

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Whether it‘s election jitters, the Federal Reserve, or just weak earnings, several key areas of the stock market — small stocks, railroads and home building — now show technical breakdowns. And not to be outdone, both ultrasafe Treasury bonds and ultrarisky junk bonds have also cracked.

It is hard to think that the broad stock market can move much more to the upside, barring a sudden Fed move or an election surprise, when these engines are shut down. I don’t think even Facebook (ticker: FB) can help, even if its earnings after the bell Wednesday continue to shine.

The Russell 2000 index of small-capitalization stocks broke down below a key short-term support level last week. The chart shows some sort of undefined topping pattern beginning in July. We could argue about what to call it, but it really doesn’t matter.

Today’s Top 5 Stock Picks: Cash Gushers

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A company’s balance sheet can predict its future, argues Bryant VanCronkhite, lead manager of the $5 billion Wells Fargo Special Mid Cap Value fund. A significant amount of cash on a balance sheet, for example, can unlock a company’s dormant potential, whether it’s through a smart acquisition or reinvestment.

VanCronkhite, 36, aims to get an edge by buying companies with strong balance sheets, but only when Wall Street is mispricing their stock. “Of course, the market won’t give credit until after it sees something happening,” he explains.

New Tracking Stock Offers Cheap Play on VMware

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The newly created tracking stock for VMware that will be issued by Dell as part of its $58 billion deal to buy EMC looks like a cheap way for investors to play VMware.

Shares of the tracking stock, Dell Technologies Class V (ticker: DVMTV), have been trading in the when-issued market for about two weeks and now changes hands at $44.68, roughly a 39% discount to VMware’s (VMW) common shares, now fetching $73.33. VMware is a software company best known for its virtualization products.

The VMware tracked shares are being issued to EMC (EMC) holders as part of Dell’s cash-and-stock acquisition of EMC. Dell announced yesterday that the deal received Chinese regulatory approval, the last hurdle to the transaction, and will close on Wed. Sept. 7. The ticker on the tracker will change to DVMT after the deal closes.

Don’t Cry for EBay’s $1.37 Billion Argentine Stock Sale

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No one can accuse eBay of holding on to things out of nostalgia.

Two days after shares of MercadoLibre (ticker: MELI), an Argentine online marketplace, traded to an all-time high, eBay (EBAY) announced it would sell most of its stake.

MercadoLibre subsequently announced that eBay would sell 7.1 million MercadoLibre shares to the public at $168 each, for a total of $1.19 billion. The underwriters also have an option to purchase up to 1,026,062 additional MercadoLibre shares from eBay. If that option is fully exercised, it would mean that eBay has sold all its holdings (for a total of $1.37 billion), down from an 18.4% stake before the sale.

Finding Tomorrow’s Star Growth Stocks Today

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Small-company investors typically limit their investible stock universe by market value. Brown Capital Management takes a different approach. The Baltimore-based small-company specialist defines “small” as businesses with revenues of $250 million or less. “It just makes more sense,” says Keith Lee, co-manager of the $3.1 billion Brown Capital Management Small Company fund (ticker: BCSIX).

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