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• Baupost's Seth Klarman, one of Wall Street's most respected investors, says investors are asking "Why sell?" when really they should be asking "How can I afford not to?"
• He made the comments in a private letter to clients as the stock market continues to rage on to historic highs.
• Baupost is holding roughly 40% of its assets in cash and is returning $2 billion to investors at year end, according to a person familiar with the firm.
• The firm's funds made almost no money in the third quarter of this year, but are up about 3% on the year, according to the person familiar with the matter.
• The firm took a 12% loss on Qualcomm, a multinational semiconductor and telecommunications equipment company. 

Seth Klarman, one of Wall Street's most revered investors and founder of Baupost Group, says investors are asking the wrong question about the raging bull market.

As the stock market continues to hit historic highs, Klarman, in a letter to clients, wrote that investors are ignoring big risks. Volatility remains subdued while stock valuations are pricey. And growth stocks – those that represent high quality companies – are appreciating far ahead of value shares, which tend to trade lower than merited.

Klarman runs Boston-based Baupost Group, one of the world's largest hedge funds with $31 billion, which made nearly no money in the past quarter, per the letter. The firm is up about 3% after fees this year through September 30, according to a person familiar with the numbers.

Klarman's analysis boils down to this: Investors are often asking "Why sell? What would I do with the money?" when really they should be asking, "How can I afford not to sell with the risks I'm taking on?"

Here's how Klarman broke it down in the private letter, a copy of which was reviewed by Business Insider:

"First-level thinking says that a 4% bond is better than a 2% bond, which everyone can see. Second-level thinking is that 4% may be insufficient return for the risk," he said. "The other facet of this thinking is the presupposition that the only relevant opportunity set is the current one."

In other words, those who are tied in to middling investments today might find themselves incapable of taking advantage of more attractive opportunities tomorrow. Klarman didn't specify his cash holdings in the letter, but a person familiar with the firm said Baupost holds about 40% of its assets in cash.

Baupost plans to return a hefty chunk of capital to investors by year's end, meanwhile – about 6% of investors' capital balance as of September 30, 2017 – which is equal to about $2 billion, according to the person familiar with the firm.

Institutional Investor earlier reported about Baupost's letter.

A flat third quarter, and challenges for stock pickers

The firm's funds – which take positions in stocks, private equity and real estate – made almost no money in the third quarter of this year, meanwhile.

Klarman said the firm sold its position in Qualcomm, taking a loss of about 12%, after legal challenges facing Qualcomm's intellectual property proved more difficult to navigate than expected.

Klarman hinted at the challenges active investment managers face. "In a roaring bull market, whatever edges talented investors normally posses are whittled thin. Sellers become scarce, dislocation infrequent, and the rising tide lifts all boats," he wrote.

A change of fortune could be swift, however.

"When the market reverses," he wrote, "dormant advantages conferred by analytical edge, discipline, thoughtful hedging, a sourcing network, team building and process improvement are restored."

Klarman says his firm focuses on the long term and that even good investment picks have proven not always to pan out in the short run.

Klarman and his Baupost colleagues are no strangers to warning about the market's risks.

In client letters earlier this year, which were reviewed by Business Insider at the time, Klarman wrote that investors' perceptions of risk were unreasonably muted. He also laid out worries in a separate investor letter, raising red flags about Trump's proposed tax cuts, for instance, which could considerably raise the government's deficit. 

Meanwhile, Klarman's colleague, Jim Mooney, wrote that high levels of leverage, or borrowings, and low volatility could bring about the next financial crisis.

Baupost managed $31.1 billion as of mid-year 2017, according to the Absolute Return Billion Dollar Club ranking.

SEE ALSO: $18 billion fund manager started by Al Gore and a Goldman Sachs exec sets sights on Silicon Valley

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A senior member of the Saudi royal family struck a critical tone about bitcoin during a media appearance today.

• Darlene Pasquill, the head of Americas equities at Credit Suisse, has left the bank. 
• Her departure follows a series of changes in the Swiss bank's equities business. 

 There has been a shake-up at the top of Credit Suisse's US equities business. 

Darlene Pasquill, a Credit Suisse veteran and the head of Americas equities business, will be leaving the bank to pursue external opportunities, according to an internal memo seen by Business Insider. She had been in that role since 2015. 

Mike Stewart, who was hired from UBS to be global head of equities at the end of last year, will take on her role on an interim basis. 

Her departure follows a series of changes at Credit Suisse's equities unit. The bank hired Douglas Crofton from Bank of America Merrill Lynch to run US cash trading, hired trading technology veteran Anthony Abenante, and appointed former UBS exec David Bleustein to be head of Americas equity research.

The Swiss bank ranked between 7th and 9th for US equities revenues in the first half of the year, according to data from Coalition. The bank will report third-quarter results on November 2. 

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NOW WATCH: Gary Shilling calls bitcoin a black box and says he doesn't invest in things he doesn't understand

The S&P 500 and Nasdaq hit record highs on Monday before sliding into the close at the start of the busiest week of third-quarter earnings. The S&P 500 closed without a 3% drawdown for a 242nd straight day, the longest streak ever. 

Here's the scoreboard: 

• Dow: 23,273.96, -54.67, (-0.23%)
• S&P 500: 2,564.98, -10.23, (-0.40%)
• Nasdaq: 6,586.83, -42.23, (-0.64%)

1. President Donald Trump tweeted to dispel reports that the forthcoming Republican tax-reform plan would place a cap on contributions to a traditional, tax-deferred 401(k). Trump said: "This has always been a great and popular middle class tax break that works, and it stays!"

2. Saudi Aramco's initial public offering remains on track to take place in 2018, CEO Amin Nasser told CNBC. The Financial Times reported earlier this month that the state-owned oil company was considering shelving IPO plans in favor of a private share sale to world sovereign funds and institutional investors.
3. Tesla is in talks with Shanghai's municipal government to set up a factory in the region. China imposes a 25% duty on sales of imported vehicles and has not allowed foreign automakers to establish wholly owned factories in the country, the world's largest auto market.
4. Netflix announced plans to offer $1.6 billion in debt to fund original content. The company had signaled this in its earnings release last week. 
5. T-Mobile beat on both the top and bottom lines, and raised the lower end of its expected range of customer additions for the year. The wireless carrier has said it is open to various strategic options and has acknowledged interest in talking with Sprint about a merger. 
6. Cisco is buying the telecom-software company Broadcom for about $1.9 billion including debt. The deal could improve Cisco's sales to big telecom firms.
7. The Toys R US bankruptcy is going to impact holiday sales, Hasbro says. The toy maker's shares fell 9%.
   

Additionally: 

The stock market just made history

The founder of the world's largest hedge fund just shared brutal analysis of the US economy

The top 0.1% of American households hold the same amount of wealth as the bottom 90%

Wall Street is starting to worry about what Trumpcare is doing to hospitals

EX-OBAMA ECONOMIST: The Trump team’s claim that tax cuts would boost wages is 'more than a little far-fetched'

A former HSBC executive has been found guilty of fraud in a $3.5 billion currency trade

Hedge fund billionaire Bill Ackman told a CEO he gets more 'clicks on the internet' than anyone except Donald Trump

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• Ray Dalio, the founder of Bridgewater, the world's largest hedge fund, just published a note on the state of the US economy.
• He noted that the bottom 60% of Americans are struggling, listing a litany of depressing statistics to make his case. 
• He said that if he were running Federal Reserve policy, he'd keep an eye on the bottom 60%. 

Brutal.

There's no other word for Ray Dalio's latest note on the US economy, and the situation it describes. The founder of Bridgewater, the world's largest hedge fund with about $160 billion in management, posted the note on LinkedIn on Monday, and sets about splitting the US economy in two: the top 40% and the bottom 60%.

The point of this exercise is to show that while the headline numbers show a growing, healthy economy, there's a lot more going on under the surface that needs to be paid attention to. 

The stats he cites for the bottom 60% are downright depressing. Here's a selection taken straight from the note (emphasis Dalio's):

• Real incomes have been flat to down slightly for the average household in the bottom 60% since 1980 (while they have been up for the top 40%). 
• Those in the top 40% now have on average 10 times as much wealth as those in the bottom 60%. That is up from six times as much in 1980.
• Only about a third of the bottom 60% saves any of its income (in cash or financial assets).
• Only about a third of families in the bottom 60% have retirement savings accounts—e.g., pensions, 401(k)s—which average less than $20,000. 
• For those in the bottom 60%, premature deaths are up by about 20% since 2000. The biggest contributors to that change are an increase in deaths by drugs/poisoning (up two times since 2000) and an increase in suicides (up over 50% since 2000).
• The top 40% spend four times more on education than the bottom 60%. 
• The average household income for main income earners without a college degree is half that of the average college graduate.
• Since 1980, divorce rates have more than doubled among middle-aged whites without college degrees, from 11% to 23%.
• The number of prime-age white men without college degrees not in the labor force has increased from 7% to 15% since 1980.

In other words, the economy isn't as healthy as might appear at first look. And note includes a warning: the "stress between the two economies" will "intensify over the next 5 to 1o years" because of demographic and technological change. 

How does this relate to markets? Well, Business Insider reported back in September that Bridgewater had told clients that the Fed was making a mistake by raising rates. And there is a hint of that view in Dalio's latest note, where he said that the "average statistics could lead the Federal Reserve to judge the economy for the average man to be healthier than it really is."

He warned that that could lead the Fed to run "an inappropriate monetary policy."

Dalio said: 

"Because the economic, social, and political consequences of an economic downturn would likely be severe, if I were running Fed policy, I would want to take this into consideration and keep an eye on the economy of the bottom 60%."

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• Ray Dalio, the founder of Bridgewater Associates, shared a chart in a LinkedIn post showing that the top 0.1% of households now hold about the same amount of wealth as the bottom 90%.
• He notes that today's wealth gap is similar to that of 1935 to 1940.
• Both back in 1935 to 1940 era and today we saw the rise of populism.

It's no secret that the US has an inequality problem. But actually looking at the disparity between the top and bottom can still be striking.

Ray Dalio, the founder of Bridgewater Associates, shared a chart in a LinkedIn post showing the share of US household wealth by income level: The top 0.1% of households now hold about the same amount of wealth as the bottom 90%, which he notes is similar to the wealth gap that occurred from 1935 to 1940. 

"To understand what’s going on in 'the economy,' it is a serious mistake to look at average statistics," Dalio writes. "This is because the wealth and income skews are so great that average statistics no longer reflect the conditions of the average man."

Dalio also draws a connection between income inequality and populism, annotating on the chart that the 1935 to 1940 period was the "era of populists," while today we're seeing the "emergence of populism."

Relatedly, Goldman Sachs' Sumana Manohar and Hugo Scott-Gall shared a chart last year comparing a given country's gross domestic product per capita to its Gini coefficient.

The Gini coefficient is a measurement of the income distribution within a country that aims to show the gap between the rich and the poor. The number ranges from zero to one, with zero representing perfect equality (everyone has the same income) and one representing perfect inequality (one person earns the entire country's income and everyone else has nothing.) A higher Gini coefficient means greater inequality.

Developed-market economies such as those in Germany, France, and Sweden tend to have a higher GDP per capita and lower Gini coefficients. On the flip side, emerging-market economies like Russia, Brazil, and South Africa tend to have a lower GDP per capita but a higher Gini coefficient.

The US, however, is a big outlier. Its GDP per capita is on par with developed European countries like Switzerland and Norway, but its Gini coefficient is in the same tier as Russia's and China's.

SEE ALSO: Warren Buffett's advice for CEOs touches on a key issue plaguing the US economy

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NOW WATCH: $6 TRILLION INVESTMENT CHIEF: Bitcoin is a bubble

• The Trump White House's claim that workers would see large gains from tax cuts rests on dubious assumptions, according to Obama's ex-chief economist
• Jason Furman writes in an opinion piece that the Trump team's analysis assumes broad benefits from the tax cuts that are 'more than far fetched'
• Furman says overall plan 'offers almost no direct benefit to the middle class'

The Trump administration is pitching its tax cut plan as a boon to the middle class even though a wide range of independent analyses shows the proposals outlined so far would overwhelmingly benefit the wealthiest Americans.

In the latest pitch, Kevin Hassett, head of the president’s White House Council of Economic Advisers, argued the following about the corporate tax portion of the Trump plan, which envisions a cut in the rate from 35% to 20%: "Conservative estimates from the literature imply an increase in average household income of $4,000 and more moderate estimates show increases of $9,000."

That was too bold a claim for Hassett’s predecessor at the helm of the Council of Economic Advisors, Jason Furman, to let it slide. In a Wall Street Journal op-ed, Furman makes a convincing case for why Hassett’s claims rest on some rather dubious assumptions.

"If all 125 million households got a raise like that, it would amount to an annual increase in total wages of between $550 billion and $1.1 trillion," writes Furman, now a senior fellow at the Peterson Institute for International Economics (where I used to work).

This amounts to between 275% and 550% of the $200 billion corporate tax cut’s total cost, says Furman, implying growth benefits to workers that are "more than a little far-fetched."

According to Furman's own calculations, he writes, the White House methodology "yields the absurd conclusion that eliminating the corporate tax altogether would boost annual household wages by up to $20,000." 

Furman also notes that one of the authors of a paper cited by Trump’s advisors to justify the claim of a possible $9,000 increase in wages took to Twitter to say that the CEA’s math "misrepresented" his findings.

Another problem Furman identifies: Many of the measurements used by Trump’s economists are based on estimates for US states as well as smaller and lower-income countries.

"North Carolina and Estonia might get much more inbound investment with a lower rate, but the trick would not work nearly as well for an economy as big as America’s," Furman writes.

As for the overall bend of the tax plan, Furman confirms what so many other analyses have found: the rich win.

On the individual side, the Republican plan offers almost no direct benefit to the middle class," Furman says. 

SEE ALSO: Trump's tax plan champions 'pass-through' businesses that helped fuel the rise of the 1%

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Welcome to Finance Insider, Business Insider's summary of the top stories of the past 24 hours. Sign up here to get the best of Business Insider delivered direct to your inbox.

A scary little statistic is buried beneath the US economy's apparent stability: Consumer-debt levels are now well above those seen before the Great Recession.

As of June, US households were more than half a trillion dollars deeper in debt than they were a year earlier, according to the latest figures from the Federal Reserve. Total household debt now totals $12.84 trillion — also, incidentally, about two-thirds of gross domestic product.

And according to Business Insider's Pedro da Costa, that's creating an economic trap. 

In other news, an $18 billion fund manager started by Al Gore and a Goldman Sachs exec is setting its sights on Silicon Valley. The new titans of Wall Street have their eyes on your savings. And Bill Ackman told a CEO he gets more "clicks on the internet" than anyone except Donald Trump.

President Trump says "there will be NO change to your 401(k)" after reports Republicans want new caps on retirement savings. Traders now have a brand-new way to bet on Trump tax reform.

In deal news, Cisco is buying a telecom-software company for $1.9 billion. And Saudi Aramco's IPO is on track for 2018, according to its CEO.

Lastly, Wall Street's favorite deal-making restaurant has opened in Larry Ellison's hotel — we went inside.

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• Billionaire hedge fund manager Bill Ackman has been locked in a proxy battle with activist target ADP for months.
• ADP CEO Carlos Rodriguez hasn't hesitate to call out Ackman publicly about his attempts to use the media to sway the activist proceeding.

The ongoing battle between hedge fund billionaire Bill Ackman and his latest activist target just keeps getting more heated.

The latest development came over the weekend, when the CEO of ADP — the payroll and benefit provider that's drawn unwelcome interest from Ackman — shared some comments with Lindsay Fortado of the Financial Times.

Carlos Rodriguez told the FT that the second time he spoke with Ackman, the Pershing Square Capital Management CEO warned him that if ADP didn't comply with his activist wishes, then he'd conduct a public campaign against the company — one he was well-positioned to win.

"He said: I know you don’t like the media, but I do and I’m really good at it," Rodriguez told the FT. "And if this gets into a public battle, it’s going to be bad for you personally, it’s going to be bad for the company, but I’m fine with it because — and he said this — I’m told that I’m only second to Donald Trump in terms of number of clicks on the internet, and hence you will lose if there’s a public relations battle."

The pointed comments were just the latest entry in the ongoing saga between Ackman and the New Jersey-based company, which have been grappling for weeks over the activist investor's quest for board seats. ADP rejected Ackman's nominees back in August.

Ackman had been seeking three spots on ADP's board as part of a "transformation plan" that he thinks could double the company's stock price, according to comments made on a conference call earlier this year.

Rodriguez's comments to the FT don't mark the first time ADP has publicly aired out Ackman's attempts to use the media to his advantage. In a late-August regulatory filing, the company accused Ackman of threatening to use his ability to generate media coverage to "damage" the company.

Further, earlier in the ordeal, following Ackman's attempt to get an extension for his submission of potential board replacements, Rodriguez even went as far as to say in a CNBC interview that the billionaire hedge funder's behavior reminded him of a "spoiled brat" asking a teacher for an extension on homework.

Throughout the war of words, Ackman has disputed Mr Rodriguez’s recollection of their conversations, saying publicly that he's willing to work with him.

“It’s disappointing that ADP continues to attack the messenger instead of addressing the important questions we have raised about ADP’s operational underperformance and its deteriorating competitive position,” Ackman told the FT.

If the past few months are any indication, this escalating situation is far from over. Stay tuned for updates.

SEE ALSO: Traders now have a brand-new way to bet on Trump tax reform

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NOW WATCH: $6 TRILLION INVESTMENT CHIEF: Bitcoin is a bubble

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• Netflix announced plans to raise $1.6 billion in debt.
• The funds will be for general purpose uses, including funding new content.
• Shares are ticking higher, up 0.32% ahead of the opening bell

On Monday, Netflix announced it will raise $1.6 billion in debt to fund its ever-increasing content budget.

The company's stock was up 0.32% in early trading to $194.79. Netflix said that the terms of the deal will be sorted out between the company and the first buyers of the debt.

The move comes after Netflix announced a content budget of between $7 billion and $8 billion for 2018. The company said it hopes to increase the amount it is spending on original content that it won't have to license from partners.

Netflix has said that good, original content is its main driver of subscriber growth, so it makes sense that it would want to spend more money in the area. The company reported a total net addition of 5.3 million subscribers in the third quarter, easily outpacing the 4.5 million additions that Wall Street was expecting.

The company's biggest subscriber additions were outside of the US, which Ben Swinburne, head of media research at Morgan Stanley, told Business Insider is one of the more impressive parts of Netflix's business.

By offering original content in a country's native language, Netflix has been able to penetrate even emerging markets like Brazil. On the company's earnings call, company executives said that native language programming has the power to cross borders and become popular internationally as well.

Netflix said it hopes to add another 5.05 million subscribers in the third quarter.

Shares are up 52.24% this year.

Read more about Netflix's third-quarter earnings report here...

SEE ALSO: Netflix hits record high as subscriber growth blows past targets

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NOW WATCH: THE BOTTOM LINE: A market warning, the big bitcoin debate and a deep dive on tech heavyweights

• Netflix announced plans to raise $1.6 billion in debt.
• The funds will be for general purpose uses, including funding new content.
• Shares are ticking higher, up 0.32% ahead of the opening bell

On Monday, Netflix announced it will raise $1.6 billion in debt to fund its ever-increasing content budget.

The company's stock was up 0.32% in early trading to $194.79. Netflix said that the terms of the deal will be sorted out between the company and the first buyers of the debt.

The move comes after Netflix announced a content budget of between $7 billion and $8 billion for 2018. The company said it hopes to increase the amount it is spending on original content that it won't have to license from partners.

Netflix has said that good, original content is its main driver of subscriber growth, so it makes sense that it would want to spend more money in the area. The company reported a total net addition of 5.3 million subscribers in the third quarter, easily outpacing the 4.5 million additions that Wall Street was expecting.

The company's biggest subscriber additions were outside of the US, which Ben Swinburne, head of media research at Morgan Stanley, told Business Insider is one of the more impressive parts of Netflix's business.

By offering original content in a country's native language, Netflix has been able to penetrate even emerging markets like Brazil. On the company's earnings call, company executives said that native language programming has the power to cross borders and become popular internationally as well.

Netflix said it hopes to add another 5.05 million subscribers in the third quarter.

Shares are up 52.24% this year.

Read more about Netflix's third-quarter earnings report here...

SEE ALSO: Netflix hits record high as subscriber growth blows past targets

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NOW WATCH: Is bitcoin a bubble or the future of everything?

• EventShares just launched its US Tax Reform Fund (TAXR), which gives investors exposure to companies poised to see the greatest benefit from Trump's tax measures.
• It's the first exchange-traded fund in history to track a specific policy initiative.

As painstaking progress has been made on President Donald Trump's proposed tax plan, investors have scrambled to find ways to trade it.

After all, according to Goldman Sachs, progress on the tax-reform front is the most crucial element in driving future stock-market returns — or taking them away.

Those traders are in luck because a new exchange-traded fund was launched last week with the express purpose of tracking tax reform. Called the EventShares US Tax Reform Fund (ticker: TAXR), it provides exposure to companies poised to see the greatest benefit from the measures floated by Trump.

The actively managed, equal-weighted ETF is the first-ever fund to track a specific political policy. It invests in both equity and debt securities, and holds between 30 to 75 positions, according to a recent release. The top three positions as of Monday were WW Grainger, AK Steel and Caleres, and the fund held roughly $2 million in assets.

"Adding the active component allows us to manage the funds dynamically, in keeping with constantly changing fortunes of the political parties, and rapidly evolving global events," EventShares CIO Ben Phillips said in the release.

The ETF launch comes at a time when passive investment has never been hotter. The combined assets of US ETFs hit $3.1 trillion in August, increasing roughly $700 billion in a single year, according to Investment Company Institute data.

But just because this is the first policy-tracking ETF doesn't mean traders have been previously unable to wager on Trump's tax plan. For months, Wall Street has been recommending ways for anxious investors to profit from the possibility of tax reform.

Those suggestions normally involve buying stock in the most heavily taxed US companies — with the logic being that they'll benefit most from Trump's proposed tax cuts. The idea of buying stock in internationally exposed companies poised to get a boost from a one-time tax repatriation holiday has also been floated.

However, those methods are imprecise. What the EventShares ETF hopes to do is provide a more targeted approach, with no room for complicating factors.

Now all the Republicans have to do is pass the reform, which is a discussion for another day.

SEE ALSO: The stock market's robot revolution is here

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NOW WATCH: THE BOTTOM LINE: A market warning, the big bitcoin debate and a deep dive on tech heavyweights

The dollar is ticking higher on Monday.

The US dollar index was up by 0.3% at 93.99 at 8:51 a.m. ET.

The dollar "is enjoying modest gains against most currencies as prospects of both tax reform and additional monetary tightening by the Fed carry over from last week," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said in commentary

"The Dollar Index is flirting with important resistance in the 94.00-94.25 area, which corresponds with a neckline of a bottoming pattern that would project toward 97.00, where the 200-day moving average is presently found," he continued. "The 97.40 area matches the 50% retracement of this year's decline."

The index is down by nearly 9% from US President Donald Trump's inauguration.

As for the rest of the world, here was the scoreboard at 8:54 a.m. ET:

• The Japanese yen was down by 0.2% at 113.80 per dollar. Prime Minister Shinzo Abe's coalition won more than two-thirds of the 465 seats that were up for grabs in Sunday's parliamentary election.
• The Indian rupee was up by 0.2% at 65.015 per dollar. Still, the currency has been falling over the past few weeks and recently hit a six-month low against the US dollar. "Looking ahead, the currency could weaken a little more," Shilan Shah, India economist at Capital Economics, said in a note to clients. "But India’s reasonably strong external position means that any further depreciation in the rupee is likely to be slight and gradual."
• The Russian ruble was little changed at 57.4800 per dollar, while Brent crude oil, the international benchmark, was down by 0.3% at $57.56 per barrel.
• The euro was down by 0.4% at 1.1734 against the dollar.
• The British pound was little changed at 1.3175 against the dollar.

SEE ALSO: Warren Buffett's advice for CEOs touches on a key issue plaguing the US economy

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NOW WATCH: THE BOTTOM LINE: A market warning, the big bitcoin debate and a deep dive on tech heavyweights

Abra founder Bill Barhydt now envisions that bitcoin micropayments and smart contracts, combined with IoT, can underpin a new type of consumer credit.

Business Insider executive editor Sara Silverstein speaks with Richard Turnill, global chief investment strategist at BlackRock, which oversees $6 trillion. He says that while he thinks blockchain technology will be adopted more over time, but that doesn't mean that cryptocurrencies should keep going higher and higher. He says they show a lot of the characteristics of a bubble. Lastly, he argues that bitcoin has no fair value right now, which is why he doesn't own it.

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Dave Lutz, head of ETFs at JonesTrading, has an overview of today's markets.

• Earning season is ramping up this week, here are the 180 S&P 500 companies that are reporting.
• US markets are in the green Monday morning.
• Catalonia tensions persist, and the IBEX and Euro are trading in the red today.

Here's Lutz:

Good Morning, and welcome to the Busiest week of reporting for this Earnings Season - We have over 180 S&P 500 names gearing for prints this week – Right now US futures remain in rally mode, with Nasdaq, Russell and Spoos all 10bp+ higher.  It’s pretty much all green in Europe, where the DAX is up 50bp despite weakness in the Banks.  Catalonia Headers have IBEX firmly red, as Financials weigh on exchanges in Spain and Italy.  London is lagging as Sterling rallies, but rallies in miners and staples are mitigating losses.  Volumes are weak, most major exchanges trading 20-30% light.   In Asia, Nikkei now up 15 in a row, ripping 1.1% on the Landslide Abe victory - Shanghai up small - KOSPI up small, but KOSDAQ up 40bp - Hang Seng down 60bp with Fins under pressure as Asia-focused insurer AIA Group breaks lower - Aussie lost 20bp as Gold Miners struggled - Typhoon Lan weighed on airliners and rail names in the region

Fed Funds remain at 92% for a December Hike, and Traders continue to positions hawkishly, with the US10YY nearing 2.4% despite Bund Yields in the Red as the US 5Y shorts press it thru 2%.   The DXY is enjoying a broad-based rally towards 94, as the Spain Crisis weighing on Euro – The Yen breaking lower on Japan Election headers, while commodity currencies like the A$ continue to stumble.  Gold Is off 30bp and thru last week’s lows as the Greenback weighs, but Copper is in the green despite Ore off 2.2% in China.   The Oil complex continues to drift around $52, while Natty gas is holding last week’s gains despite a $3 reject in early trade.

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• Reports on Friday indicated that Republicans may include a cap on contributions to traditional 401(k) plans in their tax-reform package.
• This change could help GOP leaders with the tax plan's tricky budget math.
• President Donald Trump tweeted his opposition to such a change on Monday, saying 401(k) tax deferment is a "great and popular middle class tax break."

President Donald Trump used Twitter to dispel reports that the forthcoming Republican tax-reform plan would include big changes to how people could save for retirement.

Reports on Friday said that GOP leaders were considering a cap on the amount of money that could be placed in a traditional, tax-deferred 401(k) to help pay for part of their tax plan.

On Monday, Trump said this change would not take place because it is a popular middle-class tax break.

"There will be NO change to your 401(k)," Trump tweeted. "This has always been a great and popular middle class tax break that works, and it stays!"

According to reports, Republican House leaders were considering a plan that would cap the annual savings for a traditional 401(k) or Individual Retirement Account at $2,400 and anything saved after that must be placed in a Roth IRA. Roth accounts are taxed as money goes in rather than when it is spent, as opposed to a traditional 401(k).

As it stands now, traditional 401(k)s contributions are capped at $18,000 per year for people under 50 and $24,000 for people over that age.

While this change would have generated increased revenue to help offset tax cuts, there was concern from some in the asset-management industry that this could suppress retirement contributions.

There were also questions about the long-term effect on revenue from shifting the tax payments on retirement savings. A 401(k) cap may have decreased revenue in the long run, which would be problematic under the Senate's budget reconciliation rules. Reconciliation, which allows Republicans to avoid a filibuster in the Senate, also requires that any bill being considered must not add to the deficit after 10 years.

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• Former vice president Al Gore teamed up with a former head of Goldman Sachs Asset Management to create Generation Investment Management, which invests in sustainable companies in both public and private markets.
• Generation's ethos is rare on Wall Street. The founders say they can be long-term greedy – and make lots of money – while making the world a better place.
• The London-based firm had an office in New York which is moving to San Francisco, as the firm focuses on deploying its money in Asia and in the tech industry.
• Since launching in 2004, Generation's performance numbers have been strong, beating the competition.

NEW YORK – Generation Investment Management, the sustainably focused boutique co-founded by former US vice president Al Gore and Goldman Sachs Asset Management head David Blood, has launched a new office in San Francisco.

The $18 billion firm, which will keep its London headquarters but shutter its New York unit, expanded to the west coast to better access companies and entrepreneurs that fit Generation's purview, particularly in Asia, said Colin le Duc, cofounder and partner at Generation.

Generation invests the bulk of its assets in the stocks of sustainable companies, but also plows money – $30 to $50 million at a time – via its two private equity funds, which manage about $1.2 billion and are overseen by le Duc.

While Generation is a relatively small player in asset management – the firm employs only about 100 people, and its competitors manage well into the trillions – its investment picks have performed well. The company's public equity vehicle returned about 17.5% after fees since September 2014, according to the McKnight Foundation. That's a hefty gain compared to the MSCI World index, which returned 6.6% over the same period.

Le Duc declined to specify how the private equity funds have performed, but hinted at strong performance: "We wouldn't be managing $18 billion [firmwide] today if our clients didn't trust us."

Generation invests in companies it thinks will be successful in the long-term; the companies must provide products or services that have a low-carbon footprint and, in Generation's words, lead to a "prosperous, equitable, healthy and safe society." 

We believe that you can have your cake and eat it, in terms of doing great things for society in how you invest as well as making a lot of money.  

Generation's investments include bike share operator Motivate, which is behind New York's Citi Bike, electric bus start up Proterra, and Taiwanese electric scooter maker Gogoro. The firm also backed Toast, a digital platform for restaurants that Generation said would help reduce food waste and digitize paper processes.

The company has also invested in mainstream companies like Microsoft and Qualcomm, the leading chipmaker for mobile phones.

It's a different approach from most investors, particularly hedge funds, which are known for an obsession with earnings calls and short-term plays.

"It’s the difference between big game hunting and farming," le Duc said. "Do you spend your time just trying to find that one big win, knock out blow, where you hit the big game, or is it better to have much longer term returns and yield that brings that level of financial reward over a longer period of time?"

"We believe that you can have your cake and eat it, in terms of doing great things for society in how you invest as well as making a lot of money.  We see those things actually are a virtuous circle rather than in competition with each other."

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Here is what you need to know.

Shinzo Abe wins Japan's election by a landslide. Prime Minister Abe's coalition won more than two-thirds of the 465 seats that were up for grabs in Sunday's parliamentary election, CNN says.

Catalan leaders deny direct rule from Spain. It's the first time since Spain's return to democracy that the central government has used its powers to seize control of a regional administration.

China's home-price growth slows. Home prices in China rose 6.3% year-over-year in September, making for their slowest growth since April 2016, according to data released Monday by the National Bureau of Statistics.

The gloom surrounding the US dollar is starting to lift. "Leveraged funds were net buyers of USD for the third consecutive week," said Khoon Goh, the head of Asia research at ANZ Bank.

Bitcoin briefly tops $6,000. The cryptocurrency hit a record high of $6,063 a coin late Friday, according to Bloomberg data. It now trades down 1.74% at $5,869.

ICE is reportedly buying a stake in one of Europe's most important clearinghouses. The Intercontinental Exchange, the owner of the New York Stock Exchange, will buy a 4% stake in Euroclear, which clears trades on assets like stocks and bonds, for about £200 million, or $263.5 million, Sky News reports.

Merrill Lynch was fined by the UK for failing to report transactions. The Financial Conduct Authority fined the investment bank £34.5 million, or $45.4 million, for failing to report more than 68 million exchange-traded derivative transactions from 2014 to 2016.

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Stock markets around the world are higher. Japan's Nikkei (+1.11%) led the overnight gains, and France's CAC (+0.62%) is out front in Europe. The S&P 500 is set to open up 0.13% near 2,579.

Earnings reporting picks back up. Halliburton and T-Mobile report ahead of the opening bell.

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Here is what you need to know. 

Shinzo Abe wins Japan's election by a landslide. Prime minister Abe's coalition won more than two-thirds of the 465 seats that were up for grabs in Sunday's election, CNN says.   

Catalan leaders deny direct rule from Spain. It's the first time since Spain's return to democracy that the central government has used its powers to seize control of a regional administration.

China's home price growth slows. Home prices in China rose 6.3% year-over-year in September, making for the slowest growth since April 2016, according to data released on Monday by the National Bureau of Statistics.

The gloom surrounding the US dollar is starting to lift. "Leveraged funds were net buyers of USD for the third consecutive week," said Khoon Goh, Head of Asia Research at ANZ Bank.

Bitcoin briefly tops $6,000. The cryptocurrency hit a record high of $6,063 a coin late Friday, according to Bloomberg data. It currently trades down 1.74% at $5,869.

ICE is reportedly buying a stake in one of Europe's most important clearinghouses. The Intercontinential Exchange, owner of the New York Stock Exchange, will buy a 4% stake in Euroclear, which clears trades on assets like stocks and bonds, for about £200 million ($263.5 million), Sky News reports. 

Merrill Lynch was fined by the UK for failing to report transactions. The Financial Conduct Authority fined the investment bank £34.5 million ($45.4 million) for failing to report more than 68 million exchange traded derivative transactions between 2014 and 2016.

Warren Buffett's diet can teach you a lot about his investing strategy. Business Insider's Bob Bryan ate like Warren Buffett for a week and in the process learned three things about his investing strategy.   

Stock markets around the world are higher. Japan's Nikkei (+1.11%) led the overnight gains and France's CAC (+0.62%) is out front in Europe. The S&P 500 is set to open up 0.13% near 2,579.

Earnings reporting picks back up. Halliburton and T-Mobile report ahead of the opening bell. 

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• The Financial Conduct Authority fined Merrill Lynch £34.5 million ($45.5 million) for failing to report transactions.
• The bank failed to report over 68 million exchange traded derivative transactions between 2014 and 2016.
• The reporting requirement was a key reform following the 2008 financial crisis.

LONDON – The Financial Conduct Authority (FCA) fined American bank Merrill Lynch £34.5 million ($45.5 million) for failing to report transactions.

The FCA said the bank had failed to report 68.5 million exchange-traded derivative transactions between February 2014 and February 2016. This is the first time a firm has been fined for failing to report details of such trading.

"It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly," said Mark Steward, FCA executive director of enforcement and market oversight, in a statement.

"There needs to be a line in the sand. We will continue to take appropriate action against any firm that fails to meet requirements," he said.

After the financial crisis, authorities made it a requirement for firms to report exchange traded derivative transactions, as part of a key reform to improve transparency and minimise possible risks in financial systems.

Merrill Lynch agreed to settle at an early stage in the FCA's investigation, for which is received a 30% reduction in the overall fine. Without this discount, the fine would have been £49.3 million.

In 2015, the bank was fined £13.3 million by the FCA for incorrectly reporting over 35 million transactions and failing to report another 121,000, between 2007 and 2014.

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• Business chiefs from five top lobby groups warn on Brexit cliff-edge without a transition deal.
• Companies warn they are about to make investment and contingency plans for 2018.
• Next phase of negotiations now not expected until Xmas, two months after originally tabled.

LONDON — UK business chiefs urged Brexit Secretary David Davis to negotiate a transition deal soon to ease the exit from the European Union or risk damaging investment and trade, according to a report in the Guardian.

Five of the UK's biggest trade groups united to warn the government to sign a deal to maintain aspects of European Union membership during a period after March 2019 before firms make investment and budget decisions for 2018.

“We need agreement of transitional arrangements as soon as possible, as without urgent agreement many companies have serious decisions about investment and contingency plans to take at the start of 2018,” the business groups, including the Confederation of British Industry, wrote.

“Failure to agree a transition period of at least two years could have wide-reaching and damaging consequences for investment and trade, as firms review their investment plans and business strategies.”

The UK has not been able to start talks with the EU on its future trading relationship, with issues such as the Northern Ireland border, citizens' rights, and the divorce bill yet to be resolved.

European Council president Donald Tusk said last week that the EU would begin internal talks about trade but would not begin formal negotiations with Britain until later in the year.

A spokesperson for the Department for Exiting the EU told the Guardian: "We are making real and tangible progress in a number of vital areas in negotiations. However, many of the issues that remain are linked to the discussions we need to have on our future relationship."

"That is why we are pleased that the EU has now agreed to start internal preparatory discussions on the framework for transitional arrangements as well as our future partnership."

The lack of clarity over how the UK will manage its exit from the EU has worried finance firms and other businesses. Last week Goldman Sachs CEO Lloyd Blankfein spelled out the bank's post-Brexit plans for Europe in a Tweet.

"Just left Frankfurt," he tweeted. "Great meetings, great weather, really enjoyed it. Good, because I'll be spending a lot more time there. #Brexit."

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• Brexit-related uncertainty is weakening long-term investment among UK manufacturers, says a new report.
• "With global demand on the up, conditions should be ripe for industry to make new investments ... but Brexit means the future outlook for investment is not clear-cut," said the EEF's Lee Hopley.
  

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LONDON — Mounting political uncertainty surrounding Brexit is damaging confidence and weakening long-term investment among manufacturers, according to a report by manufacturing association EEF and Santander cited by Reuters.

Investment in plant and machinery has dropped to 6.5% of turnover over the last two years, down from 7.5% last year, said the report, citing an August survey of 328 companies.

EEF economist Lee Hopley said conditions should "ripe" for growing investment given he backdrop of surging global demand.

"With global demand on the up, conditions should be ripe for industry to make new investments in capacity and productivity enhancing technology. But Brexit means the future outlook for investment is not clear cut," EEF economist Lee Hopley said.

Just one-third of survey respondents said uncertainty surrounding Britain's troubled Brexit negotiations has had no impact on plans.

It came as five leading business groups wrote a letter to Brexit secretary David Davis calling on the government to secure "urgent agreement on transition arrangements ... as soon as possible."

The letter, obtained by Sky News, said: "Agreement [on a transition] is needed as soon as possible, as companies are preparing to make serious decisions at the start of 2018, which will have consequences for jobs and investment in the UK."

Negotiations between the UK and EU have moved slowly since they began earlier this year, meaning a potentially ruinous "no deal" scenario is increasingly likely.

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• Sky News reported that NYSE owner Intercontinental Exchange will buy a 4% stake in clearing house Euroclear.
• The stake is believed to be worth around £200 million.
• ICE's purchase will give it an important role in European securities trading post-Brexit.

LONDON — The owner of the New York Stock Exchange, Intercontinental Exchange (ICE), is set to purchase a significant stake in one of Europe's most important clearing houses, according to reports.

Sky News reported on Sunday evening that ICE will buy a 4% stake in Euroclear from RBS, worth roughly £200 million, with an announcement coming as early as this week.

It will represent another step in the exit from assets bought by the bank before it had to be bailed out by the government during the financial crisis.

ICE, RBS, and Euroclear have so far declined to comment on the reports.

Euroclear is a firm that flies somewhat under the radar, but plays a crucial role in European markets infrastructure, clearing trades on assets like stocks and bonds worth trillions of pounds every year.

Clearing houses like Euroclear act as a middle-man to guarantee the contract in the event that one of the parties involved in the trade goes bust. They have grown in importance since the financial crisis as a means of limiting systematic risk. 

Founded by JPMorgan in the 1960s, Euroclear currently has around 130 shareholders, including the likes of Euronext, one of the continent's largest stock exchange groups.

The location of euro-denominated trade clearing has been a hot topic since the euro first entered circulation in the late 1990s.

European policymakers have argued that euro clearing should take place within the euro area. Britain has repeatedly had to defend its right to clear euro trades, given that it does not have the euro. Years of disputes culminated in a legal battle in 2015, which the UK ultimately won.

However, Brexit has provided fresh impetus for those seeking to move clearing out of London. The ECB proposed a change to its statutes that would give it "a clear legal competence in the area of central clearing," back in June.

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• Dividend payments are predicted to reach a record £94 billion this year.
• Shareholders of UK listed companies have already experienced a record third quarter.
• The data has been collected by outsourcing group Capita.

LONDON – Shareholders of UK listed companies are due to receive a record £94 billion in dividend payments this year, according to a study.

Dividend payments rose to £28.5 billion in the three months to September, a record for the third quarter and a rise of 14% from last year. This was driven by bigger pay outs from mining companies, which accounted for two-thirds of the increase, according to outsourcing group Capita's Dividend Monitor, which reports figures before tax.

Payments are now on track to reach a record £94 billion this year, up from the previous record of £88.1 billion in 2014.

"Investors have struck gold as this year's haul easily smashes the previous record set in 2014," the BBC reported Justin Cooper, chief executive of Capita's Shareholder Solutions, said in a statement. "Generous payouts have been topped up by big exchange rate gains between January and June and very large special dividends, setting 2017 up to be a sparkling year," he said.

The second quarter of this year also saw record payments of £33.3 billion, up from £29.1 billion from last year. However, companies have come under fire for raising dividends when wage growth and productivity is sluggish. This year has also seen a backlash against what is seen by some as unfairly high levels of executive pay that entrenches inequality.

During this quarter, mining company BHP Billiton tripled its payout, while special dividends — usually one-off payments made to shareholders when companies have lots of cash — grew by 40% to £1.5 billion.

Capita collects data every quarter from more than 1,500 firms listed on the London stock exchange's main market.

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• Jordan Belfort inspired the film 'Wolf of Wall Street' after running stock selling boiler room.
• Belfort says initial coin offerings (ICOs) are 'far worse than anything I was ever doing.'
• Over $2 billion raised through the controversial fundraising method so far this year.

LONDON – The former banker who inspired the film the "Wolf of Wall Street" claims that the current craze for selling digital coins online is the "biggest scam ever."

Jordan Belfort told the Financial Times in an interview that "initial coin offerings" are "such a huge gigantic scam that’s going to blow up in so many people’s faces. It’s far worse than anything I was ever doing."

Belfort served 22 months in prison for securities fraud and money laundering after running a "pump and dump" stock selling boiler room that illegally sold penny stocks to investors. He turned his story into a book while in jail that was developed into the "Wolf of Wall Street" film, in which Leonardo DiCaprio plays Belfort.

"Initial coin offerings", or ICOs, are a new form of online fundraising, where startups issue digital coins or tokens in exchange for real money that can be used to fund their project. These tokens can then be used in some way within the startup's finished product. The hope is that the startup's become a success and the tokens increase in value as people use the service.

ICOs have become hugely popular this year, with over $2 billion raised using the method in 2017 so far. However, regulators in China and South Korea have banned them and the UK regulator has warned investors that ICOs are "very high risk."

Belfort told the Financial Times: "Probably 85% of people out there don’t have bad intentions, but the problem is, if 5 or 10% are trying to scam you, it’s a f**king disaster."

You can read the full FT piece here.

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Good Morning! Here's what you need to know on Monday.

1. Japanese Prime Minister Shinzo Abe will retain power with a “super majority” of seats after a huge victory in Sunday’s national election. Abe is expected to use his two-thirds majority to revise the country’s pacifist constitution, while continuing with his economic policies, coined "Abenomics," and increasing sales tax to pay off public debt and fund new social services, including childcare support.

2. After the victory, Abe said on Monday he would discuss North Korea "thoroughly" with U.S. President Donald Trump when he visits next month, and reaffirm the two countries' commitment to working together in dealing with the country. Abe was speaking at a news conference after his ruling coalition scored a landslide victory in the lower house election on Sunday.

3. Japan's Nikkei share average made 21-year highs on Monday and was on course to rise for a record fifteenth straight session, lifted by a weaker yen after Abe's coalition scored a resounding election victory on Sunday. The Nikkei was up 1.2% at 21,711 points by 6.40 a.m. BST.

4. Theresa May looked "despondent", with deep rings under her eyes, EU chief executive Jean-Claude Juncker told aides after dining with the British prime minister last week, a German newspaper said on Sunday. The Frankfurter Allegemeine Zeitung said May, who flew in for a hastily announced dinner in Brussels with the European Commission president last Monday ahead of an EU summit, seemed to Juncker "anxious, despondent and disheartened", "a woman who trusts hardly anyone but is also not ready for a clear-out to free herself".

5. The UK government has announced plans to crackdown on gazumping in the housing market — a process when a seller accepts a higher offer from a new buyer after already agreeing to a sale. Communities Secretary Sajid Javid has announced an eight-week review of the property buying process. Javid said: "We want to help everyone have a good quality home they can afford, and improving the process of buying and selling is part of delivering that."

6. InterContinental Exchange, the owner of the New York Stock Exchange, is "in advanced talks to buy a stake in Euroclear" — one of the key clearing houses in European financial markets. According to Sky News, ICE is close to a deal to buy a 4% stake in the business, currently owned by British bank RBS. The stake is believed to be worth around £200 million.

7. Catalonia's leaders said on Saturday they would not accept direct rule imposed on the region by the Spanish government, as a political crisis that has rattled the economy and raised fears of prolonged unrest showed no signs of easing. Spanish Prime Minister Mariano Rajoy announced earlier on Saturday he would invoke special constitutional powers to fire the regional government and force a new election to counter the region's move towards independence.

8. Oil prices rose on Monday over supply concerns in the Middle East and as the U.S. market showed further signs of tightening while demand in Asia keeps rising. "Oil prices are holding comfortably above $50 as possible supply disruptions in the Kurdish region of Iraq support prices," said William O'Loughlin, investment analyst at Rivkin Securities.

9. The number of trademarks registered by financial services companies hit a record-high of 4,228 in 2016, according to professional services firm RPC. Financial trademarks have risen by 35% over the last five years, figures from the Intellectual Property Office show. RPC, which compiled the data, puts the spike down to Britain's booming fintech — financial technology — startup sector.

10. Spanish foreign minister Alfonso Dastis has reassured British expats in Spain that they will be allowed to stay in the event of a 'no deal' Brexit. Dastis appeared on 'The Andrew Marr Show' Sunday morning and said that his government would 'make sure' that the lives of British people leaving in Spain would not be disrupted.

And finally ... Business Insider is looking for nominations for the hottest young talents in British finance right now. If you, or anyone you know, is making waves in the City of London (or anywhere else in the UK) and is under 31, we'd love to hear from you. Get in touch on social media, or email: [email protected].

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• Trademarks registered by finance firms rise by 35% in 5 years to 4,228.
• Growth fuelled by rise of fintech — financial technology — startups in Britain.

LONDON — The number of trademarks registered by financial services companies hit a record-high of 4,228 in 2016, according to professional services firm RPC.

Financial trademarks have risen by 35% over the last five years, figures from the Intellectual Property Office show. RPC, which compiled the data, puts the spike down to Britain's booming fintech — financial technology — startup sector.

Names trademarked last year include digital banking platform Zentity, automated cash payment service Numus Cash, and peer-to-peer lender Bondora, RPC says.

Paul Joseph, a partner at RPC, said in a statement: "Financial services businesses collectively are pouring hundreds of millions into promoting new products and services. That investment needs to be protected through registering trade marks."

Fintech startup Monzo was forced to change its name last year after its original name, Mondo, was subject to a trademark challenge.

Ben Mark, RPC's trademarks legal director, said in a statement: "Without registering trademarks it becomes a lot easier for rivals to launch similar products, confusing customers."

Fintech has emerged as one of the UK's fastest growing business sectors in the year's since the financial crisis. The Treasury said earlier this year that the sector is worth £7 billion to the UK economy and now employs 60,000 people.

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