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BUSINESS&FINANCE

STREETWISE|By James Mackintosh

Beware of Bets That a Trade Truce

Or Tweets Will Rescue Stocks

fall was triggered by his own

action in imposing those tar-

iffs in the first place.

There’s no doubting that

Mr. Trump’s tweets have the

power to move markets both

up and down.

It’s also obvious that Mr.

Trump regards a strong stock

market as a measure of suc-

cess, something he has re-

peatedly referred to when it’s

doing well.

That’s led many to think

that Mr. Trump will do

what’s necessary to keep the

market strong ahead of the

2020 election to win votes.

“Every investor I talk to,

virtually without exception,

gives me the identical argu-

ment that Trump cares about

the stock market and will get

a [trade] deal that will boost

the economy and him in the

elections,” said Tina Ford-

ham, chief global political an-

alyst at Citigroup.

She thinks investors are

overconfident about the

Trump put, though.

“It’s better for him from

an electoral perspective to

force concessions and be

seen to be tough, and to have

that happen much closer to

the elections in 2020,” Ms.

Fordham said.

Another risk to the power

of the put is that Mr. Trump

keeps trying to support the

market, but fails.

Andrew Milligan, Edin-

burgh-based head of global

strategy for Aberdeen Stan-

dard Investments, thinks the

market is one of a number of

“Make America Great key in-

dicators” for the president,

along with jobs and Fox

News’s reports of corporate

earnings.

But even if Mr. Trump’s

rhetoric offers support, the

other countries involved in

his trade fights might not

play along, and stocks still

Please turn to page B

Should in-
vestors rely
on Donald
Trump under-
pinning the
stock market
by backing away from trade
threats as stocks fall? In
short: not as much as they
seem to.
Many market watchers be-
lieve the pattern of the ad-
ministration announcing
progress on trade talks after
falls in the S&P 500 amounts
to a “Trump put,” similar to
a derivative that pays out
when prices drop to a certain
level.
The Trump put was on full
display last week, when Mr.
Trump delayed some tariffs
due to be imposed on China
next month, pushing up the
S&P by 1.5%.
The move followed a tum-
ble in stock prices that had
briefly taken the S&P down
more than 6%—although the

A bearish bet on the VIX is

akin to a bullish one on stocks,

since the volatility gauge and

S&P 500 tend to move in op-

posite directions. Investors

can tap futures to make direc-

tional bets or hedge other

parts of their portfolios.

The positioning indicates

traders “aren’t concerned

about volatility spikes that are

sustained,” said Joanne Hill,

chief adviser for research and

strategy at Cboe Vest Finan-

cial, in an email.

Investors have boosted

bearish positions against the

VIX this August. The optimism

in derivatives markets comes

as other market signals, like

an inverted yield curve last

week, have spooked investors.

Inverted yield curves are

sometimes read as a sign of a

potential recession. The devel-

opment caused anxiety among

investors last week and helped

send the Dow Jones Industrial

Average down 800 points in a

single day.

Taking the bond market cue

Please turn to page B

Stock volatility has receded

in recent days, and some in-

vestors have bet the tranquil-

ity will persist.

Derivatives traders have in-

creased positions that pay out

if market swings dwindle and

stocks continue to climb.

Major indexes rebounded in

recent days, rising for three

consecutive sessions before

sinking Tuesday.

That has sent a measure of

market turbulence, the Cboe

Volatility Index, lower from its

high last week. Though it rose

Tuesday, it has fallen 21%

since last Wednesday to settle

at 17.50.

Leveraged funds like hedge

funds recently increased bear-

ish wagers on futures linked to

the VIX to the highest level

since September, Commodity

Futures Trading Commission

data as of Aug. 13 show.

There are almost five bear-

ish contracts outstanding for

every bullish one held by lev-

eraged funds, the data show.

BYGUNJANBANERJI

Traders Short Volatility,

Go Long on Tranquility

INSIDE

BUSINESS

Alibaba mines

for Oscar gold

at the Chinese

box office B

PROPERTY REPORT

WeWork has a

profitable, public rival

that has a much

smaller market value B

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from its Roundup herbicide.

The deal to sell the unit to

Elanco Animal Health Inc.

would create a formidable

competitor in the business of

preventing and treating dis-

eases for pets and livestock.

The combined company’s 13%

share of the animal-health

market would rank it behind

only Zoetis Inc. and ahead of

Boehringer Ingelheim , accord-

ing to Germany’s Baader Bank.

Elanco, based in Greenfield,

Ind., was a division of Eli Lilly

& Co. until the drugmaker sold

a minority stake in the animal-

health unit last September in

an initial public offering.

Elanco said the Bayer deal, its

largest since going public, will

double its pet business and

strengthen its presence in

emerging markets and in the

cattle business.

Several private-equity firms

had expressed an interest in

the Bayer unit, people familiar

with the matter said.

Bayer said it would get $5.

billion in cash and a stake in

Elanco valued at $2.3 billion,

which it plans to exit from

over time.

Bayer’s share price has

slumped in the past year as

jury verdicts have gone against

the company in early trials

over claims that Roundup

causes cancer.

More than 18,000 plaintiffs

have filed similar suits over

the weedkillers, which Bayer

acquired in its deal for U.S. ag-

riculture company Monsanto.

Bayer said in December it

was exploring options to exit

from its animal-health busi-

ness, the smallest of its four

divisions.

The move is part of a plan

to shed operations that are di-

verting resources from its core

pharmaceutical and agriculture

businesses, with cost savings

also helping to bring down its

debt. The Leverkusen, Ger-

many, company has a debt

load of €35.7 billion ($39.

billion), increased by its acqui-

sition of Monsanto.

Bayer is battling to regain

investor confidence after a ma-

jority of shareholders signaled

in April a lack of confidence in

the company’s leadership.

Shareholders have accused

Bayer Chief Executive Werner

Baumann of underestimating

the legal and reputational risks

of the Monsanto deal.

Bayer has said it acted con-

scientiously in its due dili-

gence for the acquisition.

Its share price has dropped

roughly a third since the deal

Please turn to page B

BERLIN— Bayer AG is sell-
ing its animal-health business
to an American rival for $7.
billion, part of the German
drug-and-chemicals manufac-
turer’s plan to shed assets
amid mounting legal liabilities

BYRUTHBENDER

Bayer Sells Pet-Health Unit for $7.6 Billion

Divestiture to rival

Elanco comes as legal

liabilities from

Roundup cases mount

 Heard on Street: Elanco’s new

tricks don’t impress............. B

1. 
   

00

0. 
   

1. 
   

%

2015 ’16 ’17 ’

Cerealpriceperunit,

change from a year earlier

Note: Years end in early January for the

2014-16 periods for price and sales data.

Sources: IRI (prices, sales); NPD Group

(consumption); iStock (image)

1990 2000 ’

0.

–2.

–1.

–1.

–0.

%

2015 ’16 ’

Retailsales,
change from a year earlier

1990

92 times

2018

78 times

Consumption

How many times the

average U.S. consumer

had cereal in each year

Hess Corp. has emerged as

the best-performing U.S. oil

company this year. The rea-

sons have little to do with the

American fracking boom.

Instead, Hess’s popularity

with investors is rooted in a

small South American nation.

The New York-based company

holds a 30% stake in an im-

mense offshore oil field being

developed by Exxon Mobil

Corp. in Guyana that appears

poised to become one of the

most lucrative megaprojects in

years. The company’s shares

have surged more than 50% in

2019, the biggest increase of

any major U.S. oil operator, ex-

cluding companies acquired in

deals.

It is a peculiar scenario for

Hess, one of the largest shale

producers in North Dakota:

Shareholders are excited about

a prized asset it has an interest

in, but doesn’t control. Hess

acquired its stake in Guyana

from Royal Dutch Shell PLC in

2014 for an undisclosed price.

Other companies have seen

their value surge due to hold-

ings in coveted entities, in-

cluding Yahoo Inc. which had a

stake in e-commerce giant Ali-

baba Group Holding Ltd. that

for a time accounted for a

large portion of its value.

Market enthusiasm for Hess

shows how investor attitudes

to oil-and-gas companies have

evolved. A few years ago, com-

panies of Hess’s size faced

pressure to sell off assets and

focus almost entirely on U.S.

drilling opportunities, which

were characterized as akin to

predictable manufacturing

businesses with reliable profit

margins.

Although shale operators

have helped push U.S. oil out-

put to a record of more than

Please turn to page B

BYBRADLEYOLSON

Stake in

A Guyana

Oil Field

Lifts Hess

Facing a Crunch,

Cereal Companies

Press for Revival

Cereal makers, under in-
creasing competitive pressure,
are struggling to improve
sales of puffed rice, wheat
flakes and oat clusters that
were once a standard part of
Americans’ morning routines.
Fast-food chains are beck-
oning customers with new
breakfast products and bacon-
laden promotions. More peo-
ple say they are eating less
sugar and more protein, or
forgoing breakfast altogether.
Snack bars for on-the-go con-
sumers are ubiquitous.
“There’s a lot more compe-
tition for breakfast than there
ever has been,” General Mills
Inc. Chief Executive Jeff Har-
mening said in an interview.
The maker of Cheerios and

BYMICAHMAIDENBERG
ANDJAEWONKANG

Wheaties has reported flat ce-

real sales in the U.S. in its past

three fiscal years, coming in at

roughly $2.3 billion annually.

General Mills and its peers

have tried before to revive ce-

real’s fortunes. They doubled

down on sugary versions and

pitched cereal for dinner or as

a late-night snack. Now manu-

facturers say they are stepping

up spending by retooling mar-

keting campaigns, ramping up

product investments and de-

veloping new flavors to try to

keep shoppers engaged.

Cereal’s trials reflect

broader challenges food mak-

ers face as they try to revital-

ize products that have been

staples in American kitchens

for decades to match changing

tastes and heightened compe-

tition. Condensed-soup sales

Please turn to page B