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JCPenney to sell 84 million shares of stock

JCPenney said it will sell 84 million shares of stock in a secondary offering.

Shares fell 5 percent following the news. (What’s the stock doing now? Click here for the latest after-hours quote.)

The retailer said it would use the proceeds for general corporate purposes.

Penney shares fell 15 percent on Wednesday after Goldman Sachs said it expects the retailer’s sales to improve more slowly than expected. The stock rebounded slightly Thursday.

The cost for insurance against a J.C. Penney default has shot back to near record-high levels over the last week.

The company, which has a “CCC ” credit rating from Standard & Poor’s, reflecting a substantial risk in owning its debt, has about $2.6 billion of outstanding bonds.  The company’s benchmark 5-year credit default swap contract price surged by more than 13 percent on Wednesday, according to Markit data.  Read More

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3 Signs the Market Is Near a Top

We may be closer to a major market top than most investors think.

That at least is the conclusion that emerged when I compared the current market environment to what prevailed at major market tops of the past century.

To be sure, there are some dissimilarities as well. But that doesn’t necessarily mean we’re not peaking. No two tops are exactly alike. As Mark Twain famously said, even if history does not repeat itself, it does rhyme.

With that thought in mind, I examined all 35 bull market tops since the 1920s. I searched for patterns in the performance of not only the market itself, but of various internal market factors, such as earnings and price/earnings ratios. I was also interested in how small company stocks tend to perform in the months leading up to a top, both in their own right and relative to large-cap stocks. Likewise, I searched for patterns in the relative returns of growth and value stocks.

I relied on several extensive databases: Yale University Prof. Robert Shiller’s database of Standard & Poor’s 500 earnings and P/E ratios, as well as a database showing the relative performances of small- and large-cap stocks, as well as of the growth and value styles, maintained by Eugene Fama of the University of Chicago and Ken French of Dartmouth. To determine when bull and bear markets have begun and ended, I relied on the precise definitions employed by Ned Davis Research, the quantitative research firm.

Here’s what I found.

Market rises steeply before bull dies

The typical bull market comes to an end following a period of extraordinary performance. In other words, some of a bull market’s best returns are produced right before it dies.

This is important to know if you thought that this bull market would, before it breathes its last, begin to slow down and go through a period of modest performance. That’s not typically the case: On a price chart, the average market top looks more like a pointed mountain peak than a plateau.

While it is of course possible that the next market top is more like a plateau, it would be the exception rather than rule: Since the 1920s, the average bull market has gained more than 21% over the 12 months prior to a top — more than double the long-term average.

Interestingly, the stock market recently has produced a return that is quite similar to this average 12-month gain prior to market tops: The S&P 500 over this period is up nearly 23%.  Read More

Dell Said to Consider Delaying Shareholders’ Vote on Buyout

Dell Inc.’s (DELL) special committee of the board is considering delaying the July 18 shareholder vote on the buyout by founder Michael Dell, seeking a higher bid or time to win support for the $24.4 billion deal, said a person with direct knowledge of the situation.

The committee is exploring a postponement of about a week, said the person, who asked not to be named because the decision-making process isn’t public. The group is likely to make a decision by the morning of July 18 if the votes already cast against the buyout are enough to scuttle it, the person said.

Dell Said to Consider Delaying Shareholders’ Vote on Buyout

Adjourning the vote would allow buyers Dell and Silver Lake Management LLC time to boost the bid or declare the current offer of $13.65 a share as best and final, said the person. It would also give shareholders, who can recast their votes up until the last minute, a chance to change their minds, according to the person.

The move may help Dell win over shareholders in its fight with billionaire investor Carl Icahn, who has pushed for months for the founder to raise his bid. BlackRock Inc. (BLK), which has a 4.4 percent stake in the third-largest personal-computer maker, voted against the buyout, according to the person. T. Rowe Price Group Inc., which holds 4.1 percent, reiterated its opposition yesterday, saying the buyout doesn’t “reflect the value of Dell.”  Read More

 

Gold, Silver ETFs Routed After Fed

SPDR Gold Shares (NYSEArca: GLD) was down 4% and iShares Silver Trust (NYSEArca: SLV) plunged over 6% Thursday morning Federal Reserve Chairman Ben Bernanke said the central bank may pull back on economic stimulus this year if the economy and job market continue to improve.

Gold prices fell below $1,300 an ounce for the first time in nearly three years.

“The combination of Fed tapering, a spike in nominal yields and a stronger dollar has put gold under some considerable pressure,” said Ole Hansen, the head of commodity strategy at Saxo Bank, in a Bloombergreport.

GLD, the largest bullion-backed ETF, was down nearly 20% year to date, as of Wednesday’s close. The gold ETF traded twice its normal daily volume on Wednesday, “something you don’t see very often in a name like that,” said Chris Hempstead at WallachBeth Capital.

The gold fund currently holds 99.9.6 metric tons of gold, or $44.1 billion of assets. It started the year with about 1,351 metric tons of gold and $72.2 billion of assets. [Gold ETFs Fall to Key Support Level Before Fed]

GLD’s holdings fell below 1,000 tons on Wednesday for the first time in four years, according to Reuters.

On Wednesday, a huge trade in the $8.2 billion iShares Gold Trust (NYSEArca: IAU) caught the attention of ETF traders late in the session, according to Dow Jones Newswires. “One block of 1.4 million shares hit the tape at 3:50 p.m,” it said. Read More

Markets Eager for Something – Anything – New from Fed

Federal Reserve, FOMC, Ben Bernanke, Fed chief, monetary policy, beige books

So much anticipation for a Federal Reserve Board statement not likely to be markedly different from any so far released in 2013.

The Federal Open Markets Committee, which sets most Fed monetary policy, is meeting Tuesday and Wednesday and will release a statement on their most recent forecasts and potential policy shifts early tomorrow afternoon, followed by a press conference with Fed Chairman Ben Bernanke. (Most analysts agree the real news will likely come during Bernanke’s Q&A with reporters.)

This is pretty much the FOMC’s monthly routine.

As has also been their monthly routine for the past six months or so, Bernanke and his colleagues will undoubtedly acknowledge some recent economic stumbling blocks – namely a leveling off of manufacturing activity in the first half of 2013 and the stubbornly high 7.5% unemployment rate.

In the same statement, however, the FOMC is widely expected to reaffirm its commitment to tapering its easy money stimulus programs, possibly as soon as September, depending on the broad trajectory of economic data between now and then.

Three rounds of bond buying programs, or quantitative easing, since the recent financial crisis have expanded the Fed’s balance sheet to more than $3.1 trillion in assets from less than $1 trillion in mid-2008, a concern to those who wonder what the impact will be when the Fed begins to unwind those assets.

The only difference between tomorrow’s message and those of the past six months is that we’re now getting closer to an actual announcement by the Fed that it will start gradually scaling back its $85 billion a month in bond purchases. That proximity seems to heighten investor anxiety.

Read More

 

S.& P. E-Mails on Mortgage Crisis Show Alarm and Gallows Humor

Attorney General Eric H. Holder Jr. announced the civil fraud charges against S.&P. in Washington on Tuesday.
Chip Somodevilla/Getty ImagesAttorney General Eric H. Holder Jr. announced the civil fraud charges against S.&P. in Washington on Tuesday.

The executive at Standard & Poor’s was clear: “This market is a wildly spinning top which is going to end badly.”

That sober assessment of certain mortgage-related investments, delivered to colleagues in a confidential memo in December 2006, is now part of a trove of internal e-mails and documents that have come to light in a federal suit against S.& P., the nation’s largest credit ratings agency.

The correspondence, made public in court documents late Monday, provide a glimpse at the inner workings of an institution that the Justice Department says fraudulently inflated credit ratings, with dire consequences for the entire economy. In a series of e-mails, tensions appeared to be escalating inside the firm’s headquarters in Lower Manhattan as it publicly professed that its ratings were valid, even as the home loans bundled into mortgage-backed securities, or M.B.S., were failing at accelerating rates.

One comes from an S.& P. analyst in March 2007 borrowing from the Talking Heads song “Burning Down the House,” creating new lyrics: “Subprime is boi-ling o-ver. Bringing down the house.” S.& P. said prosecutors cherry-picked e-mails and that it would vigorously defend itself from “these unwarranted claims.”

In another 2007 e-mail, an analyst responds to a question about his new job: “Job’s going great. Aside from the fact that the M.B.S. world is crashing, investors and the media hate us and we’re all running around to save face … no complaints.”

Together, the documents show a portrait of some executives pushing to water down the firm’s rating models in the hope of preserving market share and profits, while others expressed deep concerns about the poor performance of the securities and what they saw as a lowering of standards.  Read More

How Much Will Your Taxes Jump?

In the nick of time, and amid much political drama, Congress passed the American Taxpayer Relief Act on New Year’s Day—averting massive tax increases for nearly all earners that were slated to take effect Jan. 1.

Even so, millions of people soon will feel something less than relief from the new law.

Tim Foley

The bill approved in Congress to avert the fiscal cliff would bring the first major tax increase on high earners in 20 years. Laura Saunders breaks down how new tax increases will impact across different tax brackets. Photo: AP.While the top 1% of taxpayers will bear the biggest burden, many other families, affluent and poor, will pay more as well.The most immediate change affects nearly all workers: Congress allowed a two-percentage-point cut for the employee portion of the Social Security tax to expire. As a result, each will owe up to $2,425 more in payroll tax this year than in 2012.Beyond that, the new law’s effects will be highly individualized—and in some cases highly painful.”Many affluent people in exactly the same financial position as last year will see a substantial tax increase,” says David Kautter, a director of the Kogod Tax Center at American University.

Back-Door Tax Increases
At first glance the law appears simple. In terms of income tax, for example, only the highest tax rate in 2012—the 35% bracket—will increase in 2013, to 39.6%. And that applies only to individuals with at least $400,000 of taxable income or couples with at least $450,000.  Read More

The Fed and Interest Rates

In response to today’s column, I’m getting a lot of the usual: namely, the claim that low interest rates don’t prove anything, because the Fed has been buying up all the federal government’s debt issue. This is always said with an air of great wisdom; in fact, it’s remarkably foolish, managing to be wrong in three distinct ways.

First of all, it isn’t true that the Fed has consistently been buying a lot of Federal debt issue. Sometimes it has, sometimes it hasn’t; when QE2 stopped, there were widespread predictions that interest rates would spike, but they didn’t — as those of us who have been getting it right predicted.

Second, the idea is conceptually wrong. Asset prices should be determined mainly by the stocks of assets, not the changes in these stocks over short periods. If bond investors lose confidence in federal debt, there’s a huge outstanding stock of that debt for them to try to sell, driving rates up, no matter how much of the new issue the Fed might be buying.

But maybe the killer is this: since when do the kinds of people who worry all the time about deficits believe that the Fed can monetize a substantial part of a large deficit, for four whole years, without any negative consequences? If you believed in the framework these people have, all that expansion of the monetary base should have produced runaway inflation by now, as many of them did in fact predict early in the game. It hasn’t — and no, don’t give me the bit about the government hiding the true rate of inflation. Independent estimates are not significantly different from the official gauges.

Now, back in late 2008, contemplating the situation we were in, those of us who saw it in terms of basic IS-LM macro made a twofold prediction: as long as the economy stayed depressed, interest rates and inflation would both stay subdued despite both large deficits and a huge expansion of the Fed’s balance sheet. There was much scorn for that prediction at the time; how do you think it has looked since?  Read More

Dollar edges higher as U.S. fiscal talks eyed; yen drops

U.S. dollar bills are displayed in Toronto in this posed photo, March 26, 2008. REUTERS-Mark Blinch
A one Euro coin is displayed in water in Munich August 20, 2012. REUTERS-Michaela Rehle

1 of 2. U.S. dollar bills are displayed in Toronto in this posed photo, March 26, 2008.

By Wanfeng Zhou

Volatility could increase as the year-end deadline on the U.S. “fiscal cliff” approaches with little progress on reaching a deal to avoid $600 billion in tax hikes and spending cuts that could tip the U.S. economy back into recession.

A deal in the coming days could spark a rally in currencies like the euro, the Australian and Canadian dollars as investor appetite for risk increases, while no deal may spur demand for the safe-haven U.S. dollar and Japanese yen, analysts said.

“The end of the week therefore sets up as possible volatility event for the market with some analysts expecting a 1 percent rally for risk FX if a deal looks to be done, but a possible severe selloff of 2 percent or more if it fails to materialize,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

“The risks are skewed to the downside as market remains complacent about a compromise, but for now traders are betting that a deal gets done.”

Many investors opted to stay on the sidelines in thin pre-holiday trading on Monday, awaiting headlines from Washington.

The Democratic president and Republican House of Representatives Speaker John Boehner, the two key negotiators, are not talking and are out of town for the Christmas holidays. Congress is in recess, and will have only a few days next week to act before January 1. Some lawmakers voiced concern that the country would go over the “cliff”.  Read More

Oil pipeline operators’ 2011 profits soar to record

By Christopher E. Smith

Oil pipeline operators’ net income soared to an all-time high of $6.1 billion, a 33.3% increase from 2010 achieved on the back of a nearly 12% increase in operating revenues. The resulting earnings as a percent of revenue of 48.6% were also a record. The strong bottom line coincided with a more than 47% drop in changes to carrier property, as companies pulled back from major additions.

Natural gas pipeline operators meanwhile saw their profits slip more than 6% from 2010’s high to less than $4.9 billion. The dip in net income came despite a 3.8% increase in revenues, which reached more than $20.5 billion, their highest level since 2007 (Fig. 1).

Natural Gas pipeline performance trends

Natural gas pipeline companies’ weaker bottom lines, in contrast to oil carriers, came at least in part as a result of surging capital expenditures, with additions to plant totaling more than $14.4 billion (a 178% increase from 2010). Roughly $6.35 billion of this total, however, comprised just two projects; expansion at Florida Gas Transmission and building the Ruby Pipeline. Expenditures on operations and maintenance rose 5.3% to slightly more than $7 billion. Proposed newbuild mileage, however, was just 50.3% of 2010’s announced build, while planned horsepower additions of 184,405 were 79% of 2010’s total.

The easing in anticipated demand saw overall estimated $/mile pipeline costs slip nearly 30% to $3.1 million. Pipeline labor remained the single most expensive per-mile item, despite easing in absolute terms by the same 30% to roughly $1.38 million/mile.

The balance between estimated and actual costs narrowed for both pipeline and compressor projects completed in the 12 months ending June 30, 2012. Actual land pipeline costs varied from projected costs by only $50,000/mile, with lower than expected material and miscellaneous costs cancelling out labor costs that remained higher than expected. Actual compressor station costs were 7.2% less than estimated costs for projects completed by June 30, 2011. The only cost area that was higher than anticipated was land.  Read More

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