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After big miss, will activists circle Amazon?
Virtually any underperforming company can come under attack from an activist investor. Hedge funds ponder whether Amazon will be the next big target.
Housing bright spots
As new U.S. home sales rise to new highs, home prices are sharply declining. CNBC's Diana Olick discusses how this is impacting the overall housing market.
Are stocks prettier than junk? Bull market hinges on the...
There is no magic formula for predicting the stock market, no lodestar signal that can tell you when it’s better to be in or out. But there are important relationships among interest rates, risk appetites and market performance that stay pretty stable for stretches of time and give a sense of how to divine stocks’ prospects. The chart here plotting the yield on the main junk-bond index against the free cash flow yield on the stocks in the Standard & Poor’s 500 is one I might choose if allowed only a single cheat sheet for handicapping the market. When stocks have a higher free cash flow yield than the junk-bond index, equities tend to enjoy a tailwind, and vice versa. As the charts here show illustrates, most of the upside achieved by stocks occurred while junk yields were lower than corporate free cash flow yields. Not too many folks directly invest by such a rule. But high-yield bonds and equities are adjacent to one another on the spectrum of assets than run from safe to risky. So when one outruns another in a particular direction for a fair distance, money in aggregate seems to shift to bring them back into line. Junk-bond yields fall when benchmark Treasury yields drop and as investors become more confident and demand less of a yield premium to hold relatively riskier corporate paper. A company’s free cash flow is a measure of unencumbered profit, the amount of operating cash flow left over after capital expenses are covered. Essentially a company’s discretionary earnings, it’s the incoming cash that management can use to pay out dividends, buy back stock, repay debt or make acquisitions. For the past few years, the so-called junk-bond market has been where all the strong forces animating post-crisis finance are centered. Central banks are keeping rates on low-risk debt near zero as they flush new money into the system. This has reduced borrowing costs, allowed riskier companies to refinance more expensive debt and sent trillions of dollars hunting for reasonable yield income. The strength of the junk market is typically measured by tracking the “spread” between junk yields and Treasuries. Yet the absolute yield level of junk debt also has implications for how the market values stocks relative to corporate cash flows. As the chart shows, junk yields were crashing from generational highs in 2009 as the crisis subsided, the system was flushed with cheap money, as free cash flows recovered with the economy. This supported the initial phase of the rebound in stocks into 2011. Then, the European sovereign crisis and U.S. debt ceiling drama upset corporate credit markets, pressuring stocks until junk yields settled back down late that year. What’s most interesting and relevant to me is how this relationship played out beginning two years ago. Note that around November 2012, after stocks pulled back by 7% from their high following the presidential election, the free cash yield nosed above junk yields – which were being pressured lower by a stabilizing economy and, arguably, the Federal Reserve’s launch of its QE3 bond-buying program. Stocks’ free cash yield stayed above junk yields most last year even as the S&P 500 soared close to 30%. I’ve called the market’s run from the November lows the “liftoff phase” of the bull market , with risk appetites reviving, corporate profits rising and shareholder-friendly financial-engineering back in favor. [In that July article, it was noted that the 2014 level of the S&P 500 would be a decent spot to ask if this dynamic was changing; the all-time high on Sept. 19 was within a few poihts of that threshold.] The yield relationship stayed in this happy setup into late summer of this year, as junk yields plumbed record lows. As the high-yield market hit turbulence beginning in August, junk-debt yields turned higher and have spent more time above cash-flow yields than not. This helps explain the nasty gut check the stock market has undergone, compromising one handy advantage equities have enjoyed for the majority of the strongest periods of this bull market. This could, if the relationship holds, be a remaining headwind for stocks. A case can be made that junk yields have already seen their lows, given that the credit cycle is maturing and corporate defaults have probably passed their trough. Not to mention the expectation that benchmark Treasury yields don’t appear to have terribly much downside potential. Again, there’s no magic here. In the years leading up to the 2007 market top, stocks got far more expensive relative to corporate debt than they are now, and they certainly could again. But for now, unless and until a growth acceleration begins making equity investors more bold, the trajectory of stocks could depend quite a bit on how much of a cushion fixed-income folks begin demanding to take on credit risk. At some point, it won’t be surprising if bullish stock investors repeat the frustrated phrase President Bill Clinton spat out when he was told the debt market would revolt against his spending plans: “You mean to tell me [my success]…hinges on the Federal Reserve and a bunch of fu—-ng bond traders?”
Market shook off overstated Ebola fears: Pro
Digging into the market rally, with John Spallanzani, GFI Group.
In market storm, a rush to trade volatility itself
Trading volumes in futures, options and funds tied to the VIX surged to new records in recent days as stocks suffered their worst slide in close to three years. While useful for hedgers and speculators, these tools can also burn those unfamiliar with how they work. Get ready for 10-year Treasury VIX trading.
Is the U.S. holding too much oil in reserve?
Does America have too much oil in its reserves? Senator Ron Wyden of Oregon fired off a letter this week asking the Department of Energy to study the "size and make-up" of the U.S.' Strategic ...
Why Costco pays its retail employees $20 an hour
Last week, we wrote about The Container Store...
New home sales: better luck next year
New data out this morning showed new home sales rose to 467,000 on a seasonally-adjusted basis in September. The 0.2% growth may seem like a small number, but it’s the fastest pace of increase since July 2008. We talked to McGladrey's chief economist Joe Brusuelas about why he's not impressed with the number.
Bank of Ireland staff set for first pay rise since crisis
Staff at Bank of Ireland, the country's largest bank by assets, are set to receive their first pay increase in six years after the part state-owned lender reached an agreement with its largest trade union on Friday. Bank of Ireland said the new proposals would increase salaries by 1.75 percent this year, back-dated to July, and by 2 percent from January. The bank, Ireland's only lender to escape nationalisation, reported a profit for the first time in five years in August. The Irish Bank Officials Association (IBOA), the country's largest banking union, will ballot its members next week and recommend the proposals be accepted.
Less than meets the eye to Microsoft's great quarter
Investors cheered Microsoft's analyst-beating third-quarter results, but underlying, sustainable growth still looks far off.
Will free data become the next free shipping?
The telecom industry is counting on rising data use to keep its sales growing, but consumers are keeping a close eye on their usage for fear of triggering even higher bills.
Ebola's in New York; is the economy at risk?
With a new case of Ebola confirmed in New York, we asked the Chief Economist at McGladrey if the spread could impact the U.S. economy. He said no - but watch for temporary shakeups in equities and fixed income.
Britain's booming economy cools slightly
The latest U.K. figures show that growth in the services sector slowed the most in the third quarter.
New college hires don't last more than a year: Survey
Businesses don't have much faith that recent college hires will stick around for very long, a new survey says.
Amazon crushed on earnings -- Why everyone's wrong
Have investors finally had enough of Amazon losing money? If the reaction to yesterday's earnings are any indication the answer is yes!
U.S. new home sales at six-year high; recovery still fragile
The Commerce Department said on Friday that sales increased 0.2 percent to a seasonally adjusted annual rate of 467,000 units, the highest reading since July 2008. "We expect the housing market recovery to remain relatively gradual over the coming months," said Gennadiy Goldberg, an economist at TD Securities in New York. New home sales, which account for about 8 percent of the housing market, tend to be volatile month to month and large revisions are not unusual.
Investors pile into bonds ahead of the next volatility spike
Market volatility likely to make a return in 2014.
Ford's lower profit beats estimates; sales down on F-150...
Ford Motor Co on Friday reported a 34 percent drop in third-quarter profit, and revenue fell due to the cost of introducing the F-150 pickup truck. Ford, which affirmed its full-year profit outlook, said earnings suffered from lower wholesale vehicle volumes and recall costs, as well as supplier parts shortages. While a strong performance in North America helped push earnings above Wall Street estimates, analysts and investors were not impressed.
Wall St. boosted by earnings, S&P posts best week in...
The S&P 500 (.SPX) was up 5.5 percent from its low on Oct. 15 and had its best weekly gain in nearly two years, boosted by solid corporate earnings reports. News of the first case of Ebola diagnosed in New York City hit futures late on Thursday, but the markets shook off those concerns on Friday. A doctor being treated for Ebola in a New York City hospital is in stable condition, the city's health commissioner said, while the World Health Organization set out plans for speeding up development and deployment of experimental Ebola vaccines. Shares of Microsoft (MSFT.O) rose 2.5 percent to $46.13, after the company reported higher-than-expected quarterly revenue while keeping profit margins largely intact.
Exclusive: Ford to overhaul Lincoln brand, this time with...
Ford Motor Co's (F.N) new chief executive, Mark Fields, is giving the automaker's long-moribund Lincoln brand what his predecessor Alan Mulally never could: a little love and a lot of cash. Lincoln, a storied Detroit brand which Ford has owned since 1922, has been in a swoon for the past two decades, leaving dealers and customers wondering if Ford management had left the brand for dead. Now, with the renewed backing of Executive Chairman Bill Ford and the company's board, Fields has committed the automaker to a multiyear, multibillion-dollar overhaul of Lincoln that includes a significant investment in a new premium vehicle platform that will underpin several future Lincoln vehicles, four sources told Reuters. Ford could spend $5 billion or more over the next five years to revive Lincoln, revamp its product portfolio and reposition it as a true competitor to such global luxury leaders as Daimler AG's (DAIGn.DE) Mercedes-Benz and BMW AG (BMWG.DE), the sources said.
Fannie Mae settles shareholder lawsuit for $170 million
Fannie Mae has reached a $170 million settlement of a lawsuit accusing it of misleading shareholders about its finances, risk management and mortgage exposure before it was seized by the U.S. government ...
U.S. appeals court rules for GM over Spyker's Saab sale
Circuit Court of Appeals in Cincinnati on Friday said Spyker failed to show GM intentionally interfered with the Dutch company's effort to sell Saab to Zhejiang Youngman Lotus Automobile Co, leading to Saab's bankruptcy. GM had sold a majority of Saab to Spyker in 2010.
U.S. House panel to meet with safety regulators about...
House committee looking into the defective air bags made by Japanese supplier Takata Corp (7312.T) will hold an initial briefing with U.S. The date of the House Energy and Commerce Committee's briefing was not disclosed. The committee has not requested any documents on Takata at this point, the aide said. Officials with the National Highway Traffic Safety Administration were not immediately available.
Ex-Bank of New York Mellon employee pleads guilty to...
A former Bank of New York Mellon Corp (BK.N) employee on Friday pleaded guilty to insider trading based on tips from a former Merck & Co Inc (MRK.N) employee about potential pharmaceutical mergers. Federal prosecutors in New York said David Post, 41, a product manager at the bank, received nonpublic information from a former Rutgers Business School classmate about three companies: Idenix Pharmaceuticals, Ardea BioSciences and ViroPharma Inc [VIRO.UL].
25 European banks set to fail health checks: sources
A group of 25 banks have failed European health checks, while up to 10 of those continue to have a capital shortfall, two people familiar with the matter said on Friday, providing a snapshot of the health of the region's lenders. The health checks, led by the European Central Bank, found that banks in countries including Greece, Cyprus, Slovenia and Portugal had fallen short of a minimum capital benchmark at the end of last year and that up to 10 remained in difficulty now, the sources said. The result, which has yet to be finalised by the ECB's governing council on Sunday, provides the most complete picture yet of the robustness of the euro zone's top 130 lenders. Those banks with shortfalls will now have two weeks to submit a plan to bolster their capital to the European Central Bank (ECB), which will decide whether or not it gets the green light.
Deutsche Bank braces for $1.3 billion in U.S., UK Libor...
Deutsche Bank (DBKGn.DE) is bracing to pay almost 1 billion euros ($1.3 billion) for Libor-related fines as it nears a deal with U.S. Deutsche Bank declined to comment. A spokesman for the United States Department of Justice declined to comment. Deutsche Bank already settled with European antitrust regulators over Libor and its euro equivalent Euribor last year, agreeing to pay 725 million euros.
P&G to split off Duracell battery business
Procter & Gamble Co said it would split off its Duracell battery business into a separate company as it looks to focus on its faster-growing brands. The world's largest household products maker also reported a slight fall in quarterly sales. Net income attributable to Procter & Gamble fell to $1.99 billion, or 69 cents per share, in the first quarter ended Sept. 30 from $3.03 billion, or $1.04 per share, a year earlier.
Pfizer's $11 billion buyback plan deflates AstraZeneca...
Shares in AstraZeneca fell 1.2 percent by 9:00 a.m. BST on Friday following the news. The largest American pharmaceuticals company, whose shares gained more than 1 percent after the announcement late on Thursday, said the move was in addition to the $1.3 billion remaining on its current share buyback programme. Pfizer, which has a market valuation of about $180 billion, earlier this year failed in its $118 billion bid to buy British rival AstraZeneca. Pfizer Chief Executive Ian Read has said the company is continuing to look at deals but investor hopes for a new bid have dwindled recently because of the introduction of new U.S.