Saturday, September 21, 2013

Morning Briefing: 10 Things You Should Know

NEW YORK (TheStreet) -- Here are 10 things you should know for Thursday, Sept. 19:

1. -- U.S. stock futures were rising and global stock markets surged Thursday after the Federal Reserve said it wouldn't reduce its massive economic stimulus.

European stocks were higher early Thursday. Asian shares ended the session with gains. Japan's Nikkei 225 index rose 1.8% to close at 14,766.18.

2. -- The economic calendar in the U.S. Thursday includes weekly initial jobless claims at 8:30 a.m. EDT, existing home sales for August at 10 a.m., the Philly Fed survey for September at 10 a.m. and leading indicators for August at 10 a.m. 3. -- U.S. stocks on Wednesday posted sharp gains following the Fed's statement that the U.S. economy wasn't ready for a tapering of the central bank's unprecedented efforts at maintaining lenient monetary policies. The Fed said that it will continue to buy $85 billion in bonds per month until there's stronger evidence of economic improvement. The S&P 500 gained 1.22% to reach a new all-time high of 1,725.52 and booked a fourth straight day of gains. The Dow Jones Industrial Average added 0.95% to close at 15,676.94. The Nasdaq gained 1.01% to finish at 3,783.64. 4. -- Regulators in the U.S. and U.K. are expected to fine JPMorgan Chase (JPM) more than $900 million for actions tied to its 2012 "London Whale" trading debacle, according to a person familiar with the settlement talks, The Wall Street Journal reported. The Securities and Exchange Commission, Office of the Comptroller of the Currency, the Federal Reserve and the U.K.'s Financial Conduct Authority are expected to charge the bank with poor controls surrounding the giant bet, which cost JPMorgan more than $6 billion, the Journal said. The announcement of the settlements is expected to come early Thursday, according to people briefed on the plans. 5. -- Software maker Oracle (ORCL) said fiscal first-quarter net income rose by 8%. Adjusted earnings for the quarter of 59 cents a share topped Wall Street estimates of 56 cents. Revenue rose 2% to $8.37 billion; analysts were looking for revenue of $8.48 billion. Software revenue rose 6% to $6.08 billion and included a 5% increase in new software licenses and cloud software subscriptions to $1.65 billion. 6. -- McDonald's (MCD), the world's largest hamburger chain, raised its quarterly dividend by 5% to 81 cents a share from 77 cents. The fourth-quarter payout will be more than $800 million. The next dividend is payable Dec. 16 to shareholders of record at Dec. 2. Shares of McDonald's rose 78 cents on Wednesday to $98.70. 7. -- Wells Fargo (WFC) is cutting about 1,800 more jobs in its home-loan production business, according to Bloomberg. The reductions are in addition to 3,000 earlier this quarter, said Tom Goyda, a spokesman for the San Francisco-based bank, in an interview with Bloomberg on Wednesday. Wells Fargo is cutting jobs as higher borrowing costs slow refinancings and new home purchases fail to compensate for the decline, Bloomberg noted.

8. -- Chrysler Group is late in the stages of preparing documents for an initial public offering, a person familiar with the offer told CNBC, and JPMorgan Chase is expected to underwrite the IPO.

9. -- ConAgra Foods (CAG), the packaged food giant, is expected by Wall Street on Thursday to report fiscal first-quarter earnings of 39 cents a share on revenue of $4.29 billion. 10. -- Drugstore chain Rite Aid (RAD) is expected to post a fiscal second-quarter loss Thursday of 4 cents a share. -- Written by Joseph Woelfel >To contact the writer of this article, click here: Joseph Woelfel >To submit a news tip, send an email to:

Copyright 2013 Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.

BNP Paribas: Bank on Europe

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It appears the beginnings of a European recovery have arrived. And one sector in particular appears primed for growth; indeed, if Europe's debt crisis were a car, its banks would be the engine, suggests Ian Wyatt, editor of the $100K Portfolio.

Right now, European banks are where US banks were four years ago. Many of them have been left for dead, dismissed by investors as risky bets on a shaky recovery. And that's exactly why I've been digging into European financial companies.

These banks are growth opportunities. It won't happen overnight. Europe's debt problems are even more deeply-rooted than America's were. The road to recovery will be a bumpy one. But as a long-term value investment, European banks have immense growth potential. And one bank in particular stands out.

Headquartered in Paris—with a second headquarters in London—BNP Paribas (BNP:FP) (LES:0HB5) was one of the few European banks to emerge from the continent's credit crisis relatively unscathed.

In 2008 and 2009, as global debt was spreading like wildfire, BNP Paribas posted a net profit of 8.8 billion euros. Last year the company turned a profit of 6.6 billion euros ($8.7 billion)—more than four of the six largest US banks.

Unlike most European banks, BNP Paribas' long-term credit rating is pristine. Standard & Poor's and Fitch both ascribe it an A+ rating. Moody's gives it an A2.

BNP Paribas has operations in 78 countries, with 190,000 employees. Its global presence and diverse business operations have helped insulate the bank from the sovereign-debt storms swirling all around it.

Nearly two centuries of history, its solid credit ratings, and its continued growth amid Europe's longest recession were all good reasons to like BNP Paribas. And the valuation of the stock makes it an incredible opportunity for value-oriented investors.

Like most banks around the world, BNP Paribas' profits dipped considerably when the recession hit in 2008. Since then, however, earnings have grown every year. It has done so by cutting bad assets and recapitalizing well before the ECB decided to regulate Euro banks' leverage ratios.

BNP Paribas has shed 62 billion euros in risk-weighted assets since the beginning of 2012. Excluding provisions set aside for Greek bonds, the cost of BNP Paribas' debt has dropped 9.2% in the last 20 months.

Revenues have increased a modest 0.8% since 2011, but the company is 2.2 times more liquid than it was 20 months ago, with 69 billion euros of cash on hand.

In essence, BNP Paribas has a 20-month head start on most European banks as they try and clean house before the ECB starts monitoring their books.

The stock currently trades at just 9.5 times estimated earnings for 2013. Looking forward to 2014, the PE ratio falls to just 7.8. Meanwhile, the average European bank trades at 9.2 times next year's earnings estimates. And the company's price-to-book ratio is equally impressive at 0.7.

As the tide slowly turns for the better in Europe, investors will start to trickle back in search of bargain investments. Few companies—banks or otherwise—look like more of a bargain than BNP Paribas.

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Tuesday, September 17, 2013

Cities with the Most Expensive Gas

As we head into Labor Day weekend, gasoline prices nationally are down about 21 cents a gallon from last year to around $3.57 a gallon, according to Marking the traditional end of the summer driving season, next week's holiday presents a good opportunity to look at gas prices around the country.

An unanticipated closure of an East Coast refinery sent prices soaring to a year-to-date high by mid-February. Gasoline prices have fluctuated since then, but have been trending slowly downward. Prices in some cities remain exceptionally high, however, at least 25 cents more than the national price. Gas in Honolulu as of earlier this week averaged $4.23 per gallon. These are the cities with the most expensive gas.

Click here to see the 10 cities

Americans are driving less and as newer, more fuel-efficient vehicles replace older ones in the country's fleet, demand is also decreasing. The main reason that crude oil and gas prices remain high is uncertainty about the future availability of crude. Events in the Middle East, the source of more than a third of the world's supply of crude, figure heavily in market prices for crude and eventually gasoline. The threat of military action in Syria has driven up crude and gas prices since late Monday, with West Texas Intermediate (WTI) crude for October delivery trading near $109 a barrel on Tuesday.

In the nine cities with the highest gas prices, four of the cities are on the East Coast, two are in California, and there is one each in Alaska, Hawaii, and Idaho. The concentration of cities on the East Coast is due to a variety of reasons, the most important of which is that Northeast refineries obtain most of their crude oil from non-U.S. sources, raising the cost of refined products and ultimately the price for consumers. Gregg Laskoski, senior petroleum analyst at points out, "for a long time the Northeast has had to rely on Brent crude oil, which has to come across the ocean from Europe."

Many of these cities are also in states with much higher taxes driving up rates. Connecticut, California, Hawaii, and New York – where all but two of these cities are located — all have among the highest state taxes in the country. "There are regions of the country where it is almost a given that gas prices are going to be higher simply because taxes are higher," explained Laskoski.

These are also among the most expensive cities in the country to to live in. As of the beginning of this year, New York City, Honolulu, and San Francisco, all of which have among the highest gas prices, had the highest overall cost of living. This is likely not a coincidence, explained Laskoski. "where you have affluent markets, you're going to have retailers that are going to push their prices to a level that they think the market will bear."

Using's list of cities with high gas prices, 24/7 Wall St. reviewed the nine cities with the highest gas prices as of August 25. Those numbers are regularly updated, and may have changed since then. 24/7 Wall St. also reviewed city cost-of-living data from the Council for Community and Economic Research as of the first quarter of 2013. We also considered state gas prices, also as of August 25, from AAA's daily fuel gauge report. Current and historical gas prices come from data at, and gas tax data comes from the quarterly review of state gas taxes from the American Petroleum Institute.

Monday, September 16, 2013

As Verizon Losses an International Partner, Sprint Struggles Forward with One

Verizon Communications Inc. (NYSE: VZ) bought out Vodafone Group PLC’s (NASDAQ: VOD) minority interest in Verizon Wireless for a staggering sum. Vodafone dumped its 45% in the joint venture, and fled the U.S. market. Perhaps the sale happened because Verizon offered $130 billion in cash and stock. Perhaps Vodafone believed that its minority position would always prevent it from having a decision-making role in Verizon Wireless. Or, perhaps Vodafone just made an intelligent decision. Wireless is no longer a growth industry in the United States. Ironically, Softbank clearly believes otherwise. Just weeks ago, Softband closed a $21.6 billion transaction that gave it a 72% ownership in Sprint Corp. (NYSE: S), the third-largest company in the American market. Five billion dollars of that money will go to strengthen Sprint’s balance sheet, which in turn gives Sprint leeway to aggressively market its products and services.

In the U.S. wireless market, there is AT&T Inc. (NYSE: T) and Verizon, and then a string of much smaller competitors, among which Sprint is the largest. Yet, Verizon’s prime position has not been enough to drive any significant expansion. Revenue from Verizon’s wireless in the first half was $39.4 billion, up only 7% from the same period in 2012. AT&T’s wireless results actually were worse for the same period. Revenue rose less than 5% to $34 billion. Despite their sizes, each of these companies has fought a zero-sum game for a long time. There are about 300 million wireless subscriptions in the United States, only slightly fewer than there are people. The marketing efforts of the wireless companies largely revolve around stealing one another’s customers.

The theory that the wireless industry in America will improve over time is based on the presumption that people will be forced to pay more for the data used by their smartphones and tablets. That has yet to be proved, and most analysts don’t believe in this supposition. The price wars hardly allow for sharp increases in fees of any kind, and it is these fees that drive profit.

The largest price war in the history of the wireless industry probably will be started soon by Sprint. Masayoshi Son, the high-spirited CEO of Softbank and new chairman of Sprint, knows he has only one chance to take away business from his two larger rivals. Sprint’s network is no better than those of AT&T and Verizon. All sell the same products. That leaves price as the only realistic differentiator for customers. And price wars are expensive when millions of customers are the prize.

Softbank’s initial plan for Sprint shows why Vodafone wanted out of the American market. The $5 billion war chest that Softbank will supply will not go to either creating new smartphones or some equally radical new services such as introducing 5G just as 4G has gotten its footing. Son can provide money to allow Sprint to weather sharp profit margin compression (Sprint rarely makes money, so margins will actually grow negative more rapidly). Son can sell phones at lower prices or offer better priced subscription programs. However, either of the two larger wireless companies, which have extraordinary balance sheets, can raise the ante in a battle for customers based on rates. Put bluntly, Sprint does not stand a chance.

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Verizon Wireless does stand a chance, but not a very good one. Its best period of growth is over. It can market new devices, new data products and multimedia offerings in an attempt to raise its yield per subscriber. However, price wars generally exclude the opportunity for these tactics. Vodafone, one of the largest wireless companies in the world, can see the future of U.S. wireless. It is ugly, something Masayoshi Son has ignored.

No Interest Rate Hikes Until Late 2015: Chicago Fed’s Evans

Chicago Federal Reserve Bank President Charles Evans said this morning that he expects U.S. GDP growth to surpass 3% in 2014 and that inflation will be "moving back toward" the Fed's 2% target. But, Evans said, he does not think all the conditions will be right for an interest rate increase until late 2015.

Evans has been a big supporter of the Fed's quantitative easing (QE) and asset purchase programs. He proposed last year that the central bank adopt a "state-contingent policy" committing the Fed to its QE3 program as long as the unemployment rate remains above 7% and the medium-term expectation for inflation remained under 3%. In practice, the Fed has modified the "Evans rule" slightly, saying that it will keep the fed funds rate at zero at least until the unemployment rate reaches 6.5% and the medium-term inflation outlook remains below 2.5%.

In his remarks today, Evans addressed the questions of how long QE3 will last, what the Fed's balance sheet will look like when easing finally ends and will the Fed ever be able to shrink its balance sheet. As to the first:

How long will QE3 last? It depends on the data. Of course, the person on the street would prefer a time, date and place. When, in calendar time, do I see these economic conditions being reached? For asset purchases, my current forecast has that occurring sometime in mid-2014. For the interest rate thresholds, my outlook is for the unemployment rate to be 6-1/2 percent sometime in early to mid-2015. But I also think there is a very good chance that at that time inflation will still be far enough below our 2 percent target that it will be appropriate to wait longer before increasing the funds rate; currently, I think it's more likely that conditions for the first funds rate increase will be met in late 2015.

Evans said that the Fed balance sheet has grown from around $800 billion in 2007 to more than $3.5 trillion today. He expects the Fed balance sheet to reach $4 trillion by the time asset purchases end.

And as for shrinking that massive balance sheet:

Furthermore, when we ultimately end the current purchase program, we won't be doing anything to reduce the balance sheet. Even though it will no longer be expanding, the balance sheet won't actually begin to shrink until sometime much later when we make the decision to stop reinvesting maturing assets. Even then, it will only gradually decline as assets mature. As you may recall, Chairman Bernanke announced at his June press conference that it was most likely that the FOMC would simply let the MBS on our books run off and not actively sell them during the period of policy normalization. Accordingly, our expanded balance sheet will be providing accommodation for a long time after we have ceased adding assets to our portfolio.

Today's relatively weak report on job additions in August in some ways reinforces Evans's view that the United States still has some ways to go before the economy gathers its own head of steam.

Sunday, September 15, 2013

Winners and Losers: Pandora Picked Well, The Dow Didn't

A Men's Wearhouse clothing retail store.Alamy Companies can make brilliant moves, but there are also times when things don't work out quite as planned. From an underwhelming iPhone event to Pandora's new CEO, here's a rundown of the week's best and worst moves in the business world. Apple (AAPL) -- Loser Shares of the consumer tech giant had rallied heading into Tuesday's iPhone event, but the love didn't last. The stock began to sell off while Apple was still presenting its updated smartphones. There were no smartwatches, no high-def smart TVs, and no magical unicorns offered up at the presentation. The market was also unimpressed to find that the cheaper iPhone that everyone was hoping would make inroads into Android's 80 percent global market share wound up being just $100 cheaper than the new iPhone 5s. Apple only updates its iPhones annually, so it was also a letdown to see the company once again fail to produce phones with screens larger than four inches. Yes, Apple is spicing up the shell colors across both new iPhone lines, but the actual screens are too small compared to the larger Android devices that many consumers are choosing these days. Pandora (P) -- Winner The leading music streaming service had been searching for a new CEO for months, and it finally found one. Brian McAndrews -- who at one time ran digital marketing powerhouse aQuantive before selling it to Microsoft (MSFT) in a $6 billion deal -- will take control of the leading media platform that serves up 1.35 billion hours a month to its more than 72 million active listeners. It's a smart hire. Pandora didn't need a big terrestrial radio guru. Pandora isn't about content programming. It already has the technology in place that serves up timely music recommendations and adapts to a listeners preferences. Pandora's major challenge remains to monetize its growing airplay, and that's where McAndrews is the perfect fit for a fast-growing company that's just starting to impress marketers. The Dow -- Loser The Dow Jones Industrial Average rolled out its first component adjustment in a decade, replacing three of the 30 names in the widely tracked market gauge. There's nothing necessarily wrong with the addition of Visa (V), Nike (NKE), and Goldman Sachs (GS). They are great companies, and respectable bellwethers. However, how can Apple or Google (GOOG) still not make the cut? Apple commands the country's largest market cap. The one thing holding these companies back is their large share price. The Dow 30 is a share price weighted index, unlike the S&P 500, which adjusts returns based on market cap. In other words, a 1 percent move for Google at $800 would be similar to a 10 percent move for a stock with an $80 price tag. That's a shortcoming of the Dow, and it's why it's unlikely to add the right components unless Apple or Google went through a stock split. Dell (DELL) -- Winner It took a lot longer than Michael Dell and his private equity partners were expecting, but the struggling PC giant will finally go private. Shareholders approved the $24.8 billion buyout deal, shortly after billionaire activist investor Carl Icahn threw in the towel on plans to disrupt the privatization efforts. Icahn felt that Dell was worth more, but no one was willing pay more. This is the best move for Dell. Turning the company around won't be easy, but it would have been practically impossible as a public company where it had to perpetually live up to the quarterly expectations of retail investors. Some companies are better off as private entities, and Dell at this stage is certainly one of them. Men's Wearhouse (MW) -- Blunder There's no point in dressing up the financials at Men's Wearhouse. Shares of the fine suits retailer stumbled after the chain lowered its guidance. It now sees same-store sales moving lower, and it has an interesting reason for eyeing softer sales of its high margin tuxedo rentals. "We are aware of widespread negative results impacting the wedding industry this year," the company said during Thursday morning's conference call. "We believe this is mostly a timing shift. Historically, we've seen numeric anomalies in the calendar effect when brides choose their wedding date, and we believe that the number 13 in 2013 is causing a small but meaningful number of brides to avoid getting married this year." That may make sense, but did Men's Wearhouse not realize that 2013 ends in the number 13 until now? It was forecasting tux rental comps to grow by 5 percent to 6 percent for the year back in March. Now it's only predicting growth in the low single-digits. You're not going to like the way Men's Wearhouse's forecasting skills look. I guarantee it.