- J.C. Penney Co.(JCP), the third-largest U.S. department-store company, jumped the most in three months in New York trading after saying third-quarter earnings exceeded its expectations and raising its annual forecast. The Plano, Texas-based company projected annual profit of as much as $1.08 a share, compared with the 90-cent maximum it previously predicted, according to a statement today. Gross margin, a measure of profitability that indicates the percentage of sales left after the cost of goods sold, widened by 2.1 percentage points in the third quarter, as the company held down inventories and reduced clearance. The company expects the gross margin to expand by as much as 3.9 percentage points in the fourth quarter, helped by lower inventory levels, Chief Financial Officer Robert Cavanaugh said on a conference call. J.C. Penney advanced $2.04, or 6.9 percent, to $31.43 at 11:37 a.m. in New York Stock Exchange composite trading after rising much as 7.4 percent for the biggest intraday gain since Aug. 7.
- A weekly measure of future U.S. economic growth slipped to an 8-week low, sending its yearly growth rate further off record levels reached seven weeks ago, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index edged down to 127.3 in the week to Nov. 6, from a downwardly revised 128.7 the previous week, which the group originally
- U.S. Securities and Exchange Commission Enforcement Director Robert Khuzami said the recent insider-trading cases among hedge funds including Galleon Group LLC reflect “systemic behavior” within the industry. “You have funds whose business model consisted of vigorous attempts to collect information from corporate insiders and to utilize that information to trade,” Khuzami said today at the Bloomberg Washington Summit. Such an approach is “potentially more dangerous” than previous insider-trading cases that reflected “opportunistic” behavior, he said. Aspects of hedge-fund operations are giving the agency’s enforcement division “concern,” Khuzami said, referring to algorithmic trading, dark pools and lack of a corporate culture oriented toward compliance with regulations. Since the arrests were announced, the SEC has seen an “uptick” in individuals coming forward with information on misconduct, Khuzami said, adding that people trading on confidential information “should be worried.” Khuzami, 53, said prosecutors will continue using undercover techniques including informants and front businesses to attract wrongdoing and wiretaps to “ferret out” misconduct. The SEC has endorsed legislation that would let the agency pay whistleblowers for information leading to a case. Khuzami, a former federal prosecutor who joined the agency in March, is reorganizing the division to add front-line investigators, speed inquiries and create specialized units after the agency was faulted for missing Bernard L. Madoff’s Ponzi scheme. He’s also seeking to bolster his attorneys’ powers by gaining greater access to grand-jury evidence and expanding deal-making and cooperation with informants.
- China’s surging asset prices, a dollar “crisis” and oil prices above $100 a barrel are among the “tail risks” that investors face in 2010, said Bank of America Corp.’s chief global equity strategist Michael Hartnett. Rising Chinese equity and real estate markets and the government’s “stubborn refusal” to revalue the yuan could fuel “liquidity-driven speculation” and inflation expectations across emerging markets, Hartnett wrote in a note to clients obtained today. The Shanghai Composite Index has climbed 74 percent this year as record lending and government stimulus spending helped drive the nation’s economic rebound. Tail risks are unpredictable, low probability events that can have a “meaningful impact” on investors portfolios, he said. Other events include a “double-dip” recession, growing protectionism, a debt default in Japan and recoveries in U.S. housing and the American consumer, he wrote.
- China, the world’s largest steelmaker, said it this year rejected requests to build 47 industrial projects worth 200 billion yuan ($29 billion) to curb excessive capacity and pollution. The projects include steel, metals and petrochemical plants, Zhu Xingxiang, director of environment evaluation department at the Ministry of Environmental Protection, said at a press conference in Beijing today. China is aiming to curb excessive investment, fueled by record lending this year, without imposing restrictions that may endanger its economic recovery. Overcapacity is stalling a profit recovery at steelmakers including Baoshan Iron & Steel Co. with benchmark prices falling 18 percent since touching a 10- month high on August 4. “The steel industry is the focus of our supervision,” Zhu said. “There is too much capacity being built without government approval. In the future, we are also tightening approval for hydropower projects as they will damage local biology and fishing.”
- Crude oil fell to the lowest in a month in New York after a report yesterday showed inventories in the U.S., the world’s biggest energy consumer, climbed amid a drop in processing runs. Oil extended yesterday’s 3 percent decline after an Energy Department report showed crude stockpiles rose a more-than- expected 1.76 million barrels last week. Refinery operating rates fell to 79.9 percent of capacity, the lowest in more than a year. Gasoline inventories rose 2.56 million barrels to 210.8 million, more than a forecast drop of 350,000 barrels. “The U.S. numbers were incredibly bearish, especially the gasoline build,” said Clarence Chu, an options trader at Hudson Capital Energy in Singapore. The decline in U.S. processing runs is in line with low rates in other developed countries. Japan’s refiners operated at 71 percent of capacity last week, an industry report said on Nov. 11. The two nations were responsible for about 29 percent of global demand last year, according to data from BP Plc. “Demand is just so anemic and the crack is so bad,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp in Tokyo. “It behooves refiners to keep runs low to try to support this market.” U.S. fuel consumption dropped 4.3 percent to 18.3 million barrels a day, the lowest since June, according to the Energy Department report. Imports of crude oil increased 6.5 percent to 8.66 million barrels a day, the report showed. Fuel imports dropped 3.3 percent to 2.51 million.
- Boehringer Ingelheim GmbH is banking on sex really being all in women’s heads. The German drugmaker is putting the finishing touches on a pill designed to reawaken desire by blunting female inhibitions. Unlike Viagra, which targets the mechanics of sex by boosting blood flow to the penis, this drug works on the brain. The desire drug, the focus of a meeting on sexual disorders in Lyon next week, has the potential to revolutionize sexual medicine much as Pfizer Inc.’s blue pill did a decade ago. That could put family-owned Boehringer at the center of a debate about whether the medicine is a chemical shortcut around a complex dysfunction involving body and mind -- or whether disinterest in sex is a legitimate medical condition.
- Give the Environmental Protection Agency credit: At least it practices equal opportunity censorship of its employees. Dr. Alan Carlin, a 37-year agency veteran, was muzzled earlier this spring. Dr. Carlin offered a report poking holes in the science underlying the theory of manmade global warming. His superior, Al McGartland, complained the paper did "not help the legal or policy case" for Team Obama's decision to regulate carbon, told him to "move on to other issues," and forbade him from discussing it outside the office. Now come Laurie Williams and Allan Zabel, married, and each with more than 20 years tenure at the EPA. They too are dismayed by Democrats' approach to climate, though for different reasons. Dedicated environmentalists, they created a 10-minute YouTube video arguing Congress's convoluted cap-and-trade bill was a "big lie" that is too weak. They instead propose imposing taxes, lots of them, on fossil fuels.
- Federal prosecutors took steps Thursday to seize four U.S. mosques and a Fifth Avenue skyscraper owned by a nonprofit Muslim organization long suspected of being secretly controlled by the Iranian government. In what could prove to be one of the biggest counterterrorism seizures in U.S. history, prosecutors filed a civil complaint in federal court against the Alavi Foundation, seeking the forfeiture of more than $500 million in assets. The assets include bank accounts; Islamic centers consisting of schools and mosques in New York City, Maryland, California and Houston; more than 100 acres in Virginia; and a 36-story glass office tower in New York. Confiscating the properties would be a sharp blow against Iran, which has been accused by the U.S. government of bankrolling terrorism and trying to build a nuclear bomb. The action against the Shiite Muslim mosques is sure to inflame relations between the U.S. government and American Muslims, many of whom are fearful of a backlash after last week's FortHood shooting rampage, blamed on a Muslim American major. The mosques and the skyscraper will remain open while the forfeiture case works its way through court in what could be a long process. What will happen to them if the government ultimately prevails is unclear. But the government typically sells properties it has seized through forfeiture, and the proceeds are sometimes distributed to crime victims. Prosecutors said the Alavi Foundation managed the office tower on behalf of the Iranian government and, working with a front company known as Assa Corp., illegally funneled millions in rental income to Iran's state-owned Bank Melli. Bank Melli has been accused by a U.S. Treasury official of providing support for Iran's nuclear program, and it is illegal in the United States to do business with the bank. The U.S. has long suspected the foundation was an arm of the Iranian government; a 97-page complaint details involvement in foundation business by several top Iranian officials, including the deputy prime minister and ambassadors to the United Nations. "For two decades, the Alavi Foundation's affairs have been directed by various Iranian officials, including Iranian ambassadors to the United Nations, in violation of a series of American laws," U.S. Attorney Preet Bharara said in a statement. Rents collected from the building help fund the centers and other ventures, such as sending educational literature to imprisoned Muslims in the U.S. The foundation has also invested in dozens of mosques around the country and supported Iranian academics at prominent universities. If federal prosecutors seize the skyscraper, the Alavi Foundation would have almost no way to continue supporting the Islamic centers, which house schools and mosques. That could leave a major void in Shiite communities, and hard feelings toward the FBI, which played a big role in the investigation. The forfeiture action comes at a tense moment in U.S.-Iranian relations, with the two sides at odds over Iran's nuclear program and its arrest of three American hikers.
- European hedge funds face a more severe crackdown on pay than bankers, according to last-minute changes this week to forthcoming EU regulations for the alternative investment industry. A copy of the latest revision of the EU’s controversial new Alternative Investment Fund Manager directive, dated November 12, obtained by the Financial Times, now includes a three page annexe of provisions restricting remuneration policies. The proposed new rules include restrictions that may prevent fund managers from cross-subsidizing their internal revenue streams. Such a measure would prohibit fund managers from using fees earned from successful parts of their businesses to pay staff working in areas that are not performing so well. New measures also include rules for hedge fund employees to defer up to 60 per cent of their pay over as much as three years. Large hedge funds and private equity firms will meanwhile be required to establish independent remuneration committees. Several of London’s biggest funds said they were consulting legal advisers on the proposals. “Whilst the new proposed remuneration policies look a lot like those that apply to the biggest banks, even medium-sized banks or big broker/dealers are not caught by the details in the way that hedge fund managers will be,” said Rob Moulton, a partner at the London law firm Nabarro Nathanson. “Telling a star hedge fund manager that they will need to defer 60 per cent of their bonus is hardly likely to make them want to stay within the EU in what is quite a mobile industry.”
- The Trade Deficit for September is estimated to widen to -$31.8B versus -$30.7B in August.
- The Import Price Index for October is estimated to rise +1.0% versus a +.1% gain in September.
10:00 am EST
- PreliminaryUniv. of Mich. Consumer Confidence is estimated to rise to 71.0 versus 70.6 in October.
Upcoming Splits - None of Note
Other Potential Market Movers - The Fed’s Evans speaking, Fed’s Dudley speaking, Treasury’s Krueger speaking, Treasury’s Wolin speaking, weekly EIA natural gas inventory report, CSFB Healthcare Conference and the (EL) shareholders meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.
