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Across the entire curve, credit spreads on JCPenney are exploding. The curve is inverted with the market indicating an almost 50% chance of default within the next 2 years (specifically in 2014 as opposed to pre-2013 Xmas). The stock price is collapsing further (though we suspect a gaggle of analysts calls to catch the accelerating knife – just as we saw last time). At $6.30, this is the lowest stock price since March 1981, on the back of yet another downgrade (this time with a $1 target) by none other than the same Mary-Ross Gilbert who proclaimed the most recent quarter a success and suggested buying the debt in just August.

 

The CDS market is not painting a pretty picture for the future of JCP – 2Y CDS implies around a 50% probability of default (based on market standard recoveries – which we feel will be lower gven Goldman's 1st lien…)

 

and the stock is imploding even more…

 

Though there's always next week… this analyst hopes so (from Sept 25th):

 

$JCP: Why Brian McGough aka @HedgeyeRetail is a buyer of JC Penney here http://t.co/Xbc32aBFjG via @Hedgeye @KeithMcCullough

— Hedgeye (@Hedgeye) September 25, 2013

 

 

We’re buyers of J.C. Penney (JCP) on today’s sell-off. Let’s be clear about what kind of call this is, because it’s definitely not for the faint of heart.

 

We still know nothing about the long-term strategy or upcoming management transition, and are still living with the balance sheet baggage from the past two years.

 

This is a company with no square footage growth, where the average consumer could care less if it exists or not. (Sounds great, huh?).  But everything has a price.  And at $10, way too much credence is being given to the ‘terminal’ call.

 

We can say a lot of bad things about JCP, but we definitely don’t think it is terminal and our recent work suggests that much of the business lost is definitely recoverable.

 

As it relates to liquidity, we think that the only reason why the company would act now is to ensure that it has the best pool of CEO candidates possible (questions around liquidity would otherwise weed out the best candidates).

Here's another analyst from August:

"That's a sequential improvement from the down 16.6 percent in the first quarter. So I would say the numbers are closely in line," Mary Ross Gilbert, managing director at Imperial Capital, told CNBC shortly after Penney released its results. "We were [also] seeing a sequential improvement throughout the quarter. Comp sales were improving throughout the quarter."

 

…

 

"The debt, we think, is a great way to play the bet on J.C. Penney's turnaround," Gilbert said in a "Squawk Box" interview.

but then today…

Imperial Capital’s Mary Ross-Gilbert offers her answer by lowering her price target on JC Penney’s stock to $1, while cutting her rating on JC Penney’s bonds maturing in 2015-2018 to Sell. She explains why:

 

While we think JCP can be “turned around,” we are becoming increasingly concerned that without a “deep-pocketed” long-term investor providing financial and “halo” support, the company may strategically file for bankruptcy protection to conserve cash while it continues to execute a turnaround in 2014 and 2015. We continue to believe in the viability and sustainability of JCP, which with support from a significant investor and/or stronger than expected financial performance, could deliver equity-type returns (assuming they trade up to the low-to-mid 80s) to investors of the longer-dated bonds while potentially protecting the downside by hedging.

 

We are maintaining our Underperform rating on the shares, but we are lowering our one-year price target to $1 from $5. Our new $1 price target is based on the notional “option” value of the shares, given our increasing concerns the company may engage in a financial restructuring in 2014.

Meanwhile Citi nailed it:

"The turnaround is taking longer than we anticipated, and we are concerned  about a softening macro environment combined with deteriorating vendor relationships",  and of course "We maintain our EPS ests. but are lowering our target price to $7, down from $11 prev., based on an EV/Sales valuation methodology using our 2015 sales estimate." And it gets worse: "Where’s The Floor? — As a supplement to our EV/Sales valuation methodology, we have conducted a basic liquidation valuation, yielding $324M total value, or $1/share."

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/O5wkdEo9DKI/story01.htm Tyler Durden

Submitted by Claude Salhani via OilPrice.com,

Petro-dollars, the word used to describe the billions of dollars earned from the sale of oil and natural gas, have helped change the shape and future of many counties in the Middle East, usually for the better, but not always.

In a few short years Petro-dollars have helped shape the Gulf states into the modern and futuristic looking cities of the future that one finds in today’s architecture in Dubai, Doha and Riyadh.

But now those petro-dollars are being used to shape the political future of the region and to model specific policies in a number of countries, such as Syria, for example, where petro-dollars are hard at work today.

Saudi Arabia, for example is investing billions of its petro–dollars in an attempt at shaping the Syrian political landscape more in its favor and away from the Muslim Brotherhood, an organization that the Saudi and other Gulf states regard with contempt and fear. 

But after its brief string of successes in Egypt, Tunisia, Palestine, Syria, and to a lesser degree, Turkey, the MB now appears to be on the retreat.

Among the first signs that not all is well in the house of fundamental Islam comes amidst reports that Khaled Mashaal, the leader of Hamas is seeking to relocate from his current base in Doha, the capital of the oil and gas rich Gulf state of Qatar.

Although Hamas is denying this rumor, the Palestinian Islamist movement had also denied in the past similar reports that it was relocating to Qatar from Damascus in 2012, as indeed it had.
Should this report prove to be true it would sustain the fact that the Brotherhood is indeed on the retreat.

In the past 12 months alone the Brotherhood has suffered a number of serious setbacks. The group went from winning an election to holding power in Egypt, to being once again banned and driven underground.

In Tunis, similarly, the MB government that was voted into power after the fall of Zein el Adedine bin Ali, is now on the way out, as popular protests, much like in Egypt have forced the changes to take place.

And the inroads the MB was making in Syria seems to have receded after the intervention of Saudi Arabia. The petro-dollars are at work once again supporting the anti-Assad regime, but not those who tend to be too conservative and that the Saudis and the Emiratis know only too well will one day turn against them.

Riyadh, for one, is not about to forget the lesson of the returning “Afghan Arabs” that nearly toppled the royal house of Saud.

Riyadh also had to apply pressure on its smaller neighbor, Qatar, and “convince” the ruler Emir Hamed Bin-Khalifa, a strong supporter of the Muslim Brotherhood to step down in favor of his son, Tamim. The precise circumstances and reasons for the Qatari’s ruler sudden departure from power remain a mystery to this day.

With the son now in charge in Doha, Qatar’s financial support of the Brotherhood is virtually drying up.

In retrospect perhaps the rapid advance of the Muslim Brotherhood was a tad too fast in a part of the world that is unaccustomed to change. This rapid gallop frightened the ultra-conservatives regimes in Riyadh and Abu Dhabi, who then took steps to rectify what they did not like.

In the months that followed, the Brotherhood was forcibly removed from power in Egypt with help of Saudi and UAE petro-dollars.

And thanks to petro-dollars also supplied by Saudi Arabia and the UAE, the Muslim Brotherhood no longer seems to be about ready to remove Syrian President Bashar Assad from power. Not that the Saudis of the Emiratis have any great affection for Assad, quite to the contrary, they would like to see him go. And their petro-dollars are making sure of that.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xS1wxCYVHEI/story01.htm Tyler Durden

Newsflow is weak to non-existent. S&P futures volume is 40% below average for this time of day; and ranges across all asset classes are low. Is this the calm before tomorrow’s jobs report storm or the calm before storming even higher… The S&P 500 tested new all-time highs earlier (just after the US open) but is fading back. The Nasdaq and Trannies are outperforming with a notable drift lower in the almighty Russell (as momo names stutter – ahead of NFLX earnings maybe?). Treasury yields are modestly higher; the USD in unchanged (back from higher earlier); and Oil is down 1.4% from Friday’s close. Silver is up 1.5% while gold and copper are unchanged. Thera er two things of note: VIX remains divergent from stocks… and credit markets are not happy.

 

Stocks behaving quietly…

 

As VIX is well bid ahead of tomorrow’ potential angst…

 

and commodities are diverging…

 

and credit markets are rather notably not buying what stocks are drinking..

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FyS8pHJXXRA/story01.htm Tyler Durden

Newsflow is weak to non-existent. S&P futures volume is 40% below average for this time of day; and ranges across all asset classes are low. Is this the calm before tomorrow’s jobs report storm or the calm before storming even higher… The S&P 500 tested new all-time highs earlier (just after the US open) but is fading back. The Nasdaq and Trannies are outperforming with a notable drift lower in the almighty Russell (as momo names stutter – ahead of NFLX earnings maybe?). Treasury yields are modestly higher; the USD in unchanged (back from higher earlier); and Oil is down 1.4% from Friday’s close. Silver is up 1.5% while gold and copper are unchanged. Thera er two things of note: VIX remains divergent from stocks… and credit markets are not happy.

 

Stocks behaving quietly…

 

As VIX is well bid ahead of tomorrow’ potential angst…

 

and commodities are diverging…

 

and credit markets are rather notably not buying what stocks are drinking..

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FyS8pHJXXRA/story01.htm Tyler Durden

Money put into the system would, in normal times multiply aggressively in use (e.g. Fed to bank, bank to business, business to consumer, consumer to restaurateur, restaurateur to farmer, farmer back to bank etc etc.) In reality, as Citi notes, there are often even more legs to this multiplier. However when QE puts artificial support under the Equity and Bond market you get misallocation of capital and no velocity of money. If ever there was a chart of the gross misallocation of capital caused by QE, this has got to be it…

Velocity of Money (M2) and Core PCE- A once in 50 years dynamic.

• The last time both were as low as this was 1965 (Nearly half a century ago)
• Core PCE stands at 1.23% having seen a range in the last 54 years of 0.95% to 10.25% (Inflation floor anybody???)

Inflation does not show up in the true economy but in paper asset prices instead. (that worked well in prior cycles)

One might even argue that as a consequence QE actually stifles economic growth, employment creation and inflation.

The trouble with that assessment (if correct) is that Ben does not believe that premise and neither does Janet.

(Quite the contrary) If the premise is potentially true that QE is actually a negative for the economy/savers etc. then more QE will not only not solve the problem, but exacerbate it. It therefore becomes a negative feedback loop that we cannot get out of until the Fed has the nerve to stop QE no matter what the economic backdrop. Under Janet Yellen that scenario is highly unlikely. 

(Translation: It aint happening)

 

Source: Citi

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YOnkCR6lygU/story01.htm Tyler Durden

Money put into the system would, in normal times multiply aggressively in use (e.g. Fed to bank, bank to business, business to consumer, consumer to restaurateur, restaurateur to farmer, farmer back to bank etc etc.) In reality, as Citi notes, there are often even more legs to this multiplier. However when QE puts artificial support under the Equity and Bond market you get misallocation of capital and no velocity of money. If ever there was a chart of the gross misallocation of capital caused by QE, this has got to be it…

Velocity of Money (M2) and Core PCE- A once in 50 years dynamic.

• The last time both were as low as this was 1965 (Nearly half a century ago)
• Core PCE stands at 1.23% having seen a range in the last 54 years of 0.95% to 10.25% (Inflation floor anybody???)

Inflation does not show up in the true economy but in paper asset prices instead. (that worked well in prior cycles)

One might even argue that as a consequence QE actually stifles economic growth, employment creation and inflation.

The trouble with that assessment (if correct) is that Ben does not believe that premise and neither does Janet.

(Quite the contrary) If the premise is potentially true that QE is actually a negative for the economy/savers etc. then more QE will not only not solve the problem, but exacerbate it. It therefore becomes a negative feedback loop that we cannot get out of until the Fed has the nerve to stop QE no matter what the economic backdrop. Under Janet Yellen that scenario is highly unlikely. 

(Translation: It aint happening)

 

Source: Citi

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YOnkCR6lygU/story01.htm Tyler Durden

Submitted by James H. Kunstler of Kunstler.com,

Well, at least the poobahs cleared a path to the annual orgy of Christmas, which, along with the S & P 500, have become proxies for the American economy. Lately, the Christmas season starts directly after Halloween, so, the whole fourth quarter of the year becomes a circus of ceremonial distractions. In the background, though, the nation grinds toward anguish, measured in soiled Justin Bieber dolls deposited in the landfills.

Historians who look back on these strange years of suspended consequence will marvel at how this empire of grift kept its wheels turning after its engine died. Being on the downhill slope is often enough to keep anything going. One might think the young people of this land would be seething at the eclipse of their futures, but it seems they have been successfully lobotomized with cell phones — when the endorphin hits lag between text messages, they can watch sitcoms, or porn.

You can be sure there will be a snapback from all this drift and anomie, and when it comes, the snap will be savage. Like the US economy, the Republican Party is dead but hasn’t gotten the news. It killed itself just as the Whigs did in the years before the Civil War, by splitting up into factions — one faction of “know-nothings” preoccupied with scape-goats opposed to a faction of sclerotic parasitical fat-cats too timid and greedy to engage in the emergencies of the day.

The Tea Party faction should change its name to the Cracker Party because it represents the interests of white southerners who are too dumb to know what these emergencies amount to. They are really more comfortable with the supernatural, hence their fondness for religions based on snake-handling, visitations of the dead, and motor sports. Personally, I believe they will eventually contrive to form their own break-away Cracker Republic and attempt to re-enact the Civil War. They will fail, and starve, and find themselves back in an even worse long-term depression than Dixieland experienced from 1860 to 1960, in a de-suburbanized wasteland of bare subsistence farming. Their highest art will be soup-making.

The non-Tea Party Republicans will just shrivel and vanish out of sheer irrelevance. This leaves the Democrats to become the focus of intense ire as they attempt to ‘splain why the nation’s affairs went to shit on their watch. A lot of them will end up being executed and plundered by the new kid on the block, the Savior Party, led by some charismatic character willing to ignore procedural protocols to clear away the debris left by his-or-her predecessors. Alas, the juice will not be there to permit the Savior to really control a territory as large as the continental USA. By juice, I mean money and oil. Thus, the nation enters its new dark age.

Who knows when that will get underway in earnest, though I think the folks who say 2014 are onto something. If you believe in cycles, which I tend to, then it rhymes nicely with 1814 and 1914, two watersheds when one epoch ended and another truly began. 2014 would logically be the year that China tells America to go piss up a rope. The message would be sent on the back of the envelope containing $2.7 trillion in official American debt paper. As Ole Blue Eyes used to say, this could be the start of something big.

Sentient observers of the current scene are clearly frustrated by the remarkable homeostasis that seems to rule the scene, these horse-latitudes of history where the air is still and nothing moves and the mind is exhausted by watchful waiting. Things will get lively, soon enough, so enjoy the holiday quarter of the year which is so soon upon us. Gorge on candy corn. When you recover from that, roast a turkey. Then make a nice figgy pudding. Then pop some bubbly and salute your loved ones. Then gird your loins for the new age of consequence.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1OWOlPHDsiE/story01.htm Tyler Durden

.

Obam-Mo is making a call

He heard that his plan covers all

He’s not getting through

He’ll wait till he’s blue

He needs a new plan for his doll

The Limerick King

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qMy_ZdfG1oQ/story01.htm williambanzai7

First it was David Viniar, rumored for so long to be Lloyd’s next logical replacement, who rode into the Goldman sunset. Now it is the turn of Goldman’s Vice Chairman, Michael Evans, one of the firm’s most senior execs and the person who many had expected would ultimately replace Lloyd Blankfein when it was time for succession at the firm that executes God’s will (net of 3-5% in commissions) to depart quietly into the night.

From Reuters:

Goldman Sachs Group Inc Vice Chairman J. Michael Evans will retire from his position at year’s end and become a senior director, according to an internal memo viewed by Reuters.

 

Evans, 56, one of the most senior executives at Wall Street’s biggest investment bank, is global head of growth markets and played a key role in Goldman’s expansion into Asia. He was one of several executives said to be in the running to replace Chief Executive Lloyd Blankfein when he eventually retires.

 

“Michael’s commitment to the firm, his focus on our clients and his deep, global market knowledge have left an extraordinary record of contribution,” Blankfein and Chief Operating Officer Gary Cohn said in the memo, whose contents were confirmed by spokesman David Wells. a

Goldman’s confirming press release:

The Goldman Sachs Group, Inc. (NYSE: GS) announced today that J. Michael Evans, a vice chairman of Goldman Sachs and global head of Growth Markets, has decided to retire at the end of the year after more than 20 years at the firm. He will become a senior director upon his retirement.

 

“Michael’s deep commitment to the firm, his unrelenting focus on our clients and his broad global market knowledge have left an extraordinary mark at Goldman Sachs,” said Lloyd C. Blankfein, Chairman and CEO. “We particularly appreciate the role he played developing our client franchise across Asia, and his work co-chairing the Business Standards Committee, which was an unparalleled effort to review our business standards and practices. We are pleased that we will continue to benefit from his advice and counsel as a senior director.”

 

Evans joined Goldman Sachs in 1993 in the Investment Banking Division in London and was named a partner in 1994.

 

As global head of Equity Capital Markets, Evans was at the center of many privatizations in Europe and Asia Pacific in the 1990’s and went on to play an integral role in the success of the firm’s initial public offering in May 1999.

 

In 2001, he became co-head of the Equities Division, working in both New York and London. Two years later, Evans became global co-head of the Securities Division, where he helped cement our position as a leading market maker and underwriter to investors and companies globally.

 

In 2004, he relocated to Hong Kong as Chairman of Goldman Sachs Asia Pacific, a position he held for seven years. There, Evans helped shape our strategy and footprint, deepen our leadership bench and develop important client relationships.

 

Over the last three years, Evans was co-chair of the firm’s Business Standards Committee, where he helped oversee the most extensive review of the firm’s business standards and practices in its 144 year history. The Committee’s work resulted in significant changes in how the firm addresses important issues related to clients, reputational risk and accountability.

 

Evans was named a vice chairman of Goldman Sachs in 2008. In 2011, he was named global head of Growth Markets, responsible for driving our strategy, resource allocation and many client relationships across the firm in these important markets.

 

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

With that we hope that at least one of the people selling stocks to the hypnotized masses who can’t wait to BTFATH has been identified.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vxOOGaJkqsg/story01.htm Tyler Durden