Trying To Re-Build The Brands

Most retailers only have to worry about their customers in relationship to a single brand, but Gap has several brands that they operate and market differently and this has made their recovery more difficult even as consumers are starting to return to the stores and spend money again.  Competitors like Abercrombie & Fitch  (NYSE:ANF) and Urban Outfitters  (NASDAQ:UBRN) have maintained their customer base through the economic downturn and even experienced some growth as shoppers budgets changed and the retailers were quick to offer more apparel for the newly value-conscious.  The Gap appears to have succeeded in the first quarter as same-store-sales increased five percent at Gap and Banana Republic stores and four percent at Old Navy locations in North America.  Same-store-sales represent stores that have been open for at least one year and do not include stores that have recently opened or closed during the period.  The metric is considered a more reliable measure as it reduces the impact of waning sales from stores closing and increasing sales from new stores.

The Global Fashion Market

The company gets two-thirds of its revenue from U.S. stores and the remainder from outside of the U.S. As the retailer began it’s turnaround in 2010, it started by closing 21 percent of locations in the U.S. and opening more stores in places like China by the end of 2012.  The company has 3,270 locations with nearly 37 million square feet of retail selling space.  The company expects net square footage to decrease by one percent in 2012 as it strives to reduce its footprint and better manage occupancy costs across the enterprise.  GAP chief executive officer Glenn Murphy said “During the quarter, we improved sales, grew earnings per share, and continued investing in the business to drive performance … we’re pleased with the progress.”

What Do Shoppers Want?

The world’s third largest retailer would love to know that answer to that question.  In some ways they have in fact created the “want” by using slick advertising in marketing its Old Navy brand on television with trendy, quirky copy that attracts a younger audience that is less “burdened” with expenses such as mortgage payments, health insurance or lawn-care like their parents.  The 18 to 30 year-old demographic has experienced spending cut-backs to be sure, but the group as a whole has also been more resourceful in their approach to finding deals online – which grew by 18 percent in the first quarter at Gap – utilizing social media and the internet to locate some of the best deals to be had.  The venerable retailer is clearly not out of the woods yet, but they may have turned a very important corner in the first quarter.

Unwanted Attention

Walmart became the focus of alleged bribery in Mexico when it became public that the company was being investigated under the foreign corrupt practices act (FCPA) for payments of nearly $24 million.  The allegations include that notion that senior management was aware of the payments and in the course of the internal investigation may not have provided full support or details to investigators.  The Act which is aimed at detecting and prosecuting firms and employees who participate in payment, kick-backs or bribery schemes outside of the U.S.  It has often resulted in companies having to re-shuffle their management ranks or to curtail doing business with some foreign nationals and their governments. The FCPA was enacted in 1977 and since then has snared companies for trying to gain favor with local officials to gain access to foreign markets.  The fallout for Walmart has been the resignation of Vice-Chairman Eduardo Castro-Wright from his board seat with insurer MetLife.  Mr. Castro-Wright is scheduled to leave his board seat with Walmart this summer.

Same Old, Same Old

The measure that has captured the attention of many investors and analysts remains same-store sales.  This metric compares the sales of the same stores that have been open for at least one year and therefore represents a more accurate sales figure than stores that have just opened or including stores that are in the process of closing.  For the first quarter Walmart reported same-store sales increased by 2.6 percent in the U.S.  Previous predictions pegged the number at 2 percent and marks the third quarter in a row that the metric has improved.  This follows on nine consecutive quarters when same-store sales number declined.  The hike in store performance yielded better free cash flow and enabled the company to continue its plan to return value to shareholders. Competitors like Target have performed well recently while returning value to their shareholders.

Putting Cash To Good Use

Walmart recorded free cash flow of $3.1 billion and pushed return on investment (ROI) to 18.1 percent.  In March the board of directors increased the annual dividend to $1.59 per share and in the first quarter paid dividends totaling $1.35 billion to shareholders of record.  The company also repurchased $1.59 billion of company stock as management continues to view the stock as under-valued by the marketplace and believes that the strategic use of cash is best deployed by reducing the number of shares outstanding and boosting the earnings per share that is accrued to current shareholders.  The company chief executive officer Mike Duke stated “We are very pleased that Walmart delivered earnings and comparable sales above guidance for the first quarter … we believe this momentum positions us very well for the rest of the year.”  Indeed, the retailer expects second quarter earnings per share to be better than first quarter.

A Rising Tide

The company raised its forecast for the remainder of the year.  For the full-year it now expects earnings per share to be 5 cents higher in the range of $4.60 to $4.80.  The company has a strategic mix of household goods, fashion, electronics and food at many of its locations that is providing a competitive edge in those markets where traditional grocery food chains have dominated in the past.  Target competes with Walmart  (NYSE:WMT) and Costco  (NASDAQ:COST) for household goods, apparel and food.  Economists have had trouble interpreting recent news for jobless claims and consumer spending – some saying that the economy is growing and others offering that the current trend is very similar to one year ago when the first quarter’s good news gave way to an awful summer and early fall for consumer spending and jobs as real estate woes continued.

More Brands, More Customers?

Target has been rolling out new products and featuring brands via a recently introduced in-store concept called “Shops at Target” which showcases products from Apple or fashion designs from Kirna Zabete in addition to their growing cadre of A-list fashionistas that have propelled the company to the upper-level of high-value discounted goods in short order.  The retailer has struggled to compete with Walmart and Costco when it comes to bigger-ticket items like plasma tvs or automotive products, preferring instead to stick to trendy, colorful apparel that is eye-catching and fun.  The company has done very well with its popular community outreach which funds local programs with up to $3 million on a weekly basis.  The continued success of its REDcard debit and credit cards which offer users a discount on every purchase, saw shoppers paying for 11.6 percent of their purchases in the first quarter, up from 7.6 percent one year ago.

Keeping Focused, Staying Profitable

CEO Gregg Steinhafel commented “We’re very pleased with our first quarter earnings, which benefited from better-than-expected sales … we expect to reward our shareholders over time.”  The company has worked hard to present an attractive experience to its loyal customers who look for and expect good value and exciting wares in the stores.  Shareholders have been rewarded with a continued stock repurchase program that in the first quarter resulted in 10.5 million shares being bought back for $604 million and a quarterly cash dividend of $0.30 per share that totaled $201 million.  Investors and analysts alike are impressed by the ability of the company to return value to shareholders while growing the retail business and credit card segments profitably in a consistent manner.

Larger Projects Still On Hold

One area of concern remains the “big-ticket” purchases, often tied to remodeling projects like kitchens, home media theaters or outdoor living spaces continue to see weak momentum in the first quarter.  While kitchen and bathroom remodels enjoy the highest return on invested time and materials, Home Depot did not see purchases in this area increase as broadly as smaller ticket items like flowers and gardening supplies.  The average sales ticket per customer improved to $54.51 from $53.35 one year ago, but sales per square foot of retail store remained stagnant increasing by only one dollar to $236 or a 0.4 percent improvement.  Home Depot’s main competitor Lowe’s   (NYSE:LOW) continues to focus on upscale brand names and sees improvement in remodels and renovation projects.  As consumer confidence improves customers should open their purses and wallets and begin to spend more on maintaining or upgrading their homes, despite the challenging real estate market. Both companies have faced competition from niche players like Lumber Liquidators  (NYSE:LL) who sells hardwood flooring materials at deep discounts and remains a force to be reckoned with in many markets throughout the country.

The Road Ahead

The company raised its forecast for the full-year based upon what it sees as improving trends in customer spending.  The company expects revenue to increase 4.6 percent over one year ago to $74 billion or earnings of $2.90 per share compared to previous predictions of $2.79 per share.  The real estate market continues to hold back some customers who have postponed making improvements, but now face the prospect of escalating home repairs to avoid more expensive solutions down the road.  Many home sales are foreclosures or distressed sales that often require repairs or renovations to be made to make the homes habitable for the new owners.  Some dwellers are making improvements as a result of not being able to sell their homes and are now choosing to stay and invest in their homes while they await the full recovery of the housing market.

Cash Is Flowing

The company reported that cash flow for the quarter remained strong with cash on hand reaching $3 billion.  This comes even as Home Depot continued to repurchase stock.  The company spent $1.1 billion in the first quarter to acquire stock and has re-affirmed its intention to purchase an additional $2.4 billion in shares over the remainder of the year.  Chief executive officer Frank Blake stated “We saw a stronger-than-expected start to the year, driven by warm weather and continued demand for core products.”  The company expects sales to improve this year at its 2,254 stores nationwide, but it’s keeping a close eye on Lowes and its 1,712 stores as customer remain cost-conscious and are looking for bargains from both companies.

Remain Calm, Do Not Panic

For his part, Mr. Dimon quickly admitted that the bank appears to have failed in its own attempt to manage risk in its trading portfolio and has been quoted as saying that the result was “stupid” and the bank will now embark an internal investigation as to why this happened.  The early fallout from the mess is the “retirement” of the Chief Investment Officer Ina Drew, who served the bank for 30 years with distinction, until very recently.  Mr. Dimon stated “It is important to remember that our company is very strong and well capitalized, with leading franchises across our businesses.”  Apparently the loss of $2 billion and what may become an even larger figure as the bank takes the remainder of the year to unwind the very challenging hedging strategy, which layered risk upon risk and may have collapsed under its own weight and complexity.  One view is that other firms – hedge funds and trading desks – may have become aware of JPMorgan’s problems earlier this year and actually took on trades that made JPMorgan’s ability to exit these positions difficult to impossible under the circumstances.  JPMorgan made few friends during the 2008 and 2009 recovery by claiming to be one of the few banks who understood risk and chose not to participate in some of the very behavior that they now face losses of billions of dollars from.

Reputational Risk

The bank has long been regarded as one of Wall Street’s best-run firms and had burnished that image by repaying the bailout money early and paying dividends to shareholders as their competitors struggled with new capital requirements from the Federal Reserve Bank.  Bank of America  (NYSE:BAC) and Citigroup  (NYSE:C) have downsized their balance sheets and exited most of the riskiest assets to avoid having problems meeting capital requirements that would prohibit them from paying executives bonuses or shareholders cash dividends. That’s not to say that either bank is in as good of shape as JPMorgan – they’re not – but they’re making progress and a $2 billion trading error doesn’t help JPMorgan when it comes to convincing main street that Wall Street has learned its lesson, yet.

Isn’t There A Law Against It?

The short answer is no.  The longer answer is maybe, but not until the so-called Volcker-Rule is fully-enacted that prohibits banks from engaging in proprietary trading.  Mr. Dimon was one of the most-vocal opponents to the Volcker-Rule prior to the recent disclosure by JPMorgan.  Whether they change their position or simply try to explain away the losses is something that remains to be seen.  The retirement of the Chief Investment Officer is a good start, but it will be interesting to see if other executives leave the firm and if any of their previous or current compensation is “clawed-back” as is now allowed under new rules.

]]> http://www.stockmarkettoday.com/jpmorgans-2-billion-hole-balance-sheet/feed/ 0 http://www.stockmarkettoday.com/eu-policy-makers-urge-greece/?utm_source=rss&utm_medium=rss&utm_campaign=eu-policy-makers-urge-greece http://www.stockmarkettoday.com/eu-policy-makers-urge-greece/#comments Mon, 14 May 2012 20:51:55 +0000 David Huber http://www.stockmarkettoday.com/?p=2155 Euro policy makers on Monday urged Greece to stay the course on strict austerity measures despite growing discontent among the country’s citizens according to the Associated Press. Following elections a week ago that showed voters’ approval of political parties that take the stance of reneging on bailout terms, many Euro officials are worried that the country’s leaders may decide to not follow through on budget reduction plans.

Potential Greek Exit

Belgian Prime Minister Steven Vanackere was quoted in the AP article stating that a Greek exit from the Euro would not provide a resolution to the nation’s sovereign debt issues, but Austrian PM Maria Fekter expressed her opinion that Greece may ultimately bow out of the European Union and its currency. The New Democracy party led by Antonis Samaras has not been able to form a coalition government following his election win over a week ago; signaling that Greek citizens may head to the polls in June for another round of voting.

CMC Markets analyst Michael Hewson told the Associate Press Monday, “Markets continue to feel the pressure and the stakes continue to rise as what was declared unthinkable a year ago or so now starts to permeate mainstream thinking in Europe.”

Greece’s Implementation of Austerity Measures

Greece has been through two Prime Ministers in the past six months. Once the nation’s parliament approved an initial round of budget cuts during George Papandreou’s tenure as PM, Lucas Papademos was appointed to replace him. Since then, thousands of federal jobs have been lost as the country continues to look for ways to decrease its federal budget and re-instill faith in its sovereign debt.

In March, Greek officials backed by the IMF and other regional nations agreed to terms with private bond holders that allowed for a sovereign bond swap for notes that are now worth less than half of their original value. The deal resulted in Greece avoiding a hard default on its debt, but rattled many investors who were forced to accept a much lower payment than promised for funds they had previously lent.

Euro Leaders Speak Out

Ireland’s Finance Minister Michael Noonan said Monday, “I would like Greece to stay in the euro. It’s very important that the eurozone stays intact.” Luxembourg’s Finance Minister Luc Frieden added, “We cannot come always back on the decision that we took. It is real tough for Greece.”

“Everyone realizes that to control debt, competitiveness needs to be increased, and — too bad for the population — it is translated into some form of impoverishment linked to lower wages,” said Belgian Finance Minister Vanackere.

How Would Investors React to a Greek Exit?

It remains unclear precisely how investors would react worldwide in the case of a Greek exit from the European Union. Austerity measures have been implemented in other EU countries such as Spain and Italy as well with little or no impact on debt reduction.

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]]> http://www.stockmarkettoday.com/eu-policy-makers-urge-greece/feed/ 0 http://www.stockmarkettoday.com/monster-subject-of-acquisition-talks/?utm_source=rss&utm_medium=rss&utm_campaign=monster-subject-of-acquisition-talks http://www.stockmarkettoday.com/monster-subject-of-acquisition-talks/#comments Mon, 14 May 2012 17:16:24 +0000 Dan Cypra http://www.stockmarkettoday.com/?p=2147 According to Reuters, Monster Worldwide, the parent company of Monster.com and HotJobs.com, has been the subject of numerous acquisition talks. Who the ultimate purchaser will be remains to be seen, but according to the same news agency, LinkedIn won’t be its buyer: “At least one would-be suitor, LinkedIn Corp, has decided not to pursue a deal after an initial look, according to people familiar with the matter.”

Monster’s shares were up big on Friday, May 11th after talk of an acquisition from a company like LinkedIn surfaced. In fact, Monster, which is traded on the New York Stock Exchange under the symbol MWW, saw its shares mushroom by 19% to $9.33 on Friday. However, the stock retreated 5.8%, or $0.54 during the morning hours of Monday’s trading session.

Expressions of Interest

Reuters added even more fuel to the fire, commenting, “New York-based Monster has since received expressions of interest from several strategic and financial buyers, the sources said. The company plans to send out financial information to the interested parties by the end of next week, they said.” Who the other parties are besides LinkedIn remains to be seen.

Monster has been facing some stiff competition in the job hunting market from social networking sites like LinkedIn, according to Reuters: “Monster’s model of job ads is facing new competition from social media such as Facebook and LinkedIn, as well as several other rivals in an industry where the barriers to entry are low. The company said in January it would cut 7% of its staff, or 400 jobs.” Monster holds nearly one-quarter of the “online recruitment” market, while LinkedIn has a market share of 16%.

Monster has some form of presence in 50 countries and owns a variety of Web properties, including ChinaHR, CareerOne, Military.com, FastWeb.com, and Admissions.com. It runs career-specific communities for chefs, Federal Government workers, marketing executives, and police officers, just to name a few.

Is Monster Worldwide A Good Retirement Investment?

Should you be sinking your IRA into “MWW”? Or has the time to start investing already passed? To that end, Seeking Alpha wrote, “Monster remains an extremely cheap stock. That, though, isn’t likely to change until a deal is actually on the table. Until then, keep looking to buy the stock on dips and not on spikes. While the $9.33 closing price on Friday is very appealing compared to analyst estimates of a $13 to $15 deal, the recent stock action suggests that lower prices will offer better entry points.”

The same site added, “Over the last three months, just about every buyout-related spike has led to cheaper buying opportunities within the next few days.” If that trend holds true, we could see the share price of Monster falling in the coming week. But, we’ll just have to gamble that the trend keeps up.

One year ago, shares of Monster sat at nearly $17 apiece before diving to just over $6.50 in November. The last 12 months have been quite a roller-coaster ride for its stockholders.

U.S. Jobs Market Could Favor Monster

According to one analyst, the job market going forward could favor Monster over its litany of rivals. Reuters shared the rosy news: “SunTrust Robinson Humphrey analyst Tobey Sommer said recent U.S. job trends make the company more attractive. The types of jobs being created in the current U.S. labor recovery play to Monster’s strength in mid-level job categories.”

Another possible suitor for Monster, Facebook, is nearing its initial public offering, but company executives have signaled that Facebook is not looking to make any major M&A splashes. However, an attractive offer for Monster could change Facebook’s tune.

Monster is a fixture of the online recruiting industry. Its website is decked out in its trademark purple color and features tools for writing resumes, finding jobs, getting advice, and interacting with communities. At the dead center of its home page, you’ll find search fields for job title, skills, and location. There are also iPhone, iPad, and Android applications for job seekers on the go.

Monster also has a pretty extensive presence on social networks, including YouTube, Flickr, Slideshare, Friendfeed, Foursquare, Twitter, and Facebook.

]]> http://www.stockmarkettoday.com/monster-subject-of-acquisition-talks/feed/ 0 http://www.stockmarkettoday.com/how-to-trade-vix-etns/?utm_source=rss&utm_medium=rss&utm_campaign=how-to-trade-vix-etns http://www.stockmarkettoday.com/how-to-trade-vix-etns/#comments Mon, 14 May 2012 15:28:43 +0000 John Nyaradi http://www.stockmarkettoday.com/?p=2143 VIX exchange traded notes have exploded in popularity over the last couple of years as investors and traders jump in to take advantage of the volatility in today’s markets in hopes of making quick and significant profits.

Unfortunately, many investors don’t understand how the VIX index works or how these new ETNs function and so, in many cases, the results have been less than desirable. VIX and VIX ETNs offer significant opportunities, however, to be successful you must be well informed and so in this article we’ll outline what you need to know to enter this exciting market.

The Correct VIX Definition

Many investors mistakenly believe that the Chicago Board Options Exchange Volatility Index – or VIX – is a negativity index, signaling bearish stock market conditions. This is incorrect. The VIX provides a measure of market volatility rather than negativity. At the website of the Chicago Board Options Exchange (CBOE), you will find this explanation of what the VIX really is:

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

In 1993, the CBOE introduced the VIX to measure the market’s expectation of 30-day volatility implied by at-the-money S&P 100 Index option prices. In 2003, the VIX was changed to incorporate a new measure of expected volatility. The updated VIX is based on the broader S&P 500 (SPX), rather than the S&P 100. It estimates 30-day expected volatility by averaging the weighted prices of SPX put and call options over a wide range of strike prices.

The VIX components are near- and next-term put and call options, usually in the first and second SPX contract months. “Near-term” (or “front month”) options must be at least one week away from expiration. This requirement minimizes extraordinary pricing situations which could arise as the expiration date approaches. Once the near-term options are seven days away from expiration, the VIX “rolls” to the second and third SPX option contract months.

The VIX is a two-digit number representing the anticipated percentage of movement either upward or downward by the S&P 500 during the forthcoming 30-days. The S&P 500 Index (.INX) may not necessarily fall within the range predicted by the VIX for a given time frame because as stock prices change, they impact the implied volatility of the SPX options premiums for the near- and next-term. Rather than serving as a predictive device, the VIX provides insight on investor (and trader) sentiment as well as an up-to-date perspective on how the market could react to changing conditions. The VIX also reveals the extent to which options traders are willing to pay an increased price for options contracts to protect their investments from unforeseen market fluctuations. Although the VIX could theoretically rise above 100, the highest it ever reached was 75.46 on October 10, 2008 at 1:03 p.m. in Chicago.

Trading on Stock Market Volatility

There are two primary ways to trade on the volatility of the stock market. One means involves the trading of volatility options (both put and call options are available). The VIX is used to establish the values of volatility options. The second approach is the utilization of exchange-traded notes (ETNs) known as Volatility ETNs. The prices and movement of volatility options form the basis for establishing the value assigned to Volatility ETNs, which can be either “long-oriented” or “short-oriented.” Long-oriented Volatility ETNs are purchased when volatility is low in order to profit from situations when the VIX increases due to increasing market volatility. Short-oriented Volatility ETNs are purchased when market volatility is high (as indicated by a high VIX number) in order to profit from decreasing volatility.

One of the most attractive features of VIX ETNs is that you can make both long and short directional trades on the VIX in a regular brokerage account or even a qualified account like a 401k or IRA and not have to venture into the arcane and complex world of options trading.

The two most popular and widely traded VIX ETNs are:

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): This is the ETN designed to rise in price as the VIX futures contracts rise and so offers “long” exposure to VIX. The iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) tracks the average and implied volatility of the first two months of futures contracts of the S&P 500 Index.

Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEARCA:XIV): This ETN is designed to inversely track the volatility in the markets as measured by the S&P 500 VIX Short-Term Futures Index and so as VIX futures prices decline, this ETN will increase in price.

A quick glance at VIX shows us that it’s in a new uptrend, above its 50 day moving average and closing on its historical average level in the 20s. MACD and RSI show it to be in an uptrend, as well, so on a technical basis the outlook for VIX is bullish. (Conversely, the outlook for equities is bearish)

Final Thoughts

In summary, the Chicago Board Options Exchange Volatility Index – or VIX – is a stock market volatility index that estimates 30-day expected volatility by averaging the weighted prices of SPX put and call options over a wide range of strike prices. Rather than serving as a predictive device, the VIX provides insight on investor (and trader) sentiment as well as an up-to-date perspective on how the market could react to changing conditions. The VIX also reveals the extent to which options traders are willing to pay an increased price for options contracts to protect their investments from unforeseen market fluctuations.

There are two primary ways to trade on the volatility of the stock market. One means involves the trading of volatility options and the second involves the utilization of Volatility ETNs. Volatility ETNs provide a less-risky alternative for investors with a moderate level of experience, whereas volatility options involve more risk. The two most popular ETNs for volatility exposure are iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) and Velocity Shares Daily Inverse VIX Short-Term ETN. (NYSEARCA:XIV) VIX and VIX ETNs are a new and complex market and offer opportunity for knowledgeable investors and traders who want to hedge current equity positions or make directional trades based on the rise and fall of volatility.

Disclosure: Wall Street Sector Selector holds long positions in VXX.

]]> http://www.stockmarkettoday.com/how-to-trade-vix-etns/feed/ 0 http://www.stockmarkettoday.com/chinese-government-to-enact-quantitative-easing/?utm_source=rss&utm_medium=rss&utm_campaign=chinese-government-to-enact-quantitative-easing http://www.stockmarkettoday.com/chinese-government-to-enact-quantitative-easing/#comments Sun, 13 May 2012 23:56:45 +0000 David Huber http://www.stockmarkettoday.com/?p=2139 According to an article published by the New York Times Sunday, the Chinese government will enact further stimulus in reaction to the country’s dwindling “emerging market” status. The Times quoted several government sources and economists who said they believe that China’s policy makers are likely to take action as a part of a “broader program of economic stimulus” and went on to quote HSBC’s Co-Director of Asian Economic Research Qu Hongbin. “We expect more aggressive delivery of policy stimulus via quantitative easing, substantial tax breaks, fiscal spending and investment deregulation in the coming months to ensure a soft landing,” Hongbin said.

Lack of Investment Opportunities

Just five years ago, China appeared to be on its way to cementing its status as the world’s leading emerging market country as global companies sought to set up headquarters in a region where labor costs and government regulatory environments are far less than in other industrialized countries. However, in 2012, imports and exports are increasing at a much slower rate than previously expected while banks are appearing to be more selective with potential borrowers.

The result has been an overall Chinese slowdown in many industrial sectors as investors seek to place their assets in South America or even the perceived safe haven of U.S. sovereign debt in the form of Treasuries.

The Controversy Surrounding Economic Stimulus

The controversy surrounding economic stimulus has long been documented by this site and financial news outlets worldwide. While the provision of fiat currency liquidity often assists certain economic segments in times of difficulty, the implementation of stimulus policy also has the unintended consequence of creating winners and losers as those who receive government bailouts or low interest loans ultimately enjoy an advantage over companies that do not.

The ethics concerns tied to quantitative easing also relate closely to worries of inflation. If a government or central bank releases too much fiat currency into an economy during a particular period, the end result is that prices rise at a far faster rate than wages.

Real Estate Depreciation

Aside from economic stimulus, the Chinese government has artificially depressed its housing market in many regions by implementing price controls on land and apartments. Companies which once had a sufficient amount of monetary liquidation collateral to secure loans from the country’s financial institutions are now having to face limited credit due to the drop in overall value of real estate holdings caused by policy makers’ desire to make housing more affordable.

Price controls also come with their own set of unintended consequences such as provoking artificial scarcity that can result in catastrophic shortages on goods or services. Chinese policies draw a stark contrast between measures taken by EU leaders which have imposed austerity measures on sovereign governments in exchange for rescue loan package guarantees.

The bottom line however is that investor faith in the present is naturally driven by the perception of future demand, regardless of whether it’s sovereign debt, corporate debt or goods. China’s status as the world’s most enticing emerging market could be declining in the eyes of many analysts as they forecast difficulties in upcoming years.

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]]> http://www.stockmarkettoday.com/chinese-government-to-enact-quantitative-easing/feed/ 0 http://www.stockmarkettoday.com/chesapeake-energy-gets-3-billion-unsecured-loan/?utm_source=rss&utm_medium=rss&utm_campaign=chesapeake-energy-gets-3-billion-unsecured-loan http://www.stockmarkettoday.com/chesapeake-energy-gets-3-billion-unsecured-loan/#comments Sat, 12 May 2012 22:29:20 +0000 David Huber http://www.stockmarkettoday.com/?p=2134 Shares for Chesapeake Energy Corporation (NYSE:CHK), which have lost more than half their value over the past 52 weeks, dropped another 13.8% Friday upon the firm’s announcement that it had “enhanced” its financial flexibility via a $3.0 billion unsecured loan from Goldman Sachs Bank USA and affiliates of Jefferies Group Inc. The news comes just one week the natural gas and oil exploration and production company announced disappointing first quarter 2012 earnings figures that further lowered investor confidence in the firm’s market value.

Funds Will Go Toward Repayment

The net proceeds of the loan will not be utilized for reinvestment into the company according to Chesapeake’s official release, but rather will go toward repayment of previously borrowed funds under the company’s existing corporate revolving credit facility. The new refinancing plan is scheduled to mature in December, 2017, and can be repaid this year without any penalty. The initial variable annual interest rate through December 31, 2012 will be the result of LIBOR plus 7.0%, which is currently 8.5% total, given the 1.5% LIBOR floor in the loan agreement.

The company has plans to complete asset sales of between $9.0 billion and $11.5 billion during the 2012 fiscal year, and plans to use the proceeds from those transactions to repay the most recent unsecured loan. Chesapeake has claimed that it has received “strong interest” from potential buyers of its Permian Basin process along with its Mississippi Lime joint venture process, plus another two major transactions that the firm expects to complete during the third quarter of this year.

CEO Statement

Chesapeake Energy’s Chief Executive Officer Aubrey K. McClendon told investors Friday, “This short-term loan from Goldman and Jefferies provides us with significant additional financial flexibility as we execute our asset sales during the remainder of 2012. As previously announced, Chesapeake’s business strategy is evolving in 2012 from the unconventional resource play identification and leasehold capture strategy of the past seven years to a strategy now focused exclusively on developing the 10 core plays in which we have built a #1 or #2 position and on continuing our transition from natural gas to liquids, reducing capital expenditures and paying down long-term debt.”

McClendon added, “We believe Chesapeake has built the nation’s best collection of E&P assets, and we are 100% committed to delivering on the very substantial growth and value embedded in these assets for our shareholders through a relentless focus on developing our 10 core plays.”

Chesapeake Stock Performance

As mentioned above, Chesapeake Energy Corporation shares have plunged more than 50% from a year ago and are well off their all-time high of $66.78 in 2008 just before the domestic financial crisis hit. Year To Date, the stock has been hit with a 33.56% market value loss and was trading at $14.81 per share as of 4:00pm Eastern Time Friday afternoon.

Chesapeake currently offers a 2.36 percent dividend of $0.09 to its shareholders and has an annualized Earnings Per Share of $2.42 to go along with its Price To Equity Ratio of 6.11. The firm’s market capitalization if $9.84 billion.

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