Why TICC Capital Is Poised to Outperform

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, closed-end asset manager TICC Capital Corp. (NASDAQ: TICC  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at TICC and see what CAPS investors are saying about the stock right now.

TICC facts

Headquarters (founded)	Greenwich, Conn. (2003)
Market Cap	$523.3 million
Industry	Asset management
Trailing-12-Month Revenue	$74.8 million
Management	CEO Jonathan Cohen (since 2003) COO Saul Rosenthal (since 2003)
Return on Equity (average, past 3 years)	14.2%
Cash / Debt	$60.2 million / $390.1 million
Dividend Yield	11.7%

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 97% of the 292 members who have rated TICC believe the stock will outperform the S&P 500 going forward.   

Just yesterday, one of those Fools, All-Star arisktaker, tapped TICC as a particularly attractive income opportunity:

[C]urrently paying an 11.69% dividend. Closed-end investment company. Provides capital to non-public, small & medium-sized, technology companies. Company also has warrants of other equity instruments [in] some of the companies it lends to. No insider purchases or sales in the last 12 months. Should do well in a recovering economy.

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong four-star rating, TICC may not be your top choice. If that's the case, we've compiled a special free report for investors called "Secure Your Future With 9 Rock-Solid Dividend Stocks," which uncovers several other juicy income opportunities. The report is 100% free, but it won't be around forever, so click here to access it now.

J. C. Penney Meets on Revenues, Misses on EPS

J. C. Penney (NYSE: JCP  ) reported earnings on May 16. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended May 4 (Q1), J. C. Penney met expectations on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue dropped significantly. Non-GAAP loss per share expanded. GAAP loss per share expanded.

Margins shrank across the board.

Revenue details
J. C. Penney logged revenue of $2.64 billion. The 12 analysts polled by S&P Capital IQ predicted sales of $2.63 billion on the same basis. GAAP reported sales were 16% lower than the prior-year quarter's $3.15 billion.

Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
EPS came in at -$1.31. The 10 earnings estimates compiled by S&P Capital IQ forecast -$0.93 per share. Non-GAAP EPS were -$1.31 for Q1 against -$0.25 per share for the prior-year quarter. GAAP EPS were -$1.58 for Q1 versus -$0.75 per share for the prior-year quarter.

Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 30.8%, 680 basis points worse than the prior-year quarter. Operating margin was -15.7%, much worse than the prior-year quarter. Net margin was -13.2%, 800 basis points worse than the prior-year quarter. (Margins calculated in GAAP terms.)

Looking ahead
Next quarter's average estimate for revenue is $2.84 billion. On the bottom line, the average EPS estimate is -$0.90.

Next year's average estimate for revenue is $12.31 billion. The average EPS estimate is -$3.45.

Investor sentiment
The stock has a one-star rating (out of five) at Motley Fool CAPS, with 697 members out of 1,082 rating the stock outperform, and 385 members rating it underperform. Among 252 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 164 give J. C. Penney a green thumbs-up, and 88 give it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on J. C. Penney is hold, with an average price target of $16.26.

Is J. C. Penney the right retailer for your portfolio? Learn how to maximize your investment income and "Secure Your Future With 9 Rock-Solid Dividend Stocks," including one above-average retailing powerhouse. Click here for instant access to this free report.

Add J. C. Penney to My Watchlist.

CheckPoint Picks a CFO

Three months after settling upon a new chief executive officer, it looks like Thorofare, N. J.-based Checkpoint Systems (NYSE: CKP  ) will soon have itself a new CFO as well.

On Friday, the "shrink management" (i.e., anti-shoplifting) company announced that CFO Raymond D. Andrews plans to retire on July 31. Andrews will remain for the next couple months to ensure an orderly transfer of power. Meantime, his replacement, newly hired CFO Jeff Richard, will take over on May 28.

Richard joins Checkpoint from environmental services firm Safety-Kleen Systems, where he also served as CFO. Prior to that, he was COO and CFO at Pavestone Company.

Simultaneously with making the new-hire announcement, Checkpoint revealed in a filing with the SEC the terms of Richard's employment. He will be paid a base annual salary of $420,000, plus:

an annual executive bonus targeting 75% of base salary, but ranging as high as 135%; long-term incentive compensation of up to 75% of salary; 5,760 stock options vesting over three years; 12,100 restricted stock units vesting when the stock price closes above $15 and stays there for one month; 2,600 performance shares that all vest simultaneously after three years; and an additional 20,000 stock options and 30,000 restricted stock units vesting over three years, but only if he relocates to Philadelphia by the end of this year.

Could Apple Fall to $300 This Year?

In this video, Motley Fool analyst Andrew Tonner focuses on Apple's current situation. The share price has been on the decline and is already below the $400 mark, marking a 45% drop from last September.

A lot of investors now wonder whether the stock will hit the $300 mark soon. Andrew doesn't think so. Looking at Apple's upcoming earnings report, he sees that even though the company might show a decline in revenue and market share, it's also expecting a 9% increase in revenue growth.

Andrew also says the market is misunderstanding Apple's situation. Other companies in the sector are trading on values based on their growth opportunities, but Apple itself has a lot of future growth prospects, including a possible smart watch and a lower-cost iPhone. Investors are also likely to get an increased dividend payout soon.

Check out the video for further details.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Why Did My Stock Just Die?

Just the other day I remarked how often the Dow Jones Industrial Average got saved by late-afternoon rallies that limited the damage done during the day. Yesterday, however, the index flipped the script, and despite ending the day 60 points higher and hitting a new all-time record of 14,673, it was actually a late-afternoon sell-off that kept the Dow from finishing even higher.

While the gains in the index were broad and deep, the few losses recorded on the day were rather shallow, the worst being the 0.6% loss by Proctor & Gamble. Yet consumer products in general were soft as Clorox, Colgate-Palmolive, and Kimberly-Clark all closed down, though each by less than 1%.

Consumer confidence was buffeted in March as those who thought the economy was in good to excellent shape fell to 18% of respondents in the Discover U.S. Spending Monitor survey, while those who rated it fair increased to 34%. Half of those surveyed, however, expect the economy to worsen, and unsurprisingly those who made $75,000 or more a year thought things were better than those making less. The Bloomberg Consumer Comfort Index was also still in negative territory, even if it was above its lows.

It's in the genes
Elsewhere in the market, however, Affymetrix (NASDAQ: AFFX  ) tumbled more than 13% after preannouncing first-quarter earnings that missed even its own expectations. It blamed "headwinds" in its gene expression business everywhere it does business, though it suffered a particular shortfall in Japan. The Fool's Sean Williams thinks that may indicate more than a one-off performance issue because of the global nature of the miss Affymetrix suffered.

Competition has been fierce among gene sequencing firms, but for the right players, business has been good. Life Technologies (NASDAQ: LIFE  ) is being wooed by a number of suitors, including a bevy of private equity firms along with Thermo Fisher who all want access to Life's leading genetic sequencing equipment. Bids north of $11 billion are expected, which is said to be the biggest buyout in the space since Thermo Electron bought Fisher Scientific for almost $13 billion in 2006 to create Thermo Fisher.

That may end up being one hope for Affymetrix investors, that it ends up getting a bid from one of the losers in the process or still others looking to break in. Illumina was approached by Roche last year, but the pharma giant wouldn't raise its $6.8 billion offer and walked away, while Danaher was said to have at least a passing interest in Life Technologies.

Although Affymetrix's shares are up 26% so far in 2013, yesterday's sharp decline puts them 25% below their 52-week high. That may make it vulnerable, and with a global slowdown in its business, perhaps an attractive alternative.

Ricochet rabbit
For retailer J.C. Penney (NYSE: JCP  ) , yesterday's 12% drop in its stock was a result of the manic way in which the company seems to respond to crises these day. This time it was dumping CEO Ron Johnson, who presided over the disastrous change in pricing strategy that drove away its customers in droves, and bringing back former CEO Myron Ullman, an acknowledged turnaround expert, but one who had been unable to get Penney's going the last time he was at the helm.

Indeed, it was the need to shake the venerable retailer out of its torpor that led activist investor Bill Ackman to choose Johnson in the first place to come in and shake things up. That he did, though not in a way anyone expected. While there were many skeptics about Johnson's ability to translate the Apple experience from whence he came to a stodgy retailer, private equity investors aren't exactly long-haul holders of a stock, and they desire a quick fix.

As has been endlessly dissected, Johnson changed Penney's from its traditional door-buster-sale mentality to an everyday-low-price strategy, but customers instead chose to fool themselves into thinking they were getting a deal and shopped instead at rivals Kohl's and Macy's, which still employ that pricing plan. While Johnson did at last throw in the towel this year on his strategy, the board of directors apparently decided it was time a new, new face -- which is really an old face -- was needed.

That lack of stability is worrisome to the markets, as it projects incoherence in strategy. Despite his bona fides in retail, I'm not sure Ullman is the man for the job, because he wasn't able to execute previously either. The markets apparently agree.

Ready for a resurrection?
J.C. Penney's stock cratered under Ron Johnson's leadership, but could new CEO Mike Ullman present the opportunity investors have been waiting for? If you're wondering whether J.C. Penney is a buy today, you're invited to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about JCP's turnaround -- or lack thereof. Simply click here now for instant access.

 

The High Cost of Free Delivery - to Online Retailers

Mark Lennihan/AP For top U.S. retailers, free delivery is now the norm. That is good news for shoppers, but not so much for investors. During the just-ended holiday season, outlets from Target (TGT) to Walmart (WMT) to Amazon (AMZN) expanded their free-delivery options, adding more items eligible for free shipping. They also did away with minimum spending thresholds to qualify for the perk. Yet as more U.S. shoppers view free shipping as their right, retailers struggle to make a profit online. That struggle will become evident in coming weeks when companies report financial results for the holiday quarter, analysts said. "For most companies, it is a very expensive proposition to try to offer fast and free," Steve Osburn, director of supply chain for consulting firm Kurt Salmon, said in an interview. "It's really eating away at the margin dollars at some of these retailers." Shipping remains a key battleground in the escalating war between brick-and-mortar retailers and Amazon.com Inc, with both sides spending big on logistics. Offering free shipping has long been standard practice during the holidays, but in 2014, retailers leaned on it heavily all year long. What Amazon Says (and Won't Say) The number of online purchases in the United States with free delivery hit a high of 68 percent in the third quarter of 2014, according to industry-data tracker comScore, up from 44 percent the previous year. Amazon said that it saved customers $2 billion in shipping fees over the holidays. Much of those savings came via Amazon's Prime program, which offers free shipping on most items for a $99 annual fee. The company declined to share the previous year's figure. Nor would it share estimates on how much more Prime customers bought compared with others, which would provide some insight into how much Prime might boost Amazon's revenue. Forrester Research analyst Sucharita Mulpuru estimates that Amazon loses $1 billion to $2 billion a year on U.S. Prime shipments. Other retailers, including Target and Walmart, are removing minimum-spending thresholds on free shipping to entice consumers, consultants said. Just over half of companies surveyed by Kurt Salmon eliminated those thresholds for the 2014 holiday season, up from 5 percent the previous year. Perks Come at a High Price for Investors Amazon's shipping costs during the first nine months of 2014 rose 32 percent, compared with 29 percent in the same period of 2013. This growing subsidy for customers might give investors more reason to dump Amazon shares. The company's stock declined 22 percent in 2014 even as the U.S. stock market, as measured by the S&P 500 (^GPSC), gained more than 11 percent. Target said in November that growing online sales were pressuring margins, due in large part to higher shipping expenses. Much like Amazon, Target offers free shipping year-round for users of its membership card. Online orders account for about 2.5 percent of Target's overall revenue, or roughly $1.85 billion out of the $74 billion in annual sales analysts are forecasting for the current fiscal year which ends on Jan. 31, 2015.

"If [Walmart] can't make it work or cost-friendly, I don't know who can. - Jarrett Streebin

In a recent note, Wolfe Research said a 1 percent move in sales to Target's online business cuts profit margins by 5 basis points. The retailer said it did not see the cost of a free holiday-shipping campaign as material to fourth-quarter results, and added it expected to improve profitability from online operations over time. Walmart does not break out its e-commerce division's profitability or shipping costs. In October it said it expected the next 18-24 months to bring heavy investments and operating losses in e-commerce as it builds fulfillment centers and makes other outlays to drive sales. It expects online revenue to hit $12.5 billion in the year to January 2015 and grow at about 30 to 40 percent over the following three years. "Most brick and mortar retailers that move online are run at a loss still because they haven't mastered the shipping piece," said Jarrett Streebin, CEO of shipping startup EasyPost. "If [Walmart] can't make it work or cost-friendly, I don't know who can." Adapt or Die The bulk of U.S. retail sales takes place in person, but e-commerce is growing quickly. Online sales rose 16 percent in the third quarter compared with 4 percent for retail sales overall. To offset the high cost of shipping packages to online shippers, retailers tried over 2014 to lean more heavily on their brick-and-mortar operations in what they dub the omnichannel approach. That includes shipping online orders from nearby stores rather than faraway warehouses to cut down on freight costs, or encouraging customers to pick up online orders in stores. Walmart, for example, offers free same-day in-store pickup on more than 70,000 items. For its part, Amazon has been rapidly building warehouses near major cities to bring items to customers faster while also adding extra-fast options such as Prime Now, a one-hour delivery service in New York. "The margins are worse for everybody, but it doesn't really matter because you have to play the game," Cowen and Company analyst Oliver Chen said. "That's the way the shopper is moving, whether you like it or not." More from Reuters
•Market Wrap: A Muddled Start for the New Year •Got Lots of Money, Honey? You Can Buy Elvis' Jets •FedEx, UPS Recalculate, Raise Rates

Cliffs Natural Resources: Look Out Below

Rio Tinto (RIO) is up today. So are BHP Billiton (BHP) and Vale (VALE). But Cliffs Natural Resources (CLF) has dropped nearly 10% today despite being in the same business. The reason: The Cleveland-based iron miner took a $6 billion charge today.

Reuters

The Minnesota StarTribune has the details on Cliffs Natural Resources’ charge:

Cliffs Natural Resources Inc…said it would write down the value of its coal and iron ore assets by $6 billion due to weak prices, putting it in breach of debt covenants and sending its shares down around 7 percent.

Cliffs said the non-cash charge would increase its debt-to-capital ratio over the 45 percent threshold set by its credit facility, and it was working with bankers to amend the covenant.

Wells Fargo’s Sam Dubinksy considers the pros and cons of Cliffs’ write-down:

On the negative side, these markdowns in our view call into question the ultimate sale price of non-core assets (i.e. media reports have estimated Australia alone could be worth $1B, which we view as highly unlikely). On a positive note, we’re assuming the asset markdowns could result in lower depreciation expense and tax NOL, which may help EPS (but have no impact to EBITDA).

Shares of Cliffs Natural Resources has dropped 8.1% to $8.73 at 3:15 p.m., while Rio Tinto has gained 0.7% to $50.17, BHP Billiton has risen 0.9% to $59.24 and Vale has advanced 1.7% to $10.94.

Eurozone Struggles Continue; Germany Remains Region's Cornerstone

Europe appears to be stuck in a rut. Mario Draghi's years old promise of “whatever it takes” is now putting him in a position to act.

Manufacturing PMI has declined for the fifth consecutive month. Services PMI also contracted in September, registering an index value of 52.8 compared with August's value of 53.1.

(Click To Enlarge)
Looking at GDP growth in Europe, alongside the Morgan Stanley PMI-based GDP indicator, gives minimal hope for those expecting a Q3 growth rebound. Morgan Stanley is officially forecasting an EU GDP quarter-over-quarter growth rate in Q3 to be annualized 0.2 percent.

Addressing the likelihood of an EU rebound in 2015, Morgan Stanley analysts wrote, "We continue to think that a meaningful acceleration in economic activity in the euro area as a whole is unlikely in the near term, especially given the persistent weakness of the French and the Italian economies."

(Click To Enlarge)
Germany remains Europe’s cornerstone. Germans, according to Morgan Stanley, are the ones mainly responsible for the pent-up reading in business confidence. German PMI has accelerated, whereas in struggling places like France, the PMI contracts further to 49.1 in September from 49.5 in August.

(Click To Enlarge)
Europe continues to be very fragile. The ECB’s decision to execute its QE policy may help to prevent an increasing rate of deflation and what appears to be a fleeting level of business confidence.

Posted-In: ecb European Central Bank Morgan StanleyEurozone Economics Federal Reserve Markets Movers

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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JPMorgan Earnings Beat Low Expectations (JPM)

Popular Posts: 5 Low-Beta, High-Yield Dividend Stocks for a Market Crash5 Stocks to Buy for July5 Stocks to Sell for July Recent Posts: Did Home Depot Just Legitimize 3D Printing Stocks? JPMorgan Earnings Beat Low Expectations (JPM) The Top 10 S&P 500 Dividend Stocks for July View All Posts JPMorgan Earnings Beat Low Expectations (JPM)

JPMorgan Chase (JPM) earnings declined year-over-year but managed to beat Wall Street’s lackluster forecast, helped by a drop in trading revenue that wasn’t as bad as feared. Predictably, JPM stock got goosed by the upside surprise.

Like Citigroup (C) earnings on Monday, JPMorgan was able to exceed low expectations, which were driven by a slowdown in mortgage lending and vapor-thin trading volumes, especially in the lucrative fixed-income market.

Rising interest rates cooled off the refinancing boom more than a year ago — just look at results from mortgage giant Wells Fargo (WFC) for evidence of that. At the same time, trading in everything from equities to fixed income to commodities has hit a prolonged slump, hurt by tougher new financial regulations, a lack of volatility and uncertainty about the future path of interest rates.

As a result, revenues and profits for the biggest banks are under pressure. Happily for JPMorgan earnings and JPM stock, however, the declines in the second quarter weren’t as steep as analysts feared.

For the most recent period, JPMorgan said net income fell 8% to $6.0 billion, or $1.46 per share, from $6.5 billion ($1.60 per share) in the year-ago quarter. Analysts, however, modeled earnings of $1.29 a share, according to Thomson Reuters, and so JPMorgan served up a huge earnings beat.

JPMorgan revenue declined 3% to $24.5 billion, which surpassed Wall Street’s forecast of $23.7 billion.

JPMorgan Earnings: “Not Terrible” Saves the Day

JPMorgan earnings exceeded estimates thanks to a shallower-than-forecast drop in trading revenue. Revenue generated from the JPMorgan fixed-income and equity markets declined 15% year-over-year against expectations for a drop of 20%. Elsewhere in the industry, Citigroup said trading revenue fell 16% vs. a forecast for a plunge of 20% to 25%. Goldman Sachs (GS) on Tuesday said operating profit from trading in fixed income, currencies and commodities decreased 10%.

JPMorgan earnings did show strength in other areas of business. Investment banking fees rose 3%, helped by the upturn in mergers and acquisitions and initial public offerings. The wealth management division also grew smartly, with revenue up 5% on a 15% expansion in client assets.

The better-than-expected JPMorgan earnings results lifted JPM stock sharply in early trading, bringing roughly breakeven for 2014. JPM stock was off 3.7% for the year-to-date heading into the JPMorgan earnings release, hurt by the slowdown in mortgage lending and trading.

Investors are also worrying about the health of JPMorgan CEO Jamie Dimon, who has been diagnosed with cancer of the throat.

The Bottom Line

Either way, JPM stock finds itself in the unusual position of being a market laggard. Indeed, JPM stock is trailing the S&P 500 by seven percentage points so far this year. That has JPM stock looking more like a bargain than a bust — at least for patient investors.

As we said with WFC stock, if you’re bullish on the economy and stock market, you have to be bullish on JPM stock. It’s hard to see either of them enjoying an extended period of growth without JPM stock participating eventually.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Disney: Anything But Frozen?

Morgan Stanley’s Benjamin Swinburne and team lowered their 3rd quarter earnings estimate on Walt Disney (DIS)–despite the big boost provided by Frozen’s continued success:

Yoshikazu Tsuno/Agence France-Presse/Getty Images

While F3Q14 faces tough theatrical comps vs. last year (Iron Man 3, Monsters University), robust box to date aided by Captain America and Maleficent should help minimize downside. Frozen will likely be a source of continued upside to Home Video, as well as a key driver of sustained Consumer Products strength. At CP, we forecast double-digit growth to continue for both licensing and retail revs in F3Q, particularly as supply constraints further ease on Frozen merchandise…

On a consolidated basis, we raise our Studio, CP and Interactive estimates, partly offset by a reduction in ESPN and ABC ad sales. However, lower deferred revenue recognition at ESPN results in our F3Q14 EPS estimate of $1.13 ($1.16 prior). We bump up our PT to $85 (mid-CY15), or 17x forward EPS.

Shares of Walt Disney have gained 0.4% to $83.09 at 2:12 p.m. today.

PIMCO’s Gross Cruises Into ‘New Neutral’

Following up on his May investment outlook, in which he argued that “If the neutral policy rate was 2% instead of 4% then bonds, instead of being artificially priced, would be attractively priced,” in his June commentary, PIMCO’s Bill Gross goes deeper into the neutral policy rate debate, arguing that the real neutral rate should be at zero or close to it. He also conveniently provides a shortened takeaway of his latest thoughts:

That’s helpful, but the popular takeaway from his latest monthly commentary will probably be (if social media is any guide): Bill Gross doesn’t own a cellphone.

Gross begins his June investment outlook by lamenting that the younger generation is trying to freeze time, using handheld devices like, umm, a cell phone to “record and memorialize” events for other’s viewing pleasure or for future consumption. “My view is that there is time stored in that cellphone, but its vintage may be somewhat sour, as compared to the sweetness of the here and now,” he writes. He then cites a Pew study on the heavy use of texting by American teenagers who “may get so caught up in their frantic ‘busyness’ that they fail to capture their present.”

So he pleads instead for “living in the moment.” As for cellphones, “They may be virtual, but they’re not reality.”

Then he gets into the meat of his commentary, saying “PIMCO’s reality in recent months has been captured by the phrase “The New Neutral,” defined as a real Federal Reserve Fed Funds rate of 0%, or perhaps even a little below 0%. Moreover, that zero rate, citing work done by Thomas Laubach and John Williams of the Fed, has declined “from over 4% in early 1970 to below 2% (and heading lower) today. Their most recent calculation of the current 'cyclical' rate is actually -0.25%.” Gross argues that when it comes to this New Neutral rate, “things are just gonna be this way for at least the next 3–5 years, and likely much more.”

So what does a “neutral” rate mean? Gross says Janet Yellen’s Federal Reserve answers it as “the rate consistent with full employment trend growth and stable prices.” He then quotes Yellen when she was San Francisco Fed President in 2005: “Research suggests that the neutral real rate depends on a variety of factors – the stance of fiscal policy, the trend of the global economy … the level of housing prices, the equity markets, the slope of the yield curve ... and it changes over time.”

Gross says PIMCO “cannot quarrel with such logic” before suggesting that the New Neutral real rate is also determined by two other factors: slower labor force growth and productivity and financial system leverage. He then cites Paul McCulley’s past research on “The New Neutral” (McCulley just rejoined PIMCO as chief economist, reporting to Gross) in which he argued, said Gross, that “the price of ‘real’ short-term credit” should be “close to 0% real because there was so much of it that was finance as opposed to real economy related.”

Then Gross makes his argument as to why “the more finance-based and highly levered an economy is, the lower and lower real yield levels should be to prevent a Lehman-like earthquake.”

We should “get used to” real rates of 0–50 basis points, which would benefit bondholders rather than savers, concluding that “becoming a conservative debtor while structuring a portfolio appears to make common sense.” He suggests that such low real policy rates, which “will be frigidly low for an extended period of time,” will require a new approach to portfolio management. 

PIMCO itself continues to struggle with outflows from its mutual funds. Morningtar reported in mid-May that in April, the bond shop had total net outflows of $5.5 billion, bringing its year-to-date outflows to some $21 billion, and its 12-month outflows to nearly $80 billion.

---

Bill Gross found a home on the IA 25 list this year. View his extended profile here.

Check out PIMCO’s Gross: Pop Your Bubble Fears! on ThinkAdvisor.

 

Stock buybacks surge: Is that a good thing?

According to Wall Street legend, a speculator named Daniel Drew got his start by driving cattle into Manhattan, back when there really were cattle drives there. Just before they got to the market, he'd let his skinny, rangy cattle drink as much water as they wanted after the long, hot drive, giving them a nice, plump appearance — and plenty of water weight, too.

The next day, they'd be skinny, rangy cattle again, and the buyer would exclaim, "I've been sold watered stock!" Over the years, "watering the stock" has come to refer to the practice of companies issuing additional stock, and thereby, diluting its value.

It stands to reason that if watering stock is bad, then decreasing shares outstanding is good. After all, if there are fewer shares, they should be worth more, all other things being equal. But corporate buybacks are rarely the good things that companies promote them as — and they can be a warning sign that management simply has no idea what to do with its money.

Companies in the Standard and Poor's 500 stock index bought back about $160 billion in stock in the first quarter — the number is an estimate because the first-quarter tallies aren't complete, says Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. If that number's accurate, it would be the second-highest amount of stock repurchases in history, trailing only the $172 billion in the third quarter of 2007.

Students of history will recall that the largest bear market since the Great Depression began in October 2007, which is one reason to view stock buybacks skeptically. Companies rarely buy their own stocks because they think the stock is undervalued, as superstar Warren Buffett pointed out in a 1999 investment letter: "Repurchases are all the rage, but are all too often made for an unstated and, in our view, an ignoble reason: to pump or support the stock price."

Reducing the share count is one way that buybacks pump a stock price. But there's a somewhat more subtle way that repurc! hases kick up a stock's value. Analysts look at a company's earnings per share. If a company's earnings are the same and the number of its shares fall, the stock magically looks a bit less expensive than it really is.

It may not be a shock that the people who benefit most from higher stock prices are executives, because much of their compensation comes in the form of stock grants and options. And yes, those executives have a big say in when a company repurchases its stock. "The people who make those decisions have a big incentive to keep stock prices high," says William Lazonick, professor at the University of Massachusetts at Lowell.

Thus, big surges in share repurchases often happen when stock prices are high, not when they're a bargain. That may have happened in the first quarter of 2014, when earnings were widely expected to slow. "Companies may have decided to spend extra money getting a tailwind going into the first quarter," Silverblatt says.

That's not unusual, Lazonick argues. Looking over four decades of data, Lazonick found that buybacks peak at market peaks, and tail off in bear markets. But he makes other, powerful arguments against corporate stock buybacks:

• Even companies that buy back shares because they think the stock is a bargain don't sell it to lock in a profit. Doing so would be a signal that management thinks the stock is overvalued.

• Companies that depend on research and development for future earnings squander their money by buying back stocks. Pfizer, for example, depends on developing new drugs. Yet, from 2003-2012, the equivalent of 71% of Pfizer's profits went to buybacks, Lazonick says. Similarly, Hewlett-Packard spent $11 billion on buybacks in 2010, $10.1 billion in 2011, then took a $12.7 billion loss in 2012.

• Buybacks are probably the least productive use of a company's money. Companies have any number of things they can do with their cash, borrowings and profits. They can invest in people, plants and equipment. Or they can ! buy other! companies. "It shows a lack of imagination," Lazonick says.

"We use it as an explanation of why earnings are holding up," says Sam Stovall, managing director of U.S. equity strategy at S&P Capital IQ. "Companies buy back stocks because management doesn't feel it has a better use for its funds."

The past five years, the PowerShares Buyback Achievers fund (ticker: PKW), has beaten the SPDR S&P 500 ETF trust by 3.91 percentage points a year, according to Morningstar, the Chicago investment trackers. So far this year, however, the fund has lagged behind the index by 2.28 percentage points — a sign that Wall Street may be getting less impressed by buybacks.

What should investors look for instead of repurchases? Stovall suggests investments in plant and equipment. Factory capacity utilization is at 80% now, about the point where companies start replacing old equipment, Stovall says. Investment in equipment grew 3.1% last year and is expected to grow 5.2% this year. Next year? a sizzling 10.4%.

Buying back stock is more of a sugar high than anything else. But wouldn't you prefer to own a company that has better ideas for using its cash?

Some same-sex couples have to fill out 5 tax…

BERKLEY, Mich. — Many legally married gay and lesbian couples are delighted with the change in federal income tax rules that treats them like other married couples.

But state-by-state rules continue to create tax-time turmoil.

Alan Semonian, a certified public accountant at Ameritax Plus in Berkley, Mich., said he has prepared tax returns this year for more than a dozen same-sex couples in Michigan who used to do their own taxes but gave up.

"They realize they're in over their heads," Semonian said.

For the 2013 tax year and going forward, same-sex couples who are legally married generally must file using either married filing separately or married filing jointly on federal income tax returns. This is the first year that legally married same-sex couples are required to file federal tax returns as married.

"Unfortunately, these are not the years you can use TurboTax," said Janis Cowhey McDonagh, partner and co-leader of the Lesbian, Gay, Bisexual & Transgender Practice group for Marcum in New York. "I can't imagine how many mistakes are being made out there on these filings."

Michigan and some other states that do not recognize same-sex marriages still require couples to file state income tax returns as single filers.

Gay couples may need 5 returns

In Michigan, a same-sex couple married in a state that recognizes their marriage would need to prepare five tax returns and file three of them.

First, the couple must prepare and file a federal return using a married status.

STORY: Indiana bill specifically bans same-sex couples' joint returns
STORY: Married gay couples can file joint returns, IRS says

Then, they must prepare two separate federal returns, as single filers, so Michigan returns can be based on those two returns. Then they have to prepare and file two separate state returns as single filers for Michigan.

"My thoughts are, 'Why do we have to do this?'" said Cheryl Pine-Stanczyk, 50, of Oak Park, Mich. "That's ridiculou! s."

She and wife Jenny Stanczyk, 46, were legally married May 26, 2011, in Davenport, Iowa, where same-sex marriages are legal. The couple is filing a married-filing-jointly federal return but still must file two separate Michigan state returns for the State of Michigan.

"It's an extra filing fee" for added forms, said Pine-Stanczyk, who doesn't know how much extra the cost will be as the women have not received a bill yet from their tax preparer. While they are parents together and own property together, filing as single in Michigan means they must break up credits and deductions.

"When it's time for taxes, we have to sit down and split things up, which makes no sense," Pine-Stanczyk said.

"How do you divide up a house? Who's going to get the credit?" Pine-Stanczyk said. In some years, Stanczyk was working and Pine-Stanczyk was in school, so Stanczyk took deductions.

Pine-Stanczyk now works for the state's child protective services office in Pontiac, Mich.; Stanczyk works as a teacher for Warren Consolidated Schools.

Where married matters

Lisa Greene-Lewis, a certified public accountant for TurboTax, said same-sex couples in the 17 states that recognize same-sex marriage are more comfortable doing taxes themselves, and TurboTax has seen some same-sex couples come back to their software.

It is far easier to file one federal and one state return, so it's easier to prepare taxes by oneself, she said.

When filing a federal return, the key question for same-sex married couples this tax season is where was the couple married?

"It's not universal. It's going to matter where you live and it's going to matter where you got married as a couple," said Managing Editor AJ Smith of SmartAsset.com, which offers blogs and other information on financial topics.

For the federal return, the same-sex couple must be married in any location that recognizes same-sex marriage.

An example: If the same-sex couple married in New York, which allows same-sex c! ouples to! marry legally, but lives in Michigan, they would file their federal tax return either married filing jointly or married filing separately.

In Michigan, same-sex marriages continue to be prohibited until the U.S. 6th Circuit Court of Appeals in Cincinnati hears formal arguments. U.S. District Judge Bernard Friedman struck down a 2004 state constitutional amendment that says marriage is between a man and a woman, but appellate judges granted a temporary stay of the ruling the next day and later extended the pause indefinitely.

Should a couple amend?

Terry Stanton, a spokesman for state Treasurer Kevin Clinton, said it would be "inappropriate and imprudent to speculate before the court ruling" on how Michigan would treat same-sex couples on tax returns in future years.

On the federal level, the U.S. Supreme Court stuck down the federal Defense of Marriage Act in June 2013 and made it possible for the IRS to recognize gay marriage on federal income tax returns.

Some two-income, same-sex couples could be paying more now; others might find a lower tax bill if one spouse has a much higher-paying job than the other.

On the plus side, a same-sex married couple no longer would have to treat employer-provided health coverage for spouses as taxable income, as in the past. Putting savings into a spousal IRA also becomes a possibility.

If legally married before 2013, too, some same-sex couples could consider filing amended returns for previous tax years, such as 2010, 2011 or 2012, if they think they would pay significantly lower taxes.

"It's an option. It's not required," Semonian said.

Experts say some same-sex married couples might want to amend returns to exclude previous taxable income, such as health insurance.

Filing amended returns is not a simple decision. The loss of some tax breaks could offset other potential gains. And paying a tax preparer to file amended returns increases the costs.

Susan Tompor also reports for the Detroit Free Press.

Can Lenovo Find the Answer Google Couldn't for Motorola?

Alamy Late last month, Chinese hardware giant Lenovo (LNVGY) was the subject of many headlines -- not all of them complimentary -- when it signed a high-profile deal to buy the Motorola Mobility smartphone unit from Google (GOOG). The Asian firm is ponying up a cool $2.9 billion to acquire the business, which is monstrously unprofitable to the tune of a $645 million operating loss in the first nine months of 2013. The market didn't appreciate this. Disturbed by the idea of gallons of red ink spilling from Motorola Mobility onto Lenovo's results, investors traded down the firm's stock by as much as 14 percent after the deal was made public. This might have been compounded by the firm's previous announcement, made only days earlier, that it was spending $2.3 billion to purchase IBM's (IBM) x86 -- read: lower-end -- line of servers. Was such a sell-off, in reaction to either or both, justified? At Home Abroad Lenovo is one of those companies that likes to expand by acquisition. Few Westerners had ever heard of the IT manufacturer in 2005 when it closed its first big buy -- the personal computing division of IBM, for total consideration of around $1.75 billion. The purchase seemed a counterintuitive move when everyone knew that a future stuffed with wireless Internet and portable computing was just around the corner. But guess what? Lenovo not only sold plenty of notebooks and desktops, it managed to grow into the top PC manufacturer in the world. According to figures from Gartner (IT), in Q4 2013 the company was the clear market leader in terms of PC vendor unit shipments. It moved nearly 15 million PCs during the quarter, a figure 6.6 percent higher than in the same period the previous year. This was particularly impressive considering that total shipments for the industry dropped by almost 7 percent over that time frame. Lenovo was able to do this because, for most of its life, it's made big strides in less affluent markets and is continuing to do so. In its most recent quarter, for example, it hit the double digits in Latin America PC market share for the first time in its history. In another first, it climbed to the No. 1 position in big, populous Brazil. Meanwhile, in the Europe/Middle East/Africa region, much of which is populated by emerging economies, Lenovo notched its highest-ever market share. This came in at just under 15 percent, with the company's PC volume up 17 percent on a year-over-year basis. Considering those results, it was a natural next step for the company to advance up the PC food chain to cheap servers. After all, if various up-and-coming markets are still hungry for computers, it follows that they'll also eventually need the servers delivering local websites. But sooner or later, the computer market is inevitably going to dry up in those parts of the world too. And the company is very well aware of this. Hence its new push into the smartphone space. Calling on New Markets As with computers, which Lenovo was selling (largely to the Chinese market) long before the IBM buy, the company has been an active cellphone manufacturer for years. And, as with everything it does, it's put a lot of effort and capital into clawing out market share. In 2012, the company broke ground on a nearly $800 million research/production factory in the Chinese city of Wuhan that can produce 30 million to 40 million smartphones a year. The timing wasn't accidental: 2012 was the year the company began selling handsets outside of China. Size is power, and over the next year Lenovo vaulted into the top three in terms of global vendor sales, climbing over Asian rivals Huawei and LG Electronics to get there. No. 3 ain't a bad place to be, and it's an accomplishment to advance that far. However, given the dominance of the two leads -- Samsung (SSNLF) and Apple (AAPL) -- it was a distant third; Lenovo had a market share of just over 5 percent, less than half of Apple's 12 percent and nowhere in sight of Samsung's commanding 32 percent. Lenovo is determined, and it wants to win. Absorbing Motorola Mobility buys it not only precious percentage points of market share, it also brings it a host of patents along with the fresh technology it'll need to make handsets that can compete with iPhones and Galaxys. Product Shift Shelling out a few billion dollars for its shiny new asset is only the beginning for Lenovo. It's going to have to fight hard to increase that market share, and even harder to break through the Samsung/Apple duopoly. There's a sense of urgency here; its shipments of computers will eventually fall, as they have for the company's main competitors. And they're still too heavy an ingredient in the Lenovo product mix, being responsible for nearly 80 percent of revenue in the most recent quarter (breaking it down, the split was roughly two-thirds notebooks to one-third desktop PCs). But if an investor were to gamble today on Lenovo's chances, the bet would be a rather good one. The company is scrappy, determined, and has proven that it can gain market share in crowded segments and maintain its position. We shouldn't be surprised if it repeats this feat with smartphones.

UAE Cyber-security Threats May Rise

Leading all the way up to Expo 2020, cyber-security threats in the UAE could increase steadily, writes Tom Arnold, of The National.

Cyber-security risks in the UAE could intensify in the run-up to the World Expo 2020 in Dubai, says a report by an accountancy body.

The need to combat cyber-crime is growing globally, as evidenced by high-profile hacking cases around the world, said the Institute of Chartered Accountants of England and Wales (ICAEW).

"There will be enormous procurement going on there over the next decade [in Dubai]," said Michael Izza, ICAEW's chief executive. "If a criminal was to hack into a government system, create a fraudulent purchase order, and an invoice, Dubai pays automatically on the system."

A flurry of projects are expected to be rolled out, as Dubai gears up to host the event. As with all big global events, the extent of the planning, and high-profile focus, create potential opportunities for cyber-crime.

ICAEW's global report on cyber-security risks calls for greater openness, by companies and governments, about the challenges they face, to help build knowledge to fight the risk. The report was produced by external auditors working with major companies.

"Cyber-security is becoming one of the biggest risks most companies around the world now have to consider," Mr. Izza said.

"It hasn't just crept up on us in the last 12 months, but we are now at a stage where governments and international agencies feel that the pressure is such, that multinationals, corporates, have to be much more open about how much of a problem it is for them.

"A lot of organizations are frankly in denial, or ignorance, about how much of this is going on."

The Middle East has become one of the global hotspots for cyber-crime, as evidenced by the cyber-attack in August of last year on Aramco, Saudi Arabia's state-owned oil firm. The attack wiped out the hardware on 85% of Aramco's devices.

Mr. Izza decided to commission a report on the issue after learning that ICAEW faced about 1,500 attempts to hack its information technology system every day.

Globally, banks have to fight tens of thousands of cyber-attacks every day, with other companies also at risk.

The world's two largest economies, the United States and China, often exchange accusations of hacking.

In February, US information security firm Mandiant alleged that a Chinese army unit had stolen huge amounts of data from at least 141 organizations, mostly based in the US.

Read more from The National here…