Even though WrestleMania (believe it or not, it’s still around) took place on Sunday, that didn’t stop some financial superstars from throwing exaggerated punches on Wall Street this week, as they came to blows over some of their favorite investments …
I’m talking about the fact that two of the most controversial big-name companies in the market today — J.C. Penney (JCP) and Herbalife (HLF) — are once again in the spotlight for less-than-stellar reasons.
But before we delve into the latest juicy gossip, let’s rewind and bring you up-to-speed on the drama …
First, struggling retailer J.C. Penney has been fighting to turn around its business while failing to compete with other retailers such as Target (TGT) and Macy’s (M).
Hedge-fund manager Bill Ackman began building a position in J.C. Penney in 2010 and currently owns more than 18% of the company. He has previously said he believes his fund’s investment will be a “15-to-20-bagger” for his investors.
But not yet.
That’s because Ackman has since lost more than 50%, and the company’s prospects are only growing worse.
With Herbalife, the drama revolves around Ackman calling the company a “pyramid scheme” and eventually disclosing he built up a $1 billion short position in the stock.
Herbalife immediately responded, claiming the accusations were inaccurate and based on outdated information.
This is when hedge fund legend Carl Icahn, who is known to have a cold relationship with Ackman, disclosed a 13% stake in the company. The two delivered one of the most-impressive pieces of live television as they came to verbal blows on CNBC earlier this year:
The slugfest was an instant classic. And Icahn has since increased his position to 15.5% with the right to buy up to 25% of the company.
Icahn was also given two seats on Herbalife’s board for his trouble …
Fast-forward to today …
Last night, J.C. Penney announced that it had fired its CEO Ron Johnson, the same man who used to be in charge of Apple’s (AAPL) retail operations and developed the concept of its stores.
In response to the news, J.C. Penney’s stock price promptly dropped more than 10%, to hit its lowest level in 12 years. And now, with the ongoing Macy’s trial over the rights to sell Martha Stewart products that we mentioned just yesterday, it would seem the retailer just can’t catch a break.
When you run the numbers, this means Bill Ackman lost more than $700 million today alone on his J.C. Penney position. But if he’s still short Herbalife, that trade may yet pan out …
That’s because this morning, Herbalife shares were halted on news that its auditor, KPMG, had resigned after a senior partner provided inside information on the company to an unnamed individual who placed trades in Herbalife stock.
KPMG said the resignation was unrelated to the ongoing dispute between Icahn and Ackman, but it still took a toll on Herbalife’s share price.
Meanwhile — elsewhere in the world — another financial legend was making his own interesting call on the fate of a much-more-popular investment …
“I don’t expect gold to go down,” legendary trader George Soros told the South China Morning Post.
“If you have the prospect of a crisis, you will have occasional flurries or jumps. So gold is very volatile on a day-to-day basis.”
Soros was speaking about some of the recent downward moves in precious metals, and what they might mean over the long term for investors.
We read his advice, which is often cryptic at its best, to say that the public was viewing gold as less and less of a safe haven, due to the metal’s unnerving volatility in recent months.
But despite what might be a flawed public perception, it’s worth noting that gold rose in absolute terms against all fiat currencies in 2011, and then again in 2012.
In tomorrow morning’s edition of Uncommon Wisdom Daily, Sean Brodrick will give you six reasons to be optimistic about the near-term future of gold.
We’ll give you a hint: A great way to do that is to take advantage of the very volatility that’s sending other investors running for the hills and leaving a mountain of opportunity behind for the rest of us.
But if you don’t want to wait till then, Sean shares his 3 iron-clad reasons gold will soar in 2013 … and how you can get in on its next bull run … in a special video report you can access by clicking here now. Catch it before 11:59 p.m. Eastern tonight to see how you can get a $1,395 gift just for watching!
In Other Market News:
- Last night Alcoa (AA) kicked off the second-quarter earnings season with numbers that exceeded estimates and a forecast for 2013 to be better than 2012. The company reported earnings-per-share of 11 cents, beating the consensus estimate of 8 cents a share.
- The aluminum producer’s revenue dropped by 3% from the same period a year ago to slightly miss the consensus estimate of $5.88 billion. CEO Klaus Kleinfeld said he was optimistic about the rest of the year and said the company sees aluminum demand growing 7% this year.
- In a sign of the changing times, The Walt Disney Company (DIS) is set to lay off 150 people, or about 5% of its home entertainment division, as DVD sales continue to decline.
- The most likely reason for Disney’s sales decline is the success of Netflix (NFLX), which has added nearly 20 million subscribers since the end of 2007. The decline doesn’t appear to be affecting the House of Mouse, however, as its stock hit a new all-time high yesterday and is up more than 15% year-to-date.
- In an interview on CNBC this morning, St. Louis Federal Reserve Bank President James Bullard said he’s willing to ease the pace of bond-buying in “small increments” as the economy improves.
- Fed policymakers have repeatedly said they need to see improvement in the labor market before slowing the rate of bond purchases. (The Fed currently buys $85 billion worth of Treasury and mortgage-backed securities per month.) The target unemployment rate is 6.5%; Bullard believes it will drop to near 7% by the end of this year, down from the current 7.6% rate.
Good Luck and Happy Investing,
Uncommon Wisdom Daily