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An airline delay you can't blame on American

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Recapping the day's news and newsmakers through the lens of CNBC.

US Airways-AMR merger seen as anticompetitive

Notes:

So many airlines have merged over the years that you need a program to remember the players. But now there may be one less realignment to keep straight: the Department of Justice and a number of states attorney's general have moved to block the $11 billion combination of US Airways and American Airlines' parent, AMR Corp.

The deal announced in February would create the world's largest airline, with 6,700 flights a day and over $40 billion in annual revenue. And that's just what concerns officials, who worry it would reduce competition, cause prices to rise and undermine service.

US Airways shares plunged after Justice and the others filed a federal lawsuit this morning to block the deal. AMR filed for bankruptcy in 2011. A wave of mergers that began in 2008 has created the three largest airlines—United, Delta and Southwest. The USAir-AMR deal would create the fourth.

In filing the antitrust case, the government has expressed concerns similar to ones it cited in opposing the merger of AT&T and T-Mobile—that the merger would reduce industry capacity. The airlines are expected to fight the suit.

Quotes:

"That's a significant stumbling block, when the DOJ comes after you. Not that it necessarily can't be beaten. The DOJ has been beaten before...[But] when you're consolidating an industry and you're down to a handful of players, that also becomes the key issue."
—CNBC's David Faber

"Had it been, say, six or seven years ago, it probably wouldn't raise the objections that it raises now, because ticket prices are clearly on the way up."
—CNBC's Simon Hobbs

Bill Ackman
David Grogan | CNBC
Bill Ackman

Down but not out

Notes:

Things are never dull at J.C. Penney. Last week, the board was mired in a mud-slinging contest over its search for a new CEO. Today, the director at the center of that public display resigned from the board.

But activist investor Bill Ackman still yields plenty of clout, keeping the hoard of stock that makes his hedge fund one of Penney's largest shareholders, with an 18 percent stake.

Describing his resignation as part of a deal that is the best way forward for the troubled retailer, Ackman said he was pleased the board had appointed a new member, Ronald Tysoe, former vice chairman of Federated Department Stores.

Whether Ackman's departure will make matters better or worse is not clear. Now off the board, he may feel even more freedom to criticize. And the firm has yet to impress outsiders with a turnaround strategy.

Quotes:

"I elevated a bunch of issues that are critically important by making them public. We came to an agreement on Ron Tysoe. ... The board will function more effectively without the noise."
—Penney's shareholder Bill Ackman

"Here we are, just seconds away from the back-to-school crush. It's a very sensitive time for a retailer. He needed to leave. They kind of destroyed shareholder value and violated the breach of trust on a board. ... I don't think any board would want this guy [Ackman]."
—Jeff Sonnenfeld, professor at the Yale School of Management

"What it means is they're starting to get very focused on getting back to basics. This company really got away from its core competency, not only on the marketing side but particularly on the merchandising side. I visited the store about a year ago and really couldn't understand what it was. They really have an identity crisis."
—CNBC's Marcus Lemonis

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A home is your biggest investment—and maybe the worst

Notes:

With home prices still well below their peaks but rising, this might be the perfect moment to pick up that six-bedroom castle you've always wanted.

OK, but count it as a luxury, not an investment.

That's because houses—with some exceptions, of course—just haven't generated very good returns. Any money you spend beyond what you need for basic shelter and comfort could probably be invested more profitably in something else, like stocks.

That's the conclusion of researchers at the Atlanta Fed. For a fair comparison, they looked at average returns on home ownership versus the S&P 500 over a 13-year period, the average time a home is owned.

Looking at all 13-year periods from 1926, the researchers found annual home appreciation averaged 0.97 percent, while annual returns on the S&P 500 averaged 4.55 percent.

Note that this focus on home prices does not take into account mortgage interest, real estate taxes, maintenance and other costs of home ownership—costs not duplicated in owning an S&P 500 index fund. With those costs included, home ownership might look like even more of a poor bet.

That doesn't mean owning a house is a bad idea. The research found that over the long run, owning is less costly than renting. But the research does mean that paying up for a bigger home than needed just means adding expenses and diverting money from other investments that could do better.

Quote:

"If a home is purchased only as an investment and not as a place to live, this comparison of average annual returns clearly shows that investing in equities offers favorable returns more often than investing in housing."
—Atlanta Fed researchers.

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Beware hot stocks when GDP is cold

Notes:

Yesterday we heard about the "Hindenburg Omen," which portends bad times for stocks. So for today's bummer perspective, let's look at "notional value" and "inflection points."

Here's the problem: Stocks have soared while the economy has not, leaving the stock market's notional value higher than GDP. That's a red flag, according to Jack Bouroudjian, CEO of financial services holding company Bull and Bear Partners. Normally, stocks trade at a discount to GDP. On the few occasions they've traded at a premium, a steep correction has followed.

Bouroudjian thinks the S&P may drop by 10 percent or more by sometime in October if the economy doesn't grow faster. Corrections are also typical with a change of leadership at the Federal Reserve. These days the market is all atwitter over who will replace Fed Chairman Ben Bernanke.

Quote:

"The market is overvalued and we've hit an inflection point. ... Equities have historically traded at a discount to GDP except for two times in the last 50 years. In the late 1990s we traded at 148 percent over GDP, and in 2007 we traded at 118 percent over. Unfortunately, both times were followed by a serious correction. We are now at 110 percent."

By Jeff Brown, Special to CNBC.com

Market Insider with Patti Domm