Monday, July 28, 2014

Lower markets on pending home sales

Dow dropped 66, decliners over advancers better than 2-1 & NAZ fell 31.  The MLP index slid 1+ to the 521s & the REIT index was up fractionally to the 307s.  Junk bond funds slipped lower & Treasuries climbed higher.  Oil pulled back & gold was flattish.

AMJ (Alerian MLP Index tracking fund)



CLU14.NYM...Crude Oil Sep 14...101.29 Down ...0.80  (0.8%)

GCN14.CMX...Gold Jul 14.........1,304.30 Up ...1.20 (0.1%)

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Buyers Dream of Draghi as Fed-ECB Divide Bolsters Treasuries
Photo:   Bloomberg

When the ECB unleashed a stimulus barrage in Jun, it cautioned that the economy would take some time to respond.  Data due this week may test its patience.  The inflation rate is expected to remain at 0.5% for a 3rd month in Jul & the unemployment rate should remain unchanged at 11.6% in Jun.  That may fuel policy makers’ concern that annual price gains will become entrenched at a fraction of the ECB goal of just under 2%, & increase calls for further action.  The ECB unveiled a range of measures including a negative deposit rate & targeted long-term loans last month.  While the package has helped push the average yield on bonds from Europe’s most-indebted nations to a record low & bolstered manufacturing & services in a vote of confidence, it has yet to show its impact on prices, growth & lending, as geopolitical tensions threaten to undermine the recovery.  The destiny of the euro area hinges on Europe’s largest economy, Germany, which saw GDP growing 0.8% in Q1, 4X the currency bloc’s rate.  The Bundesbank has warned that political uncertainty in some of the country’s export markets may weigh on business & said that the economy may have stagnated in Q2.  Sentiment as measured by the Ifo research institute dropped more than predicted in Jul to the lowest level in 9 months. Even so, gauges of German manufacturing & services output signal a rebound in activity to levels seen at the beginning of the year, Markit Economics said last week.  Similar measures for the euro area also strengthened this month in a sign of confidence that ECB stimulus will eventually support the recovery.  The ECB predicts the area economy will grow 1% this year, 1.7% next year & 1.8% in 2016.  It expects inflation to rise gradually over the next 2 years to 1.4% in 2016.  “The combination of monetary policy measures decided last month has already led to a further easing of the monetary policy stance,” Draghi said 3 weeks ago.

ECB Patience Test: Euro-Area Inflation Seen Sticking Low


Fewer Americans than forecast signed contracts to buy previously owned homes in Jun, a sign residential real estate is struggling to strengthen.  The index of pending home sales declined 1.1% from the month before after rising 6% in May, according to the National Association of Realtors (NAR).  The forecast projected sales would rise 0.5%.  Limited availability of credit & sluggish wage growth are making it harder for prospective buyers to take the plunge, threatening to throttle the pace of the housing recovery.  Continued gains in employment & a bigger supply of available homes will be needed to help accelerate the industry’s progress, while increases in home prices may encourage more Americans to put their properties up for sale.  Purchases were down 4.5% from the prior year, on an unadjusted basis, after a 6.9% decrease in the 12 months that ended in May.  The pending home sales index was 102.7 on a seasonally-adjusted basis.  A reading of 100 corresponds with the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.  “Supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates,” the group’s chief economist Lawrence Yun said.  2 of 4 regions showed a decrease in contract signings from a month earlier, led by a 2.9% drop in the Northeast.  Pending sales are considered a leading indicator because they track purchase contracts.  Existing-home sales are tabulated when a contract closes, usually a month or 2 later.

Pending Sales of U.S. Existing Homes Unexpectedly Decrease


Dollar Stores Agree to $8.5 Billion Merger After Icahn Prodding
Photo:   Bloomberg

Dollar Tree, will buy Family Dollar Stores (FDO), a Dividend Aristocrat, for about $8.5B, creating a discount chain with $18B in sales & more locations than Wal-Mart, a Dow stock & Dividend Aristocrat.  Each share of FDO will receive $74.50 in cash & stock, 23% above the closing price at the end of last week.  The deal has a value of $9.2B.  FDO CEO Howard Levine had previously been reluctant to sell the company his father founded.  Still, the business has struggled to compete with discount chains.  Before the deal, FDO had been trying to improve operations by closing 370 underperforming stores & opening fewer new ones.  It also has been lowering prices in a bid to entice shoppers.  The companies expect the transaction to close by early 2015 & will contribute to DLTR EPS within the first year.  The deal will save about $300M annually by the end of the 3rd year.  The combined company will operate under the Dollar Tree, Deals, Dollar Tree Canada & Family Dollar brands & Levine also will remain with the company & report to Sasser.  DLTR rose 2.61 & FDO shot up 13.40 to 74.06.  If you would like to learn more about DLTR, click on this link:
club.ino.com/trend/analysis/stock/DLTR?a_aid=CD3289&a_bid=6ae5b6f7

Dollar Stores Agree to $8.5 Billion Merger After Icahn Prodding

Dollar Tree (DLTR)




Stocks are back to meandereding around.  Dow set a record 2 weeks ago but the bigger story is that it has been going sideways in Jul.  Macro economic data keeps coming out mixed & soggy.  Even if Q2 GDP shows growth, it will not be impressive & the H1 number will be sluggish at best.  Meanwhile the intl political front has become a disaster with no leadership for the good guys.  My feeling is that the back to school season for retailers will be lackluster, not a good sign for holiday season a few months away.

Dow Jones Industrials









Friday, July 25, 2014

Lower markets on Amazon and Visa forecasts

Dow dropped 123 (close to the lows & below 17K), decliners over advancers 2-1 & NAZ went down 22.  The MLP index fell 1+ to the 523 & the REIT index was off 2+ to the 206s.  There was buying in junk bond funds & Treasuries gained.  Oil pared early losses & gold jumped the most in a week as escalating havoc in Eastern Europe & the Mid East boosted demand for haven assets.

AMJ (Alerian MLP Index tracking fund)











CLU14.NYM....Crude Oil Sep 14....101.58 Down ...0.49  (0.5%)

Live 24 hours gold chart [Kitco Inc.]




The EU said it’ll work “swiftly” to hit Russian industries with sanctions as support grows for the package of trade restrictions outlined this week.  German Chancellor Merkel is pushing her colleagues to sign off on the measures by the end of next week & is prepared to accept curbs on her country’s technology exports to win support, according to 2 German officials.  “We are getting to the point when sanctions will be painful and double-edged, but if we don’t introduce them the situation could get even worse,” Polish Foreign Minister Radoslaw Sikorski said. The European Commission will draw up detailed proposals for broader sanctions against Russia after getting the go-ahead from EU diplomats at a meeting that concluded today.  Pressure for action has surged since a Malaysian Airlines jet was shot down over Ukraine last week.  EU govs have already agreed to go beyond sanctions that so far have been limited to travel bans & asset freezes on individuals & companies deemed responsible for the unrest in Ukraine.  The next wave of restrictions may stop state-owned banks from financing themselves in & prevent Russian companies buying high-tech equipment they need to develop the nation’s energy resources.  With pres Obama urging Europe to be bolder in its response to Russian encroachment in Ukraine, western EU nations swung behind calls by their eastern counterparts to target Russia’s economy with sanctions.  The set of broader EU sanctions being drawn up by the commission is “a package we pressed for,” a spokesman for UK Prime Minister Cameron said by phone.  “We want to see final agreement on it in the next few days.”  The EU & US are betting that pres Putin will be forced into a U-turn over Ukraine by undermining a Russian economy that is already weakening.  As part of its gradual tightening of the squeeze on Putin, the EU is due later today to publish the names of additional people being put on its blacklist. 

EU’s Russia Blacklist Is Due Tonight, Broader Steps Next Week


Visa, a Dow stock, fell the most in 3 months after reducing its revenue forecast for the rest of the fiscal year.  Revenue for the fiscal year ending Sep 30 may climb 9-10% from a year earlier, Visa said, down from an Apr forecast of 10-11%, in part because of results in regions beset by military conflict such as Russia, Ukraine & the Middle East, said CEO Charlie Scharf, also citing weakness in China, Argentina & Venezuela.  “The strong U.S. dollar and the tepid growth from the cross-border payment volume in these specific geographies was what we expected,” Scharf said.  “These headwinds we do not feel are permanent.”  EPS rose to $2.17 from $1.88 a year earlier, topping the estimate of $2.10.  Operating revenue increased 5.1% to $3.16B from a year earlier while expenses fell 3.2% to $1.14B, according to Visa.  Card spending rose 11% to $1.2T.  After the US imposed sanctions against Russia in Mar, Putin recommended his country create its own payments system.  Visa, 2% of revenue comes from Russia, has said the tensions may trim “several pennies” from this year’s earnings.  The stock sank 7.97.  If you would like to learn more about VISA, click on this link:
club.ino.com/trend/analysis/stock/V?a_aid=CD3289&a_bid=6ae5b6f7

Visa Drops Most Since April After Paring Revenue Forecast for Fiscal Year 

Visa (V)

stock chart

AbbVie, a Dividend Aristocrat, profit that beat estimates on strong sales of the arthritis drug Humira.  EPS in Q2 was 68¢, up from 66¢ a year earlier.  Excluding one-time items, EPS was 82¢, beating by 6¢ the estimate.  Revenue gained 5% to $4.9B.  ABBV said last weeek it would acquire Dublin-based Shire for $55B, adding drugs for attention deficit hyperactivity disorder & rare diseases to diversify its portfolio.  ABBVie will also move its legal address abroad to lower its tax rate, making it the largest US company to do a tax inversion deal.  The drugmaker currently relies on Humira, a rheumatoid arthritis injection for more than half of its revenue.  Humira sales rose 26% to $3.29B, topping the $2.97B forecast.  ABBV is also developing an experimental triple-pill regimen for hepatitis C as a competitor to Sovaldi, which had $3.5B in Q2 revenue.  US approval is expected later this year.  Not including any potential revenue from the expected hepatitis C therapy, ABBV confirmed its 2014 adjusted EPS forecast of $3.06-$3.16.  The company also said Q3 EPS, excluding one-time items, would be 77-79¢.  The stock fell 90¢.  If you would like to learn more about ABBV, click on this link:
club.ino.com/trend/analysis/stock/ABBV?a_aid=CD3289&a_bid=6ae5b6f7

AbbVie Second-Quarter Profit Exceeds Analysts’ Estimates on Humira Sales

AbbVie (ABBV)




Dow & S&P 500 are inches from record highs while earnings vary from good to bad & tensions around the world are very high.  Part of the reason for global chaos is a lack of leadership, so bad guys are filling the void with their leaders.  The grim report from Visa is important since it gets its revenue in virtually all countries, so it feels the pulse of various economies.  So far, stock markets have not been greatly disturbed by increased uncertainty on macro economic issues & worldwide conditions.

Dow Jones Industrials



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