Tuesday, December 4, 2012

Markets fluctuate, looking for direction

Dow lost 13, decliners barely ahead of advancers & NAZ fell 5 as Apple (AAPL) had a bad day.  The Financial Index slipped a fraction, but remained above 210.  The MLP index fell 4+ to the 388s while the REIT index rose 1 to the 261s.  Junk bond funds were mixed & Treasuries gained.  Oil lost ground, still lumbering in the high 80s, & gold slumped to a 4-week low, closing under $1700 as a stalemate in US budget talks drove commodities down

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF13.NYM...Crude Oil Jan 13....88.56 ...Down 0.53  (0.6%)

Live 24 hours gold chart [Kitco Inc.]

Obama Sets Higher Top Tax Rate as Precursor to Fiscal Cliff Deal

Photo:   Bloomberg

President Obama sketched out a potential year-end deal pairing tax increases & spending cuts to avert the cliff, while insisting Reps must accept higher tax rates for top earners as a condition for negotiations.  “We have the potential of getting a deal done,” he said on Bloomberg TV.  “We’re going to have to see the rates on the top 2 percent go up, and we’re not going to be able to get a deal without it.”  These comments underscored both the possibilities & the hurdles for breaking the stalemate in talks to avoid more than $600B in automatic tax increases & spending cuts that will begin to take effect if the president & Congress fail to reach a deal on reducing the deficit.  The president said he would be “flexible,” yet named a price Reps have so far been unwilling to pay -- tax-rate increases -- as the only path to reaching a deal.  “It’s not me being stubborn; it’s not me being partisan,” Obama said.  “It’s just a matter of math.”  He outlined his vision for a 2 stage process wherein he & congressional Reps would get immediate “down payments” on their top priorities that would be followed by more sweeping changes in 2013.  Compromise would mean the president & Dems accept more spending reductions this year, potentially including slowing the growth of Medicare benefits, & Reps agreeing to tax rate increases.  “I don’t expect Republicans to agree to any plan where they’re just betting on the outcome that entitlement reform will happen,” Obama said.  He spoke the day after Speaker Boehner sent a letter to the White House laying out a proposal that included $2.2T in spending cuts & new tax revenue, without raising rates.  “Unfortunately,” Obama said, Boehner’s proposal “right now is still out of balance.” 

Intel, a Dow stock, is planning to sell $6B of bonds in 4 parts to repurchase stock that’s trading at about the lowest level in 16 months.  It may issue $3B of 5- year securities to yield 75 basis points more than similar-maturity Treasuries, $1.5B of 10-year bonds at a relative yield of 115 basis points, $750M of 20-year securities at 130 basis points & $750M of 30-year debt at 150.  The 20-year portion was added after the deal was marketed earlier today.  Proceeds will fund general corp purposes & previously announced stock buybacks.  The company’s $1.5B of 4.8% securities sold last year, maturing in 041, traded at $1.12 cents on the dollar to yield 4.09% with a 132 basis- point spread over similar-maturity Treasuries.  The new bonds will be rated A1 by Moody’s & A+ by S&P.  The stock gained 46¢.

Intel (INTC)

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Euro-Area Finance Chiefs Confident Greek Debt Buyback to Succeed

Photo:   Bloomberg

European finance ministers voiced confidence that Greece will pull off a successful bond buyback (what else can they say?), in a revamped effort to stem the debt crisis in the country where it started.  Greece began the €10B ($13 B) repurchase of bonds maturing 2023-2042 yesterday, offering a higher-than-planned price in order to increase demand for the debt-reduction measure.  “I’m confident it will go well,” French Finance Minister Moscovici said after euro-area finance chiefs met in Brussels. “It seems to be happening under satisfactory conditions.”  European govs are counting on the buyback as a market-based way of cutting Greece’s debt, paving the way for continued aid payouts.  Finance ministers set a Dec 13 meeting to release the next €34.4B for Greece & possibly wrap up bailout talks with Cyprus, which would become the 5th country to tap intl aid since the crisis erupted in late 2009.  German Chancellor Merkel has indicated on Sun that official debt relief might be in the offing, as long as Greece starts posting operating budget surpluses in 2014 or 2015.  That timeline would put off a decision to lump German taxpayers with losses on loans to Greece, something she promised would never happen, until after a German election in late 2013.  To persuade the IMF to continue chipping in a 3rd of the Greek loans, the ministers last week announced debt-reduction steps including lower bailout loan rates & a recycling of ECB profits on Greek bonds back to the Greek treasury.  In all, the measures will trim Greece’s debt as of 2020 to 124% of GDP from a previous estimate of 144% (still unsatisfactory).  The buyback would be the biggest component, lopping 11 percentage points off the debt.  In a little over 3 weeks, the € has risen from $1.27 to $1.31 (almost a 6 month high) helped by optimism about this deal helping Greece get its finances squared away.

Euro Finance Chiefs Confident Greek Buyback to Succeed

The president spoke but the markets were not listening because DC remains deeply divided about how to fix budget deficit.  There are no easy solutions & both sides are dug in waiting for the other to blink.  The Dems don't seem to see urgency in resolving this mess.  But companies are already cutting back expansion plans which negatively affects hiring new employees, among other things.  Some companies are paying bonus divs or pushing Jan payments into the end of Dec so that money will be taxed at present rates.  This is another indication of how out of control DC is hurting the economy.  Dow has hardly moved since the election but the deadline for going over the fiscal cliff is much closer.

Dow Jones Industrials

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