Thursday, February 28, 2013

Dow fails to reach a new record high

Dow lost 20, advancers just ahead of decliners & NAZ slid 2.  The Financial Index was up pocket change in the 237s.  The MLP index rose 1+ to the 431s & the REIT index was off fractionally to the 279s.  Junk bond funds were mixed & there was modest buying in Treasuries.  Oil fell almost 1 & gold is back in the 1500s.

AMJ (Alerian MLP Index tracking fund)

stock chart








CLJ13.NYM...Crude Oil Apr 13...92.16 ...Down 0.60  (0.7%)

Treasury yields:

U.S. 3-month

0.104%

U.S. 2-year

0.240%

U.S. 10-year

1.885%


Live 24 hours gold chart [Kitco Inc.]




Bernanke: Sequestration May Cause Economic `Burden'

Photo:   Bloomberg

Senators plan a pair of symbolic votes that won’t head off spending cuts scheduled to begin tomorrow.  Neither proposal is expected to advance.  Instead, today’s votes are designed to give Dems & Reps political cover when the across-the-board reductions take effect.  One more reminder that politics rules the outcome of this budget mess!  “The Republicans want the sequester to go forward,” Harry Reid said today.  “They’ve said so, and any efforts at a reasonable approach to this, they won’t let us do it.”  John Boehner reiterated his opposition to new tax revenue in any spending-cut plan on the eve of a meeting with the pres at the White House.  “How much more money do we want to steal from the American people to fund more government?” Boehner said.  “I’m for no more.”  He said House Reps have “laid our cards on the table; we’ve showed we can pass bills to replace the sequester,” referring to bills passed by the House last year that have since expired.  Senate Dems propose replacing this year’s part of the spending reduction with a smaller cut to defense programs, a halt in direct payments to farmers, & a tax increase that would impose a minimum 30% rate on top earners.  The bill, supported by the White House, but will go nowhere in the House.

Senate Plans Symbolic Votes as Spending Cut Set to Begin


Business Activity in U.S. Unexpectedly Picked Up in February

Photo:   Bloomberg

Business activity in the US unexpectedly expanded in Feb at the fastest pace in almost a year.  The MNI Chicago Report business barometer rose to 56.8, the highest level since Mar, after a reading of 55.6 in Jan.  Numbers greater than 50 signal expansion.  The forecast called for 54.  Manufacturing, which makes up about 12% of the economy, is regaining its footing after slipping in mid 2012 as overseas markets heal, companies spend more on equipment & auto sales improve.  Strength in the factory sector indicates producers are still seeing demand even amid higher taxes on consumers & signs that DC lawmakers won’t come to agreement on a budget deal.



Pump prices for gasoline in the US have jumped 49¢ since Dec, a record increase for the period, & may rise further, the AAA said.  It added that refinery seasonal maintenance will continue to pressure gasoline prices.  “Gas prices increased at a dramatically faster pace than expected in February,” the AAA said in a statement.  “There is a lot of uncertainty on where gas prices will go over th e next few weeks, but hopefully the worst of the price spikes are behind us for now.”  The national average for regular gasoline at the pump today is $3.78, the highest-ever level for this time of year.  The average of $3.65 in Feb was a record & prices are 6.6¢ above a year ago.  The 2012 high was $3.93 on Apr 4.

U.S. Pump Prices May Continue Rising in Weeks Ahead, AAA Says

National Unleaded Average
Regular Mid Premium Diesel E85 **E85
MPG/BTU
adjusted
price
Current Avg. $3.782 $3.941 $4.093 $4.142 $3.349 $4.407
Yesterday Avg. $3.786 $3.942 $4.093 $4.144 $3.360 $4.421
Week Ago Avg. $3.778 $3.925 $4.074 $4.142 $3.342 $4.398
Month Ago Avg. $3.364 $3.518 $3.670 $3.914 $3.088 $4.063
Year Ago Avg. $3.731 $3.870 $4.004 $4.052 $3.192 $4.201


With Dow just a breath away from setting a record, the bulls were unable to take it higher   Europe is on a back-burner, but it represents a dark cloud to worry about.  The fiscal debate is center stage & both sides have dug in.  There will be no last minute (even 1 day) solution.  Discussions will drag on & budget cuts will begin to pinch the economy.  Revised GDP reminded us that defense cuts are already hurting.  However, the cuts are not as large as some suggest because they will be phased in over time.  What will make them hard to take is gov employees want to make them as unkind as they can.  The dept of waste & the dept of useful stuff will each be cut 7%.  That's how the gov "works."  The DC confusion caused Dow to sink 100 in the last 90 mins of trading.  Tomorrow may not be a pretty day for the markets.

Dow Jones Industrials

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Markets fluctuate after GDP report is weaker than the estimate

Dow is up 9, advancers barely ahead of decliners & NAZ went up 8.  The Financial Index was flat at 237.  The MLP index rose 1+ to the 431s & the REIT index slipped pennies at 280.  Junk bond funds were mixed & Treasuries gained.  Oil lost pocket change & gold is now back below 1600.

AMJ (Alerian MLP Index tracking fund)

stock chart

Treasury yields:

U.S. 3-month

0.109%

U.S. 2-year

0.240%

U.S. 10-year

1.889%

CLJ13.NYM....Crude Oil Apr 13...92.84 ...Up 0.08 (0.1%)

GCG13.CMX...Gold Feb 13..--.1,609.00 ...Down 6.20  (0.4%)








Jobless Claims in U.S. Decreased More Than Forecast Last Week

Photo:   Bloomberg

Fewer Americans than forecast filed unemployment applications last week, showing companies were looking beyond looming gov spending cuts & maintaining staffing.  Jobless claims decreased by 22K to 344K in the holiday-shortened week, according to the Labor Dept.  The forecast called for 360K applications.  The number collecting unemployment dropped to the lowest level since Jun 2008.  Stable headcounts are a sign demand is holding up in the face of rising gas prices, possible federal budget cuts & higher payroll taxes that are cutting into workers’ take-home pay.  At the same time, further declines in layoffs are needed for bigger gains in hiring & boost an economy that only inched up in Q4.

Jobless Claims in U.S. Fell More Than Forecast Last Week


Economy in U.S. Eked Out Gain to End 2012 as Trade Gap Shrank

Photo:   Bloomberg
The US economy managed to barely expand in Q4, erasing a previously estimated contraction, as the smallest trade deficit in almost 3 years helped overcome the biggest plunge in defense spending since the Vietnam War era.  GDP grew at a 0.1% annual rate, up from a previously estimated 0.1% drop, revised figures from the Commerce Dept which compares with a forecasted 0.5% gain.  Federal military outlays declined at a 22% annual pace, the biggest decrease since 1972.  The pace of growth indicates Federal Reserve policy makers are likely to maintain asset purchases intended to boost the expansion, which may be curbed by automatic gov spending cuts set to take effect tomorrow.  At the same time, healing in the residential real estate market & sustained gains in consumer spending even as the payroll tax rose show the economy probably picked up at the start of this year.  GDP grew at a 3.1% rate in Q3 & for all of 2012 expanded 2.2% after a 1.8% increase in the prior year.  That's a VERY slow rate of growth for a recovery.

Economy Expands at Weakest Pace Since 2011


U.S. Auto Sales Reach Pre-Recession Level on Low Financing

Photo:   Bloomberg

New car buyers, shunned by lenders just 4 years ago, now are benefiting from historically low interest rates & more-available credit, pacing a US auto market that is hovering near pre-recession levels.  Light-vehicle sales probably climbed 3.7% in Feb to 1.19M, based the estimate.  The annualized industry sales rate may have matched the Jan pace of 15.3M.  General Motors (GM), whose former finance unit needed a bailout because of losses on subprime home mortgages, saw “a number of lenders” completely exit auto leasing during the recession, said Kurt McNeil, VP of US sales operations.  Banks reported the most common rate for a 48-month new-car loan was only 4.82% in Nov, the most-recent reporting period.  The rates have dropped from more than 7% before the drop in interest rates over 4 years ago.  The auto industry has a nice recovery.

Auto Sales Reach Pre-Recession Level on Low Financing


Traders were disappointed with the GDP report.  Weakness in defense spending was a big drag & an indication of what to expect when more gov cuts hit the economy in coming months (assuming there is no agreement in DC).  Meanwhile MLPs continue strong with the index essentially at records levels reached this month.  More oil & gas is being pulled from the ground which has made North Dakota the #2 state for oil production (behind Teaxs).  Dow is within 100 or setting a new record high, but setting a new reocrd could be a struggle the way things are going. After its leap on Feb 1, Dow is up a modest 75.

Dow Jones Industrials

stock chart