Wednesday, February 20, 2013

Markets tumble after Federal Resrve minutes are released

Dow dropped 108 (closing at the lows), decliners over advancers 3-1 & NAZ lost 49.  The Financial Index sold off, down 3 to the 238s.  In a weak market, the MLP index fell 3 to the 431s & the REIT index was off 2 to below 280.  Junk bond funds slid lower & Treasuries gained slightly.  Oil fell back & gold plunged to the mid 1500s, near a 2 year low.

AMJ (Alerian MLP Index tracking fund)

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CLH13.NYM...Crude Oil Mar 13...94.80 ...Down 1.86  (1.9%)

Live 24 hours gold chart [Kitco Inc.]

Fed Chairman Ben S. Bernanke

Photo:   Bloomberg

Several Federal Reserve (FED) policymakers were concerned last month about the risks of FED efforts to boost the economy by keeping borrowing costs low for the foreseeable future.  Minutes of the Jan meeting showed that some worried about the monthly purchases of $85B in Treasuries & mortgage bonds.  They expressed concern that the continued purchases could eventually escalate inflation, unsettle financial markets or cause the FED to absorb losses once it begins selling its investment holdings.  In the end, the FED voted to keep its bond program open-ended & at the same size.  It said that the bond purchases would continue until the job market improved substantially.  The minutes showed that "several participants" thought the FED should be ready to vary the pace of its purchases as it adjusts its view of the economy or the benefits & costs of the purchases.  They asked staffers to provide a deeper analysis at upcoming meetings of the issues raised in the discussion.  The minutes noted that officials thought the economy was showing signs of modest improvement at the start of 2013.  Policymakers observed that the job market had been improving gradually & super-low interest rates had helped boost sales of autos & other consumer products.  But FED officials also cautioned that threats remained.  They pointed to possible economic disruptions from budget debates in DC, including the scheduled start of across-the-board spending cuts on Mar 1, cuts that could slow economic growth.

Several on FOMC Said Fed Should Be Ready to Vary QE Pace

Greek Labor Unions Strike as Samaras Implements Austerity

Photo:   Bloomberg

Greek labor unions held their first general strike this year as Prime Minister Samaras's coalition gov implements a new round of austerity measures amid record unemployment.  Schools, ferries, trains & gov services are shut today as 30K protesters marched to parliament in Athens.  Civil aviation workers are holding an 8-hour work stoppage prompting delays & cancellations at airports.  Athens bus & trolley workers are holding walkouts during the day while the city’s metro is running in order to bring protesters to the city center.  One group advocating a return to the drachma held a banner in front of parliament which read “Plan B, no to the €, stop paying, lift the burden now.”  Fresh cuts in pensions & wages as well as tax rises follow a wave of austerity measures that have led the country to a 6th year of recession, with unemployment at a record 27%.  The strike is the latest challenge from unions to Samaras, who has used emergency decrees twice in the past month to end walkouts by metro & ferry workers prompted by the spending cuts & tax increases required to keep funds flowing to the country.  Samaras clinched agreement from euro-area finance ministers to ease terms of emergency loans in return for the budget measures in Nov.  All is not well in Greece, & the rest of Europe.

Greek Labor Unions Strike as Samaras Implements Austerity

Office Depot, OfficeMax to Combine to Compete With Staples

Photo:   Bloomberg

Office Depot agreed to buy OfficeMax for almost $1.2B in a bid to revive a retailer that has been losing sales to online rivals.  ODP will issue 2.69 new shares for each outstanding OMX share.  Based on ODP closing price yesterday, that values OMX at $13.50 a share, 26% higher than it closed at on Feb 15 (before reports the companies were in talks to combine).  The merger will combine companies with revenue of about $18B.  The company may accelerate the closing or selling of hundreds of stores after Starboard Value, an activist fund that became the largest shareholder of ODP in Sep, pushed for expense reductions.  The new board will include an equal number of directors designated by the 2 companies & will conduct a search for a new CEO.  Both incumbent CEOs will be considered.  Under the terms of the deal, OMX will have the right to pay a cash div of as much as $1.50 a share before the transaction is completed.  The merger may generate as much as $600M in annual cost savings in 3 years.  The new company also would have more than $1B in cash on hand & another $1B available in a credit revolver.  The deal is expected to close by the end of the year.  ODP plunged 84¢ (17%) & OMX lost 91¢ (7%).  Both finished off the lows.

Office Depot Will Buy OfficeMax for $1.17 Billion to Compete With Staples

Office Depot (ODP)

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OfficeMax (OMX)

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Stocks had a bad day, one of the worst in the last few months.  The FED minutes gave hints about ending its support for debts.  Nothing was decided, but that raised awareness that low interest rates will not last forever.  Additionally, any strong recovery would hasten the end of bond buying programs.  The weakness in stocks suggests that there is less optimism than thought.  Economic growth is more iffy than the bulls will admit.  Apple (AAPL) has tried to rally in its 5 month bear market, but fell back.  Today it was down almost 11 to under 450, very close to its recent lows.  For more than 3 weeks, Dow has been treading water, unable to make a breakthrough to new heights.  With the looming budget-debt mess, that is not a good sign

Dow Jones Industrials

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