Thursday, July 18, 2013

Dow rises to new record, but tech lags

Dow went up 78, advancers over decliners 2-1 & NAZ inched up 1.  The MLP index was off 1+ to 460 & the REIT added 2+ to the 292s.  Junk bond funds were higher while Treasuries sold off.  Oil rose to a 15-month high (108) as US jobless claims declined & equities advanced, bolstering economic optimism.  Gold also gained.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLQ13.NYM...Crude Oil Aug 13....108.00 Up ...1.52 (1.4%)

Live 24 hours gold chart [Kitco Inc.]

German Finance Minister Wolfgang Schaeuble

Photo:   Bloomberg

German Finance Minister Schaeuble opened the possibility of further Greek debt relief as he urged the country to stand by its commitments to scale back its debt & overhaul the economy.  On his first visit to Greece since 2009, Schaeuble said there are no “shortcuts” to austerity even as he lauded the Greeks’ “determination.”  The minister warned against focusing on possible debt relief for the country, though he signaled that Germany would be ready to talk if conditions were met in 2014.  “If Greece has done its implementation and achieved a primary surplus -- then, if necessary, other measures will be negotiated,” Schaeuble said.  Still, “everybody must do what they’ve promised they’ll do.”  Greece has stumbled in fulfilling austerity targets set by intl lenders, falling short on tax-revenue collection & state-owned asset sales as uncertainty over the country’s debt sustainability has grown.  Greece’s public debt is expected to peak at 176% of GDP this year & drop below 120% by 2021, creditors say.  Schaeuble’s comments suggested building on previous relief measures.  European finance ministers agreed last Nov to cut the rates on bailout loans & suspend interest payments for a decade, while giving Greece more time to repay & engineering a Greek bond buyback.  He was unyielding on a writedown.  The Greek drama continues to unfold.

Schaeuble Opens Door to Greek Debt Relief Tied to Targets

Fed Chairman Ben S. Bernanke

Photo:   Bloomberg

Big Ben said rising bond yields partly reflect an unwinding of leveraged & “excessively risky” investments, calling the tighter financial conditions “unwelcome” as monetary policy stays highly accommodative.  The Fed chief, in testimony before the Senate Banking Committee, said the increase in borrowing costs over the past 2 months is related to “better economic news,” Fed communications about tapering its $85 billion monthly asset purchase program & changing bond-market bets.  The unwinding of risky bets is “probably a good thing to have that happen although the tightening that’s associated with that is unwelcome,” he said in response to a question.  Fed officials plan to reduce the pace of asset purchases over the next year if the economy performs in line with their forecasts, which see growth picking up thru the end of 2013.  It has been forecasted that the economy probably expanded less than a 1% rate in Q2, & a sustained rise in borrowing costs could threaten the 4-year expansion.

Bernanke Says Unwinding of Risky Bets Boosts Borrowing Costs

EBay Revenue Forecast Misses Estimates on Europe, Asia Weakness

Photo:   Bloomberg

EBay tumbled after the it’s forecast for the current qtr fell short of estimates as economic weakness in Europe & Asia restricts growth.  CEO John Donahoe has been seeking growth abroad, adding staff in emerging markets, such as Russia & China.  In 2012, 27% of marketplaces revenue & more than 50% of PayPal’s sales came from intl operations.  EBay is predicting 2013 revenue & profit to be at the lower end of full-year guidance, as e-commerce growth rates in Europe & Korea slow & currencies weaken against the dollar.  “Last year, overall economic growth was down in Europe, retail sales were down, but e-commerce growth rates stayed constant,” Donahoe said.  “This year, overall economic growth is little bit slower than last year, retail sales are a little bit slower and e-commerce growth rates have also come down a little bit.”  Q3 sales will be $3.85-$3.95B, the company said.  Analysts were projecting revenue of $3.97B.  Q2 revenue came in at $3.88B, just shy of the $3.89B prediction.  The company forecast 2013 revenue to be $16-$16.5B & EPS, excluding some items, of $2.70-$2.75.  Online commerce growth in Germany & the UK is slowing, Donahoe said, which is coupled with Korean e-commerce growth rates that declined by more than 50% compared with last year.  Currencies in those areas, predicted to weaken against the dollar, have the potential to weigh on earnings in H2.  Higher taxes may also weigh on net income this year, as weakness in markets overseas prompt more business in the US, where the company is subject to a higher rate.  Revenue in EBAYs marketplaces business climbed 10% to $2B in Q2 & the number of users increased 14% to 120M.  At PayPal, revenue rose 20% to $1.6B.  The unit gained 4.7M registered users, bringing the total to 132M.  Net payment volume, or the total value of transactions processed, rose 24% to $43B.  The stock sank 3.86 (7%).

EBay Falls as Forecast Misses Estimates on Slowing Growth in Europe, Korea

eBay (EBAY)

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Big Ben had soothing words when he testified today, making traders happy.  They may be assuming rates will continue low until they retire.  Maybe, but I don't think so.  Sadly low rates are critical to keep the market rally going when growth is not getting the job done.  GDP growth will be drab in Q2 & there is little reason to expect it to spike up in H2.  And this economy is one of the strongest ones in the world when Europe is bogged down in a recession & China is going from a slow growth rate to even slower growth rates.  Company earnings progress is largely related to interest rates being kept low & one time events that are non-recurring.  But Dow doesn't care.

Dow Jones Industrals

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