Wednesday, July 17, 2013

Higher markets after Bernanke comments

Dow rose 17, advancers over decliners 5-2 & NAZ went up 8. The MLP index was up 1+ to 462 & the REIT index gained a fraction in the 289s.  Junk bond funds were about 1% higher & Treasuries had a big gain.  But oil & gold did little.

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...105.97 Down ....0.03  (0.0%)

GCN13.CMX...Gold Jul 13.........1,287.50 Down ...3.30  (0.3%)

Bernanke Says Fed’s Monetary Policy Isn’t on a ‘Preset Course’

Photo:   Bloomberg

Big Ben said the central bank’s asset purchases “are by no means on a preset course” & could be reduced more quickly or expanded as economic conditions warrant.  “The current pace of purchases could be maintained for longer” if inflation remained too low, the outlook for employment became less favorable or “financial conditions -- which have tightened recently -- were judged to be insufficiently accomodative to allow us to attain our mandated objectives,” Bernanke said today before Congress.  If the economy improved faster than expected, & inflation rose back “decisively” toward the central bank’s 2% target, “the pace of asset purchases could be reduced somewhat more quickly,” he said in prepared testimony.  The Federal Reserve (FED) would also be prepared to increase the pace of purchases “for a time, to promote a return to maximum employment in a context of price stability.”  The FED chairman’s remarks highlight the FOMC's desire to assure that the economy & labor markets have sufficient momentum before reducing its $85B in monthly bond purchases.  Bernanke today said the FED balance sheet would remain elevated after purchases of mortgage bonds & Treasuries end.  The FED “will be holding its stock of Treasury and agency securities off the market and reinvesting the proceeds from maturing securities,” he said.  The strategy “will continue to put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative.”  OK!!

Bernanke Says Fed’s Bond Purchases Aren’t on ‘Preset Course’

<p> In this Thursday, June 27, 2013, photo, a construction worker is shown atop a roof at sunrise to beat daytime high temperatures in Queen Creek, Ariz. The Commerce Department releases housing starts for June on Tuesday, July 16, 2013. (AP Photo/Matt York)

Photo:   Yahoo

US builders started work on fewer homes in Jun, mostly because apartment construction fell sharply.  But applications for permits to build single-family houses rose to the highest level in 5 years, suggesting the housing recovery will continue.  Developers began construction at an annual rate of 836K homes in Jun, according to the Commerce Dept, nearly 10% below May's total of 928K (revised higher & was the fewest since last Aug).  Most of the drop occurred in apartments, where starts fell almost 27% from May.  Applications for permits to build single-family homes rose for the 3rd straight month to 624K, the highest since May 2008 which suggests home construction should rebound in the coming months.  Overall permits fell to 911K from 985K in May, which was also revised higher.  Despite the Jun decline, builders started work on 10% more homes last month compared with a year earlier & permits are 16% higher than a year ago.

Housing Starts in U.S. Unexpectedly Fall to Lowest in a Year

Bank of America Income Rises 63% as Moynihan Leans on Cost Cuts

Photo:   Bloomberg

Bank of America beat estimates by posting a 63%t gain in Q2 profit that was driven by lower provisions for bad credit & a drop in expenses.  EPS rose to 32¢ from 19¢ a year earlier, handily beating the estimate of 26¢.  CEO Brian Moynihan has said he’ll eliminate $8B in annual costs by the end of 2014 & $10B tied to troubled mortgages a year later.  The biggest banks are focused on curbing expenses amid new regulations, higher capital requirements & sluggish lending.  Revenue rose 3.5% to $22.7B from a year earlier.  Expenses fell to $16B from $17B as the staff shrank, litigation costs dropped by more than half & the division handling troubled mortgages provided less of a drag.  The firm’s provision for credit losses fell 32% from a year earlier to $1.2B.  Income at the global banking unit slipped 2% to $1.29B on higher provisions fueled by commercial loan growth.  Investment banking fees rose 36% to $1.6B.  Profit in the global markets division excluding adjustments climbed 57% to $935M as improved equity results overwhelmed a drop in revenue from fixed income, currency & commodities sales & trading.  The stock went up 23¢.

BofA Beats Estimates as Profit Rises 63% on Expense Controls

Bank of America (BAC)

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Stocks heard what they wanted to hear from Big Ben, but their reaction is muted.  Maybe that's because the predictable testimony was already baked into the markets.  Bank earnings continue to be more of the same.  A chunk of the earnings improvement is because of the reversal for bad debts which were not as bad as originally feared.  The problem is that these gains won't last.  We're still waiting for earnings from most companies which generally are comparable to guidance given by management.

Dow Jones Industrials

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