Monday, August 19, 2013

Lower markets led by energy stocks

Dow dropped 70 (finishing near the lows), decliners over advancers almost 4-1 & NAZ fell 13 after showing strength in the AM.  The MLP Index fell 3+ to 434 & the REIT index lost 3 to the 256s (where it started 2013).  Junk bond funds fell 1-2% (big in their world) & Treasuries sold off.  Oil & gold had modest losses.

AMJ (Alerian) MLP Index tracking fund)

 stock chart

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLU13.NYM...Crude Oil Sep 13....107.05 Down ...0.41  

Live 24 hours gold chart [Kitco Inc.]

Shale Grab in U.S. Stalls as Falling Values Repel Buyers

Photo:   Bloomberg

Oil companies are hitting the brakes on a US shale land grab that produced an abundance of cheap natural gas, & troubles for the industry.  The spending slowdown by intl companies comes amid a series of write-downs of oil & gas shale assets, caused by plunging prices & disappointing wells.  The companies are turning instead to developing current projects, unable to justify buying more property while fields bought during the 2009-2012 flurry remain below their purchase price.  The deal-making slump, which may last for years, threatens to slow oil & gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs.  The decline has pushed acquisitions of North American energy assets in H1 to the lowest since 2004.  North American oil & gas deals, including shale assets, plunged 52% to $26B in H1 from $54B in the year-ago period.  During the drilling frenzy of 2009-2012, energy companies spent more than $461B buying North American oil & gas properties.  Prior to this year, oil & gas transactions ranked among the top 2 in total deal values every year since 2005, except 2008 when they were 4th.  So far this year, oil & gas isn’t among the top 5.  The land grab began more than a decade ago when improved drilling methods & a process called hydraulic fracturing, which cracks rock deep underground to release oil & natural gas, opened up new production in previously untappable shale fields.  The rush accelerated in 2004 as more shale fields in North Dakota, Pennsylvania & Ohio were identified, opening new troves of petroleum & the prospect of energy independence in North America.  As overseas buyers moved in, booming production soon led to oversupplies, & gas prices plunged to a 10-year low in 2012, forcing companies to write-down the value of some of their assets.  Companies were also hurt when some fields thought to be rich in oil proved to contain less than anticipated.

Shale Grab in U.S. Stalls as Falling Values Repel Buyers: Energy

Intel stock, a Dow company,  rallied after 2 analysts predicted the computer chip maker will snap out of its recent sales slump next year as more businesses buy desktop & laptop machines powered by its processors.  They predict revenue will rise 5% next year.  Although modest, it would reverse 2 consecutive years of declining revenue.  The slump has been driven by a shift away from PCs to smartphones & tablets that largely rely on other types of chips.  Their thinking is based on the assumption that many companies & gov agencies will buy new PCs to replace machines currently running on Windows XP by early next year because Microsoft (MSFT), another Dow company, plans to stop providing technical support to Windows XP in Apr, more than 12 years after XP was released.  That will provide a prod to buy or upgrade to PCs able to run on Windows 7 & Windows 8.  150M-250M PCs could be upgraded.  After a slow start, INTC also has been making modest inroads in the tablet market with a chip called "Bay Trail."  By next year, Trail could give INTC a 10-15% share of the tablet market (24M- 36M devices).  Revenue next year is projected to rise to $54.2M from the forecast of $52.9BN for this year.  The price target for the stock was raised to $22 from $20.  But there are serious reservations about INTC prospects, because the "near-term positives are offset by longer-term negatives."  PC sales are likely to remain lackluster as mobile devices become even more popular & INTC struggles to make a bigger dent in the tablet market.  The stock rose 37¢, taking it above the target price. 

Intel stock rises on prediction of 2014 sales gain Associated Press

Intel (INTC)

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Defense Chief Says Army Won’t Allow Egypt Destruction

Photo:   Bloomberg

A Cairo court ordered ousted President Mubrarak freed from prison, a move that could complicate Egypt’s increasingly violent political transition, while militants in Sinai killed 26 policemen.  The Cairo criminal court’s order to free Mubarak threatens to inject new tensions in a nation convulsed by unrest that has killed almost 1000 in 6 days.  His potential release may spur arguments by the Muslim Brotherhood & others locked in a standoff with the gov that the military-installed leaders want to restore the kind of police state Mubarak led.  The military removed Brotherhood-backed President Mursi on Jul 3 following days of rallies against him, a move that has sparked near-daily protests by his backers that have frequently boiled over into deadly clashes.  The tumult has made it even more difficult for Egypt to emerge from the slowdown that has battered the economy since Mubarak was toppled.  Mursi has been in military custody since his removal.  He was ordered held today for 15 more days pending a probe into new claims he incited violence during deadly unrest in Dec.  Mubarak, ordered freed in connection with a corruption case, could be released within 3 days, his attorney said.  He has already been ordered released in connection with 2 other lawsuits for which he has been jailed, including his role in the deaths of protesters during the 2011 uprising against him.  This complicated situation gets messier by the day.

Egypt Defense Chief Says Army Will Fight to Protect State

Stocks are losing ground in an environment where nothing seems to be going right.  Maybe nothing is going wrong in a major way, but stocks are drifting lower on a lack of conviction by the bulls.  The big integrated oils were down 1% today, not a good sign for the market.  At the same time, yield sensitive stocks keep selling off.  Aug is shaping up as an ugly month after Dow gained more than 5K in just 2 years.  Dow is already down 650 since the Aug 2 peak.

Dow Jones Industrials

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