Tuesday, October 8, 2013

Lower markets as DC deadlock drags on

Dow dropped 159 (closing at the lows), decliners over advancers almost 4-1 & NAZ lost a big 75.  The MLP index was off 2+ to 440 & the REIT index fell 2+ to the 265s.  Junk bond funds were weak & Treasuries were pretty much steady.  Oil on hopes that the US can avoid defaulting on its debt.  Gold fell for the 3rd time in 4 sessions as the dollar’s rebound damped demand for the precious metal as an alternative investment.

AMJ (Alerian MLP Index tracking fund)

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CLX13.NYM...Crude Oil Nov 13....103.62 Up ...0.59 (0.6%)

Live 24 hours gold chart [Kitco Inc.]

  • President Barack Obama speaks about the government shutdown and debt limit, Tuesday, Oct. 8, 2013, in the James Brady Press Briefing Room of the White House in Washington. The president called House Speaker John Boehner saying he won't negotiate over reopening the government or must-pass legislation to prevent a US default on its obligations. (AP Photo/Charles Dharapak)
Photo:   Yahoo

After weeks of gridlock, House Reps floated broad hints they might be willing to pass short-term legislation re-opening the gov & averting a default in exchange for immediate talks with the administration on reducing deficits & changing Obamacare.  A few hours later, the pres said he was "absolutely willing" to hold talks on those terms.  "If reasonable Republicans want to talk about any of these things again, I'm ready to head up to the Hill and try," he added.  The events unfolded as the stock market sank for the 2nd day.  And in the latest in a string of dire global warnings, the IMF said failure to raise America's borrowing limit later this month could lead to a gov default that might disrupt worldwide financial markets, raise interest rates & push the US economy back into recession.  The Treasury has said the deadline for Congress to act is Oct. 17,  the day the gov will exhaust its ability to borrow funds & will have to rely day-to-day on tax & other receipts to pay its bills.  Some Reps have downplayed the significance of the deadline, saying that even then, the US would be able to pay China & other debt holders.  But Obama said they were badly misguided, warning that default would harm the economy, cause retirement accounts to shrivel & houses to lose value.  Other Reps have made it clear in recent days they agree with the threat posed by default & are determined to prevent it.  In the Senate, Harry Reid readied legislation to raise the debt limit by roughly $1T, enough to prevent a recurrence of the current showdown until after the 2014 elections.  It was unclear whether Senate Reps would slow progress of the bill, which was shorn of all items that many GOP lawmakers favor to reduce deficits or delay the health overhaul (which takes effect more fully in Jan).

Obama says talks OK _ after default threat averted Associated Press

German factory orders unexpectedly fell in Aug, backing up the ECB’s view that the economic recovery in the euro area is fragile.  Orders, adjusted for seasonal swings & inflation, dropped 0.3% from Jul, when they fell a revised 1.9%, the Economy Ministry said.  The forecast called of an increase of 1.1%.  Orders climbed 3.1% from a year ago, when adjusted for the number of working days.  While Europe’s largest economy is being supported by an “extraordinarily good” consumer climate, growth slowed in Q3, the Bundesbank said last month.  Headwinds include near-record unemployment in the 17-nation euro area, Germany’s biggest trading partner, & a US gov shutdown.  Domestic factory orders rose 2.2% from the previous month, while foreign demand fell 2.1%.  Basic-goods orders increased 0.5% from Jul, while demand for consumer goods dropped 0.4%.  Investment-goods orders decreased 0.7%, with domestic demand rising 4.7% & orders from the euro area declining 9.2%.  “The strong increase of domestic demand for investment goods points to a revival in investment activity,” the Economy Ministry said.  German consumer confidence is still at the highest level since 2007 & investor sentiment rose to a 3 year high in Sep, according to 2 separate surveys.  While the country’s jobless rate unexpectedly rose to 6.9% last month, it remains near a 2-decade low.  The Bundesbank said in its monthly bulletin that it sees signs the economy will improve for the rest of this year.  The bank predicts GDP will rise 0.3% this year & 1.5% in 2014.  GDP climbed at a 0.7% rate in Q2.

German Factory Orders Unexpectedly Decline in Sign of Recovery’s Fragility

JCPenney sales decline slowed in Sep & that the improvement will last through the end of the year.  Sales at stores open at least 12 months fell 4% in the fiscal month ended Oct 5.  Same-store sales dropped 12% in the qtr ending Aug. 3.  CEO Mike Ullman is working to turn around the department-store chain after his predecessor’s failed attempt to transform JCP into a destination for younger, wealthier shoppers.  Ullman has reinstituted sales events, revived popular private-label brands such as St. John’s Bay & tried to clear out slow-selling merchandise from the chain’s home sections, all while raising cash thru borrowings & a share offering to shore up the balance sheet.  The company, which raised $785M from a share sale last month, said it expects to have more than $2B in liquidity at the end of the fiscal year.  Sales of women’s apparel, its largest business, rose in Sep.  Men’s apparel, jewelry and women’s accessories also are performing better than the company average.  The retailer said getting its renovated home departments running has been “more challenging than originally planned.”  The company said it is revamping the sections’ merchandise, pricing & layout after the previous strategy failed to catch on with shoppers.  The stock was up 7¢.

J.C. Penney Revenue Decline Slows to 4% as Ullman Revives Private Brands

J.C. Penney (JCP)

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The chaos in DC is bleeding over into the stock market, a continuation of a dysfunctional DC which has been in place for years.  Another patch (that's why they're stock up on Scotch Tape) will just postpone the next painful crisis until after the election.  That's good enough to keep a lot of the same players working in DC.  The final patched together solution will be signed off in the first few hours of Oct 17.  Q3 earnings reports will not be a source of relief for investors.  Dow is down more than 350 in Oct & 900 below its peak last month. 

Dow Jones Industrials

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