Thursday, October 24, 2013

Markets rise on bets the Federal Resrve will maintain stimulus

Dow gained 95 (closing near the highs), advancers over decliners 4-3 & NAZ went up 21.  The MLP index rose 2+ to the 461s & the REIT index was up pocket change in the 284s.  Junk bond funds were mixed & Treasuries had modest losses.  Oil inched higher & gold rose to a 3 week high on speculation that the Federal Reserve will maintain the pace of monetary stimulus to boost economic growth, spurring demand for the metal as a store of value.

AMJ (Alerian MLP Index tracking fund)

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Treasury Yields:

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CLZ13.NYMCrude Oil Dec 1397.18 Up 0.32 (0.3%)

Live 24 hours gold chart [Kitco Inc.]

China's Manufacturing

Photo:   Bloomberg

China's manufacturing strengthened more than anticipated this month, a sign the recovery is gaining momentum even as leaders struggle with surging home prices & local gov debt.  The preliminary 50.9 reading for a Purchasing Managers' Index released by HSBC Holdings & Markit Economics compared with a 50.4 estimate.  Readings above 50 indicate expansion.  Last month’s final level of 50.2 differed from an initial 51.2, the biggest gap since HSBC began giving advance figures in 2011.  Officials are wrestling with controlling risks from shadow banking & local gov debt while keeping growth above a “bottom line” of 7%.  The gov has rolled out fiscal stimulus, including spending on railways & replacing shantytowns, to support expansion without cutting interest rates or bank reserve requirements.  China’s one-year interest-rate swap rose today by the most in 2 months after the People’s Bank of China refrained from injecting funds via reverse-repurchase agreements for a 3rd straight auction.  Premier Li Keqiang said this week that the nation is on track to achieve its economic goals in 2013 after expansion accelerated to 7.8% in Q3 from a year earlier.

Berkshire Hathaway Chairman Warren Buffett

Photo:   Bloomberg

Warren Buffett, CEO of Berkshire Hathaway (BRK.A), said the U.S housing market has made progress & still has a way to go in recovering.  “It’s coming back,” Buffett said yesterday.  "Pricing is better in almost all markets by a reasonable percentage from a few years ago. Housing starts are up somewhat. They still are not where I would regard as an equilibrium point, where they match household formation.”  A rebounding housing market has helped BRK.A subsidiaries that make carpet, bricks, insulation & houses.  Some of those businesses have expanded in recent years through acquisitions as the industry recovers from the worst slump in 7 decades.  Buffett has been predicting a real estate revival for years & positioning his company to benefit from it.  He said in early 2010 that the turnaround would probably begin “within a year or so.”  While that call proved wrong, he has since reiterated that the industry would rebound because of increasing population and limited supply.  Sales of new US homes increased 7.9% to a 421K annualized pace in Aug, according to the Commerce Dept.  In Jul, the rate was 390K.  The 2 month period was the weakest so far this year.  “The country has made significant progress, since the fall of 2009,” Buffett said.  “This economy was hit in 2008 by something that never happened in my lifetime except for when I was one or two years of age.”

Buffett Says Gains in U.S. Housing Market Still Fall Short of Equilibrium

Dunkin' Brands Group, the parent company of Dunkin' Donuts (DD) & Baskin-Robbins (BR), reported results for Q3.  "Both Dunkin' Donuts and Baskin Robbins U.S. continue to have excellent momentum and delivered another quarter of strong comparable store sales and net new restaurant growth," said Nigel Travis, CEO DNKN.  "With 222 net new openings year-to-date, we now have 7,500 Dunkin' Donuts restaurants in the U.S and the demand by existing and prospective franchisees to grow with us has never been stronger.  We continue to believe that we can have 15,000 Dunkin' Donuts restaurants in the U.S., including approximately an additional 3,000 east of the Mississippi and 5,000 in the western part of the country. Notably this quarter, we opened our first restaurants in Denver, Colorado, and sold additional store development agreements in Southern California bringing the total to 70 restaurants planned for the Southern California region. Additionally, just last week we announced that we have begun to sell store development agreements for the central part of the state, including the Fresno, Bakersfield, Sacramento, and Santa Barbara areas."  "We had another strong quarterly performance with nearly 9 percent revenue growth, nearly 48 percent adjusted operating income margin, and double-digit adjusted earnings per share growth," said CFO Paul Carbone.  "Based on our ongoing strong performance, we feel confident in our ability to deliver on our full-year comparable store sales and net development growth targets.  Because of the impact of write-downs related to our prior investments in the Dunkin' Donuts joint venture in Spain, we believe we will be at the low-end of our $1.50 to $1.53 diluted adjusted earnings per share target for 2013."  Global systemwide sales growth in Q3 was primarily attributable to global store development & Dunkin' Donuts US comparable store sales growth (which includes stores open 54 weeks or more).  The stock of this fun company slipped 29¢.

Dunkin' Brands Reports Third Quarter 2013 ResultsPR Newswire

Dunkin' Brands Group (DNKN)

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Bulls had the upper hand today as stocks didn't know where to go.  Earnings tend to be a mish mash of this & that.  But that is good enough to keep the buyers happy.  While yield sensitive stocks have been market laggards for months, MLPs have found favor this month.  The MLP index at 461 is within striking distance of the record 468 set in May. Other yield plays remain 5-10% below their yearly highs.

Dow Jones Industrials

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