Monday, November 4, 2013

Markets crawl higher ahead of employment data

Dow inched up 23, advancers ahead of decliners 2-1 & NAZ climbed 14.  MLPs were higher in the PM, taking the index up 1+ to the 457s, & the REIT index was up pocket change to the 281s.  Junk bond funds were fractionally higher as were Treasuries.  Oil fluctuated near 4 month lows & 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


CLZ13.NYM....Crude Oil Dec 13....94.73 Up ...0.12 (0.1%)

GCX13.CMX...Gold Nov 13......1,312.90 Down .....0.20  (0.0%)

Live 24 hours gold chart [Kitco Inc.]

Fed to Test Banks on Rate Rise, Housing Collapse

Photo:   Bloomberg

Domestic banks are making loans more readily available, easing lending policies to businesses as competition stiffens & relaxing standards on mortgages while demand for home loans cools, a Federal Reserve (FED) survey shows.  “Banks eased their lending policies for commercial and industrial loans” as well as standards on prime residential mortgage loans in Q3, the FED said in its survey of senior loan officers.  The share of banks relaxing mortgage standards was described as “modest.”  The survey shows banks are more willing to extend credit as the FED keeps interest rates near zero & maintains the pace of asset purchases intended to stoke growth.  Banks reported “on net, weaker demand for prime and nontraditional mortgage loans” while demand for business loans “experienced little change.”  For other types of lending to consumers, banks “did not substantially change standards or terms.”  Rates on home loans rose on speculation that the FED would start curbing purchases of Treasuries & mortgage debt.  The FED unexpectedly kept the pace unchanged in Sep, helping to push borrowing costs lower.  Mortgage refinancing dropped at almost all banks, & “large fractions of banks indicated that they had reduced the processing time for home-purchase loan applications & had increased their marketing of home-purchase loans to potential borrowers,” according to the survey.  Very few banks reduced origination & processing fees, or minimum down-payment standards.

U.S. Banks Ease Business-Loan Standards,   Fed Survey Shows

Johnson & Johnson, a Dow stock & Dividend Aristocrat, agreed to pay over $2.2B to resolve criminal & civil allegations that the company promoted powerful psychiatric drugs for unapproved uses in children, seniors & disabled patients, the Dept of Justice said.  The allegations include paying kickbacks to physicians & pharmacies to recommend & prescribe Risperdal & Invega, both antipsychotic drugs, & Natrecor, which is used to treat heart failure.  The figure includes $1.72B in civil settlements with federal & state govs as well as $485M in criminal fines & forfeited profits.  The agreement is the 3rd-largest US settlement involving a drugmaker, & the latest in a string of legal actions against drug companies that allegedly put profits ahead of patients.  In recent years, the gov has cracked down on the pharmaceutical industry's aggressive marketing tactics, which include pushing medicines for unapproved, or off-label, uses.  While doctors are allowed to prescribe medicines for any use, drugmakers cannot promote them in any way that is not approved by FDA.  "Every time pharmaceutical companies engage in this type of conduct, they corrupt medical decisions by health care providers, jeopardize the public health, and take money out of taxpayers' pockets," said Attorney General Eric Holder, said.  JNJ said in a prepared statement, "This resolution allows us to move forward and continue to focus on delivering innovative solutions that improve and enhance the health and well-being of patients."  In its plea agreement, JNJ subsidiary Janssen Pharmaceuticals admitted that it promoted Risperdal to nursing home doctors & nurses to control erratic behavior in seniors with dementia from 2002-2003.  Today that use is explicitly barred in the drug's warning label because it can increase the risk of stroke and death in elderly patients.  Antipsychotic drugs are known for their sedative effects & are occasionally used to treat post-traumatic stress & sleep disorders, though those uses have never been approved by the FDA.  JNJ stock was off 34¢.

J&J Will Pay More Than $2.2 Billion to Settle U.S. Cases

Johnson & Johnson (JNJ)

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Twitter Headquarters

Photo:   Bloomberg

Twitter increased the price of shares in its IPO by as much as 25%, putting it on track to raise $1.75B on brisk demand the stock.  The microblogging site is offering 70M shares for $23-$25 each.  It had earlier proposed selling shares for $17-$20 apiece.  Twitter attracted more than enough interest to sell all shares in its IPO before bankers started officially taking orders for them.  CEO Dick Costolo has been traveling to major US cities to make the case that the unprofitable company needs to spend to improve its advertising products, grow its user base & enhance its infrastructure.  At the top of the range, Twitter would be valued at 11.8X estimated sales in 2014 of $1.15B, up from about 9.5X in the initial terms.  That compares with Facebook (FB) at 11.5X & LinkIn (LNKD) at 12.2X.  Twitter will have 545M shares of stock outstanding after the IPO.  Including restricted stock & options, Twitter will have almost 700M shares outstanding.  By that measure, at the top end of the range Twitter would be valued at $17.4B.  Twitter also disclosed in the filing today that IBM (IBM), a Dow stock, sent a letter “alleging that we infringe on at least three U.S. patents held by IBM, and inviting us to negotiate a business resolution of the allegations.”  The patents relate to a networking technique based on common contacts, a way to show advertisements without interfering with an interactive site, & using interconnected computers to reduce web traffic.  This is a good time for a stock offering.

Twitter Increases IPO Price Range for a Valuation as High as $13.6 Billion

Stocks continued on their winning ways as if they didn't have a worry in the world.  But in the last week, Dow has only been creeping higher.  It's gained all of 70 last week & today.  That's about 11 per day.  Potential headwinds, such as the important holiday shopping season which is about to begin, are being ignored.  The damage Obamacare is doing to the economy is another headache.  But Dow has a "What, me worry?" attitude!

Dow Jones Industrials

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