Wednesday, December 11, 2013

Lower markets after budget deal spurs bets on tapering

Dow sank 129 (closing at the lows), decliners over advancers more than 4-1 & NAZ lost 56.  The MLP index dropped 4 to the 437s & the REIT index was down 6+ to the 261s.  Junk bond funds slid lower & Treasuries lost ground.  Oil fell from a 6 week high & gold was a tad lower.

AMJ (Alerian MLP Index tracking fund)

stock chart

CLF14.NYM....Crude Oil Jan 14....97.44 Down ...1.07  (1.1%)

Live 24 hours gold chart [Kitco Inc.]

The budget deficit in the US last month narrowed more than forecasted as rising employment & a rallying stock market boosted revenue to a Nov record.  Spending exceeded revenue by $135.2B, compared with $172.1B in Nov 2012, according to the Treasury.  The estimate was for a $140B gap.  Receipts rose 12.8% to the highest ever for Nov, while spending fell 4.8%.  Declining unemployment has helped reduce the deficit as a share of GDP by more than half in the past 4 years to $680B in fiscal year ended Sep 30 from a record $1.4T in 2009.  The CBO has projected the shortfall will shrink further this year & next as stronger economic growth lifts individual & corp taxes.  Revenue increased to $182.5B from $161.7B last year & spending totaled $317.7B compared with $333.8B a year earlier.  Individual income-tax receipts rose to $82.7B from $75B last year.  The deficit totaled $226.8B in the first 2 months of FY 2014, compared with a $292.1B shortfall  last year.  However, by past standards this is still a whopper deficit!

Budget Deficit in U.S. Narrows as Job Gains Bolster Revenue

China’s new yuan loans & broadest measure of credit exceeded estimates last month in data at odds with indications that the gov wants to curb borrowing.  New local-currency loans were 624.6B yuan ($103B), the People’s Bank of China said, compared with a 580B estimate.  Aggregate financing was 1.23T yuan, topping all estimates, while M2 money supply increased 14.2% from a year earlier.  The figures suggest authorities are finding ways to support growth, with gains in retail sales & slowing industrial production presenting a mixed picture of the economy.  China may add clarity with a statement this week following an annual economic meeting in Beijing.  Previously released data this week gave a mixed picture of growth in Nov, as retail sales unexpectedly accelerated & exports topped forecasts, while industrial output & imports rose less than estimated.  Money supply was projected to increase 14.2% in Nov from a year earlier. 

China New Loans Exceed Estimates

Crude oil production in the US rose to the highest level in a quarter-century as a shale drilling boom in Texas & North Dakota cut the need for foreign oil & pushed the country closer to energy independence.  The US pumped 8.075M barrels a day last week, a gain of 0.8%, or 64K barrels a day, according to the Energy Information Administration (EIA).  It’s the most since Oct 1988.  Oil output grew 18% in the past 12 months, the fastest pace on record, boosting fuel exports & reducing reliance on imports, according to the EIA.  The boom will make the country the world’s largest producer by 2015, 5 years sooner than last year’s forecast, the International Energy Agency said last month. Imported crude & petroleum products will dip to 28% of domestic demand next year, the lowest since 1985 & down from a peak of 60% in 2005, the EIA said.  Refined product exports have advanced 16% so far this year.  Advances in horizontal drilling & hydraulic fracturing, or fracking, have boosted output from dense rock formations such as the Bakken shale in North Dakota & the Eagle Ford in Texas.  The techniques allow producers to bore sideways thru the richest layers, & then use explosives followed by a high-pressure stream of water, sand & chemicals to crack open the deposit & free the trapped oil & gas.  Production in Texas has increased 21% from the end of 2012 thru Sep & North Dakota likewise rose 21%.  Domestic oil output will average 8.54M barrels a day next year.  Taking into account all energy sources, including natural gas, petroleum, nuclear & renewables, the US met 86% of its needs in the first 8 months of 2013, on pace to be the highest annual rate since 1986, according to EIA.

Fracking Boom Pushes U.S. Oil Output to 25-Year High

Despite the decline in the stock market, there is not a lot going on.  However, this is another reminder of how much this enormous rally owes to QE3 & how vulnerable it is to any reduction in bond buying by the Federal Reserve.  Yield sensitive securities were hit very hard with selling today, giving an opportunity for value investors to buy at more attractive prices that offer higher yields.  Dow has lost 240 in Dec but is still up a massive 2.7K (over 20%) YTD.  That's hardly chump change.

Dow Jones Industrials

stock chart

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