Thursday, December 5, 2013

Markets decline on worries about Fed reducing its bond buying

Dow fell 68 (finishing near the lows again), decliners over advancers 2-1 & NAZ lost 4.  The MLP index dropped 4+ to the 441s & the REIT index was up fractionally to the 264s.  Junk bond funds continued mixed but Treasuries extended their 6 week slide, taking yields higher.  Oil  remained strong & gold pulled back again.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF14.NYM...Crude Oil Jan 14....97.55 Up ...0.35 (0.4%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Bank of Atlanta President Dennis Lockhart, a backer of record stimulus, said any decision to taper bond purchases should be accompanied by a limit on the size of the program or a timetable for ending it.  “If and when the FOMC arrives at a decision to wind down asset purchases, it’s my view that it will be helpful to the transition process to provide as much certainty as possible about how this will be done,” Lockhart said (referring to the FOMC).  His view differs from the FOMC’s current policy to buy bonds without setting an end date or a limit on total purchases.  Central bank officials such as James Bullard favor retaining the option to alter the amount of bond buying at every FOMC meeting after reviewing fresh economic data.  The FOMC will consider scaling back $85B in monthly bond purchases in coming months based on expected gains in the labor market.  Lockhart said he is among some FOMC participants who favor announcing a “total size of remaining purchases or a timetable for winding down the program.”  “I am among those who see merit in this approach as long as the economy follows roughly the path we expect,” he said.  “Once the decision is made, I favor providing the public as much clarity and certainty as possible about how the change will be executed.”

Fed’s Lockhart Calls for Setting Timetable for Tapering QE

China Mobile Store

Photo:   Bloomberg

China Mobile won state approval to start commercial service on the world’s largest 4th-generation wireless network, clearing a key hurdle to offering the iPhone from Apple to its 759M subscribers.  The world’s biggest phone company & 2 smaller domestic carriers received 4G licenses yesterday from China’s Ministry of Industry & Information Technology.  China Mobile will deploy TD-LTE technology to promote faster downloads as it tries to push customers toward higher-priced voice & data plans.  Starting services on a 4G network using global standards may help China Mobile win over handset makers that hadn’t supported its homegrown 3G standard.  The high-speed network was scheduled to reach 100 cities covering 500M this year as it tries to lure users with enticements such as subsidies for new devices.  It has been reported that China Mobile signed a deal with AAPL to start offering the iPhone later this month.  Apple CEO Tim Cook traveled to Beijing at least twice this year as the carrier said it was discussing possible cooperation with AAPL.  AAPL stock continues hot, rising 3 after a good run since Jul.

China Mobile Moves Closer to IPhone Offering With License for 4G Network

Apple (AAPL)

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Budget Talks Narrow to One Year Deal as Lawmakers Protest

Photo:   Bloomberg

US budget negotiators plan to work over the weekend on a possible deal to ease automatic spending cuts to just one year amid objections from affected groups & lawmakers in both parties.  A compromise being crafted by the 2 leaders of a 29-member panel is drawing protests from Dems & groups including federal employees, who could contribute more to their pensions under the proposal, & airlines, which could face higher fees.  Some Reps are concerned that a bipartisan deal will replace spending cuts set in law with promises of future savings that might not be realized.  Congressional aides say lead negotiators Representative Paul Ryan & Senator Patty Murray may urge the House & Senate to vote directly on the accord, bypassing the bipartisan panel that has a self-imposed deadline for a plan on next Fri.  Both sides are “constantly working and talking,”  House Speaker John Boehner, when asked if a deal could be reached for a vote next week, said he’s “hopeful.”  The negotiators have been seeking to boost domestic & defense spending by $65B over 2 years to soften the effects of spending cuts on the Pentagon & programs including scientific & medical research & services for poor children.  The deal being discussed may alleviate some of the automatic spending cuts (sequestration) for one year instead of 2.  With both parties eager to avoid a repeat of the Oct federal gov shutdown, the emerging compromise provides a framework to reach an agreement on gov, either by the budget panel’s deadline or before federal spending authority expires on Jan 15. 

Buyers are not having their way lately.  Nervous markets are sensing that the bond buying program by the Fed may be trimmed sooner, not later.  The Fed has a MASSIVE portfolio of bonds & a rise in yields (bringing lower bond prices) will cause problems for the portfolio.  So this month, Dow has fallen 260 & yield securities are having a tough time finding friends.  However, Dow is still up a huge 2.7K YTD.

Dow Jones Industrials

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