Friday, December 13, 2013

Markets little changed after budget approval

Dow rose 15, advancers ahead of decliners 4-3 & NAZ gained 2.  The MLP index went up 1+ to 439 & the REIT index climbed 1+ to 261.  Junk bond funds were weak & Treasuries did little.  Oil was flattish & gold found a few bargain hunters.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLF15.NYM...Crude Oil Jan 15...91.52 Up ...0.04 (0.0%)

Live 24 hours gold chart [Kitco Inc.]

The House passed the first bipartisan US budget in 4 years yesterday, clearing the way for final Senate passage next week to ease $63B in spending cuts & avert another gov shutdown.  But that doesn’t mean lawmakers are excited about it.  The 332-94 vote for the plan, masked deep reluctance about the $1.01T budget accord.  “This agreement is better than the alternative, but it misses a huge opportunity to do what the American people expect us to do, and that is to put this country on a fiscally sustainable path,” said Steny Hoyer (Dem).  The budget deal keeps in place about half of the automatic spending reductions (sequestration) in 2014, & about 3/4 of the planned cuts in 2015.  Neither party likes the cuts, which in Jan are slated to affect the Pentagon as well as domestic programs favored by Dems.  Neither party could find a way to erase them all in this budget compromise.  The Senate will begin considering the budget deal on Wed with a final vote later in the week.  House Speaker John Boehner summed up the better-than-nothing opinion of many in Congress by saying simply, “It’s progress.”  “It’s doing what the American people expect us to do,” which is to “stick to our principles but find common ground,” Boehner said.  The agreement’s main accomplishments are to relieve $40B in cuts in 2014 & about $20B in 2015 & cushion the military from a $19B reduction starting next month.  The measure includes $23B in deficit reduction.  It doesn’t raise the  dent ceiling, setting up a potential fiscal showdown after borrowing authority lapses as soon as Feb.

Budget Passed by House Eases Cuts Both Parties Dislike

Cisco, a Dow stock, will hire 1700 employees in Ontario over the next 6 years, bolstering the province’s technology sector as traditional manufacturers close plants & lay off workers.  The jobs are part of a 10-year pact with Ontario to invest $4B in the province, including $2.2B in salaries, the company said.  CSCO already has 1300 employees in Ontario & may increase that to 5K by 2024 a spokeswoman for CSCO said.   Once a dominant economic force in the country, Ontario’s manufacturing sector has contracted 30% in the last 10 years from 1.1M jobs in 2003 to 771K last month.  CSCO reduced its revenue forecast for the next 3-5 years amid weaker demand from emerging markets & telecommunications-service providers.  The company has eliminated 12K positions in about the past 2 years, including 4K jobs, or 5% of the workforce, announced in Aug.  The new jobs will focus on research & development, & the company will build a new Toronto headquarters.  “This initiative will also ensure that Ontario continues to be a leader in the information and communications technology industry, with a vast talent pool representing the country’s next generation of innovation,” Nitin Kawale, president of Cisco Canada, said.  The stock lost 28¢.

Cisco Systems Planning 1,700 Jobs in Ontario Amid Decline in Manufacturing

Cisco (CSCO)

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Simon Property plans to spin off its strip-center business & smaller enclosed malls into a new real estate investment trust.  The new company, referred to as SpinCo, will own all or part of 54 strip centers & 44 malls & is expected to generate net operating income of more than $400M in its first year.  SpinCo will operate 53M square feet of retail space in 23 states.  SPG is focused on redeveloping its top regional malls, opening outlet centers & investing overseas to boost growth.  The company, whose strip-center business accounts for 3.3% of its net operating income, said the new REIT will be better able to pursue acquisitions & development.  “We expect to be able to do some nice and interesting things at SpinCo,” CEO David Simon said.  “This company will be successful.”  The spinoff, expected to be completed in the first half of 2014, will increase the sales per square foot, net operating income growth & occupancy rates.  The current $4.80 div will be maintained & is expected to grow in line with its funds from operations (FFO) & taxable income.  The initial div from SpinCo is expected to be at least 50¢.  David Simon will be a director of the new REIT.  Richard Sokolov, Simon’s president & COO, will become chairman of SpinCo.  70% of the new company’s net operating income would be from the malls, which had an occupancy rate of 90.4%.  The strip centers being spun off have an occupancy rate of 94.2%.  The new company plans redevelopment projects totaling about $300M.  SpinCo is expected to have about $2B of debt & it intends to pursue an investment-grade rating.  SPG stock gained 3.26.

Simon Property to Spin Off Strip Centers, Small Malls Into REIT

Simon Property (SPG)

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The budget deal will have no difficulty getting thru the Senate next week & the pres will sign it.  It's another muddling by kind of bill but it does eliminate the uncertainty of a gov shutdown for 2 years.  That helps company execs plan for the future.  Raising the debt ceiling next month faces a much tougher fight.  The partisans will push hard for their positions.  Dow remains lower in Dec, down 300+ already.  

Dow Jones Industrials

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