Wednesday, December 11, 2013

Markets slide back after assessing budget deal

Dow was weak at the opening & is currently down 53, decliners over advancers 3-1 & NAZ lost 18.  The MLP index fell 2 to the 439s & the REIT index was off 3+ to the 263s.  Junk bond funds were lower & Treasuries also pulled back.  Oil dropped & gold was flattish.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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CLF14.NYM...Crude Oil Jan 14...97.98 Down ...0.53  (0.5%)

GCZ13.CMX...Gold Dec 13....1,260.30 Down ...2.10  (0.2%)

U.S. Representative Paul Ryan & Senator Patty Murray

Photo:   Bloomberg

House & Senate negotiators, in a rare bipartisan act, announced a budget agreement designed to avert another gov shutdown & bring a dose of stability to fiscal policy-making over the next 2 years.  Sen. Patty Murray & Rep. Paul Ryan said it would allow more spending for domestic & defense programs in the near term, while adopting deficit-reduction measures over a decade to offset the costs.  Revenues to fund the higher spending would come from changes to federal employee & military pension programs, & higher fees for airline passengers, among other sources.  An extension of long-term jobless benefits, sought by Dems, wasn't included.  The plan is modest in scope, compared with past budget deals.  But in a year & an institution characterized by gridlock, politicos were relieved they could reach even a minimal agreement.  The deal, which goes to the House & Senate for approval in the coming days, marks a major change in the landmark 2011 budget-cutting law, which set in motion 10 years of fiscal austerity, including across-the-board spending cuts (sequestration).  The annual discretionary spending target will be raised to $1.012T in 2014 & $1.014T in 2015 under the accord.

IBM, a Dow stock, continues to face economic challenges as it tries to reignite declining sales, Senior VP Erich Clementi said.  Demand for technology services, its biggest source of revenue, “depends on what the economic climate is, and that has not been very encouraging,” Clementi said.   “Europe has shown signs of recovery. North America has been a little more uncertain.”  Many businesses remain wary about spending money on physical assets, such as computer hardware, machinery or warehouses.  Instead, they’re using software & cloud-computing services to increase efficiency & reach more customers over the internet.  While IBM ultimately expects to benefit from that shift to the cloud, the hardware slump has contributed to 6 straight qtrs of declining revenue.  “The big bet is on cloud and the software that are on top,” Clementi said.  SoftLayer Technologies, a cloud-computing storage provider that IBM acquired in Jul, will help the company compete with rivals, he said.  IBM sales slid 4% last qtr from a year-earlier period & IBM also posted its first-ever revenue decrease in traditional growth markets in the period, with sales in China tumbling more than 20%.  Even so, the company is still targeting EPS of $20 in 2015.  To help reach that goal, IBM will continue its shift into higher-margin business & focus on cloud computing, Clementi said.  The stock lost 70¢.

IBM Says Economy Remains Discouraging

International Business Machines (IBM)

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MasterCard rose the most since Aug after announcing an 83% dividend increase & a 10-for-1 stock split.  The quarterly dividend was increased to $1.10 & MA will repurchase up to $3.5B of stock.  The share buyback program takes effect after the firm’s current $2B plan, previously announced, is complete.  MA has returned more than 1600% including divs since its May 2006 IPO, dwarfing the 66 % total return for the S&P 500.  The stock leaped 34 to a new record

MasterCard Climbs Most Since August on Dividend: New York Mover

Mastercard (MA)

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The gut reaction to the budget deal was negative.  There are also concerns that it won't be approved with something in there to upset just about everybody.  But that's how compromises work.  Yield sensitive securities sold off as they have been doing since the May peak.  Dow is off 170 in Dec.

Dow Jones Industrials

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