Wednesday, April 9, 2014

Markets continue higher after Fed minutes

Dow surged 181(closing at the highs), advancers over decliners almost 3-1 & NAZ recovered another 70.  The MLP index jumped 2+ to the 475s (setting a new record) & the REIT index lost a fraction in the 288s.  Junk bond funds remained strong & Treasuries did little.  Oil climbed to a one-month high as a gov report showed that rising gasoline use reduced inventories of the fuel.  Gold held above 1300.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLK14.NYM....Crude Oil May 14....103.68 Up ...1.12 (1.1%)

Live 24 hours gold chart [Kitco Inc.]

Several Federal Reserve (FED) officials said a change in their forecast for the main interest rate exaggerated the likely speed of tightening, according to minutes of their Mar meeting.  “Several participants noted that the increase in the median projection overstated the shift in the projections,” the minutes of the Mar 18-19 FOMC meeting showed.  Some expressed concern the rate forecasts “could be misconstrued as indicating a move by the committee to a less accommodative reaction function.”  Even after rates rise, officials said, they might have to be kept at levels considered below normal for longer because of tighter credit, higher savings & slower growth in potential output.  Treasury yields climbed last month after policy makers predicted that the benchmark interest rate would rise faster than previously forecast & Chair Janet Yellen said rates might start to rise “around six months” after the FED ends its bond-purchase program.  In Mar the FED reduced the monthly purchases by $10B, to $55B, & repeated it is likely to continue paring the program in “further measured steps.”  “Members agreed that there was sufficient underlying strength in the broader economy to support ongoing improvement in labor-market conditions,” the minutes show.  The next meeting is Apr 29-30.  The committee last month scrapped its pledge to keep the main interest rate low at least as long as unemployment exceeds 6.5%, saying it will look at a broader range of data when considering when to increase borrowing costs.  FED officials predicted that the benchmark interest rate would rise faster than previously forecast.

Several Fed Officials Said Forecasts Overstated Rate Rise

General Motors Headquarters
Photo:   Bloomberg

The failure by General Motors to fully answer questions about why it waited years to recall 2.6M small cars over a defect tied to 13 deaths is testing the patience of lawmakers & regulators.  GM didn’t respond to more than 1/3 of requests made by the US National Highway Traffic Safety Administration with an Apr 3 deadline & is being fined $7K a day.  An agency lawyer called the internal probe the automaker cited “irrelevant” & threatened to refer GM to the Justice Dept.  Congressional leaders said they’ll schedule more hearings & expect more disclosure next time from CEO Mary Barra.  GM has accrued $28K in fines, NHTSA said in a letter yesterday.  The automaker has produced 21K documents totaling more than 271K pages that span a decade, a GM spokesman said.  Those records were pulled from more than 5M documents.  “We believe that NHTSA shares our desire to provide accurate and substantive responses,” GM added.  “We will continue to provide responses and facts as soon as they become available and hope to go about this in a constructive manner.”  NHTSA told GM last month to answer questions on 107 points about what it knew, & when, about the ignition-switch failures linked to 6 Chevrolet, Pontiac & Saturn models sold in the US.  The agency asked about steps the company took to investigate engineering concerns & consumer complaints about engine stalling dating from 2004.  GM has said heavy key rings or jarring can cause ignition switches on some cars to slip out of the “on” position, cutting off power.  In what has been a tough year for GM, the stock fell 91¢ today.  If you would like to learn more about GM, click on this link for Trend Analysis:

GM Fined by U.S. Safety Regulator for Incomplete Answers

General Motors (GM)

Mars Inc, the closely held maker of M&M’s candies & Uncle Ben’s rice, agreed to buy 3 Procter & Gamble, a Dow Jones company & Dividend Aristocrat, pet-food brands for $2.9M, cementing its lead in the industry.  The transaction will be completed in H2.  The acquisition gives Mars the Iams, Eukanuba & Natura lines to add to its Pedigree, Whiskas & Royal Canin brands.  Mars was the largest global pet-food seller in 2012, with 23.4% of the market, compared with 23.1% for Purina owned by Nestle.  PG said it will restate results to reduce fiscal 2013 EPS by 3¢ & cut 2014 EPS by 4¢.  The sale won’t affect PG’s forecast for profit growth in fiscal 2014, which runs thru Jun, & won’t have a material effect on fiscal 2015 results.  Cash from the sale will be used for general corp purposes.  The company has been working to cut costs & evaluate units for potential divestitures.  The stock was pocket change today.  If you would like to learn more about PG, click on this link for Trend Analysis:

Mars to Buy P&G Pet-Food Brands Including Iams, Eukanuba for $2.9 Billion

Procter & Gamble (PG)

The FED promised to do little about raising interest rates, exactly what the stock market likes to hear.  Of course, that is a reminder that when rates are officially raised the markets will go back on defense.  The logic behind increased selling at that time, is that higher rates on the 10 Treasury affects all kinds of loans, starting with mortgages & auto loans.  But that time is viewed as in the distant future, nothing to worry about today.  Earnings season is about to begin & that could be rocky.  Then there is Putin & where he wants to take Russia.  Bulls are back in command.  The Dow is within 150 of a new record (which has been elusive this year).

Dow Jones Industrials

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