Wednesday, May 14, 2014

Tech stocks lead a market decline

Dow sank 101, decliners over advancers 3-2 & NAZ was off 29.  The MLP index rose 3+ to 488 & the REIT index was even in the 298s.  Junk bond funds continued mixed & Treasuries rose.  Oil increased to over $102, the highest closing price since Apr 21.  Gold also rose, back over 1300.

AMJ (Alerian MLP Index Index tracking fund)

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CLM14.NYM....Crude Oil Jun 14....102.33 Up ...0.63 (0.6%)

Live 24 hours gold chart [Kitco Inc.]

China's central bank called on the nation’s biggest lenders to accelerate the granting of mortgages, a sign that developers’ prices cuts & incentives alone won’t boost a slumping housing market & economy.  The People’s Bank of China told 15 banks yesterday to “improve efficiency of service, give timely approval and distribution of mortgages to qualified buyers.”  It also urged lenders to give priority to families buying their first homes & strengthen their monitoring of credit risks.  Premier Li Keqiang is seeking to put a floor under the country's economic slowdown.  The housing market has become a drag as developers, facing a surplus of empty units & falling sales, put the brakes on new construction.  Home sales fell 18% in Apr from the previous month.  The central bank’s request to improve lending efficiency comes as China’s economic slump worsens, with unexpected decelerations in industrial output & investment growth.  Factory production rose 8.7% in Apr from a year earlier down from 8.8% in Mar.  Fixed-asset investment excluding rural households increased 17.3% in the first 4 months of 2014, the slowest for the period since 2001.  For the last 4 years, China has enacted restrictions to cool its housing market as prices soared by increasing the minimum down-payment requirement for 2nd homes to 60%. The first-tier cities of Beijing, Shanghai, Shenzhen & Guangzhou raised the deposit for 2nd properties to 70% last year after prices jumped.  Price increases are moderating this year.  They climbed 9.1% in Apr from a year earlier, slowing for a 4th month, according to SouFun Holdings, the nation’s biggest real estate website.  During the boom years, speculators using shadow financing, or non-bank loans, helped spur the construction of excess housing across China.  The surplus now includes more than 10 “ghost cities” haunted by empty apartment blocks in places like northern Ordos, according to SouFun.

China Central Bank Calls for Faster Home Lending in Slump

An Oil Drilling Rig on the Bakken Formation in Watford City
Photo:    Bloomberg

Crude production in the US climbed to a 28-year high last week as the shale boom moved the world’s biggest oil-consuming country closer to energy independence.  Output rose 78K barrels a day to 8.428M, the most since Oct 1986, according to the Energy Information Administration.  The combination of horizontal drilling & hydraulic fracturing (fracking) has unlocked supplies from shale formations in the central US, including the Bakken in North Dakota & the Eagle Ford in Texas.  The US met 87% of its energy needs in 2013, and 90% in Dec, the most since Mar 1985, according to the EIA, the statistical arm of the Energy Dept.  Crude output will average 8.46M barrels a day this year & 9.24M in 2015, up from 7.45M last year, the EIA said on May 6.  Next year’s projection would be the highest annual average since 1972.  The gain in production at shale fields will be augmented by greater offshore output this year and next.  Crude output in the waters of the Gulf of Mexico will climb by 150K barrels a day in 2014 & by an additional 240K barrels in 2015, following 4 consecutive years of declines.  Production gains helped send US inventories to 399.4M barrels in the latest week, the most since the EIA began reporting weekly data in 1982.  Stockpiles increased 947K barrels to 398.5M barrels, according to the agency.

Shale Boom Sends U.S. Crude Output to 28-Year High

Deere posted lower-than-expected sales & reduced its full-year revenue outlook after shipping less machinery while the dollar weakened against other currencies.  Equipment sales in the fiscal Q2 dropped to $9.25B from $10.3B & trailed the $9.65B estimate.  For the full fiscal year, equipment revenue will be down about 4%, more than a previous projection for a drop of about 3%.  The company cited a negative impact of about 1% from swings in the value of the US$ against other major currencies.  While the agricultural economy is “relatively healthy,” lower farm incomes are affecting sales of larger machinery in particular.  Corn prices are down over the past year after a record US harvest & net farm cash income will drop 22% in 2014, according to a projection from the Dept of Agriculture.  DE said costs were hurt by a transition at production lines to make tractors & harvesters that meet more stringent emission standards.  EPS fell to $2.65 from $2.76 a year earlier, beating the $2.49 analyst.  DE maintained its forecast for full-year net income of about $3.3B.  Agricultural machinery sales accounted for 78% of revenue in 2013 while construction & forestry made up 16%.  DE forecast construction & forestry sales will climb 10% in the full year on a recovery in US housing.  The stock lost 1.91.  If you would like to learn more about DE,
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Deere Cuts Sales Forecast After Decline in Equipment Volumes

Deere (DE)

Stocks took a breather after Dow set new highs.  Internet, tech & small cap stocks led the decline as they have for a few months.  The report from DE was not a help.  Dow is up a meager 37 YTD in what was forecasted as another banner year for stocks.  Tomorrow Wal-Mart (WMT), a Dow stock & Dividend Aristocrat, reports.  Today it dropped 40¢, not an encouraging sign.

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