Friday, June 20, 2014

Markets rise on optimism over the economy

Dow climbed 26, advancers over decliners 5-4 & NAZ added 8.  The MLP index lost 2+ to the 507s, after jumping to a new record high yesterday, & the REIT index went up 1 to 303.  Junk bond funds were a tad lower & Treasuries hardly budged.  Oil continues climbing to near its high levels in more than 5 years & gold paused after topping 1300.

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President Barack Obama Speaks Yesterday
Photo:   Bloomberg

Iraq’s top Shiite cleric added to US pressure on Prime Minister Maliki & his allies to form a new gov that can command support across sectarian lines.  Grand Ayatollah Ali al-Sistani, who played a key role in calming sectarian tensions in previous years, today called for the creation of a new “effective” gov.  Al-Sistani’s message follows Obama's announcement yesterday of limited military assistance to help the gov in Baghdad turn the tide against a growing Sunni insurgency.  In authorizing deployment of up to 300 special operations advisers to Iraq, Obama stressed that the onus is on Iraqi leaders to resolve the crisis & that time is limited.  “There is an urgent need for an inclusive political process,” Obama said at the White House.  Insurgents led by ISIL have seized cities north of Baghdad & engaged in a back-and-forth battle to control the Baiji oil refinery, the nation’s largest.  30 Shiite militiamen were killed in clashes with insurgents who attacked the capital of Diyala province northeast of Baghdad.  The fighting began this morning & eased later in the day with security forces still in control of Muqdadiyah.  Also today, militants seized the al-Qaim crossing at the Syrian border, after gov forces abandoned their posts, seizing military equipment & freed prisoners.  Iraq’s airforce carried out strikes yesterday that killed 70 ISIL fighters in several villages, according to the army.  Administration officials said the next few weeks will be critical for Iraqi politicians to act.  While Obama & advisers said yesterday that the US isn’t backing any particular candidate, the NY Times reported that the US was actively encouraging the Shiites, the dominant group in Iraq’s gov, to replace Maliki.  At least 3 other Shiite officials have emerged as possible successors.  It’s not yet clear whether Maliki will have the support to remain as prime minister.

Top Shiite Cleric Adds to U.S. Pressure on Iraqi Leaders

Ukraine announced a week-long unilateral cease-fire in its easternmost regions after the US imposed sanctions on people linked to the insurgency & accused Russia of providing new military aid to separatists.  Ukraine called on all fighters to lay down arms, halting the gov offensive against rebels until Jun 27, the Interior Ministry said.  While the Kremlin criticized the proposal, pro-Russian militants indicated they’d consider the plan.  The US Treasury sanctioned 7 individuals, including the acting governor of Sevastopol in Crimea & separatist leaders in the Luhansk & Donetsk regions.  Further industrywide measures are being readied against companies in finance, defense & technology.  “The United States will continue to take action to hold accountable those persons engaged in efforts to destabilize Crimea and eastern Ukraine,” Undersecretary for Terrorism and Financial Intelligence David Cohen said.  “These individuals have all contributed to attempts to illegally undermine the legitimate government.”  The US is levying penalties for the first time since April 28, when it sanctioned people & companies linked to pres Putin's inner circle.  Russia risks further measures when EU leaders meet next week unless it helps end the unrest to support an emerging peace plan, German Chancellor Merkel said today.  Poroshenko’s proposal is more akin to an ultimatum than a peace offer to insurgents & shows no willingness to negotiate with the opposing side, the Kremlin said.  The separatists are willing to consider the plan, according to Andrei Purgin, a deputy premier of the self-declared Donetsk People’s Republic.  “If we see a true cease-fire, we may stop our actions as well,” he said.  “But I think there will be no cease-fire. In practice these statements are only political.”  A reminder that this disaster has not been resolved.

Ukraine Declares Cease-Fire After U.S. Expands Sanctions

The House passed a Pentagon spending measure of more than $570B that would reject Air Force plans to retire the war-tested A-10 aircraft.  On a 340-73 vote, the House took the first step in funding Pentagon operations, personnel & equipment for the 2015 fiscal year that begins Oct 1.  The bill would provide $491B in discretionary spending for Pentagon programs & $79B in war funding.  The Senate has yet to write its version of the defense bill.  The administration, while stopping short of a veto threat, said this week it “strongly opposes” the bill because it would constrain the administration’s ability to carry out its defense strategy & reduce costs at a time of shrinking budgets.  The House spurned Pentagon requests for changes to basic military pay, health benefits & housing allowances designed to save money & barred the start of another round of base closures.  With sectarian warfare overtaking Iraq, the House rejected efforts to bar outright any US military action in the Middle Eastern country.  Instead, the House adopted a measure that would require the administration to consult & report to Congress before spending funds for military involvement in Iraq.  In a test of lawmakers’ willingness to trim costs, A-10 supporters succeeded in their bid to keep the close-air support planes flying.  The Pentagon said retiring the aging fleet could save more than $4B over 5 years.  The House passed an amendment that would bar the Pentagon from taking steps to retire the plane known as the “Warthog.”   The House also adopted an amendment that seeks to choke off the National Security Agency’s ability to conduct warrantless surveillance on US citizens.  In addition, the measure would bar any spending to release or transfer detainees from Guantanamo Bay to their country of origin or to any other foreign country. 

House Passes $570 Billion Defense Bill Rejecting Cost Cuts

There is a lot going on in the intl front, but traders are taking it all in stride.  The MLP index has been red hot this year, rising 44 to a new record.   However, MLPs are yield securities & the yield on the Alerian MLP Index is below 5.5%, not far from the record low of 5.37% in the middle of 2007.  After that low, the index plunged almost 20% in just 3 weeks.  Maybe there is no lesson this year, but I keep thinking about it.  Dow isn't worried after rising 371 YTD to reach a new record today (2 above the prior record set 2 weeks ago). 

Dow Jones Industrials

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