Monday, July 7, 2014

Lower markets on conerns of higher interest rates in Q1-2015

Dow sank 44 from its record high, decliners over advancers more than 2-1 & NAZ dropped 34.  The MLP index plunged 6+to the 513s after its run to record highs last week & the REIT index was up fractionally in the 302s.  Junk bond funds were mixed & Treasuries advanced with the yield on the 10 year Treasury at 2.62%.  Oil retreated again & gold finished slightly lower. 

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General Motors, which counts China as its largest market, sold 9.1% more vehicles there in Jun, helped by deliveries of Buicks & Cadillacs as China sales climbed to 257K units.  Deliveries gained 10.5% in H1.  GM is vying against Volkswagen for the lead among foreign automakers in the world’s largest auto market, with the German manufacturer indicating it intends to maintain the top spot.  GM, which outsold VW in Q1, is investing $12B thru 2017 in China to boost its plants & products.  Deliveries of Buicks in Jun rose 14% from a year earlier, while Chevrolet sales climbed 1.5%.  Cadillac, its premium marque, saw a 46% increase last month & a 72% surge in H1.  GM expects a better H2, estimating it will sell more than 70K Cadillacs this year, according to John Stadwick, VP of vehicle sales, service & marketing for GM China.  Deliveries at the Wuling minivan brand expanded 13% in Jun & also gained 13% in H1.  GM’s production capacity in China will be 65% higher by 2020 to cater to rising demand, Matt Tsien, the country head, said in Apr.  The company is introducing more than 60 new or refreshed models by the end of 2018, with 11 new SUVs as part of the lineup over the next 5 years, he said.  The stock fell 30¢.  If you would like to learn more about GM,
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GM China Sales Rise 9.1% in June on Buick, Cadillac Deliveries

General Motors (GM)

ECB Executive Board Member Sabine Lautenschlaeger
Photo:   Bloomberg

ECB Executive Board member Sabine Lautenschlaeger said policy makers should only consider radical programs such as quantitative easing if the euro area is on the verge of deflation.  “While such measures are in general part of the toolkit, the prerequisites for such a monetary policy measure must be particularly high as the side effects are especially significant,” Lautenschlaeger said.  “Only in a real emergency situation, for example in the case of imminent deflation, could in my view such an instrument be considered. Those risks are neither visible, nor do we expect them.”  The ECB stepped up its fight against the risk of falling consumer prices last month with a raft of stimulus measures including a benchmark interest rate near zero, a negative deposit rate & a flood of liquidity for banks aimed at reviving lending to the real economy.  Mario Draghi has pledged further measures such as quantitative easing if the outlook for consumer prices in the euro area deteriorates.  Inflation in the bloc has been below 1% for 9 months, compared with the ECB’s goal of just under 2%, & was 0.5% in Jun.  This was Lautenschlaeger’s first major speech on monetary policy since she became the newest addition to the ECB’s 6-person Executive Board in Jan.  While the board designs & implements monetary policy, Lautenschlaeger’s previous experience at Germany's Bundesbank, where she was VP, was largely in bank supervision.  She is also vice chair of the ECB’s Supervisory Board, which will be responsible for oversight of area lenders from Nov.  The impact of the newest stimulus package will take time to become apparent, & it is important to monitor the use of the ECB’s targeted longer-term refinancing operations, which will start in Sep, she said.  “Patience is a virtue,” Lautenschlaeger added.  “Measures such as the targeted long-term loans will take longer until they show their effect. I’m thinking about next year rather than this one.”

QE Should Only Be Emergency Tool, ECB Board Member Says

American Express, a Dow stock, rules barring merchants from encouraging customers to use less-expensive credit cards stifle competition, a lawyer argued at the start of a landmark trial over whether the company violates antitrust law.  AXP prohibits businesses that accept its card from offering incentives to customers who use competing cards, Visa (V) & MasterCard (MA), which charge less to process payments.  This all-or-nothing proposition is illegal, the gov claims in a lawsuit joined by 17 states.  “AmEx has controlled the price and has excluded competition,” a Justice Dept lawyer, told US District Judge Nicholas Garaufis in a Brooklyn federal court.  “AmEx does not have to worry that a competitor is going to come along with a lower price.”  The trial, which might last more than 8 weeks, may include witnesses including merchants, credit card firm executives & academic experts as the gov seeks to prove that AXP abuses its market power with rules protecting the fees, the gov said.  The trial follows years of private litigation by merchants against card firms over fees.  The costs are largely hidden from consumers &, the gov says, amount to about $50B a year.  AXP argues that its rules are needed to compete with the “duopoly” of V & MA, which it says have more than 1B cards in the US while there are fewer than 55M AXP cards, & about 3M shops refuse AXP cards while accepting competitors.  AXP stock fell 42¢.  If you would like to learn more about AXP,
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AmEx Accused by U.S. of Stifling Credit Card Competition With Tough Rules

American Express (AXP)

There was a forecast about interest rate hikes coming in Q1 which isn't that far away.  QE3 will be finished by year-end if the Federal Reserve (FED) keeps reducing its bond purchases by $10B per month.  Then those guys have to decide if they want to just sit on their hands or start raising interest rates.  Nobody knows, not even at the FED, but my bet is that Janet will take it easy before hitting the raise interest rate button.  Unemployment may be low but it is not a clean number when it's remembered that many of the jobs being created are low paying jobs.  Raising interest rates will be traumatic & the FED will be looking for many confirming signals before pressing that button.

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