Monday, July 21, 2014

Markets decline on threats of more sanctions

Dow fell 48 (but off the lows under 17K), decliners ahead of advancers 3-2 & NAZ lost 7. The MLP index went up fractionally to the 521s & the REIT index was 1+ to the 307s.  Junk bond funds slid lower & Treasuries rose.  Oil & gas found buyers with the increase in global chaos.

AMJ (Alerian MLP Index tracking fund)

This Undervalued Energy Stock is Set to Soar! Special Report

CLQ14.NYM....Crude Oil Aug 14....104.68 Up ...1.55 (1.5%)

Live 24 hours gold chart [Kitco Inc.]

Spanish prime minister Mariano Rajoy
Photo:   Bloomberg

As Spain looks to enter a 2nd year of recovery, Msriano Rajoy's repair job on the euro region’s 4th-biggest economy might only be half done.  While a Bank of Spain estimate may show in coming days that it completed a full 12 months of growth in Q2, that report & unemployment data will also reveal how much work the prime minister has left to do to.  The economy remains dependent on exports fueled by the country’s adjustment during the debt crisis, with limited support from domestic demand.  With an election due next year, Rajoy can take comfort from bond yields close to record lows, a recovery that has shown some durability, & surveys revealing manufacturing growth at a 7-year high.  Yet, much of the industrial rebound driving the economy hinges on declining wages & gov measures aiding car sales & job hiring rather than product innovation.  In Q2, Spain’s economy probably expanded 0.4%, faster than the euro-region average for 2 straight qtrs for the first time since 2007.  Employment figures for the 3 months thru Jun may show that net jobs increased, Social Security Deputy Minister Tomas Burgos said, echoing previous gov comments that the end of a 6-year slump is kick-starting job creation, reflected by a rising number of contributors to the state-run pensions system.  Still, unemployment data is expected to show that about a 1/4 of the workforce remains jobless, close to the highest level in Spain’s democratic history.  Together with austerity measures, that has weighed on spending as the average annual wage has declined 0.3% since 2010.  Call that an inconclusive recovery.

Spain Marks Year of Recovery in Economy Hooked on Exports

One of the Fderal Reserve's first post-crisis tests of its ability to quash excessive risk-taking using regulatory tools is so far looking like a failure.  The Fed’s Board of Governors told Congress last week that it’s engaged in “strong supervisory follow-up” to guidance given to banks in 2013 to improve their underwriting standards for high-yield loans.  Despite those efforts, Janet Yellen said she’s still seeing a “marked deterioration” in quality.  For the first time, more than half of the junk-rated loans arranged in the US this year lack typical lender protections like limits on the amount of debt borrowers can amass relative to earnings.  Yellen’s own easy-money policies are boosting demand for such high-yielding products at the same time that she tests her doctrine that financial bubbles should be constrained by supervisory actions, not a general rise in interest rates.  The Fed’s semi-annual report to Congress last week said that the share of leveraged loans “rated B or below has moved up further,” & said the central bank is responding with “supervisory reviews” this year & letters to banks requiring action.  Regulators are also conducting their annual review of bank loans, called the Shared National Credits Review.  Issuance of new leveraged loans this year totals $227B, on pace to surpass the record $358B of new loans in 2013.  The debt is often used to fund takeovers, such as the more than $2B of loans arranged last month to finance Blackstone Group's buyout of industrial-products maker Gates Global. 

Fed’s Junk Loan Bubble-Busting Faces Trouble as Sales Jump

Pres Putin defied intl anger over Russia’s role in the shooting down of a Malaysian jetliner as the US & Europe threaten further sanctions against his increasingly isolated country.  As leaders from London to DC signaled Putin risks becoming a pariah, the Russian leader suggested they were playing politics.  At the site of the crash in eastern Ukraine, armed pro-Russian rebels are preventing the departure of refrigerated train cars carrying corpses & body parts of crash victims, according to the gov in Kiev.  “Nobody should and no one has the right to use this tragedy to achieve selfish political aims,” Putin said.  “Such events should unite, not divide people.”  Russia’s relations with the rest of the world are deteriorating 4 months after his annexation of Ukraine’s Crimea region sparked Europe’s biggest geopolitical crisis in decades.  Putin will hold a regular weekly meeting of his Security Council tomorrow to discuss “matters related to ensuring the sovereignty and territorial integrity of the Russian Federation,” the Kremlin said.  Putin again blamed the downing of the plane on the Ukraine conflict & said that intl investigators should have full access to the wreckage.  Russia will “do everything it can” to seek a negotiated settlement of the Ukraine conflict, he said.  The leader of the self-proclaimed Donetsk People’s Republic, Alexander Borodai, today repeated that his rebels didn’t shoot down the plane.  Uh, huh!!

Putin Defying Critics Says Jet Crash Shouldn’t Be Used for Political Ends

Stock markets are taking the increase in conflicts around the world with a sense of calm.  As bad as these troubles are, it seems they are viewed as localized issues, not having a big impact at the macro level.  I'm not so sure.  Shooting down the plane in Ukraine aftermath & Gaza conflict show no signs of ending soon.  More earnings reports are coming & they could be telling.  Meanwhile, the back to school selling season has begun.  This is the 2nd most important season for retailers.  When earnings from retailers are reported in a few weeks, there should be comments about how sell this period is going (giving an early signal about the holiday season).

Dow Jones Industrials

stock chart

3 Stocks You Should Own Right Now - Click Here!

No comments: