Monday, September 22, 2014

Markets drop led by selling in energy

Dow fell 107 (closing near the lows), decliners over advancers almost 5-1 & NAZ was off 52.  The MLP index dropped a whopper 8+ to 529 & the REIT index lost 2+ to the 295s.  Junk bond funds were lower while Treasuries gained ground.  Oil dropped along with stocks & gold rose from an 8- month low as a decline in equities boosted demand for the precious metal as an alternative investment.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM....Crude Oil Oct 14....91.47 Down ...0.94  (1.0%)

Live 24 hours gold chart [Kitco Inc.]

The ECB will actively manage its balance sheet & is willing to implement more stimulus if required to stave off the threat of deflation in the euro area, pres Mario Draghi said.  “We are starting a transition from a monetary-policy framework predominately founded on passive provision of central-bank credit to a more active and controlled management of our balance sheet,” Draghi added.  The comments come after he signaled this month that he intends to expand the institution’s balance sheet by as much as €1T ($1.28T) with stimulus measures such as targeted longer-term loans for banks & an asset-purchase program.  Officials are unanimous about embarking on further action if needed to fight the threat of falling prices in the 18-nation currency bloc, he said.  “The Governing Council remains fully determined to counter risks to the medium-term outlook for inflation,” Draghi said.  “Therefore we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of too low inflation.”  The risks surrounding the expected expansion in the euro area “are clearly on the downside,” Draghi said.  Recent indicators gave no indication that the sharp decline in economic activity in the region has stopped, he said.  To spur lending to the real economy, the central bank last week started the targeted-loan program that it announced in Jun.  Banks borrowed a less-than-estimated €82.6B, possibly raising pressure on Draghi to implement widespread quantitative easing to reach his balance-sheet goal.  “While it is yet too early to assess the impact of the TLTROs on the broader economy, their announcement already had a noticeable positive impact on financial-market sentiment,” Draghi said.  The allotted amount “is within the range of take-up values we had expected based on banks’ revealed behavior under previous programs.”  “Outright purchases will increase the size of the ECB’s balance sheet, but the additional risk exposure will be limited,” he said.  “Under the ABS purchase program we will be purchasing senior and guaranteed mezzanine tranches.”

Draghi Says ECB Actively Managing Balance Sheet

Inflation running below the Federal Reserve (FED) target argues for “patience” on interest-rate increases & may require letting the economy run “a little hot,” New York Fed pres William C. Dudley said.  “Depending on where inflation is, I can certainly imagine a scenario where the unemployment rate dips a little below” what the FED considers maximum employment, he said.  “We really need the economy to run a little hot for at least some period of time” to push inflation back up to the 2% objective, he said.  Dudley’s comments highlight an unusual feature of the FED’s most recent economic forecasts: Several policy makers figure the jobless rate will have to dip below their estimate of full employment to push prices back toward the goal FED officials missed for more than two years.  “You really do want to push the unemployment rate down toward your objective,” Dudley said.  “There are some reasons to try to be patient,” Dudley said.  “The first reason to be patient is you want to make sure that when you do lift off, that you actually are successful, that you don’t lift off and then it turns out that the economy weakens and you have to reverse course.”  Most FED officials predict the FED will raise the benchmark interest rate above zero sometime in 2015, according to forecasts published Sep 17, the first since 2006.  Officials see growth of 2.6-3% next year. which should help push unemployment down to 5.4-5.6%, from 6.1% in Aug.

Dudley Says Fed Needs U.S. Economy to Run ‘A Little Hot’

Jack Ma
Photo:    Bloomberg

Alibaba's IPO became the biggest ever at $25B, after company bankers exercised an option to boost the deal size by 15%.  The underwriters bought an additional 48M American depositary shares at the IPO price of $68 each.  Including the “greenshoe,”  BABA was able to surpass the current IPO record held by Agricultural Bank of China $22.1B sale in 2010.  The shares surged 38% on the Sep 19 debut, the biggest first-day jump for an IPO of at least $10B.  McKinsey predicts online commerce in China will reach $395B next year, triple its 2011 level.  BABA retail platforms helped generate 6.1B package shipments in the 12 months ended Jun, accounting for 54% of the nation’s total.  Operating profit advanced to $1.1B in Q2, or 42% its largest American competitors.  Revenue rose 46% to the equivalent of $2.54B.  The stock settled back 4 to $89.89 today.  If you would like to learn more about BABA, click on this link:

Alibaba’s Banks Boost IPO Size to Record of $25 Billion

Adding to the intl woes, the Rockefeller Brothers Fund is selling investments in the fossil fuel industry to pressure companies that are adding to climate change.  The fund joined others announcing they will end abandon companies reliant on coal & tar sands.  Total divested funds reached $50B this week.  Buying of BABA stock on Fri was encouraging, but any selling strikes at the hearts of all bulls.  2 of the largest energy companies (descending from Standard Oil 100 years ago) are Exxon Mobil (MOB) & Chevron (CVX).  Both are Dow stocks & Dividend Aristocrats.  Chevron fell 1.31 today & XOM lost 58¢.  In sympathy, the MLP index had one of its biggest plunges in history.  If that wasn't enough, more negative thoughts will come concerning the MidEast at the UN this week.

Dow Jones Industrials

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