Thursday, October 2, 2014

Markets crawl higher, speculating on ECB asset purchase

Dow recovered early losses ending down only 3, advancers just ahead of decliners & NAZ rose 8.  The Alerian MLP index rebounded 1+ to the 525s & the REIT index was off pocket change to the 292s.  Junk bond funds sold off & Treasuries sold off.  Oil inched higher & gold was flat.

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The global economy needs bold policies to avoid a “new mediocre” period of sluggish growth as the world struggles with a disappointing recovery six years after the financial crisis, the head of the IMF said.  “We see continued weakness in the global economy,” IMF Managing Director Lagarde said today.  “Countries are still dealing with the legacies of the crisis, including high debt burdens and unemployment.”  The IMF is releasing new global growth predictions next week, & Lagarde indicated that an acceleration next year will be less than previously forecast.  She cited “some serious clouds on the horizon,” including elevated joblessness & low inflation in the euro area, financial excesses building in advanced economies, & market and liquidity risks that are migrating to less-regulated parts of the financial system.  “The global economy is at an inflection point: it can muddle along with sub-par growth -- a ‘new mediocre,’” she said.  “Or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a ‘new momentum.’”  Lagarde added later that the IMF is monitoring the disparity between sluggish global growth and buoyant financial markets.  She drew a contrast between high asset valuations & low market volatility on one hand, & the slow pace of economic recovery on the other.  There is “a discrepancy between the two which is quite worrying,” she said.  In her speech, Lagarde said the global economy is weaker than the IMF projected 6 months ago.  Advanced-country growth is led by the US & UK, while Japan’s rebound is “modest,” & the euro area is the weakest.  “We’re seeing a readjustment that is also based on the readjustment of the real economies,” Lagarde said.  “If you look at what is the brightest spot, it’s the U.S., so the dollar is appreciating as a result. If you look at the weakest in the advanced economies at the moment, it’s the euro zone. The euro is depreciating relative to the others.”

Lagarde Calls for Bold Global Action to Avoid ‘New Mediocre’

Europe will have another mild month in Oct, preserving the region’s fuel reserves as it braces for a winter with the threat of natural gas supply disruptions.  Meteorologists project higher-than-normal temperatures for most parts of Europe, with Germany & Poland the warmest relative to normal.  Levels exceeded the average last month for most of the continent, according to MDA Weather Services in Maryland.  Warmer weather may slow declines in Europe’s record gas stores.  Most countries will be able to meet normal levels of gas demand if a conflict between Russia, which meets more than 30% of Europe’s demand, & Ukraine halts flows from the east for 3 months.  EU-28 countries had 76.3B cubic meters of gas in storage yesterday, the most since at least 2009, according to a lobby group in Brussels.  A warm start to the period would extend a decline in gas & power prices & consumption, according to Societe Generale.  Electricity demand slid 4.3% in the 8 months thru Aug from a year earlier while gas use fell 15%.  Month-ahead German power prices are at their lowest level for the time of year since at least 2007.  Electricity for Nov delivery rose 0.7% to €37.35 ($46.28) a megawatt-hour.  Temperatures are forecast to climb as much as 3 degrees Celsius above normal in Germany & Poland this month & as much as 2 degrees in France according to the Commodity Weather Group.  The UK will be near average, its estimates show.  Slovakia reported reduced gas supplies from Russia via Ukraine yesterday.  The gov said it will call an emergency meeting if flows do not resume in the coming days.  OAO Gazprom said today it has kept flows to Slovakia constant over the past 10 days.  The nation suffered disruption to supplies along with the Balkans during freezing temperatures in 2006 & 2009.  WSI forecasts milder-than-average weather to December as high pressure predominates over central & southern Europe.  But there is a colder risk to the Dec forecast.

Europe Skirting Freeze Preserves Gas Amid Ukraine Crisis

Sears Holding, reeling from 9 straight quarterly losses, plans a rights offering of Sears Canada (SCC) shares to generate as much as $380M in cash & decrease its stake in the struggling business.  The board authorized as many as 40M shares to be offered to existing investors.  SHLD investors will receive subscription rights to buy SCC at C$10.60 ($9.52) per share.  CEO Edward Lampert has been trying to sell & spin off assets to raise cash as the company’s losses accumulate.  Lampert, also the largest shareholder, wants to transform SHLD into a leaner retailer focusing on digital sales & its loyalty program.  SHLD will retain a 12% stake in the Canadian unit.  The cash will support the transformation of SHLD & help fund its operations during the upcoming holiday season, the retailer said.  Efforts to revive the operator of Sears & Kmart stores haven’t gained much traction.  In Aug, SHLD reported its Q2 loss widened to $573M amid its 30th straight quarterly sales decline.  Sears Canada posted C$96.5M in losses in the 6 months thru Aug 2.  Last month, SHLD announced that Lampert’s hedge fund, ESL Investments, would loan it $400M in a transaction secured by a first lien on 25 stores.  SHLD stock rose 1.88.  If you would like to learn more about SHLD, click on this link:

Sears Holdings to Offer Shares in Sears Canada to Raise About $380 Million

Sears Holdings (SHLD)

Bargain hunters lifted share prices in the PM, but fundamentals in the stock market have not changed much.  The intl scene remains gloomy, starting with Ukraine & the MidEast.  DC keeps getting hit with stories that nobody has a clue what is going on & the US economy movies forward in lurches.  The Dow is down more than 300 this week & tomorrow's job report may not give it much of a boost.  It's hard to believe that under these circumstances the Dow is only 3% below its recent record high. 

Dow Jones Industrials

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