Wednesday, November 5, 2014

Markets advance on Republican victory and jobs report

Dow climbed 100, advancers over decliners almost 3-2 & NAZ slid back 2.  The MLP index advanced 2+ to the 495s & the REIT index lost pocket change to 320+.  Junk bond funds were mixed & Treasuries declined.  Oil advanced after a gov report showed that US inventories climbed less than expected while refineries increased operating rates.  Gold has no friends & keeps losing ground. 

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Dallas Fed President Richard Fisher
Photo:   Bloomberg

Senate Reps should resist the temptation to erode Federal Reserve (FED) independence after victory in mid-term elections, Dallas FED President Richard Fisher said.  “Think about this: Here’s a Congress that can’t even get its own budget together. Do you want them running the central bank?” Fisher, a former deputy US trade representative under pres Clinton, said.  Reps who already run the House won command of the Senate yesterday & will take charge of the Senate Banking Committee, which oversees the US central bank, next Jan.  Lawmakers have sponsored several bills that propose changes in the way the FED conducts monetary policy & would subject the institution to greater congressional scrutiny.  “Take it to the extreme: We would end up playing to the cameras, which is what Congress does, and it would be a disaster,” if Congress decided to audit FED decisions, said Fisher.  With Reps in control of Congress, their bills have a better prospect of being advanced, although there is little likelihood measures that impede FED independence would become law.  Pres Obama has veto power over any legislative proposal that reaches his desk.  Richmond FED President Jeffrey Lacker today had a similar message as Fisher’s on the importance of central bank independence.  “I’m against compromising that, with bills that would give individual congressmen the right to audit last week’s FOMC meeting,” he said.  The policy-setting FOMC last week decided to end a campaign of bond purchases & pledged to hold interest rates low for a “considerable time.”

Fed’s Fisher Tells Congress Don’t Mess With Central Bank

Time Warner beat profit estimates in Q3 after collecting higher fees for its TV channels, validating efforts by CEO Jeff Bewkes to keep the company independent.  EPS, excluding severance costs and a one-time tax benefit, was 97¢ & analysts predicted 94¢.  Sales rose 3.3% to $6.24B, beating the average estmate of $6.16B.  Bewkes has said that his growth plan for an independent Time Warner will create more value.  After years of spinning off assets to shrink TWX down to its cable networks, HBO & the Warner Bros. studio, Bewkes is now aggressively cutting costs & pushing the company’s content online.  As part of his plan to drive growth, he’s been trimming costs, including job cuts across every division in recent months.  The company’s expenses for severance & restructuring reached $303M in Q3, with 2/3 of that coming from Turner Broadcasting, which includes CNN, TBS, TNT & other cable networks.  Last month, TWX laid out plans to offer a separate HBO Web-subscription service directly to consumers & focus on greater collaboration across units.  The company, which makes about 60% of its revenue from its television channels, is trying to boost affiliate fees & keep its reliance on advertising modest.  In Q3, Turner’s US ad revenue was flat, while the fees it gets from TV distributors rose 10%.  HBO’s revenue from subscriptions also increased 10%.  TWX raised its forecast, expecting adjusted EPS to increase by a “high teens” percentage this year, up from a prior projection of a “low teens” percentage increase.  That’s off a $3.51 EPS base in 2013.  Analysts are expecting $4.01 for 2014, an increase of 14%.  Last month, Bewkes forecast adjusted EPS of close to $6 by 2016 & $8 in 2018.  The stock shot up 3.02.  If you would like to learn more about TWX, click on this link:

Time Warner Profit Beats Estimates, Supporting CEO’s Choice to Rebuff Deal

Time Warner (TWX)

Chrysler Group, the US automaker now part of Fiat Chrysler, reported Q3 net income of $611M as falling gasoline prices drove demand for its profitable Jeep SUVs & Ram trucks.  Chrysler, which has now made money in 12 of the past 13 qtrs, has provided most of the income for its parent company.  Revenue jumped 18% to $20.7B & modified operating profit rose 9.7% to $946M, Chrysler said.  Net income rose 32% from $464M a year earlier.  Sergio Marchionne, CEO of Fiat Chrysler, completed the acquisition of the US automaker earlier this year to create an automaker with a global heft.  Chrysler’s results have helped steady Fiat’s operations in its home European market, which is bouncing back from a 2-decade low last year.  Fiat Chrysler last week reported €926M ($1.18B) in Q3 earnings before interest & taxes, a 7.4% increase from a year earlier, buoyed by sales growth in the US.  Profit was less than the €93M estimate.  Chrysler incurred about $300M in warranty & recall costs in the quarter, Richard Palmer, the unit’s chief financial officer, said.  The company reaffirmed its annual forecast for revenue of about $80B & a modified operating profit of $3.7-$4B.  The company’s North American operations, which didn’t exist before Fiat took control of the Chrysler Group in 2009, accounted for 59 % of Q3 operating profit.  European operations lost €63M in Q3.  Without the US division, Fiat Chrysler would have been unprofitable in 2012 & 2013.  Chrysler said that US deliveries rose 22% to 170K in Oct, helped by a 52% surge for the Jeep brand & 33% for Ram pickups.  The group has reported 55 straight months of year-on-year growth in US vehicle sales.  Sales were aided by cheaper fuel prices.  The stock went up pennies to 11.14 (sorry, no chart).  If you would like to learn more about FCAU, click on this link:

Chrysler’s Quarterly Profit Rises 32% on Jeeps, Pickups as Fuel Costs Drop

This was a fairly good day in the market, but not for tech stocks on the NAZ.  Oil stocks which seen a lot of selling, rebounded as oil rose.  The Rep victory made investors feel good, although tomorrow is a new day with news stories to drive the markets.  Dow is at a new record & up 900 YTD after an ugly Jan & very wild Oct.  It's hard to see the justification for another advance next year.

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