Monday, November 10, 2014

Markets crawl higher on hopes for a strong US economy

Dow climbed 39, advancers slightly ahead of decliners & NAZ added 19.  The MLP index continued with its new high volatility & dropped 4 to 501 while the REIT index went up 2+ to over 320 (near its yearly highs).  Junk bond funds did little & Treasuries declined.  Oil pulled back to the 77s (near multi year lows) & gold was also lower.

AMJ (Alerian MLP Index tracking fund)

CLZ14.NYM....Crude Oil Dec 14....77.45 Down ...1.20  (1.5%)

Live 24 hours gold chart [Kitco Inc.]

Tax-&-spend is turning into a tailwind for the economy in the wake of last week’s elections.  The combined budgets of cities, states & the federal gov will add 0.4 percentage point to annual growth in Q4-2014, after reducing it by 0.9 point in the year-ago period, according to Macroeconomic Advisers.  While the swing was in place before Nov 4, it will be accentuated by the ballot results, as municipalities spend the proceeds of newly approved bond issues & congressional Reps eye increased outlays on defense.  Helped by a surge in military expenditures, GDP grew at a 3.5% annual rate in Q3, after a 4.6% gain in Q2, according to the Commerce Dept, the strongest back-to-back readings since the last 6 months of 2003.  The shift is helping to bolster the labor market as gov hire workers rather than let go of them.  That may also encourage the Federal Resrve to start raising interest rates.  Last year’s budget restraint was the strongest since the recession ended in Jun 2009, as Congress eliminated a payroll-tax cut, raised income taxes on the wealthy & reined in spending.  The economy also was hurt by a partial 16-day gov shutdown.  Most of the boost is coming from state & municipal govs.  After tightening their budgets for 3 years following the end of the recession, they began stepping up spending in 2013 & continued to do so this year.  They could add about 300K jobs to payrolls in the next 2 years, more than offsetting a probable 50K cut in the federal workforce.  States & cities also are taking advantage of low interest rates to borrow money for roads, bridges & other infrastructure projects.  Last week, voters approved almost $38B of municipal-bond measures.  The total compares with $13.7B in the 2010 congressional midterm & was the most for a Nov general election since 2008.

Budget Blues Fade as U.S. Fiscal Drag Ends After Election

OPEC won’t cut its collective crude output when it meets this month & global oil prices will stabilize once the surplus is absorbed by the market, Kuwait Oil Minister Ali Al-Omair said.  OPEC, which supplies about 40% of the world’s oil, meets Nov 27.  The 12-member OPEC, which has a production target of 30M barrels a day, pumped almost 31M barrels a day in Oct.  “I don’t think there will be any cut in the production,” Al-Omair said.  “We feel prices will settle down once surplus oil is absorbed.”  Oil tumbled into a bear market this year as supply expanded from the US to Libya.  OPEC members Saudi Arabia & Kuwait have resisted calls to cut output while Libya, Venezuela & Ecuador have asked for action to prevent even lower prices.  Kuwait has no plans to cut its own crude production, which should increase to 4M barrels by 2020, Al-Omair said.  Kuwait produced 2.85M barrels a day in Oct.  The decision on output will be unanimous, the UAE Energy Minister Suhail Al Mazrouei said, without indicating what the group will decide when its members gather this month.  The UAE & the rest of OPEC are committed to supplying oil worldwide, & markets shouldn’t “panic,” Al Mazrouei said.  Analysts are divided on what OPEC will decide, with 10 of 20 predicting that the organization will announce an output reduction.

Kuwait Oil Minister Says No Plan to Cut Country’s Crude Output

AT&T, a Dow stock & Dividend Aristocrat, is scrapping plans to introduce 4G LTE wireless internet access on commercial flights to conserve cash as it expands internationally.  AT&T had said in Apr that it would work to build a land-to-air high-speed network to serve airlines with in-flight Wi-Fi internet access.  The service was to be introduced as soon as late 2015, mounting a potential challenge to Wi-Fi provider Gogo (GOGO).  The effort to offer in-flight Wi-Fi is being sacrificed as AT&T trims its capital expenditure budget for next year by 14% to $18B.  AT&T reduced the forecast last week at the same time the phone company announced the $2.5B acquisition of Grupo Iusacell, as it furthers its push into Mexico.  “After a thorough review of our investment portfolio, the company decided to no longer pursue entry into the Inflight Connectivity industry,” a spokesman for AT&T said.  “We are focusing our capital on transformative investments, such as international and video.”  The stock rose 21¢.  If you would like to learn more about AT&T, click on this link:

AT&T Cancels Plans to Offer In-Flight Wi-Fi Access

AT&T (T)

Stocks meandered again today.  But there were enough buyers to raise the Dow & S&P 500 to new record highs.  It's hard to believe that Dow is up more than 1K YTD, extending its record from the lows in Mar 2009.  Another way to look at the run is the Dow is up 24% from the prior peak on Oct 2007, about 3% annual growth with one severe downdraft.  Economic growth since 2007 has been so-so & some high paying jobs have been replaced with lower paying ones, so that household income is lower.  That seems like a disconnect to me.

Dow Jones Industrials

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