Wednesday, December 17, 2014

Janet Yellen spoke and markets surged ahead

Dow climbed 288 (closing near the highs), advancers over decliners an impressive 7-1 & NAZ shot up 96.  The MLP index bounced back after massive selling earlier this month.  The index jumped 20+ to the 451s & the REIT index rose 6+ to the 325s (close to its multi year high).  Junk bond funds rose after substantial selling in the last few weeks & Treasuries were sold.  After soaring into the 59s earlier today on the invetory report, oil pulled back & finished down pennies in the 57s as high volatility continues.  The chart below shows gold sank after the FOMC announcement later in the day.

AMJ (Alerian MLP Index tracking fund)

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CLK15.NYM....Crude Oil May 15....57.96 Up ...0.80 (1.4%)

Live 24 hours gold chart [Kitco Inc.]

Fed Chair Janet Yellen
Photo:   Bloomberg

The Federal Reserve (FED) will be patient on the timing of the first interest-rate increase since 2006, replacing a pledge to keep borrowing costs near zero for a “considerable time,” & raised its assessment of the labor market.  “The committee judges that it can be patient in beginning to normalize the stance of monetary policy,” the FOMC said, replacing a calendar-based phrase with language that gives it more flexibility to respond to economic data.  It said the new guidance is “consistent” with its previous “considerable time” wording.  The labor market “improved further,” the FED said.  “Underutilization of labor resources continues to diminish,” it said, dropping the word “gradually” used in its previous statement.  Janet Yellen said central bankers will react to economic data as they unfold.  While the FED is “unlikely to begin normalization process for at least the next couple of meetings,” she said, “the timing of the initial rise in the fed funds target as well as the path for the target thereafter are contingent on economic conditions.”  The change in guidance is another step in the FED’s plan to exit from the loosest monetary policy in its 100-year history.  While a faster-than-expected drop in unemployment is pushing the central bank toward raising rates next year, plunging prices of oil & commodities are holding inflation below its target.  “The committee continues to monitor inflation developments closely,” the FOMC said.  It expects inflation to “rise gradually toward 2 percent.”  The statement didn’t mention global market turmoil sparked by oil & the Russian currency crisis.  Quarterly forecasts released by the FED show officials see interest rates rising more slowly over the next 2 years compared with their Sep estimates.  They also see the economy reaching full employment later next year, while inflation remains below their target at 1.0-1.6%.  The FOMC lowered the FED funds forecast rate to 1.125% by next yearend.

Fed Vows Patience on Rates While Dropping Considerable Time

JPMorgan's (a Dow company) asset-management unit acquired Aviva's real estate investment business in Australia, Japan & Singapore as it seeks to expand in the Asia Pacific area.  It will add Aviva’s real estate team of about 50 people in the region.  Aviva’s multimanager property strategies in Asia Pacific weren’t affected by the transaction, according to the bank.  The terms were not disclosed.  “Growing in Asia Pacific has been a strategic imperative,” Joe Azelby, head of global real assets for the JPMorgan unit, said.  JPMorgan’s asset-management group earned $1.57B thru the first 9 months of 2014, the lowest among the 4 major divisions at the bank.  The unit managed $1.7T in assets at the end of Sep.  Aviva has scaled back from countries including the US as the insurer narrows its focus to main markets.  The stock went up 1.34.  If you would like to learn more about JPM, click on this link:

JPMorgan Asset Management Buys Aviva’s Asia Real Estate Book

J P Morgan Chase (JPM)

Saudi Arabia's plan to continue spending on social projects & security increases the likelihood that it will stick with OPEC’s policy of maintaining output even as crude prices plunge.  Last month OPEC decided to keep output unchanged, in spite of a global supply glut fed partly by production of shale oil in North America.  Saudi Arabia led a group of Arab monarchies in opposing calls by Venzuela & other OPEC members, whose economies are threatened by the fall in oil prices, to cut output.  OPEC supplies about 40% of the world’s oil.  OPEC members Angola, Algeria & Iran are “under stress,” OPEC pres & Nigerian Petroleum Minister Diezani Alison-Madueke said last 2 weeks ago.  Venezuela’s bonds dropped to a record yesterday, fueling speculation that the nation may default.  Nigeria's currency fell today to the lowest against the dollar since (at least) 1999.  While Saudi Arabia hasn’t yet published its budget for 2015, King Abdullah’s gov announced about $500B in projects over the past few years to build roads, airports & industrial centers as it seeks to reduce the country’s dependence on oil revenue & trim its 12% unemployment rate.  Saudi Arabia has maintained a counter-cyclical economic policy by increasing financial reserves & cutting public debt during periods of “high public revenue,” the state-run Saudi Press Agency cited al-Assaf, the finance minister, as saying.  This policy has provided the kingdom with “lines of defense” in times of need, including the financial crisis of 2008, al-Assaf added.  “This policy will continue in the next budget.”

Saudi Arabia Spending Means Less Room for OPEC to Cut Output

Janet Yellen projected patience with kind & gentle words.  The markets liked what they heard & surged ahead.  The FOMC will not make radical moves & higher interest rates will have to wait for another few months, at least.  The MLP index has been all over the map in the last 3 weeks.  Daily swings of 2-5+% have become common.  In the past, a 1-2% daily swing was considered substantial.  Today it was back in favor along with other oversold stocks.

Dow Jones Industrials

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