Monday, December 8, 2014

Markets sell off as energy shares lead the decline

Dow lost 106, decliners over advancers 5-2 & NAZ fell 40.  The MLP index plunged 26 to 454, a new record for a daily decline & down more than 100 from the peak set earlier this year, & the REIT index rose 1+ to the 325s (just good enough for a new multi year high).  Junk bond funds drifted lower & there was buying in Treasuries.  Oil slumped to 5-year lows (in the 63s) amid concern that hedge funds & other money managers bet too much on rising prices & gold went above 1200.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM...Crude Oil Jan 15....63.09 Down ....2.75  (4.2%)

Live 24 hours gold chart [Kitco Inc.]

House & Senate negotiators plan to present legislation tonight to keep most of the US gov open thru Sep 2015 after settling some final issues today, according to aides.  Appropriators are close to a compromise on the last sticking point, a series of unrelated policy initiatives backed by Reps & opposed by Dems.  While most of the gov would be funded for the rest of the fiscal year, the Dept of Homeland Security would be financed only thru Feb.  Reps seek to use a funding debate over the agency responsible for immigration to roll back pres's action easing deportation for the undocumented.  An agreement on the $1.1T spending bill would be a victory for Rep leaders seeking to clear the agenda to advance other items when they control both chambers in Jan.  It also would be a win for Dems who say they are confident the final deal won’t include Rep proposals they find most objectionable.  Gov funding expires on Thurs.  The Senate & House of Representatives intend to vote this week.  Lawmakers overcame the biggest risk to the spending bill last week as House Speaker Boehner rejected Tea Party Reps insistence on using it to defund actions easing deportation for millions of undocumented in the US.  Instead, on Thurs Boehner let members vent with a symbolic vote disapproving of Obama’s immigration orders.

U.S. Spending Proposal Said to Be Set for Release Late Today

Merck, a Dow stock, agreed to buy Cubist Pharmaceuticals (CBST) for $8.4B in cash to add products to help fight the growing threat of drug-resistant bacteria.  MRK will begin a $102-a-share tender offer, 37% above the closing level on Fri.  Including net debt, the deal is valued at about $9.5B.  CEO Ken Frazier said the deal will add to MRK’s line of drugs used in hospitals, one of 4 areas of strategic focus the drugmaker announced last year.  “We will continue to look at our portfolio to bolster those areas where we can have leadership and market growth, and to divest those things that have better opportunities outside our business,” Frazier said.  CBST has said it plans to introduce 4 new drugs by 2020 to combat bacterial infections that are resistant to other treatments because of overuse.  The rising threat of drug-resistant bugs has spurred public health authorities to urge companies to invest in new antibiotics, a field drugmakers had largely abandoned to focus on more profitable therapeutic areas such as cancer or hepatitis C.  CBST ran a comprehensive process & had other bidders, said Robert Perez, pres & COO.  Cubicin, the CBST top drug, was approved in 2003 by the FDA for serious skin infections.  Its use was expanded in 2006 to include bloodstream infections.  Cubicin generates more than 80% of CBST sales, which has been forecast will reach $2B by 2017.  MRK stock rose 39¢ & CBST shot up 26.24 to go over $100.  If you would like to learn more about MRK, click on this link:

Merck to Buy Cubist for $8.4 Billion for Its Antibiotics

Merck (MRK)

The ECB slowed asset purchases last week, underlining the challenge for policy makers trying to expand the institution’s balance sheet.  The ECB settled €233M ($286M) of asset-backed-securities purchases in the week ended Dec 5, after spending €368M in the first week of the program.  The central bank also bought €3.1B of covered bonds, down from €5.1B the previous week.  ECB pres Mario Draghi has held out the prospect of yet more stimulus to boost the balance sheet when policy makers review current measures early next year.  The ECB is preparing broad-based asset purchases, including gov bonds, with any decision at its Jan 22 meeting linked to incoming information, according to 2 officials.  A key piece of data for policy makers’ deliberations will be demand this week for a 2nd round of long-term loans aimed at boosting credit to the real economy.  A take-up of €148B is expected.  An initial offer in Sep injected €82.6B, less than forecast.  Since the ECB started asset purchases in Oct, it has spent a total of €21.5B.  Draghi said last week that one reason for why ABS purchases have been muted is because the program started at the end of the year.  Dec was among the 3 worst sales months in every year between 2010-2013, & new issues of the debt this month are on course for the 2nd-lowest total of 2014.

ECB Slows Asset Purchases Even Amid Draghi Balance-Sheet Pledge

This was one ugly day for energy issues.  The big intl guys were hit with selling & the MLP index had its worst day in history.  Lower oil prices are responsible for the selling.  Plunging oil prices should be bullish for the US economy, but it's not all that simple.  Lower prices at the pump don't have to result in higher consumer spending in other retail categories.  Hedge fund guys may be in trouble (forcing them to liquidate positions) adding to selling pressure.  Even though Dow is near record highs, dark clouds are around.

Dow Jones Industrials

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