Monday, January 12, 2015

Markets retreat as oil hits new 5½ year lows

Dow fell 96, decliners over advancers 2-1 & NAZ lost 39.  The MLP index tumbled 16+ to 428 & the REIT index climbed 2+ to the 344s (12 below its record made 8 years ago).  Junk bond funds were lower & Treasuries advanced.  The yield on the 10 year Treasury is down to 1.91%.  At 46, oil is down more than 60 from its mid-summer highs.  Gold went higher.

AMJ (Alerian MLP Index tracking fund)

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CLG15.NYM....Crude Oil Feb 15....46.22 Down ...2.14  (4.4%)

Live 24 hours gold chart [Kitco Inc.]

Greece's PM Antonis Samaras
Photo:   Bloomberg

Greek Prime Minister Samaras entered the 2-week countdown to Jan.25 elections with opinion polls showing he has so far failed to narrow the lead held by his main opponent, Alexis Tsipras of Syriza.  Separate polls put Syriza’s lead over Samaras’s New Democracy party at 2.6 percentage points & 3.2 percentage points, both little changed.  Investor concerns that New Democracy will fail to close the gap with Syriza drove yields on 10 year gov securities above 10% for the first time in 15 months last week.  Victory for Tspiras would threaten conflict with the euro area & the IMF since he has pledged to roll back austerity measures tied to Greece’s rescue aid & to write down some of the country’s debt.  The 10-year yield dropped 11 basis points to 10.03% today, while the yield on the 3-year note was down 10 basis points to 13.22%.  Samaras, who took time out from campaigning to attend a march in Paris yesterday, laid out his party’s economic platform on Sat, pledging to cut taxes & create 770K jobs in 7 key sectors, including tourism, agriculture & logistics.  Tsipras reiterated his party’s plan to direct social spending toward households reduced to poverty during Greece's economic crisis.  He also pledged to raise the tax-free income threshold to €12K ($14K) & hit back at Samaras for trying to link the Paris attacks with Syriza’s policies on border control.

Samaras Still Trails Syriza 14 Days Before Greek Election

IBM, a Dow stock, captured the top spot in annual US patents granted for the 22nd straight year.  The question remains: Can the perennial leader translate those inventions into revenue?  Its 7½K patents in 2014 beat the record it set a year earlier.  Samsung & Canon ranked 2nd & 3rd.  IBM CEO Ginni Rometty is still looking to newer areas like cloud computing & data analytics to reverse falling revenue & a projected decline in annual profit this year, the first drop since 2002.  Last year, 40% of the company’s patents were issued for work relating to the company’s growth initiatives, IBM said. 
“IBM’s continued investment in research and development is key to driving the transformation of our company,” Rometty said.  Still, IBM’s customers are spending less on its products & services.  Sales have fallen for 3 straight years, from divestitures & weakened demand for the company’s hardware & services.  In Oct, Rometty surprised investors by ditching a long-held earnings goal & projecting a 2-4% decline in operating profit for 2014.  IBM spends about $6B a year on research & development.  The company’s investment has led to its patent volume dominance & offerings like the Watson data-analytics supercomputer.  Still, IBM spends about 6% of its annual revenue on research & development, about half that of its technology peers in the S&P 500.  The stock fell 2.67.  If you would like to learn more about IBM, click on this link:
IBM Tops Patent List for 22nd Year as It Looks to R&D to Stimulate Growth

International Business Machines (IBM)

General Motors, working to revive its slumping Cadillac luxury brand, plans to spend $12B to develop 8 new models by 2020 & 2 more in the next decade, the brand’s chief said.  Cadillac will focus on the crossover sport utility vehicle segment.  GM is spending on the brand to fund a new-car renaissance at Cadillac, whose US sales fell 6.5% last year.  The brand does about half of what rivals BMW AG & Mercedes-Benz sell in the US.   Cadillac will add 2 smaller size SUVs & is planning a large flagship car.  It is also planning a large, prestige sedan that will be above the CT6 sedan, which goes on sale this year.  In an interview in Nov, Cadillac's chief said the next few years will require heavy investment in Cadillac, which will dilute GM’s financial results.  GM has been trying to revive Cadillac for more than a decade.  The brand had momentum in the early 2000s on the strength of the Escalade full-size SUV & the first CTS sedan.  As GM got closer to its 2009 bankruptcy, many new models were delayed or canceled.  The company is now making up for it as new models take a heavy focus on the US & China.  The stock gained a quarter.  If you would like to learn more about GM, click on this link:
GM to Spend $12 Billion to Fund New Cadillac Models by 2020

General Motors (GM)

Even though this is the beginning of earnings season, oil's low prices dominate the news.  As long as it sells off, its influence will outweigh earnings reports.  Dow is down 180 in Jan & looks like it will head lower during earnings season.

Dow Jones Industrials

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