Wednesday, January 21, 2015

Markets waffle after weak IBM earnings

Dow slid back17, advancers over decliners 3-2 & NAZ is up 4.  The MLP index jumped to 447 while the REIT index fell to the the 346s.  Junk bond funds fluctuated & Treasuries were little changed.  Oil was flattish & gold finally is now down about 13, still below 1300.

AMJ (Alerian MLP Index tracking fund)

CLH15.NYM...Crude Oil Mar 15...47.51 Up ...1.04 (2.2%)

GCF15.CMX...Gold Jan 15.......1,301.50 Up ...7.30 (0.6%)

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New residential construction in the US rose more than forecast in Dec, capping the best year since 2007 & signaling the industry will probably keep expanding this year.  Housing starts increased 4.4% to a 1.09M annual rate, following the prior month’s 1.04M pace that was higher than previously estimated, according to the Commerce Dept, & matched the forecast.  The advance was driven by single-family projects, which climbed to an almost 7-year high.  An improving labor market, mortgage costs close to multi-year lows & rising consumer confidence will probably sustain demand for residential real-estate.  Faster wage gains & easier credit would help spur the housing recovery, benefiting sales & profits at builders.  Permits declined 1.9% to a 1.03M pace, depressed by a setback in multifamily projects, which are often volatile from month to month.  Applications for single-family homes increased to a 7-year high.  Builders began work on 1.01M houses in 2014, the most since 2007.  The boom peaked at a 3-decade high of 2.07M in 2005, before plunging to a record-low 554K in 2009.  Construction of single-family homes climbed 7.2% to a 728K rate, the most since 2008, from 679K the previous month.  Work on multi-family homes, such as townhouses & apartment buildings, decreased 0.8% to an annual rate of 361K.

Housing Starts in U.S. Increase to Cap Best Year Since 2007

IBM CEO Ginni Rometty
Photo:   Bloomberg

For IBM, a Dow stock, converting to the cloud is taking a toll.  Even though it’s necessary to drive future growth, the company has to sacrifice profits for now.  CEO Ginni Rometty is focusing returning IBM to growth thru new initiatives like data analytics, mobile & cloud computing.  Cloud computing gives clients more flexibility in ordering software & can limit their need for IBM servers & mainframes, crimping profits.  Revenue shrunk across every reported unit & every geography in Q4, & IBM’s new guidance for 2015 operating earnings trailed some estimates.  The shift to new initiatives has not been quick enough to halt 11 straight qtrs of  falling revenue, & earnings fell last year for the first time in more than a decade.  Revenue from the cloud came in at $7B for 2014, with cloud offerings delivered as-a-service at an annual run rate of $3.5B.  But for now, IBM says it doesn’t have enough scale to offset narrower margins.  Overseas sales have been crimped by a strengthening dollar & slowing growth in some emerging markets.  Sales to BRIC nations fell 21% in Q4.  Adjusted for currency swings & divested businesses, it was still a drop of 8%.  IBM also took a $580M charge in Q4 for “workforce rebalancing” as the company adjusts to new ways of doing business.  The stock slumped 4.98.  If you would like to learn more about IBM, click on this link:

IBM’s Efforts to Shift to Cloud Come With Profit Sacrifice

International Business Machines (IBM)

Iraq, the nation adding more new oil to global markets than any other supplier in OPEC, said it needs to boost production & exports of crude to compensate for collapsing prices.  “Because of the new challenges, especially the price of oil, Iraq has to try its best to raise it oil production and exports,” Deputy Prime Minister Rowsch Nuri Shaways said.  Iraq has lost about 50% of its revenues because of the slump in oil, Shaways said.  An agreement last month between the country’s federal gov & the semi-autonomous Kurdish region will boost exports by more than 550K barrels a day, he added.  The nation is pumping at about 4M barrels a day, already a record.  OPEC’s crude output rose 80K barrels a day last month to 30.5M as additional oil from Iraqi fields more than offset a collapse in Libyan production, the International Energy Agency said on Fri & it cut its forecast for supply growth outside OPEC by 350K barrels a day to 950K, with reductions for Columbia, Canada & the US.

Iraq Says Oil Output Must Rise to Compensate for Price Collapse

Stocks are struggling to go higher.  Economic data in the US is encouraging but earnings keep coming in wishy-washy at best.  MLPs are having a good day, although they have been bobby around aimlessly for several months.  Dow remains in the red for Jan, down more than 300.

Dow Jones Industrials

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