Monday, January 5, 2015

Markets tumble as oil reaches new multi year lows

Dow lost 216, decliners over advancers more than 3-1 & NAZ fell 49.  The MLP index sank 12 to the 457s & the REIT index was fractionally lower in the 331s.  Junk bond funds dropped & Treasuries rose as stocks were sold.  Oil is now selling below $51 & gold was higher from instability in the euro market.

AMJ (Alerian MLP Index tracking fund)

CLG15.NYM...Crude Oil Feb 15...50.96 Down ....1.73  (3.3%)

GCF15.CMX...Gold Jan 15......1,196.10 Up ...10.10 (0.9%)

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Antonis Samaras
Photo:   Bloomberg

Greek Prime Minister Antonis Samaras risks finding the playbook he deployed to take office in 2012 is less effective this year because wage cuts & tax increases that have kept intl aid to Greece flowing have also left voters feeling more pinched than ever.  The resulting public anger has made many Greeks deaf to Samaras’s message that the country, which emerged in 2014 from a 6-year recession & is on the verge of balancing its budget, would risk being thrown back into financial turmoil by a rival-led gov.  Samaras relied on fear factors in kicking off his re-election campaign over the weekend.  In a Jan 3 speech, the premier said Greece would be driven into default & out of the 19-nation European single currency by the policies of Syriza (anti-austerity  party) which has vowed to increase wages, expand the number of gov jobs & persuade the euro area to write-off some Greek debt.  “What Syriza says it would do if it ever came to power would with certainty lead to bankruptcy,” Samaras said.  “What they say isn’t doable, can’t be done and would only drive the country into a huge ordeal.”  A speech on the same day by Tsipras struck a different tone, highlighting the human costs of Greek unemployment above 25% after the worst recession in more than half a century.  He accused Samaras of scaremongering, called Greek debt unsustainable at its current level of about 180% of economic output & said German Chancellor Angela Merkel’s insistence on fiscal discipline for the euro area is a menace for the region as it confronts the threat of deflation.  “Austerity is absurd and catastrophic,” Tsipras said.  There is a serious threat that Greece could leave the Euro group.

Samaras Faces Greeks Skeptical of His Euro-Exit Warnings

Fiat Chrysler, GM Lead December Sales Gains to End 2014 on Roll
Photo:   Bloomberg

General Motors (GM), Ford (F) & other major automakers reported rising US vehicles sales in Dec, capping the best year since 1996 thanks to cheap fuel & low interest rates.  GM cruised past sales estimates while Ford & Honda fell short of predictions.  GM’s 274K sales produced a 19% gain, compared with a forecast of 13%.  Ford sold 219K light vehicles, up 1.3%, missing the forecast for a 2.8% gain.  The US unit of Fiat Chrysler (FCAU) sold 193K cars & trucks last month, up 20% for Dec & giving full-year sales a 16% boost on its way to gaining the most market share.  Analysts had estimated a jump of 23% last month.  The market’s shift to light trucks, which outsold cars every month of the year for the first time since 2004, played to GM’s & FCAU’s strengths, such as their sport-utility vehicles & large pickups.  Ford sales gains were tempered by lower production for its top-selling F-Series pickup.  The F-150 truck was redesigned with an all-aluminum body.  All automakers were projected to report sales increases in Dec as the strengthening job market, available credit & low gasoline prices bolstered consumer confidence.  Deliveries are projected to rise again this year for an unprecedented 6th straight year, albeit at a slowing pace, as volumes return to pre-recession levels.  The annualized selling rate, adjusted for seasonal trends, may have been 17.3M, including medium & heavy trucks that typically account for at least 200K sales annually, said FCAU.  Dealers last month may have sold 1.5M vehicles, which would bring the full-year total to 16.5M & cap a 58% increase since 2009.

Fiat Chrysler, Nissan, Honda U.S. Sales Rise to End Strong Year

Oil Crash
Photo:   Bloomberg

Oil’s biggest bust since the global recession was good for a few cases of whiplash.  Just 2 months ago, shale drillers budgeted for $80-a-barrel oil & planned to increase spending on capital expenditures in 2015.  Now  budgets have been slashed.  The US shale boom that’s brought the country closer to energy self-sufficiency than at any time since the 1980s will be challenged in 2015 as never before.  The benchmark US crude price has fallen below $60, demand growth is weakening & OPEC, which controls 40% of supply, is unwilling to cut output.  West Texas Intermediate has dropped more than 50% from its $107 peak $107 in Jun . The current price is below the break-even price for 37 of 38 US shale oilfields  In 2014, US oil output increased by 1M barrels a day for the 3rd consecutive year, pushing production to the highest in more than 3 decades, according to the US Energy Information Administration.

Oil Below $60 Tests Economics of U.S. Shale Boom

Like last year, stocks are beginning the new year with selling.  This time the leading factors are plunging oil prices & uncertainty over Greece leaving the euro zone.  The US economy is looking better than overseas. but those sluggish markets can hurt US companies.  In addition, a strong dollar tends to reduce profits at multi-nationals.  Early signals are that Jan will be a tough month for stocks (like last year).

Dow Jones Industrials

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