Wednesday, March 25, 2015

Markets tumble, lech by a weak tech sector

Dow slumped 292 (closing at THE LOW), decliners over advancers 5-2 & & NAZ dropped a very big 118 (closing at THE LOW).  The MLP index went up 1+ to 428 & the REIT index lost 6+ to the 338s.  Junk bond funds slid lower & Treasuries saw selling.  Oil climbed to the 49s & gold is inching its way towards 1200.

AMJ (Alerian MLP Index tracking fund)

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CLK15.NYM....Crude Oil May 15....49.26 Up ...1.75 (3.7%)

Live 24 hours gold chart [Kitco Inc.]

Time is running out for Greece.  By early April, the Greek gov will have a bond payment come due, & there will be no way for the gov to make the payment unless it gets a fresh tranche of cash from its creditors, who are in large part euro zone govs.  Not only is the clock ticking but additional pressures on the country continue to rise.  This week, the ECB barred Greek banks from increasing their holdings of short-term gov debt.  Short term debt (T-bills) has been an important funding valve for the gov during this extended period of stress.  Also this week, Greek Prime Minister Alexis Tsipras visited Germany & met with Chancellor Angela Merkel in a bid to build trust between the countries, easing tensions.  His visit seemed helpful.  Ultimately, though, Greece needs to execute a set of economic reforms & allow outsiders to observe them for the country to get the money it needs.

Greece's Debt Crisis Explained

United States Steel said it would consolidate its North American flat-rolled operations & temporarily idle its operations at Granite City, Illinois, citing weak demand & falling steel prices.  The company is issuing notices to 2K workers at its Granite City Works facility.  "Global influences in the market like reduced steel prices, unfair trade, imports and fluctuating oil prices continue to have an impact on the business," the company said.  A stronger dollar has made imports cheaper & steel from China has been flooding the US market in the recent months, hurting prices & leading to job cuts & plant closures at a number of steel producers in the US.  The company announced the permanent closure of its Granite City Works coke-making facility in Jan & cut 176 jobs.  The profit & revenue fell in Q4 compared with a year earlier & the company warned that low oil prices & a strong dollar could hurt business this year.  US Steel had about 23K employees in North America & about 12K in Europe.  The stock rose 12¢.  If you would like to learn more about US Steel, click on this link:

U.S. Steel to Temporarily Halt Granite City Operations

United States Steel (X)

Kraft Foods will merge with ketchup maker HJ Heinz, owned by 3G Capital & Berkshire Hathaway (BRK.A).  The combined company, to be led by Heinz CEO Bernardo Hees, will have revenue of about $28B in 2014.  KRFT, like other packaged-food makers, is battling sluggish demand as consumers shift to products that are perceived to be healthier.  It has overhauled its senior management over the past few months & has said it will develop products to meet changing consumer preferences.  The deal is unlikely to face antitrust hurdles as there is little overlap in the companies' products.  Kraft sells cheese, Oscar Mayer meats, packaged meals & Maxwell House coffee, while Heinz makes ketchup, sauces & frozen foods.  The combined publicly traded company, expected to save $1.5B in annual costs by the end of 2017, will have 8 brands worth over $1B.  KRFT shareholders will own a 49% stake in the combined company & Heinz shareholders 51%.  KRFT shareholders will get one share in the combined company, to be called the Kraft Heinz & a special cash div of $16.50 to every share.  KRFT's market value is $36B.  Brazilian private equity firm 3G Capital & BRKA acquired Heinz for $23B in 2013.  Kraft is 3G Capital's 5th major deal in the food & beverage industry since 2008, when it engineered a takeover of Anheuser-Busch by brewer InBev.  3G Capital also controls Restaurant Brands International formed when its Burger King business bought Canadian coffee chain Tim Hortons.  The deal is expected to close later this year.  The stock shot up 21.84 (36%).  If you would like to learn more about KRFT, click on this link:

Kraft Foods to Merge with H.J. Heinz

Kraft Foods (KRFT)

Selling was prompted by profit worries from nagging weakness in the US economy.  That dose of reality was hard to take by the traders.  Dow is down in Mar (following a significant recovery in Feb) & in the red YTD as Q1 GDP growth estimates are being reduced.  NAZ has sunk about 120 below the 5K that it was trying to break thru in a meaningful way.  Earnings season begins in just 2 weeks & a lot of nervousness is being priced into the stock market.

Dow Jones Industrials

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