Thursday, April 9, 2015

Markets fluctuate as jobless claims were under forecast

Dow rose 56, advancers just ahead of decliners, & NAZ added 23.  The MLP index went up 1+ to the 435s & the REIT index dropped a very big 6+ to the 331s.  Junk bond funds were mixed to higher & Treasuries retreated.  Oil climbed higher & gold is below 1200 once again.

AMJ (Alerian MLP Index tracking fund)

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IMF Managing Director Christine Lagarde says the world could be in for a “bumpy ride” when the Federal Reserve starts raising interest rates, with overpriced markets & emerging economies likely to take the biggest hits.  While risks to the global economy have decreased over the last 6 months, threats to the world’s financial system have actually risen, Lagarde said.  A long period of low interest rates in the US & other advanced economies has fostered a higher risk tolerance among investors, “which can lead to overpricing” & could pose “solvency challenges” for life insurers & defined-benefit pension fund, she said.  Lagarde warned that “liquidity can evaporate quickly if everyone rushes for the exit at the same time -- which could, for example, make for a bumpy ride when the Federal Reserve begins to raise short-term rates,” she added.   The turbulence could be especially rough for commodity-exporting emerging economies, which may find themselves caught between falling prices for their goods & a stronger dollar, which increases the burden of dollar-dominated debt.  Lagarde’s warning comes as Fed policy makers consider when to raise their benchmark lending rate amid a strengthening labor market, which has pushed US unemployment to the lowest level in 7 years.  The dollar has appreciated 19% over the last year as the US economy has strengthened.  The risk is that a surging greenback & higher interest rates will make it harder to service US denominated debt held outside the country by non-bank borrowers (estimated at $9T).  Lagarde urged policy makers to take steps to ensure that markets have enough liquidity, improve prudential policies for non-banks, & follow thru on regulatory reforms such as shielding “too-big-to-fail” institutions.

Lagarde Warns of ‘Bumpy Ride’ as Fed Prepares for Rate Rise

Blackstone Group (BX) & Wells Fargo (WFC) are nearing a deal to buy a real estate portfolio from General Electric worth as much as $30B, according to a leaker.  An agreement may be reached as soon as tomorrow.  It would be one of the largest real estate deals since Blackstone acquired Equity Office Properties Trust for $39B in 2007 at the height of the last property boom.  US commercial values have since reached new records as investors from around the globe seek places to put money at a time of near-zero interest rates.  Unloading the assets would further CEO Jeffrey Immelt’s goal of shrinking GE Capital, whose lack of access to credit during the 2008 financial crisis put the parent company at risk.  GE Capital has been disposing of $B in holdings, including foreign bank stakes, while Immelt works to bulk up the industrial side of GE’s business.  GE stock rose 72¢.  If you would like to learn more about GE, click on this link:

GE Close to Real Estate Sale to Blackstone, Wells Fargo

General Electric (GE)

California regulators imposed the largest penalty in the agency’s history, ordering PG&E to pay $1.6B for failures that led to a deadly 2010 natural gas pipeline explosion in a San Francisco suburb.  A faulty weld on the pipeline caused an explosion & fire rupture that killed 8 & destroyed 38 homes.  PCG, owner of the state’s largest utility, committed over 2K violations of safety rules in the decades leading up to the incident.  The company still faces as much as $1.13B in federal criminal fines for the blast & has committed to spend $2.8B to improve pipeline safety.  The California Public Utilities Commission voted for the penalty today.  The company had warned that an earlier staff-proposed fine of $2¼B would push it to the edge of bankruptcy.  PCG has replaced its CEO, frozen its div & separated its gas business from its power operations to improve safety.  CEO Tony Earley said, “While we obviously need to review the orders in their entirety before making a final decision, we do not expect to appeal today’s rulings.”  Under the order, PCG will pay $300M to the state, refund $400M to its gas customers & spend $850M on infrastructure improvements that can’t be recovered in rates.  The $1.4B penalty recommendation from the administrative law judge included a $950M state fine.  The stock dropped 83¢.  If you would like to learn more about PCG, click on this link:

PG&E Ordered to Pay Record $1.6 Billion for Deadly Gas Blast

Pacific Gas & Electric (PCG)

Stock traders are very nervous going into earnings season.  A large portion of forecasts have been reduced on weakness in the US economy (partially a result of harsh winter weather) & the impact of a strong dollar on earnings.  The graph below shows the Dow has gone nowhere for over 5 months because the US economy has disappointed investors.

Dow Jones Industrials

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