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Wednesday, October 21, 2015
Lower markets on mediocre earnings
Dow dropped 48 (the low of a narrow trading range), decliners over advancers better than 2-1 & NAZ retreated 40. The MLP index lost 6+ to the 332s & the REIT index rose 4+ to the 326s. Junk bond funds were mixed to higher & Treasuries traded higher. Oil sank back to the 45s on inventory data (see below) & gold rose.
Treasury Secretary Jacl Lew urged Congress to act now to increase
the debt limit, calling it irresponsible for lawmakers to use
political brinkmanship that could jeopardize the government’s record of
honoring its obligations. Lawmakers should raise the borrowing
threshold unconditionally & not use the ceiling as a political weapon,
Lew said. With less than 2
weeks to meet his deadline, the Rep-controlled Congress needs to
move promptly because the process of increasing the debt ceiling is
complicated, he said, reiterating that the gov on Nov 3 will
exhaust the tools it’s using to stay under the cap. “My job is to
make sure that everyone understands the deadline is very real,” Lew
said, adding that, at that point, the government will be operating on
cash, which may not be sufficient to cover all expenses on certain days.
Going past that date is “irresponsible,” he added.
U.S.'s dwindling cash on hand
At
Lew’s deadline, the Treasury may have less than $30B in cash,
while net daily expenses can be as high as $60B.
Under circumstances not constrained by the debt ceiling, the Treasury
has a policy of keeping a cash balance of at least 5 days worth of
expenditures (about $150B). The US debt-ceiling
deadlock has already caused disruptions in the Treasury bills market,
leading to a shortage of supply. Rates surged in recent days as
investors backed away from securities viewed at risk for potential
payment delays. Analysts are also concerned the regular sales of 3-, 10- & 30-year debt, slated for next month, will be disturbed. House
Reps discussed options for raising the debt limit at a
closed-door meeting yesterday as party members remain deadlocked over
internal differences. The chamber
may vote tomorrow on a bill that
would set conditions for increasing the limit, including freezing all
major rules until 2017. The measure is
intended to specifically target energy regulations & rules set by the
Dodd-Frank banking law & the Occupational Safety & Health
Administration. Obama & congressional Dems have insisted that there be no
policy changes attached to a debt-ceiling boost. House
Rep fiscal strategies have been complicated by turmoil within
party leadership after Speaker John Boehner announced last month he will
step down at the end of Oct. Even with the party turmoil, Boehner insisted that there would be no default. The Dems have
repeatedly said that Dems won’t go along with anything but a
debt-ceiling increase that’s free of policy conditions.
Oil prices fell to 3-week lows after a big build
in US crude inventories fed concerns that demand may not be enough to
absorb one of the largest global surpluses in modern times. The American Petroleum Institute reported a rise in commercial crude stocks of 7.1M barrels to 473M barrels in
the latest week, trumping expectations for an increase of 3.9M barrels. Rising supply from the largest-producing countries, along with
slowing demand from emerging nations, has cut the price of oil in half
over the last year. With no sign that either trend will change any time soon, the oil price is more likely to fall than rise. Only 5 non-OPEC countries sent officials to a meeting of with OPEC
in Vienna to discuss possible market cooperation. The
meeting was unlikely to agree any coordination over supply, an OPEC
delegate said.
Google’s YouTube unveiled a paid
version of its video-sharing service, giving its parent company Alphabet a way to generate profit from online entertainment while ramping up
competition with other content sites. The new service, called YouTube Red,
will cost $9.99 a month & be available beginning Oct 28. GOOG will try to persuade people to
pay for a service they already get for free by eliminating
advertisements & permitting subscribers to save videos for offline
viewing. The music industry
has been particularly vocal in advocating a subscription version of
YouTube, as part of a broader push to get people to pay for music they
already watch or listen to for free. YouTube is the most popular access
point for music in the world, but record companies collect far less
revenue from ad-supported streaming services than they do from paid
services. YouTube,
the undisputed king of the ad-supported Web video market for most of
its existence, has spent the past couple of years combating more
vigorous competition. It introduced a new gaming app & is
also funding original series for stars that have licensed shows or made
series for rivals. High priced GOOG stock fell 7+. If you would like to learn more about GOOG, click on this link:
Dow is slightly above where it was on Oct 12, prior to earnings season. Earnings reports are barley getting passing grades. Much of earnings improvement comes from accounting adjustments which are non recurring. Stocks should remain under selling pressure during this earnings season. The looming crisis on failing to raise the debt sinking is beginning to sink in to investors.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.76427355756216)
...1.20 
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