Friday, October 2, 2015

Markets recover in afternoon on hopes of delayed interest rate hike

Dow shot up 200 closing at the high, advancers over decliners 5-2 & NAZ added 80.  The MLP index surged again, up 9+ to the 325s & up an amazing 46 in just 3 days & the REIT index went up 2 to the 307s.  Junk bond funds were mixed & Treasuries retreated in the PM, but the yield on the 10 year Treasury remained below 2%.  Oil rose (see below) & gold gained 2%.

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CLX15.NYM....Crude Oil Nov 15....45.74 Up ...1.00 (2.2%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Vice Chair Stanley Fischer said he doesn’t see immediate risks of financial bubbles in the US, while raising concerns that the central bank’s policy tool kit to deal with such occurrences is limited & untested.  “Banks are well capitalized and have sizable liquidity buffers, the housing market is not overheated and borrowing by households and businesses has only begun to pick up after years of decline or very slow growth,” the he said today.  Still, he warned that “potential shifts of activity away from more regulated to less regulated institutions could lead to new risks.”  Fischer also said he sees some scope for using interest-rate policy to combat potential threats, but doing so could come with “significant costs.”  He did not address the economic or interest rate outlook in his remarks.  “The limited macroprudential toolkit in the United States leads me to conclude that there may be times when adjustments in monetary policy should be discussed as a means to curb risks to financial stability,” Fischer said.  “A more restrictive monetary policy would, all else being equal, lead to deviations from price stability and full employment.”  Fischer said policy makers should consider the trade-offs between using monetary policy to pop asset bubbles & the costs to its mandate to keep inflation stable & employment high.  “It may also be fruitful for researchers to continue investigating the deployment of new or little-used monetary policy tools,” he added.  “For example, it is arguable that reserve requirements -- a traditional monetary policy instrument -- can be viewed as a macroprudential tool.”

Fed's Fischer Sees Few Obvious Bubbles in U.S. Economy

Crude prices erased early losses to rise 1% after a report showed the 5th weekly decline in the US oil rig count added to signs of falling production in the world's top oil consumer.  US energy companies this week cut the number of rigs drilling for oil by 26, Baker Hughes reported.  It was the largest number of rigs idled in a week since Apr.

Oil Prices Reverse Course on Rig Count Fall

With the 4-year housing recovery in just the "fourth or fifth inning," the real estate market may take longer than expected to really fire on all cylinders again, said Doug Yearley, CEO of Toll Brothers (TOL)"Four years in, I would think the housing market would be further along. I think it means we're going to have a longer, slower recovery," he said, & described the 2007 to 2011 period as the "worst housing depression we've ever seen.  "While characterizing current housing conditions as "healthy," he said factors such as an improving economy & extremely low interest rates should be providing more juice to the real estate market.  Low borrowing costs have translated into historically favorable mortgage rates for homebuyers.  "[But] we don't worry about the Fed raising rates as long as it's done intelligently and slowly," Yearley said, adding the real estate market can handle mortgage rates of 4.5%.  "I'll take a 4.5 percent rate in a better economy any day."  Home Depot (HD), a Dow stock, CEO Craig Menear said the housing market has been more robust this year than he had expected, & that's leading to additional residential renovation & improvement projects.  "We're getting a tailwind from the housing environment that helps our business in terms of home value appreciation and housing turnover. Those are two key drivers of projects," said Menear.  "Both of those have been a little bit stronger than how we thought about as we planned 2015," he said, estimating turnover at about 5% & appreciation 4-5%.  With housing doing better, Menear said homeowners see improvement as an investment rather than an expense, which makes them more likely to take on projects or hire contractors.  Besides talking about housing as it relates to the economy, both CEOs said the notion of the "death of the suburbs" has been greatly overstated.  "Certainly more and more people are living in cities. But [in] the American Dream when you settle down and your kid hits kindergarten, most people are moving to the 'burbs," said Yearley.  Millennials, loosely defined as people born in the early 1980s thru the late 1990s, "absolutely want to buy homes" in the suburbs, Menear agreed, saying his company's research shows it's "just a delayed purchase."

Toll Brothers CEO: Housing comeback in 5th inning

After thinking about the jobs data, traders decided weak payroll data would encourage the Fed to delay any interest rate hike.  Who knows?  The problem is that the stock market is addicted to low interest rate, a bad sign for any future price advance.  There will always be a cloud or 2 in the sky to give the Fed a reason to postpone the first increase in a decade.  The truth is that there will never be a perfect time to raise interest rates, so those guys will have to learn to bite the bullet & take that step.  On Wed, Alcoa (AA) will kick off season, earnings are the true basis for stock prices.

Dow Jones Industrials

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