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Pence Wealth Management Financial Markets Report

February 24th 2014

US FINANCIAL MARKET

  • U.S. equities rose at the open, sending the Standard & Poor’s 500 Index above its record closing level and erasing its 2014 decline, amid confidence the economy is strong enough to weather reductions in monetary stimulus. Industrial metals fell while Ukrainian shares jumped the most since 2010.
    • The S&P 500 slumped as much as 5.8% after reaching the highest level since its inception on Jan. 15 as investor concern about continued cuts in the Fed’s monthly asset purchases fueled a rout in emerging markets.
    • Energy, industrial and health-care stocks led gains in eight of the 10 main industry groups in the S&P 500 today, with telephone and commodity companies leading declines.
  • Big consumer companies cut costs, Wall Street wants bolder steps.
    • Shares of the companies that make everything from Cheerios and Pepsi-Cola to Pampers disposable diapers have been a defensive play for investors in uncertain times. But the companies have been struggling with weak demand in North America and Europe, cooling emerging markets and increasingly fickle consumers empowered by social media and online search and comparison tools.
    • Consumer staples were the worst-performing sector over the past six months.
  • Netflix has agreed to pay for more-direct access to Comcast’s broadband network to improve speed and reliability for its video-streaming customers.
    • The companies announced a multiyear agreement in a statement yesterday, without disclosing terms. Faced with complaints about quality and speed, Netflix agreed to pay Comcast millions of dollars annually to deliver its content more efficiently.
    • Netflix, the world’s largest subscription video-streaming service, joins companies such as Google and Facebook that already pay Comcast for content-delivery network access.
    • “The deal confirms that if you’re a video company that wants to get your stuff from point A to point B through a broadband pipe, you have to pay a tariff,” Michael Pachter, an analyst with Wedbush Securities in Los Angeles, said in an interview.
  • GE to spend another $10 billion on energy research by 2020.
    • As part of the new focus, GE will study with Norway’s Statoil how to use carbon dioxide (CO2) in hydraulic fracturing, the process commonly known as fracking which mixes more than 2 million gallons of water per well with chemicals and sand to extract oil and natural gas. While CO2 fracking is not economical today, the companies hope to find a way to collect CO2 at the wellhead, recycle it, use it to frack again, then collect the CO2 and repeat the process. GE also wants to boost the efficiency of its natural gas-powered turbines to 65% from today’s 62%.
  • Small miners set to dust off drill rigs in 2014.
    • The results of the Reuters survey of more than 60 mining executives are one of the first clear indications of a turning point in sentiment among so-called junior miners.
  • Nokia succumbs to Android appeal in low-cost phone battle. Its first models, Nokia X, X+ and XL, rely upon an open version of the Android mobile software system created by Google.
  • Microsoft is cutting the price of Windows 8.1 by 70% for makers of low-cost computers and tablets as they try to fend off cheaper rivals like Google’s Chromebooks.
    • Manufacturers will be charged $15 to license Windows 8.1 and preinstall it on devices that retail for less than $250, instead of the usual fee of $50.
    • Microsoft said earlier this month that it has sold more than 200 million licenses of Windows 8 since the program went on sale in October 2012, a slower rate of adoption than the previous Windows 7.
    • Global computer shipments fell a record 10% last year.
    • Microsoft is also pushing to reach a far wider audience for smartphones running its Windows Phone software by turning to cheaper chipsets and easing restrictions on how phone makers use its software to encourage them to drive down costs.
  • IBM is making it easier for developers to build and adjust applications in the cloud, where information is delivered online instead of stored on local servers.
  • Boeing’s machinists’ union in St. Louis approved a seven and a half year contract extension that will keep the company’s unionized employees away from a defined benefit retirement plan. The company’s contract with the more than 2,300 unionized workers now expires in July 2022. Boeing builds the F/A-18E/F and F-15 fighter jets, the EA-18G electronic attack aircraft, along with weapons and support programs at its St. Louis site.
  • On Saturday, Barron’s dedicated its cover story to a negative article on Kinder Morgan Energy Partners. The publication basically argues that buyers of pipeline MLPs know little as to how the high yields are generated. The magazine joins a parade of bears led by Hedgeye’s Kevin Kaiser. Last year, we saw Barron’s turn negative on Linn Energy after Mr. Kaiser did. Barron’s negative thesis focuses on three areas: DCF (distributable cash flow) accounting, the role of the GP, and valuation.

US ECONOMY & POLITICS

  • Growth in the services sector as well as the pace of hiring slowed in February. Markit’s services sector purchasing managers index (PMI) slipped to 52.7 in February from 56.7 in January.
    • Service sector employers continued adding staff, but at the slowest pace in almost a year. At 52.0, down from 54.1 in January.
    • This month’s preliminary composite PMI, a weighted average of manufacturing and services indexes fell to 53.5 from 56.2 in January.

 EUROPE & WORLD

  • Ukraine’s interim government needs $35 billion of financial assistance to avoid default as it issued an arrest warrant for fleeing ex-President Viktor Yanukovych for his role in last week’s violence. Lawmakers in Kiev are working on establishing a coalition government, while the U.S. and the European Union have pledged aid for a new administration.
  • German business morale rose in February to its highest level since July 2011.
    • The Munich-based Ifo think tank’s business climate index, based on a monthly survey of some 7,000 companies, increased to 111.3, beating the consensus forecast in a Reuters poll that it would hold steady at 110.6.
  • Euro zone consumer prices fell in January at their fastest ever pace on a monthly basis.
    • Inflation rate in the 18 countries sharing the euro dropped by 1.1% in January, keeping the annual inflation rate at 0.8%. The annual rate was influenced by a 1.2% decline in the highly volatile prices of energy, while the monthly decline was hit by a 3.9% fall in prices of non-energy industrial goods.
  • The Group of 20′s proposal to lift economic activity by 2% over the next five years has so many holes in it, there’s no wonder it was the first official target that all members felt happy to agree on.
    • The world’s top economies have embraced a goal of generating more than $2 trillion in additional output over five years while creating tens of millions of new jobs.
    • Each country has until November to come up with its own supposedly “concrete” plans, but there is nothing to enforce their implementation except the moral suasion of other members.
  • Janet Yellen, in her first global forum as Federal Reserve chair, won praise at the Group of 20 nations meeting over the weekend for helping ease concerns about emerging markets as the U.S. tapers monetary stimulus.

TODAY in HISTORY

  • Pope Gregory XIII issued a papal bull introducing the Gregorian calendar reform (1582)
  • The Supreme Court ruled in Marbury v. Madison that any act of Congress which conflicts with the Constitution is null and void (1803)
  • Mexico declared its independence from Spain (1821)
  • Andrew Johnson, 17th president of the United States, became the first president to have impeachment proceedings brought against him by the House of Representatives (1868)
  • The lease for Guantanamo Bay, Cuba, was signed (1903)
  • The discovery of a pulsar was announced (1968)

Sources: Reuters, Bloomberg.

This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S & P 500, are unmanaged and may not be invested into directly.

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