Author: Dennes Lupastean, LSW Investing
Covestor model: Macro Themes
As we reach the middle of September and the presidential election heats up, the markets are soaring thanks in large part to an aggressive move by the Fed. They announced their third round of quantitative easing, or QE3. Per the plan, the Fed will purchase $40 billion worth of agency backed securities each month.
Upon the announcement of QE3, stocks and commodities soared, specifically gold. Financial stocks fared quite well with the announcement, considering the details of the assets which will be purchased by the Fed.
As is typical in many scenarios, bad news is overlooked in favor of good news, especially stimulus news. This seems to be the case when the Fed stated that unemployment won’t reach 7% until 2014, and even that may be a bit optimistic given the recent trends.
One interesting point regarding QE3 is that the Fed has left it open ended in terms of time frame. They stated they intend to keep up with their purchases until unemployment reaches the 7% threshold. Another announcement of the Fed which was more positive was that they intend to keep the already record low interest rates low until at least the middle of 2015.
In economic news, Industrial production fell 1.2% in August, shrinking by the most since March 2009, reinforcing concerns that a pillar of the expansion is faltering. The Consumer Price Index increased 0.6% in August, in the first gain since March. The Core rate (ex-food and energy) rose 0.1%.
Gasoline prices accounted for about 80% of the overall gain, after having eased during much of the spring and summer, but the August jump pushed overall energy prices up 5.6%, the largest rise since June 2009.
Portfolio company related news:
The Aquamarine Driller’s customer in Malaysia has exercised the first of their one year options. This will extend the current contract to November 2013 and is anticipated to generate an estimated $56 million of revenue over the one year extension period.
The partnership reported Adjusted EBITDA increasing 28% from the second quarter of 2011. A 9% cash distribution increase has been announced. Management also announced a substantial increase in its 2012 capital program for the second time this year.
This latest increase expands the Partnership’s total 2012 capital program to approximately $137 million which will be allocated principally to attractive oil development opportunities on newly acquired assets.
Disclosure: The investments discussed are held in client accounts as of September 21, 2012. These investments may or may not be currently held in client accounts.The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.