“The best traders have no ego. You have to swallow your pride and get out of the losses.” – Tom Baldwin

1. China’s 2014 Economic Growth Expanded 7.4% in 2014, Hits 24-Year Low — Reuters, China’s economy grew at its slowest pace in 24 years in 2014 as property prices cooled and companies and local governments struggled under heavy debt burdens, keeping pressure on Beijing to take aggressive steps to avoid a sharper downturn. Growth in the world’s second biggest economy has not fallen below 7.6% since 1990, when it grew 3.8% as a result of international sanctions in the wake of the Tiananmen Square massacre.
2. IBM Gives Disappointing Forecast — IBM (IBM) revenue fell 12% in Q4 and it’s the 11th consecutive quarter IBM has failed to report a revenue increase, while net income sunk 11%. The drop costs the “Oracle of Omaha” (Buffett) some $397 million, based on his 70,478,012 shares as of September 30, 2014.
3. ECB Board Proposes Roughly €50 Billion in Bond Buys Each Month — MarketWatch, the European Central Bank (ECB) Executive Board has proposed quantitative easing of 50 billion euros ($58 billion) a month until the end of 2016. The proposal to inject as much as 1.1 trillion euros reflects President Mario Draghi’s determination to expand the ECB’s balance sheet to stave off the threat of deflation and put the 19-nation economy back on the path to health.
4. AmEx (AXP) to Cut More Than 4,000 Jobs This Year After Unit Sale — American Express (NYSE:AXP) announced plans to cut more than 4,000 jobs this year as part of a restructuring, while taking a $313M charge this quarter “to improve operating efficiencies.” The credit-card issuer’s fourth quarter net income came in at $1.447B or $1.39 per share vs. $1.308B and $1.21 one year ago. Warren Buffett’s portfolio owns 151,610,700 shares as of Sept 30, 2014.
5. Saudi King’s Death Spurs Policy Speculation About Oil — Bloomberg, Saudi royal court announced the death of King Abdullah, who died at about the age of 91. A key indicator of future Saudi oil policy will now be whether Salman, who will replace King Abdullah, retains oil minister Ali Al-Naimi since 1995.
6. Bullish Sentiment Decreased in the Latest Survey — courtesy of BIG, cccording to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment dropped from 46.11% down to 37.1%. That 9 percentage point drop took bullish sentiment down to its lowest level since 10/2 and back below the bull market average of 38.8%.

The week ahead — Economic data from Econoday.com:

There will not be any posting for this week. We are away for some needed R&R. Happy New Year!!!

“Mr. Market is kind of a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he get really enthused… you sell to him, and if he gets depressed, you buy from him. There’s no moral taint attached to that.” — Warren Buffett

1. J&J started a trial of its experimental Ebola vaccine — Johnson & Johnson (JNJ) has started a trial of its experimental Ebola vaccine in the U.K., saying it will produce 2M courses of the shot this year.
2. White House issues veto threat over Keystone pipeline bill — the White House has made it clear that President Obama would veto a bill authorizing construction of the Keystone XL oil pipeline (NYSE:TRP), setting up a likely showdown with the Republican-controlled Congress in the coming weeks. Senators Hoeven and Manchin, a Republican and Democrat respectively, say the bill now has 60 co-sponsors, but no one is saying yet that there’s enough support to override a presidential veto.
3. ECB warns Greek funding access hinges on keeping bailout — Greek banks’ access to ECB funding beyond February will depend on Athens successfully completing a final bailout review and reaching a deal on a follow-up plan with its EU/IMF lenders, announced the European Central Bank this morning. The statement was the clearest warning yet that Athens cannot expect to rely on ECB funding if it backs out of its obligations under the €240B bailout program.
4. U.S. Oil Producers Cut Rigs as Price Declines —NYTimes, producers are beginning to slash the number of drilling rigs around the country as oil prices collapsed. Helmerich & Payne (NYSE:HP) announced late last week that it plans to idle up to 50 rigs over the next month. (See blog from Jan 3, 2015 for historical chart of oil prices vs. rig counts.)
5. AbbVie (ABBV) Predicts Sharp Increase in Earnings — WSJ, ie Inc. predicted sharply higher earnings for the new year, driven by rheumatoid-arthritis drug Humira and the launch of its new hepatitis C virus treatment – Viekira Pak. AbbVie’s (NYSE:ABBV) current estimate for 2015 earnings, excluding items, is $4.25 to $4.45 a share, in line with the consensus. The midpoint of that range marks a jump of more than 30% over the company’s 2014 guidance.

The week ahead — Economic data from Econoday.com:

“Only when the tide goes out do you discover who’s been swimming naked.” – Warren Buffett

1. Greek Politicians Failed to Elect a President — Greece snap election is scheduled in early 2015. Greece’s main stock market fell over 10% on the news, while the country’s 10-year bond yields spiked above 9%.
2. Japan Govt Approves $29 Billion Stimulus Spending — Reuters, Japan’s government authorized a ¥3.5T ($29B) stimulus package last Saturday aimed at boosting the country’s lagging regions and households with subsidies, merchandise vouchers and other steps. Japan’s economy contracted for two consecutive quarters after a sales tax increase in April. Coming on top of a recent $29B stimulus package, the plan will likely cut the overall effective corporate tax rate by 2.51 percentage points to 32.1% – confirming a pledge made by Abe in June to lower the corporate tax rate to below 30% in the coming years.
3. Oil Falls Further, With Prices Down 50% Since June — Brent crude plunged to its lowest level since May 15, 2009. Nymex crude also settled at its lowest value since May 2009, losing over 50% since it touched a 52-week high of $107.26 in June.
4. U.S. Bureau of Industry and Security Will Allow Companies to Sell Oil Condensate to Oversea Markets — BIS, the U.S. Bureau of Industry and Security said it will allow companies to sell oil condensate that has been processed through a basic distillation tower, giving them a green light for export without violating a four-decade-old-ban.
5. Chart of Oil Price vs. Rig Count from 1990 to Present — below is a chart of oil price vs rig count of Baker Hughes courtesy from FactSet. It shows that rig counts will continue to decline, but the impact on supply will likely take “weeks if not months” to be reflected in hard production figures.

Oil Price vs Rig Count

The week ahead — Economic data from Econoday.com: