Covestor model: Macro Themes
Following seven consecutive positive months for the Dow, the index had its worst month in two years, dropping 6.2% while wiping out almost all of the gains to this point in 2012. (The Dow dropped 7.9% in May of 2010.)
Troubles in Europe came to the fore again and caused panic in the markets throughout the month. Greece continues to scare market watchers with its currency debacle, which caused similar fears in Italy and Spain. The Euro is now at a 23 month low relative to the dollar.
Investors looking for a positive start to June following a disastrous May got a rude awakening last week. Thanks in large part to a subpar jobs report, the markets had their worst day of the year last Friday. The Dow dropped over 2.2%, and less than five weeks after the highest close for the Dow since 2007, the index is now 1,000 points lower and in the red for 2012. Analysts predicted that the economy would add 155,000 jobs for the month of May, but when reports surfaced of a paltry gain of 69,000 jobs, investors began to hit their panic buttons.
The poor jobs number also made U.S. 30 year yields fall to record lows. The Ten-Year Yield fell below 1.5% for the first time ever and fell to as low as 1.43%.
The $400 billion Fed bond-buying program "Operation Twist", meant to reduce long-term interest rates, ends this month. Fed Chairman Ben Bernanke testifies before a Congressional panel on the economic outlook on June 7th, while the next FOMC policy making meeting is June 19.
In other economic news, construction spending increased .3% in April and is 6.8% above its level in April 2011. During the first 4 months of this year, construction spending was 7.3%above the same period in 2011. Private construction increased 1.2%, with residential construction 2.8% higher. Consumer spending and Incomes also increased in April, by .3% and .2% respectively.
Updates on some portfolio holdings:
Vantage Drilling Company (VTG)announced first quarter 2012 results. Revenues totaled $131 million, up from $124 million one year ago. Management also announced it has completed the acquisition and delivery of their third drillship, Titanium Explorer, which is en-route to the US Gulf of Mexico.
Teekay LNG Partners (TGP)reported first quarter results. The partnership generated distributable cash flow of $50.8 million for the first quarter, an increase of 30% from the first quarter of 2011. A cash distribution was declared of $0.675 per unit, an increase of 7% from the previous quarter. Total liquidity of approximately $440 million remains for further acquisitions.
Seadrill Limited reported first quarter 2012 results. It generated first quarter EBITDA of $595 million and secures new contracts with a total revenue potential of $870 million. Seadrill increased the ordinary quarterly cash dividend by 2 cents to $0.82. The company has also divested itself of its stake in SapuraCrest and declared a one-off dividend of $0.15 from the proceeds.
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