Thursday, July 31, 2008

Asian markets begin August lower

Markets started the new month down 1-2½%. Oil fell to the 123s. They point out that Exxon's profits in Q2 are bigger than the annual budget for Afghanistan. Asian markets are concerned about the unemployment report due out before trading begins in the US.

Economic worries drive markets lower

Dow dropped 238, decliners ahead of advancers 3-2 but NAZ was down only 4. NYSE volume was medium at 1.45B. In the today's decline for the Dow, Exxon (XOM) & Caterpillar (CAT) accounted for about 50 points. The thought of a dreary economy is difficult to ignore.

Dow had been down 100 for much of the midday period, but sold off big in the last hour. I think some of those hedge funds guys sold to get stocks of their books at month's end.

For the month Dow was essentially even, S&P 500 dropped 1% but NAZ had its 4th monthly gain in the last 5 (June was ugly for everybody). Oil, in its own world, dropped after yesterday's sharp run-up. They may be worried about a slowdown in economies around the world.

CLU08.NYM Crude Oil Sep 08 124.08 Down 2.69 (2.12%)

Stocks had some good news. Bristol-Myers (BMY), down 39¢, offered to buy the remaining shares of ImClone (IMCL) for 60, sending the stock up 17 to 63+ (betting on a higher price). This time a corp buyout didn't bring out buyers for other stocks.

Headlines may say we're almost in a recession since Q4 200 was down & Q1 2008 just eaked out a gain. The next 2 quarters probably will see more muddling along, not encouraging for markets. The economy, not to mention foreign economies, remain on defense. Ugh!! Tomorrow is a new day in a new month, the monthly unemployment report will get main attention before the market opens.

Weak economy hurts stocks

Dow is down 54, advancers & decliners were about even & NAZ is up 18. The top news story causing stocks to slide was GDP in Q2 grew at a 2.1% annual rate prices, below 0.9% in Q1 & compares with an average forecast of 2.4%. In Q2, the economy was helped by tax rebates which largely went to pay for higher food & gas prices. The Commerce Dept also revised the rate in Q4 2007 to negative (it takes 2 consecutive qtrs to signify a recession). The number of applications for jobless benefits soared by 44K to 448K last week, a 5 year high. The Labor Dept said the increase was influenced by an outreach program they started, informing people they were eligible for filing. But it remains a large increase & when 400K is considered a recession kind of number, paints a gloomy picture.

Exxon Mobil (XOM), a Dow stock, reported record profits reaching almost $12B. Royal Dutch Shell (RDS.B), similar size to Exxon - whopper, reported similar profits but each declined 2-3. Tough to buy friends these days when you're so big. Speaking of oil, it slipped back 1 to under 126. The Alerian MLP index dropped 1 to 271. It has pretty much been under 275 this month, just bobbing around following moves in oil stocks & prices. Banks & REITs were down, but bounced back to little changed. Being the last day of the month, evening out positions could produce volatile swings. Meanwhile, assessing the GDP & jobless data will give analysts something to do.

Wednesday, July 30, 2008

Rally mode is limited

Markets in Asia/Australia are mixed to slightly higher. But there is no follow thru on the big gains in the US. The Tokyo market is most interesting, down ½% going into their lunch break. Their banks & autos (you know those names) are weak on negative news & guidance particularly from the US markets. Nintendo is down 8% after giving a weak outlook & Toshiba is lower after reporting its first quarterly loss in many years. Australian banks are down still feeling the effects of major write-offs at big banks. Oil declined 22¢.

Stocks & oil soar

This was a very good day for many investments. Dow was up 186, advancers over decliners 2-1 but NAZ rose only 10. NYSE volume was just under 1½B, medium but not great on one of those rare days where stocks, led by banks & oils, each had good gains. The Bloomberg Financial index had was up, trying to get back to the 302 high last week. By way of comparison, its all time high was 482 last year:

S&P 500 FINANCIALS INDEX ........... 293.13 ....... up 5.76 ......... % Change ..... 2.0%

Oil had one of its best days in some time:

CLU08.NYM.....Crude Oil --- Sep 08 --- 127.01 --- up 4.82 (3.94%)

The weekly report had inventories decline over 3MM barrels, anything sets off this market. In sympathy, oil stocks rose sharply. Exxon (XOM) & Chevron (CVX), Dow stocks, each had gains over 3 ahead of their earnings reports in the next couple of days. The Alerian MLP index rose 6, one of its best days ever. One MLP I watch (on the right), Enbridge Energy Partners, was up 3 for the stock & over 2 for the units (probably its best day in history). This was fueled by buying ahead of distribution (99¢) at week's end. However, REITs pulled back on this otherwise up day.

Hard to say what got buyers all excited. The jobs report this AM was pretty good but it doesn't necessarily tie with the reports issued by the Dept of Labor, like the one due later this week. Oil should have been a downer, but not today. Banks are soaring, maybe buyers feel the moves by the FED will save troubled banks. The FED extends emergency measures & Pres Bush signed the housing bill.

Markets up on favorable reports

Dow is up 96, advancers ahead of decliners better than 2-1 & NAZ is up 9. Markets were encouraged by a favorable a private report showing the economy gained 9K jobs in June vs estimates of a 60K loss. As reported last night,the SEC is extending the new rules on short-selling. Pres Bush signed the housing bill helping 400K homeowners & Fannie Mae (FNM)/Freddie Mac (FRE). Oil continues to pull back, now it's below 122. Collectively these were taken as good signs for stock buyers.


Value 290.30Change up 2.93 % Change up 1.02%

Financials are cooling down, but are still having a nice day. In 1+ days, they're up 24. A leader, Bank of America (BAC), is up more than 1, even topped 34 on today's opening as shown in the 10 day chart:

While financials are doing well, REITs pulled back after yesterday's strong gains. The Alerian MLP index inched up to 266, remaining close to 262 support level. MLPs while not directly related to oil, they only move oil & gas around, seem to follow its lead. Most will be going ex-distribution (typically representing 2+% of the stock's price) in the next few days distorting raw numbers. Sadly junk bond funds still can't get no respect with their 12% yields.

More macro economic numbers are coming later this week. I think they will be giving gloomy signals. Oils will be reporting earnings in the next couple of days which should be record numbers. Bloomberg TV reported that hedge fund managers had a brutal (one of the worst ever) month after wrong bets. If true, prepare for big stock price swings when they try to even out positions.

Tuesday, July 29, 2008

Buying continues in Asia

Asian markets are encouraged that financial problems are being worked out, stocks are in a rally mode. Each market is up 1+%. In Japan, Panasonic (Matsushita) is up nicely after reporting a very good qtr while Sony is selling off after reporting a dismal quarter. Quite a contrast. Banks are showing some of the best gains. CNBC-Asia said new rules which don't permit naked short selling for 19 financial institutions will be extended to Aug 12.

Airlines fly high!!!

Markets had a big rally day, recovering yesterday's large loss. Dow was up a big 266, advancers over decliners 3-1 (a little tepid) while NAZ rose 55. Volume on NYSE was 1.4B, good but not great. Airlines & banks led the broad advance. American Airlines (AMR) was up 19%, an airline leader but typical of the group. Of course it's easier for a low priced stock to achieve such a gain. Banks roared ahead (courtesy of Bloomberg):


Value 287.37......Change 20.03.....Change +7.5%

This index may be heading back for last week's 302 interim high.

Other stocks participated in the rally. US Steel (X), a former Dow stock, gained over 20 on record profits. Colgate-Palmolive (CL) rose 5½ on a very good earnings report. Oversold REITs did very well. Even junk bond funds "leaped" maybe 1% from their depths, still yielding 12%.

The largest single factor in the gains was the price of oil dropping another 2½ to 122:

CLU08.NYM......Crude Oil Sep 08......$122.20.....down--2.53 (2.03%)

This is the lowest price in almost 2 months. Oil stocks in anticipation of excellent earnings inched up a little. However, the Alerian MLP index dropped 2 to 266 hovering near the 262 resistance level. MLPs continue as another group finding it tough to get respect.

This was a very confusing day for me. Merrill Lynch (MER) reported ugly news on its finances & Citigroup (C) is getting ready for another big write-off. Each was rewarded with nice gains, MER up 2 & C up 1+. That's the kind of the day it was. More macro economic reports are expected later this week along with earnings from the major oil companies.

Relief rally

Dow rose 127, advancers ahead of decliners better than 3-2 & NAZ was up 46. Reasoning for the gains seems fuzzy, maybe they're glad the sky didn't fall. Consumer Confidence rose to 51.9 (a little above many estimates), up 0.9. That still sounds grim. The original number for the prior month was 49, the lowest level since 1992. An analyst says Citigroup (C) will write-off $8B in Q3 related to its CDOs (collateralized debt obligations), the stock is little changed today. They have $22½B in CDOs & will sell these loans for 22¢ on the dollar. Merrill Lynch (MER), is down more than a dollar after announcing its large write-offs & the need for more financing. They have credibility problems following all those recent statements about not needing more capital. Believe it or not, most banks are higher, maybe this is a kind of a relief rally. For example, Bank of America,(BAC) is up over 1 dollar to above 29 after its recent sell-off from the interim high of 34.

Oil fell over 1 to the 123s on worries about a global slowdown in demand. There is a lot more discussion of that concept, especially from Asian markets. Energy companies have just started reporting earnings, & they are expected to be very good. Exxon (XOM) should report in a couple of days. The Alerian MLP index is down 2+ at 265, hovering just over the 262 low which has held. Keep in mind that last year 282 held but did not last.

For the bulls, enjoy today!

Monday, July 28, 2008

No let-up in selling

Markets continue to slide in Asia/Australia. Each market is down 2-3%, very bleak. The announcement by Merrill Lynch after hours about needing more capital (after selling their Bloomberg stake for $4B a couple of days ago) & many prior announcements that they would not need more capital is being questioned in Asia trading. Merrill Lynch is taking another big write-off & will seek an additional $8½B. The end of the credit crisis does not look to be near.

Dow Down, Down, Down

Another ugly day in the markets. Dow tumbled 239, decliners over advancers 5-2 & NAZ fell 46. The S&P 500 is back to 1234, below what some thought was an important support level of 1270. NYSE volume was under 1.2B, very low signally nothing was decided. This is bleeding & it will continue. Banks/financials led the way down. The 4 financials of the Dow accounted for 50 points of the decline. The S&P 500 FINANCIALS INDEX (on dropped 12 to 265 (5 days ago it was at an interim high of 302).

Nothing really new other than dreariness & realization that ugly days lie ahead for financials. The write-offs at 2 Australian banks didn't help. Sec of Treasury, Henry Paulson, said major banks will start a new lending program. The country's 4 biggest banks will issue covered bonds to help the ailing mortgage market. While this is done in Europe, it's new to the US. There may be a fair amount of scepticism, maybe this is just another way to batch loans together but may not achieve the desired results of helping banks. Meanwhile oil neared 125, up 1.47, on the usual assortment of supply problems. Today they are in Nigeria.

Economists in the White House reduced their forecast for economic growth in the US.

----------- original------- revised

Unemployment rates will tick up, not encouraging. The economy will be struggling for some time, the kind of news investors don't like to hear.

Mortgage rescue bill doesn't help stocks

Markets were lower, dreary economic news is weighing stocks down. Dow declined 133, decliners over advancers 3 to2 & NAZ slipped 25. Higher oil prices on supply worries (out of Nigeria) caught the eye of traders. Oil rose 77¢ to 124. Over the weekend, the Senate passed a bill helping home owners & Fannie Mae/Freddie Mac which got a muted response from investors. More gov intervention generally is not greeted with enthusiasm but this one was considered inevitable, so they accepted. Pres Bush may sign it as soon as today. Toyota (TM) lowered its global sales forecast, stock down 2.24. They should sell only 1% more vehicles than last year, remaining #2 behind GM worldwide. The downward revision is blamed on the slowing economic growth in the US, high oil prices & higher material costs. US sales will decline 7% this year.

Verizon (VZ), a Dow stock reported good earnings, down 66¢. A weak US economy is not expected to have a material effect on their results for the balance of the year. Cell phone business is strong & they will start bringing FIOS cable to NYC starting today.

Banks are leading the decline today, more profit taking after the rapid run-up a couple of weeks ago. Two Australian banks taking large write-offs on US loans in recent days hurt. Bank of America (BAC) is below 29, 5 points below its recent high.

Sunday, July 27, 2008

Credit Crunch Continues

Another Australian major bank, ANZ, is taking a $1.2B (Australian) write-off on global loans, primarily in the US. The Australian market is down 0.6% led by lower banking shares, ANZ slumped 11%. On Fri, Australian banks sold off after NAB reported a similar $1B write-off. Tokyo & Korean markets are trading higher.

Two banks in the west failed on Fri, but there were no runs on them. FDIC is getting practice handling failed banks. These bring the total to 7 failures, starting with IndyMac 10 days ago. Also, this week preliminary GDP figures for Q2 will be reported, 2% is the expected annual rate. Since that is up, it will not signal a recession. Try telling that to housing & auto companies.

Rest & rethink

Markets have been in free-fall for a couple of months followed by a sharp recovery 2 weeks ago. Bank stocks led these moves. After being very oversold, they rebounded sharply recently. Bank of America (BAC) had fallen to 18½, bounced back 15 only to lose 30% of that gain in the last couple of days. Others which had fallen below 10 had sharper recoveries followed by profit taking. Earnings reports for banks are largely over, stocks will have to live off macro economic news releases & these reports may not be pretty.

No secret, this has been an ugly year for stock averages. Dow & S&P 500 are down 14% while NAZ fell only 11%. A variety of Dow stocks have been punished badly this year (including the 2 oil stocks) contributing to the decline in the Dow:

AT&T (T)..........................24%
Bank of America (BAC)..........28%
Chevron (CVX)....................11%
Exxon-Mobil (XOM)...............12%
General Electric (GE).............23%
Hewlett-Packard (HPQ)..........13%
IBM (IBM)..........................13%
JP Morgan Chase (JPM)...........9%
Pfizer (PFE)........................17%
Procter & Gamble (PG)...........12%

Pfizer deserves mention. This is the largest drug company in the world with a 40 year history of consecutive higher dividends. After falling to the 17s a couple of weeks ago, the stock has recovered to 18.89 yielding 6.8%, one of the highest yields for an S&P 500 Dividend Aristocrat. Its main drug, anti cholesterol Lipitor, has been a drag on the stock for some time. Lipitor has only 3 years remaining under patent protection, a time frame not lost on investors. More new drugs in the pipelines, but none has set off any alarms. Long track records are always impressive, they clearly have one. Yield conscious investors might take a fresh look at Pfizer.

I continue to think junk bonds deserve more respect. They yield 12%, 800 basis points above the Treasury bond rate. This spread has to be one of the highest spreads in history! Yes, there's risk. If the recession becomes more severe, defaults could increase. But this spread can cover a lot of mistakes.

Friday, July 25, 2008

Fluctuating Friday

Stocks could not make their minds up what to do while volume continues low. Dow was up 21, advancers barely ahead of decliners & NAZ was up a big 30 on very low volume, typical of a Fri. NYSE volume came in under 1.2B, low. The VIX fell .70 to 22,74, not telling us much on a slow trading day. The S&P 500 FINANCIALS INDEX sold off 2 to 280 but down from 302 just 2 days ago. Financials are still selling off in profit taking from the recent run-up. Bank of America (BAC) 2 days ago quietly declared its regular 64¢ div. Last year's announcement fan fared a big increase to 64¢ at what turned out to be the beginning of the credit crunch (or whatever it's called). Continuing this rate at this rate will give BAC another record year for divs, allowing them to remain on the S&P 500 Dividend Aristocrat list. But the lack of an increase this year emphasises that all is not well, even at BAC. Bank problems persist. Washington Mutual fell (WM), the largest S&L in the US, was down 21¢ to 3.82 on worries about its liquidity. Maybe that's why financials sold off again today.

Oil fell to levels not seen in a couple of months:

CLU08.NYM........Crude Oil Sep 08......123.26....DOWN 2.23 (1.78%)

The Senate will pass the legislation to help home owners with mortgages & FNM/FRE. Help for homeowners will be limited, affecting only maybe the top 10-20%. FNM/FRE will get a new regulator & gov backing will be better spelled out. Pres Bush said he will sign the legislation.

This has been a bumpy week for stocks. The Dow ran up nicely in the first half, gaining almost 200, but the second half of the week was all downhill ending down 200. Profit taking took its toll. Next week, markets should begin on defense. Q2 earnings are largely over, expect more news about banking problems.

Higher stock prices

Markets are having a good day following yesterday's drubbing. Dow is up 33, advancers over decliners 3-2 & NAZ is up 23. Traders were encouraged by economic numbers that were less bad than feared. The headlines were: Consumer Confidence Rebounds From 28-Year Low- Reuter, New Home Sales Fall But Stronger Than Expected- Reuters & Home Foreclosures Soar 121 Percent- They report numbers coming in above the worst fears, good enough to bring back buyers.

Last night on CNBC-Asia, there was a lot of disbelief about how the financials could have their biggest gaining day in history last week & yesterday they had the biggest decline in 8 years. Declines continue as banks are pulling back on more profit taking, Bank of America (BAC) is down another 1+ to 29½. Two housing related stocks I follow: Stanley Works (SWK) & Masco (MAS), both members of the S&P 500 Dividend Aristocratic list, in sympathy with banks rebounded strongly from their lows only to pull back in the last couple of days. Today they have gains as shown in my Yahoo widget on the right.

Oil prices are down 2 to 123. Gas at the pump has eased back to a tad above $4 in recent days. Good to see consumers cutting back driving with higher prices.

The Alerian MLP index is up 1½ to 266, but remains near the 262 yearly low. REITs participated strongly in the recent rally, but are pulling back. Junk bond funds still can't get no respect. A couple I follow bounced up then sold off. For the brave, 12% yields are very attractive. While they may have to deal with bad loans going forward, they do not have mortgages.

Thursday, July 24, 2008

Markets selloff continues

Asian/Australian are following the lead of US markets, down. Most declined 1½-3½%. Australia leads decliners being impacted by NAB, a large Australian bank, which just wrote-off $830MM (Australian) related to losses in the US sub prime mortgages, off 11%. Their provisions are based on a worst case scenario. Samsung, huge electronics company in Korea which sells globally including to the US, is down 4.6% as earnings came in 10% under forecasts & they gave cautious guidance for the balance of the year. Their chip division was weak & business looks bleak for rest of the year. Their LCD division did well but they are forecasting slow business for the rest of the year. Tomorrow US markets may be starting with a downward bias.

Reality check for banks

A rough day following the recent run-up in prices, which largely went unchallenged. Dow fell 283, decliners over advancers 4-1 & NAZ pulled back 45. NYSE volume was 1.65B, a little higher than a former average around 1½B. The VIX (volatility index) rose 2.22 to 23.53, very high. It seemed like everything went down (4-1) but banks took the lead plunging 20 or 6.7% on the Bloomberg-S&P Financial Index. Another way to look at it was it lost 25% of its recent run-up from the lows. Bank of America (BAC) after gaining 15 from its low in the last week was down 2.80 to 30.64 (shown in the right widget). Banks were clearly overbought but gloomy news on housing & autos (from Ford) brought on more selling today bringing heady markets back to reality. These industries are going thru a severe recession.

Oil rose 1 to 125½ on the usual assortment of news/rumors. But the idea that there is less driving in the US is getting more attention among traders. MLPs pulled back. The Alerian MLP index dropped almost 3 (1%) to 264s, flirting with 262, the 52 week low reached last week. Following up on my prior discussion on MLPs, a report from TradingMarkets Research gives very good insights on how these companies keep slipping in the face of optimism about oil & gas. However, I still like them because of high yields which are largely not taxed.

Today's reality check will probably continue tomorrow.

Home sales decline again

Stocks sank on negative economic news. Dow is down 107, decliners ahead of advancers better than 3-2 & NAZ is down 17. New home sales for June fell 2.6% from the prior year, double the estimates & the median price for a home was down 6% from last year. Gloomy news in the housing sector drags on. The Labor Dept reported that new claims for unemployment benefits shot up 34K to 406K (a recession kind of number for many). The forecasted number was 375K & last year it was only 308K. Oil rebounded 1 to 125½. Gasoline demand in the US fell 2.4% from the prior year, high prices are biting the consumer. Dreary economic news drones on.

Ford (F) lost almost $9B mostly on asset write-downs, down 40¢ (a lot for a $5 stock). Southwest airlines (LUV - love that symbol) reported higher sales & higher earnings from the sales increase & hedging oil. They remain under pressure from higher costs & cut back growth plans to 4% or less this year, stock slipped 28¢.

Master Limited Partnerships

MLPs are one of my favorite investments, let me explain them for newbies. They trade like stocks but are actually limited partnerships in pipeline businesses. These pipelines move oil & gas around the US, expanding this network is a national priority. Many of the units yield 8+% which is 80-90% tax-free. However there is a fair amount of tax hassle associated with distributions, the non-taxable portion is generally reduces cost basis plus you learn more about depletion. Annual tax statements are sent on March 15. However, tax package programs are supposed to handle these numbers well. They have an excellent track record, with or without reinvested distributions (see the Alerian MLP index based only on security prices below).

One year ago, the index maxed out at 342 followed by a sharp drop taking it under 300 from which it hasn't been able to recover. It has been trading sideways this year with a downward bias. Joe has an excellent blog on MLPs,, if you want to follow them more closely. The long term outlook is excellent & high yields makes it easier to wait for higher markets. Today the index is down about 1 to 267 after a one day rally of 8 last week.

Wednesday, July 23, 2008

Waffling but up Wednesday

Stocks had a difficult time making up their minds which way to go. Except for a brief surge & then pullback around midday, they hugged the flat line. By day's end, Dow was up 30, advancers over decliners 3-2 & NAZ was up a more impressive 22. Volume on NYSE was 1.6B, a little higher than on many other recent days. Banks continue to roar ahead. Bank of America (BAC) was up 1 to 33½, nearing double its low just a week ago. US Bancorp (USB) another one I like went from 20 to 30 in a week. Today the outstanding recovery performance by financials was overwhelmed by oil. Oil was down 4¼ at 124, a price last seen in June when it was going up. I've given up trying to come up with brilliant reasons for wild swings. It's easier to accept them as "normal" moves with little reason behind them. Of course, slowing economies in the US & to some extent around the world might be in back of the minds of traders. We are also going into main part of hurricane season, introducing more unknowns going forward.

The FED released their beige book report which told us what we already know. The economy is struggling, they have to balance the needs of raising interest rates to fight inflation vs lowering rates to help the economy. Amazon (AMZN) just reported strong sales & earnings for Q2. They were up 2.57 during the day but little changed after hours awaiting the conference call which will clean up details. Costco (COST) had a very gloomy report greeted with a big sell-off, down 8.57. Congress should be finalizing their plans today aimed at helping FNM/FRE, the pres will sign their bill. Stay tuned!

Oversold to Overbought

Stocks were undecided following the recent run-up. After Dow's recent gain of over 660, Dow & S&P 500 settled back to about break even, advancers ahead of decliners by 1.4 to 1 while NAZ was up 14. Time for a breather. 3 Dow stocks reported earnings. Boeing (BA) was down 3 after reporting lower Q2 earnings from an accounting change. McDonalds (MCD), down 38¢, & ATT (T), up 19¢, after they reported pretty good numbers. MCD said same store sales were up:

US--------up 3.4%
Europe---up 7.4%
Asia-------up 8.8%

ATT had good growth in its wireless business. Sorry, forgot about Pfizer (PFE), another Dow stock, reported excellent earnings, stock up 47¢. PFE had higher sales from Lipitor (top selling drug that has only 3 years remaining under patent). However, all corp sales gains came from overseas while US sales declined 2%.

Oil was down 1.80 to the 126s on easing fears about the Dolly storm & worries that weekly inventory figures released late today will post an increase.

Congress will pass a housing bill which will not be opposed by the pres. It is designed to help home owners get cheaper loans &, of course, help Fannie Mae (FNM) & Freddie Mac (FRE) with money, each up 15%.

Tuesday, July 22, 2008

Wed morning, stocks higher

Stock markets in Asia/Australia are having very strong sessions (up 1-2+%) following the lead in the US. Once again banks in Japan, Korea, Australia & Hong Kong are leading the charge, some up 4-8%. What seems to have brought out buyers for US bank stocks is that they said it will not be necessary to raise more capital (following guidance by Washington Mutual). This has been a scary concept, banks do not want to have to compete with Fannie Mae & Freddie Mac when they sell stock. Moody's is considering cutting the credit rating for Washington Mutual to "junk."

Record high oil prices has Asian contractors hoping to get contracts to build nuclear plants in southeast Asia (Vietnam, etc.). Also, Asian analysts are also trying to evaluate Yahoo's earnings & how it will affect Asian businesses.

Up, Up & Away

This was one of those days, seems like nothing could go wrong short of negative guidance. Dow was up 138, advancers over decliners 2-1 (seems like a lot more) & NAZ was up 24. NYSE volume approached 1.4B, up from 1.2B yesterday, not too bad. The VIX (volatility index) pulled back 1.87 to 21.18, high but not as extreme as in recent days.

While banks/financials dominated a lot of thinking, oil's drop of 3 bringing its recent decline of almost 20 is dramatic:

Crude Oil Aug 08127.95 3:32pm ET3.09 (2.36%)

Financials are leading the markets. The clearest example is Wachovia (WB) reporting a $9B loss, a little worse than expected. There is a belief that they have turned the corner because they are closing the mortgage business bought last year. WB shot up 3.61, don't see that to often. Troubled Washington Mutual (WM) reported an ugly loss, far worse than expected, but rose 34¢ (not bad for a $5 stock). All financials were flying today as shown in Bloomberg's S&P Financials Index. Maybe not all. The 3 negative reports after yesterday's close got hammered, including American Express (AXP):

S&P 500 FINANCIALS INDEX Value 296.60, UP 18.340, Change 6.6%

162.02 down 4.27 (2.57%) 66,894,998

24.35 down 4.17 (14.62%) 74,038,510

37.99 down 2.91 (7.11%) 48,346,955

After hours Yahoo reported lower profits & sales below expectations, but the stock was little changed after declining 27¢ earlier.

This was one of those days when just about all problems were ignored (except for those mentioned above). The bulls are in charge with banks & financials giving them encouragement. Macro economic reports are due later this week. Let's see what they have to say.

Mixed earnings reports

Markets decline on a variety of news stories. Dow & S&P 500 are down slightly but decliners lead advancers almost 3-2 & NAZ is down 17. Gloomy reports by Texas Instruments, Apple & to some extent American Express (each is getting clobbered today) are weighing on NAZ. Oil tumbled 4 to 127, as Dolly may not cause supply problems. The Alerian MLP index pulled back 1 after yesterday's strong gain. REITs are doing well today.

Caterpillar (CAT), a Dow stock, reported excellent earnings, stock up 1.85. Sales & earnings were ahead of last year & easily beat forecasts. They pointed out that the US market is depressed, there is a softening in Europe & Japan while business in emerging economies is very strong, a common theme among multi-nationals. DuPont (DD), another Dow company, reported excellent sales & earnings, stock up 1.21. However, they did say they face a "challenging environment." Wachovia (WB) reported an ugly loss requiring a cut in the div to a token 5¢. They are being dragged down by the unfortunate acquisition last year of a Cal mortgage company just before the mortgage collapse plus general tough sledding for banks. Analysts had been forecasting ugly numbers so the stock is only down 25¢. After the strong rebound for bank stocks, reality is sinking in causing a pull-back. For example, Bank of Americas (BAC) after rising 12½ in 3 days lost 30% in the last 24 hours.

Sec Paulson asked again for congress to reform the rules for GSEs (FNM & FRE). Unfortunately he said help could cost tax payers as much as $25B. Ugh!! Their problems spread around the world. It is estimated that foreigners own 1½T (that's T as in trillion) of their borrowings, with China & Japan accounting for 40%. They are waking up to reality that instead of holding AAA bonds, they are only junk type of bonds with vague gov promises for guarantees. Hopefully they will remain calm & tough out this uncertain period.

Monday, July 21, 2008

Indecisive attitude drags on

Asian & Australian markets are weak to slightly up, nothing dramatic. Bank stocks are down 2-4%, profit taking after yesterday's big gains. Big stories include LG Electronics, a huge company, reporting excellent earnings yesterday but selling off today on worries about the global market going forward. They are also concerned about dreary earnings reported after hours by Apple (AAPL), Texas Instruments (TXN) & American Express (AXP), a Dow stock. AXP is the most disturbing as they have a good "feel" for the economy, Tomorrow, Wachovia (WB) & Washington Mutual (WM) will report. Also, IBM sold more shares in Lenova taking its interest below 5% meaning they will not have to report future stock sales.

Dow Jones futures are trading down 100 with NAZ & S&P 500 each down about 1%. The negative tone comes from after hours trading for AAPL - down 16, TXN - down 3¼ & AXP - down 3.65. Hang on tomorrow.


Undecided. This was one of those days markets couldn't figure out what to do. Dow ended up 29, advancers over decliners almost 2-1 while NAZ eaked out a 3 point gain. NYSE volume came in under 1.2B, very low. Dow only had 8 winners, with 3 eaking out a tiny gain (under 10¢). Bank of America earnings announcement dominated the news today. This was a source of relief but after the huge rebound gains last week, difficult to follow thru. Below are listed major financials with their mixed performance:

BAC 28.56 up 1.07, 4% 147,478,651

USB 27.25 down 1.14, 4% 25,558,819

LEH 18.32 down 0.79, 4% 40,166,761

WB 13.18 up 0.21, 2% 101,861,574

FNM 14.13 up 0.73, 5% 105,736,514

FRE 8.75 down 0.43, 5% 72,271,009

The Alerian MLP index shot up 7.82 to almost 281, one of the biggest gains in its history! Many of the ones I follow gained more than 1. They were helped by a 2.16 gain for oil as traders worried about the storm called Dolly. REITs were strong but not as exciting gains as for MLPs. Junk bond funds continue to drag around their lows.

Apple (AAPL) reported earnings that didn't satisfy investors, down over 5 in after hours trading. This could make for a rough start for techs tomorrow. Tomorrow will also see a lot of financial reports highlighted by Wachovia (WB) which had an up day but down from its highs.

Bank of America day

Markets started the week indecisive. Dow is off 21, advancers ahead of decliners 1¼ to 1 while NAZ slipped 5. The biggest news today was the pre-trading announcement by Bank of America (BAC), a Dow stock, of Q2 earnings. As has so commonly been reported, earnings were down from last year but beat lowered expectations & are good enough to not only earn the div but also support a slight increase later in the week. BAC is up 2 to 29½, down from an earlier high of 31. The rest of the Dow is not doing so well. Only 4 are up including 2 big gains by BAC & beaten up AIG. The other financials are: Citigroup (C) - up 41¢, JP Morgan (JPM) - down 1.18 & American Express (AXP) - down 1.10. Financials had an extraordinary run late last week, they will have to come up with more tricks this week to continue attracting buyers.

Meanwhile oil is up a little:

CLQ08.NYM Crude Oil Aug 08
129.18 11:32am ET Up 0.30 (0.23%)

Otherwise, markets can't decide what to do. The Alerian MLP index is up 5 from its 52 week lows & REITs are a little higher. Stanley Works is down 2½ on a downgrade, increasing its yield to nearly 3%. Swiss Roche is offering to buy Genentech (DNA) for 89, the stock rose 10+ to over 92 anticipating an even higher bid. Buyouts are generally good for the stock market but not today. Stocks already had a big run late last week.

Apple (AAPL) earnings, among others, will come out after the close, expectations are for a pretty report. Markets have much to evaluate: BAC & other financial earnings. Look for troubled Wachovia, up 67¢ to 13.64, later this week.

Sunday, July 20, 2008

Positive start continues

Early gains in Asian/Australian markets are strong. Taiwan, Hong Kong & Australia are each up 3%, while Shanghai is only up fractionally & Tokyo is closed for a holiday. The financial/banking stocks are up 3-7% riding on what was perceived as favorable reports from Citigroup (C), JP Morgan (JPM) & Wells Fargo (WFC) last week. Oil was up pennies, even touching 130 at one point, on unfavorable talks in Geneva plus tracking the new storm tropical Dolly.

Gains last week were not evenly spread around. The beaten up stocks benefited the most with large gains. The Alerian MLP index declined to the 52 week low, Fri was the one year of the anniversary of reaching its record high 80 points above 262. REITs were only up a little & junk bond funds were ignored.

General stocks, other than greatly depressed ones, were more mixed with so-so gains at best. Kimberley Clark (KMB), after lowered guidance, suffered an immediate 4 point sell-off. Google (GOOG) & Microsoft (MSFT) also saw selling after reporting disappointing earnings. Reports this week which don't make investors happy will see selling.

Wild, wild week!

Stock markets, highlighted by financial stocks, just went thru a major sell-off followed by a sharp rally in the last few trading days. Financial stocks got the most attention, even more than energy & energy stocks. This year, they've gone from one new low to another with seemingly no end.

The S&P Financials Index, shown on Bloomberg (their symbol for it is S5FINL), went from a high of 510 in May 2007 to a low of 230 last week (more than a 50% decline) followed by a sharp rebound to 280 Fri. The moves are similar to Bank of America (BAC) stock performance even though its had more exaggerated moves, shown below (note high volume recently):

BAC stock has done well, from the 20s in the early part of the decade to the 50s last year. As a member of the S&P 500 Dividend Aristocrat list, BAC had yearly increases with a nice one 12 months ago. Since the peak in early 2007, it had a slow & then a sharp drop to last week's low of 18½ where the stock yielded almost 14% (for those who believed in the div). The 3 day rebound brought the stock back to the what had been a “new low” price reached a month ago. The rebound came on high volume as show below:

Banks have gone thru a lot, especially this year, mostly negative news stories. All major banks operate under a dark cloud which varies from one to the next, but each one has a cloud overhead. A week ago, the banking system had its first failure in what must be at least 20 years. There haven't been any (or many) because a large bank was always available to take over the weak one, then life went on. That concept is barely alive today. The FNM/FNM situation & confusion about their survivability during the credit crisis adds to uncertainty for financials. That's been a lot for investors, whether experienced or novices, to absorb causing wild swings on big volume.

Meanwhile, economic problems drone on. In 1980, the economy had to deal huge numbers for inflation & unemployment while contracting. The combination of events was called stagflation, all economic measures were going wrong. The world is not as ugly today. By comparison, inflation & unemployment are more moderate while the economy is eaking out growth. However, they're ugly enough to drag down markets this year & looks like these conditions will continue.

The depression in housing & autos affects a lot of businesses & workers. Masco (MAS), another member of S&P Dividend Aristocrat list, will eak out their 50th consecutive annual div increase this year (by one penny). If continued, Q4 will be above the prior year by that penny. But they indicate earnings will not cover the current div. Remaining on the list next year is unclear. It will be sad if they are forced to break their 50 year track record next year. While this is just one small story among a great many, it's indicative of tough times the economy is going thru causing stocks to sell off in 2008.

I haven't seen the extreme fraidy cat lately, the black one living most of his life under the futon or in a closet. Maybe that's his way of saying we should be cautious, at best, going forward. More earnings reports will be issued this week including BAC on Mon. By weekend, they will announce the next div (the one they traditionally increase). If earnings are less bad then dreaded, chances are they will have an increase even if it's limited. The earliest signals for this week are the New Zealand market opened higher & pre-trading for Australian stocks is showing a 1% increase suggesting markets will start on a positive note.

Friday, July 18, 2008

Technology blues

Markets were generally about even, except for technology which dragged down Nazdaq. Dow was up 50, advancers slightly ahead of decliners but NAZ pulled back almost 30 (1.4%) on disappointing earnings reports by Google (GOOG) & Microsoft (MSFT), a Dow stock. Volume on NYSE was 1.6B, good but nothing to get excited about. Banks stock continued in their rally mode after Citigroup (C) reported a loss less bad than feared (i.e. a lot less than last year's $6B profit). Bank of America (BAC) closed at 27½, up 9 in the last 3 days. Freddie Mac (FRE) got its registration statement accepted by the SEC, making it easier to sell stock. They are looking to sell $5½B in stock shortly. The rest of the market muddled along, digesting recent gains. Oil had an ugly week (for the longs), tumbling 16. It closed Fri down pennies to 129.

But the big news was technology. The 2 giants, Google & Microsoft, reported disappointing earnings late yesterday, sold off. GOOG was down 52 or 10% will MSFT pulled back 1.66. Google is mortal. Instead of being immune to economic slowdowns, it seems to be feeling the effects of a sluggish economy. This relationship will bleed thru to other companies.

There will be a lot of economic issues for us to think about over the weekend.

2 day rally sputters

The large 2 day gains may be coming to an end. Dow is up 11, advancers are barely ahead of decliners while NAZ is getting clobbered, down 26. Financials are starting to return to the world of reality. For example, Bank of America (BAC) is up almost 9 (nearly 50%) in just 2+ days. OK, they were greatly oversold, but this is bringing up the concept of "overbought." Citigroup (C) reported a loss less than feared, it's up 10% to 20 (not bad for a 14 stock a couple of days ago). Merrill Lynch (MER) was down only 1% today after its loss reported yesterday. But techs are less forgiving. While IBM had good earnings, up 3+, Google (GOOG) & Microsoft (MSFT ) are being punished, down 8%, after reporting disappointing earnings. GOOG & MSFT are a big drag on NAZ. Back to financials, Freddie Mac (FRE) may have to raise $10B to boost capital. Freddie (FRE) & Fannie Mae (FNM) are each up again as credit fears have diminished greatly this week.

Oil may be trying to head north again, up 2 into the 131s. This may be a version of bargain hunting in this wild market. I keep thinking about those words last night, any slowdown in demand by the US will be picked up with Asian demand. Ugh!! The Alerian MLP index is down pennies into the 261s, barely reaching a new 52 week low.

Tough times for financials lie ahead with loan worries not to mention inflation, unemployment & a sputtering economy. Last night, Toshiba sent out its ad talking about back to school bargains. This is the beginning of the very important selling season.

During the recent run-up for financials, REITS have barely participated while junk bond funds have been ignored. Junk bonds typically yield over 12% (800+ basis points over the Treasury bond) with no mortgage exposure. Maybe somebody will catch on soon.

Thursday, July 17, 2008

Rally continues, but subdued

Asian stocks are largely higher. Shanghai leads the pack with a gain of 2%, but they remain at depressed levels (down 40% this year). Other markets have fractional gains. Australian stocks are lower, partly because of the 1500 cutbacks Quantas (their national airline) announced. High oil prices are hurting many businesses, especially airlines. Asia markets are concerned about the large loss reported by Merrill Lynch (MER).

Oil is up pennies, still in the 129s. Oil sold off in recent days partially because of anticipated lower demand from a weak US economy. The thinking in Asia is that any reduced demand by the US will be picked up by strong demand from surging Asian economies. The Dow Jones futures in Asia are trading down 65, an early call on tomorrow's opening.

Impressive rally

Just after my last post, stocks took off gaining 200 & extending their recovery to 2 days led by a major rebound in beaten up financials & sharply lower oil prices. Dow was up 207 extending the 2 day gain to almost 500, advancers ahead of decliners 5-2 & NAZ was up a more modest 27. Volume was much higher at 1.97B, noticeably high. The VIX (volatility index) was essentially even at 25.01, still at a very high level. There is thinking that the (pretty much) record rebound in financials is related to tightening on shorts. With naked shorts for financials not allowed, there may have been a rush by those affected, among others, to buy back. Plus there was a sigh of relief for the financial community. Even heavily hammered FNM, FRE & LEH came roaring back. The market rebound was also encouraged by what they call fairly "good" earnings reports by Dow Stocks: JPM, KO & UTX, although I view them as not so great.

With all the excitement in recovery for financials, the sharp fall in oil prices has been less noticed than otherwise would have been the case. Oil fell from 145s to under 130 in just 3 days.

CLQ08.NYM" CLQ08.NYM Crude Oil Aug 08 129.84 3:56pm ET
down 4.76 (3.54%)

With the decline in oil prices, not to mention oil & related stocks, MLPs have pulled back to a new 52 week low.

Alerian MLP index:

The close today was 262.01, a new low by pennies. This weak performance does not bode well for the short term.

There were a number of of biggies reporting after hours. Google (GOOG), I love them, now down 40 (8%) on slowing "click" growth. IBM (IBM), a big Dow stock, reported favorable earnings, down 84¢ after hours. Merrill Lynch (MER) report a 4.97 EPS loss (worse than imaginable), down 3 or 10% after hours. They have a lot to explain in the conference call. Microsoft (MSFT), another Dow stock, reported favorable sales but earnings 1¢ shy of forecasts, down 1½ after hours. The general tone of these biggies seems negative, let's see how it plays tomorrow.

Rally is ending in 2nd day

Stocks rose in early trading on encouraging news from JP Morgan (JPM), a Dow stock. Since then the averages pulled back. Dow is down 8, advancers over decliners almost 2-1 & NAZ is down 7. JP Morgan reported earnings of 54¢ down from 1.20 last year but beat estimates of 44¢ sending the stock up 4. Buyers jumped on most bank stocks, although Bank of NY Mellon (BK) fell 2½ on lower earnings which did not beat expectations. Interesting, both banks had similar lower earnings but beating expectations is what counts for the stock price. 2 other Dow stocks reported different results. Coca Cola (KO) had lower earnings when a one time charge from its main bottler is included. That lower number did not beat estimates, stock down 2. United Technology (UTX) reported better earnings exceeding analysts forecasts, up 3+. KO repeated the common theme in earnings reports, overseas business is good while domestic is sluggish (at best).

Oil was down 1 (3 down days in a row) to the 133s for the usual assortment of reasons. A smaller price decline for oil is helping MLP's. The Alerian MLP index rose 2 to the 265s, getting away from the 262 low it touched yesterday. Hurricane season & its impact on MLPs will start to get more attention in the next few weeks.

The markets went thru a lot yesterday. Bank of America, another Dow stock, one I like, is up 6 (that's SIX dollars) or 30% from its low yesterday AM. The VIX, volatility index, has been in the high 20s in recent days, but is now down to 24.69 (still very high). Enthusiasm for bank stocks should diminish as oversold conditions are corrected. Kimberley Clark (KMB), reporting negative guidance a couple of days ago, was down yesterday. Earnings news & guidance will guide stock prices, glum ones will not be treated well.

Wednesday, July 16, 2008

Asian markets follow through with gains

Asian markets are following through with gains of 2+%. The laggards are Australia, up over 1%, & Tokyo, up 1%. Shanghai just opened with strong gains following Korea, Taiwan, etc. Oil is up pennies, just above the NY close. Courtesy of CNBC Asia, analysts are already discussing whether the big gains from Wed will hold. We'll see tomorrow.

Wells Fargo leads overdo rally

Wells Fargo (WFC) led an overdo rally & BIG TIME! Dow was up 276, NAZ roared ahead 69, but advancers over decliners were a little under 3-1 (that ratio has been bigger on other rally days). Volume was 1.7B on the NYSE, good but not exceptional.

S&P Financials were up a whopping 12%,
the biggest daily gain since record keeping began. Now they are back to the levels of last Wed, yes we have been thru a lot. Adding fuel to the rally was a $4 decline in oil to the 134s, bringing the 2 day decline to almost 11. Most stocks joined in the gains including financial related (i.e. REITs). However, there were losers, generally oil related. Oils, stocks associated with oil & MLPs fell. The Alerian MLP index dropped 2 to 263, up a little from the 262s (its former 52 week low). Junk bond funds were down a little, not helped by the favorable thoughts for financial stocks.

An overdo rally was coming, just a matter of when & what would trigger it. Bargain hunting may have been what was demonstrated. The fundamentals remain gloomy. Inflation numbers (including today's) remain gloomy, retail sales are slow at best, oil is still very high priced not to mention the banking mess which has gotten worse in the last week. Initial reaction from Congress is they are not gong-ho behind the changes proposed by the FED. FNM has largely run by Democrats, their initial reaction is cautious to say the least. Asian markets open shortly & should follow thru with nice gains. But a continuation of the rally tomorrow is not clear.

Banks higher while others are only mixed

Banks were up sharply from depressed levels on good earnings & DIV news from Wells Fargo (WFC). Dow, NAZ & S&P 500 were essentially even & advancers over decliners by about 1.4 to 1. WFC reported sort of good earnings, earnings were down 22% at 53¢ but beat estimates of 50¢, along with a 10% increase in the div to 34¢ per qtr. A bank raising the div is unheard of these days. Bank of America (BAC) rose 1.35 reducing the yield to "only" 13%. Yesterday, US Bancorp (USB) reported lower earnings & sold off along with other banks but they have been getting thru the crisis better than others. Large positions in WFC & USB are owned by Berkshire Hathaway. Buyers jumped on the depressed bank sector but their enthusiasm did not spread to to other stocks.

The Labor Dept reported consumer prices were up 1.1% in June, highest rate in 26 years! Inflation readings haven't been pretty & have been holding back FED interest rate reductions to aid the economy. Oil had been down 6 earlier but bounced back to near break even at 138. Oil inventories gained 3MM last week vs a 3MM decline the prior week. In these days any thought can move its price around a lot.

Banks & financials will dominate the news. Just having congress sort out the FNM/FRE mess, over the short term, will add to what is already a confusing situation.

Tuesday, July 15, 2008

Lackluster trading in Asia

Wed morning trading in Asian markets has been lackluster. Shanghai & Hong Kong are up a tad while the others are slightly down. Like in the US, financials are lower (in Tokyo they've declined, but only 1-2%). Oil is up pennies to 139, again not a lot of conviction in trading. Maybe that suggests calmer US markets tomorrow.

Choppy day, markets lower

This was a choppy day with markets ending lower. Dow had been down 250 early on followed by a big push up then down, ending down 92 with banks once again leading the charge down, but this time joined by energy (CVX & XOM). Decliners were ahead of advancers 3-1, NAZ eaked out a tiny gain & S&P 500 fell 13 to 1215 (for those who are looking at support levels). Volume on NYSE was higher at 1.85B (1½B used to be typical in the "old" days). The problem when compared with the past, nothing was decided today. More bleeding can be expected.

Banks & financials were front & center today. It's difficult to comprehend the damage done to bank stocks in recent days & weeks. Citigroup (C), a Dow stock, is 15. Bank of America (BAC), another Dow stock is 18½ with a yield of almost 14%, assuming you believe it will hold. By the end of next week, they should announce the Q3 div & the market is programming in an ugly cut. Many other banks are trading around 5. Fannie Mae (FNM) & Freddie Mac (FRE) made the list of biggest decliners on NYSE as news reports are flying, not to mention testimony given in congress today.

Oil fell 6½, the biggest decline in 17 years, but that gave little comfort to traders. Oil stocks were hit, along with MLPs as the Alerian MLP index fell more than 6 trying to go back to the 262 low. Intel (INTC) had a good Q2 earnings report after hours, the stock was up 24¢ during the regular day, but that may get lost with all the attention on financials. Hang on for another wild day tomorrow.

Worries, worries, worries!!

Worries are overwhelming the traders. It's difficult to keep track of all the banks, especially big ones, selling for 5 (that's $5 per share). The Bloomberg chart from yesterday (below) shows Dow is down 133 (off the lows of down more than 200), decliners ahead of advancers 9-1 (don't see that too often) while NAZ is down 21. S&P 500 is down to 1211, former important lines of support are now history! Banks & related financials are leading today's plunge. FED Chairman Bernanke is testifying trying to explain what's happening with banks & what to expect going forward. The FDIC said bank deposits are safe. They better be, but a nervous public needs reassurance. One tiny glimmer of optimism is First Horizon (FHN), now a $5 stock, was up today. For those who want to read more about bank worries, read on. This financial mess will just have to play out, keeping the powder dry seems to be a good tactic for the time being.

There is corp news. Retail sales inched up 0.1% in June, no great surprise. Going forward, help from tax rebates is pretty much over. JNJ (JNJ), a Dow stock & member of the S&P Dividend Aristocrat list, is up 1.28 on a favorable earnings report. But Kimberly Clark (KMB), another member of that elite div list, is down after cutting guidance which brought downgrades for the stock. General Motors (GM), another Dow stock, eliminated the div, is laying off workers & cutting truck production to help preserve cash.

On this gloomy day it's good to keep in mind investment ideas for buying beaten up stocks, better times are coming. We all need to be reminded.

Monday, July 14, 2008

Asian markets heading lower

Asian & Australian markets suffered sharp declines. Most are down 1½% - 2½% (except for Shanghai which is little changed) with banks & financials experiencing much of the selling pressure. Banks are selling off 2-4% following declines in the US. They have a lot of US borrowings & worries about suffering greater losses is bringing on this selling. Asian markets are very concerned about Fannie Mae (FNM) & Freddie Mac (FRE) if for no other reason than all the agency bonds they own. Oil is down pennies into the 144s, there is not a lot of conviction in the oil market presently.

Regional banks sink markets!!

Regional banks sank markets!! The negative news & thoughts on regional banks swamped markets today. Dow was down (only) 45, decliners ahead of advancers 3-1 (could have been worse!) & NAZ fell 26. S&P 500 is down to 1228, considered to be a ugly number by many. There were 500 new lows on NYSE, that was to be expected. NYSE volume was 1.4B, pretty much a routine kind of number.

Regional banks probably had their worst day in history, very tough to keep track of all their problems. Washington Mutual (WM & the biggest S&L in the US), along with National City Corp (NCC), First Horizon (FHN & former member of the S&P Aristocrat Dividend list), to mention just a few, were clobbered. Many of these stocks are selling at 20 years. These stocks was sold on fears following the failure of IndyMac on Fri which the FDIC has had to take over. Can you remember the last time the FDIC had to take over a failed bank? All this was in the middle of Fannie Mae (FNM) & Freddie Mac (FRE) getting help from the FED/gov leading to a very confusing mess, something not liked by markets. Oil remained near 145, but today it's like nobody cares. For what it's worth, Pres Bush lifted an executive ban on offshore drilling, putting that ball back in congress's court.

In the midst of all this confusion, junk bond funds & REITs pulled back as they're associated with financial products. The junk bond funds in particular should be getting some respect. They invest in junk bonds, not mortgages & with the latest sell-off have yields typically over 11%. For the very brave, a nice place with yields 700+ basis points over Treasuries.

Asian markets open in a few hours, they should give an early clue of how they're taking the financial news in the US. Earnings are coming in the next few days, bank reports will get the most attention. Stay tuned!!

Federal Reserve announcement leads to gloom

The Federal Reserve announcement yesterday trying to prop up Fannie Mae (FNM) & Freddie Mac (FRE) led to gloom in the markets. In pre-trading the Dow was up 150 based on seat of the pants enthusiasm but fell to a small gain at the open & has been selling off since then (check the chart below courtesy of Bloomberg): It's showing down 51, decliners ahead of advancers 2-1 & NAZ is down 26. S&P 500, down 11 to 1228, is in scary territory for technicians.

FRE saw strong demand this morning selling $3B in bills, an encouraging sign. But this is a very gloomy time for the GSEs, not to mention for many others. Banks are getting hammered again. There are a bunch (WM, NCC, FHN), used to be nice div guys, are now selling around 3, 4, 5, whatever. Last year, collecting their dividends was considered routine. Also the FED & banks have to clean up bleeding from the IndyMAc failure on Fri. The credit crisis has become an ugly mess that is not going away quickly no matter what the FED or gov does.

Back to the rest of the world. Oil is kicking around 145 up about 50¢ for the usual assortment of reasons (strong dollar & supply uncertainties). AAA reported gas averaged 4.11 yesterday. High priced gas is going to hurt retailers as the important back to school selling mini-season approaches. Hang on for another rough day in the markets.

Sunday, July 13, 2008

Asian markets trading mixed

Asian stocks are generally up (Mon morning) following the FED/Treasury news. Tokyo & Australia are are a little lower, while others are higher with bank equities doing well. The dollar is stronger sending oil down more than 1. The focus in the pre-trading period in Shanghai was on the FED moves because of their large investments in US securities & they sell more than $300B net yearly to the US. A $1T (that's trillion) of FNM & FRE bonds are held by foreigners (i.e. China among others), these problems are global.

Dow Jones futures are trading up 100 (very high at this hour) & S&P 500 is up 1%. Early in Asian trading, they were debating whether US gov moves to back up FNM & FRE debt plus possibly buy shares was a plus or minus. Either it is seen as demonstrating weakness or adding reassurance to investors. While writing this, they are debating on CNBC-Asia how these moves will be taken (up or down). Congress will have to approve any changes before going on break next month. There is CLEAR recognition in Asia that large financial problems continue, oil is at record levels & gloomy Q2 earnings reports are due starting next week.

Mon should be a fun day here!

Troubled Times

These are very troubled times. For those who had doubts, Fri was a very grim reminder. That message was spelled out clearly by the long list of new 52 week lows on NYSE. Below is a listing of JUST the first 20 stocks as determined by volume:

Record Price Low : NYSE (1-20 of 554) sorted by Volume in descending order








Vol %Change

Year Low

Year High

%Off High


















































































































































































































































This is basically a list of the largest investment firms in the world, no wimps here! For many it's not just a 52 week low, but may represent the lowest levels in 5, 10, or even more years. Leading this group are Fannie Mae (FNM) & Freddie Mac (FRE) which have not seen these stock prices for 17 years.

FNM & FRE as GSEs have been considered elite investments because of implied gov backing. The track record for their stocks since early 1970s has been superb. In this decade their stocks prices flattened out with a bumpy ride followed by an enormous sell-off in the last year as their businesses have been caught up in the mortgage mess. Panic took over on Fri, the stocks made an attempt to fall to zero.

Their business continues. They own a few trillion (that's T as in trillions) in mortgages financed by their own debt. Underneath their debt (or bonds) is a very small amount of equity capital. There were worries that if their assets were written down to market value (from face value), that could easily wipe out all equity on the balance sheet & probably more. Being a gov related business, there was realization that big daddy gov has to keep their mortgage businesses going no matter what. But there was also a realization that any help would not be for stockholders (can you spell “Bear Stearns?”). Other major financials may need gov/FED help to keep going in these troubled times. All financial houses on the above list are in various degrees of shakiness & that ain't good!

Fraidy cat!!

This is a picture of the fraidy, cat resting comfortably, taken last night. Her son, even more of a fraidy cat, was not available for a picture, just poked his head out once from behind the futon. It may seem difficult, during these times it is best to be like mother cat - remain resting & at ease.

High yields will help investors weather this financial storm of difficult times. Junk bond funds sold off along with financial stocks, but aren't badly affected by the mortgage mess. They've generally stayed away from mortgages, a business they don't understand. For the brave, their yields around 11% are tempting. REITs have been selling off along with financials, but many should weather this storm in good shape. At the start of this decade, 10-12% yields were common for REITs & most of those investments worked out well. Currently, yields of 7%+ are available in REITs. MLPs are businesses owning pipelines that move oil & gas around the country, a national priority. Their Alerian MLP index last week bounced up 10 off the 262 low (also reached in Mar). It's been in a sideways trading range, this year mostly in the 280s - 290s. Some have sold off more than others, but again yields of 7%+ are common (a few even in double digits). These will do well because pipeline expansion is needed. The S&P Dividend Aristocrat list is taking lumps. The group of premier companies in the S&P 500 has diminished recently. Of the 7 banks included a few years ago, 2 are off, 2 are about to go & Bank of America (BAC) may not remain with a yield of 12%. Masco (MAS) should be having the 50th consecutive year of higher divs but may not remain as forecasted earnings are not expected to cover the div. But other members should keep their track records going forward such as: MMM, KO, JNJ, KMB, PG & WMT.

I have a feeling that the FED is meeting this PM (like they did in the Bear Stearns mess) trying to figure out how to help troubled financial markets, i.e. FNM & FRE. They can come up with measures to help fix companies in the mortgage mess & anything done will give confidence to markets, bringing out buyers. With markets so oversold, the rebound bounce could be very big (several hundred Dow points). But fundamental problems will remain (as with the failure of IndyMac on Fri) with bad mortgages not to mention regular bad loans out there. If nothing is announced, markets will continue to bleed with interruptions of buying based on temporary optimism.

Asian & Australian markets open in a few hours will give a first glimpse of trading for next week. Special announcements from the FED/gov aside, news this week will be highlighted by early Q2 earnings reports. They can be expected to repeat prior themes: declines in EPS but beating LOWERED estimates, domestic business off while foreign business is strong & cautious guidance for the balance of the year. Meanwhile the fraidy cat is still resting comfortably. We have to keep calm to tough out these times & do well when markets recover.