Boring day for stocks

Many traders may be on holiday or away at the beach as stocks hugged break even pretty much all day. Dow & NAZ were flatish & advancers were slightly ahead of decliners. If my stocks are any indication, gains were usually measured in pennies. NYSE volume was very, very light at only 0.85B. The S&P 500 FINANCIALS INDEX was up 1+ to 270, remaining near its 30 day low. Gloomy news about bank profits in Q2 hardly surprised anybody, allowing for a small gain in financials.

FDIC: Bank Profits Fell by 86 Percent in 2Q- AP

Profits for S&P 500 companies (all but 7 are in) for Q2 were down. After subtracting out the banking group, profits were up 4%. Subtracting out GM & Ford would produce even better numbers. Even though exact numbers aren't available, a chunk of profit gains came from the lower dollar which has been reduced in the last few weeks.

Bloomberg TV had a rep from the mortgage industry taking about their business. After getting burned badly lending institutions are VERY tough on new loans, demanding at least 700 out of 800 credit scores. The premium of mortgage rates over the Treasury bond used to be about 1½ points. Today that premium has doubled reflected added risk priced in by lenders. Loans are being made, but weak candidates are being turned down. No wonder housing sales are in the slump they're in.

Oil was up 1 to 116s on nervousness about the storm in the South Atlantic which won't reach the US until Labor Day.

• Oil Higher as Hurricane Gustav Nears Gulf- CNNMoney.com
  

High Yield Bonds

High yield bonds (more commonly known as junk bonds) funds, like all other financial product companies, have had a rough year. The last few years have been fairly calm as high yields have been relatively stable. Dividends from high yield bond funds yielded 10-11%. In the last few months, as financials collapsed, they were also dragged down. Lower prices for these securities caused their yields to climb over 12%, more than triple the Treasury bond rate at 3.78%.

The spread between these 2 rates is over 800 basis points, what must be at or near an all-time record. Too bad because they have no mortgages & no exposure to mortgage writedowns. They invest in corp bonds rated BB, B & CCC to earn high yields. Typically they have leveraged portfolios. They borrow additional money to gain an advantage on the spread between the rate they pay on borrowings vs the rates earned on high yield bonds. For the very brave, these high yields should prove rewarding, they deserve more respect.