July & stagflation

Stock markets have been thru a lot in recent months, June qualifies as an awful month. Even NAZ which has been doing well in recent times fell in June. Dow Jones Industrials & S&P 500 were clobbered dragging stocks to their lowest levels of the year.

July may have seen an end to the downward slide. Stocks continued falling until mid month. Then the FED put together a rescue package for Fannie Mae/Freddie Mac & some home owners with mortgages which brought a lot of encouragement to stock buyers. From the lows, the Dow rebounded (led by oversold financials) more than 600 followed by a pullback returning prices to near the start of the month. Financial stocks roared. Bank of America (BAC), rose 15 from a low of 18½ while marginal ones (like FNM/FRE) doubled from their lows. Now the bulls & bears will argue about who has the upper hand:





The Alerian MLP index had a bumpy ride, going sideways between 276 & their 52 week low of 262. Oil set records at 147 followed by a sudden 20 point pullback. MLPs this year have been following oil prices, but this time they were dragged down like oil stocks. In July, Exxon Mobil (XOM) dropped almost 10%, much of it in recent days after reporting record earnings. MLPs however are different, they are partnerships (not corps) generally with thousands & thousands of miles of boring of pipelines. At month's end & in early Aug many are/will be going ex-distribution, which can be 2%, a downward influence on the index.





Real estate stocks, REITs, have had a very rough year, not helped by the market down-draft in recent months. Many are selling at lows not seen in 10 years, even though divs have been trending up. In June they were pulled down by concerns over financials. They did not get significant relief in July, some falling to new multi year lows. Yields are 6-10%, some even higher. In personal accounts, many divs are partially non-taxable and/or have a portion taxed as capital gains. Those with excellent track records of raising divs are becoming attractive. They proved to be excellent buys 10 years ago when they were down in the dumps offering similar high yields.

Junk bond funds still can't get no respect, yielding 12% with NO mortgage exposure. Their yields have widened to 800 basis points above the Treasury yield, what has to be a record spread. The brave may start giving them some respect.

The stagflation word has been bandied about as a fear dragging down markets this year. Compared to the early 80's when inflation & unemployment rates were in double digits, this is mild. Growth declined then, today it's bumping along squeezing out small gains. I think this is a mild form of stagflation driving fears which drag down stocks.

Last night I saw the 2 fraidy cats. The older one, she's the mother, seemed to be her usual mellow self with me, relaxed. The younger one, Tom Cat (black cat), came out. He is the most afraid, but ventured out to visit with me for a few seconds, then ran under the futon. Maybe that's a sign the scariest days are behind us, even if the future looks gloomy with no shortage of fears.