Markets waffle

After a 150+ drop by the Dow in early hours, markets recovered & settled down. Dow was up 32, S&P 500 gained 5, advancers equaled decliners & NAZ dropped 3. NYSE volume continues to drift along at 1.2B. Financials had a very good day. The S&P 500 FINANCIALS INDEX rose 9 (3%) to 290, still range-bound in recent weeks. Lehman (LEH) rose 1+ on rumors about selling assets. REITs recorded good gains, but junk bond funds continue to drift along at depressed levels offering 12+% yields. In the oils, Exxon Mobil (XOM) & Chevron (CVX), Dow stocks, dropped about 1% each. Exxon is at an 18 month low, the pullback in oil prices is hurting prospects.

Oil was down but closed above 105 & change, a previous close considered very important by day traders:

CLV08.NYM

.. Crude Oil Oct 08

...106.52

.... 1.37 .. (1.3%)

Alerian MLP index --- 2 years





The Alerian MLP index dropped 3 to 261. At midday it was at the 2 year low of 258 recorded a few weeks ago, then rallied in the PM to cut its losses. The graph illustrates the importance of sub 260 levels. Two years ago, it came off a flat period in the prior year for a sustained rise only to max out at 342. In the last year it lost all rally gains.

Demand destruction was talked about again last night by Asian analysts. They say this is what is dragging markets down, both here & foreign markets. Higher inflation is forcing customers to cut back purchases causing slowdowns in many economies.

Changes in foreign currencies will also impact the US economy, particularly exports which has been the strong sector of the US economy. The Euro has fallen to under $1.43 or 10% in the last couple of months while the ¥ rose from under 100 to 110 before settling back to 107s. The stronger dollar will make US exports more expensive to foreigners.

Let me close with another brief mention about junk (high yield) bonds. They continue to get no respect, even in today's rally for financials. They offer 12+% yields with no mortgage exposure and much better fundamentals than during the 2 previous major downturns (1990 & 2000 periods). Their traditional spread over Treasuries has been around 400-450 basis points. Today that spread has doubled. The very brave may want to check out high yield bond funds.