Early market gains don't last

Last night was an exciting time for Asian markets. They put in their 3rd straight day of rising markets with the biggest 3 day gains ever. However, this is coming off huge bear market lows, most were down 60% from their peaks a year ago (Shanghai was down 70%). They were encouraged by the greatly oversold markets & local bank rate cuts. The Hong Kong central bank cut their base rate & China had its 3rd interest rate cut in 6 weeks, bringing back buyers as was the case in Europe.

Dow futures this AM in pre-trading were up 300 but were up only 250 just after trading started. Enthusiasm subsided, its now up 35. Advancers were ahead of decliners less than 3-1 & NAZ rose 9.

S&P 500 FINANCIALS INDEX rose 4, the Alerian MLP Index was up 3 & the Dow Jones REIT index was even. High yield (junk) bonds funds were up 1%, their kind of rally. The VIX, Volatility Index, dropped 2 to 68 on slightly easing fears in the markets.

The Libor (London interbank rate) for 3 month loans was down 23 basis points to 3.19% for the 14th consecutive daily drop. Lower rates are vital, they enable banks to feel better about lending to each other. The Fed agreed yesterday to provide swap lines of $30B to each of 4 central foreign banks aimed at containing a funding squeeze in emerging markets. Meanwhile the International Monetary Fund essentially doubled borrowing limits for emerging-market countries & waived demands for economic austerity measures.

•Money-Market Rates Drop as Fed Cut, Cash Infusions Start to Unlock Lending


Oil pulled back after the big gains yesterday while gold rose slightly:

CLZ08.NYM

Crude Oil Dec 08

....66.06 ET

.... 1.44 (2.1%)

GCX08.CMX

Gold Nov 08

....754.40 11:04am ET....

1.60 (0.2%)

• Oil rises to $68 on weak dollar, rate cuts- Reuters

Banks are having success working their way out of the credit mess with fairly coordinated help from central banks around the world. However, the economies are still struggling. GDP in the US shrank by 0.3% in Q3, less than feared but if shrinkage continues in Q4, that would make this period into an official recession.

•U.S. Economy Shrank 0.3% in the Third Quarter as Consumer Spending Dropped


Last week, new jobless claims were steady at 479K (above 400K is considered worrisome) but expectations were for a modest decline. The number collecting claims remains at 3.7MM up from 2.6MM last year, another signal about being in a recession.

• Jobless claims hold steady at elevated level- CNNMoney.com

Company news continues mixed but with a strong bias on disappointing side. Exxon Mobil (XOM), a Dow stock, reported record earnings resulting from record high oil prices. However, the stock is down 2.45 on expectations that recent lower oil prices will cost them. Royal Dutch Shell (RDS.A), the largest oil company in Europe, reported similar results, stock down 3.10. Cigna (CI), a leading insurer, reported disappointing earnings costing the stock 2.70. Motorola (MOT), now a $5 stock, reported an ugly Q3 loss along with plenty of other problems taking the stock down 30¢.

• Exxon Mobil posts biggest US quarterly profit ever- AP
• Cigna reports 53 percent drop in 3Q profit- AP
• Motorola posts $397M 3Q loss; postpones spinoff- AP

It's good to hear that central banks are making changes which will help banks get back into the lending business. However, macro economic stats keep coming & they aren't getting prettier. Autos & housing remain in their worst depression in 70 years & retail sales at stores are lousy. Tomorrow closes out a brutal Oct when the Dow will report a loss of about 2K as. It now looks like the US is caught up in an official recession.