Wednesday, December 31, 2008

Markets rally again on low volume

Markets conclude a dismal year on a positive note. Dow rose 108, advancers ahead of decliners 5-1 & NAZ was up 26. The beaten up averages with very high yields all did very well, thank you. The Alerian MLP Index had an exceptional day, up 5½ to 176 (after starting the year at 301). High yield (junk) bond funds found buyers in the last couple of weeks. One of mine jumped 25% off its low, reducing the yield to 23%.

Oil had a nice pop on a favorable weekly report (a smaller than expected increase in supplies). Below is a chart for OIL (an ETF that tracks the price of oil). There was a lot of money to be made as long as the ETF was sold near the summer peak.

CLG09.NYM..Crude Oil Feb 09...42.86...Up 3.83

Crude Oil Rises After Smaller-Than-Expected Increase in U.S. Fuel Supplies

OIL (ETF) ---- 1 year

In 2008 all mutual funds dropped, save the ones specializing in buying short related ETFs. The best performaing ones (owning regular stocks) were down "only" 10-20%. Let's hope the new year brings better times. My friend has wishes for everybody:

Happy New Year to all
& to all, a Good Night!!!

Year end rally continues

Stock markets are closing a terrible year on strength. Dow is up 92, advancers over decliners 3-1 & NAZ is up 21. Beaten up sectors (MLPs. REITs, junk bond funds, etc) which offer high yields are finding buyers. The VIX, volatility Index, slipped below 40, first time in 3 months while volume continues light.

The 6 month chart below shows after Dow's plunge in Sep-Oct, it bounced back over 8K where it has traded for the last couple of months.

Dow Jones Industrials --- 6 months

The conflict in the Middle East can't bring out buyers for oil. The global meltdown continues as center stage for all markets.

CLG09.NYM...Crude Oil Feb 09....39.00 ...Down 0.03

Joe has THE blog for MLPs, Yesterday he named 11 MLPs as candidates for distribution cuts (which will be announced in around mid Jan). He adds another 8 as iffy for cuts. There were about 60 MLPs the last time I looked. The bigger ones with financial strength should be able to get thru the financial crisis & weakness in energy markets in good shape. But negative news stories may hurt all the group, creating more attractive buy points for strong MLPs.

Master Limited Partnerships

Weekly jobless claims went down 94K last week to a less bad number of 492K. It is difficult to explain this drop but states verified that their numbers were correct. Labor Dept said timing of the year-end holidays & volatility in factors used for seasonal adjustments were likely to blame for the large decline.

Coca Cola (KO), a Dow stock & member of the S&P 500 Dividend Aristocrats, has a long track record of growth telling us it should get thru these difficult times in better shape than many other companies. They've paid a div every year since going public in 1920 & have had annual increases for the last 40+ years. In addition, KO has been actively buying back shares for over 20 years. With one of the best known brand names in the world, they are expected to continue their streak of higher annual dividends in 2009.

Tuesday, December 30, 2008

Markets advance on low volume

In the absence of major news stories, Dow rose 184 (picking up 100 points in the last hour), advancers over decliners 4-1 & NAZ gained 40. All this was on very light volume in holiday trading. The best reasoning they could attriubute to the gains was the new financing for GMAC, one set of worries has diminished.

The averages did well. Lehman High Yield Bond ETF (JNK) rebounded 24¢ after yesterday's decline. From mid Dec, it shot up from 27 to 31 reducing it's yield to only 14%. Other high yield (junk) bond funds have had more dramatic moves from very, very depressed prices. Banks also had a good day, S&P 500 FINANCIALS INDEX popped 6½ to 164. The Alerian MLP Index & Dow Jones REIT Index gained while VIX, volatility index, pulled back to 42.

Oil fell, it couldn't hold 40. Recession worries outweighed Middle East fighting.

CLG09.NYM..Crude Oil Feb 09...39.31 ...Down 0.71

The S&P 500 was trying for the worst year in its history. However after today's gain of 21, the YTD loss was trimmed to "only" 39%. This year could come in 2nd place, behind 1931.


S&P 500 ---- 1 year

Today's low volume (under 1M on NYSE) was the biggest story. Tomorrow anything is possible on the last day of 2008.

Stocks up on very light volume

Dow is up 69, advancers over decliners 2-1 & NAZ is up 18, all on very low volume. When volume is low, it's hard to draw a lot significance from price movements. Oil pulled back below the important 40 line on the usual assortment of worries.

CLG09.NYMCrude Oil Feb 0939.03 Down 0.99 (2.47%)

Consumer confidence dropped to a record low of 38 in Dec, down from 44.7 in Nov. Continued dreary economic news & higher levels of unemployment are weighing down the public. To combat the negative sentiment, stores after marking down merchandise, are trying to figure out how to share these discounts with suppliers. No secret, they have different ideas about absorbing losses. The sales figures are in, same store retail sales (stores open more than 1 year) declined 1.8% last week (the worst showing in 5 years). As bad as these numbers are, the next month should be even worse when the seasonal factor is combined with a major recession.

Consumer Confidence in U.S. Drops to Record Low as Unemployment Increases
Saks, Macy's Discounts Spark Spat With Vendors After Holiday Sales Debacle
U.S. Weekly Retail Sales Fall Most Since 2003 as Christmas Discounts Fail

The Treasury gave GMAC $5B in financing, after GMAC was converted to a bank last week. General Motors (GM), still a Dow stock, rose 23¢ (or 6% if you prefer) on the good news. GM is also offering up to 0% financing this week to boost sagging sales.

After all the markets have been thru in the last few months, light volume in sluggish markets provides an excellent opportunity to look for bargain stocks. Johnson & Johnson, a Dow stock & S&P 500 Dividend Aristocrat, is down to 58 from the 70s a few months ago. They haven't sold off as badly as others indicating markets have more confidence about their future & a 3+% dividend yield (higher than the Treasury bond yield) is a nice bonus.

Monday, December 29, 2008

Markets settle back

Markets were fairly calm in very light, holiday trading. But this was a down day. At the low, Dow was off over 180 & came back in the PM to end down 31. Decliners were 3-2 ahead of advancers & NAZ dropped 20. Volume on NYSE was under .9M shares. The S&P 500 FINANCIALS INDEX fell 1.57.

The bleak outlook for retailing hit REITS very hard. The Dow Jones REIT Index dropped 8 to 137½ after the prediction that many stores will have to be closed this year. The index had been in a sideways pattern near 145 for most of 2 weeks. After selling today, buyers came back in the last hour to trim the loss.

Dow Jones REIT Index --- 2 weeks

The Alerian MLP Index was soft all day, ending down 1 to 169 on worries about demand destruction for oil & gas, not to mention distribution cuts coming for the weaker MLPs. Oil had a strong day on tensions in the Mideast, finally closing above 40.

CLG09.NYM...Crude Oil Feb 09....40.20 ...Up 2.49

Lehman High Yield Bond ETF pared its AM losses to down 77¢ as other junk bond funds were also weak.

The Treasury auctioned $27B of 6-month bills at a record low rate of 0.25% (annualized). They also auctioned 3-month T-bills at 0.05% (annualized), slightly higher than the prior week's auction rate of 0.04%. Frightened money easily absorbed the large supply of bills.

Gloomy thoughts about corp profitability. Economists predict profit declines for the S&P 500 will continue until Q3 of 2009. Much of the weakness is caused by banks & autos which has now been extended to include ordinary companies:

U.S. Corporate Profits Probably Fell for Sixth Quarter as Spending Plunged

Mideast worries sink stocks

In thin trading, Dow dropped 82, decliners over advancers 2-1 and NAZ fell 27. Conflict in the Mideast is making the markets jittery. However, oil did not rise as much as would have been the case during its rally last summer. The Alerian MLP Index was flattish, although MLPs I watch were down.

CLG09.NYM...Crude Oil Feb 09....38.20 ...Up 0.49

Grim news for retailers. Same store sales (stores open more than a year) may have seen holiday sales decline as much as 2%. Too many stores are open, there may be as many as 12K branch closings this year. That caused the Dow Jones REIT Index to drop 7 to 139 (not far from its sub 100 low). Somewhat related, Lehman High Yield Bond ETF plunged 1.25 on greater fears for junk bonds. The VIX, Volatility Index, jumped 2¼, on greater market anxieties.

Store Closings, Bankruptcies at U.S. Retailers Forecast Amid Sales Debacle

The S&P 500 will have its worst year since 1931. Further declines such as today could make it the worst year ever. Market pains have been worldwide, foreign markets generally did worse. The Hong Kong market is down about 50% & Shanghai must be down 70% (after the prior year's stellar rise). Speaking of an ugly year, S&P 500 FINANCIALS INDEX had a brutal year:

12/31 07.......392

S&P 500 ---- 1 year

Sunday, December 28, 2008

Mild week in the stock market

After extreme volatility in the last few months, markets quieted down in Dec. The chart below shows Dow Jones has been near 8½K especially in the last semi-holiday week. The VIX, volatility index, has settled back to the low 40s, closing the week at 44. The Dow Jones REIT Index, after recovery from the lows under 100, has been near the 145 level all last week.

Dow Jones Industrials --- 2 weeks

High yield (junk) bonds, however, have finally found friends. The chart for the Lehman High Yield Bond ETF (JNK) took off in the last 7 trading days as did other junk bond funds. Now the yield on JNK has been reduced to "only" 14% with many traditional junk bond funds still sporting yields of 20-25%.

Lehman High Yield Bond ETF --- 2 weeks

MLPs have lost ground remaining near the sub 160 lows made in Q4. There were 2 major developments 2 weeks ago. Kinder Morgan (KMP) announced it raised $900M selling units (equity for them) and debt. They're the largest MLP, this move gives a positive signal that expansion projects, necessary for their projects, will keep going forward. But Constellation Energy Partners (CEP) gave a dismal outlook for next year & slashed the distribution to a 52¢ annualized rate. Even now, it still offers a 20+% yield! More (weaker) MLPs are selling in single digits, the market is looking for more cuts. This dark cloud is significant & may overhang MLPs for the next month at least.

Alerian MLP Index --- 2 weeks

Next week is expected to be another mild, semi holiday week. In the absence of major news announcements, there should not be a lot of price movement in markets. At least tax loss selling season has ended.

Friday, December 26, 2008

Sleepy day in the markets

Dow was modestly in the black all day & ended with a gain of 47, advancers over decliners 5-2 and NAZ was up 5. Averages I follow generally had modest gains with VIX pulling back a point to 43. The Alerian MLP Index gained 3 to 170, taking it a little further away from its recent lows below 160. Lehman High Yield Bond ETF continued its winning streak, up 1%.

Oil had a good day, but hard to attach much significance to it in a light trading day:

CLG09.NYM...Crude Oil Feb 09...37.98 ...Up 2.63

Despite lower sales for retailers, Amazon (AMZN), the largest retailer on the web, had record holiday sales. On Dec 15, its biggest day, 6.3M orders were placed. I carry their ads in a few widgets on the right, if interested. They feature popular new items every day. Rises After Its ‘Best-Ever’ Holiday Season

On the good news front, gas at the pump dropped to a 58 month low of 1.64. Even lower prices are likely ahead, over the short run at least.

Retail gasoline prices drift to 58-month low- AP

3M (MMM), Dow stock & an S&P 500 Dividend Aristocrat, has been increasing divs every year for something like 50 years. They have a nice yield of 3½% with a P/E of only 10X. Earnings will probably pull back next year from record levels in 2008 (guidance for 2009 may be given soon), but div increases should continue making it a nice long term holding. The list of S&P 500 Dividend Aristocrats is a good place to look for long term values where there are many to choose from.

Next week, back to more recession stories.

Stocks higher in light trading

Dow rose 31, advancers 25% ahead of decliners while NAZ was down 3, all in light trading. Other indices I follow are little changed, although Lehman High Yield Bond ETF (JNK) retreated 2% after its recent run-up. Dow has pretty much been trading in a sideways band near 8½K this month, some call that "base building." Note volume trailing off in the last few days.

Dow Jones Industrials --- 1 month

Oil is up a few pennies, again in holiday kind of trading

It looks like consumers spent 20% less in holiday spending, making this probably the worst holiday season in 40 years. Now retailers head for post holiday business which traditionally brings lower sales levels.

Holiday Sales Tumble as U.S. Consumers Scale Back on Jewelry, Electronics

The finance arm, GMAC, of General Motors (GM), still a Dow stock, won approval to be considered a bank enabling it to qualify for federal aid. GM was up 44¢ (over 10%) on the "good" news.

GMAC May Get as Much as $6.3 Billion From U.S. Bank Approval, Analyst Says

Today should be a good time to look for bargains in stores which will help retailers.

Wednesday, December 24, 2008

Stocks gain ahead of the holiday

Dow was up 49 in lackluster trading, advancers over decliners 3-2 while NAZ was up a measly 3. S&P 500 FINANCIALS INDEX perked up with a nice gain:

% Change

The Alerian MLP Index was off 2.17 to 166.70, Dow Jones REIT Index (JNK) was up 1 & Lehman High Yield Bond ETF soared for what must be a record 2.17 (7%) to 31.46. Other high yield (junk) bond funds generally had more mild gains, despite the very good day for JNK. VIX was down .81 to 44.21, near its recent low of 41.

Oil prices, as is the case with most other commodities, are in their own bear market. Oil has retreated over 110 from its high in the summer. Even countries in the Persian region are going to be running deficits with these low prices.

CLG09.NYMCrude Oil Feb 0935.68 ...Down 3.30

Everybody expects holiday retail sales to be dismal, early returns will be reported on Fri.

Once again, Happy Holidays for everybody!!

Stocks struggle for a gain

Dow is up 47, advancers ahead of decliners almost 3-2 & NAZ is flat.

The indices I follow are flattish today. But 2 different stories have emerged in the last month. The Alerian MLP Index is down 2 today to 166½. In the last 2 weeks, it has pulled back 10% & it will probably test the lows around 160. The large distribution cut by Constellation Energy (CEP) last week has done damage to the industry. The reduced distribution yields over 20% if anybody is interested. A good half dozen additional MLPs are selling in single digits signaling investors are expecting more cuts. However high yield (junk) bond funds have found friends. Lehman High Yield Bond ET (JNK), as with other high yield funds, has moved up sharply in the last week. Their yields continue very high for those who want to bet on them & short term traders are looking to make quick profits if more buy these funds.

Alerian MLP Index --- 1 month

Lehman High Yield Bond ET --- 1 month

Oil continues its slide on global recession thoughts, now it's solidly below 40.

CLG09.NYM..Crude Oil Feb 09...37.50 ...Down 1.48

Economic statistics continue glum. Consumer spending dropped (0.6%) again in Nov, while the savings rate rose from 2.4% to 2.8%. Orders for durable goods fell 1% in Nov, 4th consecutive monthly decline. Excluding a big decline in transportation, orders went up 1.2% in Nov, the strongest gain in 6 months. However, the recession is expected to drag this number down going forward. New jobless claims jumped to 586K, above expectations. This is the highest figure in 26 years, the recesion is biting hard.

The Mafoff story gets worse as more is revealed. Bank Medici just received an award for the amazing performance on its hedge fund. Now they are trying to determine if there is any money left after the Madoff scandal. Law suits have just begun, there will be more.

Bank Medici Is Engulfed in Madoff Losses After Winning a Hedge-Fund Award
New York University Sues Merkin, Hedge Funds Over $24 Million Madoff Loss

The rest of the day (and Fri) should feature low volume with few major changes expected. But I keep worrying about the MLPs, they look like they are facing more head winds. In the meantime:

Happy Holidays to All!!!

Tuesday, December 23, 2008

Dow lower again

Dow fell 100, its 5th consecutive decline in very quiet trading.

Dow Jones Industrials --- 1 week

Decliners were over advancers 3-2 & NAZ dropped 10. Other indices were quiet. VIX was little changed but Lehman High Yield Bond ETF edged up 17¢. Many junk bond funds were also higher. 20+% yields compared to 2.1% on the Treasury is too big a spread to ignore. The very venturesome buy these funds, trying to catch a small move up which works out to a big percentage gain. Other indices didn't change much. Volume remains low with many investment managers on holiday or maybe they've fled the country.

Oil continues weak, at 39. Lower prices for oil should be bullish, but they aren't.

CLG09.NYM..Crude Oil Feb 09...39.10 ...Down 0.81

The Madoff story drones on. A money manager was found dead in his Manhattan office in what is considered a suicide. He invested with Madoff. Money clients will be checking with their money managers around the world. to find out what exposure they might have to this scandal. Not good for market psychology. A couple of articles are also shown below with guesses about where he invested $Bs, even now nobody really knows

Madoff Fund Operator Who Had $1.4 Billion Invested Found Dead in New York

Retail sales are coming in very low despite big discounts. Numerous ads on TV & in the papers testify how hard they are looking for shoppers. Bloomberg TV did a piece about customers not returning to stores (from last year) except at Wal-Mart (WMT). WMT has been the best performing stock in the Dow this year. Speaking of the Dow, American Express (AXP), another Dow stock, will get more than $3B from the gov after becoming a bank last month.

Stanley Works (SWK), an S&P 500 Dividend Aristocrat, is one of the many beaten up stocks which deserves better treatment. They have paid an annual div for more than 100 years with annual increases for over 40 years. They're somewhat involved in the housing market, that hurts. But EPS should be above 3 this year & hopefully near 3 next year, allowing them to cover the 1.28 div with some degree of comfort. Some will back off because of their exposure to housing. But I like their long track record of paying dividends.

Markets up mildly

Markets rose despite more negative news on housing & GDP figures (showing the economy shrank in Q3). Dow was up 22 (down from earlier gains), advancers ahead of decliners by about 35% & NAZ was up 8.

Other indices were basically quiet. However, money is flowing into junk bond funds. Lehman High Yield Bond ETF gained 18¢ to 29.39 (up from 27 last week). The VIX pulled back 2 to 42, investors are less nervous.

Oil continues weak staying under 40. However volume is low during this holiday shortened week, these numbers are less meaningful than usual.

CLG09.NYM..Crude Oil Feb 09...39.32...Down 0.59

Sales of new homes dropped to the lowest level since 1991. Revised GDP figures for Q3 showed the economy shrank at a 0.5% annualized rate, in line with expectations. Next month the preliminary figures for Q4 will be reported. They are expected to show the economy shrank at a greater rate, confirming the US is in a recession.

New Home Sales in U.S. Decline to 17-Year Low on Credit Crunch, Recession

In 2008, one of the smartest investments was Treasury bonds. This run can not continue, especially when the Treasury has to finance a record deficit next year. A greater supply of debt can be expected to drive rates up which can interfere with other low rates.

Monday, December 22, 2008

Stocks fall, a little

Dow was under pressure all day, down 200 at the low. But a rally in the last hour narrowed the loss to 59, decliners over advancers 3-1 & NAZ dropped 32. Buying in the last hour helped all averages.

S&P 500 FINANCIALS INDEX rebounded 2 off its low:

% Change

The Alerian MLP Index dropped 2½ to 172 (down almost 10 points in 3 days). The index hasn't been able to crack the 185 ceiling & now may be heading back down to test the 160s floor which has held a couple of times. These are low beta securities (easy to forget this year), however are down 50% from the peak reached last year. The Dow Jones REIT Index fell 5, again down 8% in the last 3 days. Its recent low (floor that held) is just under 100. However Lehman High Yield Bond ETF rallied 39¢, over 1%, as buyers are returning the high yield (junk) bond funds. Maybe tax loss selling (they are prime candidates) is largely over for them. The VIX, however, after falling in recent days, had been flattish, but finished up .37 to 44½.

The 2 year Treasury notes fell for a 2nd straight day, in stark contrast to recent strength. They sold $38B in notes at a record low annualized interest rate of 0.922%. But the forecasted rate was lower at 0.912%. The bid to coverage ratio was 2.13X versus 2.25X at recent auctions. A lot of paper has been bought but this market was a little softer. More paper from all maturities will be sold next year to finance the enormous increase in gov spending.

Treasury Two-Year Notes Decline as Sale Draws Higher Yield Than Forecast

Oil sank below the important 40 level on the same fears as stocks markets, global recession.

CLG09.NYM..Crude Oil Feb 09...39.94...Down 2.42

Another indecisive day. The semi-holiday week may continue this sideways pattern (with a downward bias).

Recession worries sink stocks

Dow dropped 66, decliners over advancers better than 2-1 & NAZ fell 31. Indices I follow are weak. However, the Lehman High Yield Bond ETF is up 1% (following a nice gain last week), buyers are snapping up junk bonds funds with their ultra high yields. VIX is down about 1½, market volatility has been calming in the last few weeks.

There has been some rethinking of the meaning for the VIX. Some used it as a forecasting tool. This year, such forecasting has been disappointing. However I like keeping an eye on it to give clues about excitement & fear in the markets.

VIX Fails to Forecast S&P 500 Drop, Rebound Loses Followers for Volatility

Oil is down, trying to break thru 40 again:

CLG09.NYM..Crude Oil Feb 09...40.95 ...Down 1.41

Toyota (TM), down 3.43, is forecasting its first loss ever. The US market is a leading cause of its problems combined with the large rise in the Japanese ¥. Last week, Honda gave its 3rd negative profit guidance warning this year.

Credit Suisse downgraded GM costing the stock 76¢ today. Their target price was reduced from $2 to $1.

Walgreen (WAG), down 1.56, an S&P 500 Dividend Aristocrat, issued a gloomy earnings report, something which has become common this year. Profits were down in Q1 (just completed) & they will slow store expansion because of the US recession. Same store sales were reported to be flat. While they're going thru a bumpy period, like almost every company, they have an excellent track record raising the div. Their low payout ratio suggests they will raise the div next year & remain in the premier S&P group. The stock price is near its yearly & decade lows suggesting this is a company investors would be interested in for long term gains.

Walgreen Co. --- 10 years

As long as there are no major news events, the rest of the year should be fairly quiet & the VIX may recede further. This is an excellent time to plan for buying oversold stocks selling at bargain prices.

Sunday, December 21, 2008

Junk bond rally last week

The last couple of weeks have been sideways for the Dow Jones, hanging in there a little above 8½K. The bulls will take that performance as encouraging after all the negative news announced. Even tax loss selling, of which there must be plenty, has not dragged the averages down. This week will end that selling for the settlement day to be by Dec 31 at the latest.

Dow Jones Industrials --- 2 weeks

The VIX, volatility index, was steady in the first week, but pulled back nicely in the second week as fears eased. However, on Fri it rose from a low of 41 to close at 45. It's still going to be tough to get it below 20 where it belongs in ordinary times.

VIX ---- 2 weeks

MLPs have been trudging along, failing to crack thru the 180 ceiling in a meaningful way. The big news was Kinder Morgan (KMP) raising $900M while Constellation Energy Partners (CEG) sank to a new low of 2½ yielding 20% AFTER announcing a large cut in the distribution for the next quarter. A few other MLPs have low single digit handles, indicating there will be more cuts by the weak. Additional selling of the weak could bleed thru to the rest of the industry.

Alerian MLP Index ---- 2 weeks

REITs while going sideways, had a nice move up last week from a very low level. Double digit yields are attracting nibblers. For the adventurous, the most depressed had the largest rebounds off their lows under 5 or 10.

Dow Jones REIT Index --- 2 weeks

For me the most interesting story was in junk bonds. An ETF below shows a big pop up last week. Astronomical yields, easily 2000 basis points above the 10 year Treasury rate of 2.1%, finally attracted buyers.

Lehman High Yield Bond ETF -- 2 weeks

SeekingAlpha just published my latest article discussing high yields on REITs & junk bonds. Risk takers might be interested in them now, trying to catch even a modest rebound. The growth for the JNK ETF does not show the gains experienced by other junk bond funds. Gains last week of 25+% (off VERY depressed levels) were common. However, even at higher prices, many of these funds still have 20+% yields.

High Yields with REITs and Junk Bond Funds

Friday, December 19, 2008

Auto bailout rally fizzles

Stocks could not hold on to early AM gains. Dow ended down 26, advancers were about 25% ahead of decliners & NAZ rose 12. The Alerian MLP Index fell back 2¼ to 174½. It's been trying for 2 weeks to crack 180, but couldn't break thru that ceiling. The Dow Jones REIT Index had a good day, gaining 7½ to almost 148. Junk bond funds also attracted buyers in contrast to JNK which was down pennies. Those ultra high yields are attracting nibblers.

Oil can't buy friends any more as it sinks to levels last seen 5 years ago. The gloomy thoughts about a worldwide recession keep buyers away.

    CLF09.NYM..Crude Oil Jan 09...33.87 ..Down 2.35

    Federal regulators are getting ready to monitor the auto bailout package. Let's hope they know what they are doing.

    Retailers are already preparing for a grim future. Prices are being slashed to attract buyers. One clothing store has a sale: buy one, get two free. Retailers want to sell as much as possible before the holidays because they fear post holiday business to be awful. In addition, they dread more returns in which shoppers will want cash.

    The Madoff scandal goes from bad to worse. Now they are tracing it back over 30 years, wondering what happened to checks along the way. The new administration will push for more regulation, something Wall Street is never happy with.

    Madoff Misconduct Said to Date Back to 1970s as Client List Reached 4,000

    The major sort of good news was the VIX. It started the day by plunging 7 to 41. As enthusiasm over the auto bailout waned & then the markets waffled near break even it crept back up, closing down 2 at 45. Increased fears surfaced in the PM

    Early gains on auto bailout are withering

    Dow rose 150 out of the gate on news of the auto bailout package being approved. However since them enthusiasm has faded. Dow is up 17, advancers ahead of decliners 2-1 & NAZ is up 17. S&P 500 FINANCIALS INDEX was even (giving up early gains), the Alerian MLP Index is down pennies, Dow Jones REIT Index was up 2 & Lehman High Yield Bond ETF is up a couple of pennies (while the Treasury bond yield remains at historic lows of 2.1%). The VIX keeps pulling back, today down 4 to 43. By another measure, it dropped about 25 in the last 3 weeks.

    General Motors (GM), still a Dow stock, and Chrysler have been given a 90 day lease on life. They will have to make changes with their bond holders, unions, management, etc to try & stay alive. This money will exhaust funds in the first half of the $700B TARP program. Sec Paulson will ask Congress for the 2nd half, only 2 months after the program began. Ford (F) was not included. Despite reassurance by their CEO yesterday, they may not be too far from requesting similar aid.

    GM, Chrysler Will Get $13.4 Billion in U.S. Loans to Survive Through March

    Oil is down again, near 5 year lows.

    CLF09.NYM..Crude Oil Jan 09...35.00 ..Down 1.22

    The Alerian MLP Index may have a rough month ahead until most quarterly distributions are announced by mid Jan. Yesterday, Kinder Morgan, the largest MLP, successfully raised $900M, quite an accomplishment in these times. Below is a chart for the stock equivalent, KMR, which I track in the Yahoo widget on the right. The stock has held up well during a very difficult period. During severe declines in the last 3 months, it was not damaged as badly as many other MLPs. The stock div yield is 10%, a low rate compared to a 13% yield for the Alerian MLP Index.

    Kinder Morgan (KMR) --- 1 year

    Constellation Energy Partners (CEP) yesterday pre announced their guidance which included a large distribution cut from $2.25 annually to 52¢ annualized. The chart, which doesn't show $50 prices more than a year ago, tells markets have been pricing in a large cut for some time. 8 other MLPs are also trading under 5, more cuts in the industry are coming. Cuts are new to the industry & may have a larger impact on market psychology than the favorable financing news from Kinder Morgan. I still like the industry, but buyer beware (at least for the short term).

    Constellation Energy Partners -- 1 year

    As I write, the markets are fading fast. It doesn't look like they will hold gains by the end of day. In all fairness, this is an option expiration day making any call extra difficult.

    Thursday, December 18, 2008

    Dow down again

    Dow keeps trying but can't break thru the 9K ceiling. Today the threat that Dow stock GE may lose it's AAA debt rating encouraged market sellers. Dow fell 219, decliners over advancers 3-2 (not so bad for Dow down 219) & NAZ was down 27. The S&P 500 FINANCIALS INDEX fell 5.

    Alerian MLP Index was down 3 to 177. After rebounding off the bottom under 160, it has been trying to get back to the intermediate highs around 225. For a couple of weeks it has pretty much been flat lining around 175-180. Tax loss selling (all MLPs are prime candidates) has hurt, but there has also been a lack of enthusiasm on the buyer side. Next month is when new distributions will be announced. A few have single digits handles, already pricing in very gloomy news. Any cuts, especially big ones, may bleed to all, making every distribution going forward more doubtful.

    Alerian MLP Index --- 2 months

    Today's news includes Kinder Morgan (KMP), the largest MLP, raised $900M selling stocks & debt. That was an encouraging showing for MLPs.

    Kinder Morgan Energy Partners, L.P. Raises Almost $900 Million of Capital

    However, Constellation Energy (CEG) had to cut its quarterly distribution from 56¼¢ to 13¢. The stock is down from the 50s last year to 2.81.

    Constellation Energy Partners Announces 2009 Business Plan and Forecast

    Lehman High Yield Bond ETF (JNK) had a very good day, one of the best in a long time. It rose 1.11, or 4%. Nibblers noticed that it's yield is 1350 basis points above the anemic Treasury bond yield of 2.07%. Other junk bond funds with even higher yields had bigger gains. The very venturesome buy these funds hoping for a rebound. For some funds, just a move up in price to reduce the yield to "only" 20% could bring a very nice gain. Already, JNK below, has had a good pop on high volume:

    Lehman High Yield Bond --- 2 months

    Not all have fared so well. The Dow Jones REIT Index dropped 12 points to 140 today. They trade on junk bond valuations.

    Dow Jones REIT Index --- 2 months

    Oil had another very bad day, taking it down to 4 year lows. Global economic recession trumps the largest production oil cut in OPEC's history:

    CLF09.NYM..Crude Oil Jan 09...36.26 ..Down 3.80

    S&P said General Electric's (GE) coveted AAA debt rating is in danger of being cut. Only a handful of companies (I think about 10 or so) can claim that distinction & it seems like that number gets smaller every year.

    GE, GE Capital Ratings Outlooks Cut to Negative by S&P on Earnings Concern

    Doubts about the auto bailout & dismal economic stats will tough for any stock market to absorb. Meanwhile, the administration is trying to arrange an orderly bankruptcy for the auto makers. It will be very difficult to get employees, stockholders, auto dealers & future car buyers to agree.

    Stock markets drift

    Confusion reigns in the stock markets, so they just muddle along. Dow is down 25, advancers 30% ahead of decliners & NAZ is up 1. Indices I follow are little changed although Lehman High Yield Bond ETF is up 40¢ (its version of a rally). Demand might up for junk bonds as the rate on the 10 year Treasury is at a record low 2.08%. The VIX, volatility index, is down another 4½ to 45½ indicating there is a small sense of relief in the minds of investors. However, it was just a few months ago that this level was a record:

    VIX ---- 1 month

    Oil continues weak on all the gloomy news about the worldwide recession. Breaking thru 40 is an important bearish sign for technicians.

    CLF09.NYM..Crude Oil Jan 09...38.25 ..Down 1.81

    Jobless claims last week dropped to "only" 554K, a little better than expectations. However, the news is not all good. The prior week's claims figure was revised upward to 575K, a new 26 year record level. The number of people receiving jobless benefits declined to 4.38M, or 1% from the previous week.

    Jobless Claims Drop More Than Expected- AP

    The Conference Board said the index of leading economic indicators fell 0.4% in Nov. The index dropped 2.8% in the last 6 months, worst performance in 17 years. Negative figures for building permits, stock prices & unemployment claims led the decline last month.

    Mortgage rates while low, need to be measured against historical relationships which indicate they should be another 50 basis points lower. This is one more indication that the reduction in interest rates is not playing out as well as hoped.

    Mortgage Rates Left in the Dust by Falling Treasury Yields, Failed Lenders

    General Motors (GM), still a Dow stock, & Chrysler will idle 59 factories next month in the face of declining sales & a dismal outlook for next year. The White House is working on their version of a bailout package. For the autos, time is being measured in hours. Rumors about a GM - Chrysler merger were denied, at least for the time being.

    Greta had the CEO of Ford on last night. He said they do not need a bailout presently. Filing for chapter 11 is a bad alternative for any auto company, that would send their sales to zero. When asked about whether he would work for only $1 a year, he dodged the question. He said they are not in a precarious situation with little additional explanation. If required, they will comply with all federal rules & laws. Translation, there is no need to take his salary down to $1 at present.

    GM, Chrysler Shutter Factories, Await Bush Decision (Update4)

    Federal Express (FDX), up 88¢, reported higher profits in Q2 (just completed) but gave a dismal outlook for next year. The execs are all taking pay cuts (including their Chairman, founder, who will take a 20% cut), employees will be laid off as they prepare for for a weak economy with increased uncertainty. As a result,they did not give guidance for the next quarter. FDX is an important company since they feel the pulse of the economy.

    FedEx profit up, but to cut costs as '09 looks bad

    Markets may continue drifting until an announcement is made about the auto bailout package.

    Wednesday, December 17, 2008

    Markets lower

    Stocks rallied from early losses to break even, but then couldn't make up their minds which way to go. Dow ended down 100, but advancers were over decliners 3-2 & NAZ dropped 10.

    The big movers today weren't all that big. After the Dow Jones REIT Index rose sharply yesterday, it was up a modest 2 to 153. In 2 days it has had a 17 point pop, from a severely depressed level. The VIX pulled back again. It dropped another 2½ to the 49s, the lowest level (with one minor exception) in 2 months. Decline in the fear index is one level of comfort. The 10 year Treasury bond now has a yield of only 2.19%, record low territory. Treasury securities are sought out by frightened investors.

    Despite OPEC's largest production cut in history, oil slipped below 40 at one point (near 4 year lows) closing just above 40. Russia (not an OPEC member) also indicated it would cut back .6M barrels per day although they said the cutback largely happened last month, adding confusion to their announcement.

    CLF09.NYM...Crude Oil Jan 09....40.43 ..Down 3.17

    Still no word from the White House about their auto bailout package. Maybe tonight.

    2009 forecast

    Very Smart Investing received a mention about 2009 forecast from:

    Long Term Stock Picks:

    Stocks fade, dragged down by Madoff scandal

    Enthusiasm from yesterday's PM rally melted. It started with Asian/Australian markets last night. They rose, but only moderately & that didn't last long. The Honk Kong market ended with a 2% gain, but the others had only modest gains. In particular, they are more sensitive to the dollar & it TANKED on news of the dramatic rate cuts. The Japanese ¥ rose to 88 to the dollar (from 110 just a few months ago) & the € is up to 1.43. The Japanese economy is is export driven & the high rates for the ¥ are not going to help them pull out of a major recession. There is also the thought that the US economy may be in worse shape than thought if the Federal Reserve has to be soooo accommodating.

    Dollar Falls Most Against Euro Since 1999 Debut After Fed's Rate Reduction

    Dow is down 80, decliners ahead of advancers 3-2 & NAZ is down 16. Banks are hanging in fairly well, the S&P 500 FINANCIALS INDEX is down only 3. The Alerian MLP Index is down 2, Dow Jones REIT is down 5½ (after yesterday's very strong rally) & Lehman High Yield Bond ETF is down 1%. The weakness today is from negative market sentiment plus we are entering the final days of the year for tax loss selling (trades have to be settled by Dec 31).

    OPEC just announced a production cut of 2.2MM barrels per day, the largest cut in their history. Global economic recession outweighs a production cut, oil down 2+.

    OPEC Cuts 2.2 Million Barrels a Day- AP

    CLF09.NYM..Crude Oil Jan 09....40.98 ..Down 2.62

    The VIX, volatility index, pulled back another 1. The 3 month graph shows it has retreated from the astronomical highs, however it still remains extremely high (20 used to be considered a high number):

    VIX ---- 3 months

    The Madoff scandal drones on, a huge negative for the bulls. This makes it harder to trust advisers about investing, not to mention the investing "for the long term" concept has gotten fuzzy lately.

    Madoff Placed Under House Arrest; Wife Ruth Ordered to Surrender Passport

    The administration is struggling to come up with a plan to save the Big 3, the clock is ticking. I think they will have to announce their idea today or tomorrow

    The final attempt to bailout the Big 3 will get a reaction, already 2 auto suppliers have failed. However, by the next day that news will be history.

    Tuesday, December 16, 2008

    Stocks rocket ahead on rate cuts

    Dow had a nice 100+ gain prior to rate cut, but then popped another 200 after the announcement when the Federal Reserve said it would cut lending rates to as low as zero to promote growth & price stability. I hope they know how to spell INFLATION! Low interest rates will encourage an even larger stimulus package (government spending) next year.

    Fed Cuts Target Rate to as Low as Zero, Signals Asset Buying as Next Step

    The Dow ended with a gain of 359 (bringing it close to 9K, 8924, an important psychological ceiling), advancers ahead of decliners 5-1 & NAZ rose 81. Banks benefit from low interest rates, the S&P 500 FINANCIALS INDEX had a very nice day, up 17 (almost 50 points above its recent depressed low):

    % Change

    The Alerian MLP Index went up a modest 3 to 180 (maybe held back by the outcome of expected production cut announcement tomorrow), the Dow Jones REIT Index had an extremely nice gain of 19, the Lehman High Yield Bond ETF (JNK) gained pennies for a 1½% gain (swell!) & the VIX (Volatility Index) dropped 4 to 52½ (remaining in astronomical territory). Oil however was down pennies on uncertainty.

    Car makers are running out of time while they wait for help from the administration. The White House is putting together a package to keep the Big 3 alive (for awhile). Expect an announcement by tomorrow:

    The Madoff scandal keeps growing & getting uglier. They're saying it will take months to reconstruct the books which are in shambles. Account holders have a level of insurance ($½M) with SIPC but that won't cover all the losses for big investors. Plus holders who were cashed out early may face lawsuits trying to recover that money so it can be shared by all. Hedge funds are some of the biggest holders to come forward already. Confusion reigns.

    Madoff Books in `Disarray,' May Take Six Months to Unravel, SIPC Head Says

    The rally on the widely expected Federal Reserve rate cut was based on gut reactions. The oil meeting in Algeria plus word from the White House on a bailout package for the Big 3 will each be worth temporary rallies. However dreary economic news continues, reporting terrible auto & housing sales not to mention a very weak holiday season for retailers. Stay tuned for big bumps in the road ahead.

    Stocks higher, anticipating rate cut

    Markets were up on expectations the Federal reserve will cut the lending interest to a record or near record rate low interest rate. Dow rose 109, advancers ahead of decliners almost 3-1 & NAZ was up 33. The indices I follow are marginally up awaiting developments.

    Meanwhile recession economic news keeps coming. Housing starts dropped 18%, largest drop in 24 years. The inflation news, reported ahead of the Federal Reserve meeting, was good, although the decline was attributable to lower energy & food prices. Core inflation (excluding food & energy) was even.

    Oil is lower ahead of the OPEC meeting tomorrow which will decide production cuts. Guesses are for a cut of 1-3MM barrels a day (the Saudis are pushing for a 2MM reduction). Seemingly with the world in a super recession, a production cut will not have a big impact on prices. China, 4th largest economy in the world, reported yesterday that their growth rate dropped to "only" a 5% rate, lowest in 10 years, when they first started keeping records.

    CLF09.NYM..Crude Oil Jan 09...44.13 ..Down 0.38

    Saudi Arabia Says OPEC Will Cut Output 2 Million Barrels to End Oversupply

    The Madoff scandal widens with more reports on major losses for prominent investors. I shudder to think where this scandal will lead, not to mention implications of frightening off marginal investors. Hedge funds are involved, they may suffer if more investors cash out leading to forced stock sales.

    Bank Medici of Austria Invested $2.1 Billion With Arrested Manager Madoff

    Meanwhile the Dow keeps muddling along in the midst of gloomy economic news & tax loss selling. This performance is encouraging for the bulls. Let's see how markets take the rate cut by FED today & announced production cut in oil tomorrow.

    Dow Jones Industrials --- 3 months

    Oh yes, the administration is still working on the auto bailout package!

    Also I got a note from Amazon reminding me about gift giving & the holiday season, Amazon widgets are on the right side for your convenience. Happy holidays for all readers!