Dow closes at 2 month low

Dow tumbled 161, closing near the lows for the day, decliners over advancers more than 3-1 & NAZ was off 41. Dreary economic thoughts are getting the best of investors.

The bank index is trading at the bottom of its trading range for the last 2 months. Citigroup (C) is a representative speculative bank. This year, it ran from a low of 1 to a high over 4 in a couple of months. Now it's back to 2.69. More problems lie ahead for the banks.

S&P 500 FINANCIALS INDEX

Value 151.80

Change -2.97

% Change -1.9%

High yield sectors are getting dragged down with regular stocks. The MLP index dropped 2 to 220 & REIT index fell 5+. On the MLP Index chart, 211 is an interim low & it looks like it wants to be tested it soon. Junk bond funds were weak as Treasuries strengthened. The yield on the 10 year Treasury dropped 5 basis points to 3.46%. The VIX rose 1.85 to 30.85.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




As oil sinks, there is more talk about whether it can hold at 60. Regulators want to hold hearings for trying to regulate speculator trading. Since the price has already declined more than 10 from the high last month, any new rules look to be a little too late to do much good.

CLQ09.NYM

..Crude Oil Aug 09

..62.43

.. 1.62 ......(2.5%)

The sale of the 3 year Treasury notes went well, but there will be 2 more days this week with gov debt sales (the first week ever with 4 days devoted to selling new gov debt). The notes had a yield of 1.519%, the lowest in 2 months. Foreigners bought 54% of the notes, a good & bad sign. The bid to cover ratio was 2.62X, slightly above the average for the last 8 auctions with similar notes. Demand for notes was helped by the perception that the recession will drag on, pushing the "flight to safety" concept. There is also talk in the air (by Laura Tyson) of a 2nd stimulus package while other voices from the administration are talking about problems with assessments in Jan over the first stimulus package (WHICH HAD TO BE RUSHED THRU CONGRESS BECAUSE IT WAS SOOOO URGENT).

•Treasuries Pare Gains After $35 Billion Auction of Three-Year U.S. Notes
•Second Stimulus Package Should Now Be Considered, Obama Adviser Tyson Says


Speaking of borrowing more money, California's problems keep growing. Fitch cut its rating on California's long-term bonds to "BBB" or two notches above speculative grade. This follows California issuing "IOU" promissory notes for some bills to conserve cash for priority payments (i.e to investors holding the state's debt). Fitch also kept the debt on watch for additional downgrades. California ranks as the lowest-rated state general obligation credit by Fitch. Standard & Poor's & Moody's could soon follow Fitch. Meanwhile the state is trying to plug a $26B budget deficit for the fiscal year that began on July 1.

California Credit Rating Cut Close to Junk After IOUs


Dow is down more than 600 from its high last month, approaching a 10% correction. Reality of a slow recovery is registering with more investors. More gov spending programs which will add to the deficit may not warm the hearts of investors.

Dow Jones Industrials --- 1 month