Greater worries about the economic recovery

A mixed IMF economic forecast & falling oil prices weighed on stocks. Dow eaked out a gain of 14 thanks to buying in the last hour, decliners over advancers 2-1 & NAZ was down 1. Financials sold off badly, but again late day buying reduced losses. The Financial Index is back to the level of May 1, the next major low was 132 on Apr 20. Speculative Citigroup (C) dropped 7¢ taking it down to 2.62 (down more than 40% from its interim high a couple of months ago).

S&P 500 FINANCIALS INDEX

Value 149.24

Change -2.56

% Change -1.7%

Upward momentum has been lost in the high yield sectors. The MLP Index was up .55 after buying in the last hour & the REIT index cut its loss to 1+. Junk bond funds were mixed, helped by strength in Treasuries. The VIX, volatility index, gained a fraction into the 31s, a 1 month high. Treasuries were strong with the yield on the 10 year Treasury bond dropping a very large 17 basis points today to 3.29% (and after touching 4% last month).

Alerian MLPIndex --- YTD




Dow Jones REIT Index --- YTD




VIX --- 1 month




10-year treasury Yield Index - 2 weeks




Oil keeps sinking. In a little over a week, oil fell 18%! That's good on the inflation front, but worrisome when it's based on weaker global demand for oil.

CLQ09.NYM

..Crude Oil Aug 09

..60.14

.. 2.79 ......(4.4%)

The Treasury sold $19B in 10 year notes at a rate of 3.365% as the flight to quality is picking up steam. The bid to cover ratio was 3.28X, the highest on record! Indirect bidders (i.e including foreign central banks) bought 44%, up from 28% at the prior 10 auctions. The fear of a prolonged recession is stimulating the flight to quality.

Treasuries Rise as Refuge Demand Bolsters 10-Year Note Auction


California's financial problems keep growing while it tries to deal with a $26B deficit. They will pay 3.75% interest on its IOUs issued. Major banks are honoring them although that will expire on the 10th (Fri). Some smaller banks & credit unions may accept them thru the end of Jul. Creative people are selling theirs on EBay. The problem is less serious today, but will grow in importance next week.

California IOUs Will Pay 3.75%, State Panel Decides


A longer term chart shows better where the Dow has come from & maybe it's helpful indicating where it's going. Dow should be testing the 8K floor & soon. Fear is creeping back into stock markets. The talk of more gov spending plans is another negative for markets to deal with.

Dow Jones Industrials --- 2 years




Aloca (AA) reported a mushy loss, its 3rd consecutive quarterly loss. The stock was up 5¢ during the day & is selling off 4¢ on the gut reaction to its loss. Below is the fresh AP report.

PITTSBURGH (AP) -- Aluminum producer Alcoa says it lost $454 million during the second quarter as the global recession continued to dampen demand and prices for the lightweight metal. Alcoa's loss of 47 cents per share is fresh evidence of slumping orders from key buyers in the aerospace, automotive and construction industries. Pittsburgh-based Alcoa Inc. says it earned $546 million, or 66 cents per share, in the year-earlier period. Excluding restructuring charges, Alcoa's loss would be 26 cents per share. Analysts predicted a loss of 38 cents per share.
Aluminum demand tumbled with the global economy last year, driving up stockpiles and eroding prices. Producers have since slashed production.