Markets digest recent gains

Dow fell 9, decliners barely ahead of advancers while NAZ slipped 1. Banks see profit taking after their run-up earlier this week.

S&P 500 FINANCIALS INDEX

Value 162.17

Change -2.90

% Change -1.8%

MLPs are marking time in this sideways market. However returning to their 2009 high is a major achievement, up 32% YTD has to put the at the top of industry groups this year. REITs slipped while junk bonds are firmer. The VIX remains in the 25s. Treasuries are seeing selling, the yield on the 10 year Treasury bond dropped 8 basis points to 3.52%.

Alerian MLP Index --- 2 months





Oil is drifting lower but is keeping above 60.

CLQ09.NYM

...Crude Oil Aug 09

...60.87

... 0.67 .......(1.1%)

The number signing up for unemployment benefits dropped last week. However gov figures are clouded by difficulties adjusting for temporary shutdowns at auto plants & even if the recession ends this year, companies are expected to keep trimming payrolls.

New applications for unemployment insurance dropped 47K to 522K, the lowest level since early January. The 2nd straight weekly decline reflects problems adjusting layoffs for temporary shutdowns at General Motors & Chrysler plants to retool for new models. Weekly claims remain far above 325K that economists say is consistent with a healthy economy (new claims last fell below 300K over 2 years ago). Unadjusted figures for last week showed new claims rose by 86K which would push the total to 668K. The layoff picture is expected to be muddied by auto shutdowns in the weeks ahead.

•Jobless Claims in U.S. Fall More Than Estimated on Timing of Auto Layoffs

CIT (CIT) is now on death's door, the stock plunged to only 40¢. Chapter 11 may come by this weekend. But it's unclear how such a filing by a company lending to thousands of small & mid-size businesses would affect shaky financial markets (small businesses are seen as key to economic recovery). CIT said yesterday that negotiations with regulators about a possible rescue had broken off after days of round-the-clock talks. This shows the administration is drawing a line in the sand on federal rescues for troubled financial firms. CIT is trying to line up at least $2 billion in rescue financing from existing debt holders, the clock is ticking & time is measured in hours.

CIT's small size relative to other big commercial banks may ease worries of a ripple effect. Though a major lender to small & midsize business with about a million clients, CIT is one-eighth of the size of Lehman Brothers when massive credit losses forced the investment bank into bankruptcy last fall. Initial indications are that the markets will shrug off this problem.

•CIT Says Government Bailout Talks Fail, Fueling Speculation of Bankruptcy

CIT Group --- 1 month




On a happier note, JPMorgan (JPM), Dow stock, posted Q2 profits of $2.72B, a 36% increase that easily surpassed expectations. It benefited from strength in its core consumer & investment banking businesses which offset higher credit losses. Revenue rose 39% to $25.6B & profits were up 26% but EPS was only 28¢ compared with 53¢ last a year. EPS fell despite an increase in profit because the company had more stock outstanding. The stock dropped 57¢.

Credit costs remain high in consumer lending & card services, JPM set aside $9.7B for credit losses, up from $4.3B last year (but down from the Q1's $10 billion charge). They expect credit costs to "remain elevated for the foreseeable future" while the company continues to lend.

•JPMorgan's Profit Climbs on Record Investment-Banking Fees; Defaults Rise

JPMorgan --- 3 months




Markets have had an enormous run this week. Time to take a break & rest.

Dow Jones Industrials --- 1 month