When Shanghai sneezed, Wall Street caught a cold

A slowdown in the Chinese economy impacting the globe caused markets around the world to sell off. But a late day rally trimmed those losses. Dow dropped 47, decliners over advancers 3-1 & NAZ was off 19. Banks held pretty well with only a modest decline. But recent flyers were hit, AIG (AIG) was off 4.90 (buying at day's end cut the loss by $1) & Citigroup (C) fell 23¢. These are available for those who like playing with fire.

500 FINANCIALS INDEX

Value 197.37

Change -0.76

% Change -0.4%

S5FINL:IND





AIG --- 1 month




Citigroup --- 1 month





MLPs & REITs pulled back in line with ordinary profit taking. The MLP Index was off 1 to the 238s & REITs fell 2, both finishing off their lows. Junk bond funds were mixed but Treasuries rose in value. The yield on the 10-year Treasury bond dropped 5 basis points to 3.40%, its lowest level in over 3 months.


Alerian MLP Index --- 6 months




Dow Jones REIT Index --- 6 months




10-Year Treasury Yld Index - 6 months





Oil fell below 70 on worries about less demand from China if their economy slows. They are the biggest buyer of oil after the US.

CLV09.NYM

..Crude Oil Oct 09

..69.63

.. 3.11 ......(4.3%)

Simple worries move stocks in light trading. China has become a major player in the world economy, when it sneezes it gets a lot of attention. Wall Street took China worries in stride.


Dow Jones Industrials --- 6 months

Markets follow Asian markets lower

After the decline in Asian markets, US stocks sold off. Dow dropped 83, decliners over advancers almost 4-1 & NAZ fell 24. Banks were down, but not too badly. Flyers AIG (AIG) & Citigroup (C) were hit with selling, down 4.36 & 18¢ respectively.

S&P 500 FINANCIALS INDEX

Value 196.83

Change -1.30

% Change -0.7%

Joining in the the sell-off, the Alerian MLP Index fell 2+ taking it below 237 & the REIT Index dropped 3. Junk bond funds were also weak. Risk averse may be returning with Treasuries back in demand. But the yield on the 10-year Treasury bond fell only 2 basis points to 3.43%.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Nervous global stock markets dragged down oil, taking it below 70.

CLV09.NYM

...Crude Oil Oct 09

...69.90

... 2.84 .......(3.90%)

Asian markets are at center stage today after Japan voted in a new gov ending the ruling party's grip which lasted 5 decades. Nikkei, the Tokyo stock market, after rising 200 (2%) ended down 0.4%. Shanghai dropped 7% following a significant sell-off in the last month. Of course, this is a market that has doubled & then dropped 50+% in the last 2 years, but this decline may be a signal that their massive recovery package has its limitations.

Shanghai Composite --- 3 months




With many traders away & no major news events expected, this week should be quiet. Markets are having one of their best years in history, so they are entitled to take a breather which may be the theme for this week.

Dow Jones Industrials --- 1 month

Winning streak for Dow comes to an end

Dow was trying for its 9th consecutive gain, the best performance since 1996. But that wasn't meant to be. Sellers decided to take profits ahead of the weekend. IBM (IBM) & McDonald's (MCD) were the biggest losers, each down 1+. Dow dropped 36, decliners barely ahead of advancers & NAZ was up only 1 despite an upward revision by Intel (INTC) for its earnings. Banks muddled along & managed to eke out another 2009 high, helped by speculative fervor for AIG & Citi.

S&P 500 FINANCIALS INDEX

Value 198.13

Change 0.30

% Change 0.2%

MLPs keep plodding along as they've done all month. Today the Alerian MLP Index was off .28 while the Dow Jones REIT Index was up 1. The yield on the 10-year Treasury bond fell 1 basis point to 3.45%.


Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD




10-Year Treasury Yield Index - YTD





Oil was firm & finished strong, remaining close to its yearly high.

CLV09.NYM

..Crude Oil Oct 09

..73.00

.. 0.51 ......(0.7%)

AIG (AIG) & Citigroup (C), 2 troubled, monster financial companies, have been fliers in the last month to say the least. AIG was up 2½ & Citi gained 18¢. Each has a very large short position & the shorts may be getting squeezed. In these kinds of markets, it's always difficult to figure out what's going on. Their fundamentals have not changed appreciably in the last month. AIG has a new CEO who is vacationing on his estate in Europe while Citi is the same lumbering giant that saw its market value pretty much wiped out in the last year. In an odd twist of events, the US being the largest shareholder of these stocks, benefits from increased stocks prices. The venturesome who like playing with fire might want to try making money in the chaos. All that's necessary to be successful is to figure out whether to buy or sell.

•U.S. Stake in AIG Deemed `Highly Speculative' in Draft Treasury Document
AIG Posts Best Winning Streak Since 2007, Burning Short Sellers

• A.I.G. Rises, and Many Ask Why- NYT

AIG --- 1 month




Citigroup --- 1 month





This was a bland type of day, what is to be expected at the end of Aug (especially on Fri). But the wild gyrations for AIG & Citi are significant. Without fundamental reasons behind their sharp advances, the excitement in their stocks is worrisome.

Dow Jones Industrials --- YTD

Mixed markets meander

The Dow began the day in the black, but selling pulled it into the red. Dow is down 25, advancers equal decliners & NAZ is up 9 (helped by Intel's improved guidance for Q3). Banks also started strong but have slipped to near break even (good enough to set another 2009 high). The last time the Financial Index was at this level was the start of Nov, almost 10 months ago.

S&P 500 FINANCIALS INDEX

Value 198.16

Change 0.33

% Change 0.2%

MLPs & REITs fell, each index was off ½ point, & junk bonds funds were mixed. The yield on the 10-year Treasury bond was flat at 3.46%.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Bulls are back buying buying oil. Next week, they may want to take it to a new 2009 high, above 75.

CLV09.NYM

...Crude Oil Oct 09

...73.34

... 0.85 .......(1.2%)

Consumer spending edged up in Jul with help from the Cash for Clunkers program. However household incomes, the fuel for future spending increases, were flat. Consumer spending rose 0.2% in Jul, matching expectations. But personal incomes were unchanged last month, weaker than an expected gain of 0.2%. The personal savings rate dipped slightly to 4.2% from 4.5% in Jun (compared with a savings rate of 2.6% last year). The modest rise in spending last month followed a 0.6% jump in Jun, driven by a surge in gasoline prices. These mixed numbers can make either bulls or bears happy.

•Consumer Spending in U.S. Climbed in July on `Cash for Clunkers' Program


Consumer confidence in Aug fell to its lowest in 4 months on worries over high unemployment & dismal personal finances. The Surveys of Consumers said its final index of confidence for Aug fell to 65.7 from 66.0 in the prior month. This reading was the lowest since 65.1 in Apr but above expectations for 64.5. Consumers rated the current economic conditions the worst since Mar, when the stock market hit 12-year lows. The index fell to 66.6 from 70.5 in Jul.

Consumers' Mood at Four-Month Low- Reuters



Intel (INTC), Dow stock, raised revenue guidance for Q3 for sales of $8.8B-$9.2B up from a range of $8.1-$8.9B given last month. Analysts had been expecting $8.55B. It added that it expects the quarter's gross profit margin to be in the upper half of the range it previously forecast. Yesterday, Dell (DELL), the world's No. 2 PC maker, said while consumers are showing more signs of coming back to stores to buy PCs, corporations are still holding off purchases. It might not see a significant turnaround in tech spending by businesses until next year after Windows 7 is released. INTC was up 91¢ & DELL gained 54¢.

•Intel Raises Sales Forecast in Sign Computer Demand Reviving; Shares Gain

Intel --- 1 year




Dell --- 1 year





This is a lazy Fri, not a lot will be decided in the markets.

Dow Jones REIT Index --- 1 month

Dow extends its winning streak to 8

Stocks clawed their way back to gains after selling in the AM. Dow was up 37 (8th consecutive gain, reaching another 2009 high), but advancers were barely ahead of decliners & NAZ rose only 3. Dow was helped by a $4 gain for Boeing (BA) on expectations that they will finally bring out their troubled 787 airliner later this year. They took a $2½B charge, trying to put their troubles behind them.

History of the Boeing 787


Banks were off only mildly in the AM, so the PM rally was able to take the Financial Index to another 2009 high. Citigroup (C) is less troubled as the stock rose 42¢ to 5.05.

S&P 500 FINANCIALS INDEX

Value 197.83

Change 1.90

% Change 1.0%

S5FINL:IND




Despite the euphoria surrounding banks, all is not well. 416 banks with combined assets of $300B failed the FDIC’s grading system for asset quality, liquidity & earnings in Q2, the most since June 1994. The FDIC has already taken over 81 banks in 2009. Regulators were forced to charge banks an emergency fee to raise $5.6B for its insurance fund (which fell to $10B on Jun 30 from $13B in the prior qtr). FDIC Chairman, Sheila Bair, said, "The FDIC has ample resources to continue protecting insured depositors as we have for the last 75 years.” That's what she has to say, but I don't know.

•FDIC List of Problem U.S. Banks Rises to 416, Putting Reserve Fund at Risk


The Alerian MLP index recovered, along with the markets, bringing it back to a gain of pennies. They continue with an outstanding record YTD, despite a sluggish time in Aug. The Dow Jones REIT was up 1+ taking it just 5 points from its 2009 high set this month. However, junk bond funds sold off.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





Demand for oil rose in the PM, the same sort of thinking that brought stock buyers back into the stock markets.

CLV09.NYM

..Crude Oil Oct 09

..72.79

.. 1.36 ......(1.9%)

The Treasury sold $39B in 5-year notes at a yield of 2.484% vs an expected rate of 2.509%. The bid-to-cover ratio was 2.51X, higher than the average of 2.2X at the last 10 auctions, indicating greater desire for the debt. Indirect bidders, including foreign central banks, bought 56.4 % of the notes vs 36.7% of the securities at the last sale in Jul & 62.8% in Jun. The average for the past 10 sales was 37.8%. This was viewed as a "healthy" auction (i.e. plenty of demand to buy record amounts of new debt). This is the 2nd auction this week, tomorrow the Treasury will auction off $28B of 7-year notes completing $109B for the week. A few years ago, that amount of money would represent the deficit for an entire year! The yield on the 10-year Treasury bond rose 2 basis points to 3.46%, indicating there was selling in Treasuries later in the day.

Treasuries Little Changed After Record Tying Note Auction Aug. 26


AIG (AIG) soared 10.15 to 47.84 (the biggest gainer in the S&P 500) on hopes that it can mend fences with Hank Greenberg, former Chairman, which would allow it to recapture some of its former glory. I put in a 2 year chart to show how far it has fallen from the "good old days." Its relatively high price today is after a 1-20 reverse split in Jul.

•AIG shares soar as Greenberg set to help new CEO

AIG --- 2 years




The bulls continue in charge of the markets. The winning streak for the Dow is getting to be one of its longest, following one of its greatest runs in history. That makes me nervous about how this will end, especially going into Sep which is statistically the worst month for the Dow.

Dow Jones Industrials --- YTD

Profit taking sell-off

Markets need a rest. Dow dropped 56, decliners ahead of advancers almost 4-1 & NAZ fell 24. Banks are feeling selling pressure, but not to any great extent given their run up this year.

S&P 500 FINANCIALS INDEX

Value 194.70

Change -1.23

% Change -0.6%

MLPs are taking it easy in Aug, today down 3+ to the 235s. The REIT Index is off 2+ & junk bonds funds are weak while the yield on the 10-year Treasury bond is flattish at 3.45%.


Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month





Slumping oil is following lower stock markets. Like stock markets, it is still very near recent highs for 2009.

CLV09.NYM

...Crude Oil Oct 09

...70.15

... 1.28 .......(1.8%)

The economy shrank at a 1% annualized rate in Q2, a better-than-expected showing & more evidence that the recession is drawing to a close. Many economists believe the economy is growing in Q3, but any rebound will not be accompanied by rising employment. Weekly jobless claims figures just released were better than expected, but remain well above levels associated with a healthy economy.

The new estimate for GDP was unchanged from the initial figure released last month. The drop, while representing a record 4th consecutive decline, was smaller than in the previous 2 quarters. Businesses slashed inventories more than first reported & cut back more sharply on investment in new plants & equipment. These reductions were offset by revisions that showed smaller dips in consumer spending, exports & housing construction.

Meanwhile the Labor Dept reported unemployment claims fell last week to 570K, from an upwardly revised 580K in the previous week. Those continuing to claim benefits dropped to 6.13M from 6.25M, the lowest level since early Apr. However, the weekly figures remain far above 325K consistent with a healthy economy. New claims last fell below 300K in early 2007.

•Economy in U.S. Shrank 1% in Second Quarter, Less Than Economists Forecast
Initial Jobless Claims in US Decreased Last Week Bloomberg



Toll Brothers (TOL), a large luxury home builder, reported another ugly qtr but sees buyers starting to return to the market. The stock fell 35¢.

Toll Brothers 3Q Loss Widens; Sees Signs For Optimism

Toll Brothers --- 1 year





The Shanghai stock market has been behaving better after its recent sell-off. There are concerns that gov stimulus spending may be loosing some of its punch, causing the growth rate to slow further.

Shanghai Composite --- 1 year





Lower markets today are a reaction to their enormous gains this year. In addition, many traders are on holiday.

Dow Jones Industrials --- 1 month

Junk bond funds update

I just attended a shareholder meeting for a number of closed end funds, including junk bond funds. At the end, there was a chance to talk with their manager of taxable bond funds. His comments about junk bond funds were similar to mine.

He said that ½ a year ago, when their yields were off the charts, was a good time to buy junk bonds to lock onto exceptionally high yields. After the market rally, rates are down to high levels but closer to traditional levels. Junk bond funds can be bought for their high yields, however investors need to be aware they are facing tough times ahead. High levels of defaults may continue or even increase if the economy does not have a swift recovery. 13% yields (950 basis points above the yield on the 10-year Treasury bond) are available. The difference between 13% & 9% (or so which is generally more common) is the risk premium to absorb future defaults. As usual, the trick for successful investing is finding the funds which will have fewer defaulting bonds.

Wednesday Waver

Stocks hovered around break even all day. Dow ended up all of 4, decliners 20% ahead of advancers & NAZ was even. Banks slipped again but remain within spitting distance of their high yesterday. Citigroup (C) which has been surging in the last month sold off 12¢. It's down more than 30¢ from its high this week & this sell-off may be a leading indicator of bank stocks needing time to rest.

S&P 500 FINANCIALS INDEX

Value 195.93

Change -0.24

% Change -0.1%

S5FINL:IND




Citigroup --- 1 month





MLPs continues weak as the Alerian MLP index fell 1 to the 239s, this has not been a good month for MLPs. REITs were up slightly & junk bonds were flat in indecisive trading. The yield on the 10-year Treasury slipped 1 basis point to 2.44%.

Alerian MLP Index --- 6 months




Dow Jones REIT Index --- 6 months





Oil recovered a little in the PM & still isn't off too badly from the 75 high.

CLV09.NYM

..Crude Oil Oct 09

..71.45

.. 0.60 ......(0.8%)

Foxwoods Resort Casino, one of the largest casino owners, is on the brink of failing. They asked creditors to restructure almost $1½B in debt, their business has been hurt badly by the recession. This serves as a reminder that junk bonds carry risks of default &, especially as the recession drones on (even at a lesser level), investors need to be aware of those risks. Junk bonds were not affected by this news.

•Foxwoods Owner Said to Seek Restructuring of Casino's $1.45 Billion Debt



Below is another prediction by a member of the Federal Reserve about a "protracted period" of high unemployment from a slow recovery. This is commonly implied with talk about the unemployment rate going over 10% (from 9.4% presently). He expects the FED to keep rates very low for some time while inflation is being kept in check but warned against leaving gov stimulus policies in place too long.

• Fed's Lockhart sees protracted high unemployment- Reuters

Little was accomplished today & that pattern may continue to Labor Day. The graph below shows a day that was about as flat as they come.





Dow Jones Industrials --- 6 months

Mixed markets on favorable economic news

Summer doldrums are affecting the markets prior to the Labor Day holiday. Dow rose 8 (to another high for 2009), decliners are barely ahead of advancers & NAZ is even. Banks are higher although barely. The Financial Index is inching ahead, good enough for another 2009 high.

S&P 500 FINANCIALS INDEX

Value 196.53

Change 0.36

% Change 0.2%

The Alerian MLP Index dropped 1½ to the 238s, clearly on defense. The REIT index inched up pennies while junk bond funds were mixed. The yield on the 10-year Treasury bond was flat at 3.45%.


Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




$75 resistance provided to be a major obstacle yesterday for oil, selling continues on worries about weak demand.

CLV09.NYM

...Crude Oil Oct 09

...70.87

... 1.18 .......(1.64%)

New orders for manufactured goods were up at the fastest pace in 2 years in Jul, led by higher aircraft orders. Durable goods orders jumped 4.9%, the largest advance in 2 years after falling 1.3% in Jun. That was above expectations for a 3% increase. However new orders were still down 25.8% from last year. Favorable results, but they are not an indication of a V shaped recovery. Jul orders were boosted by a surge in civilian aircraft orders at Boeing & reopening of Chrysler and GM assembly plants after emerging from bankruptcy raised automobiles output, leading to an increase in orders for motor vehicles.

•U.S. Durable Goods Orders Climb 4.9% on Aircraft; Ex-Transport, Gain 0.8%


New U.S. home sales surged 9.6% in Jul, rising for the 4th straight month & beating expectations. Sales rose to an annual rate of 433K from an upwardly revised Jun rate of 395M. Sales were up 32% from the bottom in Jan, but, more importantly, off 69% from the peak 4 years ago. The median sales price of $210K for a house was still down 11.5% from last year. Some buyers are rushing to take advantage of a federal tax credit that covers up to $8K for first-time owners.

•New-Home Sales in U.S. Jump 9.6% in Sign Economy Recovering From Recession


Economic data is good, again indicating that the economy is on the mend. But it still has a long way to go before making a significant dent in reducing unemployment, not to mention dealing with a ballooning gov debt load. Dow is up 3K in 5 months, some worry about this advance getting ahead of itself.

Dow Jones Industrials --- 1 month

Early markets gains trimmed by late day selling

Stocks rose out of the gate & continued higher all day, as the Dow was pushing to break 9600. It broke thru but couldn't hold the gains even though it extended its winning streak to 6 days. By day's end, Dow was up 30 to another 2009 high, advancers over decliners 3-2 & NAZ gained 6. All major indices reached new highs for 2009. The Financial Index eked out a new 2009 high. Citigroup (C) after its recent tear fell back 7¢ to 4.75, still a nice run from $1 in Mar.

S&P 500 FINANCIALS INDEX

Value 196.17

Change 2.17

% Change 1.1%

S5FINL:IND




Citigroup --- 6 months






MlPs have been sliding this month. Today the index dropped 2½ to 240 (where it was a month ago on its way up) while the REIT index continued climbing, up 1.83. A 3rd chart is added, comparing the Alerian MLP index with the Dow Jones REIT index (the straight line). For 5 months their moves tracked each other pretty well. But this month, REITs have been moving higher while MLPs have been retrenching, failing to reach new highs. Junk bond funds were flattish today. The VIX, volatility index, was down a fraction in the 24s where it has been for 2 months. In this up market, Treasuries also gained. The yield on the 10-year Treasury fell another 4 basis points to 3.45%.


Alerian MLP index --- YTD




Dow Jones REIT Index --- 6 months




MLPs vs REITs --- 6 months





Oil bumped against $75 resistance (another high for 2009) but failed to break thru. Sellers came in driving down oil prices more than 2. Bulls are in charge of this market but will need a breather before taking prices higher.

CLV09.NYM

..Crude Oil Oct 09

..71.86

.. 2.51 ......(3.4%)

• Oil falls 3 percent after hitting 10-month high- Reuters

Consumer sentiment & expectations rose more than expected in Aug. The Conference Board Consumer Confidence index rose to 54.1 from an upwardly revised 47.4 in Jul. However the index is well below 90, the minimum level associated with a healthy economy. Consumer sentiment has recovered since hitting a record-low of 25.3 in Feb. Consumers' expectations for the economy over the next 6 months rose to 73.5 from 63.4 in Jul, the highest level in almost 2 years (when the recession began). The housing sector also showed signs of life as a national measure of home prices posted its first quarterly increase in 3 years. The S&P/Case-Shiller home-price index increased 2.9% in Q2 from Q1, the first increase since 2006 & the biggest in almost 4 years.

•U.S. Consumer Confidence, Home Prices Exceed Forecasts in Sign of Recovery


There is an abundance of evidence that the economy is repairing, even before today's reports. But the stock markets look like they are using these reports to forecast a substantial recovery for next year. The last time Dow was at its present level was Oct 6. A very overbought market may need time to pause & rest.

Dow Jones Industrials --- 6 months