Mixed markets but Dow posts new 2009 high

Stocks continue to look for direction, with an upward bias. They hovered near break even all day. Dow rose 17 to another 2009 high, advancers over decliners 3-2 & NAZ was down 5 (failing to crack thru the 2K ceiling). Banks had a good day, the Financial Index is getting closer to its 175 high.

S&P 500 FINANCIALS INDEX

Value 174.78

Change 1.42

% Change 0.8%

S5FINL:IND




July has been an outstanding month for stocks, especially the riskier ones. Graphs below for 3 high yield groups show how well they performed. When they rise, their corresponding yield falls which reduces the premium of their yield over the 10- year Treasury bond. That yield is pretty much where it started the month, near 3½%.

Today MLPs are back in favor, bringing their Index up 2.94 to 248.32, not too far from the 250 high. REITs were flat but junk bond funds continue strong.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Barclays Hi Yld Bonds ETF - 1 month




Oil has had a spectacular 2 day rise of $7 after the plunge on Wed. Oil may try to take out its recent high of 73.

CLU09.NYM

..Crude Oil Sep 09

..69.56

.. 2.62 ......(3.91%)

The IMF expects the economic recovery in the US to be “gradual” & may need more monetary & fiscal stimulus if the rebound stumbles. They expect a “gradual” recovery, with risks “tilted to the downside” & warned that potential growth “could remain well below past trends for a considerable period.” Note, the word "gradual" is used twice. On Bloomberg TV, IMF predicted the US economy will start “recovering decisively” by the middle of next year & the unemployment rate will peak above 10% in 2010. The IMF said the US economy will contract 2.6% in 2009 before expanding 0.8% next year. A “key priority” will be to craft “comprehensive exit strategies to unwind the extraordinary crisis-driven interventions, once a sustainable recovery is under way.”

IMF Says US Economic Recovery Will Be ‘Gradual’


Oils have sold off lately in response to negative earnings reports. That was to be expected after oil prices have fallen more than 50% from their peaks. However the big buys have attractive yields. Chevron (CVX), Dow stock, is the 2nd largest US oil company. They have a 7 P/E with a well covered 4% yield. Profit plunged in Q2, as expected but the stock is up 1.77 today. Worth looking at for those who are interested in fallen angels.

• Chevron profit tumbles, misses Wall Street view- Reuters

Chevron --- 2 years





The president tried to put a favorable spin on the GDP data. The economy is coming back from the lows, but the many looking for work are hurting. Congress heard the news reports about the Cash-for Clunkers program maxing out. The House just voted approval for a $2B expansion of the program. Next week will bring reports on Jul auto sales which could be good coming off a low base last year & the sudden surge in buying this week. But Jul retail sales featuring the early portion of back-to-school season could be glum.

• House approves $2B for clunkers program- AP

Dow Jones Industrials --- 1 month

Markets little moved by favorable a GDP report

Dow only managed a small gain on a smaller than expected decline in GDP for Q2. Dow was up 27, advancers ahead of decliners 3-2 & NAZ added 5 (but is still under the important 2K line). The Financial Index remains near the 175 peak seen in May.

S&P 500 FINANCIALS INDEX

Value 173.01

Change -0.35

% Change -0.2

The Alerian MLP index has been hobbling along this week after a 40 point gain in the prior month. Today it's up fractionally to the 246s. REITs & junk bonds only had minor changes but Treasuries rallied. The yield on the 10-year Treasury bond dropped 9 basis points to 3.56%.

Alerian MLP Index --- 2 weeks




With the gain, oil is back to where it started Wed AM (prior to its big tumble). 73 is the interim high it may be going after.

CLU09.NYM

...Crude Oil Sep 09

...67.62

... 0.68 .......(1.02%)

The economy shrank at a 1% annualized rate in Q2, a better-than-expected showing. The dip follows an economy in free fall, tumbling at an annual rate of 6.4% in Q1 (the sharpest slide in nearly 3 decades). The economy has contracted for a record 4 straight quarters, underscoring the grim toll on consumers & companies. Higher spending by gov & less drastic spending cuts by businesses along with an improved trade picture were behind the better performance. Consumers, though, pulled back as rising unemployment, shrunken nest eggs & lower home values weighed down spending.

The Commerce Dept also reported that the recession inflicted even more damage on the economy last year than previously thought. It now estimates that the economy grew just 0.4% in 2008, much weaker than the 1.1% growth originally reported.

•U.S. Economy Shrinks at 1% Annual Rate; Spending Falls More Than Estimated


The Cash-for-clunkers program by the gov is one of their rare successful ones, in fact too successful. The idea is that a consumer can trade a car in for a more fuel efficient one. In just the first week of the program (it has 3 more months to run) the $1B budget has been depleted. Congress is trying to add a $2B extension, prompted by auto producing states.

• Cash for clunkers may go on hold- CNNMoney

Following 2 sluggish months, Dow had an excellent Jul, gaining over 800 (10%) to a new 2009 high. Earnings reports were the drivers, mediocre earnings that beat expectations were considered excellent. The high yield sectors, especially MLPs & junk bonds, have benefited greatly from this rally.

Dow Jones Industrials --- 3 months

Stock gains pared in last hour

Stocks couldn't hold their AM gains. Dow had been up over 200, but had to settle for plus 83 which took it to a new 2009 high, advancers ahead of decliners 4-1 & NAZ gained 16 (failing to hold 2K). The massive amount of new gov debt is starting to be felt in the stock & bond markets.

Banks did well with the Financial Index closing just 2 below the peak reached in May.

S&P 500 FINANCIALS INDEX

Value 173.36

Change 4.48

% Change 2.7%

The Alerian MLP Index rose 2 to the 245s, keeping it close its recent 250 high. The Dow Jones REIT Index was up an impressive 5 to 141, but remains down 10 YTD. Junk bond funds continue strong at new 2009 highs. The yield on the 10 year Treasury bond dropped 2 basis points to 3.64%. Bond traders are worried about the huge supply of debt being marketed. Tomorrow, the Treasury will borrow another $28B of 7 year notes. There are early indications that interest by foreign central banks for this debt may be waning.

Alerian MLP Index --- YTD





Oil recovered most of the prior day's losses on a more favorable assessment about the economy following the unemployment report & an up stock market. At 67, it's only it's 6 below its recent high.

CLU09.NYM

..Crude Oil Sep 09

..66.61

.. 3.26 ......(5.15%)

• Oil jumps to near $67 a barrel- Reuters

While stocks gained, they pulled back in the last hour. On balance, buyers like the earnings reports. Stocks are up an dazzling 13% since Goldman Sachs (GS) started the season with an excellent report. Sorry, this report is a little shorter because of a personal a problem diverting some of my attention.

Dow Jones Industrials --- YTD

Dow charges ahead to new 2009 high

Stocks had strong gains. Buyers were encouraged by relatively good earnings reports & a favorable unemployment report for last week. Dow shot up 154, advancers over decliners better than 5-1 & NAZ rose 34 taking it over 2K (not bad after starting 2009 at 1577). Banks are also having a great day. The Financial Index is trying to take out the previous high of 175 reached in May.

S&P 500 FINANCIALS INDEX

Value 174.38

Change 5.50

% Change 3.3%

MLPs are not sharing today's gains, the Alerian MLP Index is up only 1. But at 244, it's just 6 below its high on Mon. REITs are having a great day, the Dow Jones REIT Index is up 6 (one of its best days this year). Junk bonds continue strong. Risk investments are being bought up. The yield on the 10-year Treasury bond is up 4 basis points to 3.71% (Treasuries are being sold on balance).


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




The gains on Wall Street are being shared by oil futures which recovered half of yesterday's big drop.

CLU09.NYM

...Crude Oil Sep 09

...65.34

... 1.99 .......(3.1%)

The number of claims for jobless benefits rose last week due to seasonal distortions. However, the number remaining on the jobless rolls fell to 6.2M from 6.25M in the prior week, the lowest level since mid-April. New claims for unemployment increased 25K to 584K (above analysts' estimates of 570K). The increase comes after claims were artificially depressed earlier this month by the timing of temporary auto factory shutdowns. This week's total is below the 617K claims reported in late Jun before seasonal distortions began reflecting a trend that indicates a slowing pace of layoffs. The 4-week average fell to 559K, the lowest level since Jan. Unfortunately, jobs remain scarce & the unemployment rate, which hit 9.5%, is expected to exceed 10% by year's end. And weekly claims remain far above the 300K - 350K that is consistent with a healthy economy.

•Initial Jobless Claims in U.S. Increase; Total Rolls Unexpectedly Decline

Exxon-Mobil (XOM), Dow stock & Dividend Aristocrat, reported Q2 net income of $3.95B (81¢ per share), down sharply from $11.7B ($2.22 per share) a year earlier. Excluding one-time items, earnings were $4B (84¢ per share). Analysts expected $1.02 per share. Revenue plunged 46% to $74.5B. XOM said, "Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products." Q2 production fell ONLY 3% from last year. XOM will reduce stock buybacks in Q3 to $4B from $5B in Q2. The stock was down 1. Royal Dutch Shell (RDS.A), the 2nd biggest oil producer, reported a similar decline in revenues & profits. Shell stock was up fractionally. Exxon & Shell produce 1/7 of the world's oil.

•Exxon Mobil, Shell Earnings Plummet After Recession Curbs Demand for Fuel

Exxon Mobil --- 1 year

Royal Dutch Shell --- 1 year

Risk is being rewarded.s Dow is setting another high for this year & NAZ wants to top 2K. The high yield sectors are benefiting from buyers' eagerness to accept more risk.


Dow Jones Industrials --- 2 weeks

Indecisive markets are looking for direction

Dow, after rising 1000 in 2 weeks, has been trading sideways (with a downward bias). Dow fell 26, decliners over advancers almost 2-1 & NAZ was down 7. After topping 9K 4 days ago, Dow is literally even over that period. Banks have also been trading sideways, remaining near the high levels of the 3 month trading range.


S&P 500 FINANCIALS INDEX

Value 168.88

Change -0.43

% Change -0.3%

MLPs recovered a bit in the PM, but still fell a very big 5.77 to the 243s. REITs slipped & junk bond funds were a little higher, reaching their best levels of 2009. The VIX, volatility or fear index, rose .60 to the 25.61 & up from the 23s last week.

Alerian MLP Index --- YTD




VIX ---- 2 months





Oil plunged over $4, one of its biggest losses this year. Driving in the US is down in response to higher prices & lower levels of consumer confidence. Inventories of crude oil & gasoline have been rising, not what the bulls like to see. More Q2 reports are coming from the major oil companies this week which should give their thoughts about future demand for oil in the recession.

• Energy prices slide as unused crude piles up- AP

CLU09.NYM

..Crude Oil Sep 09

..62.79

.. 4.44 ......(6.6%)

$39B in 5-year notes yielded 2.689% at auction today, above the 2.635% forecasted. Yesterday investors demanded higher yields on $42B of 2-year notes. The investor class including foreign central banks share declined at each auction from last month. Bond buyers are pulling back from the market signaling a shift in central bank buying.

The yield on existing 5-year notes rose 6 basis points to 2.66%. The 10-year note yield fell 3 basis points to 3.66% after earlier rising as much as 5 basis points. Indirect bidders (including foreign central banks) bought 36.7% of the 5-year notes, down from 62.8% at the Jun sale (the highest since Dec 2004). The bid-to-cover ratio was only 1.92X at today's auction. Demand for the notes is strong, but supply may be growing even stronger. The concept of saturation is becoming a worry to dealers. China has been a leading buyer of US debt & could be losing some enthusiasm for buying even more.

•Treasuries Fall as $39 Billion Five-Year Sale Yields Higher Than Expected


The one week chart for the Dow is about as flat as it has ever been coming after an enormous 2 week rally. Markets are looking for direction. Chinese have been meeting with US officials this week, so far no significant announcements. The sharp sell-off in the Chinese stocks markets may be dimming their interest in US equities.

Dow Jones Industrials --- 1 week

Markets drift lower

Stocks can't decide what to do. With a lack of direction, they are selling off. Dow fell 61, decliners over advancers 3-2 & NAZ was off 14. Bank stocks are also slipping.


S&P 500 FINANCIALS INDEX

Value 168.91

Change -0.40

% Change -0.2%

MLPs ran into selling. The Alerian MLP Index dropped 8+ to the 240s (& off the 250 high on Mon). A daily point change greater than 5 is significant for MLPs, but after their run this type of reaction should be expected. REITs slipped while high yield (junk) bonds continue on a tear, up again today. The chart for the Barclay High Yield Capital Bond ETF understates results for many individual junk bond funds. High bond default rates are not being factored in when pursuing high yields. Ahead of today's note auction, the Treasury 10 year bond rose, bringing the yield down 5 basis points to 3.64%.

Alerian MLP Index --- 2 weeks




Barclays Capital Hi Yld Bond ETF - YTD





Oil slumped on worries about lower demand for oil & a 5.2M barrel surge in US oil supplies last week.

CLU09.NYM

...Crude Oil Sep 09

...65.12

... 2.11 .......(3.1%)

The Shanghai Composite Index suffered the biggest decline in 8 months on speculation the gov will curb inflows into the stock market. Their index dropped 5%after reaching the highest levels since Jan 2008. Their index dropped almost 75% from over 6K during the bear market & since then has more than doubled from 1½K to 3¼K. Driving stocks lower was speculation the central bank could rein in liquidity. The Hang Seng (Hong Kong) market tumbled 2.4% after a similar run up this year.

Other markets in the Asia region (& around the world) have had similar gains off depressed levels earlier this year. The Australia market had a 12 day winning streak broken last night. However European markets weren't bothered by the China news, they rose today.

China Stocks Plunge Most in Eight Months on Tightening Concern


BP Plc, Europe’s 2nd biggest oil company, reported profits fell 53% on lower energy prices & said there is little evidence of a recovery in demand. Royal Dutch Shell, its larger rival, as well as other major European oil companies will report this week. Analysts expect Shell to report earnings fell 69%. US majors, Exxon Mobil (XOM) & Chevron (CVX), Dow stocks, are expected to report similar significant profit declines from lower oil prices.

BP Says ‘Little Evidence’ of Oil Demand Recovery as Net Falls


Time Warner (TWC) reported lower Q2 profits but reaffirmed its guidance of roughly $2 EPS for 2009 (similar to last year). The stock dropped 1.05.

• Time Warner posts smaller 2Q net, affirms outlook- AP

Stocks are looking for direction. This week, Dow has barely budged after its 1K gain in 2 weeks.

Dow Jones Industrials --- 2 weeks

Stocks slosh around

Markets, once again, began treading under water & remained at sub break even levels for the rest of the day. Dow fell 11, decliners over advancers by 20% but NAZ was up 7. Only 9 Dow stocks advanced & Exxon Mobil (XOM) was the only 1+ loser in the Dow. Banks also took a breather after a 20 point advance which started on Jul 10.

S&P 500 FINANCIALS INDEX

Value 169.31

Change -0.63

% Change -0.4%

S5FINL:IND




The high yield sectors were also quietly lower. The Alerian MLP Index slipped 1¼ (off its 2009 high) to the 248s while REITs & junk bonds were mixed. MLPs need time to catch their breath.


Alerian MLP Index --- 2 weeks




The 3 week rally in oil futures has stalled out. Worries about less driving in the US & industries becoming more efficient using oil caused oil to pull back. However, it's still $10 above its recent low.

CLU09.NYM

..Crude Oil Sep 09

..67.17

.. 1.21 ......(1.8%)

The $42B sale of 2-year Treasury notes drew a higher-than-forecast yield. The yield was 1.08%, above the 1.058% forecast (viewed as a weak auction). The yield on the 10-year note fell three basis points to 3.69% after it touched 3.76% yesterday (the highest level since Jun 22). Today’s auction was the biggest offering of 2-year notes since monthly auctions for them began over 30 years ago. The bid-to-cover ratio was 2.75X, compared with an average of 2.58X at the last 10 auctions. Indirect bidders, including foreign central banks, bought 33% of the notes, compared with 68.7% at the Jun auction (the most in at least six years). This disappointing auction raises concerns about how well future auctions (for 10 & 30 year bonds) will be. If disappointment plays out, that will translate into higher yields.

Treasury Two-Year Notes Decline After Record Sale of Securities

Janet Yelleln, Federal Reserve Bank of San Francisco President, said the U.S. economy is showing the “first solid signs” of emerging from the recession & should resume growth later this year. But she continued with, “Recovery is likely to be painfully slow” and then added that “a gradual recovery means that things won’t feel very good for some time to come.” FED officials anticipate the economy will contract less this year than they had projected in Apr, even though unemployment is climbing towards 10%.

•Fed's Yellen Seeing `First Solid Signs' of Emergence From U.S. Recession


This was one of those days when little was decided in the markets. Most significant was the weak Treasury auction & resulting concerns about auctions going forward. Tomorrow. $39B of 5-year notes will be auctioned followed by $28B of 7-year notes on Thurs. And that's just for this week. Growing supply may take money from stock markets. Dow has been flat for 3 days straight.

Dow Jones Industrials --- 2 weeks

Markets fall from lower consumer confidence

Stocks are resting after their recent rally. Dow gained 1K in a couple of weeks, it needs time to rest. Dow fell 42, decliners over advancers 2-1 & NAZ was down 7. Banks are also resting after working their way up to the high end of their 3 month trading range:

S&P 500 FINANCIALS INDEX

Value 168.73

Change -1.21

% Change -o.7%

MLPs pulled back 2 to the 248s, they're entitled. REITs also fell but junk bonds were mixed with yields around a moderate 13%. The 10 year Treasury bond yield dropped 4 basis points to 3.67% ahead of today's Treasury auction.


Alerian MLP Index --- 1 month





Oil is also settling back with the stock markets.

CLU09.NYM

...Crude Oil Sep 09

...66.79

... 1.59 .......(2.3%)

Americans' confidence dropped again in Jul. Job security worries offset enthusiasm about the stock market rally helping bolster retirement accounts. The Conference Board said its Consumer Confidence Index fell to 46.6 in Jul from 49.3 in Jun (after a decline in Jun). Economists were expecting a reading of 49 (a reading above 90 signals the economy is on solid footing). Shoppers are looking past surging stock prices & a stabilizing housing market. Instead they remain nervous about their own financial security from mounting job losses (yesterday Verizon announced 8K job cuts). Consumers pessimism about income expectations does not bode well for spending in the coming months. Early indications for the important "back-to-school" season should be available next week.

•U.S. Consumer Confidence Falls More Than Forecast Amid Rising Joblessness


Home prices were up a little last month & sales were also higher last month. However, the problem is they're coming off low bases. Sales remain down 70% or so from the good old days, small ticks up aren't going to make a big difference.

• Home price index has first monthly rise since 2006- CNNMoney

US Steel (X), the largest US steel company, reported a 392M loss in Q2. The loss was less than in Q1, but it shows demand for steel is weak around the globe. They are forecasting a loss for Q3. The stock fell 1 to 40.

• US Steel reports 2Q loss as demand remains low- AP

US Steel --- 1 year





The markets are quiet again, but lower. They've lost their positive edge in recent weeks. The consumer confidence report signals more dreary days ahead for this recession. US Steel, a major supplier to economies around the world, tells us that the recession will not have a speedy recovery. Treasury auctions this week will be another negative influence for stocks.,

Dow Jones Industrials --- 1 month

Dow managed a gain at the close

Dow was under water for most day & went into the black at the close. Dow edged up 15, advancers ahead of decliners 3-2 & NAZ was up 2. Volume continues light, under 1B on the floor of NYSE. Banks did well, helped by regionals. With today's advance, the Financial Index is getting close to the 175 peak reached on May 10.


S&P 500 FINANCIALS INDEX

Value 169.94

Change 2.49

% Change 1.5%

S5FINL:IND





The Alerian MLP Index rose 3½ taking it just over 250, the first time since the massive sell-off after the Lehman collapse. The spread between the yield on the MLP Index & the 10 year Treasury bond has been reduced to 460 basis points, the lowest it has been since late last year. By way of comparison, the Dow Jones REIT Index is down almost 50% in the same time span. Today it was up 2.10 to the 138s (but it started the year at 151). Junk bond funds were up slightly. Treasuries fell as they completed the first auction for this week. The yield on the 10 year Treasury bond rose 4 basis points to 3.71%. Oil was up pennies in the 68s & not too far from its recent high of 73.


Alerian MLP Index --- YTD





The Treasury sold $6B in 20-year Treasury Inflation Protected Securities (TIPS) at a yield of 2.387%, higher than the forecast of 2.37%. The bid-to-cover ratio rose to a record 2.27X up from 1.92X at the previous auction. Indirect bidders, including foreign central banks, bought 47.8% of the offering. The average for the previous 5 sales had been 54.2%. The auction was rated as "fair."

Treasuries Fall as US Begins Auctions


Earnings continue to give a mixed picture. Dow stock Verizon (VZ) reported profits down 21% & will respond with job cuts for 8K employees. The stock fell 50¢. Aetna (AET), Honeywell (HON) & RadioShack (RSH) reported weak earnings. RSH earnings were up from cost cutting & beat forecast but the stock was little changed. The other 2 had lower earnings, although HON's stock managed a small gain.

Verizon Profit Drops; Carrier Plans 8,000 Job Cuts

Verizon --- YTD





When the Dow plunged thru 10K last fall, the 9K floor was strong & held for a few months as the chart shows. Then it gave way. After cracking thru it last week, it has held but without much testing. That could come this week, especially if the Treasury note auctions are weak.

Dow Jones Industrials --- 1 year

MLPs soar to another 2009 high

Markets are digesting recent gains with little change today. Dow fell 22, advancers barely ahead of decliners & NAZ is off 9. But banks are having a good day:

S&P 500 FINANCIALS INDEX

Value 169.20

Change 1.75

% Change 1.0%

MLPs are trading as if the the sky is the limit. The Alerian MLP Index gained 3+ pushing the magic 250 level, yet another 2009 high. In just the last 2months, the index is up almost 20%, probably the best run in its history. This is distribution time, some may be buying for distributions going out in Aug. Meanwhile, REITs are up only fractionally while junk bond funds are mixed. Treasuries sold off ahead of the 4 auctions this week. The yield on the 10 year Treasury bond rose 7 basis points to 3.74% & looks to be heading back to 4% reached last month. Oil is little changed today.

Alerian MLP index --- 3 months




10-Year Treasury Yield Index - 3 months





Analysts have become more bullish on earnings estimates, last month more raised earnings estimates than lowered estimates. Of the 204 companies in the S&P 500 reporting earnings for Q2, 75% beat estimates. While these signs are bullish, some point out that the best earnings are reported early, ones with problems tend to be reported later in the earnings season. Also, beating estimates refers to beating already lowered estimates. Higher earnings have more to do with cost cutting than higher revenues, another disturbing trend. But for the time being, optimism sounds good.

•Surging Earnings Estimates Signal 26% Advance for Shareholders of S&P 500


Treasuries are the cheapest they've been in 15 years based on the "real" yield. This yield is defined as the difference between rates on gov securities & inflation. This translates for the 10-year notes to 5.10% today, compared with an average rate of 2.74% over the past 20 years. This gap is used to explain demand for Treasuries after they have had the greatest drop in price (& corresponding rise in yields) in more than 30 years. Demand has been great especially from foreigners which is why Tim Geithner is reassuring Chinese today that the US will reduce deficits going forward. However, this week the Treasury is auctioning off a record $115B in debt.

•Real Yields Highest Since 1994 as Treasury Sells Record $115 Billion Bonds


Stocks are having another stellar month as the Dow crashed thru the ceiling, making 9K its new floor. Buyers are forgetting that the recession drones on. Among other problems, lower tax revenues combined with massive gov spending are forcing record levels of borrowings.

Dow Jones Industrials --- 3 months

Dow blasts through the 9000 ceiling

The last year has been a time of record losses in the markets followed by record recoveries. Last week Dow finally broke thru the 9K ceiling, closing at 9093 on Fri. But gains in the recovery were not evenly spread around. NAZDAQ has risen an impressive 25 YTD while Dow is up less than 4%. Pursuit of risk has been a strong motivating factor for stock buyers in 2009. High yield securities were also discovered by those wanting to lock onto high yields.

Dow Jones Industrials --- 1 year




NASDAQ --- 1 year





Leading this year's gains in the high yield sectors have been the MLPs & junk bond funds. MLPs have risen an astounding 40% YTD (plus another 4% when distributions are included). Many junk bond funds are up 50+% YTD after reinvested divs are included. However, REIT's have lagged behind. Their recovery in recent months has still left them down 10% YTD as div cuts & a growing understanding about rising vacancy rates has not been lost in the markets.


AlerianMLP Index --- 1 year




Barclays Cap High Yld Bond ETF - 1 year




Dow Jones REIT Index --- 1 year




Enthusiasm may have gotten the better of the markets in their recovery. Dreary economic numbers keep coming. The yield on the 10 year Treasury bond has shot up from the low 2% area at the start of the year to 3¾%, & may go higher with record levels of borrowings next week. In addition, The S&P Financial Index which I track every day has not been able to take out its 175 high reached 10 weeks ago, needing another 9 points. Banks were the market leaders during the first leg up in the recovery but have not been in the last 2 months. Let market buyers beware!

10-Year Treasury Yield Index




S&P 500 FINANCIALS INDEX

Dow eaks out another gain, staying above 9000

Higher markets in the PM reduced morning losses. Dow managed a gain of 23 giving it a weekly advance of 350, advancers ahead of decliners 3-2 & NAZ partially recovered to down only 7 (after Microsoft disappointing earnings). Banks also had a modest loss, but up almost 3 for the week. The Financial Index is at the high end of its 3 month trading range.

S&P 500 FINANCIALS INDEX

Value 167.39

Change -0.63

% Change -0.3%

S5FINL:IND




One month ago, MLPs already had a very good year with a 20% gain YTD. In the last month, the index ran up another 16% bringing the YTD gain to a record breaking 39% (plus distributions). In the same time, REITs, after a good last month, are still down 10% YTD. Some junk bond funds have soared 50% from depressed levels at the start of the year while Treasuries have plunged. The yield on the 10 year Treasury soared from about 2¼% at the start of 2009 to nearly 3¾%. On the margin, Treasuries were sold with the money going into MLPs & junk bond funds while REITs only got modest investments.

These are all yield securities. The yield for the MLP Index is below 8½%, not too far from 7% (or so) which is a traditional yield in conventional times. Yields on junk bond funds are around 13%, not too far from 9-10% area which is ordinary kind of number. Analysis of REIT yields is more complex because of the many div reductions. Current yields are typically under 10% but stocks have not benefited that much because of lower divs. In the coming months, if the recession continues, the disparity between the haves & have nots should narrow.

Today the Alerian MLP index rose 3½ to the 246s, another 2009 high. REITs were fractionally higher & junk bonds were mixed. The yield on the 10 year Treasury bond fell 4 basis points to 3.67% ahead of 4 big auctions of debt next week.


Alerian MLP Index --- 1 month




Dow Jones REIT Index --- YTD




10-Year Treasury Yield Index - YTD





Oils keeps advancing to its highest level since the start of Jul.

CLU09.NYM

..Crude Oil Sep 09

..67.86..

0.70 ......(1.0%)

OIL (ETF) --- 1 month





Dow has advanced almost 1K in 2 weeks, nothing to sneeze at. It's behaving as if the recession is over. I don't think so.

Dow Jones Industrials --- YTD

Profit taking day for stocks

Markets have gone into a pause mode. Dow dropped 25, decliners over advancers 2-1 & NAZ was down a big 23 related to Microsoft (MSFT) earnings reported last night. MSFT was off 2½ on its earnings decline from lower PC sales. Profit taking is also taking banks lower. However the index is still in the upper reaches of its 3 month trading range.

S&P 500 FINANCIALS INDEX

Value 165.78

Change -2.24

% Change -1.3%

MLPs remain hot. The Alerian MLP Index shot ahead another 1½ to the 244s, a new 2009 high. So far, MLPs have gotten thru the earnings season with no damage from earnings reports. The Dow Jones REIT Index dropped 2, muddling along in its sideways trading pattern. Junk bonds were mixed & Treasuries rose, the yield on the 10 year Treasury bond dropped 4 basis points to 3.67%. Oil was down pennies on this quiet day of trading.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




California is still standing because they passed legislation late last night (at least most of what was necessary) to close the huge budget deficit. Now we'll have to see how this mess plays in the real world.

•California Senate Approves $26 Billion Deficit Plan; Assembly Still Voting


CIT is under extreme pressure as it struggles to stay alive. Their tender offer for the $1B in notes due next month has been revised, creating an incentive for bondholders to redeem their bonds sooner (by the end of July). If they don't get 90% acceptance, CIT may have to file for Chapter 11.

•CIT Reworks Its Tender Bid for Notes to Punish Late Exchange by Investors


The chart below is as pretty a one as they come. Investors have been eager to accept risk to pursue future profits. On the margin, their appetite for high yield securities seems unlimited. MLPs & junk bond funds are having their best year in history while REITs (a similar kind of security) have been lumbering along during the big rally in recent months. The lagging REITs are related to all those "for rent" signs I see, not to mention div cuts this year.

Dow Jones Industrials --- 2 weeks

Microsoft profits plunge in Q4

Microsoft (MSFT), a Dow stock, reported profits in the last qtr (its Q4) plunged 29% because of weak computer sales. Revenue for MSFT fell for the first time since going public in 1986 & was well short of analysts' expectations. Its shares plummeted $1.87 (7%) in after-hours trading after rising 76¢ during daytime trading.

In the last qtr MSFT earnings sank to $3B, or 34¢ per share, down from $4.3B, or 46¢ per share last year. Earnings were hurt by legal charges, severance charges & the declining value of its investments. Excluding all those items, MSFT would haven beaten expectations by 2¢ per share. Quarterly sales dropped 17% to $13.1B (analysts were looking for $14.4B in sales). For the fiscal year ended June 30, MSFT's profit fell 17% to $14.6B ($1.62 per share) from $17.7B ($1.87 per share) in the prior year. Sales in their fiscal year sank 3% to $58.4B.

Dow should begin trading on Fri with a negative tone.

•Microsoft Profit Drops 29% as PC Slowdown Weighs on Revenue; Shares Slump


Microsoft --- 1 year

Dow surges past 9000

Markets shot out of the gate with strong gains in the first 2 hours & remained at those levels for the rest of the day. Dow closed up 188 at 9069, advancers over decliners almost 5-1 & NAZ gained 47. The only losers in the Dow were McDonald's (MCD) & Wal-Mart (WMT), 2 defensive stocks. Volume was not exceptional, on the floor it was a little over 1.4B.

Banks are at the highest level they've been at in the last 3 months (aside from reaching 175 on May 8).

S&P 500 FINANCIALS INDEX

Value 168.02

Change 4.84

% Change 3.0%

Value for S5FINL:IND





Below is a 2 year view of the Alerian MLP Index. 2 years ago, they had just come off their record high at 342. This year they've had a huge rally, already making 2009 the best year in a 14 year history. REITs are a similar high yield type, but have had a less successful recovery in recent months. Treasuries are in a different world, but largely the mirror of high yields. The yield on the 10 year Treasury is near where it was before the Lehman collapse. With a record $115B in 4 auctions coming next week, the yield may rise even beyond the 4% high of a couple of weeks ago. Risk is welcome, the VIX, volatility or fear index, has returned to pre-Lehman collapse levels.

Today, the MLP Index popped another 1.84 to 242.95 (pulling back in the last hour), the REIT index was up 5 to the high reaches of its 3 month sideways band & junk bond funds are back to Oct levels. VIX was flat at 23½. Treasuries sold off badly. The yield on the 10 year Treasury bond soared 16 basis points to 3.71% (up from under 3.30% earlier this month).

Alerian MLP Index --- 2 years




Dow Jones REIT Index --- 2 years




10-Year Treasury Yield Index - 2 years




VIX ---- 2 years




Commodities were not left behind. Oil has returned to its level at the start of Jul & may challenge its 73 high from last month.

CLU09.NYM

..Crude Oil Sep 09

..67.22 3

.. 1.82 ......(2.8%)

California lawmakers plan to vote today on the revised plan for a $26B budget reduction. The free spending state has proposed major cutbacks. Later on we'll find out if they have the backbone to make these cuts. This is the kind of news which stock markets like to hear.

California Lawmakers Set to Begin Deliberations on Deficit Plan


Dow has charged ahead an amazing 921 (11%) in just 9 trading days, one of its greatest rallies in history. This has been based on earnings that were better than "just plain awful." It looks like a California disaster has been avoided, although dealing with large cutbacks in their spending will be painful to many both in & out of state. We were reminded today that unemployment keeps muddling along at dreary levels. Caution is being thrown to the wind, accepting risk for future rewards is the driving force. Don't know how long that will last.

Dow Jones Industrials --- 2 years

Dow soars, flying over 9000

Stocks rose sharply, taking the Dow over 9000 (chart is shown in the Bigcharts widget on the right). Dow gained 166, advancers over decliners 4-1 & NAZ was 37 higher (up an astounding 24% YTD). Banks are participating in the rally.


S&P 500 FINANCIALS INDEX

Value 166.19

Change 3.01

% Change 1.8%

MLPs keep flying. The Alerian MLP Index gained 2.66 to the 243s, the highest level since Sep 12. REITs & junk bonds funds were higher. Like MLPs, some junk bond funds are back to levels not seen since before the Lehman collapse. The VIX is flat in the 23s. Treasury bonds sold off, the yield on the 10 year Treasury rose 7 basis points to 3.62%

Alerian MLP Index --- 2 weeks





Commodities are also in a rally mode with oil leading the way up.

CLU09.NYM

..Crude Oil Sep 09

...66.24

... 0.84 .......(1.3%)

Claims for unemployment insurance rose 30K to 554K, above estimates of 550K. This increase follows 2 weeks of sharp drops largely because automakers didn't lay off as many workers as expected in early Jul. The four-week average of claims, which smooths out fluctuations, dropped to 566K, lowest level since Jan. The downward trend in jobless claims is viewed as encouraging

.US Initial Jobless Claims Rise by 30,000 to 554,000


UPS (UPS), the world's largest shipping carrier, said Q2 profit plunged 49% to $445M as sales fell 16.7% from the stagnant global economic activity that affected all of business units. The outlook for Q3 was below expectations. They said that while the economy may be bottoming out the larger question is how long it stays at low levels before growing! The stock was off 50¢. EPS was 44¢ a share (adjusted earnings were 49¢) versus 85¢ last year. Revenue dropped to $10.8B from $13B last year. Analysts expected earnings of 49¢ a share on revenue of $11B. UPS expects Q3 earnings in a range of 45¢ -55¢, below 59¢ analysts' forecast. Their general outlook is very cautious. UPS is seen as a bellwether of the global economy, since it deals with such basic indicators of company health as orders & product shipments.

UPS Forecasts Profit Less Than Estimates; Sales Fall


3M (MMM) & McDonald's (MCD), 2 Dow stocks which are also Dividend Aristocrats, reported different earnings, MMM was up 3 but MCD fell 2¼. AT&T (T), another Dow stock, reported good earnings, stock up ¾.

• 3M profit surges past estimates, stock climbs- Reuters
• McDonald's 2Q profit falls 8 pct on strong dollar- AP
• AT&T's 2Q profit falls on economy, iPhone subsidies- AP

CIT (CIT) is back in the shaky camp. The rescue plan worked out earlier this week may not be enough to keep them out of bankruptcy. The stock is down 13¢ to 73¢.

•CIT Chapter 11 Filing May Follow August Debt Swap Under Bondholder Plan


Dow is up 900 points (more than 10%) in less than 2 weeks. This much euphoria without fundamental reasons can not last.

Dow Jones Industrials --- 2 weeks

Dow's 7 day winning streak ends

Markets were stumbling along looking for direction all day, but found none. Dow slipped 34 (ending its streak of daily gains), advancers 25% ahead of decliners & NAZ was up 10. Half the Dow stocks were higher. Banks also stayed near break even all day, but they remain at the high end of the sideways trading band for the last 3 months.


S&P 500 FINANCIALS INDEX

Value 163.18

Change -0.24

% Change -0.1%

Value for S5FINL:IND




MLPs remain hot as more investors are attracted by high yields to embrace riskier investments. The Alerian MLP Index rose .79 to the 241s, another 2009 high. The index yield has dropped to 8½% after its run up, narrowing the spread over the 10 year Treasury yield to 500 basis points, still high but less tempting than in the recent past. The Dow Jones REIT Index was up pennies & junk bonds were mixed. The VIX at 23½ reached another 2009 low. Meanwhile, the 10 year Treasury yield rose 8 basis points to 3.55%.

Alerian MLP Index --- 2 weeks




Oil inched up in the the PM, cutting its losses.

CLU09.NYM

..Crude Oil Sep 09

..65.40

.. 0.21 ......(0.3%)

Non performing loans, loans that aren't paying interest, is a growing problem for banks. Wells Fargo (WFC), Sun Trust (STI), Key Corp (KEY) & US Bancorp (USB) have had to increase their provisions for future loan losses & that problem looks like it will get worse in the coming months.

Wells Fargo, SunTrust Lead US Banks in Boosting Loan Reserves


General Motors sold 1.9M vehicles worldwide in Q2, despite a 32% decline in North America. Auto sales in China were up 62% in Q2. The company sold more than 450K vehicles in China just a little short of the 538K depressed sales in the US. GM said the Asia-Pacific growth led to 72% of its global sales for the qtr coming from outside the North American market, far higher than the normal percentage of 65%. Over time overseas sales are expected to drop back to the 60-65% range. The bright spot in GM's global sales, was that they were up 20% over Q1, a sign that the company is recovering from its 40-day stay in bankruptcy protection & from the global economic downturn. GM says its global market share was 12%, down only slightly from the year-ago qtr despite the bankruptcy filing. GM sold 3.6M vehicles in H1, down 22% from the prior year. Early indications are that the new GM will be able to survive.

• GM 2Q global sales fall 15 percent amid weak economy- AP

This 2 week chart shows a spectacular run, one of the best in history. This market is overbought, perhaps the bulls need time to catch their breaths.

Dow Jones Industrials --- 2 weeks

Markets uncertain where to go

Stocks are meandering after an explosive rise in recent days. Dow is up 16, decliners 20% ahead of advancers & NAZ is up 6. Markets may be getting ready to give back some of the recent gains. The Financial Index is down but near the higher end of its 3 month trading range.

S&P 500 FINANCIALS INDEX

Value 162.23

Change -1.17

% Change -0.7%

MLPs are flat, resting at their yearly highs. The graph below is for an ETF started by JPMorgan earlier this year to track the Alerian MLP Index (for those who want to participate in a basket of of MLPs). Today it's unchanged. The Dow Jones REIT Index dropped 1, just sloshing around in the 120s. Junk bond funds are little changed at or near their yearly highs. The VIX, volatility index, is flat in the high 23s, yet another low for 2009. The decline in VIX mirrors the growing acceptance of greater risk seeking out high yield securities. The 10 year Treasury bond slipped a little, taking the yield up 3 basis points to 3.51%


AMJ (ETF) --- 6 months




Oil sold off (but higher in the last few minutes) ahead of the weekly inventory report coming out shortly. Those who bought a couple of weeks ago in the high 50s are still happy campers.

CLU09.NYM

...Crude Oil Sep 09

...65.22

... 0.39 .......(0.6%)

Boeing (BA) & Pfizer (PFE), 2 Dow stocks, reported muddy kind of earnings. After making adjustments they were sort of OK. BA fell 19¢ while PGE is up 64¢.

• Boeing profit climbs in 2Q on strong defense sales- AP
• Drugmaker Pfizer's earnings fall 19 percent- AP

CIT (CIT) drama plays on. They paid high fees to get access to more money 2 days ago which is raising eyebrows. The bondholders who put up $2B bailout money got a fee of $100M for their effort. In addition, CIT had to put up a lot of collateral. The bonds that CIT wants to buy back at 82½¢ on the dollar is trading at that price presently. CIT's future remains uncertain, a negative for the markets.

•CIT Rescue Gives Pimco, Centerbridge Instant, Risk-Free $100 Million Gain


There is a story about how investors are accepting greater risk to go after greater rewards. The focus is on the global economy, with more interest in securities of growing Asian countries. This general feeling is what is in play in the US with more interest in high yield securities. The problem is that interest is fickle, it ebbs & flows.

•Investors Are Embracing More Risk With Preference for Asia, Survey Shows


The word stabilize or stabilization is thrown around a lot to signify that the recession is bottoming. Most would agree that the economy has ended its free fall period, but that does not necessarily signal the economy will come roaring back. Those talking about "good" earnings reports usually refer to earnings beating lowered estimates, but below last year. Wells Fargo (WFC) & Morgan Stanley (MS) reported mushy earnings today, sending the stocks lower. I think these reports are more representative of the real story about how well companies performed in Q2.

Dow Jones Industrials --- YTD

Dow higher for 7 consecutive days

Dow advanced to another 2009 high on the gains of 18. Dow rose 67, going over 8.9K, advancers were slightly ahead of decliners & NAZ was up 6. The 1+ gainers in the Dow were: Caterpillar (CAT), Merck (MRK) & Exxon Mobil (XOM) while Coca Cola (KO) & United Tech (UTX) were the big losers. Volume was on the light side.

Banks, while off today, are still in the higher end of their trading range for the last 3 months. Below are charts for 3 major banks over the last 3 months.

S&P 500 FINANCIALS INDEX

Value 163.42

Change -1.31

% Change -0.8%

Value for S5FINL:IND




Bank of America --- 3 months




JPMorgan --- 3 months




Citigroup --- 3 months





Profit taking finally hit the MLPs, down 1 to 240. They benefit from the pursuit of risk for high yields. Meanwhile REITs can't break out of trench war, going nowhere. Junk bonds are finding new friends, as the Barclay High Yield Bond ETF reached another 2009 high, with a yield falling to 13½%. The VIX, volatility index, went just below 24, another 2009 low. Treasuries found buyers, the 10 year Treasury bond rose more than 1 point ($10.55 per $1000 bond) reducing the yield 11 basis points to 3.48%. This yield is at the low end of the trading range for last 2 months.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD




10-Year Treasury Index -- 2 months




Oil has been working its way higher for the last 6 trading days.

CLQ09.NYM

..Crude Oil Aug 09

..64.72

.. 0.74 ......(1.2%)

California worked out a tentative deal to close the whopping $26B gap in its budget. California would slash spending for schools, public works & welfare programs in the longest recession since the 1930s. The agreement will also siphon money from municipalities, force companies & individuals to pay income taxes sooner, making it more difficult to receive state aid. They expect to vote on the new budget by Thurs. However, cities & counties said they would sue to block any attempt to siphon local gas & redevelopment agencies’ monies. Consider this proposal a "work in progress."

California Budget Deal Reached By Legislators, Schwarzenegger


Investors pursue risk, pushing stocks higher & higher. Thoughts of the recession ending followed by a "V" shape recovery are bringing out buyers. Stocks are in overbought territory, a day of reckoning is approaching.

Dow Jones Industrials --- YTF

Dow tries for 7 consecutive up days

Dow gained 53, advancers over decliners by 25% but NAZ fell 3. Banks were soft, digesting their recent run-up in prices.

S&P 500 FINANCIALS INDEX

Value 163.85

Change -0.88

% Change -0.5%

MLPs continue on their roll. The Alerian MLP Index is up .80 to the 242s (only 100 below the peak 2 years ago in Jul). REITs & junk bond funds were down slightly & the 10 year Treasury bond yield slipped 2 basis points to 3.54%.


Alerian MLP Index --- 1 month




Oil continues on its winning ways.

CLQ09.NYM

...Crude Oil Aug 09

...64.70

... 0.72 .......(1.1%)

Martin Feldstein, professor of economics at Harvard & former head of the National Bureau of Economic Research, says that the stimulus package may give a short term boost to the economy but will fade, bringing a 2nd leg down for the recession.

Obama’s Stimulus Plan Slow to Trickle Through Economy


The CIT (CIT) drama plays on. After the excitement yesterday about saving CIT from bankruptcy, they are saying that didn't solve their financial problems. They need more than the $3B arranged for yesterday. Their first hurdle is paying off $1B of debt on Aug 17. They are proposing giving the bondholders 82½¢ on the dollar & they need 90% approval.

•CIT Group Says Existing Liquidity Not Enough to Make August Debt Payment


5 Dow stocks reported earnings with mixed results. Caterpillar (CAT) was the best performer, raising EPS guidance for 2009 from 1.25 to a range of 1.15 to 2.25 (a very wide range!). The 1.68 div is under review.

Symbol	Last Trade		Change		Volume	Intraday	Related Info
MRK		29.29	1.35	4.83%	5,438,926		Chart, Messages, Key Stats, More
UTX		54.17	0.80	1.46%	2,159,364		Chart, Messages, Key Stats, More
DD		28.15	0.18	0.64%	2,842,150		Chart, Messages, Key Stats, More
CAT		40.82	4.17	11.38%	20,913,315		Chart, Messages, Key Stats, More
KO		50.46	0.57	1.12%	3,622,390		Chart, Messages, Key Stats, More

• Drugmaker Merck posts 12 percent drop in 2Q profit- AP
• United Tech profit down 23 percent, cuts '09 forecast- Reuters
• DuPont earnings sink, but cost cuts help- Reuters
• Caterpillar 2Q profit falls 66 pct on weak demand- AP
• Coca-Cola 2nd-quarter profit rises 43 percent- AP

Caterpillar --- 2 weeks




Dow is trying to extend its winning streak to 7 days. It's up, but only 15 are gainers in what is clearly an overbought market. Ben Bernanke is testifying before Congress, telling them that there are tentative signs of stabilization & rates will remain low for some time. A key problem is that low rates can not last, they will have to be brought back to traditional levels.


DOW JONES INDUS. AVG SNAPSHOT

1 YEAR



Dow Jones Industrials --- 2 months

Stocks rise on CIT bailout

It took 6 weeks for Dow to reach another new high for 2009. Dow rose 104, advancers over decliners more than 3-1 & NAZ was up 22. This move followed one of the strongest weeks for the markets in history. Banks had a good day, but not exceptional. Bank of America (BAC) & Citigroup (C) each fell more than 5%.

S&P 500 FINANCIALS INDEX

Value 164.73

Change 1.34

% Change 0.8%

MLPs have reached levels not seen since the Lehman collapse last Sep (shown in the graph below). The Alerian MLP index was up another 3.39 to 241s. REITs had a good day, up 5, but still stuck in the mud, as the index is kicking around the 120-130 trading zone. Junk bond funds were strong while the VIX pulled back in the PM to even (in the low 24s). The 10 year Treasury bond also rallied, taking the yield down 7 basis points to 3.56%. I keep looking at the disconnect between MLPs & REITs, similar high yield securities, and wonder about the sharp differences between their performances this year.

Alerian MLP Index --- 1 year




Dow Jones REIT Index --- YTD




Below are a few today's press releases from MLPs along with an article from the Wall Street Journal posted Sat summarizing the MLP industry along. My posting on MLPs at SeekingAlpha was also just published.

•	PAA		New Issue-Plains All American Pipeline sells $500 mln in debt

•

BPL

Buckeye to cut 260 jobs, or 25 pct of its workers

•

EEP

Enbridge keeps earnings growth target after deal

•

EPD

Getting Paid to Beat the Market: Top Indexes by Dividend Yield

•

EPD KMP

Master Limited Partnerships Have Benefits, Risks SeekingAlpha A Stellar Year for MLPs So Far

Oil did not want to be left behind today & is also up nicely from its lows last week.

CLQ09.NYM

..Crude Oil Aug 09

..64.29

.. 0.73 ......(1.2%)

Buyers returned in the PM. Dow is up 1%, the S&P 500 is up 4½% & NAZ is up 21% YTD. Buyers have been seeking tech & high yield securities. In just 6 trading days, Dow was up every day for a total gain of 700. Not sure it deserves this kind of treatment given earnings reports have only been so-so. Maybe extending the proposed health plan deadline for passage, by year end, is encouraging buyers. The CIT bailout was also helpful, especially because it was done in the private sector, not by gov. Now the magic 9K line for the Dow will be an important target for the bulls.

Dow Jones Industrials --- 1 year




Dow Jones REIT Index --- YTD

Stocks advance nervously

Markets are edging higher after a major disaster seems to have been avoided at the last minute. Dow is up 46, advancers over decliners 2-1 & NAZ gained 11. Banks were higher after last week's big gain.

S&P 500 FINANCIALS INDEX

Value 164.58

Change25 1.19

% Change 0.7%

MLPs continue on their roll, up 2½ taking the Alerian MLP Index over 240. The index already has its best year in the 14 year history & still has 5 months to go. REITs & junk bonds are strong but the VIX, volatility index, rose 1 to 25. Bidders for high yield securities were encouraged by the last minute bailout for CIT (CIT) Group discussed below. The 10 year Treasury bond fell on the opening, but found buyers bringing its yield to little change at 3.66%.

Alerian MLP Index --- 2 weeks




Oil was little changed today.


CIT virtually doubled (to $1.33) on a $3B rescue loan negotiated late last night. The emergency loan gives the commercial lender desperately needed breathing room to refinance maturing debt amid a major liquidity squeeze. CIT had been trying to reach a deal with the gov for emergency funding before talks broke down last week. CIT, one of the nation's largest lenders to small & mid-size businesses, had warned that depriving it of more federal aid could imperil about 1M corporate borrowers -- from Dunkin' Donuts franchisees to retailer Dillards Inc. The emergency loan will provide temporary financing so CIT could launch a debt exchange offer to free itself from upcoming debt maturities. Under the deal, CIT's main bondholders would lend CIT $3B for 2½ years at an initial interest rate of 10½%.

•CIT Said to Get $3 Billion of Funds From Bondholders to Avoid Bankruptcy


California is trying to work out a last minute compromise to avert a disaster. They hope to wrap up a deal by Thurs after a Sun deadline came & went.

• Final details left for discussion in California budget- AP

The last minute bailout for CIT is a welcome sign of relief for the markets, especially the high yield sectors. After one of its biggest weekly rallies, S&P 500 is at the highest level since Nov while the Dow is struggling to go into the black for 2009 (needing just another 11). Maybe buyers will return after lunch.

Dow Jones Industrials --- 2 weeks

Dow had one outsanding week

Stocks had their best week in 4 months, not to mention one of their best weeks in history. Dow rose almost 600, more than 7% on the first wave of Q2 earnings reports. Caution is being thrown to the wind with expectations of more "good" earnings reports to come. The best performers in 2009 have been big name tech stocks: IBM (IBM), Google (GOOG), Apple (AAPL), etc. & high yield securities.

The VIX, volatility or risk index, has plunged to levels (24) not seen since the Lehman collapse. The greater acceptance of risk brings out buyers for high yield securities. MLPs must be having the biggest gain of any group in 2009, up an astounding 35%. Last week, it added 12, taking it to 238. REITs are down YTD & have had a choppier ride this year, but also did quite well last week. The Barclays High Yield Bond Index understates the stories for individual junk bond funds, but shows the trend of higher prices in 2009.


VIX --- 2 weeks




Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




Barclays Cap Hi Yld Bond ETF - 2 weeks




Gains are fun while they last. Dow just needs another 60 to set a new high for 2009. But it will have to fight off economic reality: unemployment is forecasted to top 10% before beginning its descent, housing is a disaster, retail sales are weak & California's $26B budget deficit is a looming disaster.

Markets end stellar week, mixed

Dow gained all 5 days & had a very impressive week. Dow ended up 32, decliners slightly ahead of advancers while NAZ fell 1. Volume was only mediocre.

The Financial Index slipped today but had an exceptional week, up 14 (almost 10%), when earnings from some of the biggest banks were reported.

S&P 500 FINANCIALS INDEX

Value 163.39

Change -1.28

% Change -0.8%

The Alerian MLP index is on a tear. After gaining 1½ today to the 238s, it's up a startling 35% in 2009. In the last 7 trading days, it popped 19. But REITs sold off while junk bonds were mixed & the VIX came down to 24, another new low since the Lehman collapse last Sep. Treasuries continue to sell off with the yield on the 10 year Treasury jumping 9 basis points to 3.65% (at the beginning of the week it was under 3.30%). Risk takers looking for high yields are focusing their interest on MLPs.

Alerian MLP Index --- 2 years




Oil befitted from higher stock markets, it's also up 10% from its 2 month lows

CLQ09.NYM

..Crude Oil Aug 09

..63.57

.. 1.55 ......(2.5%)

CIT (CIT) is struggling to stay live. They need upwards of $6B & Pimco, their largest bondholder, is working with them. Adventuresome investors are interested in their bonds which bob wildly on every rumor. There is also late breaking news that Goldman Sachs & JPMorgan are talking with them. Unfortunately, their interest is in post Chapter 11 financing. Speculators were encouraged, the stock more than doubled to over 80¢, but settled back to a more modest gain of 29¢ (closing at 70¢) .

CIT Seeks Lenders After US Balks at Guaranteeing Its Bonds
•CIT Group's Banks Said to Weigh Debtor-in-Possession Financing for Lender


Dow had one its best weeks in history gaining amost 600 or 7%. The major driver was the first wave of earnings reports including those for some of the biggest banks. But substantial headaches remain. Nobody fully understands how CIT bankruptcy will play out. California, which has been under many radar screens, is running out of time. The end of the month is just 2 weeks away & that's when the goodwill they've been living off is expected to expire. Resolving their $26B budget gap looks hopeless. The recession with unemployment getting worse won't go away soon. In the next week, retailers will start pushing "back to school" sales, their 2nd most important selling season. Current trends indicate this will be another tough period for retailers (like last year).

Dow Jones Industrials --- 1 week

Exhausted markets take a breather

Stocks are catching their breaths after one the best weekly gains in history. Dow is down 6, decliners over advancers 3-2 & NAZ fell 3. Banks slipped a little, not greatly affected by disappointing earnings from Bank of America (BAC), General Electric (GE) & Citigroup (C).

S&P 500 FINANCIALS INDEX

Value 162.25

Change -2.42

% Change -1.5%

Gloomy earnings from BAC, GE & (C) appear to have been already discounted. The 2 banks were essentially even while GE tumbled 76¢. The most worrisome statement was from BAC. They predicted the recession will drone on into next year & they are setting aside even more money to cover bad loans. Times are tough. Only $28 is needed to buy one share of each company (13 +12 +3).

•Bank of America Earnings Drop as More Money Is Set Aside for Credit Losses
•Citigroup Posts $4.28 Billion Profit on Gain From Smith Barney Stake Sale
•GE Falls After Second-Quarter Sales Decline More Than Analysts Estimated


MLPs continue on a roll, up .83 to the 237s, another 2009 high. To keep it in perspective, the record high for the index was 342 reached 2 years ago this month. REITs were weak (the index dropped 3), junk bonds were soft & VIX pulled back a fraction, taking it below 25 (a low since the Lehman collapse last year). Treasuries are selling off again. The 10 year Treasury yield is up 8 basis points to 3.63%.

Alerian MLP Index --- 2 weeks




10-year Treasury Yld Index - 1 month




After everybody was counting oil out, it has had a nice bounce back this week taking it above 63.

CLQ09.NYM

...Crude Oil Aug 09

...63.11

... 1.09 .......(1.8%)

After an outstanding week, Dow is resting. Successful traders are probably taking a long holiday weekend.

Dow Jones Industrials --- YTD

Stocks rise on hopes of more favorable earnings reports

Dow began the week at 8146, now it's 565 higher at 8711. Today it rose 95, advancers ahead of decliners 2-1 & NAZ shot up 22 on hopes of good earnings reports from Google (GOOG) & IBM (IBM), a Dow stock, after the bell. Banks did not respond to the excitement, down pennies. Bank of America (BAC) & General Electric (GE), 2 more Dow stocks, report tomorrow & expectations are muted. Of the 4 losers on the Dow today 2 were were banks (Bank of America & JPMorgan) along with AT&T & Wal-Mart.

S&P 500 FINANCIALS INDEX

Value 164.67

Change -0.40

% Change -0.2%

The Alerian MLP Index is in new high territory not seen since the end of Sep. Today, it was up 3.35 to 236.45. REITs were up modestly & junk bonds were also higher while the VIX was little changed at 25½ (there is less fear in the markets). Treasuries sold off, the 10 year Treasury yield popped up 4 basis points to 3.56%.

Alerian MLP Index --- 2 weeks





Oil has had a nice rally in the last few days. The chart for the ETF below shows oil advanced more than 10% just this week.

CLQ09.NYM

..Crude Oil Aug 09

..62.11

.. 0.57 ......(0.9%)

OIL (ETF) --- 2 weeks




Stocks are running wild as this week is turning into one of the biggest gainers ever. Risk appetite has risen greatly taking the Dow within 90 points of its 2009 high reached last month. In the high yield sector, the interest in greater risk has been largely limited to MLPs which are the stellar performers this year. Tomorrow will be interesting to see if enthusiasm takes Dow to a new yearly high.

Dow Jones Industrials --- YTD

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

Monster rally from favorable earnings

Dow exploded, up 256 & closing near the highs, advancers ahead of decliners better than 6-1 & NAZ gained 63. Volume was weak, although above recent days which were even slower. Intel's (IMTC) earnings helped bring back buyers.

With today's rally, the Financial Index is near the upper end of its trading range for the last 2 months. Another way to look at it is this a 10% rally in 5 trading days, although the index pulled back 1 in the last hour.

S&P 500 FINANCIALS INDEX

Value 165.07

Change 6.51

% Change 4.1%

Value for S5FINL:IND




Alerian MLP rose 4.63 t6 the 233s, taking to its 2009 high achieved a couple of months ago. It's had a 20 point gain in the last 3 weeks. The REIT Index was up 4½ but continues in its sideways range. Junk bonds were strong while the VIX, volatility index, is in the 25s, low for the year. Money for buying came from selling Treasuries, the yield on the 10 year Treasury shot up a huge 15 basis points to 3.60% (up 30 basis points this week).

Alerian MLP Index --- YTD




Oil had a big gain on the weekly inventory report showing inventories fell & the weaker dollar. Foreign oil buyers view oil as as a safe haven from inflation.

CLQ09.NYM

..Crude Oil Aug 09

..61.72

.. 2.20 ......(3.7%)

UAE said that U.S. Treasury Secretary, Timothy Geithner, reassured them about the stability of the dollar during his visit today. Geithner told Al-Arabiya Television that the US remains “committed to a strong dollar” & pledged yesterday in Saudi Arabia that the US would take steps to rein in its borrowing. Saudi Arabia & the U.A.E. are the 4th largest holders of Treasury debt.

UAE Reassured on Dollar by Geithner Visit


The Federal Reserve sees unemployment going over 10%, hardly any great surprise, & said it could be 5-6 years before the US economy becomes healthy again (ignored in today's rally).

Fed: Unemployment Will Top 10 Percent This Year- AP


Last Fri, the Dow was sitting at 8.1K, life was looking dreary. In half a week, it shot up 500 points. The major news was the first wave of earnings which encouraged buyers. Sudden market changes without fundamental reasons worries me.

Dow Jones Industrials --- 2 weeks

Stocks surge on Intel earnings

Dow rose 165, advancers 6-1 over decliners & NAZ is up 47. The Financial Index has had a nice pop. Since last Wed, it's up sharply from sub 150.

S&P 500 FINANCIALS INDEX

Value 162.40

Change 3.84

% Change 2.4%

The Alerian MLP Index is 3+ higher bringing it close to its 2009 high. But the REIT is up only 1, stuck in the trenches (down about 17% YTD). Junk bonds are strong while the VIX dipped below 25, another yearly low (although still in high territory by traditional standards). Treasuries are being sold again to support the stock rally. The 10 year Treasury yield is up another 9 basis points to 3.54% (& up from sub 3.30% at the start of the week).

Alerian MLP Index --- 2 months




Dow Jones REIT Index --- 2 months




10-Year Treasury Yield Index - 2 weeks




Buyers are bidding up everything, taking oil above the magic 60 line.

CLQ09.NYM

...Crude Oil Aug 09

...60.69

... 1.17 .......(2.0%)

Intel (INTC), Dow stock, makes the microprocessor for more than ¾ of the world's PCs. The company posted Q2 sales substantially stronger than Wall Street expected & its outlook suggests there's more good news to come despite Dell's (DELL), #2 PC maker, warning that its sales to businesses remain weak. Excluding a $1.4B EU fine (being appealed), INTC earned $1B, or 18¢ per share, in Q2, more than double the average estimate. However, sales fell 15% to $8B but easily topped Wall Street's $7.3B average forecast. Intel offered a Q3 sales outlook of $8.5B, plus or minus $.4B, which is better than the $7.8B analysts' estimate. INTC is up 1, but has had a tough go of it during the recession.

Intel Jumps After Asian Consumers Spur PC Comeback


Intel ---- 2 years





The drama on CIT plays on. They have $1B in debt which has to be refinanced next month. The question becomes how it will get done? The Treasury does not want to use TARP funds & FDIC keeps saying no. CIT finances thousands of small businesses, an unusually large amount of interest is riding on their survival.

•CIT Presses U.S. Regulators for Aid as Fed Considers Allowing Asset Shift


Dow continues in the sideways trading range, but may have on its eyes on the 8.8K recent high for 2009. Volume continues weak, small amounts of buying or selling can cause large price swings.

Dow Jones Industrials --- 3 months

Stocks up 2 days in a row

Markets hovered near break even for much of the day, but ended in the black. Dow gained 27, advancers 2-1 over decliners & NAZ rose 6. Banks recovered much of the losses from the AM, not too bad of a day for them.

S&P 500 FINANCIALS INDEX

Value 158.56

Change -0.56

% Change -0.3%

MLPs & REITs inched up while junk bonds slipped a little. The VIX fell 1.29 to 25.02, another 2009 low. Treasuries had a sharp sell-off, sending the yield on the 10 year Treasury bond up 10 basis points to 3.45% (up almost 20 basis points in a couple of days).

Alerian MLP index --- 1 month





Oil sold off in the PM, it wants to remain below the important 60 line.

CLQ09.NYM

..Crude Oil Aug 09

..59.44

.. 0.25 ......(0.4%)

CIT Group (CIT) is on the verge of going under which has the potential of doing significant harm to the economy & its recovery. CIT lends to many small businesses but is not exactly a bank. If they fail, many small businesses would be put at risk. The feds are trying to figure out how to help them. FDIC seems to be a logical choice for more aid, but, since they are not a bank, the gov is trying to figure out how to make it happen. The stock is a dollar stock, rallying 26¢ on those hopes. They have to receive aid, the alternative is too ugly to imagine. Their chart is just another one of those disastrous financial charts. This is one more indication of how fragile the economy & its recovery are.

•CIT shares rally as firm seeks federal aid
AP (Tue 9:38am)

CIT Group--- 2 years




Tech giant DELL (DELL), 2nd largest computer company in the world, has money problems. They are not all that serious, but Dell is looking for alternatives to finance their business. The share repurchase program has been stopped to conserve money. Even mighty Dell is feeling the effects of the global slowdown. The stock dropped 1.05 to 11.97. Their slow-down in sales will bleed thru to major suppliers such as Microsoft (MSFT), Intel (INTC) & AMD (AMD).

•Dell Is Reviewing Alternative Capital Sources for Finance Unit, CFO Says

Dell ---- 2 years




The 8K floor has held, but Dow is still at the lower end of its trading range for the last 2+ months. Bank earnings may be key to stock performance in the next 2 weeks.

Dow Jones Industrials --- 1 month

Goldman Sachs earnings fail to spark the markets

After starting higher on the Goldman Sachs (GS) earnings release, markets are slipping. Dow is down 11, decliners over advancers by 10% & NAZ fell 3. Banks are giving back some of yesterday's gains:

S&P 500 FINANCIALS INDEX

Value 157.38

Change -1.68

% Change -1.1%

MLPs pulled back a small fraction. The chart below shows how far they have come this year & in general, rebounding from better levels 2 years ago. The REIT index sold off 1½ while junk bonds were higher. The VIX, volatility index, is down to 26½, far from the peak reached earlier this year. Treasuries also sold off, with the 10 year Treasury yield up 7 basis points to 3.42%.

Alerian MLP Index --- 2 years




VIX ---- 2 years




Hopes for higher growth (& demand) are taking oil higher, back over 60.

CLQ09.NYM

...Crude Oil Aug 09

...60.51

... 0.82 .......(1.4%)

Goldman Sachs (GS) reported a 33% rise in quarterly earnings from strong trading results, continuing an extraordinary rebound from the near financial meltdown last fall. Results topped estimates, bolstered by improving markets & an upswing in advisory fees. EPS was $4.93 compared with $4.58 for the quarter ended May 30, 2008 (when the bank had a different reporting schedule). Analysts' average forecasts were around $3.50.

GS trading income jumped 93% from a year ago, while its equity underwriting business produced record revenue of $736M. However investment banking revenue of $1.4B was down 15% from a year ago (but up 75% from the prior quarter). The company set aside $6.6B for compensation in the quarter (of great interest to the politicians, especially Barney Frank). Below is their chart for the last 2 years, a decent performance all considered:

•Goldman Sachs Profit Beats Estimates on Record Trading, Stock Underwriting

Goldman Sachs --- 2 years





Fear is creeping back into the markets despite the VIX hitting new yearly lows. GS numbers were good, but politicians read the same stories & they are hungry for blood. Banks are expected to report lower earnings even though they can borrow money at virtually zero cost. Yesterday's enthusiasm in the markets has given way to nervousness again. The important 8K floor is 300 points below today's price.

Dow Jones Industrials --- 2 years

Dow jumped 185

Dow has biggest gain since June 1 but on light volume. Dow rose 185, advances 4-1 over decliners & NAZ gained 37. On an analyst recommendation, banks had their day in the sun (plus 10 is a very big daily gain):

S&P 500 FINANCIALS INDEX

Value 159.06

Change 9.73

% Change 6.5%

Value for S5FINL:IND




MLPs have outperformed the market all year, including this month. But today they were left behind with a modest 1.73 gain. That put the index within 6 of its yearly high made last month. The REIT index popped 5 off a low level. Junk bonds were higher but Treasuries sold off digesting recent gains. The yield on the 10 Year Treasury bond went up 5 basis points to 3.35%.

Alerian MLP Index --- 3 months





Oil rebounded in the PM, bringing it back to near even for the day. But it remains at a 2 month low & down 87 from the peak last year at this time.

CLQ09.NYM

..Crude Oil Aug 09

..59.73

.. 0.16 ......(0.3%)

Tomorrow earnings season begins in earnest with Goldman Sachs (GS), up 7½ in anticipation. The gov reported that the budget deficit already topped $1T with 3 months left in the fiscal year. This is what $1T looks like in numbers:

$1,000,000,000,000

• Budget deficit tops $1 trillion for first time- AP

Dow Jones Industrials --- 3 months

Bank stocks lead markets higher

Dow rose 108 with buying strength in the last hour, advancers over decliners 3-2 (not impressive) & NAZ was up 14. Banks had strong gains on a buy recommendation from an analyst. But the index remains in the sideways 150+ band its traded in for the last 2 months.

S&P 500 FINANCIALS INDEX

Value 154.60

Change 5.27

% Change 3.5%

MLP index is near the 2009 high, but is resting today (down 1½). The Dow Jones REIT Index is up 1¾ from its depressed levels. Junk bonds are stronger while the yield on the 10 year Treasury is flat at 3.30%.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




10-Year Treasury Index - 2 weeks





Oil hit another interim low, some are calling for a test of the next support level at 50.

CLQ09.NYM

...Crude Oil Aug 09

...58.85

... 1.04 .......(1.7%)

Not much happening. Stimulus II appears to be dead while the new health care plan is waffling in congress (both favorable signs for the markets). Banks are having a good day following a recommendation but that enthusiasm may not last. Earnings, including some for the big banks, are coming later this week.

Dow Jones Industrials --- 2 weeks

A cautious outlook as earnings season begins

This has been an outstanding year for MLPs. After starting at a depressed 176, the Alerian MLP Index shot up to 226 & is near its 2009 high of 233. Meanwhile REITs, another prominent high yield sector, have spent a lot of the year fighting it out in the trenches. Much of the gains from the Mar-Apr rally have been lost in the last 6 weeks. The Barclays Capital High Yld Bond ETF has a record similar to the MLP index & its record understates those for many individual junk bond funds. Investors have pursued high yields, but have been discriminating to a degree. REITs have been left behind. Meanwhile, Treasuries have bounced around quite a bit (shown in the last chart). The yield on the 10 year Treasury bond soared from 2½% to 4% last month, followed by a pullback to 3.30%.

The disconnect between the sectors bothers me. As stated before, I think the REIT chart story is more representative of what is & will be happening in the markets. Gloomy comments about business at retail mall stores is hurting REITs. Those problems will be shared by junk bonds. Last week, there were comments about increasing defaults on junk bonds. However, MLP business is fuzzier. They pay distributions from distributable cash flow & that is not defined on a per unit basis, so we don't fully understand how well they are covering distributions which have generally held up & risen in 2009. Meanwhile money has been flowing into Treasuries in the last month despite record borrowings by the gov. As earnings season unfolds, we will learn more about how the economy is treating these sectors (especially MLPs).


Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD




Barclays Capital Hi Yld Bond ETF - YTD




10-Year Treasury Yield Index -- YTD





Dow appears to be supporting my cautious approach to the markets. After a tremendous run, it stalled at 8.8K, only to fall back about 8%. The 8K floor (& ceiling) has been in play for almost a year & looks to be tested again, maybe this week, to see if it will be reversed back to a ceiling.

Dow Jones Industrials --- YTD

Markets drift lower on earnings worries

Dow sank at the start & remained down 60 for most of the day. Buyers came in at the end to reduce the loss to 36. Decliners were ahead of advancers by 20% while NAZ gained 3. Volume remained light. Banks saw their share of selling as the Financial Index could not hold the important 150 level.


S&P 500 FINANCIALS INDEX

Value 149.33

Change -1.93

% Change -1.3%

MLPs had another great day while the rest of the market sank. Last month MLPs had a major setback, dropping 20 points in what has been one its best years ever. But buyers brought it back to 225.90, within 7 points of its 233 high in early Jun. The Dow Jones REIT Index slipped pennies while bonds rose. Treasuries had a very big rally, the yield on the 10 year Treasury bond fell 12 basis points back to 3.30% (down sharply from the 4% peak last month). The rally in Treasuries bled over to junk bonds despite warnings from Pimco (see below).


Alerian MLP Index --- YTD




10-Year Treasury yield Index - 3 months





The oil rallied, cutting its loss to 54¢. But it remains under 60, an important threshold that did not hold.

CLQ09.NYM

..Crude Oil Aug 09

..59.87

.. 0.54 ......(0.9%)

Pimco, the largest manager of bond funds recommended selling junk bonds while their prices are high. Modest economic growth will hurt high yield, high risk debt. Fitch predicted the the default rate on junk bonds may reach 18% by year end, double the rate from last month. The yield spread of junk bond yields over the yield for the 10 year Treasury has narrowed to about 11%, not enough to cover added risks going forward. Pimco said that slow economic growth, will turn some of the green shoots to weeds.

Pimco’s Kiesel Says Sell Junk Debt as Green Shoots Become Weeds


Dow continues to waffle around the low of its trading range for the last 3 months. Holding the 8K line of resistance will be very important.

Dow Jones Industrials --- 3 months

New General Motors emerges from Chapter 11

Markets started weak & selling continues. Dow is down 83, decliners ahead of advancers 5-2 & NAZ is off 10. Banks are sharing in the decline. The 150 level has been a major ceiling/support line for most of this year. By May 1, it blasted thru, converting it from a ceiling to a floor. But in July, the floor concept has taken hold. Today it cracked that line again & is sinking as I write.

S&P 500 FINANCIALS INDEX

Value 148.82

Change -2.44

% Change -1.6%

MLPs are strong ahead of the earnings reports which will begin next week. The index was up but just slipped to -0.25 (in a down market). REITs were lower while junk bond funds were mixed. However, Treasuries were very strong with the yield on the 10-year Treasury bond dropping 11 basis points to 3.31%. This may be a relief rally with new gov auctions taking a 3 week holiday. Treasury bonds are also finding friends on increased worries about the global economy.


Alerian MLP Index --- 2 weeks




10-Year Treasury Yield Index - 2 weeks




Oil broke thru the 60 resistance level. Concerns about future demand (from a sluggish economic rebound) in the short term are keeping buyers away.

CLQ09.NYM

...Crude Oil Aug 09

...59.47

... 0.94 .......(1.6%)

The new General Motors is clean of massive debt & burdensome contracts but the gov is now the majority stockholder. GM claims it will be faster & more responsive to customers than in the past, allowing it to make money & repay gov loans faster than required. GM said it would repay $50B in government loans ahead of a 2015 deadline. The new company arose Friday as the bulk of GM's assets were transferred to a company controlled by the gov. Its 40-day stay under court supervision was far faster than anyone expected.

•New GM Emerges From Remains of Bankrupt Automaker as Asset Sale Completed


U.S. consumer sentiment wilted in early Jul to the weakest since Mar, when confidence in the financial sector & economy were very low, according to the Reuters/University of Michigan Surveys of Consumers. Consumers' rising concerns about a protracted economic downturn, job security & erosion of wealth were the main factors depressing sentiment. The preliminary index of confidence for Jul fell to 64.6 from a final reading for Jun of 70.8. The Jul reading was well below economists' forecasts of 70.5 & the first fall since Feb. The survey's index of consumer expectations fell to 60.9 from June's final reading of 69.2.

•Consumer Sentiment in U.S. Falls More Than Forecast on Rising Joblessness


The gloomier outlook by consumers is dragging down stocks. The chart for the Dow illustrates the importance of the 8K level. It's being tested & next week should tell us if it can hold.

Dow Jones Industrials --- 1 year

Markets meander more

Dow rose all of 4, with only 13 winners. IBM (IBM) was the one big gainer (up 1+) & Merck (MRK) was the big loser (down 1+). Advancers over decliners almost 2-1 & NAZ rose 5. Financials did well, probably in response to an oversold market for financials. In today's rally mode, Citigroup (C) was up 7¢ to 2.69 as it reported more management changes.

S&P 500 FINANCIALS INDEX

Value 151.26

Change 2.02

% Change 1.4%

Value for S5FINL:IND




On an otherwise quiet day, MLPs charged forward, up 3.72 to the 224s, with eyes on the 230 highs reached a month ago. Next week, MLPs will report the first earnings & guidance reports. Given the state of the sluggish economy, there will probably not be too many qtr over qtr distribution increases. The REIT index fell 1+ while junk bonds firmed. The VIX fell1½, dropping into the 29s. Treasuries sold off badly after concluding record auctions over the last 3 weeks. The yield on the 10-year Treasury shot up 12 basis points to 3.41%.


Alerian MLP Index --- 1 month




10-Year Treasury Yield index - 2 weeks




Oil feeling is more comfortable at 60, that may be important line in the sand going forward.

CLQ09.NYM

Crude Oil Aug 09

60.35 3:20pm ET

0.21 (0.35%)

Treasuries fell sharply (raising their yields) after concluding the 4th auction in this week. Demand for the 30 year bonds was good but not great, as the bid-to-cover ratio was 2.36X down from 2.68X in June & compares with an average pf 2.28X at the past 10 sales. This week, the Treasury held a record breaking 4 auctions to sell $73B in debt. The 30-year bond yield rose 10 basis points to 4.30% after falling 15 basis points yesterday. At auction the bonds yielded 4.303%, higher than the 4.292% average forecast. Indirect bidders, including foreign central banks, purchased 50.2%, the most in 3 years. At the Jun sale, they bought 49% & have averaged 29% for the past 10 sales. The Treasury will return to sell more bonds in 3 weeks, giving the markets a chance to recover & maybe rise (assuming no new spending packages are approved.

Treasuries Decline as Demand Drops at $11 Billion Bond Auction


General Motors is getting ready emerge from bankruptcy, but this will only be a first step towards solving their massive problems. Dow is remains in the trenches at the low end of a 2 month range:

Dow Jones Industrials --- 3 months

Mixed markets on mixed economic data

Dow started higher but couldn't hold the gains. Dow is down 8, advancers over decliners 3-2 & NAZ gained 4. Banks are rebounding after recent selling.

S&P 500 FINANCIALS INDEX

Value 150.97

Change 1.73

% Change 1.2%

MLPs rose today while REITs were little changed (related to disappointing news about a weak June for retailers in malls). Junk bonds were higher as Treasuries sold off. The yield on the 10 year Treasury bond jumped 7 basis points to 3.36% (off yesterday's recent low of 3.29%). The VIX fell 1 to 30.

Alerian MLP Index --- 2 weeks



Dow Jones REIT Index --- 2 weeks




Oil is getting used to a 60 price.

CLQ09.NYM

...Crude Oil Aug 09

...60.08

... 0.06 .......(0.1%)

The number of initial claims for jobless benefits last week fell to the lowest level in 6 months, largely due to changes in the timing of auto industry layoffs. However, continuing claims unexpectedly jumped to a record-high. New claims for unemployment tumbled 52K to 565K, significantly below expectations of 605K for the week ending July 4. Layoffs are slowing but jobs remain scarce & the unemployment rate is rising.

The drop resulted partly from technical factors. Auto layoffs that normally take place in early July, occurred in the spring as GM & Chrysler implemented sweeping restructuring plans. The seasonal adjustment expected a large increase in claims from auto workers & other manufacturing workers which didn't occur. The non-seasonally adjusted figure increased by 17K to 578K claims. Also, continuing claims jumped 159K to almost 6.9M, the highest on records dating back to 1967.

•U.S. Initial Jobless Claims Fall After Car Plants Shut Early for Retooling


Many retail chains reported disappointing June sales with weakness cutting across all sectors. But mall-based clothing stores were particularly hard. Even low-priced Costco (COST), down 47¢, saw same-store sales decline compared with June 2008. These are early signals for the important back-to-school season & they are negative.

Retailers report weak June sales - AP


Dow absorbed the Alcoa (AA) earnings with a higher opening. But jobless claims & retail sales numbers did not inspire confidence. Markets are looking for direction. Trading volume continues light, not much conviction behind price swings. The G8 meeting in Italy is talking about trade. Other countries have a cautious approach about launching coordinated (or any) stimulus packages.

Dow Jones Industrials --- 2 weeks

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.

Markets drift while awaiting earnings

Dow began the day higher but sellers are bringing it back to break even, decliners barely ahead of advancers while NAZ is down 4. Banks also began higher but slipped into the red bringing the Financial Index to a 2 month low.

S&P 500 FINANCIALS INDEX

Value 150.53

Change -1.27

% Change -0.8%

The high yield sector is meandering along with the general markets. MLPs & REITs have fractional changes. Junk bond funds are a little firmer. The yield on the 10-year Treasury bond has been settling at or under 3½%. The VIX hangs around the 30 level.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




10-Year Treasury Yield Index - 2 weeks




Oil is hitting a new 6 week low. Below is the chart for OIL (ETF) showing how much it has risen & fallen this year.

CLQ09.NYM

...Crude Oil Aug 09

...62.06

... 0.87 .......(1.4%)

OIL (ETF) --- YTD




The International Monetary Fund (IMF) predicted global economic rebound next year will be stronger than forecast in Apr based on the financial system stabilizing & slower contraction in industrialized countries. The IMF forecasted the world economy will expand 2.5% in 2010, higher than the 1.9% projection in Apr. A contraction of 1.4% is expected for 2009, a little worse than the prior forecast of 1.3%. The IMF said, “The global economy is still in a recession but we’re inching towards a recovery.”

•IMF Predicts Stronger 2010 Global Rebound After 2009 Economic Contraction


Volume continues low, even after allowing for the summer doldrums. Earnings are on every body's mind, tonight the first shot will be fired across by the bow by Alcoa (AA). Italy is hosting a G-8 Summit, little gets done at these photo ops. But this time there are worries that they may call for regulation of markets, with a focus on oil.

Dow Jones Industrials --- YTD

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

Markets slip and slide again

Dow dropped 81, decliners over advancers 5-2 & NAZ fell 18. Banks joined in the sell-0ff.

S&P 500 FINANCIALS INDEX

Value 153.46

Change -1.31

% Change -0.8%

Value for S5FINL:IND




The high yield sector has been losing fans in recent weeks. The Alerian MLP Index & Dow Jones REIT Index each are down 2 today. Even junk bond funds which have been on a tear this year have seen selling in recent weeks. The VIX is waffling just under 30 & the 10 year Treasury yield is essentially flat at 3.50% (ahead of another a $35B three year auction at lunchtime).

Alerian MLP Index --- 2 months




Dow Jones REIT Index --- 2 months




Barclays Capital Hi Yld Bond - 2 months




Oil continues on its short term losing streak, down 10 from its high one month ago. Commodities have been dragged down by growing worries about a prolonged recession.

CLQ09.NYM

...Crude Oil Aug 09

...63.04

... 1.01 .......(1.6%)

Charts for the Dow & S&P 500 point out markets have had a tougher time of it in the last 2 months. Dow may want to test the 8K floor & S&P 500 slipped back into the red YTD (below 903). Tomorrow, after the close, earnings season is launched by Alcoa (AA) & markets are already preparing for the worst. Also, pressure from added gov borrowings is being felt. In recent weeks, $100B of new debt sold by the Treasury is becoming ordinary. That used to represent the deficit for 6 months or even a year. A new health care plan may be approved by Congress, suggesting even more gov spending (and borrowings). Will increased spending ever stop?

Dow Jones Industrials --- 2 months




S&P 500 --- 2 months

Mixed markets following lower foreign markets

Dow rose 44, decliners over advancers 2-1 while NAZ dropped 9. The big gainers in the Dow were American Express (AXP) up 1+ along with Merck (MRK) & Procter & Gamble (PG) up over 80¢ each. Oils & some banks were the big losers today. Dow rose during the day finishing at the its highs.

S&P 500 FINANCIALS INDEX

Value 154.77

Change 1.22

% Change 0.8%

REITs led high yields today, the index gained 4+. The Alerian MLP Index fell 1 to the 221s & junk bond funds were weak. The VIX popped 2, bringing it near 30.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




Kinder Morgan (KMP) issued a statement about their recent selling of units. It went well. They explain that they have already sold about 75% of the $1B budgeted for in 2009.

Kinder Morgan Energy Partners Announces Closing of Underwriters Overallotment Option


Oil led commodities lower on doubts about an economic rebound. Almost 1 month ago it was pushing 72, now it can't find any friends. Most other principal commodities have followed its lead.

CLQ09.NYM

Crude Oil ..Aug 09

..64.05

.. 1.58 ......(2.4%)

Today the Treasury had an auction for 10-year TIPS which drew a yield of 1.92%, a little better than the 1.933% average forecast. Indirect bidders (foreign buyers) accounted for almost ½ the purchases. This is a good sign over the short term, but longer term it means the US owes foreigners even more. There will be 3 more Treasury auctions this week. The 2 year Treasury note rose, bringing its yield down 5 basis points while the 10 year bond was essentially even with a yield of 3.51%.

Two-Year Treasuries Rise as Fed Buys, TIPS Sale Garners Demand


Services for Michael Jackson will be shown on 80 screens tomorrow. Not mentioned is the added cost to the city for police protection. Many of his friends are millionaires, but none are contributing to pay for added expenses. That money will come from a special fund which may involve issuing IOU checks since California is broke.

Jackson Memorial Service to Be Shown in as Many as 80 Theaters


Earnings season begins on Wed after the market close, when Alcoa (AA) will be the first Dow stock to report earnings. Expectations are not high. Analysts have an average estimate for EPS of -34¢ loss vs 66¢ last year. Stocks got off to a rocky start today after a sell-off around the globe, but they ended at the highs only slightly lower on quiet volume (less than 1B shares were traded on the floor of the NYSE).

Dow Jones Industrials --- 2 weeks

World markets lower on dismal outlook for profits

Dow fell 25, decliners over advancers 3-1 & NAZ was down 20, but off their lows. Banks were also lower.

S&P 500 FINANCIALS INDEX

Value 153.18

Change -0.37

% Change -0.2%

The high yield sector was hurt by the market decline. MLPs & junk bond funds were lower, while REITs inched up. MLPs may be feeling extra pain because of the sell off in oil. The yield on the 10 year Treasury is resting today, only up 3 basis points to 3.53%. The VIX, volatility index, is up a big 2½ going back over 30 on rising fears.

Alerian MLP Index --- 2 months




Dow Jones REIT Index -- 2 months




VIX ---- 2 months




This has been a bad day for markets, stocks & commodities, with a growing awareness that the recovery may be a long drawn out affair.

CLQ09.NYM

...Crude Oil Aug 09

...64.26

... 1.37 .......(2.1%)

Bears are trying to take control. Even if economies have reached bottom, they may not come roaring back as the bulls suggest. The profit declines for the S&P 500 (complied by S&P & Bloomberg) give guidance that more ugly days lie ahead as shown below for the S&P 500 (Q2 & Q3 are estimates).

____profit decline
Q1.... -60%
Q2.... -34%
Q3.... -21%

Q4 could show gains, but that would be off an awful Q4 in 2008, hardly something to brag about.

•Earnings Dropped Worldwide in Second Quarter as Job Losses Hurt Consumers


The US markets are following a global decline in markets, but are behaving better. Stocks have been firmer in the last hour, maybe the PM will bring more buyers.

Dow Jones Industrials --- 2 months

Grim news on jobs sinks stocks

Dow tumbled on the opening & continued to hug the 8.3K level (down over 500 from the interim high 3 weeks ago) all day. Dow fell 223 (closing at the lows), decliners over advancers 4-1 & NAZ fell 49. As market leaders, banks also sold off from the start. While volume was low, the 4% decline was significant:

S&P 500 FINANCIALS INDEX

Value 153.55

Change -6.41

% Change -4.0%

Citigroup (C) used to be a major financial when it was in the Dow & earned profits. Now it's just a call with the gov owning a large portion of all the calls. Back in Mar, it fell to 1 where it was a good buy. It shot up to 4 after the market lows, but since then has pulled back under 3 (today down 9¢ to 2.88).

Citigroup ---- YTD




The high yield sector sold off along with the markets. The Alerian MLP Index was down 2 to 222, The REIT index dropped a big 7.61. Junk bond funds were down while Treasuries rose. The yield on the 10 year Treasury bond dropped 5 basis points to just under 3.50%. The VIX, volatility index, shot up 1.73 to 27.95, an early indication fears may be rising again.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




VIX ---- 1 month




Oil was weak today, but on light trading. The 72 high is getting farther away.

CLQ09.NYM

..Crude Oil Aug 09

..66.70

.. 2.61 ......(3.8%)

The unemployment report sank stocks from the beginning of trading & they never recovered. However volume was very light, one of the lightest days in some time. NYSE floor volume looks to be only .6B+, i.e. very low. Next week, when traders return in full force, we'll see how the unemployment report really plays out. My guess is the markets will be on defense. In the meantime, enjoy the holiday weekend!!

Dow Jones Industrials --- 2 weeks

Happy 4th of July!!

Stocks tumble on dreary unemployment figures

Dow dropped 161, decliners over advancers 6-1 & NAZ was off 41 on a disappointing unemployment report. Banks sold off badly, in line with the markets:

S&P 500 FINANCIALS INDEX

Value 157.36

Change -2.60

% Change -1.6%

MLPs keep bumping along, 10 points under the recent index high (today it's down 1+). The Dow Jones REIT index pulled back 3+. Junk bond funds were soft while the Treasuries found buyers. The 10 year Treasury rose, taking the yield down 4 basis points to 3.50%.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Gloomy news spread to oil, down 2+.

CLQ09.NYM

...Crude Oil Aug 09

...67.09

... 2.22 .......(3.2%)

467K jobs were lost in Jun, taking the unemployment rate up to a 26-year high of 9.5%. The economy's road to recovery may be bumpy. Job losses were deeper than the 363K expected. In addition, average weekly earnings dropped to the lowest level in nearly a year. However, the rise in the unemployment rate from 9.4% in May to 9.5% in Jun was less bad than feared (9.6%). Many economists still predict the jobless rate will hit 10% in 2009 & keep rising into next year. A total of 14.7M were unemployed in Jun. If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.5%, the highest on records dating from 1994. The average work week fell to 33 hours, the lowest on records dating back to 1964.

•Payrolls in U.S. Decline More Than Forecast; Unemployment Climbs to 9.5%


This is a global recession, dreary unemployment news is not limited to the US. Unemployment in the 16 countries using the euro spiked to a 10 year high in May. Recovery will take time. Eurostat reported the unemployment rate was 9.5% in May, up from April's 9.3%. Over 15M were unemployed in May, up 273K from April's figure.

• Euro zone unemployment hits 10-year high in May- AP

Unemployment news continued ugly. This was no great surprise, but when the data hits it still hurts. However, volume is extremely light. Next week's reaction will be more meaningful.


Dow Jones Industrials --- 1 month

Early gains trimmed on first day of new quarter

Stocks began Q3 very strong, Dow gained more than 130 at its high. But selling throughout the day dragged it lower to a close of plus 57, advancers were over decliners 5-2 (far less than in the AM) & NAZ was up 10. Banks were strong in the AM but also gave way to selling pressure in the PM, turning green into red.

S&P 500 FINANCIALS INDEX

Value 159.96

Change -0.80

% Change -0.5%

MLPs posted a gain of 1+ to the 224s. The 1 year chart shows how far they've come & how how much they need to reach new 12 month highs. The Dow Jones REIT Index was up 1+, remaining in its sideways trading range of the last few months. REITs have had a tougher go of it in the last year. If the recovery is less than rapid, I fear that type of chart may become relevant for other high yield sectors (like MLPs). Junk bond funds were firm & the VIX slipped fractionally still in the 26s. The yield on the 10 year Treasury bond rose 2 basis points to 3.54%.

Alerian MLP Index --- 1 year




Dow Jones REIT Index --- 1 year




AM gains for oil were lost, it closed below 70 again. Bulls have been having a difficult time cracking thru 72 resistance.

CLQ09.NYM

..Crude Oil Aug 09

..69.30

..0.59 ......(0.84%)

The gov said it won't continue to bail out General Motors after Jul 10. The assets of GM are supposed to be sold to a new GM, but there are numerous objections. Reports of Jun auto sales are in & the industry continues to slug it out in the trenches. Ford (F), the relative winner, says the annualized sales rate is under 10M cars, far below the numbers in previous years. Ford sales were down "only" 11% from the prior year versus Toyota down 32%, GM down 34%, Nissan down 26%, Honda down 32% & Chrysler down 42%. And prior year's numbers were already beaten down.

• Gov't won't fund GM after July 10, official says- AP

•Ford, Honda, Nissan U.S. Sales Beat Estimates in Sign Auto Slump Is Easing


The first day of trading in the new qtr provided little excitement. Early gains were pared with selling in the PM. Volume continues low with (the more successful) traders taking this week off. There is a lot of talk about how the recovery will take shape. There may be modest growth in Q3 & Q4 with slower rates of growth next year. Slow growth rates can hurt. Among other problems, unemployment can climb further (from already high levels) in that environment.

Dow Jones Industrials --- 1 year

New qtr begins with gains

Dow rose 116, advancers ahead of decliners almost 5-1 & NAZ was up 20, all done in light trading. Banks joined the party, but are not leading the way up.

S&P 500 FINANCIALS INDEX

Value 161.77

Change 1.01

% Change 0.6%

The Alerian MLP Index & Dow Jones REIT Index are each up 1+ while junk bond funds are generally higher. Rising stocks are bringing lower bond prices, the yield on the 10 year Treasury climbed 7 basis points to 3.59%. High yield securities are benefiting from easing fears. The VIX, volatility or fear index, reached another 2009 low, back to the levels before Lehman's collapse.


Alerian MLP index --- 3 months




VIX ---- 2 weeks




Oil is pushing for new highs above 72.

CLQ09.NYM

...Crude Oil Aug 09

...71.04

... 1.15 .......(1.7%)

The housing news while mushy is basically negative. Mortgage applications dropped to another interim low while pending home sales were up. Unfortunately the increase was only 0.1%, essentially even. Mortgages rates continue low, in the low 5% area but depressed conditions for housing are not going away soon.

• Pending home sales up 4th straight month in May- AP
• Mortgage applications fall to 7-month low- Reuters

U.S. manufacturing activity contracted less than expected in Jun & at the slowest pace since Aug. The Institute for Supply Management said its manufacturing index read 44.8 in Jun, up from 42.8 in May. However, a reading below 50 indicates contraction. This was the 17th straight month of deterioration in manufacturing.

•Manufacturing in U.S. Shrinks at Slower Pace in Sign Recession Is Easing


Dow had a great qtr as did the other indices. But the chart shows that it had a strong month in Apr followed by sideways trading. California (the 8th largest economy in the world) is in the midst of budget chaos. As a result, they are going to pay debts with IOUs. Can you spell, "Duh?"

Dow Jones Industrials --- 3 months