S&P 500 FINANCIALS INDEX
| Value 218.90 | Change 2.16 | % Change 1.0% |
Oil is hot again & the MLPs get to share in the joy. The Alerian MLP Index gained 5.02 to the 311s. Keeping this in perspective, 5 is a very big day for an index with a low beta. It's putting more distance between it & the important century line of 300, but it's also vulnerable. The yield on the index is below 7% & the spread vs the Treasury bond yield is under 300 basis points. The Dow Jones REIT Index gained 4.86 to the 203s, another 2010 high. Junk bond funds were little changed, it's easy to find funds yielding less than 9%. One way junk bond funds add to their investment income is with a leveraged account. They borrow, say $50M, at minimal short rates so they can reinvest in junk bonds yielding 9-10%. When everything is breaking right, that is a big plus but when rates (short or long) go up, it can get ugly. Speaking of high interest rates, the yield on the 10-year Treasury bonds is flirting with 4% (highest level in 18 months). Last Jun it was turned back & Treasury bonds learned to accept 3½% or so. Maybe not this time.
Alerian MLP Index --- YTD
Dow Jones REIT Index - YTD
With all the euphoria about a stronger economic recovery lifting all ships, gold did well but oil is the one that's flying. Oil is at a 17 month high with talk about 90 & even 100 oil. OK, talk is cheap, but the bulls are very happy. For the venturesome, MarketClub offers 10 trading lessons for free (see below):
| CLK10.NYM | ..Crude Oil May 10 | ..86.64 | .. 1.77 ......(2.1%) |
| GCJ10.CMX | ..Gold Apr 10 | ..1,131.00 | .. ......(0.5%) |
Oil (ETF) --- 2 years
With higher oil prices, can prices at the pump be far behind? Prices at the pump are at 18 month highs as we head into the important summer driving season. Higher pump prices are another threat any economic recovery will have to deal with.
| Regular | Mid | Premium | Diesel | 85 | **E85 MPG/BTU adjusted price | |
| Current Avg. | $2.828 | $3.003 | $3.111 | $2.986 | $2.331 | $3.068 |
| Yesterday Avg. | $2.826 | $3.001 | $3.109 | $2.977 | $2.331 | $3.067 |
| Week Ago Avg. | $2.800 | $2.973 | $3.080 | $2.941 | $2.339 | $3.079 |
| Month Ago Avg. | $2.736 | $2.905 | $3.010 | $2.891 | $2.369 | $3.118 |
| Year Ago Avg. | $2.040 | $2.166 | $2.243 | $2.268 | $1.761 | $2.318 |
Source: AAA
The Fri jobs report was less encouraging for me. Half the jobs created were either temp jobs at the census or (federal) gov jobs. However the data is scaring even bond traders, causing them to sell (on their worries about a stronger economy) & drive up interest rates. Markets are going to have to settle up with higher prices & accept higher interest rates or give in to the threat. Dow tried all day to crack thru 11K, but it couldn't. It was on a roll & after 90 minutes came close but couldn't make a dent in the ceiling. Maybe it's also worried about higher interest rates. But there appears to be no limits to demand for risky investments.
Dow Jones Industrials - YTD
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