Dow keeps backing off

Markets began the day under water, but only mildly. With no dramatic news, markets sold off, especially in the PM. Dow dropped 72, decliners over advancers 2-1 & NAZ fell 5. Banks have been leading the markets higher in the last 2 months & were hit with profit taking. But the Financial Index is still doing quite well after its recent run up from the 180s.

S&P 500 FINANCIALS INDEX

Value 220.00

Change -1.19

% Change -0.5%

MLPs & REITs gave ground after their superior rallies in the last 2 months. The Alerian MLP Index was off 1+ to the 310s while the Dow Jones REIT Index gave up a big 4.64 to the 203s. Junk bonds were higher benefiting over concerns about a possible Greek default on its debts. Treasuries had a tremendous rally, taking the yield on the 10-year Treasury bond down 11 basis points (unusually large daily swing) to 3.86% after a very successful auction for similar notes today. The Treasury had a $21B offering of 10-year notes which drew a lower-than-estimated yield of 3.90% compared with an average forecast of 3.95%. The bid to cover ratio was high (almost 4X) & indirect bidders accounted for about 40% of the issue. This attracted money coming out of Greek bonds & debts of other countries considered fragile. The chart below shows the huge rally for 10-year note yields in recent weeks followed by the plunge today.


Alerian MLP Index --- YTD




Dow Jones REIT Index - 2 months




10-Year Treas Yld Index - 2 mons






After a 7 day winning streak, oil gave up ground following the lead of the stock markets. But gold marches to a different tune. Scared money from worries over a Greek default also bought gold which has had an impressive advance in the last 2 weeks.

CLK10.NYM

..Crude Oil May 10

..85.65

.. 1.19 ......(1.4%)

GCJ10.CMX

..Gold Apr 10

..1,149.10

.. 14.00 ......(1.2%)

GLD (ETF) --- 2 weeks

Gold Super Cycle Click Here

Consumer borrowing fell again in Feb, reflecting weakness in credit cards & auto loans. The Federal Reserve reported borrowing declined by $11.5B in Feb, surprisingly weaker than the small $.5B gain that had been expected. This decline was the 12th decrease in the past 13 months as consumers slash borrowing in the face of a deep economic recession & high unemployment. The Feb weakness reflected a sizable 13.6% drop in revolving loans, the category that includes credit card debt, & a smaller 1.6% decline in nonrevolving loans, the category that covers auto loans. The Feb decline in consumer borrowing pushed total borrowing down to $2.45T, 4% below where it was a year ago.

•U.S. Consumer Credit Shrank $11.5 Billion in February, More Than Estimated



Thomas Hoenig, President of the Federal Reserve Bank of Kansas City, said the FED should consider starting to raise its key interest rate “sometime soon” to about 1% (from ¼%) to prevent asset bubbles from emerging. He is considered one of the "hawks" but more could echo his comments even though the common belief is that the FED will wait until after the fall elections. His comments may have sent a bearish chill thru the markets today.

•Hoenig Says Fed Should Consider Raising Its Benchmark Interest Rate to 1%



The rally in bonds could have been bullish for stocks, but not today. For the time being, the threat of the long bond rate going over 4% has been diminished but it's still not far away. The yield is probably in a higher zone of 3¾-4%, up around 25 basis points from where it has been for months. All week, Dow failed to crack the important 11K level while NAZ has been performing decently. The Dow looks tired, like it's ready to give up.


Dow Jones Industrials - 2 months




Nasdaq --- 2 months

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