Monday, May 10, 2010

Markets fly high after trillion dollar European bailout package is approved!

Stocks soared out of the gate & remain at their best levels of the day. Dow is up 416, advancers ahead of decliners 13-1 (tough to find a loser today) & NAZ surged 98. Big losers last week turned into big winners today as financial fears have been relieved! Bank stocks also took off, the Financial Index rose an impressive 10.


% Change

High yield sectors shot up on news from Europe easing financial fears. The Alerian MLP Index gained an enormous 9 to the 295s, however, it backed off from 300 very early in trading. The Dow Jones REIT Index shot up 10 to the 208s, but, again, down from 210 earlier. Junk bond funds rallied, up 3% (good, but could have been better call considered). Treasuries sold off as investors embrace risk again. The yield on the 10-year Treasury soared 13 basis points to 3.56% (but still below recent highs near 4%). The VIX, volatility index, plunged over 13, the biggest drop in its recorded history. Fears have been calmed, at least for the time being.

Alerian MLP Index --- 1 week

Chart forAlerian MLP Index (^AMZ)

Dow Jones REIT Index --- 2 weeks

10-Year Treasury Yield index - 2 weeks

VIX --- 2 weeks

As expected, oil rallied after its worst week since it plummeted from its lofty highs 2 years. Gold pulled back, but not that badly & remained near 1200+ from last Fri.


Gold Super Cycle !!
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The European Union put up $1T to contain its spreading gov debt crisis & keep it from tearing the € currency apart & derailing the global economic recovery. Markets had been waiting for this short term financial fix. Euro govs agreed to use the € to join the EU & IMF in putting up €750B in loans available to prop up troubled govs (like Greece). The European Central bank will buy gov & private debt to keep debt markets working & lower borrowing costs, a crisis measure dubbed the "nuclear option," while the US Federal Reserve joined with other central banks in the effort, reactivating a currency swap program used during the earlier stages of the financial crisis to ship dollars overseas to be pumped into banking systems as short-term credit. The € immediately shot back to life, up to $1.283 (but down from $1.30 earlier in trading), recovering from its 14-month low just above $1.25. This package is believed to have put out the fire for now, but raised long-term worries about the lack of tough rules to keep debt from piling up again. Weaker countries will have to deal with austerity measures as they try to recover from their recessions.

Euro-Area Central Banks Are Buying Government Bonds

Back on the home front, Fannie Mae (FNM) again has asked for more money after reporting another whopper loss (for Q1). The mortgage finance company needs an additional $8.4B to help cover mounting losses. Uh oh!! FNM lost $2.29 per share in Q1 (taking into account $1.5B in divs paid to the Treasury) compared with a loss of $4.09 a share last year. The new request for aid will bring its total to $83.6B, including Freddie Mac (FRE) the bill for the duo will now be nearly $145B. The dollar stock was up a few pennies.

Fannie Mae Will Seek $8.4 Billion in New Aid, Reports Loss

Fannie Mae --- 1 year

Nothing like a sharp recovery to bring back smiles the faces of investors. It's amazing what $1T can do to encourage stock buying. The idea behind the enormous finacial package was to do "whatever is needed" to save the €. For the short term, its effects feel good. But fundamental problems remain, weak countries are spending too much. Meanwhile the US economy is still trying to find traction for its recovery.

Dow Jones Industrials --- 2 weeks

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