VerySmartInvesting: Markets snap back as Greek debt problems are forgotten

Wednesday, May 12, 2010

Markets snap back as Greek debt problems are forgotten

Stocks are flying again, as if the European bailout package was no big deal. Maybe, maybe not. Dow shot up 148 bringing it within 325 of its highs before last week's panic selling. Advancers were ahead of decliners 5-1 & NAZ popped 49 (2%). Banks had more modest gains, investors are worried (dreading) the financial regulation bill being worked on in the Senate.

S&P 500 FINANCIALS INDEX

Value
215.84

Change
2.37

% Change
1.1%

MLPS had another excellent day, the Alerian MLP Index popped 4½ to the 303s, erasing much of the damage done in last week's sell-off. Any 1+% pop for the index makes for a very good day. The REIT index jumped 3½ to the 215s, just 4 short of its recent highs. Junk bond funds were a little higher. The yield on the 10-year Treasury bond was up 3 basis points to 3.56% following today's auction (see below). The VIX, volatility index, fell almost 3 into the 25s. While it has pulled back from highs over 40 on Fri, it's still considerably above the 16 level it had become used to in recent weeks.

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD

Oil has been easing back from its small rally on the stronger dollar, reducing demand for oil as an inflation hedge. But gold is benefiting from its stature as the ultimate inflation hedge. There is growing worry, especially overseas, about govs trying to solve problems by printing more money. Over the longer term, that is a prescription for higher inflation rates (which could also apply to to the US!).

Oil	...75.28	___-1.09	__-1.4%
Gold	...1,244.50	___24.20	__2.0%

GLD (ETF) --- YTD

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The 10-year Treasury bond auction today drew a yield of 3.548%, compared with a forecast of 3.582% & 3.9% at the Apr auction. Today’s bid-to-cover ratio was 2.96X, compared with 3.72X at the Apr sale & an average of 2.98X for the past 10 auctions. Indirect bidders, including foreign central banks, purchased 41.9% with an average of 41.5% for the past 10 sales. The auction was rated as going fairly well. This week's total auctions of "only" $78B, thanks to a smaller deficit, are below the record setting amounts lately which have topped $100B.

Treasuries Decline After $24 Billion Auction of 10-Year Notes Bloomberg

10-Year Treasury Yld Index - YTD

2 immediate worries for the markets are the continuing oil spill in the Gulf & the financial regulation bill that will come out of the Senate. Dow has had a recovery bounce of over 400 this week & the high yield sectors, especially MLPs, have done very well. However, at the same time gold is soaring to record levels, based on bets that economies are not as healthy as they seem. While this disconnect may last for awhile, it spells problems down the road.