Tuesday, May 18, 2010

Stocks trim early gains as € inches up

Dow started with good gains, up almost 100. But that did not last. Dow is up 39, advancers over decliner 3-2 & NAZ slipped 7. Banks are also pulling back bringing the Financial Index into the red.


% Change

MLPs are recovering ground lost yesterday, but they have also slipped off early AM highs. The Alerian MLP Index is up 2 to the 295s, but down over 2 from its highs. The REIT index is down a tad in the 205s. Junk bond funds are flattish (but see their story below). The yield on the 10-year Treasury bond fell 3 basis points to 3.44%, still going nowhere & at a greatly reduced level from prior weeks. The VIX dropped 1+, bringing it below 30 (still very high).

Alerian MLP Index --- 1 week

Dow Jones REIT Index --- 2 weeks

Oil had a good gain, breaking its 2 week losing streak. However, it remains in its trading range of the low 70s. Gold is losing a little ground off recent highs.


Photo: Bloomberg

Wholesale prices fell in Apr from declines in energy & food, inching down 0.1% (the 2nd decline in the past 3 months). But core inflation, excluding energy & food, rose 0.2%, slightly faster than expected. Over the past year, core prices are up just 1%, not bad.

In a separate report, the Commerce Department said construction of new homes & apartments rose 5.8% last month, a larger increase than expected & pushed activity to an annual rate of 672K, the highest in 18 months. However, applications for building permits, a good indicator of future activity, fell a larger than expected 11.5%. The home buyer's tax credit (which expired Apr 30), helped construction.

Wholesale Prices in U.S. Unexpectedly Fall on Decline in Fuel, Food Costs
U.S. Housing Starts Rise More Than Estimated to Highest Level Since 2008

Wholesales prices (x/food & energy) - 1 year

Housing starts - 1 year

Almost 60% of high-yield borrowers (junk debt) this year offered weaker investor safeguards than on debt they issued previously. This includes no limits on the amount of debt companies can have & few restrictions on using assets as collateral for future borrowing, reducing what’s available to satisfy creditor claims in a bankruptcy. Marginal companies are having little trouble raising money thru the sale of junk bonds. We've been thru this before & it has gotten the economy into trouble, very disturbing.

Junk Bonds' Weakest Creditor Protection Since '07 Doesn't Deter New Issues

Greece received its bailout money in the nick of time to meet the May 19 deadline. Greek bonds rose & helped the € but the € is still below $1.24. The Greek (Euro) drama is not over. Markets are just wandering after trying to make a move up. Dow has settled in under the 10.8K ceiling & will need a major outside event to push thru.

Dow Jones Industrials --- 2 weeks

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