Wednesday, June 30, 2010

Markets drop on late day selling

Stocks sold off into the close (after staying close to break even for much of the day), ending a dreary qtr on negative note. Dow fell 96 taking it below 9.8K (a 10 month low), decliners ahead of advancers 3-2 & NAZ fell 25 to an 8 month low. Money going into Treasuries is taking its toll on the stock markets. Banks stock led the way down taking the Financial Index to the lows since Aug.


Value185.64One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-2.05 (-1.1%)

The Alerian MLP closed the qtr up 1¼ to 308½ today (well off its highs) & up 5 in a very bad qtr. The REIT index dropped 2 to 188 & down 10 in the qtr. Junk bond funds were mixed & also lower in Q2. VIX was up ½ to 34½ with the selling into the close, already in a high region. Treasuries continue red hot. The yield on the 10-year Treasury bond fell almost 2 basis points to 2.95% while the annual yield on the 2 -year Treasury note was a mere 61 basis points. These low yields spell trouble for stock markets!

Alerian MLP Index --- Q2

Dow Jones REIT Index -- Q2

VIX --- Q2

10-Year Treasury Yld Index --- Q2

Oil & gold were little changed today, but they had major moves in Q2. Oil fell, mostly in May, while gold was very strong in Q2, moving up over 10% to new records!

CLQ10.NYM..Crude Oil Aug 10..75.71 ..Down 0.23

GCN10.CMX..Gold Jul 10..1,243.00 ..Up 1.00

Gold Super Cycle!!
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OIL --- Q2

GLD --- Q2

Dems postponed until mid-July a final vote in the Senate on the overhaul of financial regulations. They have to scramble for crucial support from a handful of moderate Reps. However, the House was on track to vote on the bill later today where it is expected to pass easily. Senate Dems appear closer to winning the Rep support needed after agreeing to strip out a controversial $17.9B tax on large financial institutions to cover the bill's costs.

Ford (F) will pay $3.8B to a union health-care fund, a sign it's confident it will return to profitability. Ford was required to pay $859M to the UAW Retiree Medical Benefits Trust by Jun 30. It will pay cash even though it has the option to pay as much as $610M in stock. Ford also prepaid $2.9B toward its health-care obligations. The stock was up 20¢ to 10.08.

Ford to Cut Debt by $4B in Cash Payments

Ford --- 2 years

Markets look to be in bad shape. In Q2, Dow fell more than 1K while Treasuries rose sharply taking their yields to levels not seen in months (& rarely seen in history). S&P 500 also was clobbered. Now there is the big jobs report on Fri & that is expected to be very discouraging!

Dow Jones Industrials -- Q2

S&P 500 --- Q2

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Markets little changed

Stocks traded in a narow range on the last day of the qtr. Dow added 15, advancers were 2-1 ahead of decliners & NAZ was up 10. Banks stocks were little changed, keeping the Financial Index near its key 186 support level.


Value 188.08 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change 0.39 (0.2%)

The Alerian MLP index is up 3+ to the 310s & should have a modest gain in what has been a very tough qtr. The REIT index is up 2+ to the 192s & is down only 6 in the qtr. Junk bond funds were mixed to higher. The VIX, volatility index, fell 1½ to 32½ but remains at elevated levels with higher fears. The yield on the 10-year Treasury bond was flat at 2.97%, very worrisome for the stock markets.

Alerian MLP index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yld Index --- 2 weeks

Oil rebounded from the recent sell-off & was able to hold above the 75 floor. Gold is essentially flat but still near its record highs in the 1260s set recently.

CLQ10.NYM...Crude Oil Aug 10...76.46 ...Up 0.52

GCN10.CMX...Gold Jul 10...1,244.60 ...Up 2.60

Gold Super Cycle!!!
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According to the jobs report from ADP, US companies only added 13K jobs in Jun (following a revised 57K increase in May), the smallest since Feb & the forecast number was 60K. Employers are reluctant to hire. However, numbers from this survey only get so-so marks for helping predict the important jobs numbers coming on Fri (which is expected to show the unemployed remaining at 9.8%).

ADP: U.S. Companies Added 13K Workers, Below Estimates

Verizon Wireless, a part of Verizon (VZ & a Dow stock), could sell as many as 12M iPhones in 2011 when it begins offering the device in Jan. AT&T has had exclusive claim on the iPhone in the US since its introduction in 2007. This contract could increase Apple’s annual revenue by more than $7B & EPS by more than $3 a share according to an analyst. VZ was down 38¢ & has had a drab chart in the last 2 years but offers a yield of almost 7%. AAPL has done quite well thru the recession, but is down pennies today with no yield.

Verizon May Sell 12 Million IPhones After AT&T Exclusive Ends

Verizon --- 2 years

Apple --- 2 years

The € strengthened to above $122½, but remains at a dreary level. There was a report that tthe European Central Bank said it will lend banks €131.9B ($161.5B) for 3 months, less than forecasted & a sign that the region’s financials may be stronger than investors estimated. But US markets paid little attention. The early reading from ADP on another dismal jobs report coming on Fri is having a greater impact. Being the last day of the qtr, last minute adjustments to portfolios can to be expected.

Dow Jones Industrials --- 2 weeks

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Tuesday, June 29, 2010

Global economic worries plague stock markets

Stocks sold off badly at the start & matters only got worse during the day. Markets recognized that economic problems are global. China & Japan (2 of the largest economies in the world) sent out negative signals on their economies. Europe (especially southern Europe) is a financial mess. Now there are more doubts about the recovery in the US. Dow slumped 268, decliners over advancers 7-1 & NAZ plunged 85 (almost 4%). For what it's worth, they closed above the lows! Bank stocks led the way down. The Financial Index is approaching its 186 support level. If that does not hold, the next support level could be 150 (shown in its chart).


Value187.69One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-7.58 (-3.9%)

The Alerian MLP index was weak all day, slipping 4¼ to 307. However it's up 22 YTD, few can make that claim! The REIT Index fell almost 7 to just over 190, also higher YTD. Junk bond funds were down 1-2%, about what is expected in this down market. The VIX shot up 5+ (huge by its standards) to the 34s & headed for its 2010 highs. Meanwhile Treasuries are red hot. The yield on the 10-year Treasury bond fell thru 3%, down 6½ basis points to 2.97%. Money is flowing out of stocks into Treasuries.

Alerian MLP Index --- 2 months

Dow Jones REIT Index --- 2 months

VIX --- 2 months

10-Year Treasury Yld Index - 2 months

Oil sold off badly but its bulls are happy it held above 75, a key support level. Gold rallied during the day, bringing it back into the black. Fundamentals remain strong for gold especially during these trying times for financials.

CLQ10.NYM..Crude Oil Aug 10..75.83..Down 2.42

GCN10.CMX..Gold Jul 10..1,242.00 ..Up 3.80

Gold Super Cycle!!!
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The Conference Board’s confidence index dropped to 52.9 in Jun from a revised 62.7 in May (versus a forecast of 62.5). The lack of stronger gains in the biggest part of the economy reinforces the Federal Reserve’s forecast for a “moderate” recovery. Today’s report runs counter to the final reading of the Thomson Reuters/University of Michigan index which showed its confidence level rose to 76 this month from 73.6 in May. Go figga, although I suspect the Confidence Board index gives a more accurate picture of what's happening.

Consumer Confidence in U.S. Fell More Than Forecast

Consumer confidence - 1 year

One-Year Chart for Confidence (CONCCONF:IND)

Exxon Mobil (XOM) & Chevron (CVX) are the 2 big oils in the Dow & have been hit hard with selling in the last 2 years. The former is an S&P 500 Dividend Aristocrat & the latter should join in a few years. While it will probably be difficult for these stocks to attract buyers in the coming months, the long term outlook remains excellent. The world needs more energy! Their 10 year track records are shown below & they compare favorably with major indices, like Dow & S&P 500, which are lower. Their yields are 3% & 4% respectively & worth noting for value investors. Today each was down more than 2%.

Exxon Mobil --- 1 decade

Chevron --- 1 decade

This was the ugliest day for stocks in a long time because of the recognition that economic problems are spread around the world, not just in Europe. But Europe is getting a lot of attention. The € is $1.22 & looks to be heading much lower. The Senate is trying to round up enough votes (by throwing in extras) to get the financial regulation bill passed. It will go thru, one way or another. But the main worry for the markets is investors flocking to Treasuries with the 10-year Treasury bond yielding below 3% (a very important support level) & the 2 year note yield down to a mere 60 basis points. Until "risk averse" thinking is reversed, more selling can be expected while Dow is flirting with 9 month lows.

Dow Jones Industrials --- 2 months

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Markets crumbled on worries about global recovery

Foreign markets fell overnight after Japanese data showed its country's recovery slowed & China's market was hurt by an initial public offering that pulled investors away from the rest of the market. European indexes opened sharply lower after Greek workers again walked out of their jobs to protest steep budget cuts. Dow started down 150. Dow is now down 244 to below 9.9K, decliners over advancers a massive 10-1 & NAZ dropped 66. Banks are leading the way down as the Financial Index is nearing its lows of 186 which have held for almost 10 months.


Value 190.47 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -4.80 (-2.5%)

The Alerian MLP Index dropped 4½ to the 206s & the REIT index was down 4 to the 193s. Junk bond funds were off 1-2% while the VIX, volatility index soared 4 to 33. Nervousness is on the rise. Money flowed into Treasuries as the yield onn the 10-year Treasury bond fell 5 basis points to below 3% (2.98%). The chart below shows the yield has plunged about 30 basis points in less than 2 weeks!

Alerian MLP index --- 2 weeks

Dow Jones REIT Index -- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yield Index -- 2 weeks

Selling is spreading to commodities, even gold.

CLQ10.NYM...Crude Oil Aug 10...75.57 ...Down 2.68

GCN10.CMX...Gold Jul 10...1,230.40 ...Down 7.80

Gold Super Cycle!!
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Strikes in Greece & Spain highlighted resistance to Europe-wide austerity measures as the € tumbled a penny to under $1.22 ahead of a deadline for banks to repay a giant European Central Bank cash injection. The 5th major strike this year by Greek unions disrupted tourism & public transport in protest at planned pension cuts & later retirement, while Spanish workers shut down Madrid's metro system in anger at a 5% public sector pay cut. The risk premium on southern European gov bonds over benchmark German bonds widened & the cost of insuring their debt against default rose as investors adjusted to the wider repercussions of the Greek debt crisis on the financial system at the end of the quarter, a traditional stress point. Euro zone policymakers had little success trying to reassure markets.

Greeks Walk Off Job to Protest Overhaul to Pensions, Labor Laws

Home prices in Apr rose for the first time in 7 months as tax credits bolstered the housing market. But the rebound may be short-lived now that the incentives have expired. The Standard & Poor's/Case-Shiller 20-city home price index posted an 0.8% gain after falling in each of the past 6 months. 18 of 20 cities showed price increases in Apr from Mar. 11 cities reversed their declines from the month before. Nationally, prices have risen 3.8% from their Apr 2009 bottom but remain 30% below the Jul 2006 peak.

Home Prices in U.S. Cities Up 3.8% From Year Earlier

Chaos & confusion are on the rise which is responsible for today's sharp decline in the markets. Frightened money would rather own 10 year Treasuries yielding a measly 3% than stocks, some of which yield much more. Stock markets are looking ugly. Dow will test its 2010 lows of 9.8K, maybe even today! It went thru that level on its upward drive last Oct.

Dow Jones Industrials -- 2 weeks

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Monday, June 28, 2010

Markets wander again

Stocks, once again, hugged the break even line all day. The G-20 meeting over the weekend only pointed out the differences between Europe's approach of fiscal conservatism vs the US attitude of more stimulus. Markets are confused, not a good sign going forward. Dow lost 5, decliners about 5-4 ahead of advancers & NAZ was down 2. Banks fell on the confusion over the proposed financial reform bill (with modest selling at the close).


Value195.27One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-1.76 (-0.9%)

MLPs are still on fire. Their index rose 2½ to the 311s, not far from 319 (high before the sell-off in May). The REIT index dropped almost 3 to 197, a more typical response given the kind of day this was. Junk bonds were up a fraction. The VIX was up a fraction in the 28s, still high relative to where it's been. The yield on the 10-year Treasury bond fell a very big 8 basis points to 3.03%, another new low since it climbed off the record low yields in early 2009!

Alerian MLP Index -- YTD

Dow Jones REIT Index -- YTD


10-Year Treasury Yld Index - YTD

Oil was weak on this quiet day but remains in the upper end of its recent trading range (nearer 80 than 75). Despite its fall today, gold is still very strong, not far from its record levels!

CLQ10.NYM..Crude Oil Aug 10..78.25 ..Down 0.61

GCM10.CMX..Gold Jun 10..1,239.20 ..Down 16.60

Gold Super Cycle!!

Global bonds have been hot in 2010, having their best year since 2005. That’s a switch from last year, when investors resorted to paying interest to borrowers while lending cash just to obtain Treasuries after the worst finance crisis since the Great Depression. Forecasters predict the Treasury 10-year note yields, the benchmark for everything from mortgages to corp bonds, will climb to a 3.74% by year-end from 3.03% presently. I'm not so sure. If the economy muddles along, Treasuries could remain hot with low yields, maybe even lower.

Bonds Gain in Best Year Since `05 as Rally May End

The Senate is scrambling for votes to get the financial reform package signed off. With the death of Senator Byrd, the Dems have more work to get it done. The € dipped below $1.23. It's looking for support & not finding much. But the low yields on Treasuries are very disturbing. The 2 year note is down to 66 basis points. That's $6.60 of annual interest for the 2 years of the note. 10 year money only is earning 3%. That's very scary for the stock markets while Dow is waffling around its low for this year!

Dow Jones Industrials -- YTD

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