Monday, June 14, 2010

Greek debt downgrade limited stock market gains

Asian markets reported good gains & US stocks followed thru but at midday buying slipped away. Dow after rising more than 100 ended with a loss of 20, advancers ahead of decliners a more modest 3-2 after a larger spread earlier & NAZ was even. Bank stocks gave up AM gains. Selling came after the credit downgrade on Greek debt.


Value194.04One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change-1.30 (-0.7%)

MLPs have had a good couple of weeks. The index was up almost 2 to just over 300. It's also up 15 YTD, not bad! The REIT index did well, up 2¼ to the 203s. Junk bond funds were mixed to up 1%, again off AM highs. The VIX was off a fraction to 28½ after reaching 27 earlier. The yield on the 10-year Treasury bond rose 6 basis points to 3.27½%, below earlier levels above 3.3%.

Alerian MLP Index -- YTD

Dow Jones REIT Index -- YTD

Oil slipped from its AM highs, but still had a nice gain bringing it back above 75. Gold was weak but remains within 30 of its record highs last week. Many in the world consider it as the ultimate holding to guard against inflation & future massive deficits by the strongest economies.

CLN10.NYM..Crude Oil Jul 10..75.12 T..Up 1.34

GCM10.CMX..Gold Jun 10..1,220.40 ..Down 8.50

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Greece Rating Cut Four Steps to Junk

Photo: Bloomberg

Moody's cut Greece’s credit rating 4 steps to non-investment grade (junk) because of the country’s economic “risks.” The rating was lowered to Ba1 from A3 with an outlook of "stable." Moody's said, “The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the euro-zone-IMF support package.” Greece is already rated junk by Standard & Poor’s. They cut Greece’s credit rating to non-investment grade on April 27, the first time a euro member lost its investment-grade since the euro’s 1999 debut. S&P warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt.

Greece Cut 4 Steps to Junk by Moody's on Economic Risks

Fannie Mae headquarters stands in Washington

Photo: Bloomberg

Fannie Mae & Freddie Mac will cost taxpayers at least $160B & potentially as much as $1T, the biggest bailout in American history. They are 80% owned by the gov & already have drawn $145B from an unlimited line of gov credit. They own or guarantee 53% of the $10.7T residential mortgage market. This is one more enormous problem congress will have to figure how to solve by increasing gov deficits.

Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case

Bulls did not have their way today after it looked like the markets were ready to charge forward. The Greek credit downgrade was just one more sobering thought for the markets to absorb. The € pulled back from earlier highs above $1.23 to close at $1.223. This week Congress will be getting more attention as they grill BP & other oil company execs. Dow can't get far from the important 10K level.

Dow Jones Industrials -- YTD

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