Markets continued to slide after beige book report

Stocks were set adrift in slow trading again & the report from the Federal Reserve did not help. Dow fell 39, decliners over advancers 2-1 & NAZ was off 23. Banks have been leaders & they also drifted lower. The Financial Index remains in the lower range of its trading range which has lasted for almost 1 year (of economic recovery).

S&P 500 FINANCIALS INDEX

Value	197.32
Change	-1.87 (-0.9%)

The Alerian MLP Index fell 1.62 (for a total of 9 in the last 2 days) to the 326s. The REIT index dropped a ½ to the 206s. Junk bond funds were a little lower & the VIX rose 1 to the 24s, still near the lows of the last 3 months. The yield on the 10-year Treasury bond fell almost 5 basis points to 3.0%, remaining at unsettling low levels. The € finally lost some strength, slipping below $1.30.

Alerian MLP Index -- YTD




Dow Jones REIT Index -- YTD




VIX -- YTD




10-Yeas Treasury Yld Index -- YTD





Crude oil inventories grew over 7M barrels last week versus an expected decline of 2M, the reason given for today's decline in oil prices. But oil remains in the upper end of its trading range while gold inched up.

CLU10.NYM

..Crude Oil Sep 10

..76.83

.. 0.67 ......(0.9%)

GCN10.CMX

..Gold Jul 10

..1,160.40

.. 2.40 ......(0.2%)

** Gold Super Cycle **
Click Here

The pace of economic activity has slowed or held steady in parts of the country, revealing a choppy path back to health. The survey released by the Federal Reserve (called the Beige Book) found the US economy is growing, even as risks mount. Of the 12 regions tracked by the FED, growth held steady in Cleveland & Kansas City, but slowed in Atlanta & Chicago. Economic activity elsewhere was described as modest. High unemployment, cautious consumers & businesses, an ailing housing market & edgy investors have kept the recovery from gaining strength. Manufacturing expanded in most regions. But ½ of them reported that activity had "slowed" or "leveled off." Retailers reported sales gains, although merchants in some places said shoppers focused on buying "necessities." Sales of big-ticket goods were slower. Reports across most regions found that auto sales had declined. The housing market turned more sluggish after homebuyer tax credits expired & commercial real estate businesses continued to "struggle" across all 12 regions. This can be summarized as the recovery is muddling along.

Fed's Beige Book Says Economic Recovery Slowed in Some Areas

Bill Gross, of Pacific Investment Management (Pimco), said deficit spending by govs that seek to maintain artificial levels of consumption “can be compared to flushing money down an economic toilet.” Leveraged spending, he said, is not a substitute for demand created by people. “I will go so far as to say that not only growth but capitalism itself may be in part dependent on a growing population,” Gross wrote. “Production depends upon people, not only in the actual process, but because of the final demand that justifies its existence.” Deficit spending will be unsuccessful in what Pimco calls the “new normal” because deleveraging, re-regulation & de- globalization produces structural headwinds that lead to slower growth & lower-than-average investment returns, Gross said. Japan is the modern-day example of what deleveraging in the face of a slowing & now negatively growing population can do. Prior deleveraging periods, such as what the US & European economies experienced in the 1930s, exhibited a similar demographic with the lowest levels of fertility in the 20th century & extremely low population growth, he wrote. Gross boosted holdings of gov-related debt to the highest level in 8 months in Jun as the US recovery showed signs of waning. Pimco's $234B Total Return Fund (PTTRX) investment in the debt was increased to 63% of assets in Jun, from 51% in the previous month & emerging-market debt was raised to 10%, breaking the 9% record set last month. The fund has returned 13% in the past 12 months, beating 64% of its peers. He backs up his talk with investment actions & they have been very successful in a difficult time for the markets.

Gross Calls Spending to Maintain Consumption a Waste



Markets were drifting lower until the Beige Book was released which stimulated more selling. A major problem in the markets is many companies are sitting on cash rather than reinvesting in new plants & workers. Google (GOOG), Cisco (CSCO) & Microsoft (MSFT) are the extremes, each one has more than $30B in cash. There is speculation the first 2 could begin paying divs, although that money would probably not be large, & MSFT could increase its 52¢ div. Corps spending more of their cash holdings would help stimulate the US economy, but they do not have the incentive. Dow topped its Jun highs, just barely & now it's losing momentum. Markets aren't serious about charging forward.

Dow Jones Industrials -- YTD

Get your favorite symbols' Trend Analysis TODAY!
Click Here

Find out what's inside Trend TV!
Click Here