Monday, August 9, 2010

Markets rise ahead of Federal Reserve meeting

Stocks started the day flattish & then rose in the midday period to end with modest gains. Dow was up 45, advancers ahead of decliners 5-2 & NAZ was up 17. This was on very light, summertime volume, less than 0.8B shares on the NYSE floor. Banks were higher taking the Financial Index just over the 200 line.


Value200.06One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change1.18 (0.6%)

The Alerian MLP Index fell 3¾ to the 329s, or 6 below its recent highs. Meanwhile the REIT index rose 2½ to 211. Junk bond funds were up 1-2% higher on expectations that the Federal Reserve will energize the economy without sending signals that the recovery is in really bad shape. The VIX was up fractionally in the 22s but still half its peak 3 months ago. The yield on the 10 year Treasury bond fell 3 basis points to 2.82%. The (annualized) yield on the 2 year Treasury note rose slightly to 54 basis points, but remains very near record lows of under 50 basis points reached last week. The € is in the low $1.32s. After recent gains, it's entitled to a rest.

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD


10-Year Treasury Yld Index --- YTD

Oil had a good day & has been hanging in above 80 for more than a week. Gold is trying to hold the line of retreat at 1200 after gaining almost 4% in the previous 8 sessions, the longest advance since late Nov. Bulls buying at these levels will be happy over the long term.

CLU10.NYM..Crude Oil Sep 10..81.48 ..Up 0.78

GCQ10.CMX..Gold Aug 10..1,200.60 ..Down 3.40

$$ Gold Super Cycle $$
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Freddie Mac, gov controlled mortgage buyer, is asking for another $1.8B in aid after posting a larger loss in Q2, $6Bm or $1.85 per share. The company is required to pay a 10% annual div to the Treasury on money it has received from the gov which made up $1.3B of the loss. Last year Freddie lost "only" $840M or 26¢ a share. The new request means Fannie Mae & Freddie will have needed a massive $148B to stay afloat, about $63B is being used by Freddie. It owned more than 62K of foreclosed properties in Jun, up from 35K a year earlier.

Freddie Mac Seeking $1.8 Billion in U.S. Aid After Posting Quarterly Loss

Chrysler Group said that growing car & truck sales helped it narrow the Q2 loss to $172M versus a Q1 loss of $197M. The US & Canada are its primary markets & both have seen higher demand for cars & trucks in the last year. Revenues rose 8.2% to $10.5B compared with Q1, largely because of a jump in sales. But many sales were to rental-car, gov & corp fleets, which are less profitable than sales to individual buyers. Chrysler got a boost in the last few months with the release of the 2011 Jeep Grand Cherokee, the first new vehicle since Fiat took over. Chrysler plans more refreshed cars & trucks in the coming months. Its US market share has climbed to 9.4%, still below 12.9% in Q2 of 2007, the last time the company reported Q2 results. "Chrysler Group is on track to achieve its goals, yet an extraordinary amount of work still lies ahead," Chrysler CEO Sergio Marchionne said. He called 2010 "a year of transition and stabilization."

It's difficult to find excitement in stock markets the day before a Federal Reserve (FED) meeting. While there is no dispute that the FED will leave low interest rates alone, announcements can bring surprises. With the economic recovery sputtering, bulls are hoping for magic words. Meanwhile the Treasury yields are sooo low. They suggest no inflation in the near term & even over the next 10 years, inflation is priced at near zero levels. Treasuries have been rallying in the last 2 months not bothered by those thoughts.

Dow Jones Industrials --- YTD

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