Friday, August 6, 2010

Markets sink on disappointing jobs report

Stocks dropped at the open & selling pressure is continuing. Dow is down 135, decliners over advancers 3-1 & NAZ fell 31. Banks also sold off, taking the Financial Index solidly below 200. Another way to look at it is that it has been going nowhere for a year.


Value 196.78 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -3.74 (-1.9%)

The MLP index dropped 2½ to the 331s while the REIT index fell 3½ to the 205s. But junk bond funds were generally stronger. The VIX, volatility index, went up 1¾ to the 23s, remaining in its recent low region. Treasuries were very strong, taking them to 18 month highs. The yield on the 10-year Treasury bond plunged 9 basis points to 2.82%. The € gained a penny to $1.33, quite a rebound from May.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yld Index --- 2 weeks

Euro --- 3 months


Oil was down a fraction but gold is in favor again. Now that it's over 1200, it has its sights on the record in the 1260s.

CLU10.NYM...Crude Oil Sep 10...81.78 ...Down 0.23

GCQ10.CMX...Gold Aug 10...1,210.70 ...Up 13.50

*** Gold Super Cycle ***Click Here

Companies showed a lack of confidence about hiring for a 3rd straight month in Jul, making it likely the economy will grow more slowly the rest of the year as the unemployment rate remained unchanged at 9.5%. Private employers added a net total of only 71K jobs in Jul, far below the roughly 200K needed to reduce the unemployment rate. The modest gains were even weaker when considering a loss of gov jobs at the local, state & federal levels in Jul that weren't temporary census positions. Factoring those in, the net gains were only 12K jobs, according to the Labor Dept. Overall, the economy lost a net total of 131K jobs last month, mostly because 143K temporary census jobs ended. As a result, stocks were sold to buy more conservative Treasury securities. The jobs figure for Jun was also sharply revised down, to 31K from 83K, as businesses hired fewer workers than previously estimated. The "underemployment" rate was the same as in Jun, at 16.5% (including those working part time who would prefer full-time work and unemployed workers who've given up on their job hunts). All told, there were 14.6M looking for work in Jul, roughly double the figure in Dec 2007 (when the recession began). High unemployment rates & lows yields on Treasuries are chilling for a stock market recovery.

U.S. Companies Add 71,000 Jobs; Unemployment at 9.5%

Unemployment rate - 1 year

One-Year Chart for Total SA (USURTOT:IND)

Pimco's Gross Interview Excerpt on Jobs Data

Photo: Bloomberg

Bill Gross of Pacific Investment Management Co. (Pimco) said the Federal Reserve is unlikely to raise interest rates for 2-3 years as it seeks to keep the economy from slipping back into recession. On one level that's good news, keeping a key cost for many businesses low. But at the bigger picture level, it does not give encouraging thoughts about the economic recovery. The yield on the 2 year Treasury note sank to a record low of 51 basis points & the yield on the 10 year bond dropped to only 2.82%. The spread between the 2 yields of 231 basis points is more than double the average of 111 over the past 20 years! “When you analyze that portion of the curve, it says the Fed is on hold for a long, long time,” Gross said. “When you get down to 50 basis points on two-years, that’s giving you a signal that there’s not much left on the table.” Gross, manager of the world’s biggest bond fund, has been benefiting from the steep yield curve by buying 5-year Treasuries, holding them for a year before selling to pick up capital appreciation as well as interest income. His $239B Total Return Fund (PTTRX) has returned 13% in the past 12 months, beating 71% of its peers. Its chart below looks pretty, especially when compared with many others.

Pimco's Gross Says Fed Won't Raise Rates for 2 to 3 Years

Pimco Total Return Fund -- 2 years

Constellation Energy (CEP) reported a loss in Q2 as it has been reducing debt to $180M. Capital expenditures for 2010 will only be $10-12M to complete about 25 net wells. Distributions have been all but ruled out in 2010, although only Q4 remains. Future distributions depend on "such time that debt levels are reduced and market conditions again warrant resumption of capital spending at maintenance levels." The units fell a few pennies to 3.49 & are of interest to bargain hunters who see value in an MLP that has been left behind in the current MLP rally.

Constellation Energy Partners Reports Second Quarter 2010 Results

Constellation Energy -- 2 years

There is not much to say after the jobs report. The recovery is not creating enough jobs to reduce unemployment in a meaningful way. Treasuries keep surging, allowing Bill Gross to make a lot of money for Pimco. And the Alerian MLP index is still close to setting a new record.

Dow Jones Industrials --- 2 weeks

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