Wednesday, September 29, 2010

Markets slip while awaiting new developments

Stocks were in the red all day but never by much.  Dow fell 22, advancers ahead of decliners 5-4 & NAZ fell 3.  Banks stock sold off dragging the Financial Index to its yearly lows, just under 180.


Value193.39One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -1.61  (-0.8%)

The Alerian MLP Index rose 1.81 to the 336s, another 2010 high, only 7 away from establishing an all time record.  REITs were weak, taking the index down 2 to 210 & junk bond funds were mixed.  The weak dollar took the € up another ½ a penny to above $1.36.  Treasuries are the main story in the financial markets only this time they dropped, pushing the yield on the 10 year bond up 5 basis points to 2.50% as Federal Reserve policy makers cast doubt on an increase in debt purchases.  Today $29B of 7 year notes were sold at the lowest yield on record (1.89%).  The bid-to-cover ratio was an impressive 3.04X, compared with an average of 2.84X at the past 10 auctions.  There is plenty of demand for Treasury debt, not good for competitive investments like stocks. 

Treasury yields

U.S. 3-month
U.S. 2-year
U.S. 10-year

Alerian MLP Index  --  6 months

Dow Jones REIT Index  --  6 months

10-Year Treasury Yield Index  --  6 months

Oil rose when the weekly inventory report showed an unexpected drop in fuel inventories.  Gold continues strong & is heading for new record levels.

CLX10.NYM...Crude Oil Nov 10...77.73 ...Up 1.55  (2.0%)

GCV10.CMX...Gold Oct 10...1,309.00 ...Up 2.40  (0.2%)

***Gold Super Cycle*** Click Here

The Treasury Dept will start to sell $2.2B in trust preferred shares that it holds in Citigroup (C) to help recoup the costs incurred in the $700B financial bailout. These shares were received as part of Treasury's agreement in Jan 2009 to share potential losses on a pool of $301B of assets held by Citi.  The loss-sharing arrangement also involved the FDIC & the Federal Reserve. Citigroup paid the Treasury & the FDIC a premium in the form of securities for their willingness to share potential losses over a 5-10 year period.  The loss sharing arrangement was terminated in Dec 2009 at the request of Citi.  The Treasury was never required to make any payments under the arrangement with no further obligation to do so.  This stock sale is being handled separately from the sale of $25B in Citi common stock that the gov owns.  Citi received $45B in taxpayer support in addition to the insurance provided against losses on the pool of $301B in assets.  Of the $45B, $24B was converted to a gov ownership stake which was sold off last spring. The bank repaid the other $20B in December 2009.  The common stock has been lumbering along in low single digits since Citi needed this rescue.  As a reminder, the gov is really all the taxpayers who want to get some of their money back.

Treasury to Sell $2.2 Billion Citigroup Bailout Trups

Citigroup   ---   2 years

Another day of lackluster trading on very low volume (1.0B shares on the NYSE floor) with little decided.  Next week Sep reports are due which will give the markets something to chew on.  Oct is statistically the 2nd worst month for stocks but is best remembered for major drops that made worldwide  headlines.  MLPs have taken a couple of months to move forward, but look like they're getting ready to establish new record highs (for the basic Alerian MLP Index).  The comparable index with reinvested income has been setting records many times this year.

Dow Jones Industrials  --  6 months

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