October gains end with sputtering markets

Stocks hugged break even all day as the 2% GDP growth rate was uninspiring.  Dow added 4, advancers ahead of decliners better than 3-2 & NAZ was up a few pennies.  Banks continue to drift, the Financial Index is still looking for direction.


S&P 500 FINANCIALS INDEX

Value	195.91
Change	-0.237 (-0.121%)

The Alerian MLP Index surged, gaining 2.83 to 253.04, a new all time record!  The index was up 2+ in the last 2 hours of the month, a time when it is difficult to assess what is really happening.  The REIT index rose a fraction in the 219s.  Junk bond funds were mixed, but near yearly high levels. Treasury 10-year bonds gained as a report showing an inflation measure increased less than forecast added to speculation the Federal Reserve (FED) will boost purchases of longer-term assets to spur the economy.  Long bonds pared their biggest monthly decline since Dec after comments from Goldman Sachs that any quantitative easing by the FED would likely include purchases of the securities. The yield on the 10 year bond fell 5 basis points to 2.61% & may be heading back down to the sub 2.40% levels, its yearly lows.

Treasury yields:

U.S. 3-month		0.11
U.S. 2-year		0.34
U.S. 10-year		2.61

Alerian MLP Index  --  YTD



Dow Jones REIT Index  --  YTD



10-Year Treasury Yield Index  --  YTD




Oil fell as the dollar rose against the €, reducing the appeal of raw materials.  Gold rose for its 3rd straight monthly gain on speculation that the Federal Reserve will increase debt purchases, weakening the dollar & boosting the metal’s appeal.

CLZ10.NYM

...Crude Oil Dec 10.

...81.39

........ 0.79

(1.0%)

GCX10.CMX

...Gold Nov 10

......1,357.10

... 15.00

(1.1%)

$$$ Gold Super Cycle $$$ 

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Apple (AAPL) has had an excellent run this year, allowing it to become the 2nd largest market cap in the world.  But it peaked with its new product announcements 2 weeks ago, reminding us of the old addage about buy on the rumor & sell on the news.  AAPL is a market leader & in the last 2 weeks the Dow has also been bumping along aimlessly.

Apple   ---   2 months





Citigroup (C) is still a troubled big bank that has been treading water.  But in the summer & fall the Treasury has been selling its shares & turning a profit (with a cost around $3.25 per share). There are a few bulls for Citi saying it is getting its act together which could bring prices more than double (for the very brave) the present level.

If you want to learn more about Citi

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Citigroup    ---    YTD






Dow extended its Aug run into Sep but has been sputtering in the last 2 weeks, bumping against the yearly highs reached in late Apr.  It began the month at 10,788 & finished at 11,118 for gain of 330 (3%).  Meanwhile the MLP index gained 15 to a new all time. Barclays Capital High Yield Bond ETF (JNK) began the month at 40.01 & gained 0.87 (2%) to a yearly high, steadily climbing during the month.  To me that's a sign that speculative juices are running high, not favorable implications for the stock market.  Next week brings the midterm elections, FOMC meeting (which will be even more closely watched than usual) & on Fri is the all important Oct jobs report.  It could be more exciting than this sideways week.

Dow Jones Industrials  --  YTD

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Markets not excited by GDP growth

Stocks continue to just lumber along sideways.  Dow is up 2, advancers ahead of decliners 3-2 & NAZ was up 5.  Bank stocks were little changed as the Financial Index is stock in the mud around 195.


S&P 500 FINANCIALS INDEX

Value	195.74
Change	-0.41  (-0.2%)

The MLP index was up a fraction to 350½ & the REIT index gained ½ to 220.  Junk bond funds were mixed to higher.  Treasuries rose on expectations the FED buy notes & bonds.  The yield on the 10 year Treasury bonds fell 3 basis points to 2.62%.

Treasury yields:

U.S. 3-month		0.12%
U.S. 2-year		0.36%
U.S. 10-year		2.62%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 weeks




Oil dipped but remains above the 80 support level.  Gold fell waiting for the next push up to new heights. 

CLZ10.NYM

...Crude Oil Dec 10

...81.77

... 0.41

(0.5%)

GCX10.CMX

...Gold Nov 10

....1,336.80

... 5.30

(0.4%)

Gold Super Cycle Link! Click Here

The Commerce Dept reported Q3 GDP rose at a 2.0% annual rate, faster than the 1.7% pace in Q2 but below the average forecast of a 2.1% rate. Growth in Q3 primarily came from consumer spending & an inventory buildup. The trade sector was less of a drag than in Q2.  The gov sector added to growth but the housing market was a renewed drag on activity (no surprises there).  The economy may be stuck in this 2% growth range that is called a “stall speed” because it leaves the economy vulnerable to downward shocks. In addition, a 2% growth rate is not a strong enough pace to bring down the unemployment rate that is stuck around the current 9.6% rate. But the data also suggest continued downward pressure on inflation.  Anemic growth & the specter of falling prices makes it even more likely that the Federal Reserve (FED) will launch another round of bond purchases after its 2-day meeting next week. The consensus is that the FED will announce a plan to buy $500B in Treasurys over a 6-month period, though there have been some doubts about the size in recent days.  Over the past 4 qtrs, the economy has risen 3.1%, the biggest year-over-year increase since the Q3 of 2005.  However, this improvement has barely reduced the high unemployment rate.

U.S. Economy Grew 2% in Third Quarter on Consumer Spending



Consumer sentiment worsened more than expected in Oct, hitting its lowest level since Nov, with concern about the economy high leading into next week's election.  The Thomson Reuters/University of Michigan's final Oct reading on the overall index on consumer sentiment came in at 67.7, down from 68.2 in Sep & below the 68.0 median forecast.  Earlier this month, the survey showed consumers' assessments of gov economic policies fell to the lowest level since Obama took office.  The survey's barometer of current economic conditions declined to 76.6 from 79.6 in the prior month & the gauge of consumer expectations edged up to 61.9, above last month's 60.9 reading.  This data is another reminder than consumers remain glum while high uenmployment drones on (shown in the charts below).

U.S. Michigan Consumer Sentiment Index Decreased in October

Consumer sentiment - 1 year




Expectations for 6 months forward - 1 year



Current conditions - 1 year





Sales of junk bonds in the US set a record for Oct as returns topped investment-grade debt & more borrowers were raised than cut.  Speculative-grade companies sold $33B of debt. The notes have gained 2.32% on average in Oct, compared with a loss of 0.16% for high-grade securities. Not since Mar have high-yield, high-risk securities outperformed by such a wide margin.  Investors have driven relative yields down to the lowest in 5 months on confidence the FED will flood the economy with money, allowing the neediest borrowers to access capital & refinance debt. Money managers who are bullish on junk bonds have a positive outlook toward them in 2011, saying investors will be searching for yield & willing to go down the rating scale.

Junk Bond Sales Set October Record; Mortgage Bonds Rally: Credit Markets



The markets were not expecting much excitement from the GDP & that's exactly what they got.  Treasuries have been inching higher bringing their yields down a notch or 2.  No dramatic moves are anticipated until the FED meeting next week.  Higher yielders continue at their elevated levels with the MLP index essentially at its record level.  However, even this hot index has hardly budged in the last 2 weeks (as for the Dow). PM trading will probably be lackluster as it should Mon ahead of the midterm elections.

Dow Jones Industrials   ---   2 weeks

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Hesitant investors remain on the fence

Stocks spent the day under water, but just barely.  Dow finished down 12, advancers were 15% ahead of decliners & NAZ gained 4.  Bank stocks hardly budged again as the Financial Index has not been able to break out of its 180-200 trading range since May.

S&P 500 FINANCIALS INDEX

Value	196.11
Change	-0.13  (-0.1%)

The MLP index was off a fraction & has been flattish above 350 over the last 2 weeks.  Of course, sideways after setting an all time record is nothing to be ashamed of, especially when a few MLPs have gone (earned) ex-distribution this week.   The REIT index fell 1 to the 219s, only 7 below its recent yearly highs & junk bond funds were higher. 

Alerian MLP Index    ---   2 months



Dow Jones REIT Index    ---   2 months



10-Year Treasury Yield Index    ---   2 months




Oil inched up while gold was able to recoup some of last week's big losses.  It only needs another 30+ to reach new record prices.

CLZ10.NYM

...Crude Oil Dec 10

...82.18

.... 0.25  (0.3%)

GCX10.CMX

...Gold Nov 10

.....1,342.10

. 19.90  (1.5%)

+++Gold Super Cycle+++  

Click Here

Bond dealers & investors were asked by the Federal Reserve (FED) for projections of central bank asset purchases over the next 6 months & likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth.  The FED meets on Nov 2 & 3 to consider steps to boost an economy that’s only stumbling.  William Dudley, president of the NY FED & vice chairman of the FOMC, set expectations of about $500B for a new round of so-called quantitative easing (QE) recently.  Treasury 10-year notes rose for the first time in 7 days today, pushing the yield down 5 basis points to 2.65%. The yield had climbed to the highest in more than a month yesterday on speculation that the FED will buy less debt than some traders had been expecting.  Treasury officials say they want to avoid any disruption to the $8½T (that's T as in TRILLION) market in gov debt as the FED weighs restarting purchases.  We're back to making it up as we go along & now they admit that they are talking about $T of dollars.

Fed Asks Dealers to Estimate Size, Impact of Debt Purchases

Treasury Yields:

U.S. 3-month		0.12%
U.S. 2-year		0.36%
U.S. 10-year		2.65%

General Motors is preparing an initial public offering (IPO), to reduce debt & other obligations by $11B, cutting interest costs & preferred dividends by $500M annually.  It has paid $2.8B to the UAW retiree health-care trust & will buy back $2.1B of preferred stock from the Treasury (that's us!) & contribute at least $6B to hourly & salaried pension funds after its IPO.  GM will purchase the Treasury’s 84M series A shares at $25.50 per share.  With the repurchase, taxpayers will have received $9.5B in repayments, interest & dividends, from GM since the automaker emerged from bankruptcy in Jul 2009. The Treasury’s total funds invested in GM include $13.4B under the Bush administration & $36.1B under the Obama administration.  This is a dramatic improvement over the chaotic period for banks & auto companies more than 1 year ago.  Unfortunately the money received  by the Treasury is only chump change when compared with massive deficits.  This week's new borrowings alone (if my memory swerves me correctly) were $102B.

GM Paying Down Debt, Other Obligations by $11 Billion


The 3M (MMM) earnings & its reception were a major disapointment.  The stock dropped 5.30 (6%).  Earnings were good, but they repeated the common story about foreign markets doing very well while US markets are struggling.  Earnings increases come from overseas & cost containment, not a bullish sign for a recovering economy.  In addition cutting costs means the company is not hiring new workers in US, a top national priority.  There is more talk that foreclosure problems are not getting better.  Besides the foreclosure mess which surfaced 2 weeks ago, foreclosures are on the rise because, among other things, so called good mortgage-holders are having problems making payments.  Tomorrow the GDP report for Q3 will be reported & expectations that it will be bland, another reminder that high unemployment rates will keep dragging on.

Dow Jones Industrials    ---   2 months

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Mixed earnings is confusing the markets

Uninspiring economic news & earnings data is taking stocks lower.  Dow dropped 24, advancers ahead of decliners by 10% & NAZ fell 4. Bank stocks are doling very little.


S&P 500 FINANCIALS INDEX

Value	196.06
Change	-0.18  (-0.1%)

The MLP index fell 1 to the 349s & the REIT index dropped ½ in the 220s.  Junk bond funds were a little higher as were Treasuries.  The yield on the 10 year Treasury bond fell 3 basis points off its interim high to 2.68%

Treasury yields:

U.S. 3-month		0.12%
U.S. 2-year		0.38%
U.S. 10-year		2.67%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 weeks




Oil rose after initial jobless claims declined to a 3-month low, signaling increased fuel demand, & the dollar dropped against the €.  Gold gained on a weaker dollar

CLZ10.NYM

...Crude Oil Dec 10

...82.15

....... 0.21

(0.3%)

GCX10.CMX

...Gold Nov 10

......1,332.20

.... 10.00

(0.8%)

Gold Super Cycle Link! Click Here

Photo:  Yahoo


The Labor Dept reported that initial claims for jobless benefits dropped 21K to 434K last week, the 2nd-lowest number this year. But this figure was favorably influenced by the season adjustment.  The only time it was lower was during the Jul 10 week & that week was affected by the Independence Day holiday when unemployment offices were closed.  Claims have fluctuated around 450K for most of this year & have fallen below that level 7 times after which they rose & haven't been able to remain below 450K for longer than 2 weeks.  The 4-week average fell 5K to 453K, the lowest level since Jul 24.  Economists expect that the Commerce Dept on Fri will report slightly better GDP growth of 2% for Q3, but that's still sluggish after a deep recession.  The economy needs to grow by at least 5% annually to bring down the unemployment rate by a percentage point.  This data is slightly encouraging but the graphs remain dreary.

Jobless Claims in U.S. Unexpectedly Drop To Three-Month Low

Jobless claims  --  1 year



# continuing to receive benefits - 1 year






Royal Dutch Shell (RDS.A), Europe's largest oil company, reported Q3 net profit rose 6.5% on increased production & higher oil prices more than offset a billion dollar charge on the value of oil sand assets in Canada.  Net profit of $3.46B was up from $3.25B last year as revenues rose to $90.7B from $75B.  "Our results have rebounded substantially from year-ago levels, with improved earnings and cash flow, underpinned by a 5 percent increase in oil and gas production," said Chief Executive Peter Voser. "This is a better performance from Shell, achieved despite continued difficult industry conditions in refining and natural gas markets."  Shell said that after stripping out one-time items in both years, earnings would have risen 88% to $4.93B from $2.62B.  The stock rose 66¢ (1%) but has not participated in the stock market rally over the last 2 years.

Shell Reports Increase in Profit as Oil Prices Climb



Royal Dutch Shell   ---  2 years




ExxonMobil (XOM), a Dow stock & Dividend Aristocrat, had a better than expected Q3 as profits grew 55%.  XOM earned $7.35B, or $1.44 a share, compared with a profit of $4.73B (98¢) last year, beating expectations of 1.38.  But revenue jumped 16% to $95.3B, below $98.1B forecasted.  “Despite continuing economic uncertainty, we had strong quarterly results and continued to advance our robust investment opportunities,” CEO Rex Tillerson said.  The stock gained 66¢.

Exxon 3Q Profit Jumps 55%at Fox Business

ExxonMobil   ---   2 years




3M (MMM), a Dow stock & Dividend Aristocrat, reported record Q3 EPS of $1.53 (up 11%) on sales of $6.9B (up 13%).  Operating income was a Q3 record of $1.6B & operating margins were 22.9%.  Sales in emerging markets grew by 25% & now comprise 34% of global sales. Sales grew by 48% in Korea, 39% in India, 32% in Russia, 31% in the China/Hong Kong region & 25% in Brazil.  “The 3M team posted yet another outstanding quarter, with 11 percent organic volume growth and 23 percent margins,” said George W. Buckley, 3M CEO. “We drove growth throughout the portfolio, with more than 80 percent of our operating divisions posting year-on-year sales increases. New products are fueling market share gains and filling adjacent spaces everywhere, but particularly in emerging markets, the fastest-growing area of our company. My thanks to the many 3Mers around the world who continue to make this happen.”  3M expects that full-year organic sales volume growth will be 13.5-14% & operating margins will be approximately 22.5% in 2010.  Full-year EPS are expected at (excluding the Medicare Part D-related charge recorded in Q1), $5.70-5.74. But the high end of this range is down 6¢ per share versus prior expectations, due solely to anticipated earnings dilution related to the company’s Oct 2010 purchases of Attenti Holdings & Arizant along with a controlling interest in Cogent. GAAP earnings are expected to be $5.59-5.63 for 2010. The reduction in EPS guidance cost the stock dearly, down 4.85 (5%) but has a nice run off its lows 2 years ago.

3M Achieves Record Sales of $6.9 Billion on 11 Percent Organic Volume Growth


3M   ---   2 years




Modestly favorable jobless figures should have been a more positive influence on the markets.  But mixed messages from company earnings is hurting.  The Dow chart below is showing that it's stalling out at the yearly highs of 11.2K.  Q3 GDP data may not bring back the bulls tomorrow.

Dow Jones Industrials   ---   2 weeks

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