VerySmartInvesting: Early losses trimmed after late day buying

Wednesday, October 27, 2010

Early losses trimmed after late day buying

Stocks looked they were going to have a very bad day on worries about the next moves by the Federal Reserve (FED). But nerves were calmed & buying in the PM reduced losses. Dow fell only 43, decliners ahead of advancers 5-2 but NAZ rose 5. Bank stocks benefited from late day buying, bringing the Financial Index into the black (although it has been going nowhere for months).

S&P 500 FINANCIALS INDEX

Value	196.244
Change	0.18 (0.1%)

The MLP index dropped 2 to the 350s. REITs, which have been hot lately, also saw profit taking, down 2 to the 220s (still near yearly highs) & junk bond funds were little changed. The Treasury sold $42B in 5-year notes at 2.37%. The bid-to-cover ratio was at 2.80X. Indirect bidders, including foreign buyers, bought 53% of the auction. This auction showed there is still solid demand for medium-term debt Treasuries.

Treasury yields:

U.S. 3-month		0.13%
U.S. 2-year		0.41%
U.S. 10-year		2.72%

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD

10-Year Treasury Yield Index --- YTD

Oil dropped after orders for US non-military goods excluding airplanes declined, signaling that investment will cool. Gold extended losses as investors await the next FED meeting when it will announce intentions on quantitative easing. Pressure on gold continued to mount as the Wall Street Journal reported that the FED could be more cautious than previously expected in its stance on quantitative easing.

CLZ10.NYM

...Crude Oil Dec 10

...81.99....

0.56

(0.7%)

GCV10.CMX

...Gold Oct 10

.......1,322.20

15.80

(1.2%)

$$$ Gold Super Cycle $$$

Click Here

Bill Gross, co-founder of Pacific Investment Management (Pimco) & Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo, 2 top asset managers, lambasted the Federal Reserve's loose monetary policy & said renewed asset purchases are in danger of becoming ineffective. The US central bank's bond asset purchasing program "is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme," Gross wrote in his monthly investment outlook. "It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up," said Gross. He continued, saying the United States is in "'a liquidity trap,' where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there." These comments came a day after Grantham, who helps oversee over $100B said FED policy has resulted in "extraordinary destructiveness" and "ruinous cost." "I would force (the FED) to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times -- the Greenspan/Bernanke put," Grantham wrote to clients. He added, "It would be a better, simpler and less dangerous world, although one much less exciting for us students of bubbles," Grantham wrote in a report titled "Night of the Living Fed," in a play on the traditional scary Halloween season. However, Gross & Grantham both see value in emerging markets, with Gross exposed to emerging market debt & Grantham moderately overweight in emerging market equities. So far, stock markets have been ignoring this advise.

Gross, Grantham blast Fed's asset buying- Reuters

Apple (AAPL), with the 2nd largest market cap in the world, continues to waffle around after its recent favorable earnings report & product announcements. Today it fell pennies in the 207s, 12 below its record highs reached last week. They are a leader for this year's rally & an inability to continue with higher prices after last week's encouraging news could be sending a negative signal to the markets.

Apple --- 1 month

This was another day when there was not a lot going on in the markets. Midterm elections are getting a lot of attention, but the next day is the FED meeting. Given the soggy economy, its low rates are expected to be continued. But most attention will be placed what is said about purchasing Treasuries. Present low rates have not been able to jump start the economic recovery. It's unclear what the FED hopes to accomplish by purchasing more Treasuries. With its recent run up, Dow matched its highs in late Apr. But so far, that resistance level has held.

Dow Jones Industrials --- YTD