Thursday, October 28, 2010

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.


Value196.11One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
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 ....Up 0.25  (0.3%)

GCX10.CMX...Gold Nov 10.....1,342.10 .Up 19.90  (1.5%)
+++Gold Super Cycle+++  

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
U.S. 2-year
U.S. 10-year

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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