VerySmartInvesting: Profit taking reduces early gains

Thursday, October 21, 2010

Profit taking reduces early gains

Favorable earnings reports got the stock market off on the right foot this AM, then selling pretty much wiped out those gains. Dow held onto a 38 gain, decliners were slightly ahead of advancers & NAZ was only up 2. Bank stocks were a little lower as the Financial Index needs to find its footing to go over 200 again.

S&P 500 FINANCIALS INDEX

Value	196.47
Change	-0.37 (-0.2%)

The Alerian MLP Index was off only a ¼ in the 349s & the REIT index was off ½ in the 223s. Junk bond funds were mixed, near yearly highs & Treasury yields were little changed. The yield on the 10 year Treasury bond inched up a fraction of basis point to 2.53% while the yield on the 2 year Treasury note is within inches of its all-time record low yield.

Treasury yields:

U.S. 3-month		0.12%
U.S. 2-year		0.35%
U.S. 10-year		2.53%

Alerian MLP Index --- 2 months

Dow Jones REIT Index --- 2 months

10-Year Treasury Yield Index --- 2 months

Selling sentiment spread to oil, but it held above the important 80 support level. Gold got clobbered on speculation that the dollar will rebound. It's down 50 from its recent record but continues to have strong long term fundamentals,

CLZ10.NYM

...Crude Oil Dec 10

...80.62

....

1.92 (2.3%)

GCV10.CMX

...Gold Oct 10

......1,321.80

21.50

(1.6%)

$$$Gold Super Cycle$$$

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Crosstex Energy (XTEX), an MLP which used pay distributions, declared a quarterly distributiion of 25¢ per unit payable November 12 (matching its last, lowered distribution in Q1 2009). On expectations of distributions returning, XTEX has participated in the MLP rally this year. Constellation Energy (CEP), is the glaring exception, with its units languishing around 3 as paying a distribution next year is in doubt.

Crosstex Resumes Payment of Quarterly Distribution and DividendBusiness Wire

Crosstex Energy --- YTD

Constellation Energy --- YTD

Fannie Mae & Freddie Mac may need $221-363B through 2013, the Federal Housing Finance Agency estimated!! The projected amounts vary depending on changes in home prices. The lower projection assumes home prices bottomed in the Q1 of 2009, and will rise 5% annually through 2013. The "current baseline" scenario of Moody's Investors Service depicts more, but smaller house price declines, while a worse outcome reflects a deeper recession because of restricted access to credit & high unemployment, FHFA said. This money can only come from one place, the federal buget, aggravating a deficit picture which is already ugly.

Fannie and Freddie may need another $215B: FHFA- Reuters

Early enthusiasm did not last the day. Dow, shown below, is having a good run off its lows but I'm not sure the big picture, macro economic picture really supports the advance. The MLP index remains just under its record & the REIT index is just under its yearly highs although their business models have not changed much. Distribution announcements from MLPs are good with some even restoring payments. Earnings season has gone reasonably well, although few companies are reporting higher US sales. The assessment about Fanny Mae & Freddie Mac needing substantially more bailout funds is disturbing & may have brought on late day selling.

Dow Jones Industrials --- 2 months