Thursday, November 18, 2010

Higher markets on prospects for Irish bailout

Stocks shot up out of the gate & are at their highs for the day on hopes for an Irish bailout.  Dow is up 176, advancers ahead of decliners almost 6-1 & NAZ rose 43.  Bank stocks are leading the broad based rally, bringing the Financial Index back over 200 once again.


Value 200.41 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   3.45  (1.8%)

With all the enthusiasm for stocks, the MLP index rose 1.70 to the 356s & the REIT index popped 2+ to the 213s.  Junk bonds funds are up about 1%.  Treasuries fell as an advance in stocks sapped demand for the safest assets.  Even though the Federal Reserve today is buying $6-8B of Treasuries,.the yield on the 10 year Treasury bond jumped 8 basis points to 2.95% (its highest level since early Aug) as officials traveled to Dublin to discuss a possible aid package for Ireland’s banks.

Treasury yields:

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

Alerian MLP Index   ---   2 weeks

Dow Jones REIT Index   ---   2 weeks

10-Year Treasury Yield Index   ---   2 weeks

Commodities like oil & gold are riding the buying wave for stocks, although only at moderate levels.

BRENT CRUDE     84.76 +1.48 +1.8%
Gold 1350.90 +14.00 +1.1%

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GM Returns to NYSE After Raising $20 Billion in IPO

Photo:  Bloomberg

General Motors (GM) was up 7+% in a dramatic market return that comes less than a year & half after it emerged from gov-funded bankruptcy.  The shares opened at $35, above the IPO price of $33 & is currently trading at  $35.52.  The IPO caps the first stage of a turnaround that has taken the 102-year-old automaker from near-death in 2008 to an unlikely favorite in 2010.  The GM rescue left the Treasury with a 61% stake, but after the IPO the gov stake could drop to 33%.  At $33 a share, the partial sale represents a loss of about $9B on taxpayers' original investment, assuming the extra shares go at the same price.  The IPO values GM at about $63B. Including an option that would allow underwriters to sell more shares, GM looks set to raise $23.1, eclipsing the record $22.1B raised by Agricultural Bank of China in Jul.  CFO Chris Liddell said the automaker's goal was to pay down all of its remaining debt & fully fund its pension plan.  "We are in a good position to do that over the next few years," Liddell said.  Traders marvel at how the sentiment has totally changed over such a short time period.

 General Motors Shares Climb After $20 Billion IPO

General Motors   ---   1 day

Jobless Claims in U.S. Climbed by 2,000 to 439,000

Photo:  Bloomberg

The number of people applying for unemployment benefits rose slightly last week, but claims need to fall further to bring down the 9.6% unemployment rate.  Initial claims for jobless aid increased 2K to 439K, the Labor Dept said. Claims have fallen below 440K in 3 of the past 4 weeks & remain near their lowest level in 2 years.  The 4-week average of claims fell, for the 4th time in 5 weeks, to 443K, its lowest level since Sep 2008.  The downward trend in both figures suggests companies are laying off fewer workers & some hiring is taking place. However, claims need to drop below 425K to signal that rapid hiring is taking place.  The number continuing to claim unemployment aid fell 48K to just under 4.3M, but that doesn't include millions of additional people on extended unemployment programs that were set up during the recession.  Overall, about 8.85M people are receiving jobless aid, including 4.7M doing so through the federally funded extended benefit programs.  The extended programs are set to expire at the end of this month, up to 2M will lose benefits if the program isn't extended & another 2M will run out this winter.

Jobless Claims in U.S. Increase Less Than Forecast

Weekly jobless claims - 1 year

One-Year Chart for Claims (INJCJC:IND)

Ireland may ask for a bailout as the European Central Bank (ECB) signaled debt-laden nations can’t rely on the ECB to keep their financial systems afloat forever.  They are talking about the creation of “substantial contingency capital funding” for Irish banks. But Jean-Claude Trichet, ECB Presdient, said that policies first used to fight the global credit crisis can’t “evolve into a dependency as conditions normalize.”  The ECB is concerned that banks in Ireland & Greece are becoming too reliant on its unlimited money market operations.  A bailout is estimated at $10Bs of €s.  Bailout is a bailout & this one will be another whopper size one based on the idea that solve today's problems today & tomorrow will take care of itself.

Ireland Turns to EU for Bailout as Trichet Signals Limits of ECB Support

This is a party day for stocks.  The enthusiasm for GM shares is being extended to all stocks.  Even these days bring  problems.  When the rate on the 10 year Treasury bond backs up, mortgage rates will shortly follow that increase (not a help to an already troubled housing markets).  Dow still needs 200+ to reach new yearly highs.

Dow Jones Industrials   ---   2 weeks

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