Tuesday, November 23, 2010

Korean tensions shake markets

North Korea fired artillery shells into South Korea, a good way to shake confidence in the stock markets.  Dow is down 156 (bringing it near the important 11K support level), decliners over advancers 4-1 & NAZ fell 38.  Bank stock as markets leaders lost ground & the Financial Index remains range-bound in the 190s.


Value 194.19 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   -2.46  (-1.3%)

Nervous markets affect high yielding securities.  The MLP index is down 2 to the 357s, but off the lows.  The REIT index fell 2 to the 212s.  Junk bond funds are little changed, not far below the recent highs.  Treasuries were strong on increased intl tensions.  The yield on the 10 year Treasury bond dropped 6 basis points to 2.75% & down a whopping 20 basis points from its peak last Thurs.

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

Oil dropped for a 3rd day as the dollar strengthened on concern that Europe’s debt crisis will hurt economic growth & as North Korea & South Korea exchanged artillery fire. Gold rose the most in 2 weeks on demand for a haven amid Europe’s sovereign-debt crisis & escalating tensions in North and South Korea.

CLF11.NYM....Crude Oil Jan 11..................80.68 ...Down 1.06  (1.3%)

GCX10.CMX...Gold Futures,Nov-2010...1,364.50 ...Up 6.80  (0.5%)

Gold Super Cycle Link! Click Here

Sales of Existing Houses Dropped More Than Forecast

Photo:  Bloomberg

Sales of previously owned homes slipped slightly in Oct as the housing market continues to battle tough economic conditions including high unemployment & tight credit.  The National Association of Realtors reported sales of previously owned homes dipped 2.2% last month to an annual rate of 4.43M units.  The median price for a home was $170M, down 0.9% from a year ago, as prices continue to be depressed by weak sales conditions & a huge overhang of unsold homes.  Sales had plunged to the slowest pace in 15 years in Jul & then posted gains in Aug & Sep before slipping back. Sales in October were 39% below the peak of 7.25M units set in Sep 2005 during the height of the housing boom.

Sales of Existing Houses Fell More Than Forecast in October

Purchases of homes - 1 year

One-Year Chart for MoM % (ETSLMOM:IND)

Median price of a house - 1 year

One-Year Chart for Median Price (ETSLMP:IND)

US banks posted their smallest profit since the Q4 2009 after one of the nation’s biggest lenders took a $10.4B writedown, according to the Federal Deposit Insurance Corp (FDIC).  Bank profits totaled $14.5B in Q3, a decrease from $21.6B from Q2.  “Problem” banks, those at heightened risk of failure, rose 3.7% to 860 in Q3, the most in 17 years! Banks on the confidential list had $379B in assets. “Credit performance has been improving, and we remain cautiously optimistic about the outlook,” FDIC Chairman Sheila Bair said. “It is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduce loss rates.”  Loan-loss reserves declined for the first time since the Q4 of 2006 & total reserves fell $9.6B, as large banks reduced loan-loss provisions.  The deficit at the agency’s deposit insurance fund narrowed to $8B in Q3. “The industry has come a long way in cleaning up balance sheets, building capital, and adjusting to changes in financial markets and the economy,” Bair said. “The adjustments are not over, and this is no time for complacency.”  The report explains why the Financial Index (shown above) has been going nowhere for months.

U.S. Banks Post $14.5 Billion Profit in Third Quarter, Smallest Since 2009

Bank of America (BAC), Dow stock, is one of the largest banks in the world but its stock has not been participating in the market rally.  A lack of enthusiasm for bank stocks has limited market gains in 2010.

Bank of America   ---   YTD

The U.S. economy grew at a 2.5% annual rate in Q3, more than previously calculated at just 2%, as companies increased shipments abroad & Americans boosted their spending.  However, this was little consolation for the markets.  Escalating tensions on the Korean peninsula dominate the news & uncertainty about an Irish bailout is also in traders minds.  2 weeks ago, Dow broke thru the Apr high of 11.2K & looked like it want to go higher despite the lack of favorable economic news to support the advance.  Now the Apr high could become an critical ceiling which it's struggling to break thru.  For the rest of the week, stocks should remain on defense.

Dow Jones Industrials   ---   2 weeks

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