VerySmartInvesting: Markets tumble on threats China may raise interst rates

Friday, November 12, 2010

Markets tumble on threats China may raise interst rates

Stocks sank from the start & remained under water all day. Worries about the discord coming from the G-20 meeting in Korea hurt & a sense that China might have to limit growth with a renewed threat of inflation depressed stock markets. Dow dropped 90, decliners over advancers 4-1 & NAZ fell 37. Bank stocks were lower bringing the Financial Index down to 200, an important level that has been zig-zagged over for months.

S&P 500 FINANCIALS INDEX

Value	200.97
Change	-3.12 (-1.5%)

The Alerian MLP Index dropped 3+ to under 360 but is down only 1+ for the week. It is still flying at heights only imagined last year. The REIT index is down 2½ to the 218s & down a massive 12 this week (from its yearly highs). Junk bond funds slipped another 1% as they also had a tough week. Treasuries had a major sell off. Today the yield on the 10 year Treasury bond rose a startling 11 basis points to 2.76% & shot up more than 20 basis points this week (huge for these securities). These yields are challenging interim highs reached 2 months ago when they went over 2.8%.

Treasury yields:

U.S. 3-month		0.12%
U.S. 2-year		0.50%
U.S. 10-year		2.75%

Alerian MLP Index --- YTD

Dow Jones REIT Index --- YTD

10-Year Treasury Yield Index --- YTD

Commodities, along with stocks, had a rough day, capping a very bad week. The health of the economy in China seems to be at the center of trader worries.

CLZ10.NYM

....Crude Oil Dec 10

...84.95

.......

2.86

(3.3%)

GCX10.CMX

...,Gold Nov 10

......1,365.70

...,

37.40

(2.7%)

$$ Gold Super Cycle $$

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D.R. Horton Says Loss Narrowed on Lower Writedowns

Photo: Bloomberg

DR Horton (DHI), 2nd largest home-builder, reported its loss narrowed in its fiscal Q4 as it took fewer writedowns on the value of its properties. But revenue slid 9% as the company sold fewer homes while new orders dropped 21%. DHI said the housing market became even more challenging after a tax credit expired in Apr. Absent the gov incentives & despite mortgage rates remaining at near-historic lows, many homebuyers are opting to stay on the sidelines, put off by high unemployment, tight credit & uncertainty about home prices. The expiration of the tax credit has weighed heavily on Horton, as first-time homebuyers account for more than half of its business. DHI new orders in the Q4 totaled 3,979 homes with a value of $817M, down from 5,008 homes valued at $1.0B last year. Revenue dropped to $925M from $1.01B last year. It lost $8.9M, (3¢ per share), in the qtr ended Sep 30, less bad than last year when it lost 74¢. The results included $30.8M in charges for inventory impairments & land option cost write-offs while last year results included $192M in similar charges. The stock fell 66¢ & has been muddling after its initial recovery from the depth of the recession early last year.

D.R. Horton Sees `Challenging' Year as Home Sales May Decline

DR Horton --- 2 years

Photo: Bloomberg

There is a report that a manager of the top-performing diversified mutual fund in the past 10 years, sold most of his stake in Apple (AAPL) in Q3. His funds had owned over 1M shares, leaving his holdings at 110K shares, according to a filing with the SEC. There is worry that the iPad & other tablets may not sell as well as analysts had estimated if customers cut back spending on new technology or opt for new smartphones & laptops instead. Competition from big players is heating up for the iPad & iPhone. The focus for AAPL bulls is on the new iPad which is expected early next year. The stock has had a stellar run at a time when even some of the best performing stocks have had little or only modest gains. AAPL fell 8 (2½%) to the 308s.

IPad Sales May Miss Estimates as Customers Trim Spendingat Bloomberg

Apple --- 2 years

This has been a profit taking week on just about all fronts. Most markets have had unbelievable runs in the last 2-3 months & simply may be getting tired (or getting ahead of themselves). There has been no dramatically new news during this time other than a general awareness that a 2nd dip for this recession is not likely. The increase in Treasury rates (starting today the Federal Reserve is buying under its QE2 program) could hurt high yield securities which have had fabulous runs aided by investors looking for alternative investments with high yields. Intl trade & business is the main focus of attention with interest more sovereign debt problems in Europe (i.e. Ireland) & worries that China growth may cool. Selling of a major stake in AAPL by a prominent investor may signal that long bullish runs were not meant to last.

Dow Jones Industrials --- YTD