Monday, December 6, 2010

Markets nervous about the future of US taxes

Stocks are muddling along with a downward bias.  Dow fell 26, decliners ahead of advancers 3-2 in an unconinving fashion & NAZ is 4 lower.  Bank stocks slipped taking the Financial Index down a tad.  Drama in DC about taxes next year is weighing on the markets.


Value 203.49 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -0.48 (-0.2%)

The Alerian MLP Index is up a fraction in the 357s, where it has been for a month.  But the REIT index is down 1½ to the 218s after doing little for 3 months.  Junk bond funds are little changed.  Treasuries were strong, the yield on the 10 year Treasury bond fell 7 basis points to 2.95% (where it was in late Jul).  Doubts in the stock market affect these securities.

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 was little changed near its 25 month high on the stronger dollar,  Gold gained near a record on concern the US economy may need more stimulus, boosting demand for a protection of wealth.

CLF11.NYM...Crude Oil Jan 11...89.27 ....Up 0.08  (0.1%)

GCZ10.CMX...Gold Dec 10....1,415.00 ...Up 11.20 (0.8%)

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There are forecasts that the worst annual performance for the € since 2005 will extend into next year as the region’s sovereign-debt crisis saps economic growth.  The € may weaken to less than $1.20 by mid-2011 from about $1.33 today. Its first weekly gain against the dollar since Nov 5 may prove short-lived amid mounting concern that more nations will need rescues.  Just a month ago the € reached almost $1.43, the strongest level since Jan, when traders sold the dollar on speculation the Federal Reserve would debase the greenback by printing more money to purchase $600B of Treasuries.  Now, those concerns are being overshadowed by the possibility that Europe’s economy slows next year as govs impose austerity measures to reduce budget deficits, while officials drive bond investors away with talk of forcing them to take losses as part of future bailouts.  The European Central Bank President delayed the end of emergency stimulus measures last week & stepped up gov-debt purchases as “acute” market tensions drove yields on Spanish & Italian bonds to the highest levels relative to German bunds since the € started in 1999.  The fundamental issue is countries have relatively large debts, large budget deficits, large current-account deficits, they don’t have their own currency & they can’t cut interest rates. Ireland’s budget deficit will rise to more than 32% of GDP this year (including the cost of bailing out the nation’s banks). Spain’s deficit will be 9.3% in 2010 while Portugal’s debt will reach almost 83% of GDP this year from about 76% in 2009.  Officials are uncertain how to solve debt problems using bailout funds.  These financial concerns are keeping buyers away from the markets (except for gold).

European Officials Divided Over Bailout Fund Increase, Joint European Bond

Pfizer (PFE), a Dow stock, shares rose 33¢ after announcing that Jeffrey Kindler had retired as CEO & was replaced by Pfizer veteran Ian Read, the head of global pharmaceuticals. Kindler was under pressure because of the stock's sluggish performance.  The chart below shows sluggish has been a long term problem at PFE.  There are hopes that PFE will be more aggressive in achieving greater efficiencies in controlling expenses & in deciding which businesses need to be divested.  The 2012 forecast includes the first full year of impact from losing exclusive US rights to Lipitor, its very important cholesterol drug & has implied somewhat stable results despite the Lipitor loss.

 Pfizer Names 32-Year Veteran Read CEO as Top-Selling Lipitor Faces Rivals

Pfizer   ---   10 years

An outline of a bipartisan economic package is emerging that would temporarily extend the Bush-era tax rates for all taxpayers, while extending jobless benefits for millions of Americans.  The Dems could have dealt with this months ago, but decided to drag it out to the last minute.  Uncertainty in many areas (US taxes, Euro debts & Asian anxieties) is slowing the market advance from last week.  If the bulls want to keep control, they need to push the Dow thru to a new 2010 high, just about 100 points away.

Dow Jones Industrials   ---   2 weeks

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