Wednesday, December 8, 2010

Stocks flat while Treasuries & gold sells off

Stock markets fluctuated very little, the drama was with commodities & Treasuries.  Dow hugged break even all day ending up 13, decliners over advancers 3-2 & NAZ gained 10.  Bank stocks are having a nice run in Dec with the Financial Index up about 10 so far.


Value207.14One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change  3.68  (1.8%)

The MLP index continued lower, down 2¼ in the 355s & the REIT index fell 3½ to the 217s.  Junk bond funds were 1-2% lower.  Treasuries had wild fluctuations & sold off again (see below). 

Alerian MLP Index   ---   6 months

Dow Jones REIT Index   ---   6 months

10-Year Treasury Yield Index   ---   6 months

Oil dropped while gold was hit with major selling.  Late day buying reduced its losses, but it's down 50 this week after reaching new record highs above 1400.

CLF11.NYM...Crude Oil Jan 11...88.38 ......Down 0.31  (0.4%)

GCZ10.CMX...Gold Dec 10.....1,379.30 ...Down 29.00  (2.1%)

*** Gold Super Cycle ***  

The 10-year Treasury yield advanced 8 basis points to 3.24% after touching 3.33%, the highest level in 6 months. At the yield's high, it increased 36 basis points over 2 days, the biggest advance since Sep 2008 (following the bankruptcy of Lehman Brothers). 2-year note yields climbed 10 basis points at their high to 0.64%, the highest level in over 4 months.  At today’s auction of $21B in 10-year notes, they drew a yield of 3.34%, compared with a forecast of 3.307%. The sale was a reopening of the Nov 9 auction, which produced a yield of only 2.636%.  The bid-to-cover ratio was 2.92X, below the average of 3.12X at the last 10 auctions. Indirect bidders, including foreign central banks, bought 44.4%, compared with 56.6% in Nov (the most since the Treasury began releasing the data in 2003). The average for the past 10 sales was 43.4%.  $13B of 30-year debt will be sold tomorrow, completing this week’s $66B of sales. Investors find Treasuries less appealing when interest switches to stocks.

Treasury 10-Year Yield Rises to Six-Month High on Global Recovery Outlook

Treasury yields:

U.S. 3-month
U.S. 2-year
U.S. 10-year
3.24% (YOKU) & E-Commerce China Dangdang (DANG) doubled after their US IPOs.  Chinese internet companies are hot.  YOKU, China’s largest online video company, almost tripled at its high after raising $203M. DANG, China’s biggest book retailer, almost doubled after its $272M IPO at $16 a share.  The offerings were the first of 5 mainland Chinese IPOs scheduled this week. China is home to more than 400M internet users & may expand 4 times as fast as the US next year, according to the International Monetary Fund.  No wonder money is scrambling to buy these stocks.  Of course, that raises memories of the internet bubble 10 years ago.

Dangdang   ---   1 day

Youku   ---   1 day

US stocks did little while Chinese stocks soared.  But the rapid rise in interest rates is a cause of worry.  On the one hand it implies investors are seeking risk (encouraging for stocks), willing to sell "safe have" Treasuries & gold.  On the other hand higher interest rates bring a host of problems, starting with higher mortgage rates for a housing industry that is struggling badly.  MLP yields, at low levels of 6.3% for the index, may also be subject to selling to make their yields more attractive.  After a quick spurt to its 2010 high at the beginning of Dec, Dow has been struggling, not sure which way to go.  With DC bogged down in partisan debate over the future of taxes, Dow will continue to drift with a downward bias.

Dow Jones Industrials   ---   6 months

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