Thursday, February 10, 2011

Markets waver after disappointing Cisco earnings

Dow fell 10, decliners slightly ahead of advancers 3-2 but NAZ was up all of 1.  Earnings, especially from Cisco (CSCO), depressed the markets although a possible change in command in Egypt probably limited selling.  Bank stocks were flat, not knowing what to do next.  The Financial Index was down a fraction of a penny, good enough to bring it into the red.


Value226.76One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change  -0.00  (-0.0%)

The MLP index fell ¾ to 369.  It hasn't been doing much this year, just digesting gains made in the last 2 years.  The Dow Jones REIT Index inched up a ½ in the 234s to a new high since Sep 2008.  Junk bond funds hardly budged.  Treasuries were a little weaker.  The yield on the 10 year Treasury bond went up 1 basis point to 3.71%, 20 basis points above the plateau it has been on for months.  The yield is climbing despite purchases by the Federal Reserve aimed at keeping interest rates low!

Treasury yields:

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

Alerian MLP Index   ---   3 months

Dow Jones REIT Index   ---   3 months

10-Year Treasury Yield Index   ---   3 months

Oil was flat, not knowing what to make of reports that Egyptian President Mubarak may resign later today & hand over power to the military.  There was a similar story for gold.  Uncertainty generally brings buyers to these commodities, not today.

CLH11.NYM...Crude Oil Mar 11...86.70 ....Down 0.01  (0.0%)

GCG11.CMX...Gold Feb 11.......1,362.30 ...Down 2.50  (0.2%)

*** Gold Super Cycle ***  

The budget deficit grew $50B in Jan & is expected to finish the year as the highest in history!  The Treasury said the deficit was one of the biggest ever for the month of Jan, 2nd only to the $63B recorded 2 years ago. For the first 4 months of this budget year, the deficit totaled a whopping $419B, 2.7% lower than the same period a year earlier.  However, this improving trend is expected to reverse in coming months. The Congressional Budget Office is projecting a record deficit of $1.5T in the budget year ending in Sep, marking the 3rd consecutive year that the federal deficit has been over $1T (that's T as in trillion!).  So far in FY2011, gov revenues total $758B, an increase of 9.4%, reflecting significant gains in individual income tax payments as the economy added nearly 1M jobs.  Spending totaled $1.18T, 4.8% higher than the prior year, reflecting higher spending on big benefit programs such as Social Security & Medicare as well as higher interest payments on the soaring national debt, which is rapidly approaching the current borrowing limit of $14.3T.  In a sign of things to come, receipts for Social Security taxes totaled $64.6B last month, down $7.7B from the amount collected in Jan 2010. Those receipts will be reduced for the rest of this year because of a 2 percentage point reduction in individual Social Security taxes, part of the Dec tax deal.  Continued high deficits mean more big Treasury auctions.

Budget Deficit in U.S. Rose to $49.8 Billion as Spending Grew

Facebook May Study $1 Billion Offer of Employee Shares

Photo:  Bloomberg

Facebook may allow employees to sell as much as $1B of shares in an offering that would place the company’s value at $60B. The company wants to give employees a chance to sell shares because an IPO isn't likely for at least a year. A recent $1.5B investment led by Goldman Sachs (GS) valued Facebook at $50B. Investor demand for the company is soaring on private markets as advertisers pay for the attention of a user base that's ballooned to more than 500M. Ad spending on Facebook will more than double to $4+B this year. It plans to start reporting financial results by Apr 2012 even if it hasn’t held an IPO according to a document sent to prospective investors. The company would be forced to make disclosures because it expects to have at least 500 shareholders by the end of 2011, a threshold that makes reporting results necessary. In Jul, Facebook allowed employees to sell about $100M in stock for $14.77 a share under an agreement with Digital Sky Technologies, a Russian investment firm.

Facebook Employee Sale Would Value It at $60 Billion

Dow's winning streak was halted but not in a convincing manner.  There is discussion that Twitter, with maybe $100M in revenues, could be worth $10B if it had an IPO & there is plenty of money ready to snap up the shares (not to mention investment banks who want their share of an offering).  For me, all the talk about the sky's the limit for tech stocks is very scary, the kind of thinking that pushed NAZ over 5K in 2000.  It sound like that's signaling a bubble, even if it's not as extreme as the one that popped more than 10 years ago.  

Dow Jones Industrials   ---   3 months

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