Wednesday, March 9, 2011

Markets hesitate as fighting in Libya goes on

Stocks did little although techs sold off. The Dow fell 1, decliners ahead of advancers by 10% & NAZ was down a bigger 14. Stock markets are not worried about disruptions in oil supplies from Libya. Bank stocks as market leaders were also flattish.

S&P 500 FINANCIALS INDEX

Value	225.38
Change	-0.19 (-0.1%)

The Alerian MLP Index fell 4½ to 372, down 11 from its recent highs (shown in the graph below for AMJ, a fund tracking AMZ). Record high prices bringing lower yields can last for just so long. The REIT index was off a fraction in the 234s while junk bond funds were mixed. Treasuries rose bringing the yield on the 10 year Treasury bond to 3.47%.

Treasury yields:

U.S. 3-month		0.09%
U.S. 2-year		0.69%
U.S. 10-year		3.47%

JPMorgan Chase Capital XVI (AMJ)

Oil fell for a 2nd day after a report that supplies surged at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the US benchmark grade. This oil is piped in from Canada by Enbridge Energy (EEP) to supply the upper Midwest, but is of little help to the rest of the country. Gold inched up, working its way back to another record in the 1440s.

CLJ11.NYM

Crude Oil Apr 11

104.14 3:15PM EST

0.88 (0.84%)

Gold

1428.80

+1.60

+0.11%

*** Gold Super Cycle ***

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Cisco Adds to Technology Issuance With Fourth Bond Offering

Photo: Bloomberg

Cisco (CSCO) may sell $4B of bonds of investment grade debt in its 4th offering since going public in 1990. CSCO plans to use proceeds of the 3-part issue for general corp purposes even though it is flush with cash. This money will help fund its purchase of treasury stock. It can purchase up to $10B of stock in its buyback program. The $2B of 3-year fixed-rate notes will yield 50 basis points more than similar-maturity Treasuries, $750M of 6-year securities will have a yield spread of 105 basis points & $1.25B of 3-year floating-rate debt could yield 25 basis points more than the 3-month LIBOR rate. When borrowing costs are so cheap, why not borrow?

Cisco Systems Adds to Technology Issuance With $4 Billion Offering of Debt

The CEO of Exxon Mobil (XOM), a Dow stock & Dividend Aristocrat, doesn't think the recent jump in oil prices is hurting the US economy just yet. But it's getting close. Rex Tillerson said that in 2008, when oil hit $147 per barrel, American families appeared to change their driving & spending habits with gas at $4 per gallon in Jun. The average price for a gallon of gas is now $3.52 according to AAA. But drivers on the West Coast are paying close to $4. The head of XOM blames a recent jump in oil prices on fears of production losses from North Africa & the Middle East. Oil is up nearly 25% since civil unrest began in Libya 3 weeks ago. Thought you'd like to know his thoughts!

Exxon CEO: Oil Prices Not Hurting Economy -- Yet- AP

Source: AAA

This was another non-event day for the stock markets. Despite the sharp run up in oil prices, few are worried about how it's going to affect the economy. MLPs were hit with selling. Considering the 2+ year rally with hardly a pause, this is only a minor downturn (although a 5 point swing is big for this low beta group). Dow continues on its plateau above 12K where it has been for 5 weeks.