Thursday, March 10, 2011

Markets sink on unsettling economic news

Stocks sold off big time at the start & remained on that lower level for the rest of the day. Dow dropped 228 (finishing at the lows of the day, below 12K), decliners ahead of advancers 5-1 & NAZ went down 50. Banks were weak, bringing the Financial Index back to down 10 from its highs on Feb18.

S&P 500 FINANCIALS INDEX

Value	220.75
Change	-4.63 (-2.1%)

The MLP index fell a very big 6 to 365. The chart below for the comparable AMJ fund shows the 200 day moving average (a sign of long term strength) is about 350 (relative to the AMZ index). Breaking below that could signal the end of the fabulous bull run for MLPs. The REIT index fell almost 4 (again a very big daily move) to just above 230. Junk bond funds were down around 1%.

JPMorgan Chase Capital XVI (AMJ)

While there was profit taking in oil, short term momentum is for higher prices. Gold fell the most in a week as a stronger dollar prompted some investors to sell the metal after unrest in the Middle East & northern Africa pushed prices to a record.

CLJ11.NYM

....Crude Oil Apr 11

...102.79

.....

1.59

(1.5%)

GCH11.CMX

...Gold Mar 11

.......1,412.20

...

17.10

(1.2%)

$$ Gold Super Cycle $$

Click Here

Treasuries gained, pushing the 30 year bond yield down the most in 2 weeks, after an increase in jobless claims spurred the highest level of demand, since 2000, at today's $13B auction. The 10-year bond yield dropped 7 basis point to 3.40%. A one-point gain in the 30-year bond yield pushed the yield down 6 basis points to 4.55%. The 2-year note yield decreased 4 basis points to 0.65%. The extra yield investors demand to hold 30-year bonds instead of 2-year notes was 390 basis points, down from a record 402 reached Feb 1. At today’s auction, the yield was 4.569%, compared with an average forecast of 4.61%. The bid-to-cover ratio was 3.02X, compared with an average of 2.66X at the last 10 auctions. Indirect bidders, including foreign central banks, bought 40.7%, compared with 43.1% in Feb & an average for the past 10 sales of 38.9%. Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 6.4%. The $21B sale of 10-year notes yesterday produced the highest demand since Apr, while the $32B auction of 3-year notes on Mar 8 drew the strongest demand since Nov. Treasuries remain a safe haven investment.

Treasuries Rise as U.S. 30-Year Bond Sale Draws Highest Demand Since 2000

Treasury yields:

U.S. 3-month		0.07%
U.S. 2-year		0.64%
U.S. 10-year		3.40%

U.S. Had Record $222.5 Billion Monthly Budget Gap

Photo: Bloomberg

The federal deficit grew by an enormous $222B in Feb, the largest one-month increase in history. The old record for any month, a $220.9 billion imbalance, was set last Feb. Thru the first 5 months of this budget year, which began Oct 1, the deficit totals $641.3B, 1.6% below the pace set last year. The deficit for this year will be the biggest imbalance on record while Congress debates the budget for this year right now! The deficit for FY2011 will exceed last year's imbalance, as the CBO is forecasting a $1.5T gap, giving the country a 3rd straight year of $1T+ deficits. The gov has run a deficit in Feb in 45 of the last 58 years, partially because the IRS sends out taxpayer refunds while those who owe taxes often wait to pay until the Apr deadline. One of the big increases in spending was in interest payments which totals $94.5B so far this budget year, up 9.3% from the same period a year ago. These accumulated deficits could haunt the country for years.

U.S. Posts a Record $222.5 Billion Monthly Budget Shortfall

The price for gas at the pump averaged $3.53 yesterday. While the advance may slow with the decline in crude oil, it can be expected to climb further especially as the summer driving season approaches.

This was a very bad day for the bulls. Feb 18 was the high for the markets & since then they have been drifting lower. This chart shows a solid 5 month advance for the Dow followed by slipping & sliding. The index fund for MLPs above shows a similar pattern. During that time gold is up 200, essentially at a record, while oil has had a good advance, largely in the last few weeks. Stock markets are back on defense.