Thursday, May 5, 2011

Commodity collapse drags down stocks

Dow had its 2nd consecutive day of triple digit losses. It dropped 139, decliners over advancers a relatively moderate 2-1 & NAZ fell 13. Bank stocks keep slipping, noticeable even on the 1 year chart for the Financial Index.

S&P 500 FINANCIALS INDEX

Value	217.97
Change	-2.48 (-1.1%)

The MLP had another terrible day, ranking with the worst ever. The index went below 360 before late day buying limited the damage. Meanwhile the REIT index fell only ½ in the 244s. Junk bond funds edged higher at their multi year highs.

ALERIAN MLP INDEX

Value	363.90
Change	-6.19 (-1.7%)

Commodities dropped the most in almost 2 years, reducing YTD gains to 9.6%, on concern that economic growth will slow as central banks seek to cool inflation by raising borrowing costs. The Standard & Poor’s GSCI Index of 24 raw materials fell amost 7% to 681, the biggest decline in 2 years. Silver, oil & heating oil led the drop as the Dollar Index, a gauge against 6 counterparts, rose 1.4%, the most since Oct. The European Central Bank (ECB) said the bank will monitor inflation risks “very closely,” suggesting it may wait until after Jun to raise interest rates again. The ECB raised interest rates on Apr, joining China, India, Poland & Sweden in seeking to control inflation. The cost of living in the US rose at its fastest pace since Dec 2009 in the year ended Mar, the same month when Chinese consumer prices rose by the most since 2008. Can you spell inflation? Maybe this is not inflation, but the threat is making a lot of people VERY NERVOUS. Oil had one of its worst days in history, dropping more than $10 to below the magic $100 resistance level. Gold fell below $1500 & silver is $35 (after starting the week at $49!).

Commodities Decline the Most in Two Years on Concern Global Growth Slowing

CLM11.NYM

...Crude Oil Jun 11

...98.72

...

10.52 (9.6%)

Live 24 hours silver chart [ Kitco Inc. ]

The Treasury 30-year bond gained for a 6th day, the longest winning streak since Dec 2008. Treasuries "safe haven qualities" are driving demand. The benchmark 10 year Treasury yield has plunged from over 3.6% four weeks ago to under 3.2%, new 5 month lows. And the 3 month bill yields just 0.01% (essentially zero!). These are troubling times!

Treasury 30-Year Bonds Advance for Sixth Day as Commodities, Stocks Tumble

Treasury yields:

U.S. 3-month		0.01%
U.S. 2-year		0.57%
U.S. 10-year		3.16%%

30 Treasury (TYX) Stock Charts

The price for gas at the pump rose to $3.98½ yesterday. $4 is a heartbeat away & it's just a matter of how many days before it sets a new record above $4.11. This price rise will take a heavy toll on the economic recovery.

Source: AAA

Stock & commodity markets are under severe selling pressure & this is not going away soon. The jobs report should dominate the news tomorrow, but not the way things are going. Chances are that it will feed into the negative thinking in the markets, whatever it says. The buyers of 90 day Treasury notes are accepting virtually no interest, that takes us back to the ugliest days of the financial crisis. OK, the financial markets have been repaired. But there are a lot of nervous investors around the world (like then) & they are driving the selling.