Tuesday, May 24, 2011

Markets meander as financials continue to slide

Dow was flattish for most of the day with selling into the close. Dow fell 25, advancers barely ahead of decliners & NAZ was off 12. Bank stocks were weak again, taking the Financial Index back to Dec levels.

S&P 500 FINANCIALS INDEX

Value	208.24
Change	-0.31 (-0.2%)

The MLP index was down pennies while the REIT index rebounded 1 to the 241s. Junk bond funds were essentially flat as were Treasuries. Oil had a good day, trying to top $100 & gold found support taking it to $1524.

ALERIAN MLP INDEX

Value	362.49
Change	-0.23 (-0.1%)

Treasury yields:

U.S. 3-month		0.05%
U.S. 2-year		0.51%
U.S. 10-year		3.12%

CLN11.NYM

...Crude Oil Jul 11

...99.55

...

1.85 (1.9%)

The number of banks at risk of failing made up nearly 12% of all federally insured banks in Q1, the highest level in 18 years. That proportion is about the same as in Q4 last year, though the increase in the number of banks on the FDIC.'s confidential "problem" list is slowing, only 4 banks were added to its list in Q1 bringing the total to 888. In Q1, the industry reported its highest earnings, $29B, since before the financial crisis hit more than 3 years ago. But only a small fraction of the 7500 federally insured banks, 1.4% with assets exceeding $10B, drove the bulk of the earnings growth (accounting for $24.4B). By contrast, most of the banks that have struggled or failed have been small or regional institutions. These banks depend heavily on loans for commercial property & development, sectors that have suffered huge losses. The amount that banks set aside for possible losses on loans fell by more than half in Q1, to $20.7B from $51.6B a year earlier. But net revenue declined 3.2% to $5.5B, only the 2nd time in 27 years that the industry has reported less revenue than in the year-earlier quarter. 43 banks have failed so far this year, though the pace has slowed from last year, when 157 banks failed in 1992 at the height of the savings & loan crisis. This explains why bank stocks have been slipping & sliding as shown in the Financial Index above.

Troubled banks made up about 12 pct of total in Q1- AP

Chrysler Group paid back $7.6B to the US & Canadian govs, most of the bailout money that saved the company just 2 years ago. Chrysler went from a company that almost ran out of cash & survived a 2009 bankruptcy to one that is revamping its aging lineup & last qtr posted its first net profit in 5 years. To pay off the loans, Chrysler raised $3.2B thru a bond sale & took out $3B in lower-interest bank loans. It also used a $1.3B investment from Fiat. The Treasury still owns 8.6 % of Chrysler, which it got in exchange for the bailout. About $2B of the gov aid went to parts of Chrysler that were left behind in bankruptcy. That money hasn't been repaid. When the economic recovery is stuttering, it's good to see some positive signs.

Chrysler Repays Governments as Fiat Boosts Stake

Yandex (YNDX), owner of Russia’s most popular internet search engine, jumped after raising $1.3B in its IPO that sold above the proposed price range of $20-$22. The shares rose $13.84 to $38.84. The Moscow-based company sold 52.2M shares, a 16.2 % stake, at $25 each, valuing the company at about $8B. By way of comparison, Microsoft (MSFT) has a market value of $200B. The underwriters have an option to purchase an additional 5.2M shares which they will obviously exercise.

Yandex Jumps in Biggest 2011 Tech IPO

Prices at the pumps were lower again, but they can fall just so far with crude near $100.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.828	$3.972	$4.099	$4.049	$3.281	$4.317
Yesterday Avg.	$3.843	$3.984	$4.110	$4.057	$3.285	$4.323
Week Ago Avg.	$3.944	$4.085	$4.212	$4.116	$3.311	$4.357
Month Ago Avg.	$3.860	$3.999	$4.128	$4.139	$3.268	$4.301
Year Ago Avg.	$2.793	$2.966	$3.073	$3.049	$2.231	$2.936

Source: AAA

The major excitement today was the success of another hi-tech IPO (while established companies went nowhere). There are plenty of buyers for these new companies & more will be coming, but down the road that could bring big problems as this type of action has done so many times in the past. MLPs had a nice rebound last week, but settled back this week. The index is back to where it was 3 weeks ago (down 28 in May). However this May has been less brutal than last May but the index is down 1 YTD. With more stories about a sluggish economy & a long weekend approaching, the balance of the week will probably see the markets continue to drift lower.