Friday, May 20, 2011

Stock markets decline on growing concerns over European debts

Dow fell 90, decliners over advancers 3-1 & NAZ dropped 23. Bank stocks remain stuck in the mud with the Financial Index near its lows for 2011.

S&P 500 FINANCIALS INDEX

Value	212.98
Change	-1.53 (-0.7%)

The 2 day rally in MLPs is over, the index dropped 1+ to the 361s while the REIT index was down 2 to the 243s, Junk bond funds inched higher & Treasuries were little changed with the benchmark 10 year yield near its 2011 lows. Oil fell, heading for its 2nd weekly drop this month, after a report said growth in Germany will probably slow & the € weakened against the dollar. Gold remains close to $1500, not too bad a fall this month all considered.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.04%
U.S. 2-year		0.52%
U.S. 10-year		3.16%

CLM11.NYM

...Crude Oil Jun 11

...96.39

...

2.05 (2.1%)

GCK11.CMX

...Gold May 11

...1,499.00

...

0.70

(0.1%)

Gap Cuts Full-Year Forecast by One Fourth

Photo: Bloomberg

Faster cost increases than Gap expected, especially for its lower-priced products, sank Q1 earnings forcing it to dramatically cut the full-year earnings forecast. In addition GPS is aiming to revive sales at its namesake brand. It's spending about 20% more than a year ago on each item it plans to sell in H2 & price increases won't be able to keep pace. "I will be quite honest with you. I don't feel good about having to come here today and re-guide," said CEO Glenn Murphy. "But the 20 percent increase in our average unit costs in the back-half is real." EPS fell to 40¢ in Q1 ended Apr 30 from 45¢ last year & revenue slipped 1 % to $3.29B. Revenue fell most, nearly 4%, at its low-price Old Navy chain, which produces about 40% of revenue. Analysts were expecting 39¢ on revenue of $3.27B. Revenue at stores open at least a year fell 3% for GPS. Clothing sellers plan to raise prices this fall to make up for higher costs, but there will be limits to how much shoppers will tolerate in a still challenging economy, particular for low-price chains. The earthquake & tsunami in Japan, where it operates stores, cut into revenue, & it will take a while for the business to recover. GPS expects to earn $1.40-$1.50 for 2011, down from its Feb forecast of $1.88-$1.93. The stock plunged 4+, noticeable even on a 1 year chart.

Gap Cuts Annual Profit Forecast by About 22% as Costs Soar; Shares Decline

Gap, Inc. (The) (GPS)

Reid Hoffman and Jeff Weiner of LinkedIn

Photo: Bloomberg

LinkedIn more than doubled on its first trading day & is up another 8 to 102 today on heavy volume. It finished yesterday with a market value of almost $9B (24 times 2011 revenue, assuming Q1 sales are matched for the rest of the year). Facebook would be valued at about $95B using the same multiple. The gains bode well for other Internet companies that have put off going public while honing efforts to make money because speculation is running wild.

LinkedIn Shares Soar After First IPO of U.S. Social Networking Website

LinkedIn Corporation (LNKD)

Back to reality, the IMF (which is looking for a new leader in a very political environment) said Ireland’s ability to sell sovereign bonds remains “elusive” & its situation may worsen unless the European Union develops a more comprehensive plan to deal with the region’s debt crisis. It continued that Ireland’s plan to stabilize its banks & reduce its deficit is “off to a strong start.” “This decisive approach to program implementation, which should be supported by a more comprehensive European plan, offers the best prospect to overcome market doubts.” Ireland received a €85B ($121B) bailout in Nov, led by the European Union & IMF, as bank-rescue costs related to a real-estate collapse led to a mounting fiscal deficit.

Meanwhile Fitch ratings has downgraded Greece's long-term credit rating further into junk status to B+ from BB+, citing problems with the country's implementation of essential reforms to its economy. It said the move "reflects the scale of the challenge facing Greece in implementing a radical fiscal and structural reform program necessary to secure solvency of the state and the foundations for sustained economic recovery." Greece's prime minister insisted the country will repay all its loans, as its borrowing rates spiked to new record highs. The 2 bailout months last year (May & Nov) saw major selling in stock markets around the world.

IMF Says Ireland’s Ability to Sell Bonds Remains ‘Elusive’

Greece insists it will repay debt as markets shake- AP

Markets are doing little on low volume once again. LNKD is providing the bulk of the excitement which is not affecting the rest of the market. MLPs are having another bad May, like last year. But European debt issues are getting most attention & with a weakened IMF, solving problems will be a lot tougher. Speaking of debt problems, the Treasury is still asking for an increase in the debt ceiling.