Monday, May 23, 2011

Stocks tumble on European debt worries

Dow fell 150 & is down 450 in May, decliners over advancers 4-1 & NAZ dropped 47. Bank stocks led the way down, bringing the Financial Index to a 5 month low.

S&P 500 FINANCIALS INDEX

Value	209.19
Change	-2.17 (-1.0%)

The recovery is over for MLPs, as the index sold off 4 to 362 while the REIT index fell 2 to 241. Junk bond funds were slightly soft but Treasuries rose on uncertainties over European debts, bringing the yield on the 10 year Treasury to a 5 month low. Oil fell on concern the European debt crisis will slow economic growth & reduce fuel demand. Gold had a modest gain

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.04%
U.S. 2-year		0.50%
U.S. 10-year		3.11%

CLN11.NYM

...Crude Oil Jul 11

...97.55 T

...

2.55

(2.6%)

GCK11.CMX

...Gold May 11

...1,510.80

....

2.00

(0.1%)

Greece struggled to complete a 5th austerity plan to keep pace with its mounting deficit, Italy faced a possible credit-rating cut & Spain’s ruling party was routed in local voting. The cost to insure Greek debt against default rose to a record & the yield on its 10-year bonds increased to a recent high as the gov met to endorse a new package of spending cuts & state-asset sales needed to assure the flow of bailout funds. More than a year after European policy makers approved a €750B ($1.1T) bailout to stem the sovereign crisis, bond yields in debt-laden peripheral countries are at record highs & officials are floating plans to extend Greek repayments. The extra yield investors demand to hold Italian 10-year bonds over German bunds rose to a 4-month high of 179 basis points after S&P said it may cut the country’s credit rating. Spain’s yield spread rose to 251 basis points, also the highest since Jan, after the ruling socialists suffered their worst defeat in 30 years in local elections in a backlash against austerity. European Union demands may require Greece to sell €15B of assets by the end of 2012, a year ahead of schedule, in order to win a new 3-year loan package. This is another major financial mess which will get a lot worse before it gets better.

Europe’s Debt Crisis Deepens as Greece Cuts

The European Union is selling €4¾B ($6.7B) of 10-year bonds to help fund the bailouts of Ireland & Portugal. The deal is the 3rd from the EFSM & follows Portugal’s request for rescue loans on Apr 7. The EU is preparing to sell the top-rated bonds after saying last week that there’ll be 13 debt issues from its bailout funds in 2011. It had planned 8 issues for an Irish bailout before the Portugal rescue. The bonds may be priced to yield about 16 basis points more than the mid-swap rate & the sale’s due to be completed tomorrow. There are no comments from European authorities on this rescue plan.

EU Fund Offers $6.7 Billion in Bonds to Finance Portugal, Ireland Bailouts

J&J AIDS Pill Signals $9 Billion in Sales, Ease Recall Woes

Photo: Bloomberg

The FDA approved a new HIV drug from Johnson & Johnson, a Dow stock, for patients who have not been treated with other medications for the virus. The once-a-day pill Edurant works by blocking the virus from reproducing. It is designed for use as part of a drug cocktail that reduce levels of HIV in the blood. "Patients may respond differently to various HIV drugs or experience varied side effects. FDA's approval of Edurant provides an additional treatment option for patients who are starting HIV therapy," said Dr. Edward Cox, FDA's director of antimicrobial products. The FDA approved the drug based on a study of 1368 patients showing it was as effective as Sustiva, an older HIV drug already on the market. After 48 weeks of study, 83% of patients taking Edurant had undetectable viral levels, compared with 80% of patients taking Sustiva. JNJ plans to introduce 4 drugs this year that may combine for annual sales of $9B, helping to offset product recalls & declining profit for medical devices. The stock is down $1.50 in the last week.

J&J AIDS Pill Approval Heralds $9 Billion in New Sales From Drug Pipeline

Johnson & Johnson (JNJ)

This May is a repeat of last May only additional bailout packages will make the rescue more difficult this time. There are no shortage of domestic problems with a lot of indications that the recovery is sputtering. Higher priced gas is working its way into slowing the recovery. Increasing the debt ceiling must be resolved in about 9 weeks (at the very latest) & DC politicos are working on the next FY budget with only 3 months left in this fiscal year. So far, enthusiastic bulls have been ignoring these problems. Demand for Treasuries is rising as purchases by the Federal Reserve are winding down,