Monday, June 13, 2011

Indecisive stocks fluctuate after 6 weeks of losses

Stocks hugged break even all day. Dow was up 1, decliners ahead of advancers 5-4 & NAZ fell 4. This was rebound day for bank stocks after there were a lot of favorable comments about banks being oversold. The chart below for the Financial Index is dreary, ripe for bargain hunters to move in even though fundamental problems (increased regulatuion in the US, foreign debt problems, etc.) remain.

S&P 500 Financials

Value	201.27
Change	2.07 (1.0%)

On Thur & Fri, the MLP index recovered 8 points from its month long decline but that looked suspicious. Today some of that was lost. The REIT index had a bad week but recovered a fraction in the 232s. Junk bond funds pulled back again, as they have been doing all month, while Treasuries were flattish. Oil fell (in NY) to the lowest level in 3 weeks after S&P cut credit rating for Greece. The spread between New York-traded crude & Brent (in London) widened to over $21 a barrel as supply disruptions in the North Sea & Libya bolstered demand for the European grade. Gold has fallen for 2 days, but has held above $1500 where it's been for 3 weeks.

Alerian MLP Index

Value	360.45
Change	-3.18 (-0.9%)

Treasury yields:

U.S. 3-month	0.036%
U.S. 2-year	0.396%
U.S. 10-year	2.991%

CLN11.NYM

...Crude Oil Jul 11

...97.16

...

2.13

(2.2%)

S&P downgraded Greece's debt rating by 3 notches, saying it would consider a likely debt restructuring as a default. A restructuring, either with a bond swap or by extending maturities on existing bonds, looks increasingly likely to be imposed by European policymakers as a means of sharing the burden of Greece's crisis with the private sector, S&P said. "In our view, any such transactions would likely be on terms less favorable than the debt being refinanced, which we, in turn, would view as a de facto default according to Standard & Poor's published criteria," S&P said. In such a case, S&P added, Greece's credit rating would be lowered to "selective default," or SD, while the ratings on the country's debt instruments would be cut to D. S&P cut Greece's long-term sovereign credit ratings to CCC, just 4 steps away from default, from B. The short-term rating was affirmed at C & all the ratings were removed from credit watch. The outlook on the long-term rating remains negative in a sign that another downgrade is likely in the next 12 to 18 months. This is chilling but maybe it would be better to get it over with sooner rather than later.

S&P Cuts Greece Rating, Expects Restructuring

Bank of America, a Dow stock & the largest US lender, may be facing another $27B of housing-related losses thru 2013 amid increasing regulation as the economic recovery slows from complications regarding mortgage issues & a prolonged housing crisis. The losses would be on top of the $46B it has already recorded. BAC said on Jun 1 that future US home price declines will be “incremental,” a day after reports of the biggest quarterly drop in values in 2 years. But as long as BAC housing related losses don’t exceed $55B, it should be able to boost Tier 1 capital to 8.5% by 2013 & avoid raising more. OK! About 44% of BAC lending is linked to housing, compared with 34% at its competitors. The stock was up 17¢ on a good day for bank stocks.

BofA May Post Added $27 Billion in Housing Losses, Sanford Bernstein Says

Prices for gas at the pump keep dropping, to $3.70 yesterday. Drivers appreciate falling prices, but the graph below shows it is sharply above of last year & substantially higher YTD.

12onth Average

Source: AAA

The only bright spot was banking which has been beaten up all year. It's hard to read too much into this move. MLPs tried to rally last week but the index is back to the 360 area where it's been stuck for a month (about 10% below its record high). Dow was below 12K for a 2nd day & it's headed for the 200 moving average. Markets remain on defense & Dow is up 375 YTD, not very encouraging.