Tuesday, June 7, 2011

Morning stock market gains lost after late day selling

Oversold markets had a bounce in the AM, but buyers gave up at midday. Dow ended falling 19, advancers ahead of decliners 4-3 & NAZ slipped 1. Bank stocks lost their early gains, giving the Financial Index another down day.

S&P 500 FINANCIALS INDEX

Value	200.14
Change	-0.39 (-0.2%)

MLPs continue to slip & slide with the index heading back to the 350 floor, but the Dow Jones REIT Index rose 3+ to 241s (although it lost some steam in the last hour). A report said junk bond funds have sold off in recent days, but ones I follow have been flattish to inching higher (as they did today). The Treasury had a successful $32B auction of 3 year notes today, reducing AM losses with the benchmark 10 year Treasury yield hovering near 3%. Oil was higher in late day trading despite talk of higher production quotas from OPEC. Gold fell from a 5-week high as European debt concerns eased, but strength in the PM kept it close to its $1345 highs.

ALERIAN MLP INDEX

Value	355.90
Change	-1.31 (-0.4%)

Treasury yields:

U.S. 3-month	0.036%
U.S. 2-year	0.409%
U.S. 10-year	3.008%

CLN11.NYM

...Crude Oil Jul 11

...99.62

...

0.61

(0.6%)

Chairman of the U.S. Federal Reserve Ben Bernanke

Photo: Bloomberg

The Federal Reserve is supporting a proposal at the Basel Committee on Banking Supervision that calls for a maximum capital surcharge of 3 percentage points on the largest global banks. Intl central bankers & supervisors meeting in Basel, Switzerland, have decided that banks need to hold more capital to avoid future taxpayer-funded bailouts. Some fear this will leave the door open to surcharges of as much as 7 percentage points. Basel regulators agreed last year to raise the minimum common equity requirement for banks to 4.5% from 2%, with an added buffer of 2.5% for a total of 7% of assets weighted for risk. Basel members are also proposing that global important financial institutions hold an additional capital buffer equivalent to as much as 3 percentage points. Banks do not want to see these rules implemented because it will force them to raise substantial amounts of capital by selling more shares, harming current shareholders. This threat is part of the reason the Financial Index has done so badly in 2011.

Fed to Back 3 Percentage-Point Bank Surcharge

Americans consumers borrowed more money in Apr for the 6th straight month while cutting back on using credit cards. The Federal Reserve (FED) says consumer borrowing rose by nearly $7.2B, fueled by greater demand for school & auto loans. But a category that measures credit card use fell for the 2nd time in 3 months & has risen only twice in 3 years. High unemployment, steep gas prices & a weak housing market have forced people to resist paying with plastic. The report includes auto loans, student loans & credit cards, but excludes mortgages & loans tied to real estate. The FED will give a more complete picture of debt on Thurs when it issues its quarterly report on household net worth.

Consumers borrowed more for 7th straight month AP

OPEC plans to raise its oil production quota for the first time in several years & it will be announced tomorrow at the Vienna meeting. The amount is still under discussion although it is believed to call for an increase of 1-1½M barrels a day. Currently, OPEC's quota is for 24.8M (some speculate that actual production is more than 26M). This compares with world production of roughly 88M.

OPEC plans to raise its oil production quota: sources- CNBC

The price of gas at the pump remains near $3.80, still harmful to the economy.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.761	$3.909	$4.037	$3.996	$3.226	$4.245
Yesterday Avg.	$3.771	$3.916	$4.043	$3.998	$3.242	$4.267
Week Ago Avg.	$3.780	$3.923	$4.049	$4.012	$3.231	$4.251
Month Ago Avg.	$3.966	$4.110	$4.236	$4.159	$3.339	$4.395
Year Ago Avg.	$2.724	$2.893	$2.997	$2.986	$2.200	$2.895

Source: AAA

The bulls did not come out in force & then gave up. Stock markets look bad, no way around it. MLPs have lost their fizz from the last 2 years. While stock markets are trying to find their way, gold is within striking distance of setting new record highs. That's the kind of action expected when stock markets fall. Selling picked up in late day trading when Dow fell 110 in the last 2 hours & is down 740 from its highs at the start of May.