Thursday, July 28, 2011

Markets drift lower on increased worries over the debt debate

Stocks began the day much higher, but sold off in the PM on a realization that efforts to raise the debt ceiling are going nowhere. Dow fell 62 (135 below the high), decliners ahead of advancers 3-2 & NAZ inched up 1. Bank stocks, after a good gain in the AM, had to settle for break even.

S&P 500 Financials Sector Index

Value	199.69
Change	0.09 (0.0%)

MLPs & REITs were flattish as were junk bond funds. Treasuries rose, bringing the yield on the 10 year bond down to 2.95%. Oil was also even as traders waited to learn more about the possible impact of a tropical storm in the Gulf of Mexico. Gold fell for the 2nd straight day on investor sales after the metal surged to a record.

Alerian MLP Index

Value	360.41
Change	-0.33 (-0.1%)

Treasury yields:

U.S. 3-month	0.071%
U.S. 2-year	0.418%
U.S. 10-year	2.949%

CLU11.NYM

...Crude Oil Sep 11

...97.41

...

0.01

(0.0%)

Get the latest daily market update below:

DR Horton profit fell 43% in its fiscal Q3 as the homebuilder closed on fewer homes & new home orders declined. But earnings beat estimates & management said the company is in position to be profitable for FY2011. Closings fell 33% in Q3 from a year earlier, while its new home orders slipped about 1%. The sales results were roughly in line with forecasts for a 31% drop in closings & no change in the level of orders. EPS was 9¢ versus 16¢ last year. The latest results included $16.4M in pretax charges & losses from paying debt off early. Revenue dropped 30% to $975M from $1.4B. Analysts were expecting a profit of 5¢ on $985M in revenue. The stock rose 30¢.

D.R. Horton’s Profit Leads Homebuilder Rally

D.R. Horton, Inc. (DHI)

Photo: Yahoo

Exxon Mobil, a Dividend Aristocrat, profits rose 41% in Q2, when the price of gasoline & other fuels jumped to 3-year highs. Its Q2 income of $10.6B is the largest since it set a net income record of $14.8B in Q3 of 2008. But XOM sounded a cautionary note, saying sluggish business investment, lower consumer spending & high debt continue to weigh on energy demand. EPS was $2.18, sharply ahead of $1.60 last year. Revenue grew 36% to $125.5B. However results fell short of estimates for $2.30 for EPS & revenue topped projections of $119B. The stock fell 1.85 after trading flattish in 2011.

Exxon Misses Estimates on Lower Refining Profits

Exxon Mobil Corporation (XOM)

Greek officials launched talks with intl bankers on details of a complex plan to restructure the loan-dependent country's privately held debt under a new bailout deal. Evangelos Venizelos, Finance Minister, said the negotiations started "in a most encouraging manner." We have started (the talks) and will conclude very soon because we face specific bonds maturing in Aug & Sep and want either to have finished before that or to have formulated a transitional framework until we have finished," Venizelos told parliament. What else can he say? This agreement called for banks, pension funds & other private institutions holding Greek debt to voluntarily swap their bonds for new ones with lower interest rates or slightly smaller face value. Provided overall private sector participation meets a targeted 90%, the swap will involve €135B worth of bonds that mature by the end of 2020, with bondholders taking a 21% loss. This is a variation on default!

Greek FM: Athens bond swap talks 'encouraging' AP

Senator Harry Reid said he will move tonight to kill the House debt-ceiling plan, paving the way for Senate votes this weekend on a possible compromise to avert a potential US default. Who knows where this is all going? Chances are the politicos will come up with some temporary kind of funding bill to allow the Treasury to squeak by the Aug deadline & avoid default. But don't expect a final bill over the weekend. A bigger question is, how will the rating agencies take the increase in the debt ceiling? Everybody is slopping around billions as if they were just small poker chips. Sadly few really understand numbers. But Dow has been handling all this confusion very well, down only 500 from its recent highs. Not that bad considering how much is at stake!