Tuesday, July 5, 2011

Markets waffle as the Portugal debt rating is cut

Dow slipped 12 (after last week's spectacular gain), decliners were barely ahead of advancers & NAZ was up 9. Bank stocks led the selling, but the Financial Index finished 1+ above its lows.

S&P 500 Financials Sector

Value	208.69
Change	-1.76 (-0.8%)

MLPs & REITs were strong in an otherwise lackluster market. The MLP index is at a 2 month high & the REIT index was up 1½ to the 247s (3 short of the 2011 highs). Junk bond funds inched higher & Treasuries were strong with the scare over Chinese banks holding too many bad loans. The yield on the 10 year Treasury is back below 3.2% (last week's high). Oil rose after Barclays Capital raised its price forecast for 2012 & Goldman Sachs said the International Energy Agency's decision at the end of Jun to release 60M barrels of oil from its reserves won't cool off prices as much as originally thought. The chart for gold below shows its extreme strength in the last 2 days as Asian investors are seeking a safe investment.

Alerian MLP Index

Value	373.61
Change	0.40 (0.1%)

Treasury yields:

U.S. 3-month	-0.005%
U.S. 2-year	0.430%
U.S. 10-year	3.123%

CLQ11.NYM

...Crude Oil Aug 11

...96.85

...

1.91

(2.0%)

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Moody's downgraded Portugal's gov debt, citing growing risks the country will require a 2nd rescue package because it cannot meet its debt reduction targets. Portugal's rating was cut one notch to Baa2 from Baa1 & Moody's said that it was increasingly unlikely that Portugal would be able to borrow money on capital markets in 2013, as planned. As a result, the country would probably require more financial aid, on top of the €78B ($113B) it received earlier this year, with private banks taking some losses. Moody's said the EU's insistence on involving private sector holders of Greek debt in a 2nd bailout for the country indicates the same would happen for Portugal. This is a blow to Portugal as it tries to distance itself from Greece, which has had to redouble painful austerity measures because it did not meet debt reduction targets. Portugal faces huge challenges in reducing spending & tax evasion, achieving economic growth & supporting the banking system. Another rating cut is possible. The Greek tragedy plays on.

Portugal Ratings Cut to Junk by Moody’s

Netflix is expanding its streaming service into 43 countries throughout Latin America & the expansion was larger than expected. NFLX subscribers in Mexico, South & Central America & the Caribbean will be able to watch TV shows & movies streamed on a wide range of gadgets next year. Pricing has not been announced or the starting date set. The US streaming subscription costs $8 a month & customers can pay slightly more to get DVDs in the mail. The service in Latin America will be streaming-only, with no DVD option. The company is working on broadening its intl reach as its service in the US becomes more ubiquitous, NFLX has 23M subscribers in the US. NFLX launched its streaming service in the US in 2007 & in Canada in 2010. The stock rose $21 today with one of the best looking charts over the last 3 years.

Netflix to stream movies, shows in Latin America- AP

Netflix, Inc. (NFLX)

This was a dull day of trading but NFLX provided excitement, vaulting to a new record high. But there was little else that was noteworthy. Moody’s cut Portugal’s bond ratings, sending an ominous sign while Greece is still trying to arrange for its borrowings to be swapped for longer term debts. The deadline to raise the US debt ceiling is only 4 weeks away (maybe 2 weeks when lead time to write the new legislation is factored in). Earnings season will begin next week & big picture economic signals are that the reports could be less than impressive. But stock markets aren't worried with the Dow just 240 below its 2011 highs.