Thursday, August 25, 2011

Lower markets on technology weakness

Dow dropped 95, decliners over advancerrs 3-1 & NAZ fell 19.  Bank stocks rose on the $5B investment by Warren Buffet in Bank of America, but the Financial Index is 7 below its early AM highs.

S&P 500 Financials Sector Index

Value 171.96 One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change    1.07     (0.6%)

The MLP index & REIT index are each down more than 2 & junk bond funds are weak as are Treasuries.  Oil declined, reversing earlier gains.  Gold is down a whopping $200 from its highs on Tues


Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLV11.NYM....Crude Oil Oct 11...84.85 ...Down 0.31  (0.4%)

GCQ11.CMX...Gold Aug 11....1,712.00 ...Down 42.10  (2.4%)

Click below for the latest market update:

Jobless Claims

Photo:   Bloomberg

Last week claims for unemployment benefits unexpectedly rose 5K to 417K according to Labor Dept.  Expectations were for a drop to 405K.  The prior week’s figure was revised up to 412K.  At least 8½K applications were filed by workers at Verizon (VZ) compared with 12½K in the prior week.  Excluding the communications dispute, companies are slowing the pace of layoffs, which may ease concern that consumers will cut back on spending.  The number continuing to receive benefits dropped 80K to 3.64M, the fewest since the dark days of Sep 2008.  Those who’ve used up their traditional benefits & are now collecting emergency & extended payments decreased by about 20K to 3.64M for the latest week.  If the recovery was moving forward, the weekly data would be sharply below 400K.  High unemployment is not going away any time soon. 

Jobless Claims in U.S. Rise to 417,000

Interest rates on Greek 10-year bonds climbed to new records on concerns that demands for collateral in return for rescue loans could undermine the country's latest rescue package.  The yield climbed to above 18%, with the difference between the interest rates on Greek & German ten-year bonds stretching to more than 16 percentage points.  Greece has been relying on funds from a €110B ($159B) package of bailout loans from other EU countries & the IMF.  Last month, European leaders agreed on a 2nd bailout, worth an additional €109B.  Finland struck a deal to secure cash guarantees from Athens in return for its bailout contribution.  The Finnish deal needs to be approved by the other eurozone countries in order to go thru, but if it does another 4 countries, the Netherlands, Austria, Slovenia & Slovakia, have said they will seek the same terms, throwing into question the future of the 2nd bailout.  The Greek drama is far from over.

Greek bond yields at new record highs AP

BofA Says Berkshire Will Invest $5 Billion

Photo:   Bloomberg

Warren Buffett will invest $5B in Bank of America, a Dow stock, to shore up the company in the same way he helped prop up Goldman Sachs (GS) & General Electric (GE), another Dow stock, during the financial crisis.  BAC shares rose 86¢ to $7.85, erasing a large part of the stock's Aug losses.  Buffett & BAC said he made an unsolicited call to the bank, offering to make an investment.  Buffett's Berkshire Hathaway (BRK.A) will get warrants to buy 700M shares of stock at just over $7.14 with a 10-year exercise period.  BAC will also sell BRK.A 50K shares of cumulative perpetual preferred stock with a 6% annual dividend that BAC can buy back at any time by paying a 5% premium.  This is similar to the deal BRK.A did with GS in the depths of the crisis in fall 2008, except this dividend is less.  Bank stocks are trading higher on this news (in a down market).

BofA Says Berkshire Will Invest $5 Billion

Bank of America Corporation (BAC)

stock chart

UBS & Citigroup lowered their forecast for global growth, with sharp reductions to its euro zone view & more modest cuts for China, but ruled out the likelihood of a recession for now.  The cuts are the latest in a series of downgrades to global growth forecasts. Last week, Morgan Stanley cut its global growth view & said the US & the euro zone are "dangerously close to recession."  UBS slashed its global GDP growth forecast for 2012 to 3.3%, while Citi cut its global GDP growth view for 2011 to 3.1% from 3.4%, & for 2012, to 3.2% from 3.7%.  However, Citi said it does not expect recessions in the major economies as this slowdown in economic growth is not enough to reverse global profits.  For advanced economies, Citi cut its growth forecast to 1.4% from 1.8% for 2011, & to 1.7% from 2.2% for 2012, saying: "We do expect advanced economy growth will remain sluggish to end-2012 at least, with rising unemployment."  These forecasts reflect much of the thinking by investors. 

Markets are quiet again, today giving back some of the gains from earlier this week.  Today's weakness can be from a growing sense that there is little Ben Bernanke can or will do for the markets.  There probably will not be much going on until Ben speaks tomorrow.  Steve Jobs leaving Apple (AAPL) is not much of a surprise, he has been transitioning out for a few years & the stock fell $5.  The Financial Index plunged after the initial surge on the BAC/Buffett news.  Fundamental problems remain as with sovereign debts & economic recovery around the world.

Dow Industrials (INDU)

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