Wednesday, August 24, 2011

Markets are on a 3 day winning streak

After a slow start, buyers returned in the PM. Dow shot up 143 (500 this week!), advancers over decliners a mild 2-1 & NAZ gained 21. Bank stocks were leaders as ugly rumors about their health problems were proven wrong.

S&P 500 Financials Sector Index

Value	170.89
Change	4.70 (2.8%)

The MLP index & REIT index each gained 2½ while junk bond funds were mixed to lower. Treasuries fell, pushing 10-year yields up 12 basis points to the highest in a week, after the durable goods report & on optimism that the US economic recovery may accelerate. Oil advanced after a report showed that US inventories unexpectedly declined as refinery rates matched the highest level of 2011. Gold took a fast & furious 5.6% dive, its biggest single-day drop since Mar 2008, fueling speculation as to whether the gold trade is finally unwinding.

Alerian MLP Index

Value	340.62
Change	2.48 (0.7%)

Treasury yields:

U.S. 3-month	-0.005%
U.S. 2-year	0.231%
U.S. 10-year	2.260%

CLV11.NYM

...Crude Oil Oct 11

...84.96

...

0.48

(0.6%)

Below is the latest market update:

Home Prices in U.S. Declined 5.9% Last Quarter on Year

Photo: Bloomberg

US home prices fell 5.9% in Q2 from a year earlier, the biggest decline since 2009, as foreclosures added to the inventory of properties for sale. Prices dropped 0.6% from Q1 according to the Federal Housing Finance Agency. In Jun, prices retreated 4.3% from a year earlier & increased 0.9 % from May. Foreclosures are boosting the supply of properties on the market & undercutting the confidence of homebuyers, sapping demand even as mortgage rates tumble to the lowest in more than half a century. The inventory of homes averaged 3.7M during Q2, the highest since Q3 2010. Mortgages on 6.5M homes had late payments or were in foreclosure in Jun, according to Lender Processing Services. Mortgage rates for 30-year fixed loans fell to 4.15% last week & the rate probably will average 4.6% this year, lower than 2010’s 4.7%, according to Fannie Mae. This news is more of the same from an industry that is trying to break out of its depression.

Home Prices Decline 5.9% in Second Quarter

McGraw-Hill’s Pieces Gain 40% More Than Current Value

Photo: Bloomberg

Investors are betting McGraw-Hill, a Dividend Aristocrat, will break up into 4 businesses (that include the S&P ratings agency). CEO Harold McGraw met with 2 activist shareholders earlier this week to listen to their ideas on how to boost the stock price, which has dropped more than 40% in 5 years. The shareholders, Jana Partners & Ontario Teachers' Pension Plan, made a case for spinning off its different lines of businesses into 4 separate companies. Even if that doesn't come to fruition, some investors are hoping MHP will respond to the pressure by at least seeking buyers for some its divisions. There are estimates that the sum of McGraw-Hill's parts could be worth about $50 per share, creating a $3B windfall for shareholders. The stock was up $2.86 to $41.30.

McGraw-Hill Seen Returning 40% More in Pieces

McGraw-Hill Companies, Inc. (The) (MHP)

Bank of America, a Dow stock, sent a memo to employees quashing speculation that it is in talks to merge with rival JPMorgan Chase (JPM), another Dow stock, & said it didn't "make practical sense." The memo was sent as takeover talk swirled in the market. BAC also said the reports that it needs to raise at least $200B in additional capital to meet new regulatory capital requirements was also "wrong." According to the memo: "At the end of the second quarter of 2011, (Bank of America) had $218 billion in total capital, which is almost twice as much as is needed for an adequately capitalized institution under current standards, and more than enough capital to run our business." Yesterday, BAC led the decliners, & today it's a leader on the upside, up 69¢ to $6.99. This shows how desperate the markets are for any news, right or wrong. Not a good sign!

Bank of America quashes merger talk in memoAP

Bank of America Corporation (BAC)

Reasons for today's advance were housing prices price declines & durable goods data were better than forecast. I view that thinking as weak but that's the kind of thinking driving the "up" markets this week. Rumors about bank problems are running wild. European financial officials are trying to figure out how to repair the debt problems of Greece & deal with other sovereign debts. The US needs to borrow an additional $4B every day. Politicos are on holiday, so nobody is concerned. But the unemployed have to suffer. The rise in the markets this week is based on Ben Bernanke being able to pull another rabbit out of the hat on Fri. Maybe, maybe not. I'm reminded of the old adage about buy on the rumor & sell on the news. Sep is around the corner & it could be another rough month.