Monday, October 24, 2011

Higher earnings & takeovers lift markets

Dow went up 104 to a new 3 month high, advancers over decliners 4-1 & NAZ popped 61 (helped by a gain of 12 by Apple).   Banks were higher with the Financial Index up 4 to 180, near its 3 month highs.

The MLP index gained 3½ to 369 & the REIT index rose 4½ to 225.  Junk bond funds were higher &Treasuries fell, taking the interest rate on the 10 year bond near its 3 month highs (50 basis points above the record lows).  Oil rose to the highest level in more than 2 months as data showed a drop in inventories at a key US delivery point.  Gold went over 1650, bets on more financial confusion about European debts.



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CLZ11.NYM...Crude Oil Dec 11...91.63 ...Up 4.23  (4.8%)

Live 24 hours gold chart [Kitco Inc.]

Crippled by plunging tax revenues, state & local govs have shed over a half million jobs since the recession began in Dec 2007.  After adding jobs early in the downturn, the federal gov is now cutting them as well (many with annual salaries in excess of 100K).  States cut 49K jobs over the past year & localities 210K according the Labor Dept.  There are 30K fewer federal workers than a year ago, including 5K Postal Service jobs canceled last month.  Meanwhile private-sector jobs have increased 1.6M over the past 12 months.  State, local & federal job losses have become a drag on efforts to nudge the nation's unemployment rate down.  The economy has been expanding, at least modestly, since mid 2009.  State & local govs are usually engines of job growth during recoveries, but not now.  That's why the pres is pushing his jobs bill to restore some of the jobs lost.  However, he points to jobs loss as only police, fire & teachers.  There is never mention of bureaucrats who do nothing but interfere with a recovering economy while drawing higher salaries than many regular workers.

Government Job Losses a Growing Drag on Recovery- Reuters

William Dudley, President of the Federal Reserve Bank of New York, said the central bank wants to keep mortgage interest rates from rising too much & may do more to hold down borrowing costs.  The FED’s decision last month to reinvest proceeds from maturing housing debt into mortgage-backed securities was a “signal that we do have concern about the level of mortgage spreads,” Dudley said. “Clearly we’ve indicated our interest in supporting the housing market” & keeping yields from “getting too elevated.”  The FED approved the action as part of an effort to spur the economy with lower borrowing costs by replacing $400B of short-term Treasuries in the its portfolio with longer-term bonds.  “We could move a degree more in that direction,” & policy makers “do care about the level of housing affordability,” Dudley said.  This is controversial because nobody knows what the result will be.  The FED is hoping for the best.

Fed Wants to Keep Rates Low to Ensure Housing Is Affordable, Dudley Says

Google (GOOG) has spoken to at least 2 private equity firms about possibly helping them finance a deal to buy the core business of Yahoo,  But they have not come up with a formal proposal & GOOG may end up deciding not to pursue a bid.  Any potential deal between the 2 biggest internet companies would likely arouse antitrust scrutiny.  Microsoft (MSFT), a Dow stock, is also considering financing part of a bid for YHOO & a number of other potential buyers have expressed interest in a deal with Yahoo.  YHOO rose 59¢ to $16.71 with all this talk. 

Google, PE firms mull bid for Yahoo: reportReuters

Yahoo! Inc. (YHOO)

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Resource companies (along with banks) led the way higher today.  Copper has risen more than 10% in a couple of days on expectations of growing demand from China & the rest of the world.  Unfortunately Europe is bogged down in a major slowdown & the debt mess is making matters worse.  The US economic recovery is not going well.  Corning (GLW), maker of glass for TVs, is 40% below its highs 7 months ago because it warned that its customers (like Sony, Samsung, etc) are not increasing orders.  US GDP numbers will be coming out shortly, but will likely show more of a muddling along recovery.  That is not disturbing stock buyers with Dow up exactly 1K so far in Oct.  The VIX, volatility index, slipped 2 to the 29s (still relatively high).

Dow Industrials (INDU)

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