Markets surged on reduced tensions for European debts

Stocks shot out of the gate first thing in the AM & never looked back.  Buyers kept the averages high & pushed them to close at the highs for one of the best days in history.  Dow rose 490, advancers ahead of decliners by a tepid 7-1 & NAZ was up 104   Bank stocks led the charge, giving the Financial Index one of its best gains ever, up 10+ to 172. 
The MLP index was up only a fraction in the 368s while the DJR posted a 10+ gain to the 222s.   Sorry for the misleading posting about a modest gain for the REIT index this AM, the Yahoo computer had a hiccup.  Junk bond funds had limited participation in the gains, up about 1%, while Treasuries sold off on easing financial tensions in Europe.  Oil had a good day, but gave up some of the early gains.  Gold surged 33 into the mid 1700s.

AMZ   Alerian MLP Index

DJR   Dow Jones Equity REIT Index

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.250%
U.S. 10-year	2.072%

CLF12.NYM

...Crude Oil Jan 12

....100.34

... 0.55

(0.6%)

Photo:   Bloomberg

The Federal Reserve (FED) said the US economy grew moderately in recent weeks & hiring remained anemic with housing activity impaired.  This comes from the Beige Book survey of economic conditions around the FED's 12 districts.  It also showed inflation remained subdued & some cost pressures have eased.  The report confirmed a long-standing trend in the recovery: the expansion remains firmly in place, but underlying conditions are too weak to bring down a 9% jobless rate.  "Overall economic activity increased at a slow to moderate pace since the previous report across all Federal Reserve Districts except St. Louis, which reported a decline in economic activity," the FED said.   Manufacturing activity expanded across most of the nation, while bank lending increased slightly from the previous report released a month ago.  Housing, which continues to reel after a 5-year slump, remained a sore spot. The FED described real estate activity as "sluggish" & the commercial property market as "lackluster."

Fed: ‘Slow to Moderate’ Growth in 11 Districts


Owners of long-term unsecured debt in a collapsing bank would be first in line to take losses under draft plans from the EU to protect taxpayers’ money from future bailouts.  Short-term debt, with a less than one-year maturity, and derivatives should only be written down by regulators as a last resort if losses from longer-term debt aren’t “sufficient to restore the capital of the institution and enable it to operate as a going concern,” according to a draft European Commission proposal.  The EU had delayed proposing the law (originally scheduled to be released in Sep) because of market turbulence.  The commission may further delay publication of the measures until the start of next year to avoid them being unveiled at a time when they could add to volatility on financial markets,  Under the proposals, unsecured senior bondholders of banks would take losses only after a lender’s capital & then the rest of its subordinated debt had already been wiped out.  By imposing losses on long-term senior unsecured debt ahead of short-term debt & derivatives, the proposals go against the normal principle in insolvency law that creditors in the same class should be treated equally, according to the EU draft.  The credit mess in Europe is far from over.

EU Writedown Plan Puts Banks’ Long-Term Debt in Firing Line

Photo:   Bloomberg

Lipitor revenue for Pfizer, a Dow stock, begins eroding today when patent protection ends in the US.  Now the company will be rebuilding the world’s biggest drugmaker into a smaller, faster-moving company that focuses on development of biologic drugs & specialty medicines while expanding sales of existing products, such as Lipitor & Viagra, in emerging countries such as China.  “We’re not going to be a one-product company,” said Geno Germano, Pfizer’s president of specialty care & oncology.  “We’re poised to deliver significant new pipeline assets in the coming year, and in coming years.”  PFE is depending on 4 products to generate $4B in 3 years.  Lipitor, the world’s top-selling medicine, last year had almost $11B in sales which may drop as much as 70% next year.  Meanwhile PFE is planning to sell or spin off its animal health & nutritional businesses which generated $5.4B in 2010 sales (8% of revenue).  The stock was up 60¢ (with a 4% yield) on a day when it's hard to find a loser.

Pfizer Needs to Rebuild After Lipitor

PFE   Pfizer Inc.

I just had an article published at SeekingAlpha:

When Big Banks Sink, The Market Cannot Fly

Despite the spectacular gain today, I stand by my thoughts.  Throwing money at the European debt mess will not solve all the problems that have built over the years.  Today was a stellar day for bank stocks, but they were deeply oversold.  Dow is pressing on 12.2K ceiling.  If the bulls want to be in charge, they will have to go thru that ceiling, & soon.

Dow Jones Industrial Average

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Markets soar on coordinated action by central banks to ease debt crisis

Dow vaulted 418, advancers over decliners 11-1 & NAZ jumped 89.  As has been the case all year, bank stocks led the way. 

S&P 500 Financials Sector Index

Value	168.70
Change	6.88    (4.3%)

The MLP index rose 2 to 370 & the REIT index was fell a farction in the 212s. Junk bond funds were up 1-2% while Treasuries dropped, pushing 10-year yields to the highest in 2 weeks, after central banks cut the cost of emergency dollar funding for European banks.  Gold is also having a good day, rising to the highest level in 2 weeks.

AMZ   Alerian MLP Index

DJR  Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.262%
U.S. 10-year	2.089%

CLF12.NYM

....Crude Oil Jan 12

...101.16

..... 1.37

(1.4%)

GCZ11.CMX

....Gold Dec 11

......1,744.50 ...

31.10

(1.8%)

Click below for the latest market update:

Photo:   Bloomberg

Private sector job growth accelerated in Nov as employers created the most jobs in nearly a year.  The ADP National Employment Report showed private employers added 206K jobs this month, surpassing expectations for a gain of 130K jobs in a year.  The gov Nov labor report on Fri is expected to show a rise in overall nonfarm payrolls of 122K & a rise in private payrolls of 140K.  It's important remember that the ADP report is not always accurate in predicting the outcome.  The Oct private payrolls growth was revised up to an increase of 130K from the previously reported 110K.  Meanwhile, a different report showed the number of planned layoffs at US firms edged down marginally in Nov, though job cuts for the year so far have surpassed 2010's total.  Employers announced 42.5K planned job cuts this month, down 0.7% from 42.7K in Oct according to Challenger, Gray & Christmas.  But with just one month left in 2011, employers have announced 564K cuts for 2011, exceeding 2010's total of 530K.

ADP Says U.S. Companies Added 206,000 Workers

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Photo:   Yahoo

The world's major central banks acted jointly to provide cheaper dollar liquidity to European banks facing a credit crunch as the euro zone's sovereign debt crisis threatened to bring financial disaster.  The surprise move by the US Federal Reserve, the ECB, the Bank of Japan & the central banks of Britain, Canada & Switzerland recalled coordinated action to steady global markets in the 2008 financial crisis.  In a related move, Italy's central bank started emergency cash tenders for banks which have been squeezed particularly hard in recent weeks as borrowing costs have soared towards 8% (unaffordable in the long term).  "We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union," Economic & Monetary Affairs Commissioner Olli Rehn said.  Euro zone leaders have agreed belatedly on one half-measure after another but have failed to restore confidence & face a crunch moment at a Dec 9 Brussels summit seen as a make-or-break moment for the €.  Finance ministers agreed on plans to leverage the European Financial Stability Mechanism (EFSF), but could not say by how much because of rapidly worsening market conditions, prompting them to look to the IMF.  This is called a financial crisis.  Italian & Spanish bond yields resumed their climb towards unsustainable levels as markets assessed the rescue fund boost as inadequate.  Strong stock markets are ignoring uncertainty about how these moves will play out.

Fed Lowers Interest Rate on Dollar Swaps

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Photo:   Yahoo

Signed contracts to buy homes jumped in Oct to the highest level in a year, after 3 months of declines & isn't enough to signal a housing recovery.  The National Association of Realtors said its index of sales agreements rose 10.4% last month to a reading of 93.3 (100 is considered healthy).  The last time it was that high was in Apr 2010, one month before a federal home-buying tax credit expired.  Contract signings usually indicate where the housing market is headed, but a growing number of buyers have canceled contracts after appraisals showed the homes were worth less than the bid.  A sale isn't final until a mortgage is closed.  However the market remains depressed & this could be the worst year for sales since the housing bubble burst.  Sales of previously occupied homes could end up being the fewest since 1997 & sales of new homes are headed for the worst year on records dating to 1963.

Pending Sales of U.S. Existing Homes Up 10.4%


Markets are having a sensational day on the moves by the central banks.  It may be a bit early to say that all problems relating to the debt mess are over.  Even with today's enormous gain, Dow is just barely in the black for Nov.  If it's serious about taking off from here, it must get above 12.2K (250 above present levels).

Dow Jones Industrial Average

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Markets muddle along on uncertainties over European debts

Dow was higher all day & ended with a gain of 32 (70 below its high), decliners slightly ahead of advancers & NAZ fell 11.  Bank stocks were mixed, with the Financial Index down a fraction after yesterday's big gain. 

S&P 500 Financials Sector Index

Value	161.82
Change	-0.97     (-0.6%)

The MLP index was up 2 to 368 & the REIT index fell a fraction in the 212s.  Junk bond funds were mixed & Treasuries drifted lower.  Oil rose above $100 after US consumer confidence climbed & Iranian protesters broke into & vandalized the British Embassy’s compound in Tehran.  Gold continued trading flat, above $1700.

AMZ   Alerian MLP Index

DJR  Dow Jones Equity REIT Index

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.010%
U.S. 2-year	0.254%
U.S. 10-year	1.996%

CLF12.NYM

....Crude Oil Jan 12

....99.84

... 1.63

(1.7%)

Photo:   Bloomberg

The ECB failed to fully offset the extra liquidity created by its bond purchases for the first time in 7 months, a sign of mounting tensions among euro-area banks.  85 banks bid €194.2B ($259B) for 7-day term deposits, but it's goal was to drain €203.5B, the amount its bond purchases have created since the program began in May last year.  The ECB last fell short of its intended total on Apr 26.  Banks are hoarding cash as the debt crisis worsens, driving up gov borrowing costs & increasing the risk of sovereign defaults.  The ECB’s balance sheet rose to a record €2.4T in the week thru Nov 25, €500B more than a year ago, as banks tapped it for funds rather than trading with one another.  The ECB, which lends banks as much cash as they want at its benchmark interest rate also said that weekly lending rose to a 2-year high.   This is another example of the high degree of uncertainty over European debts as the debt crisis worsens.

ECB Fails to Attract Sufficient Bids to Mop Up Liquidity From Buying Bonds


Corning is lowering its glass capacity to match lower demand.  It expects demand for its Gorilla Glass to fall by 25% sequentially (Q4/Q3), down from its earlier prediction of a 15% decline.  While the company had expected to regain lost market share in South Korea in Q4, this did not happen.  It lowered prices because of a glass over-supply in the industry, thinking this would prompt the return of a large customer in that country.  "However, following initial positive reactions, including higher shipments in October and early November, this customer recently informed us that they do not expect to honor the contract for the remainder of the quarter," said Tony Tripeny, senior VP & corp controller.  GLW is the world's largest maker of liquid-crystal-display glass with more than 60% of the global market.  Ultra-strong Gorilla Glass is used in handheld gadgets as well as tablets & high-end TV sets (such as SONY).   The stock sank 1.59 (11%).

Corning slashes outlook in glass glut, shares dropat Reuters

GLW   Corning Inc.

• 

Photo:   Yahoo

On a lighter note, the questions being asked, is Facebook worth more than Dow stock Cisco (CSCO)?   Facebook could launch an IPO in a few months that is expected to raise $10B & value the company at $100B.  CSCO market cap is $97B.  Although CSCO has not grown rapidly in recent years, with revenue of $43B & profits of $6½B (not to mention $42B in cash), that should make it worth much more than the social network.  You make the call!  CSCO fell 33¢ to $17.68.

Is Facebook Worth More Than Cisco? 24/7 Wall St

CSCO   Cisco Systems Inc.

If yesterday's rally had meaning, it should been followed by strong day today.  Not so.  Encouraging consumer confidence data was offset by the bankruptcy of AA while the debt mess in Europe keeps getting worse.  Europe’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the IMF & the ECB to insulate Spain & Italy from the debt crisis.  But the IMF does not have an infinite supply of money.  Where will additional funds come from?  Dow is down 400 in Nov & barely down YTD. 

Dow Jones Industrial Average

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Higher markets on improved consumer confidence

Dow was up 54, advancers ahead of decliners 4-3 & NAZ inched lower.  The Financial Index was up a tad to 163, hardly a ringing endorsement of yesterday's gain.

The MLP index was up a fraction in the 366s & the REIT index was flat at 213.  Junk bond funds edged higher & Treasuries sold off, taking the yield on the 10 year Treasury bond above 2%.  Oil is up, pushing on $100 again, while gold is just crawling higher, rising above $1700.

AMZ  Alerian MLP Index

DJR  Dow Jones Equity REIT Index

Treasury bonds:

U.S. 3-month	0.010%
U.S. 2-year	0.258%
U.S. 10-year	2.031%

CLF12.NYM

...Crude Oil Jan 12

...99.64

... 1.43

(1.5%)

GCZ11.CMX

...Gold Dec 11

....1,714.60

... 3.80

(0.2%)

Get the latest market update below:

Italian Treasury

Photo:   Bloomberg

Italy's borrowing costs hit a euro lifetime high of nearly 8%, taking the debt crisis to a new level of intensity hours before new prime minister Mario Monti was to meet euro zone finance ministers to set out his economic reform plans.  Can you spell, uh-oh?  2 years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping gov debt, deposits are draining from south European banks & a looming recession is aggravating the pain, fuelling doubts about the survival of the single currency.  Italy paid a record 7.89% yield to sell 3-year bonds, a leap from the 4.93% it paid a month ago, & 7.56% for 10-year bonds, compared with 6.06% at that time.  The yields were above levels at which Greece, Ireland & Portugal applied for intl bailouts.

Italy Pays More Than 7% at Bond Auction

Photo:   Bloomberg

The Conference Board’s index increased to 56 in Nov from a revised 40.9 reading in Oct, the biggest monthly gain since 2003.  The gauge, at a 4-month high, exceeded the most-optimistic forecast (49.6).  Rising sentiment may help sustain sales during the holiday shopping, which accounts for as much as 40% of retailers’ annual revenue.  Fewer new claims for jobless benefits & cheaper fuel costs are easing the burden for consumers.  Results reflected responses from Nov 15, a week before the congressional supercommittee announced it failed to agree on a deficit-reduction plan.  That's good news, but it may prove temporary given all that is going on. 

U.S. Consumer Confidence Rises Most Since ’03


American Airlines' parent company, AMR (AMR), filed for Chapter 11.  But American Airlines, American Eagle & all other subsidiaries will honor all tickets & reservations & operate normal flight schedules during the bankruptcy filing process.  For ticket holders, "our schedule will continue, our flights will continue to operate. It is very much business as usual," said CEO Thomas Horton.  He said reductions, along with job cuts, are likely as the airline seeks to reduce expenses.  “The most important message of the day is that it will be business as usual while we focus on doing a great job for our customers,”  he continued. “All of the people of American Airlines are going to stand tall and deliver for our customers."  American Airlines passengers made up about 15% of US traffic in Oct. 

American May Trim Flight Schedule Amid Bankruptcy Cost Cuts

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Photo:   Yahoo

S&P could change its outlook on France's AAA credit rating to negative within the next 10 days, the latest signal that France's top-tier status is at risk. This would follow the cut of Belgium's credit rating to double-A from double-A-plus on Fri.  Just another reminder of the growing mess for European debts.

S&P may cut France outlook within 10 days

While stocks are a little higher, enthusiasm from buyers is gone.  European debts are the center of attention & that situation remains confusing & uncertain.  So far, plans to solve problems are just that, plans.  Actions are what counts, & everybody is wondering what comes next.  Actions also require money & it is not clear where huge amounts of money will come from.  The IMF is loosely tossed around, but much of its money coms from the US which is facing budget cuts.  Other European countries may not be anxious to pour more money into what seems like a bottomless hole.  The VIX, volatility index, remains around 31, an elevated level

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