Monday, November 14, 2011

Lower markets on increased sovereign debt worries

The Dow was weak all day, testing 12K, but finished off its lows.  Dow dropped 74, decliners ahead of advancers almost 4-1 & NAZ fell 21.  Bank stocks were hit with selling, but the Financial Index, down 3½ to 174, has been holding up well, trading sideways in the 170s for the last month.

The MLP index shot up 2+ to the 268s while the REIT index fell 5 to 223.  Junk bond funds were soft but Treasuries inched higher.  Oil continued weak, following the lead of stocks & gold also had a bad day. 



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CLZ11.NYM...Crude Oil Dec 11...98.05 ...Down 0.94 (1.0%)

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Lowe’s Profit Beats Analysts’ Estimates

Photo:   Bloomberg

Costs related to closing stores & other restructuring pushed net income at Lowe's down 44%, but adjusted results beat expectations.  With the housing market moribund & consumers' continued caution on spending, CEO Robert Niblock said that he does not expect a full rebound until at least 2013.  LOW said last month that it would close 20 underperforming stores in 15 states & cut nearly 2K jobs to focus on its more profitable locations.  Niblock said he expects consumer demand will improve once home prices bottom out, which could occur in 2012.  "Once we get through that, and employment starts moving in the right direction, there's quite a bit of pent up demand," he said.  "Our performance is not at the level we expect relative to the market or frankly that we demand of ourselves as we define success, so we're taking action," Niblock said.  EPS was 18¢ in the qtr ended Oct 28, down from 29¢ a year earlier . Revenue climbed 2% to $11.9B. Adjusted earnings amounted to 35¢, not counting the charges, compared to expectations of 33¢.  The company expects EPS of 20-23¢ in Q4, with revenue at stores open at least a year coming in flat to rising 1%.  Analysts expect EPS of 23¢.  The stock rose 39¢.  More earnings reports are coming this week from retailers.

Lowe’s Profit Beats Analysts’ Estimates, Helped by Sales at Older Store

Lowe's Companies, Inc. (LOW)

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German Chancellor Merkel's Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules.  The resolution, which requires the approval of 2 coalition partners before becoming policy, is part of her push for closer political ties & tighter budget rules in the European Union, with euro countries setting the pace.  The drive is her answer to the debt crisis that began in Greece 2 years ago.   “We’re not throwing anybody out,” the Finance Minister said.  “But if a country can’t carry the burden or doesn’t want to carry the burden, & the Greek people have to carry a heavy load, then we have to respect the country’s decision.”  Aiming for more a deeply integrated 17-nation euro area sets Merkel on a collision course with the 10 non-euro countries in the EU & raises the possibility of a Greek exit.  Solutions to the euro debt mess remain a "work in progress" & nobody knows where it will lead.

Merkel’s Party Votes to Allow Exits From Euro

Gloomy news is easy to find.  One report says the odds of a US recession in early 2012 exceed 50% as a result of Europe’s debt crisis, according to researchers at the Federal Reserve Bank of San Francisco.  Sovereign debt problems refer to Greece, Italy & now Spain.  As if that's not enough, Argentina’s central bank cut dollar reserve requirements after bank deposits plunged $645M last week following the gov’s moves to restrict foreign exchange purchases in South America’s 2nd-biggest economy.  Next week, the super committee in DC will give its report & that will probably reflect a divided attitude about reducing federal deficits.  If the report is not accepted, mandatory cuts in federal spending will kick in.  Can you spell, "uh-oh?"  But Dow keeps hanging in there, not plunging like it did 3 years ago.  12K has held well & 11.6K, the absolute floor, has been rock solid.  If that gives way, look out below.

Dow Industrials (INDU)

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