Wednesday, November 23, 2011

Markets decline on rising costs to insure European debts

Stocks began the day lower & were never able to recover.  Dow finished down 236 (closing at the lows with selling into the close), decliners ahead of advancers 7-1 & NAZ fell 61.  Bank stocks led the way lower, on all kinds of negative news.  The Financial Index fell 4½ to the 157s, near its 14 month lows. 

The MLP Index fell 4 to 360 & the REIT index dropped 6 to 207.  Junk bond funds were 1-2% lower in sympathy with the falling stock market.  But Treasuries rose after another successful debt auction (rated as strong).  Oil declined as demand for German bonds missed expectations & US durable-goods orders fell, reducing optimism that economic growth will improve.  Gold is back to treading water, but now it's below $1700.

AMZ  Alerian MLP Index

DJR   Dow Jones Equity REIT Index

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CLF12.NYM...Crude Oil Jan 12....96.27 ...Down 1.74  (1.8%)

Live 24 hours gold chart [Kitco Inc.]

2 of the 3 major rating agencies have now decided to keep the US credit rating in place, despite the supercommittee's failure to reach an agreement on deficit cuts.  Moody's announced that it will maintain its Aaa rating.  However, S&P said it will keep its rating for US bonds at AA-plus for the time being while Fitch said nothing.  When the supercommittee failed to do anything, it sparked reaction from the ratings agencies.  "The committee outcome indicates that significant deficit reduction measures are unlikely to be adopted before the November 2012 elections," Moody's said.  "Moody's currently has a negative outlook on the US rating given the need over time for further deficit reduction to reverse the country's upward debt trajectory."  S&P also has the country's credit rating on negative watch & Fitch warned earlier this week, that it may consider doing the same.  Under Fitch's definition, "negative watch" indicates a greater than 50% chance that a downgrade will follow in the next 2 years.  Fitch expects to announce its decision by next week.  Meanwhile Treasuries gained as the Treasury sold $29B in 7-year notes at a record low rate of 1.415%.

Moody's keeps U.S. credit rating in place

Orders for U.S. Durable Goods Fall

Photo:   Bloomberg

In Oct, orders for durable goods fell as demand for aircraft & business equipment cooled. Bookings declined 0.7%, less than forecast, after a 1.5% drop the prior month that was more than twice as large as originally reported according to the Commerce Dept.   Excluding defense & aircraft, demand for computers & other business equipment decreased by the most since Jan.  Orders for non-defense capital goods excluding aircraft, a proxy for investment in items such as computers, engines & communications gear, dropped 1.8% after a 0.9% gain the prior month (smaller than previously estimated).  The risk the global economy is losing steam as Europe deals with its debt crisis may lead overseas companies, which have supported US factories, to scale back.

Citigroup, BofA May Have to Pare Dividend Ambitions

Photo:   Bloomberg

Citi & Bank of America are among lenders that may have to temper plans to raise divs & buy back stock next year as the Federal Reserve (FED) strengthens capital tests for the biggest US banks.  The tougher standards are being imposed on the 31 largest US banks.  Lenders need to prove they have the capital to withstand a “severe” US recession with 13% unemployment & an 8% decline in GDP before they can increase divs or repurchase shares.  The more pessimistic scenario will dampen banks’ ambitions to return more capital to shareholders, whose holdings have been decimated.  The KBW Bank Index of 24 US lenders has plunged 31% this year & was down 70% from its all-time high in February 2007.  The FED limited banks to returning 60% of their retained earnings to shareholders in 2011, split evenly between divs & share repurchases. The test also subjects the trading operations of the 6- biggest U.S. banks to portfolio “shocks” based on asset price moves in the H2 of 2008.  More gov interference is not good for bank stocks & the market in general.

BAC   Bank of America Corp.

This is turning into another ugly week.  Dow is down over 500 this week & 700 in Nov.  Another way to look at it is that it's up only 350 from the starting point in Oct when it began one of its best months in history.  Naturally, it's down YTD.   The European debt mess is going to be around for a long time & the US economy does not have enough to fly all by itself.  More selling is on the way.  With a semi long weekend coming up, look for something to be announced by Mon.  The FED probably wants to come up with magic tricks to restore confidence, but, with rates near zero, there's not a lot it can do.

Dow Jones Industrial Average

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