Wednesday, December 21, 2011

Markets slump on disappointing earnings from Oracle

Dow fell 75, decliners ahead of advancers 2-1 & NAZ fell a big 50 on unsatisfactory earnings from Oracle.  The Financial Index was down 1+ to 170.

The MLP index rose 1 to 379 while the REIT index fell 1 to 228.  Junk bond funds were mixed, but marginally higher YTD, & Treasuries were flattish.  Oil extended gains after a gov report showed a decline in inventories almost 5 times as large as expected & gold is doing little.

AMZ   Alerian MLP Index

DJR   Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLG12.NYM...Crude Oil Feb 12...98.17 ...Up 0.93 (1.0%)

GCZ11.CMX...Gold Dec 11...1,608.40 ...Down 7.20  (0.5%)

Get the latest market update below:

ECB Lends Banks $645B, Exceeding Forecast

Photo:   Bloomberg

The ECB loaned a massive €489B ($639B) to 523 banks for an exceptionally long period of 3 years to steady a financial system under pressure from the eurozone debt crisis.  This is the biggest ECB infusion of credit in the 13-year history of the shared € currency, surpassing the €442B ($578B) in one-year loans from Jun, 2009, when the financial system was reeling from the collapse of Lehman Brothers.  The ECB is trying to make sure that banks have enough ready cash so they can keep on lending to businesses.  Otherwise, a credit crunch could choke off growth & spread the debt crisis to the wider economy through the banks.  The 37-month term of the loans permits banks to stock up on money for a much longer period & reduces stress on their finances.  Banks have had trouble borrowing from other banks or by issuing bonds as they do in normal times because lenders fear the banks may suffer losses from the crisis & not pay them back.  In addition, banks need to pay off large amounts of their own maturing debts in the first part of 2012.  Sounds good, but it's not clear what the banks will do with this credit.

ECB Lends Banks $645B, Exceeding Forecast

  • Attendees walk down branded steps at the 29th Oracle OpenWorld in San Francisco October 2, 2011. REUTERS/Susana Bates
Photo:   Yahoo

Oracle earnings fell short of forecasts for the first time in a decade as software & hardware sales sputtered.  The stocks sank 14% on fears of stoking a global recession which will hurt tech spending.  The rare slip-up raised questions about the health of the technology sector as many companies in the industry gear up to close deals before year-end.  Oracle joins a growing list of companies, including some of the biggest & oldest names, whose results & earnings forecasts have raised alarm bells about worsening business conditions.  They include Hewlett-Packard (HPQ - a Dow stock), Dell (DELL), Intel (INTC - another Dow stock) & Texas Instruments (TXN).  These stocks are also selling off.  EPS before some costs in the fiscal Q2 was 54¢, on revenue excluding certain items of $8.81B.  Analysts had projected EPS of 57¢ on sales of $9.23B.  The stock fell a massive 4.11 shown below in the 1 month chart.

Oracle Shares Drop After Quarterly Sales, Profit Miss Analysts’ Estimates

ORCL    Oracle Corp.

U.S. Existing Homes Sold Since 2007 Revised Down by 14%

Photo:   Bloomberg

Nearly 5 years into the crisis, foreclosures are still weighing heavily on home prices.  46% of homes sold in Nov were either short sales or REOs (homes repossessed by lenders), according to a survey by Campbell/Inside Mortgage Finance.  One problem: distressed homes sell for a lot less than homes sold by conventional sellers.  The average price for a short sale (when borrowers owe the bank more than their homes are worth) was $209K, for a regular sale, the average was about $259K.  The numbers are even worse for REOs, which averaged about $190K for properties in move-in condition.  For a damaged REO, the price was just $99K, a common problem since homeowners who've been foreclosed on don't typically devote resources to upkeep.  There is no shortage of distressed properties:  More than 6M borrowers are delinquent 30 or more days & 2M are already in the foreclosure process (most will be repossessed or sold as short sales).  Adding to the despair in the industry, the number of existing homes sold in the US was revised down by an average 14% since 2007, magnifying the depth of the slump that contributed to the last recession.  Purchases were revised to 4.19M for 2010, down 15% from a prior estimate of 4.91M, the National Association of Realtors said.  Sales climbed 4% in Nov to a 4.42M annual pace, from a revised 4.25M rate the prior month.  The depressed housing industry is not rebounding anytime soon.

Dreary news got the better of the markets after yesterday's big rally.  The biggest disappointment is the failure of the move by the ECB to bring out stock buyers.  On this make it up as we go along way to solve enormous financial problems, markets are not convinced banks will know what to do with this infusion of money.  The housing data is nothing new, it's stuck in the mud & could take years to get back to a strong market.  ORCL is another signal that economic recovery is not as strong as the bulls make it out to be.  Markets are back to lumbering along in holiday trading.  So much for taking out the 12.2K high on the Dow.

Dow Jones Industrial Average

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