Markets close the month mixed

Dow fell 20, advancers 4-3 ahead of decliners & NAZ gained 1.  The Financial Index was up a fraction today, 5 in Jan.

S&P 500 Financials Sector Index

Value	189.19
Change	0.79    (0.4%)

This was a rebound day for MLPs & REITs.  The indices had a good month with the MLP index up 5 to a new record & the REIT rose 12 (near its yearly highs).  Junk bond funds were mixed today but also had a good month.  Meanwhile, Treasuries rose sharply.  Heavy buying caused the yield on the 10 year Treasury to drop 15 basis points, a very big move!  Oil slipped a little, but gold, another safe haven investment, rose almost 10%.   

Alerian MLP Index

Value	395.19
Change	1.92     (0.5%)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.051%
U.S. 2-year	0.215%
U.S. 10-year	1.799%

CLH12.NYM

....Crude Oil Mar 12

...98.25

... 0.53

(0.5%)

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Greece's Finance Minister Venizelos
Photo:    Yahoo

Greece's private sector creditors could take a loss of more than 70% in a planned debt swap, Finance Minister Evangelos Venizelos said.  "There is a very serious discussion based on new facts. We are talking about a PSI much greater than the original," he told lawmakers, referring to private sector involvement in the deal.  "We are talking about a haircut on the net present value exceeding 70 percent," he said.   Unfortunately, this could trigger a default from the credit agencies.  Conditions remain fluid as Greece hopes to win friends by "trying harder."

Greek Bondholders Set to Get GDP Sweetener


The US budget deficit is expected to shrink $1.1T this year according to the Congressional Budget Office.  That would be down from last year’s $1.3T & will fall because of strengthening tax revenue & a slowdown in spending.  Outlays this year will climb 0.1% ($3B) while tax revenue will be up 10%.  However, it would be the 4th consecutive year the gov runs a 1T$ deficit.  “How much and how quickly the deficit declines will depend in part on how well the economy does over the next few years,” the report said.  “Probably more critical, though, will be the fiscal policy choices made by lawmakers as they face the substantial changes to tax and spending policies that are slated to take effect within the next year.”  Income-tax cuts first enacted under Pres Bush are scheduled to expire at the end of 2012, while $1T in automatic spending cuts will begin taking effect next Jan (AFTER THE ELECTIONS).  The CBO said the economy will expand this year by 2% while the unemployment rate will probably climb to 8.9 % from the current 8.5%.

Deficit Will Shrink to $1.1 Trillion This Year, CBO Says

Photo:    Bloomberg

Pfizer, a Dow stock, reported sharply lower quarterly earnings, hurt by generic competition of its Lipitor cholesterol drug, & it trimmed its 2012 forecasts because of negative effects of the stronger dollar.  Q4 EPS was 19¢ which compares with 36¢ a year earlier.  Excluding special items, EPS was 50¢,  beating expected  EPS of 47¢.  Q4 results appeared so unfavorable largely because of a big tax benefit in the year-earlier period.  Revenue fell 4% to $16.7B, but above expectations of $16.6B.  Global Q4 sales of Lipitor fell 24% to $2B, including a 42% decline in the US.  But some of the other biggest drugs scored moderate sales gains, helped by price increases.  As in Q3, the strongest gains came from its nutritional products & animal health units, noncore businesses that it aims to possibly sell or spin off.  CEO Read said that any separation of the 2 businesses would occur after Jul.  Sales of animal health brands rose 13% to $1.1B, while sales of nutritional products -- including baby formula & maternity supplements -- jumped 22% to $598M.  PFE forecast 2012 EPS of $2.20-$2.30, excluding items, down from its prior outlook of $2.25-$2.35. The company lowered its 2012 revenue forecast to $60.5-$62.5B, from its earlier outlook of $62.2-$64.7B.  The stock fell 18¢.

Pfizer Net Beats Estimates as Animal Health Counters Generics Competition

Pfizer, Inc. (PFE)

The stock markets had a good month.  Dow advanced 420, making the bulls happy.  But it was not all rosy.  After a strong start, it has been essentially treading water for 2 weeks, a time time when the inability to resolve the Greek debt mess has dominated the news & earnings season began.  High yielding sectors have done well: MLPs, REITs & junk bonds as investors looked for attractive yields.  But the classic flight to safety investments, Treasuries & gold, were also in demand.  For the moment, risk averse thinking has the upper hand, stocks may have more head winds to deal with.

Dow Industrials

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Lower markets on uneven earnings & Greek debt worries

Dow fell 54, advancers & decliners were equal & NAZ was off 7.  The Financial Index was off pocket change.

The MLP & REIT indices were each up a fraction after recent weakness.  Junk bond funds & Treasuries were mixed, although their yields are very near recent lows.  Oil & gold rose.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.056%
U.S. 2-year	0.219%
U.S. 10-year	1.837%

CLH12.NYM

....Crude Oil Mar 12

...100.27

..... 1.49

(1.5%)

GCG12.CMX

....Gold Feb 12

........1,742.60

... 11.60

(0.7%)

Get the latest daily market update:

Greece pledged another effort to prevent the collapse of a 2nd rescue package from creditors, aiming to complete talks this week.  Premier Papademos said he would try to meet German-led demands for a bigger debt writedown by investors & deeper budget cuts by his gov.  EU & IMF officials are thrashing out budget measures to unlock the aid needed to keep the gov functioning.  Leaders left a summit late yesterday with no accord over how to plug Greece’s widening budget hole.  German Chancellor Merkel voiced frustration with the Greece’s failure to carry out an economic makeover.  “Greece’s debt sustainability is especially bad,” Merkel said.  “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”  The summit was the 16th in the 2 years since the Greek debt emergency provoked a Europe-wide drama. The Greek debt mess is going nowhere fast.

Greece Fights for Second Bailout as EU Leaders Seal Common Fiscal Accord

Photo:   Bloomberg

Consumer confidence retreated in Jan after 2 straight months of big gains. The Conference Board reported its Consumer Confidence Index stands at 61.1, down from a revised 64.8 in Dec & significantly under the prediction of 68, after surging from 40.9 in Oct.  The Conference Board said that even though consumers were more upbeat about jobs, they were less optimistic about income prospects.  Rising gas prices have also taken a toll on sentiment.  A reading of 90 indicates a healthy economy, a level the index hasn't approached since Dec 2007 when the recession began.  The confidence numbers are watched closely because consumers' spending accounts for about 70% of US economic activity.

Consumer Confidence in U.S. Declined in Jan

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Photo:   Yahoo

Exxon Mobil, a Dow stock & Dividend Aristocrat, Q4 profit narrowly beat expectations as production of natural gas & crude oil slipped.  The company posted EPS of $1.97, compared with $1.85 in the year-ago period & slightl;ly ahead of expectations of $1.96.  The profit was its lowest for 2011.  Revenue rose 16% to $121.6B, beating expectations of $119.7B.  The price jump for oil helped lift XOM profit in the upstream unit, which produces oil & natural gas, by 18%.  Land sales also lifted results,  Still, the weak economy harmed margins.  Profit at the downstream unit (i.e. gas pumps) fell 13% & the chemical unit, which makes plastics & related products, saw profit drop 49%.  XOM spent $10B in Q4 on capital projects & exploration, in line with the same period in 2010. The stock fell 1.42.

Exxon Profit Rises as Crude Oil Prices Soar

Exxon Mobil Corporation (XOM)

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Photo:   Yahoo

United Parcel Service posted a better-than-expected quarterly profit & forecast 9-15% growth this year as US demand & growing e-commerce activity offsets an uneven global economy.  Q4 profit was down sharply because of a change in how UPS accounts for its pension expenses.  Factoring that change out, profit would have risen, helped by strong growth in the company's consumer business -- driven by online shopping during the recent holiday season -- which offset less-robust growth outside the US.  UPS set an initial 2012 EPS target of $4.75-$5 for 2012, 9-15% growth over 2011 & comparable to the $4.80 analysts expect.  CEO Davis said that UPS expects continued strong demand in its home market.  "The U.S. is one of the few economies where expectations are greater than last year," Davis said.  Q4 EPS fell to 74¢ from $1.02 in the prior year.  These results included a $527M charge related to a change in how it accounts for pension expenses.  UPS carries 6% of US GDP & 2% of worldwide GDP.  The stock was off 86¢.

UPS Profit Forecast for Year Tops Estimates as Shipping Demand Increases

United Parcel Service, Inc. (UPS)

Markets are stumbling around once again.  The lingering Greek debt mess haunts all markets.  But earnings are getting the most attention today & they have been less than inspiring.  S&P warned that health care costs for a number of Group of 20 countries, including the US, could hurt growth prospects & harm their creditworthiness.  While Dow will have an up month for Jan, it has pulled back to where it was 2 weeks ago.  Earnings & Greece have dominated the news with a negative bias.

Dow Industrials

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MIxed markets as traders watch Europe

After starting the day lower, stocks rallied but Dow was unable to finish in the black.  Dow dropped 6, decliners ahead of advancers 2-1 & NAZ was up 6 (helped by Apple's rise).  Bank stocks were weak all day, taking the Financial Index down 2 to the 188s (still near its interim highs of 191 reached last week). 

MLPs & REITs fell but junk bond funds were mixed.  Risk averse money went into Treasuries, taking the yield on the 10 year Treasury near its record lows of 1¾%.  Oil declined as European leaders sparred with Greece over a 2nd rescue program & US consumer spending stalled.  While bouncing around in the last 2 days, gold ended little changed.

JPMorgan Chase Capital XVI

Click below the latest daily market update update:

Treasury yields:

U.S. 3-month	0.046%
U.S. 2-year	0.211%
U.S. 10-year	1.839%

CLH12.NYM

Crude Oil Mar 12

98.82

0.74 (0.7%)

• 

Photo:    Yahoo

European leaders are struggling to reconcile austerity with growth at a summit that approved a permanent rescue fund for the euro zone & was trying to put finishing touches to a German-driven pact for stricter budget discipline.  But disputes over the limits of austerity, & Greece's unfinished debt restructuring negotiations, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis.  Leaders agreed that a €500B euro European Stability Mechanism will enter into force in Jul, a year earlier than planned, to back heavily indebted states.  Europe is already under pressure from the US, China, the IMF & some of its own members to increase the size of the financial firewall.  The risk premium on southern European gov bonds rose while the € fell on concerns about a lack of tangible progress in the Greek debt talks & gloom about Europe's economic outlook.  Highlighting those fears, Spain's economy contracted in Q4 for the first time in 2 years & looks set to slip into a long recession.  France halved its 2012 growth forecast to a mere 0.5%, another potentially ominous sign for President Sarkozy's troubled bid for re-election in May.

EU Leaders Struggle to Reconcile Austerity, Growth Reuters

Photo:   Bloomberg

French Prime Minister Fillon said that the country is slashing its forecast for economic growth this year from 1% to 0.5%.  The move enables the gov to "take into account the deteriorating economic environment" before revising the budget with a last-minute package of measures that are to go before the Cabinet next week.  Last week the IMF said it forecasts the French economy to grow only 0.2% this year.  The lower growth figure will have an approximately €5B impact, Fillon said, but he added that this "can be reabsorbed" because of past efforts and a prudent budget.  France is the eurozone's 2nd-largest economy, after Germany, & its lagging finances could weigh on efforts to bail out weaker eurozone countries.  The updated budget is expected to include higher consumption taxes & other measures to cut debts & boost growth.  With presidential elections in Apr & May, the measures must be rushed through a parliament, about to close down ahead of the voting.  One of the measures is to impose a 0.1% tax on financial transactions starting in Aug.  Markets don't like added taxes.

Sarkozy to Levy Transaction Tax Opposed by Finance Industry, Central Bank


Morgan Stanley (MS) & Citi (C) are making some of the biggest cuts in compensation for investment bankers, averaging as much as 30%, as they grapple with lower revenue.  MS, owner of the largest brokerage firm, will also cap cash awards & defer more payouts while Credit Suisse (CS) plans to give a portion of senior employees’ bonuses in bonds backed by derivatives.  Citi may cut some bonuses in the securities & banking unit as much as 70 %.  Curbing pay & changing formulas are done to limit expenses, with some giving more stock & less cash.  Revenue shrank last year as mergers & trading slowed.  Bank of America (BAC), a Dow stock, plans compensation cuts averaging 25%, with some cash bonuses capped at $150K & some base salaries frozen.  Goldman Sachs (GS) cut discretionary compensation “significantly more” than the its 26% drop in revenue, CFO David Viniar said on Jan 18.  Times are tough everywhere & these cuts will result in lower taxes paid by the top 1%.

Morgan Stanley, Citigroup Lead Pay Cuts


The markets behaved fairly well considering the negative news from Europe & a dismal report on consumer spending.  Negotiations about refinancing the Greek debt are touchy.  A bigger than expected 50% haircut for the bondholders could trigger a default rating by the credit agencies.  This is new to everybody & nobody knows where it will lead.  Unfortunately the bias is strongly on the negative side.  One prominent stock has been immune from the selling of late, Apple (AAPL).  It jumped 5 to 453, yet a another record after reporting a blowout qtr.  Facebook's IPO sounds like it's around the corner, maybe this week.  If so, the market's reception will give a strong indication about its market's appetite for risk.  Treasuries have been surging in the last week, risk averse thoughts are alive & well.

Dow Industrials

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