Monday, May 7, 2012

Markets slip after European votes

Dow slumped 26, decliners over advancers 3-2 & NAZ inched up 1. Bank stocks were flattish & the Financial Index inched up a fraction in the 203s (near its more than monthly lows).  The MLP index sank 6+ to the 387s & REIT index was off a fraction in the 259s.  Junk bond funds edged lower & Treasuries were a little higher.  Oil fell to the lowest level this year as European elections stoked speculation that austerity efforts will be derailed & escalate the debt crisis.  Nervous money did not go into gold, it fell $10.

JPMorgan Chase Capital XVI (AMJ)

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CLM12.NYM...Crude Oil Jun 12...97.37 ...Down 1.12  (1.1%)

GCK12.CMX...Gold May 12....1,638.70 ...Down 6.00  (0.4%)

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President Elect Francois Hollande

Photo:   Bloomberg

Global financial markets tumbled in response to troubling election results in France & Greece over the weekend which favored replacing widely austerity measures.  Hollande's campaign in France wasn't about incumbent leader Nicolas Sarkozy.  "My real enemy," said France's new boss, "is the world of Finance."  The stance painted outgoing chief Sarkozy & his glamorous wife as a Louis XVI & Antoinette for the new age.  Hollande has promised reforms having nothing to do with austerity.  His stated plan is to raise taxes on the rich to 75% & hire some 60K teachers.  The taxes won't cover reforms, meaning France will need more debt.  Far more concerning were the voting divides in Greece where the militant Golden Dawn party won seats in the Greek parliament for the first time.  The rhetoric of Golden Dawn's political stance is anti-immigrant & hateful.  Golden Dawn collected 7% of the popular vote but has an impact far beyond collected votes.  Syriza, the Greek coalition on the Radical Left, won 16.8% of the vote, also fueled by it's contempt for the incumbents.  "Our proposal is a left-wing government that, with the backing of the people will negate the memorandum," said party leader Alexis Tsipras.  "Our proposal is a left-wing government that, with the backing of the people will negate the memorandum (with the EU) and put a stop to our nation's predetermined course towards misery."  The losers in Greece were long-time incumbent parties.  What the votes can actually accomplish is unclear.  Angela Merkel & other hawks at the heart of existing tempered stimulus efforts retain control of the ECB & the primary bailout fund European Financial Stability Facility (EFSF).  The German public is growing more outraged over picking up the tab for the bailout measures deemed too severe by the recipients.  At this point it's likely any of the powers in Europe who supported the current program are going to be voted out of office as soon as it's put to a vote in their respective nations.  Bottom line, confusion about the future of Europe is on the rise.

Greek Election Gridlock Raises Risk for Bailout, Euro Future

The ECB financing to Portuguese lenders fell in Apr from the previous month according to the Bank of Portugal.  The financing decreased to €55.4B ($72.2B ) from a record €56.3B in Mar.  Financing reached a record in Mar after the ECB awarded €529.5B to 800 financial institutions at the end of Feb designed to avert credit paralysis & ease concern that Europe's banks would run out of cash or curb lending.  In Apr 2011, Portugal became the 3rd euro-area country after Greece & Ireland to require aid & will receive €78B under its agreement with the IMF & the European Union. The aid plan earmarks €12B for Portugal’s lenders, if needed.  This adds to the uncertainty about sovereign debt issues in Europe.

ECB Financing to Portuguese Banks Declined in April

Looking for some positive news, Intel, a Dow stock, raised its quarterly div 7% to 22½¢ (90¢ annualized) in Q3. This is the 3rd time the div has been increased in the last 18 months.  To become a Dividend Aristocrat, it will have to keep keep increasing the annual div for the next 15 years.  INTC is dominant in the market for PC processors, supplying the main computing chip for 80% of PCs sold in the world.  The company said last month that its Q1 net income fell 13% on higher research & marketing costs while revenue was flat from a year earlier.  The stock fell 22¢ & now yields 3¼%.

Intel Ups Dividend by 7%

Intel Corporation (INTC)

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Markets took the gloomy news out of Europe fairly well with only minor losses.  Traders are still trying to figure out what it really means, although I view it as a very dark shadow coming over stocks.  MLPs are having a bad day, hurt by new regulations on fracking which is key to the getting energy out of shale formations.  MLPs are investing heavily in pipelines & terminals for the energy productions.

Dow Industrials

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