Tuesday, May 8, 2012

Markets tumble on increased Euro debt woes

Dow dropped 169, decliners over advancers 4-1 & NAZ sold off 50.  Banks stock were lower, taking the Financial Index down 2+ to below 202, near lows of more than 3 months.  The MLP index sank another 5+ to the 384s (down 5 YTD) & the REIT index fell 1+ to the 259s.  Junk bond funds were lower but Treasuries rose on increased uncertainty from Europe.  Oil fell near its lows for 2012 & gold saw a lot selling, bringing it near its 9 month lows.

JPMorgan Chase Capital XVI (AMJ)

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CLM12.NYMCrude Oil Jun 1297.00 Down 0.94 (1.0%)

GCK12.CMXGold May 121,602.00 Down 36.60 (2.2%)

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Greek Default Risk Returns as Bond Maturity Nears

Photo:   Bloomberg

Greece once again faces the prospect of becoming the first developed nation to default on its debt.  The gov taking office after this weekend’s election has 30 days to decide whether to make today’s interest payment on ¥20B ($250M) of 4.5% notes maturing in 2016, or default.  By May 15, officials must decide if they’re going to repay the €436M ($555M) due on a floating-rate note issued a decade ago.  These are among €7B of bonds whose holders took advantage of being governed by foreign rather than Greek law to sidestep losses suffered under the private-sector involvement rescheduling (PSI).  But paying the holdouts in full would arouse Greek taxpayers, as well as investors who cooperated with PSI.  A failure to pay would signal Europe's debt crisis is worsening.  Political leaders struggled to find the support needed to form a coalition gov after Greek voters flocked to anti- bailout parties on May 6, calling into question the country’s ability to impose the measures needed to guarantee its future in the €.  Greece’s financing costs rose for the first time this year today at a €1.3B auction of treasury bills.  Greece agreed in Mar to exchange more than €200B of debt for notes with longer maturities & lower interest rates under PSI, cajoling private investors to forgive more than €100B & opening the way for the nation’s bailout.  The restructuring left about €7B of holdouts, intl bonds issued or guaranteed by the gov.  The Greek drama plays on once again.

Greek Default Risk Returns as Bond Maturity Nears

  • A worker drills a hole underneath the McDonald's brand sign at a store of the global fast food chain in Berlin February 15, 2012. REUTERS/Thomas Peter
Photo:   Yahoo

McDonald's, a Dow stock & Dividend Aristocrat, reported a smaller-than-expected rise in Apr sales at established restaurants across the globe, which were held back by a disappointing increase in its US business.  Same-restaurant sales in the US rose 3.3%, below the 5% forecast.  Lackluster growth in US sales may have come from an emphasis on more expensive items such as 20-piece Chicken McNuggets at a time customers are still very sensitive to the state of the economy & drawn to the most affordable items.  MCD is also sensitive to financial belt-tightening in Europe & higher food & labor costs in the US.  Widespread austerity measures & high unemployment in Europe that have threatened demand in its top market as same-restaurant sales there rose 3.5% (above the forecast of 3%).  In Asia, sales at restaurants open at least 13 months rose 1.1%, below estimates, hurt by a drop in Japan.  Globally, sales at restaurants open at least 13 months rose 3.3%.  The stock fell 1.05 & has had a dreary year.

McDonald’s April Sales Trail Estimates as U.S. Gains Slow

McDonald's Corporation (MCD)

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Bank of America, a Dow stock, started sending letters to thousands of homeowners in the US, offering to forgive a portion of the principal balance on their mortgages by an average of $150K each.  The reduction for qualifying homeowners could amount to monthly savings of up to 35% on mortgage payments.  The principal reduction offers are the result of a $25B settlement agreement with 49 states as well as federal authorities who had been investigating allegations of abuses over the handling of foreclosures.  This is to help turn mortgages headed for possible foreclosure into long-term performing loans.  The bank plans to contact more than 200K homeowners who could be candidates for the offers, sending letters to a majority of them by Q3.  To be eligible for the principal reductions, however, homeowners will have to meet certain criteria, including: having a loan owned or serviced by BAC; owing more on the mortgage than their property is worth; & being at least 60 days behind on payments as of the end of Jan.  The bank started making such offers in Mar to a narrower group of homeowners, those who were already in the process of seeking mortgage modification.  The bank estimated that the earlier wave of trial reduction offers to about 5K could amount to more than $700M in forgiven principal.  But homeowners have to make at least 3 timely payments for the reductions to become permanent.  The stock fell 23¢ & has dropped from above $10 in Mar.

Bank of America Starts Mortgage Reduction Effort

Bank of America Corporation (BAC)

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Unsettled market conditions in Europe are bringing on selling around the world.  Nobody knows where the Greek debt mess will take us, but a lack of leadership suggests markets will not be happy with the outcome.  The data of MCD indicates that recoveries in the US & Europe are not going well, causing consumers to be more careful with their spending.  Getting less attention is mighty Apple (AAPL), with the largest market cap in the world, is down an unusually big 83 from its peak last month.  Not a good sign for the markets. 

Dow Industrials

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