Monday, June 4, 2012

Mixed markets on continued Euro worries

The stock market started lower & remained under water all day.  Buyers came in after lunch but that did not last,  Dow ended down 17, decliners over advancers 4-3 but NAZ added 12.  Bank stocks led the sell, taking the Financial Index down 1+ to the 179s (36 below its yearly highs in late Mar.)

The MLP index lost another 5+ to 352 (down 37 YTD) & the REIT index fell 1+ to a little above 240.  Junk bond funds were lower & Treasuries fell for the first time in 4 days on speculation the US economy won’t slow enough to justify keeping yields at the record lows.  Oil rose for the first time in 5 days as the € advanced after European leaders agreed to discuss closer banking cooperation among the nations that use the €.  Gold is holding above $1600, an improvement over recent weeks.

JPMorgan Chase Capital XVI (AMJ)

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CLN12.NYM...Crude Oil Jul 12...83.91 ...Up 0.68  (0.8%)

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GM to Cut Pension Obligation by $26 Billion With Lump-Sum Offers

Photo:   Bloomberg

On Fri General Motors said it will offer lump sums to 42K white-collar retirees if they stop taking monthly pension checks.  For the rest of its 118K US salaried retirees & spouses, GM will buy a group annuity that will make monthly payments starting in 2013, to unload $26B in liabilities.  But GM plans to pump $3.5-$4.5B into the pension fund & then pay $29B to buy the annuity from Prudential (PRU).  Retirees will get their monthly checks from PRU starting next year.  Implications for GM stock are unclear but the shift will cut the US salaried pension obligation from $36B to around $10B.  Globally, GM had pension obligations of $134B with only $109B available to pay them.  One analyst said that the new pension plan frees GM from the volatility of pension investment returns, long-term interest rates & mortality rates of retirees - but at a cost. The underfunded pension liability will still be very large, at about $24B. The stock dropped 90¢ & has an ugly chart even though its business is strong.

GM Cutting Pension Obligations by $26 Billion on Buyouts

General Motors Company (GM)

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Chancellor Merkel just said creating a European banking union can be a medium-term goal because the continent has to deepen its political integration.  This came ahead of private talks with EU Commission President Barroso to discuss how systemically important banks could be put under the supervision of a Europe-wide authority.  The proposal was floated by the EU Commission last week & would comprise a Europe-wide deposit guarantee aimed at calming jittery markets.  But rich countries such as Germany were initially lukewarm about it because of fears it could lead to them bailing out other countries' banks.  Merkel said the eurozone "needs more Europe, not less" but initiatives like a banking union can only be "medium-term goals" & not quick fixes to the debt crisis.  This is more of make it up as we go along.

Merkel embraces idea of European banking union AP

Euro Declines as German Opposition Boosts Debt Crisis Concerns

Photo:   Bloomberg

The € rose for a 2nd day as traders said the shared currency’s decline may have been too quick after European leaders agreed to discuss closer banking cooperation in the euro zone. The currency gained from a more than 11-year low against the ¥ amid speculation that traders were unwinding bets the currency would decline.  The € rose 0.5% to $1.249, a penny above its low on Fri, the weakest level since Jul 1, 2010.  The 14-day relative strength index for the € versus the dollar rose above 30 for the first time in 9-days, ending the longest streak since 2008.  There is a feeling that its decline has been too fast.  A longer term view shows it near its lowest levels in the last 8 years, hardly an endorsement about solving the Euro debt mess.

Euro Gains for 2nd Day on Optimism Leaders Near Solution

There is a lot of talk coming out of Europe, but the truth is that nobody knows what to do.  It has a whopper size mess.  The debt crisis seems like it will go on for months & the recession, especially severe in countries that need the most help, makes matters worse.  Weak economies in Europe are affecting companies around the world.  I have a feeling that Big Ben will try to pull a rabbit out of his hat, hoping that another bond buying program will give the economy a jump start.  I'm not optimistic.  Dow is back to where it was in Nov & fighting to remain above 12K.  That test could come very soon (i.e. this week).

Dow Industrials

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