Dow gained 103 (closing near the highs), advancers over decliners a modest 3-2 & NAZ was up 32. Bank stocks were weak, with the Financial Index falling 1 to 198. The MLP index lost pennies at 389 but the REIT index dropped 2+ to the 267s. Junk bond funds traded higher & Treasuries rose as Ben Bernanke reiterated to Congress that the US fiscal situation is “unsustainable,” sustaining demand for the safest assets. Oil advanced for a 6th day, exceeding $90 a barrel at its high for the first time since May, as US housing starts increased more than forecast & gasoline inventories fell. Gold continues to have lost its appeal as a safe haven investment.
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Ben Bernanke said that efforts by the Federal Reserve (FED) to bolster growth have helped lift the US economy out of the great recession. But he also acknowledged that growth remains weak & the FED can only do so much. "I don't think it is the case that there has been no progress. The recovery has been slower than we like but clearly we have made progress," Bernanke told the House Financial Services Committee. He spent part of the hearing defending the FED's previous 2 rounds of large-scale bond purchases against criticism. The economy has weakened since the start of the year, & Bernanke said the FED is prepared to take further action if unemployment stays high but didn't specify what steps the FED might take or whether any action was imminent. Many interpreted the remarks to mean the FED will likely launch a 3rd round of bond purchases, perhaps in the fall, because few expect the unemployment rate at 8.2% to fall much further by then. Bernanke noted that the economy, after growing at a 2.5% annual rate in H2 of 2011, slowed to roughly 2% in Q1 & is likely weakened further in Q2. Manufacturing has slowed & consumers are spending less. Job growth has slumped to an average of 75K a month in Q2 from 226K a month in Q1.
Bernanke Says He’ll ‘Take Away the Punch Bowl’ When Needed
Photo: Bloomberg
The US economy expanded modestly in Jun & early Jul, but growth & hiring slowed in several parts of the country, according to a Federal Reserve survey. The survey said 3 of the FED's 12 banking districts reported weaker growth. A 4th, said economic activity was mixed. That's a shift from the previous survey, which noted that growth had picked up in 10 districts from mid-Apr thru May. Hiring was "tepid" in most districts according to the survey, known as the Beige Book. Retail sales slowed in Boston, Cleveland & New York, & manufacturing weakened in most regions. However, all 12 districts reported gains in housing. Another significant sign that shows the economy is slowing.
Fed Regional Survey Shows U.S. Economy Grew at ‘Modest to Moderate’ Pace
Photo: Yahoo
In a reminder that the consequences from the financial crisis are far from over, Bank of America (a Dow stock) said that investor disputes over bad mortgages & mortgage-backed bonds have more than doubled from a year ago. But the bank beat profit expectations for Q2, & emphasized that the bank is setting aside less money for bad loans overall, a sign that more customers are paying back loans on time. However growing investor claims suggest the mortgage problem, which has already cost the bank more than $13B, is on the increase. "It's certainly a lot of bad news," said Guy Cecala, CEO. "The mortgage banking business of most major banks now is turning into a big profit center." The claims are from investors who bought mortgages or mortgage-backed bonds from BAC before the 2008 crisis. Investors have claimed that BAC & other banks misled them about the quality of the mortgages. The banks have been forced to buy back some of those mortgages after investors threatened to sue. The bank swung to a $2.1B profit after it slashed jobs & other expenses. In last year's Q2, the bank lost $9.1B, largely because it had to pay $8.5B to settle claims from mortgage investors. Outstanding claims from mortgage investors jumped to nearly $23B from $10B a year ago, led partly by new claims from Fannie Mae. Bank executives said they believe many of the new claims from Fannie Mae are not valid. Fannie Mae's standards for submitting claims "continue to be inconsistent with their own past conduct & our interpretation of our contractual obligations," the bank said. CFO Bruce Thompson said the bank expects the outstanding claims to grow & the process for resolving them, he said, "continues to evolve, and does remain unclear." The stock fell 39¢.
BofA Profit Rebound Marred by $22.7 Billion in Mortgage Claims
Honeywell (HON) shot up $3.64 on improved earnings although Abbott (ABT), a Dividend Aristocrat, fell 53¢ after reporting favorable sales & earnings. 10 of the Dow 30 were up at least 1% while another 10 were lower or had only minor gains. The breadth for the markets remains weak while Treasuries are strong with yields near record lows. There is a lot of worried money out there & some is not going into stocks.
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Treasury yields:
U.S. 3-month | 0.086% | |
U.S. 2-year | 0.218% | |
U.S. 10-year | 1.477% |
| CLQ12.NYM | ...Crude Oil Aug 12 | ...89.87 | ... 0.65 | (0.7%) |
Ben Bernanke said that efforts by the Federal Reserve (FED) to bolster growth have helped lift the US economy out of the great recession. But he also acknowledged that growth remains weak & the FED can only do so much. "I don't think it is the case that there has been no progress. The recovery has been slower than we like but clearly we have made progress," Bernanke told the House Financial Services Committee. He spent part of the hearing defending the FED's previous 2 rounds of large-scale bond purchases against criticism. The economy has weakened since the start of the year, & Bernanke said the FED is prepared to take further action if unemployment stays high but didn't specify what steps the FED might take or whether any action was imminent. Many interpreted the remarks to mean the FED will likely launch a 3rd round of bond purchases, perhaps in the fall, because few expect the unemployment rate at 8.2% to fall much further by then. Bernanke noted that the economy, after growing at a 2.5% annual rate in H2 of 2011, slowed to roughly 2% in Q1 & is likely weakened further in Q2. Manufacturing has slowed & consumers are spending less. Job growth has slumped to an average of 75K a month in Q2 from 226K a month in Q1.
Bernanke Says He’ll ‘Take Away the Punch Bowl’ When Needed
The US economy expanded modestly in Jun & early Jul, but growth & hiring slowed in several parts of the country, according to a Federal Reserve survey. The survey said 3 of the FED's 12 banking districts reported weaker growth. A 4th, said economic activity was mixed. That's a shift from the previous survey, which noted that growth had picked up in 10 districts from mid-Apr thru May. Hiring was "tepid" in most districts according to the survey, known as the Beige Book. Retail sales slowed in Boston, Cleveland & New York, & manufacturing weakened in most regions. However, all 12 districts reported gains in housing. Another significant sign that shows the economy is slowing.
Fed Regional Survey Shows U.S. Economy Grew at ‘Modest to Moderate’ Pace
In a reminder that the consequences from the financial crisis are far from over, Bank of America (a Dow stock) said that investor disputes over bad mortgages & mortgage-backed bonds have more than doubled from a year ago. But the bank beat profit expectations for Q2, & emphasized that the bank is setting aside less money for bad loans overall, a sign that more customers are paying back loans on time. However growing investor claims suggest the mortgage problem, which has already cost the bank more than $13B, is on the increase. "It's certainly a lot of bad news," said Guy Cecala, CEO. "The mortgage banking business of most major banks now is turning into a big profit center." The claims are from investors who bought mortgages or mortgage-backed bonds from BAC before the 2008 crisis. Investors have claimed that BAC & other banks misled them about the quality of the mortgages. The banks have been forced to buy back some of those mortgages after investors threatened to sue. The bank swung to a $2.1B profit after it slashed jobs & other expenses. In last year's Q2, the bank lost $9.1B, largely because it had to pay $8.5B to settle claims from mortgage investors. Outstanding claims from mortgage investors jumped to nearly $23B from $10B a year ago, led partly by new claims from Fannie Mae. Bank executives said they believe many of the new claims from Fannie Mae are not valid. Fannie Mae's standards for submitting claims "continue to be inconsistent with their own past conduct & our interpretation of our contractual obligations," the bank said. CFO Bruce Thompson said the bank expects the outstanding claims to grow & the process for resolving them, he said, "continues to evolve, and does remain unclear." The stock fell 39¢.
BofA Profit Rebound Marred by $22.7 Billion in Mortgage Claims
Bank of America (BAC)
Honeywell (HON) shot up $3.64 on improved earnings although Abbott (ABT), a Dividend Aristocrat, fell 53¢ after reporting favorable sales & earnings. 10 of the Dow 30 were up at least 1% while another 10 were lower or had only minor gains. The breadth for the markets remains weak while Treasuries are strong with yields near record lows. There is a lot of worried money out there & some is not going into stocks.
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