Monday, August 6, 2012

Markets advance on euro bond buying program

Dow rose 21, advancers over decliners 2-1 & NAZ was up 22.  The Financial Index was up a fraction to 200, an almost 3 month high.  The MLP index rose 2+ to the 392s but the REIT index fell a fraction in the 268s.  Junk bond funds were mixed & Treasuries had modest gains.  Oil advanced to a 2-week high as stocks gained while the German gov backed the ECB’s bond-buying plan, adding to optimism that the region’s debt crisis will ease.  Gold was higher but continues near 1600 where it has been for months.

AMJ (Alerian MLP Index tracking fund)

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CLU12.NYM...Crude Oil Sep 12...92.13 ...Up 0.73  (0.8%)

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Draghi Channeling Merkel Has Traders Raise Bets Against Euro

Photo:   Bloomberg

When ECB President Draghi vowed on Jul 26 to do “whatever it takes” to defend the €, he succeeded in stemming a slide that pushed the currency down 6% since late Mar. Traders in the options market responded by raising bets against the currency by the most in 11 weeks.  Options to protect against further weakness climbed in the past 2 weeks by the biggest amount since May.  Between Jan 12, 2011, when German Chancellor Merkel vowed to do “whatever is needed to support the euro” & Draghi’s almost-identical pledge, Portugal, Spain & Cyprus sought bailouts & the region’s $13T economy teetered on recession.  Growth will trail its peers thru at least 2014 as numerous are cutting their outlooks.  While traders aren’t anticipating a failure of the common currency, the €’s depreciation shows investors see better opportunities almost anywhere else in the world.

Draghi Echoing Merkel Has Trader Raise Bets Against Euro

  • <p>               FILE - This Tuesday, Aug. 14, 2001 file photo shows Richard Schulze following a news conference in Vancouver, British Columbia. Best Buy founder Schulze said Monday, Aug. 6, 2012, that he wants to take the electronics retailer private by buying up all of its shares he doesn't already own in a deal that values the company at as much as $8.84 billion. (AP Photo/The Canadian Press, Chuck Stoody, File)

Photo:   Yahoo

Best Buy's co-founder is offering to take the electronics seller private, only months after leaving as the company's chairman.  BBY will consider the offer but called it "highly conditional."  Many are skeptical that former Chairman Richard Schulze's opening offer of $24-$26 per share would get a deal done.  It could be tricky to line up investment firms to pay for it.  Over the past year, it has announced a major restructuring plan as BBY is trying to avoid the fate of its rival Circuit City, which went bankrupt in 2009.  The offer values the company at as much as $8.8B (Schulze already has 20%).  The offer would represent a 36-47% premium over the Fri close.  Schulze said he would have preferred to pursue a deal privately but went public with the offer for the sake of speed.  The stock gained $2.35 to $19.99 but is still about $5 below its potential worth because of doubts on getting the deal done.

Best Buy (BBY)

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Fed Says Banks Easing Standards on Business, Consumer Loans

Photo:   Bloomberg

US banks are relaxing their terms on credit cards & lending for autos & commercial real estate, according to a Federal Reserve (FED) survey.  "Domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months," the FED said in its quarterly survey of senior loan officers.  While lending standards are tightening at branches of foreign banks, "domestic banks reported that their business had increased due to decreased competition from European banks and that they remain willing to accommodate additional such business," the Fed said.  Banks are lending the most since the recession ended in Jun 2009, supporting an economy burdened by 8.3% unemployment.  The survey said that banks loosened standards for loans to large & medium-sized firms, while loan standards to small business were little changed for the 4th consecutive survey.  Banks that eased standards on business loans "continued to cite more aggressive competition from other banks and nonbank lenders as a reason.  Only about a fourth of banks that had eased lending policies had done so because of a more favorable or less uncertain economic outlook."  Demand increased for commercial real estate loans according to a "relatively large" number of survey respondents & standards for such loans were more likely to be eased than tightened.  Consumer lending standards for car financing & credit card loans eased, while standards for other consumer borrowing were about unchanged.  A "relatively large" number of loan officers reported stronger demand for prime mortgages during the survey period, while lending standards for those home loans were little changed although standards "tightened somewhat for nontraditional mortgages."

Fed Says Banks Ease Standards on Business, Consumer Loans

Markets were sloshing around trying to figure out where to go.  But the bulls have the upper hand after the strong gain on Fri.  The biggest drive behind the rise was an absence of bad news out of Europe, but there is plenty of it under the surface.  The Dow went over 13.1K & is looking to top the 13.4K high reached over 3 months ago.  Markets are still vulnerable as Dow fell 50 in the last half hour, limiting the daily gain.

Dow Jones Industrials

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