Thursday, November 8, 2012

Markets sink as fiscal cliff approaches with no solution in sight

Dow dropped 121 (closing at the lows), decliners over advancers 5-2 & NAZ lost 41.  The Financial Index was down 1+ to the 208 (2 month low). The MLP index fell 3+ to the 396s (an almost 2 month low) & the REIT index was off 3 to the 258s.  Junk bond funds were mixed to lower & Treasuries rose as stocks fell.  Oil climbed from a 4-month low after fewer than forecast filed claims for unemployment insurance & Greek lawmakers approved a package of austerity measures needed to unlock further financial aid.  Gold climbed for the 3rd time this week on signs that increasing global stimulus measures will boost investor demand for a hedge against inflation.

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CLZ12.NYM...Crude Oil Dec 12...84.98...Up 0.54 (0.6%)

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The IMF urged euro-region countries facing high borrowing rates to seek a bailout that will activate the ECB's bond- purchase program, adding to pressure on Spain, which has been resisting the move.  In a note to the G-20  which met in Mexico Nov 4-5 , the IMF said countries “under stress” should turn to the region’s rescue mechanisms if needed while continuing to shore up their public finances.  “Access to funding at reasonable costs is essential to allow economies to adjust successfully,” the IMF wrote.  “While economies in the periphery must continue to adjust their fiscal balances at a pace they can bear, in the current fragile environment, putting in place the right policies may not be sufficient to fully restore the confidence of markets, not least because of implementation risks.”  Spanish Prime Minister Rajoy is keeping investors guessing as to whether he will request a bailout that would trigger the ECB’s Outright Monetary Transaction (OMT).  He said that he needs to know how much the central bank would push down Spain’s bond yields before his gov applies for aid and signs up to the conditions attached.  “Lower interest rates & easier financial conditions are key factors to facilitate balance sheet repair and support growth in the periphery,” the IMF said.  The IMF also said the threat of automatic tax increases and spending cuts in the US set to take effect next year is a “major source of risk” on global growth (the IMF is located in DC).

IMF Adds to Pressure on Spain to Seek Bailout, ECB Help

Trade Deficit in U.S. Unexpectedly Narrows on Record Exports

Photo:   Bloomberg

Exports from the US climbed to a record in Sep, contributing to an unexpected decline in the trade deficit that gave the economy a boost at the end of Q3.  The gap shrank 5.1% to $41.5B, the smallest since Dec 2010 according to the Commerce Dept.  The gain in sales to overseas buyers was broad- based, with improvement in everything from soybeans to fuel & civilian aircraft.  Growing demand from emerging markets in South & Central America may be helping to overcome a slowdown in Europe & China that is hurting companies.  At the same time, US consumers are spending more as the job market stabilizes, boosting the inflow of goods made abroad as retailers restock in advance of the year-end holidays.  The improvement in trade may boost Q3 growth by 0.4%.  Combined with prior data showing a pickup in construction & in inventories, the final figures for Q3 GDP could be a 2.8% annual rate, up from an initial estimate of 2%.

Record Overseas Sales Boost U.S. Growth: Economy

Greek lawmakers narrowly approved a multibillion € austerity package in an effort to win more bailout funds, but the measures also threaten to deepen the country's brutal recession & destabilize fragile politics.  Prior to the vote, violent clashes erupted between riot police & protesters as tens of thousands gathered in the square outside Parliament to voice their opposition as politicians inside debated legislation that would impose deep cuts in pensions & public-sector wages & clear the way for laying off thousands of civil servants.  The package, approved by a 153-128 vote, will deal a fresh blow to an economy whose output has shrunk by more than 1/5 since the debt crisis began.  The gov says the cutbacks will contribute to a 4.5% contraction next year, but many argue the damage could be much greater.  The measures are part of a deal struck between the Greek gov & intl creditors, & their passage is a critical step toward unlocking a long-delayed & desperately needed cash infusion of €31.5B ($40B).  Before the vote, Prime Minister Samaras admonished Parliament, saying Greece had no choice but to approve the conditions demanded in exchange for further help.  "We are voting on whether we will continue to maintain our presence in the euro zone," Samaras said, promising that the cutbacks would be the last.  "We should not play with our future in Europe."  Passage of the austerity package is a critical step, but not the only one needed to secure funding for the cash-strapped gov.  The Parliament must also approve a troika-approved 2013 national budget in a separate vote set for Sun.  Bigger questions loom.  The creditors are arguing among themselves over whether more of the country's massive debt load must be written off for the rescue plan to be successful & over how to bridge a financing gap if Greece gets 2 extra years to meet its budget targets. 

Greece Clears Austerity Plan After Protests Turn Violent

Markets aren't feeling good & fiscal cliff that dominates thinking is causing the selling.  It's important to understand that it not only affects 2013 results, but now US businesses are hesitating before investing in the future when they don't know what it will bring from DC.  A sharply divided congress with no leadership from the president will prolong the agony.  Euro debt & economic problems along with new leadership in China is making it difficult to invest in the future.  If that wasn't enough, Apple (AAPL), with the largest market cap in the world, has an UGLY chart which starts from the announcement of its new iPhone (its #1 product) in Sep. Today it dropped another $20 to $537, $168 its peak.  That fall took less than 2 months.

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