Wednesday, November 7, 2012

Markets suffer their biggest loss in months

Dow sank 312 (not far from its lows), decliners over advancers 4-1, NAZ fell 74 & the Financial Index dove 7+ to below 210.

The MLP index dropped almost 5+ to below 400 & the REIT index was off a fraction in the 261s.  Junk bond funds were mixed & Treasuries rose sharply.  Oil had a terrible day while gold inched higher on negative bets about the economic future.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLZ12.NYM...Crude Oil Dec 12...84.36...Down 4.35  (4.9%)

Live 24 hours gold chart [Kitco Inc.]

Photo:   Yahoo

Athens erupted in riots late as parliament met to vote on the latest austerity measures needed to win more intl aid.  Smoke & tear gas filled the streets just as parliament struggled to forge a consensus on the new austerity plans.  Meanwhile, workers were winding down a 2-day strike to protest the budget-cutting moves designed to reduce Greece's crushing public debt burden.  Dozens of workers in Greece's parliament walked off the job, interrupting a heated debate on a package of cost cuts, tax hikes & labor reforms.  The parliamentary workers exited the assembly in protest against salary & benefit cuts included in the 500-odd page draft law under discussion.  Greece's cash-strapped gov needs 151 of 300 members of parliament to vote in favor of the bill on austerity measures for 2013-16, measures that were agreed to with intl lenders following a torturous 40 day negotiating marathon.  The Greek drama continues as it has for years.

Greece: The Second Most Important Vote

China begins its 18th Communist Party Congress & its leaders will decide who will lead the world's 2nd biggest economy.  The Party's standing committee, which leads the country, will almost completely turn over & may even be reduced in size from 9 to 7 members who will likely run China for the next 10 years.  It's expected that Xi Jinping, China's vice president, will be named the new head of state & Li Kequiang, the current executive vice premier, will become the new premier.  Although the changes will announced by Nov 11, they won't take effect until next Mar.  Changes will be wide & deep, equivalent in the US to a change in the presidency, the Joint Chiefs of Staff, the Supreme Court & the governorships of most or all the states, ALL AT ONCE.  China's new gov will face many domestic challenges including a slowing economy, a growing middle class & increasing demands for political reform.  China' economy grew at a 7.4% annual rate in Q3, its slowest since Q1 2009.  China's new leadership with also have to contend with an increasingly fraught relationship with the US & Asian neighbors.  These leadership changes will affect world markets..

China Relations to Change After Transition?

Americans took out more student & auto loans in Sep to boost consumer borrowing to a record level. But they cut back on credit card borrowing, a sign many remain cautious about taking on high-interest debt.  The Federal Reserve said total consumer borrowing rose $11.4B in Sep compared to Aug.  Total consumer debt outstanding, which excludes mortgages, stands at $2.74B, the highest level on record.  The increase occurred entirely in a category that consists mostly of student & auto loans.  Borrowing in that category increased $14.3B.  Credit card borrowing fell $2.9B, the 3rd drop in 4 months.  Most of the gains appeared to be in student lending, which could reflect the start of the academic year. 

More student loans boost consumer credit $11.4B AP

Now that markets are looking forward, past the election, thoughts are strongly negative.  The fiscal cliff, which will bring major budget cuts & higher taxes for everybody, is finally getting the attention it deserves by the markets.  Largely forgotten, congress will have to go thru the torturous experience of raising the debt limit early next.  The last time that happened, the compromise resulted in the fiscal cliff everybody is worrying about today.  Dow sold off at the start & remained lower all day as it struggled to go back over 13K.  On its march upward this year, Dow first went thru (above) 13K in early Mar.  Apple (AAPL), with the largest market cap in the world, dropped another 20 to 560, 145 below its high in late Sep when it launched the new iPhone (its #1 product).  A 20% drop from its peak defines a bear market.  Yes, the bears are back in command.

Dow Jones Industrials

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