Wednesday, December 12, 2012

Markets rise on hopes for more Federal Reserve bond buying

Dow jumped 122, advancers over decliners less than 3-2 & NAZ rose 53.  The Financial Index rose 1+ to 217, a high since Oct 17.  The MLP index was off a fraction to 386 & the REIT index slipped a fraction to the 262s.  Junk bond funds edged higher & Treasuries were sold.  Oil gained for a 2nd day after the International Energy Agency increased its demand forecast & as OPEC kept its production target unchanged.  Gold rose to a one-week high on speculation that the Federal Reserve will announce an expansion of US asset purchases.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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U.S. 2-year


U.S. 10-year


CLF13.NYM...Crude Oil Jan 13...86.94 ...Up 1.15 (1.3%)

GCZ12.CMX...Gold Dec 12...1,715.60 ...Up 7.40 (0.4%)

  • <p>               Athenians walk past a central Athens branch of  National Bank of Greece, the country's largest lender, Tuesday, Dec. 11, 2012. Greece was expected to announce later Tuesday the results of a bond buyback hoped to cut some 20 billion euros off the country's 340 billion euro debt load. Domestic lenders will contribute strongly in the European-funded buyback, which if successful will open the way for disbursement of a delayed international rescue loan payment. (AP Photo/Petros Giannakouris)
Photo:    Yahoo

Greece will buy back €31.9B ($41.5B) of its bonds at a 1/3 of their nominal price, lightening its crushing debt load & meeting a key condition to receive vital rescue loans.  But the deal will cost slightly more than originally budgeted, & must be approved by bailout creditors who are lending the necessary funds.  Its agency said it will pay roughly 33.8% of the face value, a highly attractive option for some, as the bonds have been trading well below face value since a major debt writedown in Mar.  Investors brave enough to have bought Greek debt just a few months ago now stand to make 200%.  The buyback will shave some €20B ($26B) off Greece's €340B ($442B) debt, which is now mostly held by its bailout creditors, its European partners & the IMF.  The yield on Greek 10-year bonds dropped to 12.6%, its lowest since the Mar writeoff & a sign of greater investor confidence in the country's ability to manage its debt.  Under the terms of the buyback, Greece would spend €11.3B of its bailout funds on the bonds, more than the €10B initially budgeted.  The question remains whether bailout creditors will accept the extra outlay.

Greece Plans to Repurchase $41.5 Billion of Debt to Meet Aid Package Terms

Eli Lilly to Do Added Study of Experimental Alzheimer’s Drug

Photo:   Bloomberg

Eli Lilly will launch another study of its possible Alzheimer's treatment solanezumab, a move that delays a regulatory decision on a drug that flashed potential to help patients with mild cases of the disease but hasn't determined details of the study.  It will start no later than next year's Q3.  In Aug, LLY said the intravenous treatment failed to slow memory decline in 2 late-stage studies of 1000 patients each.  But scientists saw a statistically significant slowing when they combined trial data.  Pooled results found 34% less mental decline in mild Alzheimer's patients compared with those on a fake treatment for 18 months.  Researchers also saw a statistically significant result when they examined a subgroup of patients with mild cases of Alzheimer's disease.  Analysts expected LLY to conduct another study to confirm the drug's benefit before seeking approval.  The additional study could provide data that helps build a better case with US regulators.  But the new study will likely take at least a few years because researchers will have to measure over time a patient's rate of cognitive decline, which involves the ability to remember.  The stock dropped 1.52.

Lilly Alzheimer’s Drug Delayed on Need for Added Study

Eli Lilly (LLY)

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Avon Products plans to cut 1500 jobs & exit 2 Asian markets, as it starts on a broad restructuring plan in an effort to turn around results.  The job cuts amount to almost 4% of its workforce & mark one of the first major moves by CEO Sheri McCoy.  McCoy was brought on in Apr.  Job cuts span all regions & functions, including 100 employees in Vietnam & South Korea which AVP will exit entirely.  AVP said in Nov that it would embark on a plan to save $400M in 3 years.  Jobs cuts & market exits are the first details about the plan.  "The decisions outlined today are necessary to stabilize the company and begin the process of returning Avon to sustainable growth," McCoy said.  The stock was up pennies.

Avon to Cut 1,500 Jobs; Exit South Korea, Vietnam

Avon (AVP)

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The gain for the Dow is misleading because breadth is weak.  MLPs & REITs are not participating in the rise, not a good sign.  Big Ben can be counted on to throw more money into the markets buying Treasuries.  The budget debate drags on because it's stuck in the mud.  Waiting until the last minute to solve enormous financial problems is just plain sloppy & credit downgrades could be around the corner.  But buyers have the upper hand, at least for today.

Dow Jones Industrials

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