Friday, May 10, 2013

Markets little changed as central bankers meet

Dow dropped 12, decliners just ahead of advancers & NAZ gained 10.  The MLP index rose 1+ to the 459s & the REIT index inched up a fraction in the 306s.  Junk bond funds were mixed & Treasuries lost ground again.  Oil & gold had major pullbacks & this has been gold's ugliest year in a very long time.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLM13.NYM...Crude Oil Jun 13...94.32 Down .......2.07  (2.2%)

GCK13.CMX...Gold May 13....1,428.80 Down ...40.00 (2.7%)

U.S. Federal Reserve Chairman Ben Bernanke gestures at the International Monetary and Financial Committee (IMFC) meeting during the Spring Meeting of the IMF and World Bank in Washington, April 20, 2013. REUTERS/Yuri Gripas

Photo:   Yahoo

Big Ben said that the shadow banking system continued to pose a threat to financial stability, & that bank funding markets might still not be able to cope with a major default.  In a wide-ranging speech explaining the Fed's role in monitoring the stability of the banking system, Bernanke also said the central bank was looking at asset markets closely for signs of excessive risk taking.  "While the shadow banking sector is smaller today than before the crisis ... regulators and the private sector need to address remaining vulnerabilities."  The 2007-09 credit meltdown, & the collapse of investment bank Lehman Brothers, brought to light the group of firms & funding vehicles, known together as the shadow banks, that were poorly regulated but harbored large risk.  The highest grouping of US financial regulators, the Financial Stability Oversight Council that is chaired by Treasury Secretary Jack Lew, last month also warned of the possibility of runs on the shadow banking system.  Bernanke said the Fed was monitoring a wide range of asset markets for signs investors were "reaching for yield" in a way that might pose risks to the financial system, given that interest rates were so low.

The IMF said it is watching carefully for signs that massive flows of cash unleashed in world markets by unprecedented monetary easing might lead to asset bubbles, or to overheating in some emerging markets.  "There is a risk of overheating of domestic economies, so we have to pay close attention to this risk," said IMF Deputy Managing Director Naoyuki Shinohara.  "There are some warning signals, but it is not up to the level to ring alarm bells," he said.  Cash added to the global economy from monetary easing in the US, Japan & Europe is affecting currency values & fueling investments in commodities, property & other assets.  In China, a continued reliance on gov-backed investment in construction, despite its pledges to shift to consumer-driven spending to fuel growth, remains a concern, Shinohara said.  "If you look at the statistics, China has not converted to becoming a consumption-oriented economy yet," he said, noting that such heavy spending increasingly likely will go to inefficient projects.  Meanwhile, heavy borrowing by local govs poses a risk in the medium to long-term, especially given the size & lack of transparency in the country's huge informal lending sector, he said.  The key, IMF officials said, is to ensure that resources help to drive real economic growth.

IMF says monetary easing could drive asset bubble

McDonald’s Dropping Angus Burger as Customers Favor Dollar Menu

Photo:   Bloomberg

McDonald's, a Dow stock & Dividend Aristocrat, is dropping the $4 Angus Third Pound burger from its US lineup as its hard-hit customers throng to the company’s Dollar Menu.  New items are being added, Danya Proud said.  It’s advertising its Dollar Menu to draw cash-strapped Americans as it struggles to turn around same-store sales. In the past year, the chain, with 14K domestic locations, has also focused on adding healthier options to its menu.  Last month, it introduced an egg-white breakfast sandwich with 250 calories.  MCD said earlier this week that global same-store sales dropped 0.6% in Apr. The stock lost 20¢.

McDonald's (MCD)

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G7 finance ministers start a 2-day meeting in London & will look at the pace of central bank stimulus.  Don't expect anything to come from this meeting except hot air.  Dow continues to soar to the heavens as those left behind in the recent rally get in, afraid of being left behind.  Slow growth & enormous fiscal problems are of no concern.  But someday, they will be.

Dow Jones Industrials

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