Dow rises 460 in 3 days on improved economic news

Dow gained 114 going over 15K, advancers over decliners almost 5-1 & NAZ went up 25.  The MLP index rose another 6+ to 456 & the REIT index was up 5 to the 279s.  Junk bond funds were 1-2% higher & Treasuries also gained ground.  Oil climbed to a one-week high as fewer filed claims for unemployment & consumer spending rebounded in May.  Gold tumbled below $1200, extending a slump to a 34-month low, as US economic data topped estimates, eroding the metal’s appeal as a store of value.

AMJ (Alerian MLP Index tracking fund)

 

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Treasury yields:

U.S. 3-month	0.05%
U.S. 2-year	0.36%
U.S. 10-year	2.48%

CLQ13.NYM

...Crude Oil Aug 13

....97.00

...1.50

(1.6%)

Photo:   Bloomberg

Federal Reserve (FED) officials stepped up their campaign to stem an increase in long-term borrowing costs that threatens to blunt the US expansion & sought to clarify comments by Big Ben that sparked turmoil in global financial markets.  William C. Dudley, president of the Federal Reserve Bank of New York, said any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus, & that an increase in the FED benchmark interest rate is “very likely to be a long way off.”  He said bond purchases could be prolonged if economic performance fails to meet the Fed’s forecasts.  Concerns the FED may curtail accommodation helped push the yield on the 10-year Treasury note up one percentage point to over 2.61% this week in 2 months.  The remarks by Dudley, who also serves as vice chairman of the policy-setting FOMC, along with Fed Governor Jerome Powell & Atlanta Fed President Dennis Lockhart sought to damp expectations that an increase in the benchmark interest rate will come sooner than previously forecast.  “Such an expectation would be quite out of sync with both FOMC statements and the expectations of most FOMC participants,” said Dudley.  The speeches in the last 2 days were orchestrated by the FED to calm markets.

Fed Officials Step Up Campaign to Stem Gain in Long-Term Rates




Photo:   Bloomberg

For the first time since Aug, junk bonds are trading below par amid speculation that companies will have a harder time meeting debt payments as the Federal Reserve prepares to reduce its extraordinary stimulus measures & China reins in its shadow-banking system.  Average prices on speculative-grade corp notes dropped to 99.42 cents on the dollar on Jun 25, from a record 106.04 cents in May, according to Bank of America Merrill Lynch’s Global High Yield Index.  The declines were led by Asia, which saw prices tumble to 97.2¢, the lowest level in a year.  Central bank largesse has allowed companies to avoid default by refinancing debt at ever lower interest rates, encouraging investors to bid up the price of their bonds.  Moody’s said on Tues that investors pulling money from high-yield funds threaten to derail stable credit conditions for the riskiest companies.  Returns on junk bonds worldwide are flat this year through Jun 25, after soaring 18.8% in 2012, including reinvested interest, the Bank of America Merrill Lynch index shows.  In Asia, investors have lost 3.1%, following a 26% rally last year.  A measure of the average yield investors demand to own the bonds has surged to 6.81% from this year’s low of 4.61% on May 9.  But even with the increase, rates are below last year’s high of 8.79% at the start of 2012.

Junk Bonds Drop Below Par as Asia Suffers China: Credit Markets


KB Home reported a narrower loss for its fiscal Q2 as revenue & selling prices jumped.  The net EPS loss was 4¢, compared with a loss of 31¢ a year earlier.  The forecasted estimate was for a loss of 5¢.  “KB Home is well positioned in some of the strongest housing markets across the country,” CEO Jeffrey Mezger said.  “With the limited supply of homes available for sale and robust demand in many of our served markets, we have deliberately emphasized price and value creation over sales pace.”  Revenue increased 73% from a year earlier to $524M & net orders rose 6% to 2162 homes.  The contract backlog, an indication of future sales, climbed 6% to 3128 homes. The average selling price increased 25% to $290K, the highest for a Q2 since 2006.  The company, which has had losses in 4 of the past 6 qtrs, has lagged behind other builders in returning to profitability.  The company expects to be profitable for 2013, with “meaningful profits” in its H2, Mezger said.  Demand is outpacing supply in all of the company’s markets, even with the recent jump in borrowing costs, he said.  “Anecdotally, we are hearing from the sales floor that the uptick in rates has actually created an increased sense of urgency” among buyers, Mezger said.  The stock lost 19¢.

KB Home Reports Narrower Loss After 73% Jump in Revenue

KB Home (KBH)



Stocks had their 3rd big day in a row.  FED officials sent out their troops to spread the word that bond the buying program would be around for some time & that worked.  Stock buyers returned.  I keep thinking that end of the qtr painting the tape to make fund managers' holdings look better is also part of the story.  Next Fri brings the big jobs report & that will probably be good enough.  That's good enough to keep the bulls happy but not good enough for the FED to slow bond purchases.  After that, Q2 earnings.

Dow Jones Industrials

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