Markets tumble after economy failed to create jobs in August

Dow plunged 253, decliners over advances 5-1 & NAZ dropped 65.  Banks were leaders in the decline, the Financial Index dropped a very large 7.  With a fragile recovery, banks are supposed to be lending more but the lawsuit involving mortgage problems filed today will only make banks more cautious when lending.  That's another major kick in the head the economic recovery does not need.

S&P 500 Financials Sector Index

Value	168.53
Change	-7.03    (-4.0%)

MLPs & REITs sold off along with the stock market.  The Alerian MLP Index is back below 350.  Considering how many times it has been crossed it, it may not be all that significant.  Junk bond funds fell about 1%.  Treasuries rose, pushing 10-year yields below 2% (the 2 year note has an annual yield of only 0.2%), as the payroll report showed no jobs, stoking speculation that the Federal Reserve may consider additional stimulus measures to boost the economy.  Oil fell with the prospects for slower global economic growth.  But gold is soaring, heading for new records above $1900.  It's up an astonishing $500 YTD & is on an 11 year winning streak.  Find a stock that can match that record!

Alerian MLP Index

Value	349.53
Change	-4.27     (-1.2%)

Treasury yields:

U.S. 3-month	0.015%
U.S. 2-year	0.202%
U.S. 10-year	2.000%

CLV11.NYM

...Crude Oil Oct 11

...86.53

... 2.40

(2.7%)

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The IMF opposes European plans to force Greece to put up collateral for bailout II.  The use of collateral, a concession to win Finland’s backing for €109B ($155B) of loans pledged by euro leaders in Jul, would deny the IMF priority creditor status & violate Greek bondholders’ rights claims the IMF.  This threatens to create a snag in the crisis-management effort after aid of €256B for Greece, Ireland & Portugal failed to restore order. There are also hurdles in trying to widen the powers of its rescue fund, with German lawmakers demanding a veto over its operations.  Greece’s predicament deepened today with the forecast of a worsening economic contraction & a 2-week suspension of a European-IMF economic review mission to give the gov time to plot a pro-growth course.  2-year Greek yields rose today above an astonishing 47% (a euro-era record)!

IMF Said to Oppose Push for Greek Collateral




Photo:   Yahoo

Campbell Soup reported higher-than-expected quarterly results, helped by fewer promotions in its US soup business.  Instead, Campbell put more money into advertising.  The strategy boosted earnings but led to a 9% decline in soup sales as some customers apparently switched to cheaper brands.  Fiscal 2012, which began Aug 1, will be "a year of transition," said CEO Denise Morrison.  CPB said fiscal-year sales would be unchanged to up 2%, with earnings before special items declining 5-7%.  In Jul it forecast a 4-6% earnings decline.  The new earnings forecast had more to do with fiscal 2011 earnings being higher than expected than with any anticipated change in performance.  Morrison expects soup volumes to decline for the next 2 qtrs as the company continues to cycle deep discounts that spurred sales in the year-earlier periods.  Fewer promotions effectively raises the price of CPB foods.  In addition, prices were increased to offset higher commodity costs.  EPS was 31¢ in fiscal Q4, compared with 33¢ a year earlier.  Excluding restructuring charges, EPS increased 30% to 43¢ & analysts expected 38¢.  Sales rose 6% to $1.6B.  The stock fell 40¢ after already having a bad year. 

Campbell profit beats Street as promotions declineReuters

Campbell Soup Company (CPB)

Starbucks CEO Howard Schultz said US political leaders have created a "crisis of confidence" with their political wrangling that is wreaking havoc on the economy.  He wants to give a voice to all citizens by hosting a national telephone forum on Tues.  He's also running ads in the NY Times & USA Today featuring an open letter that urges Americans to participate in the forum & insist politicians end their hyper-partisan behavior.  "We must send the message to today's elected officials ... that the time to put citizenship ahead of partisanship is now," Schultz said in the letter.  Schultz already called on other CEOs to halt contributions to political campaigns until the nation's leaders become financially disciplined & stop their political wrangling.  The CEOs of more than 100 companies, from AOL to Zipcar, joined Schultz in his pledge.  Schultz said he was moved to hold the forum after receiving hundreds of emails & letters from citizens who were struggling to find jobs, keep their homes or send their children to school given the economic conditions.  "It looks like we struck a nerve with so many people," Schultz said. "I feel a personal responsibility to create a public dialogue and make a voice for people who feel like they can't be heard."  The forum will be hosted by nonpartisan group No Labels & held the same week as the GOP presidential debate & the President's address to a joint session of Congress to share his plan for job creation.  DC is a terrible mess, good to see somebody is trying to straighten it out.

This was a bad day for the markets which are starting off difficult Sep on the wrong foot.  Dow fell almost 400 & the political wrangling about reducing the deficit has not really gotten started.  Howard Schultz has the right idea, but not sure how much good his forum will do.  At a minimum, it's a vivid  reminder that there are a lot of ugly financial problems out there & not a lot is being done to solve them.  Then there's Greece & the rest of Europe.  A day of reckoning could be coming in Sep.  Aug was a bad month for the stock market & it looks like Sep will live up to its reputation for being the worst month of the year.

Dow Industrials (INDU)

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Markets waver on looming European debt crisis

Asian markets had a bad day during our overnight, but US markets recovered to near breakeven, awaiting developments on debt problems in Europe & DC.  Dow fell 13, decliners barely ahead of advancers & NAZ was off 9.  Bank stocks edged higher after recent selling.

S&P 500 Financials Sector Index

Value	203.30
Change	1.08    (0.5%)

The MLP index fell 1+ to the 371s while the REIT gained 3 to 250 (just below its 2011 highs).  Junk bond funds were mixed & Treasury inched higher with the yield on the 10 year Treasury approaching 2.9%.  Oil declined for a 3rd day in on speculation that Europe's spreading debt crisis will curb demand for raw materials.  Gold pulled back on profit taking, but has a good looking chart.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.030%
U.S. 2-year	0.381%
U.S. 10-year	2.910%

CLQ11.NYM

....Crude Oil Aug 11

...95.03

... 0.12

(0.1%)

GCN11.CMX

...Gold Jul 11

........1,542.00

... 6.80

(0.4%)

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Photo:   Yahoo

The US trade deficit surged in May to the highest level in more than 2½ years, driven upward by a big increase in oil imports.  The Commerce Dept said that the deficit increased 15% to $50B, the largest imbalance since Oct 2008 when the financial crisis was being felt.  Exports declined 0.5% to $175B & imports rose 2.6% to $225B. Oil prices have fallen since May, so the effect of higher prices should ease some in the coming months.  The deficit is running at an annual rate of $563B, 12.6% higher than the 2010 imbalance. A higher trade deficit subtracts from overall economic growth with consumers purchasing more foreign-made goods & fewer products made in the US.  Petroleum imports rose 10.3% to $39.8B, partly because of higher prices. The average price of a barrel of imported crude oil increased from $103.18 in Apr to $108.70 in May, the highest level since Aug 2008.  The deficit with China jumped to $25B, the largest monthly gap since Nov & the deficit with Japan fell 26% to $2.6B from further supply-chain disruptions caused by the Mar earthquake.

U.S. Trade Deficit Unexpectedly Surges on Oil


Campbell Soup raised its fiscal 2011 earnings outlook, but provided a somewhat disappointing forecast for next year.  CPB anticipates fiscal 2011 adjusted EPS will rise about 1% from adjusted results of $2.47 last year. Its prior guidance was for adjusted EPS to fall 1-3%. Revenue is still expected to be essentially flat.  Analysts are predicting 2011 EPS of $2.45 on revenue of $7.7B.  For 2012, Campbell foresees adjusted EPS will decline 4-6%, with revenue flat to up 2%.  Expectations were for EPS of $2.49 on revenue of $7.9B.  The soup maker gave a long-term outlook for adjusted EPS growth of 5-7% & a revenue increase in the range of 3-4%.  Its new business strategy will include concentrating on expanding its simple meals, baked snacks & healthy beverage segments as well as boosting its presence in emerging markets.  The stock liked the news, gaining 54¢.

Campbell Soup lifts 2011 profit outlook AP

Campbell Soup Company (CPB)

News Corp raised its stock repurchase program to $5B, up from the $1.8B that's still left in the existing program. It plans to repurchase $5B of its Class A & Class B common stock over the next 12 months.  The stock had taken a hit this month (losing $7B in market value) amid a deepening phone-hacking scandal involving its now-shuttered News of the World tabloid.  The stock rose 9¢.

News Corp. Boosts Stock Buyback to $5 Billion Amid Phone-Hacking Probe

News Corporation (NWS)

Financial problems are breaking out all over the world. Moody’s cited 5 Chinese companies as having more “red flags” on corporate governance than others it examined & Chinese stock markets had a bad day.  European finance ministers are trying to figure out how to fix Greek debt problems & not have them to spread to other countries like Italy.  Then there's the budget mess in DC.  Both sides are digging in & some of the Reps are talking about letting the US default if that what it takes for reduce deficits in a meaningful way.  AA earnings were sort of "good enough," but not quite as good as some were hoping for & the stock is flat.  With growing uncertainty, gold & Treasuries should benefit.

Dow Industrials (INDU)

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Markets try for a third consecutve week of gains

Dow rose 28 to another multi year high, advancers over decliners 4-3 & NAZ was up 3.  Bank stocks continue flattish, with the Financial Index at its 2+ year highs.

S&P 500 FINANCIALS INDEX

Value	230.59
Change	-0.09  (-0.0%)

The MLP index shot up another 2 to the 379s, up 10 this week, to another new record.  The yield on the index is now below 6%.  Meanwhile the REIT index was flat in the 236s.  Junk bond funds inched higher while Treasuries fell after a European Central Bank official said it may need to raise interest rates as global inflation pressures mount while the Federal Reserve maintains its target of almost-zero short-term rates.

Treasury yields:

U.S. 3-month		0.09%
U.S. 2-year		0.80%
U.S. 10-year		3.62%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 weeks




Oil rose to the highest level in a week as escalating protests in Bahrain & Libya raised concern supplies from oil-producing nations in the Middle East will be disrupted. Gold rose on demand for precious metals to hedge against declines in other assets because of unrest in the Middle East.

CLH11.NYM

...Crude Oil Mar 11

...87.33

... 0.95

(1.1%)

GCG11.CMX

...Gold Feb 11

.......1,384.60

... 0.10 (0.0%)

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At the G20 meeting, China rejected plans to use real exchange rates & currency reserves to measure global economic imbalances, casting doubt on the ability of G20 major economic powers to reach agreement at their meeting.  The hardline Chinese stance highlighted splits over how to define economic imbalances & prescribe action to avoid future financial crises.  Differences over the causes of & ways to cure global economic imbalances were also on display at a public debate among the world's top central bankers.  Bank of England Governor Mervyn King, reflected the views of many Western policymakers, saying the world risked protectionism or another financial crisis if policymakers failed to reduce currency distortions & other imbalances.  But Chinese central bank governor Zhou Xiaochuan said Beijing would decide the pace of the appreciation of the yuan on its own & would not be swayed by pressure from other countries. Simply adjusting exchange rates would not influence Asians' savings behavior, he said.  With world shares near 30-month highs, driven by bullish views of economic growth, investors seem content for the G20 to take its time.

G-20 Stung by Faster Inflation Amid Imbalance Dispute


China’s central bank raised reserve requirements for lenders 10 days after boosting interest rates as it tackles accelerating inflation & the risk of asset bubbles in the fastest-growing major economy.  Reserve ratios will increase half a percentage point starting Feb 24. Lending surged in Jan & inflation quickened as new home prices rose in all but 2 of 70 cities.  If these moves work, China will be buying less from the rest of the world.

China Raises Bank Reserve Ratios to Counter Inflation

Photo:  Bloomberg

Campbell Soup (CPB) EPS declined 8% to 71¢, in its fiscal Q2 as sales fell 1% to $2.13B.  CPB used deep price discounts to sell more soup, but that meant less revenue. Revenue from high-profit condensed soups fell 7%.  Sales may drop as much as 1% in FY2011 which compares with a previous forecast of at least a 1% increase. EPS will fall 1-3%, to around $2.40, compared with earlier predictions of a gain. Analysts are forecasting $2.51. CEO Douglas Conant said increasing spending on promotions failed to boost revenue as much as expected in Q2, with US soup sales declining 4%. That business, with brands including the Chunky line, accounts for about 40% of sales at CPB.  The stock fell 1.69, the biggest drop in over 2 years.,

Campbell Cuts Full-Year Forecasts for Earnings, Sales

Campbell   ---   2 years




Bulls remain in control of the markets.  The chart below shows the Dow is up about 250 in just 2 weeks with no significant bumps in its road.  The MLP index may be shooting for the moon.  Its last obstacle was a pause in Nov. Going into a long weekend, there could be profit taking into the close which will likely not be serious. 

Dow Jones Industrials   ---   2 weeks

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