Markets rise on easing euro debt concerns

Dow added another 45, advancers over decliners better than 3-1 &  NAZ was up 9.  The S&P 500 rose to a new high since the fall of 2008, although Apple (AAPL), which accounts for 5% of the index, is responsible for some of that advance.  The Financial Index is up 2+ to the 2106s, a new high since early May.  The MLP index was flattish at 296 & the REIT index rose 1 to 265.  Junk bond funds were higher (along with stocks) & Treasuries pulled back.  The yield on the 10 year Treasury is up about 45 basis points in the last month.  Oil climbed to a 3-month high on speculation euro-area leaders will make progress in resolving the region’s debt crisis.  Gold rose to its highest level since early May.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.101%
U.S. 2-year	0.287%
U.S. 10-year	1.835%

CLU12.NYM

...Crude Oil Sep 12

...97.25

..... 1.28

(1.3%)

GCU12.CMX

...Gold Sep 12

.....1,639.00

... 18.70

(1.2%)

Get the latest daily market update below:

Jean-Claude Juncker, Luxembourg's prime minister

Photo:   Bloomberg

The € rose to 6-week highs before regional leaders meet this week to discuss Greece's debt reduction program amid optimism the Euro debt crisis is being contained.  The € appreciated for a 2nd day after Germany indicated concessions for Greece were possible & as Spanish borrowing costs declined at a bill auction.  The dollar weakened against all but one of its 16 major counterparts before a report tomorrow forecast to show US home sales improved last month, reducing demand for safer assets.  The € rose a penny to nearly $1.25, the strongest since Jul 5. 

Euro Advances to Six-Week High on Greece Crisis Optimism

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Photo:   Yahoo

But all is not well in Europe.  After their holidays spent soaking up the Aug sun, Europe's political leaders are bracing themselves for storm clouds this fall.  The latest economic figures show that Europe is edging closer to recession, dragged down by the crippling debt problems.  These debt troubles have tormented the eurozone for close to 3 years & so far have defied leaders' efforts to fix them.  The longer they take to resolve, the bigger they get.  Leaders from France, Germany & Greece meet later on this week in the latest round of shuttle diplomacy to attempt to put a lid on the eurozone's debt crisis.  But 6 eurozone countries, Greece, Spain, Italy, Cyprus, Portugal & Malta, are already in recession & others look feeble.  Europe's stumbling economy is hurting recovery in other parts of the world.  The EU recorded GDP last year of $15.5T, slightly more than the US output.  It is also a major source of sales for the world's leading companies.  Any further economic problems would be felt in order books back in the US & China.  40% of McDonald's (MCD), a Dow stock & Dividend Aristocrat, global revenue comes from Europe, more than in the US.  The company reported a 0.6% slump in meals served in Europe last month.  Ford (F) warned last week that auto industry sales in the region through Jul were the lowest in 17 years.  Euro debt problems are not going away anytime soon.

Europe's leaders face post-holiday blues AP




Photo:   Bloomberg

Best Buy reported a 90% drop in net income during Q2, dragged down by restructuring charges & weak sales. The company also withdrew its earnings guidance for the year.  The company also is halting stock buybacks for fiscal 2013 during the CEO transition (announced yesterday).  EPS was 4¢, sharply below 34¢ last year.  Revenue declined nearly 3% to $10.55B.  Adjusted EPS was 20¢.  Analysts expected EPS of 31¢ on revenue of $10.65B.  Revenue at stores open at least 14 months fell 3.2% for the entire business, including a 1.6% drop in its domestic business & an 8.2% decline in the intl division.  Analysts had expected a 2.6% decline for the total business.  US sales growth in tablets, mobile phones, appliances & e-readers helped offset declines in gaming, digital imaging, televisions & notebook computers.  The intl business was dragged down by lower revenue in China, Canada & increased competition in Europe.  BBY is hoping that Joly, new CEO, can turn around the company & bring stability that has been badly lacking.  BBY has seen annual declines in revenue at stores open at least a year for 2 of the last 3 years.  There is an offer to buy shares for about $25 from its former chairman, but that is iffy to say the least.  The stock fell 54¢ (3%).

Best Buy Suspends Profit Forecast as Net Income Falls

Best Buy (BBY)

The risk appetite by investors is heading north.  Treasuries have been dumped in the last month & that money is being used to buy stocks.  But debt mess problems have not been solved & the euro economy is sagging.  Meanwhile the US economy, while doing better, is not grading a grade of A.  The bulls are praying that Big Ben will utter magical words on Fri so that Dow can record a new 2012 high.  It still needs another 100 & is not being helped by the advance in AAPL stock.

Dow Jones Industrials

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Markets mixed while crude oil falls

Dow slid 1, advancers barely ahead of decliners & NAZ was up 2.  But the Financial Index was strong, gaining 1.70 to almost 199 (flirting with its interim highs).

The MLP & REIT indices were each down fractionally & junk bond funds also pulled back.  Treasuries rose, pushing 10-year note yields to the lowest level in more than a week, after the G-20 rebuffed German-led calls for financial support to contain Europe’s sovereign-debt crisis.  Oil fell, halting its longest rally in 2 years, after a warning from the IMF on the global economy sparked concern that prices have climbed too fast.  Gold lost ground in profit taking.

JPMorgan Chase Capital XVI (AMJ)

Treasury yelds:

U.S. 3-month	0.102%
U.S. 2-year	0.285%
U.S. 10-year	1.919%

CLJ12.NYM

...Crude Oil Apr 12

.....108.50

... 1.27

(1.2%)

Photo:   Bloomberg

Chancellor Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds.  Parliament voted in favor of the €130B ($174B) package.  While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the EU & the global economy.  “I think those risks are incalculable, and therefore indefensible,” Merkel said.  As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said.  Merkel’s gov pushed thru the measure to stave off a collapse of the Greek economy amid signs of growing resistance & as one Cabinet minister said Greece should leave the single currency.   Howevert 17 lawmakers within Merkel’s coalition opposed it, another 3 abstained & 6 didn’t vote.  That left the gov with a majority of 304 votes of the 591 cast, though short of an absolute majority in the lower chamber.  Thus Merkel failed to achieve a “chancellor’s majority,” a politically sensitive bar measuring support among her allies.  Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting on Mar 1-2.  The bailout is far from over.

Merkel Wins Greek Aid Vote After Warning of ‘Incalculable Damage’ on Delay


Boardwalk Pipeline Partners spent $285M for the remaining 80% it does not possess in a joint venture it operates with the natural gas distributor's parent company, giving it full control.  BWP had said it would create the Boardwalk HP Storage Company with its parent Loews (L), gaining total ownership of the storage company was a key goal for 2012.  The MLP operates 7 salt-dome natural gas storage caverns in Forrest County, Miss & the storage units have about 29B cubic feet of total storage capacity.  It also owns undeveloped land that is suitable for additional storage caverns. The company expects to have one new storage facility in service in 2013, at an incremental cost of about $35M.  The units fell 3¢ & yields 7.8%.

Boardwalk Pipeline Partners buys joint venture AP

Boardwalk Pipeline Partners L.P. (BWP)

EL Paso, an explorer for oil & natural gas which operates gas pipelines, earned 24¢ in Q4 better than 9¢ in the prior year.  Revenue increased 25% to $1.23B.  It earned an adjusted 28¢, when excluding special gains & losses.  Natural gas production increased 7½% & oil production 53.6% in Q4.  For the full year, EPS was 18¢, compared $1 in 2010.  Annual revenue rose 5.3% to $4.86B.  EP will be acquired by Kinder Morgan (KMP) in a few months to become the largest MLP in the US.  EP rose 49¢ to $27.65.

El Paso Corp. 4Q profits more than double AP

El Paso Corporation (EP)

Below is the latest glum report from AAA on the price of gas.  The price is climbing & climbing fast.  You know this is serious when all the politicos are talking about their fixes.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.698	$3.843	$3.974	$4.030	$3.166	$4.166
Yesterday Avg.	$3.688	$3.829	$3.962	$4.019	$3.161	$4.160
Week Ago Avg.	$3.565	$3.700	$3.834	$3.952	$3.123	$4.109
Month Ago Avg.	$3.406	$3.533	$3.671	$3.864	$3.050	$4.014
Year Ago Avg.	$3.354	$3.460	$3.595	$3.699	$2.824	$3.7

After selling off at the opening, markets rose to break even & remained in the black for the balance of the day.  But this was hardly a convincing gain even though the S&P 500 eked out a new high since mid 2008.  Traders are trying to assess the muddled European debt mess which has sort of been approved, but not quite fully signed off.  There are no measurements about the effects of rising gas prices, because the worst of the price hiikes has come suddenly.  But this will have a major negative effect on the economy as consumers will have to figure what spending needs to be reduced.  There is a new report about raising the debt ceiling last year.  It may need another adjustment upwards later this year (during the election).  I see dark clouds heading for the stock markets.  Dow slipped a smidgen, short of 13K once again.  Bulls say that shows strength in the face of bad news.  I expect sluggish markets to be followed by more selling.

Dow Industrials

Markets rally despite more Euro stress

Dow jumped 159, advancers over decliners 3-1 & NAZ was up 37.  Banks led the way on the bailout talk from Europe.  The Financial Index is 3 under its highs reached on Wed.

S&P 500 Financials Sector Index

Value	175.85
Change	3.75     (2.2%)

The MLP index was up 1 to the 371s & the REIT index rose 3 to 222.  Junk bond funds gained a few pennies & Treasures slipped, taking the yield on the 10 year Treasury bond back to 2%.  Oil was holding even after a tough week which took it below $100.  Gold also did little.

AMZ  Alerian MLP Index

DJR  Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.218%
U.S. 10-year	2.002%

CLF12.NYM

...Crude Oil Jan 12

...98.30

... 0.04  (0.0%)

GCZ11.CMX...

Gold Dec 11

....1,712.60

... 2.80

(0.2%)

Get the latest market update below:




The 17 countries that use the €, plus nearly all of their European Union partners, agreed to an ambitious treaty tying their finances together in the hopes of solving Europe's debt crisis.  But opposition led by Britain created a deep rift in the union.  Can you spell, "Uh-oh?"  The countries hope to help European nations struggling with giant debts over the long term & there were early indications of success.  Such an agreement is considered necessary before the ECB & other institutions commit more money to lowering the borrowing costs of heavily indebted countries like Italy & Spain.  "It's a very good outcome for the euro area, very good," ECB President Draghi said.  "It is going to be the basis for much more disciplined economic policy for euro-area members. And certainly it is going to be helpful in the present situation."  However Draghi has yet to say whether the ECB will take more aggressive action to buy the bonds of heavily indebted countries.  Unfortunately the political implications of the rift are enormous.  Germany & France had hoped to persuade all 27 EU countries to agree to change the treaty that governs their union.  But Britain, which doesn't use the €, firmly said no, arguing that the revised treaty would threaten their national sovereignty & damage London's esteemed financial services industry.  More work needs to get done before this is a done deal!

EU Leaders Drop Demands for Investor Write-Offs

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Photo:   Yahoo

Consumer sentiment rose to its highest in 6 months in early Dec due to an improving outlook on the economy.  Reduced consumer pessimism could reduce jitters about a pullback in consumer spending.  The Thomson Reuters/University of Michigan's preliminary reading on the index of consumer confidence climbed for a 4th straight month to 67.7, up from 64.1 in Nov & a low of 55.7 back in Aug. The figure exceeded the 65.5 predicted.   "News about recent economic developments were much more positive in early December. Reports of net job growth have increased in each of the past three months, as have assessments of current conditions in the economy," survey director Richard Curtin said.  However, the latest survey showed consumers still have a dire view of their personal finances as the job growth remains sluggish & worries over federal economic policies.  "The recent gains in confidence are especially vulnerable given that judgments of economic policies remain near all-time lows" Curtin said.  The gauge of consumer expectations jumped to 61.1 from 55.4 in Nov.  The survey's one-year inflation expectation dipped to 3.1% in early Dec, while the survey's 5-10-year inflation outlook held steady at 2.7%t for a 3rd month in a row.  Moderately good news for consumer confidence.

Consumer Confidence in U.S. Climbs More Than Forecast to a Six-Month High

Texas Instruments cut its outlook for the current qtr & warned demand was broadly lower as customers reduce their inventories.  Weak economies in the US & Europe have sapped demand for microchips.  Sales of its OMAP application processors, used in the Kindle Fire tablets, have been better than expected.  But worries about slow demand have pushed manufacturers in recent months to trim inventories of chips & other components, a trend that is continuing.  Sales of TXN chips used in PCs are down in the current qtr, partly due to a shortage of hard-drives caused by recent flooding in Thailand which is expected to cause interruptions in PC manufacturing.  Europe, struggling with a deepening sovereign debt crisis, is the weakest market.  TXN expects Q4 revenue of $3.19-$3.33B compared with its earlier forecast of $3.26-$3.54B.  The stock fell 59¢.  The implications for the macro economic picture are not good.

Texas Instruments Falls Most in 4 Months After Missing Estimates

TXN   Texas Instruments

Markets are having another good day.  Even with the gyrations, Dow is up 1% this week.  The Euro announcement today is still a bit fuzzy.  They are using Scotch-Tape to patch together problems & England is not buying it.  France & Germany also expect the weaklings to adopt tough standards which may not work out.  Consumer confidence data sounds good, but even these numbers are fluid, dependent on goings on in DC.  Not sure if these gains will last today. 

Dow Jones Industrial Average

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Markets waver on S&P warning about European credit rate cuts

Dow rose 34, decliners ahead of advancers 3-2 & NAZ was off 7.  Bank stocks also slipped a little.

S&P 500 Financials Sector Index

Value	176.44
Change	-0.34    (-0.2%)

The MLP index fell 2 to the 373s & the REIT index was down 1 to the 221s.  Junk bond funds edged higher & Treasuries were little changed. Oil fell as S&P said it may cut the credit ratings of debt issued by the European bailout fund & 15 euro nations, bolstering concern that the region’s economy will slip into recession.  Gold also pulled back, to the low 1700s.

AMZ   Alerian MLP Index

DJR   Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.258%
U.S. 10-year	2.065%

CLF12.NYM

....Crude Oil Jan 12

...100.69

.... 0.30

(0.3%)

GCZ11.CMX

....Gold Dec 11

.....1,703.00

... 27.70

(1.6%)

Get the latest market update below:

• 

Photo:   Yahoo

German leaders downplayed the S&P warning that it might cut the credit rating of 15 eurozone countries, including Germany's, because the financial crisis is worsening without any imminent fix.  It came just hours after Chancellor Merkel & French President Sarkozy urged changes to the EU treaty that would centralize decision-making on spending & borrowing for the 17 countries that use the €.  Tighter political & economic coordination among euro countries is seen as a precursor to further financial aid from the ECB, the IMF, or some combination.  The threat to cut Germany's prized AAA rating was particularly surprising as its bonds are considered among the safest in the world.  Any downgrade threatens to complicate the eurozone's bailout mechanism, since the region's rescue fund relies on AAA-rated bonds of Germany & France to cheaply raise money.

S&P Warning Good for Euro Leaders: Schaeuble


The European Financial Stability Facility (EFSF) may lose its AAA credit rating if any of the bailout fund’s 6 guarantors face a downgrade from AAA, Standard & Poor’s said.  “We could lower the long-term credit rating on EFSF by one or two notches if we were to lower the AAA sovereign ratings, which are currently on creditwatch, on one or more of EFSF’s guarantor members,” S&P said.  At the same time, S&P said it “could affirm the AAA ratings on EFSF and its issues if we affirm the rating on all six of EFSF’s guarantor members currently rated AAA.”  Germany, France, the Netherlands, Finland, Austria & Luxembourg are the top-rated nations backing the rescue fund.  The German Finance Minister said that the downgrade warning will help force Europe to ratchet up efforts to resolve the 2-year old fiscal crisis this week.  The debt mess remains murky at best.

S&P Says Euro Region’s EFSF May Lose Rating If Any AAA Member Downgraded

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Photo:   Yahoo

Toll Brothers fiscal Q4 net income dropped 70%, partly because last year's qtr was helped by a large tax benefit.  Still, it topped expectations & revenue climbed as home deliveries & net signed contracts increased. TOL also benefited from fewer cancellations.  Exec Chairman Robert Toll said that the company believes its prospective customers have the ability to buy but that a lack of confidence in the US economy is holding them back from making purchases.  EPS was 9¢ for the qtr ended Oct 31, down from 30¢ last year earlier (which included a $59.9M tax benefit).  Analysts expected EPS of 5¢.  Revenue rose 6% to $428M, beating estimates of $424M.  Home deliveries climbed 8% to 757 units & signed contracts increased 15% to 644 units.  The average price of its signed contracts was $606K, up from $565K a year ago.  The contract cancellation rate came in at about 7.9%, down from 8.8% in the prior-year period.  For the full year, TOL had EPS of 24¢, versus a loss of 2¢ in the prior year.  Annual revenue dipped 1% to $1.48B from $1.49B.  TOL predicts that it will deliver 2400-3200 homes in fiscal 2012 at an average price of $550K-$575K per home.  The stock rose 28¢.

Toll Brothers' 4Q profit falls, tops Wall St. view AP

TOL    Toll Brothers

Last week markets had an unusually good week with little hard news to back up the gains.  There was plenty of talk, but not much action.  This week, the European powers have a big summit meeting at week's end which will give direction about how they want to handle the debt mess.  And this is a debt mess, make no mistake about that.  Until then, the markets will probably do little, awaiting developments.  Dow bumped against the important 12.2K ceiling yesterday, but could not break thru.  This is becoming an important barrier.

Dow Jones Industrial Average

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