Markets edge lower despite higher manufacturing data

Dow slipped 6, decliners over advancers 5-2 & NAZ declined 5. Banks were also down, the Financial Index is still stuck in its sideways trading range.

S&P 500 FINANCIALS INDEX

Value 193.82

Change -0.53

% Change -0.3%

The high yielders had another stellar month with minor profit taking this week. The MLP index & REIT index are each off 1 in semi-holiday trading. Junk bond funds also experienced a little profit trading. Meanwhile the yield on the 10-year Treasury bond lumbers along at 3.81%, near its yearly highs of 4%.


Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Barclays Cap Hi Yld Bond ETF - 1 month







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Oil & gold are just waffling around, but oil has a positive undertone. Oil wants to take out 80 while gold is still looking to find a base after having a very bad month..

CLG10.NYM

...Crude Oil Feb 10

...79.07

... 0.20 .......(0.2%)

GCF10.CMX

...Gold Jan 10

...1,087.50

... 9.50 .......(0.9%)

OIL (ETF) --- 1 month




GLD (ETF) --- 1 month





The Institute for Supply Management-Chicago Inc. reported companies expanded more than anticipated in Dec. Its business barometer rose to 60, exceeding all estimates to the highest level in 4 years. Readings above 50 signal expansion. This expansion was fueled by gov incentives & discount pricing along with rising global demand which have reduced inventory stockpiles.

•U.S. Business Gauge Climbs to Highest Level Since '06 as Companies Expand


Manufacturing index - 1 year

photo: Bloomberg


Treasuries are headed for the worst year since 1978 following their best year last year over the same time span. Massive gov borrowings with no end in sight are the main reason. Expectations are for Treasury interest rates to climb as demand for money knows no limits. Today they will auction $32B of 7-year notes, the last of 3 auctions this week totaling $118B.

Treasuries Set for Worst Year Since 1978 as U.S. Steps Up Sales



GMAC Financial Services is expected to get about $3½B in additional gov aid to help it absorb mortgage losses after already receiving $12½B in aid during the last year. This is one more reminder that all is not rosy with the economic recovery.

•GMAC Said to Discuss Getting More Than $3 Billion in Extra Government Aid



Not much happening today, again on a very quiet day. The graph below shows Dow has had a difficult time making headway to new highs in Dec. That could be a signal that Jan effect will not happen.

Dow Jones Industrials --- 1 month

Stocks surge on continued easy money expectations

Favorable announcements by the G-20 brought out stock buyers in droves. Dow rose 203 to 10,226, another 2009 high, advancers ahead of decliners 5-1 & NAZ was up 41. Banks benefited from the enthusiasm as the Financial Index jumped 7 (up more than 5 is a very good day). However, this index remains below 212 which is needed for a new 2009 high.


S&P 500 FINANCIALS INDEX

Value 199.43

Change 6.98

% Change 3.6%

High yields had another outstanding day. The Alerian MLP Index was up 3¼ to the 261s while the Dow Jones REIT Index jumped 7¾ bringing it to the upper end of its trading range (shown in the chart). Junk bond funds had good gains, taking them within a few percent of the recent highs for 2009. The VIX keeps pulling back from its recent spike on increased fears. The yield on the 10-year Treasury bond slipped 2 basis points to 3.49%.

Alerian MLP Index --- 2 months




Dow Jones REIT Index --- 2 months




VIX --- 2 months





Oil stayed at its higher levels & is shooting to get back into the 80s. Gold sold off slightly from the AM, but remains well above the 1100 level in new record territory.

CLZ09.NYM

..Crude Oil Dec 09

..79.37

.. 1.94 ......(2.5%)

GCX09.CMX

..Gold Nov 09

..1,103.90

.. 8.80 ......(0.8%)

The Treasury sold $40B of 3 year notes & it was very successful. Indirect bidders (many are for foreign central banks) accounted for 68% of today's auction with a record 3.3X bid-to-cover ratio (as shown in charts below). Demand was very strong demand. The 3-year notes drew a yield of 1.404%, below the forecast of 1.419%. The attraction of these notes is their yield is substantially above the sub 1% rate on the 2 year notes. The weak dollar is another factor in foreign interest for US Treasury notes. Japan has been the strongest buyer of Treasuries this year, as they have memories of their economic & financial problems in the 1990s.

Treasuries Rise as Dollar Weakness Spurs 3-Year Note Demand


Indirect bidders - 1 year




Bid-Cover Ratio - 1 year





Bloomberg TV mentioned 2 stocks which they consider candidates for raising divs. One was Automatic Data Processing (ADP), a Dividend Aristocrat, I just included in an article for SeekingAlpha. They have a track record of raising divs & want to continue in this elite group. The stock was up 63¢ to 42.95 with a yield of 3%.

Automatic Data Processing --- 1 year

The Federal Reserve said GMAC (now a bank) will get more taxpayer money from the $700B TARP bailout funds. Nine of the 10 banks which needed assistance in May have raised money from private investors, by selling assets or by converting preferred equity into common shares. GMAC is the only laggard.

Fed: GMAC to receive more bailout money- AP



The Dow & gold each reached new highs for this year. The difference is gold is at a record high versus Dow needs another 4K to make that statement. Treasury auctions will continue this week. For the time being demand is strong for those notes, partially because of the weak dollar. But the run up in gold is a worry.

Dow Jones Industrials --- 2 months




Gold (ETF) --- 2 months

Overbought markets need a rest

Stocks are taking time to catch their breaths. Dow is up 7, decliners are barely ahead of advancers & NAZ is down 2. Banks are also having a restful day.

S&P 500 FINANCIALS INDEX

Value 179.48

Change -0.07

% Change -0.1%

The Alerian MLP index is showing up 2+ to the 250s which does not tie with last night's close. There may be adjustments for ex-distributions accounting for the difference. But any way it's counted, MLPs are at 10 month highs. REITs are flat while junk bond funds keep moving up, reducing their yields. Treasuries sold off again, the yield on the 10-year Treasury bond rose 4 basis points to 3.68%. Oil is off pennies in a lackluster market.

Alerian MLP Index --- 2 weeks





GMAC Financial Services posted a Q2 loss of $3.9B as it transformed from an arm of GM into an independent bank. Last year the loss was $2.5B. Revenue fell 28% to $1.27B from $1.76B. Most of the quarterly loss stems from a $1.6B charge related to company's mortgage business. GMAC also incurred a $1.2B tax charge on its conversion from GM's financing arm to a separate company offering personal banking services in addition to auto loans for GM & Chrysler customers. Excluding those charges, GMAC said its Q2 loss was about $.4B. Gov help was key to keep GMAC alive in Q2 & looks like now they will be able to continue as a bank.

•GMAC Reports Wider $3.9 Billion Loss Amid Defaulted Mortgages, Auto Loans


This is the pause that refreshes.

Dow Jones Industrials --- 2 weeks

Banks & energy leads markets higher

Stocks had a good day, but not good enough to bring the Dow into the black for 2009. Dow came ever so close with a gain of 75, advancers over decliners almost 3-1 & NAZ was up 24.

The Financials Index is at the high end (with 2 exceptions) of its trading range for the last months. Buyers want to take it higher.

S&P 500 FINANCIALS INDEX

Value 167.26

Change 6.38

% Change 4.0%

MLPs recouped most of yesterday's decline as they are buffeted by changes in oil prices. Today the index was up 3 to the 231s. REITs & junk bond funds also had a good day. The REIT Index was up 4½ to the 141s (not seen since the start of this year) & junk bond funds are at or near their highs for 2009. As securities climb, their yields fall, narrowing the spread over the 10 year Treasury (its yield keeps rising). The yield spread is compensation for added risk, investors are increasingly willing to accept a smaller premium. The 10 year Treasury yield jumped 16½ basis points to 3.72%, near last week's interim high. Today's decline in Treasury bond prices is very disturbing since the Federal Reserve is supposed to be in the market buying, giving Treasury bonds a real & psychological boost.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 3 months





Oil had a good day, taking it to a 7 month high. Buyers were encouraged by Goldman Sachs talking about $85 oil by year end. Offsetting the bullish sentiment is all that oil purchased when it was in the 40s that is sitting in tankers. That overhanging supply will be sold when owners decide to take profits.

CLN09.NYM

..Crude Oil Jul 09

..68.80

.. 2.68 ......(4.1%)

GMAC (GM's finance arm, now a bank) sold $4.5B of 3.5- year notes guaranteed by the FDIC in the first gov backed bond offering by a speculative-grade company. The auto & home lender has already received $13.5B. GMAC’s non-guaranteed debt is rated C by Moody’s Investors Service and CCC by Standard & Poor’s, one and four levels, respectively, above default. Because of the gov guarantee, the shorter term notes are rated AAA with a yield of only 2.2% (vs similar debt due in 2011 but rated as junk notes with a yield exceeding 12%). This is how the gov is helping (& also interfering) with the markets, for the sake of helping the auto & building industries.

GMAC Is First Junk-Rated Borrower to Sell FDIC-Backed Notes


Markets had a very good day, but Dow still was not able to crack 8776 starting point for this year. The narrowing premiums of yield for high risk securities over the Treasury bond keeps bothering me, especially when the REITs & junk bond funds are still awaiting their ugly periods.

Dow Jones Industrials --- YTD

Stocks fall on UK credit worries

Stock have been weak all morning. Dow fell 139, decliners over advancers 4-1 & NAZ is down 34. But banks are not leading the decline, they're getting a break. As the index shows, banks are mixed with little changes.

S&P 500 FINANCIALS INDEX

Value 157.98

Change 0.52

% Change 0.3%

The Alerian MLP index dropped 3 to 216, probably from lower oil prices. The REIT index dropped only 1 while junk bond funds were weak. The VIX, volatility index, jumped 2, pushing for 31. It had been dropping all year, to 27, on easing fears.


VIX ---- 1 week




Oil backed off the 62 ceiling as markets are trying to assess how badly higher gas prices will affect demand over the first holiday weekend. Gas at the pump was 2.36 yesterday, up 30¢ in the last month.

CLN09.NYM

...Crude Oil Jul 09

...60.28

... 1.76 .......(2.8%)

The number of new jobless claims dropped slightly last week after increasing due to auto layoffs, continuing jobless claims approached 7M. The labor market likely will remain weak into 2010. Initial claims for jobless benefits fell to 631K, down 10K from the previous week. More auto shutdowns will be lifting claims in the coming months.

•Jobless Claims in U.S. Are Higher Than Estimated; Benefit Rolls at Record


Standard & Poor's revised the outlook for Great Britain's credit rating to negative from stable. The rating agency reaffirmed the country's long-term credit rating at "AAA" and its short-term rating at "A-1+," but said the outlook had deteriorated because of massive borrowing to deal with the recession & the banking crisis. The FTSE share index fell more than 120 points (2.7%). A lower credit rating would require the government to pay higher interest rates for borrowings. S&P said 37% of its negative outlooks were followed by a downgrade. Such concern raises doubts about the ability of the UK to raise record amounts of money by issuing more debt

•U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP


The Treasury Department will lend GMAC $7B, making GMAC a sort of federal entity which offers low-interest loans to buyers of GM & Chrysler cars. This follows GMAC failing the "stress test" a few weeks ago. The Treasury mandated that GMAC must raise $11½B within 6 months (after receiving $5B from TARP in Dec). In exchange for that funding, the gov received 5M GMAC shares, giving the Treasury more control over GMAC. This includes telling GMAC that it must extend financing services to bankrupt Chrysler LLC. The big picture is the gov is telling this business what to do. Expanded authority may be used at other companies where the gov is also a major shareholder. The banking arm of GMAC changed its name to Ally Bank last week, in an effort to repair its tarnished image & attract customers.

•GMAC Said to Get More Than $7 Billion in Aid to Fund Chrysler, GM Lending

After the Dow cracked the 8K ceiling, it's still having a difficult time trying to make headway.

Dow Jones Industrials --- 1 month

Markets higher on auto bailout hopes

Stocks are already betting on an auto bailout package bill passing congress, even while its fate remains uncertain. Dow is up 93, advancers over decliners 3½-1 and NAZ is up 21. Indices I follow are generally up 1%, but Lehman High Yield Bond ETF is down pennies (it sells off for any reason or no reason at all). VIX pulled back a couple points, worries are down a tad.

Oil is also benefiting from the expected auto bailout package:

CLF09.NYM

...Crude Oil Jan 09

...44.30

.. 2.23 ......(5.3%)

GMAC has been unable to attract enough capital to become a bank holding company which would allow it to get help from the federal bank bailout program. They are scrambling to raise enough money from Fri to qualify for the program. If not, their future is uncertain or a kind way of saying they probably won't survive. It seems like any auto bailout program will have to include them as they their survival will be key to the survival of General Motors (GM).

•GMAC May Not Win Status of Bank Holding Company, Casting Doubt on Survival

The fallout from the economic collapse & very low interest rates is affecting many institutions. Money market funds are struggling to keep their interest rates above zero %, which is becoming increasingly difficult in these times of low interest rates. Modest expenses could drag some interest rates in negative territory which may bring a major outflow of funds.

•Money-Market Fund Yields May Fall to Less Than Zero on Fed Cut, Crane Says


The relief rally from the auto bailout package probably will not have legs. This buys them only 90 days to get their houses in order, a tough task. GMAC is shaky unless it's included. Meanwhile guidances for 2009 will start coming and they are not expected to be pretty, as was the case for 3M (MMM) on Mon.