Markets fall on euro zone worries

Dow fell 72, decliners over advancers 4-1 & NAZ was up 2.  Banks stocks are lower, but selling has been limited so far.  In overnight trading & before the open, Dow had been off 200,.

S&P 500 Financials Sector Index

Value	163.60
Change	-0.61    (-0.4%)

The MLP index fell 5 to the 243s & the REIT index fell 2 to the 216s.  Junk bond funds were mixed & Treasruies are firm with the yield on the 10 yar Treasury essentially at its record lows from last week.  Oil rose for the first time in 3 days as the euro rebounded from a 6-month low, increasing the appeal of commodities as an alternate investment.  Gold is sloshing around the 1800s, looking for a base to build on.

ALERIAN MLP Index (^AMZ)

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.189%
U.S. 10-year	1.917%

CLV11.NYM

....Crude Oil Oct 11...

87.69

...... 0.45

(0.5%)

GCU11.CMX

...Gold Sep 11

.....1,834.40

.... 22.00

(1.2%)

Click below for the latest market update:

George Papandreou
Photo:   Bloomberg

Union opposition to the Greek gov austerity program intensified as tax collectors went on strike, & power workers vowed to sabotage a new emergency property tax aimed at plugging a budget gap spotted by intl creditors.  Tax & customs workers walked off the job for 2 days to protest cuts in their bonus pay while the power company union said it would "not allow the company to be used as a tax-collecting mechanism" for the property levy, which will be included on household electricity bills.  The gov chose that system of payment because of inefficiencies within the tax authorities.  The European Commission said Greece's budget deficit this year will be more than expected, likely reach 9.5%, up from the originally predicted 7.6%.  In the first 8 months of the year, the country's budget deficit was €18.1B, already exceeding the annual target of €17.1B.  The ministry attributed the bulk of the shortfall to the deeper than expected recession this year, the Greek economy is expected to contract a further 5.3%, but said that the public finances will get better in the next 4 months as new tax hikes & spending cuts come into effect.  This is a sorry state of affairs & explains why Greek debts yield over 50%.

Papandreou Sets New Measures to Skirt Default




Photo:   Yahoo

McGraw-Hill, a Dividend Aristocrat, will split into 2 public companies with one focused on education & the other centered on markets (featuring the Standard & Poor's unit).  The decision, comes after a yearlong review of the company's business.  Investors have pushed MHP to boost the stock price which has dropped 40% in 5 years.  MHP will also accelerate share buybacks to $1B for 2011.  McGraw-Hill Education will be the new company focused on education services & digital learning, while McGraw-Hill Markets will retain S&P & JD Power, a market research company.  The markets business expects 2011 revenue of about $4B, with almost 40% coming from intl markets.  The education segment is forecasting revenue of about $2.4B.   The stock rose 69¢.

McGraw-Hill to Split Into Two Companies

McGraw-Hill Companies, Inc. (The) (MHP)

Bank of America, a Dow stock & the biggest US lender, will likely lose that distinction as it's partly dismantled.  Chief Executive Officer Brian Moynihan has reorganization plan, called Project New BAC, which will pare the workforce by tens of thousands & probably relinquish its lead in assets, jobs & mortgage servicing.  Being the biggest doesn’t matter anymore.  Project New BAC is designed to make the bank easier to manage, more focused -- and smaller, said Moynihan.  The stock has a dreary chart, but is up 2 pennies today.

BofA to Cede Top U.S. Rank as Moynihan Trims

Bank of America Corporation (BAC)

Greece is at the center of attention for the markets & it doesn't look pretty.  Of course, domestic problems are not far away.  Fixing the US deficit makes the problems in Greece look like chump change.  Dow is below 11K & the 10.7K low from last month is haunting the markets.   It would take just a downdraft to break thru with a next stop of 10K.  Dow is down over 700 so far in Sep.

Dow Industrials (INDU)

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Markets are on a 3 day winning streak

After a slow start, buyers returned in the PM.  Dow shot up 143 (500 this week!), advancers over decliners a mild 2-1 &  NAZ gained 21.  Bank stocks were leaders as ugly rumors about their health problems were proven wrong.

S&P 500 Financials Sector Index

Value	170.89
Change	4.70    (2.8%)

The MLP index & REIT index each gained 2½ while junk bond funds were mixed to lower. Treasuries fell, pushing 10-year yields up 12 basis points to the highest in a week, after the durable goods report & on optimism that the US economic recovery may accelerate.  Oil advanced after a report showed that US inventories unexpectedly declined as refinery rates matched the highest level of 2011.  Gold took a fast & furious 5.6% dive, its biggest single-day drop since Mar 2008, fueling speculation as to whether the gold trade is finally unwinding.

Alerian MLP Index

Value	340.62
Change	2.48     (0.7%)

Treasury yields:

U.S. 3-month	-0.005%
U.S. 2-year	0.231%
U.S. 10-year	2.260%

CLV11.NYM

...Crude Oil Oct 11

...84.96

... 0.48

(0.6%)

Below is the latest market update:

Photo:   Bloomberg

US home prices fell 5.9% in Q2 from a year earlier, the biggest decline since 2009, as foreclosures added to the inventory of properties for sale.  Prices dropped 0.6% from Q1 according to the Federal Housing Finance Agency.  In Jun, prices retreated 4.3% from a year earlier & increased 0.9 % from May.  Foreclosures are boosting the supply of properties on the market & undercutting the confidence of homebuyers, sapping demand even as mortgage rates tumble to the lowest in more than half a century.  The inventory of homes averaged 3.7M during Q2, the highest since Q3 2010.  Mortgages on 6.5M homes had late payments or were in foreclosure in Jun, according to Lender Processing Services.  Mortgage rates for 30-year fixed loans fell to 4.15% last week & the rate probably will average 4.6% this year, lower than 2010’s 4.7%, according to Fannie Mae.  This news is more of the same from an industry that is trying to break out of its depression. 

Home Prices Decline 5.9% in Second Quarter

Photo:   Bloomberg

Investors are betting McGraw-Hill, a Dividend Aristocrat, will break up into 4 businesses (that include the S&P ratings agency).  CEO Harold McGraw met with 2 activist shareholders earlier this week to listen to their ideas on how to boost the stock price, which has dropped more than 40% in 5 years.  The shareholders, Jana Partners & Ontario Teachers' Pension Plan, made a case for spinning off its different lines of businesses into 4 separate companies.  Even if that doesn't come to fruition, some investors are hoping MHP will respond to the pressure by at least seeking buyers for some its divisions.  There are estimates that the sum of McGraw-Hill's parts could be worth about $50 per share, creating a $3B windfall for shareholders.  The stock was up $2.86 to $41.30.

McGraw-Hill Seen Returning 40% More in Pieces

McGraw-Hill Companies, Inc. (The) (MHP)

Bank of America, a Dow stock, sent a memo to employees quashing speculation that it is in talks to merge with rival JPMorgan Chase (JPM), another Dow stock, & said it didn't "make practical sense."  The memo was sent as takeover talk swirled in the market.  BAC also said the reports that it needs to raise at least $200B in additional capital to meet new regulatory capital requirements was also "wrong."  According to the memo: "At the end of the second quarter of 2011, (Bank of America) had $218 billion in total capital, which is almost twice as much as is needed for an adequately capitalized institution under current standards, and more than enough capital to run our business."  Yesterday, BAC led the decliners, & today it's a leader on the upside, up 69¢ to $6.99.  This shows how desperate the markets are for any news, right or wrong.  Not a good sign!

Bank of America quashes merger talk in memoAP

Bank of America Corporation (BAC)

Reasons for  today's advance were housing prices price declines & durable goods data were better than forecast.  I view that thinking as weak but that's the kind of thinking driving the "up" markets this week.  Rumors about bank problems are running wild.  European financial officials are trying to figure out how to repair the debt problems of Greece & deal with other sovereign debts.  The US needs to borrow an additional $4B every day.  Politicos are on holiday, so nobody is concerned.  But the unemployed have to suffer.  The rise in the markets this week is based on Ben Bernanke being able to pull another rabbit out of the hat on Fri.  Maybe, maybe not.  I'm reminded of the old adage about buy on the rumor & sell on the news.  Sep is around the corner & it could be another rough month.

Dow Industrials (INDU)

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Markets tumble on weak economic data

Dow sank 265 closing at its lows well below 12K, decliners over advancers more than 3-1 & NAZ fell 75.  Bank stocks led the way down with the Financial Index hitting levels not seen since late last year.  A drop of over 5 is a major setback for the index & there was also selling into the close (dropping more than 2 in the last hour).

S&P 500 Financials Sector Index

Value	193.19
Change	-5.33     (-2.7%)

Selling in stocks hit MLPs & REITs.  The MLP index pulled back to where it was in late 2010 & the REIT index fell 7½ to the 232s.  The REIT index is down 16 from its highs just 5 trading days ago.  Junk bond funds were mixed to lower but Treasuries are red hot rallying the most in more than a year after the Senate approved a debt limit deal & a gov report showed consumer spending unexpectedly fell in Jun, reinforcing speculation the economy is slowing.  Oil fell to a 5-week low on the drop in personal spending.  But gold is soaring to new heights as the Bank of Korea announced it bought gold for the first time since 1998.

Alerian MLP Index

Value	361.52
Change	-2.07     (-0.6%)

Treasury yields:

U.S. 3-month	0.036%
U.S. 2-year	0.320%
U.S. 10-year	2.620%

CLU11.NYM

...Crude Oil Sep 11

...93.91

... 0.98

(1.0%)

Get the latest daily market update below:

Photo:   Bloomberg

Analysts predicted only a slight rise in Jul US sales for new cars & trucks. A lack of discounts & continuing shortages of Japanese cars kept many buyers away, causing sales to sputter for the 3rd straight month. Americans also worried about the weakening economy.  But Jul wasn't a total loss as sales of compact cars & newer, more fuel-efficient SUVs rose. Chrysler sales rose 20% over last year, helped by new products such as the Jeep Grand Cherokee, which saw sales jump 76%.  Sales rose 8% at General Motors (GM), led by fuel-efficient vehicles such as the Chevrolet Cruze, which gets 30 mpg in combined city-highway driving.  Sales rose sharply for the Chevrolet Equinox & GMC Terrain small crossovers, which also get good mileage.  Ford (F) sales rose 6%. The new Ford Explorer was a strong performer, with sales more than double a year ago & the Fiesta saw sales rise 58%. But a disappointment for the company was the popular Focus which didn't capitalize on strong small-car sales because of problems at a factory limited production.  This is another glum signal that the economy is sputtering.

US auto industry uneasy after weak July sales AP

Photo:   Yahoo

The Ontario Teachers' Pension Fund & JANA Partners said in a securities filing that they may press McGraw-Hill, a Dividend Aristocrat, to break off parts of the company, & take other steps to boost its market value.  The funds own 5.2% of MGH, which produces textbooks & trade publications, runs 9 TV stations & owns ratings agency Standard & Poor's.  Its breakup value could be about $55 a share. The stock gained 3.02 (7%) to $44.43.

McGraw-Hill Breakup Valuation May Be as High as $70 a Share, Lazard Says

McGraw-Hill Companies, Inc. (The) (MHP)

Twitter raised $400M from DST Global, the investment fund led by Russian billionaire Yuri Milner, & is aiming to raise about $800M in total.  Half will be used to buy back shares from employees & backers. The investment values the short-messaging service at $8B.  Its valuation has more than doubled since Dec, when it received $200M from a group led by Kleiner Perkins Caufield & buyers that gave it a $3.7B valuation.   It was pegged at about $1B in 2009.  Even with stocks selling off, there are buyers for the right stocks.

Twitter Said to Raise $400 Million From Russian Billionaire

Serious recent selling in the Dow can be seen in the chart below.  Dow was 12,724 on Jul 21 & has fallen 860 since then.  The immediate threat from debt default is over although fundamental problems of massive gov deficits have not been solved. The pres talked about adding jobs (finally) but first he wants ot raise taxes on the rich.  Meanwhile the politicos are going home for a long holiday.  This could be a bad month for stocks.

Dow Industrials (INDU)

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