Markets rise in choppy trading

Dow rose 112, advancers over decliners 2-1 & NAZ was up 3.  The Financial Index was up an anemic 1 to 174 as worries about European sovereign debts remain alive & well.

The MLP index rose 1% or 4 to the 363s while the REIT index hardly budged at 223.  Junk bond funds were mixed & Treasuries sold off as stocks rose.  Oil had a good day, taking it above $96 which had been considered a key support level many months ago.  Gold fell the most in 3 weeks as demand for a haven eased after Italian bond yields dropped & a new Greek leader was named, reducing concerns about Europe’s sovereign-debt.

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Click below for the market update:

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.230%
U.S. 10-year	2.052%

CLZ11.NYM

...Crude Oil Dec 11

...97.62

... 1.88

(2.0%)

The federal gov began the budget year with a smaller deficit in Oct than a year ago.  The deficit, the first month of FY2012, totaled $98.5B according to the Treasury Dept, down from $140.4B in Oct 2010.  However, even with the improvement, the deficit remains extraordinarily will keep pressure on politicos as they debate spending cuts & tax increases.  For all of the FY2012, the CBO predicts the deficit will be $973B, below the $1.3T imbalance from the budget year that just ended (2nd highest ever).  But it would still be higher than any previous deficit before fiscal year 2009.  The CBO's lower projected deficit for this year is based on an expectation that revenues, helped by a slowly improving economy, will outpace the growth in gov spending.  Still, a big reason for the smaller Oct deficit was an accounting shift.  Roughly $31B in benefit payments for Oct went out in late Sep.  Federal benefits are paid on the first day of the month.  But because Oct 1 fell on a Sat, the payments went out a day earlier & were accounted for in last year's deficit.  By way of contrast, a decade ago, the gov was running surpluses & $T deficits seemed unimaginable.  Now, the nation's debt is $14.9T.

Federal gov't runs $98.5B deficit in October AP

Photo:   Bloomberg

Cisco, a Dow stock, reported EPS of 33¢ for the qtr ended in Oct.  Excluding the cost of share-based compensation, tax effects & other items, EPS was 43¢, beating the estimate of 40¢.  Revenue grew nearly 5% to $11.3B, also beating estimates.  The company has been trying to right its ship, after running into trouble because of its sprawling attempts to expand into as many "adjacent" markets as possible.  It killed the Flip Video camcorder business less than 2 years after buying it & it's cutting the work force by thousands.  Results for the latest qtr show that business is recovering even as the company is cutting costs.  One analyst said CSCO is "turning the corner" & upgraded the stock from "Neutral" to "Buy," raising the price target to $22 from $19.  Another raised his estimates "moderately," given the uncertain economy, taking his price target from $20 to $22 & rates the shares a "Buy."  The stock rose $1.00 & is well off its lows under $15 earlier this year.

Cisco Profit Tops Estimates on Cloud-Computing Growth, Reorganization Plan

Cisco Systems, Inc. (CSCO)

Apple stock fell amid concern that supply constraints are threatening sales of the iPad & iPhone.  One prediction is that iPad shipments will be reduced to 12M from 14M in this qtr based on word from AAPL suppliers.  Slower sales of AAPL gadgets is also predicted.  However other reports say concerns were overblown.  The conflict illustrates how difficult it is to predict AAPL financial results.  Another analyst lowered the outlook for quarterly EPS to $9.53 from $9.89 because of  “surprise revisions to orders” from AAPL suppliers.  The latest monthly survey of suppliers showed the weakest results this year.  But there are always analysts who maintain their bullish outlook for the stock.  The stock fell $10 to $385.

Apple Shares Slip Amid Supply Concerns

Apple Inc. (AAPL)

After being oversold, the markets had a muted recovery.  A sense of relatve calm coming from Europe was the basis of today's rising stock prices.  Sounds good, but this could have a very short half-life because the European debt mess hasn't gone way.  The new PM in Greece still has an impossible job trying to enforce austerity measures (budget cuts & higher taxes).  Italy has its work cut out for it if it wants to solve its debt problems.  Then there is the super committee in DC.  The 10.6K level in the Dow has proven important in 2011.  First it was a ceiling, now it serves as a floor.  Watch out below if it's broken thru.

Dow Industrials (INDU)

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Markets rise on hopes for European bailout

Dow shot up 166 & closed at its highs, advancers over decliners about 4-1 & NAZ rose 47 (helped by an excellent earnings report from Google).   Bank stocks were higher from buying in the PM with the Financial Index near its 3 month highs. 

S&P 500 Financials Sector Index

Value	169.90
Change	2.37    (1.4%)

The MLP index is solidly above 351, 10% below its record high & the level that has acted as a ceiling for a few months, & the REIT index gained 4 to 211.  Junk bond funds were up 1% & Treasuries sold off, bringing the yield on the 10 year Treasury back towards 2¼% (50 basis points above its record lows last month).  Oil rose to a 3-week high as the Group of 20 began discussions on a solution to Europe’s debt crisis & US retail sales climbed.  Gold continues lumbering along in the low 1600s, losing its appeal in this rising stock market.

Get the latest market update below:

Alerian MLP Index

Value	356.57
Change	3.90     (1.1%)

Treasury yields:

U.S. 3-month	0.015%
U.S. 2-year	0.261%
U.S. 10-year	2.228%

CLX11.NYM

...Crude Oil Nov 11

...87.11

.... 2.88

(3.4%)

Photo:   Bloomberg

Confidence among consumers unexpectedly dropped in Oct as Americans’ outlooks for the economy their finances slumped to the lowest level since 1980.  The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 57.5 this month from 59.4 in Sep, below estimates of 60.2.  The gauge of consumer expectations for 6 months from now, which more closely projects the direction of consumer spending, dropped to 47, the lowest since May 1980!  The figures show a larger-than-projected increase in retail purchases in Sep may not persist.  The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation & whether they consider it a good time to buy big-ticket items like cars, decreased to 73.8 from 74.9 in the prior month.  Consumers said they expect an inflation rate of 3.2% over the next 12 months, compared with 3.3% in the prior survey.  Over the next 5 years, the range tracked by the Federal Reserve, Americans expect a 2.7% rate of inflation, the lowest since Sep 2010, after 2.9% last month.  More data that says all is not well in this recovery.

U.S. Michigan Consumer Sentiment Index Unexpectedly Falls as Outlook Sours


The federal gov ran a $1.3T deficit for the budget year that ended last month, the 3rd straight year it has operated more than $1 trillion in the red.  The 2011 budget deficit was the 2nd highest on record, slightly ahead of the previous budget year's $1.29T deficit but below the $1.41T imbalance record in 2009.  That's $4T in just 3 years!!  A decade ago, the gov was running surpluses & trillion-dollar deficits seemed unimaginable.  For 2011, the gov had to borrow 36¢ of every dollar it spent.  The string of massive debts has made interest on that debt the fastest growing budget category.  For 2011, net interest payments rose 15.7% to $227B (when interest rates were near record lows).  A slightly improved job market helped boost income tax revenue this year.  From Oct 2010 thru last month, the economy added 1.3M jobs which compares with only 339K job gains in the previous 12-month period.  The gov also lost revenue because of the 2 percentage point cut in Social Security taxes & it paid for an extension of emergency unemployment benefits.  Total revenues increased 6.5% to $2.3T & spending rose 4.2% to $3.6T.  The nation's debt is now $14.8T.  Just about 1 month remaining for the super committee to recommend fixes to stop this bleeding.

U.S. Gov't Runs $1.3T Budget Deficit in 2011- AP


The Group 20 of rich & developing nations wrangled over whether the eurozone should pick up the whole bill for its escalating debt crisis, or whether the rest of the world should help out more.  The IMF, the world's lender of last resort, has until now funded about a third of the cost of the bailouts of Greece, Ireland & Portugal.  While some are arguing that Europe has more than enough money to spend its way out of the crisis, others are pushing for more support as debt troubles risk dragging the world economy back into recession.  The region's bailout fund, the €440B ($608B) European Financial Stability Facility (EFSF), is expected to soon start buying their bonds on the open market with the hope that it will support their prices & keep a lid on their borrowing costs to allow them to carry on funding themselves in the markets.  However most economists & a growing number of European officials believe that the EFSF is too small to stabilize both countries & recapitalize banks in other cash-strapped countries.  Meanwhile there is a growing drive to get the IMF to come up with more money.  But any attempt to get the IMF to play a more hands-on approach, by possibly joining the EFSF in bond market interventions is likely to meet with resistance as well as require changes to the IMF's legal framework.  Bailout II for Greece & its aftermath remain a fuzzy concept.

G-20 wrangles over Europe's crisis bill AP


Dow gained a massive 540 this week after a modest gain in the first week of Oct.  There was no dramatic news to support this advance, just a lot of hope that the European powers will straighten out the financial mess in some some countries.  For the moment, they are still trying to figure out how to arrange bailout II for Greece & deal with other countries which need help.  This looks like a fluid situation to me, subject to disappointment.  Next week will start off with 3 big banks reporting earnings & they probably will not be pretty.  Dow is banging on the 10.6K ceiling that has held for over 2 months.  If it gives way markets will rise.  But not sure bulls can keep up the momentum.

Dow Industrials (INDU)

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Markets gain on European bailout hopes

Dow was up 44, advancers ahead of decliners 3-1 & NAZ rose 37.  Bank stocks had a modest gain, uncertain whether to climb higher or react to the confusing debt situation in Greece (among their many problems).

S&P 500 Financials Sector Index

Value	167.27
Change	1.05     (0.6%)

The MLP index rose & the REIT index gained a fraction to 220.  Junk bond funds were up, typically around 1%, but Treasuries fell.  There was an auction of 10 year Treasury notes today & the yield was 2%, low by historical standards but a little above where it has been in the last week.  Oil climbed, rising above $90, on speculation tomorrow's inventory report will show stockpiles dropped.  Gold has had a choppy time of it after reaching its $1900+ record last month.  But its still up over $400 YTD!

Alerian MLP Index

Value	348.33
Change	1.32   (0.4%)

Get the latest market update below:

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.205%
U.S. 10-year	1.989%

CLV11.NYM

...Crude Oil Oct 11

...90.01

... 1.82  (2.1%)

The Treasury Dept reported the deficit federal grew $134B in Aug. At that rate, the CBO projects the deficit will total $1.28T when the budget year ends in 2 weeks.  That would nearly match last year's $1.29B imbalance & come in below the record $1.41B in fiscal 2009. A congressional panel is seeking agreement on $1.5T  ($1T = 1,000,000,000,000)  in savings over the next decade.  CBO Director Douglas Elmendorf warned that spiraling interest payments could swamp the ability by the gov to pay for its operations & could spark a financial crisis if nothing is done.  Interest on the debt is the fastest growing category.  Payments totaled $233B through Aug, up 15% from the same period a year ago. And that's in a low interest rate environment!  Revenues for Oct-Aug totaled $2.06T, up 7.6% from a year ago.  Tax receipts have increased as more people have gone back to work.  Spending totaled $3.3T, an increase of 3.8% from 2010. Before 2009, the deficit had never come close to $1T in a single year!!

Budget Deficit in U.S. Grew to $134.2 Billion in August on Calendar Effect

          The  new Windows 8
          Photo:   Yahoo

Microsoft, a Dow stock, handed out 5K tablet computers running a test version of Windows 8 to stoke excitement over its new operating system.  The devices, are powered by Intel, another Dow stock,  i5 chips.  It includes features tailored for touchscreens & tablets as MSFT is aimed at the iPad.  Tablet makers are expected to start selling products with Windows 8 by the middle of next year at the earliest.  The new system boots up in seconds & features a home page filled with colorful tiles taking the user directly into applications such as Facebook, messaging or news feeds.  MSFT has sold 450M Windows 7 licenses in 2 years, but it still accounts for less than one-third of global Windows users. Tablets running Windows 8 will be able to connect easily to printers, cameras & other devices (i.e. mouse & keyboards).  Separately MSFT is likely to raise its quarterly div to 19¢ from 16¢, possibly later this week.  The stock rose 15¢ & will yield almost 3% if the div increase is approved.

Microsoft giveaway aims to stir Windows 8 interest Reuters

Microsoft Corporation (MSFT)

While stocks gained, very little was decided as was the case yesterday.  Markets have had a rough summer, shown below in the chart.  Dow is down 460 YTD & the negative performance came in the last 2 months.  Refinancing Greek bonds is going nowhere, despite reassurances by officials,  The federal deficit drones on, $4B every day.  The Congressional super committee will try to figure out how to stop the bleeding.  It has just 2 months, or mandated budget cuts will kick in.  There will be a very ugly fight, not good for stocks.

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Stock markets tumble as Treasuries and gold rally

Dow sank another 519, decliners ahead of advancers a relatively mild 5-2 & NAZ fell 101 after yesterday's 124 gain.  Banks stocks had another terrible day, the chart for the Financial Index is not a pretty sight.

S&P 500 Financials Sector Index

Value	163.58
Change	-12.52     (-7.1%)

The MLP  index had another robust gain today, gaining 6¼ to the 348s (between the low of 338 & high of 358).  It's difficult to remember that this is a low beta index!!  The REIT index fell 6 to 208.  Junk bond funds were mixed, torn between worries about a recession forcing more defaults versus the enormous rally in Treasuries, taking yields to record lows.  Treasuries rallied as a $24B 10-year securities auction drew higher-than-average demand & a record low yield in the first offering of the maturity following S&P downgrade last week.  Oil extended gains after the Energy Dept reported an unexpected decline in inventories.  Gold passed $1800 an ounce for the first time as investors pulled their money out of stocks & snapped up precious metals contracts.  Gold is fast becoming a favorite port in a storm of uncertainty, investors are clinging to what they see as a hedge against volatile stock & currency markets.

ALERIAN MLP Index (^AMZ)

Treasury yields:

U.S. 3-month	0.015%
U.S. 2-year	0.180%
U.S. 10-year	2.146%

CLU11.NYM

...Crude Oil Sep 11

...82.51

... 3.21

(4.1%)

Get the latest market update below:

Even with the US running a budget deficit of over $1T & after S&P removed the AAA rating, investors are lending the gov money at record low rates.  5 days after the downgrade, the Treasury sold $24B of 10-year notes to yield 2.14%.  When the US was running surpluses from 1998-2001, Treasuries of similar maturity yielded an average of 5.48%!  Bond investors are influenced by interest rates, the economy & inflation.  Because of the dollar’s preeminent place as the world’s reserve currency, the US enjoys a “funding advantage,” S&P said last week.  Bernanke boosted debt markets yesterday when the Federal Reserve pledged to keep its target rate for between banks at a record low of zero to 0.25% at least thru mid-2013 to revive growth that it described as “considerably slower” than anticipated.  Yields on 10-year Treasuries, a benchmark for everything from mortgages to corporate bonds, fell to a record low 2.03% yesterday, a week after the US came within days of running out of money.  The yield was 3.22% at the start of Jul. US bonds remain in demand at a time when Europe's sovereign debt crisis threatens to spread to Italy & Spain from Greece, Ireland & Portugal, & the global economy is slowing, damping the appeal of stocks.

Downgrade Doesn’t Matter as Bond Investors Show Faith in Fed After S&P Cut

The US budget deficit topped $1T for a 3rd straight year, adding pressure to make more progress on a long-term plan to shrink the growing imbalance.  The Treasury Dept said that the deficit thru Jul totaled $1.1T.  3 years ago, that would have been a record high for the full year!  This year's deficit is on pace to exceed last year's imbalance of $1.29T, but it is likely to fall short of the record $1.41T set in 2009.  For the first 10 months of the budget year, spending has risen 2.4% while revenue has climbed 8%, a sign that more people are working & paying taxes even though unemployment remains high at 9.1%.

Federal Deficit Tops $1 Trillion for 3rd Straight Year- AP

Photo:   Bloomberg

Disney, a Dow stock, reported that net income in its Q3 rose 11% as growth at ESPN, its theme parks & consumer products businesses outweighed lackluster performance at its movie studio & interactive unit.  Results beat expectations, but the surprise boost to fiscal Q3 came mostly because of the early booking of revenue at ESPN, which will result in an offsetting negative in fiscal Q4.  DIS said $228M in fees from ESPN's distributors was booked in Q3, after the company said in May that the fees would likely be booked in Q4.  CFO Jay Rasulo said that resulted in a boost to EPS of 6¢, pushing adjusted EPS to 78¢, above the 73¢ expected.  Without the early ESPN fee recognition, EPS would have fallen short of estimates by a penny.  Revenue grew 7% to $10.7B, topping the $10.4B expected.  CEO Bob Iger said visitors to its theme parks didn't appear to be changing their upbeat spending habits.  "During the past few days we have not seen any change in the pace of activity at our parks and resorts, advertising or consumer products businesses," Iger said. "With Disney, ESPN, Pixar, Marvel and ABC, we remain well-positioned for whatever economic conditions we face in the future."  The fall of DIS in the last 2 weeks is dramatic, today it fell $3.16 (9%).

Disney Falls Most Since 2001 on Spending

Walt Disney Company (The) (DIS)

There is a growing awareness by execs that demand needs to be stimulated to achieve growth.  Growing gov regulations & taxes are not the way to go.  Weak consumer demand is probably the most significant reason behind recent selling in stocks & nobody has an answer to correct the problem.  The budget deficit going over $1T is another ugly reminder about how bad excess gov borrowing has become.  The only consolation is that borrowing problems are worse elsewhere.  If you add the 3 price swings for the Dow this week (ignoring the + & - signs), the Dow has had a total swing of almost 1500.  The VIX, volatility index, shot to 43, near its high of 44 on Mon.  With gold pushing $1800, fears are running high!!

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