Bernanke spoke, traders listened

Dow was 7200 when Congressional hearings began. It rose 100+ after the hearings concluded, but slipped badly in the final hour. Enthusiasm is fragile. Dow ended down 80, decliners ahead of advancers 3-2 & NAZ was down 16.

Movements in the Dow were mirrored in the S&P 500 FINANCIALS INDEX. It responded nicely to testimony. After being down, it rose 10 (10%) off the low but succumbed to late day selling & remains near records low levels set a few days ago. Bank of America (BAC) jumped sharply off its low early in the day, but pulled back ending up 43¢ at 5.16.

Value 107.07

Change 0.50

% Change 0.5%

The Alerian MLP Index rose 5 to 186, REITs & junk bond funds were down while VIX dropped another 1 to the 44s.

Oil had a big day, up on news that US gasoline inventories fell 3.4M barrels last week. Gold was quiet, slipping a couple dollars.

CLJ09.NYM

..Crude Oil Apr 09

..42.72

.. 2.76 ......(6.9%)

• Oil jumps 6 percent on U.S. gasoline stock draw- Reuters

Chairman Bernanke gave soothing testimony before Congress. The Federal Reserve has an exit strategy, to get out of financing banks, once the economy recovers. However Congress may have different ideas, especially with regards to their meddling. The Treasury better defined its role in providing aid to banks.

Banks were given 6 months to raise money (public or private) if stress tests show they need additional capital. Meanwhile banks will be able to obtain further support under the $700 TARP program.

• Bernanke confident can keep U.S. inflation at bay- Reuters

•U.S. Banks Will Get Six Months to Raise Capital After Balance-Sheet Tests
Treasury: Big Banks Can Get More Bailout Funds- AP


The eyes are now off DC. Banks will get back to the lending business (or whatever they do), car makers will try to straighten their businesses & retailers will carry on. It's difficult to see that the hearings accomplished very much. The sell-off in the last ½ hour (shown in the BigCharts widget in the right sidebar) must be discouraging to the bulls.

Bernanke testimony raised spirits

Markets liked what they heard when Chairman Bernanke testified before Congress. He tried to clear the air about nationalizing banks. However, the concept will remain murky especially when the Federal Reserve has to make it up as they go along. Dow rose 236, advancers over decliners 4-1 & NAZ was up 54.


Banks had an excellent relief rally giving the S&P 500 FINANCIALS INDEX one its best days in some time. Of course, it came off extremely depressed levels.

Value 107.57

Change 11.39

% Change 11.8%

High yield securities found buyers today. The Alerian MLP Index gained 5 to 182 as shown in the Yahoo widget on the right. REITs & junk bond funds also had an excellent day while the VIX plunged 8 to 44½.


Oil rebounded while gold was hit with more profit taking. Maybe some of that money from gold sales was used to buy stocks.

CLJ09.NYM

..Crude Oil Apr 09

..39.93

1.49 ....(3.9%)

ZGG09.CBT

..Gold 100 oz. Feb 09

..970.20

24.30 ....(2.4%)

Chairman Bernanke made investors feel better saying that the FED would not nationalize banks & the recession could end by later this year. He also talked about banks lending more & being prepared to cut divs to conserve cash for the balance sheet. His ideas sounded good but the FED's role in bank business & lending activity still has to be better defined.

Stocks Jump After Bernanke Says Recession May End This Year- AP
Fed urges banks to lend bailout funds: source- Reuters


The decline must the worst one since the depression. By way of comparison, at the start of 1973 Dow just touched 1000 on a wave of optimism. That year was awful, highlighted by the oil embargo driving up oil prices & inflation to what were record levels for modern times. The Dow kept dropping for more than a year. The total decline was more than 40%, dreadful. Then it took almost another decade before it tested 1K again.

The current peak was 17 months ago. After today's rally, Dow (7350) is down 48% from the recent peak.

Oct_9,_2007.........14,164


Asian markets will begin trading in a couple of hours with a strong upward bias. But economic reality will keep playing out. The markets will tell us if this relief rally has legs.

Dow descends to 12 year lows

Damage done to the Dow, representing all stocks, is unbelievable. YTD the Dow is already down over 1600 or 19% & down almost 50% from its peak a little over a year ago. Today, Dow dropped 250 on more dreary news with only promises of help. Decliners were over advancers 6-1 & NAZ dropped 53.


Dow Jones Industrials --- 29 years





S&P 500 FINANCIALS INDEX dropped 3 to 96. I guess it could have been worse. The bulls would say, at least banks didn't sell off even more. General Electric (GE) has an 8 handle with a yield of 14%, as it's considered just another big bank in trouble.

Following a very bad week, the Alerian MLP Index dropped 8½ today (one of its worst days ever) to the 176s, taking it back close to the starting point this year. At the lower value, its yield is near 12%. REITs & junk bond funds also sold off. In the meantime VIX jumped 3 to 52 on increased fears.


Alerian MLP Index --- YTD




In commodities, oil sold off badly while gold slipped a little taking it just below 1000 an ounce. It's easy to see where frightened money has been going.

CLJ09.NYM

..Crude Oil Apr 09

..38.07 ..

1.96 ......(4.90%)

ZGG09.CBT

Gold 100 oz. Feb 09

995.20 ..

5.20 ......(0.52%)

The President gave a speech, asserting that he is against waste. Unfortunately, there is no dept of waste which can be wiped out with a stroke of the pen. Eliminating waste means the gov has to stop giving money to groups & lay off gov workers. When that happens waste only applies to "other" programs, never mine. We'll see. He is going to release $15B to help states with Medicaid plans. Unemployment benefits will be expanded, but that gets touchy when it becomes more inclusive. When he gave the speech, Dow was down 140. After the speech, it was down 200.

• Obama: $15B from stimulus going to Medicaid plan- AP

Below is an article from the Wall Street Journal explaining that the recession has expanded to virtually all areas of the economy. Since the bear market began a little over a year ago, the top contributors to the Dow's decline are:

JP Morgan (JPM)
Caterpillar (CAT)
3M (MMM)
United Technologies (UTX)
Chevron (CVX)
Procter & Gamble (PG)

• Stock-Market Pullback Isn't Just 'Financial' Now- WSJ.com

AIG is far from being repaired. They are expected to report a $60B loss meaning they'll need even more money. Their reach is so vast that the thought of letting them fail is not an issue.

•AIG Seeks Further Government Aid, May Have $60 Billion Loss, CNBC Reports


It feels like the entire economic system is coming unglued & nobody knows how to fix it. Major averages are selling at 12 year lows. Anybody who missed an opportunity to buy a stock 5, 10, whatever years ago can probably buy it today at a cheaper price.