Dow Jones & Alerian MLP Index - 2008

Dow Jones Industrials started the year in the 12Ks, mostly going sideways with a modest downward bias. Then it ran into the large sell-off from mid May to mid July falling from 13K to below 11K with financials leading the sharp decline.

Dow Jones 2008

S&P 500 FINANCIALS INDEX

The Financial Index (courtesy of Bloomberg) started the year at 382, falling to a low of 232 on July 15, followed by a 1 week sharp recovery & then leveling off under 300. Their chart performance is similar to the Dow Jones & the Financial Index remains in the dumps. Last week large losses reported by Fannie Mae (FNM)/Freddie Mac (FRE) were reminders the credit crisis, or whatever it is called, drags on.

I follow MLPs because I like their prospects & high yields. They have had a different ride as shown below, but, like the Dow, are also dealing with an unclear future:


Alerian MLP Index






3 years ago, the Alerian MLP Index had a sideways run for about a year. Then 2 years ago, it had a beautiful increase going from 250 to 330s, followed by a bumpy few months barely attaining new highs. Then came the rapid sell-off to 300, a level it has gotten used to living under.

Reasons for the moves are difficult to understand. The sell-off a year ago may have been related to hedge fund guys panicking, selling off a lot of units quickly & not caring about the price declines. More recently, the 2 month decline for the Dow starting in May, dragged the index down to the 52 week low where it trades today.

At present, the Dow chart looks more optimistic after bouncing off its low under 12K while the MLP index is clearly on defense. Both face serious but different challenges & I feel each one will be going through tough times in the short term.

Return of the Monster Rally

Dow Jones rose 302, advancers ahead of decliners 5-2 (again, less spectacular than might be expected with a hug rally) & NAZ up 58. However, NYSE volume was subdued at 1.2B. Lower oil prices carried the day:

CLU08.NYM

Crude Oil Sep 08

115.18

4.84 (4.03%)

One key reason for the decline in oil is the rise in the dollar. It now take more than 110 ¥ to buy a dollar and the Euro, at $1.50, is down 10¢ in recent weeks. Driving forces for the strong dollar are lower oil prices & the weakening economy in the US (not to mention the rest of the world). Sounds good but a struggling economy with tons of banking related problems doesn't sound good to me.

Not as pretty day for financials as it should have been. UBS is settling a securities case requiring them to buy back $19B in bonds after they misled investors. This is one more case where smart bankers don't seem to know what they are doing! Banks had a good day, but not their best, as shown with BAC & USB in my widget on the right.

S&P 500 FINANCIALS INDEX

Value...294.08___ Change...up 10.05___% Change...up 3.5%

The index, courtesy of Bloomberg, is trying to get above the 302 level which has become resistance in the last week. Next week another try at going above. Ugly Fannie Mae news about its losses & confusion about where it's going keeps some buyers away from these stocks.

The Alerian MLP index was up pennies (as shown in my widget on right) but remains a whisper away from the 52 week low. REITs rose, basically joining in with the general market. Even junk bond funds inched up a couple pennies following the gains in the Treasury bond whose yield pulled back to 3.95%.

There have been a number of big gain days in the last month. But after the 5 day rally at mid July, the Dow Jones has not been able to build on those gains.

Lower oil prices lifts stocks

This is one of those go figga kind of days. Fannie Mae (FNM) reports an uglier loss than expected but markets are up on good news about lower oil prices. Dow is up 188, advancers over decliners a more modest 2-1 while NAZ is up 39. Oil dropped 3½ to the 116s encouraging stock buyers to charge forward. Oil is now down 30 from its recent peak.

Fannie Mae reported a 2.3B Q2 loss, more than triple expectations. Among the many questions around FNM are: when will the bleeding stop, how much added money will they need & will they need even further additions to capital? Their chart tells a dreary story especially in the last few years:

Fannie Mae

Banks are up but surprisingly only moderately on a big rally day. REITs in sympathy are up, but not as much as might be expected. The Alerian MLP index is down pennies, on lower oil prices, flirting with its new 52 week low set a couple of days ago.

Macro economic conditions drone on. Housing & autos, 2 large industries, are in a severe recession, retail sales are sluggish at best & the financial loan picture is gloomy. Let's see what the PM holds for stocks.

Monster Decline

Stocks never had a chance today. Dow was down 224, decliners over advancers 3-1 & NAZ dropped "only" 22. NYSE volume continues low at 1.3B. Low volume indicates bleeding will continue. A dreary unemployment report combined with a weak, at best, outlook for retail sales sunk stocks.

American International Group (AIG), a Dow stock having its worst day in 26 years (plunging 5¼) led the way down. Citigroup (C), another Dow stock, will have to return $B to investors after paying $100MM in fines, down 1.23, aggravated the negative feeling on Wall Street. The picture of AIG stocks shows they're at the lowest level since 1993:


American International Group




Financials sold off big (courtesy of Bloomberg TV):

S&P 500 FINANCIALS INDEX

Value .. 284.03 .... Change (15.01) .... % Change (5.0%)

The Alerian MLP index dropped only 2 to 259½, straddling it's new 52 week low from a couple of days ago. By comparison that's good. REITs sold off in sympathy with financials as gloom, & doom carried the day. Tomorrow Fannie Mae (FNM) reports what should be another ugly picture of big losses.

In times like these, the idea is keep your cool. Look for good values. I like oversold stocks with high yields which will make the waiting period go better until there is a meaningful recovery.

Walmart & jobless claims sink stocks

More negative macro economic news sent markets lower. Dow is down 109, decliners over advancers 3-1 & NAZ is down 10. Jobless claims rose slightly to 455K, worse than expected & a 6 year high. The 4 week moving average rose to 419½K, highest in 5 years. Wal-mart (WMT) reported same store sales were up 3% & Target (TGT) reported a decline of 1.2%, both below expectations. Wal-mart said, "With the end of the stimulus checks, we know consumers are spending more cautiously." Retail sales for July are looking grim & the important back to school sales season is not going well. Oil rose 1½ to over 120 on supply concerns, this time from a fire on a Turkish pipeline.

American International Group (AIG), largest insurance company in the world & a Dow stock, reported a much larger than expected loss last night, down almost 5. Today's decline is after the stock had fallen 50% YTD. They are heavily involved in credit default swaps, insurance policies to protect bondholders against defaults. AIG lost more than $25B pretax on credit default swaps in the last 9 months. Talk about not knowing what they are doing!!

The Alerian MLP index, remains near its 52 week lows, up fractionally to 262. REITs continue to pull back. Enough already with this dreary news.

Freddie Mac problems move markets

After all is said & done, stocks ended up a little. Dow is up 40, advancers were only slightly ahead of decliners & NAZ rose 28 helped by Cisco, up 1.28, after last night's earnings. Volume continues light, at 1.2B on the NYSE. S&P 500 FINANCIALS INDEX, after an AM sell-off taking it down from the interim high yesterday of 302 to a low of 295, rallied back to 299 down 3, not too bad.

Oil closed down on routine news:

CLU08.NYM

...... Crude Oil Sep 08

.... 118.46

..... 0.71 (0.60%)

After an early morning 3 point rally, the Alerian MLP index held in the 261s, officially closing at 261.65 up 3.02. Not too bad. REITs did not rally, just sold off.

Freddie Mac (FRE), down 1.55, dominated talk today. Everybody's trying to figure out how bad their situation is & when they will need more capital. They share many of the same problems with Fanne Mae (FNM), down 2, reporting earnings on Fri. They're getting clobbered by lower home prices sharply reducing equity behind their loans. Foreign investors who bought about $1½ trillion of FRE/FNM bonds are trying to cope the new situation, these bonds originally viewed as AAA are turning out to be junk rated. They know about the mortgage mess because they read about their local banks writing off $B on investments.

Tonight, another biggie financial, American International Group (AIG), largest insurance company, reports earnings & expectations are not pretty. The stock is the worst performing Dow stock this year, down 50%. They share similar financials headaches as the competition only their numbers are bigger & uglier.

Financial realities return

Dow is down is down 68 (check the graph below for today's decline), decliners over advancers more than 3-2 & NAZ declined 10. Euphoria is being replaced by reality. Oil is little changed. Keep in mind that Iran, once again, is rattling its sabers with a wimpy reply to the concept of inspections for the nuclear facilities.

Monster Rally Over

Freddie Mac (FRE) reported an ugly loss, down 1½ or 12%. Most interesting to me was a decline in revenues of 25% to $1.7B. Uggggh! All financials are being dragged down:

S&P 500 FINANCIALS INDEX

Value.....295.61........Change (6.44).........%Change (2.13%)

Yesterday this index reached 302 matching the interim high on Jul 23. Looks like it wants to head south. The FRE news is nothing new. Fannie Mae, etc. will be reporting more ugly news. Yahoo has a forecast by a professor that housing recession will drag into next year. Where housing goes so go financials. This negative mood also drags down REITs, not to mention the markets in general. The Alerian MLP index rebounded from yesterday's 52 week new low, up 3½ to the former 262 low. For the big boys, Exxon Mobil (XOM) is down slightly while Chevron (CVX) is up 1%.

I think this sell-off will carry the day & maybe the rest of the week.

Stocks roar ahead on steady rates from the FED

Investors bought on the rumor & bought even more on the news. Dow was up an impressive 331, advancers ahead of decliners almost 3-1 (not so impressive) & NAZ rose 64. NYSE volume was subdued at 1.4B, mediocre for what was an impressive rally.

FED did not change interest rates plus their kind words afterwards encouraged investors. News on the oil front was also good as oil traded near its low for the day, not to mention a 3 month low:

CLU08.NYM

Crude Oil Sep 08

118.65

2.76 (2.27%)

Oil stocks sold off, Chevron (CVX) dropped 31¢ but Exxon Mobil (XOM) rose 1¾ (possibly helped by my comments yesterday). The Alerian MLP index dropped 4 to the 258s, setting a new 52 week low. Financials, led by banks, found plenty of buyers, as did many stocks. However junk bond funds sold off slightly in sympathy with lower prices for the Treasury bond, even though they have little in common. Maybe they wanted to maintain that 800 basis point spread.

Cisco (CSCO) reported earnings after hours beating estimates by a penny. The stock rose 66¢ during the day & is adding another almost $1 after hours. NAZ will be starting tomorrow's trading with following winds.

Asian markets are expected to follow thru with strong gains. But tomorrow, in the US, will be a new day day with more news stories as Cisco's news fades in influence.