Markets settle back when Dow is unable to hold 13,000

Dow dropped 53,  decliners over advancers almost 2-1 & NAZ fell 19.  The Financial Index was off 1 to the 198s, unable to break 200 all month.

The MLP index was off a smidgen to 408 & the REIT index fell pocket change in the 243s (both near their highs).  Junk bond funds rose while Treasuries retreated.  Oil rose for the first time in 3 days, capping the first monthly gain since Nov, on reports of US economic expansion.  Gold tumbled the most in 2 months on signs that the Federal Reserve will refrain from offering more monetary stimulus to bolster the US economy.

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.076%
U.S. 2-year	0.297%
U.S. 10-year	1.983%

CLJ12.NYM

...Crude Oil Apr 12

...106.96

... 0.41

(0.4%)

Photo:   Yahoo

The economy started the year off well with busier factories, higher retail sales, more jobs & growth in home sales.  The Federal Reserve said that all 12 of its banking districts reported some level of growth in Jan & the first half of Feb.  Manufacturing output rose in all districts.  Auto manufacturing, steel makers & other metal producers all reported solid growth.  Home sales increased in at least half of the districts, an improvement from the last report in Jan.  Sales are expected to climb further in 4 districts & 6 districts reported rising construction of apartments.  However, some manufacturers reported concerns about Europe's financial crisis in the report known as the Beige Book.  It's released 8 times a year.  There are predictions of another big month of job growth in Feb, based on a steady decline in applications for unemployment benefits & more optimism in business surveys.  More jobs have boosted incomes & the ability to spend, a key driver of economic growth.  Incomes increased in H2 of 2011 much more than previously estimated.  Factory production jumped last month & Dec was the strongest month of growth in 5 years.  Even the depressed housing market is flashing signs of a modest rebound.  Of course, this report was conducted before rising gas prices began to bite hard.

Fed: Economy Expanded at ‘Modest to Moderate’ Pace

Greece does little to enforce anti-corruption rules & many of its laws condone graft, undermining its efforts to reform and pull itself out of a debt crisis, Transparency Intl said.  "We all know about the debt crisis, but Greece is also suffering a crisis of values," said Costas Bakouris, head of the corruption group's Greek division.  "It has the right laws in place but does little to enforce them."  Greece has struggled for years with rampant corruption that has hampered efforts to raise taxes & reform its stricken economy, now in its 5th year of deep recession.  Irate foreign lenders are waiting nervously to see whether it follows through on pledges to reform itself.  The report said Greece had many laws in place to fight corruption but they were not being enforced.  On the other hand, laws that allow buildings built illegally to be approved later, & allow "special" accounts at ministries where transparency rules do not apply effectively condoned corruption, it said.  The report urged Greece to improve rules on disclosing the accounts of political parties, put in place stronger rules to make private companies more transparent & merge existing anti-corruption agencies into a single body.  Greece was ranked 80th out of 183 countries in the group's 2011 corruption perceptions index, below China, Saudi Arabia, Tunisia & Cuba.  Only Bulgaria ranked lower in the European Union & Western Europe section.  The Greek debt mess is far from being over.

Greece Doing Little to Fight Corruption, Group Says

Photo:   Bloomberg

The US exported more gasoline, diesel & other fuels than it imported in 2011 for the first time since 1949, according to the Energy Dept as.shipments abroad exceeded imports by 439K barrels a day. In 2010, daily net imports averaged 269K barrels.  Total crude & product imports fell 11% from a year earlier to 8.4M barrels a day, the lowest level since 1995.  US refiners exported record amounts of gasoline & distillate fuels, including heating oil & diesel, to meet higher global fuel demand while gasoline consumption sank & distillate was little changed.  Distillate shipments rose 30% from a year earlier to a record 854K barrels a day, & daily exports of finished gasoline & blending components jumped 57K to 526K barrels in 2011. The US will ship abroad 350K barrels a day more petroleum products that it imports in 2012 & 320K barrels daily in 2013, according to the department’s report released on Feb 7.  Gasoline demand sank 2.9% to 8.7M barrels a day, as pump prices averaged $3.52 a gallon, the highest in history.

U.S. Was Net Oil-Product Exporter in 2011

Apple crossed an amazing milestone in when its market cap exceeded $500B!  To put this in perspective, it is now more valuable than the GDP of Poland, Belgium, Sweden & even Saudi Arabia.  AAPL is the 4th company to break this mark, and unlike others that have briefly traded in this neighborhood ((Microsoft (MSFT) & Cisco (CSCO)), both Dow stocks, & AAPL has the potential to blow past it.  Other companies which have held the title of largest market cap in the world include General Electric (GE) & IBM (IBM), again both Dow stocks.  AAPL will launch iPad 3 in a couple of weeks & plans to bring out a new TV in the fall.  The stock was up $7 to $542 (a new record).

 Apple Valuation Tops $500 Billion as Company Readies IPad 3 Introduction

Apple Inc. (AAPL)

This should have been a day for joy with the Dow & S&P 500 going above key technical levels & NAZ inching over 3K.  But there was no follow thru, instead stocks sold off mildly.  The € slipped more than a penny to $1.33¼ when the ECB tossed big money at European banks.  Dow gained 320 in Feb but is only back to where it was 2 weeks ago before high oil prices became a national issue.  Stocks may need a chance to pause & take a breather after the 2500 rise in the last 5 months.

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Markets pause after Bernanke comments

After starting higher, Dow lost 29 with decliners 3-2 over advancers & NAZ slipped 5.  The MLP index fell 1 to the 407s & the REIT index was down 1 to 243.  Junk bond funds continue strong on greater demand for high yields while Treasuries slipped.  Oil was little changed & gold ran into selling.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.297%
U.S. 10-year	1.976%

CLJ12.NYM

.....Crude Oil Apr 12

...106.83

.... 0.28

(0.3%)

GCH12.CMX

...Gold Mar 12

.......1,770.80

... 16.20

(0.9%)

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The economy grew more than forecast in Q4 as companies rebuilt inventories in anticipation of growing demand.  GDP grew at a revised 3% annual rate (above the 2.8% forecasted gain), the most since Q2 2010 according to the Commerce Dept.  The revision reflected fewer imports & a smaller drop in non-residential investment. 

Economy in U.S. Grew at 3% Pace in 4th Qtr.

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Photo:   Yahoo

The uneven economic recovery will have to pick up in order to quickly bring down an unacceptably high jobless rate, Ben Bernanke said.  "The job market is far from normal," he said to the House of Representatives Financial Services committee.  Bernanke's remarks suggested another round of Federal Reserve (FED) bond buying to stimulate growth is not off the table.  The drop in the unemployment rate, which fell to 8.3% in Jan, is more rapid than would be expected given the economy's sluggish rate of growth, Bernanke said.  "Continued improvement in the job market is likely to require stronger growth in final demand and production," he added.  Sustaining a highly accommodative monetary policy stance is consistent with the FED's goals of achieving full employment with low & steady inflation, he said & the FED believes rates near zero will be appropriate through at least late 2014.  A recent rise in oil prices due to geopolitical tensions may raise inflation for a time & curb consumption, Bernanke said.  "Gasoline prices have moved up ... a development that is likely to push up inflation temporarily while reducing consumers' purchasing power," he said.  At its last policy-setting meeting in late Jan, the FED said it isn't likely to raise benchmark interest rates, which have hovered near zero for 3 years, until at least late 2014.

Bernanke Says Highly Accommodative Stance Meets Fed Goals on Jobs, Prices

Photo:   Bloomberg

The ECB handed out €529B ($712B) in low-interest loans to banks in the 2nd round of a massive credit infusion that has helped ease the eurozone debt crisis.  The volume of loans was higher than the €489B ($657B) handed out to 523 banks at the first offering 2 months ago.  This time 800 banks took the money after ECB assured that there was "no stigma" associated with tapping the offering.  The ECB loans, given against collateral such as bonds or other securities (code name for junky loans), cost banks the average of the ECB's benchmark rate over the life of the loan (1% presently).  The first round of loans helped relieve the pressure on hard-pressed govs such as Spain & Italy, which had been struggling.  Banks used the ECB loans to buy gov debt they previously wouldn't have touched because of the debt's high yield.  It's believed that the 2nd credit offer was unlikely to provide much more relief to gov.

Banks in Europe Tap ECB for More Three-Year Cash Than Economists Estimated


Markets are heading for the best Feb in 14 years, although a gain of 320 for the Dow only gets a grade of C.  Dow & S&P 500 went above technical barriers which has been greeted with yawns.  NAZ inched over 3K, but still has a long way to go to top its 5K record made 12 years ago.  Markets have had a spectacular run over 5 months & seem to be tired.  They're entitled.  For the time being, the European debt mess & rising gas prices are dark clouds which are not going away soon.

Dow Industrials

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Markets rise on higher consumer confidence

Dow went up 23, advancers barely ahead of decliners & NAZ rose 20 (helped by a 9+ gain for Apple after it said it will begin selling iPad 3 in Mar).  The Financial Index inched up a fraction to just over 199, essentially a 7 month high.

The MLP index dropped 3 to the 408s & the REIT index fell 2 to 244.  Junk bond funds continued rising but Treasuries were mixed.  Oil fell for a 2nd day after orders for durable goods dropped in Jan by the most in 3 years, signaling slower economic growth & lower fuel demand.  Gold advanced to a 3-month high as an alternative to a weakening dollar.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.092%
U.S. 2-year	0.285%
U.S. 10-year	1.931%

CLJ12.NYM...

Crude Oil Apr 12

....106.78

... 1.78

(1.6%)

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Greek PM Papademos
Photo:   Yahoo

The Greek gov rushed to push thru legislation detailing tough pension & salary cuts needed to secure access to the country's 2nd bailout.  The vote should come shortly on public sector pension cuts & other savings measures aimed at bringing the budget back in line with targets.  Ministers, meanwhile, decided to apply labor reforms, such as cuts to the minimum wage, retroactive to Feb 14.  Parliament must push thru final bills to receive funds from its new €130B ($174B) package of rescue loans. The bailout & accompanying bond swap deal with private creditors are meant to save the country from a potentially catastrophic default.  The austerity moves are not popular in Greece.

Greece to vote on tough salary, pension cuts AP


The price of gasoline rose for the 21st straight day on Tues.  Drivers are now paying an average of $3.72 a gallon nationwide, about 24¢ more than before the streak began.  The winter surge is being driven primarily by the rising price of oil, which has been above $100 a barrel for 3 weeks as tensions mount between the West & Iran over its nuclear ambitions.  Prices are highest in Alaska, California, New York, Connecticut & Hawaii, which is tops at $4.32 a gallon.  Nationwide, prices are 10% higher than a year ago & at their highest level ever for the end of Feb.  However, the rising price of oil isn't the only factor driving pump prices higher.  Every year, refineries must temporarily shut down facilities in order to prepare them for the production of cleaner-burning gas that's required in summer which briefly constrains gas supplies & puts upward pressure on prices.  The national average could peak in late Apr as high as $4.25 per gallon.  A 30¢ jump in prices, if sustained over a year, would cost the economy about $41B. The Energy Dept, in early Feb estimated that gasoline would average $3.55 a gallon this year, 2¢ higher than last year & forecasted that West Texas Intermediate (WTI) would average $100.40 a barrel, compared with $94.86 a barrel in 2011.  But WTI has risen 8% to around $107 a barrel already.  Brent crude from the North Sea, used as a proxy for the foreign oil that's imported by US refineries, has gained more than 13% to $122 a barrel.  The main reason for the increase is increased tension between Iran & the West.

Gas hits $3.72 per gallon, up 30 cents in month AP

Photo:   Bloomberg

IBM (IBM), a Dow stock, laid off more than 1000 workers in North America (already) this week, according to an employee group.  The job reductions are mostly in the US along with some in Canada.  A spokesman for IBM said that “IBM is constantly rebalancing its workforce.”  He continued  “That means reducing in some areas and hiring in others -- based on shifts in technology and client demand. This allows IBM to remain competitive and relevant in an industry that is constantly changing.”  IBM gained 45¢

IBM Cuts More Than 1,000 Workers, Group Says

International Business Machines Corporation (IBM)

• 

Steve Ballmer
Photo:  Steve Bloomberg

Since Microsoft, a Dow stock, released its Windows in 1985, most of the sequels have been variations on the same theme.  The stakes are much different as it puts the finishing touches on Windows 8, perhaps the most important software in its history.  A  beta (test) version of the revamped operating system will be unveiled Wed, nudging Windows 8 a step closer to its anticipated mass market release in Sep-Oct.  Win 8 was designed to help it keep milking revenue from a PC market that appears to be past its prime, while trying to gain a stronger foothold in the more fertile field of mobile devices.  And that market has been defined & dominated by Apple (AAPL), with the largest market cap in the world, & the Android system from Google (GOOG). The stock was up 52¢.

Microsoft Sees Future in Windows 8 Amid iPad Rise

Microsoft Corporation (MSFT)

The € was up a penny to $1.34½ on speculation an ECB allotment of 3-year loans to banks tomorrow will bolster investor appetite for European debt.  It was also helped by the absence of dreary news on the debt mess.  The consumer confidence data was favorable but it represents history at a time when price hikes in gas are sapping enthusiasm.  The drop in durable goods orders may be more telling.  Even after stuttering for a couple of weeks, Dow still has following winds behind it.  But crossing the milestone of 13K should have been welcomed with more buying.  Crawling over the line is nothing to be proud of.  Tomorrow will be the test to see it can hold.

Dow Industrials

Dow inches over 13,000 on mixed economic data

Dow rose 26, advancers over decliners 3-2 & NAZ was up 9.  The Financial Index gained a fraction to 199.66, a new 7 month high.  

The MLP index fell 1+ to the 408s & the REIT index was off a fraction to the 245s (still near its interim highs).  Junk bond funds & Treasuries edged higher.  Oil & gold were flattish on the mixed economic news.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.102%
U.S. 2-year	0.281%
U.S. 10-year	1.903%

CLJ12.NYM

...Crude Oil Apr 12

...108.22

... 0.34

(0.3%)

GCH12.CMX

...Gold Mar 12

...1,778.40

... 4.80

(0.3%)

• 

Photo:   Yahoo

New orders for long-lasting manufactured goods fell in Jan by the most in 3 years as demand slumped across the board, suggesting the economy started the year on weaker footing than expected.  Durable goods orders dropped 4%, the biggest decline since Jan 2009 when the country was still mired in a deep recession, according to Commerce Dept.  Orders for durables excluding transportation equipment decreased 3.2%, the most since Oct 2010, following g a 2.1% rise.   Data on durable goods can be volatile, & the Jan weakness followed strong gains in Dec & Nov.  Still, the forecast had been for orders to fall just 1.0%.  A slew of economic data had recently eased fears economic growth could slow sharply in Q1.  Other gauges for manufacturing have been more solid & the unemployment rate sank to a 3-year low last month.  Weak orders could add to concerns about the many threats faced by the US economic recovery, aggravated by rising gas prices. 

Durable Goods Orders in U.S. Slump 4%

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Photo:   Yahoo

Single-family home prices ended 2011 on a downbeat note as a drop in Dec prices sent the index to its lowest level since 2003.  The S&P/Case-Shiller composite index of 20 metropolitan areas declined 0.5%, in line with expectations, after falling 0.7% in Nov.  The 20-city index fell to 136.63, the lowest level since Jan 2003.  "After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized. Up until today's report we had believed the crisis lows for the composites were behind us," David Blitzer, chairman of the index committee at Standard & Poor's, said.  "The pick-up in the economy has simply not been strong enough to keep home prices stabilized. If anything it looks like we might have reentered a period of decline as we begin 2012."  Prices in the 20 cities dropped 4.0% year over year, more than than the forecasts of a 3.6% decline.  For Q4, the national index fell 1.7%.  Part of the decline might have to do with foreclosed properties being sold at distress prices.  This data is not helpful  to the economy.

U.S. Home Prices Decline 4%, More Than Forecast

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Photo:   Yahoo

Consumer confidence scaled a one-year high in Feb as optimism about the labor market offset concerns over rising gas prices.  The Conference Board said its index of consumer attitudes increased to 70.8 this month, the highest since last Feb, from an upwardly revised 61.5 in Jan.  The forecast had been for a rise to 63.0 from a previously reported reading of 61.1 in Jan.  "Consumers are considerably less pessimistic about current business and labor market conditions than they were in January," said Lynn Franco, director of The Conference Board Consumer Research Center, said.  "And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects and their financial situation."  Gas prices have risen 12% (42¢) since the start of the year & averaged $3.78 a gallon in the week thru yesterday.  Rising gas prices will be factored into the next round of reports on consumer confidence.

Consumer Confidence Rises to One-Year High

Markets are not sure where to go on blurry news.  The US economic data was less favorable than it has been recently.  The € is up to $1.34½, a 3 month high, on a lack of bad news from Europe.  Rising gas prices is getting scary.  There is talk about releasing the oil the gov is holding for emergencies to bring down prices.  However, defining the current situation as an emergency is not clear.  It looks like stocks will continue to wander with a slight upward bias, awaiting new developments.

Dow Industrials

Markets mixed while crude oil falls

Dow slid 1, advancers barely ahead of decliners & NAZ was up 2.  But the Financial Index was strong, gaining 1.70 to almost 199 (flirting with its interim highs).

The MLP & REIT indices were each down fractionally & junk bond funds also pulled back.  Treasuries rose, pushing 10-year note yields to the lowest level in more than a week, after the G-20 rebuffed German-led calls for financial support to contain Europe’s sovereign-debt crisis.  Oil fell, halting its longest rally in 2 years, after a warning from the IMF on the global economy sparked concern that prices have climbed too fast.  Gold lost ground in profit taking.

JPMorgan Chase Capital XVI (AMJ)

Treasury yelds:

U.S. 3-month	0.102%
U.S. 2-year	0.285%
U.S. 10-year	1.919%

CLJ12.NYM

...Crude Oil Apr 12

.....108.50

... 1.27

(1.2%)

Photo:   Bloomberg

Chancellor Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk “incalculable” damage, defying a public backlash against more bailout funds.  Parliament voted in favor of the €130B ($174B) package.  While questions on Greece’s remaining in the euro “have their justification,” Merkel warned that a failure of the euro might endanger the EU & the global economy.  “I think those risks are incalculable, and therefore indefensible,” Merkel said.  As chancellor, “I should and have to take risks, but I cannot embark on adventures. My oath forbids that,” she said.  Merkel’s gov pushed thru the measure to stave off a collapse of the Greek economy amid signs of growing resistance & as one Cabinet minister said Greece should leave the single currency.   Howevert 17 lawmakers within Merkel’s coalition opposed it, another 3 abstained & 6 didn’t vote.  That left the gov with a majority of 304 votes of the 591 cast, though short of an absolute majority in the lower chamber.  Thus Merkel failed to achieve a “chancellor’s majority,” a politically sensitive bar measuring support among her allies.  Euro leaders will now shift their focus on whether to bolster the region’s bailout firewall as they prepare for a summit meeting on Mar 1-2.  The bailout is far from over.

Merkel Wins Greek Aid Vote After Warning of ‘Incalculable Damage’ on Delay


Boardwalk Pipeline Partners spent $285M for the remaining 80% it does not possess in a joint venture it operates with the natural gas distributor's parent company, giving it full control.  BWP had said it would create the Boardwalk HP Storage Company with its parent Loews (L), gaining total ownership of the storage company was a key goal for 2012.  The MLP operates 7 salt-dome natural gas storage caverns in Forrest County, Miss & the storage units have about 29B cubic feet of total storage capacity.  It also owns undeveloped land that is suitable for additional storage caverns. The company expects to have one new storage facility in service in 2013, at an incremental cost of about $35M.  The units fell 3¢ & yields 7.8%.

Boardwalk Pipeline Partners buys joint venture AP

Boardwalk Pipeline Partners L.P. (BWP)

EL Paso, an explorer for oil & natural gas which operates gas pipelines, earned 24¢ in Q4 better than 9¢ in the prior year.  Revenue increased 25% to $1.23B.  It earned an adjusted 28¢, when excluding special gains & losses.  Natural gas production increased 7½% & oil production 53.6% in Q4.  For the full year, EPS was 18¢, compared $1 in 2010.  Annual revenue rose 5.3% to $4.86B.  EP will be acquired by Kinder Morgan (KMP) in a few months to become the largest MLP in the US.  EP rose 49¢ to $27.65.

El Paso Corp. 4Q profits more than double AP

El Paso Corporation (EP)

Below is the latest glum report from AAA on the price of gas.  The price is climbing & climbing fast.  You know this is serious when all the politicos are talking about their fixes.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.698	$3.843	$3.974	$4.030	$3.166	$4.166
Yesterday Avg.	$3.688	$3.829	$3.962	$4.019	$3.161	$4.160
Week Ago Avg.	$3.565	$3.700	$3.834	$3.952	$3.123	$4.109
Month Ago Avg.	$3.406	$3.533	$3.671	$3.864	$3.050	$4.014
Year Ago Avg.	$3.354	$3.460	$3.595	$3.699	$2.824	$3.7

After selling off at the opening, markets rose to break even & remained in the black for the balance of the day.  But this was hardly a convincing gain even though the S&P 500 eked out a new high since mid 2008.  Traders are trying to assess the muddled European debt mess which has sort of been approved, but not quite fully signed off.  There are no measurements about the effects of rising gas prices, because the worst of the price hiikes has come suddenly.  But this will have a major negative effect on the economy as consumers will have to figure what spending needs to be reduced.  There is a new report about raising the debt ceiling last year.  It may need another adjustment upwards later this year (during the election).  I see dark clouds heading for the stock markets.  Dow slipped a smidgen, short of 13K once again.  Bulls say that shows strength in the face of bad news.  I expect sluggish markets to be followed by more selling.

Dow Industrials