Markets leap higher on jobs data

Dow shot up 217, going back over 13K, advancers ahead of decliners better than 4-1 & NAZ gained 58.  The Financial Index was up 5 to just under 200, an almost 3 month high.

The MLP index was flat in the 389s & the REIT index rose 2 to the 268s (near its yearly highs).  Junk bond funds were higher & Treasuries pulled back, that money went into stocks.  Oil surged the most in a month after US payrolls climbed more than estimated & service industries expanded at a faster pace, bolstering optimism about economic strength in the world’s biggest crude-consuming country.  Gold had a $15 gain, bets against an improving economy.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month	0.076%
U.S. 2-year	0.240%
U.S. 10-year	1.575%

CLU12.NYM

...Crude Oil Sep 12

....91.62

... 4.49

(5.2%)

• 

Photo:   Yahoo

US service companies, which employ 90% of the workforce, grew at a slightly faster pace in Jul.  The Institute for Supply Management reported that its index of non-manufacturing activity picked up slightly last month with a reading of 52.6, up from the Jun reading of 52.1 (the lowest since Jan 2010).  Any reading above 50 indicates expansion.  The service sector has now grown for 31 straight months.  But even with the Jul gain, the index remains far below its recent high of 57.3 in Feb.  Part of the strength came from a rise in the index component which tracks new orders.  Service companies include retail, construction, financial services, health care & hotels, among other industries.  The reading was considered encouraging because it at least showed a small rebound after a decline in Jun.  However, it appears as though the economy began Q3 on the weak side.

Service Industries in U.S. Expanded at Faster Pace in July

Photo:   Bloomberg

Spanish Prime Minister Rajoy said he would only consider asking for financial aid for his country once the ECB has fleshed out its crisis-fighting plans for buying gov bonds.  This is the closest he has come to admitting he is considering a bailout after months of denials.  Rajoy urged Europe's leaders & the ECB to speed up the introduction of key reforms to fight the debt crisis & strengthen the struggling banking sector.  "I haven't made a decision (on a bailout) yet," Rajoy said after a cabinet meeting.  "I want to know what the unconventional measures proposed by the ECB are.  We do not know what is being proposed."  Rajoy was speaking a day after the ECB warned it would only help lower a country's borrowing costs if that country's gov applied for rescue aid from the rescue funds set up by the 17 countries that use the € which sent Spain's borrowing costs spiraling again as investors expressed their disappointment & continuing concern over whether Spain can manage its finances & pay its debts.  The interest rate on Spain's 10-year bond was at 6.82% just after Rajoy spoke, dangerously close to the 7% considered unsustainable in the long term.  Such rates could likely push Spain to seek a bailout, deepening Europe's financial woes & sending repercussions to economies beyond the continent.

Rajoy Says He’d Consider Asking European Bailout Fund to Buy Spanish Bonds

Ameican International Group, majority-owned by the Treasury, said profit increased 27% on investments & improvements at its property-casualty unit.  EPS rose to $1.33, up from $1 last year earlier.  Operating profit, which excludes some investment results, was $1.06 a share, beating the average estimate of 60¢.  The Treasury has sold about $17.5B of AIG shares in 3 offerings, reducing its stake to 61%.  AIG bought about $5B of its stock in the 2 sales this year.  The Treasury is expected to sell additional shares in Q3.  The stock gained 52¢ to $31.36.

AIG Profit Climbs 27% to $2.33 Billion on Investments

American International Group (AIG)

Stocks were in demand after the jobs data was announced before trading.  It was a surprise to all, accounting for today's surge.  But there are questions about how long this enthusiasm will last.  The unemployment rate ticked up 0.1%, not a good sign especially when the high rate of unemployment has been a national problem for years.  What the stock buyers forgot is that the 163K jobs gain would have been considered weak in Q1.  Today was the case of beating low estimates.  Euro debt problems are not going away anytime soon.  A Spanish bailout could be around the corner.  Enjoy the increased portfolio values & have a good weekend.

Dow Jones Industrial

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Mixed markets shrug off Euro worries

Stocks held up well in what had been a tough day overseas.  Dow slipped 29, advancers barely ahead of decliners & NAZ was up 1.  Bank stocks did well, taking the Financial Index up almost 2+ to 204.  Losses for MLPs were pared in the PM, but the index still fell a very big 4 to the 389s, & the REIT index rose almost 2 to 261 (4 below its 2012 high).  Junk bond funds were weak & Treasuries rose as the 10-year bond yield touched a 3-month low on safe-asset demand after elections in France & Greece raised concern govs will drop deficit-cutting plans used to combat the region’s debt crisis.  That thinking brought selling in oil & gold (although gold should have benefited).

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.076%
U.S. 2-year	0.254%
U.S. 10-year	1.875%

CLM12.NYM

Crude Oil Jun 12

97.94

0.55 (0.6%)

The head of the IMF urged indebted countries in Europe & elsewhere to reduce budget deficits only gradually to avoid further damaging their economies.  Christine Lagarde said that steep cuts tend to slow an economy, particularly if a nation is already suffering from weak growth.  The speech came one day after voters in France & Greece rejected govs associated with cuts in social spending & other austerity steps.  The appropriate path is country-specific, she said.  "Some countries under severe market pressure have no choice but to move faster," she said.  "On the whole, however, adjustment should be gradual and steady."  Many European countries have been trying to reduce debt loads as a percentage of their economies.  When they have taken steps to cut deficits, such as raising taxes or cutting spending, their economies have shrunk, making it harder to reduce deficits as a percentage of their economy.  Lagarde urged govs to avoid that trap.  Instead, they should focus on gradually reducing debt levels & not cutting further if the economy weakens.  "There is no avoiding this brake of fiscal adjustment," she said in a prepared version of her remarks.  "But if calibrated correctly, we can make sure it doesn't do too much harm to growth."  Sounds good, but countries still have to learn how to deal with out of control social spending.

IMF chief urges gradual approach to spending cuts AP

US consumer spending surged in Mar by the most in more than a decade on growing demand for educational financing & autos.  Credit rose $21.4B, the biggest gain since Nov 2001, to $2.54T, according to the Federal Reserve.  The advance was paced by a $16.2B jump in non-revolving debt, including student & car loans.  Americans may have been trying to get school financing before a possible increase in interest rates takes place on Jul 1.  Increasing consumer confidence also means that households are more willing to take on debt to boost spending.  The increase in consumer credit topped the $9.8B forecast & even exceeded the highest estimate $15B.  The surge in non-revolving debt followed a $11.6B gain in Feb.  The data doesn’t track debt secured by real estate, such as home equity lines of credit.  Lending by the federal gov, which is mainly for student loans, climbed by $6.9B.  The rate on the student loans is set to double on Jul 1 without action by Congress.  The increase would affect about 7.4M students, adding an average of $1K a year in payments on college loans.  As mentioned above, cutting gov spending is difficult when it involves stepping on "my" toes.

Consumer Credit in U.S. Rose in March by Most in Over 10 Years

Photo:   Bloomberg

The Treasury agreed to sell $5B of its stock holding in AIG, with the bailed-out insurer buying $2B of the total.  The Treasury will sell 164M shares at $30.50 each, compared with a closing price of $32.83 on Fri. This is its 3rd offering of AIG shares in the last year, which reduces the Treasury’s stake to 63% from 70%.  AIG has sold assets to help raise funds to buy back shares.  The Treasury raised $5.8B in the first offering in 2011.  At the same time, AIG sold 100M shares for $2.9B to demonstrate access to the capital markets & satisfy a condition of its bailout.  The Treasury divested its first 2 chunks of stock at $29 & needs to average $28.72 to break even on its investment.  The gov’s remaining investments total $39B after the share offering.  AIG stock fell 1.26 to 31.57.

U.S. Treasury Sells $5 Billion of Shares in AIG, Paring Its Stake to 63%

American International Group, Inc. (AIG)

The € weakened to a more than 3-month low ($1.306) after the Euro elections that stoked concern austerity efforts may be derailed.  The € has not strayed far from $1.32 all year, hard to figure with all the ups & downs over Euro debts.  US markets held up well, maybe the successful traders stayed away for a long holiday weekend.  The bulls like to see the Dow holding above $13K (just barely) under pressure.  However there was a little selling into the close.

Dow Industrials

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Flat markets as oil hits a 10 month high

Dow slipped 1, advancers over decliners 5-4 & NAZ added 6.  The Financial Index was down 1 to the 197s. 

The MLP index vaulted another 3+ to the 411s, a new record high.  The REIT index was about even at 246, junk bond funds remain in demand as investors seek out their (loosely) high yields & Treasuries rose.  Oil capped its longest rally in 2 years to almost $110 as escalating tension with Iran threatens supplies & on signs of a global economic recovery.  Gold saw more profit taking although it has had a nice run this year.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.092%
U.S. 2-year	0.309%
U.S. 10-year	1.977%

CLJ12.NYM

...Crude Oil Apr 12

...109.57

... 1.74

(1.6%)

• 

Photo:   Yahoo

Greece launched a bond swap offer to private holders of its bonds, setting in motion the largest-ever sovereign debt restructuring in the hope of getting its messy finances back on track.  The swap is part of a 2nd, €130B rescue package to claw Greece back from the brink of a disorderly default.  The complex deal was finalized this week after months of tortuous negotiations.  The swap, in which investors will trade bonds for lower-value debt securities, aims to slice €100B off Greece's over €350€ debt load.  The head of the International Institute of Finance (IIF), a bank lobby group that negotiated on behalf of the private sector, expressed optimism that the exchange would attract high participation from investors.  "We remain quite optimistic that once investors study this proposal ... there will be high take up," Charles Dallara, IIF managing director, said.  Banks, insurers & other investors holding about €206B of Greek gov bonds will take a 53.5% loss in the face value of their securities, with actual losses estimated at 73-74% (haircut).  Investors will pocket longer-dated Greek bonds worth 31.5% of their holdings & short-term paper issued by the European Financial Stability Fund (EFSF) equal to 15% of their old bonds.  The new bonds will carry an average coupon of 3.65% over the 30-year period & be governed by English law.  Doubts remain because the Greek population does not welcome more austerity cuts.

Greece Invites Investors to Swap, Restructuring

Photo:   Bloomberg

In the back from the dead category, AIG struck an optimistic tone as ir reported a profit of nearly $20B which pushed shares to their highest level in 7 months. While the outsized Q4 profit was a one-time event linked to a tax accounting change, underlying it was a long-term assumption that the company has stopped its multibillion dollar crisis-era losses.  "It signifies our view that we have returned to sustainable profitability," CFO Herzog said.  From the Q1 2008 - Q3 2011, AIG lost just over $106B!.  Over that 15 qtr stretch it lost more than $1B in 10 different periods.  But management said it no longer expects such losses to be routine.  The stock rose 41¢ to $28.40.  This price compares with the Treasury's $28.73 breakeven point on its 77% stake.  The company did not give any forecast on when Treasury might sell shares again, though it has said previously the gov was waiting for a window where they could be sold profitably.  Any "profit" doesn't even qualify as a drop in the bucket relative the massive gov losses which have become ordinary.

AIG Rises as Insurer Posts Record Profit on Tax Benefit

American International Group, Inc. (AIG)

Iran tripled its production of enriched uranium & rejected the intl concerns about its possible pursuit of nuclear weapons that a team of UN inspectors carried to Tehran this week.  Amid rising tensions about its nuclear research, Iran “dismissed the agency’s concerns,” the Intl Atomic Energy Agency said today.  Iran is now making almost 31 pounds (14 kilograms) of 20% enriched uranium a month compared with almost 9 pounds in Nov.  This news is bringing out buyers for oil on concerns about closing the Strait of Hormuz to oil shipments.

Iran ‘Dismissed’ IAEA, Raised Uranium Production

The average price of gas at the pump was $3.65 yesterday & headed higher!

Source:   AAA


The € rose to an 11-week high against the dollar $1.346 on increasing optimism about the global economy & on the Greek debt mess be resolved quickly.  Dow is up 2500 in just 6 months.  This is one of its best moves in history over a short time span.  The chart below shows there  was only one hiccup, in Nov, otherwise it has gone straight up.  Investors see a recovering economy in the US & have high hopes that European debt problems will be resolved peacefully.  Getting the Greek debt mess squared away is still iffy.  More disturbing is the rising price of gas.  Current levels of crude will bring more price rises & crude is likely to head higher.  High prices for gas at the pump have always hurt the economy.

Dow Industrials

Markets give back early gains

Stocks started the day strongly higher with the Dow up 100, then sellers returned. Dow is down 8, advancers barely ahead of decliners (the ratio had been 3-1 in favor of advancers) & NAZ which should be strong is down 14. After starting higher, banks stock also sold off taking the Financial Index into the red. It's approaching the yearly lows of 182.


S&P 500 FINANCIALS INDEX

Value	185.45
Change	-0.39 (-0.2%)

The Alerian MLP Index gained 2 to the 323s while the REIT index was up a fraction in the 199s. Junk bond funds were about 1% higher. The VIX was down a fraction to 25, little changed in recent weeks. The € was flat at $1.27. Treasury yields remain at uncomfortably low levels. Today the yield on the 10 year bond rose 2 basis points to 2.63%.

Treasury Securities

U.S. 3-month		0.15%
U.S. 2-year		0.49%
U.S. 10-year		2.63%

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




VIX --- 2 weeks




10-Year Treasury Yld Index --- 2 weeks




Commodities are taking a rest today & probably will remain little changed until after Labor Day.

CLV10.NYM

...Crude Oil Oct 10

...73.97

... 0.15 .......(0.2%)

GCQ10.CMX

...Gold Aug 10

...1,227.10

... 0.40 .......(0.0%)

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Photo: Yahoo


Hewlett-Packard (HPQ), a Dow stock, bid $1.5B for data storage provider 3Par (PAR) after Dell (DELL) agreed to acquire the company for $1.13B last week. They both have been looking to expand beyond personal computers over the past few years in a search for bigger profits. PAR provides software for organizing data on corporate servers using an approach known as "cloud computing." HPQ will pay $24 per share, a 33% premium over the $18 DELL bid. HPQ is the world's biggest computer maker & Dell is #2. PAR stock had been lumbering along in the low teens since it went public almost 3 years ago, but today shot up 7+ to 25.33. HPQ is down 67¢ while DELL is down a penny.

Hewlett-Packard Offers to Buy 3Par, Trumping Dell Bid


3Par --- 1 month




Hewlett-Packard --- 2 years




Dell --- 2 years





American International Group (AIG), in its single biggest repayment of bailout loans so far, is paying back nearly $4B in gov aid with proceeds from a recent debt sale. Its aircraft leasing company, International Lease Finance, completed the sale of $4.4B in debt & AIG will use most of the proceeds to repay the Federal Reserve Bank of New York, trimming the balance on its credit line with the Fed to $15B. But adding interest, the total is about $21B. "This is continuing tangible evidence of AIG's progress in repaying the American taxpayers," said Robert Benmosche, AIG President & CEO. "AIG is getting stronger every day. We still have more work to do, but we will finish the job and make sure we repay the American taxpayers" he added. The repayment will release about $10B of collateral pledged to the Federal Reserve under the credit agreement. Separately, AIG said it will book a pretax charge of about $650M against its earnings due to the repayment. The stock is up 24¢ & has been steady near $35 after being a flier earlier in the year.

Fed Said to Plan Reining in AIG's Credit Line by $3.6 Billion


AIG --- 2 years





M&A activity should bring back buyers, but that effect only lasted a couple of hours today. A lot of housing number are coming this week & they are not expected to be pretty. Dow keeps plodding along with a downside bias, 10K is less than 200 away.

Dow Jones REIT Index --- 2 weeks

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