Markets tumble on a weak jobs report

Dow dropped 140, decliners over advancers 5-1 & NAZ fell 30.  The Financial Index fell 4+ to the 204s (down 10 from the highs last month).  The MLP index dropped almost 4 to the 388s & the REIT index fell about 4 to the 247s.  Junk bond funds were a little weak, but Treasuries were strong (see below).  Oil dropped as an employment report raised concern that US fuel demand will slow & Iran agreed to resume talks on its nuclear program.  Gold befitted from the jobs report on Fri,

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.066%
U.S. 2-year	0.318%
U.S. 10-year	2.032%

CLK12.NYM

...Crude Oil May 12

...101.42

...... 1.89

(1.8%)

GCJ12.CMX

....Gold Apr 12

.........1,644.60

... 16.10

(1.0%)

Get the latest daily market update below:

Photo:   Bloomberg

Risk averse investing has returned to the markets.  Investors are plowing into Treasuries at a record pace while the supply dwindles.  Yields should remain low even if the Federal Reserve does not undertake more stimulus to fight unemployment.  Buyers bid $3.19 for each dollar of the $538B in Treasuries sold this year, the most since the gov began releasing the data in 1992 & on pace to beat the high of $3.04 in 2011.  The net amount of Treasury debt available will decline 30% once proceeds from maturing securities are reinvested.  Skepticism about the US recovery, as well as signs Europe’s debt turmoil isn’t over, is boosting demand, enabling the Treasury to fund a 4th consecutive deficit exceeding $1T at near-record low costs.  The 10 year Treasury yield has plunged from over 2¼% a couple of weeks ago to near 2% currently.  Demand for gold, the other principal safe haven investment, is also strong.

Record Treasury Demand Keeps Yields Low as Supply Shrinks

Photo:   Bloomberg

Inflation in China accelerated more than forecast in Mar on a pickup in food prices.  Policy makers may exercise caution in adding stimulus to boost growth.  Consumer prices rose 3.6% from a year earlier, the National Bureau of Statistics said (above the 3.4% estimate).  Food-related costs gained 7.5%.  Gov officials may need to remain alert to the risk of inflation bouncing back even after price increases stayed below the 4% target for a 2nd month.  Its economy may have expanded in Q1 at the slowest pace in almost 3 years, showing the limits of the nation’s contribution to global growth as US job growth weakens & concern mounts about Europe's sovereign-debt crisis.  When China sneezes, the rest of the world pays attention.

China Consumer Prices Rise Faster-Than-Estimated 3.6%

Photo:   Bloomberg

AOL stock surged after it said it agreed to sell 800 of its patents & license others to Microsoft (MSFT), a Dow stock, for more than $1B & plans to return some of the sale proceeds to its shareholders.  After the sale, AOL should have about $15 per share in cash.  Patents have become a hot commodity in the high-tech industry in recent years.  They're useful both for attack, for suing competitors, & for defense — for warding off lawsuits with threats of countersuits.  Software patents can have broad applications, & thousands of patents can apply to a complicated product like a cellphone.  Google (GOOG) is buying phone maker Motorola Mobility (MMI) for $12B to get hold of its patents.  After the sale, AOL will still hold over 300 patents & applications covering a variety of core & strategic technologies including advertising, search, content generation, social networking, mapping, multimedia, & security among others.  AOL also received a license to the patents being sold to MSFT.   "The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value,"  said CEO Tim Armstrong.  AOL intends to distribute a "significant portion" of the sale proceeds to shareholders before the sale closes by year end.  The stock shot up $7.85 (42%).  A short term chart is needed to show the dramatic rise today.

AOL to Sell, License Patents to Microsoft for $1.06 Billion

AOL Inc. (AOL)

As predicted, this is a dismal day for the markets following slower than expected jobs growth in Mar.  The European debt mess is not going away.  ECB financing for Portuguese banks rose to a record in Mar.  Spain needs help.  Then there's earnings season which kicks off tomorrow after the market close when Alcoa (AA), a Dow stock, reports.  The markets are anxious.  The chart below shows Dow has been stuck around 13K for a couple of months.  Today it fell below as S&P 500 dropped to 1379, solidly below the important 1400 ceiling.  Prepare for a rough road ahead.

Dow Industrials

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Dow is on a 6 day winning streak

Dow rose at the start & remained near its highs not seen since mid 2008.  It finished up 69 (but off the daily highs), advancers ahead of decliners 2-1 & NAZ gained 14.  Merger Mon & generally bullish earnings kept the buyers looking for stocks.  The Financial Index was also strong at a 9 month high, just a few points under its peak last Apr.

S&P 500 FINANCIALS INDEX

Value	226.93
Change	3.41  (1.5%)

The MLP index was off a fraction in the 371s.  Competition from higher Treasury yields hurt.  But the Dow Jones REIT Index shot up almost 3 to the 233, barely reaching a new yearly high (really 2½ years).  Junk bond funds had modest gains.  Treasury yields were at their highest levels in 9 months (shown below) although today yields were flattish.

Treasury yields:

U.S. 3-month		0.14%
U.S. 2-year		0.76%
U.S. 10-year		3.64%

Alerian MLP Index   ---   YTD



Dow Jones REIT Index   ---   YTD



10-Year Treasury Yield Index   ---   1 Year




Oil fell to the lowest level in a week as talks between the gov & opposition politicians helped ease tensions in Egypt, reducing concern that supplies will be disrupted.  Meanwhile, gold went nowhere fast.

CLH11.NYM

...Crude Oil Mar 11

...87.43

... 1.60

(1.8%)

GCG11.CMX

...Gold Feb 11

.......1,350.90

... 2.30

(0.2%)

$$ Gold Super Cycle $$  

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Photo:  Bloomberg

President Obama in a speech to the Chamber of Commerce, called for a cooperative relationship with the private sector & argued gov & business have a shared responsibility. He highlighted new efforts by his administration to improve the nation's infrastructure, invest more on entrepreneurs & foster greater innovation.  He offered a defense of gov regulations, even as he promised to eliminate those that are too burdensome.  "I want to be clear: even as we make America the best place on earth to do business, businesses also have a responsibility to America," Obama said. "As we work with you to make America a better place to do business, ask yourselves what you can do for America. Ask yourselves what you can do to hire American workers, to support the American economy, and to invest in this nation."  He called for changes in the corp tax code & increased exports, but pointedly warned that businesses could not translate those benefits into "greater profits and bonuses for those at the top.  We cannot go back to the kind of economy - and culture - we saw in the years leading up to the recession, where growth and gains in productivity just didn't translate into rising incomes and opportunity for the middle class," he said.  OK, now it's back to business as usual.

Obama Calls on Companies to `Get in the Game' by Spending




 Photo:   Bloomberg

AOL (AOL) bought Huffington Post for $315M because it thinks this was a smart deal for both sides.  The Huffington Post gets $300M in cash, not bad for a 6 year old company.  AOL is making a big bet on a fast-growing new media brand, one that could serve as the premiere brand in its network of web sites. Will the deal work?  Hard to say.  Integration challenges will be enormous, from sales to technology to content.  Of course, AOL made a big acquisition over 10 years ago, Time Warner (TWX), which didn't work out so well.  It's hard to shake that legacy, even in this fast moving world.  The market gave this deal a thumbs down, the stock fell 75¢.
 
AOL to Buy Huffington Post for $315 Million; Founder Stays

AOL   ---   1 year




Stocks can do little wrong.  All news is good or at least good enough.  Dow is up almost a startling 1K since the beginning of Dec based on upward revisions of the US economic recovery.  But popular averages have to climb further to set new record highs in the face of high unemployment & a very dreary housing market.  The Federal Reserve is still buying Treasuries in its $600B program with the objective of keeping rates low.  That is not working.  For the time being the bulls are calling the shots.  However, when markets go too long & too fast, they are setting themselves up for a major correction.

Dow Jones Industrials   ---   YTD

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