Nervous market edge higher

Dow added 61 (but off the highs at the opening), advancers over decliners 3-2 & NAZ eked out a gain of 1.  Hardly a convincing rally.  Bank stocks are higher, but again pulling back from earlier highs.

S&P 500 Financials Sector Index

Value	169.58
Change	1.13    (0.7%)

The MLP index was up 1+ to the 371s & the REIT index gained 1+ to 220.  Junk bond funds were fractionally higher & Treasuries were little changed with the yield on the 10 year bond at a short term low of 1.9%.  90 days bills are so much in demand that the yield is barely negative, not a good sign for the stock market.  Oil fluctuated near the lowest level in more than 5 weeks as the jobless claims unexpectedly declined.  Gold is having a difficult time finding friends. 

AMZ   Alerian MLP Index

DJR   Dow Jones Equity REIT Index

Treasury yields:

U.S. 3-month	-0.010%
U.S. 2-year	0.238%
U.S. 10-year	1.913%

CLF12.NYM...

Crude Oil Jan 12

...94.97

.... 0.02

(0.0%)

GCZ11.CMX

...Gold Dec 11

....1,577.90

... 6.40

(0.4%)

Click below for the latest market update:

Photo:   Bloomberg

Fewer people are seeking unemployment benefits than just 3 months ago, a sign that layoffs are falling. The number applying for benefits fell last week to 366K, the fewest since May 2008 (prior to the financial meltdown).  If the number stayed that low consistently, it would likely signal that hiring is strong enough to lower unemployment.  The 4-week average of weekly unemployment applications dropped to 387K, the lowest 4-week since Jul 2008.  The 4-week average has declined in 10 of the past 12 weeks.  There is a feeling that labor market conditions have taken a turn for the better in recent weeks.  However, about 6.7M are receiving unemployment benefits & 2M will lose benefits by Feb if the emergency program expires.

Jobless Claims in U.S. Drop to Three-Year Low

• 

Photo:   Yahoo

FedEx reported a higher-than-expected profits & is updating its fleet with 27 new fuel-efficient Boeing (BA) aircraft to cut costs.  However, the company also said it is deferring delivery of some Boeing freighter aircraft, adjusting for slowing volume out of Asia.  FDX expects continued moderate economic growth, with trade flows staying volatile.  It delivered 17M packages on Dec 12, its busiest day in history & twice the average daily shipments, driven by online holiday orders.  EPS was $1.57, up from 89¢ last year & above expectations of $1.52.  FDX also affirmed fiscal 2012 guidance for $6.25-$6.75, after trimming it in Sep on tepid global economic growth & high fuel costs.  "Our improved performance was largely a result of effective yield management programs and strong demand for FedEx Home Delivery and FedEx SmartPost services," CEO Frederick Smith said. "With the healthy growth in online shopping this holiday season, demand is increasing for these residential delivery services."  Revenue rose 10% to $10.59B, beating expectations of $10.61B.  The stock rose 3.71 (5%).

FedEx Profit Beats Estimates, Orders 27 Jets

FDX   FedEx Corp.

• 

Photo:   Yahoo

Not all news is good.  Morgan Stanley will cut 1600 employees in Q1 as it trims costs in a difficult period for trading & banking revenue.  The job cuts will come across all staff levels & geographic areas including investment banking, trading & back-office functions.  Other banks, including Goldman Sachs (GS), JPMorgan (JPM), Bank of America (BAC) & Citigroup (C) have already outlined plans to cut thousands of jobs.  MS had kept layoffs limited to several hundred underperforming financial advisers earlier in 2011, but is now extending the cuts to banking & trading.  The cuts represent less than 2% of the workforce & comes as the European debt crisis continues to add stress to the markets.  The stock was up 13¢ after a tough time in 2011.

Morgan Stanley to Cut 1,600 Jobs Globally as Volatility Bites Into Profit

MS   Morgan Stanley

Is this what is called a rally?  I don't know.  While the news was fairly good today. the real driving force for the up market was a lack of negative news coming from Europe.  The debt mess has not gone away & is expected to get worse.  The US economy is showing signs of mending, but big decisions are being made in DC that will affect the recovery next year.  Extending the lower levels of Social Security taxes is a major one that will affect about half of the population.  Dow is bumbling along hoping to break thru 12K (again) & the 12.2K ceiling seems far away.

Dow Jones Industrial Average

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Stocks hold near 2 year highs

Dow gained 41, advancers over decliners 2-1 & NAZ was up a more impressive 20.  Stocks had a modest rise before midday & remained on that plateau for the remainder of the trading day.  Favorable news on jobless data won out over housing starts & 2 spending bills bogged down in DC.  The bank stocks also had a modest rise, keeping the Financial Index near its recent highs.

S&P 500 FINANCIALS INDEX

Value	208.14
Change	0.49  (0.2%)

The MLP index fell 1 to 352, back to where it was in early Nov.  After outperforming the market for so long, it's learning what it feels like to be a follower.  The REIT was up a fraction to 213, near where it has been for many months.  Junk bond funds did well, typically up more than 1%.  Treasuries were also higher.  The yield on the 10 year Treasury bond fell 4 basis points to 3.47%, still near levels not seen since early May.  An example of the dramatic rise in Treasury yields is the rate on the 2 year note has doubled to 0.65% off its lows about 2 months ago.

Treasury yields:

U.S. 3-month		0.13%
U.S. 2-year		0.65%
U.S. 10-year		3.47%

Alerian MLP Index   ---   3 months



Dow Jones REIT Index   ---   3 months



10-Year Treasury Yield Index   ---   3 months




Oil dropped to the lowest level in 2 weeks after US claims for jobless benefits unexpectedly fell & housing starts increased last month, strengthening the dollar.  But the bulls still have their eyes on $90 & $100.  Gold sank as profit-taking & momentum selling eroded the yellow metal's appeal as a safe-haven asset. 

CLF11.NYM

...Crude Oil Jan 11

...87.87

..... 0.75  (0.9%)

GCZ10.CMX

...Gold Dec 10

....1,365.50

... 20.00

(1.4%)

$$$ Gold Super Cycle $$$  

Click Here

Photo:  Bloomberg


The number of properties receiving some kind of foreclosure filing fell 21% month to month & 14% year over year, the biggest monthly drop in the history of the survey. While bank repossessions fell 28% (month to month), the number still managed to push 2010 totals over 2009 with one month to spare. A new record number of borrowers lost their homes to banks this year, almost 1M (so far).  Big banks have re-started the foreclosure process, with "new safeguards," new forms" & "increased training efforts and personnel." The numbers will rise again next year.  It is believed that 5M loans are seriously delinquent but not yet in foreclosure. Many will hit the foreclosure pipeline next year, 2011 could be worse than 2010.  The rise in mortgage rates might add 5-10% to the price of buying a new home, taking away significant purchasing power.  Falling home prices for new & existing homes could spark better buying opportunities, but they will also fuel more fears of fence-sitters, worried that they will catch a falling knife by buying a home. Lower prices will also put more borrowers underwater on their homes.  Increased supply of homes overhanging the market will continue to blunt a housing recovery.

U.S. Foreclosure Filings Plunge to Two-Year Low as Lenders Probe Practices

Foreclosure filings - 1 year



Homes seized - 1 year

Photo:   Bloomberg


Moody’s placed Greece’s Ba1 bond ratings on review for a possible downgrade, citing heightened concerns about whether the country will be able to reduce its debt to “sustainable levels.”   It said, “Greece has made significant progress in implementing a very large fiscal consolidation effortBut ” & continued,  “The challenge of reducing debt to sustainable levels has also become greater due to both domestic and regional developments.”  This follows Standard & Poor’s warning 2 weeks ago of a possible downgrade  Greece secured a 110B € ($142B) aid package from the EU & the IMF in May to avert a default. Greece’s debt as a percentage of GDP stood at 127% of GDP in 2009, the highest in the 27 nation EU. The EU says the measure will rise to 156% in 2012 & Greece has said debt as a percentage of GDP will peak in 2013.  Dark clouds over sovereign debts in Europe are not going away anytime soon.  

Greece's Debt Ratings Are Put on Review for Possible Downgrade by Moody's



Markets are managing to buck all headwinds (such as the goings on in DC or Europe).  Congress is handling 2 massive spending packages, the tax & unemployment extension bill along with the bill to fund gov spending for this fiscal year, when it will probably run another $1T deficit.  But investors are happy to embrace more risk in pursuit of gains.  Averages are back to where they were just prior to the collapse of Lehman.  The major exception is the MLP index which, even after a recent setback, is just a few points below its record highs reached last month.

Dow Jones Industrials   ---   3 months

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Dow rises after Federal Reserve keeps rates low

Dow gained 53, advancers over decliners 4-3 but NAZ was flat. The 3 big gainers in the Dow with gains of about 1 were Exxon Mobil (XOM), IBM (IBM) & JPMorgan (JPM). Banks remained in the black after the important rate decision, but the Financial Index was off its highs earlier in the day.

S&P 500 FINANCIALS INDEX

Value 217.64

Change 2.77

% Change 1.3%

Buying in the PM limited losses for the Alerian MLP Index to only 1¾ at 311 (8 below the highs on Mon). The REIT Index was up a fraction, still in the 209s. Junk bond funds were mixed as nervousness about European debts might be bleeding thru to the junk bond market. Treasuries sold off big time. The yield on the 10-year Treasury bond rose 8 basis points to 3.77%, recovering much of yesterday's plunge.


Alerian MLP Index --- YTD




Dow Jones REIT Index -- YTD




10-Year Treasury Yield Index - 1 week






Bulls are buying again oil but it remains in the 80-85 sideways trading band. Gold is a higher & has done very well in the last 10 weeks. If more frightened money flows out of Europe, it will have a good chance of taking out last year's record high.

CLM10.NYM

..Crude Oil Jun 10

..83.21

.. 0.77 ......(0.9%)

GCJ10.CMX

..Gold Apr 10

..1,171.80

.. 10.10 ......(0.9%)

Gold Super Cycle!!!
Click Here

GLD (ETF) --- YTD






Europe's debt crisis spread to another country when S&P downgraded Spain's credit rating, even as Germany grudgingly moved closer to bailing out Greece from imminent collapse.The agency said it was cutting Spain's rating to AA from AA+ amid concerns about the country's growth prospects following the collapse of a construction bubble. "We now believe that the Spanish economy's shift away from credit-fuelled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed," according to Standard & Poor's. Spain still has an investment grade rating but could pay more to borrow & may find itself under pressure to take tougher steps to cut spending. Meanwhile the extra yield investors demand to hold Portuguese 10-year bonds rose 59 basis points to 277 points, the most since 1997, before slipping slightly. Spreads for other European countries facing financial difficulties also widened. The € is at a 12 month low, below $1.32.

•Greece Turning Viral Sparks Search for EU Solutions as Aid Estimates Surge

Photo: Bloomberg


The Federal Reserve sounded more confident that the economy is strengthening but pledged to hold rates at record lows to make sure it gains traction. The FED in a 9-1 decision retained its pledge to hold rates at historic lows for an "extended period." Doing so will help energize the recovery. The FED offered a more upbeat view of the economy even as it noted that risks remain. It said the job market is "beginning to improve," an upgrade from its last meeting in mid-March. The FED observed then that the unemployment situation was merely "stabilizing." It also noted that consumer spending has "picked up," an improvement from its last observation that spending was expanding at a "moderate pace." However, even with the improvements, the FED said there was reason to be cautious. High unemployment, sluggish income gains & tight credit are still dampening consumer spending, a major contributor to economic activity. And commercial real estate remains fragile as housing activity is still at depressed levels. Bank lending continues to shrink.

•Fed Repeats Pledge to Maintain Low Rates, Sees Improvement in Labor Market

Extending low interest rates by the FED was expected, making markets happy. However earlier this year the FED said their intention was to start raising rates by year end & it's approaching. The Senate bill for increased banking regulation may get another test vote later today, its fate is still uncertain. The Greek debt drama plays on, sort of a Greek tragedy. Germany is the power player in any bailout & is playing hardball, demanding fiscal discipline which Greece really does not want. While not directly connected, the Spain credit downgrade did not help. The big worry is a 2nd country asking for a bailout (Spain, Portugal & Ireland are in the wings) could be too much for the markets to bear. But US markets are absorbing the news with a sense of calm. I wonder how long that will last! Dow is back over 11K, that recurring statement is getting boring.


Dow Jones Industrials -- YTD

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Stocks fall on UK credit worries

Stock have been weak all morning. Dow fell 139, decliners over advancers 4-1 & NAZ is down 34. But banks are not leading the decline, they're getting a break. As the index shows, banks are mixed with little changes.

S&P 500 FINANCIALS INDEX

Value 157.98

Change 0.52

% Change 0.3%

The Alerian MLP index dropped 3 to 216, probably from lower oil prices. The REIT index dropped only 1 while junk bond funds were weak. The VIX, volatility index, jumped 2, pushing for 31. It had been dropping all year, to 27, on easing fears.


VIX ---- 1 week




Oil backed off the 62 ceiling as markets are trying to assess how badly higher gas prices will affect demand over the first holiday weekend. Gas at the pump was 2.36 yesterday, up 30¢ in the last month.

CLN09.NYM

...Crude Oil Jul 09

...60.28

... 1.76 .......(2.8%)

The number of new jobless claims dropped slightly last week after increasing due to auto layoffs, continuing jobless claims approached 7M. The labor market likely will remain weak into 2010. Initial claims for jobless benefits fell to 631K, down 10K from the previous week. More auto shutdowns will be lifting claims in the coming months.

•Jobless Claims in U.S. Are Higher Than Estimated; Benefit Rolls at Record


Standard & Poor's revised the outlook for Great Britain's credit rating to negative from stable. The rating agency reaffirmed the country's long-term credit rating at "AAA" and its short-term rating at "A-1+," but said the outlook had deteriorated because of massive borrowing to deal with the recession & the banking crisis. The FTSE share index fell more than 120 points (2.7%). A lower credit rating would require the government to pay higher interest rates for borrowings. S&P said 37% of its negative outlooks were followed by a downgrade. Such concern raises doubts about the ability of the UK to raise record amounts of money by issuing more debt

•U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP


The Treasury Department will lend GMAC $7B, making GMAC a sort of federal entity which offers low-interest loans to buyers of GM & Chrysler cars. This follows GMAC failing the "stress test" a few weeks ago. The Treasury mandated that GMAC must raise $11½B within 6 months (after receiving $5B from TARP in Dec). In exchange for that funding, the gov received 5M GMAC shares, giving the Treasury more control over GMAC. This includes telling GMAC that it must extend financing services to bankrupt Chrysler LLC. The big picture is the gov is telling this business what to do. Expanded authority may be used at other companies where the gov is also a major shareholder. The banking arm of GMAC changed its name to Ally Bank last week, in an effort to repair its tarnished image & attract customers.

•GMAC Said to Get More Than $7 Billion in Aid to Fund Chrysler, GM Lending

After the Dow cracked the 8K ceiling, it's still having a difficult time trying to make headway.

Dow Jones Industrials --- 1 month

MLP index fund launched

Alerian Capital Management LLC announced today that JPMorgan Chase & Co. has launched an Exchange Traded Note that delivers exposure to the portfolio of midstream energy Master Limited Partnerships underlying the Alerian MLP Index. The JPMorgan Alerian MLP Index Exchange Traded Notes are listed on the NYSE Arca under the symbol “AMJ.”


For additional information visit www.jpmorgan.com/etn. This website address is provided for convenience of reference only and its contents are not incorporated by reference into this document.

Contact:
Alerian Capital Management
Whitney Hain, 214-740-6040

•

EPD KMP

Alerian Capital Management Announces the Launch of Alerian MLP Index Exchange Traded Notes Business Wire (Tue 8:00am)

***************************************************************

Now it is possible to own shares in an ETF that tracks a basket of MLPs. Since shares (not units) are purchased, the tax hassle associated with distributions is gone & this should be IRA friendly. A link above is provided to JPMorgan for more information. The track record of the Alerian MLP Index (similar to this index fund) suggests that the gains shown for one month at the ETF would represent a very good year at the index.


AMJ ---- 2 months

Lehman problems worry markets

Lehman (LEH), down 2.81, problems continued to be a drag on the markets. Dow was up 70, but decliners outnumbered advancers 2-1 & NAZ was down 15 on 1.35B volume (a little below average). Dow was helped by McDonalds, Alcoa & the 2 oils (Chevron & Exxon). Oil was down 4 to 134, but at these levels the decline didn't have a major influence on the markets. Financials were weak, check BAC & USB on the right. Timothy Geithner, FED Reserve Bank of NY President, said there is need for more regulation of the largest banks & investment banks. Read the attached summary of his comments, the markets sold off while he was speaking. Meanwhile the Alerian MLP index only pulled back ½ a point, not bad. It's getting a lot of support just above 290, probably helped by the high oil prices even though their effect if anything might be negative for pipeline companies.

This was a very disappointing day for the bulls. Instead of the sharp sell-off, markets remained soggy. They largely had an off day, the kind which may be repeated. Banks are getting hammered & hard. For the brave, the high yields will be attractive. The trick is to separate the wheat from the chaff in the bank stocks.

Stocks tumble on oil gusher

Oil prices shot up above 139, before pulling back a few cents to close at 138.87 up 11.08 (18 in 2 days). This was plenty, causing the markets to have a mild crash. Dow tumbled 394, decliners ahead of advancers 4½ to 1 & NAZ down 75. Wheww!!! All this activity on just 1.2B shares. That low level of volume is not the climactic sell-off bulls bulls would like to see signaling the end of selling. Oil is living in it's own world as speculators have taken charge, but the analyst forecast about reaching 150 by July 4 lit a fire under speculators in the last 2 days. In this sell-off, even Chevron (CVX) & Exxon Mobil (XOM) fell. Banks were punished badly, check BAC & USB in the right column. However, the Alerian MLP index help up pretty well, falling less than 1 to 293½, near the low end of a trading range where it has lived for much of the year. Boring pipelines with high yields looked attractive!

Not much to say. The weekend will be good time to check prices & valuations, preparing for buying opportunities at lower levels.