Mixed markets after an increase in unemployment rate

Stocks did not sell off too badly after the uptick in the unemployment rate was announced.  Dow is down only 20, decliners barely ahead of advancers & NAZ was flat.  Bank stocks took the disappointing news fairly well.  The financial Index is still up about 8 in the last week.


S&P 500 FINANCIALS INDEX

Value	201.85
Change	-1.52  (-0.7%)

The Alerian MLP Index was down a tad, in the 357s after being flattish for over 2 weeks.  The REIT index fell 1½ to the 218s, also pretty much trading sideways for that period.  Junk bond funds were mixed to lower, remaining near yearly highs.  There was buying in Treasuries, but not that much considering recent price declines.  The yield on the 10 year Treasury bond fell 4 basis points to 2.96%.  The € is also in a rally mode, up 1½¢ to $1.33½ & off recent lows of $1.30.

Treasury yields:

U.S. 3-month		0.14%
U.S. 2-year		0.47%
U.S. 10-year		2.97%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 weeks





Oil retreated from a 25-month high after US employers added fewer jobs than forecast in Nov & the unemployment rate unexpectedly increased, signs fuel demand may be slow to rebound.  Buyers flocked to gold, much more than to Treasuries, taking gold in record high territory.

CLF11.NYM

...Crude Oil Jan 11

...87.78

..... 0.22

(0.3%)

GCZ10.CMX

...Gold Dec 10

....1,407.80 ...

19.30

(1.4%)

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The nation's unemployment rate climbed to 9.8% in Nov, a 7-month high, as hiring slowed.  Employers added only 39K jobs last month, a sharp decline from the 172K created in Oct according to the Labor Dept. Weakness was widespread as retailers, factories, construction companies, financial firms & the gov all cut jobs last month.  Predictions had been for an addition of 150K jobs, based on positive reports that showed busier factories, rising auto sales & a good start to the holiday shopping season in Nov.  Part of the reason for lower numbers was the gov has a difficult time adjusting for seasonal factors, & the past 2 Novs were extremely volatile.  Still, the report was a reminder that the economic recovery is proceeding more slowly & fitfully than many had expected. This is likely to create a push for an extension of long-term unemployment benefits, which expired this week. Private companies created only 50K jobs, down significantly from the 160K jobs created in Oct & the smallest gain since Jan.  The jobless rate has now topped 9% for 19 straight months, the longest stretch on record.  All told there were 15.1M people unemployed in Nov.  Adding those unemployed people to others who are working part time but would prefer full-time jobs & those who have given up looking for work, 17% of the labor force is "underemployed," same as Oct which is close to a record high set last year.  Another grim figure: There was a record 1.3M "discouraged" workers in Nov (those not currently looking for work because they believe no jobs are available to them).  The graphs below tell it all.

Unemployment Rises to 9.8% as U.S. Adds Just 39,000 Jobs

Jobless rate  --  1 year



Manufacturing payrolls - 1 year





The market for junk bonds is reviving, after companies pulled sales last week.  Investors are gaining confidence that Europe’s sovereign debt crisis won’t infect the global economy.  Junk bond issuance, which declined in Nov following the busiest 2-month period on record, is returning amid reports retail sales rose the most since March. The European Central Bank extended an emergency loan program and it pledged to fight “acute” financial market tensions.  The average yield on junk debt of 8.04% compares with the 4.01% on investment-grade bonds & 2.9% on Treasury 10 year bonds. The asset class has returned 13.6% this year, beating the 9.5% on higher-rated corporate & 6.9% on US gov debt. With only limited attractive alternatives, relatively low yields on junk bonds still look good.  The chart below shows the dramatic rise for junk bond funds off their lows, but it understates returns on many individual funds which typically have more than doubled off their lows.  The absolute yield for junk bonds is near record lows & the spread over the 10 year Treasury is also near historical lows.  However, conditions for low relative yields have lasted for a few years as was the case in the middle of this decade.

Junk Bond Market `Back Open' as Sales Soar, Spreads Shrink: Credit Markets


Barclays Capital High Yield Bond ETF - 2 years




Bulls are happy, the markets took the disappointing news on unemployment so well.  Strength in the junk bond markets reinforces the notion that investors still embrace risk as they pursue higher yields.  MLPs & REITs have been trading sideways recently, they may also be influenced by the rise in competitive yields on Treasuries.

Dow Jones Industrials   ---   2 weeks

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Markets edge lower despite higher manufacturing data

Dow slipped 6, decliners over advancers 5-2 & NAZ declined 5. Banks were also down, the Financial Index is still stuck in its sideways trading range.

S&P 500 FINANCIALS INDEX

Value 193.82

Change -0.53

% Change -0.3%

The high yielders had another stellar month with minor profit taking this week. The MLP index & REIT index are each off 1 in semi-holiday trading. Junk bond funds also experienced a little profit trading. Meanwhile the yield on the 10-year Treasury bond lumbers along at 3.81%, near its yearly highs of 4%.


Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




Barclays Cap Hi Yld Bond ETF - 1 month







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Oil & gold are just waffling around, but oil has a positive undertone. Oil wants to take out 80 while gold is still looking to find a base after having a very bad month..

CLG10.NYM

...Crude Oil Feb 10

...79.07

... 0.20 .......(0.2%)

GCF10.CMX

...Gold Jan 10

...1,087.50

... 9.50 .......(0.9%)

OIL (ETF) --- 1 month




GLD (ETF) --- 1 month





The Institute for Supply Management-Chicago Inc. reported companies expanded more than anticipated in Dec. Its business barometer rose to 60, exceeding all estimates to the highest level in 4 years. Readings above 50 signal expansion. This expansion was fueled by gov incentives & discount pricing along with rising global demand which have reduced inventory stockpiles.

•U.S. Business Gauge Climbs to Highest Level Since '06 as Companies Expand


Manufacturing index - 1 year

photo: Bloomberg


Treasuries are headed for the worst year since 1978 following their best year last year over the same time span. Massive gov borrowings with no end in sight are the main reason. Expectations are for Treasury interest rates to climb as demand for money knows no limits. Today they will auction $32B of 7-year notes, the last of 3 auctions this week totaling $118B.

Treasuries Set for Worst Year Since 1978 as U.S. Steps Up Sales



GMAC Financial Services is expected to get about $3½B in additional gov aid to help it absorb mortgage losses after already receiving $12½B in aid during the last year. This is one more reminder that all is not rosy with the economic recovery.

•GMAC Said to Discuss Getting More Than $3 Billion in Extra Government Aid



Not much happening today, again on a very quiet day. The graph below shows Dow has had a difficult time making headway to new highs in Dec. That could be a signal that Jan effect will not happen.

Dow Jones Industrials --- 1 month

Markets mixed on mixed economic data

Stocks are looking for direction ahead of the Federal Reserve meeting & their announcement on interest rates. Dow is off 14, decliners are slightly ahead of advancers & NAZ is up 3. Banks are drifting lower, the Financial Index is getting close to the low end of its trading range at 190.

S&P 500 FINANCIALS INDEX

Value 192.70

Change -1.57

% Change -0.8%

MLPs just keep climbing, the Alerian MLP Index rose ½ still in the 278s. The Dow Jones REIT Index fell 1, but in the 178s it needs just 3 more points to reach a new 2009 high. The chart for Barclays Capital High Yield Bond ETF shows how much it has advanced in just the last 2 weeks. This understates the experience individual junk bond funds have enjoyed. Even this index is back to its level at the start of Oct 2008. Treasuries are weak again. The yield on the 10-year Treasury bond rose 5 more basis points to 3.60%, a 4 month high.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




Barclays Cap Hi Yld Bond - 2 weeks





Oil finally broke its 9 day losing streak while gold is trying to establish a base around 1120.

CLF10.NYM

...Crude Oil Jan 10

...70.85

... 1.34 .......(1.9%)

GCZ09.CMX

...Gold Dec 09

...1,122.80

... 0.50 .......(0.0%)

GLD (ETF) --- 2 weeks




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Industrial production rose a better-than-expected 0.8% in Nov. The gain showed that consumers are spending more, causing manufacturers to produce more goods. The economic rebound could raise inflationary pressures. Stronger activity at mines led the increase in industrial production, rising 2.1%. The manufacturing sector (with the largest share of industrial output) reversed a one-month decline & rose 1.1%. The portion of industrial capacity in use rose to 71.3% in Nov, from 70.6% in Oct.

•U.S. Industrial Output Rises Most in Three Months as Recovery Gains Speed


Factory use (%) - 1 year

Wholesale prices jumped 1.8% in Nov, more than double the 0.8% forecasted. Core inflation, excluding energy & food, rose 0.5%, the biggest increase in more than a year. Over the past 12 months, wholesale prices rose 2.4%, the biggest increase over an annual period in 14 months. Wholesale prices had been negative when compared with year-ago levels for 11 straight months. The Nov increase followed a 0.3% rise in Oct & was the largest one-month change since Aug, a gain also driven by energy. The unexpectedly large jump in prices is not likely to alter the outcome of the Fed's deliberations although it might influence future actions.

•Producer Prices in U.S. Rose More Than Forecast in November on Fuel Costs



MLPs have had an unbelievable recovery. Kinder Morgan (KMR) & Enbridge Energy (EEQ), both stock equivalents of the comparable units, have already rebounded to record levels. Their yields are almost 8%, not bad after their gains. In addition, a chart for Constellation Energy (CEP) is shown as a reminder, not all have done well. They have dropped the distribution allowing them to pay down their loan & refinance with a bigger loan. Those looking for risky investments might be attracted to CEP on hopes there is more recovery ahead.


Enbridge Energy - 3 years




Kinder Morgan - 3 years




Constellation Energy - 3 years





Inflation numbers were troubling, but figures for one month may not mean much in the long run. This should be a day with little direction while markets await news from the FED.

Dow Jones Industrials --- 2 weeks

Markets drift lower as Dell disappoints

Dow was lower & continues to slide. Dow dropped 57, decliners over advancers 2-1 & NAZ fell 10 (hurt by a weak earnings report from Dell last night). Banks are off again. The Financial Index returned to where it was in mid Sep, not encouraging for the bullish argument.

S&P 500 FINANCIALS INDEX

Value 195.72

Change -1.61

% Change -0.8%

The Alerian MLP Index was off 1 to the 261s, still near the 265 yearly high. The Dow Jones REIT Index was off fractionally after a big loss yesterday. Junk bond funds were mixed to lower. The chart below shows Barclays Capital High Yield Bond has been drifting in the last 2 weeks. The yield on the 10-year Treasury bond was up ½ basis point to 3.36%. Not much happening here.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




Barclays Cap Hi Yld Bond - 2 weeks





Oil had been stuck in a sideways trading range of 65-75 for much of 2009. In the last month that range has been upped to 75-80, it may want to test the lower end. Gold owners are still happy near its record prices.

CLZ09.NYM

...Crude Oil Dec 09

...76.40

... 1.06 .......(1.4%)

GCX09.CMX

..Gold Nov 09

...1,139.60

... 1.80 .......(0.2%)

After the close last night, Dell (DELL) reported Q3 results & they weren't pretty. Earnings dropped 54% on lower than expected sales. Q3 was the last qtr selling computers with Vista, the Windows 7 launch in Q4 should help their business. Steve Ballmer, CEO of Microsoft (MSFT), last night said Win 7 sales were "fantastic" in its first month. Dell dropped 1.50 (almost 10%) & MSFT was off 25¢. Their 2 year charts shows they've had relatively mild declines followed by more modest recoveries, to be expected for companies in a mature business.

• Dell bets on corporate spending for recovery- Reuters

•[$$] Ballmer Touts Windows 7 Sales
at The Wall Street Journal Online

Dell --- 2 years




Microsoft --- 2 years





After one big up day (Mon) & a big down day (yesterday), Dow is flattish on the week. Options expire today, making any call extra difficult. As of this writing, it's touch & go whether this week will be in the black or red.

Dow Jones Industrials --- 2 weeks

Stocks fall for 4th straight day

Dow tumbled 119 (closing at the lows), decliners over advancers 7-1 (a very large spread) & NAZ dropped 56 (2.7%). Banks sold off in this decline, The Financial Index, again closing at its lows, is down 20 (10%) from its highs 2 weeks ago.


S&P 500 FINANCIALS INDEX

Value 190.23

Change -6.35

% Change -3.2%

MLPs are having a rough time of it, maybe it's just profit taking. After running 100 points from the lows, even the Alerian needs time to rest. Today it's down 9.28 to the 251s, one of its biggest daily drops ever. The Dow Jones REIT Index fell a very big 7, near its lows in recent months. Junk bonds took a nasty spill, maybe Bill Gross started selling some of his junk bonds. The Barclays Capital High Yield Bond ETF fell almost 1½% (buying near the close limited losses). Fears are growing as the VIX shot up 3.08 to 27.91. Money is flowing back into Treasuries, the yield on the 10-year Treasury dropped 5 basis points to 3.41%.


Alerian MLP Index --- YTD




Dow Jones REIT Index --- 3 months




Barclays Cap High Yield Bond ETF




VIX ---- 2 months





The weekly energy report said supplies rose by 2M barrels instead of dropping (for a 3rd week in a row) as expected. Oil had a very bad day, it's returning to the 67-75 range it had been in for much of 2009. Gold was also down (from over 1060 last week).

CLZ09.NYM

..Crude Oil Dec 09

..77.36

.. 2.19 ......(2.8%)

GCV09.CMX

..Gold Oct 09

..1,029.90

.. 4.80 ......(0.5%)

CIT (CIT), one of the nation's largest lenders to small and mid-sized businesses, received $4.5B credit from its own lenders & bondholders as it tries to avoid collapse. The loan comes as CIT has been facing pressure from Carl Icahn who was been trying to get investors to reject the company's restructuring plan. The new loan is being financed by lenders, including some bondholders, that provided CIT with a $3B lifeline over the summer. CIT is asking bondholders to swap their debt for stock & new debt that matures later in trying to reduce near-term debt maturities by $5.7B. Even if approved, it still might have to file for bankruptcy protection. It's been living on the edge for months, today the stock is up 10¢ to 1.06.

•CIT Group Obtains an Additional $4.5 Billion in Financing, Spurning Icahn

CIT --- 1 year





Earnings season has not gone well, especially in the last week, despite what the bulls say. Bulls talk about a correction being healthy after the Dow has run 3½K unchecked. But this could prove more serious. Today's sell-off by junk (high risk) bonds may be sending an important signal about where the markets are going. Dow is is off 330 from its highs 2 weeks ago while the VIX shot up 7+ points. The shorter term charts are going from dreary to ugly!


Dow Jones Industrials --- 2 months




Nasdaq --- 2 months