Markets sell off on recession and sovereign debt worries

Dow lost 248, decliners over avancers almost 6-1 & NAZ was down 49,  Stocks finished off the lows, but all considered, that was little consolation.  The Financial Index fell 4 to the 163s, approaching its Sep lows,

The MLP index ended down 3+ to the 365s & the REIT index was down 6 to the 214s.  Junk bond funds were mixed to lower & Treasuries rose.  Oil fell on debt woes.  Gold took a nasty tumble, going below 1700, near its Oct lows. 

AMZ  Alerian MLP Index

DJR  Dow Jones Equity REIT Index

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.266%
U.S. 10-year	1.964%

CLF12.NYM

...Crude Oil Jan 12

...96.81

... 0.86

(0.9%)

Photo:   Bloomberg

On a down day for stocks, it's always good to her about Warren buying more stock.  His Berkshire Hathaway invested $24B in Q3 & could spend as much as $10B on its next acquisition.  Buffett has $8-$10B to spend on the right investment, though he has no specific merger-and-acquisition plans currently, he said.  “We like the A part better,” Buffett,said, referring to a preference for acquisitions over mergers. “On the Lubrizol transaction I think we spent about $8.7 billion.  We’d love another one like that -- we can handle that.  We can manage somewhat larger. We can handle a $10 billion deal very comfortably.”   He has turned to stocks & takeovers this year after interest-rate declines limited returns in the bond market.  BRK.A investable funds were boosted in Oct by a $3.3B payment from General Electric (GE), a Dow stock, that ended Buffett’s 2008 financing deal.  Many BRK.A units are producing better results than last year, when the company posted a $13B of profit.  

Buffett Could Spend $10B on Next Investment

BRK.A    Berkshire Hathaway Inc.

A trend to postpone or forgo having babies may delay the recovery from the 5-year housing slump & restrain future spending on goods & services from child care to diapers, soaps & toothpaste.  The number of births fell to under 4M last year, the fewest since 1999, according to National Center for Health Statistics data & US births may not recover until 2013.  A weak economic recovery is encouraging famlies to choose renting over buying a home & this trend is likely to persist.  These changes bring a muted recovery, especially for building new homes.  The number of births is similar to 2001, when the US was in “the early phase of expansion” after an 8-month recession.  Consumer surveys & sales of infant products reinforce this concern.  A Nielsen analysis for Kimberly-Clark (KMB) forecasts US births will drop 0.4% this year to 3.99M, the first time under 4M since 1999, & will be “flat to slightly negative” at about 3.989M in 2012.  Limited population growth is a factor not well appreciated when making forecasts about an economic recovery.

Births at 11-Year Low May Extend U.S. Housing Slump Amid Consumer Cutbacks

The collapse of talks by the supercommittee was a coming event.  Now the politicos are trying to tape together a last minute agreement involving more than $1T.  It's difficult to imagine anything will come at the last minute & if there is an agreement, who knows where that will lead!  The US economy is still in an iffy stage of recovery & is threatened with a reduction in gov spending (AFTER NEXT YEAR'S ELECTIONS!).  This will not stimulate greater investment in new factories & businesses.  Dow is just above 11½K, a very sensitive level.  The semi-holiday week can bring significant changes for the markets & indications are for more selling given the rise in uncertainty about US & European debt problems..

Dow Jones Industrial Average

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Sluggish markets on European worries

Dow dropped 14, decliners over advancers 5-2 & NAZ was off 6.  Bank stocks were soft, the Financial Index fell 1%.

S&P 500 Financials Sector Index

Value	175.54
Change	-2.23     (-1.3%)

The MLP idex rose 3 to 369 but the REIT index fell 2+ to 226.  Junk bond funds & Treasuries were little changed.  Oil declined as Italy’s borrowing costs rose to a euro-era record  today, deepening concern Europe will struggle to contain its debt crisis.  Gold pulled back.

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.230%
U.S. 10-year	2.070%

CLZ11.NYM

....Crude Oil Dec 11

...97.89

... 1.10

(1.1%)

GCX11.CMX...

Gold Nov 11

.....1,779.00

... 8.50

(0.5%)

Get the latest market update below:

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Photo:   Yahoo

JC Penney reported a net loss in Q3 as results were weighed down by restructuring costs & management charges.  Adjusted results topped estimates, but it offered a Q4 outlook that was below expecteatioins signaling challenges during the important holiday shopping season.  "While our more affluent customers continued to respond well to J.C. Penney's attractions, the moderate customer continues to have limited discretionary spending capability, and that was apparent during the quarter," said CEO Mike Ullman.  The department store has struggled as its middle-class customers face high unemployment & a weak economy. Revenue at stores opened at least a year fell 1.6% in Q3 which compares with increases at other major retailers.  The EPS loss was 67¢ compared to 19¢ last year.  The loss included costs of 10¢ related to the series of management changes  Adjusted EPS without the one-time items amounted to 11¢, topping 9¢ forecasted.  Revenue slipped almost 5% to $3.98B from $4.19B largely reflecting the discontinuation of its catalog business.  In Q4, JCP expects revenue at stores opened at least a year to be between unchanged to slightly up from a year ago.  EPS in Q4 is expected  to be 64-74¢, including the restructuring & management charges.  Excluding these charges, EPS is expected to be $1.05-$1.15.  The stock fell 50¢.

J.C. Penney Posts 3rd-Quarter Loss on Retirement-Plan Costs

J.C. Penney Company, Inc. Holding Company (JCP)

Photo:  Bloomberg

Bershire Hathaway (BRK.A) acquired a 5.5% stake in IBM (IBM), a Dow stock, amounting to 64M shares acquired mostly in Q3 & cost $10.5-$10.7B.   The average price for the stock was about $167, below the current price of $187.  “They have laid out a road map and followed it extremely well,” said Warren Buffett. “They’ve done an incredible job.”  IBM is investing in areas such as emerging markets & analytics software to boost earnings.  IBM said it will generate $100B in cash flow 2010-2015 & return 70% of that to shareholders.  Buffett said he was betting on IBM’s ability to help clients’ information-technology departments outside the U.S.  IBM is up 1.48.

Berkshire Takes $10.7 Billion IBM Stake

International Business Machines Corporation (IBM)

This is another going nowhere day.  It's encouraging to see Warren Buffet investing in stocks but European debt worries are weighing down the markets.  The super committee in DC has a deadline next week for its much awaited report.  Dow has been trading sideways for a month.  Either it is digesting the big gains from Oct or getting ready to reverse direction.  I think the big picture debt problems will be too much for the bulls to handle.

Dow Industrials (INDU)

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Dow breaks 12,000 again

Dow remained near break even for most of the day, but late day buying brought it into the black.  Dow rose 85, advancers were only slightly ahead of decliners & NAZ was up a modest 9.  Banks stock which will feel the effects if the European debt crisis if it worsens, were only up marginally.  The Financial Index gained less than 1 (to the 179s).

The MLP index was even at 371 & the REIT index was up a fraction to 230.  Junk bond funds were mixed to higher & Treasuries rose, taking the yield on the benchmark 10 year Treasury below 2%.  Oil continued strong, up to a 3 month high.  Gold is getting more interest from safe have investors as it is pushing on $1800. 

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	-0.005%
U.S. 2-year	0.230%
U.S. 10-year	1.996%

CLZ11.NYM

Crude Oil Dec 11

95.54

1.28 (1.4%)

European finance ministers need more time to work out how to boost their rescue fund & are counting on budget cuts in Greece & Italy to allay doubts about the response to the debt crisis.  Finance leaders won’t decide tonight how to scale up the €440B ($606B) bailout fund or approve the next €8B installment of Greece’s aid package.  The talks on using financial engineering to bulk up the rescue fund were called “insanely complicated.”  Europe is battling to regain the upper hand in the debt crisis after political dramas in Greece & Italy provided unexpected distractions & soured intl confidence in a package of measures hammered out last month.  What a  surprise!!  Greece is heading toward a cross-party gov after last week’s call by Prime Papandreou for a referendum on the next bailout led European leaders to speak publicly about pushing the country out of the euro.  This debt crisis is a sorry mess.

EU Seeks Time on Rescue-Fund Boost, Demands Budget Cuts in Greece, Italy

Photo:   Bloomberg

Americans borrowed more in Sep to buy cars & attend college, but they cut back on using credit cards for a 3rd straight month, suggesting consumers are being cautious about taking on high-interest debt in the weak economy.  The Federal Reserve says total consumer borrowing rose by $7.4B after it had fallen in Aug the most in 16 months.  The Sep increase reflected a 5.8% increase in borrowing in the category that includes car & student loans.  But the category that covers credit card purchases dropped 1% after declines of 3.4% in Aug & 5.1% in Jul.

Fed: U.S. Consumer Credit Rose $7.4B in Sept.

Photo:   Bloomberg

Berkshire Hathaway invested $23.9B in Q3, the most in at least 15 years, as it accelerated stock purchases & broadened the portfolio beyond consumer & financial-company holdings.  It bought almost $7B of stocks in Q3, compared with $3.6B in Q2 & $834M in Q1.  Stock holdings labeled “commercial, industrial and other” soared 62% to $17.4B on a cost basis, surpassing equity investments in financial & consumer-product firms.  Warren Buffett drew down cash as Europe’s debt crisis & S&P downgrade of the US pushed stocks to their worst quarterly performance since 2008.  The BRK.A portfolio includes stakes in Coca Cola (KO & a Dow stock) & Wells Fargo (WFC). 

Buffett Broadens Portfolio by Investing $23.9B

Berkshire Hathaway Inc. (BRK/A)

Stock buyers are not being held back by the crazy goings on in Europe.  The Dow chart below shows it has been in a sideways trading zone until the Oct rally.  As the Greek situation worsened & other countries (especially Italy) are brought into the chaotic situation in Europe, even the bullish stock market has stuttered.  This is choppy trading & the breadth today was not good.  It's tough to figure out what is going on in the markets.  Dow just broke thru 12K, but that has not been significant this year.  What's important to remember about the European debt mess is that the financial leaders are making it up (solutions) as they go along.  Worse for Europe, it's entering a period of contraction, making economic solutions more difficult.

Dow Industrials (INDU)

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Markets decline ahead of confidence vote in Greece

Dow fell declined 61, (closing above its lows & near 12K), decliners over advancers 3-2 & NAZ was off 11.  Bank stocks had a rough day, the Financial Index dropped 2+ to the 178s. 

The MLP index rose 2+ to 370 while the REIT index fell 2+ to the 229s.  Junk bond funds & Treasuries were a little lower.  Oil fluctuated near a 3-month high after the jobs report & the G-20 failed to agree to boost IMF resources to fight Europe’s debt   Gold traders are the most bullish in 3 weeks after hedge funds boosted their wagers on higher prices on speculation Europe's debt crisis & slow US growth will spur demand for gold as a protection of wealth.

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	-0.005%
U.S. 2-year	0.222%
U.S. 10-year	2.042%

CLZ11.NYM

...Crude Oil Dec 11

...94.28

.... 0.21

(0.2%)

Photo:   Bloomberg

Party lawmakers urged Prime Minister Papandreou to step aside & allow the formation of a new gov that can approve an EU aid package needed to avert default.  A deputy in the Pasok party, said a confidence vote tonight signaled the end of the administration & a colleague said the motion would support the formation of an administration of national consensus (i.e. new gov).  The vote of confidence will take place tonight.  “The issue is how to keep the country going and then evolve the current government into a broader government that takes on board other political forces,” the Energy Minister said.  “We need broader support and approval for the kind of measures that were taken.”  I remember saying 3 months ago, the Greek drama plays on.  And on & on & on.   Nothing has been resolved.

Greek Ruling Party Lawmakers Desert Papandreou Before Confidence Vote Held

Photo:   Bloomberg

Bershire Hathaway may post its first quarterly decline in book value in more than a year on drops in Wells Fargo (WFC) , American Express (AMX & a Dow stock) & equity-derivative bets.  Book value is estimated to have slipped to under $98K per Class A share on Sep 30 from $98.7K on Jun 30.  Warren Buffett, is adding investments after a market slump pressured the $65B stock portfolio & its equity derivatives (which have about $35B at risk).  The S&P 500 had its biggest quarterly decline since 2008, as Buffett spent $18B on common-stock bets, Bank of America (BAC & a Dow stock) preferred stock & the takeover of Lubrizol.  On Sep. 26, BRK.A announced a plan to repurchase shares.   The stock fell $2428 (2%).

Berkshire May Post First Book-Value Drop in Five Quarters on Equity Bets

Berkshire Hathaway Inc. (BRK/A)

 

Photo:   Bloomberg

Sony, the largest exporter of consumer electronics from Japan, fell the most in almost 8 months in Tokyo after forecasting a full-year loss because of a strong ¥, waning TV sales & flooding damage in Thailand.  The company, based in Tokyo, said it will lose ¥90B ($1.2B) this year, compared with a previous projection for a ¥60B profit.  The loss will be its 4th in a row.  The world’s #3 TV maker slashed TV sales targets after the ¥ reached a postwar high & floods in Thailand cut production.  Its annual sales projection were lowered to 20M TVs from 22M.  SNE cut annual sales targets for PCs, compact cameras & Blu-ray DVD players.  While many of its troubles are internal, a less than rebust global economic recovery is aggravating those problems.  The US shares fell 39¢ (2%).

Sony Falls Most in Eight Months After Forecasting Fourth Annual Net Loss

Sony Corp Ord (SNE)

After the super rally in Oct, stocks can be excused for taking a breather this week, Dow fell 250.  There was a lot of gloomy news which was taken fairly well.  An anemic jobs recovery was reaffirmed today & the G-20 failed to agree on how to aid ailing economies.  There are numerous signs that the European & US economies are not having strong recoveries.  When companies report Q3 earnings, common themes are higher earnings come from overseas growth & belt tightening in the US (as a way of dealing with a sluggish recovery).  Heat is starting to increase in DC on findings by the supercommitte which is charged with reducing massive gov deficits.  That will get ugly because both sides are standing by their principals.  There is a lot riding on the confidence vote in Greece tonight.  But there is so much disarray in Europe, that it is just one of many uncertainties.  

Dow Industrials (INDU)

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