Dow and Nasdaq each have triple digit gains

Dow soared 322, advancers over decliners 4-1 (could have been better all considered) & NAZ led the rally with a gain of 100 (4.3%).  Banks joined in the rally, but the Financial Index did not lead despite an encouraging report on the health of US banks from the FDIC.

S&P 500 Financials Sector Index

Value	166.19
Change	5.22    (3.2%)

MLP had a substantial recovery after recent selling while the REIT index rose 5½ to the 317s.  Junk bond funds rose 2% (good gain for them) & Treasuries pretty much marked time at their high levels with correspondingly low yields.  Oil rose for a 2nd day amid speculation the Federal Reserve will bolster efforts to stimulate the economy.  Gold dropped, taking a nasty tumble to the low 1800s, for the first time in 7 sessions after the rally drove it to a new record, above $1917.

Alerian MLP Index

Value	338.14
Change	9.67     (2.9%)

Treasury yields:

U.S. 3-month	0.000%
U.S. 2-year	0.213%
U.S. 10-year	2.137%

CLV11.NYM

...Crude Oil Oct 11...

85.94

... 1.52

(1.8%)

Click below for the latest market update:

The Treasury sold $35B of 2-year notes at a record low yield of 0.22%.  Investors continue to seek safe haven securities as a refuge from financial market turmoil & a slowing economy.  Yields on most Treasuries were near record lows amid speculation Ben Bernanke may signal on Aug 26 that policy makers are willing to take further measures to prevent the US economy from returning to recession.  Yields on benchmark 10-year notes were little changed above 2.1% after dropping on Aug 18 to the historical low of 1.97%.  Yields on 5&7-year notes fell that day to records of 0.79% & 1.31% respectively.  The current 2-year note yield rose one basis point to 0.21%.  Risk averse thoughts are still running strong.

Treasury Auctions Two-Year Notes at a Record Low Yield on Refuge Demand

The FDIC list of “problem” banks fell in Q2 for the first time in 5 years as bank income improved & costs tied to bad loans eased.  The list of banks deemed at greater risk of collapse shrank by 23 to 865.  The last time that happened was Q3 2006 before the credit crisis began.  Net income rose 38% to $28.8B from a year earlier, the 8th consecutive quarterly improvement, boosted by a 7th straight drop in provisions for bad loans.  “Banks have continued to make gradual but steady progress in recovering from the financial market turmoil and severe recession that unfolded from 2007 through 2009,” Martin Gruenberg, acting FDIC chairman, said.  Lenders put aside 53% less money to cover bad loans, charge-offs dropped 42% & the $20.9B decline in charge-offs was the largest since the recovery in credit quality began. The deposit insurance fund was positive for the first time in 2 years.  While loan balances increased, net operating revenue declined for a 2nd consecutive quarter, falling 1.8%, as banks struggled with the effects of a slowing economy & low yields on assets. The bottom line is that bank health is recovering from 3 years ago.

FDIC ‘Problem’ Banks Shrink, First Time Since ’06

Dow is back above the important 11K level although NAZ led the rally.  Breadth while good could have been better, some stocks were left behind.  Junk bonds (stocks with high yields) did well, a sign that speculative juices are starting to flow.  The VIX in the chart below dropped 6 to the 36s but remains in elevated territory.  Bets are being made than Bernanke will have more magic as he did last year when QE2 was announced.   However this is a different world with different problems. 

Volatility Index (^VIX)

Dow Industrials (INDU)

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Markets meander as financials continue to slide

Dow was flattish for most of the day with selling into the close.  Dow fell 25, advancers barely ahead of decliners & NAZ was off 12.  Bank stocks were weak again, taking the Financial Index back to Dec levels.

S&P 500 FINANCIALS INDEX

Value	208.24
Change	-0.31    (-0.2%)

The MLP index was down pennies while the REIT index rebounded 1 to the 241s.  Junk bond funds were essentially flat as were Treasuries.  Oil had a good day, trying to top $100 & gold found support taking it to $1524. 

ALERIAN MLP INDEX

Value	362.49
Change	-0.23    (-0.1%)

Treasury yields:

U.S. 3-month		0.05%
U.S. 2-year		0.51%
U.S. 10-year		3.12%

CLN11.NYM

...Crude Oil Jul 11

...99.55

... 1.85  (1.9%)

The number of banks at risk of failing made up nearly 12% of all federally insured banks in Q1, the highest level in 18 years.  That proportion is about the same as in Q4 last year, though the increase in the number of banks on the FDIC.'s confidential "problem" list is slowing, only 4 banks were added to its list in Q1 bringing the total to 888.  In Q1, the industry reported its highest earnings, $29B, since before the financial crisis hit more than 3 years ago.  But only a small fraction of the 7500 federally insured banks, 1.4% with assets exceeding $10B, drove the bulk of the earnings growth (accounting for $24.4B).  By contrast, most of the banks that have struggled or failed have been small or regional institutions. These banks depend heavily on loans for commercial property & development, sectors that have suffered huge losses. The amount that banks set aside for possible losses on loans fell by more than half in Q1, to $20.7B from $51.6B a year earlier.  But net revenue declined 3.2% to $5.5B, only the 2nd time in 27 years that the industry has reported less revenue than in the year-earlier quarter.  43 banks have failed so far this year, though the pace has slowed from last year, when 157 banks failed in 1992 at the height of the savings & loan crisis.  This explains why bank stocks have been slipping & sliding as shown in the Financial Index above.

• Troubled banks made up about 12 pct of total in Q1- AP

Chrysler Group paid back $7.6B to the US & Canadian govs, most of the bailout money that saved the company just 2 years ago.  Chrysler went from a company that almost ran out of cash & survived a 2009 bankruptcy to one that is revamping its aging lineup & last qtr posted its first net profit in 5 years.  To pay off the loans, Chrysler raised $3.2B thru a bond sale & took out $3B in lower-interest bank loans. It also used a $1.3B investment from Fiat.  The Treasury still owns 8.6 % of Chrysler, which it got in exchange for the bailout. About $2B of the gov aid went to parts of Chrysler that were left behind in bankruptcy. That money hasn't been repaid.  When the economic recovery is stuttering, it's good to see some positive signs.

Chrysler Repays Governments as Fiat Boosts Stake


Yandex (YNDX), owner of Russia’s most popular internet search engine, jumped after raising $1.3B in its IPO that sold above the proposed price range of $20-$22.  The shares rose $13.84 to $38.84. The Moscow-based company sold 52.2M shares, a 16.2 % stake, at $25 each, valuing the company at about $8B.  By way of comparison, Microsoft (MSFT) has a market value of $200B.  The underwriters have an option to purchase an additional 5.2M shares which they will obviously exercise.  

Yandex Jumps in Biggest 2011 Tech IPO


Prices at the pumps were lower again, but they can fall just so far with crude near $100.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.828	$3.972	$4.099	$4.049	$3.281	$4.317
Yesterday Avg.	$3.843	$3.984	$4.110	$4.057	$3.285	$4.323
Week Ago Avg.	$3.944	$4.085	$4.212	$4.116	$3.311	$4.357
Month Ago Avg.	$3.860	$3.999	$4.128	$4.139	$3.268	$4.301
Year Ago Avg.	$2.793	$2.966	$3.073	$3.049	$2.231	$2.936

Source:   AAA


The major excitement today was the success of another hi-tech IPO (while established companies went nowhere).  There are plenty of buyers for these new companies & more will be coming, but down the road that could bring big problems as this type of action has done so many times in the past.  MLPs had a nice rebound last week, but settled back this week.  The index is back to where it was 3 weeks ago (down 28 in May).  However this May has been less brutal than last May but the index is down 1 YTD.  With more stories about a sluggish economy & a long weekend approaching, the balance of the week will probably see the markets continue to drift lower. 

Dow Industrials (INDU)

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Korean tensions shake markets

North Korea fired artillery shells into South Korea, a good way to shake confidence in the stock markets.  Dow is down 156 (bringing it near the important 11K support level), decliners over advancers 4-1 & NAZ fell 38.  Bank stock as markets leaders lost ground & the Financial Index remains range-bound in the 190s.


S&P 500 FINANCIALS INDEX

Value	194.19
Change	-2.46  (-1.3%)

Nervous markets affect high yielding securities.  The MLP index is down 2 to the 357s, but off the lows.  The REIT index fell 2 to the 212s.  Junk bond funds are little changed, not far below the recent highs.  Treasuries were strong on increased intl tensions.  The yield on the 10 year Treasury bond dropped 6 basis points to 2.75% & down a whopping 20 basis points from its peak last Thurs.

Treasury yields:

U.S. 3-month		0.13%
U.S. 2-year		0.44%
U.S. 10-year		2.75%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10 Year Treasury Yield Index   ---   2 weeks




Oil dropped for a 3rd day as the dollar strengthened on concern that Europe’s debt crisis will hurt economic growth & as North Korea & South Korea exchanged artillery fire. Gold rose the most in 2 weeks on demand for a haven amid Europe’s sovereign-debt crisis & escalating tensions in North and South Korea.

CLF11.NYM

....Crude Oil Jan 11

..................80.68

... 1.06

(1.3%)

GCX10.CMX

...Gold Futures,Nov-2010...

1,364.50

... 6.80

(0.5%)

Gold Super Cycle Link! Click Here

Photo:  Bloomberg

Sales of previously owned homes slipped slightly in Oct as the housing market continues to battle tough economic conditions including high unemployment & tight credit.  The National Association of Realtors reported sales of previously owned homes dipped 2.2% last month to an annual rate of 4.43M units.  The median price for a home was $170M, down 0.9% from a year ago, as prices continue to be depressed by weak sales conditions & a huge overhang of unsold homes.  Sales had plunged to the slowest pace in 15 years in Jul & then posted gains in Aug & Sep before slipping back. Sales in October were 39% below the peak of 7.25M units set in Sep 2005 during the height of the housing boom.

Sales of Existing Houses Fell More Than Forecast in October


Purchases of homes - 1 year





Median price of a house - 1 year





US banks posted their smallest profit since the Q4 2009 after one of the nation’s biggest lenders took a $10.4B writedown, according to the Federal Deposit Insurance Corp (FDIC).  Bank profits totaled $14.5B in Q3, a decrease from $21.6B from Q2.  “Problem” banks, those at heightened risk of failure, rose 3.7% to 860 in Q3, the most in 17 years! Banks on the confidential list had $379B in assets. “Credit performance has been improving, and we remain cautiously optimistic about the outlook,” FDIC Chairman Sheila Bair said. “It is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduce loss rates.”  Loan-loss reserves declined for the first time since the Q4 of 2006 & total reserves fell $9.6B, as large banks reduced loan-loss provisions.  The deficit at the agency’s deposit insurance fund narrowed to $8B in Q3. “The industry has come a long way in cleaning up balance sheets, building capital, and adjusting to changes in financial markets and the economy,” Bair said. “The adjustments are not over, and this is no time for complacency.”  The report explains why the Financial Index (shown above) has been going nowhere for months.

U.S. Banks Post $14.5 Billion Profit in Third Quarter, Smallest Since 2009


Bank of America (BAC), Dow stock, is one of the largest banks in the world but its stock has not been participating in the market rally.  A lack of enthusiasm for bank stocks has limited market gains in 2010.


Bank of America   ---   YTD





The U.S. economy grew at a 2.5% annual rate in Q3, more than previously calculated at just 2%, as companies increased shipments abroad & Americans boosted their spending.  However, this was little consolation for the markets.  Escalating tensions on the Korean peninsula dominate the news & uncertainty about an Irish bailout is also in traders minds.  2 weeks ago, Dow broke thru the Apr high of 11.2K & looked like it want to go higher despite the lack of favorable economic news to support the advance.  Now the Apr high could become an critical ceiling which it's struggling to break thru.  For the rest of the week, stocks should remain on defense.


Dow Jones Industrials   ---   2 weeks

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Markets slip as gold tops 1400 for a new record

Stocks had a soggy day held back by growing concerns on European sovereign debt problems.  Dow fell 37, decliners over advancers 5-4 & NAZ added 1.  Bank stocks led the way down, but the Financial Index finished off its lows


S&P 500 FINANCIALS INDEX

Value	207.79
Change	-1.62  (-0.8%)

After being lower, the MLP index recovered & ended with a gain of ½ to 362, yet another record.  The REIT index also recovered much of its early losses to end being down 1½ to the 229s.  Junk bond funds rose to new multi years highs.  The Treasuries were hit with a little profit taking.  The yield on the 10 year Treasury bond rose 3 basis points to 2.56%, but is still less than 20 basis points above its recent lows under 2.40%.

Treasury yields:

U.S. 3-month		0.11%
U.S. 2-year		0.40%
U.S. 10-year		2.55%

Alerian MLP Index   ---   YTD



Dow Jones REIT Index   ---   YTD



10-Year Treasury Index   ---   YTD




Although it managed a gain, oil retreated from its highest level in 2 years as the dollar strengthened against the €. Gold topped $1,400 an ounce, extending its rally to another record.  Strength came after concerns mounted that govs in Europe (beginning with Ireland) will struggle to pay debts. Before today, the metal jumped 28% this year, heading for the 10th straight annual gain.

CLZ10.NYM

...Crude Oil Dec 10

...87.06

..... 0.21

(0.2%)

GCX10.CMX

...Gold Nov 10....

1,409.20

... 11.90

(0.9%)

$$$ Gold Super Cycle $$$  

Click Here

Federal Deposit Insurance Corp (FDIC) Chairman Sheila Bair said regulators will need to gather more information on mortgage documents to relieve a foreclosure bottleneck that threatens to derail the US economic recovery. There are "serious problems" with the documentation.  Among the banks being examined are:  JPMorgan (JPM), Bank of America (BAC) & Ally Financial’s GMAC Mortgage unit.  They have temporarily halted home seizures to review paperwork after court documents showed employees may have submitted affidavits in foreclosure cases without confirming their accuracy.

Bair Says Regulators Need More Data to Relieve U.S. Foreclosure Bottleneck


Google (GOOG) & Dell (DELL) plan to push ahead with more acquisitions.  The takeover spree has boosted the value of US technology mergers to more than $60B YTD.  GOOG is likely to buy more companies about the size of YouTube & DoubleClick, its 2 largest deals, to help offer more online services. DELL plans more takeovers in its drive to double the size of its data-center business to $30B.  Today Amazon (AMZN) announced it will pay $½B for Quidsi, owner of Diapers.com.

Google, Dell Likely to Keep Acquisition Spree Alive

Google   ---   YTD



Dell   ---   YTD



Amazon   ---   YTD





Apple found friends again who are taking it back to its record reached 3 weeks ago.  The stocks gained 1½ to the 318s, just inches from its record highs. 

Apple   ---   YTD




While the averages were down, markets were really just treading water.  That is best typified by the Alerian MLP Index working its way back into the black.  European debt problems are bubbling up again.  The rise of gold when the dollar is strong is unusual, but happened this summer during the Greek debt crisis.  Ireland is coming under greater scrutiny which is driving buyers into gold.  Strength in gold is at conflict with strength in stock markets. 

Dow Jones Industrials   ---   YTD

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