Markets soar on European hopes

Dow soared 337 to go over 12K & closed near the highs, advancers over decliners 7-1 & NAZ was up 80.  Bank stocks & materials (such as oils) led the way, although it was tough to find a loser.

S&P 500 Financials Sector Index

Value	171.99
Change	6.62    (4.0%)

The MLP index rose 2+ to the 377s & the REIT index jumped 7+ to the 228s.  Junk bond funds were mixed & Treasuries sold off in this market rally.  Oil rose for a 2nd day as US builders broke ground on more houses than at any time in the past 19 months & on speculation that further sanctions against Iran will curb supply.  Gold joined in the rally, although it's only back where it was 6 months ago.

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	0.255%
U.S. 10-year	1.923%

CLF12.NYM

...Crude Oil Jan 12

...97.12

... 3.24

(3.5%)

Ireland’s benefactors should take steps to create a firewall around the nation, as its prospects remain “fragile” amid the escalating euro-region debt crisis, according to the IMF.   The crisis may hamper Irish economic growth, increase the cost of re-entering bond markets & make it harder for the country’s banks to sell off assets.  “Stronger European support for Ireland’s recovery would help sustain fiscal consolidation efforts and reinforce prospects for program success, with positive spillovers for European stability,” the IMF said.  “By enhancing the robustness of Ireland’s program, these and other potential steps would also provide a firewall protecting the euro area against potential shocks.”  Ireland sought a €67.5B ($88.5B) rescue last year, amid concern that the nation’s banking woes would push it into bankruptcy.  With the state seeking to test bond markets in 2012 after a 2-year hiatus, Ireland’s partners should consider a range of extra measures, the IMF said.  “The main thing that would be desirable would be to break this link between the sovereign and the financial system more effectively than has been done so far,” said Craig Beaumont, IMF’s mission chief for Ireland. “The prospects for the program’s success remain positive.”  This situation remains touchy.

IMF Urges European Firewall Around Ireland


CVS Caremark estimated that 2012 adjusted earnings would rise 13-17% & lifted the quarterly div 30%.  The company pegs 2012 adjusted EPS at $3.15-$3.25.   Continuing operations should generate $2.93-$3.03.  Analysts are estimating $3.20.   In 2012, the company expects to buy back the remaining $3B of stock already authorized.  The quarterly div was raised to 16¼¢ (65¢ annualized) & the stock rose 3.24 (9%).

CVS Sees 2012 Profit Bump, Lifts Dividend (Update 1)at TheStreet

CVS       CVS Caremark 

• 

Photo:   Yahoo

The GOP-run House rejected the Senate plan to renew the payroll tax cut & extend unemployment benefits.  It wants to start bargaining now with the Senate, but leader Reid said he won't negotiate until the House approves the Senate's 2-month package.  The problem is the House does not want to have to go thru these negotiations again in Feb, insisting households should know tax obligations for the next 12 months - not just 2.  House Speaker Boehner says it's time for the president to help the impasse by calling on the Senate to return to DC & bargain with the House over a compromise plan.  The Senate had passed a bipartisan plan to extend expiring tax cuts & unemployment benefits for 2 months, hoping to give negotiators time to agree to a year-long plan.  Today's stock market was not concerned about the goings on in DC.

Boehner: Obama Should Make Senate Bargain on Taxes AP




Photo:   Bloomberg

Italy paid the most in 14 years to sell 5-year bonds as Parliament rushes to pass a €30B ($39B) budget plan that Prime Ministe Monti says will bring down record borrowing costs.  The Treasury sold €3B of the bonds, the maximum, to yield 6.47%, the most since 1997 & up from 6.29% in Nov.  Demand was 1.42X times the amount on offer, compared with 1.47X times last month.  The yield on the benchmark 10-year bond was 6.69% after the auction.   Call this one more fluid debt situation.

Italy Sells Debt at Record Yields as Monti Rushes to Get Budget Approved


Maybe this was an overreaction to oversold  markets.  Markets are hoping that financial difficulties will vanish.  The rejection by the House to extend tax tax cuts & unemployment benefits received zero attention, hard to believe.  Even after the rally, the chart below shows the Dow has not recovered after the big sell-off in Aug.  Dow is knocking on the 12.2K ceiling once again & tomorrow will tell us if it has the strength to blast thru.

Dow Jones Industrial Average

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Wobbly day for stocks on European debt worries

Overbought stocks fell following a 6 day rally.  Averages had been higher early in the day, then gave up those gains.  Dow lost 19 (finishing near the lows), decliners over advancers 2-1 & NAZ was down a bigger 10.  Bank stocks also sold off.  The Financial Index has recovered a lot in Dec, taking it back to the levels in early May when it was plunging 50 points.

S&P 500 FINANCIALS INDEX

Value	207.65
Change	-1.78  (-0.8%)

The Alerian MLP Index fell 5½ to the 352s, a very big drop for the index.  It's noticeable even on the chart below for the full year.  The REIT index fell 2½ to the 212s but junk bond funds were firmer.  High yield securities have to be feeling the competitive pressure from rising federal rates.  The 10 year Treasury bond yield rose another 6 basis points to 3.52%, not seen since early May.

BONDS

U.S. 3-month		0.13%
U.S. 2-year		0.65%
U.S. 10-year		3.53%

Alerian MLP Index   ---   YTD



Dow Jones REIT Index   ---   YTD



10-Year Treasury Yield Index   ---   YTD




Oil was flat while gold got a good dose of profit take.  However, it's not far from its recent record levels above 1420.

CLF11.NYM

...Crude Oil Jan 11

...88.52

...... 0.17

(0.2%)

ZGZ10.CBT

.....100 oz Gold....

1,385.60

... 18.10

(1.3%)

** Gold Super Cycle **  

Click Here

The Senate passed a sweeping tax package that would extend tax cuts, reduce Social Security taxes & extend jobless benefits.  There is also plenty of pork in there for unrelated pet projects.  The bill passed by the Senate, 81-19, would extend tax cuts for 2 years, then Congress will go thru the same anguish at the last minute to deal with that expiration. "I know there are different aspects of this plan to which members of Congress on both sides of the aisle object. That's the nature of compromise," the president said. "But we worked to negotiate an agreement that's a win for middle-class families and a win for our economy, and we can't afford to let it fall victim to either delay or defeat."  House Dems said they expect to vote on the bill tomorrow. 

Senate Passes $858 Billion Tax-Cut Plan, Sends It to House


Ireland's parliament approved a multi billion € bailout package in the face of opposition threats to renegotiate the deal to force losses on some senior bondholders in Irish banks.  The 85B € package was pushed thru with the support of independent MPs & the center-right Fine Gael party.  Under the EU/IMF deal, Ireland faces years of cutbacks & tax increases in return for fresh capital to shore up the banks, preserving full repayment of their senior bonds, those first in line to be repaid in the event of any default.  The gov, the most unpopular in recent history, got the bailout approved by a margin of only 6 votes, prompting an easing in spreads & paving the way for the IMF to approve its 22.5B € portion of the bailout tomorrow.

Ireland passes bailout package despite opposition- Reuters


Bank of America (BAC), a Dow stock, & Citigroup (C) are 2 big banks with stocks that have lumbered along in 2010.  But they have different stories.  BAC has been slipping & sliding, as if it's losing direction.  Meanwhile Citi has attracted buyers in recent months when the gov finished selling all of its shares.  Citi will enter the new year with positive momentum.   

Bank of America   ---   YTD



Citigroup   ---   YTD





Stocks tried to extend the rally but profit taking took its toll late in the day, nothing serious for the bulls.  The biggest shock was the hit that MLPs took.  They have had nothing short of an outstanding rise over the last 2 years (plus 8 distributions along the way), so more dramatic profit taking has to be expected.  Tomorrow eyes will be on Europe to see if Ireland will have its bailout package approved & the Dems in the House to see how much opposition they will mount against the tax extension bill.  Like most bills these days, plenty of pork legislation is added to the main bill, diluting its meaning & adding to the growing federal burden of debt.   

Dow Jones Industrials   ---   YTD

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Markets meander on indecisive developments

Dow is up 5, decliners barely ahead of advancers & NAZ gained 4.  Markets are awaiting developments on the domestic scene & overseas. Bank stocks inched higher, keeping their positive momentum alive for the month.



S&P 500 FINANCIALS INDEX

Value	209.93
Change	0.11  (0.1%)

The MLP index rose 1 ot the 357s, still trading sideways for weeks & the REIT index gained 1 to the 216s.  Junk bond funds edged higher.  Treasury 10-year notes dropped, pushing the yield toward its biggest weekly increase this year, as increases in US exports & consumer confidence sapped demand for the safety of gov debt. The yield on the 10 year Treasury bond rose 4 basis points to 3.26%, remaining close to the 3.33% reached earlier this week. 

Treasury yields:

U.S. 3-month		0.13%
U.S. 2-year		0.61%
U.S. 10-year		3.26%

Alerian MLP Index   ---   2 weeks



Dow Jones REIT Index   ---   2 weeks



10-Year Treasury Yield Index   ---   2 weeks




Oil fell as confidence among US consumers increased to the highest level in 6 months, strengthening the dollar & curbing the appeal of commodities. Gold futures fell, heading for a weekly loss, as concern that China may tighten monetary policy eroded demand for precious metals.

CLF11.NYM

...Crude Oil Jan 11

...87.78

...... 0.59

(0.7%)

GCZ10.CMX

...Gold Dec 10

.....1,373.10

... 19.00

(1.4%)

Gold Super Cycle Link! Click Here

US consumer sentiment rose more than expected in early Dec while an index of current conditions jumped to its highest level in almost 3 years.  The Thomson Reuters/University of Michigan's preliminary Dec reading on the overall index on consumer sentiment was 74.2, up from 71.6 in Nov, the highest level since Jun & the 3rd-highest level since the start of 2008  The median forecast was only 72.5.  In contrast, the reading was above 95 in the middle of 2007.  At the same time, the survey's barometer of current economic conditions rose to 85.7 versus 82.1 in Nov (above a forecast of 83.1). It was also the highest reading since Jan 2008, just after the economic downturn began.  The survey's gauge of consumer expectations rose to 66.8, above Nov's 64.8 & slightly higher than a predicted reading of 66.4.  This favorable data did not influence stock trading.

U.S. Michigan Consumer Sentiment Index Rose in December

Consumer sentiment - 1 year



Current conditions - 1 year



Consumer expectations - 1 year






Demand for junk bonds continues strong as they are becoming a haven for fixed-income investors after mounting losses in gov, investment-grade corp & municipal debt.  Gains of 0.8% this month on high-yield, high-risk bonds compare with losses of 1.9% for Treasuries (& bigger losses on longer dated debt), 1.5% on high-grade company notes & 1.4% on state & local debt. Relative yields on junk bonds versus higher-rated corporates narrowed to 388 basis points a level that hasn’t been breached in 3 years. High yields have become more important than concerns for safety.  Also considered as stocks with high yields, they are a play on a recovering economy.

Junk Bonds Buck Debt Slump With Tightest Spreads Since '08: Credit Markets



The International Monetary Fund (IMF) postponed consideration of a proposed 22.5B € loan to Ireland ($30B) until after the Irish government’s debate on the rescue package & it will not take action until after the Irish parliament’s vote, scheduled for Dec 15 (i.e. Dec 16 is the earliest that it could receive approval by the IMF board).  The EU & IMF agreed on an 85B € ($113B) rescue package on Nov 28, 7 months after a 110B € bailout for Greece. The European Central Bank has stepped up buying bonds from the region’s most-indebted countries to prevent the debt crisis from spreading. This is another lingering problem that refuses to go away. 

IMF Postpones its Decision on Ireland Loan Package Until Dec. 16 or Later



These sideways markets are no fun to watch.  Just look at the Dow chart below.  But they are waiting for direction, primarily from DC & that could be a long way off.  On the tax debate, Reps & Dems have dug in their heels which means a final outcome could go down to the the wire at year's end or drag on until the Reps take over the House in Jan.  Even gold is resting after it leaped to a new record high early this week


Dow Jones Industrials   ---   2 weeks

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Markets trimmed morning losses even with Euro debt worries

Stocks recovered much of the AM losses.  Dow finished down 39 (allowing it to remain above 11K), decliners ahead of advancers a more mild 3-2 & NAZ fell 9.  Bank stocks had a good day.  After trading about even in the AM, they rose in the PM giving the Financial Index a decent gain.

S&P 500 FINANCIALS INDEX

Value	195.52
Change	1.11  (0.6%)

MLPs rebounded in the PM reducing the loss on its index to 0.83 at 357 while the REIT index rose pocket change in the 216s.  Junk bond funds were mixed to higher.  Treasuries rose, with 10-year bonds up for a 3rd day in a row, on concern the rescue for Ireland will fail to contain Europe’s sovereign-debt crisis.  The yield on the 10-Year Treasury bond fell 3 basis points to 2.83%.  The Federal Reserve bought $9.4B of Treasuries as part of its plan to pump $600B into the economy.

Good news for MLPs, Kinder Morgan (KMP) just announced it plans to distribute $4.60 per unit in 2011, a 4.5% increase over its 2010 budget target of $4.40 per unit.  The units rose 11¢ to 70.14

Kinder Morgan Energy Partners Expects to Distribute $4.60 Per Unit for 2011 Business Wire

Treasury yields:

U.S. 3-month		0.15%
U.S. 2-year		0.50%
U.S. 10-year		2.83%

Alerian MLP Index   ---   2 months



Dow Jones REIT Index   ---   2 months



10-Years Treasury Yield Index   ---   2 months




Oil rose to a 2-week high as US consumers spent more over the Thanksgiving weekend than last year, a sign confidence in the economy is strengthening.  Gold rose for the first time in 3 sessions on speculation that Europe’s sovereign-debt crisis will boost demand for gold.

CLF11.NYM

...Crude Oil Jan 11

...85.73

..... 1.97

(2.4%)

GCZ10.CMX

...Gold Dec 10

.....1,368.40

... 6.00

(0.4%)

$$$ Gold Super Cycle $$$  

Click Here

Defaults on commercial property mortgages held at US banks rose in Q3, extending a pattern begun in late 2006 when real estate prices were close to a peak.  $604M of loans on office buildings, malls, hotels & other commercial properties went into default in Q3, pushing the default rate to 4.36% of outstanding loan balances, from 3.41% last year & 4.27% in Q2. The record default rate was 4.55% in 1992.  The global credit crunch & plunge in property values have prevented borrowers from refinancing while job losses have reduced rental demand. But property prices are starting to recover in many markets, easing the strain on banks. Commercial property prices rose 4.3% in Sep from the previous month as demand rose for the best office buildings in major markets such as New York & Washington, Moody’s Investors Service said last week (after the Moody’s/REAL Commercial Property Price Index had fallen to an 8-year low in Aug). Renewed sales of commercial mortgage-backed securities are helping banks clear loans from their books as they reduced their commercial-mortgage holdings by $8.8B in Q3 & $18.5B YTD. Banks hold $1.07T of commercial mortgages & $216B of apartment mortgages.  A total of $46.8B of commercial mortgages & $10.1B of apartment mortgages are now in default (past due by 90 days or more or in non-accrual status, meaning the bank doesn’t expect to make a full recovery on it).  This is one more reason bank stocks have been trudging along for much of this year.

Defaults on U.S. Commercial Mortgages Held by Banks Rose in Third Quarter


The 85B € ($113B) bailout package for Ireland failed to quench the market turmoil menacing the € (down more than a penny today in the $1.31s).  Irish 10-year bonds slid after an early advance, Spanish bonds slid by the most since the launch of the € & European shares sank.  6 months after the Greek rescue exposed flaws in the euro’s makeup & fueled doubts, policy makers again found themselves meeting in Brussels to calm markets. In addition to Ireland’s rescue package, finance chiefs also endorsed a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers. And Greece was told it could have an extra 4½ years to repay emergency loans to match the 7-year term in the Irish deal.  While Greece let its budget get out of hand & Ireland fell prey to a housing bust, Portugal suffers from a lack of competitiveness that kept average economic growth below 1% in the past decade. Its gov has also been slower to cut its deficit than others.  European loan problems are not going away soon.

EU's Irish Rescue Fails to Stem Contagion; Spain Bonds Drop


Buying in the PM enabled markets to recover most of their losses, Dow closed 123 above its lows (below 11K).  Late day buying was encouraging for the bulls but Dow remains stuck where it was 2 months ago while bank stocks have hardly moved for months.  The 11K support held today but pressure is building to take it lower. 

Dow Jones Industrials   ---   2 months

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