Markets rise on bailout hopes

Dow rose 197, advancers over decliners 5-2 (not so great for a big advance day) & NAZ was up 31. The gains came in the first hour of trading, afterwards the averages drifted sideways. NYSE volume was quiet (15% less than the 3 month moving average), not a lot of conviction behind the advance.

S&P 500 FINANCIALS INDEX rose nicely on the news about the proposed bailout back approval, remaining in the sideways trading band it has been in for 10 weeks (with an upper limit of 302):

Value 276.60 ___ Change +7.06 ___ % Change +2.6%

Oil had a good day along with stocks for the same reasons, bailout hopes. The Dow Jones REIT Index was up 5 to 248 & the Alerian MLP Index was up 6 to 239 (probably following the up day for oil).

CLX08.NYM

Crude Oil Nov 08

..108.02

.. 2.29 (2.2%)

The rescue package will be agreed to but the finally approval will probably have to wait until the last minute on Sun PM, prior to Asian markets opening. Both sides announced they had agreed in principle, it will be very embarrassing if they can not make it happen now after all that publicity. Optimism is running high that we may be near the end of the credit crisis. The idea is that things will settle down & business can get back to running as usual. I don't believe solving the problem is all that simple! After passage, probably in Mon trading, there will be a big pop, especially for financials. But then there will be a day 2 followed by day 3. Macro economic issues will keep coming plus nobody knows how much good the plan will do to solve massive financial problems in the system. Just one of those problems to be worked out is Washington Mutual (WM), largest S&L in the country, is up for sale. The stock dropped 25% today to 1.29. It's huge portfolio of mortgages is considered to be worth little, maybe the bailout package can bring life back to WM.


•U.S. Lawmakers Reach Agreement in Principle on $700 Billion Bailout Plan


I just had another article published at SeekingAlpha, this one on buying gold. The flight to safety concept is out of vogue this week, but there are always a few who would like to have some for diversification. Now it's easy because it can be done by buying stock.

http://seekingalpha.com/article/97160-buying-gold-what-is-high-and-what-is-low

Stocks plunge on confusion & chaos!!

Dow sold off big, down 504 to close at 10917, below the July 15 low. S&P 500 was down 59 to 1192. Can you spell "uh-oh?" 1200 was a critical support line which gave way with selling at the close. All 30 Dow stocks declined, led by American International Group (AIG), Bank of America (BAC), Citigroup (C) & General Motors (GM). Decliners were ahead of advancers 15-1. NYSE volume was 1.9B, very good but short of exceptional. For the bulls, this was supposed to show climactic selling aimed at washing out all the sellers. This volume level does not tell us that story! The very large volume for AIG, now a low priced stock even though it's in the Dow, contributed to the high volume. This was one of those days when it's hard to find a winner. The Yahoo finance badge on the right shows all red!

S&P 500 FINANCIALS INDEX is down 29 to 253 below the post July 15 low of 267 as financials got hammered. This has to be one their largest declines in its history. The next test for the index is the July 15 low of 232. AIG closed at 4.76 on a volume over 737MM shares leading the way down. Bank of America was down 7 (20%) on 273MM shares. Confusion and chaos carried the day as stocks plunged on confusion & chaos, especially for financials!!

Oil was down 5½ to the 95s, first close below 100 in 7 months. Following oil down was the Alerian MLP index (shown on the right) down 13 (one of its biggest daily declines in history) to 236, back to price levels 3 years ago.

What's there to say? Words fail on a day like today. Most Asian markets were closed yesterday for a holiday. The Australian market was open, suffering a big decline. Tonight Asian markets are expected to continue selling off with this very negative tone.

With the FED meeting approaching, a rate cut of 25 points is widely expected (that's called spinning on a dime). However, financials need a lot more than a rate cut. After a day like today, it may seem like the world is coming to an end. Not so!! But we are in very tough times where new rules for financial markets have to be made up on the fly! This is time for research to prepare for buying opportunities as securities sell off to attractive values. Dividends and yields are important to me, helping me get through these tough times.

Markets little changed on a very confusing day

Dow is down only 11, advancers are slightly ahead of decliners & NAZ is essentially even. NYSE volume was low at 1.1B. The 4 biggies in trouble, AIG, MER, WM & LEH, traded 700MM in total volume. S&P 500 FINANCIALS INDEX is soggy, down 3 to 282 as financials try to make sense out of the financial mess out there. Merrill Lynch (MER) & American International Group (AIG), are off sharply again to new multi year lows (MER is at a 12 year low). Washington Mutual (WM) was even at 2.80. AIG is under pressure to announce their turnaround plan prior to Sep 25. With their stock heading for zero, that announcement is desperately needed.

•AIG May Announce Turnaround Plan Before Sept. 25 Deadline as Shares Slump

In this unusually confusing world of big finance, here's more thoughts about LEH & its future:

•Bank of America Leads Talks for Lehman as Paulson Opposes Providing Funds
•Greenspan Says Sale of Lehman Should Be Resolved Without Government Help
•Paulson, Fed Stand Against Lehman Funding Signals Attempt to Draw the Line
•Lehman Is No Bear Stearns as Money Markets Show Little Panic Amid Meltdown

It's amazing all the confusion surrounding LEH & how relatively well the markets are taking it.

Oil was about even (although it dropped one penny below 100 during the day) as IKE approaches the Texas coast. This is quite a change form a couple of months ago when this threat could be worth at least 5 points. The Alerian MLP index is having a relief rally. After being greatly oversold, it's up 5 points to 250. Many of the big name players are up 1+ from oversold conditions. However, this is the region it traded at 3 years ago.

I just returned from a meeting with top financials execs. They were guessing about what will happen to LEH, down to 3½, probably this weekend. Their stock is probably history & preferred may also lose out. The problem is making the bond holders whole. Hopefully the gov can stay on the sidelines. A takeover or bailout should bring a stock market relief rally, but bigger problems with financials are not going away soon. Just ask stockholders of AIG, MER & WM.

Fannie Mae & Freddie Mac stories are not over. They still have trillions in debts which have to be be made whole. That's where gov help may be needed, costing taxpayers billions.

Markets up after late day rally

General Motors (GM), Caterpillar (CAT), JP Morgan Chase (JPM) & Microsoft (MSFT) led the Dow higher, up 164. Also helping, American International Group (AIG) recovered its almost 4 point loss earlier in the day, fighting its way back to a tiny gain. NYSE volume was a decent 1½B. But decliners were ahead of advancers 5-4 and NAZ was up 29. S&P 500 FINANCIALS INDEX rose 4 to 286 (up 16 from the low earlier in the day). Hope springs eternal for Lehman (LEH), however financials were selling off in after hours trading:

Bankers Say Lehman Approaching Rivals for Lifeline- AP

Congress is getting into the act of saving Fannie Mae (FNM)/Freddie Mac (FRE). Maybe that's why financials are selling off after hours:

•Fannie Mae, Freddie Mac Should Freeze Mortgage Foreclosures, Senators Say

Even though financials recovered, Merrill Lynch (MER) dropped almost 4 on nervousness. Washington Mutual (WM) was up about 50¢ to 2.83 (more than a point above its earlier low) as buyers rushed back into the stock, but, after hours, that gain vanished.

Financials Hit As Worries Spread Beyond Lehman

Confusion reigns in financials. Enormous mistakes & bad investments have been made, now they're coming home to roost. Try not to panic, it's better to remain cool on the sidelines & let day traders sort out the current mess.

Oil fell almost 2 to just over 100, even on worries about Ike hitting Texas. This is oil's lowest price in about 5 months as it continues playing defense. The Alerian MLP index is in its own bear market falling another 5 to 244 (shown in the Yahoo widget on the right). This brings it 98 points below the peak reached in the middle of last year (after a very pretty 9 month run).

A story just breaking, will leave today's post on an optimistic note:

BofA in Talks to Buy Lehman: WSJ Citing Source- Reuters

Stay tuned!

Meager energy, not Lehman, rally

Dow finally rallied, but not on Lehman announcements, instead on a technical rally for energy group. Financials did not lead or even participate in the gains. Dow rose 37 (earlier gains of 100+ points were lost in the last hour), advancers were about 20% ahead of decliners & NAZ was up 19. NYSE volume was basically medium, almost 1.6B. Financials were lower as Lehman news (or confusion) was not taken well:

S&P 500 FINANCIALS INDEX

Value ... 281.39 __Change ..(2.02) % __Change...(0.7%)

Lehman (LEH) was down 59¢ to 7.20 on confusion about their complicated restructuring plans. This confusion overhanging the markets (especially financials) will keep away buyers for some time:

• Lehman Tries to Soothe Wall Street With Asset Sale- AP

Not helping the financial index, the cost of protecting against bank credit default has risen after all the recent, very ugly news. Washington Mutual (WM), the largest S&L, is now a $2 stock:

•Washington Mutual, Lehman Lead Increase in Bank Bond Risk to 6-Month High

On the plus side, gains were led by energy despite lower oil prices. Chevron (CVX) & Exxon-Mobil (XOM), Dow stocks, were each up 3% in a technical or overdo rally (from being oversold). As shown in the Yahoo financial badge on the right, The Alerian MLP index was down pennies at its roughly 3 year low. Oil was down pennies in the 102s. Oil, as with all commodities, is clearly on defense, trying to hold off the wave of recent selling. The concept of Demand Destruction, talked about by foreign analysts, is taking control of these markets. Also the stronger dollar is making matters worse for commodity bulls. The Euro has fallen to $1.40, down about 20¢, in the last few weeks.

In my focus on MLPs, I have been ignoring REITs & junk bond funds which I also like. REITs had a minor rally in recent days, but very little & off very depressed levels. Junk bonds continue in the dumps with yields over 12%, more than triple those available on Treasury bonds. Historically, this is one of the widest spreads ever seen. While REITs have mortgage exposure, they're the borrowers not lenders. Their yields are 4-6% for some leaders & higher (even into double digits) for other quality companies. Both groups deserve more respect as these high yields will make taking the sideways (if not lower) markets easier to take.

Banks stocks surge, leading markets higher

Dow rose 290, advancers ahead of decliners almost 2-1 (a little weak all considered) while NAZ was up only 14. The chart on the right shows a midday pullback when early gains were more than halved but a late day 2nd rally brought stocks near their highs for the day. This was on higher volume on NYSE than in recent rallies, 1¾B (decent for a rally day). Banks had a great day on the Fannie Mae (FNM)/Freddie Mac (FRE) bailout news (even though their stocks nosedived to under $1 each):

S&P 500 FINANCIALS INDEX

Value ...303.43

Change .. 13.47

% Change .. 4.6%

REITs, also participated in the rally with gains of 3-6%. High yield (junk bond) funds had gains of a few pennies, their version of a "big" day. Oils & other commodity stocks, among others, had limited gains while tech (as evidenced by NAZ) had a muted response to gains for other stocks.

Crude oil was down a few pennies in the106s, on nervousness but uncertainty with the hurricane entering the Gulf. The Alerian MLP index pulled back 1 to 260, probably on worries about the hurricane.

Rates on fixed mortgages dropped ¼ point resulting from today's announcement. Good & helpful news but many mortgage problems remain:

•Fixed Mortgage Rates Drop in Wake of Fannie Mae, Freddie Mac U.S. Takeover

On the inflation front, gas prices have stopped falling as shown by the 25¢ per gallon increase today in the Gulf region:

•Gasoline Wholesale Price Jumps 12%, Most in Three Years, as Ike Approaches

This news is not going to be taken well. Investors will have to start thinking about the billions this is going to cost the US gov (assuming Congress approves):

U.S. Government Takes on Big Role in Mortgage Market- AP


With all the confusion about fast changes for rules in financial markets, this is a good time to keep cool & await developments!

Markets waffle

After a 150+ drop by the Dow in early hours, markets recovered & settled down. Dow was up 32, S&P 500 gained 5, advancers equaled decliners & NAZ dropped 3. NYSE volume continues to drift along at 1.2B. Financials had a very good day. The S&P 500 FINANCIALS INDEX rose 9 (3%) to 290, still range-bound in recent weeks. Lehman (LEH) rose 1+ on rumors about selling assets. REITs recorded good gains, but junk bond funds continue to drift along at depressed levels offering 12+% yields. In the oils, Exxon Mobil (XOM) & Chevron (CVX), Dow stocks, dropped about 1% each. Exxon is at an 18 month low, the pullback in oil prices is hurting prospects.

Oil was down but closed above 105 & change, a previous close considered very important by day traders:

CLV08.NYM

.. Crude Oil Oct 08

...106.52

.... 1.37 .. (1.3%)

Alerian MLP index --- 2 years





The Alerian MLP index dropped 3 to 261. At midday it was at the 2 year low of 258 recorded a few weeks ago, then rallied in the PM to cut its losses. The graph illustrates the importance of sub 260 levels. Two years ago, it came off a flat period in the prior year for a sustained rise only to max out at 342. In the last year it lost all rally gains.

Demand destruction was talked about again last night by Asian analysts. They say this is what is dragging markets down, both here & foreign markets. Higher inflation is forcing customers to cut back purchases causing slowdowns in many economies.

Changes in foreign currencies will also impact the US economy, particularly exports which has been the strong sector of the US economy. The Euro has fallen to under $1.43 or 10% in the last couple of months while the ¥ rose from under 100 to 110 before settling back to 107s. The stronger dollar will make US exports more expensive to foreigners.

Let me close with another brief mention about junk (high yield) bonds. They continue to get no respect, even in today's rally for financials. They offer 12+% yields with no mortgage exposure and much better fundamentals than during the 2 previous major downturns (1990 & 2000 periods). Their traditional spread over Treasuries has been around 400-450 basis points. Today that spread has doubled. The very brave may want to check out high yield bond funds.

One ugly day

Dow tumbled 344, decliners over advancers 5-1 and NAZ was down 74, making for the kind of day that has become routine this year. NYSE volume continues modest at 1.3B. The S&P 500 FINANCIALS INDEX got slapped hard today, down 14 to 281, just above 277 reached 2 days after the 232 low set on Jul 15. Financials dropped 5% after bond's biggest investor, Bill Gross, warned of a "financial tsunami" (mentioned in my AM post & linked on his name here).

Crude oil for October fell to settle under $108. This was oil's 5th straight decline & the lowest settlement price since April 4. The Alerian MLP index dropped 3 to 264s approaching its 2 year low, 258, reached last month.

CLV08.NYM

.. Crude Oil Oct 08

... 107.99

... 1.36 (1.2%)

Demand destruction is a phrase used a lot by analysts in Asia, thanks to night time visits with them on Asia-CNBC. It is what it sounds like, high prices for commodities destroys demand. This is most visible with oil, but affects all commodities after their recent fall from their price peaks. They say this could be the fundamental cause for the fall in oil prices & the rest of the commodity group.

Earlier this year, analysts were talking about 1270 on the S&P 500 being an important support line. The graph below shows that it has held fairly well, allowing for limited minor dips below in the last couple of months. Today at 1236 it's testing the soggy floor (1200+) again. But this time the S&P 500 has declined for 4 consecutive days, worst performance since Jan.

S&P 500 --- YTD

With all the attention paid to oil & weather recently, don't forget about the mortgage mess & other problems with the large financial institutions. Lehman (LEH) is trying to wriggle out of its mortgage portfolio so as to get a better price for selling itself to an outsider. With the low quality of these assets, this could drag on for days or even weeks (not a help to other financials).

•Lehman Mulls Plan to Shift $32 Billion of Mortgage Assets to a `Bad Bank'

Small changes today

There was not a lot happening today. Dow rose 16, advancers & decliners were about equal while NAZ dropped 16 on more nervousness that a weakening global economy could bite hard. NYSE volume remains modest at 1.2B. S&P 500 FINANCIALS INDEX had a good day, up 4 to 294, but remained under 300 where it has lived for 10 weeks. Oil rallied by the end of the end, settling down only pennies, still in the 109s. The Alerian MLP index fell, down 4 to 267s. Worries about damage to their pipelines could have triggered selling.

For the brave who want to know how buy oil or sell oil, here are 2 key ETF funds. The DUG is ultra short for the ultra bear & USO is for those who want play the bullish side. This year they've already had their share of wild swings, chances are more will come. They are definitely not for the nervous, but fun to watch:

DUG -- UltraShort Oil & Gas ProShares





USO -- United States Oil Fund LP





I got to see inflation strike home. A local 99¢ store just raised prices to $1.29 for some of their stuff. They explained it was needed to survive. That inflation effect struck close to home for me.

Auto sales for Aug aren't looking good:

• Ford, GM, Toyota Sales Fall as Auto Slump Persists- AP

The FED's Beige Book, continuing on the sluggish auto sales theme, reports history that we know. Times are tough for the economy however inflation may moderate from current high levels.

Fed Beige Book Says Economy `Slow' in Most Regions as Price Pressures Rise

Retailers will be reporting results in the next couple of days on "back to school" business. This gives a early glimpse on holiday business, expectations are for weak results.

Early market optimism fades by day's end

Dow fell, after rising 250 out of the gate, ended down 26, decliners were slightly ahead of advancers while NAZ was down 18. Exxon-Mobil (XOM), Chevron (CVX) & Alcoa (AA), all commodity related, led the Dow lower. The Alerian MLP index slipped 2 to 271, remaining in its trading range for the last couple of months. Oil settled at 109.71 (after recovering from early day lows in the 105s), down 5¾. That sell-off did not carry the day. NYSE volume, while ahead of last week's very low volume, remained weak under 1.2B. At its best, S&P 500 FINANCIALS INDEX was up 11, but ended up 5 at 290. Optimism in the AM gave way to realism in the PM. Lower oil prices sounded very good, but reality sunk in that lower oil prices are caused by lower worldwide demand for oil. Fears that an economic slowdown worldwide will bleed into the strong tech sector gave a big decline for NAZ.

The buyout of Lehman (LEH) by the Korean Development Bank is back on again after going on-off for a few days. The stock is not sure what do make of it, LEH remained little changed at 16.06 as stockholders realize they will not be getting top dollar in any buyout.

Lehman-Korea Deal May Be CEO Fuld's Last Hurrah- Tech

The US and now the worldwide economy are getting greater attention as the slowdown in the US is causing others to slow. The financial mess with massive mortgage writedowns drags on. More macro economic news is coming this week which will give a better understanding on the economic & banking problems.

Stocks sink going into long weekend

Dow was down 171, decliners over advancers 2-1 over decliners & NAZ was down 44. Dow was down marginally for the week but up 1½% in Aug. S&P 500 FINANCIALS INDEX was down marginally. NYSE volume continues very low, struggling to reach 0.7B.

Oil ended about even in the 115s as traders going into a long weekend, especially this very long weekend with a tropical storm hitting the Gulf, do not want to take bets. Behind Gustav is Hannah, another storm that could work into the Gulf in about 9 days. Hurricane season should keep market watchers busy. The Alerian MLP index is up pennies at 273, again traders have to keep cool for the moment.

I still think the Federal Reserve has been working overtime trying to fix the Fannie Mae (FNM/Freddie Mac (FRE) mess. I'm looking for them to make an announcement after the close the markets or over the weekend.

Today, just throw darts to find a winner

Today was one of those days, all news was considered good news. Dow was up a big 212, advancers over decliners almost 4-1 & NAZ was up 29. Impressive rally except for very light volume. At mid July NYSE volume was 1.8B, then a month ago it was down to 1½B. Since then it has been falling & falling to under 1B. Leading today's charge were banks once again. S&P 500 FINANCIALS INDEX was up 12 to 287, clearly off the 267 recent low.

Oil plunged on news oil would be released from stockpiles if the storm (Gustav remains a storm for the moment) does severe damage in the Gulf:

CLV08.NYM

Crude Oil Oct 08

..115.64 ..

2.51 (2.12%)

Crude Oil Declines After IEA Says It Will Release Stockpiles If Storm Hits

The Alerian MLP index which tends to follow the lead of oil price swings, even though it's not directly linked, rose 1½ to 272, climbing back to a new high for August.

When all news is considered good, enjoy. Trading should be even slower tomorrow, big picture economic problems in the US economy drag on. For what it's worth, I still think the Federal Reserve is burning the midnight candle trying to come up with a rescue solution for Fannie Mae (FNM).

•Dell Second-Quarter Profit Falls Short of Analysts' Estimates; Shares Drop

After the close Dell (DELL), reported disappointing earnings. The stock fell 42¢ in regular trading & another $1 in extended trading setting up a negative tone for tomorrow's slow trading day.

Favorable news sends stocks higher

The Dow is having its third straight day of gains. Dow is up 134, advancers over decliners 2-1 and NAZ rose 18. All on VERY light volume, there is no oomph behind this rally. Much of today's news was favorable, bringing out buyers.

•U.S. Economy Grew Faster Than Estimated in Second Quarter on Export Gains

The GDP growth for Q2 was revised upward to 3.3%, better than expected, following 2 weak quarters. Good news, except it signals there is no recession & no need for further rate cuts by the FED.

•Fannie's Mudd Shakes Up Management to Bolster Confidence After Stock Falls

Fannie Mae (FNM) shakes up management sending the stock higher. To me it looks like rearranging the chairs on the Titanic. Whopper size problems remain with the mortgage portfolio. It's up from 4½ to 7 in less than a week as markets are taking recent news very well.

• Oil Breaks Through $120 as Gustav Strengthens- AP

Oil rose 2 to 120 on worries about the Gutav storm which is scheduled to reach the US early next week. The biggest unknown is damage it could do in the gulf where is a lot of oil equipment. Last night on CNBC Asia, there was a lot of talk about Gustav & they gave a weather update as this storm gets worldwide attention. The Alerian MLP Index is flat at 272 today after a 6 point rally from the low 3 days ago.

• Caterpillar Looks for Record Sales on China Demand- AP
• Sears' 2Q Profit Drops 62 Percent- AP
• Toyota Lowers 2009 Global Sales Target- AP
• Tiffany Profit Up, Raises Outlook; Zale Posts Loss- Reuters

More news, but it's mixed. Caterpillar is one of may favorites as they are doing very well in developing countries (i.e. China), but their US business is struggling in what they call "recessionary conditions." US retail business remain tough, but the sector is up nicely today. Tiffany (TIF) & Zales (ZLC) are each up a good 10% today while Sears (SHLD) is up 1% on a very dreary report. Toyota (TM) lowered its 2009 sales growth target by 7%, sending the stock higher. Even, General Motors (GM), a Dow stock, inched up. Tough to take today's optimism in the stock market seriously.

Very good rally on very light volume

Dow was up 89, advancers over decliners 7-2 & NAZ rose 20. All this on very light NYSE volume of 0.8B. The last 5 days have been the lightest volume days in the year. All stocks I follow were in the green, very good, but light volume suggests no conviction. S&P 500 FINANCIALS INDEX rose 4½ to 275. Oil ended up 2 on threats from Gustav:

• Oil Ends Higher as Gustav Spins Toward Gulf- AP

CLV08.NYM -- Crude Oil Oct 08 -- 118.43 -- up 2.16 (1.86%)


Fannie Mae (FNM) & Freddie Mac (FRE) sold notes indicating they are healthy, to a degree. The premiums over Treasury rates keep climbing indicating investors see these as risky securities. Some think their ability for self financing means the Federal Reserve will have NOT have to come up with a rescue plan. I don't think so, watch for developments this weekend!

•Fannie, Freddie Sell $3 Billion of Debt, Suggesting Rescue Isn't Imminent


Ugly news on big mortgage mess continues. In Q2, S&L's had $14B in mortgage writedowns. They set aside 3.68% of their assets for writedowns vs just 0.38% last year. Washington Mutual, the largest in the country, is now a $3 stock.

• US Thrifts Lost $5.4B in 2Q, Second Most Ever- AP

Alerian MLP Index - 3 months

The Alerian MLP index chart for the last 3 months shows after being caught up in selling has been slugging it out, trying to climb from the recent low at 258. In the last couple of months, 275 has been a ceiling it hasn't been able to crack, now the index is making another attempt. For those interested, the 200 day moving average (at 285) is also shown. Over the last year, the index has had similar kind of short run moves but rally attempts have stalled out. The record high last year was 342. This year, it has been living under 300.

Boring day for stocks

Many traders may be on holiday or away at the beach as stocks hugged break even pretty much all day. Dow & NAZ were flatish & advancers were slightly ahead of decliners. If my stocks are any indication, gains were usually measured in pennies. NYSE volume was very, very light at only 0.85B. The S&P 500 FINANCIALS INDEX was up 1+ to 270, remaining near its 30 day low. Gloomy news about bank profits in Q2 hardly surprised anybody, allowing for a small gain in financials.

FDIC: Bank Profits Fell by 86 Percent in 2Q- AP

Profits for S&P 500 companies (all but 7 are in) for Q2 were down. After subtracting out the banking group, profits were up 4%. Subtracting out GM & Ford would produce even better numbers. Even though exact numbers aren't available, a chunk of profit gains came from the lower dollar which has been reduced in the last few weeks.

Bloomberg TV had a rep from the mortgage industry taking about their business. After getting burned badly lending institutions are VERY tough on new loans, demanding at least 700 out of 800 credit scores. The premium of mortgage rates over the Treasury bond used to be about 1½ points. Today that premium has doubled reflected added risk priced in by lenders. Loans are being made, but weak candidates are being turned down. No wonder housing sales are in the slump they're in.

Oil was up 1 to 116s on nervousness about the storm in the South Atlantic which won't reach the US until Labor Day.

• Oil Higher as Hurricane Gustav Nears Gulf- CNNMoney.com
  

High Yield Bonds

High yield bonds (more commonly known as junk bonds) funds, like all other financial product companies, have had a rough year. The last few years have been fairly calm as high yields have been relatively stable. Dividends from high yield bond funds yielded 10-11%. In the last few months, as financials collapsed, they were also dragged down. Lower prices for these securities caused their yields to climb over 12%, more than triple the Treasury bond rate at 3.78%.

The spread between these 2 rates is over 800 basis points, what must be at or near an all-time record. Too bad because they have no mortgages & no exposure to mortgage writedowns. They invest in corp bonds rated BB, B & CCC to earn high yields. Typically they have leveraged portfolios. They borrow additional money to gain an advantage on the spread between the rate they pay on borrowings vs the rates earned on high yield bonds. For the very brave, these high yields should prove rewarding, they deserve more respect.

Financials lead, markets tumble

Dow dropped 241, decliners over advancers 3-1 & NAZ dropped 49. Volume continues quiet, under 0.9B on NYSE. This was a very gloomy day for stocks led by financials:

S&P 500 FINANCIALS INDEX

Value__268.46...Change__(8.63)....% Change__(3.1%)

The financials, compiled for Bloomberg, essentially reached their one month low of 267 (which will drop off the one month grouping tomorrow). Fannie Mae (FNM)/Freddie Mac (FRE) had a good day, rising because they were able to sell more securities. They still are penny stocks selling below 5 (actually - 5.20). Rates on securities they sell keep climbing as buyers price in greater risk.
Bigger news in the financials today was American International Group, (AIG), a Dow stocks, falling 1.09 to a 13 year low!! After $25B in writedowns, they are NOT finished with this mess. It's expected that they will lose money for the 4th straight quarter which will require lower ratings on their securities. Adding insult to injury, they are no longer the largest insurer in North American. The other troubled biggie in the news, Lehman (LEH), may have to go without added financing from the Korean Development Bank, down 96¢.

Oil Rises as Tropical Storm Forms in Caribbean- AP
Ford Shares Fall to 22-Year Low- AP

Oil was up pennies on worries about threats from the tropical storm while Ford fell to a 22 year low. The Alerian MLP index dropped almost 1 to below 267, still hovering near its 52 week low (258) reached a couple of weeks ago.

Markets are clearly on defense & financials look very soggy. Maybe the Federal Reserve will not be able to wait until Friday night to come out with a rescue plan for FNM/FRE.

Stocks soar on very slow day

Dow is up 193 (closing on the high), advancers over decliners better than 2-1 & NAZ was up 34. As typical of a summer Fri, NYSE volume continues low at only 0.9B (very slow). This was one of those days in the markets when all news was considered encouraging even though they gave more of a mixed picture. Financials had a great day helped by the Lehman (LEH) story at the opening.

S&P 500 FINANCIALS INDEX

Value 276.74

Change up 8.00

%change up 3.0%

Oil lost its big gain yesterday, bringing it near the 112 lows made earlier this week.

CLV08.NYM

--Crude Oil Oct 08

-114.52

- 6.66 (5.5%)

Oils were weak but the Alerian MLP index was up a couple to 267, off 1 from the opening (maybe influenced by oil's decline).

Slow day, stocks up big. The Lehman story while nice is not over. Fannie Mae (FNM) should make news next week, maybe with a recovery package from the FED after the close next Fri. Oil, housing, credit markets, retail continue with big problems. Here are some closing thoughts about the future of the economy from Warren Buffet.

Stocks after recovering from losses, end little changed

Dow was up 12, decliners over advancers 1¼ to 1 while NAZ pulled back 9. Volume continues quiet at 0.9B, just one of those summer days. Today oil made headline news. Oil surged over 5 to 121 on growing tensions between the US & Russia with the possible threat Russia (world's 2nd largest oil producer) could cut off oil supplies. Problems with Georgia continue plus Russia is worried about the defense system the US will install in Poland. The last 2 days are first in a month that headlines news impacted oil prices causing them to rise. Oil stocks rose nicely on this news helping the Dow. The Alerian MLP index went up 1½ to 268.32, getting a little further away from the 260s, its 52 week low area.

S&P 500 FINANCIALS INDEX pulled back 2.90 to 268.74 (near the important 267 monthly low) as worries about the financials drone on. After being down on more deary news, Lehman (LEH) rose 1 point ending at break even. An analyst recommended buying LEH on the hopes they could be the subject of a hostile takeover. Sure! Even if it happens, difficult to imagine a significant premium given all the confusion over what financials are really worth.

American Intl Group (AIG), a Dow stock & billed as the largest insurance company in the world, pulled back under 20 (down 1.02 to 19.78), lowest price since 1996. Merrill Lynch (MER), down pennies, will announce a deal with NY Attorney General about a settlement in auction-rate securities sales. It will not be pretty & cost them plenty, money & reputation. This is another case where big financial boys who are supposed to be professionals knowing what they were doing, really weren't. Now their shareholders & all shareholders, among others, are paying. Expect more enormous size problems for financials, even in this quiet late Aug period.

Little changed markets on quiet day

Dow was up 68, advancers slightly ahead of decliners & NAZ gained 4. NYSE volume continues light just over 1B. My chart on the right shows Dow, while in green territory, was generally not too far from break even. Fannie Mae (FNM)/Freddie Mac(FRE) shared center stage in the markets, they are each below 5 (not eligible as margin collateral). Despite reassurance from the Treasury, their future is unclear. The S&P 500 FINANCIALS INDEX is taking this fuzzy outlook well, up 3 to 270 (getting off its monthly low). Bank of America (BAC) & US Bancorp (USB) were each up 3% today despite the overall dreary thinking about mortgages. The motivating force behind today's rally in bank stocks may have been bargain hunting (BAC yields 9%). After a volatile day, oil was up pennies to 115 on the 9MM increase in weekly oil inventories. The Alerian MLP index was up 2, near 267 allowing it to get away from the 52 week low area of 262.

Mortgage applications dropped to the lowest level in almost 8 years. The number of applications is down 61% from the peak just 6 months ago. Average mortgage loan rates are around 6½%, high priced mortgages are not the problem. The housing depression is dragging on & on.

REITs are at or near their lows, today they were soft again. The higher quality ones yield 4-6%, others have yields over 8-10%. For personal accounts, many REITs, because their flow thru to shareholders, have dividends which are partially tax free or taxed as capital gains. Junk bond funds with yields of 12%, over 800 basis points higher than the Treasury rate of 3.80%, are at record lows. They have no exposure to mortgage debts, nice yields for the brave.

Another dreary day, stocks down on low volume

Dow dropped 130, decliners over advancers almost 3-1 & NAZ dropped 32. A test of 11K for the Dow may be coming soon. NYSE volume remains at 1B, at least quiet volume does not indicate a lot of conviction. Leading the negative news in the PM was Lehman (LEH), troubled especially in recent months, dropping 2 to 13, lowest price in 10 years! There are all kinds of rumors that the 4th largest investment banking firm in the US won't survive. Nothing new, this was a $60 stock 6 months ago. This negative thinking bleeds thru to other financials. The S&P 500 FINANCIALS INDEX closed at 267.17, down 8.39 at its 30 day low. Bank of America (BAC), one of the Dow financials, is down 6 from the recent interim high of 34 just 7 trading days ago.

Meanwhile, oil bounced back to 114.53, up 1.66 helped by a weaker dollar against the Euro (up to $1.48). The dollar has been unusually strong in an 11 day winning streak. At the high for the dollar, Euro was almost $1.60. The 2 Dow oils, Exxon-Mobil (XOM) & Chevron (CVX), each rose 1½ today. The Alerian MLP index fought its way up a point nearing 265, trying to get away from the 260 yearly low area.

CNBC has interesting ideas on how to deal with gloom & doom thoughts. Unfortunately there are strong reasons for this gloom & the reasons won't go away soon. Slow & quiet late Aug is turning out to be slow but averages are not getting help from buyers to stop the downward slide.