Markets decline on fear of a Chinese slowdown

Dow was under water all day & finished with a loss of 68, decliners over advancers 2-1 & NAZ slipped 4 (another gain for Apple to a new record reduced the loss).  Bank stocks digested recent gains, with the Financial Index up a fraction to 214 (a new high since May 19). 

The MLP index fell 1 to just under 401 & the REIT index was off 1+ to 252 (1 below its yearly highs).  Junk bond funds were a little higher after the sell-off last week.  Treasury 10-year notes fluctuated after dropping for a 10th consecutive trading day, the longest run of declines since 1985, as investors bet a strengthening economy will diminish the refuge appeal of US gov securities.  Oil was down on worries about a slowdown in Chinese economic growth.  Gold continued its recent decline.

JPMorgan Chase Capital XVI (AMJ)

Click below for the latest market update:

Treasury Yields:

U.S. 3-month	0.097%
U.S. 2-year	0.395%
U.S. 10-year	2.374%

CLJ12.NYM

...Crude Oil Apr 12

...105.68

... 2.41

(2.2%)

Neel Kashkari, who heads global equities at Pimco, said Greece & Portugal will need additional bailouts.  “We don’t think that Greece will actually be able to deliver on the austerity measures they’re promising,” Kashkari said.  “Risks in Europe remain, so we’re being very selective.”  Bailout II doesn’t solve the region’s sovereign-debt crisis, he said.  While U.S. economic indicators have been improving, risks of further “shocks” coming out of Europe & slowing growth in the emerging markets are leading Pimco to buy stocks only selectively, he said.  “We do think that China will have a soft landing,” Kashkari said, citing Pimco’s forecast of 7-8% real GDP growth in the country.  “It’s still very strong growth relative to the rest of the world.”  Pimco funds hold the largest portfolio of bonds in the world.

Pimco’s Kashkari Says Greece, Portugal to Need More Bailouts

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Photo:   Yahoo

Hewlett Packard, a Dow stock, plans to combine its PC & printing divisions in a major internal overhaul intended to spur combined sales of hardware to customers.  That reorganization, expected to be announced "soon," would see printing division chief Vyomesh Joshi step down & current PC chief Todd Bradley head up the combined unit.  HPQ is struggling to keep its core personal computing business in the black as mobile devices from tablets to smartphones eat into sales.  It considered but abandoned a proposal to sell or spin off its PC arm last year.  CEO Whitman is looking to streamline the organization so that it is easier for customers to buy the 2 products together, & to reinvest any savings into research & development.  Earnings plummeted 44% in the fiscal Q1 as revenue slid 7%.  It has been struggling to galvanize computer sales.  The stock has an unusually dismal chart, down 35¢ today.

Hewlett-Packard Said to Combine PC With Printing, Imaging Unit

Hewlett-Packard Company (HPQ)

Caterpillar shares, a Dow stock, fell after it said the pace of its retail machine sales has slowed in recent months.  US retail machine sales rose 51% in the month ended Dec 11, compared to the year before.  But by mid-Jan sales were up 47% from 2011 & in mid-Feb the rise had slowed to 39%.  The trend extended across its global operations.  In the Asia/Pacific region, year-over-year growth slowed from 31% in Dec to 20% in Feb.  Sales growth is slowing in part because demand is reaching "normal" levels after a big jump last year.  Its construction equipment sales plunged 66% in 2009 during the global economic downturn but sales snapped back in the last 2 years.  Many companies replaced worn-out machines they were using to get them thru lean times.  This may be a tougher year for CAT.  The stock fell 2.93.

Caterpillar reports slowing global sales growth AP

Caterpillar, Inc. (CAT)

A possible slowdown in the rate of growth for the Chinese economy got a lot of attention, causing most commodities (they're a big buyer of about everything) to decline.  But gas prices in the US keep heading north.  The average price for gas at the pump was pushing $3.85 yesterday.  Dow is entitled to a rest after its big advance this year & the last 6 months.  Pulling back 62 in the last 2 days is hardly meaningful.  But an abundance of economic issues remain & Pimco has a cautious outlook while keep its eyes on them.

Dow Industrials

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Stocks waver on European debt crisis uncertainties

Dow rose 144, but decliners ahead of advancers 3-2 & NAZ dropped 5 on a weak tech sector.  Bank stocks are leading what rally there is (maybe bargain hunting).

S&P 500 Financials Sector Index

Value	160.08
Change	2.60    (1.7%)

The MLP & REIT indices keep sliding, down another 1+ each.  Junk bond funds were a little soft & Treasuries were lower.  Oil fell to the lowest level in almost 7 weeks on bets that Europe’s sovereign debt crisis may worsen, crimping growth & fuel demand, & as sales of new US homes dropped to a 6-month low.  Selling is continuing in gold.  It went below $1600 briefly.

ALERIAN MLP Index (^AMZ)

DJ REIT INDEXDJR (^DJR)

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.214%
U.S. 10-year	1.861%

CLX11.NYM

...Crude Oil Nov 11

...78.31

.... 1.54  (1.9%)

GCU11.CMX

...Gold Sep 11

.....1,626.00

... 11.50

(0.7%)

Get the latest market update below:






Photo:   Yahoo

Sales of new homes fell to a 6-month low in Aug, the 4th straight monthly decline during the peak buying season suggests the housing market is years away from a recovery.  The Commerce Dept said that sales fell 2.3% to an annual rate of 295K, less than half the roughly 700K pace that are sold in a healthy housing market.  New-homes sales are on pace for the worst year since the gov began keeping records a half century ago.  While new homes represent less than 20% of the housing market, they have an outsize impact on the economy.  Each home built creates an average of 3 jobs in a year & generates about $90K in taxes.  Last year was also the 5th straight year that sales have fallen after 5 straight years of record highs, when housing was booming.  The median sales price of a new home fell nearly 9% to $209K, the lowest price since last Oct.  That suggests builders are slashing prices in order to compete with comparably lower-priced previously occupied homes.  Housing is critical to an economic recovery & it's still stuck in the mud.

New Homes Sales Fall to Six-Month Low, Prices Decline


The gov faced strikes & protests as the prospect of a debt default hung over Greece.  New austerity measures needed to appease the rescue creditors are not going over well with the nationals.  Even Greek police held their own protest, with the Special Guards unit hanging a giant black banner reading "Pay day, day of mourning."  Faced with mounting anger from the intl creditors, the gov recently announced new austerity measures to secure the next €8B ($10.7B) installment of bailout loans from the €110B rescue package agreed to last year.  Without the funds, Greece only has enough funds to see it through mid-Oct, when it faces the prospect of a messy default.  Debt inspectors from the IMF, European Commission & ECB, known collectively as the troika, are expected to return to Athens this week to resume a review amid talk of delayed implementation of reforms.  But no specific date has been set for their return, & the European Commission made clear that no decision on releasing the funds would be reached during a meeting of eurozone finance minister in Luxembourg next Mon.  The Greek drama will not end soon.

• Greece faces austerity strike as default looms- AP

PIMCO, which runs the world’s biggest bond fund, is forecasting that European economies will stall over the next year as Europe slides into a recession.  There will be little-to-no economic growth in industrial nations in the coming 12 months as Europe’s economy shrinks by 1-2% & the US stagnates.  That will leave worldwide expansion at about 2.5%, less than the 4% forecast by the IMF.  Finance ministers & central bankers are urging European officials to intensify efforts to contain their 18-month debt crisis as Greece teetered on the edge of default.  The US Treasury Secretary called on govs to unite with the ECB to beef-up the capacity of their €440B ($594B) bailout fund, warning that failure to act threatened “cascading default, bank runs and catastrophic risk.”  More gloomy thoughts regarding Europe & its financial mess.

Pimco Forecasts Europe Recession Next Year


Markets are just muddling along.  Buying in bank stocks is a mystery, probably on hopes about a magic cure for European debt woes.  MLPs & REITs are drifting lower (along with the tech sector) which gives a better feel of what's really going on in the markets.  Eastman Kodak (EK) dropped a whopping 60¢ to $1.79 (probably a 100 year low).  It borrowed $160M against its line of credit & that's viewed as a sign of weakness.  While not material to the overall stock market, another sign of sluggish economic conditions.

Dow Industrials (INDU)

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Stocks surge on strong jobs growth data

Dow shot up 161, advancers over decliners 4-1 & NAZ gained 41.  Banks stocks eagerly participated in this rally although the Financial Index continues to muddle along longer term.

S&P 500 FINANCIALS INDEX

Value	218.73
Change	2.76  (1.3%)

The Alerian MLP Index climbed back 8 to 372 after falling almost 30 in the previous 4 days.  It plunged (by its standards) on nervousness about changing the tax advantage rules for distributions.  Higher markets also contributed to the rise.  The REIT index was flat in the 244s.   Junk bond funds rose, some were up more than 1%.  Treasuries fell on the jobs report.  The yield on the 10 year Treasury bond rose 4 basis points to 3.20%, but remains near its lowest levels this year.  Note that 90 day T-bills are still yielding virtually nothing.  Oil fluctuated on a better-than- expected US jobs report after a 12% plunge in the past 4 days left futures poised for their biggest weekly decline in a year.  Bargain hunting in the last hour brought it back over $100.  Gold & silver are settling into their lower levels with silver rebounding to $36 after dipping below $35 earlier today. . 

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month		0.01%
U.S. 2-year		0.58%
U.S. 10-year		3.20%

CLM11.NYM

...Crude Oil Jun 11

...102.05

... 2.25  (2.2%)

GCK11.CMX

Gold May 11

1,493.30

12.40 (0.84%)

Photo:   Bloomberg

Employers added more than 200K jobs in Apr for the 3rd straight month, the biggest hiring spree in 5 years.  The Labor Dept reported that the economy added 244K highlighted by private employers created 268K jobs.  Job gains were widespread: retailers, factories, financial companies, education & health care along with construction companies while federal, state & local govs were cutting.  However, the unemployment rate ticked up to 9% from 8.8% in Mar, the first increase since Nov.  The Labor Dept said job gains in Mar & Feb were even stronger than first reported.   All told, 13.7M were unemployed in Apr, still almost double since before the recession began in Dec 2007.  Including part-time workers who would rather be working full time, plus people who have given up looking altogether, the percentage of "underemployed" people rose to 15.9%, showing the harsh effects high unemployment still have on the economy & its recovery.

U.S. Payrolls Grew 244,000 in April; Unemployment at 9%

Bill Gross
Photo:   Bloomberg


Bill Gross, heads the world’s biggest mutual fund at Pacific Investment Management Co (PIMCO)., said US growth isn’t sufficient to support asset & labor markets nor enough to compensate for the nation’s growing debt level.  “The private economy is moving ahead as evidenced by today’s number but at a measured pace,” Gross said on “Bloomberg Surveillance.”  “Year- over-year real gross domestic product is holding at 2 percent, while nominal GDP is only 3.9 percent. That’s hardly sufficient to support both asset and labor markets in combination, nor is it sufficient to grow our way out of a steadily increasing debt to GDP ratio. It’s not enough.”  While employment growth will be probably be strong the next few months, investors will need to see whether that is sustainable once the Federal Reserve 's policy of quantitative easing ends in Jun, according to Gross.  The federal gov will debate on raising the debt ceiling for the Treasury.  By some measures, it needs to be raised within about 10 days, more liberal thinking is that it can be delayed until the end of next month (when QE2 ends).

Pimco’s Gross Says U.S. Economic Growth Isn’t Enough to Sustain Job Market


Some say the jobs report was a big surprise, but I saw guesses earlier this week calling for gains of around 200K.  The upward revision of prior months was well received by the markets.  But that is old information.  High priced gas (pushing $4 a gallon) will crimp gains.  MLPs had an unusually wild ride this week, especially when compared to REITs which suffered only a mild sell off.  Their trade association (NAPTP) issued a release that there was a proposal by the Treasury to tax pass-thru-entities (i.e. MLPs).  The House leadership rejected the idea, but nervousness in the markets was evident.  That eased today, as with commodities.

Dow Industrials (INDU)

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Early losses trimmed after late day buying

Stocks looked they were going to have a very bad day on worries about the next moves by the Federal Reserve (FED).  But nerves were calmed & buying in the PM reduced losses.  Dow fell only 43, decliners ahead of advancers 5-2 but NAZ rose 5.  Bank stocks benefited from late day buying, bringing the Financial Index into the black (although it has been going nowhere for months). 


S&P 500 FINANCIALS INDEX

Value	196.244
Change	0.18  (0.1%)

The MLP index dropped 2 to the 350s.  REITs, which have been hot lately, also saw profit taking, down 2 to the 220s (still near yearly highs) & junk bond funds were little changed.  The Treasury sold $42B in 5-year notes at 2.37%.  The bid-to-cover ratio was at 2.80X.  Indirect bidders, including foreign buyers, bought 53% of the auction.  This auction showed there is still solid demand for medium-term debt Treasuries.

Treasury yields:

U.S. 3-month		0.13%
U.S. 2-year		0.41%
U.S. 10-year		2.72%

Alerian MLP Index   ---   YTD



Dow Jones REIT Index   ---   YTD



10-Year Treasury Yield Index   ---   YTD




Oil dropped after orders for US non-military goods excluding airplanes declined, signaling that investment will cool. Gold extended losses as investors await the next FED meeting when it will announce intentions on quantitative easing.  Pressure on gold continued to mount as the Wall Street Journal reported that the FED could be more cautious than previously expected in its stance on quantitative easing.

CLZ10.NYM

...Crude Oil Dec 10

...81.99....

0.56

(0.7%)

GCV10.CMX

...Gold Oct 10

.......1,322.20

.. 15.80

(1.2%)

$$$ Gold Super Cycle $$$  

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Bill Gross, co-founder of Pacific Investment Management (Pimco) & Jeremy Grantham, chief investment strategist at Grantham Mayo Van Otterloo, 2 top asset managers, lambasted the Federal Reserve's loose monetary policy & said renewed asset purchases are in danger of becoming ineffective.  The US central bank's bond asset purchasing program "is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme," Gross wrote in his monthly investment outlook.  "It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up," said Gross.  He continued, saying the United States is in "'a liquidity trap,' where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there."  These comments came a day after Grantham, who helps oversee over $100B said FED policy has resulted in "extraordinary destructiveness" and "ruinous cost."  "I would force (the FED) to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times -- the Greenspan/Bernanke put," Grantham wrote to clients.  He added, "It would be a better, simpler and less dangerous world, although one much less exciting for us students of bubbles," Grantham wrote in a report titled "Night of the Living Fed," in a play on the traditional scary Halloween season.  However, Gross & Grantham both see value in emerging markets, with Gross exposed to emerging market debt & Grantham moderately overweight in emerging market equities.  So far, stock markets have been ignoring this advise.

• Gross, Grantham blast Fed's asset buying- Reuters

Apple (AAPL), with the 2nd largest market cap in the world, continues to waffle around after its recent favorable earnings report & product announcements.  Today it fell pennies in the 207s, 12 below its record highs reached last week.  They are a leader for this year's rally & an inability to continue with higher prices after last week's encouraging news could be sending a negative signal to the markets.

Apple   ---   1 month





This was another day when there was not a lot going on in the markets.  Midterm elections are getting a lot of attention, but the next day is the FED meeting.  Given the soggy economy, its low rates are expected to be continued.  But most attention will be placed what is said about purchasing Treasuries.  Present low rates have not been able to jump start the economic recovery. It's  unclear what the FED hopes to accomplish by purchasing more Treasuries.  With its recent run up, Dow matched its highs in late Apr.  But so far, that resistance level has held.

Dow Jones Industrials   ---   YTD

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