Retail sales decline in April drags down markets

Increased selling took the Dow down 154, declines over advancers 4-1 & NAZ sold off 36. Banks are taking it on the chin again:


.name.....price.......% change..................volume

BAC		11.5608	0.6992	5.70%	125,244,897
C		3.5501	0.1099	3.00%	140,087,430
JPM		34.63	0.73	2.06%	22,606,839
WFC		24.83	0.87	3.39%	39,507,566
GS		131.29	4.12	3.04%	5,396,505

S&P 500 FINANCIALS INDEX

Value 155.67

Change -5.19

% Change -3.2%

Selling is reaching the high yield sector. The Alerian MLP Index is down 4, the REIT index dropped 5 & junk bonds are weak. Oil remains strong ahead of today's weekly supply report.


Alerian MLP Index --- 2 months

CLM09.NYM

...Crude Oil Jun 09

...59.42

... 0.57 .......(1.0%)

Fu

Retailers saw sales fall for a second straight month in Apr. Sales were hurt by sluggish gasoline & electronic goods purchases. The Commerce Dept said retail sales slipped 0.4% after a revised 1.3% decline in Mar. Excluding motor vehicles & parts, sales dipped 0.5%, compared to a 1.2% decline in the prior month. Dismal economic numbers, especially high unemployment numbers, are biting hard.

•Retail Sales in U.S. Unexpectedly Drop as Unemployment Cuts Into Purchases


The Federal Reserve considers the recent increase in Treasury yields as reflective of a better economic outlook instead of a signal it needs to step up purchases of gov debt. They claim it’s too early to judge the effectiveness of the Fed’s $300B plan to buy Treasuries even after 10-year yields climbed 0.65% (today's yield slipped to 3.11%). Their goal is to stimulate private lending, rather than target government-bond rates. Others predict the rise in yields will prompt the FED to announce an increase in the size of the program, maybe next month.

•Treasury Yield Jump Is Sign of Better Economic Outlook, Fed Officials Say

The gov is contemplating a major overhaul of compensation practices for financial services firms, beyond the banks. Policymakers want to see that pay is more closely linked to performance. Changes may involve expanding the regulatory powers of the Securities and Exchange Commission (the same commission that was watching Bernie Madoff) & Federal Reserve to obtain more information regarding compensation. Any overhaul is likely to include new rules for financial firms (hedge funds, private equity firms, etc.) that never accepted money from the Troubled Asset Relief Program (TARP). This could also mean greater oversight on compensation for banks seeking to return TARP money in an effort to avoid new strings attached to their pay packages. More gov meddling is not associated with higher markets!

• U.S. Considers Financial Pay Rules- NYT.com
• Arthur Levitt Calls Regulating Executive Pay `Overkill'

Higher oil prices & Treasury bond yields which raise mortgage rates are worrying markets.

Turnaround Tuesday

After starting lower, stocks got a second wind taking them higher with a late day rally adding to the gains. Encouraging words from the Treasury Sec overcame lackluster earnings (especially from regional banks). Dow was up 127, advancers ahead of decliners 3-1 & NAZ was up 35. Banks had a stellar day as S&P 500 FINANCIALS INDEX recovered much of the prior day's losses.

Value 142.97

Change 10.82

% Change 8.2%

Treasury Sec Timothy Geithner said that the vast majority of banks will be able to pass the stress tests & gov financial policies were showing signs of progress. But he acknowledged continued weaknesses in the financial system. This includes declines in consumer lending & higher costs for credit despite $B thrown at financial institutions by the gov. He also said that about $110B of the $700B in TARP money remains but paybacks of $25B will bring the remaining funds up to $135B. The IMF projects the global financial system will lose over $4T (spelled out, that's 4,000,000,000,000) with US banks accounting for 60% of the total.

•Geithner Says `Vast Majority' of U.S. Banks Have More Capital Than Needed

• Treasury says about $110B left in bailout fund- AP

Citigroup (C) had its annual meeting, it got ugly at times. Long time shareholders are stunned to see a $3 stock, a price they never could have imagined when investing. 5 directors left, many shareholders wanted to see all go.

• At Citi's annual meeting, shareholders get angry- Reuters

The Alerian MLP Index bounced back 2 to the 202s. MLPs are hanging in there after BreitBurn Energy (BBEP) eliminated the distribution to focus on paying down debt in 2009.

• BreitBurn Energy Partners Announces Results of Borrowing Base Redetermination, Temporary Suspension of Distributions and Full Year 2009 GuidanceBusiness Wire(Fri, Apr 17)

Other high yielding groups were up. The Dow Jones REIT Index rebounded 11 & junk bond funds are finding buyers while the VIX pulled back 2. Oil also regained some of yesterday's losses.

CLK09.NYM

..Crude Oil May 09

..47.20

.. 1.32 ......(2.9%)

Caterpillar (CAT) CEO Jim Owens, a member of the president’s Economic Recovery Advisory Board, was critical of the stimulus plan, largely because it's not reaching CAT. He says EPS will be $1.25 (not enough to cover the div) before special charges. Their bulldozers are heavily involved in rebuilding but stimulus money will not be enough to cover lost business in the private sector. Worldwide sales are projected to fall to $38B in 2009 after reaching $51B last year

•Caterpillar Says Obama `Missed an Opportunity' to Fix U.S. Infrastructure


These continue to be exceptionally confusing times. Banks are going thru stress tests. Nobody is sure what is really going on, but a lot of experts (assuming they know that they are talking about) suggest that the banks should pass the tests. A number of regional banks reported today & their stories were dreary. Most have eliminated divs or are only paying a nominal amount to satisfy holders who only invest in div paying stocks. Now Nancy Peolosi will start a "comprehensive inquiry" to learn more about the bankruptcy at Lehman & collapse of Bear Stearns, not to mention anything else that interests her. This will be all political theater, playing well to the public but not so well on Wall Street. Dow was up today, but can't get enough steam to take off. Turnaround means little when we're back to a sideways trading zone, Dow is still under 8K. Confusion hurts.

•Pelosi Sets Wall Street Probe Modeled on Pecora in 1933 After Market Crash