Rising oil prices bring lower stock prices.

Markets sank at the opening & kept falling during the day.  Dow sank 168, decliners over advancers 3-1 & NAZ was down 44 ahead of Apple's (AAPL) big event tomorrow when it will announce new products.  AAPL fell 4 to the 349s ahead of the meeting.  Bank stocks suffered, giving the Financial Index one bad day (a move of 5 is major).  The 230 ceiling for the index is proving to be formidable after turning bulls back twice in the last year.

S&P 500 FINANCIALS INDEX

Value	221.83
Change	-4.95  (-2.2%)

The Alerian MLP Index fell 2½, from its record yesterday, to the 379s, after doing quite well during the market run up in the last 3 months.  The REIT index had a even bigger fall, down 7 to the 234s.  Junk bond funds were generally lower while Treasuries did little.  The yield on the 10 year Treasury was flat at 3.41%.  After an initial rise in the last 3 months it has been flat while stocks were charging ahead..

Treasury yields:

U.S. 3-month		0.13%
U.S. 2-year		0.66%
U.S. 10-year		3.40%

Alerian MLP Index   ---   3 months



Dow Jones REIT Index   ---   3 months



10-Year Treasury Yield Index   ---   3 months




Oil surged to the highest level since Sep 2008 as Mideast turmoil threatened to spread from Libya to top OPEC producers such as Saudi Arabia & Iran.  Gold went over $1433, setting a new record before profit taking.  Charts for both contracts are shown below.  Investors long oil & gold have done well.

CLJ11.NYM

...Crude Oil Apr 11...

99.67...

2.70  (2.8%)

GCH11.CMX

...Gold Mar 11

....1,429.50

... 21.00 (1.5%)

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CLJ11  (oil contract)   --  YTD



GCH11  (gold contract)  --  YTD

Photo:   Bloomberg

US auto sales rose more than 20% in Feb when the lure of discounts from automakers led by General Motors (GM) outweighed concerns about higher oil prices. This data puts the industry on track for its highest sales rate since Aug 2009 when the "cash for clunkers" credits spurred a short-lived boom.  GM led the industry with a 46% sales gain, stoked by incentives that also led the industry at an estimated $3,700 per vehicle on average in Feb.  But shares of Ford (F) & GM were lower amid mounting concerns about rising costs & after both carmakers posted disappointing quarterly earnings recently.  GM fell 62¢, taking it below its offering price of $33, & Ford fell 37¢.  Toyota (TM) had a 42% sales gain (off depressed results last year) & Nissan had a 32% increase after stepping up its incentive spending.  Ford & Chrysler lagged, with sales gains of 14% & 13%&, respectively.  The boom for GM & Nissan came on the back of stepped-up incentives for car buyers & dealers in a traditionally slow month for vehicle purchases & at a time when rising oil prices have emerged as a new threat to the industry.  Trucks remained popular. Sales for Nissan's Pathfinder SUV & GM's Chevrolet Silverado pickup truck both rose 60%.

GM, Toyota February Sales Top Estimates in Recovery

General Motors  --  YTD



Ford  --  YTD




Prices at the pump are shooting up.  The record was $4.11 set in Jul 2008 & we could see a new record in 2011.

	Regular	Mid	Premium	Diesel	85	**E85 MPG/BTU adjusted price
Current Avg.	$3.375	$3.477	$3.624	$3.729	$2.848	$3.747
Yesterday Avg.	$3.368	$3.468	$3.613	$3.713	$2.840	$3.737
Week Ago Avg.	$3.171	$3.304	$3.436	$3.564	$2.750	$3.620
Month Ago Avg.	$3.099	$3.292	$3.409	$3.432	$2.664	$3.506
Year Ago Avg.	$2.705	$2.873	$2.976	$2.875	$2.330	$3.066

Source:  AAA


Bulls have finally run into headwinds in the last 3 weeks, 12K is a tough ceiling to break thru.  The sharp rise in oil prices is unsettling for stocks.  A good rule of thumb is when oil shoots up, stocks head south & this may be the first wave of repeating that relationship.  Dow ran up 11% from 11K in 10 weeks, after upward revisions on growth rates for the US economic recovery in 2011.  But oil prices could force those revisions to be revised again, this time downward. Markets have had spectacular runs over the last 2 years & are greatly overbought. 

Dow Jones Industrials   ---   3 months

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Dow has its biggest advance in 8 weeks

After rising in early trading, markets held their gains for the rest of the day. Dow rose 254, advancers were 5-1 ahead of decliners & NAZ added 62. Banks took the Financial Index substantially higher.


S&P 500 FINANCIALS INDEX

Value	188.29
Change	7.02 (3.9%)

The MLP index had one of its best days in awhile, up 4¾ to 323 while the REIT index rose 6½ to almost 209. Junk bond funds were generally higher, near their best levels of the year, while the VIX fell 2 to the 24s. The dollar weakened, taking the € up a penny to $1.28. Treasuries sold off. The yield on the 10 year Treasury bond rose 10 basis points to 2.57% (remaining at very lows levels).


Treasury Securities

U.S. 3-month		0.13%
U.S. 2-year		0.50%
U.S. 10-year		2.57%

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD




VIX --- YTD




10-Year Treasury Yld Index --- YTD





Oil befitted from the euphoria in the stock markets. Gold held up well considering the selling in Treasury securities.

CLV10.NYM

..Crude Oil Oct 10

..74.05

.. 2.13 ......(3.0%)

GCU10.CMX

..Gold Sep 10

..1,244.20

.. 4.10 ......(0.3%)

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General Motors cars
Photo: Bloomberg


Auto sales, once a bright spot in the economic recovery, grew fainter in Aug & the pain was widespread. Big car companies General Motors, Ford (F) & Toyota (TM) all saw sales slip. Smaller ones like Subaru suffered too, as did companies that appeal to the budget minded, such as Kia & Hyundai. Because buyers are nervous about the economy's health they stayed away from showrooms, a worrisome sign since Aug is typically a strong month. Industry sales could fall below 1M new vehicles when automakers finish reporting later this week, making it the worst Aug in 27 years. However, most automakers are making money at lower sales levels because they've cut production.

GM's Aug sales fell 7% from Jul & a sharper 25% from Aug 2009 (when sales were boosted by the Cash for Clunkers rebates). All 4 of GM's continuing brands saw sales drop from Jul with pricier Cadillac & Buick leading the way lower, down 15%. Ford saw sales slip 5% from Jul, while Toyota's fell 12%. Subaru sales fell 7.2%. Kia sales were off 8% & Hyundai sales were essentially flat. The recovery of auto sales from its depths last year has been uneven, as these figures point out.

GM, Ford Sales Slump as `Nervous' Buyers Stay Away


US auto sales - 1 year

Steve Jobs
Photo: Bloomberg


Apple (AAPL) announced a smaller, cheaper version of its Apple TV device for streaming movies & television shows over the internet & into the living room. It also unveiled a new line of iPods, including a touch-screen Nano model. The tiny new Apple TV system will only let people rent, not buy, content. For first-run high-definition movies the day they will have to pay $4.99. High-definition TV show rentals will be 99¢. The price of the box is also being cut to $99, from $229. AAPL has been the darling of Wall Street, but has lost zest in recent months (shown in the chart below) even with the introduction of new products. Today the stock was up $7+, but at $250 it's little changed from mid Apr.

Apple Adds Social Features to ITunes, Unveils IPods


Apple --- YTD





Markets had a tremendous rally, but there was no follow thru in the PM. After the gains came in the first hour of trading, markets settled down & where they remained (closing essentially at their highs). The auto sales for Aug were sobering & will make more gains this week difficult. Fri is the big monthly jobs report for Aug & expectations are that dreary unemployment numbers will drone on.

Dow Jones Industrials --- YTD

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Markets see-saw on sluggish economic data

Stocks sank at the opening & remained under water until buying in the the last half hour. Dow closed up 24, advancers & decliners were even while NAZ eked out a 1 point gain. Congress is trying to make itself feel good grilling oil execs but is not accomplishing much beyond getting attention in the press. Their questions did little to encourage the markets. Bank stocks saw buying into the close which limited the loss for the Financial Index.


S&P 500 FINANCIALS INDEX

Value	198.78
Change	-0.28 (-0.1%)

The Alerian MLP Index dropped a ½ to 305 & has been pretty much flat for a few days after having a nice run off its lows a few weeks ago. The REIT index was up a fraction in the 206s. Junk bond funds were up modestly, typically less than 1%. Treasuries were strong as was gold, safety is back in vogue. The yield on the 10-year Treasury bond fell 9 basis points to 3.19%, very near its yearly lows reached a few weeks ago.

Alerian MLP Index -- 2 months




Dow Jones REIT Index -- 2 months




VIX --- 2 months





Oil fell in sympathy with lower stock markets earlier in the day. It's still above 75, a key support level for bulls. But that's fragile. Gold touched a record high of 1254 before settling back to 1245. Nervous investors are flocking to gold & there are a lot of nervous investors while stocks have put in a rebound off recent lows.

CLN10.NYM

..Crude Oil Jul 10

..76.54

.. 1.13 ......(1.5%)

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U.S. automakers surpassed foreign brands for the first time in a survey measuring the quality of new cars & trucks. J.D. Power said that owners of vehicles made by Detroit automakers reported fewer problems on average during the first 90 days of ownership than those built by companies based overseas. Wow!! It was the first time that has happened in the 24 years the study has been conducted. Ford Motor (F) showed some of the biggest gains in quality among individual brands, moving into the 5th spot. Porsche was the top scorer. Toyota Motor (TM), which has suffered through huge safety recalls earlier this year, saw its score drop. The study ranks vehicles according to the number of problems reported per 100 vehicles. The overall average for the industry was 109 problems per 100 vehicles. That industry average has fallen steadily over the past decade. US manufacturers scored an average of 108 problems, while foreign companies posted 109 problems. That is a marked difference compared to 10 years ago, when import brands had far fewer initial problems than those made by US companies. Ford was the best scorer among non-luxury brands, with 93 problems per 100 vehicles & it has shown steady improvement over the last 9 years. Toyota's ranking dropped to the 21st spot, down from the 6th ranking in 2009.

Toyota Plunges to 21st in Auto-Quality Survey; Ford Makes Top 5



Pimco, the world’s biggest private owner of bonds, boosted holdings of US gov related debt to the highest since Nov. The Total Return Fund, with $228B in assets, increased gov debt holdings to 51% in May from 36% in Apr. Bill Gross, co-chief investment officer, said 2 weeks ago, "The US is the least dirty shirt." "The world is full of dirty shirts in terms of excessive debt, and the United States is one of those countries, but it still remains the reserve currency and still remains the flight-to-quality haven."

Pimco's Gross Increases U.S. Government Debt to 6-Month High



Big, brave Congress people enjoy beating up on BP exces. It gets a lot of attention in the press & makes people back home feel good that they are doing their job. Meanwhile, the mess in the Gulf gets worse because they don't know how to solve that problem & refuse to allow in foreign ships using foreign workers. Their priorities are wrong! First plug the wells & clean up the mess, then hammer on BP (BP)! Oh well. The € edged up getting near $1.24, a nice gain off recent lows. But dreary fundamentals remain in place, the countries are spending more than they take in requiring them to keep borrowing. Dow has been rising this week, up more than 200. There is the nagging problem that these gains have come while Treasuries have been strong & gold reached another record. Both can not be winners simultaneously!

Dow Jones Industrails -- 2 months

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Markets sluggish on mixed data

Dow slipped 11, advancers over decliners 3-2 & NAZ was essentially even. Banks had one of their best days in a long time but the Financial Index remains in the middle of its 5 month trading range.


S&P 500 FINANCIALS INDEX

Value 201.15

Change 3.36

% Change 1.7%

The Alerian MLP Index rose another 3 to the 295s. In the last 2 months it has risen 16% without one setback. Meanwhile, the REIT has had tough sledding (appropriate imagery for this time of year). It's flattish today & only at its Sep high level. Junk bond funds keep blasting ahead to new highs propelled by investors embracing risk for high yields. Today Treasuries were higher, the yield on the 10-year Treasury bond dropped 8 basis points to 3.76% (still at an ominous level for many new mortgages).


Alerian MLP Index --- 1 year




Dow Jones REIT Index --- 1 year





Nothing like very cold weather in North America, Europe & Asia to attract buyers to oil. The chart below shows the trend for oil over the last 6 months. While bumpy, that's how commodities work, it has an upward bias. Gold keeps sloshing around trying to establish a base.

CLG10.NYM

..Crude Oil Feb 10

..81.98

.. 0.47 ......(0.6%)

GCF10.CMX

..Gold Jan 10

..1,115.00

.. 2.70 ......(0.2%)

OIL (ETF) --- 6 months





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photo: Bloomberg


The top car manufacturers saw sharp declines in sales last year, but said they had positive momentum going into Jan 2010. Sales of smaller, cheaper vehicles, however, helped drive gains for some manufacturers. Hyundai had an 8% yearly gain, with its low-cost Kia brand reporting 2009 sales gains of nearly 10% including a 44% gain in Dec. In addition, Japanese automaker Subaru, reported a 15% sales gain for 2009.

For the year, GM sales were off 33% from 2008, with Dec sales falling 9%. GM sales were down for the year because partially because it's phasing out Saturn, Pontiac, Saab & Hummer. GM saw its US market share stabilize at 20% (down from over 50% in the past).

Ford Motor (F) full-year sales declined 15%, but posted its first full-year gain in US market share since 1995. It also reported a 33% increase in Dec sales thanks to strong demand for midsize cars like the Ford Fusion, whose sales rose 83% & the Ford Escape Crossover with a sales increase of 75%.

Chrysler sold only 931K vehicles for the year, its worst performance since 1962 as sales dropped 36% in 2009 (but down only 4% in Dec). And last month's sales rose 36% over Nov, showing signs of some progress at showrooms.

Honda's sales were off 22% for the year but up 20% for Dec, while Nissan was up 18% for the month but down 19% in 2009. Toyota (TM) sales were up 32% in Dec but down 20% for the year.

Total US auto sales will be reported shortly. They are expected to drop to levels not seen for 3 decades. The last time sales were so low was in 1982, when 10½M cars were sold during another bad recession.

Meanwhile, China surpassed the US as the largest auto market, with sales expected to top 12M in 2009. Japan's auto sales declined to the lowest level in 38 years, falling to 2.9M vehicles. But Germany, another major auto producer, said that car exports were up in the qtr & year as the effects of the economic downturn eased.

That was one ugly year for autos with China emerging as not only the largest but one of the fastest growing markets for cars.


•Auto Industry Stabilizes as Ford, Toyota Report December U.S. Sales Gains


Annual US sales of light vehicles - 1 year





Because of the large gains in the stock markets last year, it's easy to forget bonds. They also had an outstanding year with high yield bonds performing the best (many up 50+%). High yield bonds are merely stocks with high yields. They have their work cut out for them if they want to make price advances this year. Their yields are approaching the lowest they've been in the best of times. In addition, many junk bond funds invest in high yield bonds in foreign (especially emerging) countries which carry an added risk. As long as they carry on with the winning ways, investors are happy. But I wonder how long this can last with so much uncertainty about the recovery.


Dow Jones Industrials --- 1 year