Markets rebound on Alcoa earnings

Dow jumped 90 (near session highs), advancers over decliners better than 6-1 & NAZ added 33.  The Financial Index was up 3+ to the 204s (still 11 below its highs a month ago).  The MLP index was up 2+ to 384 & the REIT index gained 2+ to 246.  Junk bond funds edged higher while Treasuries retreated, taking the yield on the 10 year Treasury back over 2%.  Oil extended gains after the Energy Dept said stockpiles of gasoline & distillate fuels declined.  Gold prices hardly budged.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.081%
U.S. 2-year	0.298%
U.S. 10-year	2.033%

CLK12.NYM

...Crude Oil May 12...

101.46

... 0.44

(0.4%)

GCJ12.CMX

....Gold Apr 12

.........1,656.10

... 3.40

(0.2%)

Get the latest daily market update below:

Photo:  Bloomberg

Spanish financial markets were on alert for further disruption, on fears the country might need a bailout.  The yield for Spain's 10-year bonds, an indicator of the interest rate a country would have to pay to borrow on intl debt markets, dropped back to 5.81%, still close to the 4-month high of 5.93% reached yesterday (levels that pushed Ireland, Portugal & Greece to seek a bailout).  There are several reasons for several concern:
* There are doubts that Spain will be able to lift its stagnating economy out of recession at a time when unemployment is nearly 23%.
*The Spanish gov has to cut its public deficit from 8.5% of its economic output to the maximum level set by the EU of 3% by 2013.
* The country's semiautonomous regional govs have been saddled with high amounts of debt & markets doubt they lack the budgetary discipline to turn their fortunes around.
* Many Spanish banks have been crippled by bad loans following the collapse of the real estate market in 2008.  There are fears that the gov will have to step in & inject capital to save them from collapsing.
* Spain makes up 11% of eurozone GDP (compared with 2% for Greece) & would therefore have a greater impact on the eurozone's finances should it seek a bailout.
PM Rajoy said Spain's situation was "difficult and complicated."  "The government's economic policies are tough and costly and will not produce results in the short term but they are what we have to do in these moments," said Rajoy.  He added that Spain had overspent by €90B ($118B) last year.  "We have to ask (creditors) for this and if they don't give it to us it puts us in a difficult position," he said.  Adding to the country's woes are intl investors' increasing reluctance to own risky investments, such as gov bonds from Spain & other debt-laden countries like Italy, whose yield on its 10-year bond is 5.5%, down from 5.7% yesterday.  Stay tuned for this looming disaster.

Rajoy Says Spain Future at Stake as Debt Crisis Persists

Photo:   Bloomberg

The US sued Apple, Macmillan & others, claiming the publishers colluded to fix eBook prices (2 companies have settled their suits).  AAPL & Macmillan, which have refused to engage in settlement talks, deny they colluded to raise prices for digital books.  They will argue that their pricing agreements enhanced competition in the e-book industry.  The Justice Dept is probing how AAPL changed the way publishers charged for e- books on the iPad & a Justice Dept said it would announce an “unspecified” antitrust settlement today.  AAPL, Penguin & Macmillan want to protect the agency model that lets publishers, not vendors, set e-book prices.  The gov is seeking a settlement that would let Amazon (AMZN) & other retailers return to a wholesale model, where retailers decide what to charge customers.  A settlement could also void so-called most-favored nation clauses in AAPL contracts that require book sellers to provide it with the lowest prices they offer competitors.  If not settled, this suit could get very messy for AAPL.  The stock was not disturbed, gaining 4+ to 633.

U.S. Files Antitrust Lawsuit Against Apple, Hachette

Apple Inc. (AAPL)

Photo:   Bloomberg

The 6 largest US banks are expected to post an 11 % drop in Q1 profits, threatening a rally that has pushed bank stocks 19% higher in 2012.  The banks may post $15.3B in net income (after adjusting for one-time items), down from $17.3B in last year’s Q1.  Trading revenue at the biggest lenders is projected to fall 23% to $18.3B.  US lenders, struggling to expand in commercial banking after the housing collapse, haven’t matched last year’s overall results, even as bond & equity markets strengthened.  Making matters worse, loan balances increased less than the economy, bucking a trend in previous recoveries.  Loans at the top 25 US banks rose 0.4% in Q1, slowing from 1% growth in Q4, according to the Federal Reserve.  Loans fell to $4T from a peak of $4.24T in Q4 2008.  Results may disappoint investors who bought bank stocks on a bet the industry was inexpensive & set to benefit from a strengthening economy.

Profit Drop at U.S. Banks Jeopardizes 2012 Share Rally as Loans Trail GDP


Oversold markets rebounded, as bargain hunters returned.  Aloca (AA) earnings last night were welcomed by the markets.  But earnings estimates for Q1 are for a lackluster qtr & the European debt mess appears too be flaring up again.  By the end of the week, the first earnings reports from banks will be out, giving a flavor of what to expect in the coming weeks.

Dow Industrials

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Markets vacillate on mixed economic news

Stocks hardly moved in light trading.  Dow slipped 2, advancers barely ahead of decliners & NAZ also gained 6.  Bank stocks were weak as the Financial Index has been lumbering along since its sell-off in Aug.

S&P 500 Financials Sector Index

Value	176.34
Change   -	1.21     (-0.7%)

The MLP index rose 1½ to 386, 4 below its record highs reached 8 months ago, & the REIT index was up 1+ to 234 (below its yearly high of 253).  Junk bond funds rose as did Treasuries.  The price of oil climbed above $101 a barrel on growing U.S. consumer confidence & tension in the Middle East.  Gold kept sliding, but the yearly chart below shows it has done well  -  up 15% YTD.

ALERIAN MLP Index (^AMZ)



DJ REIT INDEXDJR (^DJR)

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.005%
U.S. 2-year	0.290%
U.S. 10-year	2.012%

CLG12.NYM

...Crude Oil Feb 12

...101.24

1.56

(1.6%)

Every day of the year, the gov has to borrow an additional $4B to keep going.  As a result, the president will ask Congress to raise the debt ceiling another $1.2T,  enough to get the gov thru most of next year.  This comes in line with the deal struck during the summer, authorizing a phased increase of the debt ceiling by up to $2.4T, with $400B of that kicking in immediately & another $500B coming in Sep.  This request would increase the debt limit from its current level of roughly $15.2T to $16.4T.  The gov is expected to come within $100B of the current limit by the end of this week. 

Obama to Seek $1.2 Trillion Increase in U.S. Debt Limit Dec. 30

Photo:   Bloomberg

Oil capped its longest rally in more than a year as Iran threatened to block transportation thru the Strait of Hormuz & confidence among US consumers beat expectations in Dec. Crude rose to the highest level in 6 weeks after Iran’s official Islamic Republic News Agency said the country would bar shipments through the strait if sanctions are imposed on its oil exports.  About 15½M barrels of oil a day (a 6th of global consumption) passes thru the Strait of Hormuz between Iran & Oman at the mouth of the Persian Gulf.  Oil was higher on one of the year’s slowest trading days as many traders are away on holiday.

Oil Extends Longest Rally Since 2010


After crashing 50% in 2008 & enduring another brutal 30% decline in 2011, Dick Bove, a prominent financial sector analyst, is sticking with his picks.  "2012 has every indication for being a gangbuster year in terms of earnings, market share, loan growth, deposit inflows, liquidity, capital growth," Bove said.  He says the process has already begun with European lenders selling packages of loans, credit card portfolios & even entire business units to their rivals in the US.  He is expecting to see continued improvement in trends, including the domestic economy & banking industry earnings that are at 4½ year highs, have risen for 9 consecutive qtrs, and "aren't as dirty (or cluttered with charges) as you think."  Explaining his past bullish calls, Bove offered an explanation for his erroneous "buy" calls this year:  "I failed to understand that the fears in the market concerning banking were so great that the fundamental improvements in the economy, the industry, and companies like Bank of America and Citigroup would simply be ignored."  The very brave might want to think about his predictions for 2012.

Hold your nose and buy bank stocks: Bove Breakout

In a sluggish pre & post holiday period, there is not a lot going on in the markets.  The consumer confidence data sounds good, but that is fluid & can change quickly.  Hearing about Sears closing store is disturbing.  Some of its problems relate to self inflicted wounds, but early indications are that holiday shopping was only so-so.  It looks like retailers are pressing harder for sales, not a good to see when the economy is supposed to be doing well.   For what it's worth, Dow is up 700 YTD, better than other popular averages.

Dow Jones Industrial Average

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Stocks edge lower after Alcoa earnings

Following unsatisfactory earnings from Alcoa (AA), Dow stock, last night, markets opened soft. Dow fell 29, decliners over advancers 2-1 & NAZ was off 17. Banks slipped, hurt by a proposed plan to tax banks which received federal help during the financial crisis.

S&P 500 FINANCIALS INDEX

Value 203.56

Change -1.59

% Change -0.7%

The MLP index fell a fraction in the 293s & the REIT index dropped 2. Real estate faces problems from high vacancy rates which are likely to rise. But junk bond funds remain hot, up again. AA's disappointing earnings increased demand for Treasuries. The yield on the 10-year Treasury bond sank 9 basis points to 3.73% taking it away form the high levels it has been at.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




10-year Treasury Yld Index - 1 month










Oil fell to the 81s on expectations that frigid temps in the northern hemisphere will ease. Even cold weather systems need a break. Gold is showing last night's close at 1150.

CLG10.NYM

...Crude Oil Feb 10

...81.55

... 0.97 .......(1.2%)

President Obama is weighing a levy aimed at recovering tax dollars from the rescued financial institution, seeking modifications to the law that sent $Bs in bailout money. The 2008 law that created the Troubled Asset Relief Program requires the president to seek a way to recoup unrecovered TARP money from financial institutions 5 years after the law was enacted but does not specify how the money should be recovered. Such a plan could raise up to $120B from banks, not a plus for bank stocks.

•Obama Plans to Raise as Much as $120 Billion From Bank Fees to Refund TARP

photo: Bloomberg



KB Home (KBH) turned a profit in its Q4, the first time since early 2007, helped from a new tax rule that allowed it to offset past losses. KBH earned $1.31 a share, in the 3 months ended Nov 30, including a tax gain of $192M. However, on a pretax basis, KB Home lost $91 million as it abandoned land contracts & had to write down the value of joint ventures & inventory of homes. In the Q4 of 2008, the builder lost $3.96 a share. Revenue dropped to $675M from $919M in the prior year. KBH was the 5th-largest homebuilder in 2008. The stock dropped 85¢ to 15.53.

KB Home Reports First Profit Since 2007 on Tax Boost


KB Homes --- 1 year










Stocks absorbed the first earnings report pretty well, but more are coming. JP Morgan (JPM), a Dow stock, will lead bank earnings reports on Fri.

Dow Jones Industrials --- 2 weeks

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.

Market rally trumps negative news

Dow rose 83, advancers over decliners almost 3-2 and NAZ was up 25. NYSE volume just topped 1B, a very light day. Financials led the charge, the S&P 500 Financials Index gained 2½% (a very good performance given problems announced today). Morgan Stanley (MS) & JP Morgan (JPM) agreed to pay fines of $35M & $25M respectively after agreeing to repurchase $7B of securities from a securities auction. MS was up 39¢ & JPM up 81¢. The NY Attorney General is going after additional financial companies in this matter. There is a prediction that Merrill Lynch (MER), up 39¢, will have to cut its 35¢ quarterly dividend after the recent massive write-downs. Oil helped drive markets after falling 1.30 to 114.70. The Alerian MLP Index closed even at 264.80.

Bloomberg TV had an interview with a retail analyst, talking about back-to-school selling season. She said it got off to a bad start. Consumers are being careful when going to malls & shopping. Early signals are that this will not be a good time at retail. Worse, this gives first glimpse signals about the important holiday shopping season. If trends continue (very limited sales growth at best), that could be one of the worst in several years.

Stocks shrugged off early bad news on inflation, housing, etc. Instead nervous investors wanted to buy, afraid of missing the next leg up in the markets. Volatility is still here, but no so bad. The VIX, volatility index, fell 1 to 20, still high but below the extraordinary levels seen recently.

Banks punished

Dow dropped 140, decliners over advancers 2-1 but NAZ was down only 9. Volume continues low at 1.1B. JP Morgan (JPM), a Dow stock, fell 4.20 on very bad news about losing $1½B already in this quarter. UBS (UBS), the big Swiss bank, fell 6%, on more gloomy news about not knowing what it was doing. Their investment write-downs will cost another $5B bringing the total to $42B. Wells Fargo (WFC), down 1.23, got slammed with just embarrassing news. It was one of those days for banks & they were punished badly, leading markets lower:

S&P 500 FINANCIALS INDEX

Value 284.01__ Change -15.56___ % Change -5.2%

JPM is the most serious story. They had been one of the best performing major banks with a high of 50 in the last 12 months. They were getting by without severe damage other banks endured, even after today they're 38. Today's sell-off suggests that ugly credit crisis/banks problems are not over or even ending soon.

Oil was down while fighting goes on in Georgia. A few weeks ago, this fighting could have added $10 to oil. Today, as with other bad news, is largely ignored in oil markets:

CLU08.NYM
Crude Oil Sep 08 113.22 1.23 (1.07%)

Oil is driven more by the weak dollar. The dollar was risen sharply while oil & other commodities were declining in recent weeks. The Euro has fallen to 1.49 (down 10¢) in recent weeks while it takes more than 109¥ to buy a dollar. The strong dollar helps their economies export more (vital for Japan) but muddies the investment picture here. Strong dollar has brought a strong stock market, there is a connection. The Shanghai market sold off 10% in the first 2 trading days of the Olympics & slipped a little more today to a 20 month low. They are not getting benefits from the Olympics.

Tomorrow US retail sales, hang in there. This is the kind of day I'll leave you with glum forecast from the Philly FED.

Return of the Monster Rally

Dow Jones rose 302, advancers ahead of decliners 5-2 (again, less spectacular than might be expected with a hug rally) & NAZ up 58. However, NYSE volume was subdued at 1.2B. Lower oil prices carried the day:

CLU08.NYM

Crude Oil Sep 08

115.18

4.84 (4.03%)

One key reason for the decline in oil is the rise in the dollar. It now take more than 110 ¥ to buy a dollar and the Euro, at $1.50, is down 10¢ in recent weeks. Driving forces for the strong dollar are lower oil prices & the weakening economy in the US (not to mention the rest of the world). Sounds good but a struggling economy with tons of banking related problems doesn't sound good to me.

Not as pretty day for financials as it should have been. UBS is settling a securities case requiring them to buy back $19B in bonds after they misled investors. This is one more case where smart bankers don't seem to know what they are doing! Banks had a good day, but not their best, as shown with BAC & USB in my widget on the right.

S&P 500 FINANCIALS INDEX

Value...294.08___ Change...up 10.05___% Change...up 3.5%

The index, courtesy of Bloomberg, is trying to get above the 302 level which has become resistance in the last week. Next week another try at going above. Ugly Fannie Mae news about its losses & confusion about where it's going keeps some buyers away from these stocks.

The Alerian MLP index was up pennies (as shown in my widget on right) but remains a whisper away from the 52 week low. REITs rose, basically joining in with the general market. Even junk bond funds inched up a couple pennies following the gains in the Treasury bond whose yield pulled back to 3.95%.

There have been a number of big gain days in the last month. But after the 5 day rally at mid July, the Dow Jones has not been able to build on those gains.

Lower oil prices lifts stocks

This is one of those go figga kind of days. Fannie Mae (FNM) reports an uglier loss than expected but markets are up on good news about lower oil prices. Dow is up 188, advancers over decliners a more modest 2-1 while NAZ is up 39. Oil dropped 3½ to the 116s encouraging stock buyers to charge forward. Oil is now down 30 from its recent peak.

Fannie Mae reported a 2.3B Q2 loss, more than triple expectations. Among the many questions around FNM are: when will the bleeding stop, how much added money will they need & will they need even further additions to capital? Their chart tells a dreary story especially in the last few years:

Fannie Mae

Banks are up but surprisingly only moderately on a big rally day. REITs in sympathy are up, but not as much as might be expected. The Alerian MLP index is down pennies, on lower oil prices, flirting with its new 52 week low set a couple of days ago.

Macro economic conditions drone on. Housing & autos, 2 large industries, are in a severe recession, retail sales are sluggish at best & the financial loan picture is gloomy. Let's see what the PM holds for stocks.

Freddie Mac problems move markets

After all is said & done, stocks ended up a little. Dow is up 40, advancers were only slightly ahead of decliners & NAZ rose 28 helped by Cisco, up 1.28, after last night's earnings. Volume continues light, at 1.2B on the NYSE. S&P 500 FINANCIALS INDEX, after an AM sell-off taking it down from the interim high yesterday of 302 to a low of 295, rallied back to 299 down 3, not too bad.

Oil closed down on routine news:

CLU08.NYM

...... Crude Oil Sep 08

.... 118.46

..... 0.71 (0.60%)

After an early morning 3 point rally, the Alerian MLP index held in the 261s, officially closing at 261.65 up 3.02. Not too bad. REITs did not rally, just sold off.

Freddie Mac (FRE), down 1.55, dominated talk today. Everybody's trying to figure out how bad their situation is & when they will need more capital. They share many of the same problems with Fanne Mae (FNM), down 2, reporting earnings on Fri. They're getting clobbered by lower home prices sharply reducing equity behind their loans. Foreign investors who bought about $1½ trillion of FRE/FNM bonds are trying to cope the new situation, these bonds originally viewed as AAA are turning out to be junk rated. They know about the mortgage mess because they read about their local banks writing off $B on investments.

Tonight, another biggie financial, American International Group (AIG), largest insurance company, reports earnings & expectations are not pretty. The stock is the worst performing Dow stock this year, down 50%. They share similar financials headaches as the competition only their numbers are bigger & uglier.

July & stagflation

Stock markets have been thru a lot in recent months, June qualifies as an awful month. Even NAZ which has been doing well in recent times fell in June. Dow Jones Industrials & S&P 500 were clobbered dragging stocks to their lowest levels of the year.

July may have seen an end to the downward slide. Stocks continued falling until mid month. Then the FED put together a rescue package for Fannie Mae/Freddie Mac & some home owners with mortgages which brought a lot of encouragement to stock buyers. From the lows, the Dow rebounded (led by oversold financials) more than 600 followed by a pullback returning prices to near the start of the month. Financial stocks roared. Bank of America (BAC), rose 15 from a low of 18½ while marginal ones (like FNM/FRE) doubled from their lows. Now the bulls & bears will argue about who has the upper hand:





The Alerian MLP index had a bumpy ride, going sideways between 276 & their 52 week low of 262. Oil set records at 147 followed by a sudden 20 point pullback. MLPs this year have been following oil prices, but this time they were dragged down like oil stocks. In July, Exxon Mobil (XOM) dropped almost 10%, much of it in recent days after reporting record earnings. MLPs however are different, they are partnerships (not corps) generally with thousands & thousands of miles of boring of pipelines. At month's end & in early Aug many are/will be going ex-distribution, which can be 2%, a downward influence on the index.





Real estate stocks, REITs, have had a very rough year, not helped by the market down-draft in recent months. Many are selling at lows not seen in 10 years, even though divs have been trending up. In June they were pulled down by concerns over financials. They did not get significant relief in July, some falling to new multi year lows. Yields are 6-10%, some even higher. In personal accounts, many divs are partially non-taxable and/or have a portion taxed as capital gains. Those with excellent track records of raising divs are becoming attractive. They proved to be excellent buys 10 years ago when they were down in the dumps offering similar high yields.

Junk bond funds still can't get no respect, yielding 12% with NO mortgage exposure. Their yields have widened to 800 basis points above the Treasury yield, what has to be a record spread. The brave may start giving them some respect.

The stagflation word has been bandied about as a fear dragging down markets this year. Compared to the early 80's when inflation & unemployment rates were in double digits, this is mild. Growth declined then, today it's bumping along squeezing out small gains. I think this is a mild form of stagflation driving fears which drag down stocks.

Last night I saw the 2 fraidy cats. The older one, she's the mother, seemed to be her usual mellow self with me, relaxed. The younger one, Tom Cat (black cat), came out. He is the most afraid, but ventured out to visit with me for a few seconds, then ran under the futon. Maybe that's a sign the scariest days are behind us, even if the future looks gloomy with no shortage of fears.

Weak economy hurts stocks

Dow is down 54, advancers & decliners were about even & NAZ is up 18. The top news story causing stocks to slide was GDP in Q2 grew at a 2.1% annual rate prices, below 0.9% in Q1 & compares with an average forecast of 2.4%. In Q2, the economy was helped by tax rebates which largely went to pay for higher food & gas prices. The Commerce Dept also revised the rate in Q4 2007 to negative (it takes 2 consecutive qtrs to signify a recession). The number of applications for jobless benefits soared by 44K to 448K last week, a 5 year high. The Labor Dept said the increase was influenced by an outreach program they started, informing people they were eligible for filing. But it remains a large increase & when 400K is considered a recession kind of number, paints a gloomy picture.

Exxon Mobil (XOM), a Dow stock, reported record profits reaching almost $12B. Royal Dutch Shell (RDS.B), similar size to Exxon - whopper, reported similar profits but each declined 2-3. Tough to buy friends these days when you're so big. Speaking of oil, it slipped back 1 to under 126. The Alerian MLP index dropped 1 to 271. It has pretty much been under 275 this month, just bobbing around following moves in oil stocks & prices. Banks & REITs were down, but bounced back to little changed. Being the last day of the month, evening out positions could produce volatile swings. Meanwhile, assessing the GDP & jobless data will give analysts something to do.

Stocks & oil soar

This was a very good day for many investments. Dow was up 186, advancers over decliners 2-1 but NAZ rose only 10. NYSE volume was just under 1½B, medium but not great on one of those rare days where stocks, led by banks & oils, each had good gains. The Bloomberg Financial index had was up, trying to get back to the 302 high last week. By way of comparison, its all time high was 482 last year:

S&P 500 FINANCIALS INDEX ........... 293.13 ....... up 5.76 ......... % Change ..... 2.0%

Oil had one of its best days in some time:

CLU08.NYM.....Crude Oil --- Sep 08 --- 127.01 --- up 4.82 (3.94%)

The weekly report had inventories decline over 3MM barrels, anything sets off this market. In sympathy, oil stocks rose sharply. Exxon (XOM) & Chevron (CVX), Dow stocks, each had gains over 3 ahead of their earnings reports in the next couple of days. The Alerian MLP index rose 6, one of its best days ever. One MLP I watch (on the right), Enbridge Energy Partners, was up 3 for the stock & over 2 for the units (probably its best day in history). This was fueled by buying ahead of distribution (99¢) at week's end. However, REITs pulled back on this otherwise up day.

Hard to say what got buyers all excited. The jobs report this AM was pretty good but it doesn't necessarily tie with the reports issued by the Dept of Labor, like the one due later this week. Oil should have been a downer, but not today. Banks are soaring, maybe buyers feel the moves by the FED will save troubled banks. The FED extends emergency measures & Pres Bush signed the housing bill.

Dow Down, Down, Down

Another ugly day in the markets. Dow tumbled 239, decliners over advancers 5-2 & NAZ fell 46. The S&P 500 is back to 1234, below what some thought was an important support level of 1270. NYSE volume was under 1.2B, very low signally nothing was decided. This is bleeding & it will continue. Banks/financials led the way down. The 4 financials of the Dow accounted for 50 points of the decline. The S&P 500 FINANCIALS INDEX (on Bloomberg.com) dropped 12 to 265 (5 days ago it was at an interim high of 302).

Nothing really new other than dreariness & realization that ugly days lie ahead for financials. The write-offs at 2 Australian banks didn't help. Sec of Treasury, Henry Paulson, said major banks will start a new lending program. The country's 4 biggest banks will issue covered bonds to help the ailing mortgage market. While this is done in Europe, it's new to the US. There may be a fair amount of scepticism, maybe this is just another way to batch loans together but may not achieve the desired results of helping banks. Meanwhile oil neared 125, up 1.47, on the usual assortment of supply problems. Today they are in Nigeria.

Economists in the White House reduced their forecast for economic growth in the US.

----------- original------- revised
2008.......2.7%..............1.6%
2009.......3.0%..............2.2%

Unemployment rates will tick up, not encouraging. The economy will be struggling for some time, the kind of news investors don't like to hear.

Mortgage rescue bill doesn't help stocks

Markets were lower, dreary economic news is weighing stocks down. Dow declined 133, decliners over advancers 3 to2 & NAZ slipped 25. Higher oil prices on supply worries (out of Nigeria) caught the eye of traders. Oil rose 77¢ to 124. Over the weekend, the Senate passed a bill helping home owners & Fannie Mae/Freddie Mac which got a muted response from investors. More gov intervention generally is not greeted with enthusiasm but this one was considered inevitable, so they accepted. Pres Bush may sign it as soon as today. Toyota (TM) lowered its global sales forecast, stock down 2.24. They should sell only 1% more vehicles than last year, remaining #2 behind GM worldwide. The downward revision is blamed on the slowing economic growth in the US, high oil prices & higher material costs. US sales will decline 7% this year.

Verizon (VZ), a Dow stock reported good earnings, down 66¢. A weak US economy is not expected to have a material effect on their results for the balance of the year. Cell phone business is strong & they will start bringing FIOS cable to NYC starting today.

Banks are leading the decline today, more profit taking after the rapid run-up a couple of weeks ago. Two Australian banks taking large write-offs on US loans in recent days hurt. Bank of America (BAC) is below 29, 5 points below its recent high.

Rest & rethink

Markets have been in free-fall for a couple of months followed by a sharp recovery 2 weeks ago. Bank stocks led these moves. After being very oversold, they rebounded sharply recently. Bank of America (BAC) had fallen to 18½, bounced back 15 only to lose 30% of that gain in the last couple of days. Others which had fallen below 10 had sharper recoveries followed by profit taking. Earnings reports for banks are largely over, stocks will have to live off macro economic news releases & these reports may not be pretty.

No secret, this has been an ugly year for stock averages. Dow & S&P 500 are down 14% while NAZ fell only 11%. A variety of Dow stocks have been punished badly this year (including the 2 oil stocks) contributing to the decline in the Dow:

AT&T (T)..........................24%
Bank of America (BAC)..........28%
Chevron (CVX)....................11%
Citigroup(C).......................36%
Exxon-Mobil (XOM)...............12%
General Electric (GE).............23%
Hewlett-Packard (HPQ)..........13%
IBM (IBM)..........................13%
JP Morgan Chase (JPM)...........9%
Pfizer (PFE)........................17%
Procter & Gamble (PG)...........12%

Pfizer deserves mention. This is the largest drug company in the world with a 40 year history of consecutive higher dividends. After falling to the 17s a couple of weeks ago, the stock has recovered to 18.89 yielding 6.8%, one of the highest yields for an S&P 500 Dividend Aristocrat. Its main drug, anti cholesterol Lipitor, has been a drag on the stock for some time. Lipitor has only 3 years remaining under patent protection, a time frame not lost on investors. More new drugs in the pipelines, but none has set off any alarms. Long track records are always impressive, they clearly have one. Yield conscious investors might take a fresh look at Pfizer.




I continue to think junk bonds deserve more respect. They yield 12%, 800 basis points above the Treasury bond rate. This spread has to be one of the highest spreads in history! Yes, there's risk. If the recession becomes more severe, defaults could increase. But this spread can cover a lot of mistakes.

Reality check for banks

A rough day following the recent run-up in prices, which largely went unchallenged. Dow fell 283, decliners over advancers 4-1 & NAZ pulled back 45. NYSE volume was 1.65B, a little higher than a former average around 1½B. The VIX (volatility index) rose 2.22 to 23.53, very high. It seemed like everything went down (4-1) but banks took the lead plunging 20 or 6.7% on the Bloomberg-S&P Financial Index. Another way to look at it was it lost 25% of its recent run-up from the lows. Bank of America (BAC) after gaining 15 from its low in the last week was down 2.80 to 30.64 (shown in the right widget). Banks were clearly overbought but gloomy news on housing & autos (from Ford) brought on more selling today bringing heady markets back to reality. These industries are going thru a severe recession.

Oil rose 1 to 125½ on the usual assortment of news/rumors. But the idea that there is less driving in the US is getting more attention among traders. MLPs pulled back. The Alerian MLP index dropped almost 3 (1%) to 264s, flirting with 262, the 52 week low reached last week. Following up on my prior discussion on MLPs, a report from TradingMarkets Research gives very good insights on how these companies keep slipping in the face of optimism about oil & gas. However, I still like them because of high yields which are largely not taxed.

Today's reality check will probably continue tomorrow.

Waffling but up Wednesday

Stocks had a difficult time making up their minds which way to go. Except for a brief surge & then pullback around midday, they hugged the flat line. By day's end, Dow was up 30, advancers over decliners 3-2 & NAZ was up a more impressive 22. Volume on NYSE was 1.6B, a little higher than on many other recent days. Banks continue to roar ahead. Bank of America (BAC) was up 1 to 33½, nearing double its low just a week ago. US Bancorp (USB) another one I like went from 20 to 30 in a week. Today the outstanding recovery performance by financials was overwhelmed by oil. Oil was down 4¼ at 124, a price last seen in June when it was going up. I've given up trying to come up with brilliant reasons for wild swings. It's easier to accept them as "normal" moves with little reason behind them. Of course, slowing economies in the US & to some extent around the world might be in back of the minds of traders. We are also going into main part of hurricane season, introducing more unknowns going forward.

The FED released their beige book report which told us what we already know. The economy is struggling, they have to balance the needs of raising interest rates to fight inflation vs lowering rates to help the economy. Amazon (AMZN) just reported strong sales & earnings for Q2. They were up 2.57 during the day but little changed after hours awaiting the conference call which will clean up details. Costco (COST) had a very gloomy report greeted with a big sell-off, down 8.57. Congress should be finalizing their plans today aimed at helping FNM/FRE, the pres will sign their bill. Stay tuned!

Wild, wild week!

Stock markets, highlighted by financial stocks, just went thru a major sell-off followed by a sharp rally in the last few trading days. Financial stocks got the most attention, even more than energy & energy stocks. This year, they've gone from one new low to another with seemingly no end.

The S&P Financials Index, shown on Bloomberg (their symbol for it is S5FINL), went from a high of 510 in May 2007 to a low of 230 last week (more than a 50% decline) followed by a sharp rebound to 280 Fri. The moves are similar to Bank of America (BAC) stock performance even though its had more exaggerated moves, shown below (note high volume recently):

BAC stock has done well, from the 20s in the early part of the decade to the 50s last year. As a member of the S&P 500 Dividend Aristocrat list, BAC had yearly increases with a nice one 12 months ago. Since the peak in early 2007, it had a slow & then a sharp drop to last week's low of 18½ where the stock yielded almost 14% (for those who believed in the div). The 3 day rebound brought the stock back to the what had been a “new low” price reached a month ago. The rebound came on high volume as show below:

Banks have gone thru a lot, especially this year, mostly negative news stories. All major banks operate under a dark cloud which varies from one to the next, but each one has a cloud overhead. A week ago, the banking system had its first failure in what must be at least 20 years. There haven't been any (or many) because a large bank was always available to take over the weak one, then life went on. That concept is barely alive today. The FNM/FNM situation & confusion about their survivability during the credit crisis adds to uncertainty for financials. That's been a lot for investors, whether experienced or novices, to absorb causing wild swings on big volume.

Meanwhile, economic problems drone on. In 1980, the economy had to deal huge numbers for inflation & unemployment while contracting. The combination of events was called stagflation, all economic measures were going wrong. The world is not as ugly today. By comparison, inflation & unemployment are more moderate while the economy is eaking out growth. However, they're ugly enough to drag down markets this year & looks like these conditions will continue.

The depression in housing & autos affects a lot of businesses & workers. Masco (MAS), another member of S&P Dividend Aristocrat list, will eak out their 50th consecutive annual div increase this year (by one penny). If continued, Q4 will be above the prior year by that penny. But they indicate earnings will not cover the current div. Remaining on the list next year is unclear. It will be sad if they are forced to break their 50 year track record next year. While this is just one small story among a great many, it's indicative of tough times the economy is going thru causing stocks to sell off in 2008.

I haven't seen the extreme fraidy cat lately, the black one living most of his life under the futon or in a closet. Maybe that's his way of saying we should be cautious, at best, going forward. More earnings reports will be issued this week including BAC on Mon. By weekend, they will announce the next div (the one they traditionally increase). If earnings are less bad then dreaded, chances are they will have an increase even if it's limited. The earliest signals for this week are the New Zealand market opened higher & pre-trading for Australian stocks is showing a 1% increase suggesting markets will start on a positive note.