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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Nervous markets on inability to raise debt celing

Stock markets are taking the impasse over raising the debt ceiling fairly well.  Dow is down 61, but decliners over advancers almost 4-1 & NAZ fell 14.  Bank stocks are leading the way down.

S&P 500 Financials Sector Index

Value	204.33
Change	-2.12    (-1.0%)

The MLP index dropped 3+ to 370 & the REIT index fell 2+ to 250.  Junk bond funds were weak but Treasurries were strong on the flight to safety.  The yield on the 10 yearTreasury bond is back below 3%.  Oil fell for the first time in 5 days after the failure to agree on raising the debt ceiling, boosting concern of a default.  But gold climbed to a record on increased demand for the metal as a protection of wealth.

JPMorgan Chase Capital XVI (AMJ)

Treasury yields:

U.S. 3-month	0.035%
U.S. 2-year	0.403%
U.S. 10-year	3.015%

CLU11.NYM

...Crude Oil Sep 11

...99.03

..... 0.84

(0.8%)

GCN11.CMX

...Gold Jul 11

.......1,617.60

... 16.30

(1.0%)

The latest daily market update below:




Moody's downgraded Greece's bond ratings by a further 3 notches & warned that it's almost inevitable the country will be considered to be in default following last week's new bailout package.  The new EU package of measures implies "substantial" losses for private creditors & as a result, it cut its rating on Greece to Ca -- one above what it considers a default rating!  Though Moody's said a Greek debt default is "virtually certain," it noted that the new measures will increase the likelihood that Greece will be able to stabilize & eventually reduce its overall debt burden.  It also said the package benefits other eurozone countries by "containing the near-term contagion risk that would likely have followed a disorderly payment default or large haircut on existing Greek debt."  Eurozone countries & the IMF agreed to give Greece a 2nd bailout worth €109B ($155B), on top of last year's bailout.  If all goes to plan, banks & other private investors will contribute €50B ($71B) to the rescue package until 2014 by swapping Greek bonds that they hold for new ones with lower interest rates or slightly lower face value, or selling the bonds back to Greece at a low price.  This means bondholders will lose money on their Greek debt holdings!

Greece Rating Cut to Second-Lowest Level by Moody’s on ‘Orderly Default’

Reps & Dems prepared dueling plans for raising the US debt ceiling, unable to break a partisan stalemate over how to tackle the $14.3T debt & quell market concerns about a potential default Aug 2.  John Boehner told fellow Reps he was determined to force action on a 2-step debt-limit extension that would provide a roughly $1T, a shorter-term increase than president has requested, defying a veto threat & the administration’s warnings of dire economic consequences.  The president canceled fundraising appearances, the debt crisis is that serious!  Spending cuts by the gov will crimp the economic recovery.

Republicans, Democrats Prepare Rival Debt Plans

Photo:   Yahoo

Kimberly-Clark, a Dividend Aristocrat, profits fell 18%, dragged down by higher commodity costs & an increased tax rate.  It now expects 2011 adjusted earnings will likely be in the lower half of its previous range, but raised its full-year revenue guidance.  CEO Thomas Falk said that the commodity cost environment has gotten worse over the past 3 months, but that the company was keeping its full-year outlook because it planned to lower overhead costs & should benefit from favorable currency exchange rates.  But Falk said if input costs don't moderate, it's likely KMP 2011 adjusted earnings will be in the lower half of its range.  Q2 EPS was $1.03, down from $1.20 last year.  Adjusted EPS was $1.18, beating $1.14 analysts forecasted.  Revenue rose 8% to $5.26B on higher sales volumes & increased prices.  KMB maintained full-year guidance for adjusted earnings of $4.80-$5.05 & revenue is now expected to climb 5-7%. The prior forecast called for revenue to rise 4-6%.  The stock fell 59¢.

Kimberly-Clark 2Q profit falls on higher costsAP

Kimberly-Clark Corporation (KMB)

Sec of State Hillary Clinton reassured China, the top holder of American Treasuries, that the US will resolve its impasse over the debt ceiling & improve the country’s long-term fiscal outlook.  This is just another sign of how serious the debt ceiling impasse its.  Of course, even the pres is skipping fund raising events!  Nobody knows where this is going or how it will turn out.  But using Scotch Tape at the last minute to fix fundamental problems shows how badly this crisis is being handled.  The Chinese are worried about their massive investment in the US.  Stock markets have been hardly disturbed, at least so far.  Given the sloppy way US financial affairs have been handled in recent years, don't expect the crisis ending until the last hour on Aug 1, maybe even later!

Dow Industrials (INDU)

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Late day buying brings gains for markets

Thanks to buying in the last hour Dow rose 42, advancers ahead of decliners 3-2 & NAZ was up 27 (helped by a $70 gain for Google).  Bank stocks were sluggish despite favorable earnings reports.

S&P 500 Financials Sector Index

Value	199.93
Change	-0.49    (-0.2%)

MLPs & REITs had a good day with each index up 2+.  Junk bond funds inched higher & Treasuries rose a little after a good week for 3, 10 & 30 year bond offerings.  Oil rose, trimming a weekly loss, on bets that US fuel consumption may climb amid signs of improving confidence & manufacturing growth.  Gold climbed for a 9th straight day amid concern the US is getting closer to losing its top credit rating.

Alerian MLP Index

Value	373.09
Change	2.58   (0.7%)

Click below for the latest market update:

Treausry yields:

U.S. 3-month	0.005%
U.S. 2-year	0.351%
U.S. 10-year	2.906%

CLQ11.NYM

...Crude Oil Aug 11

...97.31

... 1.62  (1.7%)

Photo:    Yahoo

The President & Reps traded demands for a serious deficit plan, as an acrimonious stalemate deepened in negotiations to avert a looming gov default.  Reps said they would vote next week on a bill to raise the debt ceiling by the $2.4T Obama has requested as long as Congress adopts a balanced budget amendment -- an unlikely prospect. The measure will consume much of next week.  Swell!!  Back & forth, back & forth, without anything getting done & the clock keeps ticking.  This will probably go down to the wire in early Aug & then only a temp bill which will allow the gov to limp along without resolving the major issues.

Obama, Republicans Trade Demands for Debt Plan- Reuters




Carl Icahn
Photo:   Yahoo

Carl Icahn made an unusual offer to buy Clorox, a Dividend Aristocrat, for $76.50 per share in cash, presenting himself almost as a disinterested bidder & encouraging the company to try to find a better offer.  The offer is valued at $12.6B ($10.2B in cash, plus taking on debt & other costs).  CLX said the board is "committed to acting in the best interests of our company and our shareholders."  Icahn is already the biggest shareholder, after spending nearly $800M to buy a 9.4% stake in Dec.  Icahn seems more interested in drumming up other buyers than actually buying CLX himself.  If no other bidders stepped forward, Icahn said "our fellow stockholders" should have the opportunity to vote on the Icahn bid.  The stock rose  6.12 to 74.55 (but 55¢ below the high).

Icahn makes $10.2B offer for CloroxAP

Clorox Company (The) (CLX)

First Horizon National, a medium size bank, reported its profit surged in Q2, as the size of the lender's loan loss reserves declined sharply from last year.  EPS was 16¢ compared with a penny last year & forecasts of 11¢.  Revenue fell to $361.6M, from $426M, as net interest income declined to $172.9M from $182.1 last year. The quality of its loan portfolio has been improving, as both loans behind in payments & net loan charge-offs (loans written off as unpaid), declined on an annual & qtr-to-qtr basis.  As a result, the provision against loan losses remained at $1M, unchanged from Q1, but well below the $70M in Q2 of 2010.  Net charge-offs were 14% lower than in Q1 & 50% lower than a year earlier.  The low priced stock, which had been a Dividend Aristocrat before the financial meltdown, was up 12¢.  

First Horizon's 2nd-quarter profit surges AP

First Tennessee National Corporation (FHN)

The lack of respect bank earnings reports are getting is telling.  While these reports have swirling winds within them giving somewhat mixed signals, on balance they were favorable.  But stockholders did not see buying.  Dow retreated almost 180 this week which may be an indication of how earnings season will go.  Unsettled conditions in DC are unnerving for all.  A bit of good news,  Enterprise Products (EPD), the largest MLP, declared its 28th consecutive distribution increase, bringing the annual rate to $2.42.   The units were up 20¢ to 43.01.  More earnings reports are coming next week, but DC talks will dominate the markets.

Dow Industrials (INDU)

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Lower markets after Bernanke nixes QE3

Dow closed down 54 or about 150 off the AM highs, decliners ahead of advancers almost 4-1 & NAZ fell a big 34 (ahead of Google (GOOG) earnings.  Bank stocks keep leading the way down after the Financial Index tried for a gainer in the AM.

S&P 500 Financials Sector Index

Value	200.42
Change	1.57    (0.8%)

MLPs & REITs slipped again with selling in the stock markets.  Junk bond funds were lower as were Treasuries & the yield on the 10 year Treasury is back over 2.9%.  Oil tumbled on Bernanke's comments that there would be no QE3 to stimulate the economy.  Gold rose to a record (nearing $1600) for the 2nd straight day on speculation that debt woes in the US & Europe will escalate, boosting the appeal of the precious metal as a safe haven.

Alerian MLP Index

Value	370.41
Change	-0.96    (-0.3%)

Treasury yield:

U.S. 3-month	0.005%
U.S. 2-year	0.367%
U.S. 10-year	2.952%

CLQ11.NYM

...Crude Oil Aug 11

...95.82

... 2.23 (2.3%)

The latest daily market update below:

Photo:    Bloomberg

Testy lawmakers & the President headed back for a 5th day of debt-limit negotiations, pointing fingers at each other while trying to stave off a financial default.  Meanwhile, Ben Bernanke warned that failing to raise the debt limit in time to avoid default would only end up increasing the federal deficit, calling that a "self-inflicted" wound.  He said default would drive up interest costs on the $14T debt & reduce gov revenues by slowing economic growth could "throw the financial system potentially into chaos."  He also said that the central bank isn’t currently ready to embark on a 3rd round of gov bond-buying to stimulate the economy.  “We’re not prepared at this point to take further action,” Bernanke said.  Treasury Secretary Tim Geithner served notice there was no finessing the Aug 2 deadline for solving the debt crisis.  "We have looked at all available options and we have no way to give Congress more time to solve this problem," he said. "We're running out of time."  Headaches are getting worse day by day & the clock is ticking.

Bernanke Says Failure to Raise Debt Limit Would Be ‘Self-Inflicted Wound’Bernanke: No Plans Now for Bond Purchases

Bernanke: No Plans Now for Bond Purchases

Gold has had an excellent run this year & its future looks bright.:





This was another dreary day in a dreary week for the markets.  The only bright spot has been yesterday's hope that Bernanke would roll out a QE3 to stimulate the economy.  When he said that was not on the table, the markets went back to selling off.  JPMorgan (JPM) finished with a 73¢ gain, after reporting what were considered good earnings, but about $1 below its high.  Tomorrow Citi (C) reports & its mixture of businesses will probably give good but not great numbers.  Debate about raising the debt ceiling keeps going from bad to worse & that's dominating market sentiment.  Until that worry is removed, markets will be heading south.

Dow Industrials (INDU)

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