Stocks tumble on bank bailout proposal

Markets had their worst day in months. Dow dropped 382, decliners over advancers 5-1 (long time since we've seen that desparity) & NAZ which has been strong this year sank 66.

As expected, the Senate passed the stimulus bill with 61 votes. Now it's on to the House where the 2 different bills have to be combined into 1. This legislation which involves roughly $3T is different enough to cause plenty of worries. One key point of contention is $40B related to state aid omitted in the Senate version. A lot more horse trading will have to be done. Then the Senate, in particular, will have to approve the revised legislation & those 3 marginal Rep senators will become significant once again.

• Senate passes stimulus; Treasury unveils bank help- AP

The bigger news was testimony by the Treasury on plans for bank bailout II, it went over like a lead balloon. The Dow had been lower at 8200 when the speech began. The Bigcharts widget at the right shows how it sold off 300 in the next hour while the speech was given. The Treasury plan would require up to $2T to buy troubled loans. Of course, such investments could prove profitable in the long run but that uncertain payoff has little value in today's "real" world.

•Geithner Offers Up to $2 Trillion in U.S. Programs to Unlock Credit Market


Leading the way down was banks, the index had its worst day since the Nov sell-off.

Value 118.64

Change -14.49

% Change -10.9%

The Alerian MLP Index dropped 3½, bringing it just under 200. The Dow Jones REIT Index dropped 12 to 118, it may have to test the sub 100 low of last Nov. Junk bond funds were mixed to lower, maybe helped by the rally in the 10 year Treasury bond. That move up reduced its yield a big 18 basis points to 2.85%. In all this confusion, the VIX, volatility index, jumped 3.16 to the 46.80.

Even oil got pummeled, taking to the lowest level for this contract.

CLH09.NYM

..Crude Oil Mar 09

..37.85

.. 1.71 ......(4.3%)

Today's descent takes the Dow solidly thru the 8K floor which has held so well in recent months. 7½K looks like it wants to be tested soon.


Dow Jones Industrials --- 3 months




Auto companies' troubles linger on, but it looks they are trying to get their houses in order. They will have to testify before congress next week. Now the money to bail out the auto companies becomes modest compared with bank bailout numbers.

Hopes for another bank bailout lifts stocks

Dow advanced 106 taking it back over the 8K line, advancers ahead of decliners almost 2-1 & NAZ gained 31. Dow was led higher by the oils (Chevron (CVX) & Exxon (XOM)), oversold Caterpillar (CAT) plus Wal-Mart (WMT) had a good day. Oil was up 60¢, hanging tough just above 40, but remaining in the low region it has become accustomed to lately.


S&P 500 FINANCIALS INDEX

Value 121.51

Change 1.63

% Change 1.4%

State Street Corp (STT) reported an enormous loss & is cutting about everything, including the div. It used to be a Dividend Aristocrat, but after reducing the quarterly div to one penny it will be deleted, probably at year's end, the traditional time when S&P reviews new members & drops ones that don't qualify. The graph below shows the huge gap down last month when they pre-announced gloomy times ahead:


State Street Corp --- 3 months




State Street Cuts Dividend, Bonuses to Lift Capital


US Bancorp (USB) is the only remaining bank in the Dividend Aristocrat group. Recently it ran TV ads to show financial strength which included a track record of paying a div every year since the Civil War. I have not seen that ad in the last few weeks. Their coverage is thin at best, but they will try to maintain it. Their 11+% yield implies that the market has doubts.

For the followers of the list, Masco (MAS), a building supplies company with a 50 track record of paying higher divs, will have to fight hard to remain in the group this year. Earnings are not covering the div, they are facing very tough choices about at least maintaining the div. The stock is under $8 at a 24 year low, yielding 12%!

The Alerian MLP Index is hanging tough, advancing to 201.66 today, trying for another leg up. REITs sold off while junk bonds funds were mixed.


Alerian MLP Index --- 2 weeks




General Electric's (GE) CEO, at lunch was in a good mood, said that GE had plenty of money to pay the div. OK! Sellers were giving up an 11½% yield to bail out & receive money while he made that statement.

The Senate is working on the stimulus package (hate to use the word "plan"). Guessing about what it will or will not have doesn't make much sense, especially since it has to be blended with the House package. But it's hard not to be amazed how the Dow hangs in there, sitting on & staying above the 8K floor.

Dow keeps testing the 8000 floor

Dow has been in a trading range for more than 3 months. 8K has been a solid floor, as shown in the first chart. Last week, it kept bouncing, bouncing & bouncing off that floor. More earnings will be reported in the next 2 weeks, when that floor will be retested.


Dow Jones Industrials --- 2 weeks




Dow Jones Industrials --- 3 months




During these troubled time, new investments should be thought about. I'm a dividend guy & especially favor higher yields. The S&P 500 Dividend Aristocrats are an excellent place to look for buying opportunities. I have published articles on this group at SeekingAlpha.com & istockanalyst.com, which have attracted interest. Some companies in this elite group have not only stood the test of time in paying higher divs but, even in today's difficult economic environment, should be able to continue increasing divs. A few I favor, for no particular reason other than they have long records of higher divs & strong financial statements, are:


3M (MMM)
Coca Cola (KO)
Exxon Mobil (XOM)
Kimberg-Clark (KMB
Johnson & Johnson (JNJ)
McDonalds (MCD)
Procter & Gamble (PG)
VF Corp (VFC)
Wal-Mart (WMT)
Caterpillar (CAT)

OK, CAT is not in the group. They have been paying divs annually for most the last century, but have not been able to increase divs continuously year over year. However, with a long track record of paying divs, a strong balance sheet & a global business which will do well when economies return to a growing mode, they deserve consideration.

Earnings should dominate this week when the future economic stimulus package is being kicked around in DC. Let's see if the Dow breaks thru the floor or buyers keep that from happening.

Energy & banks weigh down the Dow

Stocks retreated on bearish news for energy & financials. Major decliners (down more than 1 in the Dow were: Citigroup (C), Bank of America (BAC), JP Morgan (JPM), Exxon (XOM), Chevron (CVX) & Caterpillar (CAT). OK, there was one industrial in there. Dow fell 125, decliners over advancers 3½ to 1 & NAZ declined 32.

This is the start of earnings season & thoughts of reality are in the minds of traders. Lower oil prices & what could be another terrible reporting period for financials is weighing heavily on the stocks. Banks were hit hard as S&P 500 FINANCIALS INDEX looks like it's heading for its recent lows. Less than 2 years ago this index was at 500:

Value 146.91

Change -8.88

% Change -5.7%

Oil fell sharply on greater worries about demand destruction from the global recession.

CLG09.NYM

..Crude Oil Feb 09

...37.72

.. 3.11 ......(7.6%)

The Alerian MLP Index (energy related) dropped 4, the Dow Jones REIT Index dropped 8, Barclays Capital High Yield Bond fell 1% (losing a few of its recent new friends) while the VIX was up 3¼ (fear is on the rise).

Citigroup (C), a Dow stock, is trying to sell most of its brokerage business to Morgan Stanley (MS), but traders were not impressed. C dropped 1.15, it's a $5 stock once again.

• Citi shares plunge 18 percent despite talks with Morgan- AP

A sense of reality is biting traders hard. Earnings reports may pinch stocks. The stimulus package is in the wind & it already has critics from both parties. One safe bet, it will be close to $1T requiring gov to borrow substantially more.

Cheery start for 2009

Last week started the new year with a bang. Oil, as tracked by the OIL ETF, also began the year the year with a bang (after its recent bear market). Not sure what it all means other than they're both betting on a quick economic turnaround.


Dow Jones Industrials --- 2 weeks





Oil (ETF) ---- 2 weeks




One of strongest performers was the Alerian MLP Index. The last 2 trading days saw it jump 20 points (12%) for no apparent reason other than MLPS are greatly oversold. Other high yielding securities (REITs & junk bond funds) had more mild responses to gains in the markets. The chart below shows the MLP had its 3 biggest daily gains in the last 3 months: Oct 13, Nov 24 & Fri. The first was followed by a 3 week rally which fizzled. The 2nd was followed by a flat period. Let's see what follows Fri's big pop.


Alerian MLP Index --- 3 months




Stock markets are sailing into headwinds. Auto monthly sales figures for Dec will be reported tomorrow, they're expected to be ugly. In DC, there are vacancies in the senate. It's unclear when they will be filled & who will fill them. The vacancies can have major significance for the markets which are looking for a $1T stimulus package to be proposed & passed by congress.

Modest gains on uncertainty

The Dow recovered quickly from early AM lows but couldn't get up a head of steam to take it solidly into the black. Dow rose 64 on a 100 rally in the last couple of hours, advancers were about 20% ahead of decliners & NAZ had a good day - up 33.

The chart below shows how the Dow has been trading sideways after its fall in Oct. All things considered, it has done an excellent job of holding above the 8K level. Of course, the flip is that it has not been able to move up. The interim ceiling of 9½K seems like a distant goal. Maybe that's asking too much given the ugly economic news that comes out every day.


Dow Jones Industrials --- 3 months




S&P 500 FINANCIALS INDEX jumped 3¾ to 162, good showing on a sluggish day. The only other noticeable change of the indices I watch closely is Dow Jones REIT Index rebounding with a 13½ point gain to 137½. As recently as Sep, it was at 270! REITs after being hammered unmercifully, offer extraordinary yields for the brave. They own hard assets, buildings & real estate, which should hold its value (at a minimum) over the long term.

Oil recovered from AM lows, but still lost ground ahead of he OPEC meeting next week:

CLF09.NYM

..Crude Oil Jan 09

....46.53

.. 1.45 ......(3.0%)

Nancy Pelosi has given a first glimpse at the spending package the Dems will come up with next month. This is extremely big money (on top of the bank bailout package) which will be financed with more debt. Currently the 90 T-bill yields .01% (annualized) while the 10 year Treasury yields 2.61%. These record low yields can not hold in the face of major increases in gov debt.

•Pelosi Says U.S. House's Economic-Stimulus Package May Reach $600 Billion


The markets are biting finger nails waiting for word on how the autos can be saved. Not much to do, just let the pols work their magic & hope for the best.