Markets waffle in quiet trading

Dow slipped 33, decliners just ahead of advancers & NAZ was up 3 due to another pop by Apple (see below).   The Financial Index lost a smidgen in the 203s. The MLP index was up a fraction in the 392s & the REIT index rose fractionally to the 265s.  Junk bond funds fell & Treasuries gained, taking the yield on the 10 year Treasury to a 2 week low.  Oil dropped on the goings on with the tropical storm in the Gulf & gold fell on mild profit taking.

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Tresury yields:

U.S. 3-month	0.091%
U.S. 2-year	0.264%
U.S. 10-year	1.651%

CLV12.NYM

Crude Oil Oct 12

95.40 2:26PM EDT

0.75 (0.78%)

Photo:   Bloomberg

Sales of existing homes climbed in Jul from an 8-month low, showing the cheapest mortgage rates on record are underpinning a market struggling to join the US economic recovery that began 3 years ago.  Purchases increased 2.3% to a 4.47M annual rate, according to the National Association of Realtors.  The forecast called for a rise to a 4.51M rate.  Restrictive lending rules, a lack of inventory & lingering unemployment may be preventing a rebound to the 5-5½M sales pace that is expected in a “normal” market. The prior month’s pace was unrevised at 4.37M, the lowest since Oct.  Compared with a year earlier, purchases increased 11%.  The number of previously owned homes on the market climbed 1.3% to 2.4M.  At the current sales pace, it would take 6.4 months to sell those houses compared with 6.5 months at the end of the prior month.  A 6 months’ supply is considered “normal.”

U.S. Existing-Home Sales Rise From Eight-Month Low: Economy


After winning a more than $1B award from Samsung, Apple sought a ban on 8 models of the company’s smartphones, including its Galaxy S devices.  In a court filing, AAPL urged Judge Lucy Koh to ban the sales of the Galaxy S 4G, S2 AT&T, S2 Skyrocket, S2 T-Mobile, S2 Epic 4G, S Showcase, the Droid Charge & the Prevail.  Samsung may have to delay the release of new devices to change their designs, as it seeks to compete with the new iPhone & possibly a smaller iPad.  AAPL won a ban on US. sales of Samsung’s Galaxy Tab 10.1 tablet in Jun that Samsubng said wouldn’t have a significant impact on its business.  On Aug 26 Samsung sought to have the ban lifted after the jury found the company’s tablet computer didn’t infringe the AAPL design patent on which the Jun 26 court-ordered sales ban was based.  The jury instead found that the Galaxy Tab 10.1 infringed on 3 of AAPL software patents.  AAPL won less than half of what it sought in damages in the fight to dominate the global smartphone market, though Koh may later triple the damages against Samsung under federal law.  The injunction will probably be more important than monetary damages.  Samsung has used the free Android operating system by Google (GOOG), to build phones that propelled it to the #1 spot in the phone market.  The jury rejected Samsung’s patent counterclaims & also determined that all AAPL patents at stake in the trial were valid.  AAPL also won findings that Samsung devices diluted the value of its so-called trade dress, or how a product looks.  Samsung will ask the judge to reverse the verdict.  If Koh doesn’t overturn the award, Samsung said it will appeal.  AAPL jumped $12 to $675.

Apple Seeks Ban on Sales of Eight Samsung Phones in U.S.

Apple (AAPL)

There is promise that the Alzheimer drug from Lilly may slow progression early in the disease, but doctors aren’t very impressed saying it could take years to find out for sure.  LLY announced last week that its experimental treatment solanezumab failed to improve thinking skills, memory & function in a broad range of patients.  At the same time, an unusual reanalysis of the data found the drug may slow mental decline in those with the mildest form of Alzheimer’s.  About 5.4M Americans have Alzheimer’s, the most- common form of dementia, & the number is expected to surge to as many as 16M by 2050 as the population ages.  Drugs on the market now address only the symptoms, not the underlying cause, & none has been shown to slow progression of the disease.  Solanezumab attaches to a protein called beta amyloid before it builds up in the brains of patients, forming clumps that many doctors believe to be the cause of Alzheimer’s.  So far, it's not clear how much good it does to fight this medical problem.  Lilly stock rose 73¢ to a 4 year high.

Lilly’s Alzheimer Finding Excites Investors as Doctors See Years of Delay

Lilly (LLY)

AAPL provided much of the excitement.  More important that the award, which will do little for the cash position of AAPL, are restrictions that could be imposed on Samsung & the others in the industry.  The rest of the market is lumbering along, waiting for news from Europe on prospects for another bailout.  Then there's Big Ben who may or may not say something significant at week's end.  In 5+ months, Dow has had one selling period followed by a recovery which produced little net change.  This week will probably also show little change (unless there is a blockbuster announcement).  There was a little selling in the last hour, but tough to tell if that is significant in light volume.

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Markets slide after "fiscal cliff" assessment by CBO

Dow fell 30 (early losses pared by late day buying), decliners over advancers 3-2 & NAZ was up 6 (helped by another big gain at Apple).  The Financial Index was down pocket change in the 204s.  The MLP index lost 2 to the 393s & the REIT index was essentially even in the 262s.  Junk bond funds were mixed & Treasuries were higher after a month of selling.  Oil slipped but gold gained to go over $1650, a new high since early May.

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\

Click below for the latest market update:

Treasury yields:

U.S. 3-month	0.101%
U.S. 2-year	0.263%
U.S. 10-year	1.717%

CLU12.NYM

...Crude Oil Sep 12

....96.40

... 0.28 (03%)

• 

Photo:   Yahoo

Massive spending cuts & tax hikes due next year will cause even worse economic damage than previously thought if DC politicos fail to come up with a solution, the Congress Budget Office (CBO) said.  Without Congressional action to avoid a "fiscal cliff," Americans should expect a "significant recession" & the loss of 2 M jobs, the CBO said in its gloomiest assessment yet.  The economy is already being "held back" by the mere anticipation of the cliff & the uncertainty surrounding it.  "The sooner that uncertainty is eliminated, the better," the CBO said.  Neither Dems nor Reps have shown a willingness to back away from fixed positions on either budget cuts or extension of tax cuts originally enacted during the administration of George Bush.  The "cliff" refers to the impact of expiring tax cuts & automatic spending reductions set for 2013 as a result of successive failures by Congress to agree on some orderly alternative method of addressing the deficit.  The CBO said failure to avoid the cliff would deliver a shock to the economy that would cause GDP to shrink 0.5% in 2013.  Previously, the CBO had forecast full-year GDP growth of 0.5%.  The main reason for the gloomier outlook now versus the last estimate in May is weakness in the global economy, the growing uncertainty about what Congress will do & a determination that the cliff is somewhat steeper than the May estimate suggested.  That estimate did not include expiring payroll tax cuts & the end of extended unemployment benefits, the CBO said.  Factoring in the end of those streams of cash to Americans would increase the shock.  Were Congress to resolve everything, the most optimistic scenario, the CBO said the economy would continue to grow, albeit weakly.  Economic growth under this optimistic scenario would be modest in 2013 at 1.7%, with an 8.0% unemployment rate compared with 9.1% should the US go over the fiscal cliff.  The CBO anticipates that the first half of next year will be particularly difficult, with GDP shrinking 2.9%, followed by a slight bounce-back with H2 growth of 1.9%.  But these are far worse than its previous projections of a 1.3% H1 contraction followed by 2.3% H2 growth.  These thoughts are chilling.

U.S. Budget Deficit to Reach $1.1 Trillion in 2012, CBO Says

• 

Photo:   Yahoo

The Federal Reserve (FED) is likely to deliver another round of monetary stimulus "fairly soon" unless the economy improves considerably, according to minutes from the central bank's Aug meeting.  While the meeting was held before a recent improvement in economic data, including a stronger-than-expected Jul reading for employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.  "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the FED said in its minutes.  Some officials raised concerns about whether the FED presence in the markets for Treasury & mortgage-backed securities, but others agreed with staff analysis showing "substantial capacity" for buying new assets.  The FED held policy steady, but signaled a renewed readiness to act amid lingering softness in the economy.  The minutes showed the central bank is actively considering a "flexible" bond-buying program, which could suggest that no upfront amount will be announced.  officials saw significant risks to an already weak economy, which grew at a sluggish 1.5% annual rate in Q2.  The risks include a worsening of Europe's financial strains & the looming budget cuts & tax hikes, which have become commonly known as a fiscal cliff.  Many officials supported pushing back the likely timing of an eventual interest rate hike, which the FED currently sets at late 2014.  But they decided to defer the decision to the Sep 12-13 meeting, when the central bank will release a new round of economic forecasts.  Even actions by the FED will not be good enough to counteract inaction in DC.

Many on FOMC Favored Easing Soon if No Pickup in Growth

Photo:   Bloomberg

Sales of existing homes homes climbed in Jul from an 8-month low, adding to signs housing activity may pick up in H2.  Purchases of previously owned houses increased 2.3% to a 4.47M annual rate, according to the National Association of Realtors.  The forecast called for a rise to a 4.51M rate.  Buoyed by cheaper properties & record-low mortgage costs, demand for real estate is bolstering the industry that helped trigger the recession.  The median price of an existing home jumped 9.4% from a year earlier, the biggest 12-month gain since Jan 2006, to $187K from $171K in 2011.  Compared with a year earlier, purchases increased 11% before adjusting for seasonal variations.  The number of previously owned homes on the market climbed 1.3% to 2.4M.  At the current sales pace, it would take 6.4 months to sell those houses compared with 6.5 months at the end of the prior month.  A 6 months supply is considered “normal.”  Housing is mending, but slowly.

Sales of U.S. Existing Homes Increase From Eight-Month Low

Markets did like to hear about the looming fiscal cliff the US is facing.  But it's coming if congress doesn't get its act together which looks doubtful before the Nov elections.  This gibberish is holding back economic recovery.  Then it's a matter of patching together this & that.  There is just so much talk that can make this approach look intelligent.  The economy is facing increased taxes when current rates expire at year end.  That's not all.  Budget cuts will kick in as mandated by legislation to reduce the deficit.  Speaking of deficit, the limit on the debt borrowings is approaching.  Just one more problem for Congress to fix.  Big Ben may have a lot of influence, but there is just so much that even he can do with this mess.    

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Mixed markets on weak economic data

Dow rose 21, advancers barely ahead of decliners & NAZ gained 20.  The Financial Index was flat, just under 198.  The MLP index was up pocket change in the 398s but the REIT index fell back 2+ to to the 265s. Junk bond funds were mixed & Treasuries slipped back after their recent rally.  Oil continued on its winning ways & gold rose although it has failed to top 1600 for a month.

AMJ (Alerian MLP Index tracking fund)

Treasury yields:

U.S. 3-month	0.076%
U.S. 2-year	0.214%
U.S. 10-year	1.499%

CLQ12.NYM

...Crude Oil Aug 12

...91.34

.... 1.47

(1.6%)

GCN12.CMX

...Gold Jul 12

.......1,584.80

... 14.40

(0.9%)

Get the latest daily market update below:

Photo:   Bloomberg

The number of filing new claims for unemployment benefits rebounded last week, returning to levels consistent with only modest job growth after a seasonal quirk caused a sharp drop in the prior period.  Initial claims for state unemployment benefits increased 34K to 386K, according to the Labor Dep.  Claims had dropped 24K in the prior week & a combined 36K over the previous 2 weeks.  The forecast was for claims rising to 365K.  The 4-week moving average for new claims fell 1K to 375K, staying in the middle of the range it has held for much of 2012.  Claims data is volatile in Jul because of the timing of the annual auto plant shutdowns for retooling.  Automakers have not embarked on wholesale plant shutdowns this year, throwing off the model used to smooth the data for typical seasonal patterns.

Jobless Claims in U.S. Rise as Auto Layoff Effects Ease

Photo:   Yahoo

Americans bought fewer homes in Jun than May, indicating the weak economy could make a modest housing recovery choppy.  The National Association of Realtors said that sales of previously occupied homes fell 5.4% to an annual rate of 4.37M homes, the fewest since Oct.  But sales are up 4.5% from a year ago, evidence that the market is still recovering.  However the annual sales pace is below 6M expected in a healthy economy.  The number of first-time buyers, critical to a housing recovery, made up just 32% of sales, down from 34% in May.  In healthy markets, first-time buyers make up more than 40% of the market.  The median home price rose 5% to $189K, mostly because sales of more expensive homes rose, while sales of cheaper homes fell.  Other recent reports have indicated that the housing market is slowly recovering, even as the broader economy struggles.

Sales of Existing U.S. Homes Unexpectedly Decreased in June


Spain's 5-year borrowing costs surged as the gov pushed thru spending cuts in the face of public protests, while France paid record-low yields of less than 1% to sell securities of the same maturity.  Spanish 5-year notes yielded an average 6.459% at auction, up from 6.072% a month ago.  French yields fell to 0.86%, almost half last month’s level.  Spanish Prime Minister Rajoy, who didn’t turn up to defend his cuts in parliament, secured passage of the plan with 180 votes, indicating none of the opposition in the 350-seat chamber supported it.  The premier, who asked other euro nations for as much as €100B ($123B) last month to bail out banks, is fighting to maintain access to capital markets.  Lawmakers in Germany, where borrowing costs have turned negative as investors opt for the safest assets, are set to vote on the Spanish bailout agreement today.  “The danger to the financial sector in Spain can turn into danger for the financial stability of the euro area,” German Finance Minister Schaeuble told lawmakers.  Spain’s 10-year benchmark bond yields surged thru the 7% threshold that prompted sovereign bailouts in Greece, Ireland & Portugal.  The debt traded at 7.018%. in Madrid.  While the Treasury sold €2.98B of notes, in line with its maximum target, demand for 2-year securities was 1.9 times the amount sold, compared with 4.26 times at a sale last month.  Spain, Greece - the euro debt mess is not going away anytime soon.

Spain Struggles to Sell Debt as French Yields Fall to Record

Dow is up 165 this week, a fairly good response to the initial earnings reports which haven't been all that impressive.  But the macro picture is not pretty.  The euro debt mess is stuck in neutral, China is trying to accelerate its economy & the US economy gets a grade of C (being generous).  After digesting all this, buyers have the upper hand.  Dow needs to inch a little higher to top its high of 12950 made 2 weeks ago.  If the bulls are serious, they need to push it over that ceiling in the PM.

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