Morning losses pared with late day buying

Dow finished with a drop of 101 (well off the lows), decliners 3-1 ahead of advancers & NAZ fell 35.  The Financial Index fell 1+ to 192.  The MLP index dropped 3 to the 397s & the REIT index was off 1+ to 263.  The MLP index is close to its record highs & the REIT index is just below its yearly highs.  Junk bond funds gained & Treasuries had a very good day, bringing record or near record low yields.  Oil had its worst day of the year after a 2 month rally & gold sold off, failing to attract significant buying support from money seeking safe haven investments.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

U.S. 3-month	0.086%
U.S. 2-year	0.210%
U.S. 10-year	1.433%

CLU12.NYM

...Crude Oil Sep 12...

88.97

... 2.86

(3.1%)

"If you look for trouble, you will find it" says the old adage & today, trouble is easy to find.  With minimal economic data to divert our eyes, investors have only to glance at a super-heavy earnings calendar that's devoid of any forward-looking optimism, the € is at a 12-year low & record yields on Spanish borrowing costs, to know which way this train is headed.  The fear trade is awake & ready to roll, & the hiding places are almost non-existent.  McDonald's (MCD) earnings was a bummer.  The drama in Europe is escalating again as yields spike & then there's talk of the euro zone collapsing.  What's Big Ben to do to solve these problems?  There may be an obstacle as he considers whether more bond purchases are needed to spur growth: owning too much.  Excessive buying of Treasury securities can reduce liquidity by leaving less for private investors to buy.  Bernanke instead may favor buying mortgage-backed securities or using new tools for easing, but purchasing too many Treasuries may have a serious long- term effect on the market.  Bernanke is evaluating additional steps to create jobs & reverse an economic slowdown, including buying mortgage bonds or changing language for its policy outlook.  We're back to make it up as we go along.  Not good.

Bernanke Considers How Much Treasury Buying Is Too Much: Economy

The US regulator overseeing Fannie Mae, Freddie Mac & the Federal Home Loan Banks has hired a consulting firm to create contingency plans for taking the mortgage-finance firms into receivership.  However, it is claimed that the plan is part of “ordinary regulatory activities” & does not indicate that the Federal Housing Finance Agency intends to take the companies or the banks into receivership.  Receivership would involve winding down the companies selling off their assets. This is part of what is alled "routine planning."  Huh??  They have  been operating under US conservatorship since Sep 2008 (Lehman collapse), when investments in risky loans pushed them to the brink of insolvency.  Under conservatorship, as opposed to receivership, the 2 taxpayer- owned companies continue to operate while having drawn almost $190B in aid from the Treasury.  The fate of Fannie Mae & Freddie Mac is in limbo.  Private financing for mortgages evaporated in the aftermath of the 2008 financial crisis, & the 2 companies now own or guarantee about 60% of residential mortgages.  Just another massive headache to worry about.

Fannie Mae, Freddie Mac Getting Receivership Contingency Plan

Photo:   Bloomberg

US homebuilders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, according to Goldman Sachs (GS).  Housing has a “long list of positives,” including rising prices, job growth, supportive gov policies & a decline in the so-called shadow inventory of homes, Goldman Sachs said.  Public homebuilders, which have been taking market share from closely held companies, reported increasing orders this year as mortgage rates fell to record lows & the supply of existing homes for sale shrank.  Construction of single-family houses rose 4.7% in Jun to a 539K annual rate, the fastest in 2 years, according to the Commerce Dept.  “The super cyclical housing market has turned and a strong recovery in new-home sales is ahead,” Goldman Sachs said.  “Over the last year a number of risks to the housing market have abated, giving us confidence that rising home prices will drive a 3-7 year up-cycle in the U.S. market.”  The report says the US economy has created enough jobs since the end of the recession in 2009 to fuel new home sales at an annual rate of 550K-600K.  The report estimated new-home sales would reach 700K in 2014.  A ray of hope on a day dominated by dismal news.

Goldman Sachs Sees ‘Strong’ Recovery Starting for U.S. Housing


The bulls haven't thrown in the towel yet.  Asian markets had an ugly day in the overnight session & the US markets began with heavy losses.  But buyers returned to limit the losses.  However fundamental problems have not gone away.  This week intl inspectors will reexamine gov books in Greece, Spain is descending into chaos, Italy has more than its share of economic problems, etc.  China has become a big unknown, nobody really knows what's going on there.  Earnings reports will keep coming in the US.  The big questions are can they match lowered expectations & is anybody brave enough to give an optimistic outlook.  Investor darling Apple (AAPL) will report earnings tomorrow.  At the opening it plunged 20, but recovered all of that loss during the rest of the day. 

Dow Jones Industrials

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Markets drop on Greek debt woes

Stocks sold off at the start of trading & continued underwater for the rest of the session.  Dow dropped 89, decliners over advancers 3-1 & NAZ fell 23.  The Financial Index was off 2 to 196.

The MLP index fell 1+ to the 397s & the REIT index was down 2+ to 247.  Junk bond funds edged lower but Treasuries rose on greater worries over Greek & European debt problems.  Oil fell on the expectation of weaker demand from Europe & gold had a big drop from the financial chaos in Europe.

JPMorgan Chase Capital XVI (AMJ)

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Treasury yields:

U.S. 3-month	0.081%
U.S. 2-year	0.266%
U.S. 10-year	1.965%

CLH12.NYM

..Crude Oil Mar 12

...98.72

... 1.12

(

1.1%)

• 

Photo:   Yahoo

Popular protests in Greece again turned violent & dissent grew among its lawmakers after European leaders demanded deeper spending cuts.  The beleaguered coalition gov promised to push thru the tough new austerity measures & rescue a crucial bailout deal after 6 members of the Cabinet resigned.  PM Papademos promised to "do everything necessary" to ensure parliament passes the new austerity measures that would slap Greeks with a minimum wage cut during a 5th year of recession.  "It is absolutely necessary to complete the effort that began almost two years to consolidate public finances, restore competitiveness and economic recovery," Papademos told an emergency Cabinet meeting.  In central Athens, clashes erupted outside Parliament between dozens of hooded youths & police in riot gear.  Police said 8 officers & 2 members of the public were injured, while 6 suspected rioters were arrested.  The violence broke as more than 15K took to the streets after unions launched a 2 day general strike that disrupted transport & other public services & left state hospitals running on emergency staff.  The Greeks don't want to make any more sacrifices & the European countries with money (starting with Germany) are tired of supporting their free spending gov.

Greek PM says default would lead to 'chaos' AP

Photo:   Bloomberg

34 top Italian financial firms were downgraded by S&P, after it reduced the nation’s grade last month.  UniCredit, Italy’s biggest bank, & #2 Intesa had their long-term ratings lowered to BBB+ from A,  S&P said. Monte dei Paschi, the #3 bank, was reduced to BBB from BBB+.  All 3 have a negative outlook, S&P said.  Italy’s credit rating was cut 2 levels to BBB+ from an A a month ago when S&P said European leaders’ struggle to contain the region’s debt crisis would complicate the country’s efforts to finance borrowings.  S&P revised its banking industry country risk assessment for Italy to group 4 from group 3, citing mounting risks.  “Italy’s vulnerability to external financing risks has increased, given its high external public debt, resulting in Italian banks’ significantly diminished ability to roll over their wholesale debt,” S&P said in a separate statement. “We anticipate persistently weak profitability for Italian banks in the next few years.”  Good news from Italy was based on a lack of bad news.  Bad news is back.

S&P Downgrades 34 of 37 Italian Banks It Rates

• 

Photo:   Yahoo

Ben Bernanke issued a call to action to restore US housing markets, saying depressed house prices & sales are a serious drag on the economic recovery.  "The state of housing has been an impediment to a faster recovery," he said.  "We need to continue to develop and implement policies that will help the housing sector get back on its feet."  The FED last month issued a paper discussing possible remedies for the housing sector.  But that paper drew sharp criticism from some who accused the FED of intruding on fiscal policy.  Bernanke made the case that overly tight credit in mortgage markets had undercut the effectiveness of the central bank's aggressive efforts to stimulate growth.  In a typical recovery, a rebound in housing fuels hiring & income gains, but that has not been the case this time.  Recent declines in home prices have slashed household wealth by as much as $7T.  The housing recovery has been slow for a number of reasons.  One is overly tight credit, he said, & he called on lenders & regulators to look at rules & practices that may hold back the origination of sound mortgages.  An overhang of vacant homes & a glut of foreclosures is also weighing on housing activity.  It could make sense in some markets to turn some of the foreclosed homes into rental properties, he said.

Bernanke: Housing Holds Back Fed Efforts

Photo:   Bloomberg

The Air Force may buy as many as 18K iPad 2s, in what would be one of the military’s biggest orders of computer tablets.  The Air Mobility Command plans to issue a request for proposals to buy between 63-18,000 iPad 2s to lighten the load of flight crews.  The goal is to replace the bag of manuals & navigation charts weighing as much as 40 pounds that are carried by pilots & navigators,. A spokeswoman said.“The airline industry is way ahead of us on this.”  “Most, if not all of the major airliners are already switching to tablets.”  The stock was flat at 493, near its 497 record.

Apple Makes Inroads Into U.S. Government as Air Force May Buy 18,000 IPads\

Apple Inc. (AAPL)

Markets closed the week on a few gloomy notes.  The Greek debt mess has gone from some optimism to bad to even worse.  The downgrade of credit rating for most Italian banks will be felt in European trading on Mon.  There is nothing especially exciting going on with the US economy as attention is concentrated on other matters in DC.  Just a couple of weeks left to extend tax cuts, etc. & DC remains deeply divided, although most want an extension.  All this spells confusion & that's bad for the markets.

Dow Industrials (INDU)

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Rising markets on hopes for Greek bailout

Dow jumped 127, advancers ahead of decliners 6-1 & NAZ added 24.  The Financial Index rose to a new 6 month high.

S&P 500 Financials Sector Index

Value	192.74
Change	3.55    (1.8%)

The MLP & REIT indices were each up in this strong market.  Junk bond funds were higher while Treasuries slipped.  Oil is heading back for $100 & gold is doing well as it did in Jan.

Alerian MLP Index

Value	396.96
Change	1.79   (0.4%)

Treasury yields:

U.S. 3-month	0.061%
U.S. 2-year	0.223%
U.S. 10-year	1.832%

CLH12.NYM

...Crude Oil Mar 12

...99.01

... 0.53

(0.5%)

GCG12.CMX

...Gold Feb 12

.....1,746.60

... 8.80

(0.5%)

Get the latest daily market update below:

Photo:   Bloomberg

Greece & the IMF said that negotiations for debt deals will be concluded in a "matter of days," raising hopes that the country will dodge a disastrous default.  Greece is locked in 2 sets of talks, one with private creditors to have them take losses on bondholdings & the other with its intl bailout rescuers to receive new loans.  "We are at a crucial point in developments. In the coming days, the agreements must be completed" for the bond swap & a 2nd €130B ($171B) bailout package, a Greek gov spokesman said.  Debt inspectors are in Athens for talks on the 2nd rescue package, which is tied to an agreement with private creditors to accept losses on Greek bonds they hold.  The bond swap will see private creditors swap the bonds they hold with new ones worth half their original face value, longer repayment times & lower interest rates.  They will also get a €30B cash sweetener, to be taken from the €130B bailout, for accepting the deal.  Once secured, the Greece's national debt will cut €100B.  Overall, the investors participating in the deal will face a loss of more than 70%.  This is called throwing money at the problem & hoping for the best.

Greek Bondholders Said to Get GDP Sweetener

Photo:   Bloomberg

Companies added 170K workers in Jan, reflecting job gains in services & at small businesses, according to ADP Employer Services.  The increase was less than forecast & followed a revised 292K rise in the prior month (smaller than previously reported).  The slowdown in hiring from the prior month may be explained by the effect.  Workers, regardless of when they are dismissed or quit, sometimes remain on company records until Dec, when businesses update, or purge, their figures with ADP.  The big jobs report from the Labor Dept report in 2 days may show payrolls last month rose 145K & unemployment held at 8.5%.

U.S. Companies Added 170,000 Workers: ADP

Photo:   Bloomberg

Builders increased spending in Dec, ending a weak construction year on a hopeful note. Spending on construction projects rose 1.5% in Dec after a revised 0.4% gain in Nov according to the Commerce Dept.  That pushed spending to an annual rate of $816B, the highest level in 20 months. The gains coincide with other signs that show the troubled housing industry may be improving.  Homebuilders are more confident after seeing more interest from would-be buyers.  Still, spending on all construction projects for 2011 was just $787B, 2% lower than the previous year & roughly half the level in a healthy economy.  Residential construction rose 0.8% on the strength of single-family homes.  Nonresidential building jumped 3.3%, led by factory construction.  Gov spending rose 0.5%.  Builders broke ground on more homes in each of the last 3 months of last year.  Still, residential construction fell at an annual rate of 1.4% last year, the 6th straight year of decline.  Housing numbers remain dreary.

Construction Spending Climbs Most in 4 Months

Markets are starting the new month with a big gain as they have in prior months.  The € is $1.32, up a nickel from the lows last month when European debt worries were higher.  The domestic data was good, but short of great.  Jobs data is always a little fuzzy when seasonal adjustments are being made.  There is an abundance of hype about the IPO for Facebook which reminds many of the heights markets went to in 2000 followed the ugly sell-off afterwards.  Dow is looking pretty good as it attempts to break thru the important 12.8K ceiling.  If a Greek bailout is finalized, look for the bulls to return in force. However in less than a month a divided Congress must decide about extending tax cuts, etc.

Dow Industrials

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