Financial turmoil continues

Last night Asian markets followed US markets lower, but not dramatically. Then Bank of America (BAC), Dow stock, announced they would half the div (taking it off the S&P 500 Dividend Aristocrat list) & raise $10B to keep the gov off their back. The div cut was not a complete surprise. The July announcement, when they typically increase the div, was banal, just mentioned an ordinary div. However if they maintained that rate, they would have remained on the Aristocrat list with record payments for 2008. BAC is down almost 5 today. 7 banks remaining were in this elite group in 2005, only US Bancorp (USB) & State Street (STT) are left.

Stocks are a little confused today. Dow is down 33 (not getting from from break even), decliners over advancers 3-2 & NAZ is down 14. S&P 500 FINANCIALS INDEX is down 8 to 235 (bringing it near the 232 low close of July 15) on the BAC news. The Alerian MLP index is down 2 in vastly oversold territory & the Dow Jones REIT Index is down 6.

The BAC div cut brings up another bank which has fared better, USB (also shown in my Yahoo Finance badge on the right). Its track record over the last decade has been mundane, but stockholders are happy with that track record which continued thru the terrible times of the last year. At 34, it's selling not from its high:


US Bancorp -- 1 decade






Oil & gas are having a good day. Oil is up probably on technical reasons & gold clearly benefits from the flight to safety.

CLX08.NYM

Crude Oil Nov 08

...91.72

... 3.91 (4.45%)

GCV08.CMX

Gold Oct 08

...882.80

... 20.10 (2.33%)

For those interested, my article on buying gold via an ETF, it's linked here:

http://seekingalpha.com/article/97160-buying-gold-what-is-high-and-what-is-low

These are wild time because global markets are hurting & hurting badly. This stock markets are confused. The Federal Reserve announced they will buy commercial paper, the idea is to help strained markets. But nobody really knows how much good it will do, sad state of affairs.


•Fed Will Purchase U.S. Commercial Paper in Attempt to Ease Credit Crunch
•Overnight Commercial Paper Yields Fall on Fed Plan; Seven-Day Rates Climb


Tonight Alcoa (AA), another Dow stock, will be the first to report Q3 EPS which is expected to be not very pretty. They are being hurt by the sell-off in commodities & the stock is selling at 18, a ten year low. General Electric (GE), also a Dow stock, reports on Fri. They've pre-announced theirs will not be pretty.

Monday Meltdown again

After a 777 loss last Mon, Dow pulled another Mon sell-off only not quite as bad, down 370 taking it below 10K. Dow closed 400 points above the midday low of 9525 (but pulled back 100 from the peak about ½ hour prior to the close) as did other markets from an OVERSOLD position. However, problems remain. There were only 250 advancers on NYSE & NAZ dropped 83, again above midday lows.

The S&P 500 fell to 1047, bringing it close the the magical 1000 line. This comes from all the confusion in the credit markets. Key stories are printed below. One would be a lot to digest. But a string of one bad news story after another was too much to take for the markets. A particularly disturbing one was that European govs can not cooperate.

•Paulson Talks With Bernanke, Geithner, Market Players as World Stocks Fall
•Fuld Blames Lehman's Collapse on False Rumors, Old Rules, `Storm of Fear'
•Bank Writeoffs May Triple, Mortgage-Bond Premiums Narrow as Bailout Begins
•Bush Predicts Restoring Confidence in Credit Markets Will `Take a While'

European Governments Go Their Own Way on Crisis- AP

• Treasury Puts Out Guidelines for Bailout Managers- CNNMoney.com
• U.S. Calls for Unity as Crisis Wrecks Markets- Reuters
• Combat The Bear With 5 Post Bailout Strategies- ETFguide.com
• Fed to Provide as Much as $900B in Loans to Banks- AP

It's easy to see where money went in commodities (out of oil into gold). Keep in mind that the selling of oil is based on a global economic slowdown reducing demand for oil:

CLX08.NYM

Crude Oil Nov 08...

88.23

... 5.65 (6.0%)

GCV08.CMX

Gold Oct 08

...864.30

... 35.40 (4.3%)

Among all the carnage the S&P 500 FINANCIALS INDEX didn't do too badly, only down 10 to 244. The Alerian MLP index fell 24 (a daily record decline) to 190 (4 year low), but up from the intra day low of 180. The Dow Jones REIT dropped 8 to 211. The VIX, volatility index, rose 7 to 52, an undreamed of level just last week.

There was some good news. Lilly (LLY), an S&P 500 Dividend Aristocrat, down 2.89, is buying ImClone (IMCL) for 70 (stock up 1.83 to 66.89).

• Eli Lilly agrees to buy ImClone for more than $6B- AP

As painful as last Mon & this Mon were, they do not represent the dramatic sell-offs associated with selling climaxes (of course in these times, old rule books are being thrown out windows). Nothing indicates that the bleeding has stopped (i.e. regarding stock sales). Wild moves in stocks & volatility at record levels shows people are scared to invest. That emotion, or lack of emotion, will not go away quickly. More days of bleeding are ahead. This time can be used to line up stocks for purchase and personal target buying points. Good luck!

Worldwide credit crisis

At first trading last night in overseas markets, New Zealand & Australian stock markets tumbled 3-4%. Asian markets followed with similar declines in the next few hours. Dow futures were down 100, later falling to -160. One example (among many) of chaos in markets which may have gotten lost given all the news coming out, last night Korea said it would use its national reserves to help prop up their banks! I lost track of how many big European banks (LAST NIGHT) were on the brink of failing only to bailed out with multi $B rescue packages. This morning, European markets were down around 5% and Dow futures were down 200+.

Markets have continued to sell off in NY amidst all this chaos. Dow is down 487, decliners over advancers 25-1 (probably a record) & NAZ was down 112. I won't drone on with how each index is getting clobbered, you get the idea! But Dow deserves special mention. The chart below shows when Dow cracked 10K about 9½ years ago. That was a big deal, hats were given out at the NYSE to celebrate. Now it broke 10K once again, but this time going the wrong way.


Dow Jones Industrials -- last decade




Oil is taking a hit, below 90 (8 month low). Below is a chart for OIL, an ETF which tracks oil, showing the 8 month low:

CLX08.NYM

Crude Oil Nov 08..

89.84..

4.04 (4.3%)

OIL -- 1 year





Not all markets are suffering. Gold has had a great year & is rallying because of its defensive nature as shown in the chart for GLD, an ETF tracking gold:

GCV08.CMX

Gold Oct 08..

868.80..

39.90 (4.8%)

GLD -- 1 year




It's hard to know where to begin with all this chaos in financial markets. It looks pretty gloomy & probably will get worse. General Electric (GE), Dow stock & an S&P 500 Dividend Aristocrat, sold stock with a 6% yield to new investors a couple of days ago. They're already down almost 2. Central banks around the world are supplying liquidity, i.e. money, to banks trying to help them struggle through these times. There is wishful thinking about a surprise rate cut by the Federal Reserve. Sounds good, but lower interest rates won't do much to solve banking problems when they aren't lending to each other, not to mention customers, in the first place.

I have to be honest, Chicken Little called me last night. I said while these are probably the most difficult times financial markets have gone through since the depression, we will get through them. Those who are believers will see fire sale prices for securities as providing opportunities to buy for the future. One excellent source of ideas is the S&P 500 Dividend Aristocrat group, members of the S&P 500 which have a minimum of 25 consecutive years of higher annual dividends. Some go back 50+ years. There were 59 on the list based a recent count. This list provides names of companies worth holding for the long term, i.e. very smart investing. Some have dropped off recently, as with all investments, careful selection is always in order.

Buy on the rumor, sell on the news.

Dow, out of the gate, started strong, rising to a 300 point gain by midday. However, by day's end, like other averages, was down. Dow dropped 157, decliners ahead of advancers almost 2-1 (it had been 4-1 in favor of advancers earlier in the day) & NAZ pulled back 29. From 1PM, about the time the House passed the bill, Dow headed south with strong selling in the final hour. For the week, Dow dropped 800 to levels not seen in about 4 years.

After early gains prompted by the Wells Fargo (WFC) bid for Wachovia (WB), S&P 500 FINANCIALS INDEX sold off to a loss of 10 at 254. The Alerian MLP index declined 4 to 214 & the Dow Jones REIT Index slipped 13 to 219 (partially related to the story below). Oil, near 94, was little changed on the day while gold sold off 11. Early gains did not hold. Sure, the revised bailout/pork package passed the House this time, but.........
this is the kind of news causing the slide:

•California May Seek Loan, New York Deficit Swells as Crisis Roils States

Reality is ugly today, there will be more such stories. For example, First Industrial Realty (FR) which had included in my Yahoo badge on the right, cut guidance for 2008 FFO (cash earnings used to pay divs) by 25% to a level which just barely (at best) covers the div. In addition, 2009 guidance was for even lower FFO. The stock was one of the leading decliners today, down over 8 (OUCH). They own hard assets, buildings, but it has been tough to finance building sales in today's cruel financial world (they are not alone!). I've removed FR from from my Yahoo finance badge, replaced with Caterpillar (CAT), a Dow stock, which has been viewed negatively recently. For the venturesome, FR remains a solid company which will give good buying opportunities when real estate markets return to a growth phase. Just follow their fortunes to determine attractive buying opportunities.

More signs about a depressed economy.... Retailers are reporting Aug sales worse than forecast giving a gloomy outlook going into first Halloween then the important holiday sales season. Consumers are holding back on spending, retailers will be forced to struggle for profitable sales gains.

•Nordstrom, J.C. Penney Sales May Fall More Than Forecast as Holidays Loom

Passing the House bill gave a psychological lift to the markets. Some bleeding will end. But a ton of problems remain, among them will be trying to sort through $Bs of mortgages & other bad loans. Over the weekend, there will be time to evaluate the 450 page bill (with pork) to see how much good it will do to solve the financial mess & how it can help ailing economies around the world.

Relief rally in full swing

Oversold markets are rallying on expectations that the House will pass the bailout & pork bill. Dow rose 200, advancers ahead of decliners 4-1 & a vastly oversold NAZ gained 55. Banks did well, up 8½, helped by a new Wells Fargo bid (WFC) for troubled Wachovia (WB):

S&P 500 FINANCIALS INDEX

Value..273.08

Change..8.51

% Change..3.2%

•Bank Rescue Nears Passage After Garnering Support From 14 More Lawmakers

• House plans second vote on $700 billion bailout- AP

Also participating in the advance, the Alerian MLP index was up 6 & the Dow Jones REIT index rose 3½, both a little muted. Junk bonds funds remain down, down in the dumps with yields of over 16% for the very brave. Oil & gold, 2 big commodities, were little changed despite excitement in the stock markets.

Important news was reported on unemployment, disappointing but expected. Employers cut jobs by 159K in Sep, far worse than the 100K estimated. 760K jobs have been lost a already in 2008. Ugly economic news, especially on the job front, is expected to push marginal votes in Congress to vote in favor of the bailout/pork bill.

•U.S. Payrolls Plunge in Sign Economy May Enter Worst Recession Since 1982


The sick economy will drag on. Last night, during Asian trading, Toyata (TM) announced that they will offer 0% financing in the US. For them this is unusual, but they are that hungry to sell more cars. Housing & autos are going thru their roughest times since the depression.


SeekingAlpha published my latest article on the outlook for MLPs:

Attractive Outlook for MLPs Following September Lows


The long term outlook for MLPs remains excellent despite current tough times. Large capital expenditures are long term in nature. But macro level financial problems are making their lives more difficult, as with other businesses. They have to scramble harder to get loans & sell units at low prices to build equity (mirroring the rest of the economy).

All markets tumble badly on confusion

Dow was down 348 to 10½K. decliners over advancers 5-1 & NAZ was down 93 taking it below 2K. The charts on the right show selling continued all day with averages closing near the lows.

Among the carnage, S&P 500 FINANCIALS INDEX down 12 to 264½. The Alerian MLP index was down 10 & Dow Jones REIT index was down 16. The AMZ is at its lowest price in 4 years:

Graphs for Dow Jones REIT Index & Alerian MLP index are shown below, these have been brutal times for many that don't deserve this punishment:


Dow Jones REIT Index --- 5 years






Alerian MLP Index -- 5 years





Oil & gold had rough days along with the markets (sellers bought T-bills & bonds because of the stronger dollar):


CLX08.NYM Crude Oil Nov 08 ... 93.68 .. 4.85 (4.9%)

GCV08.CMX Gold ...... Oct 08 ... 837.40 .. 43.30 (4.9%)

One of the many big ugly stories was GE, down almost 3 after a $12B stock sale. Just a few years ago, GE had the largest market cap of any company in the world, today it's struggling with many other giants just trying to get by.

Even though the macro economic news was grim, all eyes are watching DC to see if the House will pass a rescue package & exactly what it will contain besides pork. Some are switching sides in both directions making it difficult to guess what the outcome will be. There is plenty of chaos in DC especially with each member of the House up for reelection (some will have tough fights to keep their jobs).

Bush, Congressional leaders lobby for bailout bill


Chicken Little just got an unlisted phone number, so we'll have to tough things out by ourselves. We can do it!!

Higher unemployment sinks stocks

More grim economic brought back sellers to stock markets. Claims for jobless benefits last week inched up to 497K, the highest level in 7 years. Added claims following the hurricanes were responsible, however the economy remains very weak. Tomorrow the Labor Dept reports the monthly job report which is also expected to provide gloomy news. Factory orders plunged 4% in Aug, worse than expected, on lower orders for aircraft & autos.

• Factory orders drop by 4 percent in August- AP
• Jobless claims remain at 7-year high- AP

On this disappointing economic news, Dow sank 258, decliners ahead of advancers 4-1 & NAZ down another 61. S&P 500 FINANCIALS INDEX fell 4 to 272, Dow Jones REIT index was dropped 7 to 238 while the Alerian MLP index was down 7 to 221 (multi year low). In this world of uncertainty, Oil dropped from lower expected demand & gold plunged (huh?):

CLX08.NYM

..Crude Oil Nov 08

...96.42 ...

2.11 (2.14%)

GCV08.CMX

..Gold Oct 08

...847.00

... 33.70 (3.83%)

General Electric (GE), a Dow stock & an S&P Dividend Aristocrat, was down 2.35 to 22.15 (a 10 year low price) on selling $12B in stock after raising $3B from Warren Buffett yesterday. They are clearly struggling to maintain their elite AAA credit rating after it was reaffirmed just last week.

GE prices $12 billion stock offering


General Electric -- 10 years





The bailout plan is still hanging around in limbo. Last night, while the Senate passed an enhanced package (the original was a 3 page proposal versus a 450 page bill they passed), Asian stock markets were soft & Dow futures traded down 100. The Senate tried to include something for everybody to get the bill passed. Now the House will deal with it, but the future, once again, is not clear. Assuming they pass a bill with differences, those will have to be worked out. Uncertainty is the key emotion influencing stocks, that may not go away soon.

•Senate Passes $700 Billion Bailout Package With Inducements for House Vote

Markets lower awaiting Congressional actions

September was one the ugliest months for stocks. Dow dropped 700, NAZ & S&P 500 did even worse in terms of percentage decline. Oct is beginning wishy-washy in what is one of the most confusing backgrounds markets have ever had to deal with.

In just a couple of days, the House rescue package was shot down & very decisively. After the dramatic stock market sell-off on Mon, stocks rebounded from their vastly oversold condition on Tues (month/qtr end which adds extra unknowns to trading) but clearly remain on defense. A revised bailout package seemingly will be passed by the Senate tonight and maybe the House will also pass it in a couple of days. The thought from just a couple of days ago about Wall Street vs us has gotten blurry with over $1T in market losses on Mon. It is not clear exactly what is in the package or whether it will actually "work" in terms of providing meaningful aid to a sick economy. Sadly the economy is made sicker as the uncertainty about financial markets drags on. I am constantly reminded: a camel is a horse designed by a committee. Those thoughts, maybe in different forms, must be in traders minds as I am write.

General Electric, a Dow stock & member of the S&P 500 Dividend Aristocrats, also near a multi year low stock price of down 1 at 24½, is raising $15B to help keep its elite AAA credit rating. Meanwhile everybody is keeping a close watch on DC to find out what new regulations will be approved.

•GE Gets $3 Billion Buffett Investment, Plans $12 Billion Common Stock Sale
•Senate Leaders Predict Approval of Rescue Plan, Urge House to Support Bill

• Credit markets tight as Senate vote looms- AP

Today Dow ended down 20, decliners over advancers by about 20% & NAZ is down 22 (on even more confusion about where this leaves tech companies). The Dow was down 200 earlier in the day but recovered in the PM. S&P 500 FINANCIALS INDEX is up 6 today to 276, remaining in the same trading range for the last 3 months. The Dow Jones REIT index is down 7 to 244. The VIX (volatility index) is down a little to 40, remains in astronomical land from all the nervousness in all markets.

In the confusion, the concept of flight to safety has gotten muddled. Oil is down 2 to the 98s while gold is up 6, largely based on emotions. The Alerian MLP index is up 2 to 228, remaining near multi year lows.

Macro economic numbers keep coming, they are not pretty & do not look like they will get better (the unemployment report is due on Fri).

•Manufacturing in U.S. Contracts at the Fastest Pace Since Recession in '01
•Toyota, Ford, Honda U.S. Sales Fall as Credit Tightens; GM Beats Estimates

• Government launches mortgage aid program- AP

Gloomy news should be the main force driving markets. The economy is very weak & difficulties for businesses to simply function will bring on more layoffs & a further slowdown. Unemployment is getting worse, inflation may moderate a little, I think exports may go a little soft and it looks like GDP will contract. However, Congressional actions are getting 90% of traders' attentions while the economy drifts.

I wish these were happier thoughts, but these are unusually tough times. There are parallels to 1929, however this is lot different. Just unemployment, at 6+%, while bad, doesn't begin to compare with ugly numbers in those days. We will get thru this difficult period. These times should be used productively to prepare for buying opportunities which are coming.