Bank bailouts bring higher stock prices

Markets were feeling good about bank stimulus programs around the world. Last night Korea came up with a $130B bailout program for their banks & the Dutch gov added $13B to prop up ING Bank. Throwing $B & $B is having its effect, getting banks to lend to each other again so they can eventually lend to customers.

•Money-Market Rates Decline on Bank Bailouts, Government Infusions of Cash


Following this news, Dow began by rising 250 out of the gate but has pulled back to up 136, advancers over decliners 5-2 & while NAZ is up 9. S&P 500 FINANCIALS INDEX dropped fractionally & the Dow Jones REIT index dropped 5 nearing its yearly low. Junk bond funds were mixed to slightly up, those super high yields are attracting a few buyers. However the Alerian MLP index is having a great day, gaining 11 as it continues the rebound from last week. The index started the week with an 11% yield (not to mention higher oil prices) attracting buyers.

Alerian MLP index -- 2 weeks






Oil is having a nice day, helping big oils. Chevron (CVX) & Exxon Mobil (XOM), the 2 Dow stocks, were each up over 2.

CLX08.NYM

Crude Oil Nov 08

....73.80

.... 1.95 (2.7%)

China reported that its GDP rose only 9% in Q3, the slowest growth in 5 years, the growth rate has been slipping each quarter for a year. Global slowdown plus effects from the credit mess are being felt even in one of the strongest economies.

China's Economy Grows 9%, Slowest Pace in Five Years


Federal Reserve Chairman Bernanke wants to see more gov spending to help the economy. With the Dems taking over in DC, chances are a big spending package will be passed but that could mean waiting until next year. Plus there will be further delays before money gets into the economy.

•Bernanke Supports Consideration of Additional Stimulus on `Weak' Outlook

This is the heart of earnings seasons, many of the biggest companies will be reporting this week. Now that the chaos on banking business is settling down, earnings should become the market drivers this week as macro economic reports will be light.

Record volatility week

Last week was another rough week featuring very wild swings in stock prices. Markets are trying adjust to the Dow having a daily range of 500+ points. As a result, volatility keeps setting new records. The VIX topped 80 at one point but ended closing at 70, more than triple what used to be considered very high!

The Alerian MLP index did well, pretty much recovering in the Mon rally a large loss from the prior week. By way of comparison, it took a 9 month rally from late 2007 into 2008 to achieve a 60 point rise from a higher base:


Alerian MLP Index -- 2 weeks




However, REITs had another particularly brutal week. A very strong rally in Mon-Tues pretty much recovered the large loss in the prior week. However, the last 3 days got ugly again, featuring an almost 50 point drop from Hi to Lo:


Dow Jones REITs -- 2 weeks





Meanwhile, junk bonds had a nice recovery last week. Of course, they were coming off prices approaching zero with never before seen dividend yields over 25%. Most were up 25+%. One of my very low priced ones was up 1 last week. Wow!

All yield related securities are in the doghouse as they remain under suspicion. In the 3 groups mentioned here, many offer double digit yields worth checking out for the very brave. I still like them because their high income is important while trying to ride out the savage storm securities are in. This storm shows every sign of lasting for months while trying to build a base, making current income so significant.

New financial world

I just met a friend who is a very big money manager & asked him how he's sleeping. He said he's not sleeping so well. OK!

Last month I was talking with my friend about her IRA & its investments. She asked about investing in a company that would benefit from growing economies in Asia. These aren't the actual words as she's not familiar with investments, but you get the idea. I told her Caterpillar (CAT), a Dow stock, was an excellent investment (shown in my Yahoo badge on the right). They have a very good long term record of growth & are expanding rapidly especially in China. She wanted to know why I didn't buy the stock then. While I like the fundamentals, I said my expectations were for lower stock prices. At that time it was in the mid 60s, today it's 39. All this in a month!

CAT is an excellent company & should do well going forward. This is the type of company Warren Buffet would like. But investments are in a radically new world where everybody needs to rethink priorities & values. I think dividends providing excellent yields will be increasingly important as short term rates are being taken down to very low levels. Some securities with very attractive yields deserve more consideration. Junk bond funds, REITs & MLPs all have yields with many into double digits. Even ordinary industrial & service companies with excellent track records can be found with 3-4+% yields.

Stocks stumble after midday surge

Dow rose more than 550 from the early low, but dropped sharply in the last couple of hours, especially in closing minutes. It pulled back almost 400 in the last 2 hours, ending with a loss of 127. Option expiration days are always difficult to predict, especially in the last hour or 2. Economic news was pretty ugly today, maybe that was the deciding factor. Advancers were ahead of decliners almost 2-1 & NAZ ended with a nominal loss. A big driver for markets was energy. After nice gains earlier in the day, the 2 Dow energy stocks, Exxon & Chevron, slipped back to modest changes. Higher crude prices helped but options & traders closing books before the weekend hurt at day's end. Volatility reigns as the VIX, Volatility Index, kicked around the 60s & 70s today ending little changed at a whopping 68.

S&P 500 FINANCIALS INDEX slipped 5, nearer the low of the 13 point. The Dow Jones REIT Index was about even, still trying to catch up with the brutal day on Wed. Junk bond funds were generally higher & up on the week, but still offer 20% yields for the very brave. The Alerian MLP Index gained 8 to 205½, well above the psychologically important 200 line. Higher oil prices brought out buyers.

After a sharp fall in the last 4 weeks, oil popped for a couple of points while gold was weak all day:

CLX08.NYM

..Crude Oil -Nov 08

....72.46

.. 2.61 (3.7%)

GCV08.CMX

..Gold Oct 08

....785.10

.. 16.40 (2.1%)

700+ point daily swings in the Dow have become common lately. This is a major change that will not help bring back investors who have seen dreams shattered in such a short time. There are a lot new rules we all will have to adjust to.

Stocks meander, looking for direction

Last night, Asian Markets were up but only mildly. The big decliner was the Korean market which is having to deal with major banking problems that their central bank is trying to fix. Asian markets rose this week, first time in 2 months, providing a degree of hope.

After starting off down 250, Dow fought back to break even & remains nearby. Dow is even, advancers equal decliners & NAZ is up 11 ((helped by Google (GOOG) reporting good earnings last night)). Today is also an option expiration day, providing a little extra excitement for the traders. S&P 500 FINANCIALS INDEX is down 1, the Alerian MLP index rose 8 taking it back over 200 & the Dow Jones REIT Index is up 2.

As I suspected last night, the Alerian MLP Index had a glitch in its daily trade number yesterday by providing a change for 2 days, not just one. A couple of stocks had similar glitches. The important point is the MLP index is down sharply in this month alone. 2 years ago at this time, it was on a 70 point march upward which took 9 months. Last week, it dropped 70 in 3 ugly days, that's what we have to deal with now.

Oil is trying to get back over 70, but that's still over a 50% drop from its peak 3 months ago while gold has been having a tough time lately (maybe influenced by global economic worries):

CLX08.NYM

Crude Oil Nov 08

....71.61

... 1.76 (2.5%)

GCV08.CMX

Gold Oct 08

....775.90

... 25.60 (3.2%)

Macro economic numbers keeping coming & their glum. The Michigan Surveys of Consumers confidence plunged to 57.5 in Oct down from 70.3 in the prior month, the largest monthly decline in history. There have been only 4 monthly declines of 10 points or more. The report said, "All of the prior double-digit declines were based on severe economic dislocations with the losses accelerated by fear and panic." Expectations were for 65.5. Since 1952, the record low was 51.7 back in May 1980.

New home construction fell 6.3% in Sep vs expectations of 1.6%. The industry is on pace to construct the fewest new homes & apartments in 2008 since the end of World War II, no great surprise.

•U.S. Consumer Confidence Falls Most on Record Amid Job Losses, Credit Woes
•Single-Family Housing Starts in U.S. Tumble to 26-Year Low; Permits Plunge


IBM (IBM), a Dow stock, reported very good earnings sending the stock up 77¢. However, VF Corp (VFC), maker of Lees, Wranglers & other leisure clothing, reduced its estimate for Q4 earnings growth from 20% to under 5%, stock down 2.33. Their dividend was increased by 4¢ annualized (they are an S&P Dividend Aristocrat).

IBM profit gains on software, services
Clothing giant VF Corp. cuts fourth-quarter view


Hedge funds have not done well this year & their redemptions have brought large stock sales, aggravating the declines & increasing the market volatility which has become routine.

•Hedge-Fund Assets Declined by 11% in Third Quarter on Record Withdrawals


There are optimists among all the gloom. JP Morgan has ideas about 16 major companies which they think are worth owning in these troubled times. Warren Buffet said he is buying stocks with his personal money, demonstrating his belief in their long term values.

•JPMorgan Picks 16 U.S. Stocks to Buy as Economies Enter `Global Recession'
Warren Buffett: Buy Stocks! Cash Is Trash!

Late day rally for stocks

A late day rally brought the Dow big gains, up 401 (as shown in the Bigcharts graph on the right). This is hard to figure when decliners led advancers 5-1 (down from 10-1 earlier in the day) but NAZ participated, up 89. 3M, Exxon, Johnson & Johnson, IBM, McDonalds, Procter & Gamble, United Tech & Walmart (up over 4) led the charge up for the Dow. Clearly, hedge fund sellers took the last hour off.

Other indices didn't do as well. S&P 500 FINANCIALS INDEX rose only 3½, Dow Jones REITs rebounded 8 after yesterday's terrible beating & the Alerian MLP index cut losses, down only 9. The change doesn't tie with last night's close, they should be showing a modest gain (maybe it's one of those computer glitches). Junk bond funds were also up, hard to measure without a good index. But some brave souls are willing to gamble to obtain yields around 15-20%. REITs & MLPs also have yields well into 2 digits.

Beware:

The VIX, Volatility Index, reached new heights but closed down 1.64 to 67.61 after topping 81 during the day:


Volatility Index -- 5 days





This measure, some call it the fear index, is in record territory. Fear sounds like a good way to describe as it measures anxieties about job losses, inflation worries & the credit mess, giving investors a lot to worry about (or fear). Just a couple of weeks ago 20 was considered high & 30 was a heavenly kind of maximum. No more:

VIX Options Index Tops 80 for First Time as Stocks Extend Slump


US Treasury securities are highly prized for their high degree of security. The table below shows what investors earn on them today. For the short term, they are willing to accept little interest when "risk averse" becomes their primary focus. The shortest term securities are most highly prized with only nominal or modest interest rates. Proceeds from stock sales can be used to buy Treasuries.

U.S. Treasuries rates, courtesy of Bloomberg:

	COUPON	MATURITY DATE	CURRENT PRICE/YIELD	PRICE/YIELD CHANGE
3-Month	0.000	01/15/2009	0.43 / .44	0.22 / .223
6-Month	0.000	04/16/2009	1.12 / 1.14	0.26 / .266
12-Month	0.000	09/24/2009	1.22 / 1.25	0.17 / .175
2-Year	2.000	09/30/2010	100-24½ / 1.60	-0-03 / .048
3-Year	4.500	09/30/2011	107-16 / 1.88	-0-03½ / .034
5-Year	3.125	09/30/2013	101-12+ / 2.82	0-00 / -.000
10-Year	4.000	08/15/2018	100-15 / 3.94	0-01 / -.004
30-Year	4.500	05/15/2038	104-14 / 4.24	-0-24+ / .044

Today's rally sounds like one of those attributed to "technical reasons" (short covering, whatever). Dreary economic reports during the day were forgotten in the last 2 hours of trading. I am not encouraged by this rally.

Markets struggle with gloomy news

Asian markets had another terrible day following all the bloodletting in the US, especially in the last hour of trading. Hong Kong & Tokyo, 2 of the bigger ones, were down 1K apiece, reaching new multi year lows. The declines followed an enormous rally on the previous day. European markets also sold off.

Dow is trying to rally after being down more an hour ago. It reduced the loss to 45 & remaining near the 8451 Fri closing low. Decliners are ahead of advancers a solid 10-1 (10-1 has been holding steady as I write) & NAZ is even:


Dow Jones Industrials -- 5 days




S&P 500 FINANCIALS INDEX is down 5 to 205, still above the 184 Fri low. The Alerian MLP Index is down 10 & the Dow Jones REIT Index is up 3½ after getting punished badly yesterday

Oil & gold are selling off again as stocks pull back, don't see that too often. The 10 point drops yesterday for Dow oils, Exxon (XOM) & Chevron (CVX), were responsible for about 130 points of the Dow decline. Today Chevron is down 1.44 but Exxon is up 44¢. The message from these declines is lower worldwide demand for oil & gold is coming from a global recession.

CLX08.NYM

Crude Oil Nov 08

...70.13

... 4.41 (5.9%)

GCV08.CMX

Gold Oct 08

...792.40

... 43.10 (5.2%)

Gloomy news is taking control of the markets, it's getting hard to keep track of all the negative news! These stories tell us that the recession is badly hurting the US economy.

•U.S. Industrial Production Falls Most Since 1974 on Storms, Boeing Strike
•Paulson Signals Hedge Funds Aren't Currently Eligible for Government Money
•Crude Oil Falls Below $70 as U.S. Inventories Rise; OPEC Moves Up Meeting

• Philly Fed factory activity index crashes in Oct- Reuters
• Worries over economy spread; global markets sink- AP

2 enormous, but troubled, financials, Citigroup (C) & Merrill Lynch (MER), reported ugly losses, stocks sold-off 7% & 4% respectively. Since they are low price stocks, percentage changes mean more than changes measured in cents. Now traders are paying more attention to the losses rather than worrying about "beating" lowered estimates.

• Citigroup posts another loss amid credit woes- AP
• Merrill 3Q loss widens on mortgage-related charges- AP

I don't follow specific hedge funds, but a news item caught my eye. This group had $40B in Mar which is down to $33B today (maybe even less, who knows?). This specific fund had $1½B, they've got a lot of stock to sell & fast. Let's see if today's last hour proves to be another selling period for hedge funds.

•Highland to Close $1.5 Billion in Hedge Funds Amid `Unprecedented' Turmoil

Markets are testing lows, looks like the lows may not hold.

Exxon Mobil

Exxon Mobil (XOM), Dow stock, is the largest oil company in the world with one of the largest market capitalization in the world. Today it dropped 10, what has to be a record daily decline, to a 2+ year low:


Exxon Mobil -- 10 years





Chevron (CVX), another oil stock in the Dow, only dropped 8½ to 59.98 & has a similar graph:

Chevron -- 10 years




Exxon, Mobil & Chevron were 3 of the largest companies in the original Standard Oil 100 years ago. Even in a 10 year chart, after the recent market slide, their stock performances over the last decade have been good, but not great. Exxon recently joined the S&P 500 Dividend Aristocrat list with a dividend yield of 2.6% Chevron has a higher yield at 4.3%. These are not recommendations, merely shown to view the sad state of affairs in the stock markets.