Early gains on auto bailout are withering

Dow rose 150 out of the gate on news of the auto bailout package being approved. However since them enthusiasm has faded. Dow is up 17, advancers ahead of decliners 2-1 & NAZ is up 17. S&P 500 FINANCIALS INDEX was even (giving up early gains), the Alerian MLP Index is down pennies, Dow Jones REIT Index was up 2 & Lehman High Yield Bond ETF is up a couple of pennies (while the Treasury bond yield remains at historic lows of 2.1%). The VIX keeps pulling back, today down 4 to 43. By another measure, it dropped about 25 in the last 3 weeks.

General Motors (GM), still a Dow stock, and Chrysler have been given a 90 day lease on life. They will have to make changes with their bond holders, unions, management, etc to try & stay alive. This money will exhaust funds in the first half of the $700B TARP program. Sec Paulson will ask Congress for the 2nd half, only 2 months after the program began. Ford (F) was not included. Despite reassurance by their CEO yesterday, they may not be too far from requesting similar aid.

•GM, Chrysler Will Get $13.4 Billion in U.S. Loans to Survive Through March


Oil is down again, near 5 year lows.

CLF09.NYM

..Crude Oil Jan 09

...35.00

.. 1.22 ......(3.4%)

• Oil drops below $34 to lowest level in almost 5 years- Reuters

The Alerian MLP Index may have a rough month ahead until most quarterly distributions are announced by mid Jan. Yesterday, Kinder Morgan, the largest MLP, successfully raised $900M, quite an accomplishment in these times. Below is a chart for the stock equivalent, KMR, which I track in the Yahoo widget on the right. The stock has held up well during a very difficult period. During severe declines in the last 3 months, it was not damaged as badly as many other MLPs. The stock div yield is 10%, a low rate compared to a 13% yield for the Alerian MLP Index.


Kinder Morgan (KMR) --- 1 year




Constellation Energy Partners (CEP) yesterday pre announced their guidance which included a large distribution cut from $2.25 annually to 52¢ annualized. The chart, which doesn't show $50 prices more than a year ago, tells markets have been pricing in a large cut for some time. 8 other MLPs are also trading under 5, more cuts in the industry are coming. Cuts are new to the industry & may have a larger impact on market psychology than the favorable financing news from Kinder Morgan. I still like the industry, but buyer beware (at least for the short term).

Constellation Energy Partners -- 1 year




As I write, the markets are fading fast. It doesn't look like they will hold gains by the end of day. In all fairness, this is an option expiration day making any call extra difficult.

Dow down again

Dow keeps trying but can't break thru the 9K ceiling. Today the threat that Dow stock GE may lose it's AAA debt rating encouraged market sellers. Dow fell 219, decliners over advancers 3-2 (not so bad for Dow down 219) & NAZ was down 27. The S&P 500 FINANCIALS INDEX fell 5.

Alerian MLP Index was down 3 to 177. After rebounding off the bottom under 160, it has been trying to get back to the intermediate highs around 225. For a couple of weeks it has pretty much been flat lining around 175-180. Tax loss selling (all MLPs are prime candidates) has hurt, but there has also been a lack of enthusiasm on the buyer side. Next month is when new distributions will be announced. A few have single digits handles, already pricing in very gloomy news. Any cuts, especially big ones, may bleed to all, making every distribution going forward more doubtful.


Alerian MLP Index --- 2 months




Today's news includes Kinder Morgan (KMP), the largest MLP, raised $900M selling stocks & debt. That was an encouraging showing for MLPs.

• Kinder Morgan Energy Partners, L.P. Raises Almost $900 Million of Capital


However, Constellation Energy (CEG) had to cut its quarterly distribution from 56¼¢ to 13¢. The stock is down from the 50s last year to 2.81.

Constellation Energy Partners Announces 2009 Business Plan and Forecast


Lehman High Yield Bond ETF (JNK) had a very good day, one of the best in a long time. It rose 1.11, or 4%. Nibblers noticed that it's yield is 1350 basis points above the anemic Treasury bond yield of 2.07%. Other junk bond funds with even higher yields had bigger gains. The very venturesome buy these funds hoping for a rebound. For some funds, just a move up in price to reduce the yield to "only" 20% could bring a very nice gain. Already, JNK below, has had a good pop on high volume:


Lehman High Yield Bond --- 2 months




Not all have fared so well. The Dow Jones REIT Index dropped 12 points to 140 today. They trade on junk bond valuations.


Dow Jones REIT Index --- 2 months




Oil had another very bad day, taking it down to 4 year lows. Global economic recession trumps the largest production oil cut in OPEC's history:

CLF09.NYM

..Crude Oil Jan 09

...36.26

.. 3.80 ......(9.5%)

S&P said General Electric's (GE) coveted AAA debt rating is in danger of being cut. Only a handful of companies (I think about 10 or so) can claim that distinction & it seems like that number gets smaller every year.

•GE, GE Capital Ratings Outlooks Cut to Negative by S&P on Earnings Concern


Doubts about the auto bailout & dismal economic stats will tough for any stock market to absorb. Meanwhile, the administration is trying to arrange an orderly bankruptcy for the auto makers. It will be very difficult to get employees, stockholders, auto dealers & future car buyers to agree.

• Bush considering "orderly" auto bankruptcy- AP

Stock markets drift

Confusion reigns in the stock markets, so they just muddle along. Dow is down 25, advancers 30% ahead of decliners & NAZ is up 1. Indices I follow are little changed although Lehman High Yield Bond ETF is up 40¢ (its version of a rally). Demand might up for junk bonds as the rate on the 10 year Treasury is at a record low 2.08%. The VIX, volatility index, is down another 4½ to 45½ indicating there is a small sense of relief in the minds of investors. However, it was just a few months ago that this level was a record:


VIX ---- 1 month




Oil continues weak on all the gloomy news about the worldwide recession. Breaking thru 40 is an important bearish sign for technicians.

CLF09.NYM

..Crude Oil Jan 09

...38.25

.. 1.81 ......(4.5%)

Jobless claims last week dropped to "only" 554K, a little better than expectations. However, the news is not all good. The prior week's claims figure was revised upward to 575K, a new 26 year record level. The number of people receiving jobless benefits declined to 4.38M, or 1% from the previous week.

Jobless Claims Drop More Than Expected- AP


The Conference Board said the index of leading economic indicators fell 0.4% in Nov. The index dropped 2.8% in the last 6 months, worst performance in 17 years. Negative figures for building permits, stock prices & unemployment claims led the decline last month.

• Leading economic indicators fall in November- AP

Mortgage rates while low, need to be measured against historical relationships which indicate they should be another 50 basis points lower. This is one more indication that the reduction in interest rates is not playing out as well as hoped.

•Mortgage Rates Left in the Dust by Falling Treasury Yields, Failed Lenders


General Motors (GM), still a Dow stock, & Chrysler will idle 59 factories next month in the face of declining sales & a dismal outlook for next year. The White House is working on their version of a bailout package. For the autos, time is being measured in hours. Rumors about a GM - Chrysler merger were denied, at least for the time being.

Greta had the CEO of Ford on last night. He said they do not need a bailout presently. Filing for chapter 11 is a bad alternative for any auto company, that would send their sales to zero. When asked about whether he would work for only $1 a year, he dodged the question. He said they are not in a precarious situation with little additional explanation. If required, they will comply with all federal rules & laws. Translation, there is no need to take his salary down to $1 at present.

GM, Chrysler Shutter Factories, Await Bush Decision (Update4)

• GM says report on Chrysler merger talks is untrue- AP

Federal Express (FDX), up 88¢, reported higher profits in Q2 (just completed) but gave a dismal outlook for next year. The execs are all taking pay cuts (including their Chairman, founder, who will take a 20% cut), employees will be laid off as they prepare for for a weak economy with increased uncertainty. As a result,they did not give guidance for the next quarter. FDX is an important company since they feel the pulse of the economy.

•FedEx profit up, but to cut costs as '09 looks bad


Markets may continue drifting until an announcement is made about the auto bailout package.

Markets lower

Stocks rallied from early losses to break even, but then couldn't make up their minds which way to go. Dow ended down 100, but advancers were over decliners 3-2 & NAZ dropped 10.

The big movers today weren't all that big. After the Dow Jones REIT Index rose sharply yesterday, it was up a modest 2 to 153. In 2 days it has had a 17 point pop, from a severely depressed level. The VIX pulled back again. It dropped another 2½ to the 49s, the lowest level (with one minor exception) in 2 months. Decline in the fear index is one level of comfort. The 10 year Treasury bond now has a yield of only 2.19%, record low territory. Treasury securities are sought out by frightened investors.

Despite OPEC's largest production cut in history, oil slipped below 40 at one point (near 4 year lows) closing just above 40. Russia (not an OPEC member) also indicated it would cut back .6M barrels per day although they said the cutback largely happened last month, adding confusion to their announcement.

CLF09.NYM

...Crude Oil Jan 09

....40.43

.. 3.17 ......(7.3%)

Still no word from the White House about their auto bailout package. Maybe tonight.

2009 forecast

Very Smart Investing received a mention about 2009 forecast from:

Long Term Stock Picks:

http://madmoneyfund.blogspot.com/

Stocks fade, dragged down by Madoff scandal

Enthusiasm from yesterday's PM rally melted. It started with Asian/Australian markets last night. They rose, but only moderately & that didn't last long. The Honk Kong market ended with a 2% gain, but the others had only modest gains. In particular, they are more sensitive to the dollar & it TANKED on news of the dramatic rate cuts. The Japanese ¥ rose to 88 to the dollar (from 110 just a few months ago) & the € is up to 1.43. The Japanese economy is is export driven & the high rates for the ¥ are not going to help them pull out of a major recession. There is also the thought that the US economy may be in worse shape than thought if the Federal Reserve has to be soooo accommodating.

•Dollar Falls Most Against Euro Since 1999 Debut After Fed's Rate Reduction


Dow is down 80, decliners ahead of advancers 3-2 & NAZ is down 16. Banks are hanging in fairly well, the S&P 500 FINANCIALS INDEX is down only 3. The Alerian MLP Index is down 2, Dow Jones REIT is down 5½ (after yesterday's very strong rally) & Lehman High Yield Bond ETF is down 1%. The weakness today is from negative market sentiment plus we are entering the final days of the year for tax loss selling (trades have to be settled by Dec 31).

OPEC just announced a production cut of 2.2MM barrels per day, the largest cut in their history. Global economic recession outweighs a production cut, oil down 2+.

OPEC Cuts 2.2 Million Barrels a Day- AP

CLF09.NYM

..Crude Oil Jan 09

....40.98

.. 2.62 ......(6.0%)

The VIX, volatility index, pulled back another 1. The 3 month graph shows it has retreated from the astronomical highs, however it still remains extremely high (20 used to be considered a high number):


VIX ---- 3 months





The Madoff scandal drones on, a huge negative for the bulls. This makes it harder to trust advisers about investing, not to mention the investing "for the long term" concept has gotten fuzzy lately.


•Madoff Placed Under House Arrest; Wife Ruth Ordered to Surrender Passport

• SEC chairman says agency failed to probe Madoff- AP
• Connecticut investment firm stung by Madoff ties- AP
• Curfew for Madoff as new condition of bail- AP
• Limited Options for Investors Burned by Madoff- Tech Ticker

The administration is struggling to come up with a plan to save the Big 3, the clock is ticking. I think they will have to announce their idea today or tomorrow

• White House pressured by lawmakers on auto bailout- AP

The final attempt to bailout the Big 3 will get a reaction, already 2 auto suppliers have failed. However, by the next day that news will be history.

Stocks rocket ahead on rate cuts

Dow had a nice 100+ gain prior to rate cut, but then popped another 200 after the announcement when the Federal Reserve said it would cut lending rates to as low as zero to promote growth & price stability. I hope they know how to spell INFLATION! Low interest rates will encourage an even larger stimulus package (government spending) next year.

•Fed Cuts Target Rate to as Low as Zero, Signals Asset Buying as Next Step


The Dow ended with a gain of 359 (bringing it close to 9K, 8924, an important psychological ceiling), advancers ahead of decliners 5-1 & NAZ rose 81. Banks benefit from low interest rates, the S&P 500 FINANCIALS INDEX had a very nice day, up 17 (almost 50 points above its recent depressed low):

Value 172.53

Change 17.44

% Change 11.2%

The Alerian MLP Index went up a modest 3 to 180 (maybe held back by the outcome of expected production cut announcement tomorrow), the Dow Jones REIT Index had an extremely nice gain of 19, the Lehman High Yield Bond ETF (JNK) gained pennies for a 1½% gain (swell!) & the VIX (Volatility Index) dropped 4 to 52½ (remaining in astronomical territory). Oil however was down pennies on uncertainty.


Car makers are running out of time while they wait for help from the administration. The White House is putting together a package to keep the Big 3 alive (for awhile). Expect an announcement by tomorrow:

• Carmakers cut production as U.S. bailout awaited- Reuters

The Madoff scandal keeps growing & getting uglier. They're saying it will take months to reconstruct the books which are in shambles. Account holders have a level of insurance ($½M) with SIPC but that won't cover all the losses for big investors. Plus holders who were cashed out early may face lawsuits trying to recover that money so it can be shared by all. Hedge funds are some of the biggest holders to come forward already. Confusion reigns.

•Madoff Books in `Disarray,' May Take Six Months to Unravel, SIPC Head Says


The rally on the widely expected Federal Reserve rate cut was based on gut reactions. The oil meeting in Algeria plus word from the White House on a bailout package for the Big 3 will each be worth temporary rallies. However dreary economic news continues, reporting terrible auto & housing sales not to mention a very weak holiday season for retailers. Stay tuned for big bumps in the road ahead.

Stocks higher, anticipating rate cut

Markets were up on expectations the Federal reserve will cut the lending interest to a record or near record rate low interest rate. Dow rose 109, advancers ahead of decliners almost 3-1 & NAZ was up 33. The indices I follow are marginally up awaiting developments.

Meanwhile recession economic news keeps coming. Housing starts dropped 18%, largest drop in 24 years. The inflation news, reported ahead of the Federal Reserve meeting, was good, although the decline was attributable to lower energy & food prices. Core inflation (excluding food & energy) was even.

• Housing starts fall more than expected- AP
• Inflation drops bigger-than-expected 1.7 percent- AP

Oil is lower ahead of the OPEC meeting tomorrow which will decide production cuts. Guesses are for a cut of 1-3MM barrels a day (the Saudis are pushing for a 2MM reduction). Seemingly with the world in a super recession, a production cut will not have a big impact on prices. China, 4th largest economy in the world, reported yesterday that their growth rate dropped to "only" a 5% rate, lowest in 10 years, when they first started keeping records.

CLF09.NYM

..Crude Oil Jan 09

...44.13

.. 0.38 ......(0.85%)

•Saudi Arabia Says OPEC Will Cut Output 2 Million Barrels to End Oversupply


The Madoff scandal widens with more reports on major losses for prominent investors. I shudder to think where this scandal will lead, not to mention implications of frightening off marginal investors. Hedge funds are involved, they may suffer if more investors cash out leading to forced stock sales.

•Bank Medici of Austria Invested $2.1 Billion With Arrested Manager Madoff


Meanwhile the Dow keeps muddling along in the midst of gloomy economic news & tax loss selling. This performance is encouraging for the bulls. Let's see how markets take the rate cut by FED today & announced production cut in oil tomorrow.

Dow Jones Industrials --- 3 months




Oh yes, the administration is still working on the auto bailout package!

Also I got a note from Amazon reminding me about gift giving & the holiday season, Amazon widgets are on the right side for your convenience. Happy holidays for all readers!