Markets strong after Federal Reserve meeting

Dow rose out of the gate & continued higher after hearing what the Federal Reserve had to say. However, it fell back in the last ½ hour preventing it from setting another 2009 high. Dow gained 120, advancers ahead of decliners 3-1 & NAZ added 29 but failed to hold the 2K level. Banks liked the news from the Federal Reserve meeting. The Financial Index is heading for its 193 high reached last week.

S&P 500 FINANCIALS INDEX

Value 188.83

Change 3.73

% Change 2.0%

S5FINL:IND





The MLP Index was up 2 to the 241 & the REIT index added another 1½. MLPs have been flat over the last 4 weeks, but in a stellar year they are entitled to pause & rest. Junk bond funds were mixed. The yield on the 10 year Treasury bond was flattish after today's auction of more bonds.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD




After slipping , oil held above $70.

CLU09.NYM

..Crude Oil Sep 09

..70.25

.. 0.80 ......(1.2%)

The Federal Reserve said it would slow the pace of an emergency rescue program as the recession appears to be ending. Its key lending rate was kept at a record low near zero & they pledged to keep it there for "an extended period." The FED said economic barometers since late Jun suggest that "economic activity is leveling out" & conditions in financial markets also "have improved further." They will gradually slow the pace of its program to buy $300B of Treasury securities which will end in Oct (it has bought $253B of the securities so far). Today's auction for$23B in 10-year notes was weak, investors were waiting to see what the FED had to say before making big moves. The 10-year auction's bid-to-cover ratio was 2.49X, down sharply from 3.28X at a similar auction in Jul. Indirect bids, an indication of foreign buying, were lower than at recent auctions.

•Fed Says Treasury Buying Will End in October, Economy Is `Leveling Out'

What worries the FED is while consumer spending has stabilized, job losses, sluggish income growth, hits to wealth from tanking home values & still hard to get credit could make Americans cautious in the months ahead. Dreary news on the housing front continues. Home prices fell 15% in Q2 (biggest decline since record keeping began 30 years ago). More than 1½M properties, one in every 84, received a foreclosure filing in the first 6 months of 2009. Markets are trying to charge ahead. However, Dow has pretty much flattened over 9¼K in Aug.

Dow Jones Industrials --- 1 month

Higher markets in anticipation of Federal Reserve announcement

Dow rose 122, advancers almost 4-1 over decliners & NAZ was up 32 taking it just above 2K. Banks are leading the charge upward in anticipation of a favorable announcement by the Federal Reserve this PM.


S&P 500 FINANCIALS INDEX

Value 189.07

Change 3.97

% Change 2.1%

The Alerian MLP Index is back up 1+ to the 240s & the Dow Jones REIT Index is up 3+ to the 158s.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




I returned from a meeting with a prominent junk bond fund manager. They are grateful for the strong recovery by junk bonds this year. At the start of this year yields were around 20-25% with yield spreads over the 10 year Treasury bond of over 2000%. With its spectacular rise this year, yields have plunged to around 12% with a yield spread of 800 basis points over the Treasury bond. They are optimistic about the future of junk bonds, that's their job. The key factor is the default rate, while high, has not reached astronomical proportions feared earlier this year. Everybody agrees that more defaults are ahead but with management allocating investments to stronger sectors, damage may be limited. My worry is about rising Treasury bond rates which could bleed thru to high risk bonds, but they view these investments as being significantly different. Below is a chart for the leading junk bond fund ETF showing the rebound this year. Being an index fund, it understates the records of many individual funds.

Barclays Capital Hi Yld Bond ETF - YTD





Oil is participating in the rally, taking it above the important 70 level.

CLU09.NYM

...Crude Oil Sep 09

...70.59

... 1.14 .......(1.64%)

Today may be an example of, "Buy on the rumor & sell on the news." There is not much the FED can do with interest rates, but any announcement about their view of the economy & what they plan to do going forward is eagerly awaited. The yield on the Treasury bond is little changed ahead of its auction of additional bonds in a couple of hours.

Dow Jones Industrials --- 2 weeks

Tough Tuesday for markets

Dow began the day down & was never able to break into the black. Dow fell 96 near its lows for the day, decliners over advancers 5-2 & NAZ was off 22. The S&P 500 dropped below the important 1K level, down 12 to 994. Banks led the way down, although all indices remain near their 2009 highs reached last week.

S&P 500 FINANCIALS INDEX

Value 185.10

Change -6.78

% Change- 3.5%

S5FINL:IND






The AlerianMLP Index dropped another 5 to the 238s, off 13 from its recent highs. Given the run for MLPs this year, the drop does worry the bulls. The Dow Jones REIT Index fell almost 5 to the 255s, but again still near their 2009 highs reached a few days ago. Junk bonds funds were mixed, also just off the 2009 highs.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




Oil broke thru the important $70 barrier. Nervousness about what the Federal Reserve has to say on the economy & its future is affecting oil prices.

CLU09.NYM

..Crude Oil Sep 09

..69.39

.. 1.21 ......(1.7%)

The Treasury's auction of 3-year notes today went well. They sold a record (everything is a record these days!) $37B of these notes at a better than expected (i.e. lower interest cost than expected) rate of 1.78%. The important bid to cover ratio (which gauges demand) was an impressive 2.89X compared with an average of 2.52X at the last 7 auctions. Indirect bidders, i.e. foreign central banks, bought a record 62.5% of the notes versus 54% in July. The average for the past 7 auctions was 41%. $23B of 10-year notes will be sold tomorrow & $15B of 30-year bonds on Thurs to help fund the record budget deficit. The yield on the 10-year Treasury bond slipped 8 basis points to 3.69% today ahead of tomorrow's auction.

Treasuries Gain Amid Record Indirect Bids at U.S. Three-Year Note Auction


CIT (CIT) remains very shaky. They are facing an Aug 17 deadline when it must pay off $1B in notes. As of the present it is not a done deal. CIT obtained $3B in emergency financing last month but the stock is down 50¢ in 2 days to 1.21. They finance a lot of small business, especially in retail, making their survival especially important.

• CIT delays report, could seek bankruptcy- Reuters

Stocks are resting after an outstanding month in July. The FED can't do much with interest rates, it's widely expected they will continue at very low levels for some time to come. However, eventually they will have to unwind positions & raise their rates to traditional levels. That thought has been weighing down markets.

Dow Jones Industrials --- 2 weeks

Markets drift lower

Dow was in the red all day, finishing down 32. Decliners were only 20% over advancers & NAZ slipped 8, bringing it back under the important 2K level. The S&P 500 was off 3, but held above the 1K level. Banks settled back in the PM along with the rest of the market.

S&P 500 FINANCIALS INDEX

Value 191.88

Change -1.26

% Change -0.7%

S5FINL:IND





The MLP Index coming off one of its rare down weeks since Mar was up pennies in the 243s while the Dow Jones REIT Index gave up 4 after its recent run. Junk bonds funds were mixed to higher. Treasuries finally found buyers, the yield on the 10-year Treasury bond fell 8 basis points to 3.77%.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





Oil pulled back but still in the 70s.

CLU09.NYM

..Crude Oil Sep 09

..70.86

.. 0.07 ......(0.1%)

Treasury 10-year notes rose for the first time in 6 days. Yields at the highest levels in 2 months lured buyers before another record sale of $75B of notes & bonds this week. Ten-year yields surged 37 basis points last week, the most since Mar 2003, based on economic data which boosted confidence that the U.S. economy is recovering.

10-Year Yield Treasury Index - YTD





The Federal Reserve will be holding its FOMC meeting this week. It's not getting a lot of attention with many being away & no change expected in holding their interest rate near zero. However, there is always the chance they might give clues about how they expect to unwind their positions which were taken to help the economy. Help is a code word for selling the massive amount of gov debt they own, by last count over $2B. While down, Dow is just inches from its 2009 highs.

Dow Jones Industrials --- YTD

Stocks take a breather

Dow has been just sitting just under break even. Dow is down 18, decliners barely ahead of advancers & NAZ is off 4. Banks inched up to another 2009 high.

S&P 500 FINANCIALS INDEX

Value 193.30

Change 0.16

% Change 0.1%

MLPs & REITs are not doing much. MLPs are taking a rest after their long run this year (up pennies today) while REITs need a rest after gains in the last couple off weeks (index is off 2). Junk bond funds are mixed to higher. The VIX, volatility index, is up a fraction but staying close to the 25 level it has gotten used to. On this quiet day, Treasuries rose ever so slightly. The yield on the 10-year Treasury bond is down 2 basis points to 3.83%.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




With not much going on, oil is up pennies, remaining in the 71s.

CLU09.NYM

...Crude Oil Sep 09

...71.31

... 0.38 .......(0.54%)

McDonald's (MCD), Dow stock & Dividend Aristocrat, reported same store sales rose 4.3% in Jul. The stock rose 91¢. U.S. same-store sales climbed 2.6% because of new products, including McCafe espresso-based coffee while European same-store sales surged 7.2%, helped by growth in France & the U.K. Same-store sales for Asia Pacific, the Middle East & Africa rose 2.1%, strength in Australia helped offset weakness in China. Longer operating hours also boosted sales. However, total MCD sales declined 0.3% because of currency translation.

• McDonald's July same-store sales rise 4.3 percent- AP

McDonald's --- YTD





This looks to be one of those going nowhere kind of days, a good day to go to the beach.

Dow Jones Industrials --- 2 weeks

Market averages at 10 month highs

The jobs report was encouraging for buyers, stocks shot up out of the gate & remained solidly in the black throughout the day. But profit taking in the PM reduced gains. Dow added 113, advancers over decliners 3-1, NAZ was up 27 (taking it just over 2K) & the S&P 500 went up 13, back over 1K. Banks are on fire, leading the markets higher although gains were trimmed with selling late in the day. Even doggy Citigroup (C) went over 4, but had to settle for a gain of only 6¢ to 3.86.

S&P 500 FINANCIALS INDEX

Value 193.14

Change 5.08

% Change 2.7%

Buyers found MLPs in the PM. The Alerian MLP index gained 1.83 to the 243s. REITs are red hot after being largely ignored this year. The Dow Jones REIT Index shot up another 8 to the 163s, not seen since early Nov. Junk bond funds also rose, typically up 1+%. The VIX, volatility index, had been in the 20s recently. Now it's at the low end of its recent range, down 1+ to the 24s & close to the yearly lows. When stocks rise, money may flow out of bonds as it did today. The yield on the 10 year Treasury remained up 11 basis points 3.86% thru the close.


Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month




VIX --- 1 month





Oil didn't participate in the rally, but above 70 remains high.

CLU09.NYM

..Crude Oil Sep 09

..70.70

.. 1.24 ......(1.7%)

Averages keep rocketing ahead, the start of earnings season was the beginning of the current push upward. Dow is up 17% already (what is considered an excellent year) since Jul 10. Dow had a great start for this week, muddled along in the middle & finished with another good day for a net gain of 200 for the week. Reality such as dreary unemployment numbers & poor sales in many areas (housing, autos, retail, etc.) did not disturb buyers. On the margins, junk bonds, which have not seen their low point, continue on a roll. Until something reverses this train of thinking, stocks will keep climbing that wall of worry.

Dow Jones Industrials --- 1 month

Markets leap on favorable unemployment news

Dow started strong out of the gate. It's up 124, advancers ahead of decliners 3-1, NAZ is up 29 (to 2002) & S&P 500 is up 14 to 1012. Banks are soaring taking the Financial Index back to the early days of Nov 2008.

S&P 500 FINANCIALS INDEX

Value 194.70

Change 6.64

% Change 3.5%

S5FINL:IND





MLPs are on holiday this week, taking it easy (up a fraction in the 241s). This is their 4th down or sluggish days, although ex-distributions account for some of their decline. But the Dow Jones REIT Index is on a tear, rising 6½ to the 162s, another 2009 high. Junk bond funds are higher again. Meanwhile Treasuries are selling off. The yield on the 10-year Treasury Bond jumped 11 basis points to 3.85%. The magical 4% yield is very close.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




10-year Treasury Yld Index - 2 months





Oil is not ready to break the 73 ceiling, off a little today back in the 71s.

CLU09.NYM

...Crude Oil Sep 09

...71.52

... 0.42 .......(0.6%)

Employers cut just 247K jobs in Jul, the fewest in a year. The unemployment rate dipped to 9.4%, the first decline in 15 months. However, the jobs market is on shaky ground even though the new figures were better than expected & offered welcomed improvements to a part of the economy that has been clobbered. While the worst seems to be behind us (in terms of layoffs) more hiring is needed to reduce unemployment. Part of the reason the rate went down was hundreds of thousands left the labor force. There were 14.5M out of work in Jul. Including laid-off workers who have given up looking for new jobs or have settled for part-time work, the unemployment rate would have been 16.3% (an alarming number). Job losses were blunted mainly by job gains in gov, education & health services. Since the recession began in Dec 2007, the economy has lost 6.7M jobs.

•U.S. Payroll Cuts Slow, Jobless Rate Unexpectedly Falls as Recession Eases


Fannie Mae (FNM) will need another $11B from from the gov after reporting one more huge loss. This will bring total aid needed by FNM & Freddie Mac (FRE) to a whopping $96B (these 2 institutions guarantee about ½ the mortgages in the US).

• Fannie Mae seeks $10.7B in US aid after 2Q loss- AP

CIT (CIT) is still struggling to stay alive. They received the last $1B on under the emergency $3B loan agreed to last month. Preferred dividend payments gave been suspended to improve liquidity. The stock is up 9¢ to 1.71 for the very brave. CIT is a large lender to small & medium size businesses, especially important for retailers.

•CIT Suspends Payment of Preferred Dividends During Lender's Restructuring


Dow started the week with a bang & then traded sideways until today when buyers returned. It's next upside goal is 9½K which is just 100+ away.

Dow Jones Industrials --- 2 weeks

Sideways stocks slip lower

After Dow's big rally on Mon, it has been going nowhere for the rest of the week. Today Dow lost 24, decliners over advancers almost 2-1 & NAZ was off 19 largely related to so-so earnings news & guidance from Cisco (CSCO). Banks sold off in the PM, but that's coming off an exceptional run in the last month (shown in the graph below).

S&P 500 FINANCIALS INDEX

Value 188.06

Change -1.31

% Change -0.7%

Value for S5FINL:IND




MLPs continue weak this week, but no great harm to the overall upward trend. The index dropped 4+ to the 241s. The Dow Jones REIT Index settled back (after an advance of 5 to 162 during the day) to down 1+. Junk bond funds were also lower, off their recent yearly highs. The VIX, volatility index, was up .77 in the 25s & has been fluctuating around 25 for almost a month. The yield on the 10-year Treasury bond ended up 2 basis points to 3.75%.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





Oil prices, after trading lower, ending down only 2 pennies, near 72, keeping close to its 2009 highs.

CLU09.NYM

..Crude Oil Sep 09

..71.95

.. 0.02 ......(0.0%)

High unemployment along with the depression for housing & autos are the big drags on the economy, &, in turn, the stock markets. Weekly layoffs are slowing, but that only tells half the story. What is more important now, with layoffs slowing, is rehiring. Rehiring in a major way will have to wait until next year, the critical factor to bring down unemployment. Tomorrow's dreaded unemployment number for Jul is forecasted to show a rise to 9.7% on its way to 10+%.

Housing really looks to be in bad shape. Weekly & monthly numbers about housing ticking up a couple of percent, don't really mean a lot. That business is selling roughly .4M units. In the "good old days" (not too long ago) that number was 1M higher, that's down 70%. The high inventory of unsold housing will be a severe drag on the industry for some time. Autos are in their version of a depression. The cash for clunkers is only a temporary fix, not made to solve fundamental problems. Worse for the US economy is that autos from foreign manufacturers with more fuel efficient cars are getting much of the business. In the mean time, the gov has to keep borrowing more & more. There are indications that foreigners (i.e. Chinese) are questioning the need for unlimited borrowing.

Markets have had an extraordinary run, especially in recent weeks. They need time to pause & figure out where to go next.

Dow Jones Industrials --- YTD