Stocks & gold rise together

Dow rose at the start & stayed sharply higher for the rest of the day. Dow closed up 131 taking it within 100 of its high this year, advancers were over decliners 3-1 (down from the 6-1 ratio in the AM) & NAZ gained 35. Banks were strong although they lost some steam in the PM. The Financial Index touched 203 but fell back 2 for a more modest gain.

S&P 500 FINANCIALS INDEX

Value 201.02

Change 2.45

% Change 1.2%

The high yield sectors gave up some of their gains in the PM. MLPs remained strong, the index gained 3 to its 2009 high in the 252s. MLPs were helped by the announcement from BreitBurn (BBEP) that their borrowing base was "reaffirmed." Translated, it means bankers were happy that they were able to pay down $150M of their loans. Skipping the distribution helped them conserve money & the implication is that a distribution may return fairly soon. BBEP more than doubled from its lows in early 2009, today up 88¢ to 12.64. The Dow Jones REIT Index was essentially even, giving up AM gains. Junk bond funds were mixed near their yearly high levels. Treasury bonds slipped, the yield on the 10 year Treasury bond went up 2+ basis points to 3.25%.

• BreitBurn Energy Partners L.P. Announces Reaffirmation of Borrowing Base at $732 Million, Unchanged From Previous LevelBusiness Wire(Mon 9:00am)

BreitBurn EnergyPartners -- YTD





Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months





Sellers came on in the PM to reduce gains for oil but gold continued strong at its record levels. Oil was helped by a weak dollar. It takes fewer than 89 ¥ to buy a dollar and the € is over $1.47. The weak dollar will also be a factor in earnings, generally helping companies with a large portion of business outside the US. Gold reached $1045 on worries about the direction of inflation in the future.

CLX09.NYM

..Crude Oil Nov 09

..70.98 ..

0.57 ......(0.8%)

GCV09.CMX

..Gold Oct 09

..1,036.20

.. 19.50 ......(1.9%)

Stocks have had 2 nice days of gains ahead of the start of earnings season. I keep thinking they may be setting up for buy on the rumor & sell on the news (i.e. next week). Major disconnects continue, stocks & commodities (i.e. gold) rise together & bonds (quality & junk bonds) go up at the same time.

Dow Jones Industrials --- 3 months

Markets surge, nearing 2009 highs

Dow soared again today, up 167 nearing its 9830 close just 2 weeks ago. Advancers are 6-1 ahead of decliners & NAZ shot up 40. Banks are leading the way as the Financial Index is up an impressive 9 this week.


S&P 500 FINANCIALS INDEX

Value 203.04

Change 4.47

% Change 2.3%

As stocks recover lost territory of the last 2 weeks, high yield sectors are hot again. The Alerian MLP Index is up 3 to the 252s, aiming for a new 2009 high. REITs are strong, the Dow Jones REIT Index is up 3 & almost 10 from the lows 2 days ago. Junk bond funds are also higher. Given the rallies in all the markets, Treasuries sold off. The yield on the 10-year Treasury bond slipped 3 basis points to 3.25% but it remains near its recent interim low yield below 3.20%.


Alerian MLP Index --- 2 weeks



Dow Jones REIT Index --- 2 weeks





Higher stocks bring higher commodity prices. Huh? Oh well, oil passed 71 but is still in its sideways trading pattern since May. But gold is another story. While stocks have been soaring this year on inflation fears, gold shot up from the mid 800s to well over 1K (another record). Investors are scrambling to buy stocks & risk averse gold, that's not supposed to happen at the same time!

CLX09.NYM

...Crude Oil Nov 09

...71.67

... 1.26 .......(1.8%)

GCV09.CMX

...Gold Oct 09

...1,035.80

... 19.10 .......(1.9%)

GLD (ETF) --- 6 months






The House wants new regulations for a financial overhaul, hearings begin today. The administration proposed legislation to protect investors by bolstering the authority of the SEC (you know the guys who were watching Bernie Madoff), putting stockbrokers & investment advisers under the same standards of conduct and strengthening rules governing the timing & quality of disclosures by investment funds. In addition they proposed putting private pools of capital -- hedge funds, private equity & venture capital funds -- under gov supervision by requiring they register with the SEC. This would open their books & they would be subject to disclosure requirements. Expect a lot of bloviating from congress. Somehow they say this won't interfere with passing a massive health care plan.

• House lawmakers craft hearing on financial overhaul- AP

Boeing (BA), Dow stock, will take a charge of $1B (90¢ per share) in Q3 from higher costs in its 747-8 freighter program & general market conditions. Last year BA delayed deliveries of the 747-8 freighter & passenger jets due to design changes, limited engineering resources & had a strike that shut down the its commercial jet factories for 8 weeks. The stock is down 1 to the 51s & has had only a limited recovery since early 2009.

Boeing --- 2 years





US markets followed the lead of higher markets around the globe. Australia's central bank (Royal Bank of Australia) raised interest rates (from a 29 year low) 25 basis points to 3¼% & signaled there may be more rate hikes coming. Bulls viewed this a sign of economic strength which increased their expectations for worldwide earnings reports in the next few weeks. With today's rally, Dow has recovered most of the losses in the last 2 weeks.

Australia cash interest rate - 1 year





Dow Jones Industrials --- 2 weeks

Short term oversold markets rally

Dow gained 112 closing near the highs after 2 weeks of setbacks, advancers ahead of decliners 4-1 & NAZ was up 20.

For 2 months the Financial Index has been just under 200 & more recently broke thru that barrier, but not convincingly. It may be trying again, today's advance was impressive. On the bank upgrades from Goldman, Wells Fargo (WFC) & Dow stock Bank of America (BAC) were up 62¢ & 1.81 respectively.


S&P 500 FINANCIALS INDEX

Value 198.57

Change 6.34

% Change 3.3%

Bank of America --- 2 weeks




Wells Fargo --- 2 weeks






MLPs & REITs were very strong today. Each index was up about 4, big moves. Junk bond funds were mixed remaining near yearly highs. But Treasuries sold off in the PM. The yield on the 10-year Treasury bond rose (bond prices fell) back to break even for the the day at 3.22%.


Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months





Commodities were strong in the PM. Buyers took oil back over 70 & gold is reaching for new highs. Gold may be feeling the effects of risk averse investors buying it as an inflation hedge. Oil is always difficult to figure, but Iran & its nuclear ambitions have growing importance with the risk that they could choke off the flow of oil from the Persian Gulf.

CLX09.NYM

Crude Oil Nov 09

..70.50

.. 0.55 ......(0.8%)

GCV09.CMX

..Gold Oct 09

..1,016.30

.. 13.10 ......(1.3%)

The graph for the ISM data is shown below courtesy of Bloomberg. Going over 50 is significant changing its state from contraction to growth, if that can hold.

ISM Manufacturing Index - 12 months





Bulls view the 2 week pullback in the markets as healthy, they say a little bit of caution was needed. Stocks fell in 7 of the last 8 days encouraging bulls today. However, Dow only pulled back 343 (about 3½% from its best close on Sep 20). Of course, trading volume was light making today's moves less meaningful in understanding where the markets are going. Earnings should be the driving force for the next month with the wild-card Iran lurking in the background.

Dow Jones Industrials --- 3 months

Higher service sector activity lifts stocks

Dow rose 60, advancers ahead of decliners almost 4-1 & NAZ was up 17 after selling off last week. Banks were strong, helped by upgrades for major banks. Wells Fargo (WFC), in particular, is having a very good day, up 1.47.

S&P 500 FINANCIALS INDEX

Value 196.44

Change 4.21

% Change 2.1%

MLPs have not been able to get out of the 240s sideways range for over 2 months. Today the index is up 3 to the 248s. REITs are also strong, the Dow Jones REIT Index gained 3+. Junk bond funds are mixed to up a little. Treasuries continue strong, the disconnect between higher prices for quality & junk bonds is continuing. The yield on the 10 year Treasury bond fell 4 more basis points to 3.18%, lowest yield in almost 5 months as risk averse thoughts are not going away.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




Oil pulled back below 70 again. Gold was flat, just over 1K.

CLX09.NYM

...Crude Oil Nov 09

...68.32

... 1.63 .......(2.3%)

GCV09.CMX

...Gold Oct 09

...1,003.80

... 0.60 ........(0.1%)

The Institute for Supply Management reported its service index hit 50.9 last month, up from 48.4 in Aug (analysts expected 50, the dividing line between growth & contraction). The index, tracking more than 80% of the country's economic activity, hadn't grown since Aug 2008. The new orders index jumped to 54.2 in Sep up from 49.9 in Aug, also the first growth reading in a year. Present business activity rose to 55.1 from 51.3 in Aug. However, service-sector employment shrank in Sep but at a slightly slower pace than in Aug. Despite the overall growth, the chair of the ISM's committee was not "overly excited" about this report saying that several months of growth are needed to establish a pattern of recovery.

•U.S. Service Industries Expand for First Time in a Year as Recovery Widens


Nouriel Roubini, New York University Professor, said “Markets have gone up too much, too soon, too fast.” Roubini, who accurately predicted the financial crisis, is calling for a significant market drop. In addition, George Soros warned the “bankrupt” U.S. banking system will hamper its economy, highlighting doubts about the sustainability of the global recovery.

•Roubini, Prechter See Stock Declines as Soros Says Banks to Hurt Recovery


Markets continue to slosh around while trying to go higher. Dow lost its upward momentum as shown below. The service sector report was favorable but high unemployment numbers will be a major damper on future economic expansion. Alcoa (AA), Dow stock, reports earnings Wed evening, kicking off earnings season. Markets may be looking for more than just higher earnings from cost cutting efforts, increased sales will be getting more attention in Q3 reports.


Dow Jones Industrials --- 2 weeks

Markets tread water after unemployment report

Sellers were never able to take command & a few buyers returned later in the day, bringing the averages back nearer break even. Dow was off 21, decliners over advancers almost 2-1 & NAZ slipped 9. After a big decline yesterday, banks had a difficult time deciding whether to go up or down today.

S&P 500 FINANCIALS INDEX

Value 192.07

Change -0.31

% Change -0.2%

The Alerian MLP Index rallied in the PM, bringing it back to essentially even, still in the 245s. REITs continued weak, down another 1½ to the 159s (just 2 points above the 10% decline level from the 2009 high on Sep 23). Junk bond funds continued mixed, within a shout of their recent highs. Treasuries saw selling late in the day. The yield on the 10-year Treasury bond rose 3 basis points to 3.22%, still very low based on recent values.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD





Oil continued lower closing under 70 while gold inched up climbing over 1K again.

CLX09.NYM

..Crude Oil Nov 09

..69.78

.. 1.04 ......(1.5%)

GCV09.CMX

..Gold Oct 09

..1,003.20

.. 3.70 ......(0.4%)

The latest speculation on CIT Group (CIT) is they may have to file for Chapter 11. This company has unusual importance to the national economy since it finances about 1M small businesses. Today the stock was up 11¢ to 1.17. The chart below shows they've been living on death's door for a few months.

CIT --- 6 months





Brazil is very excited that Rio was chosen to host the 2016 Olympics. Back to the stock markets, sellers didn't come on too strong today despite the negative economic data. One important piece of the unemployment report is that gov employment fell 53K in Sep after dropping 19K in Aug. Don't worry, federal jobs keep climbing, nothing will stop that as long as $T (that's T as in trillion) deficits continue. But state & local jobs are being lost, they were supposed to benefit from the stimulus package passed in Feb. That bill was rushed thru over the weekend because it was considered sooo important, especially to hold the unemployment rate under 8%. So much for that gov planning!

The concept of a slow recovery is being talked about more, not good for the markets.


Dow Jones Industrials --- YTD

Stocks stumble over gloomy unemployment data

Markets absorbed the unemployment news fairly well. Dow was down only 39, decliners over advancers 5-2 & NAZ dropped 10. Banks were a little weak after yesterday's big decline.

500 FINANCIALS INDEX

Value 191.87

Change 0.51

% Change 0.3%

MLPs fell again. The Alerian MLP Index was off 1½ to the 244s. The Dow Jones REIT Index was down 1+, nearing a 10% decline from its recent high. Junk bond funds were mixed to weak but demand was strong for Treasuries. The yield on the 10-year Treasury bond was flat at 3.20%, lowest level in over 4 months.

Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months





Oil fell below 70 again, buffeted by the talks with Iran about its nuclear program & today's unemployment data. Gold found buyers, taking it back over 1K.

CLX09.NYM

...Crude Oil Nov 09

...69.19

... 1.63 .......(2.3%)

GCV09.CMX

...Gold Oct 09

...1,006.50

... 7.00 .......(0.7%)

Unemployment went up to 9.8% in Sep, the worst in 26 years, another reminder that the worst recession since the 1930s is still inflicting widespread pain & emphasizes one of the biggest threats to any economic recovery: that consumers are worried about job losses & stagnant wages which will restrain spending. The US economy lost 263K jobs last month, from a downwardly revised 201K in Aug (worse than expectations of 180K). If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the unemployment rate rose to 17%, the highest since record keeping began in 1994. More than a ½M unemployed people gave up looking for work last month. The number of people out of work for 6 months or longer jumped to a record 5.4M, making up almost 36% of the unemployed -- also a record.

Adding to this gloomy report, US factory orders fell in Aug by the largest amount in 5 months. The Commerce Dept said demand for manufactured goods dropped 0.8%, much worse than the 0.7% gain expected. The decline reflected plunging demand for commercial aircraft, a category that surged in Jul.

•Companies in U.S. Cut More Jobs Than Forecast; Unemployment Rises to 9.8%


Unemployment rate - 12 months





Change in Factory Orders -- 12 months




There seems to be a growing realization that any economic recovery will be slow & painful. More banks are having trouble collecting on more of their loans, bank problems are far from being solved. Talks with Iran are dragging on but they have important implications for global economies, not to mention world peace. Dow's chart below looks like it is very tired after a fabulous run.

Dow Jones Industrials --- 3 months

Stocks begin October on the wrong foot

Dow started the day (& month of Oct) down & remained in the dumps all day. Dow finished with a 203 decline (closing at its lows), decliners over advancers almost 5-1 & NAZ was off a very big 64. Banks pulled back sharply, hurt by the resignation of Ken Lewis at Bank of America (BAC). A 10 point drop for the Financial Index is a big deal & we pretty much got that today. The index is also about 15 below its 2009 high just 9 days ago.

S&P 500 FINANCIALS INDEX

Value 192.38

Change -8.80

% Change -4.4%

Bank of America (BAC) on its change of command announcement was down 71¢ to 16.21. It's up sharply from its lows near 3 earlier this year. Those buyers are happy campers. But buyers just 2 years ago paid $50+ to get a nice yield on its newly raised div of $2.56. They are very unhappy.

Bank of America --- YTD




MLPs have been stuck in a sideways trading zone in the 240s for 2 months. Today, the Alerian MLP index fell 3¾ to the 245s. The Dow Jones REIT Index dropped a very big 7½ to 161 or 20 below its high peak 2 weeks ago. Junk bond funds were off a little, still near or at recent highs. Money is flowing into the safety of Treasuries. The yield on the 10-year Treasury bond plunged 11 basis points to 3.19% (last seen in mid May). Note the disconnect between junk bonds & Treasuries, both are rising. That relationship can not last. Oil was up a few pennies, still in the 70s & gold slipped just under 1K.

Alerian MLP Index --- 1 month




Dow Jones REIT Index --- 1 month

Auto sales for General Motors & Chrysler had the biggest slowdowns in Sep. However Hyundai bucked the trend, reporting a 27% rise. Sep was the first month following the Autos for Clunkers program & it turned out to be more difficult month than anticipated. GM auto sales plunged 45% in Sep to 156K vehicles. Ford (F) reported sales of 114K (down 5%) in Sep, but the decline followed 2 straight months of rising sales. Chrysler sales of 62K vehicles were down 42% from 2008. Toyota Motor (TM) sales fell 13% while Nissan sales fell 7%. Ford's decline was the smallest among major manufacturers GM blamed the decline on the clunkers program pulling buyers into the 2 previous months, weak consumer confidence low inventory levels during Sep before production increases could replenish stocks.

•GM, Toyota, Ford, Chrysler U.S. Sales Decline as `Cash for Clunkers' Ends

Ben Bernanke, Federal Reserve Chairman, said U.S. economic growth next year probably won’t be strong enough to “substantially” bring down the jobless rate, which may remain above 9 percent at the end of 2010. “Most forecasters including the Fed are currently looking at growth in 2010, but not growth so rapid as to substantially lower the unemployment rate,” Bernanke said at a House Financial Services Committee hearing today in Washington. Growth of 3% means the rate would “still probably be above 9 percent by the end of 2010,” Bernanke said. These are chilling thoughts for the bulls who are talking about a rapid recovery next year. Implications for the high yield sectors REITs & junk bonds are sobering. How slow growth will affect MLPs is less clear, they just want to continue building pipelines & terminals no matter what. Lower earnings have not been a big hindrance to their expansion plans.



Stocks have had a spectacular run for 6 months, but ran into headwinds around the one year anniversary of the Lehman collapse in mid Sep. Nothing serious so far, key averages are still within a few % of their highs, but they're feeling the effects of headwinds. If worries about the pace of economic recovery increases (discussed today by Chairman Bernanke), there could be more selling. Bulls might welcome a change in markets which are extremely overbought.

Dow Jones Industrials --- 1 month

Markets tumble into the new quarter

Stocks began the new quarter on defense. Dow dropped 141 (& slipping), decliners over advancers 4-1 & NAZ fell a big 47. Banks suffered, hurt by the resignation of Ken Lewis at B of A (BAC), a Dow stock, & thoughts about his reign especially in the last 2 years. 2 years ago they raised their div to a record $2.56. They were very proud of their 30+ year track record of raising divs because of their growth record (a Dividend Aristocrat then). Now those thoughts are just history.

S&P 500 FINANCIALS INDEX

Value 197.24

Change -3.94

% Change -2.0%

MLPs began Q4 weak along with the general market. The Alerian MLP Index fell 2+ to the 247s, 250 continues to be a major barrier. The Dow Jones REIT Index fell a big 4 to the 164s (approaching a 10% decline from its recent peak). Junk bond funds were trading sideways at their yearly high levels. Money form selling high yields is going into Treasuries. The yield on the 10-year Treasury bond dropped 7 basis points to 3.24%, lowest yield since May. Risk averse is coming back into play.

Oil & gold opened Q4 by slipping pennies, hardly worth a mention. Oil is about 70, the middle of its trading range, while gold is just over 1K

Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months




10-Year Treasury Yld Index - 6 months

Initial claims for unemployment rose to 551K from 534K in the prior week. This increase comes after 3 weeks of declines, discouraging to say the least. Weekly claims have been trending down since the spring, but at a very slow pace. The 4-week average dropped to 548K (about 110K below its peak in early Apr). It is believed that initial claims below 400K would be a signal that employers are adding to net total jobs. The number on the rolls, meanwhile, fell 70K to 6.1M, the lowest level since early Apr. Some left the rolls because benefits have run out. The large number remaining on the rolls indicates unemployed workers are having a hard time finding new jobs. Tomorrow the big monthly unemployment report will be released.

US Initial Jobless Claims Rose 17,000 to 551,000


Weekly jobless claims 12 months

The Institute for Supply Management’s (ISM) factory gauge decreased to 52.6 from 52.9 in Aug (50 is the dividing line between expansion & contraction). The ISM index was forecast to rise to 54. The graph below shows the trend for the last 12 months.

•U.S. Manufacturing Expands at Slower Pace Than Estimated, ISM Index Shows

Factory Gauge -- 1 year





Pending sales of U.S. homes rose sharply in Aug, for a 7th consecutive month of gains, reaching the highest since March 2007 (shown in the graph below). The index, based on contracts signed, was up 6.4% to 103.8, the longest consecutive month-on-month gain in the history of the series (which began in 2001). The index rose from 97.6 in Jul & is 12.4% above Aug 2008's depressed level of 104.5. Buyers are returning to sign contracts, but deals are not necessarily closing due to long delays.

Pending Sales of Existing Homes in US Rose 6.4% in August

Change in contracts to buy homes -- 1 year





On balance, today's economic data gives more gloomy statistics. Yes, the economy is recovering, but at a plodding pace. Unemployment is probably the most important statistic & there is no reason to expect that will get better anytime soon. Dow had its best qtr in 11 years, truly an outstanding performance (shown below). But it ended on a sour note which continues in Q4.

Bloomberg has excellent graphs showing economic trends. I will be adding more in the future.

Dow Jones Industrials --- 3 months