Markets hesitate after mixed data

Dow inched up 1, advancers over decliners 3-2 & NAZ slipped 7 after recent gains. Banks reversed AM losses, the Financial Index closed with a modest gain


S&P 500 FINANCIALS INDEX

Value 202.00

Change 0.85

% Change 0.4%

The MLP index continues on its winning ways, up a fraction in the 295s (not seen since early Jun 2008). Many of the prominent MLPs have more than doubled off their lows & seems like nothing can stop this advance until holders decide to cash in profits. The REIT index was down fractionally still at its highs reached 4 months ago. Junk bond funds continue strong. But the Treasury 10-year bond was off, taking its yield up 5 basis points to 3.81%. Investors are seeking risk when investing.

Enterprise Products Partners (EPD), now the largest MLP, just announced they will sell over 9.4M shares (with over-allotments), raising about $300M, to pay off debt & for general purposes. The price around $33 is almost double the low in Mar.


Enterprise Products Partners L.P. Announces Public Offering of UnitsBusiness Wire(Wed 4:15pm)


Alerian MLP Index --- 3 months




Dow Jones REIT Index --- 3 months





Cold weather in the northern hemisphere encouraged buyers for oil. Meanwhile, gold has been quietly working its way up from its lows 2 weeks ago, gaining over 5%. Commodities were also helped by a weaker dollar. Recently the Japanese ¥ has advanced from less than 89 to buy a dollar to 92+.

CLG10.NYM

..Crude Oil Feb 10

..83.19

.. 1.42 ......(1.7%)

GCF10.CMX

..Gold Jan 10

..1,135.90

.. 17.80 ......(1.6%)

GLD (ETF) --- 2 weeks





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Bill Gross, head of PIMCO, the largest bond holder in the world, said he sees a, "gradually higher yield on the 10-year Treasury note" on Bloomberg TV. He has been selling Treasury notes to buy German comparable notes for their better value. John Bogle, founder of Vanguard Group & its index funds, said he is optimistic on stocks over the next 10 years, but high interest rates & unemployment are making him cautious in today's markets. He forecasted annual returns for stocks of 7-9% (including 2% from divs). He also pointed out that he favors investing in basic ETFs (tracking S&P 500 or total stock markets) but does not like the specialized ETFs with differing investment objectives & possibly using leverage.

There are significantly different charts for market averages in Q4 below. Dow has been bumping its head against the 10½K ceiling pretty much trading sideways in the last 6 weeks. NAZ has a nice 10% advance in Q4. S&P 500 has a chart between Dow & NAZ with a meaningful bump up in the last 2 weeks. MLPs have a similar chart to NAZ only MLPs have done much better, gaining 18%. Charts for individual junk bond funds would be similar to the MLP chart but with more modest (than 18%) gains, bond prices can run just so far. Dow may not be as representative of the market as it use to be, but traditionalist will find it's lagging behind as troubling.


Dow Jones Industrials --- 3 months




Nasdaq --- 3 months




S&P 500 --- 3 months




Alerian MLP index --- 3 months

Favorable job figures do not excite markets

Dow was up 15, advancers ahead of decliners 3-2 & NAZ was up all of 2. Banks were off only marginally.

S&P 500 FINANCIALS INDEX

Value 200.93

Change -0.22

% Change -0.1%

Buyers keep snapping up MLPs, the Alerian MLP Index is up another 1 to the 296s. It looks like nothing can stop the advance as shown in the charts, a scary thought. The Dow Jones REIT Index is up fractionally, I think its chart gives a better representation of what is happening with the economic recovery. Junk bond funds are flat. Treasuries sold off, the yield on the 10-year Treasury bond is up 6 basis points to 3.81% which is going to make new mortgages more expensive.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks





Oil is soggy but gold is picking up steam. For the time being, the 1100 floor has been able to hold pretty well.

CLG10.NYM

...Crude Oil Feb 10

...81.35

... 0.42 .......(0.5%)

GCF10.CMX

...Gold Jan 10

...1,136.00

... 17.90 .......(1.6%)

GLD (ETF) --- 2 months







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Photo: Yahoo


Planned layoffs at US firms fell in Dec to their lowest level in 2 years. Employers announced 45K planned job cuts, the fewest since Dec 2007, marking a 73% decline from 12 months ago. Over the course of 2009 employers announced plans to cut 1.3M jobs, the most since 2002. The pace of layoffs fell by 56% in H2 of 2009. While this news was expected, it is of little help to the 10% looking for jobs.

•U.S. December Job Cuts Drop to 84,000, Fewest Since March 2008, ADP Says


Announced corp layoffs - 1 year





This is another sideways day & MLPs remain the hottest group on the stock exchanges. In addition, junk bond funds are in demand.

Dow Jones Industrials --- 2 week

Markets sluggish on mixed data

Dow slipped 11, advancers over decliners 3-2 & NAZ was essentially even. Banks had one of their best days in a long time but the Financial Index remains in the middle of its 5 month trading range.


S&P 500 FINANCIALS INDEX

Value 201.15

Change 3.36

% Change 1.7%

The Alerian MLP Index rose another 3 to the 295s. In the last 2 months it has risen 16% without one setback. Meanwhile, the REIT has had tough sledding (appropriate imagery for this time of year). It's flattish today & only at its Sep high level. Junk bond funds keep blasting ahead to new highs propelled by investors embracing risk for high yields. Today Treasuries were higher, the yield on the 10-year Treasury bond dropped 8 basis points to 3.76% (still at an ominous level for many new mortgages).


Alerian MLP Index --- 1 year




Dow Jones REIT Index --- 1 year





Nothing like very cold weather in North America, Europe & Asia to attract buyers to oil. The chart below shows the trend for oil over the last 6 months. While bumpy, that's how commodities work, it has an upward bias. Gold keeps sloshing around trying to establish a base.

CLG10.NYM

..Crude Oil Feb 10

..81.98

.. 0.47 ......(0.6%)

GCF10.CMX

..Gold Jan 10

..1,115.00

.. 2.70 ......(0.2%)

OIL (ETF) --- 6 months





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photo: Bloomberg


The top car manufacturers saw sharp declines in sales last year, but said they had positive momentum going into Jan 2010. Sales of smaller, cheaper vehicles, however, helped drive gains for some manufacturers. Hyundai had an 8% yearly gain, with its low-cost Kia brand reporting 2009 sales gains of nearly 10% including a 44% gain in Dec. In addition, Japanese automaker Subaru, reported a 15% sales gain for 2009.

For the year, GM sales were off 33% from 2008, with Dec sales falling 9%. GM sales were down for the year because partially because it's phasing out Saturn, Pontiac, Saab & Hummer. GM saw its US market share stabilize at 20% (down from over 50% in the past).

Ford Motor (F) full-year sales declined 15%, but posted its first full-year gain in US market share since 1995. It also reported a 33% increase in Dec sales thanks to strong demand for midsize cars like the Ford Fusion, whose sales rose 83% & the Ford Escape Crossover with a sales increase of 75%.

Chrysler sold only 931K vehicles for the year, its worst performance since 1962 as sales dropped 36% in 2009 (but down only 4% in Dec). And last month's sales rose 36% over Nov, showing signs of some progress at showrooms.

Honda's sales were off 22% for the year but up 20% for Dec, while Nissan was up 18% for the month but down 19% in 2009. Toyota (TM) sales were up 32% in Dec but down 20% for the year.

Total US auto sales will be reported shortly. They are expected to drop to levels not seen for 3 decades. The last time sales were so low was in 1982, when 10½M cars were sold during another bad recession.

Meanwhile, China surpassed the US as the largest auto market, with sales expected to top 12M in 2009. Japan's auto sales declined to the lowest level in 38 years, falling to 2.9M vehicles. But Germany, another major auto producer, said that car exports were up in the qtr & year as the effects of the economic downturn eased.

That was one ugly year for autos with China emerging as not only the largest but one of the fastest growing markets for cars.


•Auto Industry Stabilizes as Ford, Toyota Report December U.S. Sales Gains


Annual US sales of light vehicles - 1 year





Because of the large gains in the stock markets last year, it's easy to forget bonds. They also had an outstanding year with high yield bonds performing the best (many up 50+%). High yield bonds are merely stocks with high yields. They have their work cut out for them if they want to make price advances this year. Their yields are approaching the lowest they've been in the best of times. In addition, many junk bond funds invest in high yield bonds in foreign (especially emerging) countries which carry an added risk. As long as they carry on with the winning ways, investors are happy. But I wonder how long this can last with so much uncertainty about the recovery.


Dow Jones Industrials --- 1 year

Markets take a rest

Stocks are resting after yesterday's big gains. Dow is down 20, advancers ahead of decliners 3-2 & NAZ is up 1. Banks are doing well helped by the Bank of America (BAC) presentation yesterday. The Financial Index is trying to get back to the 200 level which it has hovered around for 5 months while market averages continued their rally


S&P 500 FINANCIALS INDEX

Value 199.48

Change 1.69

% Change 0.9%

MLPs continue RED HOT with the index advancing another 2+ to the 196s. The chart below shows its up almost 10% in just the last 10 trading days, & that's after already having its best year in history by a wide margin. In contrast, REITs, another high yield security with tax advantages, started the year on the wrong foot (today it's flat). Concerns about real estate (housing & commercial space) are weighing down the sector. Junk bond funds, like MLPs, are also HOT gaining again to levels not seen since the Lehman collapse. Treasuries are higher, the yield on the 10-year Treasury fell 6 basis points to 3.78%.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks









Oil is doing little even following more reports on cold weather. Oil bulls are happy to see it above 80 aiming for new interim heights. Gold is doing well, perhaps the 1100 floor will hold.

CLG10.NYM

...Crude Oil Feb 10

...81.60

... 0.12 .......(0.2%)

GCF10.CMX

...Gold Jan 10

...1,123.60

... 5.90 .......(0.5%)

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Photo: Bloomberg


The National Association of Realtors reported its index of home sales agreements fell 16% from Oct to a Nov reading of 96, the first decline following 9 straight months of gains & the lowest reading since Jun. The drop was far larger than the 2% expected. Consumers are taking their time following the extension of a tax credit deadline.

•Pending Sales of Existing Homes in U.S. Fall 16% as Buyers Wait for Credit

Pending home sales index - 1 year

Orders to US factories posted a surprisingly big gain in Nov, reflecting strong demand from steel & industrial machinery to computers & chemicals. The advance was double what had been expected. The Commerce Dept reported that orders rose by 1.1% in Nov. The report on orders showed that demand for durable goods rose by 0.2% in Nov, unchanged from a preliminary estimate after falling 0.7% in Oct. Orders for nondurable goods rose 1.8% after an even stronger 2.2% rise in Oct from strength in demand for petroleum, chemical products & textiles. The 1.1% rise in total orders for Nov was the 7th increase in the past 8 months.

•U.S. Factory Orders Rose 1.1% in November, More Than Economists' Forecasts



Constellation Energy (CEP) is an MLP that has not participated in the MLP rally. They had to drop the distribution (after a substantial cut) last year to concentrate on paying down debt. Late in 2009 they refinanced their loan with a larger loan, showing lender faith in the company. The units are kicking around the 4s, but have had a nice move up this week with the MLP rally. Risk takers who see this as a turnaround situation, are buying, With even modest growth in 2010, this is probably a decent bet.

Constellation Energy Partners Announces New Credit FacilityBusiness Wire


Constellation Energy --- 2 weeks





Stocks need time to take a breather. The cold spell is a global phenomenon, China has extremely cold weather & major snows to deal with. It's not hard to see energy prices charge ahead, perhaps MLPs are benefiting from this sentiment. I think their advance has a stronger connection to the rally in junk bonds, both are high yield securities.


Dow Jones Industrials --- 2 weeks

The January effect lifts stocks

Markets started with strong gains in the first ½ hour & remained on the plateau for the rest of the day. Dow rose 155, advancers ahead of decliners 4-1 & NAZ gained 39. Popular averages reached new highs not seen in at least 15 months. Banks had a decent rally, helped by the speech of the new Bank of America president (see below).

S&P 500 FINANCIALS INDEX

Value 197.79

Change 4.01

% Change 2.1%

MLPs exploded out of the gate. The index gained 6+ to the 291s (not seen in 18 months). However, the Dow Jones REIT Index slipped 1 on worries about real estate. Junk bond funds had good advances. Treasuries inched up, the yield on the 10-year Treasury bond dropped 2 basis points but remains in high territory at 3.84%.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks







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Commodities benefited from enthusiasm about improving economies around the world. Oil jumped thru the 80 ceiling & gold had a good day.

CLG10.NYM

...Crude Oil Feb 10

...81.54

... 2.18 .......(2.8%)

GCF10.CMX

Gold Jan 10

...1,117.70

... 22.50 .......(2.1%)

Photo: Bloomberg


The new CEO of Bank of America (BAC), Dow stock, Brian Moynihan, gave a speech on his first day at work saying the recession’s impact is fading & the bank’s biggest acquisitions are over, allowing him to focus on rebuilding relationships with customers. He feels that, "The worst is behind us in the sense of credit." & added, "As an industry, we over-lent and customers over-borrowed, and that led to a fairly significant bubble. If you could rewind the clock, you wouldn’t do those things again." BAC is expected to report its 3rd loss (for Q4) in the past 5 qtrs, amounting to 50¢ a share. Credit card defaults are “still very high." An analyst on Bloomberg was optimistic about BAC in 2010. He said losses will play out this year enabling them to report favorable results, probably beginning late in 2010. As long as they stay away from acquisitions (current events dictate that), they should do well.

•BofA's Moynihan Says Worst of Recession Over, Bank Industry Learned Lesson


Bank of America --- 2 years





I get nervous when the markets keep surging ahead in the face of great levels of uncertainty. In today's speech from BAC, there was a reminder that the recovery is fragile & is expected to proceed at a modest pace which will not enable substantially more hirings. On the margin, the rally in junk bonds taking their yields down to around 10% is disturbing. That level is only about 100 basis points above the levels in the best of times. With housing still in the dumps, retail sales so-so at best & high unemployment (17% if the underemployed are counted), it's premature to consider these as the best of times.

The beginning of a new month means sales reports are coming followed by the Dec unemployment report at week's end. Tomorrow, initial reports on auto & retail holiday sales ought to be released & should be weak. But buyers may be encouraged in a market where beating lowered expectation is good enough. The basset picture at the end summarizes my feelings about the markets.


Dow Jones Industrials --- 2 weeks




Nasdaq --- 2 weeks

Markets explode into the new year

Stocks began 2010 by surging out of the gate. Dow is up 160, advancers 4-1 ahead of decliners & NAZ gained 40. Even banks are having a good day. While the Financial Index is higher, its gain can be thought of as good but not great.

S&P 500 FINANCIALS INDEX

Value 196.76

Change 2.98

% Change 1.5%

MLPs started the year like they were shot out of a canon. The Alerian MLP Index rose over 5, shooting for 291. Its 3 year chart is shown below to review how much it has recovered against its 342 all time high. The REIT index had a more tepid gain (up only 1) reflecting doubts about real estate. Junk bond funds are having another excellent day bringing many yields down to 10%. Even Treasuries are rallying, the yield on the 10-year Treasury bond fell 4 basis points to 3.82% (but remaining in high territory).

10-Year

3.375

11/15/2019

96-12 / 3.82

Alerian MLP Index --- 3 years




Dow Jones REIT Index --- 1 year





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Oil cracked the important 80 ceiling on the cold weather snap (remember global warming?) in the northeast. Commodities were strong, gold is trying to establish 1100 as a floor from which to rebound.

CLG10.NYM

...Crude Oil Feb 10

...81.46

... 2.10 .......(2.7%)

GCF10.CMX

...Gold Jan 10

...1,120.20

... 25.00 .......(2.3%)

The Institute for Supply Management said its manufacturing index was 55.9 in Dec vs 53.6 in Nov (a reading above 50 indicates growth) for the 5th straight month of expansion & the highest reading in 4 years. But a separate report on construction spending sounded a more cautionary note as construction activity fell in Nov for a 7th straight month, the 0.6% was bigger than the 0.4% decline predicted. Other measures of manufacturing around the world also showed growth. China's manufacturing sector expanded in Dec at its fastest rate in 20 months. In Europe, a similar survey in the 16 countries that use the Euro rose to a 21-month high & a manufacturing index for Britain rose to a 25-month high.

Manufacturing in U.S. Expanded More Than Forecast


Factory Index - 1 year

Photo: Bloomberg


Berkshire Hathaway (BRK.A) had its worst performance in a decade (pretty much flat) when compared to the big gains by the Dow. Generally "value stocks" performed only so-so at a time when risk was embraced & rewarded. BRK felt that effect.

•Warren Buffett Delivers Worst Stock Performance Against S&P 500 in Decade

Berkshire Hathaway --- 1 year




The new year started with bulls taking charge. The January Effect (fresh money coming into markets in a new year) is taking hold. Last year, risk averse was the main theme but now risk is being rewarded. Risky investments are getting a lot of attention as demonstrated by the strength in high yield sectors.


Dow Jones Industrials --- 1 year




Nasdaq --- 1 year