Dow finally rallied, but not on Lehman announcements, instead on a technical rally for energy group. Financials did not lead or even participate in the gains. Dow rose 37 (earlier gains of 100+ points were lost in the last hour), advancers were about 20% ahead of decliners & NAZ was up 19. NYSE volume was basically medium, almost 1.6B. Financials were lower as Lehman news (or confusion) was not taken well:
S&P 500 FINANCIALS INDEX
Value ... 281.39 __Change ..(2.02) % __Change...(0.7%)
Lehman (LEH) was down 59¢ to 7.20 on confusion about their complicated restructuring plans. This confusion overhanging the markets (especially financials) will keep away buyers for some time:
Not helping the financial index, the cost of protecting against bank credit default has risen after all the recent, very ugly news. Washington Mutual (WM), the largest S&L, is now a $2 stock:
•Washington Mutual, Lehman Lead Increase in Bank Bond Risk to 6-Month High
On the plus side, gains were led by energy despite lower oil prices. Chevron (CVX) & Exxon-Mobil (XOM), Dow stocks, were each up 3% in a technical or overdo rally (from being oversold). As shown in the Yahoo financial badge on the right, The Alerian MLP index was down pennies at its roughly 3 year low. Oil was down pennies in the 102s. Oil, as with all commodities, is clearly on defense, trying to hold off the wave of recent selling. The concept of Demand Destruction, talked about by foreign analysts, is taking control of these markets. Also the stronger dollar is making matters worse for commodity bulls. The Euro has fallen to $1.40, down about 20¢, in the last few weeks.
In my focus on MLPs, I have been ignoring REITs & junk bond funds which I also like. REITs had a minor rally in recent days, but very little & off very depressed levels. Junk bonds continue in the dumps with yields over 12%, more than triple those available on Treasury bonds. Historically, this is one of the widest spreads ever seen. While REITs have mortgage exposure, they're the borrowers not lenders. Their yields are 4-6% for some leaders & higher (even into double digits) for other quality companies. Both groups deserve more respect as these high yields will make taking the sideways (if not lower) markets easier to take.
Wednesday, September 10, 2008
Lehman, Lehman, Lehman
Dow is up 22 at 11,253 (less than 300 above its recent low which may have to be revisited), advancers over decliners 3-2 & NAZ is up 10. S&P 500 FINANCIALS INDEX is down 4 to 279, tepid reaction, to say the least, on Lehman (LEH) plans to get its house in order.
Even with a hurricane in the Gulf and OPEC cutting back production, today's big news is all Lehman (LEH). At 8.05, up 26¢ (& slipping as I write), traders are trying to figure out what is really going on at Lehman. The idea is they are selling a majority interest & spinning off real estate assets after reporting a $4B loss. Details are lacking. From an outsider's perspective it looks like amateurs who don't know what they're doing are trying to straighten a ship with a very bad list. However, these amateurs in the past have gotten big bonuses on profits that didn't exist. It would be nice if they recognized enormous mistakes & returned some of the billions in bonuses they collected. Oh well, at least I didn't buy Lehman (i.e. very smart investing).
•Lehman Reports Loss, Plans Auction of Neuberger Stake, Real Estate Spinoff
Hurricane worries continue, as nobody can predict exactly where the storm will go. Oil is up pennies in the 104s after OPEC agreed to cut the production increase approved last year, ½MM barrels per day.
•Hurricane Ike Strengthens as It Enters Gulf of Mexico, Heads Toward Texas
ImClone (IMCL) received another bid for its stock, this one for 70, sending the stock price up 4¾ to 68 and change. This is the same company which got Martha into trouble & as I remember the same 70 price. At other times this kind of buyout news would lift the markets, not today.
The Alerian MLP index rebounded less than 1 after the 10 point fall yesterday, one of the biggest declines in its history. However the MLPs I follow are generally up. They have a good business model and a very low Beta, one measure had it at 0.35. But current market conditions are testing them along with everybody else. Last year, the index suffered an almost 20% sell-off from the 342 peak in late Jul-early Aug. Reasons are unclear, but a good guess is panicky young puppies threw caution into the wind when liquidating positions in hedge funds. Even these low Beta securities are subject to major gyrations.
Even with a hurricane in the Gulf and OPEC cutting back production, today's big news is all Lehman (LEH). At 8.05, up 26¢ (& slipping as I write), traders are trying to figure out what is really going on at Lehman. The idea is they are selling a majority interest & spinning off real estate assets after reporting a $4B loss. Details are lacking. From an outsider's perspective it looks like amateurs who don't know what they're doing are trying to straighten a ship with a very bad list. However, these amateurs in the past have gotten big bonuses on profits that didn't exist. It would be nice if they recognized enormous mistakes & returned some of the billions in bonuses they collected. Oh well, at least I didn't buy Lehman (i.e. very smart investing).
•Lehman Reports Loss, Plans Auction of Neuberger Stake, Real Estate Spinoff
Hurricane worries continue, as nobody can predict exactly where the storm will go. Oil is up pennies in the 104s after OPEC agreed to cut the production increase approved last year, ½MM barrels per day.
•Hurricane Ike Strengthens as It Enters Gulf of Mexico, Heads Toward Texas
ImClone (IMCL) received another bid for its stock, this one for 70, sending the stock price up 4¾ to 68 and change. This is the same company which got Martha into trouble & as I remember the same 70 price. At other times this kind of buyout news would lift the markets, not today.
The Alerian MLP index rebounded less than 1 after the 10 point fall yesterday, one of the biggest declines in its history. However the MLPs I follow are generally up. They have a good business model and a very low Beta, one measure had it at 0.35. But current market conditions are testing them along with everybody else. Last year, the index suffered an almost 20% sell-off from the 342 peak in late Jul-early Aug. Reasons are unclear, but a good guess is panicky young puppies threw caution into the wind when liquidating positions in hedge funds. Even these low Beta securities are subject to major gyrations.
Tuesday, September 9, 2008
Troubled Lehman sinks markets
Stocks suffered a monster decline led by financials. Yesterday the banks soared on seat of the pants optimism, today those gains evaporated. Dow dropped 280, decliners over advancers by a very big 7-1 and NAZ declined 60. NYSE volume is medium at 1.7B, however Lehman (LEH) alone accounted for ¼ of total volume. Financials sold off big on shudders about Lehman.
S&P 500 FINANCIALS INDEX
Value ... 283.41 __ Change -20.02 ... ___ % Change ... -6.6%
Lehman talks with the Korean Development Bank are over & now it looks like nobody wants them. Their future is uncertain to say the least. A couple of months ago I went to a financial conference and some said that the gov should have let Bear Stearns go under, the market would have handled the aftermath. Now those thoughts will be raised again. Complicating the picture for a theoretical gov rescue package for Lehman is the current rescue of Fannie Mae/Freddie Mac. Lehman was down almost 50% on over 375MM shares!! The vultures are circling! If they fail, there will be a lot of financial bleeding.
•Lehman Slumps as KDB Negotiations End; Firm in Talks With Other Investors
•Lehman Put on Watch for Downgrade by Standard & Poor's, Citing Uncertainty
Bloomberg TV had an interview with Congressman Barney Frank, head of the House committee on finance. He is comfortable with Chairman Bernanke's handling of FNM/FRE. He also said today's mortgage mess is related to mistakes made by Alan Greenspan (i.e. Frank is a Democrat while Greenspan is a Republican). He had no comments about the LEH because of a lack of knowledge on the situation. However, no comment suggests that he is not interested in getting involved (he is in charge of the committee that the FED reports to). If LEH fails, there will be a lot of bleeding for other financials which explains why their decline is dragging down that index.
Let's not forget about oil. Oil is at new multi month lows. 105 and change was supposed to be an important support price and that was clearly breached today. While lower oil is helpful on the inflation front, it's not all good news. If there is logical reason for its decline, it's based on demand destruction (i.e. weak economies around the world). That thought is not being digested well in stock markets.
Lower oil sank the Alerian MLP index falling below 250 (as shown in the Yahoo financial badge on the right). Forget weak chart, this index is under water. I have a feeling that an investment failure could see a lot of these companies sell off in panic selling, leading to excellent buys for the savvy.
S&P 500 FINANCIALS INDEX
Value ... 283.41 __ Change -20.02 ... ___ % Change ... -6.6%
Lehman talks with the Korean Development Bank are over & now it looks like nobody wants them. Their future is uncertain to say the least. A couple of months ago I went to a financial conference and some said that the gov should have let Bear Stearns go under, the market would have handled the aftermath. Now those thoughts will be raised again. Complicating the picture for a theoretical gov rescue package for Lehman is the current rescue of Fannie Mae/Freddie Mac. Lehman was down almost 50% on over 375MM shares!! The vultures are circling! If they fail, there will be a lot of financial bleeding.
•Lehman Slumps as KDB Negotiations End; Firm in Talks With Other Investors
•Lehman Put on Watch for Downgrade by Standard & Poor's, Citing Uncertainty
Bloomberg TV had an interview with Congressman Barney Frank, head of the House committee on finance. He is comfortable with Chairman Bernanke's handling of FNM/FRE. He also said today's mortgage mess is related to mistakes made by Alan Greenspan (i.e. Frank is a Democrat while Greenspan is a Republican). He had no comments about the LEH because of a lack of knowledge on the situation. However, no comment suggests that he is not interested in getting involved (he is in charge of the committee that the FED reports to). If LEH fails, there will be a lot of bleeding for other financials which explains why their decline is dragging down that index.
Let's not forget about oil. Oil is at new multi month lows. 105 and change was supposed to be an important support price and that was clearly breached today. While lower oil is helpful on the inflation front, it's not all good news. If there is logical reason for its decline, it's based on demand destruction (i.e. weak economies around the world). That thought is not being digested well in stock markets.
| CLV08.NYM | .. Crude Oil Oct 08 | .. 103.26 .. |  3.08 (2.9%) |
Lower oil sank the Alerian MLP index falling below 250 (as shown in the Yahoo financial badge on the right). Forget weak chart, this index is under water. I have a feeling that an investment failure could see a lot of these companies sell off in panic selling, leading to excellent buys for the savvy.
Fannie Mae-Freddie Mac rally ends
Stocks are returning to the world of reality after a wild, volatile day yesterday. Dow is down 64, decliners lead advancers 3-2 & NAZ is down 8. S&P 500 FINANCIALS INDEX pulled back 4 to 299 after yesterday's big rally. This keeps the index in its sideways trading range after the 2 day rally in mid July. An example of how quickly enthusiasm fades is yesterday Wachovia (WB) was one of the biggest bank gainers, up 2¼, being a marginal type. Today it's down 1 on a downgrade. Beware of gut reaction rallies.
Ahead of the Bell: Merrill downgrades Wachovia
Oil is gaining interest between worries about the hurricane and the OPEC meeting in Vienna. It looks like the meeting will not call for a production cut, sending oil prices lower. If it continues & closes in the 104s, the will be a significant breach in its prices for day traders. Also, early signals are that the hurricane will not cause a lot of damage to oil equipment in the Gulf.
•Oil Declines as Saudi, Venezuelan Comments Signal OPEC to Maintain Output
•Hurricane Ike Moving Over Cuba, May Intensify, Spare Gulf Oil Production
The Alerian MLP index is having a very bad day indicating tougher times ahead for pipelines:
Alerian MLP Index -- 3 years
The chart shows the index may be settling into a flat range where it was 3 years ago. I like the business and just had an article published at SeekingAlpha:
http://seekingalpha.com/article/94022-why-buy-mlps
This is a good time to read & learn in preparation for future investments.
Ahead of the Bell: Merrill downgrades Wachovia
Oil is gaining interest between worries about the hurricane and the OPEC meeting in Vienna. It looks like the meeting will not call for a production cut, sending oil prices lower. If it continues & closes in the 104s, the will be a significant breach in its prices for day traders. Also, early signals are that the hurricane will not cause a lot of damage to oil equipment in the Gulf.
•Oil Declines as Saudi, Venezuelan Comments Signal OPEC to Maintain Output
•Hurricane Ike Moving Over Cuba, May Intensify, Spare Gulf Oil Production
| CLV08.NYM | .. Crude Oil Oct 08 | ... 104.26 | ... 2.08 (1.96%) |
The Alerian MLP index is having a very bad day indicating tougher times ahead for pipelines:
| ^AMZ | 254.08 | 6.28 | 2.41% |
Alerian MLP Index -- 3 years
The chart shows the index may be settling into a flat range where it was 3 years ago. I like the business and just had an article published at SeekingAlpha:
http://seekingalpha.com/article/94022-why-buy-mlps
This is a good time to read & learn in preparation for future investments.
Monday, September 8, 2008
Banks stocks surge, leading markets higher
Dow rose 290, advancers ahead of decliners almost 2-1 (a little weak all considered) while NAZ was up only 14. The chart on the right shows a midday pullback when early gains were more than halved but a late day 2nd rally brought stocks near their highs for the day. This was on higher volume on NYSE than in recent rallies, 1¾B (decent for a rally day). Banks had a great day on the Fannie Mae (FNM)/Freddie Mac (FRE) bailout news (even though their stocks nosedived to under $1 each):
S&P 500 FINANCIALS INDEX
REITs, also participated in the rally with gains of 3-6%. High yield (junk bond) funds had gains of a few pennies, their version of a "big" day. Oils & other commodity stocks, among others, had limited gains while tech (as evidenced by NAZ) had a muted response to gains for other stocks.
Crude oil was down a few pennies in the106s, on nervousness but uncertainty with the hurricane entering the Gulf. The Alerian MLP index pulled back 1 to 260, probably on worries about the hurricane.
Rates on fixed mortgages dropped ¼ point resulting from today's announcement. Good & helpful news but many mortgage problems remain:
•Fixed Mortgage Rates Drop in Wake of Fannie Mae, Freddie Mac U.S. Takeover
On the inflation front, gas prices have stopped falling as shown by the 25¢ per gallon increase today in the Gulf region:
•Gasoline Wholesale Price Jumps 12%, Most in Three Years, as Ike Approaches
This news is not going to be taken well. Investors will have to start thinking about the billions this is going to cost the US gov (assuming Congress approves):
U.S. Government Takes on Big Role in Mortgage Market- AP
With all the confusion about fast changes for rules in financial markets, this is a good time to keep cool & await developments!
S&P 500 FINANCIALS INDEX
| Value ...303.43 | Change .. 13.47 | % Change .. 4.6% |
REITs, also participated in the rally with gains of 3-6%. High yield (junk bond) funds had gains of a few pennies, their version of a "big" day. Oils & other commodity stocks, among others, had limited gains while tech (as evidenced by NAZ) had a muted response to gains for other stocks.
Crude oil was down a few pennies in the106s, on nervousness but uncertainty with the hurricane entering the Gulf. The Alerian MLP index pulled back 1 to 260, probably on worries about the hurricane.
Rates on fixed mortgages dropped ¼ point resulting from today's announcement. Good & helpful news but many mortgage problems remain:
•Fixed Mortgage Rates Drop in Wake of Fannie Mae, Freddie Mac U.S. Takeover
On the inflation front, gas prices have stopped falling as shown by the 25¢ per gallon increase today in the Gulf region:
•Gasoline Wholesale Price Jumps 12%, Most in Three Years, as Ike Approaches
This news is not going to be taken well. Investors will have to start thinking about the billions this is going to cost the US gov (assuming Congress approves):
U.S. Government Takes on Big Role in Mortgage Market- AP
With all the confusion about fast changes for rules in financial markets, this is a good time to keep cool & await developments!
Monster rally is fading
The Federal Reserve announcement about bailing out Fanny Mae (FNM)/Freddie Mac (FRE) sent stocks soaring, but the enthusiasm has eased. Last night when I came home, Dow futures trading in Asia were up 350. Pretrading Dow futures this morning were up about 250. Now Dow has bounced around & is up 169, advancers over decliners better than 3-1 & NAZ is up 14. Already the rally has settled back with more routine numbers & the short term up momentum is gone. FNM/FRE shares are now dollar stocks as their future looks like they will keep heading for zero. Financials have been bid up, but remain in the trading range they've been in for 3 months (with 302 being its high).
S&P 500 FINANCIALS INDEX
Seat of the pants enthusiasm has been tempered by thoughts of reality, nobody is clear how this will play out. In addition, changes proposed will have to be approved by the Democrats in Congress during an election in what promises to be a close election. Here are some articles with early thoughts about the proposed new financial world.
•Fannie, Freddie Seizure May Trigger Default Swaps on $1.4 Trillion of Debt
•Paulson Loses Sleep in `All Consuming' Fannie-Freddie Rescue Negotiations
•Paulson Bets He Can Do What Eluded Fed: Get Banks to Lend in Down Economy
The rest of the world is supplying news. Washington Mutual (WM), largest S&L in the country, is down 53¢ to 3.74 as more problems emerge.
•Washington Mutual Ousts Killinger After Subprime Losses; Fishman Named CEO
Oil, up pennies, is still in play as the storm heads for the Gulf with its large investment in oil equipment. The Alerian MLP index is also up pennies in the 262s, remaining near its 2 year low.
A sense of reality is needed in evaluating the FNM/FRE news. Nobody knows what these enormous changes to the financial markets will bring. Election politics only adds more confusion. Meanwhile, the US economy is weak, strong exports may pull back on the stronger dollar, unemployment is high, retail sales are sluggish at best while housing & autos are in one their worst slumps in modern times. This may be a good time to keep the powder dry.
S&P 500 FINANCIALS INDEX
| Value .. 297.17 | Change .. 7.21 | % Change .. 2.5% |
Seat of the pants enthusiasm has been tempered by thoughts of reality, nobody is clear how this will play out. In addition, changes proposed will have to be approved by the Democrats in Congress during an election in what promises to be a close election. Here are some articles with early thoughts about the proposed new financial world.
•Fannie, Freddie Seizure May Trigger Default Swaps on $1.4 Trillion of Debt
•Paulson Loses Sleep in `All Consuming' Fannie-Freddie Rescue Negotiations
•Paulson Bets He Can Do What Eluded Fed: Get Banks to Lend in Down Economy
The rest of the world is supplying news. Washington Mutual (WM), largest S&L in the country, is down 53¢ to 3.74 as more problems emerge.
•Washington Mutual Ousts Killinger After Subprime Losses; Fishman Named CEO
Oil, up pennies, is still in play as the storm heads for the Gulf with its large investment in oil equipment. The Alerian MLP index is also up pennies in the 262s, remaining near its 2 year low.
A sense of reality is needed in evaluating the FNM/FRE news. Nobody knows what these enormous changes to the financial markets will bring. Election politics only adds more confusion. Meanwhile, the US economy is weak, strong exports may pull back on the stronger dollar, unemployment is high, retail sales are sluggish at best while housing & autos are in one their worst slumps in modern times. This may be a good time to keep the powder dry.
Friday, September 5, 2008
Markets waffle
After a 150+ drop by the Dow in early hours, markets recovered & settled down. Dow was up 32, S&P 500 gained 5, advancers equaled decliners & NAZ dropped 3. NYSE volume continues to drift along at 1.2B. Financials had a very good day. The S&P 500 FINANCIALS INDEX rose 9 (3%) to 290, still range-bound in recent weeks. Lehman (LEH) rose 1+ on rumors about selling assets. REITs recorded good gains, but junk bond funds continue to drift along at depressed levels offering 12+% yields. In the oils, Exxon Mobil (XOM) & Chevron (CVX), Dow stocks, dropped about 1% each. Exxon is at an 18 month low, the pullback in oil prices is hurting prospects.
Oil was down but closed above 105 & change, a previous close considered very important by day traders:
Alerian MLP index --- 2 years
The Alerian MLP index dropped 3 to 261. At midday it was at the 2 year low of 258 recorded a few weeks ago, then rallied in the PM to cut its losses. The graph illustrates the importance of sub 260 levels. Two years ago, it came off a flat period in the prior year for a sustained rise only to max out at 342. In the last year it lost all rally gains.
Demand destruction was talked about again last night by Asian analysts. They say this is what is dragging markets down, both here & foreign markets. Higher inflation is forcing customers to cut back purchases causing slowdowns in many economies.
Changes in foreign currencies will also impact the US economy, particularly exports which has been the strong sector of the US economy. The Euro has fallen to under $1.43 or 10% in the last couple of months while the ¥ rose from under 100 to 110 before settling back to 107s. The stronger dollar will make US exports more expensive to foreigners.
Let me close with another brief mention about junk (high yield) bonds. They continue to get no respect, even in today's rally for financials. They offer 12+% yields with no mortgage exposure and much better fundamentals than during the 2 previous major downturns (1990 & 2000 periods). Their traditional spread over Treasuries has been around 400-450 basis points. Today that spread has doubled. The very brave may want to check out high yield bond funds.
Oil was down but closed above 105 & change, a previous close considered very important by day traders:
| CLV08.NYM | .. Crude Oil Oct 08 | ...106.52 | .... 1.37 .. (1.3%) |
Alerian MLP index --- 2 years
The Alerian MLP index dropped 3 to 261. At midday it was at the 2 year low of 258 recorded a few weeks ago, then rallied in the PM to cut its losses. The graph illustrates the importance of sub 260 levels. Two years ago, it came off a flat period in the prior year for a sustained rise only to max out at 342. In the last year it lost all rally gains.
Demand destruction was talked about again last night by Asian analysts. They say this is what is dragging markets down, both here & foreign markets. Higher inflation is forcing customers to cut back purchases causing slowdowns in many economies.
Changes in foreign currencies will also impact the US economy, particularly exports which has been the strong sector of the US economy. The Euro has fallen to under $1.43 or 10% in the last couple of months while the ¥ rose from under 100 to 110 before settling back to 107s. The stronger dollar will make US exports more expensive to foreigners.
Let me close with another brief mention about junk (high yield) bonds. They continue to get no respect, even in today's rally for financials. They offer 12+% yields with no mortgage exposure and much better fundamentals than during the 2 previous major downturns (1990 & 2000 periods). Their traditional spread over Treasuries has been around 400-450 basis points. Today that spread has doubled. The very brave may want to check out high yield bond funds.
Stocks down on higher unemployment
Dow dropped 105 to 11082 getting close to the 10962 low close of Jul 15. This is testing time, I think the support will not hold. Decliners are over advancers 4-1 and NAZ is down 28. The S&P 500 FINANCIALS INDEX is down 2 to 279. After the 5 day relief rally following July 15 low, it had risen to 277. Oils are down 2% & the Alerian MLP index dropped 5 to 259. This selling is testing the 2 year low, 258, reached a few weeks ago.
There is plenty of gloomy news about the economy. The Labor Dept reported the jobless rate rose to 6.1% as 84K jobs were lost in Aug (vs forecasts of 75K).
•Payrolls in U.S. Fall More Than Forecast; Jobless Rate at Five-Year High
The foreclosure rate in Q2 rose to 1.19%, highest rate in 29 years. The mortgage mess will continue bringing additional significant mortgage writedowns in Q3 & Q4.
•Mortgage Foreclosures in U.S. Rise at Fastest Pace in Almost Three Decades
Merrill Lynch (MER), down 72¢, the largest brokerage firm, was downgraded to "sell" by Goldman Sachs. They were "battered by more than $40 billion of credit market writedowns" which summarizes thinking for the sell recommendation.
Merrill Lynch Cut to `Sell' at Goldman; Credit-Market Writedowns May Rise
Seekingalpha just published my article on, check it out:
http://seekingalpha.com/article/94022-why-buy-mlps
There is plenty of gloomy news about the economy. The Labor Dept reported the jobless rate rose to 6.1% as 84K jobs were lost in Aug (vs forecasts of 75K).
•Payrolls in U.S. Fall More Than Forecast; Jobless Rate at Five-Year High
The foreclosure rate in Q2 rose to 1.19%, highest rate in 29 years. The mortgage mess will continue bringing additional significant mortgage writedowns in Q3 & Q4.
•Mortgage Foreclosures in U.S. Rise at Fastest Pace in Almost Three Decades
Merrill Lynch (MER), down 72¢, the largest brokerage firm, was downgraded to "sell" by Goldman Sachs. They were "battered by more than $40 billion of credit market writedowns" which summarizes thinking for the sell recommendation.
Merrill Lynch Cut to `Sell' at Goldman; Credit-Market Writedowns May Rise
Seekingalpha just published my article on, check it out:
Why Buy MLPs?
http://seekingalpha.com/article/94022-why-buy-mlps
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