Dow suffers worst 2 day decline in 21 years

This was just another one of these days for the Dow when down 400 has become routine, not good! It's a sad state of affairs when that thought becomes routine. Dow dropped another 443 closing near its lows, decliners over advancers 5-1 & NAZ was down another 73. MLPs, REITs & high yield bonds funds sold off as usual in a negative market.

S&P 500 FINANCIALS INDEX had another big sell-off, taking it near the yearly (really multi year) low close of 179 on Oct 27:

Value 188.49

Change -13.59

% Change -6.7%

The chart below shows how the Dow bottomed recently. Since then it has been sort of range-bound for the last month. However the range has been wide, almost 2K. Today the Dow completed the worst 2 day loss in 21 years. It is clearly on defense & looks like it may be testing the bottom of the range, possible as soon as tomorrow. The VIX jumped 10 today, an enormous gain as fear strengthened dramatically:


Dow Jones Industrials --- 2 months






VIX --- 2 months






The gloominess in the the world economies keeps dragging down oil, down 10 in just 2 days.

CLZ08.NYM

Crude Oil Dec 08

....60.91

.... 4.39 (6.7%)

Last night Greta, had Donald Trump on as a guest (via phone). He repeated a few times that banks today have money thanks to the bailout package, but they are not lending to customers. He knows, that's key to running his businesses.

While the story below is not exactly a big picture story, Sheldon Adelson was one of the richest people in the US running a large business which may not be able to survive. This luxury business has been hurt badly by a global business slowdown, however the $9B in debt demands interest be paid timely. I've no personal stake in this venture & never have been to Vegas, but this is an indication of how the credit crisis can bleed into areas where none of us can imagine, putting an already very troubled economy in even worse shape.


•Adelson's Las Vegas Sands Plunges After Casino Cites Potential Bankruptcy


Bloomberg TV mentioned that Goldman Sachs has an excellent record of forecasting the unemployment number (being announced tomorrow) which everybody is dreading. Many are forecasting 200K increase in unemployment, very bad. Their forecast is 300K, much worse. If they are correct, there will be another major sell-off. More interest rate cuts were announced today in Europe, but I suspect that will will not stimulate more lending as is the case in the US. Hang on for what can be another brutal day.

Markets plunge again!

Asian stocks last night followed US stocks, down sharply. During trading, down 5% was common among the stock markets. European stocks continued with Dow futures this morning indicating a sharply lower opening.

Dow is now down 277 taking it below 9K, decliners ahead of advancers almost 4-1 & NAZ dropped 43. S&P 500 FINANCIALS INDEX is down 6½ to 195, the Alerina MLP Index is down 12 (very big drop for AMZ) to 207, the Dow Jones REIT Index is down 5 to 152 (after yesterday's big drop) & high yield (junk) bond finds are also headed lower.

Oil is down again. Its down 9 in just 2 days on worries about sagging economies buying less oil.

CLZ08.NYM

Crude Oil Dec 08

....61.41

.... 3.89 (6.0%)

United States Oil Fund is an ETF which tracks oil. Below is their almost 3 year track record showing how far oil has risen & retreated this year, back to 2 year lows.


USO --- 3 years




As expected rate cuts around the world keep coming. The Bank of England cut its lending rate 150 basis points, the European central bank cut its rate 50 basis points (it takes a lot to get them to cut) & the Swiss policy makers cut their lending rate 200 basis points at an unscheduled meeting. These large rate cuts are highly unusual & indicate how seriously central bankers are taking the global slowdown affecting their economies.

•Bank of England Leads European Central Banks in Rate Cut as Economies Slow


New jobless claims dropped slightly to 481K last week but still remain very high as 400K is considered the worrisome level. The number of people receiving benefits lags, it increased to 3.84MM, the highest level in 25 years. Tomorrow the Oct unemployment numbers will be reported, everybody is dreading what they will say.

• Jobless claims drop slightly from elevated level- AP

Retail sales were awful, although Wal-Mart (WMT), a Dow stock, managed a 2.4% same store sales gains (stock up 66¢).

•Macy's, Target, Gap October Sales Fall; Wal-Mart's Climb, Beating Forecast


Blackstone Group (BX) reported a huge $½B loss in Q3, its worst since going public last year. The stock was sold at 27 & rose to 35 very quickly as it was one of the sexy stocks (the darling of Wall Street) last year, just before the credit crisis was recognized. Now it can be bought for $7.63. I'm not showing the chart because nobody wants to see it.

•Blackstone Misses Estimates, Reports Biggest Loss Since IPO; Shares Slump


Since I began writing, Dow dropped another 100 taking it far below 9K. Deary economic reports will keep coming, the unemployment one tomorrow is the big one everybody fears.

Economic worries sink stocks

Today was just another big down day for stocks. Dow dropped 486 (more than wiping out yesterday's gains), decliners over advancers 4-1 while NAZ was down 98. Financials sold off badly:

S&P 500 FINANCIALS INDEX

Value 201.77

Change -19.41

% Change -8.8%

The Alerian MLP Index dropped 6 to 219, the Dow Jones REIT Index was down a whopping 18 to 157 & even high yield (junk) bond funds sold off 1-3%. Meanwhile VIX (Volatility Index) rose 7½ to 55 signaling fear is back on the rise.


Oil took a drubbing today, down 5+:

CLZ08.NYM

Crude Oil Dec 08

....65.28

.... 5.25 (7.4%)

After hours, Cisco (CSCO) reported sales 8% over last year (matching expectations) & earnings which beat expectations by 3¢ after subtracting items related to employee compensation & acquisitions. Their stock fell 94¢ during the day but was flat after hours as analysts were trying to understand the release.

Cisco earnings essentially flat but beat estimates- AP


There was really nothing really new to account for the change in directions by the stock markets other than election day enthusiasm gave way to reality. Dow is heading down fast once again, looks like it wants to test 9K. The test may be soon after closing at 9,139 & that support line may not hold.

Post election sell-off

Asian stock markets rose last night, encouraged by the US elections. That is a little strange since on the prior night, they talked about Asia liking McCain because of his track record of being for free trade. The Democrats are not strongly for free trade, especially when the US economy is struggling. Next, European stocks sold off on negative economic news.

Dow is down 166, decliners over advancers 2-1 & NAZ is down 34 on after election thoughts. The S&P 500 FINANCIALS INDEX dropped 4 to 217. The Alerian MLP Index is down 3 to 222, the Dow Jones REIT index dropped 6½ to 168 & the VIX (Volatility Index) dropped pennies to 47. If there is good news, lower numbers for the VIX suggest markets are calming down, maybe the Dow will only have daily point swings of 1-200. Junk bond funds have been attracting buyers in the last week, but daily gains are measured in pennies because of their low stock prices. Those 16+% yields are finally pulling in nibblers.

Oil sold off & remains kicking around the 60s.

CLZ08.NYM

Crude Oil Dec 08

....68.17

.... 2.36 (3.4%)

• Oil slides below $68 on weaker demand worries- AP

Macro economic news can't break out of negative thinking. Planned job cuts are shaping up to be the worst in 5 years. The big jobs number comes out on Fri, the only question is how ugly it will be.

• Planned job cuts highest in 5 years- CNNMoney.com

Another big company, Time Warner (TWX), reported slightly lower operating profits on essentially even sales in Q3. Their guidance for 2008 EPS was revised downward by 3¢ which will be felt in Q4. The stock took the news well, up 26¢, but still sells at a depressed $11.

•Time Warner Lowers Earnings Forecast for Year Amid Time Inc. Restructuring


GMAC had an ugly Q3 report, attributable to dreary economic conditions. They may have to become a bank so they can get help from the Federal Reserve.

• GMAC 3Q loss widens, blames economic woes- AP

Now that elections are over & most of the Q4 earnings reports are in, the focus for the stock markets will return to macro economic & company announcements about earnings guidance. On both fronts, they are not expected to get better for some time. Meaningful gov help will not come until 2009.

Dow fails to extend winning streak

Averages struggled all day trying to extend their winning streak to 3 consecutive days, but the Dow fell flat. Dow was down 5, but NAZ was up 5 with advancers only 5-4 ahead of decliners. On this mild day, telecom was the strong sector today while energy & retailers pulled back. Most stock market indicators remained close to break even for much of the day, ending with only modest changes. The major exceptions were the Dow Jones REIT Index dropping 6½ to 165, REITS find it tough to get any friends these days, & the VIX, dropped 6½ to 54 indicating that a sense of calm is returning. However, at 54, it remains at was once an unimaginable level (early last month). In commodity land, oil pulled back 3½ on all the gloomy news about the world being in a major recession.


More grim news on auto sales. The Bloomberg headline (below) says it all, worst month since 1945. GM sales were down 45%, Ford down 30%, etc. For what it's worth, GM remains #1 in auto sales in the US. Tight credit & low consumer confidence are behind these sales declines.


•Auto Sales in U.S. Plunge; October Was the Worst Month Since 1945, GM Says


Economists now forecast the recession will last thru the end of next year. 79% say the economy will grow at less than a 1% annual rate & 38% say the economy will shrink. Just 36% say the rate cuts & other initiatives by the FED to unfreeze credit markets were having a positive impact, while 58% said the programs were having little impact.

Economists predict recession to last through 2009-


Banks are making it tougher for customers to borrow. About 85% of the large banks in a survey have tightened lending standards, the highest in 18 years they've been doing these surveys. Additionally, 95% of banks have raised costs to large customers. Tighter credit is the wrong medicine for an ailing economy.

•Banks Tighten Lending Standards Most on Record as Economic Outlook Dims


Rates on Treasury bonds have ticked up recently from around 3½% to 3.90%, largely related to fears that borrowings will increase as mentioned below.

•Treasury May Borrow Record $550 Billion in Quarter as Rescue Swells Budget


I submitted a monthly review on MLPs today to SeekingAlpha. Watch for it (just click on my link botton in the right column). Also I'll be off tomorrow, hope everybody's good.

Slightly up day for markets

This may be a day for only small changes. Dow, NAZ & most indices I follow are showing modest gains. One exception, the Dow Jones REIT index is down 2. More encouraging is the VIX (Volatility Index) is down 4 to 55, indicating markets may be calming down. Even oil is only down a buck, no big deal.

As promised, macro economic news continues dreary. Business at manufacturers in the US plummeted to the lowest level in 26 years in Oct. The manufacturing index fell to 38.9, the lowest reading since Sep 1982 (a reading below 50 signals contraction). This is consistent with warnings that after Sep 15 (when the need for the bank bailout program was in the news), economic activity in US fell off a cliff. This number was dramatically below last Sep with a reading of 43.5 & also below economists' expectations of of 41.5. The report is just another in a string of grim indicators that the US is in a recession.

•Manufacturing in U.S. Contracts at Fastest Pace Since 1982 on Credit Woes


Gloomy news about manufacturing also affects other countries. China, the world's 4th largest economy, said its purchasing managers' index fell to 44.6 in Oct, lowest level since the survey began in 2005 & down sharply from 51.2 in prior month. Again, a number below 50 indicates the economy is contracting. This slowdown was driven by a downturn in export orders (US is a leading customer of the exports) & demand for goods such as steel and machinery.

• Chinese manufacturing activity slows sharply- AP

Nov is a new month, many are hoping will bring better times for the markets. The banking credit crisis is healing. This week, there will be more interest rate cuts around the world. But banks need to lend to customers so they can ramp up production. That scenario is not playing out.


On a personal note, I'm trying out Google AdSense ads, hoping they work out. Hope you enjoy them, but there will be a learning curve for me learning how to paste code. Please be patient, thanx.

October review, ugh!

By any measure October was one of the worst months for the stock markets ever. After going into free-fall beginning in Sep, Columbus Day brought a huge relief rally from which markets have steadied a bit, even if the VIX, volatility index, remains in uncharted, record high levels near 60.

Below are charts covering the last 3 months for the Dow Jones Industrials, the Alerian MLP Index & Dow Jones REIT Index. They show a relatively quiet period in Aug, followed by the dramatic sell-off. While there is no index for high yield (junk) bonds funds, their price pattern followed a similar pattern. However, MLPs, REITs & junk bond funds remain at depressed levels with many sporting double digit yields.


Dow Jones Industrials --- 3 months





Alerian MLP Index --- 3 months





Dow Jones REIT Index --- 3 months





The recovery in the last couple of weeks is encouraging & mirrors the banking system getting its house in order thanks to federal reserve systems around the world going overboard accommodating banks. Unfortunately economic problems keep droning on as it looks like the worldwide economy has begun a significant recession.

International cargo shipping, measured by the Baltic Dry Index, is off dramatically from recent levels, very discouraging. Last week, the index fell to 982, down 89% this year, to the lowest level in 6 years!

Baltic Dry Index Drops Below 1,000 for First Time in Six Years


Next week, US retailers will report Oct sales which are expected to be dreary. Now that earnings season is largely over & the banking crisis is somewhat muted, stock markets will start reacting to macro & company economic reports. Tough times for stocks may continue.

Markets extend gains to consecutive 2 days

Dow rose 144 (after losing almost 200 of earlier gains in the last hour), advancers were ahead of decliners 2-1 & NAZ gained 22. That performance was good enough to give the markets a 2 day winning streak.

S&P 500 FINANCIALS INDEX held the gains from the AM, up 11 to 209. The Alerian MLP Index was up 1½ to 223, digesting its recent gains which took it back over 200, The Dow Jones REIT Index rose a big 11 to 172 as bargain hunters are back in action in this extremely oversold market. High yield (junk) bond funds rallied as they found buyers (although for them rallies are measured in pennies). The VIX dropped 2½ to 60, however, as the chart shows, they remain in heavenly territory:


VIX --- 2 months




I like the article below about oil better than the used in my prior post. Oil was down 36% this month & 56% from the peak. This is the biggest monthly decline since trading began 25 years ago. Today it rallied, but it is still 80 below the July peak. The decline is predicated on a major global slowdown, not so good when you think about it.

CLZ08.NYM

Crude Oil Dec 08

....67.83

.... 1.87 (2.8%)

• Crude heads for worst monthly Nymex decline- AP

I seems like about everybody is borrowing from the Federal Reserve & they are only too anxious to be there. The chairman of the FED said in a prepared speech that the FED will be there to lend to Fannie Mae/Freddie Mac. However, a big problem is that banks are NOT lending to customers.

• Banks borrow record amount from Fed- CNNMoney.com
• Bernanke: Backing of GSE debt must be maintained- Reuter
  

Investors pulled $71B out of mutual funds in Oct (including $52B in the week prior to Oct 9), a major part of the story about the big Oct decline in stocks. In Sep the outflow was "only" $56B.

•Stock-Fund Investors Pull Record $70.7 Billion From Markets, TrimTabs Says


While Oct was a month everybody would like to forget, the dreary economic background will drag on. Investors will be getting monthly statements soon reminding them about the damage to portfolios. Macro economic problems are continuing. Banks are not lending to customers even though the capital squeeze is easing for them. More companies announced layoffs in just the last few days. Intel (INTC), a Dow stock, said today that the economic slowdown could hurt them. Ouch!! They were up pennies today.

Intel Says Financial Crisis Could Hurt Its Business (Update1)

I can't wait to see what Nov has in store for the markets.