Skittish markets pull back

Markets sank late in the day on the drawn out process for saving the Big 3 & waiting for the interest rate cut announcement tomorrow. But a rally going into the close limited the loss, Dow dropped 65, decliners over advancers 2½-1 and NAZ was down 32. Financials continued weak, S&P 500 FINANCIALS INDEX fell 6, the Alerian MLP Index fell 2 to 177, the Dow Jones MLP Index plunged 5½ to 132, Lehman High Yield Bond (JNK) was up a few pennies (maybe benefiting from strength in Treasury bonds) while VIX rose 3 to 57. Nervousness was the overriding factor today.

After reaching 50 early in the day, oil sold off ending down 1.

CLF09.NYM

..Crude Oil Jan 09

...45.14

.. 1.14 ......(2.5%)

The schedule below (from Bloomberg) gives rates on US Treasuries. These record (or near record) rates are good on one hand but also can also cause problems. Some blame the extended period of very low interest rates a few years ago for contributing to the sub-prime mess (making it easier for mortgages agencies to promise very low teaser rates). Now there's talk about the FED buying Treasury bonds (to keep yields from rising) on top of increased demand from foreigners seeking safety. Foreign investors bought $35B in Treasuries in Oct (after the terrible decline in the stock markets), up from $21B in the prior month.

U.S. Treasuries

	COUPON	MATURITY DATE	CURRENT PRICE/YIELD	PRICE/YIELD CHANGE	TIME
3-Month	0.000	03/12/2009	0.01 / .01	0 / .000	15:00
6-Month	0.000	06/11/2009	0.2 / .20	0 / -.000	15:00
12-Month	0.000	11/19/2009	0.46 / .47	0.01 / .010	15:00
2-Year	1.250	11/30/2010	100-31+ / .74	0-01 / -.017	15:02
3-Year	1.125	12/15/2011	100-09+ / 1.02	0-01½ / -.016	15:00
5-Year	2.000	11/30/2013	102-14 / 1.49	0-03½ / -.023	15:01
10-Year	3.750	11/15/2018	110-20 / 2.53	0-11½ / -.039	15:07
30-Year	4.500	05/15/2038	129-08½ / 3.00	1-03 / -.048	15:04

•Treasury 10-, 30-Year Bonds Advance on Speculation Fed May Go Beyond Cuts


The Madoff scandal is getting bigger & uglier. Many of the biggest boys were duped. Bloomberg TV had a story on how even Madoff investors who cashed out early, may be required to give back money to his funds so that misery can shared with other investors. A court case on appeal will make decide that matter. In the meantime, this gives another excuse for doubters to throw in the towel on stocks.

Alleged Madoff fraud victims include big banks, super rich- AP


Trading is expected to be wide open tomorrow. Everybody is waiting for the president to make an announcement about bailing out the auto companies & the FED will announce the new low interest rates. In addition, there is more to learn about the Madoff swindle.

Lower markets, awaiting developments

Asian/Australian markets rose sharply last night on expectations of an auto bailout which should help their auto makers & exports in general. US markets don't share that optimism. In nervous markets, Dow is down 62, decliners over advancrs 2-1 & NAZ is down 31. S&P 500 FINANCIALS INDEX dropped on the uncertainty ahead of the expected auto bailout, not to mention the important Federal Reserve meeting announcement tomorrow on interest rate cuts.

Value 156.05

Change -5.48

% Change -3.4%

The Alerian MLP index is flat, the Dow Jones REIT Index dropped 4 & Lehman High Yield Bond (JNK) is up pennies (for no special reason other than the extraordinary high yields) & VIX, volatility index, is up 3 to 57 on increased market nervousness.

Oil rose ahead of the OPEC meeting,. They are calling for a sizable cut, sending oil prices higher (over 50 for a time):

CLF09.NYM

..Crude Oil Jan 09

...48.75

.. 2.47 ......(5.3%)

•Oil Rises to $50 as OPEC's El-Badri Says Sizable Cut Is Needed at Meeting


Output at factories, mines, etc fell 0.6% last month, less than feared but still a solid negative. This is to be be expected during a recession.

•U.S. Industrial Production Falls 0.6% as Automakers Struggle for Survival


The Madoff scandal is growing in seriousness. They are trying to figure out who invested in his schemes & how much. Investors reach to the biggest banks around the world & hedge funds. The numbers involved are huge, nobody is sure where the bleeding will spread.

•Madoff Said to Have Managed Hedge-Fund Money in Unregistered Side Business


With so much up in the air, markets will probably bide their time today away before announcements tomorrow.

Stocks have a mild week

Dow, along with other averages, had a relatively mild time last week, ending essentially even. Daily swings also calmed down a bit from the wider ranges recently. VIX had a weekly trading range of 53-60, ending above 54. But the volatility index still remains at extraordinarily high levels.


Dow Jones Industrials --- 1 week




The drama related to the auto bailout captured headlines continues. The White House is trying to come up with their version of a bailout package to keep the autos alive for a few months at a minimum. However, current signals from the White House are that help is not imminent. Further uncertainty will hurt Asian markets & Dow futures which will be trading in a couple of hours.

• White House says auto loans deal not imminent- AP

The big Federal Reserve meeting is on Mon & Tues, bets are they'll cut 50 or even 75 basis points on Tues. However, such cuts are net expected to have a major impact on boosting the economy. The new rate will be at or near record low levels. The 90 day Treasury bill has a yield of .0.01% (annualized) while the Treasury 10 year bond yields a near record low 2.57%.

Fed ready to slash key interest rate- AP


This terrible financial scandal is just another kick in the head markets don't need at times like these. More investors & near investors will be turned off from investing in stock markets. The concept of "buy & hold" has to deal with its greatest test since the Great Depression."

•Madoff Said to Have Escaped SEC Inspectors Until `Tragedy' Reached Victims

Modest gains on uncertainty

The Dow recovered quickly from early AM lows but couldn't get up a head of steam to take it solidly into the black. Dow rose 64 on a 100 rally in the last couple of hours, advancers were about 20% ahead of decliners & NAZ had a good day - up 33.

The chart below shows how the Dow has been trading sideways after its fall in Oct. All things considered, it has done an excellent job of holding above the 8K level. Of course, the flip is that it has not been able to move up. The interim ceiling of 9½K seems like a distant goal. Maybe that's asking too much given the ugly economic news that comes out every day.


Dow Jones Industrials --- 3 months




S&P 500 FINANCIALS INDEX jumped 3¾ to 162, good showing on a sluggish day. The only other noticeable change of the indices I watch closely is Dow Jones REIT Index rebounding with a 13½ point gain to 137½. As recently as Sep, it was at 270! REITs after being hammered unmercifully, offer extraordinary yields for the brave. They own hard assets, buildings & real estate, which should hold its value (at a minimum) over the long term.

Oil recovered from AM lows, but still lost ground ahead of he OPEC meeting next week:

CLF09.NYM

..Crude Oil Jan 09

....46.53

.. 1.45 ......(3.0%)

Nancy Pelosi has given a first glimpse at the spending package the Dems will come up with next month. This is extremely big money (on top of the bank bailout package) which will be financed with more debt. Currently the 90 T-bill yields .01% (annualized) while the 10 year Treasury yields 2.61%. These record low yields can not hold in the face of major increases in gov debt.

•Pelosi Says U.S. House's Economic-Stimulus Package May Reach $600 Billion


The markets are biting finger nails waiting for word on how the autos can be saved. Not much to do, just let the pols work their magic & hope for the best.

Stocks lower, awaiting news on car makers fate

When the Senate announced last night that they would not be able to pass legislation to help the auto companies, Asian markets & Dow futures sank. Asian markets were weak already, but dropped further to losses of 5-6%. Auto companies were hit hard. Toyota, shortly expected to be pronounced the #1 auto company in the world, was down 10%. The auto companies were lower because the auto suppliers are very much tied in with the auto companies. These suppliers which are also threatened, sell parts to Asian car companies. Dow futures were down 250 & sank to minus 330 later.

But today there is a ray of hope, auto companies may yet get help from the administration. The White House is behind the idea of helping the Big 3 & the Treasury is looking for a way to provide help. In the meantime, we have to let them work out details. After falling 170 on the opening, Dow has recovered to a loss of 94, decliners ahead of advancers 3-2 while NAZ is up 4.

•Treasury Says It's Ready to Assist Automakers Until New Congress Convenes


S&P 500 FINANCIALS INDEX is down only pennies, awaiting developments on the auto bailout. Given the fuzzy situation, the Alerian MLP Index is down 1, The Dow Jones REIT Index is up 3 from very depressed levels, Lehman High Yield Bond ETF is down pennies (it always seems to be down pennies at least) & the VIX is up almost 1 to 56½

Oil pulled back, wiping out most of yesterday's gains. Traders are mainly concerned with OPEC's meeting next week.

CLF09.NYM

..Crude Oil Jan 09

...44.72

.. 3.26 ......(6.8%)

In the other news dept, retail sales continues weak. Sales dropped 1.8% in Nov, slightly better than the ugly forecasts being used. But that provided little comfort, as this was the 5th straight month of declines. A terrible month for autos led the way down. Lower gas prices helped, but depressing news about job losses & threats of more losses are weighing down the public.

•U.S. Retail Sales Drop For Fifth Month on Auto Slump, Decline in Gasoline


The index of consumer confidence rose to 59.1 from 55.3 in Nov, but still very close to a multi year low. Lower gas prices provided only limited help when compared to dreary economic news, especially regarding the possible loss of employment.

•Consumer Confidence in U.S. Rises From 28-Year Low as Gasoline Prices Fall

I think the White House will come up with help to keep the auto companies alive. However any such aid will be only temporary. They still face huge major problems which need to be solved if they are to survive.

Doubts about auto bailout sink stocks

Dow dropped 196 as sellers took command in the PM. Decliners were over advancers 3-1 & NAZ was down 57. Dow tumbled almost 300 in the 2nd half of the day with a modest recovery in the closing minutes, the auto bailout package is center stage. Banks, as shown by the S&P 500 FINANCIALS INDEX, had another very bad day:

Value 158.29

Change -14.66

% Change -8.5%

The Alerian MLP Index which used to be somewhat independent of the major averages, has tended to follow along fairly well this year. The index had been bumping against short term resistance of 185 & pulled back today, down 3 to 179. The Dow Jones REIT Index was hit with a brutal sell-off, dropping 22 to 124. Lehman High Yield Bond ETF was down 23¢ (1.3%), trading at already very depressed levels. The VIX was flattish at 55.60.

Oil had a very big day, although it trailed off going into the close. Worries about paying for the super US economic bailout next year, not to mention the weak dollar, is encouraging the oil bulls. The ¥ has strengthened sharply during the last few months, going up to 91s (from 110 a few months ago) to the dollar. In the last few days the € has had a big pop from the 1.25s to 1.33. A weak dollar this year especially has been tied with lower stock markets.

CLF09.NYM

..Crude Oil Jan 09...

47.25

.. 3.73 ......(8.6%)

Oil Spikes 12% as Dollar Sinks- AP

There are thoughts that the Federal Reserve may not cut the interest rate 50 basis points next week as the banking crisis has stabilized. Many short rates have already sunk to very low levels & it's unclear how much good additional rate cuts will do for this sick economy.

• Why the Fed may surprise the markets next week- CNBC

I thought the auto bailout package would get thru Congress, but now its in grave doubt. The president is pushing hard to get it passed, but Reps in the senate don't look like they want to budge. This sense of confusion is dragging the formerly strong dollar down, which is probably the real culprit in today's decline.

Markets waver before Senate vote on GM

Out of the gate this AM, Dow dropped 100, but pulled back to a modest loss. Uncertainty about the Big 3 has everybody worried. Dow is up 2, advancers 10% ahead of decliners & NAZ is down 3. Banks are weak on the nervousness out there, S&P 500 FINANCIALS INDEX is down 6 to 167.

The Alerian MLP Index is up 1, probably related to strength for oil (even though they do not benefit from higher priced oil). The strength in oil is on expectation that the OPEC meeting next week will call for another cut in production.

CLF09.NYM

..Crude Oil Jan 09

...47.20

..3.68 ......(8.5%)

• Oil prices rise to near $45 ahead of OPEC meeting- AP

Other indices are weak. REITS are off 4%, Lehman High Yield Bond ETF is down 10¢ but the VIX is also down (1 to under 55).

Unemployment news continues dreary. Claims last week shot to 573K, 10% above estimates. This is the highest level in 26 years (another bleak time). 4.4MM are collecting unemployment checks. Among the many companies laying off, Stanley Works (SWK), an S&P 500 Dividend Aristocrat which has paid annual divs for over 100 years, is laying off 2K (SWK is included in my Yahoo widget on the right).

New Unemployment Claims Surge to 26-year High- AP


The possible failure of General Motors (GM), still a Dow stock, has many nervous. Suppliers do not want to wait 45 days for payment, but cash strapped GM is not willing to speed up payments. Just another worry for markets to assess.

•GM's Time Is Running Short as Senate Debates Rescue, Vendors Seek Payment


With interest rates on Treasuries near or at zero, there is recognition that this may be the top of a bubble. Treasuries bonds have had an enormous rally, especially in the last 3 months. The same Treasury will have to borrow $Bs next year to finance a huge rescue package, that won't be at zero interest. But nobody is sure how bursting the bubble will play out.

•Treasury Market Bubble Talk Grows Louder as Investors Give U.S. Free Money
•Dollar Money-Market Rates Fall to Lowest Level Since 2004 on Fed Rate Cuts


The auto $14B bailout package is being held up in the Senate while the clock is ticking on GM's survival. Arms of certain senators will be twisted & they will get political favors for their votes as nail biting continues.

Markets up mildly on uncertainty

Markets drifted awaiting the vote on the auto bailout package. Stocks spent most of the day in the green, but couldn't get a good head of steam up. Dow gained 70, advancers over decliners 2-1 & NAZ was up 18. However, banks were weak. The S&P 500 FINANCIALS INDEX slipped 1 on the uncertainty over the outcome of the bailout package.

Oil had a good day bouncing off recent lows:

CLF09.NYM

..Crude Oil Jan 09

...43.82

.. 1.75 ......(4.2%)

After its fall below 8K, Dow Jones has been range-bound, pretty much kicking around in the 8Ks. 9½K is the ceiling it's shooting for. In all fairness, it has shown an amazing amount of strength lately in the face of very ugly news.


Dow Jones Industrials --- 2 months





The Alerian MLP Index has been fighting back from the lows set 3 weeks ago. Today was a very good day, up 8 to 182. If it can hang on to its gains, the next goal will be the 220s.


Alerian MLP Index --- 2 months




REITs have also had a nice bounce off their lows, but many still offer extraordinary yields well into double digits. Today, the index rose 11 to 146½.


Dow Jones REIT Index --- 2 months





The VIX or volatility index has been slipping in the last couple of weeks while the Dow has been rallying off the lows. Fear has been subsiding, but remains at extraordinarily high levels. Today it dropped 3 to 56:


VIX ---- 2 weeks





Meanwhile Lehman High Yield Bond ETF has been just plain flat. High yield (junk) bonds still can't get no respect, down pennies today, offering a 16+% yield. For them, tax loss selling continues to be a major drag:


Lehman High Yield Bond ETF - 2 weeks




Markets are awaiting word about the auto bailout package. It should get thru the House easily, that's why it started there. But there will be a tough fight in the Senate. Dick Cheney is talking with Rep senators, trying to persuade them to vote for it. The outcome is still fuzzy, probably why markets have been trading in an uneasy pattern.

•Automaker Rescue Plan Will Pass House, May Hit Senate Snag, Lawmakers Say


Even if/when the auto bailout bill passes, macro economic problems will continue to drone on. However, it looks like markets have been able to absorb tax loss selling quite well, at least so far.

Top level execs expect the recession to drag on for another year or so. I like to go against the grain, but feel uncomfortable fighting this kind of thinking:

Recession to Last Another Year - Duke Survey of CFOs- CNNMoney.com