Stock Market Update - Tuesday, September 14, 2010 Outlook Cautious Bull Moving Up

Latest News Headlines:

Dow Jones..10,526.49...-17.64...(-0.17%)
S&P 500.......1,121.10.....-0.80...(-0.07%)
Nasdaq........2,289.77.....+4.06...(0.18%)


US Stocks Slip Lower, Then Regain a Positive Outlook
US stock fell Tuesday as concerns about expectations for Europe's biggest economy overshadowed the "better-than-expected" US retail sales numbers. Then the market makers dropped the US Dollar against other currencies, and equities, like magic, went back up again!

The S&P 500 is above its 200 daily moving average. The Standard & Poor's 500-stock index climbed 0.4% to 1126, and the Nasdaq Composite rose 0.7% to 2302.

U.S. stocks were boosted by a weakening dollar Tuesday, as well as some positive sentiment gleaned from retail sales, putting the broad indexes on track for their fifth-straight gain.

Gold, Silver and precious metal stocks are on the verge of a massive breakout.
As the US dollar is being used to prop-up the US stock market, expect Gold and Silver to reach new highs. US Gold is now traded at $1271, and Silver is $20.45 an ounce.

The metal and stocks have rallied to the same level where they are now three times before in the past several months. After gold reaches 1,290, expect gold to climb to $1,700 an ounce.

The dollar fell to a 15-year low against the yen. The greenback was also dipping below parity versus the Swiss franc and falling to a series of one-month lows against the euro, which recently up against the dollar, at $1.3016 compared to $1.2876 late Monday in New York.


More banks missing TARP dividend payments
2010-09-14 — washingtonpost.com
"The latest report from the agency shows that more than 120 institutions - nearly all of them small banks - have missed their scheduled quarterly dividend payments, which is more than a sixth of the banks that received federal aid during the financial crisis."

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/13/AR2010091306283.html


California foreclosures up four-straight months with 16.6% rise in August
2010-09-14 — housingwire.com

"Notice of default filings in California rose for the fourth-straight month in August climbing another 16.6%, according to ForeclosureRadar, which also began issuing data on foreclosure rates in four more states and unveiled new search functions on its web site."

http://www.housingwire.com/2010/09/14/california-foreclosures-up-four-straight-months-with-16-6-rise-in-august?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+housingwire/uOVI+(HousingWire)


Fed Issues Enforcement Actions Against Two Bank Holding Firms
The U.S. Federal Reserve issued Tuesday enforcement actions against bank holding companies First Security Group, Inc. (FSGI) and Butte State Company, moves taken to maintain financial soundness at the firms, according to the Fed.

According to the agreement, Tennessee-based First Security cannot declare or pay any dividends without prior written approval from the Fed. The firm, which owns and controls FSGBank, must also submit within 60 days a plan to maintain "sufficient capital" on a "consolidated basis," among other restrictions.

Butte State must adhere to similar guidelines. The Fed has called on the Nebraska-based financial firm to shore up its lending and credit administrative processes. Butte State must submit a plan to the Fed within 30 days of the issued agreement.

Among other actions, Butte State must "take all necessary steps to elect a qualified outside director with banking or financial experience" to head its subsidiary, Butte State Bank.


Business Inventories in US Increase More Than Forecast
Bloomberg
Tue Sep 14 14:00:00 GMT 2010
"Inventories at US businesses rose in July at the fastest pace in two years as companies stocked up ahead of"
http://www.bloomberg.com/news/2010-09-14/business-inventories-in-u-s-increase-more-than-forecast-as-sales-climb.html


S&P Sees US Commercial Construction Spending Down 14% In 2010
Spending on the U.S. commercial property construction will likely drop 14% this year as the sector's woes continue, according to Standard & Poor's Ratings Service in a new report Monday.

Commercial real estate continues to suffer as demand for space in offices and malls and rooms in hotels and apartment buildings remains far below pre-recession levels. Credit has tightened and values have dropped 40% from the highs of several years ago.

Meanwhile, developers find it extra hard to get construction financing because of banks' anxiety over the development sites held as collateral producing no income.

"By 2011, an improving employment market and declining vacancies should enable construction to stabilize," said S&P Chief Economist David Wyss.

S&P expects no growth in commercial construction spending until 2012.

This year's projected decline follows a 20% slump last year and 24% in commercial-construction starts by valuation--the biggest drop in a half-century. The weakest segments for 2010 include a 23% drop in office construction starts by square feet. More money is spent on office construction than any other commercial property type.


Canada:

Toronto Stocks Higher At Midday As Golds Surge
The stock market was broadly higher at midday Tuesday, though surging gold issues stood out from the crowd.

At 11:45 a.m. EDT (1545 GMT), the S&P/TSX Composite Index was up 86.29 points, or 0.71%, at 12236.15. Advances led declines 821 to 529. Trading volume was 227.3 million shares. The S&P/TSX 60 Index was up 4.85 points, or 0.69%, to 711.71.



European Markets:

European stock markets ended mixed on Tuesday, with weak data from Germany hurting sentiment and with shares of Philips Electronics under pressure as the company's growth targets failed to impress investors.

The Stoxx Europe 600 index finished down 0.02% at 266.40 points.

The main regional benchmark indexes eked out marginal gains.

The French CAC 40 index gained 0.2% to 3,774.40 and the U.K.'s FTSE 100 index edged up 0.03% to 5,567.41.

The German DAX 30 index reversed intraday losses to end up 0.2% at 6,275.41 points.

Sentiment had been soured earlier in the session by data showing a sharp drop in the ZEW gauge of German business sentiment, which turned negative for the first time since March 2009. Deutsche Bank shares rose 1.5% following the weekend announcement that it would raise at least EUR9.8 billion ($12.6 billion) to help buy Deutsche Postbank and boost its capital levels.

In Greece, the benchmark ASE stock index ended down 1.5%.
Dublin Stocks: ISEQ Ends -0.7% At 2,795


Hiding Europe’s Unpleasant Details
By Mark Whitehouse
Real Time Economics
Economic insight and analysis from The Wall Street Journal

$1.9 trillion euros: European banks’ exposure to EU government debt With each passing day, it’s getting harder to believe Europe’s banks are in as good shape as their regulators say. That could be a problem for a global economy still struggling to recover from a deep recession.

Less than two months ago, an outfit called the Committee of European Banking Supervisors published stress tests aimed at easing investor concerns that the financial troubles of Greece and other countries would spread to Europe’s banking system. The reassuring result: Only seven out of the 91 banks tested would need to raise added capital in the event of a modest double-dip recession and a sharp drop in the value of Greek, Irish, Portuguese, Spanish and Italian government bonds.

It’s becoming increasingly apparent, though, that the stress tests didn’t provide a comprehensive picture. Earlier this week, for example, The Wall Street Journal published an analysis demonstrating that some of the participating banks didn’t provide a full accounting of their exposure to the debt of financially troubled European governments.

A new paper from two Organization for Economic Cooperation and Development economists highlights another key flaw of the stress tests:

http://www.oecd.org/dataoecd/17/57/45820698.pdf

They looked only at the government bonds that the banks were holding in so-called trading books, which contain short-term investments that must be valued at market prices.

The stress tests ignored bonds held in financial institutions’ much larger banking books. The reasoning: Bonds in the banking book are assumed to be held to maturity, so banks don’t have to recognize losses unless the issuer defaults
— an outcome the regulators see as unlikely over the stress tests’ two-year horizon, given the European Union’s creation of a 750-billion-euro fund to bail out troubled governments.

The paper, penned by Adrian Blundell-Wignall and Patrick Slovik, provides a useful accounting of just how much the stress tests ignored. The banking books contain more than 1.6 trillion euros in EU government bonds, compared to only 336 billion euros on the trading books, for a grand total of more than $1.9 trillion euros. Using the stress tests’ own worst-case scenario, the authors estimate that banks’ total losses would be 165 billion euros, compared to the stress tests’ estimate of only 26 billion euros.

Those numbers — which might still be understated — aren’t as meaningless as European regulators assume. Just because banks don’t have to recognize drops in the market value of bonds on their banking books, that doesn’t mean they haven’t lost money. Market prices reflect investors’ assessment of the chances that governments will eventually default on the bonds, and that the banks will eventually suffer a loss. Even if those losses come more than two years down
the road, they are relevant to the banks’ value today.

Read the entire article at:
http://blogs.wsj.com/economics/2010/09/11/number-of-the-week-hiding-europes-unpleasant-details/

Commodities
Crude Oil	77.42	+ 0.30%
Natural Gas	3.96	+ 0.48%
Gasoline	1.99	+ 0.35%
Heating Oil	2.14	+ 0.74%
Gold	1267.40	+ 1.74%
Silver	20.42	+ 1.85%
Copper	3.46	- 0.46%
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Tuesday's Calendar

7:30 a.m.
Aug NFIB Index of Small Business Optimism Index (previous 88.1)

7:45 a.m.
Sep 11 ICSC-Goldman Sachs Chain Store Sales Index - WoW (previous -0.4%), YoY (previous +1.8%)

8:30 a.m.
Aug Advance Monthly Sales for Retail & Food Services Overall Sales (expected +0.3%), Sales, Ex-Auto (expected +0.4%)

8:55 a.m.
Sep 11 Johnson Redbook Retail Sales Index MoM % Change (previous -0.1%), 12MonChgPct (previous +3%), 52WkChgPct (previous +3%)

10:00 a.m.
Jul Manufacturing & Trade: Inventories & Sales Total Inventories (expected +0.7%)

10:00 a.m.
Sep IBD/TIPP Economic Optimism Index Economic Optimism Index (previous 43.6), 6-Month Economic Outlook (previous 45.1)

3:00 p.m.
United Nations General Assembly - U.N. General Assembly 65th Session opens

4:30 p.m.
Sep 10 API Weekly Statistical Bulletin Crude Stocks (Net Change) (previous -7.31M), Gasoline Stocks (Net Change) (previous +0.65M), Distillate Stocks (Net Change) (previous +1.29M), Refinery Runs (previous 86.2%)

5:00 p.m.
Sep 12 ABC News Consumer Confidence Index (previous -43)

PRIMARY ELECTIONS:

State of Delaware - Delaware primary elections
Government of the District of Columbia - District of Columbia primary election
State of Maryland - Maryland primary elections
Commonwealth of Massachusetts - Massachusetts primary elections
State of New Hampshire - New Hampshire primary elections
State of New York - New York primary elections
State of Rhode Island - Rhode Island primary elections
State of Wisconsin - Wisconsin primary elections

Market Summary Monday, Sept. 13

Stocks:

Financial stocks led the stock market higher, as investors cheered new rules on capital ratios that are unlikely to immediately affect bank earnings or lending. "The eight-year time frame gives the banks a lot of time to get their ducks in a row and get their capital shored up," said Wasif Latif, vice president of equity investments at USAA Investment Management. "It buys the banks some time and given all the headwinds they are facing, it's probably a good thing."

Treasurys

Treasury prices rose, reversing losses posted late last week, as market participants remained on edge about the economic recovery and sought out low-risk U.S. government bonds. Buyers came back in after three consecutive days of lower prices last week posted after some less dire bits of U.S. economic data. Overall though, the economic outlook remains very uncertain, leaving Treasurys in favor.

Forex

The euro Monday notched its biggest percentage gain since July against the dollar Monday as investors ditched the greenback in favor of higher-yielding currencies on the back of encouraging economic news. Better-than-expected Chinese data; an upward revision to euro-zone growth forecasts; and an agreement on global banking regulations stoked positive investor sentiment.

World Stock Markets Snapshot:

Shanghai	2,688.52	+0.20 (0.01%)
Nikkei 225	9,299.31	-22.51 (-0.24%)
Hang Seng Index	21,696.04	+37.69 (0.17%)
TSEC	8,132.60	+41.30 (0.51%)
FTSE 100	5,571.01	+5.48 (0.10%)
DJ EURO STOXX 50	2,805.53	+25.13 (0.90%)
CAC 40	3,774.05	+6.90 (0.18%)
S&P TSX	12,222.57	+72.71 (0.60%)
S&P/ASX 200	4,626.50	+11.60 (0.25%)
BSE Sensex	19,346.96	+138.63 (0.72%)