Tuesday, October 11, 2011

Peak Silver Revisited Impacts of a Global Depression, Declining Ore Grades & a Falling EROI

Impacts of a Global Depression, Declining Ore Grades & a Falling EROI

The world is about to peak in global silver production. This will not occur due to a lack of silver to mine, but rather as a result of the peaking of world energy resources, declining ore grades, and a falling Energy Returned On Invested – EROI. The information below will describe a future world that very few have forecasted and even less are prepared. This is an update to my previous article Peak Silver and Mining by a Falling EROI. In my first article I stated that global silver production may peak in 2009 if we were to enter a worldwide depression. We did not have the global depression as massive central bank printing and bailouts have thus far postponed the inevitable.

World Silver & Oil Production 1900 - 2010

The world has entered a plateau of global oil production over the past 5-6 years. A higher oil price has not brought on more supply to offset depletion rates from existing fields. From the graphs above we see a correlation between global silver supply and oil production, especially in the latter part of the 20th century. Up until the late 1800’s and early 1900’s the majority of energy used in mining silver came from human and animal labor. It is truly amazing just how much silver was produced in the United States at this time without the use of oil and modern mining practices (information provided later in the article). This all changed as global oil production as well as the technique of open-pit mining increased.

The 3 Big Energy Game Changers for Silver Mining

There are a number of some very large open-pit mining projects supplying silver that are forecasted to go into production within the next several years as well as others by the end of the decade. It is astounding to see these 25-45 year extended forecasts by these mining companies without any consideration of what the energy environment will be like in 2015-2020 or later. It seems like everyone in the sector assumes there will be ample supplies of energy at commercially viable prices.

This is where the trouble begins. There are three negative energy game changers that will impact the mining industry going forward. They are: (1) the Peaking of global oil production, (2) the Land Export Model and (3) the falling EROI – Energy Returned On Invested. Of the three, I believe the falling EROI will be the most devastating. Before explaining why this is the case, let’s take a look at each.

Peak Global Oil Production

According to JODI’s global oil production figures represented HERE in a post on theOilDrum.com, it looks like the global peak of convention crude/condensate and natural gas liquids took place in 2006:

World Oil Production

Global oil production has increased steadily since the early 1980’s and has now been in a bumpy plateau for the past 5-6 years even with much higher oil prices. It is true that there are more projects and oil fields slated to come online in the next several years, but much of the increase will be offset by depletion in existing fields. To add insult to injury, the majority of oil that is exported throughout the world is being supplied by countries that are also increasing their own domestic oil consumption. This is a double-edged sword for dependent oil importing nations— which leads us to the Export Land Model. (more)

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Oil Services Stocks Look Like the Place to Be :HAL, SLB, WFT, BHI, SPN, COP, CPX, SHI, CLR, EOG, NOV, LUFK

When is oil going to crash already? Isn't that the most salient question out there? Aren't oil stocks saying that it has to crash and that these levels, whether it be West Texas or Brent, are just absurd?

The valuations for these stocks, whether they be the drillers, the integrateds or the independents, show that there is going to be a collapse in oil that will be of cataclysmic proportions.

Oil services stock valuations are the most out of whack of any sector headed into earnings season.

You have oil companies like ConocoPhillips(COP) yielding 4% despite the breakup impetus. You have oil-service companies like Halliburton(HAL), which has a shortage of employees compared with the amount of business it has, trading where it was when oil was in free fall going to the $30s in 2008.

You have companies like the newly public Complete Production Services(CPX) throwing in the towel and surrendering to Superior Energy Services(SPN), which vows to join the large servicing companies such as Schlumberger(SLB), Halliburton, Baker Hughes(BHI) and Weatherford International(WFT). And you have companies like Daylight Energy, a high-quality Canadian play, succumbing to a $2 billion deal from Chinese oil giant Sinopec(SHI).

We are at a really odd juncture where Brent, the real benchmark for oil, has held up better than every commodity in the world, but the companies that own that commodity and merchandise it are trading as if that benchmark is false.

The problem with the market's judgment is simple: The recession in Europe has to be so, so serious as to disrupt the demand everywhere else in the world. But why would that be the case? Why isn't anyone asking that? Why do we accept the market's judgment and not the judgment of the commodity?

To me, this group has gone from conceivably overvalued unless Brent is going to $120 to way undervalued if oil even goes down another $10. What looks good? How about Continental Resources(CLR), off 11% despite what could be an extremely robust quarter? How about EOG Resources(EOG), down 14% to $77 after having traded at $120?

Or the drilling services companies: Schlumberger down 21% and off from $95 to $65. Halliburton seems particularly cheap, down 13% and $22 from its high, despite a recent check on the business that indicates no slowdown.

And talk about fighting the last war. National Oilwell Varco(NOV) has been sliding for months, and the hedge funds have been shorting and selling pretty much all the way down, as that was the driller that got crushed the most in 2008. This isn't 2008. The stock should be bought.

Yes, Lufkin(LUFK) blew up last week, and takeover target Complete was about to report a shortfall. Both companies attributed their earnings misses to one-time factors. Lufkin has become what I hate to call a serial disappointer, because the previous quarter, too, had a "one-time" problem, but the issues at Complete seem reasonable, including a shortage of parts and some flooding.

Unless oil collapses between now and earnings season, this is the group that seems most out of whack with the fundamentals. It's not making sense unless Brent goes to $85-$90. I just don't think that's possible if it hasn't gone there by this point. Without a double-dip recession worldwide, these stocks seem like the place to be for the coming earnings season.

How to Play the Relief Rally

"Defensive at the bottoms, bullish at the top" or "flat-out defensive" have been the dominant investment themes during the explosively range-bound market of the last two months. This is a fairly common trap of go-nowhere markets and one which needs to be addressed, particularly as we get through October and into the seasonally bullish end of the year.

Into the bearish, or at least defensive, camp we can add David Hefty, CEO of Hefty Wealth Partners. Hefty is looking askance at the nearly 10% rally in stocks, despite thinking a "relief rally could be coming." Hefty has been defensive since late Spring and is keeping his bat on his shoulder now.

"Investors today are paralyzed by what's going on," he offers. Of course there are good reasons to be concerned in the bigger picture. At least in the near term, the market seems increasingly given to shaking off the bad and giving ambiguous news the benefit of the bullish doubt. The question for both the bullish and the bearish is what would make them change their minds. For Hefty, that means better news on GDP and an improvement in his proprietary measure of 300 different technical measures. The Indiana-based money runner doesn't like what he's seeing, as evidenced by his out-sized cash position.

I've written of both my concerns on the long side as well as my 20% long positioning; occasionally covering both ideas in the same segment in order to maximize your bang-for-the-viewing-buck! This positioning leaves me almost perfectly ambivalent on both the rallies and the sell-offs. Being long but cash heavy also means I'm in roughly in the same boat as Hefty, not to mention many, if not most, of the guests we have on Breakout.

It's one thing to babble on talking-head style about various scenarios. Since that's too easy and, frankly, not particularly value-adding, I'd rather share what I'm actually doing with my own money and what I'd be thinking if I still ran a hedge fund. Since most of our fund manager guests are understandably reluctant to be specific on how they're playing this, I'll take a shot at it:

I'd be more bullish for a trade if we a) closed decisively over the S&P 500's 200-day Moving Average at around 1177 (looking good so far today), b) Europe managed to effectively delay the day of reckoning on a Greek default (seems more likely today than yesterday), c) the reaction to the earnings reports this week was muted and/or bullish d) some combination of all three.

I officially went into "Sell Rallies" mode with a Purple Crayon segment on May 17. Call it 1,320ish on the S&P. Including potential taxes and brokerage fees, let's say the market can rally between six and eight percent before my call goes from being good (if I do say so myself... and I do) to bad. That cushion is key as it means I've got a good spread in terms of performance relative to the market. If I were strictly running other people's money I could stay underweight stocks up until and slightly through 1,320 before I'd squandered the lead, investors pull their money and I start looking for other work. I don't have to chase but I can't coast either.

If we get a, b and c above I'm going to want to own beaten down favorites. Apple (AAPL), Ralph Lauren (RL) and the like. Depending on where it is at the time I'd even take a look at something like the hideously broken NetFlix (NFLX), for a trade. Rallies off the lows take everything higher, save defensive names that everyone is long already. Since I have a lead on the tape I can, and will, give the market some latitude in terms of pulling the trigger. Call it a close above 1220 and I'm a buyer. Below that and I'm holding my fire, though, as always, telling you what I'm thinking in real time.

The Dutch Central Bank Answers 10 Questions About Its Gold

Three weeks ago, the Dutch asked their central bank where their gold is. The central bank has responded. Courtesy of Vrijspreker, here are both the replies, as well as the key follow up questions. And while the bulk of the answers are expectedly trite, and generic form, "DNB’s physical gold holdings function as the ultimate reserve and anchor of trust in times of financial crisis. Further, gold is being held for diversification reasons." This appears just slightly different from our own Chairman's definition of gold as mere barbarous tradition.

From Vrijspreker.

We repeat the questions of the Dutch Socialistic Party with the answers of the Secretary, and follow up with first comments of the Vrijspreker. We think further questions are justified!

Question —Answer—Comment

1. Did the Dutch Central Bank (DNB) loan part of their gold?
If yes, how much and to whom?

No. DNB has informed me that they have stopped loaning out gold as of 2008.

Comments Vrijspreker: if so, why doesn’t DNB make that clear in the annual report? Why hide such crucial information.

2. Why are gold and gold loans stated as one line item in the annual report 2010 instead of mentioned as 2 separate items?

DNB follows the rules for valuation, determination of result and balance sheet presentation of the European system of Central Banks. The asset ‘Gold and Gold Receivables’ reflects the physical gold inventory.

Comments Vrijspreker: good international accounting standards oblige companies to separate cash from receivables, as they’re clearly different. Why wouldn’t these standards apply to central banks? In times of increasing civil unrest because of opaque financial schemes being set up by governments, central and commercial banks and the demand for more transparency, how would you justify these special rules for central banks? Are they above the law?

3. Can you give an overview of the yearly yields of the gold loans during the past years?

No gold has been loaned out over the past years.

4. Where IS the physical gold of DNB? At which locations and how much is where?
What is the reason that the gold is still at these locations?

DNB has a location policy, which means that the gold has been spread over the following locations: New York, Ottawa, London and Amsterdam.

Comments Vrijspreker: why doesn’t the Secretary answer all the questions? What is the amount per location? And what exactly is the location policy? Why New York instead of any random other city? Also it’s important to know how often and by whom the vaults are audited.

5. What was the most important reason for DNB to sell the gold in the past? Are the storage costs a reason? What are the actual costs to store the gold?

By selling gold in the past, DNB has tried to align its gold holdings with other gold holding countries. The storage costs were not a factor in the decision to sell the gold, because they are relatively low. Currently, DNB’s total annual storage costs paid to other central banks amount to a few hundreds of thousands of euros. The costs vary per location.

Comments Vrijspreker: why would DNB want to align its gold holdings with other central banks’ holdings? Is there a coordinated central policy amongst all central banks? Has this been prescribed by the Bank of International Settlements? Are the recent gold purchases by developing countries’ central banks not conflicting with this international policy. Could you outline the details of this policy?

6. Can you confirm that since 1991 of the 1700 tons of gold about 1100 tons have been sold?
Is the remark of journalist Peter de Waard correct that because of these historic sales there is a loss of about 30 billion euro?
If not correct, what is the right amount?

Since 1991, 1,100 tons of gold have been sold. Back then it was concluded that DNB held relatively much gold compared to other central banks. Decided was to align the amount of gold with other important gold owning countries. Sales proceeds have been added to DNB’s general reserves and have been invested in interest generating investments. Comparing the actual, as a result of the financial crisis, higher gold price with the historical gold price does indeed lead to more or less the amount as mentioned by Mr. De Waard. However, one has to take into account the investment income generated since selling the gold and the fact that the result of said calculations heavily depend of the strongly fluctuating price of gold.

Comments Vrijspreker: again, why align the gold holdings with that of other central banks? What exactly is the purpose of that policy?

7. How much of the National Debt has during the past 20 years been paid off with the proceeds of the gold sales? Are you of opinion that the sustainability of the national debt will be improved by paying off the debt and at the same time selling the gold?

Gold is an asset of DNB. The sales proceeds have been invested in other assets and have hence not been used to reduce the national debt. The return on investments will flow back to the Dutch government as a result of DNB’s dividend payments.

8. What is in your opinion the present function of the gold stock?

DNB’s physical gold holdings function as the ultimate reserve and anchor of trust in times of financial crisis. Further, gold is being held for diversification reasons.

Comments Vrijspreker: clearly DNB sees value in gold. For that reason, it needs to be more transparent, and so should all central banks.

9. What is the relation between the size of the market of the gold stock and the size of the market of gold derivates? What are the possible consequences of this?

The size of the physical gold market and derivatives market cannot easily be compared because of diverging measures for the size. For the trade in physical gold the turnover is measured: in the most important market (London) this amounted to USD 136 billion in the second half of 2010 according to the London Bullion Market Association. For the derivatives market the underlying value of outstanding derivatives (swaps, future contracts and options) is of importance. For the second half of 2010 these amounted to USD 396 billion according to the Bank of International Settlements. In general one can say that the availability of derivatives markets promote efficient price discovery.

10. Can you confirm that recently a number of countries have even enlarged their physical gold stock? Do you have an explanation for this development?

Buyers are developing economies that show strongly growing official reserves or where gold traditionally only constituted a small portion of the reserves. There is also a wide group of countries that have sold gold the past decade (including France, Spain, UK and Switzerland)

It could finally be time to bet big on higher interest rates

The charts are showing that the long-anticipated major turn in interest rates may be at hand.

For the first time in many months I can build a chart case for going long rates or short the underlying instruments. In fact, a major top is in the making in the U.S. 5-year T-Notes and Eurodollars futures contracts. Even across the pond, a possible top is showing in the German Bund and Bobl.

Eurodollars (interest rates, not forex)

Let’s start with U.S. Dollar-denominated interest rates. The greatest weakness (in price) appears at the short end of the yield curve. The first chart below is the monthly graph for Eurodollar prices, which trade at an inverse to rates. Note that the Eurodollar futures represent an interest rate, not a forex pair. A Eurodollar futures contract is basically a synthetic instrument for a time deposit of U.S. Dollars held in non-U.S. bank, typically in Europe. The monthly graph shows that when the contract trends, it really trends. I have made a lot of money trading this market, which tends to be dominated by institutional volume.

A Eurodollar price of 99.5 equates to a rate of .5%. A Eurodollar price of 99.00 equals to a 1% interest rate and a Eurodollar price of 94.00 equates to a rate of 6%. This chart shows that we are more than two years into a major top in prices (bottom in rates). I should point out that of all U.S.futures contracts, the Eurodollar is the king of volume. This contract (traded at the CME) typically trades two million contracts per day. Two million contracts at $1,000,000 each equals $2 trillion of U.S. Dollar reserves held in foreign banks. The Fed has no direct jurisdiction over Eurodollar rates, meaning that the market is at least somewhat immune from the games played by Little Timmy and Uncle Bennie.

The weekly chart of the Eurodollar shows in more detail the nature of this 2+ year rounding or M top. The mid-point low exists at 99.17. It appears as though the market has already rolled over from the final top (thick line).

The deferred contracts are more decisively anticipating an increase in Euro rates (lower prices), as shown on the daily chart of the Dec. ’13 contract below. (more)

3 Undeserving Victims of Rampant Fear: APA, XRX, MMM

Stocks ebb and flow. But, let’s face it — sometimes the bearish ebbs and bullish flows are simply overdone, taking those stocks well beyond reasonable (read: sustainable) levels, and setting up reversal opportunities.

The past three months have been a decided bearish ebb, with the S&P 500 sinking more than 20% from its high to its low. A handful of stocks, however, have tumbled a much greater distance — distance one might consider overdone, and unsustainable. In fact, these stocks are so oversold at this point, they might be poised to rebound regardless of whether the market does from here. And in some cases, those rebounds appear to be already under way.

Here’s a look at three of these undeserving victims of — and only of — rampant fear.


Apache APA
Click to Enlarge
The drastic pullback in oil prices back in August wasn’t difficult to understand. Investors truly thought we were entering a global recession, and as such, demand for oil was bound to plummet as it did in late 2008. That’s not to say the assumptions were correct — just understandable. Within the last few days, though, that same assumption is starting to be questioned, with crude prices rising more than 5% above Tuesday’s low.

One of the hardest-hit names stemming from oil’s pullback was independent oil and gas player Apache (NYSE:APA); shares fell more than 43% between July’s high and October’s low.

Were Apache not a proven and consistently profitable company, such a dip might make sense. Even when things were at their darkest in late 2008 and early 2009, though, this explorer still managed to turn a profit. Oh, it was small, but even a small profit then was a relative victory, and the odds of another turnaround that strong catching any oil company off-guard again are pretty slim.

The sharp V-shaped bottom made this week suggests the market finally figured out that APA is undervalued, even in the worst-case scenario. A forward-looking P/E of 6.7 is low — even by energy stock standards.


Xerox XRX
Click to Enlarge
After a 39% tumble from July’s peak to October’s trough, chances are good that Xerox (NYSE:XRX) broke the spirits of even the most die-hard fans and owners. After all, the stock didn’t even recover half of what it lost in 2008 when things perked up in 2009 and 2010. To implode before it ever even got a chance to fully heal had to have been psychologically deflating. And bluntly, given the cyclical nature of printers and copiers, even a mere economic slowdown could be a threat to Xerox Corporation.

Sometimes, though, the best entry points are when the whole market has given up on a stock.

Like Apache (and the rest of the market, for that matter), Xerox shares formed a rather sharp V-shaped reversal effort beginning Tuesday. Unlike the market’s average stock, though, after nearly a 40% drubbing, XRX is priced at a mere 6.5 times its projected 2012 earnings of $1.22 per share. For perspective, 2009’s (when the economy was more than struggling) earnings still rolled in at 60 cents per share. Assuming the absolute worst — a repeat of 2009 — the stock still would be priced quite palatably at a P/E of 12.0.


3M Company MMM
Click to Enlarge
In early July, a 30% plunge was likely the last thing any 3M (NYSE:MMM) shareholders were expecting. That’s what they got by early October, though. However, this tide might have turned this past week as well, as investors realized the most diversified company in America is waste-deep in consumer staples lines as well as business staple lines. It makes everything from computer screens to bandages to tape to insulation to pet supplies, and more. Not much of it, however, is highly cyclical.

Nevertheless, down MMM went — and up went its dividend yield. The current yield now stands at 3% — a dividend 3M has increased for 53 consecutive years now, and it actually can afford the dividend.

Between a needless nosedive from the stock, stunningly reliable dividend growth, a forward-looking P/E of 11 and investors now collectively realizing the world isn’t going to end, 3M is a great value proposition.

Bottom Line

To be fair, an economic stumble might well eat into the bottom lines of these companies. But each is far better shielded from that struggle than their recent stock charts give them credit for. Now that the sellers have overreacted, savvy investors can find long-term holdings at bargain prices.

Tired Of Volatility? Invest In The Movies : CNK, MCS, RDI, RGC, RLD

The adage on Wall Street about the movie industry is that it's recession proof. To that point, box office revenues did climb 10% in 2009. The global economy is under pressure and volatility is harrowing retail investors. Surprisingly, you can look to movie stocks for a reprieve.

Movie Industry Holding Strong
The growth of in-home entertainment (Internet, video games, Blu-ray players etc.) is the biggest threat to the movie industry. As more consumers upgrade to bigger flat screen televisions, newer video game consoles with greater functionality, tablets and other devices, the fear is that more of the potential moviegoer audience will opt to stay home for their entertainment. Yet, 2010 was a record-breaking year with the box office pulling in $10.56 billion and ticket receipts this year are near that level. The box office has earned $7.89 billion, compared to $8.21 billion by this point last year. Favorable comparables relative to a somewhat disappointing holiday gate last year, could make up the difference to put the movie industry back on a record setting pace.

Movie theater operators in particular, are having success capturing revenues from attendance growth and premium ticket pricing. Regal Entertainment Group (NYSE:RGC), the largest movie exhibitor in the U.S., estimates the increase in second quarter box office was due in part to higher ticket prices (about 15 to 17%). However, attendance gains were the primary driver of ticket revenues. That's a good sign for margins and the ability to grow earnings. Regal reeled in $34.8 million in profits last quarter, up from $4.8 million in the same period last year and revenues rose 4% to $753.3 million. Box office revenues were $519.3 million, while, admittedly overpriced, concession stand snacks contributed $200.2 million to the top line. Unemployment is above 9% in the U.S. and global asset prices are getting slammed, but people are still going to the movies in droves.

Blockbuster Dividends
Theater operator stocks are clearly benefiting from box office stability, trading with less volatility against the broad market. Since July 6, the S&P is down nearly 15%. Over that some period of time, Cinemark Holdings, Inc. (NYSE:CNK) is down almost half that amount, while Regal is actually up close to 5%. The real draw to movie stocks right now is reduced volatility. A big reason why, is star-studded dividend yields from this group. Regal features a fantastic 6.6% annual dividend yield and Cinemark pays 4.47%. These companies are producing more than sufficient cash flow to sustain the high payout. Regal generated $130 million in free cash flow during the second quarter, the second highest quarterly total in the last 4 years. Dividends may not seem exciting, but they can certainly be lucrative. (For related reading on dividends, see The Power Of Dividend Growth.)

These positive catalysts are in place for theater operators with big dividends. A momentum play off this group is RealD (NYSE:RLD), which licenses 3-D technologies. Some negative trading action against RealD, due to the move by Sony Corporation to charge theater operators for 3-D glasses, has made it a potential valuation play. Investors might also be able to find value in independent theater operators like Reading International, Inc. (Nasdaq:RDI) and The Marcus Corporation (NYSE:MCS), the latter of which pays a solid 3.2% dividend yield.

The Bottom Line
In addition to the stellar dividend yields, theater operators are in good shape to sustain attendance and concession revenues, thanks to several highly anticipated films still to hit the big screen this year, including eagerly awaited sequels, such as installments from the "Twilight," "Mission: Impossible" and "Sherlock Holmes" series. Theater operator investors are awaiting these titles, as well as what looks to be a hot forthcoming IPO issue from AMC Entertainment Inc.

How Usury Killed The Economy

Money as Debt Usury Banking : Tarek El Diwany author of 'the problem with interest', presents this educational documentary on the history of the current monetary system and its problem.Tarek El Diwany gives his analysis on what is wrong with today's financial system and how it can be fixed , This shows the bankers to be criminal and the unsustainability of constant economic growth .It explains how government policy of permitting pervasive usury has destroyed the U.S. economy. The usury discussed relates to credit cards and home loan mortgages, but expands the concept of usury into the excessive profitability caused by governmental non-enforcement of the nations antitrust, securities and anti-gambling laws. We do not need constant economic growth. We need economic stability and sustainability,Banking is an essential service to commerce and industry and to people, therefore it should not be in private hands.WE need to take over our own creation of money,and a national NON USARY bank, NOT FOR PROFIT,its employees should be employed by the treasury. Money should not equate to more money, money should not equate to POWER. Money should be the servant not the master. If the treasury is the only provider of money, then the treasury can pay for all infrastructure all essential services on a non profit basis. Imagine no interest on your mortgage, no taxes (no need to tax because the treasury controls all money supply) The true value of money would go from being negative(Debt) to Positive industry agriculture, productivity.

Stocks soar on European pledge to help banks

Just last week, a bear market seemed inevitable. Since then stocks have surged four out of the past five days, bringing the S&P 500 index up 8.7 percent.

The latest jump came Monday after the leaders of France and Germany pledged to come up with a far-reaching solution to the region's debt crisis by the end of the month.

The Dow Jones industrial average soared 330 points, its biggest one-day gain since Aug. 11. It has gained 7.3 percent over the past five days. Bank of America Corp. jumped 6.4 percent, the most of the 30 stocks in the Dow.

Sharp turnarounds in the market have become increasingly common. Starting in early August, the market entered a phase of extreme volatility as Europe's debt crisis intensified and fears of another U.S. recession emerged. Last Tuesday, the S&P 500 traded 20 percent below its recent peak in April. Had it closed at or below that level, it would have met the definition of a bear market.

Instead, the S&P began a rally that continued through Monday. The gains were extraordinarily broad; only 5 stocks in the S&P 500 index fell, and ten stocks rose for every one that fell on the New York Stock Exchange.

As in many recent days, a good part of the increase came at the final minutes of trading. The Dow rose 100 points in the last half-hour.

Analysts said the sudden moves aren't likely to dissipate any time soon.

"It's probably going to continue to be a volatile period as people try to work things out and get some sense of where we're heading in the future," said Brian Lazorishak, a portfolio manager at Charlottesville, Va.-based firm Chase Investment Council. "That volatility gets exacerbated by people trying to jump on positive news and negative news before anyone else."

"The more we can put our arms around the problem with a little more detail, the better, and time frames usually help," said Michael Sansoterra, a portfolio manager at Silvant Capital Management in Atlanta.

The Dow rose 330.06 points, or 3 percent, to close at 11,433.18. That's the highest the index has been since Sept. 16.

The Standard & Poor's 500 index rose 39.43 or 3.4 percent, to 1,194.89.

The Nasdaq composite index rose 86.70, or 3.4 percent, to 2,566.05.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday they would finalize a comprehensive response to the debt crisis by the end of the month, including a plan to make sure European banks have adequate capital. Investors have been worried that European leaders weren't moving quickly enough to contain the fallout from a default by Greece's government.

European markets rose and the euro strengthened against the dollar. Investors were also relieved that troubled Franco-Belgian bank Dexia would be partially nationalized. Dexia needed to be rescued because it owns large amounts of government bonds of indebted countries like Greece and Italy.

European banks have become more reluctant to lend to each other, putting overextended banks like Dexia in danger. That prompted the European Central Bank last week to offer unlimited one-year loans to the banks through 2013 to help give them access to credit.

Investors have been worried that a default by Greece could cause the value of Greek bonds held by those banks to plunge, hurting their balance sheets. U.S. banks would also be affected if Greece goes through a messy default, since they own Greek bonds and also have close ties to European banks.

In corporate news, Apple Inc. rose 5.1 percent to $388.81 after reporting that first-day orders for its new iPhone topped 1 million. The phone goes on sale Friday.

Yahoo Inc. jumped 2.4 percent to $15.84 following reports that founder Jerry Yang may organize a buyout of the company with private equity investors.

Sprint Nextel Corp. slumped 7.9 percent to $2.22, the most of any company in the S&P 500 index, after Standard & Poor's said the agency would review Sprint's credit rating. Sprint said last week it would need to raise money to build a high-speed data network even as it spends more to subsidize sales of the new iPhone.

Bond trading was closed for the Columbus Day holiday.