Traderbill's Financial Markets Weblog

…weighing in at 1.06B shares, yesterday was the fifth lowest volume day of the year! This follows Friday’s 2.34B share day, the second largest of the year, but as noted if it had not been for that massive Russell index rebalance that added 1.3 billion shares in the final two minutes of trading (without moving the market), it would have most likely been about the same size as Monday. As for yesterday’s ‘action, there was none. What’s that you say? Nothing??? What about the fact that the Dow Industrials closed at 8529, slightly above the 200 day moving average (8479), and even above the 40 day? Big deal! After all the last time it closed above 200 day was on June 12 but average then was 8642, and the average is dropping 0.8% a week…in other words it is 2.6% lower now! That is a pretty low bar. At the other end of the spectrum is the 40 day moving average with an equally steep upward slope as is the 50 day and for the last six sessions we have struggled to get back above both. The point is the gap between the three averages is almost as convergence: 95 points or about as much as the Dow gained yesterday! In other words, within a week the three will meet around 8450 and that will be one tough hurdle to overcome if, as most expect, we catch a downdraft. Worse the sideways action of the first half of June and two down steps since means that the 40 and 50 day will flatline near there while the 200 day continues to decline. Too much to digest? Suffice it to say it is not a bullish case. 

 Bloomberg reports volatility has plunged with the VIX closing at the lowest level of the year yesterday, 25.35 a decline of 37% ytd and the first close below 25.66, it’s level before Lehman filed for bankruptcy….but is this a good thing or just complacency?

Now think about that, and think about the old saw “the stock market is always six months ahead of the economy.” Always???…how about usually and if stocks are so smart how come something as simple as bonds lacks that predictability? Stocks have probably predicted 12 of the last 6 recessions…it isn’t about the economy, stupid…it’s about psychology…plain and simple…and don’t try to say it is on wisdom or insight because if it was we wouldn’t have had a dotcom boom where a bad IPO only doubled the first day! Remember these are the same people who told you to watch for inflection points…in fact, that is the key to their wisdom. Look if GDP falls by 2% a quarter at some point it has to only fall by 1% and that would be an inflection point and if it gets weak enough at some point it has to turn positive but if it is down 10% and gains 5% (which could occur in a boost but not be sustained, it is still decidedly negative and not induce employers to start hiring…it might, but it depends on a lot more factors: like consumption (isn’t that what they used to call tuberculosis?).

TB was talking with a chap from iShares who called yesterday for a critique of the seminar he attended. The comments turned into a discussion (if all of the surveys went as long he would be lucky to complete five in one day), and discussions make TB think, and thinking is good, right?…at least if you don’t overthink.

So here was what TB hypothesized: imagine five years ago a couple recently married, two jobs but she is now pregnant. They leave San Francisco where both had been renting prior, and move to the ‘burbs’ and by a McMansion…after all, their incomes will support it (ignoring the fact that at least for a brief period she will not be working and ideally never). So they move in to the new home in their Camry’s. But then they notice that the neighbors are driving Beamers’s. Wait…we live in the same homes…so we can afford a BMW….subject to approved credit…which they readily get and lease the Beamer. Meanwhile, their old furniture looked pretty shabby so they bought new and upgraded the kitchen plus added about 4 HD tv’s. Meanwhile, their commute is costing more, and other expenses are rising…and they were smart enough to buy a fixed rate mortgage.

But they also note that their salaries are not rising as fast as they were and the bonuses are smaller..not to worry we will just get better paying jobs…perhaps. Then comes 2007 and all is not so good…they had taken out a home equity loan to finance some things and pay off the credit cards which mysteriously were rising again…perhaps it was that Hawaiian vacation and all those dinners at nice restaurants.

She has the baby but decides to keep working…either that or move. But then she gets cut back to part-time which isn’t all bad because she can spend more time with the baby. Then his job…he worked for Merrill or some broker…evaporated or if he was able to stay it was for less money and less of a bonus on the table. The credit card bills start to mount…isn’t it great that you can now charge your groceries? (TB recalls Robin Williams on an old Mork and Mindy when he was talking with Orson, telling him about life on Earth “they don’t use money, they just wave a plastic card…except at the grocery store…must be too hard to repossess). That was a logical extension of credit card use for vacations and dining out…but the original plan was to pay it off each month, not to finance it.

That is where many folks are today…trying to rebuild their finances along with others. Suddenly, the BMW, which they were so proud of on day one isn’t as meaningful…in fact it never was because two months later, both saw another car they liked better. So they are now saving…or more accurately consuming less…much less. But the best place to save is not the bank at rates of less than 2%…and they learned that the stock market is not a bank (remember though when Art Laffer and others told us it was…that savings was actually much higher because the savings rate does not include capital gains?…what capital gans?), it is by paying down those double digit credit card debt…you could pay down your mortgage too… but why do that if it is “upside down”?

The point of the above is that consumption will not return to anywhere near the old levels. Now the experts will argue this point because it always has and always will come back. But consider we are facing double digit unemployment (16% if you count part timers who want to work full time), job losses are still rising, half of those unemployed have exhausted their benefits, and none of them with any savings. This is the result of three generations who have never learned how to save and ‘buy now, pay later’ is ingrained in them. This time credit will not be so easily available even if you want need it. In fact if you need it you probably can’t get it.

Yet our elected politicians want a rapid fire rebound…do your patriotic bit as Dubya said and go out and shop! IF that works, and it won’t, we will be back where we are or worse in a few years.

We have near record excess capacity and a huge unemployed workforce just dying to take a job…any job. So do either of those factors suggest that wages will be rising anytime soon? After all, if we are going to save, the only way to offset that is with higher salaries and those will prove elusive. Batten down the hatches as we are just in the eye of the storm…it ain’t a perfect storm…just a great big one.

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Yesterday morning, TB heard one of the enlightend commentators say that Bernie Madoff’s sentence would be nowhere near 150 years because no federal judge would do that…the defense was asking for 15 years but he said there would be a compromise at say, 30 years which is the same thing as life since there is no parole in the federal system.

Well, the judge mustn’t be enlightened because he slammed him with the full 150 years the prosecution asked for and he was right to do so. This was an amoral man…one who just to keep his scheme going plundered charities…including those of his own faith…and has shown no remorse. He is either insane or just plain greedy…and should therefore be removed from society permanently…except prison society and he won’t be going to a Club Fed either for his offenses were far to egregious.

TB would also like to see every money manager who received fees for steering their clients to Madoff relieved of all of their assets…especially those greedy hedge fund managers who were paid 25 plus 20 to manage money and merely pushed it off to him, and received a kickback on that too. This man was evil and so were his accomplices.

Also yesterday, a friend sent this in response to the comment that Sears was going to forgive payments on unemployed…those who purchase between now and August that is:

Sears has a great marketing/financial trick. They advertise a big discount on appliances then when the customer shows up, they make him open a Sears credit card to get the discount. That card has 27% interest rate! One of my young client couples did it last year and are struggling to pay it off. Nice way to make $ no?

Might as well go home now as the market is done for the quarter.

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 30, 2009.

Bloomberg Quote of the Day: “I never did give them hell. I just told the truth, and they thought it was hell.” – Harry S. Truman

…that would be Friday last! Anyone who would place a trade technically or otherwise on the action of the day would be a fool. Consider that The Dow was off 0.4% at the end of the day and the S&P 500 -0.15%, while both Nasdaq indices and the Russell 2000 were up less than 0.5%.  Advance/Declines and Breadth were all very slightly positive. Now is where it really gets hinky: There were 139 new 52 week highs, not only an increase of 75 from the prior day and the highest number of new highs since the entire selloff began and there were just 13 new lows…OK, you give up, you say…so what happened…and what about that big 2.34 billion share volume, 200 million shares higher than 6/19 option expiry and second highest volume of the year…that has to mean something…sadly, no.

Twenty minutes before the close volume stood at just 720 million shares…on a normal day it would have ended around 1.2 billion shares judging from recent history. Instead, at two minutes before the close total volume was 1.3 billion shares with about 1 billion shares on the close which has to be a record…that has to mean something…uh, no.

Well with all that volume in the final two minutes there must have been some reaction. Actually, the indices barely budged. The Russell 2000 Small Cap went from 510 twenty minutes before the close to 514.50 ten minutes before the close then settled at 513.22. What was that all about? Take a look at this post from Barron’s at 3pm EDT – as if that did any of you any good:

Today will be the liquidity event of the year!  

So sayeth Credit Suisse in a pre-market note to clients.

“As we’ve mentioned here throughout the week and in previous notes, today is the annual Russell reconstitution.  All changes take place on the close.  Total gross trading is estimated to be about $28 billion,“ the firm told clients in US Trading Daily advisory.

Financials are net to buy in Russell 1000 and 2000.  Over 900 names are estimated to have more than 1 day’s volume to trade.

Well isn’t that special…$28 BILLION and it is published less than an hour before the close! Nice reporting guys, and CNBC and Bloomberg too! As silent as they are on options expiry and that is considered news coverage? Not only that ETF indices with over $500 billion in assets (found that in 2008 on the last rebalance) were impacted. So there you have it…nothing to see here! One stock Bridgepoint Education (BPI) which was added has risen from $10 on  May 20 to $13.48 the day the rebalancing was announced, and closed Friday at $16.94…just off the high of $16.94…it went public on 4/27/09. The volume Friday was 1.49 million shares or more than one million above average! TB did not ‘cherry pick’ this stock just a representative example of the B.S. we are subjected to!

Guess you should have ‘sold in May and gone away,’ right? Let’s see, now when was the peak of this rally (which was actually a lower high as the Dow Industrials did not take out the 9000 resistance that it struggled with for three days at the January highs….you do remember that failed rally don’t you?…a presidential one that couldn’t even make it to the inaugural)? Answer: that would be on June 11 at 8878…ditto for the other indices although at least the two Nasdaq indices closed just off the highs but the 100 faces heavy resistance at 1500 ad the Composite at 1875-80, while the Russell gave up all but 12 points of the June gains. Soooo…what else are we going to do for the rest of the summer? …and it isn’t even July 4^th yet! Don’t ya wish you could just hibernate?…or take a long vacation? Nothing to see here! 

Don’t bet against the dollar! China has dropped its bid for a global reserve currency and the currency strategist who had the best calls this year are now seeing a rise of more than 4% after the steepest three-month decline since 2002. CIBC, Deutsche Bank, BofA, and Wells Fargo are all in the camp after being right so far this year. You wouldn’t know it yet but after last week’s three Treasury Note auctions when more than two-thirds of the $114 billion was sopped up, who knows, and with repayment of some of the TARP funds some of the pressure is off but make no mistake the issuance will still be huge.

That said, TB still thinks the U.S. Treasury market will remain the most treacherous where timing is everything but there is no way to time it with 15 basis point moves almost a daily occurrence and often offsetting….leaves on shaking his head.

Commodities also seem to have lost their luster and the IEA this morning says oil demand will be below 2008 levels until at least 2012…not good news for the already battered energy sector and especially for oil services. All storage capacity for crude is taken and silver has had such a runup  (25% ytd) that Barclays Capital says investors should take the money and run.

So where to put one’s money? Well, if you are trying to diversify you might as well leave it in cash. According to Bloomberg, correlations between the indexes are 0.74% this month and that folks, is the highest in FIVE decades! This explains why crude gains have mirrored stocks and we see both stocks and bonds up or down the same day.

That should give you enough to digest for one day: Tomorrow is month/quarter end, Friday is a holiday for July 4^th in the U.S., and the payrolls report for June will thus be delayed a week…with weekly jobless claims rising one can hardly stand the wait, right?

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To end on a sign of the times. Sears, the largest U.S. department-store chain will not repossess appliances and will suspend payments for unemployed workers. Get this: those who purchase appliances between July 6 and August 1 will have one-twelfth of the purchase price credited to their account for every month they are out of work and those out of work for more than a year will have the full debt forgiven. Hmmmm…if this sounds a lot like ‘we finance what we sell’ that is because it is! Take GE whose financing activities are its single largest component (but please don’t regulate us like a financial company).  When the going gets tough the inventories move to accounts receivable…always been that way…always will! Hey…besides what are you going to do with someone’s old washer or dryer…besides pay to store it! Get real!

Have a great, short week…but you don’t have to have a fifth on the fourth!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 29, 2009.

TB’s Headline of the Day: Yen Weakens as Fed Signals Economy Improving: Banks Lead Decline in Stocks…and that is from Bloomberg not CNBC!

…OK, TB is going to lay it all on the line: forecast is for rain today…right on the parade which had come to a screeching halt anyway. After today, there is no reason for hedge funds to want to see the market head higher, or even stay in place as their quarter ends and we are truly in the summer doldrums by a week from tomorrow as the Fourth of July weekend signals the beginning of vacations. In San Francisco, that may be good news with five union contracts for BART workers expiring and a possible strike as soon as Wednesday, putting SF in the news to replace the D.C. Metro. There are also a lot of morose money managers who took the bait and if they bought on June 1, saw their quarterly returns severely reduced…or worse.

Take the headline above and contrast it to what actually happened yesterday. The market peaked in the morning ahead of the FOMC statement, then slid until the announcement, ticked up right after it came out, and then turned turtle with only the Dow doing a full Monty to close down 23 points, but the rest of the closely watched indices closed severely off their highs. Take Dow Transports which peaked at 11am EDT up 125 and then close up 48. We have been on quite a roller coaster this week on headlines: World Bank sees weaker economy, OECD sees improvement (oh yeah, -4.1% in 2009 but +0.7% in 2010, take that to the bank…if you can trust your banker), also yesterday forecast of Yen going to 90 but today it weakened instead from 94 to 96 on the Fed statement which was anything but as bullish as it sounds.

Look, the Fed, and especially Bernanke, is on a tightrope of trying to sound optimistic in order to ward off deflation, and yet not get us so happy that the bond market craters ahead of rising inflation…which, despite the misgivings of Art Laffer is not in the cards. Even former colleagues at Mother Merrill, Tom Sowanick and David Rosenberg are pro and con on this and TB is sticking with Rosie despite having tremendous respect for Sowanick. The deciding factor is the surge in excess capacity which cuts cost push inflation off the table (except due to rising commodities prices if the dollar weakens severely), and with 10% or more actual unemployment (50% of those have now seen their benefits expire), rising wages are years off…except for government subsidized Citi of course which doubled key employees salaries due to the risk of bonuses), so that eliminated demand-pull in the industrialized nations of the world.

So the volatility that was in stocks for the past year is gone and returned to the high end of ‘normal’. Everyone is talking about the ‘new normal’, as well they should because what we saw from 2003 to 2007 was anything but normal but we chose to believe it was.

After a recession in 2001 that turned out to be short and was ‘cured’ by the Bush tax cuts to the wealthy, we began to see a housing boom, that then allowed mortgage equity withdrawals (MEWS) to explode and without which we would have still been in recession. Then came 2004 and another explosion: derivatives, which leveraged the banks and shadowed banks to unheard of levels and then it all began to feed on itself until greed won out as it always does: easy money (Greenspan) causes lower credit standards which in turn cause more credit expansion until it is, and was, down to the least common denominator: when Fido can even get his own loan – Arf!…be it mortgage or credit card!

What kind of fool believes the consumer will be back with a vengeance? Have we learned from this experience? No, but we are being forced by our friendly bankers to learn…the very ones who aided and abetted our misconduct.

Now the banks are upset with Obama because of his new consumer protection agency as it will reduce their outrageous fees…which unfortunately they are counting on to rebuild. There are fees for everything: late fees, newly imposed credit card fees, changing the rules on your credit card so even if you pay off the bill in full you accrue interest, inactivity fees…you name it. Too bad the banks aren’t faring as well as the shadow banks.

A friend pointed out yesterday that all this change in D.C. isn’t changing the way the big investors play the game…perhaps because Obama had a lot of support from hedge funds and Wall Street. Has the new improved SEC acted yet on a meaningful uptick rule (say 10 cents), or preventing naked shorting, and shouldn’t ultra-short ETF’s be banned?

Interestingly, this same friend objected to eliminating ultra-shorts, as he put it “it is the only way the little guy can compete with the hedge funds.” That had TB shaking his head as with electronic trading platforms all but wiping out the exchanges, at least as to profitability except for the specialists in Bank of America and Citigroup, there is no one, NO ONE, who can out-trade this market without computer generated trades using algorithms which have to be constantly remodeled to work to one’s advantage. Jim Simons, of Renaissance Fund has said this. Also these ultra-shorts with two, three times or more leverage, meaning they are designed to do that much better on the way down than the index but also do the same multiple worse when the market is going up. In fact, due to fees and transactions costs they don’t do as well as expected on the downside and it is especially felt on the upside. That is why TB believes they should and must be eliminated. One to one is fine…after all aren’t they supposed to be to hedge your portfolio? Some hedge to TB’s way of thinking.

While the aforementioned Citi is doubling salaries…talk about an ‘in your face’ to the taxpayers, AIG is cannibalizing itself by selling off its life insurance units for $25 billion. In both cases, what will the government get for its investment, besides a pittance of a return of principal? Or should it be principle?  You decide.

Back to the stock market: a Bloomberg story today notes that shortselling on the S&P 500 is rising  and as of June 15 was 9.8 billion shares, up 1% from two weeks earlier. Watching market action since then, it is highly likely that it is even higher now, and with today being the last day for T+3 you can expect it to rise….remember TB’s forecast of a selloff well into mid-July…and even that may just plateau due to light trading volume.

In commodities, Gold is make or break but TB feels it will not get above the 40 day moving average…overnight it has been bounded by the 50 day ($930) and the 40 day ($938.64) with an overnight high of $940…it is now $935.50. Of course, a lot of that depends on the dollar but at best it has stabilized at the ‘new normal’. Also TB believes the energy sector has its run with Crude peaking at $73.23 on June 11 and will normalize at $60-70, that is why energy stocks (NYSE Energy Index) are off 11.6% since then. But with yesterday’s tiny uptick might also stabilize…unless taken down further by the broad market.

Lastly, bonds, while high yield (junk ) and investment grade corporates may have peaked (in price), municipals look relatively more attractive but that is almost entirely due to the state of California which is on credit watch by Moody’s for a downgrade and the markets are assuming the worst with bids for Cal bonds backing up in some cases 200 basis points. Unfortunately this won’t be resolved until Moody’s acts but they can’t do that until the legislature passes and budget and it is signed by the Governator, so in the meantime it could get worse….putting TB squarely on the sidelines.

The piece d’resistance however is the Treasury market which is the first perpetual motion machine that actually works…it just keeps going and going. TB has said that in a normal treasury refunding (the Feb, May, Aug, Nov, offerings of 3, 10, and 30 yr bonds), at least one of the three auctions will be bad. Ideally for a trader you would like to see a successful 3 year, followed by a flop of a 10 year, and then see yields rise going into the 30 yr on the last day of the refunding…ideally. But typically at least one, and sometimes two must go bad to set up the last (this plays havoc when antsy buyers are in ahead of the auctions driving prices to unsustainable levels). But it is no longer quarterly refundings with 2 and 5 yrs in between but a steady stream of three auctions due to the huge deficits caused by the bailouts. This week it has been 2, 5, and 7 year auctions of over $100 billion. The first two were well received yet following both the bond market sold off (yesterday due to the FOMC statement, or because it had given them an opportunity to unload positions ahead of today’s 7 year…whatever…

Both the 2 and 5 year had essentially record bids by indirect bidders (chiefly foreign central banks), and bid to cover ratios (bonds bid against actual number of bonds to be awarded). In the case of the 2 yr it was 3.19x, a level not seen since August 1994 and that on an auction of just $17 billion when this one was $40 billion. On yesterday’s 5 year it was 2.58x, the highest since Oct 2007 and that on $13 billion vs $37 billion. The size is staggering. Thus today’s recently returned 7 year note is a bewilderment. How much will the foreign central banks be buying as we have little history to guide us. In the 2 year auction they bought a record 65.7% of the notes, and on the 5 year auction 62.8%, barely second to Dec. 2004 and again on just $15 billion. So the foreign bank buying is crucial, and unlike last month, settlement date will be on June 30. As go the central banks, the reverse is true of primary government dealer positions, so they could be hit hard if foreign participation is low. Also, the two prior auctions, despite being strong, ended the sessions badly, so watch the results which will be out about 1pm EDT closely for clues.  

Got out and had a nice drive to San Jose yesterday to have lunch with an old friend and former boss. It probably saved TB from making mistakes on the initial reaction to the Fed statement…generally best to fade the news, right? If you haven’t been down to San Jose lately, the area around the convention center is incredibly nice…compact with a nice walking mall.

Happy trading!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 25, 2009.

Bloomberg Quote of the Day: “A man’s respect for law and order exists in precise relationship to the size of his paycheck.” – Adam Clayton Powell Jr.

…it was they after all who lowered their forecast for global growth Monday…too late to impact Asian markets but they are feeling the big hurt today. As readers know, TB had anticipated a selloff but later this week and not with the fury that this one developed. Remember the warning that we could take out the 40, 50, and 200 day moving averages in a single session? Well for the most part we did! Not only that, the Dow gave up its tenuous gain for June and is now up just 0.6 % and 3.3% ytd WITH dividends reinvested! It is still up 13.1% for the quarter however, but -27.2% for the past 12 months.

The S&P 500 is still down 30.3% for the past 12 months, up just 0.2% ytd, +12.6% for the quarter but down 2.7% so far in June…is THIS a sign of a strong market?

The winning Nasdaq indices are faring similar: the Composite is -25.2% 12 mos,  +12.6% ytd, +15.85 for the quarter and now -0.4% in June, while the 100 is off 24.9% for the 12 months, up 18.2% ytd, up 15.5% for the quarter but -0.6% this month.

Similar with the Russell 2000 small cap index: -30.3% for the last 12 months; -0.5% ytd; up 16.9% for the quarter, and off 1.7% this month.

One more to look at is the energy sector: NYSE Energy is now off 40.6% for the past 12 months making it far and away the worst performer, up just 2% ytd, up 13.3% for the quarter, but thanks to the drubbing since June 11 it is -8.6% for the month! Oil Services are the worst performer with stacked rigs abounding, -12.5%

NYSE Financial stocks are -12.3% for the month and the KBW Bank Stock Index is off 6.9% so far. The drivers of the banks of course have been Bank of America and Citi which have teamed up to provide more than half the NYSE Volume for more than a month although on the higher volume of the past few days that has dropped to about one-third….still, is that a sign of a strong market? Not in TB’s book!

What is truly amazing is how we can ignore fact and hang on slightly higher housing starts for example, despite the fact that they are well below historical levels and only back to about where they were in February, while ignoring that more homes built means more inventory on top of the ten months of sales we already have. Oh, and home sales are picking up…thanks to cheap foreclosure prices. Jobs? Don’t have to ‘splain that one to you…half the unemployed have now seen their benefits exhausted. Not trying to preach gloom and doom but we are seeing ‘irrational exuberance’ in stocks without precedence.

How much of a correction will we see? Dunno. Don’t even know what might hold up and what won’t…except dividends will get you through about anything…just make sure they are sustainable.

Poor ole Ben…Bernanke that is as his confirmation hearings start today…the same day as a two day FOMC meeting begins. Larry Summers is licking his chops after Big Ben’s gaff in the Ken Lewis fiasco…you don’t think Bernanke lied? Better look at the clip, if you don’t see it cross off becoming a detective from your ‘to do’ list. Nevertheless, TB believes it would be foolhardy to replace him…especially with Summers, at least at this point, and there are no other likely candidates. Let’s just hope the GOP remembers who appointed Bernanke and that they cut the rhetoric. The world financial markets are still very fragile.

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One of the benefits of having your own business is the latitude to do what you want, when you want. Usually that means researching some obscure data but yesterday it meant being able to kick back and watch the final round of the U.S. Open. Some of the best golf TB has ever seen occurred with leader Ricky Barnes giving up that big lead, Michelson and Duvall mounting incredible charges, and a young kid who has never placed better than 20^th since turning pro held on to win – Lucas Glover.

But what was truly impressive was the sportsmanship exhibited by Michelson and Duvall as well as Barnes who’s buddy bested him…that is what golf is all about. Then at the presentation, Glover was as soft-spoken and humble as you can imagine and cool as a cucumber…what a guy! What an Open! The rain piled on more pressure than ever before…imagine trying to stay focused while sitting it out waiting for it to stop.

Yesterday, a friend who has consulted with the U.S. Treasury in setting up money operations in third world countries was kind enough to send a log of sorts of his trips to Afghanistan, Liberia, Madagascar, Paraguay and others. These were simply his candid observations and it was truly an eye-opener. So much that we take for granted shouldn’t be. Remember during the Iraq war all the talk about power outages? It is the same in Afghanistan and Liberia…where you are lucky to have electricity eight hours a day (Paraguay doesn’t have that problem as it has a huge hydro-electric dam). Imagine having elevators that don’t work…climbing ten floors to a meeting without air conditioning. Walking around at night with NO lights. No traffic control, bad roads, fear of bombs. There is so much we take for granted…if we lose power for a couple of hours the utility companies here have to apologize profusely. Start thinking, or re-thinking just how lucky we are to live here.

Have a terrific day!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 23, 2009.

TB’s Quote of the Day: “The Fed’s role is to take away the punchbowl just as the party gets going.” – William McChesney Martin, the longest serving Fed Chairman (1951-1970 under Truman, Eisenhower, Kennedy, Johnson, and Nixon…yep even longer than Greenie who’s corollary might be: “don’t worry, I brought another bottle with me.” At a conference in SF yesterday, TB heard Fareed Zacharia make a  similar comment. Would Martin have left interest rates low while we spent ourselves to death?

…in other words, start praying! Over the past two years we should have all gotten religion, instead it seems merely the fanatics, be they Muslim or Christian seem to have done so…or more accurately: more so. Worse, this isn’t praying this is coverting a love into hate and trying to take everyone else with them. What kind of god would honor someone who killed other human beings…indiscriminately as the Muslim terrorists do, or by targeting doctors for performing abortions? Last TB looked, two wrongs don’t make a right….unless it’s the extreme right.

Yesterday’s market looked tame enough: 1.31 billion shares or about 200 million below average, yet average since May 15, and about 150 million above the average since June 3.

You may recall the big June 1 rally which was the highest volume of the month and only above average session (1.6B shares, while May 29, month end was the only other above average volume day since May 15’s 1.8B shares), which  took the market higher…testing the 200 day moving averages…which were in fact declining so it shouldn’t have been a ‘high’ bar. The high on the Dow on June 1 was 8760 and ratcheted higher until Thursday June 11’s 8878 but from that high thru last nights close we gave up 4.5%, giving back all of the gains in June!…all of them! Not only are we now FLAT for the month but a lot of fund managers who held back during the April and May rallies capitulated and are now feeling the blues….reds? On June 1, the 200 day was 8765, it is now 8596 and losing about 16 points a day! The 40 day (8435) on the other hand is gaining about 14 points a day and the 50 day (8343) about 10…these are very steep curves. It is now possible, perhaps by tomorrow to take out those two averages in just one session which will create very strong resistance when it should have been support. Below that is 8220, the May 1 high…tested FIVE times and then breaking the psychological 8000, we could freefall to 7750 which was support and resistance until the April 2 breakout and was tested four times after that. IF we selloff, between now and monthend, which is TB’s bet that is where we should bottom (if not there is little support before a test of the March 6 lows.

Yesterday, all major indices were down, albeit slightly, except the Nasdaq indices which were modestly higher but still…like the rest had a second straight day of lower highs and lower lows…worse than an inside day as it shows underlying weakness. Winning sectors were Biotech, ‘Nasdaq’ industrials, semiconductors, and pharma/healthcare. Losers were energy and financials both off about 1.5% with oil services -2.8% and the KBW Bank Stock Index down 3.3%! The iShares Regional Bank ETF (RKH) broke below the 40 day (and the 50 day), for the firs time since it climbed above on March 12 (its resistance also was the declining 200 day – it never got above it over that period of time…not once!    

What a spot to be in for tomorrow’s options expiration and just a week ahead of the final day for T+3 settlement for the quarter!

Much has been said about the reemergence of hedge funds but it is actually more of a morphing. 2% plus 20 fees are not attracting new money and are actually driving some investors away. But new funds are forming with lower fees and in some cases segregating assets of large investors. One such instance was a $500 million investment by a major investor who demanded…and got…his segregated so the money could be withdrawn at will…while it serves as a clone of the main fund. Everyone is feeling the pain.

The big losers are conventional long-only managers whose clients are deciding they can go it alone and do as well and mutual funds with their screwed up tax structure. Winners are low cost index funds like Vanguard and ETF’s.

Yesterday, TB attended an ETF conference put on by iShares, who he believes provides the best transparency of any ETF manager with reasonable fees, no gimmicks and service. They are the Charles Schwab of ETF’s, or the Vanguard of mutual funds.

The conference was in SF at the St. Regis, which is new and beautiful. Besides two excellent staffers of theirs, Russ Koesterich (global strategist), and Matt Tucker (fixed income)…both of whom had outstanding presentations that TB can incorporate, Fareed Zacharia was the luncheon speaker:

Koesterich: debt to disposable income remains to high and we are still in a massive deleveraging which makes it unlikely that the rally in stocks can continue due to lackluster consumption.

Tucker: studies of fixed income managers show that no manager can provide alpha (excess return over the measurement index over any prolonged period), and that there is a paradox to fixed income investing that just when you rely on that ‘alpha’ in trying times it escapes you…witness divergence of treasury performance versus mortgages, etc.

Zacharia made interesting points as usual:

*that greed is prevalent and rather than look for someone to blame for the crisis we should see it as a sign of strength

*that economic/political/technological advances since 1979 which looked troubling at times gave way to a global economic boom

  *economic – Paul Volcker thru drastic measures killed inflation in the U.S. and sparked other countries to do likewise. (Greenspan failed to stop the trainwreck for political reasons)

  *political – the fall of the Soviet Union eliminated ‘mini’ wars around the world; China coming into the fold, etc.

  *technological – the computer chip, fiber optics over-expansion by Global Crossing and others that went bust have made a global economy  possible. When Iraq invaded Kuwait, the Saudi’s were able to keep it from their citizens for nine days…in Iran after the election, due to cellphones, blogs, and twitter, we heard of and witnessed the riots following the election as they occurred and no country can prevent its citizens from having these tools.

After the speech however, TB spoke with him and asked if he wasn’t a bit too optimistic. He smiled and said that is the only thing left. But when asked about the failure to regulate he agreed that it was a major cause of the crisis.

It was a well-spent, educational day…much better than watching a market with no direction.

The first speaker was Dr. Daniel Gilbert, professor of psychology at Harvard University. His speech, Stumbling on Happiness: Linking Behavioral Finance and Decision Making, was not only entertaining but useful. The point of it is that people are terrible at odds-making. We willingly play the lottery when there is a near-zero chance of winning yet think there is a high risk of being killed by a tornado, drowning, or earthquake, yet little chance of dying from asthma….asthma is the highest risk of all. The reason for this is you read of people killed by storms, drowning, but you never read of someone dying from asthma.

We also hate uncertainty. When asked what they would pay for a $50 gift card, the average was $26, but when asked how much one would pay for a guarantee of a $50 gift card or a chance of a $100 gift card, the value dropped to $16…totally illogical…pay less for more?

Another study on happiness involved people who had had colostomies. There are two types, irreversible and possibly reversible. Six months after the operation those with permanent colostomies were happier than those who had the reversible type as they were worried that it might not be reversible. People hate uncertainty. Once there is closure we can move on to other things…not before.

Now you can see why the current market has such low participation and volume. People believe that one of three things can happen (as Woody Hayes said of passing in a football game), the market can go up, stay the same, or decline…and two of them are bad!

Hoping to have as good a day as yesterday…anyone got a conference or lunch today?

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 18, 2009.