TB’s Quote of the Day: “He is a good man and his intentions are good, but we are back to square one,” Arab League Ambassador Yahya Mahmassani, “His words have not led to actions so far.” …Same old same old…just like in the good old U.S. of A! TB
…not only could Buffett not do it alone, the entire Dow Transport index gave back 1.5% of its near 6% gain on Tuesday’s announcement that Berkshire is buying Burlington Norhtern (which has stalled at $97.10…well below the $100 bid. Overnight we learned that shareholders are suing both companies over a lack of information, and Davenport cut Burlington to ‘neutral.’ This follows yesterday’s announcement that S&P may cut Berkshire’s AAA rating (but they said it would be no more than two notches).
But the worst thing is that even at yesterday’s highs Transports could not get back up to their 50 day moving average and are way below the 40 day. Since this worst performing index (which in itself is a bad omen if you believe in Dow Theory or even that if the economy is strong than goods need to be shipped in higher volumes), became the BEST performing index for a day….what does this say about the rest of the stock market (asked rhetorically)? Take heart…the other indices are in worse shape! Oops!
The reason for today’s quote is that we are Americans…and by God or Allah while we can criticize our government for it’s corruption, inaction, clumsiness…nobody else has the right to do so…isn’t it scary that others can listen to Obama’s speeches and not stay invigorated for even four years?…or one? What is getting done in D.C. At least when Dubya was in charge things were happening…wars were starting …OK it would be hard to start another one now…what about Iran or Korea though? Likely candidates.
But what’s next…criticize Wall Street…the re-declared financial capital of the world? Just in: 7 more hedge fund personalities have been arrested in the Galleon Case – let’s just hope that that is all they find… we don’t need our faith in U.S. corporations being shaken any more than it already is!
Speaking of which, the lily-white JPMorgan (does Jamie Dimon wear white shoes?), according to the SEC, bought Rolex watches for Jefferson County Alabama officials to remain the ‘chief bond banker’, and other gifts totaling $8 million! Mr. Dimon would say those involved were fired – eventually when Jeff Co was on the verge of bankruptcy which it still is…but it these were illegal activities should JPM still be collecting the bounty from these acts? No…HELL NO! Nor should any of the other banks…too bad Lehman and Bear aren’t gone so they could share in the pain. Remember this was more than a decade after the SEC adopted strict pay- play rules…which should have eliminated them.
But Dimon is a CEO and CEO’s sometimes (?) do dumb things…take Charles Schwab…they sold funds that were ‘the same as money market funds’ to their clients. They know it…the whole world knows it…yet they are letting it go to a class action suit rather than simply pay…and pay quickly (it should have been done a year ago…their good clients who were screwed by their misstatements (true, at the time there wasn’t an expert out there that didn’t believe those adjustable rate securities were ‘safe’, including TB who had used them for more than a decade), but instead Schwab is paying on a ‘case by case’ basis…can you figure the logic? This on a company that prides itself on it’s honesty and care for the client…which in other areas TB believes they do. It is all about doing the right thing…even if it hurts in the short run…got it Chuck and Jamie???
TB’s friend, Mark Gilbert wrote a Bloomberg article today “Valuing Bonds, Dollar is Crazy in World Gone Mad.” He points to the 3.5% yield on the 10 year Treasury Note when just two days ago the Treasury announced it was going to borrow a ‘net’ $276 Billion in the fourth quarter AND another $478 billion in the first quarter of next year. The point is there is no shortage of supply and the Chinese ‘must shop until they drop’ as TB sees it and if they stop shopping bond prices will drop and with it the value of their own investments…a vicious circle that only Machiavelli could have seen as virtuous!
Mark goes on to say that investors who own European corporate bonds have earned more than 15% total returns this year and subordinated debt is up 26%…high yield? Up 67%. Yet, as TB has been saying (and TB carries with him 37 years of bond experience), how can you buy a bond when it could be down 2% the next day…or even the same day. The volatility in bonds is worse than in stocks! Thanks to Mark for putting this in but TB had also noticed the impetus for Mark’s article: Moody’s is predicting speculative bond yields to peak at 10.9% this year…then decline to 6% next year which he feels is too optimistic.
Lastly, TB heard Niall Ferguson on Bloomberg yesterday who is not only concerned but bearish on the outlook for capitalism and blames much of it on ‘too big to fail.’ Ferguson, a Harvard professor, but don’t hold that against him…says that if a company has more than 100,000 employees, it is more prone to failure than smaller companies. Yet, the Fed is still encouraging size…in fact they stupidly wanted to merge Wachovia with Citigroup! But what do you expect from a Fed Chairman who idolized his ex-bosses low interest rate mentality, and a Treasury Secretary and former NY Fed President, was simply too close to the bankers…part of his job there…NOT as Treasury Secretary!
In closing, TB is now bullish on stocks – NOT!!! Despite this:
Non-Farm Productivity rose by 9.5% in Q3 (note that is for the quarter!) vs. consensus +6.5%, while Labor Costs FELL by 5.2% vs. consensus -4%. Astounding, the talking head say! But are they? Productivity is up 4.3% over the past year…nolt that’s good BUT look at this: Output, which was up 4% in the Quarter yet off 3.5% over the past year was a positive. But Compensation rose 3.8% (Real Compensation, adjusted for inflation was just up 0.2%), and is now +0.5% over the past year… but how can this be? Was it Goldie’s bonuses? Who knows…but Hours Worked FELL 5% and as we know are at the lowest level in decades and down 7.5% over the past year was the boost while Labor Costs plunged 5.2% following -6.1% and -5% and are now down 3.6% over the past year. If you believe this crap…and surely there are those out there…who do…good luck!
Oh, Dow Futures which were up ONE point when TB wrote earlier jumped and now the market is open: Dow +79; S&P 500 +6; Nasdaq +17…have we all forgotten that 70%+ of our economy is built on CONSUMPTION???
_______________________________________________________________________
If you have heard Ben Stein lately, you know he is optimistic. Yesterday, Paul Krugman found this clipping from 1982 that was prompted by reading an article by David Leonhardt that said ‘we are in a liquidity trip now, which means it is harder for the Fed to turn things around’ (Volcker was Fed Chairman then…thankfully). So Krugman checked back in the Times files and found an earlier 1982 article titled “A scenario for a depression,’ which warned that we might be in a liquidity trap with no way out. The author: the same Ben Stein….makes you want to get on the horn to your broker right, now doesn’t it? Buy, buy, buy….buy until you drop?…till stocks drop?
Have a good day and don’t let TB or anyone else do your thinking for you – ever!
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, © November 5, 2009.
