TB’s Saiz: “the lunatics are not running the asylum…they have LEFT the asylum!”
From TB’s Unabridged Dictionary: Bulnerable – when one is so bullish that he is extremely subject to pain if he is wrong.
…the reaction to the Non-Farm Productivity (aka worker suffering report) was enough to make TB nauseous, especially coming less than 24 hours after the Fed saw no tightening for as far as the eye can see (ok, an exaggeration but you get the point as it is a moving target).
Let’s get past the productivity gains and recall the FOMC meeting yesterday…let’s think about the ongoing SEC investigations on insider information…the mixed earning reports…good but mostly due to cost-cutting…and let’s not forget today’s payrolls! (see overnight commentary for details)
The market rally yesterday was inexplicable unless one counts ‘tired of trying to take it down’ as a reason. Everything: advance/declines, breadth, new 52 week highs to lows, etc. was bullish…in fact most indices managed to close above their 50 day moving average but still below the 40 day…Transports excepted, which didn’t even push the high up to the 40 day. The one fly in the ointment was volume…lowest in nine sessions and first below average day in that period…this casts doubt on the seriousness of the rally.
So we are in a perfect setup for today’s Non-Farm Payrolls and Unemployment reports. There are three things that can happen…euphoria that it is better than expected providing a rally opportunity, surprise and thus a takedown, and lastly, a hybrid: run it up as they have on the last two payrolls Fridays – either to the 40 day or thru it, and then slam it and in that case we could plunge thru the 50 day at the same time. As we await the reports, European markets are about flat while Asia is in rally mode again. Globex futures are up very slightly which puts them near fair value to yesterday’s market close.
Commodities have been see-sawing with little change and yesterday, only Grains were able to stage a move of more than 2% and they were down…in fact all sectors were down but components were mixed. Natural Gas was the only winner in Energy but it has been beaten up for months, Crude was down after the highest close since Oct. 22, and RBOB Gasoline was down again. Gold set a record high on Nov. 4 of $1094.40 but has been going sideways ever since…open interest is starting to slip from the highs – records? But what is strange is that normally the pattern is for high open interest to occur after the peak on the selloffs…could this mean we are going higher?
Yesterday, TB said that JPMorgan should negate those interest rate swaps with the municipalities. It turns out that in an agreement with the SEC they will pay a $772 million fine: give Jefferson County, Alabama $50 million, pay a $25 million penalty and cancel $647 million in fees to unwind transactions to cancel the interest rate swaps. Now, what about the other municipalities across the U.S.???
_______________________________________________________________________
Citigroup’s former CEO John Reed, who led the bank for 14 years said, “I’m sorry” for the repeal of Glass-Steagall and is now calling for breaking up the bank(s) to separate the banking and investment divisions…that was gutsy on his part. Kudos!
It is about time for us…and mainly our bribed elected leaders to admit that capitalism, if it is not to self-destruct, must be saved from the key element that makes it work: greed! That can only be accomplished by sound regulation and transgressions must be punished efficiently and publicly with perp walks, etc. Yet it is the banking system…indeed the very banks that we bailed out that are resisting any change to regulation. That is because we have largely had in this country (and most others) banking laws of the bankers, by the bankers and for the bankers. Let’s get it done…get it done right…get it done fast! They have just proven they do not do it better or even know what they are doing.
As for compensation, a survey of CEO’s…obviously without names…had the majority saying the CEO is grossly overpaid. We know this in the financial sector but how about Abercrombie & Fitch who sales plummeted…the CEO earned $78 million last year – for what? They’re a damned retailer for God’s sake! But the problem goes back to the compensation of people in risk areas of financial companies and how CEO’s serving on other boards are supportive of higher compensation packages for the CEO. But the worst thing is they are blinded by their own wealth. They have no idea what these people do or the future liabilities the firms are incurring. Therefore, while TB sees no need to change the compensation of ‘most’ salesmen, traders, underwriters and investment bankers should have a large portion – proportionate to the future risk – given in the form of restricted stock. At least they will suffer with the shareholders for their greed or incompetence…or both? How many times in this column has TB stated that the problems in the financial sector began when the brokers went public? Under the partnership model, where the partners could only take out the income…which was the firms return on equity (when TB was at Merrill deferred compensation was paid at that rate and it worked well). But it requires oversight…supervision…and caring about the long term future of the firm.
In a publicly held company that is at odds with the goals of the CEO who sees his main job as maximizing stock price during his tenure for his personal gain…the future – and the shareholders – be damned! He actually sees the shareholders as brethren as they too are short-term in sight…no longer buy and hold…except for the fools or those who haven’t awakened to the sad reality that nobody but them cares about the long run.
In contacting USBancorp, TB realized that this well-run bank is managed by Richard K. Davis who serves as Chairman, President AND CEO. There are also three Vice Chairmen, one the CEO, one head of Consumer Banking, and one another group head. There are according to Bloomberg 15 directors, who as a group own 0.08% of shares held which is below the 0.18% weak level for the industry – no skin in the game! One the Chairman Emeritus is even on the board of competitor Citibank…no other banks in their peer group allow that. TB likes this one: one is a coroner! Wonder what he brings to the table? How can a Chairman of the Board also be CEO and have as a primary concern the shareholders interests?
The shooting at Fort Hood, Texas was shocking. Particularly because he was a Major and his name suggests he is a Muslim…it remains to be seen whether he is but he was known to object to the wars in Iraq and Afghanistan…and disappointed that Obama hasn’t pulled out yet. But mainly he is a psychiatrist that has treated returning troops and was about to be deployed to Iraq after spending most of his career at Johns Hopkins. He was disturbed by post traumatic stress…perhaps his is a new disease: pre-traumatic stress? We will have to see how it plays out but at least he is still alive so we may learn something.
Hope you all have a fun and relaxing weekend…we are all stressed out by now!
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 6, 2009.
