Traderbill's Financial Markets Weblog

There will be no more missives until May 14th…deal with it. TB.

TB’s Song of the Day:

There’s something happening here
What it is ain’t exactly clear
There’s a man with a gun over there
Telling me I got to beware

We better stop, hey, what’s that sound
Everybody look what’s going down
Stop, hey, what’s that sound
Everybody look what’s going down
Stop, now, what’s that sound
Everybody look what’s going down
Stop, children, what’s that sound
Everybody look what’s going down

- Steven Stills, performed by Buffalo Springfield 1967 – the ‘summer of love’ about the Sunset Strip riots in L.A. that were due to the closing by the police of a popular club.

Bloomberg Top Stories:

*U.S. Economy Grew 2.2% in Q1 – Less Than Forecast; Spending Rose 2.9% – sustainable???

*Spain Rules Out Need for EU Bailout as De Guindos Says Banks Fully Funded – a joke???

*European Stocks, U.S. Futures Advance on Earnings Results as Euro Rebounds – U.S? Huh?

*Goldman Sachs Banker Korenberg Under Investigation for More Than Two Years – ‘nuf said!

*Procter & Gamble Cuts Full-Year Profit Outlook on higher Commodities Costs! Heed!!!

*Merck Profit Beats Analysts’ Estimates on Higher Sales of Diabetes Drugs – Obese America!

*Chesapeake’s Outlook Dims as Board Switches Course on CEO Personal Loans – not again!

*Wells Fargo Will Buy Merlin Securities to Enter Prime Brokerage business–Merlin? Magician?

*Samsung Ends Nokia’s 14-Year Run as World’s Biggest Maker of Mobile Phones – sayonara!

*Gold Traders Getting  More Bullish as Central banks Hoard More – ask the IMF!

*Buyout Boot Camp Shows There’s More to Private Equity Than Wielding an Ax

TB is glad he is leaving on vacation after being whipsawed twice in two weeks. Still holding convictions but you are on your own. The Dow hit a high of 13227 in a stealth rally into the close easily taking out resistance at 13131, the April 17 high, and closed at 13204. Only resistance now is the 4/2 high of 13297…but April is coming to a close and we know what happens in May – usually! Major support remains at 13048 (40 day m/a), 13027 (50 day), then 12205, the 200 day. Also, 12710, the 4/10/12 low. NYSE stock volume was steady at 4B shares – about average but that is huge these days and close to last Thursday’s 4.17B ahead of options expiry. NYSE shares executed on the Big Board dropped to 780M shares from 822M (correction: TB had said 651M, lowest since 3/12, but Bloomberg had not put in final count…mea culpa!). Last Friday’s 959M (highest since 4/10/12) was the first ABOVE average volume day since April 10! 11 of the last 15 sessions have been less than 800M shares! Since 2/29 there have now been just FIVE ‘average’ days, including 3/16’s high for 2012, but average has fallen to 805M shares. The 12 month average however is 968M shares – there have been just five above average days this year and four above 900M. Since 11/1 there have been just eight 1B share days…only four in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 108 of the last 120 sessions have been less than the 12 month average! Advance/Declines were positive for a second session: +2.1x vs +3.3x vs +2x vs -3.8x vs +2x on NYSE and +1.7x vs +2.8x vs +1.8x vs -3.1x vs +1.5x on Nasdaq. Breadth was similar: +2.1x vs +3.3x vs +2.3x vs -5.5x vs +1.1x on NYSE and +2.6x vs +5x vs -1.2x vs -4.8x vs -1.2x on Nasdaq. New 52 week highs rose sharply again to 286 vs 239 (high was 420 on 3/26), while new lows were steady at 56 vs 51. Ratio is positive by nearly 6x.  The S&P VIX dropped again to 16.24 -.58 after gapping up on the open Monday to 20.27.

Here are the results of the last five sessions: Dow +0.9% vs +0.7x vs +0.6% vs -0.8% vs +0.5x; Transports DOWN 1.1%!!! vs +0.9x vs +1.2% vs -0.9% vs +0.1%; Dow Utilities +0.7% vs +0.7% vs +0.7% vs -0.5% vs +.9%; S&P 500 +0.7% vs +1.4%* vs +0.4% vs -0.6% vs +0.1%; Nasdaq Composite +0.7% vs +2.3%!* vs -0.3% vs +1%! vs -0.2%; Nasdaq 100 +0.7% vs +2.7x!* vs -0.6% vs -0.8% vs -0.4%; Russell 2000 +0.6% vs +1.8x! vs +0.8% vs -1.5%! +0.6%; NYSE Financials +0.8% vs +1% vs +0.8% vs -1.1%! vs flat; NYSE Financial Leaders: BAC +0.1% vs +0.8% vs flat vs -2.2% vs -4.7%!, F +1.2% vs +3% *indices with AAPL which was up 9% on the session!

European equities better, Asia little weaker: FTSE +0.3% vs flat vs +0.1% vs +0.1% vs -1.7%!; CAC 40 +0.4% vs -0.9% vs +2%! vs +0.7% vs -2.3%!; DAX +.02% vs-0.4% vs +1.4% vs flat; Nikkei -0.4% vs flat vs +1% vs +0.8% vs -0.2%; Hang Seng -0.3% vs +0.8% vs -.2% vs +0.3% vs -1.8%!; Korean KOSPI  UP 0.6% vs +0.1% vs -0.1% vs -0.5% vs -0.1%; Indian Sensex FLAT vs-0.1% vs -0.3% vs +0.7% vs -1.6%!. U.S. stock futures DIW ahead of GDP: DOW +4; SPX FLAT; NDQ +6.25. Bonds slightly better – note that bonds rallied sharply ALONG WITH STOCKS!!! 10’s well below 2% and 30’s still closing in on 3%. 10 yr 1.93% +1/8, RECORD low 9/23 of 1.6855%; 30 yr 3.11% +1/4; Long TIP 0.68%!!! +5/16. It was 0.57% at high. The 5 yr TIP yields MINUS 1.25% vs -1.20%!; 10 yr -0.36% vs -0.31%! Bills 0.07% 1 month; 0.09% 3 months; 0.14% 6 mos. Reverse Repo 0.22%. 3 mo. Libor 0.47%, and 0.73%; steady. European problem sovereign 10 years, Germany-benchmark: 1.67% -1 bp; Italy 5.69% +8; Spain 5.22% +12; Greece 20.48% +2; Portugal under 10%!!!! 9.98%??? -44!!!; Ireland 6.56% -11.

Gold closed below $1700 for a 32^nd straight session, +$18, making the hit $131 since 2/28, closing $1660.50 +$18.30. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, but still below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1666, the 40 day and $1684, the 50 day, then $1701, the 200 day. It is now $1655.90 -$4.60. Crude closed little changed for a third session but slightly higher at $104.55 +.43. 4/10’s low of $100.68 was worst since 2/15/12! It remains below the range of $105-110 which held from to 3/28!!! RES at the 40 day (104.84), the 50 day (105.06), and major support at $96.13, the 200 day, 40/50 converging. It is now  $104.20 -.35. $101.08, the April 4 low is still minor support.

Apple was not a factor yesterday and was one of just two stocks losing 2 index points on the NDQ 100 (AAPL/CELG). 82 up, 18 down. But the only gainers earning more than 1 point were INTC/CTXS +1.6; and EBAY, GOOG, CMCSA, QCOM all up about 1 pt.

As for the Dow – it stunned with 4:1 advancing but look at this CVX +18, IBM +15, WMT +12, UTXD +11, XOM MINUS 6…earnings were key! It easily took out the April 2 high with only resistance now the April 2 high of 13297…can it get there though before

April comes to a close and we start worrying about  that old reliable saw about May?

Forget the Dow and look at the Transports!!! They were the only loser on a day which almost all indices were +0.7% (suspicious that!), falling 1.1%!!! Worse look at the list of losers: LSTR -21; CHRW -9; UPS -8; UAL -5. NSC only gainer of 1+ points at +1.8???

Dow theorists take notice as what is key about transportation stocks is that: everything we sell has to be shipped! This was far too broadbased so the theory says if the Dow is rallying but not confirmed by transportation stocks – trouble is brewing!!!! Consider: year to date the Dow is up 8.1% while Transports are up just 4.3%! Also, over the past 12 months the Dow is up 4.1%, Transports DOWN3.9%!!! Something smells in Denmark besides the cheese…but you decide. Perhaps TB is just suffering a bout of paranoia (see verse in today’s song).

Gold just won’t die even with the Bernanke stand. Note also the Big Ben took exception to Paul Krugman’s op ed saying he has done a lot for financial institutions but very little for the people in job creation. Krugman says he needs to raise interest rates to make the cost of holding cash higher…the prescription he, Rubin, Summers, and Greenspan recommended for Japan. Thus he is violating his own research…as the Fed did in not preventing the crisis. Bernanke says no, Japan was in deflation, but to TB that is a subtle difference between short rates at ZERO, and a 10-year treasury yielding less than 2%! TB’s confidence in Bernanke is waning…especially on his refusal without a court order (which Bloomberg successfully obtained) to disclose which banks received money and how much. This from a man who says he believes in transparency? Get real, Big Ben!

. . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)

…we are witnessing yet another wealth transfer…this one even more insidious than the last one: the chief asset of the middle class – their home – being gobbled up in foreclosure by wealthiest individuals…some with syndicates. How much of America’s assets do they feel is the right amount for them to own? It appears to be 100%!

Without the ability to own a home, what incentive is left for the middle class…that is if there truly is a middle class given the income levels below the top 5%? Hey, how about stocks??? There’s an idea whose time has went.

A friend sent TB a shocking report based on a study by Merrill (Bank of America). In just FIVE charts, it explains the writer’s premise that there will be NO housing recovery until 2020 – at least!

Chart 1. there remain 6.6 million mortgages to be liquidated through 2016 – bank owned properties…and remember that these do not appear in home sales. It will take until 2020 to work off that supply before there is a housing recovery – buyers of homebuilders heed.

Chart 2. The share of young adults living at home is rising: 18-24 had declined steadily from 54% in 1983 to about 49% in 2005…relatively stable, but is back to 54.6% today. TB sees this as a function of a lack of jobs/low paying jobs/student loans plus a feeling that homes aren’t a good investment. But the shocking part it those aged 25-34 which has ranged from 10-13% but now stands at 14.2%!!! So, you ask…

Chart 3. Renting is more common for those in their 20’s and about equal in early 30’s. The 30-34 year range tips the scales slightly towards owning but for 35-44 home ownership is more than double renters and it peaks in the 45-54 year range. The two younger groups are seeing little reason to buy a home now…especially not for investment!

Chart 4. Home equity loans have fallen from $80 billion in 2006 to abut $2 billion! Think of what this does to consumption! Also refi originations have fallen from about 30% in 2006 to about 3%! With rates low you would expect this to be high…but the precipitous plunge is a reflection of credit worthiness and stinginess of banks to lend.

Chart 5. Residential investment as a % of GDP averaged about 4.5% from 1965-2005 – about in line with GDP growth as one would expect, but after peaking at 6% in 2005 it has declined to 2%. Assuming a rebound to historical averages it will get to the norm by about 2020 which means you had better not buy a home if you may have to move in less than five years…and possibly as long as eight years.

This will all be a drag on housing. Today’s Minneapolis Star-Tribune has an article on apartments being built in the ‘burbs. They are for young people who want to raise their kids in safe areas with good schools and low crime, but the only way they can do this is to rent and builders are moving to accommodate them.

Does this spell a rosy future for America? You decide, while you ponder if the wealthiest are paying too much in taxes or if slashing the budget without revenue increases will solve our problems – or make them worse! TB has decided…now you decide but think because what we do now will have lasting implications for this country…and your kids.

Minnesota Governor Dayton vetoed an anti-abortion bill yesterday and will likely veto another to prohibit the sale of abortion pills. No need to ask who pushed this through. The same people who promoted ‘shoot first, ask questions later.’ Is there nothing more important than this? Oh, yeah…the bill to subsidize the building of a new stadium for the Minnesota Vikings. This is a bad deal and as much as TB loves football, let the owners do it or those fans who somehow come up with a few hundred dollars to take their family to a game…one of eight at home! This is bad economics and worse is the plan to fund it through gaming which preys on the lowest income groups. But worse, should the entire state pay for a stadium that only benefits a few in the twin cities? You decide.

Simon Johnson, The Baseline Scenario, posted an interesting piece today on how the US declined to participate in this latest round of fund-raising ($430 billion!). Nice, Ryan will like this…mainly because Obama couldn’t support it without being attacked by the GOP.

But the problem is that we are on the hook for billions (like FNMA/FHLMC), aka TBTF!

They fall under the category ‘contingent liabilities.’ He points out that traditionally the IMF was funded with ‘equity’ contributions by member governments. In the 1940’s the U.S. paid its share with gold ($35 an ounce!), as did many other countries. Today the IMF’s gold holdings are 90.5 MILLION troy ounces (2,814.1 metric tons), making it the third larges official holder of gold in the world! Currently that value is $148 billion, mas o menos. The risk comes with them lending to bolster the Euro and our stake is 17.69% of the quota while we have 16.8% of the votes. We do not have limited liability and think what would happen if we refused to ante up? We saw it with FNMA/FHLMC and of course Lehman. We are in the roach motel. Enjoy!

Well, TB is off until May 14^th and will write about how Ireland looks compared to 1997 when TB was last there…as well as how the greens are being maintained at St. Andrews.

All the best!

TB

Bloomberg Quote of the Day: “Feel the fear and do it anyway.” – Susan Jeffers. Sounds like the motto of Wall Street…add: feel the high!

Bloomberg Top Stories:

*Deutsche Bank Net Drops More Than Estimated as Euro Crisis Curbs Trading – bank=trading

*Barclays Investment Banking Rebounds as First-Quarter Profit Tops Estimate

*Stocks in Europe Decline as Economic Confidence Slides; Italian Bonds Drop

*Europe Seen Adding Growth Terms to Rulebook as Focus Shifts From Austerity –oh boy!

*Euro-Area Confidence Declines in Signs Economic Growth Slowing

*Bernanke Rebuts Krugman Criticism He Ignores His Own advice on Inflation – Hello???

*Wall Street Banks Choose Sides as Maiden Lane Battle Looms – CDO’s held by Fed 4sale

*Spanish Bonds at 6% Show Market Risk of banking Bailout – recall when 6% was great?

*Volkswagen First-Quarter Profit Beats Analyst Estimates as Sales Jump 26%

*Raytheon Raises Full-Year Forecast After First-Quarter Profit Climbs 17%

 *Natural Gas Prices to Climb as Goldman Predicts Production Cuts – still dirt cheap!

*Colgate-Palmolive First-Quarter Profit $1.24 Per Share,  Meeting Estimates – not so hot

*CEOs Earn More Than They Would Without U.S. Boards Showing Bias Over Peers – egad!

*Murdoch Says He Failed to Stop Hacking Scandal That Derailed bid for BSkyB – hah!

*Wall Street Tracks ‘Wolves’ as Occupy Demonstrators Plot May 1 Resurgance – watch!

*Supreme Court Skeptical of Obama’s Use of Federal Power as Campaign Starts    

TB was surprised at the resilience yesterday. Dow put in a high of 13105 but still below resistance at 13131, the April 17 high, or 13114 the following day before the plunge began. Support now at 130426 (50 day m/a), 13021 (40 day), then 12153, the 200 day. Also, 12710, the 4/10/12 low. NYSE stock volume rose to 4B shares vs 3.6B shares and close to last Thursday’s 4.17B ahead of options expiry. NYSE shares executed on the Big Board however were LOWER for a THIRD straightsession, 651M (lowest since 3/12) vs 752M vs 785M, Friday’s 959M (highest since 4/10/12) was the first ABOVE average volume day since April 10! 11 of the last 14 sessions have been less than 800M shares! Since 2/29 there have now been just FOUR ‘average’ days, including 3/16’s high for 2012, but average has fallen to 807M shares. Since 11/1 there have been just eight 1B share days…only three in 2012! Since 2/6 there have now been SIX sessions less than 700M shares. 107 of the last 119 sessions have been less than the 12 month average! Advance/Declines were positive: +3.3x vs +2x vs -3.8x vs +2x vs -1.4x on NYSE and 2.8x vs +1.8x vs -3.1x vs +1.5x vs -1.7x on Nasdaq. Breadth was better: +3.3x vs +2.3x vs -5.5x vs +1.1x vs -2x on NYSE and +5x vs -1.2x vs -4.8x vs -1.2x vs -1.6x on Nasdaq. New 52 week highs nearly doubled again to 239 vs 131 vs 58 (high was 420 on 3/26), while new lows were dipped to 51 vs 75 vs 164. Ratio is positive by nearly 5x vs +2x vs -3x vs +2.5x vs +1.5x vs 1:1 vs +3.5x vs 1:1. The S&P VIX dropped sharply to 16.99 -1.11 after gapping up on the open Monday to 20.27.

Here are the results of the last five sessions: Dow +0.7x vs +0.6% vs -0.8% vs +0.5x vs -0.5%; Transports +0.9x vs +1.2% vs -0.9% vs +0.1% vs -1.4%!; Dow Utilities +0.7% vs +0.7% vs -0.5% vs +.9% vs -0.3%; S&P 500 +1.4%* vs +0.4% vs -0.6% vs +0.1% vs -0.6%; Nasdaq Composite +2.3%!* vs -0.3% vs +1%! vs -0.2% vs -0.8%; Nasdaq 100 +2.7x!* vs -0.6% vs -0.8% vs -0.4% vs -1.1%; Russell 2000 +1.8x! vs +0.8% vs -1.5%!!! +0.6% vs -0.6%; NYSE Financials +1% vs +0.8% vs -1.1%! vs flat vs -0.4%; NYSE Financial Leaders: BAC +0.8% vs flat vs -2.2% vs -4.7%! vs -1.7% vs flat vs +1.5% vs +1.3% vs -5.3%!!!, GE -0.4%; F +3%; Itau Brazil bank ADR -5.7%! Citi not a leader but +0.7% vs +0.5% vs -1.9%! vs -2.8%! and since peaking at $38.40 on 3/19, it is now off 12.2%!!! Stop the insanity! *indices with AAPL which was up 9% on the session!

European equities weaker, Asia little changed: FTSE flat vs +0.1% vs +0.1% vs -1.7%! vs +0.2%; CAC40 -0.9% vs +2%! vs +0.7% vs -2.3%! vs +0.3%; DAX -0.4% vs +1.4% vs flat vs -2.8%!!; Nikkei FLAT vs +1% vs +0.8% vs -0.2% vs -0.3%; Hang Seng +0.8% vs -.2% vs +0.3% vs -1.8%! vs +0.1%; Korean KOSPI +0.1% vs -0.1% vs -0.5% vs -0.1% vs -1.3%; Indian Sensex -0.1% vs -0.3% vs +0.7% vs -1.6%! vs -0.7%. U.S. stock futures a little weaker: DOW -12; SPX -2.20; NDQ -4.50. Bonds rallying with 10’s back below 2% and 30’s still above 3%. 10 yr 1.96% +1/4, RECORD low 9/23 of 1.6855%; 30 yr 3.12% +1/2; Long TIP 0.71% +1/2. It was 0.57% at high. The 5 yr TIP yields MINUS 1.20%; 10 yr -0.31%! Bills 0.07% 1 month; 0.08% 3 months; 0.13% 6 mos. Reverse Repo 0.24%. 3 mo. Libor 0.47%, and 0.73%; steady. European problem sovereign 10 years, Germany-benchmark: 1.69% -5 bp’s; Italy 5.63% +2; Spain 5.82% +7; Greece 20.68% +17; Portugal 10.64% -19; Ireland 6.69% +10.

Gold closed below $1700 for a 31^st straight session, -<1, making the hit $149 since 2/28, closing $1642.30 -.50. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, which remains below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1667, the 40 day and $1685, the 50 day, then $1701, the 200 day. It is now $1650.30 +$10. Crude closed little changed again but slightly higer at $104.12 +.57. 4/10’s low of $100.68 was worst since 2/15/12! It remains below the range of $105-110 which held from to 3/28!!! RES at the 40 day (104.90), the 40 day (104.98), and major support at $96.09, the 200 day, 40/50 converging. It is now  $104.00 +.12. $101.08, the April 4 low is still minor support.

It’s all about Apple…an Apple rally a day keeps the bears away, right? APPL rose 9% yesterday closing above $600 again, causing major moves in both Nasdaq indices and the S&P 500 of which it has a 4.5% weighting! It was 42 of the 71 point NDQ 100 gain with six others adding about 2 points: INTC, QCOM, MSFT, GOOG, PCLN, AMGN. Think about that, will you?

TB heard gloom and doom on commodities yesterday on CNBC due to the Fed’s failure to push QE3, yet not that much happened to gold, silver, or even crude…perhaps the specs are out. The other evening CNBC had a documentary on coffee…it was quite interesting highlighting Starbucks and how Green Mountain Roasters shot up due to their alliance with Keurig. But the best part…and Michele Bachmann should have heard this, but wouldn’t understand it, was an interview with a floor trader for coffee. He was asked how much supply and demand affect the price…none, he said! It is all speculation (in the highly visible front contract)…and that is the point on crude: Congress, the President, no one has any control over the price which if we had any recall at all would have shown us how it got to $147 in 2008 on unregulated commodities index swaps. Commercials have no control on the front end but they ARE the middle and long end of the market! That is the important thing, not just the first two contracts.

TB’s bet is still for lower stock prices given the mix of earnings. Apple was the catalyst yesterday (profits doubling on China sales of Ipods), while the losers earnings only hurt themselves. Still more and more are missing and annual returns don’t look so hot for most industrials..rather shocking.

. . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)

…on Tuesday evening TB watched Frontline on PBS, Money, Power and Wall Street (Part I). If you missed it, here is the link and note that Part II will be on May 1^st! TB found Inside Job to be the best documentary on the debacle…this one surpasses it due to the insight into what was happening at the federal government. It also showed how Obama was being briefed, McCain putting his campaign on hold and returning to Washington to solve the problem. Both were invited to a meeting at the White House and asked for their opinions. Obama knew the answers…said we could not let any more firms fail as we did Lehman or the entire global system would implode…he asked McCain for his opinions…he stammered, looked at his cue cards, and offered up nothing. About this point Bush made some silly remark and walked out as he had lost control of the meeting.

Right or wrong, you had better rethink Obama’s abilities – you cannot beat someone by merely mocking them, you need to understand them. Here is the link…TB urges you to listen to this hour-long unbiased report:  Frontline

Capitalism is a wonderful thing…in fact it is the best system yet devised. But and this is a very big BUT…man left to his own devices will let greed overcome sound judgment. At no time has it ever been more apparent that big business – especially banking – cannot control its impulses. Trace this loss of self-control back to around 1980 when business broke the contract with labor by cancelling pension plans and replacing them with IRA’s and 401(k)’s knowing that they would never provide for retirement…Congress knew this too but complied.

In the 1970’s there was a word for those who went into civil service: losers. They would make much less than in the private sector. Alas, that theory was demolished as civil servants today retire better off than their private sector counterparts…CEO’s and senior management excepted. A Bloomberg story today tells how CEO compensation is being determined by boards who compare, often to companies twice as large, CEO pay and then jack up their own to match. They provided an example in CBS CEO Lesslies Moonves who earned $69.9 million. Who is worth that much? Also, while the stock is up 37% over the past year, past performance is no predictor of future performance. And the stock is selling at 21x earnings (14x ‘estimated’). The 5 year dividend growth rate is -13% and the p/e to growth rate is 1.3x. Is that growth sustainable in a highly competitive industry? More importantly, is that return directly attributable to the CEO in a business where middle management has tremendous impact on results?

It was Ivan Boesky who, in a speech at UC Berkeley said ‘greed is good.’ This was later to be used by Gordon Gecko in Wall Street. Boesky also was asked about how much is enough. He said it is never enough. The money isn’t the point…it is only a ‘counter’ to assess yourself against others. There you have it. If he makes $1 million, then I want to make $2 million…that is real inflation! Worse, it continues when it becomes billions, not millions…surely someone out there wants to be the world’s first trillionaire!

But what can one do with that money? Like the three winners of the $694 million Super Lotto recently. They have no idea. Remember what Alan Simpson said and TB recounted last week: if you took a penny a second it would take you 5,000 years to reach $1 billion. To reach our national debt you would have to do this all the way back to the Big Bang!

TB does not begrudge those who innovate and produce something. But for a kid with an idea that arguably subtracts from productivity (Facebook), to become one of the wealthiest billionaires is absurd. Or to tax hedge fund operators at 15% when if anything they destroy productivity. Worse, the majority of the wealth is tied up in the financial services industry…the one we bailed out at no cost, civilly or criminally to any of them.

A Bloomberg story today cites three men fined for a thirteen year insider trading scheme. The mastermind was fined $33 million…whatever happened to the punishment suiting the crime? They saw it as a victory, just as the SEC did with Angelo Mozillo’s $51 million fine…a pittance against what they took out of the market…and no jail time, none.

Penalties like this are no penalties at all and worse not a deterrent to others contemplating breaking the law…isn’t that what fines and jail terms are supposed to do? Yet sell a few ounces of marijuana and you wind up in federal prison for 20 years…no parole there either. We are bankrupting ourselves through stupidity like this while the masterminds just keep making more money…a mere cost of doing business.

You ain’t seen nothing yet as the wealth gap is widening exponentially. Almost makes you want Occupy Wall Street to succeed on May Day…although they are sadly misdirected.

It was a wonderful world!…now if only we could restore it. Will try for one more column tomorrow before leaving on trip. Back on May 14th. It will be interesting to return to Ireland. We were last there in 1997 just when the economy was beginning to take off. It will be interesting to see and report on the differences.

TB

Bloomberg Quote of the Day: “Getting information off the Internet is like taking a drink from a fire hydrant.” – Mitchell Kapor

Bloomberg Top Stories:

*Britain Slides to First Double-Dip Recession Since ‘70’s in Blow to Cameron – and to us???

*Merkel Backs Draghi’s Call for Focus on Growth to Combat Euro Debt Crisis

*Oil Falls From One-Week High as Iran Eases Stance Over Its Nuclear Program

*Bonds Rally in Italy, Spain While Bunds Drop as German Sale Misses Target – ouch!

*Fed Officials Seek Rules-Based Monetary Policies That Maintain Flexibility – yeah, right!

*Caterpillar Quarterly Revenue Misses Estimates as China, Brazil Sales Slow – but it was…

*Boeing Raises Forecast as Profit Beats Estimates on Record-High Production

*Wal-Mart Mexico Probe Into Bribes Threatens Global Growth Success – but not in U.S.!

*Lend Lease to Pay Up to $57 Million to Resolve New York Overbilling Case

*Iran Weights Halting Expansion of Nuclear Weapon Program to Avert EU Oil Embargo

The best that could be said of yesterday was to call it a ‘dead cat bounce,’ but it was worse as both Nasdaq indices were down. So ignore the Dow’s close of 13001 (high was (13050). RESISTANCE at 13016 (50 day m/a), 13040 (40 day), then 13131, the 4/17 high…not going to happen. Support you ask? 12710, the 4/10/12 low, then 12150, the 200 day! NYSE stock volume was steady at 3.6B shares vs last Thursday’s 4.17B ahead of options expiry. NYSE shares executed on the Big Board however were LOWER for a second session, 752M vs 785, Friday’s 959M (highest since 4/10/12) was the first ABOVE average volume day since April 10! 10 of the last 13 sessions have been less than 800M shares! Since 2/29 there have now been just FOUR ‘average’ days, including 3/16’s high for 2012, but average has fallen to 807M shares. Since 11/1 there have been just eight 1B share days…only three in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 106 of the last 118 sessions have been less than the 12 month average! Advance/Declines were slightly positive: +2x vs -3.8x vs +2x vs -1.4x vs  -2.1x on NYSE and +1.8x vs -3.1x vs +1.5x vs -1.7x vs -2.3x on Nasdaq. Breadth was MIXED: +2.3x vs -5.5x vs +1.1x vs -2x vs -2.4x on NYSE and MINUS 1.2x vs -4.8x vs -1.2x vs -1.6x vs -2.3x on Nasdaq. New 52 week highs doubled to 131 vs 58 (high was 420 on 3/26), while new lows were halved to 75 vs 164. Ratio is NEGATIVE but by less than 2x vs -3x vs +2.5x vs +1.5x vs 1:1 vs +3.5x vs 1:1. The S&P VIX declined to 18.20 -.77 after gapping up on the open Monday to20.27, then closed at the low 18.97.

Here are the results of the last five sessions: Dow +0.6% vs -0.8% vs +0.5x vs -0.5% vs -0.6%; Transports +1.2% vs -0.9% vs +0.1% vs -1.4%! vs -0.1%; Dow Utilities +0.7% vs -0.5% vs +.9% vs -0.3% vs -0.2%; S&P 500 +0.4% vs -0.6% vs +0.1% vs -0.6% vs -0.4% vs +1.6%; Nasdaq Composite DOWN 0.3% vs +1%! vs -0.2% vs -0.8% vs -0.3%; Nasdaq 100 DOWN 0.6% vs -0.8% vs -0.4% vs -1.1% vs -0.3%; Russell 2000 +0.8% vs -1.5%!!! +0.6% vs -0.6% vs -0.9%!; NYSE Financials +0.8% vs -1.1%! vs flat vs -0.4% vs -0.8%; NYSE Financial Leaders: BAC FLAT vs -2.2% vs -4.7%! vs -1.7% vs flat vs +1.5% vs +1.3% vs -5.3%!!! vs +3.4% vs +3.8% vs -4.4% vs -3.3%, Regions RF +5.6%! Citi  not a leader but +0.5% vs -1.9%! vs -2.8%! vs 0.7% vs flat vs +3.2% vs +1.8% vs -3.5% and since peaking at $38.40 on 3/19, it is now off 13%!!! Stop the insanity!

European equities up, Asia mixed: FTSE +0.1% vs +0.1% vs -1.7%! vs +0.2% vs -0.4%; CAC40 +2%! vs +0.7% vs -2.3%! vs +0.3% vs -0.7%; DAX +1.4% vs flat vs -2.8%!! vs +0.8% vs -0.1%; Nikkei UP 1% vs +0.8% vs -0.2% vs -0.3% vs -0.8%; Hang Seng -.2% vs +0.3% vs -1.8%! vs +0.1% vs +1%; Korean KOSPI -0.1% vs -0.5% vs -0.1% vs -1.3%! vs -0.2%; Indian Sensex -0.3% vs +0.7% vs -1.6%! -0.7% vs +0.6%. U.S. stock futures a little better: DOW +54; SPX +9.90; NDQ +54!?! Bonds modestly lower: 10’s on 2% and 30’s still above 3%.10 yr 2.00% -1/4, RECORD low 9/23 of 1.6855%; 30 yr 3.15% -1/2; Long TIP 0.75% -3/4. It was 0.57% at high. The 5 yr TIP yields MINUS 1.14%; 10 yr -.27% vs -.32%! Bills 0.07% 1 month; 0.09%; 3 months; 0.13% 6 mos.. Reverse Repo 0.24%. 3 mo. Libor 0.47%, and 0.73%; steady. European problem sovereign 10 years, Germany-benchmark: 1.75% +6 bp’s; Italy 5.59% -6; Spain 5.72% -10; Greece 20.70% +22; Portugal 10.83% -12; Ireland 6.68% +9.

Gold closed below $1700 for a 30^th straight session, +11, making the hit $149 since 2/28, closing $1643.80 +$11.20. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, which remains below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1671, the 40 day and $1687, the 50 day, then $1700, the 200 day. It is now $1641.00 -$2.80. Crude closed little changed again at $103.55 +.44. 4/10’s low of $100.68 was worst since 2/15/12! It remains below the range of $105-110 which held from to 3/28!!! RES still at the 50 day (104.92), the 40 day (104.97), and major support at $96.05, the 200 day, all but 40 day still rising. It is now  $103.76 +.21. $101.08, the April 4 low is still minor support.

If you didn’t compare (see above) it was a nice rally…that is IF you also exclude the two Nasdaq indices which were only majors closing lower. This morning however they are the strongest (+1.9% and 2.2% respectively)…go figure. Oh, Apple again. Note the volume remains weak. Don’t be sucked into the maelstrom.

Don’t stand in front of a moving train…or below a piano falling from a building!…you decide!

. . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)

…decades ago a minister asked a question in a sermon that has stuck with TB. What is a moral dilemma? He than began with a story:

A young boy asked his father what a moral dilemma was. His father replied, “well, in your uncle’s and my business, if a person came in and left leaving $20 on the counter, a moral dilemma is whether I should keep it……….or, split it with your uncle!”

Asked and answered…sounds just like today, no?

This morning at Rotary, the outgoing Dean of the law school at St. Thomas University spoke on morals and ethics. Quite an interesting discussion followed. As a result TB didn’t have much time for today’s missive. Tomorrow will try to have some comments on this, then only one more column before leaving for Ireland and Scotland. Back on May 13^th…you are on your own.

Have a wonderful day!

TB

Bloomberg Quote of the Day: “Fiction reveals truths that reality obscures.”- Jessamyn West

Bloomberg Top Stories:

*Soaring Spanish Bad Loans Cast Doubt on Public Cost of Propping Up Banks! Do tell!

*European Stocks Drop as BOE Inflation Forecast Sinks Gilts, Bolsters Pound

*Spanish Banks Gorging on Sovereign Bonds Shifts Risk to European Taxpayers – atta boy!

*Posen Ends Push for Bank of England Stimulus on Inflation Concern – nobody knows!

*Fannie Mae Proposal Is Said to Include U.S. Safety Net for Home Mortgages – oh buy!

*Bank Credit Worst to Companies Since Peak of Global Crisis – oh yeah, their lending, right!

*Citigroup to Fix Pandit’s Pay After Shareholder Rejection – finally listening to owners!

*Halliburton Earnings Rise as Higher Oil Prices Drive U.S. Drilling Demand

Mr. Market made a fool of TB yesterday…in terms of his predicting that it would be a long time until we saw Dow 13k. Specifially, “while the Dow  was up 0.7% (along with Transports +0.9% and Utilities +0.6% (lagging and a strange bedfellow), the session high was 12986 EXACTLY a triple top and producing formidable resistance before Dow 13k can be realized! Also resistance below and above the psychological 13k: 12998, the 50 day m/a and 13033, the 40 day, so even broaching the magic number could be fleeting. Big Caution Flags!”  OUCH! The very next day it blasted through all of that resistance ‘like buttah.’ The trajectory to 13115 eliminated all but 1.1% of the 4.2% plunge from April 2. AMAZING! All 30 Dow stocks were up, led by IBM with 36 index points and 7 others gaining at least 10 points! Apple’s surge does not affect the Dow but it did add to the  S&P and especially the two Nasdaq indices. Volume was essentially stable for a FIFTH straight day at an unremarkable 3.44B shares on NYSE listed stocks (compare to 4.66B on last Tuesday’s downdraft). BUT NYSE stocks executed on the Big Board fell to the lowest level since March 12^th, 710M shares from 735M – after the surge to 972M on Tuesday’s selloff,  260M below the falling 12 month average (970M)! 7 of the last 8 sessions have been less than 800M shares! Since 2/29 there have now been just THREE ‘average’ days, including 3/16’s high for 2012, and the average has fallen to 805M shares. Since 11/1 there have been just eight 1B share days…only three in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 103 of the last 113 sessions have been less than the 12 month average! Advance/Declines were positive: +3.4x vs +1.3x vs +-3.3x vs 4.6x vs +3.8x on NYSE and +3.2x vs +1.1x vs -3.5x vs +2.1x vs +3.6x on Nasdaq. Breadth was even better: +7.3x! vs +1.2x vs -6.4x! vs  +9.5x!!! vs +3.7x  on NYSE and +5x! vs MINUS 1.4x!!! vs -6.4x vs +4.5x vs  +4.3x vs -11.7x!!! on Nasdaq. New 52 week highs rose to 180  vs 119 (high was 420 on 3/26), while new lows were more than halved to 53 vs 117! Ratio positive again: +3.5x vs 1:1 vs  -2.9x vs +3x vs 1:1 vs -3x!!! vs -2x. The S&P VIX dropped by 1.09 to 18.46 after being unchanged at  19.55. This after bouncing back from 17.20 and above the near convergence of the 40/50 day m/a’s (16.95-17.33) and after gapping up Tuesday with a high of 21.06, highest since March 6! March 16’s intraday low of 13.66 was lowest since 6/20/07’s 12.75!!!

Here are the results of the last five sessions: Dow +1.5% vs +0.6% vs -1.1% vs +1.4% vs +0.7%; Transports +1.4% vs +0.9% vs -1% vs +2.2% vs +0.9%; Dow Utilities +0.6% vs +0.6% vs -0.3% vs +0.5% vs +0.3%; S&P 500 +1.6% vs -0.1% vs -1.3% vs +1.4% vs +0.7%; Nasdaq Composite +1.8% vs -0.8% vs -1.5% vs +1.3% vs +0.8%; Nasdaq 100 +2% vs -1.1% vs -1.5% vs +1.2% vs +0.5%; Russell 2000 +1.6% vs +0.2% vs -1.5% vs +1.5% vs +1.6%; NYSE Financials +1.6% vs +0.6% vs +1.9% vs +1.6% vs -2.2%!!. NYSE Financial Leaders: BAC +1.5% vs +1.3% vs -5.3%!!! vs +3.4% vs +3.8% vs -4.4%!!! vs -3.3%!!, Citi +3.2% vs +1.8% vs -3.5% and since peaking at $38.40 on 3/19, it is now off 8.3%!!! This is utter insanity…do you honestly think people are buying it?

European equities weak, Asia strong, another reversal:  FTSE -0.4% vs +0.8% vs +0.3% vs -0.4% vs -0.3%; CAC40 -1.6% vs +1.4% vs +0.6% vs -1.1% vs -0.5%; DAX -0.9% vs +1.2% vs +0.3% vs -0.9% vs -0.1%; Nikkei +2.1%! vs -0.1% vs -1.7%! vs +1.2%! vs +0.7%; Hang Seng +1.1% vs -0.2% vs -0.4% vs +1.8%!! vs +0.9%; Korean KOSPI +1% vs -0.4% vs -0.8% vs +1.2% vs -0.4%; Indian Sensex  +0.2% vs +1.2% vs+0.3% vs -1.4% vs +0.8% vs -0.3%. U.S. stocks futures weaker: DOW -44; SPX -4.80; NDQ -5. Bonds better and note they did NOT selloff with stock rally this time! 10’s thru 2% but 30’s still well above 3%.10 yr 1.98% +1/8, RECORD low 9/23 of 1.6855%; 30 yr 3.13 +1/4; Long TIP 0.70% +5/16. It was 0.57% at high. The 5 yr TIP yields MINUS 1.31%; 10 yr -.31%. Bills 0.06% 1 month; 0.08% 3 months, 6 months 0.13%. Reverse Repo 0.23%. 3 mo. Libor 0.47%, and 0.73%; steady. New section on euro sovereign 10 years, for reference Germany 1.72% -2 bp’s (benchmark for the matrix); Italy 5.44% -1; Spain 5.77% -6; Greece 20.22% -17; Portugal 11.86% +2; Ireland 6.64% flat.

Gold closed below $1700 for a 25^th straight session, up $1, making the hit $141 since 2/28, closing $1651.10 +$1.40. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, which remains below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1688, the 40 day and $1697, the 50 day, then $1698, the 200 day. It is now $1640.90 -$10.20. Crude a tad higher, closing at $104.20 +$1.27. Tuesday’s low of $100.68 was worst since 2/15/12! It remains below the range of $105-110 which held from to 3/28!!! RES still at the 50 day (104.48), the 40 day (105.56), and major support at $95.89, the 200 day, all still rising. Little changed o/n, now $103.70 -.50. $101.08, the April 4 low is still minor support – Last 4/10’s low $100.68!!! – lowest since 2/15/12!.

See the above section for TB’s mea culpa on Dow 13k –BUT he isn’t giving up…not with options expiry on Friday and the fact that this was a flash trade rally as evidenced by the low volume…especially shares traded directly on the Big Board! While Apple did not affect the Dow, it added at last 0.2% to the S&P 500 and doubled the Nasdaq 100 to +2% vs +1%.  The economic data released yesterday was mixed at best and didn’t support any rally, especially one of that magnitude. We have seen this before…correction to follow. For now they are contenting themselves with the earnings reports…the good ones!

Apple has been down for the prior FIVE sessions, after peaking at $644 on 4/10, then closing down $8 from the prior day’s high, thus ending the rally that began on 3/13 – gapping up two straight days and producing one third of the quarter’s gain (16%/48%), without which the market would not have glistened so much in the first quarter. Yesterday however it was up 6.7% to $609.70 +$29.57, on an almost PARALLEL day to Monday’s plunge…also, not quite an outside day OR a key reversal meaning the technicals for it remain intact! Tuesday a Bloomberg article told how Apple could regain its earnings growth but that it was unlikely; yesterday, another article said it is still cheap!

TB says it was SHORT COVERING of a high flier…not REAL buyers! So laugh if TB is wrong but this is insanity…going down? Apple and major indices. You decide.

TB still recommends either staying sidelined but is increasing the need for setting trailing stops in volatile stocks. See how easy it is to get whipsawed? Piece of cake!

. . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)   . . .   – - -  . . .  (SOS)

…due to time constraints, TB could not get anywhere near finished on the Volcker Rule so here is some background that is even more valuable…especially if you like bank stocks. Quiz:

Which are the top five U.S. bank holding companies (3/31/12)?

1. JPM, BofA, Citi, Wells, GS – faux bank, #6 is U.S. Bancorp
2. Note that thanks to the meltdown insurers and brokers are banks! NOT!

How would TB rank these banks on quality

a.  USB, WFC best, JPM neutral, BofA and Citi –Sell

b.  Only USB and WFC have no proprietary trading (Volcker Rule)

1.                                                                i.      Both have dividends of 2.5% or more and rising
   1. still too low for a bank s/b 4-5%
   2. JPM just raised to 2.7% but…, Citi 0.11%, BofA 0.45%

There are a few other suitable banks like BB&T and PNC, which made aggressive loans but kept losses in check.

How do U.S. banks rank compared to the top 50 in the world (12/31/11 –latest)?

aMiserably, but is that a bad thing seeing what they did to themselves?

1.                                                              ii.      JPM – 10^th, BofA -17^th, Citi – 23^rd, WFC -24^th  – no others!
2.                                                             iii.      Top 3: BNP Paribas, Deutsche, Barclays

How would TB rank the top five U.S. banks by quality (lack of risk)?

USB      WFC     JPM       BofA    Citi

Return on Assets       1.46%   1.17%   0.84%       -0-    0.58%

Loans to Deposits      90.8%   83.7%  64.2%    89.7%  n/a???

When TB was in banking 30 years ago, required reserves which were controlled by the Fed under Regulation D were 17.5%. Then in 1990, thru a wonderful bill, transactional accounts dropped to 3%, and non-transactional went to zero! This on the premise that since the Fed didn’t pay interest on reserves it was in fact a hidden tax. One for which the banks, when they had problems got full value and more…but banks never see themselves as getting in trouble as they are too busy patting themselves on the back.

Back then it was First Pennsylvania’s John Bunting who was the wunderkind, much as JPMorgan’s Jamie Dimon is today. To Bunting’s credit he never allowed the shananigans that JPMorgan has had happen on his watch…or at least wasn’t caught. Still, the bank failed due to overexpansion into investments, etc.

What has Dimon done that has endangered the banks? First, it was Ronald Reagan who created ‘too big to fail’ by bailing out Continental Illinois in 1984 over the objections of Treasury Secretary Don Regan (formerly of Merrill Lynch). Since Continental was the eighth largest bank larger banks were also considered to be TBTF and foreign money flowed in while domestic deposits moved to the larger – safer banks. Pity.

Dimon and other bankers were opposed to regulating derivatives and having them trade on an exchange. That was Sheila Bair’s idea…then head of the CFTC who was lambasted by Rubin, Summers, and Greenspan in what was in fact defamation of character, much as happened to Elizabeth Warren when she was to head the new consumer protection agency, despite efforts by her to win Dimon over.

What is so important about regulating derivatives and having them trade on an exchange? Because by having each contract tailored the fees are gargantuan. Furthermore, you can’t get out of it so you have to create a new one to sell and once again enrich a broker. Thus you have one long and one short position to net out…yet you have counterparty risk on both. Bair was correct and the others were fools and accountable for most of what happened in the financial collapse. Derivatives MUST be regulated!

Still, this all would have been insignificant had not Sandy Weill, talked to Clinton, Rubin, AND Greenspan to grease the skids for his stock swap of Citi with Traveler’s. This also led to the demise of Glass-Steagall which needed modification but not to be replaced with legislation which exempted the top five banks (who, recall were TOO BIG TO FAIL!), from oversight. The promises were so good that he even did the stock swap BEFORE Glass-Steagall was replaced. Coincidentally (sic), Rubin went on to become Vice Chairman of Citi…with no duties – what a guy!

Yesterday, we learned two new things about the banks:

1. Jamie Dimon’s $27 million is 67 times the average salary, not of any typical employee, but of the investment

bankers at JPM! Is he worth that much? You decide.

2. Citi, in an unusual move, had an advisory vote by shareholders on Vikram Pandit’s compensation. While as all

shareholder actions, it is merely advisory, Chairman Parsons said that they will seek a more ‘quantitative’,

formula-based method of determining it. Isn’t it about time to stop the madness? 

Tomorrow, the Volcker Rule, good or bad? – promise!

Now about the Buffett Rule requiring millionaires to pay a minimum tax of 30%. 72% of Americans just polled were in favor…a majority of the Senate was in favor but the GOP filibustered and there were not enough votes to stop it…they killed the rule…who are they represented? The same people as when they won’t allow a presidential nominee an up or down vote when they have put their lives on hold. This is a disgrace!

‘Anyone but Obama’ should be the epitat of the GOP this presidential election. In every category, Obama trumps Romney by double digits including representing women, likeability, honesty, ability, despite the rhetoric to the contrary. Also, 62% of those polled who would vote for Romney say they will do it in opposition to Obama. Think about that.

There is the possibility that the GOP picks up congressional seats but even that is in doubt thanks to the efforts of  Wisconsin’s Scott Walker and others who have tried to radically reform government. Business knows better? Would any sound business slash spending without trying to increase revenues? Not if it wants to stay in business.

Have a great day!

TB