Bloomberg Top Stories:
*Stocks Fall With Commodities on Concern Fed Won’t Add Stimulus; Bonds Gain
*Spanish Borrowing Costs Rise as Demand Drops at First Sale Since Budget
*Draghi Tested as German Pay Increases Add to Euro-Region Divergence Threat
(they have their own wealth gap! A country wealth gap! TB)
*RBS Abandons Sale of ‘Score’ Bonds Backed by Bank’s Own Derivative Trades – LMAO!
*Wall Street Analyst-Banker Firewall Seen Breached in Bill Headed to Obama
(we learned nothing from the Dotcom bust, or Goldman…nothing…or did they buy this? TB)
*Rising U.S. Tax Receipts Aid State-Local Government Employment Trend – for how long?
*Austrian Central Bank Joins Bundesbank to Reject EU Rescue Bank Collateral
*U.K. House Prices Surge by Most in Three Years on First-Time Buyer Demand
*Shortage of Taxable Muni Bonds Prolongs Strongest Rally Since 1994 – thank Meredith!
*Rakoff Seeking Truth of Wall Street Wrongdoing Admonished as Rogue Judge
(A true believer but you can’t beat them…they will destroy you if you try. Thank you Wall Street!)
Volume rose to 3.8B shares vs 3.5B on NYSE listed stocks. The increase was due to the reaction to the release of the FOMC minutes showing how tenuous the recovery is. NYSE stocks executed on the Big Board rose to 816M from 763M shares, backing away once again from the falling 12 month average (975M), about 150M below the 12-month average. For the first 2-1/2 hours the market slid lower then went more or less sideways until the FOMC release. That was all she wrote except that it recovered from about a 120 point decline on the Dow to close off 64. Since 2/29 there has only been just two ‘average’ days, including 3/16’s high for 2012, and the average has been just 817M shares – and falling! 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. 95 of the last 104 sessions have now been less than the 12 month average! Advance/Declines were negative: -1.9x vs +3x vs +1.4x vs -1.5x vs -1.8x on NYSE and -2.4x vs +2.4x vs -1.2x vs -1.4x vs -1.9x on Nasdaq. Breadth was similar: -2.7x vs +3.9x vs +2x vs -1.6x vs -2.4x on NYSE and -2.5x vs +2.2x vs +1.4x vs -1.4x vs -2.2x on Nasdaq. New 52 week highs jumped to 267 from 187, high was 420 on 3/26, while new lows rose to 69 vs 50. The ratio rose to +5x vs +3.5x, down from a high of +29x! The S&P VIX was steady for a FIFTH session – rare –rising slightly to 15.66 vs 15.64 vs 15.50 vs 15.48 vs 15.47 vs 15.59, while intraday last Wednesday it hit 17.27, highest since March 9! Friday 3/16’s intraday low of 13.66 was lowest since 6/20/07’s 12.75. Buckle up!
Here are the results of the last five sessions: Dow -0.5% vs +0.4% vs -0.1% vs +0.2% vs -0.5%; Transports -0.2% vs +1.0% vs +0.6% vs flat vs -0.3%; Dow Utilities Flat vs +0.5% vs +0.4% vs +0.4% vs -0.9%; S&P 500 -0.4% vs +0.8% vs +0.4% vs -0.1% vs -0.2%; Nasdaq Composite -0.2% vs +0.9% vs -0.1% vs-0.3% vs -0.5%; Nasdaq 100 -0.1% vs +1.1% vs -0.3% vs -0.3% vs -0.5%; Russell 2000 -0.7% vs +1.2% vs -0.2% vs -0.3% vs -0.7%; NYSE Financials -1% vs +1% vs +0.3% vs -1% vs -0.2%. NYSE Financial Leaders: BAC -2%! vs +1.2% vs +0.4% vs -2.3% vs +1% vs -3.3%!; GE -0.3% vs -0.3% vs +0.6% vs -0.3% vs -0.2% vs -0.1% vs +1.4%; F +0.2% vs +1.2%! vs +0.2% vs +1.5%. What about Citi you ask? Citi is out of play and has been since peaking at $38.40 on 3/19! Since then it has fallen by 5% to $36.87
Global equity markets weak: FTSE -1.1% vs -0.2% vs +0.2% vs +0.6% vs -0.9%; CAC40 -1.2% vs -0.6% vs -0.3% vs +1.2% vs -0.9%; DAX -1.7%! vs -0.2% vs flat vs +0.9% vs -1.2%!; Nikkei -2.3%!!! vs -0.6% vs +0.3% vs -0.3% vs -0.7%; Hang Seng closed vs +1.3% vs -0.2% vs -0.3% vs -1.3%! vs -0.8%; Korean KOSPI -1.5% vs +1% vs +0.8% vs flat vs -0.9%; Indian Sensex -0.6% vs +0.7% vs +0.4% vs +2%!!! vs -0.4%. U.S. stocks futures tanking: DOW -91; SPX -10.50; NDQ -18. Bonds strong but not even offsetting yesterday’s losses: 10’s and 30‘s still well above 2% and 3% respectively: 10 yr 2.24% +1/2. RECORD low 9/23 of 1.6855%; 30 yr 3.38% +1-1/8; Long TIP 0.88% +1-7/16. It was 0.57% at high. The 5 yr TIP yields MINUS 1.27% vs -1.32%; 10 yr -.14% vs -.22%. Bills 0.06% 1 month; 0.08% 3 months, 6 months 0.14%. Reverse Repo 0.28% vs 0.31%! 3 mo. Libor 0.47%, and 0.73%.
Gold closed below $1700 for a 17th straight session, losing $10 and making the hit $109 since 2/28, closing $1672.00 -$9.70. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, and it is now tanking to $1622 -$50.00 – a huge drop right thru major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1692, the 200 day and $1707, the 40 day, then $1712, the 50 day. Major support is $1632, the 1/13/12 low, now res! Crude fell again, closing at $104.01 -$.22. Thursday’s session low of $102.13 was worst since 2/17/12! It is back below the range of $105-110 which has held since 2/21!!! For now! It is now $102.57 -.44, with RES again at the 40 day (105.06), the 50 day (103.72), and major support at $95.46, the 200 day…all rising.
The Fed giveth and the Fed taketh away…not the punchbowl this time, as the party is just getting started…but they are obviously worried about too many no-shows. Sure they saw an improving economy which reduces the need for more stimulus, but SF Fed President John Williams said ‘strong’ stimulus is need to increase employment…oh, he must have forgotten that fiscal policy doesn’t work…nor does easing with short rates near zero!
The day started out weak in anticipation of the release of the FOMC minutes from the last meeting. For the first 2-1/2 hours the market slid, then fell off a cliff after the minutes were released. But get this…bonds tanked too after being modestly higher in the morning?…did they think there would be a call for MORE stimulus? So both stocks and bonds closed weak with the long bond off more than a point! But the dollar rallied right through the 40 and 50 day moving averages! What’s a mother to do?
While opposition continues to be expressed over market-weighted indices being influenced doubly by large stocks (through market cap weighting increasing/decreasing due to relative performance as well as price appreciation/declines), Apple has proven the point by being up 48% for the quarter and 78% for the 12-months while its weighting in the S&P 500 grew by 1.5 times!
On 4/30/03, Rydex (now under Guggenheim) created an S&P 500 equal-weighted index ETF (RSP). TB liked the idea and discussed it at length with a quant friend. It isn’t truly equal-weighted by stocks but within a very narrow range as they can rebalance once a year. Compare the performance to the comparable Spyder ETF (SPY). As opposed to the actual index due to fees of 0.40% and 0.095% respectively:
Q1‘12 12 mos. 15 mos.* Inception (4/30/03)* (6/30/03)*
RSP +12.5% +4.3% +9.3% +9.7% +8.7%
SPY +12.7% +8.4% +11.7% n/a +6.4%
Ex-Apple +10.0% +5.3% +10.9%
*Annualized
What did we learn? First from 6/30/03 thru 2007 as the market rallied but then from Q3 2007 (when financial stocks peaked) until the market bottomed in 2009, RSP grossly outperformed…including fees, which would have added a net 0.30% to the returns, but from the bottom to present it has underperformed (with two exceptions on selloffs in Q2 ’10 and Q3 ’11).
But why, with equal weighting did RSP outperform in the last quarter? Because of the strong performance of small caps (+12.9% on Russell 2000 in Q1 but only 0.2% for the trailing 12 months). TB was not surprised by the results – over a cycle, and this indicates that over long time periods equal weighting provides better returns, but will underperform in rallies while outperforming in downturns. This could be very useful to an equity strategist, by merely switching between the two.
Lastly, Apple was removed from the index to show how it would have performed. Note that prior to last year it was not a major factor.
Takeaways: It isn’t enough to index, it has to be the right index! This is why it is so difficult for stock pickers to consistently beat the index (due to wtgs and changes to index membership).
…you decide…
. . . – - - . . . (SOS) . . . – - - . . . (SOS) . . . – - - . . . (SOS) . . . – - - . . . (SOS)
…remember Herve Villachez on Fantasy Island, standing next to Ricardo Montalban, pointing and saying, “da plane, da plane”? Well, that is how the markets responded to the release of the minutes from the last FOMC meeting!
But the best comment was from Bernanke himself when he talked about the need for more disclosure. Was he talking about hiding who received the TARP/TARF funds that required a lawsuit by Bloomberg under the Freedom of Information Act to unseal?
It seems he wants it both ways…to provide us with more information earlier…except that which they feel we don’t need to know or that they don’t want us to know. TB would like to know why Goldman and Morgan Stanley are still banks when they don’t take deposits OR make loans (except margin). Merrill would be one too if it hadn’t been swallowed up by yet another bank, BofA. At the very least, that status should be revoked right now as part of the Volcker Rule as proprietary risk-taking is all they do! For all the griping from them why haven’t they asked to be declassified as banks? Dunno, seems obvious that the only reason they choose to be is TBTF – being covered under too big to fail!
Meanwhile, the GOP budget will only weaken the economy…how can they give more tax cuts to the wealthiest under the guise of later reforming the Tax Code? If we cut spending by 60% and then give back 40% how does that help the situation?
Last night, on PBS (the only fair and balanced reporting on the airwaves), they had a debate between Jared Bernstein (former economic consultant to Biden), and an economist from the Cato Institute. While they disagreed on many points, they agreed on one: the budget cuts are a sham…in fact it was the guy from Cato who mentioned the 60/40 issue. He then asked what kind of draconian cuts are these that take us back to levels of the Clinton Administration when government was growing and revenues were soaring?
The point is that until the GOP tells Grover Norquist to take a long hike, and the two parties sit down and discuss the budget rationally…without playing tricks like putting Obama’s budget into a bill that is loaded with things the Dems can’t support just so they can make the president look bad by misleading us with the ‘unanimous’ nay votes, it will just get worse.
Also, when will the GOP leadership (sic) show us leadership qualities. When will they admit it when facts have been misrepresented or people like Limbaugh slander people yet not call him for what he is. By the way, on Sunday did you see the clip where Newt called Romney a ‘liar?’ When asked about it he said, “yes, I said it…so what?”
Do you know why TB is angry? Because they are getting away with it: politicians of both parties and Wall Street. Bloomberg story this morning on Judge Rakoff who is trying Raj Gupta and has also accused the SEC of neglect. He is getting nowhere as it appears anyone who tries will also find out. Next story, Congress passed a law that takes away some of the bite on Wall Street from the DotCom bubble when analysts talked with underwriters and traders. Since then there has been a Chinese Wall…about to crumble and how in God’s name after what we just went through as evidenced by Goldman’s double dealing, can we allow that? Because money talks…while we just gripe.
A friend/reader wrote TB yesterday and felt he was ranting too much. No doubt this is true, but why do people like Rush Limbaugh get away with it?…even when they defame someone, which TB has never done, nor has he ever done (as close as it gets is calling Bush “Dubya” which he is not alone in. Also, he issues mea culpa’s for his mistakes which you will never hear a politician do.
TB wrote the following letter to Ford over CEO Alan Mulally’s compensation:
As a registered investment advisor with forty years experienced I was surprised at Alan Mulally’s 11% compensation increase (to $29.5 million), along with several other top officers of Ford…no wonder the picture in the L.A. Times of him kissing the new three cylinder engine of the future.
On the plus side, he did a great job but on the negative side, shareholder value declined by 30% in the period he was being patted on the back. True, it has come back since and at the time of the announcement was down just 18% for the 15 month period…so will that be factored in again next year? Since the 4/23/99 high of $65 a share it has declined by 75%. Besides, the S&P 500 (ex-Apple!) gained 10.1% for the quarter and 5.4% for the year. True, most of the his compensation was in stock options ($22 million), would like to know the strike price though, but he also has a salary of $2.2 million and received a cash bonus of $5.5 million…that should buy a pretty nice home in Dearborn. Oh, almost forgot he had the use of the corporate jet to fly him to and from his home in Seattle every weekend.
When does enough become too much? How much does he make relative to the average employee of Ford?
The point is everyone makes money…except shareholders – long term shareholders, and that is a pity. They also get a paltry 1.6% dividend.
I would like to commend Ford on both the performance and on having a Chairman and CEO. Combining them, as is popular today creates an untenable conflict of interest when the board is supposed to be the stewards to the shareholders. But I would also like you to think about all aspects of executive compensation. Of course, that requires the rest of corporate America to do likewise…and that is a very long odds proposition.
Hope you have a great day…there is a rumor there will be a winter in MN – next year!
TB
