11/29/12…of the bankers, by the bankers, and…

TB’s Factoid of the Day: What was the Boston Tea Party about? A. a ban on tea; B. a new tax on tea; C. lowering or repealing the tax on tea? D. none of the above.  Answer below.

Bloomberg Quote of the Day: “If they give you ruled paper, write the other way.” – Juan Ramon Jimenez

Bloomberg Top Stories:

*Stocks Advance With Commodities on U.S. Budget Talks; Spanish Bonds Climb

*World Economy in Best Shape for 18 Months as Investors in Poll See Rebound…or not!

*German Unemployment Climbs for Eighth Month as Investment Drops – 6.9%

*King Says U.K. Bank Capital May Not Be Sufficient to Protect From Losses

(that is the point of today’s commentary….not just for U.K. but for the U.S.A.!)

*Tiffany Lowers Full-Year Profit Forecast After Earnings Trailed Estimates – !!!

*Berkshire’s NetJets Updates Fleet With $17.6 Billion in Planes After Glut

*Noonan Examines Greek Bailout a Ireland Weighs Exit From Its Bailout

*Fiscal Cliff Averted in Global Poll Seeing Market Gain on Short-Term Deal

*Geithner to Set Congress Talks as Republicans Demand Obama Spell Out Cuts

(yes, but they can’t promise to deliver on tax incentive cuts or deductions! Go fish!)

*China Joins European Union in Scaling Back Outlook for UN Climate Talks…this as a chunk of ice as big as America broke off in Greenland? Get real…it exists!

The lunacy in the stock market…well not really because the only players are speculative flash traders (isn’t that redundant?). One thing for sure though: it is anything but a market! Take the case of Costco (COST) of which TB is an unabashed fan and customer, as much as he loathes Walmart. In preparation for the ‘fiscal cliff’ in what TB regards as a stupid case of double taxation, the company plans to pay a $3.5B, $7 a share special dividend. In other words the company is ‘betting’ on failure. Really? So….the dividend tax will go up so why not pay it out now…actually based on their current dividend of 27.5 cents a share it would take 6-1/3 years to equal that payout??? Perhaps it is their contribution to paying down the debt thru higher tax revenues? Dunno, but on the news the stock rose $6 to $102.50!!! Uh, let’s see when the dividend is paid the stock will likely fall by that amount…or more! Get this: are they going to pay the dividend out of cash? Nope…they are going to issue DEBT…one of the looniest ideas, yet several companies have done just that…think of it as investors social security: you pay the current holders and let the cost be absorbed by the long-term holders! Watch closely! By the way, to date, according to Bloomberg, 71 companies have announced special dividends! Wonder what Ben Graham would say about that? Well, in the form of Warren Buffett we know the answer: it is insane! (TB’s comment not Buffett’s…we’ll see.)

The Dow opened to the downside and was off about 113 points when first Boehner then Obama said they were optimistic on avoiding the fiscal cliff…imagine…rallying on the same thing that happened with the debt ceiling next year and when there are some certifiably crazy people in Congress…Michele Bachman come to mind. The devil will be in the details and if they leave out the details you had better run. So then what happened? The Dow rallied, rising to 12981 before giving back about 6 points. So? The key number is not the psychological 13k but 12,993, the 200 day moving average which we have been toying with for the last four sessions, closing barely over 13k last Friday for the first time since November 7th! But where was the breakout? Not only that but we barely beat yesterday’s high so it was not a real positive ‘key reversal’ (higher high, lower low and close above the prior session high). You have to wonder…they have so many ways to hurt you, right?

Worse yet, total NYSE volume only tied Tuesday’s weak 3.31B shares, so on the low volume every index was up while Tuesday all were effectively down. Meanwhile, REAL volume rose slightly to 709M shares (500M 15 minutes prior to close) vs 689M shares – 7 straight sessions <800M shares! Advance/declines and breadth were positive on both the NYSE and Nasdaq. The VIX slipped to 15.56 vs 15.92, reversing Tuesday’s rise but still flashing a warning!

Bond market closed modestly higher, then faded overnight: 10 yr note 1.64%, 30 yr 2.80%. 3 mo. Libor steady at 0.31%, 6 mo. 0.53%.

Gold and Crude were both off for a second day with Gold losing $26 and Crude 69 cents. Gold low was lowest since 11/15 and below both the 40 day and 50 day m/a’s. Both are higher overnight…up $7.30 and $1.13 respectively.

(Answer to factoid: C – it was not about higher taxes it was about lowering them because smuggling of tea had become a big business (hmmm big business?) and it would cut into their profits. So there you have it: the Tea Party, a group that is a minority in the GOP has wrested control on the wrong premise!!! Would someone please tell them that???)

- – –  . . .  – – -

…and for the bankers! …and you thought it was of the people, by the people, and for the people…poor you! That is what are banking laws are all about. The only safeguard we had was Glass-Steagall which prohibited banks from banking and investment banking. Thus you had FNB Boston and First Boston Corp., FNB Chicago and First Chicago Corp. They were totally separate entities – once the law was enacted! Then came the demise of Glass-Steagall and the big banks got back into banking. Worse, they made Merrill Lynch (now a moot point), Morgan Stanley and Goldman Sachs banks! They don’t take deposits into FDIC insured accounts and as Goldman Sachs said once they wre granted this privilege: we don’t make and never will make a loan! Period!

So what did we do? We made them all too big to fail (TBTF). Beautiful! Add them to the two quasi-agencies the GOP loves to hate (although they willingly took campaign donations from them!), FNMA and FHLMC.

Who created TBTF? Ronald Reagan when, over the objections of his Treasury Secretary, Don Regan (former Merrill Lynch CEO), guaranteed Continental Illinois in 1984, the biggest bank bailout in history at the time (Chrysler was bailed out in 1980, but the government actually made money off it from stock options it received), and as the 8th largest U.S. bank told the world that at least the top 8 banks were safe…how could the government ignore a bigger one after that?

Besides the obvious moral hazard that was created, those top banks ‘stole’ accounts from smaller U.S. banks and foreign money flowed in. Prior to that time U.S. banks had long lost their status of being the biggest to the Japanese and Germans. TB would argue the case from numerous Federal Reserve statements that they would like to have seen all the small banks just go away. Had they succeeded the recent crisis would have been even worse.

What about those laws TB says were all for the bankers? Consider state banking laws. They amounted to restraint of trade. There were several interstate bank holding companies created in the 1960’s. Then came the Douglas Amendment which banned bank holding companies from interstate banking while grandfathering in Western Bancorporation (later First Interstate and now part of Wells Fargo), and other regional holding companies like First Bank System and Northwest Bancorp.

But several states allowed intra-state bank holding companies…such as Colorado which was also a unit banking state. This meant that there could be no branches. WBC owned three Colorado banks but could not expand while the in-state holding company Affiliated Bankshares could own any number of Colorado banks. Was any of this in the interest of bank customers? Not when they could only make a deposit at one location. Just swell.

Now all the rules are gone because the banks have become so large and nobody cares. It is time to segregate banking and non-banking activities once again…in fact it is past time but the lobby is so big and people like Sandy Weill and Jamie Dimon were so vocal that they got away with…well…murder. After turning Citi into another quasi-agency he saw the light and said that the ‘financial supermarket’ was a bad idea…about as sincere as when MacNamara wrote his book and said he had no control over the war in Viet Nam.

Keep in mind that Jamie Dimon spent his career at Weill’s knee and he has made no such statement…despite his failures which have cost shareholders billions while he continues to reap huge bonuses and rewards the bank officials that created the problems.

Actually, the U.S. is much better off than the European banks but they too cry that bigger is better. Here is the best analysis of why by a professional risk analyst that does work FOR the biggest banks! Hard for them to deny his credibility. TBTF bank analysis (it appears that the numbers in the far right column on the table are the market share of the banks listed of the Libor market and hence their global risk).

Our controls over banking in this country are pathetic! The Federal Reserve Bank of New York (beginning with Timothy Geithner and still under William Dudley, sadly a friend who TB believed in), has acted as an enabler…not only with them but with the primary government securities dealers that it is supposed to regulate. So what happened? How about the collapse of MF-Global thanks to Jon Corzine! To TB’s surprise and he is sure many others they were a primary government dealer…yet the Fed said that it no longer regulates primary dealers…doesn’t care about their financial condition just trusts them to operate responsibly…this from the most powerful central bank in the world? Shameful!

Former Fed Chairman  Greenspan felt he had no right to regulate mortgage companies despite a concern over subprime lending by one of his board members, Ed Gramlich, who went to his grave writing a book on the dangers of it, even as he was dying of cancer – now that is dedication. TB met him once in London and he was a remarkable man and public servant.

If we don’t take back our banks…and rescind banking status for broker/dealers we will definitely have another financial crisis…it is only a matter of how soon! Think of the boost this would be for the community banks…where they serve their customers.

If Obama takes the GOP bait and nominates Kerry for Secretary of State, TB thinks he will make a big mistake. First, he should call their bluff…it appears most of the public sympathizes with her as The Economist did, and it will make the GOP look even more anti-women…especially after McCain said she wasn’t smart enough! He with a mouth that vies with Biden’s. One can hope though that Obama isn’t obsessed with the idea of women and minorities in cabinet positions and is instead looking for people with ideas, unlike the AWG retreads, Emanuel and Geithner…and Holder, who must go…not for the usual reasons but because he has failed to criminally prosecute instead touting those big fines, records, which are paid by the shareholders. Obama doesn’t have much time or capital to make his mark…after the first session it will be like an atomic half-life.

Have a great day and watch out for cliffs,

TB

. . .  – – –  . . . (SOS!)  . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!)

Volume was FLAT at a weak 3.31B shares. NYSE shares executed without the aid of the ETN market rose to a still weak 709M shares vs 689M. The 949M of last Friday was highest since 10/19. There have been just 19 700M+ days since 8/3. The high ytd was 9/21’s 1.8B shares – due to a quadruple witching and an S&P rebalancing. Since 6/29 just 17 sessions have surpassed 800M shares, mostly down days. The average since 8/1’s 1.03B is just 679B. The average for 2012 is just 764M shares and since 6/29 just 692M shares– WEAK!!! 121 of the last 164 sessions have been less than 800M shares (73%!). Since 2/29 there have been just 26 ‘average’ days (mostly down!), including 9/21’s high for 2012 of 1.8B (5B including ETNs) and just 21 have been above 900M – 773M is the 12 month average. Since 11/1/11 there have been just 17, 1B share days…13 in 2012! Since 2/6 there have been 72 sessions less than 700M shares. 237 of the last 259 sessions have been less than the 12 mo ave (91%)! This remains a manipulated market – going wherever the freaks want it to!

Advance/Declines were positive: +2.3x vs -1.3x vs -1.3x vs +5x!!! vs +2.1x on NYSE and +1.4x vs -1.2x vs +1.2x vs +3.2x vs +1.8x on Nasdaq. Breadth was better but negated by low volume: NYSE:+4.2x vs -2.2x vs -1.5x vs +15.6x!!! vs +2.6x on NYSE and +3.3x vs -1.1x vs +1.8x vs +5.6x!!! vs +2.4x on Nasdaq. New 52 week highs DROPPED: 143 vs 170 vs 141 vs 159 vs 122 vs 124 (768 is cycle high, 28 low), while new lows ROSE to 62 vs 48 vs  48 vs 43 vs 88. The ratio remains positive: +2.3x vs +3.5x vs +2.9x vs +3.7x vs +1.4x. Recent high was +7x! The S&P VIX fell back to 15.50 vs 15.92. The 12-month low was 13.32 on 8/17 while the 1012 high is 27.73 on June 4.

Here are the results of last 5 sessions: Dow +0.8% vs -0.7% vs -0.3% vs +1.4% vs +0.4%;  Dow Transports +0.7% vs -0.2% vs +0.7% vs +1.1% vs +0.3%;Dow Utilities +0.3% vs +0.1% vs +1.2%!!! vs -0.1% vs -0.4%; S&P 500 +0.8% vs -0.5% vs -0.2% vs +1.3% vs +0.2%; Nasdaq Composite +0.8% vs -0.3% vs +0.3% vs +1.4% vs +0.3%; Nasdaq 100 +0.9% vs -0.4% vs +0.5% vs +1.5% vs +0.2%; Russell 2000 +0.5% vs -0.2% vs +0.2% vs +1.1% vs +0.6%; NYSE Financials +0.5% vs -0.7% vs -0.5% vs +1.4% vs +0.2% (KBW Banks +0.3% vs -1.3%! vs -0.4% vs +1.6% vs -0.3%; Nasdaq Banks +0.1% vs -0.8% vs -0.1% vs +1.8% vs flat; NYSE Brokers +2%??? vs +0.1% vs +1% vs +1.6% vs +0.4%.NYSE Financial Leaders: BAC +0.3% vs -1.8% vs -0.7% vs +1.3% vs +1.5%; C -0.1%. No other leaders. BAC still in the $9-10 range, closing at $9.74, after hitting $8.95 lat week! No other leaders – again!

Global equities strong!!!: FTSE +0.9% vs-0.3% vs +0.4% vs -0.7% vs +0.2%; CAC 40 +1% vs -0.3% vs +0.3% vs -0.9% vs +0.1%; DAX +0.7% vs -0.2% vs +0.6% vs -0.4% vs +0.1%;Nikkei +1% vs -1.2% vs +0.4% vs +0.2% vs closed; Hang Seng +1% vs -0.6% vs -0.1% vs -0.2% vs +0.8%; Korean KOSPI +1.2%! vs -0.8% vs +0.9% vs -0.2% vs +0.6%;Indian Sensex +1.8%! vs closed vs +1.7% vs +0.2% vs -0.1%. U.S. stock futures strong: DOW +73; SPX +8.70; NDQ +18.75!

U.S. treasury bonds are slightly weaker: 10 yr 1.64% - record low of 1.40%; 30 yr 2.80% -1/8. Long TIP 0.36% -1/8 – 0.25% is the record low!The 5 yr TIP yields –1.45%; 10 yr -.80%.T-Bills: 0.16% 1 month; 0.09% 3 months; 0.14% 6 months. Reverse Repo 0.24%. 3 mo. Libor 0.31%; 6 mo. 0.53%.  European problem sovereign 10 years, Germany-bench: 1.39% +2; Japan 0.70% -1; Italy 4.52% -5; Spain 5.24% -6; Greece 16.07% vs 15.95%!!! +1…on 9/20: 19.75%; Portugal 7.37% -14; Ireland 4.36% -2.

 

Gold closed lower below both the 40 and 50 day m/a’s. It closed at $1721.80-$26!!! Friday’s intraday high was $1755. On 10/4 it closed at $1796 highest since 2/29 and it has lost $74 since. 7/12’s intraday low of $1547.60 was lowest since June 1. The record high is $1923.70, a buying climax on 9/6/11. MAJOR RES at $1735, the 40 day, and $1743, the 40 day.Further SUP at $1672, the 200 day. 5/2’s o/n low of $1526.70 was lowest since 12/29! It is now $1726.10 +$7.30. Crude also closed slightly lower at $86.49 -.69. RES at the 40 day (88.01), then the 50 day (88.78), and the 200 day (93.95), finally flattening! It is currently $87.62 +$1.13.

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