12/5/12…reality check

Bloomberg Quote of the Day: “No man is wiser for his learning.” – John Selden ???

Bloomberg Top Stories:

*Global Banking Under Siege as Regulators Vie to Protect National Interests – !!!

*Stocks Rise With Commodities on China Investment Rules; Spanish Bonds Drop – ???

*Paulson Said to Blame Bet Against European Recovery for Most 2012 Losses

*Osborne Prepares to Breach His Own Fiscal Rules Amid Slump in U.K. Growth – !!!

*Bailout Cash Giving European Debt Edge as U.S. Faces Cliff – thank you, GOP!!!

*Steak Prices Rising as Record Cattle Seen Surging 20% at JBS – thank you, drought!

*Obama Ultimatum  Signals Lesson on Debt Talks Is Standing Firm on Tax Rates – !!!

*Egyptian Protestors Vow to Keep Pressure on Mursi After ‘Dictator’ Taunts – Bad!

THE BIG APPLE:

The big story on stocks this year is Apple…as it was in the second half of last year. One reason for Apple’s weakness, TB believes, is people booking capital gains which are huge in this tax year. Here is Apple’s performance vs S&P and Nasdaq 100

NOV  Qtr to Date      YTD       12 mos    AAPL wtg
AAPL    -1.2%    -11.8%        +45.8%    +54.5%         n/a

DOW    -0.5%      -3.1%          +6.6%      +8.1%         -0-
S&P     +0.3%      -1.7%        +12.6%    +13.6%        4.34%
NDQ    +0.5%      -3.4%        +15.6%    +14.9%        9.28%
100      +1.1%     -4.3%         +17.6%    +16.7%       17.2% – cut from 20.5% 4/2011 to 12.3% but rally has increased it!

Note the difference in performance between the Dow and S&P and also the two Nasdaq indices. Also,in the Nasdaq Composite the weightings of Apple, Microsoft (number two in all market-weighted indices!) and the other top ten equals 38.5%, and the rest of the top 50% equal 51% of the index where it has been since the dotcom bust when it hit 60%.

Too bad you didn’t buy stocks at the end of September 2011 and sell them in June. Total return from 9/30/11 to 11/30/12 was 30.1% but from 9/30/11 to 9/30/12 28.5% and a lot of extra worry…even at zero cash is sometimes king!

Look at this analysis from the Huffington Post: huffingtonpost/nasdaq-100

Apple Inc was cut to 12.3 percent from 20.5 percent of the index in April 2011, but a surge in price has pushed it back up to 17.2 percent — and the other big names have seen their share prices balloon as well.

A rebalance of the index will be triggered if Apple grows to more than 24 percent, or if the collective weight of all components over 4.5 percent exceeds 48 percent.

Along with Apple, the four names dominating the average are Google Inc , Microsoft Corp , Intel Corp and Oracle Corp . The growth of the top five companies increases the likelihood that the biggest names in the average will soon make up 48 percent of the Nasdaq 100 <.NDX>.

“When you construct an index that is supposed to be a market benchmark, it shouldn’t just represent a handful of names,” said Bronzo.

Currently, Microsoft is the second-largest component, with a weighting of 9.4 percent, followed by Google (5.5 percent) Oracle (5.3 percent) and Intel (4.8 percent). At the rebalance, Microsoft’s weighting was bumped to 8.3 percent from 3.4 percent, and it has grown since.

The five top names add up to 42.2 percent. That’s up from 37.3 percent when the index was rebalanced, so their influence is growing but has not reached a point where a rebalance will occur.

The point of the above analysis is ‘figures lie and liars figure.’ Absent Apple (Microsoft is up just 7.7%, div. reinvested, over the past 12 months, and 4.6% ytd) is all that blather about S&P is just that…useless blather! It has nothing to do with an investor’s portfolio and thus your performance.

Let’s assume the S&P is up 10%, and Apple is up 20% and 20% of the index (not actual but to show impact), that means the return on the S&P ex-APPL and adjusted is just 4.8%! That is the problem with a ‘capitalization-weighted index. Consider that Apple’s run has been from January 2009 and despite the recent decline it up 643% over that period or 67.8% annualized. Over same period: S&P is up about 85% (15% from dividend reinvestment!) or 17.3% annualized; NDQ 100 127% or 23.5% annually! Just thought you should know why you aren’t rich by now.

Total NYSE volume barely budged  to 3.24B shares vs 3.07B, down sharply from Friday’s big 3.94B shares, the new normal??? All indices were down except Dow Transports +0.3% and the Russell 2000 +0.2%. REAL volume on the NYSE floor also barely budged to a still weak 674M shares vs 658M from 1.18B shares, highest since 9/21 – making 10 of the last 11 sessions <800M. Advance/declines and breadth were slightly negative. The VIX however rose to 17.12 vs 16.64 vs 15.87! First time above 17 since 11/15 (12 mo. ave. 18.37). Caution again advised!

Bond market closed slightly better and is up again overnight: 10 yr note 1.59% +1/8, 30 yr 2.77% +1/4. The big story though is TIPS…with no sign of inflation in sight and a big risk of recession due to the fiscal cliff, the 30 yr TIP yields just 24bp’s over the inflation rate…i.e. 2.24% vs 2.77% – a very big bet if you understand TIP pricing!

Gold was off $27.30 closingat $1695.80, first close below $1700 and worst since 11/5! It had a lower high and lower low of $1692.60 not seen since 11/16 and remains well below the 40/50 day moving averages,while Crude lost 59 cents closing at $88.50 just one penny above the 50 day m/a. Overnight Gold is $1704.40 +$8.60 with a session low of $1696.40. Crude is up just 19 cents but is back above the 40/50 day again!

- – –  . . .  – – -

(Warning…this is going to not set well with some of TB’s, a former Republican, readers)

…the truth…you can’t handle the truth. More accurately if you say something long enough people begin to believe it…but that does not the change the fact that it is NOT fact! Today’s story is in three phases…

Prologue:

After the longest bull market and economic boom in U.S. history which ended in 2000 with the government actually posting a surplus! Then, late in the election, GOP candidates Bush and Cheney began talking about heading into a recession while Dem candidate Gore accused them of ‘trying to scare the American people’ to get votes.

That is all fact, and they were correct that we did go into a (minor) slump…to be expected after such a long run…i.e. a correction.

After the election, Bush and his neo-con V.P.Cheney and Defense Secretary Rumsfeld (also fact as well as Bush Sr. loathing them and wanting nothing to do with them), seized the opportunity to resume the failed Reaganomics. They then pushed through two rounds of tax cuts (eventually) which primarily favored capital formation…i.e. capital gains over labor. Then came 9/11 and another opportunity arose: go after Al Qaida in Afghanistan – only to get Bin Laden, then leave. From that point it was easy using false intelligence to convince a skeptical Colin Powell that Iraq had WMD. Now we had two wars since we never exited Afghanistan and taxes were not raised to fund them. Fact.

Then came Bush’s baby (along with the one that was aborted thankfully…hmmm, thought they were against abortion…of letting individuals invest their social security accounts…which of course favored Wall Street!), Medicare Part D, prescription drugs but which thanks to another Republican, Sen. Billy Taussig, prohibited Medicare for negotiating ‘bulk’ drug prices…as Medicaid does at a cost of 30% less than Medicare!

Bush also signed every spending bill that came before him with GOP majorities in both houses. Now you have exactly what created the budget deficit.

Then, thanks to a failure to regulate banks and brokers (no one and the same – sadly), Wall Street doubled its size in relation to GDP while the little guy was buying bigger and bigger homes with the blessing of both parties…but it was Wall Street that was the buyer of most of the mortgages…screaming to originators to get more subprime…which they gladly acceded to since they earned higher commissions and began to falsify loan documentation on an obscene scale. Then came the crash…a big one…with bailouts etc. Meanwhile some in the GOP said ‘let them fail’ which would have been disastrous as all banks are now linked in the global economy. All of this blame falls squarely on the GOP.

Unemployment surged to double digit, interest rates plunged, the stock market did likewise, and in an unrelated move, oil prices were manipulated so that gas hit a record $4.62 a gallon before plunging again just as the Bush administration was exiting.

Then came the inauguration of Barrack Obama. On that very day, not only did then Vice President Cheney, concoct a back injury so he wouldn’t have to stand when Obama was sworn in but Senate Minority Leader Mitch McConnell announced that the goal was to limit Obama to one term. So much for any spirit of cooperation in solving the crisis.

Obama had pledged universal health care during his campaign and that became the centerpiece. Even though it had originally been a GOP idea, just as when Clinton introduced it, the GOP threw up stumbling blocks, and not only did it again but has been relentless in getting it repealed…not amended…repealed. Romney originally said reformed but only after it was repealed…a tactic that has become a staple of the GOP in any kind of negotiation (sic).

The bailouts enacted in the final days of the Bush administration (bi-partisanly) caused budget deficits to soar and Obama was blamed….the GOP leadership, when questioned  repeatedly refused to correct that impression (just as they did on Obama’s birth).

Then came the attempt to help the housing market by modifying mortgages, but since the banks had sold most of the bad loans and they were in pools where the originator only serviced them, the response was tepid. That didn’t stop CNBC bond guru Rick Santelli from screaming out on the CBOT “who here wants to pay for someone else’s mortgage.” Dead silence…and then he declared he was going to hold a ‘tea party’ on Lake Michigan that weekend. Nevermind that the original tea party was over reducing the tax on tea since smuggling had become a big business and it would hurt their profits…ah, free market capitalism.

The Tea Party name stuck and in the 2010 elections its candidates, a minority sect of the GOP, swept Congress, primarily the House but gaining seats in the Senate. The misconception is that for two years the Dems were control…they were the majority but only for two months as two members declared themselves independents. Now the GOP held a supermajority in the House and was barely the minority party in the Senate, a situation that remains today.

Despite being a minority and espousing views that a majority of conservative Republican voters did not concur with, the Tea Party forced the GOP majority in the House to accede to their wishes. No new taxes became their battle cry which served to make Grover Norquist happy and to cow the majority of the GOP into joining them.

Then they held the government hostage when a budget agreement couldn’t be reached. Actually, it could have and parts were but they were killed in the Senate in a period where the GOP invoked (not had to use) the filibuster over 400 times or nearly four times the number when the Dems were the minority. Senate Majority Leader Harry Reid was criticized (and TB was one of them) for not putting proposed legislation on the agenda. In actuality this tactic was used because of the ability of the minority to flood the agenda with petty legislation.

Meanwhile the Tea Party held the nation hostage while the refused to approve an increase in the debt ceiling…in other words refusing to pay for what they had voted for! Worse, they are about to do it again even though it cost us our AAA rating from S&P while Moody’s has warned us that they too will lower our credit rating due to a dysfunctial governing body.

A compromise was worked out with sequestration and Obama formed a committee, Bowles-Simpson or vice versa, to come up with a solution. Despite every GOP member voting against it the committee came up with some good…and some not so good…reforms, but when they went to present it to Obama he was conveniently missing in action, fearing damage to his already weak political capital. Then a strange thing occurred: the GOP led by Paul Ryan endorsed it but with severe modifications which would have resulted in an austerity program that every unbiased economists sees as overly drastic and harmful to economic growth…to put it mildly! Hence the do-nothing Congress with an approval rating of less than 10%. Obama’s sunk too but nowhere near as low.

The election was the most prolonged in TB’s lifetime and thanks to two Supreme Court decisions more money was spent by multiples than any other election…mostly on negative ads. Both candidates made promises on tax reform that they had no control over. That rests with the Congress and specifically the House which remains under the thumb of the financial lobby.

Present:

*Obama won and Romney gave a sour grapes statement to his backers of why he lost, accepting none of the blame, despite polls showing otherwise.

*We are at the ‘fiscal cliff’ (sic) and the parties are in stalemate. First, the GOP said they might agree to some new taxes if the Dems made sweeping changes to entitlements. Then they said no new taxes as their challenge to Grover Norquist fell apart, with only a promise of some elimination of deductions and loopholes but with no increase in the marginal rate on the top 1%. Why are they so intent on and why do so many GOP supporters fight so fervently for this group that has held sway for decades while enriching themselves (particularly on the tax cuts – since when is restoring temporary cuts to their old level a tax increase? When the purpose was strictly to make them permanent!), and causing the wealth gap to widen to catastrophic proportions (in most countries this would have brought on a revolution…and still may result in a bloodless one).

In fact, there is no fiscal cliff, except the one caused by the GOP and signed of on by the Dems…we are not Greece, Portugal, Spain, Italy, of France…dammit! Even Bowles agreed that all we have to do is put a mechanism in place to gradually fix the problem. Social security is solvent for three decades…Medicare for one and with the right to negotiate drug prices it can be salvaged. We have heard of the evils and cost of Obamacare but that ignores the costs now and increasingly in the future of having a nation of uninsureds.

It is up to Obama to use the ‘bully pulpit’ more and force both parties leaders to sit down in a locked room (without access to their members or the media!!!), and hammer out  a deal. The debt ceiling should be taken off the table and never held hostage again as it made the culprits look like heroes. Bah Humbug!

In conclusion, the may fix things but this is not a grand bargain, it is a travesty of extortion against the will of the people. Disagree? At least you know TB’s thoughts, send him yours.

Have a terrific day…hope you find a grand bargain!

TB

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

Volume barely moved up to a still weak 3.24B shares vs 3.07B vs 3.94B vs 3.34B. NYSE shares executed without the aid of the ETN market also were lethargic at 674M shares vs 658M vs 1.18B vs 682M shares. There have been just 20 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 18 sessions have surpassed 800M shares, mostly down days. The average since 8/1’s 1.03B is just 675M. The average for 2012 is just 763M shares and since 6/29 just 691M shares– WEAK!!! 124 of the last 168 sessions have been less than 800M shares (74%!). Since 2/29 there have been just 27 ‘average’ days (mostly down!), and just 22 have been above 900M – 773M is the 12 month average. Since 11/1/11 there have been just 18, 1B share days…14 in 2012! Since 2/6 there have been 75 sessions less than 700M shares. 240 of the last 263 sessions have been less than the 12 mo ave (91%)! Play elsewhere!

Advance/Declines were barely negative: -1.1x vs -1.5x vs +1.2x vs +2.5x vs +2.3x on NYSE and -1.1x vs -1.2x vs 1:1 vs +2.7x vs +1.4x on Nasdaq. Breadth was identical: NYSE: -1.1x vs -2x vs +1.3x vs +3x vs +4.2x on NYSE and -1.1x vs -1.9x vs +1.1x vs +2.5x vs +3.3x on Nasdaq. The point is after a weak showing, no bounce! New 52 week highs were halved to 105 vs 226 vs 206 vs 154 vs 143 (768 is cycle high, 28 low), while new lows rose to 71 vs 51 vs 43 vs 38 vs 62. The ratio is barely positive: +1.5x vs +4.5x vs +5x vs +4x vs +2.3x. Recent high was +7x! The S&P VIX rose to 17.12 vs 16.64 vs 15.87! First time above 17 since 11/15. 17.54 is the 200 day m/a!The 12-month low was 13.32 on 8/17 while the 2012 high is 27.73 on June 4.

Here are the results of last 5 sessions: Dow -0.1% vs -0.5% vs flat vs +0.3% vs +0.8%;  Dow Transports +0.3% vs -1.1% vs -0.5% vs +0.6% vs +0.7%;Dow Utilities -0.6% vs -0.7% vs +0.9% vs +0.5% vs +0.3%; S&P 500 -0.2% vs -0.5% vs flat vs +0.4% vs +0.8%; Nasdaq Composite -0.2% vs -0.3% vs -0.1% vs +0.7% vs +0.8%; Nasdaq 100 -0.2% vs -0.2% vs -0.1% vs +0.6% vs +0.9%; Russell 2000 +0.2% vs -0.1% vs -0.2% vs +1.2% vs +0.5%; NYSE Financials flat vs -0.3% vs +0.1% vs +0.8% vs +0.5% (KBW Banks -0.7% vs -0.8% vs -0.2% vs +0.3% vs +0.3%; Nasdaq Banks -0.5% vs flat for 2 days vs +0.7% vs +0.1%; NYSE Brokers -0.3% vs -0.5% vs +0.3% vs +0.4% vs +2%.NYSE Financial Leaders: BAC +1.1% vs -0.6% vs +0.3% vs +0.7% vs +0.3%. No other leaders.

Global equities up, led by the Hang Seng: FTSE +0.3% vs -0.1% vs +0.2% vs +0.3% vs +0.9%; CAC 40 +0.3% vs +0.5% vs +0.8% vs +0.3% vs +1%; DAX +0.3% vs flat vs +1% vs +0.4% vs +0.7%;Nikkei +0.4% vs -0.3% vs +0.1% vs +0.5% vs +1%; Hang Seng +2.2%!!! vs +0.2% vs -1.2% vs +0.5% vs +1%; Korean KOSPI +0.6% vs -0.3% vs +0.4% vs -0.1% vs +1.2%;Indian Sensex +0.2% vs +0.2% vs -0.1% vs +0.9% vs +1.8%. U.S. stock also rallying and near session highs: DOW +47; SPX +3.80; NDQ 4.75.

U.S. treasury bonds closed higher yesterday and are up again overnight…even with stocks rallying? 10 yr 1.59% +1/8 – record low of 1.40%; 30 yr 2.76% +1/4. Long TIP 0.24% +1/2 – and a new record low!The 5 yr TIP yields –1.53%; 10 yr -.90%.T-Bills: 0.06% 1 month; 0.10% 3 months; 0.13% 6 months. Reverse Repo 0.29%. 3 mo. Libor 0.31%; 6 mo. 0.525%.  European problem sovereign 10 years, Germany-bench: 1.36% -3; Japan 0.71% +1; Italy 4.44% +3; Spain 5.32% +11!!!; Greece 14.86% +15…on 9/20: 19.75%; Portugal 7.31% -4; Ireland 4.33% +2.

 

Gold was off $27.30 closingat $1695.80, first close below $1700 and worst since 11/5! It had a lower high and lower low of $1692.60 not seen since 11/16 and remains well below the 40/50 day moving averages,while Crude lost 59 cents closing at $88.50 just one penny above the 50 day m/a. Overnight Gold is $1704.40 +$8.60 with a session low of $1696.40. Crude is up just 19 cents but is back above the 40/50 day again!

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