1/23/13…judgment day for banks?

From the Friars Club Encyclopedia of Jokes: “Did you hear that they are building an archive for Nixon papers? No admission charge-but you have to break in.”

Bloomberg Quote of the Day: “Everything you can imagine is real.” – Pablo Picasso

Bloomberg Top Stories:

*U.K. Unemployment Claims Unexpectedly Drop to Lowest Level Since Mid-2011

*Budget Discord in U.S. Is Top Threat to Global Economy in Bloomberg Survey – !!!

*Yen Strengthens ass S&P 500 Futures Fluctuate; Portuguese Bonds Post Gains

*Schwarzman Obama-Bashing Out of Fashion at Davos as Bankers Try Pragmatism

*Yahoo Joins Dell in Netherlands’ $13 Trillion Corporate Tax Haven – see if we didn’t tax them they would stay here and pay no taxes instead of there and paying no taxes!

*Harvard’s Rogoff Says Europe Must Put Greece in ‘Outer Orbit’ to Save Euro

*Nakao Defends Policy Weakening Yen as Tensions Mount Before G-20 Meeting

*Algeria Raid No Outlier as Oil Network Attacked Three Times a Week – !!!

*Banks Too Big to Manage Finding Vow of Trust at Davos Too Hard to Fulfill

*Cameron Promises Referendum on EU Membership Amid Pressure for U.K. Exit

*Netanyahu Vows Broader Israel Coalition After Weaker Mandate in Election – he has no choice moderates have much more control as right cedes power involuntarily

*Reis Says U.S. Senate Democrats May Act on Own to Limit Use of Filibuster – Good!

Yesterday was the third straight ‘up’ session.This time even the two Nasdaq indices joined in thanks to an Apple rally (+1%). Actually without Apple which added nearly 4 points to the NDQ both indices would have been DOWN and the S&P up less than the posted 0.4%. Furthermore 49 NDQ stocks were up, 48 down! Facebook was the only other big gainer in the NDQ adding 1 index point. While Transports, +1.1%, took the honors, Dow Utilities rose another 0.8% as people come to their senses that dividend tax isn’t going up. This vs a 0.9% gain, following a 0.3% gain Thursday. Meanwhile  S&P volatility (VIX) slid by 0.3 to 12.43 the lowest level since 5/25/07. Oh joy!!!…or is it? Consider that the peak in stocks was just after this period of complacency…while the high was hit on October 11, 2007, it was the financials that peaked in May…keep that in mind! NYSE Financials rose just 0.5% with Brokers adding 1% vs +1.5%, while KBW Banks rose 0.8% vs +0.3% and Nasdaq Banks +0.9% vs 0.2% BofA was most active stock as usual – +1.9% vs -1.2% vs -4.2% vs +2% vs 0.7% vs -1.4% vs -1.3%. Total NYSE volume slipped to 3.55B shares vs 3.76B vs 3.68B vs 3.16B vs 3.13B vs 2.96B – recent range 2.96B-4.2B. Trades executed on the floor of the NYSE plummeted to an ok 699M shares from Friday’s1.07B shares, on options expiry, highest since 12/21,  the 12 month high of 1.88B shares, from 710M vs 499M (lowest since 12/27), vs 598M vs 590M. Recent range 590M-1.88B. Advance/declines and Breadth were all positive. New 52 week highs hit 713 a week ago and after bottoming at 308 a week ago Friday, rose to 688 vs 518 on the expiry vs 552 vs 270 vs 304. Recent range 270-713. New lows rose slightly to a weak 18 vs 16.

Global stocks weaker, ex-UK +0.1%, India +0.2%: Nikkei -2.1%! Korea -0.8%. U.S. stock futures traded in a narrow range overnight and are mid range: DOW -8; SPX -2; NDQ +2.

The bond market rallied yesterday and continues overnight. The 10 yr note is 1.82% +1/4 vs 1.87%, and the 30 yr 3.01% +7/16 vs 3.06% – the old 3% high set on 12/18! Long TIPS also better at 0.41% +7/16 vs 0.43% but well off the 0.22% record low set on 12/6! Reverse Repo rate at 0.13% vs 0.11% very low! Libor 0.301%, 3 months, and 0.481% six months…slipping again! Foreign bond rates are lower across the board except Greece (10.3% +17. Portugal (5.65% -8) and Spain (5.05% -5).

Gold closed slightly higher yesterday and is now between the 40 day ($1689) and the 50 day ($1697), closing at 1693.30 +$6.20, safely above the 200 day m/a ($1668). Can it take out $1700? the 40/50 day are key sup/res. The $1636 low on 12/21 – lowest since 8/21 is key support. It is up slightly overnight at $1694.10 +.90. Crude rose 68 cents yesterday to close at $96.24 (highest since 9/17) despite Thursday’s intraday high of $96.04 – wow! Overnight it is $96.63 -.05 – shift to March contract.

…despite being coddled by Congress thanks to their strong lobby and the efforts of wunderkind unclothed, Jamie Dimon who blasted Elizabeth Warren and now has to contend with her not only as a senator but on the Senate Banking Committee – ouch! Bet he wishes he hadn’t led the charge to destroy her when she was nominated only to head the new Consumer Financial Protection Bureau…we can’t have someone who doesn’t buy into the ‘big banks is good banks’ doctrine can we? Well, people are now coming out of the woodwork joining Paul Volcker and Simon Johnson. Most notably Dallas Fed President Richard Fisher who follows in the footsteps of another honest man, Edward Gramlich who, if Greenspan had listened, could have saved us from the mortgage crisis when he told him of his concern for subprime lending and mortgage backed securities.

Recall it was Ronald Reagan who brought about ‘too big to fail’ when he mistakenly, over the objections of then-Treasury Secretary, Donald Regan (who had been head of Merrill Lynch and knew the danger signs). By doing so, Continental Illinois was saved rather than being merged into another bank and thus since it was the 8th largest, caused massive global money flows to the biggest U.S. banks on the premise that if #8 was saved, all others larger also had to be…the principle known as ‘moral hazard.’ Swell!

Not only did this money flow in from other nations but from the smaller U.S. banks who service their local areas and communities. Worse still the Fed picked up the trend and began to work to minimize the number of banks – as the reserve system at the time of the Depression did thru lower reserve requirements for top tier banks. Thus when they began to fail…in fact even come under stress, they did not have the money to inject into the small banks and that caused them to fail all the way down the line. Undoubtedly, this led to the magnitude and duration of the Great Depression as Ben Bernanke, who conducted a study years ago on the causes of the depression…the blame at the feet of the Fed!

TB spent ten years in banking and the rest of his forty years in other areas of financial services. The biggest mistake made, which would have also saved us, was the destruction of Glass-Steagall, a law that protected us for over fifty years. Why was this done? While discussed for years while bankers grumbled and went through more than one self-imposed credit crunch, it to the ‘guile’ of one man: Sandy Weill to accomplish it. With the help of course of Sen. Phil Gramm who went on to enrich himself. The other players brought in included Treasury Secretary Robert Rubin who became Vice-Chairman of Citi and encouraged them to take on more risk, and of course the ‘affable’ Larry Summers.

According to former Citi CEO John Reed,  Moyers/Reedhe was in Chairman Sandy Weill’s office when he picked up the phone and called President Clinton and asked if he would object to a stock swap of Travelers stock of which he was CEO (and a large shareholder of both). When Clinton said no, he immediately called Rubin, then Summers, and finally Greenspan – the fix was in! Like the kid who goes to his dad and says ‘mom said I could if it is all right with you.’ In less than six months Glass-Steagall was out and Citi now included Travelers…he couldn’t even wait for the demise and did the stock swap early and illegally…which was ignored by the government…what the hell…just timing.

According to TB’s friend, former compensation analyst and crusader against excessive CEO compensation, Graef Crystal, Weill was the most overpaid CEO in the U.S. He, through the board granted himself excessive bonuses even as he was a major shareholder – good performance should have led to capital gains and that should have been his reward. But Weill is all about Sandy.

The collapse came and Citi fell hardest of the big banks…even so, some Fed loyalists tried to ‘give’ Wachovia, another problem bank to Citi…imagine thinking that joining two problem banks would make a stronger bank??? Thankfully, Wells intervened and after a court battle won Wachovia…a sensible merger on geographic terms alone.

With that background, note that Sandy Weill has now issued a mea culpa…of sorts, saying that ‘big banks were a good idea for the time (???) but a bad idea today.’ Right Sandy, you pompous idiot! Greenspan to his (discredit) said he was powerless. Impotent would have been a better description.

So what does Mr. Fisher think? First, a top to bottom restructuring of banks (TB would add brokers are not banks and remove that status from Goldman Sachs and Morgan Stanley…immediately!). To those who say this would decrease competitiveness, TB would argue the opposite: do we want our banks to compete with other global banks which have universally had to be bailed out? Do we wish another even worse financial crisis? Should Main Street be taken to task once again for Wall Street greed? NOT!!!

Fisher says, “I submit that these institutions, as a result of their privileged status, exact an unfair tax on the American people,…moreover, the interfere with the transmission of monetary policy and inhibit the advancement of our nation’s economic prosperity (by their continued failure to lend. TB ).” Why don’t the wealthy…most of whom made their money in financial services at taxpayer expense…fight this tax…Tea Party too! Because it is who backs the holy Tea Party that matters over the interests of the American people.

While the big banks held about 37% of total bank assets in 2007, they now have over 44%. Meanwhile community banks with no more than $10 billion in assets hold less than one-fifth of the nation’s banking assets but more than half of the industry’s small-business loans (despite this it isn’t enough thanks to the big banks drain and now ‘micro-lending’ originally for loans to new businesses in developing nations is beginning in America…outside the banks and by philanthropists and non-profits. Is that the America of the future? How much real growth and innovation can come from that?

Fisher points out that shareholders and creditors don’t even attempt to regulate the banks. Why should they? They got bailed out last time, right? Also, the stock is being manipulated by speculative accounts.

This story is getting long in tooth so if you are interested here is a link to Gretchen Morrison’s excellent analysis in the New York Times. Morgenson/Banks/Fisher

If we fail to fix the banks we will be in another crisis in short order. To steal a line from the Tea Party who is preoccupied with the national debt and uninterested in economic growth” if not now…when?

Tomorrow: is an Apple a day really good for you?

Have a great day!

TB

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

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