From The Friars Club Encyclopedia of Jokes: “A record number of savings and loan failures left America with a nationwide shortage of flimsey toaster ovens, cheap pocket calculators, and ugly dinnerware.” – P.J. O’Rourke
Bloomberg Quotes of the Day: “When someone shows you who they are, believe them the first time.” – Maya Angelou
The Bottom Line: Labor market trends are slowly improving, with the recent drop in jobless claims. Manufacturing activity expanded as indicated by the Empire State and Philadelphia Fed regional surveys. Industrial production and business inventories rose while housing starts and sentiment dropped. Retail sales rose, suggesting modest growth in consumption in Q2. Inflation remains subdued. Next week’s economic calendar is fairly light. We will get the June Existing Home Sales (Monday), July Richmond Fed Manufacturing Survey (Tuesday), June New Home Sales (Wednesday), June Durable Goods Orders (Thursday), and July Consumer Sentiment Final (Friday). Courtesy of Economic Advisory Service
Bloomberg Top Stories:
*China removes Floor on Lending Rates Offered by Banks as Growth Slows –CAUTION!
*U.S. Stock-Index Futures Erase Decline as China Removes Floor on Lending – oh,oh!
*U.K. Said to Weigh $7.6 Billion Lloyds Banking Sale as Firms Vie for Job
*Morgan Stanley Leapfrogs Goldman in Wall Street’s Equity-Trading Revival – for now!
*Detroit Falls From Auto Supremacy to Bankruptcy After Decades of Decline – sad!
*Automakers Flee Detroit to Find Profit Amid Motor City’s Decline and Fall
*Boeing 787 Safety Move by U.K. Splits Airling Action on Honeywell Beacon
*China Will Promote Making Deposit Rates More Market Based, PBOC Says
*Resilient Korean Won Extending Advance to BofA on Shipyard Export Recovery
*Glaxo Said to Send Three Executives to China in Response to Investigation
*Yen Carry-Trade Revived by Peso Rebound After Tapering Rout – Muchas gracias!
*UBS Doing Deals for Billionaires Take Lead in Southeast Asia Stock Sales
*Putin Foe Navalny Freed Pending Appeal After Outcry Over Prison Sentence – some democratic voting system they have there. Cross Putin: go to jail, do not pass GO!
*Obama Summit With Putin Hangs in Balance as Snowden Case Strains Relations
*Democrats Winning With Youth Avoiding Political Careers via Elected Office
*EU Said to Be Near Accord to Label Hezbollah Armed Wing a Terrorist Group – DUH!
While all indices were up it has to be considered a ‘mixed’ session since the Nasdaq 100 fell by 0.2%, and the Composite was FLAT. Dow Transports led the session rising 1.7%!!! and even the lowly Dow Utilities rose 0.9%!!! The Russell 2000 small cap was next at +0.7% while the Dow and S&P 500 only climbed 0.5%. The NYSE Financial sub-index however rose 1.3% – with all components strong and BAC not only most active but up 3.1%??? Why? The earnings all came from Merrill Lynch? Don’t look for dividend increases…not going to happen. A short in TB’s book…if you have the stomach!
Yesterday’s Volume rose to an average 3.44B shares vs 3.15B vs 3.05B vs 2.6B vs 2.97B back to the average 3.43B shares registered a week ago. Meanwhile, floor-traded shares stagnated at a weak 664M vs 666M vs 681M vs 742M. The 12-month average is 722M shares. Both A/D’s and Breadth were very positive? Despite the rally (?), the VIX was about unchanged despite a swing of 13.20-13.80 intraday…ahead of options expiry!
…and away we go:
* Dow 30 +0.5% vs +0.1% vs -0.2% vs +0.1% vs flat vs +1.1%; Dow Transports +1.7%!!! vs +0.8% vs -0.7% vs +0.5% vs -0.6% vs +1.2%; Russell 2000 +0.7% vs +0.4% vs -0.4% vs +0.7% vs +0.5% vs +1.3%; Dow Utilities +0.9%! vs-0.2% vs -0.5% vs +1.6%!!! vs +0.4%!!! vs +1.7%!!!; S&P 500 +0.5% vs +0.3% vs -0.4% vs +0.1% vs +0.3% vs +1.4%; Nasdaq Composite FLAT? vs +0.3% vs -0.3% vs +0.2% vs +0.6% vs +1.6%; NDQ 100 DOWN 0.2%! vs +0.3% vs -0.1% vs FLAT vs +0.6% vs +2%!!!
*NYSE Volume rose again to an average 3.44B shares ahead of options expiry vs 3.15B shares vs 3.05B vs 2.6B vs 2.97B vs 3.43B vs 2.99B (1.96B is the lowest of 2013). REAL NYSE Volume rose was steady at a weak 664M shares vs 666M (Hex?) vs 617M vs 562M (lowest since 7/3) vs 681M vs 752M. The 12-month average is 722M shares! The average since 6/30 is just 672M shares, ranging from 482M to 906M, 482M being the 2013 low! There have been just SEVEN 1B+ share sessions! There have been 27 800M+ shares in 2013: 10 up, 17 down, but on trades of less than that 89 have been up and 32 down…there have been 27 mixed sessions.
*New 52 week highs have ranged from 33-864. They rose sharply to 690 vs 448 vs 456 from 687 vs 574. New lows slipped to 27 –new low – vs 30 vs 37 vs 40 vs 32 vs 29.
- Advance/Declines were positive: +2.1x! vs +1.9x! vs -1.8x! vs +1.6x vs +1.1x vs +6.6x! (recent range -17.5x to +4.4x) on NYSE and +1.6x vs +1.5x vs -1.2x vs +1.9x vs +1.2x vs +2.5x (recent -3.5x to +3x). Breadth was similar: +2.3x! vs 2x! vs -1.6x vs +1.8x vs +1.3x vs +6.9x!!! (recent -18.6x!!! to +6.9x!!!) on NYSE and 1.3x vs +1.8x vs -1.3x vs +1.7x vs +1.6x vs +4.8x!!! (recent -12.8x to +6.2x)
- NYSE Financials rose by 1.3%! vs 0.5% vs -0.3% vs +0.5% vs +0.3% vs +1.5%. BofA was most active again: +3.1%!?! vs +2.8%!?! vs +0.4% vs +0.7% vs +1.9%???. It closed at $14.76 +.45??? with a new five year high of $14.85! Brokers +1.3% vs +0.2% vs -1.2%!; KBW Banks +1.7% vs +0.6% vs -0.8%; Nasdaq Banks +1.4% vs +0.4% vs -0.5%. Last 3 days: BAC +6.9%?
- Volatility (S&P VIX) wass steady at 13.77 -.01 but with a range of 13.20 to 13.80 – remember it was day before options expiry! It peaked at 20.49, plunged to 18.90 on June options expiry then closed at 20.11 on 6/24 and has been down since – a decline of 33%! 6/24’s session high of 21.91 was highest since 12/31/12 (22.72)!!! The range since April ‘12 is 11.99 (multi year low) to 21.9, It is well below the 40/50 day (15.95/15.32) and the 200 day (15.04)!!!…ytd the range is 11.05 (3/14) to 21.92 (6/24)!
Global equities weaker: UK -0.2% vs flat vs flat vs +0.4% vs +0.3%; France -0.3% vsw +0.3% vs -0.6% vs +0.4% vs +0.2%; Germany -0.2% vs +0.2% vs -0.3% vs +0.2% vs +0.9%; Japan -1.5%!!! vs +0.1% vs +0.6% vs closed vs +0.2%; Hang Seng flat vs +0.2% vs flat vs +0.1% vs -0.8%; Korea -0.2% vs +1.1%! vs -0.5% vs +0.3% vs -0.4% vs +2.9%!!!; India +0.1% vs +0.5% vs -0.9% vs +0.4% vs +1.4%!!! vs +2%. U.S. equity futures little changed in another extremely narrow trading range: DOW -13; SPX +0.50; NDQ -1.50.
Bonds were volatile yesterday – especially the long TIP – closing weaker and more so overnight: 10 yr Treasury 2.54% -5/16 (recent range 2.74% to 1.63%!!!), and the 30 yr range of 2.82% to 3.71%, currently 3.63% -1/8. The long TIP is 1.33% -1/16? – still the weakest link since the (record?) low of 0.36% on 4/5. Recent high 1.53%! Libor update: 0.265%! 3 mos, 0.398%!!! 6 mos. Both remain near the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields higher ex- Italy, Portugal and Greece: Germany 1.53% +1; UK 2.29% +4; France 2.18% +2, Italy 4.38% -3; Spain 4.63% -1; Portugal 6.62% -21!?!; Greece 9.86% -5!!! vs -13 vs 9.93% vs 10.07% vs 10.02% -16!!! vs 10.27% -19!!! vs 10.33% -25!!! vs 10.69% vs 10.85% +28!!! vs 10.52% vs 10.54% +40!!! vs 10.85% -37!!! vs 11.22%. Recent range: 8.04% to 12.57%. Japan 0.80% +1. Note daily changes on Greece!!!
Gold closed slightly higher at $1285.50 +$6.70 – following a NEGATIVE key reversal (???) and a new rally high of $1301.70 – highest since 6/24. 6/27’s intraday low was $1179.40 – lowest since at least 2011 and now critical support. $1300 is again resistance, then the 40 day/50 day: $1326/1345 – both still falling, and way above, the 200 day – $1573!!! Overnight it is $1292.30 +$6.80. Crude closed at $108.54 +$1.56!!! – a new high close and with a new rally high of $108.43!!! It is well above the 40/50 day m/a’s (98.13/97.64), while the 200 day ($92.98), is distant support. First support is $104.21-36 – a triple bottom from last week. 4/18’s low of $85.61 was lowest since 12/11! It is slightly higher overnight at $108..58 +.54 with another new high of $108.65!!! The range is now $85.61-$108.65 since March 1, 2012.
Some random thoughts:
Yesterday TB panned Larry Summers as the next Fed Chairman. Here is Dean Baker’s take on him and it isn’t pretty: the return of larry summers?
Repeating the exclusive Bloomberg article on Glass-Steagall. It is available on the web: Remember why Glass-Steagall was passed
Please write that letter to your Senators and Congressman…PLEASE! For YOUR kids!
Thanks, and have a great weekend!
Here is the letter form again:
It is disturbing to have to bring this to your attention but despite the greatest financial crisis in the history of the world, you, the Congress, as well as the Obama administration have failed miserably to find a way to protect the American people from it ever happening again. Not only that, you or your predecessors failed to listen to the few warnings against the repeal of the Glass-Steagall Act by trusting Treasury Secretary Robert Rubin, Asst. Secretary Robert Rubin, and Federal Reserve Chairman Alan Greenspan. Of course, you had reason to believe them, but if you listen to Bill Moyers interview with former Citigroup CEO John Reid, you will realize that this was all for fulfilling one man’s dream – Sandy Weill, Chairman of Citigroup – of creating a ‘financial supermarket.’ Note that while Greenspan gained nothing from this, in fact it sullied his reputation, both Summers, and especially Rubin benefitted financially from it.
Weill has now stated that the financial supermarket was a good idea but is no longer. It was good because it served his interests of combining Traveler’s Insurance and Citigroup, it did nothing for the American people, or ultimately, Citigroup investors.
Then SEC Chairman, William Donaldson, had a plan to keep the big five banks in line (the repeal and subsequent legislation deregulated the top five banks). He planned ‘random audits’ of them which would have been about five years apart. That was thwarted by former GOP Representative Chris Cox, who did not conduct one of those audits in his five year term, among other things like not protecting against ‘naked shorts’ which added dramatically to the decline of bank/broker stocks and facilitated the demise of Lehman Brothers, a company that should have been bailed out due to their vast global exposure to bonds. If so, management should have been replaced as it should have been for the other offenders, but was instead done both sparingly and not forced by the government that provided the bailout protection (which by the way, was grossly misused to inflate profits and thus bonuses, with the blessing of then-Treasury Secretary and former Goldman Sach Chairman Henry Paulson, who by the way let his brother’s firm Lehman Brothers fail while bailing out Bear Stearns, Merrill Lynch, and Wachovia Bank).
‘Too Big to Fail’ was created by President Reagan in the collapse of Continental Illinois in 1984 over the objections of his Treasury Secretary and former Merrill Lynch Chairman, Donald Regan. It produced moral hazard and since Continental was the 8th largest U.S. financial institution, the implied guarantee of the top eight banks. This caused two things: first global inflows of funds, and second, funds flowing to these banks from smaller U.S. banks. This was clearly wrong, yet nothing was done and despite another banking crisis and savings and loan crisis, it was allowed to stand.
This combined with the 1999 repeal of Glass-Steagall was what created the crisis. I have heard and read of mortgage brokers being threatened by the big brokers that they would go elsewhere to buy mortgages if they didn’t produce more…and worse, lower quality ones to both meet demand and to keep the rates higher. Many of the mortgage companies like Countrywide, paid commissions to brokers that incented them to steer borrowers who could have qualified for conforming loans, in particular minorities, to subprime loans which were variable and as time went on the terms became more extortive.
We often hear ‘everyone was to blame’ – but were they? The realtors too were incented by rising prices, and in many cases told the appraiser what they need to get – threatening them with taking their business to others who would produce the desired result…even banks did this. Worse, they altered financials to make the borrower qualify or get a higher credit score. I know of one instance where Citi inflated a salary from $60,000 to $160,000! This was common practice…and why not? The bank would sell the bank to an underwriter immediately with no more and often less than two months recourse.
That is what created the crisis…because anyone can apply for a loan of $1 million and not be able to make the payments and that is not a crime, but if the lender gives it to them without doing due diligence, that is or should be a crime.
Despite the above, had former CFTC Chairman Brooksley Born, been granted her request to regulate derivatives there still would not have been a crisis. Why? Because trading derivatives that had to conform to standards on a commodities exchange would have eliminated the profit motivation. By not conforming each derivative, which often exceeded three hundred pages, was not only not read, but could not be traded except by going back to the broker who created it. Instead, Born was publicly ridiculed by….Rubin, Summers, and Greenspan!…for doing her job! Who caused the crisis? You decide.
Also, despite the ‘gift’ given to the banks and despite paying them off they are still receiving benefits attributed to it. The big banks, led by JPMorganChase have fought every attempt at financial reform including watering down Dodd-Frank and the Volcker Rule. This insures that we will have another financial crisis and this time we might not be savable.
Look at the number of civil suits the banks have lost over securities dealings with state and local governments. Still, no one has gone to jail…not by the SEC which is pre-occupied with insider trading…poor Martha Stewart…and those record fines? Who pays them? The already punished shareholders while CEO compensation continues to climb.
Meanwhile, the SEC has only fined Angelo Mozilo of Countrywide, $67.5 million, a fraction of the money he made while selling his holdings while telling the public everything was fine. It was a record fine…but without admitting guilt and an agreement to not file criminal charges. The Holder Justice Department has also failed to prosecute anyone on the basis that despite whistleblower memo’s etc, they don’t have enough evidence to convict…whatever happened to the ‘perp’ walk? Again, they point to colleting record fines but the wrongdoer is not fined…only the company…and many of them remain in their jobs. Why did we bother to pass Sabanes-Oxley? It has never been used…not once!
Meanwhile, Grover Norquist has continued to lever his control over Congress due to a ridiculous pledge of no new taxes signed by most of the Republican party. That includes allowing hedge fund operators to become billionaires through the ‘carried interest’ loophole which taxes them at between 15 and 20%. This is unconscionable and along with CEO compensation has contributed greatly to the wealth gap which is dangerously high and growing.
Much of this has been allowed to happen because of a small percentage of Congressmen who see any tax as wrong and have effectively shut down government thereby reducing growth the requiring the Fed to subject us to ‘systemic risk’ (in the words of the Fed’s own advisory committee!), by buying up mortgages…note that the banks create them often collecting an origination fee, then sell most of them to FNMA/FHLMC while retaining the 0.5% servicing fee (on a 4% mortgage?), and they are in turn sold to the Fed which is not only increasing risk but inflating asset prices – both stocks and real estate – since the Fed cannot allow us to slip into deflation. Thus the Fed is the lender of last resort and the only one, rightly or wrongly, that is protecting us while our elected officials stand idly by.
I have been in the financial business for 42 years, ten of those in banking of which I was proud of…then. But even then I said, “banking laws are of the bankers, by the bankers, and for the bankers.” Today that is more true than ever
In closing, please do something for the American people once, not your campaigns.