Posts Tagged Sarbanes-Oxley

12/30/14…five More things to consider for 2015…

December 30, 2014 at 9:26 am · Filed under banking, economy, financial, markets, politics ·Tagged , , , , ,

Quote of the Day from the Friars Club Encyclopedia of Jokes: “Folks, the president needs a break. He’s like a Black & Decker vacuum. If you don’t recharge his batteries, he can’t suck.” A-lo-ha, Mr. President. Mele Kalekemaka, Haole…

Bloomberg Quotes of the Day: “Where words fail, music speaks.” – Hans Christian Anderson…and with current music, it screams!!!  

Bloomberg Top Stories:

*AirAsia Debris Found in Ocean as First Bodies Retrieved From Downed Plane

*Stocks Decline as Energy Producers Slide; Italy Bonds Rise, Dollar Weakens

*World’s Richest Worth $4.1 Trillion Surge as Russian Billionaires Fall – how special for them!

*FIB Probes Whether Banks Hacked Back as Companies Explore Cyber Offensive

*Ruble Slides as Russia Fails to Arrest Biggest Annual Decline Since 1998

*Ex-Sony Worker Cyber Hacking Theory Casts Doubt on North Korea Involvement – aw, shucks!

*Italy Sells Bonds at Record Low Yield as Greece Politics Seen Contained – ? 1.90% vs 9.32%!!!

*Libya Crude Output Seen Falling to Lowest Since May After Port Attack

*De Blasio Will Meet With New York Police Unions After Boos at Graduation – what a mess!

*Thatcher Was Warned in 1986 U.K.’s ‘Big Bang’ Plan Might Increase Fraud – ah, Reagan years!

 

Monday’s Market Summary:

Adding to yesterday’s Credit Suisse observation that since 1875, 2014 was the first time where the S&P 500 had SEVEN consecutive ‘up’ years…yet ‘the herd’ believes we will have EIGHT!?! But to TB, the factor that is left out is volatility, the big ‘V’. Regardless of what you believe is going to happen (believe being the operative word here), volatility is here to stay, especially in a world as volatile, violent, and variable as today. Honk if you agree…

Next, consider this from (Crestmont Research):

The overall market is highly volatile and affected by generally long secular cycles. You may wonder is it worth the risk?. Further, returns in the stock market depend upon the level of and trend for the inflation rate. In this section, you’ll gain insights toward the obvious question: what can we expect from here?. Ten, twenty, or even thirty years is not long enough to ensure successful returns in the stock market. Current and recent levels for the P/E ratio suggest that expected returns will be disappointing for many investors. Pundits are professing, “Returns will improve when the economy begins to recover!” But hope is not a strategy.

Their research indicates that going back to 1900, the most important factor in returns (before tax, after taxes, after taxes and inflation), is…p/e’s! (stock return matrix) Now, TB knows this will come as a shock to all of you who believe you are smarter than the market…and being compensated well for you wisdom, but as has been proven time and again: over long periods of time…and generally short periods, there are no guru’s…just wealthy men who have convinced others that they are smarter than the market…Buffett did it for a time…so did a few others, including Bill Gross in bonds…but the main cause was timing: make a few pronouncements at the right time and voila! You too can be a guru. Riding this crest currently is John Mauldin who has sent out an ‘invitation’ to join a select group (VIP) to receive his sage advice at a discounted price, but hurry: this offer expires Wednesday: “VIP, as you know, is our elite-level subscription, which delivers $7,679 worth of Mauldin Economics investment analysis for a full year for just $1,745.”

TB lauds Mr. Mauldin (do not confuse with ‘maudlin’), for his ambitions…but some might say he is full of himself. On second thought, TB is going to make a similar offer…all of his columns to you 24 hours before he writes them for just $1,000…but hurry, this offer expires in 24 hours…tick…

Also, TB gives credit to Mr. Mauldin for ‘turning him on’ to Crestmont whose creator Ed Easterling may not be a guru but he is a very wise man. Check out his articles at the aforementioned site.

As for yesterday, all of the action was in the first half hour…again…and it will continue to be so perhaps into early January…after that TB sees a correction, but hey, what does he know, right? Nothing…absolutely nothing but he can still read a chart…with glasses (preferably filled with vino). Every day in at least the last ten has opened with a ‘surge’ to the up or down side, but the last three have either been the session highs or close to them. The last four have ended the session nearly unchanged. Could this mean that positions are ‘squared’ for yearend (bearing in mind that the days following 12/23 are normally the lowest volume of the year. All that remains is the feeding frenzy at the close on 12/31 as index funds do their final rebalancing of 2014.

NYSE Volume was higher but still about 1.2B shares below average, while trades on the NYSE floor rose to just 552M or about 180M below the 12-month average – which is also low! A/D’s and Breadth were positive but WEAK…especially Breadth. New 52 week highs rose to a solid 414 but so did new lows as they rose to a more typical 90. But one again the most important thing was S&P 500 Volatility (VIX) which rose to 15.06 – although that was the session low, high 16.14 – following two days entirely ensconced in the 14’s and breaking a string of FOUR closes there. Note that 14 is still a bearish number, and to be in bull territory requires low 13’s or below. However, despite the strength of stocks this year…well most of it…the 12-month average stands at 14.12 and has been rising since Sept. 30th! Hmmm. For those who don’t know, VIX is a weighted average of the implied volatilities for a wide range of strike prices in options in their 1st and 2nd months (8 days before expiration the 2nd and 3rd months are used and then ridden in).

So, what was the upshot yesterday? Nothing…the best was the highly volatile of late Russell 2000 small cap (+0.3%); the worst, the Dow 30 (-0.1%)…that range persisted for most of the session. Oh, TB forgot again…Dow Utilities rose 1.2% – chalk that up to managers wanting to show that they owned more utilities plus their lowered cost due to plunging oil prices (same goes for airlines). Let’s just leave it at that…shall we? Oh, and banks continue to rise despite a drought in dividend yields…go figure!

Total NYSE Volume was higher but remains weak at 2.42B shares vs 1.7B vs 1.4B (now lowest in 20 sessions – typical for December after options expiry), vs 3.34B vs 5.9B. Average volume since 9/30 which had a 600M cushion over the 12 month average (3.6B shares or so), but continues to be hacked away Shares traded on the NYSE floor (aka REAL), also rose to 552M shares vs  446M vs 349M (a new 2014 low and just ahead of 12/26/13’s 253M share session) vs  613M vs 791M vs 2.49B – 3-year high!!!. For comparison purposes, for the prior 12 months it remains at a historically weak 730M shares (unaffected due to the 2012 low now left out). Since 10/1: 838B shares –  including FIVE 1B+ share sessions), and since 12/1 885M vs 927M vs 961M shares!!! The lowest was 12/24’s 343M share session. April 30 – September 30 we had just SEVEN 800M shares…since 10/1: 22 – but just one in Nov, and NINE 900M+ days! FOUR 800M days, FOUR 900M and FIVE 1B share days in Dec.!!!…but that is now history.

A/D’s for NYSE were only slightly positive even worse on Nasdaq: NYSE: +1.4x vs +2x vs 1:1 vs +1.8x vs +1.4x vs +1.8x vs +4.1x! vs +6.7x!!! Nasdaq +1.1x vs +1.9x vs +1.4x vs +1.0x vs +1.6x vs +1.1x vs +3.2x vs 4x!!! Breadth was similar: NYSE +1.5x vs +1.9x vs -1.2x vs +1.1x vs +2.3x vs +8.1x!!! vs +14.3x (-15.5x on 12/16!!!); Nasdaq 1:1 vs +2.3x vs 1.5x vs -1.3x vs +2.2x vs +1.4x vs +4.6x! vs -9.5x!!!. New 52 Week Highs rose again to 414 vs 381 vs 325 vs 488! vs 352 – their range for the year is 39-612!!! New Lows rose to 90 vs a weak 57 vs 59 vs 92 vs 79 vs 82 (12/16’s high was 712!!!) The 2014 range is 24-1043!!! S&P VIX traded up to 16.14 after two days a ‘14’ handle and closed UP again at 15.06 +.56. the session low – compare to 12/16’s high of 25.20, which was highest since 10/17! We remain at risk of those bearish extremes that had a high of 31.06 (highest since 11/28/11!!!). The average of the past 12 months is 14.14 and slowly climbing, with a low of 10.28!…high close of 26.25 on 10/15/14!

U.S. bond market positive for a 2nd day and appears wanting to go after those recent 12 month low yields from 12/16 (10’s 2.06%!; 30’s 2.69%! and long TIP 0.76%!!!), 10’s closed at 2.20% +7/16; 30’s 2.77% +15/16, and the long TIP 0.86% +5/8. Overnight higher again: 10’s 2.18% +3/16; 30’s 2.75% +3/8; long TIP 0.85% +3/8.

Libor update: 0.257% 3 mos.; 0.357% 6 mos. Steady now and still not that far off their recent record lows! The Fed Funds rate has averaged 0.09% and is currently 0.12-0.14% – at the new 9-month high. T-Bills: –0.01%!!! one-month; 0.02% 3 mos; 0.20% – 0.25% is recent high!

European bond markets mixed after closing strong Monday; PIIGS lower ex-GREECE!!! (Benchmark is 10yr): Germany 0.55% +1; UK 1.80%  +1; France 0.83% –; Italy 1.90%! -7!; Spain 1.60%! -7!; Portugal 2.66%! -6!; Greece 9.32%!!! +6!; look at the last 13 days range: 7.03% to 9.32!!! Not for the faint of heart! 10/16’s close was 8.54%! – cycle low: 5.42%; Crisis high: 12.57%. Japan: 0.31% –.

Gold closed weak giving back 2/3 of Friday’s gains with a range of $1186.50-$1178.60. Friday’s high was $1199.10 (failed attempt at $1200). It closed at $1181.70 -$13.60 – CAUTION. The prior Monday’s low was $1172.20, lowest since 12/1! Dragged down by Crude and now below $1200 for the 10th time since 12/2. Last week’s intraday high was $1238.00 – highest since 10/22. This is the 9th straight sub-$1200 close which ended seven straight closes above. Stuck below the 40/50 day! 11/7’s low was $1130.40, the current 12-month low!). Now 38 of the last 39 sessions with prints below $1200. Last close above $1300 was on 8/15. 7/17’s session high was $1346.60, highest since March 19th!!! MAJOR RESISTANCE at $1189-1197: the 40 day $1189!, the 50 day $1197, then the 200 day $1261. The 12-month high is $1392.60 on 3/17, highest high since 9/4/13. 11/7’s low was $1130.40! Overnight reversing course again and trading to $1200 for first time since 12/22 with a high of $1202.80, but currently $1198.20 +$16.30. Silver above $16 for a 3nd session following a high of $16.31 last Thursday, but following its $17.27 high the prior week! $14.12 is the recent low, not seen in more than five years!

Crude struck yet another low of $52.90, lowest since 4/30/09!!! before coming back to close at $53.61 -$1.12 and remains VERY weak, following a 5-day high of $58.91 Consider: 10/25’s high was $84.83. There have now been 52!!! handles since peaking at $107.73 on June 13th, highest since 9/19/13. The record high of $147.27 was on 9/30/08, the low since on 5/15/09 is $56.07: $89.85 is the average! Recent rally high and close are $110.70 and $110.53 respectively. RES at the 40 day ($67.95!!!), then the 50 day ($70.71!), and lastly the 200 day ($91.95) – and still plunging. Could have a nice bounce but beware of the 40/50 day res! Still likely to test $50 over the next couple of weeks! The recent range is now $52.90-$112.24 since 3/1/12. Overnight, it traded down to a slight new low of $52.70 and is now $53.31 -.30. Note that following the financial crisis it traded down to $32.40 on 12/31/08 from a high of $147.27 just three months earlier (-78%!!!).

Overnight Global Equity Markets:

Global stock markets are WEAK!!! UK -1.1% vs -0.2 vs closed vs +0.2% vs +0.3%. France -1.2% vs -0.7% vs closed vs -0.4% vs +1.1%; Germany -1.2% vs -0.8% vs closed vs +0.6% vs +0.4%; Japan -1.6%! vs -0.5% vs +0.1% vs +1.2% vs closed; Hang Seng -1.1% vs +1.8% vs +0.1% vs -0.3% vs +1.3%; Korea -0.6% vs -1% vs +0.1% vs +0.4% vs -0.2%; India flat? vs +0.6% vs +0.1% vs -1.1% vs -0.7%. U.S. equity futures weaker and near their session lows: DOW -40 (range 62); SPX -6.50 (9); NDQ -10.25! (19). Rock and roll!!!

 

Some random thoughts:

…five more things to think about for 2015:

First, hold Congress accountable: make them place investments in a blind trust…they insist on it for cabinet members…why not themselves? That would solve their insider trading issues.

Second, require police related deaths to be investigated by an outside agency – state or federal

Third, place a ‘penalty’ on Senate filibustering when there is a clear majority in favor or opposed to a bill. It would require all members of the filibustering party to remain…take that, Sen. Cruz!

Fourth, reinstate the self-serving castration of Dodd-Frank pieces so that it becomes a tool While we are at it lets enforce Sarbanes-Oxley…not one CEO has been held accountable despite the biggest financial crisis in world history.

Fifth, and TB just learned this yesterday on MPR: aid families of hostages to terrorists to obtain release of their loved ones. We don’t negotiate with terrorists is bullshit! True, we shouldn’t pay ransoms, but we should help families make contact with the terrorists (as we did before 9/11 when it was handled by the FBI)…now the State Department is in control and they do not even communicate with families let alone help them to free the members. THAT is inhumane! In the case of the two recently executed journalists, they didn’t even let the families know that the odds they would be executed were increasing. What kind of ideologues have we become?

Still open to your ideas…

TB

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7/30/13…J.P. or J-me?

July 30, 2013 at 7:37 am · Filed under banking, economy, financial, markets, politics ·Tagged , , , ,

From The Friars Club Encyclopedia of Jokes: “Definition of a power struggle: when your boss has the power and you have the struggle.” – unattributed

Bloomberg Quotes of the Day: “A smile is a curve that sets everything straight.” – Phyllis Diller…and a frown can send someone ’around the bend’. TB

Bloomberg Top Stories:

*Barclay’s Seeks $8.9B From Shareholders to Help Plug Hole in Capital – good luck!  

*Deutsche Bank Profit Unexpectedly Falls on Higher Reserves for Legal Costs    

*S&P 500 Futures Pare Gain as Aussie Weakens; Metals Lead Commodities Lower

*Uralkali Ends Potash Cartel to Grab Market Share as Fertilizer Price Drops

*UBS Plans to Buy Back Toxic-Asset Fund From Central Bank as Profit Jumps

*JPMorgan Accused of Gaming U.S. Energy Markets as FERC’s Settlement Looms

*Merck & Co. Second-Quarter Profit Beats Estimates as Revenue Falls Short – oh oh!

*Lloyds Said to Lose About 12 Financial Markets Posts in Cost-Cutting Drive

*Ex-UBS Banker Adoboli Loses Bid to Appeal Unauthorized Trading Conviction

*Lebanese Hit Back at Undercutting Syrians as Conflict Spills Into Economy

*Sheikh Tamim Financing Revolution Abroad Not as Easy as Qatar Stock Picks

*Obama to Urge Business Tax-Code Overhaul to Help Spur U.S. Job Creation – sure!

*Al-Qaeda Supporters Hold U.S. Contracts in Afghanistan, Inspector Reports   

*Berlusconi Faces Moment of Truth With Top Court’s Final Ruling on Tax Case

*Kenya Forms Security Unit to Guard Oil Assets in Strife-Hit Northern Area

*Nixon Jokes With ‘Dirty Tricks’ Men as Candid White House Video Revealed – sick!

Yesterday was a down day for everything but Dow Utilities which rose 0.3% vs +0.6%!

Worst performer was Dow Transports -1.1% vs +0.5% followed by the Russell 2000 -0.8% vs -0.6% and NYSE Financials -0.7% vs -0.3%. The Dow declined by 0.2%; S&P 500 -0.4% along with the Nasdaq Composite while the 100 slipped just 0.2%

More on the NDQ 100 which continues to confuse and befuddle.– compare to the leaders of the prior five sessions: the 100 slipped by 7 points vs -14.6 vs +20 vs +10 points vs -24 vs +10 vs -33 – BUT with 3:1 DECLINING vs 1.5:1 declining vs 2:1 advancing vs 7:3 declining vs 3:1 declining vs 2:1 advancing  Leaders rotated yet again: there were only FOUR movers of 1 point or more: AMZN -2.4 vs +3.1 vs +1.8; BIIB -1.5 vs -1 ; AAPL +5.7 vs +1.9 vs -1.8 vs +18 vs -6.1 vs +1.1 vs -5.6; FB +2.2. Recent movers but not yesterday MSFT +1.1 vs -4.2 vs +1 vs -1.4 vs +4.6 vs -30!!! vs -3.2; CELG +1.1 vs +1.7.

The VIX trading range shifted higher nearly hitting 14: 13.33-13.86, finally settling in at 13.39 +.67…caution!…Monday’s 11.99 low was lowest since 5/17 – is the euphoria over? The market is very vulnerable to earnings reports which continue to come in mixed. We remain in the summer doldrums…and that is not good for trend followers. A/D’s were both negative, while Breadth had NYSE stocks at +2.8x positive? Nasdaq 1.6x negative?. Both new 52 week highs and lows were lower.

…here’s the book:

* Dow 30 -0.2% vs +0.5% vs +0.1% vs -0.1% vs +0.3%; Dow Transports -1.1%!!! vs +0.5% vs -0.1% vs –1% vs -0.8%; Russell 2000 -0.8% vs -0.6% vs +1% vs -0.1% vs flat; Dow Utilities +0.3% vs 0.6% vs +0.4% vs +0.2% vs +0.3%; S&P 500 -0.4% vs +0.1% vs +0.3% vs -0.2% vs flat; Nasdaq Composite -0.4% vs +0.2% vs +0.7% vs -0.6% vs -0.4%; NDQ 100 -0.2% vs +0.5% vs +0.7% vs -0.8% vs -0.5%.

*NYSE Volume tweaked higher to 2.82B shares from a very weak 2.74B vs 3.31B vs 3.07B vs 2.42B (3rd weakest of 2013…1.96B is the lowest of 2013). REAL NYSE Volume slipped to a very weak 579M shares vs 596M vs 677M vs 670M vs 608M (562M is lowest since 7/3). The 12-month average is 716M shares and declining! The average since 6/30 is just 669M shares, ranging from 482M to 906M, 482M being the 2013 low! There have been just SEVEN 1B+ share sessions! There have been 28 800M+ shares in 2013: 10 up, 17 down, and one mixed, but on trades of less than that 91 have been up and 34 down …there have been 29 mixed sessions.

*New 52 week highs have ranged from 33-864. They slipped to 209 vs 262 vs 410 vs 569 vs 545 vs 630. New lows also slipped to 76 vs 87 vs 180 vs 60 vs 45 – 27 is the low.  

  1. Advance/Declines were negative: -2.2x vs -1.1x vs +1.3x vs +1.3x vs +1.5x (recent range -17.5x to +4.4x) on NYSE and -2.2x vs -1.6x vs +2x vs -1.2x vs -1.1x (recent -3.5x to +3x). Breadth was mixed: +2.8x? vs -1.1x vs +1.5x vs +1.4x vs +1.6x (recent -18.6x!!! to +6.9x!!!) on NYSE and -1.6x vs -1.4x vs +2.6x vs -1.7x vs -1.3x (recent -12.8x to +6.2x)  
  2. NYSE Financials declined again by 0.7% vs -0.3% vs +0.4% vs -0.1% vs flat. BofA was most active again slipping  to $14.71 -.23 three days after hitting $15.03, highest since Jan. 14 and now major res: -1.5%!!! vs -0.7% vs +0.8% vs -1.6%! vs -0.1% vs +1.2%. Brokers -0.9% vs -0.8% vs +0.7% vs flat; KBW Banks -0.9% vs -0.7% vs -0.2% vs flat vs +0.1%; Nasdaq Banks -1%! vs -0.5% vs -0.3% vs +0.3% vs +0.3%.  
  3. Volatility (S&P VIX) rose to 13.39 +.67 with a range of 13.38-13.86!  On 7/23 it declined to 12.07, lowest since April 12th! VIX peaked at 20.49, plunged to 18.90 on June options expiry then closed at 20.11 on 6/24 and has been down below 14 since! 6/24’s session high of 21.91 was highest since 12/31/12 (22.72)!!! The range since April ‘12 is 11.05 (multi-year low o n 3/14/13) to 21.9. It is well below the 40/50 day (15.65/15.34) and the 200 day (14.95)!!!…ytd the range is 11.05 (3/14) to 21.92 (6/24)!

Global stocks higher…even Japan – but not India!!! UK +0.3% vs +0.3% vs -0.3% vs -0.8% vs +0.9%; France +0.5% vs +0.3% vs +0.4% vs -0.8% vs +1.3%; Germany +0.4% vs +0.3% vs +0.5% vs -0.9% vs +1.2%; Japan +1.5%! vs -3.3%!!! vs -3%!!! vs -1.1%! vs -0.3%; Hang Seng +0.5% vs -0.5% vs +0.3% vs -0.3% vs +0.2% vs +2.3%!!!; Korea +0.9% vs -0.6% vs +0.1% vs -0.1% vs +0.4% vs +1.3%!; India DOWN 1.3%!!! vs -0.8% vs -0.3% vs -1.4% vs -1%. U.S. equity futures slightly higher in another tight trading range…look at last four sessions: DOW +29 vs -25 vs -57 vs -61; SPX +4 vs -3.20 vs -6.50 vs -7.30; NDQ +10.50 vs -5.50 vs -4.75 vs -2

Bonds closed weaker – along with stocks? – but are slightly higher overnight: 10 yr Treasury 2.59% +1/8 (recent range 2.74% to 1.63%!!!), and the 30 yr range of 2.82% to 3.71%, currently 3.66% +1/4. The long TIP is 1.37% +3/8. The (record?) low of 0.36% was set on 4/5. Recent high 1.53%! Libor update: 0.265% 3 mos, 0.397% 6 mos. Both remain near the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields mixed again and little changed: Germany 1.67% +1; UK 2.31% -1; France 2.26% -1, Italy 4.39% -6; Spain 4.64% -3; Portugal 6.29% -1; Greece 9.79% +1 vs 9.81% vs 9.81% -10 vs 9.91% vs 10.02% +19 vs 9.81% vs 9.95% +17 vs 9.86% 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 0.79% flat.

Gold closed higher as it see-saws but remains well above the critical $1300 closing at $1329.60 +$7.70. Last Tuesday’s session high was $1349.20 – highest since 6/20! 6/27’s intraday low was $1179.40 – lowest since at least 2011 and now critical support. $1300 remains psychological support, and it remains between the 40 day $1314 and the 50 day $1329 – both still falling. lt is way below, the 200 day – $1557!!! Overnight it is lower at $1325.50 -$4.10. Crude closed little changed at $104.55 -.15 – with a session low of $103.56!!! The rally that began on 7/12 has been neutralized. It remains well above the 40/50 day m/a’s (100.28/99.13), both starting to rise. The 200 day ($93.52) is distant support. First support is $104.21-36 – a triple bottom from 7/10-7/12….it has now traded below it for three straight sessions. 4/18’s low of $85.61 was lowest since 12/11! It is lower again at $104.00 -.55 – with a new low of 103.56!!! The range is $85.61-$109.32 since March 1, 2012.

Some random thoughts:

Is there a similarity between J.P. Morgan – the man…sneaky but also bailed out the U.S., and Jamie Dimon? Both loved making a buck and would allow things to ‘happen’ under their command…but Dimon has now set a continuous track record of having his subordinates involved in shady dealings…being investigated, fined…but they remain at the ‘bank’. What does this tell you about the message of management? MAKE MONEY!

The latest is an Enron-type fleecing of energy prices…recall that brought on Sarbanes-Oxley which in 13 years (unlucky?) has not seen ONE CEO prosecuted! They have the shield of ‘I didn’t know’ to hide from…but explain why these ‘bad acting’ underlings remain in their positions?

TB brought to your attention the case of American Century v. JPMorganChase, which the bank lost and tried – unsuccessfully – to have the record sealed. It revolved around the sale of American Century client accounts to JPMorgan …here is the full account  as reported by the Kansas City Business Journal (note that Staley not only remained with the bank but was promoted):

American Century Investments quietly won a $373 million judgment last year against a subsidiary of JPMorgan Chase & Co., according to court records reviewed by the Kansas City Business Journal.

An arbitration panel ruled in August that JPMorgan, which held a minority stake in American Century, broke a revenue agreement with the Kansas City-based asset management firm in an attempt to weigh down its value, making it a cheaper acquisition target.

A Jackson County judge upheld the award in December over JPMorgan’s objections. JPMorgan paid a lump sum of $384 million, including interest, later that month, said Randy Hendricks of Rouse Hendricks German May PC, which represented American Century.

“It represents an important event for a Kansas City company to prevail in what resulted in the largest verdict in the state of Missouri, against a Wall Street powerhouse,” Hendricks said.

Judge Jim Kanatzar unsealed key documents in the matter March 21 after the Business Journal had requested and received part of the case file from a court clerk. Time Inc. also had filed a motion to unseal the case.

American Century filed a lawsuit under seal in Jackson County Circuit Court in Kansas City in April 2009, alleging that JPMorgan had violated a 2003 agreement to market certain American Century investment funds.

That suit was partially settled in July 2009. In exchange for dropping tort claims that carried punitive damages, American Century received an undisclosed payment and the option to sell JPMorgan’s stake, according to the arbitration decision.

The companies submitted the remaining breach of contract claims to private arbitration. Six weeks of hearings took place in February and March 2011 in the basement of the InterContinental Kansas City at the Plaza, with almost 50 witnesses testifying.

In July, American Century exercised its option, triggering the sale of JPMorgan’s remaining 41 percent stake to Canadian bank CIBC for $848 million.

The arbitrators issued their decision Aug. 10, finding that JPMorgan had largely ignored its 2003 agreement to pitch certain American Century funds to customers.

The agreement was part of JPMorgan’s purchase of Retirement Plan Services, a company American Century had created to service 401(k) plans for large companies. RPS had been a joint venture between the two companies since JPMorgan bought its original 45 percent stake in American Century for $900 million in 1998.

But instead of marketing American Century funds as it took sole control of RPS, arbitrators said JPMorgan pushed its own funds, rewarded its salespeople for favoring JPMorgan products and urged customers to swap American Century funds for competing ones from JPMorgan. That “stacked the deck” against American Century, the decision stated.

American Century CEO Jonathan Thomas said during the arbitration hearing that Jes Staley, now JPMorgan’s head of investment banking, “flat-out admitted what they were doing” in a conversation with him in 2008, according to the arbitration decision.

In addition, lawyer Hendricks said, some of the JPMorgan funds stopped paying interest. JPMorgan misrepresented the risk profile of the funds, which he said contained mortgage-backed securities.

According to the arbitrators, Staley “misunderstood” the 2003 agreement he helped negotiate with American Century when he led asset management for the New York giant. He mistakenly told other executives JPMorgan could not be liable for any more than $80 million in damages if it flouted the contract, according to exchanges cited in the decision.

The arbitrators awarded $207 million for contract breaches related to various funds and an additional $166 million in damages for overpayment of service fees by American Century.

The ruling depicts a troubled relationship between the two companies and paints a particularly unflattering picture of JPMorgan.

JPMorgan had long wanted to take over the entire company, the decision said, but its valuation of American Century’s products was far below the Kansas City firm’s calculation.

JPMorgan officials started discussing ways to gain the upper hand on American Century just a month after signing the 2003 agreement, according to the ruling.

The decision quotes a 2004 email from one JPMorgan executive to another: “Jes’ objective is to be able to consolidate (American Century) with (JPMorgan) and for us to control their distribution, especially their third-party and institutional channels. … We’d like to explore options for gaining control at a minimum price.”

A key focus was edging American Century out of its low-risk stable value fund business, the arbitrators said. Originally, American Century took clients with less than $50 million to manage, and JPMorgan handled bigger customers. But as JPMorgan increased its retail presence — including its acquisitions of Chase Bank and Bank One — it increasingly dipped below that dividing line.

Another key category was age-based, or target-date, funds — investments that are structured to carry less risk as the investor reaches retirement. JPMorgan conceded in a post-hearing arbitration brief that it had breached the agreement with respect to those funds.

While he was head of asset management for JPMorgan, arbitrators noted that Staley also had a fiduciary duty to American Century as a member of its board of directors.

New York-based Cahill Gordon & Reindel LLP argued the arbitration hearings for JPMorgan. Shook Hardy & Bacon LLP represented JPMorgan in its attempt to vacate the award.

“Since the arbitrators found in favor of American Century, JPMorgan’s point of view and arguments are not represented in the decision and award document,” a JPMorgan spokeswoman said in a written statement. “The parties agreed at the onset to resolve this matter privately through arbitration. At this time we do not feel it is appropriate or necessary to reopen these arguments in a public forum.”

Note that this case was not disclosed prior to the shareholders meeting and Dimon received a $30 million bonus, Staley – along with Ina Drew of London Whale fame – $15 million each (Drew subsequently voluntarily returned her bonus). Again TB asks: what kind of message is Dimon sending to his management team? Make money…I don’t care how you do it???

Have a wonderful day…you too, Jamie!

TB

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7/18/13…an open letter to a Senator/Congressman…think about it!

July 18, 2013 at 9:18 am · Filed under banking, economy, financial, markets, politics ·Tagged , , , , , , , , , , , , , , , , , , , ,

From The Friars Club Encyclopedia of Jokes: “Love is like an hourglass with the heart filling up as the brain empties.” – Jules Renard – is that what is meant by brain drain?

Bloomberg Quotes of the Day: “Know how to live the time that is given you.” – Dario Fo

Bloomberg Top Stories:

*Morgan Stanley Earnings Top Analyst’s Estimates on Jump in …TRADING REVENUE!

*Jobless Claims in U.S. Drop to Two-Month Low as Auto-Shutdown Effects Ebb

*Dell $24.4 Billion Buyout Plan Becomes Nail-Biter on Eve of Investor Vote

*Investment Banker’s Pay at Morgan Stanley Reduced to 43% of Unit’s Revenue – think about that…43% of the department’s revenue goes to them…with no RISK to traders???

*Celgene Stops Trial for Expanded Use of Revlimid Cancer Drug After Deaths – !!!

*BlackRock’s Second-Quarter Profit Rises 32% as Stock Markets Lift Assets

*Draghi to Carney Face Test Backing Guidance on Rates With Monetary Action

*Russia Seeks Own Brand of Easing as G-20 Finance Chiefs Talk Stimulus Exit

*Misfit Borrowers Attract Lenders as U.S. Housing Market Revives – but rates rising???

*Schaeuble Suggests Greek Debt Relief Possible After Deficit Target Reached

*Senate Said to Reach Student-Loan Deal to End Doubling of Interest Rates

*Putin Foe Navalny Sentenced to Five-Years in Prison on Evee of Moscow G-20

*South Africans Mark Nelson Mandela’s 95th Birthday With Charity Campaign

*Federal Reserve Succession Is Clouded by Sexism: Commentary by Ezra Klein – so appoint Larry Summers, a proven sexist and control freak! That’s the ticket!    

 

It was a very strange day with Dow Transports climbing 0.8%, Dow Utilities falling by 0.2% – the only loser, the Dow up just 0.1%, and the rest up from 0.3%-0.5%. In case you forgot about options expiry this Friday the VIX continued its decline falling another .64 to 13.78…on June 24th it peaked at 21.91, not only bearish but highest since 12/28/12, before closing at a new 2013 high of 21.11, and has fallen by 33% since – bullish stance making put protection CHEAP again (the recent low is13.56 on 5/28, 11.95 on 3/14 was a five year low – on 5/15/08 it bottomed out at 16.25! before surging to an all-time record of 89.53 on 10/24/08!!! Guess we have forgotten the 2008 crash…and then some! The record low is 8.89 on 12/31/93 as we began to rebuild from the dotcom bust!

Yesterday’s Volume barely budged to 3.15B shares from 3.05B vs 2.6B vs 2.97B shares from an average 3.43B shares a week ago. Meanwhile, floor-traded shares rose minimally to a very weak 3.16B shares vs 3.05B vs 562M (lowest since 7/3!) vs 681M vs 742M. The 12-month average is 722M shares. Strangely A/D’s and Breadth were very positive?

…and away we go:

* Dow 30 +0.1% vs -0.2% vs +0.1% vs FLAT vs +1.1%; Dow Transports +0.8% vs -0.7% vs +0.5% vs -0.6% vs +1.2%; Russell 2000 +0.4% vs -0.4% vs +0.7% vs +0.5% vs +1.3%; Dow Utilities -0.2% vs -0.5% vs +1.6%!!! vs +0.4%!!! vs +1.7%!!!; S&P 500 +0.3% vs -0.4% vs +0.1% vs +0.3% vs +1.4%; Nasdaq Composite +0.3% vs -0.3% vs +0.2% vs +0.6% vs +1.6%; NDQ 100 +0.3% vs -0.1% vs FLAT vs +0.6% vs +2%!!!

*NYSE Volume rose slightly to a still below average 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 slightly to another weak 666M (Hex?) shares vs 617M shares vs 562M shares (lowest since 7/3) vs 681M vs 752M. The 12-month average is 722M shares! The average since 6/30 is just 673M 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 26 mixed sessions.

*New 52 week highs have ranged from 33-864. They slipped to 448 vs 456 from 687! vs 574 vs 484 vs 451 vs 606 vs 669. New lows also slipped to 30 vs 37 vs 40 vs 32 vs 29 (a new recent low!).

  1. Advance/Declines were positive: +1.9x! vs -1.8x! vs +1.6x vs +1.1x vs +6.6x! (recent range -17.5x to +4.4x) on NYSE and +1.5x vs -1.2x vs +1.9x vs +1.2x vs +2.5x (recent -3.5x to +3x). Breadth was similar: +2x! vs -1.6x vs +1.8x vs +1.3x vs +6.9x!!! (recent -18.6x!!! to +6.9x!!!) on NYSE and +1.8x vs -1.3x vs +1.7x vs +1.6x vs +4.8x!!! (recent -12.8x to +6.2x)  
  2. NYSE Financials rose by 0.5% vs -0.3% vs +0.5% vs +0.3% vs +1.5%. BofA was most active: +2.8%!?! vs +0.4% vs +0.7% vs +1.9%??? vs +1.1% vs -1.2% vs +1.9%. It closed at $14.31 +.39 with a new two year high of $14.44! Brokers +0.2% vs -1.2%!; KBW Banks +0.6% vs -0.8%; Nasdaq Banks +0.4% vs -0.5%. Last 3 days: BAC +3.8% w/12 mo high of $14.44 on earnings…due to ML not banking activities! JPM +0.5%; WFC +2.1% (NH); USB -2.4% BUT from NH; GS +0.9%; MS +1.6%; UBS +2.3%…can this last? Doubtful IMHO!  
  3. Volatility (S&P VIX) declined breaking 14 to 13.78 -.64 – on 6/20 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 slightly higher – Korea strong!: UK flat vs flat vs +0.4% vs +0.3% vs +0.6%; France +0.3% vs -0.6% vs +0.4% vs +0.2% vs +0.9%; Germany +0.2% vs -0.3% vs +0.2% vs +0.9% vs +1.1%!; Japan +0.1% vs +0.6% vs closed vs +0.2% vs +0.4%; Hang Seng +0.2% vs flat vs +0.1% vs -0.8% vs +2.6% vs +1.1%; Korea UP 1.1%! vs -0.5% vs +0.3% vs -0.4% vs +2.9%!!! vs -0.3%; India +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 -2; SPX +0.60; NDQ +5.

Bonds closed higher Wednesday and are little chantged overnight: 10 yr Treasury 2.49% +1/32 (recent range 2.74% to 1.63%!!!), and the 30 yr range of 2.82% to 3.71%, currently 3.58% -1/32. The long TIP is 1.29% -3/8 – still the weakest link since the (record?) low of 0.36% on 4/5. Recent high 1.53%! Libor update: 0.266% 3 mos, 0.398%!!! 6 mos – dropping again! 6 month is almost at the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields sharply LOWER led by Portugal and Greece: Germany 1.51% -3; UK 2.25% -4; France 2.17% -2, Italy 4.45% -4; Spain 4.65% -7; Portugal 6.81% -19; Greece 9.93%!!! -13 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 weaker at $1278.80 -$13.20 after putting in a new rally high of $1301.70 – highest since 6/24 – BUT it had a NEGATIVE key reversal (higher high, $1301.70, lower low and close below prior session low!). 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: $1329/1348 – both declining again, and way above, the 200 day – $1576!!! Overnight it is $1282.30 +$3.50. Crude closed at $106.48 +.48. It remains well above the 40/50 day m/a’s (97.84/97.40), while the 200 day ($92.90), 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 $106.60 +.12. The range is $85.61-$107.45 since March 1, 2012.

Some random thoughts:

Yesterday TB commented on an exclusive Bloomberg article on Glass-Steagall. It is now available on the web: Remember why Glass-Steagall was passed

Today’s commentary is an open letter to TB’s (and hopefully your) senators and representative:

Dear ____________:

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.

Have a great day….but do something positive to help yourself and America!

TB

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5/14/12…where to begin

May 14, 2012 at 9:53 am · Filed under economy, financial, markets ·Tagged , , , , , , , , , , ,

TB is back and energized…the JPM shock is being felt around the world and the Dow is already down 140 points. Sell in May and go away may have been  too late…April? TB apologizes for this lengthy missive – 2800 words, but think you will be rewarded for reading it. It contains a lot of research…don’t you just love the internet, Mr. Gore???

TB’s Song of the Day:

The rich are gettin richer, the poor is gettin poorer,
It’s such a low down, cryin shame,
There’s so much dirty money, dirty dirty money,
You don’t get to get it, don’t you understand?

It takes money, to make money
It takes money, to make money

Oh that little donkey, he made an up-kick,
Made such a mess out of the place,
All ya people workin, clean it up now,
And when you’re doin it with a smile on your face

It takes money, to make money
It takes money, to make money

Go down to the bank, get on your knees,
Excuse me banker, I’m beggin you please,
I need some cash, for food in the pot,
Give me a little and I’ll pay you back a lot

It takes money, to make money
It takes money, to make money

– The Uptones

(This is not the song TB was looking for…does anyone remember part of a song from the 60’s that had ‘it takes money’ in the chorus? Couldn’t find it by googling. TB)

This week’s economic calendar is more crowded than this week’s was with an emphasis on manufacturing activity. However, the highlights of the week will be April Retail Sales and the April CPI (Tuesday). We will also get the May Empire State Manufacturing Survey and March Business Inventories (also Tuesday), April Housing Starts and April Industrial Production (Wednesday), and the Philadelphia Fed Survey and April Leading Indicators (Thursday). In addition, the Federal Reserve will release the minutes to the April 24th & 25th FOMC meeting (Wednesday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

Bloomberg Top Stories:

 

*

 

Time for a recap now that TB is back from vacay. In last commentary from April 27th TB said, “Still holding convictions but you are on your own. The Dow hit a high of 13227 in a stealth rally into the close easily taking out resistance at 13131, the April 17 high, and closed at 13204. Only resistance now is the 4/2 high of 13297…but April is coming to a close and we know what happens in May – usually! Major support remains at 13048 (40 day m/a), 13027 (50 day), then 12205, the 200 day. Also, 12710, the 4/10/12 low.”

So what happened since then:

The Dow peaked at 13338 on May 1 (May Day…add this to TB’s S-O-S!), closing that day at 13279, highest since May 19, 2008, just after the crash began and has plunged to 12820 (Friday’s close) – a 3.9% drop. For the past 12 months the return has fallen to 5.04%, while year to date it is up 5.97%. You may recall being warned to watch out for returns as the stock market low was on 3/6/09, meaning that due to the rapid rise from that low, returns are going to be getting worse, not better for future three year periods. From 3/9/09-3/31/12, the Dow delivered an annualized return of 23.53% – an extraordinary performance. Thru Friday’s close that has slipped to 22.88%…not big but watch out when we come to June 30th. Also, for you lovers of mutual funds who follow those three year returns just remember: figures lie and liars figure!

As for volume:

NYSE stock volume was right around 4B shares – about average the day TB left, and while TB doesn’t have data since then it had been declining and fell to 3.74B on Friday.  NYSE shares executed on the Big Board were about 788M shares and Friday’s was 786 million (it ranged from 754M on 5/7 to 940M on 5/8 averaging 817M shares). Compare and contrast to the average of 962M for the past 12 months, and 1.03 BILLION for all of 2011- which included the high of 2.54B shares on 8/8, one of just 12 2B+ share days over the past five years…record is 3.15B shares on 12/18/09, a day the Dow gained just 20 pts! 17 of the last 26 sessions have been less than 800M shares!!! Since 2/29 there have now been just FIVE ‘average’ days, including 3/16’s high for 2012, but average has fallen to 808M and just six have been above 900M. Since 11/1 there have been just eight 1B share days…only four in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 119 of the last 131 sessions have been less than the 12 month average! Advance/Declines were negative (starting a new series today)::-1.5x on NYSE and -1.5x on Nasdaq. Breadth was similar: -2.3x on NYSE and -1.1x on Nasdaq. New 52 week highs were 119 (high was 420 on 3/26), while new lows ran 146! Ratio is negative by 1.2x.  The S&P VIX rose to 19.89. Since 4/26 it has ranged from 15.75 (low on 4/26) to 21.59 (high on May 9!). This is a clear warning that market is losing complacency…sell in May???

Here are the results (also starting a new series): Dow -0.3%; Transports +0.1x; Dow Utilities +0.1%; S&P 500 -0.3%; Nasdaq Composite FLAT?!?; Nasdaq 100 FLAT ?!?; Russell 2000 -0.2%; NYSE Financials DOWBN 1%, biggest loser! (KBW Banks -1.2%, Nasdaq -0.7%); NYSE Financial Leaders: BAC -2%!, JPM -9.3%; C -4% (note these are ranked by volume!

European stocks thrashed as was China, rest of Asia mixed and little changed … not with Euro crisis worsening and JPM to boot?: FTSE  -2%!; CAC 40 -2.1%!; DAX -2%!; Nikkei UP 0.2%; Hang Seng -1.2%; Korean KOSPI  -0.2%; Indian Sensex -0.5%.. U.S. stock futures also weak: DOW -88; SPX -11; NDQ -20! Bonds STRONG! BUT TIPS losing advantage!!! 10’s well below 2% and 30’s joined by closing at 3.01% Friday and now below – first time since 1/18’s 2.96%! 10 yr 1.78% +9/16, RECORD low 9/23 of 1.6855%; 30 yr 2.94%% +1-7/16; Long TIP 0.69% up 1 pt. It was 0.57% at high. The 5 yr TIP yields MINUS 1.18%; 10 yr -0.36%. Bills 0.06% 1 month; 0.09% 3 months; 0.14% 6 mos. – unchanged since 4/26! Reverse Repo 0.24%. 3 mo. Libor 0.47%, and 0.73%; also steady. European problem sovereign 10 years changes are since 4/26, Germany-benchmark: 1.44% -23 bp; Italy 5.71% +2; Spain 6.24% +1.02!!!; Greece 20.48% +5.59%!!!; Portugal had been under 10%!!!! 10.57%??? -59!!!; Ireland 6.69% +13 – beware of this one!!! Government is a mess and people are angry – gross understatement!

Gold closed below $1600 – it broke it on 5/8 and closed below on 5/9. It closed at $1584.00 -$11.50 – OUCH!!!, making the hit $207 since 2/28,  loss of 11.6%! 2/28’s $1792.70 intraday high was not seen since 11/16! The record high is $1923.70, a buying climax on 9/6. Res is $1649, the 40 day and $1657, the 50 day, then $1703, the 200 day. It is now $1564.00 -$20!!! Crude closed $96.13 -.95 and is in FREEFALL!!! On 4/26 it closed at $104.55 +.43…that is a 10% LOSS!!! We took out 4/10’s low of $100.68, worst since 2/15/12 on May 4, a day crude fell by $4.55, or 4%, with a low $1 below that! It is well below the range of $105-110 which held from to 3/28!!! RES at $96.26 THE 200 DAY!!!, the 40 day (102.94), the 50 day (103.60), and major support at $92.52-54, the lows of 12/16-12/17, a clear double bottom!!!. It is now $94.05 -$2.07!!! AND the overnight low was 93.65, lowest since 12/11! Better hope and pray we close above $92.54…unless you are a buyer of petrol!!! Aren’t we all???

To sum up, TB was rewarded for ignoring the whipsaw action dominated by high frequency traders (flash trading), as were his clients whose portfolios are up in value since 4/26…it’s good to be right…although the pain in the middle is no fun. As a former colleague used to say, he knew it was the bottom whenever he got that gut-wrenching feeling that tries to convince you that you are wrong.

Today will be ugly, courtesy of Jamie Dimon’s (der wunderkind’s) JPMorgan, aka Gip’Em. First they merged with Chase which had been a competing gunslinger with Citi, in a move that would have caused the old scoundrel himself, J.P. to turn over in his grave, and then got their CEO. Note that since getting his MBA from Hahvahd, and don’t think he isn’t smart, he worked in various firms from Smith Barney to AmEx to Travelers to Citi, under the tutelage of the one and only Sanford Weill…and you don’t gain moral principles from him. He was introduced to Weill by his father…lovely! Then they had a falling out and he went to Bank One which became part of Chase…and so we get to now.

As mentioned earlier, Dimon is smart as a whip…but TB believes has not the the same level of scruples. Just before TB went on vacation he told of the story of J.E. Staley, who engineered the buying of accounts from American Century THEN replaced the American Century funds with proprietary funds that performed WORSE…which opens them to client suits as well…within a month he broke this agreement, was sued by American, at a cost to JPM of $340 million. THEN JPM tried to have the records sealed…unsuccessfully.

What happened to Staley? Interesting as he was CEO of the Investment Bank and since has the added title of CEO International Business, and sits on the Executive Committee of the bank. Remember also that TB found out from Bloomberg article that Jamie Dimon’s compensation for 2011 of $27 million was not measured in terms of the average employee…no sir…it was equal to 67 of the firms investment bankers! Now THAT is a leap of faith! Those 67 bankers would report to Staley who in turn reported to Ina Drew, the Chief Investment Officer who was fired because of the scandal…but wait, it gets better…in the scramble to damage control the trading of ‘the whale’, six key officers were dispatched to London…among them J.E. Staley, and arguably heading the team which was preposterously dubbed ‘Seal Team SIX.’ (This is an outrage and defamation of the Navy Seals who earned that title and demeans them…nothing new here, right? TB has had the honor of knowing and working with two SEALs and they do not deserve to be in this company of greed inspired people). It is also interesting that as with Morgan Stanley, a woman was the fall guy for problems. True, Drew, an employee of 30 years was directly responsible for the actions of the trader, but what did she know and when did she know it? But just like Zoe Cruz…a woman was to blame. Note however that Cruz was then financed by MS in a hedge fund operation…to secure silence? It is likely that Drew will get similar treatment with a parachute of gold or better to insure her silence.

This bank STINKS from the top down. We read time after time of problems within this bank, worse than the American Century deal because they ripped off the taxpayers…Birmingham Alabama…countless interest rate swaps…municipal bond rigging…yet no one seems to be taken to task. One reason for this is that the bank is in violation of one of TB’s main principles of investing: the CEO should NEVER, under any circumstances also be the Chairman of the Board…a direct conflict of interest since the board is mandated to be the stewards for the shareholders! This is not the case, even in companies that do not combine these to titles, but worse when it occurs.

Remember that JPM stock fell by 20% in 2011…the year for which Dimon received that $21.5 million kicker (salary is $1.42M, bonus $4.5M, stock awards 12M shares, Options awards 5M shares but was up 9.1% annualized by March 31st…still…shouldn’t the bonus reflect the time period not the value at the time of the granting of the bonus? Heck, why not double count it for 2012 as the shareholders obviously won’t even notice…they didn’t last time, right? Now about the timing of the announcement…on April 27th, the day TB left there was a top story on Bloomberg that was included in the highlights of this missive.

As for Staley, his 2011 compensation was $17.6M (contrast this to Ina Drew at $15.5M, Mary Erdoes $15M, and CAO/CEO Mortgage Banking Frank Bisignano at $10.2M), making him number twoso it appears there was no fallout from his $373M expense on his dirty deed. Note that he surrendered shares with strike price above $53 and received shares at $21 or so…about 75% of the low price on 10/4/11 of $27.85. In other words, compensation is GROSSLY UNDERSTATED!

A BIG question is what did they know and when did they know it. Did they attempt to defer the discovery until after the shareholders meeting, which is tomorrow and will now be hot and ugly. In Europe, shareholders are attacking boards over compensation and performance…will we finally wake up? Note that most proxies are probably already in and professional money managers and hedge funds no longer challenge boards. The last TB can recall is CalPERS and they were laughed at for it. Wake up America…it’s your money! Don’t let Dimon, Citi’s Pandit (who is NOT also Chairman by the way!) destroy your investment value. When are we going to see a test of Sarbanes-Oxley?…or restoring the guts to Dodd-Frank. TB is not alone in calling for reducing the size of these ‘too big to fail’ companies and furthermore guaranteeing only banking activities…with NO intercompany transactions allowed OR borrowing from other banks! God, we are stupid!

Dimon fought and continues to fight the Volcker Rule. A friend and knowledgeable banker says it is a bad rule. I, along with Nouriel Rabini, Simon Johnson, and others strongly disagree. To the argument that it will make U.S. banks less competitive so be it…do we want to follow the European banks who showed their stupidity…or like former Fed Governor and now Columbia professor Frederic Mishkin, who authored a report ‘Financial Stability in Iceland’ which was used to argue the merits of deregulation – without disclosing he was paid to write it…hell no! Get mad as hell and don’t take this crap anymore. Dimon also has fought the financial protection agency and despite Elizabeth Warren’s attempts to reconcile with him on the points, he destroyed her chances of heading that agency. This is NOT free market capitalism, nor is it capitalism in any form…it is GREED, pure and simple.

Adopt the Volcker rule and limit proprietary trading to federal government securities and agencies and municipal bonds. No derivatives unless and until banks agree to have them listed on an exchange which will eliminate them for the most part since the fees will be decimated and folks, that is what it is all about: fees and compensation – period! The shareholders be damned.  This brings us to TB’s second rule: never buy a bank stock for anything BUT the dividend and know what you are buying…don’t enrich the bastards~!

Strong language today but after reading three outstanding books while on vacation, TB is charged since all were by experts and all were damning of the charlatan’s who purport to support free market capitalism. The next crisis is sooner than we think…JPM just proved it is MUCH sooner.

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…you go on vacation to relax, and relax TB did. But he also wanted to find out more about the economy in both Ireland’s and Scotland, and he did. It is not promising but it is not Doomsday either. The rest of this week will be devoted to this wonderful trip along with some observations.

Also he took along his Kindle and read three books and a portion of a fourth. Here they are ranked in importance and what you can learn from them:

  1. Crisis Economics; A Crash Course in the Future of Finance, Stephen Mihm and Nouriel Roubini. – the best description of the financial crisis and how it developed. Written very clearly in laymen’s terms
  2. White House Burning, Simon Johnson and James Kwak. This is an incredible study of the history of debt in America and why the austerity measures prescribed by the GOP, Tea Party, and Grover Norquist will create another recession or worse. Also very clearly written
  3. Extreme Money: Masters of the Universe and the Cult of Risk, Satyajit Das. Don’t let the authors name fool you…just read the first pages and don’t worry about the confusion here as it soon develops into not only a great discussion of the problems but specific examples of companies that failed and the best description of the how the derivatives that destroyed our economy functioned. The crisis was caused by one and only one thing: GREED! Period with no concern of the consequences.
  4. From Bear to Bull with ETF’s, David Kotok. This book not only explains ETF’s and their risks but how a few of them can be used to create a portfolio and by switching them at opportune times control risk and increase returns. The last half of the book is a compilation of his newsletters with no punches pulled. It shows when he was right and when he was wrong which is a very difficult and gutsy thing to do.

I urge any serious investor to read these books or at least one or two of them because you need to understand this BEFORE you vote. It is important to know that a venture capitalist (private equity) is NOT an expert at running a business for the long run…and more importantly the last person who should run a country. Their business is about making a quick profit and then dumping the company…you cannot do that with the USA.

Don’t worry the rest of the week will be on the lighter side…in the lower portion of the missives anyway…the markets will determine the rest.

Have a great week…it’s great to travel but better to be back in America. Cheers!

TB

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3/26/12…the ‘dumbing down’ of America

March 26, 2012 at 8:59 am · Filed under economy, financial, markets ·Tagged , , , , ,

This week’s economic calendar is fairly light on important, market-moving economic indicators. We will get February Pending Home Sales (Monday), the January Case-Shiller Home Price Index and March Consumer Confidence (Tuesday), February Durable Goods Orders (Wednesday), the third estimate of Q4 GDP (Thursday), and February Personal Income, the March Chicago Purchasing Managers Index, and the final March Consumer Sentiment (Friday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA.

Bloomberg Top Stories:

 

*Hedge Funds Capitulating Buy Most U.S. Stocks Since 2010 as Rally Persists – persists???

*Merkel Says Germany May Allow European Rescue Funds to Run Simultaneously – ???

*Spanish Bonds Gain on EU Bailout Speculation; U.S. Futures Rise

*Business Confidence in Germany Unexpectedly Rises on ECB Stimulus

*Bernanke Hesitates to Extol Economy Knowing Consistent Policy Put at Risk – he don’t know!

*Plosser Says U.S. Economy Doesn’t Need Additional Stimulus to Fan Reococery – just wait…

*JPMorgan Asia Chief Gaby Abdelnour Set to Quit After 14 Years With Company

*Coutts Fined $13.9 Million by U.K. Regulator on Money-Laundering Failures – RBS owns it!

*Speculators Under Fire Reduce Bullish Wagers on Gasoline – see it wasn’t Obama!

*Bond Buyers Displace Banks in Record Emerging-Market Sales – what are banks buying?

*Hungary’s Real Estate Loans Collapse After Forex Loans Slow Up

*Shale Boom in Europe Fading as Exxon’s Polish Wells Come Up Empty

*Pennsylvania Seen Gaining, 575,000 Jobs in Shale-Gas Boom – Banks liquidating

*Record Drop in Volatility Whipsawed Owners of Credit Suisse Note

*Obama Relies on Deceptive Debt Collectors Profiting From Student Loan Woes – 20% commish

*Health-Care Debate at U.S. High Court Weighs 1867 Law That May Halt Case – not in effect yet!

*Iranians Blame Ahmadinejad as Well as Sanctions for New Year of Austerity

*U.S. Gives $50,000 to Relatives of Victims of Afghanistan Shooting

*MF-Global Insurance Isn’t ‘Cash Machine’ to Pay If Claim Made

*Cheney Transplant at 71 Shows Trend Threatening Younger Patients – Didn’t know he had one

Volume fell back modestly to 3.46B from 3.73B shares on NYSE listed stocks. Meanwhile, NYSE stocks executed on the Big Board slipped again to 742M shares vs 746M, still about 250M below the 12 month average. Since 2/29 there has only been one 1B+ share day, 3/16’s high for 2012 and the average has been just 817M shares, 200M below average! 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. 89 of the last 96 sessions have now been less than 1B! Advance/Declines were positive: +2.4x vs -2.8x! vs  -1.1x vs -2x vs +1.8x on NYSE and +2.3x vs -2.2x vs +1.1x vs -2.2x vs +1.8x on Nasdaq. Breadth was slightly better: +3x vs -7x!!! vs -1.1x vs -1.5x vs +2.1x on NYSE and +2x vs -2.2x vs +1.1x vs -1.5x vs +2.5x on Nasdaq. New 52 week highs jumped to 149 vs 107, while new lows dropped to 33 vs 49. The ratio is +5x vs +3x. The S&P VIX declined to 14.83 -.75. Last Friday’s intraday low of 13.66 was lowest since 6/20/07’s 12.75.

Here are the results of the last five sessions: Dow +0.3% vs -0.6% vs -0.4% vs -0.5% vs +0.1%; Transports -0.1% vs -2.1%!!! vs +0.8% vs -1.2% vs +0.2%; Dow Utilities flat vs flat vs -0.2% vs +0.4% vs -0.4%; S&P 500 +0.3% vs -0.7% vs -0.2% vs -0.3% vs +0.4%; Nasdaq Composite +0.2% vs -0.4% vs flat vs -0.3% vs +0.8%; Nasdaq 100 -0.1%? vs -0.2% vs flat vs +0.2% vs +0.8%; Russell 2000 +1.1%! vs -1%!!! vs +0.1% vs -1.0% vs +0.9%; NYSE Financials +0.8% vs -1.2%! vs -0.6% vs -0.3% vs +0.6%. NYSE Financial Leaders: BAC +2.5%! vs -2.2%! vs +0.1% vs +2.9% vs -2.8% vs +6.1%; GE -0.4% vs -1.1%; F flat vs -2%!

Global equity markets modestly higher. India now down 3.3% in 7 sessions: FTSE +0.5% vs -0.4% vs -0.8% vs +0.1% vs -1.2%; CAC40 +0.1% vs -0.7% vs -1.5% vs flat vs -1.3%; DAX +0.6% vs -0.6% vs -1.3% vs -0.1% vs -1.4%; Nikkei +0.1% vs -1.1%! vs +0.4% vs -0.6% vs +0.1%; Hang Seng flat vs -1.1%! vs +0.2% vs -0.2% vs -1.1%!!! vs -1%!!!; Korean KOSPI -0.4%! vs FLAT 2 days vs -0.7% vs -0.2% vs +0.6% vs -0.5%; Indian Sensex -1.8%!!! vs +1% vs -2.3%! vs +1.7% vs +0.3% vs -1.1%. U.S. stock futures weaker: DOW +45; SPX +4.40; NDQ +13. Bonds selling off again on Europe bailout: 10’s and 30‘s still well above 2% and 3% respectively: 10 yr 2.28% -3/8. RECORD low 9/23 of 1.6855%; 30 yr 3.36% -1 pt!; Long TIP 0.87% -15/16, it was 0.57% at high. The 5 yr TIP yields MINUS 1.20%; 10 yr -.13%. Bills 0.06% 1 month; 0.07% 3 months, 6 months 0.14%. Reverse Repo 0.23%. 3 mo. Libor 0.47%, and 0.74%, stable.

Gold closed below $1700 for a 10th straight session but gained $20, making the hit off $114 since 2/28, closing $1662.40 +$19.90. 2/28’s $1792.70 intraday high was not seen since 11/16! It had been above $1600 since Jan. 31, and is now $1660.50 -$1.90. The record high is $1923.70, a buying climax on 9/6. Res is $1685, the 200 day and $1707, the 50 day, then $1716, the 40 day, rolling over. Major support was $1652, the 1/25/13 low, now res! Crude closed strong at $106.87 +$1.52. It is now $106.84 -.03, with support at the 40 day (104), the 50 day (103.13), and major support at $95.21, the 200 day…watch closely– though as all are rising! Resistance remains at $110.

The indices were led by the Russell 2000 which rose 1.1% vs -1%! The Nasdaq was mixed and little changed with the Composite +0.2% but the 100 off 0.1% – no help from Apple is why (lost 3 index points). NYSE Financials rose by 0.8% vs -1.2% with only BofA gaining 2.5% vs -2.2%. A nothing day.

VERY IMPORTANT: tomorrow is last day for T+3 settlement for quarter end and since hedge funds have been big buyers they might just sell after tomorrow, it happened last September…CAUTION!

Overnight, Dow futures traded as high as 13106 after dropping to 12940 on Friday, now support and lowest since 3/5’s plunge.  

Gold and Crude rallied Friday with the former desperately trying to recover: it gained $20 but is still weak as it is below the support levels – 40/50/200 day moving averages.

 

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The GOP budget plan submitted by Paul Ryan is a bad joke on America. He says it will promote fairness by ‘flattening’ the rates…hello??? That is the whole point! Then he says they will reform the tax code this year to fill loopholes…really? In an election year? When your supporters have the most to lose? Who is he kidding? For cover he is using Simpson-Bowles…selectively, by ignoring their tax increase proposals. You cannot lower the deficit by cuts alone especially when we have lost hundreds of billions in revenue from the two Bush tax cuts.

Oh, and the ‘jobs bill’ which makes it easier for companies to lie to consumers/investors by removing more safeguards. There is no doubt who is in control: Wall Street and their lobbyists…far too many now and with too much power. D.C. would probably go into a recession if they reduced them to levels of 1980’s.

Now for some more things: remember when Bernanke said no rate hikes until mid-2014? Now the presidents of the St. Louis Fed and Philly Fed say it will be earlier. Told you whenever someone in government says “as far as the eye can see”- run! TB thinks however the economy will slow or stall before anything happens but these comments are hurting bonds again!

Moving along…can anyone deny that TB was right about Goldman? Now their former Chairman (ousted once the went public), turned senator (making him part of the club), then governor (a trifecta), has shamed himself and now could also be charged civilly – wow could he be the first under Sarbanes-Oxley…not even Citi’s Vikram Pandik has been charged! They have memo’s showing he authorized the transfer of $300 million from clients accounts for company use! Don’t you hate it that they get to use the title Senator or Governor, after the fact and we are supposed to address them as ‘Honorable’?

As for JPMorgan…right on that too…besides the American Century suit where they tried to cover up the $342 million settlement for among other things breach of contract (which they did just a month after entering it into it), and the fact that the guy who crafted it is now head of Investment Banking, there is a whistleblower suit on their credit card unit where they packaged up and sold bad credit card loans without vetting them so some clients who were owed money by JPM were included and harassed by bill collectors.

JPMorgan, along with Goldman Sachs and Credit Suisse were the three biggest complainers about the Dodd-Frank rule to impair banks ability to use proprietary trading, and it shows as Congress has been cowed once again by their loyal contributors. They have no shame.

Moving right along…life insurance companies, including Prudential and Met Life have been keep money where no one claimed the policy…apparently making no effort to find heirs OR turn it over to the states for them to find. This amounts to hundreds of millions of dollars and is going to grow. Interesting, once the states stopped delving into this, they stepped up efforts to contact beneficiaries. This ties in to the prior one where an insurer (Pru?) had the contract for policies on Iraq soldiers. When notified of death they contacted the beneficiary and told them the money had been placed in an interest bearing account so they could write checks on it when they needed it. The rate was 5%  while they invested in low quality securities…add life insurers to your least respected jobs.

Now for politics…on Friday we learned that several Congressmen had misused expense accounts, hired relatives, lent money to their campaigns at 18% interest, and more…finally we may get them but don’t expect them to take strong action…probably do it quietly. Besides, if the ethics committee couldn’t even give Rangel more than a slap, when what he did amounted to tax evasion…and Maxine Waters, (D-CA), promoted her husbands (they have different last names) S&L, including having it included in testimony before the Fed as the ONLY S&L when the bailout was being considered…and they got funds! Finally, over objections of the committee chairman who was the worst offender, they stopped insider trading by Congress (TB likes to think his criticism and letters to Congress helped). If you can’t trust them, and they are bought and paid for by Wall Street, it is one sorry state of affairs!

TB has been irked at government hiring outside contractors. The military now pays more for them then the entire military payroll! Today, we learned that the Obama administration is using outside collectors to handle delinquent student loans…20% commission and they are lying to the borrowers making them pay four times the month payment required…negating Obama’s plan to make it easier to pay them off.

The point is: while Alan Greenspan and others (hopefully not you, dear reader), still believe in ‘free market capitalism’ it is a myth! Worse, we are in something akin to a duopoly or oligarchy, which we haven’t seen since the early 1900’s and which spawned the labor movement and government regulations. Yet the powers that be continue to warn us that in a second term we will ‘lose freedom as we know it’ (Santorum on Face the Nation yesterday). This of course confused social programs with socialism and communism which is exactly what they want to do.

Surveys of the industrialized nations with the happiest people consistently show the Scandinavian countries the happiest and with the least anxiety, led by Denmark which has incredibly high tax rates but medical care etc. is not a problem

This leads to an email from a friend yesterday citing how much better the U.S. is in health care than other countries… it cites an Investors Business Daily story – no date, and that is because it doesn’t exist! Found it on snopes.com and it dates to 2003…it also states that only 8% of people brought in by Obama have private sector experience. Why do these lies continue to be sent out, even years after…and under a different president?

Then there is Romney’s claim that he can solve our problems with his vast private sector experience. He has never run a company…he ran a venture capital firm that had a consulting group to advise the companies…at the expense of the investors and for the benefit of management. By the way Santorum said that electing Romney would be like having Obama for a second term!

You cannot believe a thing they tell you…ever!  Don’t take TB’s word on these things but please: start thinking for yourself…FOX News is not going to tell you anything, or Rush Limbaugh…a former drug user and before that liberal who found it more profitable to be a conservative…and calls a woman a ‘slut’ for testifying before Congress – as requested – and the GOP cannot even strongly decry him? Meanwhile, 35% of Americans still think he was not native born…and they won’t even stop that! Then there is the Muslim issue…or blaming him on the budget deficit which was a combination of Bush II tax cuts, and his Medicare Part D without funding, two wars that have lasted 11 years…and this while the GOP controlled both houses of Congress too.

Obama may not be a leader but show me one in the GOP, or for that matter the Democratic Party that is a true leader…it is an oxymoron. Unless we stop penalizing people for hard work and rewarding passive income we will have nothing…and sooner than you think…except perhaps an even bigger financial crisis!  This is your country, good luck.   

Hope you have a great week! Hope you also will think about the above, then you decide.

TB

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6/4/08…take them out

June 4, 2008 at 4:58 am · Filed under economy, financial, markets ·Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

…behind the barn and flog them! As unkind as that may sound any investment professional who said or believed that is simply oblivious to reality…perhaps they have been listening to CNBC too long…or some of these analysts that couldn’t read a roadmap without their Garmin beside them. Not only did they fail to see any problems on the horizon, they blindly talked as if they knew what they were doing…after all the CEO (if he is still there provided guidance). They failed to see a housing bubble, a mortgage crisis, a derivatives bubble, all which led to a credit bubble yet not to fear: demand will not slow…not so long as there are credit cards about. Oh and of course, even if demand slows here the rest of the world will carry us! Lastly, they got apoplectic any time some failing financial got an infusion of capital and cheered when they didn’t cut the dividend…never mind that the ROE on divisions that were marginally viable were now below the desired return and those that been winners were wiped off the face of the planet! Wait…let’s give credit where credit is due…to one analyst: Meridith Whitney…mocked though she was, she is the only analyst with a clear understanding of a financial institution…the others should be in one!
 
CNBC’s David Faber…affectionately called ‘the brain’ by good ole boy Mark Haynes was even feeling sorry for Wachovia’s CEO, Kennedy Thompson…as if through no fault of his own. The luckiest man on the planet is BofA’s Ken Lewis who ousted his handpicked head of investments over the subprime meltdown…where did he think those earnings were coming from…treasury bills? What about Lewis’ own blunder on buying Countrywide…a true pig in a poke and at a time when they were still having trouble absorbing their other recent acquisitions…BofA is a serial acquirer…they can’t help themselves. Lewis said they sent in a team for a month and reviewed all the loans and so they knew what they were buying: horse manure! No way you can do that and TB said so at the time. So Lewis should be joining Chuck Prince and Stan O’Neal…although he is neither…they fell on their swords…guess they don’t do that at the BofA…if A.P. Giannini was still around it would be different story…but then this is no Bank of America, except in name.
 
Why is TB so upset? Because the BofA’s, Citi’s and Wachovia’s of the world are tarnishing the reputations of good banks…and while we are at it let’s put the blame where it rightfully belongs: the banking lobbyists and the Congress for eagerly destroying Glass-Steagall…and the Fed and other banking authorities as well as the SEC…and if TB hears one more time how overworked the SEC is, he might just commit seppuku (hari kari).
 
A friend and experienced investment professional TB has known for 20 years, Gerald Roberts, wrote the following in response to one of TB’s columns on these shortfalls:
 

Several weeks ago, I suggested that we are in a period where events are driven by systemic risk.  The old definition was, in the simplest of terms, a wrong solution to one problem causing a higher degree of risk in the next succeeding problem.

 

Now this definition has been broadened by the interaction of all sectors of the global credit market.  “Problems” are not necessarily isolated to one type of instrument.  And the more arcane the instrument the worse the sentiment seems to get.   As you and others have observed, the problems are occurring in unexpected places. 

 

Result:  loss of confidence and inertia – two conditions missing and needed for “better markets”.  The interactions of traders and asset managers ultimately determine price.   Until there is restoration of confidence by these professionals, perception of the underlying value of credit instruments is simply not going to improve. 

 

And, if the rating services and financial insurers are not doing their jobs, fire them.  You’d do it if your employees were creating similar dislocations and risk.  Look kindly upon those in your organizations who perform analytical, quantitative and qualitative investment research.   This may be the resource that ultimately will preclude asset managers from purchasing toxic waste while breaking down a link in the systemic risk chain.  At least a start and, perhaps, one long-term solution to what is hoped to be a series of short-term problems.

 

As TB has alluded previously, all of the above is a direct result of misplaced capitalist thinking. Looking at the short run instead of long term…aided and abetted by institutional shareholders whose time horizon is 72 hours…and an SEC and CFTC who have become complacent thanks to Sarbanes-Oxley and who has allowed trading to be merely a matter of muscle…naked shorts, low margin requirements, elimination of the uptick rule for shorting. Someday this will be a better world but not until we act responsibly!

 

A quick look at Bloomberg top stories overnight is not encouraging:

*Lehman Puts, Default Swaps Show Investors Bet on Further Decline in Share…sorry to report this.

*Interest-Rate Derivatives Signal That Banks’ Credit Woes Likely to Worsen…not behind us, no sir.

*U.S. Mortgage Applications Decline 15.3% to the Lowest Level in Six Years…re-fi -25.7%! Ouch!

*Service Industries in U.S. Probably Grew at a Slower Pace as Spending Cooled…U.K.’s did and Consumer Confidence there shrunk.

 

As if that isn’t bad enough California salmon, like Abalone may wind up a nostalgic memory, the latter replaced by calimari and scalone…ain’t no substitute for the real thing, and the salmon is coming from Norway and becoming more expensive. If you are a oenophile like TB you might be interested that profits for Chilean winemankers are shrinking as the Peso rallies with copper and other commodities. After visiting two of TB’s favorite boutique winemakers, Rafanelli and Montemaggiore in the Dry Creek Valley he reported on the surging cost of organic chemicals…some by tenfold. There is no pricing power in wine these days and one is doing well to hold them…other than a few cult wines and first growth Bordeaux.

 

This is oddly funny: ECB President Jean-Claude Trichet, the inflation hawk, who like Don Quixote has been jousting with windmills is now starting to look more dovish while Bernanke is sounding more hawkish (don’t bet on the latter). Anyway, prices for consumer goods in the EU fell…except LIPSTICK!

Does this mean you can put lipstick on a pig but it’s still a pig…sorry, it just tied in.

 

Oh yeah, just in Clinton is out Obama is in…this after what seems to be an entire year of blather from the media…and we still have FIVE more months of concentrated election news…and what have we learned?

 

OK, what’s a financial column without a discussion of markets, right? The above tells us what is wrong with them but what is happening to them? The stock jocks all feel like they have it worse than anybody, but that is as the comments above on analysts imply, self-inflicted. Reread those top stories and tell TB and yourself the worst is behind us. The best could be that we bottom and skid along for months…or more, while the worst could be sharp declines followed by relief rallies that trap new money.

Bondo’s have no clue…how does one explain the lack of interaction between bonds, stocks, and the dollar over the past week or so?…or the daily volatility that once again exhibited itself yesterday? But it is the commodities mavens that have problems as their market first expanded from traditional commercials and speculators to be overrun by hedge fund speculators and as they pulled back to avoid scrutiny (it would be disastrous for them if there was transparency in their futures trading), replaced by pension funds…yes, pension funds directly and in the form of commodities index funds and even ETF’s!

 

But the grief for everyone could increase on Friday when we get the payrolls report(s). Not only are jobs expected to decline by 50k or more…TB thinks more…and the unemployment rate expected to rise to 5.1%…Steve Wood of Insight Economics has it at 5.2%…but the number is meaningless as the participation rate due to household employment merely masks the number and can cause ridiculous swings…if economics is an art, this is a roulette table, or worse. Challenger, Gray & Christmas (they should lose the last name as they are never merry), reported this morning that layoff announcements rose by 45% in May! This dovetails into the fact that Wall Street layoffs running at a lower pace than 2002, and this is the worst (in magnitude at least) credit crisis in history…of course it is not really a crisis, right?

 

We have had everything from the Sir Lawrence of Kudlow myth that subprime is too small to have any impact showing just how divorced from reality the man is, to “the world will carry the U.S. economy even if the consumer slows down,” to “the worst is behind us”…all have been just that: myths!

 

Look below at the overnight stock markets and you will note that only two bourses are positive (Japan and Korea), while the rest are foundering. First, the U.S. markets declined…then the Asian markets followed suit due to varying degrees of pegs to the U.S. dollar…then the European markets…leaving just Russia, Brazil and Mexico…but now commodities inflation is hitting the latter two leaving just Russia and it is beginning to look toppy…don’t forget those huge resets on corporate debt looming after the low rates on bonds from just before they collapsed in 1998 that are now sharply higher. So of the four BRIC’s, we are reduced to one…and it might be slipping. Japan has been a laggard and Korea looks like it too may not have much more left…auto news doesn’t bode well for them but they have a lot of electronics products…but in a global slowdown…

 

In equities, both domestic and European, TB has favored solid regional banks with solid, but not high dividends which could be cut if those yields are due to stock weakness (5% is the sweet spot to him), with a solid record of increases and a growth rate of 5% or more, and preferred’s…but not the new trust preferred’s like Citi is issuing; preferred stocks with dividend yields of around 7%. That strategy, along with select fixed income ETF’s, etc. has served him well…until the delinking of the bond/equity/dollar markets that began last week. Oddly, it is the fixed income side that has not done its job of stabilizing the portfolio…but probably will over time. That is why he believes that an ‘income’ approach, not a ‘fixed income’ portfolio may perform best over the coming year(s), since at these low yields bonds offer no inflation protection…unless you assume credit risk and that can be daunting. Even TIPS which have performed so well over the past five years (3.60% 3mos; 5.15% 1 yr; 6.58% 3 yrs; 6.75% 5 yrs), are starting to show weakness…most likely temporary, especially if a global slowdown emerges.

 

Now add to the above concerns a lack of responsibility, transparency, and regulatory supervision and you have the makings of weak markets and economies for years to come. If this sounds depressing, you can feel better that the money you lost was over a long period of time…contrast that to those “smart” sovereign wealth funds who lost it at a much faster rate…right, Norway? 

 

Breaking News!!! Obama wins…how anticlimactic as they have been saying this before yesterday’s primary. We are about to be inundated with rhetoric…and once again distracting us from the task(s) at hand, mainly rebuilding and reforming our financial system so we can grow the economy. CNBC is really hitting hard this morning…Obama will destroy the markets, etc…now remember the people who are saying this are the very people who got us into this mess, right? It is hard to imagine that Obama, or anyone, could make more of a mess, or do more damage to the Constitution than the current president. Obama represents change…or at least the promise of change…didn’t we hear the same arguments by the same groups when JFK was running? …the Pope will run the country, etc.? Fear is a powerful thing.
 
Don’t like to dwell on it but be careful as the markets will likely prove treacherous.
 
TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful.
Copyright TBD Capital LLC June 4, 2008

 

 

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