2/7/11…Dimon in the rough?

This week’s economic calendar is relatively light with few important indicators. We will get December Consumer Credit (Monday), December Wholesale Trade and the January Budget (Thursday), and December International Trade and mid-February Consumer Confidence (Friday).

Courtesy of Steve Wood, Insight Economics, Walnut Creek CA 

…perhaps you are a true believer in Jamie Dimon, CEO of JPMorganChase. TB is not! When the top bank in the country…Citi is no match for the quality…makes headlines in different divisions from municipal finance to the latest the investment division which knew for at least two years that something was wrong with Bernie Madoff’s company yet chose to not bring it to light due to their own loans. But Gip ‘Em says that it wasn’t a major client…despite earning over $500 million in ifees and interest from the firm and even made a $95 million loan without ever seeing the trading floor, despite suspicions about the accounting firm, and only having a handwritten note from Bernie swearing that the firm was legitimate. Then, in late 2008, they pulled nearly $300 million out of the firm (the Mets owners did likewise).

TB’s concerns are two-fold:

1. What does it say about leadership when this is happening in multiple divisions of the bank, the premier bank in the country? In TB’s 39 years in banking and investments every time some new wunderkind comes along that the analysts love who is going to show the old bankers how it is done, they fall flat on their face! The first was John Bunting in 1972 just after TB began his career. TB was fortunate enough to hear him at a Town Hall that year and within six years he had expanded First Pennsylvania’s investment operation until it imploded. Then there was Sandy Weill, who it appears bribed Robert Rubin for being he driving force behind the repeal of Glass-Steagall…which made Phil Gramm very happy and who James Baker said placed the blame on this on Bill Clinton, who was merely trusting two advisors, Rubin and Summers, as well as Greenspan, Gramm and the majority of the GOP. People wake up…this is not free market capitalism!

2. When at the same time as the bank is foreclosing on home loans and credit cards it has the audacity to say the Madoff was not a major client of the bank. This is an insult!

But what is really galling it that the Feds handed them Bear Stearns on a silver platter, provided bond guarantees that kept the bank afloat and now we learn that the bulk of the banks earnings in Q4 came from reductions in the loan loss reserves…which is according to accounting principles but should they then pay bonuses based on those earnings? What about the shareholders?

Next item: Goldamn Sachs front and center. It seems that the ‘partners’ in Goldamn, save the top 9 executives, many of them division and department heads with insider information, ‘hedged’ their performance shares thru derivatives…including covered calls…thus insuring the value of the shares didn’t decline. One division head even did a dangerous short strangle that he lost money on when the stock rebounded. If one looks at the volatility of GS stock, it seems that the volume by these multi-millionaires played against the interests of the shareholders. But do we have a right to expect less from a firm that screwed its mortgage clients by shorting while selling to them and after being caught, just informed the buyers of its Facebook shares that the ‘bank’ reserved the right to sell, or short, its position at any time. Fool me once, shame on you…fool me twice, shame on me. Yet we sit there and take again and again from these thieves.

TB reiterates that were Goldman still a true partnership (it is a public corporation with partners who have diluted their liability and at times bet against the company!). Were Merrill, Bear, and Lehman still partnerships they would never have taken on the risks they did…nor would they have hired most of those gunslingers…but with other people’s money (OPM), why not? The shareholders bear the risk and management reaps the rewards…even if they fail they get their golden parachutes!

Now for TB’s biggest peeve: his friends in the business who will not acknowledge that it was THEIR firms…many of them now gone, that created the greatest financial crisis in the history of mankind. Furthermore, some of them still blame those who took out subprime loans while ignoring their own firms responsibility, which seems incredible knowing what we do now.

TB is ashamed for the business he was in…where he spent more than six years with Merrill Lynch and L.F. Rothschild, thinking both were honorable firms, only to find out that greed got the best of them…destroying their own firms from within on the backs of loyal shareholders.

Is it any wonder that the average holding of a stock is now a mere five months? So much for buy and hold…unless you want to come up short!

If the above seems mean-spirited it is because we are turning our heads when firms are violating regulations either directly or in spirit for personal gain and raising the risk levels all over again. As that loan person from Davos said, it is likely that we will have another major financial crisis within five years. Good luck!

Friday’s volume…despite a week in which the Dow gained 3% and is now up 4.5% for the year to date, was just 920M shares, lowest so far this year! Monday was the only ‘average’ day at 1.2B shares, Tuesday was shy of 1.1B and the other three were under 1B shares. What we had was an absence of sellers…not a plethora of buyers. Also, advance/declines were all negative while breadth was modestly positive yet we managed another 400 new 52 week highs! One day, soon, we will see a correction, while in the meantime we eke out minor new highs. Do not be deceived at 12,000 as being a significant number.

A friend, trader and technician who is a long-time friend wrote that the secular bull market in bonds that dates back to 1987 (?) may be in danger of ending. He is going to get more details on this but asks you what it means when the Fed Chairman says rates must stay down, bond yields in turn rise, and Congress is arguing over whether to approve the debt ceiling? Hope to have more tomorrow.

How could anyone possibly be excited about the December payrolls released Friday? They were horrible…36k and it was passed of as due to the weather but we need more than 125k just to absorb new entrants to the labor force…of course the number of discouraged workers is increasing causing the unemployment (not including those discouraged workers and part-timers for economic reasons which surged to 17.6% only slightly below the 18% registered a year ago!

Is there a bright spot…oh yes! Those with college degrees are at just 4.2%. Isn’t that great? Well not exactly because they are taking part-time jobs and for the first time on record there are more people employed part-time than full-time! That means with NO benefits and at a time when more than 50% of Americans don’t even have health insurance! Furthermore, many of those part-timers have two, three, or even four jobs! Think about that! It means we are double counting or more the number of people getting jobs! Get real!!!

We are in a crisis…food prices are being manipulated higher and if you doubt this, how come General Mills, and other companies are not able to pass on price increases? How come there are riots across Africa over food prices where people are starving and where Tunisia’s government has been toppled and the strategically important Egypt is on the verge?

Meanwhile the Teabaggers and the GOP leaders (sic) continue to pledge to reduce the budget deficit thru spending cuts alone…no tax increases even for billionaires who are paying just 15%!

Oh, yes and that evil social security where someone earning $1 million in investment income can collect before full retirement age – and is doing so – while a person under 66 making $10,000 or more below the federal poverty guidelines is forced to give up $1 of benefits for every $2 over $14,160 a year! This is the least compassionate group of people on the planet.

TB is working on a table that disproves how quickly one gets back what they paid into social security. Every example TB has seen only uses the employees contribution, not the employers, ignores that combined the contribution is 12.6% of income below $108,000, and doesn’t convert to 2010 dollars! It is deceitful to blame the problem on social security when it was the both parties using the funds for their spending purposes while paying only the interest on treasury bills – which at less than 0.2% guarantees that the problem will get worse! It is also disingenuous for Boehner to say they will reform social security but it won’t impact anyone 55 or over (which, by they way he is as is the backbone of the GOP voters). The public be damned!

After the Super Bowl, TB watched Undercover Boss (not to be confused with the 60 Minutes segment on John Gotti Jr.). It was on Frontier Airlines CEO, Bryan Bedford (Bloomberg lists it as Republic but he said the name was changed back to Frontier, which he ran before changing airlines and shortly thereafter Frontier filed for bankruptcy). The story started out with his family in their mansion…with huge pool,etc., four kids, and very religious – not sure which but Christian. He then left for work where he ‘trained’ under four different employees.

He was very concerned that they had enough people to do a good job. Most told him how they were struggling…one with four part-time jobs (how timely for this column!). At the end the bring the employees to corporate headquarters and he gave a raise to the one mentioned, and other promotions etc. He was very moved by this but it never seemed to occur to him how he was living versus the employees who made it all possible. Checking on Bloomberg his compensation is $450,000 plus in 2009, latest available he earned over $1.3 million with bonuses and stock, a look at which shows it in a tailspin.

TB is not knocking him for what he earned or his lifestyle but what are they paying their flight crews (not cabin) who were never mentioned and are reportedly being paid so little that they too have to have other part-time jobs…people fly because they love it, not to get rich, but TB would feel much better if they weren’t worried about their finances when they are up there…as with the commuter jet that crashed on the way to Buffalo a few years back.

We are the first generation of Americans to witness a lower standard of living for ourselves and our children…and that does not bode well for the future. Again, TB is not a socialist, communist, or any other ‘ist’ but he also is not a republican or democrat, both of these parties need to be completely restructured to serve the needs of the American people. Show me an elected official who goes to Washington or the state capitol who returns home with less than he went there with, usually considerably more, and TB will show you one stupid politician!…or an honest one!

Lastly, on Egypt, for Obama or anyone to call for Mubarek to step down immediately is insane as it would open the doors to chaos. What he needs to do is set an election date…six months or so out so that the people can vote for someone they know about…oops, that doesn’t work here does it? In his 36 years in office, Mubarak has amassed a wealth estimated at $70 billion. This while the average person makes about $10 a day….and we want them to choose democracy? Is there truly democracy? We had better sleep on that one!

As for the Super Bowl it was one of the more exciting ones. TB watched it in a brew pub and was amazed at how many were pulling for Green Bay. Was it because of Rothelsberger? He who was trying to win to restore his tarnished reputation of assaulting women (then paying them to not testify?), but one thing is for sure: the loss, whether due to injury falls squarely on his shoulders. Somehow TB thinks that Brees and Sanchez are smiling right now.

Have a great week!

TB

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