3/17/11…Erin go bragh! More or less!

The situation with the Japanese nuclear reactors is going from bad to worse. Bad if you take the Japanese government and power company at their word, near catastrophic if you listen to nuclear experts from the rest of the world. They have now resorted to dumping seawater into the reactors from helicopters! Now that is desperate. Not only are many of the uranium rods IN the reactor uncovered but the pool holding the spent rods is reportedly exposing those rods and they are very dangerous as they can heat up for months after being removed from the reactors (the power company is denying that this is a problem). Some are calling the workers who are attempting to control the reactors suicide squads…this is a very bad situation – putting it mildly!

Overnight the Yen rocketed to 76.36 – record high!…from 83 the day of the disaster! This too could have serious implications for markets are spec accounts are forced to cover and require liquidity. The G-7 has called a meeting tomorrow and currencies will be discussed along with a briefing by Japanese government officials.

The U.S. stock market is also getting uglier and uglier. Yesterday’s -242 day on the Dow after being down 300 intraday was on volume of 1.46 billion shares – not only the highest of the year but highest since July 16th – and yes, it too was another big down day (-160), as if it was necessary to point that out. Advance/declines were – 3:1 and Breadth was -10x!!! The low on the Dow, the fifth straight lower low was at the same level as 12/31/10…nearly three months of gains wiped out.

Ah but it was all because of the earthquake/tsunami you say. Well, keep telling yourself that, only the magnitude (no pun intended) was…this market was out of steam…they had sucked everyone in to being long for quarterend…good luck! Anyone up for buying MegaMillions tickets? $201 million on Friday. Still stupidly playing that? Is it any more stupid than buying derivatives with a 99.85% of working out? How many lottery winners have you heard complain about the odds? Like being struck by lightning…somebody has to get it…and all for less than the cost of a drink!

Overnight, stocks are rallying in Europe by about 1%, while Asia is weak – Japan -1.4% after rallying earlier in the session; Hang Seng is off 1.8%; Korea flat; India -1.3%…even emerging markets are now feeling the pain. U.S. stock futures are rallying though: DOW +82; SPX +12; NDQ +16. Of course this is pushing bonds down again with the long bond -13/16 to 4.40%. The 10 yr JGB is 1.19% – wait for the reversal when this is over…could be huge! Gold is $1399 +$2.90, while Crude is up $1.23 to $99.22…with major res at $100, sup at $95.

…what a paradox: on one side of the world it is a holy day (it is only a festival in the United States, in Ireland it is a holy day – except perhaps in Dublin which is highly anglicized), while on the opposite side it is terror. First the quake, then the tsunami, now the growing risks of a meltdown or at least a release of massive amounts of radiation. In between, the rioting continues in Libya and protests in other Arab countries (but we, in the U.S. are only able to deal with one event at a time as TB has sadly reported on numerous occasions and for it we pay with the gyrations in our stock market while deceiving ourselves that we are financially savvy – a fact disproved by the actions of stupid, greedy, Wall Streeters and their minions in Congress, we have only ourselves to blame for our situation.

TB visited Ireland (under protest as his wife of Irish ancestry wanted to go and TB could only imagine drowning in Guinness and corned beef and cabbage…not to mention potatoes…for a week). But on arrival he found an entirely different place…a magical one with beautiful scenery and great food…the best produce in Europe…and French trained chef’s. This was during the dot com boom and we drove past HP, Intel, and other huge plants. We were treated wonderfully by the Irish in not just restaurants, inns and pubs, but even well-dressed youths in gas stations.

Sadly, friends going back of late tell of all those in services being Polish…or so it was until the last year or so when the Poles went home (abandoning their cars in airport parking lots!). Housing prices had inflated pricing out only the wealthiest or those with high paying jobs in tech.

The ‘flight of the earls’ of the days of the potato famine had reversed and the ex-pats returned home, well-educated and eager to work hard. Now sadly the flight is reversing again. The government had foolishly guaranteed all the debt of the banks (following the lead of the stupid Americans), and in the worst defeat since the Irish Constitution the entire governing party was ousted and now there is a coalition government of the other two parties. If you think our housing bubble was absurd, theirs was beyond comprehension and now all must pay the piper.

From yesterday’s column:

Years ago, while working for a now defunct money manager, Goldamn Sachs made a presentation to a coworker (who went on to head a department of quants at JPMorgan if memory serves – who is smarter though an Indian or a Pakistani…the most prevalent quants?). Anyway, the were arguing that for our bond mutual fund (Montgomery Street Income Fund) that we issue commercial paper and then use the proceeds to buy MORE bonds! They showed a Monte Carlo simulation (recall that is just another form of backtesting and why do we care about that when ‘past performance is not an indicator of future performance?’ (Yet, the brightest minds in the financial sector continue to do this and do it for one and only one reason: to sell product!)

TB should have added:

We passed on the idea but a lot of mutual fund managers didn’t…they leveraged…in fact TB believes that any mutual fund that uses leverage should be made to include the word ULTRA, like the ETF’s do – voluntarily! It is especially rife in municipal bond funds and one of the reason that Meredith Whitney’s rant on 50-100 big issuers failing caught hold – briefly. It scared the small investors but that doesn’t explain why bond yields soared so high even when well-respected managers were decrying her logic. The yields would NEVER have gone so high or for so long if the leveraged funds hadn’t had massive withdrawals – from the little people and that caused them to be forced to sell…but not 1:1 – how about 2:1 or 3:1 or more??? Performance comes with a cost and it was time to pay the piper. Now do you see why TB prefers ETF’s to mutual funds, and that doesn’t even include the hefty fees the funds charge…shame on them!

Since the 1980’s when CEO salaries rose from 10x the average worker to several hundred times while the workers wages were held down and their benefits cut (are the unions so evil? Look what happens when they aren’t around to protect you…TB is not a union lover…he is just sayin’.

The argument then and now is that there were only a handful of qualified people to do this. Afer reading All the Devils are Here, TB is inclined to believe it. None of the heads of the big Wall Street firms were CEO material…except perhaps Goldamn’s Blankfein but he flunked the morality test – miserably! None of them knew what they were doing or how much risk they were taking and in the case of Merrill’s Stan O’Neal, BofA’s Ken Lewis, and Citi’s Chuck Prince, oh and lest we forget Dick Fuld of Lehman, they didn’t even listen to those in the firm who tried to warn them…it is just like now: the wealthy haven’t a clue (or are in denial) about the sufferings of the common people. This is not to condemn the CEO’s of the mid and small size companies who dedicate themselves to running these companies profitably and for the good of the shareholders. They do not see themselves there for three or four years and can thus care less about strategic planning (what’s that???). Unbridled free market capitalism – bah! Humbug! …and none of it would be possible without their minions in the Congress of the United States.

Jonathon Weil in a Bloomberg article today discusses the ‘soft’ approach of the SEC to CEO’s who engaged in fraud from Angelo Mozillo to Daniel Mudd of FHLMC. Despite the obvious misstatement for years of financials neither they nor anyone else is being tried for fraud – none! This is the country we live in where federal prisons are full of street corner drug dealers with no option of parole, and devoid of those who engaged in corporate fraud who remain millionaires and billionaires. TB would love to talk to some of them to see how little it has affected their almighty egos. This is a disgrace and insult to the tens of millions of Americans who have suffered – many of whom have been labeled deadbeats for the actions of commissioned loan originators. Yet the government feels the most important issue is cutting the budget and banning abortions…we are truly sick! Here is the link: Jonathon Weil

Later today, hoist a pint of Guinness for the Emerald Isle!

TB

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