3/21/11…T + 8

This week’s economic calendar is relatively light with an emphasis on home sales. We will get February Existing Home Sales (Monday), February New Home Sales (Wednesday), February Durable Goods Orders (Thursday), and the third estimate of 2010 Q4 GDP and the final March Consumer Sentiment (Friday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA.

Bloomberg Quote of the Day: “It requires a very unusual mind to make an analysis of the obvious.” – Alfred Whitehead North – that should be obvious in our world, no? TB

TB’s Quote of the Day: “We are in a race between cooperation and catastrophe and the threat is outrunning our response.” – Sam Nunn…we need men like him desperately!

Friday’s market started out great then faded into the close and although it was still a positive day with strong volume of 1.9 billion shares, eclipsing Wednesday’s down day on 1.29B shares for highest volume of the year so far, at the close it stood at just 900 million with the remainder orders on close…and remember it was options expiry. Absent that it would have been the lowest volume of the week! Advance/declines and breadth both ran about 1.5x while new 52 week highs finally bested new lows by 102/71. The Dow had to settle for a 94 point gain down from the high near the open of 154 points, but the best performer was the Russell 2000 small cap +1.2%.

As for bonds other than the Tuesday/Wednesday spike on the nuclear problem, they have gone pretty much sideways. Overnight, the 30 yr Tsy of off ½ putting it at the lower end of the range.

Gold, which had been weak early in the week, advanced and is up again overnight to $1433, a gain of $15.90. As for Crude, which, due to heavy speculation is the most volatile is up $2 overnight to $103 – almost at Friday’s high. It is this volatility that is disturbing…note that the VIX and VXN have been even more volatile. The VIX which rocketed to 31.27 on Wednesday, highest since July 2nd, closed at 24.44 Friday – still well above the 200 day m/a at 21.69, and the VXN hit a high of 32.46 Wednesday, closing at 26.60, again well above the 200 day at 22.95. Treacherous times.

…that is how many trading days we have to quarterend, which means that hedge funds have exactly five – plus three to inflict damage on conventional money managers should they choose to do so. It also means that volatility could remain very high through quarterend!

TB has to take exception to the Fed’s decision to allow the big problem banks to not only increase the dividend, but to do so in big amounts. This decision is not only reckless but will encourage them to be even more reckless. First, Bernanke made it a priority to run up broad equity prices to help the recovery…something definitely not within the Fed’s mandate, as part of his QE2 (which may be renamed Titanic by historians!), but now he is encouraging the banks to continue to releverage…which would be OK if they were lending it where we want but instead it is being used to grow the investment side of the business – exactly what put us where we were! Lend to small businesses or home buyers? Are you kidding??? What lending they are doing on homes is being sold to FNMA/FHLMC, while Jamie Dimon and others continue to blame THEM for the crisis. True, they were willing accomplices as they, like everyone else fought for market share, but it was JPMorgan, Lehman, Goldamn, Morgan Stanley, Bear Stearns, Merrill Lynch and others that put us where we were by telling mortgage lenders to lower the quality to boost the yield and don’t worry about defaults as we will have sold them to some poor unsuspecting chump by then! So how much of the new mortgages and re-fi’s are being sold to those two GSE’s that Wall Street loathes? Estimates are as high as 90%! Meanwhile the banks collect the origination fees, carry them for three months, then sell them while retaining the servicing fees (0.5%). Think of that: a 4.5% 30 year mortgage gets issued, the bank collects perhaps $10,000 in fees, earns 4.5% for three months and then sells it, still earning nearly 10% of the loan…and you, folks, are funding their recovery! Now, the Fed says they have been stress-tested (really???), and instead of having them build capital, pay it out in dividends! Not to mention bonuses. Oh, and they are going to be allowed to do stock buybacks…remember how successful those have been over the past ten years! The shareholders don’t benefit, only the spec accounts who trade the news, and in the end the buybacks are offset by options issued to key employees. TB has seldom seen a stock buyback done when it should be done: when stock is undervalued…so you will see bank stocks rise, only to fall from grace again.

That is your Fed and your tax dollars at work!

. . .  – – –  . . .  . . .  – – –  . . .

Look at Governor Walker of Wisconsin now. First, he shot down the unions agreement to take pay cuts and benefit cuts for one year – during which time IF he were serious a compromise could have been worked out as it is apparent that the fiscal condition of the states won’t be any better and could be worse. This proved his true colors: he is not a cost cutter but an ideologue. Of course, the other GOP governors jumped on the bandwagon, and whether it is California under Schwarzenegger or the newly-elected democrat Brown, police and fire…in California it is highly overpaid prison guards…who are exempted.

It is police and fire that get the most wages, who have the most disability retirements (when they could instead be assigned desk jobs, and who valiantly then take on construction jobs to boost their incomes…a very sick situation). Of course, they don’t have the right to strike, but then they don’t need it, do they?

On  the other hand, every time the union tries to protect the teachers…and don’t get the idea that TB supports that cause…they make it clear that their priority is not teaching but getting the most they can for the members. Most teachers are not in this camp, but even TB gets his dander up when he hears some union rep spout off. Still, these ‘overpaid’ teachers make a pittance compared to what the thieves of Wall Street make, the most affluent sector in our economy…and they don’t make anything…they don’t teach anyone anything…except perhaps never to trust them as they and their cohorts in Congress rip off the taxpayers. See…it is the same thing, yet you are angry at the teachers, not Wall Street or your elected officials who make it all possible. So you need to do something.

What is a politician without his constituents support? Nothing. He is a lame duck who can then thanks to laws that they wrote, keep his campaign contributions, which then become a form of graft, no? But he will be out on the street.

The teabaggers succeeded, but what we need are Americans willing to change things and that, to TB, is as simple as changing your voter registration to ‘no affiliation.’ The timing couldn’t be better with a presidential election coming up. Imagine having no clue who is in favor of the candidates (oh and you have to not give a single dollar to any party, and don’t check that box on your tax return go give money to political campaigns!), and in those states with open primaries it would be a popularity contest for the one who most closely is allied with your interests…regardless of party. It would be a case of ‘put up or shut up’ – or we will shut YOU up!

Both parties have abandoned their constituencies to line their own pockets with money from special interests and those interests that you might even support, by lobbying so effectively are not even aligned with your interests…only the short-term interests of the management. Free market capitalism is a myth! Explode the myth! Do something!

There, TB said it. Now you decide if it makes sense. But this is the grass roots…TB has not heard this idea anywhere and to him it makes sense. Please send your thoughts and observations.

Do not confuse the above with TB’s rant on John Mauldin last Friday. TB received numerous comments from “you were too soft on him” to “I always thought he was a pompous ass.” TB isn’t telling you to do anything, just consider the idea and if it makes sense do it and tell others about it. TB thinks it could have a huge impact.

Have a great week!

TB

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