5/23/11…rally? what rally?

This week’s economic calendar is relatively light. The highlight of the week will be the second revision to Q1 GDP (Thursday). We will also get April New Home Sales (Tuesday), April Durable Goods Orders (Wednesday), and April Personal Income & Outlays, final May Consumer Sentiment, and April Pending Home Sales (Friday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

Bloomberg Top Stories:

*Stocks Slide, U.S. Futures Drop, Euro to Record Low Against Swiss Franc

*Papandrou Readies Greek Spending Cuts to Blunt Restructuring Speculation

*Greece Default Delay Keeps Refinancing Markets Open For Banks

*Risk Rally Ending for Currencies Turns Focus to New Least-Ugly Alternatives

*Fed Focusing Increasingly on Inflation Expectations With Policy Unchanged

*Prosecutors Faulted on Failure to Charge ‘Bandits’ in U.S. Market Collapse

*Wells Fargo Chief Stumpf Says Lender’s Primary Focus Controlling Expenses

*JPMorgan Joins Google Campaign for Internet Protection in Free-Trade Deals

*Speculators Cut Bets Food Prices Will Keep Rising as Supply Concern Eases

*Massachusetts Seeks More Individual Buyers With $1,000 Bonds

*AT&T Outspending Sprint 11-Fold on Lobbying May Not Clinch T-Mobile Deal

*Demand for Fannie, Freddie Bonds Surging as Growth Slows

*China Rush to U.S. Colleges Reveals Predatory Fees for Unprepared Students

*Tornadoes, Severe Storms Kill at Least 91 in U.S. Missouri Is Hit Hardest

*Obama Promises U.S. Support for Ireland’s Efforts on Economy After Bailout

Friday’s volume was just 1 billion shares, and while still below average it was the first since May 6, and after an attempt to resume the rally the two prior days on dubious economic growth it closed down about 0.7% on every index. BofA, the new Citi, was the leader with 116 million shares, heavily flashes of course, and it dropped 0.9% for a THIRD straight session and is closed off 2.9% for the week. Advance/Declines were -2x and Breadth was slightly worse. New 52 week highs slumped to 116 from 183, while new lows rose to 82 from 64 besting the new highs for just one day on Wednesday. Here are the indices over the past four sessions: Dow -0.7% vs +0.4% vs +0.7% vs -0.6%; Transports -0.6% vs +1.1% vs +1.6% vs -0.2%; S&P 500 -0.8% vs +0.2% vs +0.9% vs flat; Nasdaq Comp -0.7% vs +0.3% +1.1% vs flat- 1.6%; 100 -0.8% vs +0.3% vs +.1% vs +0.2%; Russell 2000 -0.7% vs +0.2% vs +1.6% vs -0.3%.   

The Dollar broke out above 76 overnight after tracking sideways above 75 for an nine sessions and is now 76.33 +.89!!! Since April 14th the long bond had been in a range of 4.47% to 4.36% broke below it for a few sessions then back up to 4.35% and after climbing to 4.33% is back to 4.27% overnight. Meanwhile, the 10 year note continues below the old range (3.41% to 3.29%), and after trading to 3.12% dropped to 3.11%! T-bills which traded at ZERO for ten straight sessions effectively are 0.05%. Gold peaked with a record high on 5/2 then immediately tumbled then back below $1500 but then rallied back Friday and is now $1504.80 -$3.90. Support is $1462.50 hit last Thursday, just below the 40 day m/a! Crude, which has been weak ever since setting that rally high of $114.14, also on 5/2, had a key reversal ten days ago (higher high, lower low, close below prior session low). After trading above par Thursday it was slammed overnight and is $96.96 -$3.14.

Global equity markets are downright ugly: FTSE -1.7% vs +0.2% vs +1.1% vs +0.8% vs -0.3% vs -0.7% vs +0.6%% vs -1%; CAC 40 -2% vs -0.2% vs +1.4% vs +0.7% vs -0.5% vs -1.2% vs +0.5% vs -1.2%; DAX -2% vs -0.5% vs +1.4% vs +0.5% vs -0.9% vs -1% vs +0.1% vs -1.3%; Nikkei -1.5% vs -0.1% vs -0.4% vs +1% vs +0.1% vs -0.9% vs +0.7% vs -1.5%; Hang Seng -2.1% vs +0.2% vs +0.7% vs +0.5% vs -0.3% vs -1.4% vs +0.9% vs -0.9%; Korean Kospi still really volatile -2.6% vs +0.8% vs  -1.9% vs +1.6% vs -0.1% vs -0.8% vs -0.1% vs -2%!!!; Indian Sensex -1.8% vs +1% vs +0.3% vs -0.3% vs -1.1% vs -1% vs +1.1% vs -1.3%. U.S. Futures in a deep funk: Dow -116; SPX -11.10; NDQ -21.75!!! – the makings of a very ugly day!

…reread the top stories and ask yourself if there is truly a reason to be an equities bull. On Friday, TB repeatedly heard that when the Dollar rallies stocks go down…in other words as another headline said, were U.S. stocks the “least-ugly alternative?” What does it say when Wells Fargo’s CEO says the focus is on controlling expenses not generating revenues…but if you have read the quarterly bank earnings reports you already knew this or if you applied for a loan. Has everyone lost track of the ‘multiplier effect’ that part of every Econ 101 class? The overnight markets were brutal and look to do the same when our market opens.

Also, we are seeing signs of the economy slowing just as optimism (not from TB) was appearing on the job front…but what does that mean when the improvement is at the pace of a severely wounded snail?

Meanwhile, the topic at the Fed continues to be inflation. Question: how can you have inflation – not just on food and energy caused by massive speculation which, by the way, is now waning? How can intermediate goods producers pass their costs on to retailers when they cannot mark them up? TB saw a commercial for Best Buy last night saying buy a TV from us now and when the next generation comes out we will buy it back!!! Does that sound like desperation? There is no shortage of supply of HD TV’s…and they are praying that 3D catches on…fast!

So how can REAL inflation be a problem with 9% unemployment…which should be measured as 16%…with capacity utilization lackluster and the dollar seeming to have found a home? You tell TB!

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

Will the GOP candidate for President in 2012 be “last man (or woman) out?” Seems that way. Gingrich booted for daring to call the Ryan plan what it is…GOP social engineering, while nobody approves of the Ryan plan. Also, the thinly veiled block grants to the states and promises to not negatively impact those 55 and older when with inflation the subsidy will decline while medical costs continue to rise…nice try, Ryan. Speaking of subidies, everything but removing them and tax increases for the wealthiest 1-2% is on the table for the GOP. Splendid idea! That will go far. Also, the party that says it won’t kick the can down the road now says don’t worry about the debt ceiling as we have until August…wait a minute…doesn’t Congress recess somewhere in there? This could get ugly…for the taxpayers, for the government by hampering its ability to sell bonds, and ultimately for the dollar…the new normal?

It’s time to grow up boys and girls…especially those of you in Congress…please do so, and act like Americans.

Bloomberg story says that since AG Eric Holder said they would find and prosecute the culprits, not one person tied to the financial collapse has gone down…in fact, prosecutions are down by 39%!

Look what happens when a company’s own employees are shorting or writing covered calls on their restricted shares: Goldman fell 3.2% on Friday to the lowest close since 7/6/10, and is now off 23% from the 1/18/11 high. The reason of course is that IF they are found guilty of fraud they are out of business…TB doesn’t think the government, especially with badgering from Congress and the lobbiests will do this but IF…as TB said on Friday: book value for a financial firm is meaningless and a moving target!

When will someone…anyone go to jail and send a message to these crooks?

TB

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