7/14/11…sacre bleu!

U.S. Producer Prices in June FELL 0.4% vs consensus -0.2%, +2.0% y-o-y; ex food and energy +0.4% and up 2.3% y-o-y. Energy is up 19.9% year over year. It was energy that pulled the PPI down: Gasoline -4.7%; Heating Oil -1.9%; Natural Gas +1.1%. Autos roes 0.2% with light trucks +1.1%


U.S. Retail Sales continued weak rising just 1% and suggesting further weakness in Q2 vs Q1. Jobless claims fell 22k last week to 405k beating estimates of 415k but still struggling with the 400k barrier.  


Bloomberg Top Stories:


*JPMorgan Profit Rises More Than Estimated as Credi-Card Loss Reserves Cut

(This is a poor way to produce earnings…where is underlying growth??? TB)

*U.S. Wholesale Prices Fell More-Than-Estimated 0.4% in June, Led by Energy

*Treasuries Drop, Dollar Weakens on Moody’s Downgrade Warning as Gold Rises

*New York Boosts Sale 14%, Cuts Yield as Investors Seek Safety – hmmm TB

*Obama Said to Consider Summit at Camp David This Weekend for Deficit Talks

*Murdoch’s Ink Stained Wretches in U.K. May Scorch Global News Corp. Empire

*Heat Wave Is Forecast to Hit U.S. Midwest Before Spreading to East Coast

*U.S. to Face Japan in Bid for record Third Women’s World Cup Soccer Title   


Volume was slightly higher again at 3.6B shares while Big Board volume rose a tad to 883 million shares. Meanwhile the VIX says ‘no problem’ as it plunged from 20 to 15.87 in just four sessions (lowest since April 30th!


The Dow rose 0.4% after being up more than 1% early in the session; Transports rose 0.6%; S&P 500 +0.3%; Nasdaq Composite +0.5%; 100 +0.4%; Russell 2000 the big gainer +0.9%.New 52 week highs rose slightly to 156 while new lows were 56. Advance/Declines ran +2.1x on the NYSE and +2.5x on Nasdaq, while Breadth was +2.2:1 on NYSE and +2:1 on Nasdaq. Options expiry is tomorrow. Despite the rally the VIX traded down only to 18.09 then reversed to 20.16 before settling in at 19.91…a warning? Also, it had an ‘outside day’ (higher high and lower low).


Overnight global equities are generally weaker: UK’s FTSE -0.5%; French CAC 40 -0.7%; German DAX -0.4%; Nikkei -0.3%; Hang Seng +0.1%; Korean Kospi flat; Indian SENSEX +0.1%. U.S. Futures slightly better following jobless claims and PPI: DOW +23; SPX +4.10; NDQ +12.25. Gold hit a new record high of $1594 overnight and is now $1588.60 +$3.10 while Crude is $98.67 +.62. U.S. treasuries weaker on the Moody’s talk of downgrade: 10 year 2.92% -5/16; 30 year 4.21% -5/8.


…it’s Bastille Day…and we should be storming something! No budget, and no agreement on raising the debt ceiling…over the weekend Boehner walked out of the meeting and yesterday Obama walked out in total frustration. He says this may cost him the presidency…isn’t that throwing fuel on the fire? Who is control of the GOP? There is a huge power struggle between Boehner and Kantor…with Boehner saying the debt ceiling must be increased yet it was he who said not without spending cuts. But Kantor is a hardliner…never mind that neither he nor Boehner objected once to raising the ceiling in eight years under Dubya! No, the power in the GOP is clearly with the reactionaries…tea baggers etc. They are either too stupid to see the implications (more in commentary below) or they just down’t care. Meanwhile Moody’s who said they would take away our coveted AAA rating has not set it up for a downgrade…time is running out and watch what happens to interest rates if the debt ceiling is not approved…think mortgages which are tied to 10 year treasuries.


Obama may call a meeting this weekend at Camp David but even with an agreement they still have to get past the teabaggers in the full House and Senate. How do you do that…these people are begging for trouble…and TB’s bet is they had better be careful what they wish for because when people find out just what it all means after being whipped into a frenzy over no new taxes and slashing the budget there will be hell to pay in the next election. This is a scorched earth policy and note that is what we have in the lower Midwest states that are in a dust bowl that some say is worse than in the Great Depression.


Meanwhile the stock market continues to see no problem. JPM was the first bank ro report Q2 earnings and there is no real growth but an earnings surprise generated by a cut in loan loss reserves from credit cards…if you don’t know banking this is always a tailwind following major debt write offs when the reserves are shifted back to the income statement as earnings…they are not recurring once they are back in balance. Will the other banks fare as well? Either way that is not a good way to invest in bank stocks…remember the puny dividend too!


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


An open letter to Michelle Bachman and anyone who supports her candidacy for president: First, you rebutted Obama’s SOTU speech giving credit to George Washington for freeing the slaves…a faux pas but you really topped it yesterday when you along with other teabaggers accused Obama of trying to trick GOP leaders into saying that he is bluffing on the debt ceiling. You said “there is plenty of money” you just have to spend it on the things that matter most…”first, pay the military, then pay the bondholders.” Excuse me, but you must have skipped some classes in law school that might have helped you as a tax lawyer.


The first is an understanding of the first term a newcomer to the bond business is taught: full faith and credit (and for municipals that can’t print money and have to balance their budgets ‘taxing power’). This is not a term that is bantied around loosely. It means that the first thing that is paid is the debt (rightly so since the spending was approved…and by YOUR party Michelle for eight years under Bush II). Now to not approve making payments on that debt or subordinating it to any other item on the budget is a violation of the indenture.


What we are tired of is this continual bickering and refusing to compromise…to even remove subsidies that are a waste and to simply continue to cut the budget without concern for the consequences. Despite the job force being the same size as it was in 2004 and total unemployment at 16.2%, you see this as THE time to slash the budget. Fine, but leave the debt ceiling out of it! Also, consider the drag on payrolls the federal and state governments have been…about 30,000 lost jobs per month…and that doesn’t include the soon to be eliminated space program.


You, as a tax lawyer, should be a voice of reason, telling your colleagues to remove the debt ceiling from your harangues and focus on quiet meetings to come up with a workable budget. You, as a representative along with others, have fired up the voters so there is no compromise.


Last night on NPR (you do remember NPR, right Michele?), a republican and democrat talked about why they must not compromise as they were elected to do just what they are doing. This is wrong…and to believe it is to say we have no leaders in America. This country would have been on the trash heap decades ago…in fact it would never have been formed without compromise…that is what leaders do Michele: not dictate but work on solutions rather than flood the airways with soundbites.


You owe this much at least to the American people and future generations that you purport to care about…now do something…positive!


… — …


Yesterday TB heard of a book or report…if anyone knows of it please inform…that says that the lapse in regulation of corporations occurred in 2008 when the Justice Department decided that companies should police themselves by hiring law firms to audit them. Think about this…in a time when corporations are being managed for short term profits and not accounting for risk…do you honestly believe they would do that? Hmmm, what administration was in control in 2008?


Have a great day!




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