7/15/11…Minnesota musings

Bloomberg Quote of the Day: “We don’t know a millionth of one percent about anything.” – Thomas A. Edison TB saiz: “Some of us know even less, and some of them are elected to office…to govern?

 

The good, the bad, and the ugly: U.S. Consumer Prices FELL 0.2% in for the first time in a year vs. consensus -0.1% on falling energy prices, while the Core which takes out food and energy ROSE 0.3% for a send month, more than forecast and the biggest back-to-back gain in three years…you decide what that all means!

 

Bloomberg Top Stories:

 

*U.S. Consumer Prices Decline Amid Biggest Slide in Energy Costs Since 2008

*European Stress Tests Compromised by Greek Non-Default, German Mutiny

*Stocks Decline Before Stress Test Results as Debt Risk Rises to a Record

*Stress Tests to Show Finance Ties That Bind banks to Nations – a mess!

*Deficits Don’t Matter to Bondholders as Moody’s Warns U.S. —or do they?

*Government Spending Cuts Fuel U.S. Economy Ignore Math of Lost Growth

*Weakening U.S. Consumer Income Expectations Point to Slowdown in Spending!!!

*Decade of Withdrawals Shows Americans Lose Faith in U.S. Stock Investments!!!

*Citigroup Estimates It Has $22 Billion at Risk in Five European Countries

*Chevron Uses Toxic Drilling Waste Suit to Put Ecuadoran Courts on Trial

*Credit Suisse Is Target of U.S> justice Probe of Private-Banking Services

*Obama Tells Congressional Leaders Time for Rhetoric on Debt Limit Is Over

 

Volume was slightly higher again at 3.8B shares while Big Board volume rose to 925  million shares, highest since June 30th. Meanwhile the VIX surged to 21.58 and closed at 20.80 – highest since June 24 when the quarterend rally began. Perhap

The Dow fell 0.4% offsetting Wednesday’s gain; Transports FELL 1.2% vs +0.6%; S&P 500 -0.7% vs +0.3%; both Nasdaq indics fell1.2% vs +0.5% and +0.4% respectively; Russell 2000 was the big loser plunging 1.6% vs +0.9%. New 52 week highs fell to 109 from 156 while new lows surged to 88 from 56. Advance/Declines ran -4x on the NYSE and -3.2x on Nasdaq, while Breadth was -4.4x on NYSE and -4.5x on Nasdaq. Options expiry TODAY!!!

Overnight global equities are modestly weaker for a second day: UK’s FTSE flat vs -0.5%; French CAC 40 -0.4% vs -0.7%; German DAX flat vs -0.4%; Nikkei up 0.4% vs -0.3%; Hang Seng -0.3% vs +0.1%; Korean Kospi +0.7% vs flat; Indian SENSEX -0.3% vs +0.1%. U.S. Futures slightly better but they were yesterday also: DOW +38; SPX +3.70; NDQ +10.25. Gold is $1586.70 -$3.80 after hitting  a new record high of $1594.90 yesterday while Crude is $96.16 +.47 very volatile lately and is now below the 200 day m/a $96.78!!! Go figure! U.S. treasuries weaker again but still strong: 10 year 2.96% -1/16; 30 year 4.29% -5/8.

…as many of you know, Minnesota has been shut down now for 15 days but unlike the other states the tea party rolled over it has a GOP legislature and a Dem governor. This is what produced the shutdown or it would have gone the way of Wisconsin and the other states that have both branches under control of one party. Impact and latest news follows.

As for the federal debt ceiling it has long been anticipated that an agreement can be forged IF leaders (sic) can find cover from the voters who elected them. But the twist is that there is open disagreement between House Speaker Boehner and Majority Leader Cantor, the latter has no concern about not passing the debt ceiling. So Mitch McConnell showing at least some leadership ability proposed a plan whereby Obama takes the fall to get it through. All well and good, and Obama is resigned to this which will provide fodder for the GOP in the 2012 elections, but the question is: can they get the House to ratify it since it has a large tea party caucus? These uninformed stalwarts say don’t raise it and test the waters. This of course is foolhardy but that is what happens when people are elected on emotion rather than qualifications for office. As noted yesterday, Michelle Bachman sees no problem in allocating resources to pay FIRST the military then the bondholders showing her ignorance of the debt markets.

There has been a lot of talk about China, the second largest holder of UST following our own FED, selling treasuries but that would be absurd as it would cost them billions in reserves which they desperately need. But what if they passed on just one auction or series of auctions? Could we have a ‘failed auction’ as the UK did some months ago where there were fewer bids than bonds offered? The answer is yes and while a downgrade by Moody’s, as promised, would have little impact on UST due to the dollar being the reserve currency, rates would undoubtedly rise…and take mortgage rates with them. Furthermore, our status as a AAA debtor would be tarnished and that is something we have always valued – rightly so. No doubt the other nations would want to send a message to us on the consequences of our actions…and for what? Behaving like children when those elected are expected to LEAD, not just worry about their ‘commitment’ to those who elected them…most of whom are grossly uninformed anyway and have been whipped up through rhetorical hyperbola and rants. Also bear in mind that the tea party was funded by the Koch brothers…16th wealthiest Americans who hate authority as exemplified by the fines they have received on environmental and safety issues.

TB senses that Boehner recognizes this has gone too far but whether for zealous or political reasons Cantor is pressuring him…is that a leader? TB thinks not.

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

Yesterday TB mentioned a report 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. A friend sent an article by William K. Black a lawyer and former bank regulator who traced this back to Enron when Arthur Anderson, the top accounting firm, through auditing and consulting allowed the firm to misrepresent financials and commit fraud. Sarbanes-Oxley has done little to stop this, and it is amazing that in such a short time we had an even bigger financial crisis…free market capitalism? You decide. Another friend sent this link that is the actual article:

http://www.nytimes.com/2011/07/08/business/in-shift-federal-prosecutors-are-lenient-as-companies-break-the-law.html

… — …

The day after Minnesota Governor Mark Dayton said he remained willing to compromise on the budget stalemate that has shut down the government for 14 days – provided there were tax increases along with budget cuts – he unexplcably caved and agreed with NO revenue increases…instead getting the GOP leaders to agree not to push philosophical issues such as abortion. What caused him to change his mind? Dunno, but it doesn’t look good for him. But let’s look what has happened during the shutdown:

  1. State workers have been furloughed, except emergency services, and are receiving half pay, and will eventually get the rest back…millions that could have at least produced something.
  2. doctors and nurses licenses that expired during the shutdown were not granted automatic extensions harming them financially and for no good reason…after all they were already certified
  3. sales of lottery tickets and fishing licenses were suspended even though this is the tourist system thus impacting tourism and causing financial damage to businesses as well as a loss of state and local revenue
  4. outsourced services for the mentally ill, drug programs, etc. were not paid – this happened in California too some years back and drove many of the providers out of business
  5. and a final act of stupidity. The state requires beer companies to license each brand at a cost of just THIRTY DOLLARS per brand. Coors sent in the check and it was sent back due to an error…they resent it BEFORE the deadline but it was received after the shutdown and not processed. They are now being told that they must remove all of their brands by the date of expiration of their licenses. Note that this does not mean shipping more but current inventories…talk about insanity…if TB were Coors it would stop shipping to Minnesota.

As always…be careful what you wish for as the consequences are not all visible…especially if you didn’t even bother to consider them! What will the voters say the next time around? Stay tuned.

One more day then enjoy your weekend!

TB

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