8/19/11…at the Indy 500

Bloomberg Top Stories:

 

*Euro Gains, Stocks, U.S. Futures Pare Losses on Rehn’s Euro-Bond Remarks

*U.S. Index Futures Pare Losses as Rehn Says EU May Prepare Euro-Bond Law

*Gold Climbs to Record, Set for Best Weekly Run Since 2007 on Haven Demand

*Franc Strengthens as Investors Seek Refuge From Declines in World Stocks

*Bank of America CEO Moynihan Says Expect 3,500 Job Reductions This Quarter

*Global Bank Capital Regime at Risk as Regulators Splinter Over Basel Rules

*Hewlett-Packard’s PC Spinoff Would ‘Reinvent’ Company With Return to Roots

*Putin Denounces American Parasite While Russia Increases Treasuries 1,600%

*Goldman’s Hawker Bonds Plunging as Obama Targets Jets – ah, the best perk!

*Best Bond Returns Since ’08 Repudiated Downgrades, Deficits – amazing!

*Junk Yields Surpass 10% as Growth Slowdown Halts Bond Sales in Europe

*Naptha Profit Surge Set to Double Asian Imports in August

*Chinese Protest $5 Billion Loss Tied to U.S. Stock Market Reverse Mergers

*Libya Rebels Say They’ve Taken Refinery, Almost Surround Tripoli Outskirts

*Mosque Bombing Kills 53, Injures 117 in Northwest Tribal Area of Pakistan    

 

Volume was back up to 6.3B shares from 3.86B shares (which was a mixed bag day), while Big Board volume surged back to 1.6B shares from 973 million – the first sub 1B shared day since 7/28. 14 of the last 15 sessions (13 in a row) were 1B share plus days in the worst volatility on record. Meanwhile the VIX rocketed back up to 42.67 +11.09!!! Nearing the 48 high which was the highest since 5/21/10: 48.20! If you call this ‘liquidity’ provided by high frequency trading, TB pities you.

 

The market was an unmitigated disaster yesterday. Look at the comparisons to Monday’s anemic attempt to recover late in the session. There were just SEVEN new 52 week highs vs. 25, while new lows, rose to 481!!! from 78, pushing the ratio to an incredible NEGATIVE 69:1…worst TB can recall. Advance/Declines ran -15:1 vs +1.5x on the NYSE and -10:1 vs -1.2x on Nasdaq, while Breadth was -31x vs +1.5x on NYSE and -42x vs -2x on Nasdaq. Dow -3.7% vs flat; Transports -6.3% vs -0.4%; S&P 500 -4.5% vsw +0.1%; Nasdaq Comp -5.2% vs -0.5%; 100 -5.0% vs -0.6%; Russell 2000 -5.9% vs -0.1%…a bloodbath! Note that despite the record high in gold, the gold miners did not follow suit! The only winner of the day was U.S. treasuries. The 10 year yield plunged to 1.97% before closing at 2.07%! Think what that means, especially when T-Bills out to six months yield ZERO!!!

 

Overnight global equities are taking a second huge hit. FTSE -1.5% vs -2.7%; CAC 40 -1.6% vs -3%; DAX -2.7% vs -3.8%!!!; Nikkei -2.5% vs -1.3%; Hang Seng -3.1% vs -1.3%;Korean KOSPI -6.2%!!! vs-1.7%; Indian Sensex -2% vs -2.2%. Note that with the exception of the KOSPI, two days of losses about equaled the U.S. market yesterday alone!. Futures are tanking for a second day too: DOW -116 vs -224!!!; SPX -12.10 vs -27.20!; NDQ -16.50 vs -46.75. Gold exploded to another big record high of $1881.40 overnight and is now $1848.80 +$27.60!!! Crude is continuing to slide: $81.80 -.58. Still looks like DEFLATION to TB…and with the Fed making what looks like an idiot move of no tightening until at least mid-2013. Presumably this was designed to build confidence…but in what? That we are in a heap of trouble??? It is a last ditch effort to avoid deflation…when you have just 25 basis points to zero, there isn’t much you can do except monetize debt and weaken the dollar…good luck!

 

…flash trading, high frequency trading, whatever you call it, it is destroying the market for long-term investors and driving them away in hordes. This is what is so insidious about the financial sector driving all regulation (or lack thereof) of their industry despite having been bailed out by the government and taxpayers.

 

Some of you watch auto racing but everyone knows it would be insane to allow the family sedan on the track with race cars, but that is what we have created. Brains created the algorithms that drive high frequency trading, which we were told is good for the markets as it creates liquidity…it does not…it creates the illusion of liquidity. What it created was the biggest casino in the world with the odds stacked more in favor of the house than a game of three card monty. Just like in 2001, A Space Odyssey, Stanley Kramer’s brilliant sci-fi about a computer named HAL (each letter one ahead of those in IBM), and nothing can go wrong…go wrong…go wrong. Our faith in our own inventiveness is never dashed, is it.

 

We have no ‘uptick rule’ to protect us from this computer, seen as redundant by the SEC, except for a brief stint back on select stocks during the panic of ’08. We were told it serves no value…well geniuses ask again…when top name stocks fall 5-10% in a day…just short of the circuit breakers…don’t you think that is factored into those algorithms? Remember when Soros became Time’s Man of the Year as the man who broke the Bank of England? That was one fund…now we have dozens of them, some paying a premium to have their computers next to the NYSE to gain a couple of milliseconds on the competition. If you were a buy and hold investor you haven’t made money since 1998, think about that…then think about how regulators, controlled by Wall Street via Congress, have served you the investor – miserably!

 

You can bet that as part of a budget deal, the Congress and especially the select committee (sic), bought and paid for by the financial sector (JPMorganChase, Bank of America, Citi, and Goldman Sachs), will cut back on allocations to them, and there will be a push as Gingrich swore he would do to eliminate Sarbanes-Oxley and

Doff-Frank…not fix them mind you, but eliminate them totally. Step one, brilliantly executed by Sandy Weill and his minions led by Robert Rubin, with the full support of Phil Gramm and the rest of the GOP, and supported by Clinton and the Dems, was to rid themselves of the noose of Glass-Steagall. This is step two. What comes next…a total global financial collapse? Because these people who run their companies for their own gain by managing for quarterly results and don’t give a damn about the long-run, will destroy you for their own bonuses. But the best part is that they have convinced the tea party that their taxes should not be raised! No sir, and fools that we are, we believe them…while they cut social safety nets in the name of austerity. This is a travesty worse than the inept government of the 1930’s which with an incompetent Fed turned a major recession into the Great Depression. Where do we go from here? You decide, TB already has.

 

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

 

TB wrote a few times about how a leader who can unite the masses could offset all that has occurred and how we had better pray that it is a good leader not a despot. It would be easy to do if you had someone who could invigorate the populace as Marx, Lenin, and Hitler did…only recent one TB can think of that was a positive was Lech Walensa whose Solidarity freed the Poles.

 

But what is concerning TB is that that youth is so disenchanted with government and so busy occupying themselves that like the Orwellian loudspeakers of 1984, it is rapper’s that are beginning to incite people. TB has seen two of them in the past week, one on O’Reilly, whose views are so misguided and skewed, that if these are to be the leaders we are truly in trouble. The tea party can forget about the budget and start worrying about holding it all together. If it doesn’t scare you that people totally lacking of culture are viewed as leaders, then anarchy could be right around the corner. There is no culture in anarchy…Matthew Arnold wrote that nearly 150 years ago, and when one views the big socialist movements we see how correct he was.

 

This is, of course, taking things to extremes, but if one looks at the landscape, can you honestly say that any of the GOP hopefuls…or Obama, or anyone else in the Democratic Party, is truly a leader? Honk if you find one, TB can’t!

 

Hope your day is a good one!

 

TB

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