8/30/11…you have to believe!

Bloomberg Top Stories:

 

*U.S. Futures Decline as Treasuries Advance; Italian Bonds Drop, Oil Falls

*European Economic Confidence Drops Most Since December 2008 on Debt Crisis

*Wealthy Use Auctions to Sell U.S. Mansions After Irene Loss – one way to do it!

*European Banks Need Bigger Writedowns of Greek Bonds, Accounting Body Says

*Covered Bond Sales Surge to Two-Month high on Demand for Haven Investments

*New York State Municipal-Funding Agency to Offer $191 Million of Bonds

*Hedge Funds Are Most Bearish on U.S. Stocks Since 2008 – go on, fight ‘em!

*Obama May Back Hiring Credit, Infrastructure Spending Yet Fall Shy on Jobs

*House Republicans See to Force UN Changes by Using U.S. Funding Leverage

 

The rally occurred on a huge plunge in volume to a mere 3.6B shares on the NYSE, lowest in nearly two months. Meanwhile shares executed on the Big Board were a mere 912 million, lowest since July 26th…that was the day before stocks fell off a cliff and put us where we now sit! Note also that we had a ‘double top’ in July with the first coming on 7/7 and the second on 7/24, which could prove ominous. We now have a TRIPLE TOP of the bounce from the 8/9 lows which were lowest since 9/17/10! BAC was more than 1/3 of total NYSE volume for a third straight session (more below). Advance/Declines were huge but likely due to no sellers: +1.5:1 vs  +5:1 vs -3.3:1 vs +2.3:1 vs +5.5:1 vs -1.2:1 on NYSE and +7:1 vs +4:1 vs -4:1 vs +2:1 vs +4.8:1 vs -1.2:1 on Nasdaq while Breadth incredibly big meaning you had to pay up to get filled! +31x!!! vs +9.5x vs -3.1x vs +3.4x vs +4.4x vs -1.2x on NYSE and +39.5x!!! vs +8x vs -9x vs +2.6x vs +6.2x vs -1.3x on Nasdaq. Don’t be misled! New 52 week highs rose, but remain low, to 62 from 25, while new lows plummeted to 43 from 228!!! – the high was 616 last Friday! This is the first time in weeks that the ratio has been positive but for the reasons stated above may be a reason to sell not buy. The VIX plunged for a third day, this time to 32.28 from 35.59 after gapping down on the open but remains very high. 48 was the selloff high, not seen since 5/21/10: 48.20!

 

This was a huge rally that may well turn into a classic BEAR TRAP! Here’s why:

8/29        MTD        QTD

Dow Industrials   +2.3%       -5.0%      -7.1%

Dow Transports    +3.6%       -10.9%      -14.9%

S&P 500           +2.8%       -6.4%      -8.4%

Nasdaq Composite  +3.3%       -7.1%      -10.4%

Nasdaq 100        +2.9%       -5.9%      -4.4%

NYSE Financials   +3.6%       -10.4%      -14.1%

Note financials demise despite huge gains by BofA of late (+8.8%, -13.6%, -23.4%)

 

If you got giddy over yesterday’s rally you weren’t listening to the experts yesterday, merely the talking heads on CNBC.

 

 

Overnight Asian equities are rallying, Germany and France weak on plunge in Economic Confidence, but FTSE was closed so is just catching up. FTSE +1.8% vs closed vs -1.1% vs -0.4% vs +0.8% vs +0.5% vs +2.3% vs -1.5% vs -2.7%; CAC 40 -0.3% vs +1.6% vs -1.7% vs +0.3% vs +1.3% vs +1% vs +2.3% vs -1.6% vs -3%; DAX -1% vs +1.2% vs -2.2% vs -0.1% vs +2.4% vs +07% vs +1.3% vs -2.7% vs -3.8%!!!; Nikkei +1.2% vs +0.6% vs +0.3% vs +1.5% vs -1.1% vs +1.2% vs -1% vs -2.5% vs -1.3%; Hang Seng +1.7% vs +1.4% vs -0.9% vs +1.5% vs -2.1% vs +2% vs +0.5% vs -3.1% vs -1.3%; Korean KOSPI +0.8% vs +2.8%!!! vs +0.8% vs +0.6% vs -1.2% vs +3.9% vs -2% vs -6.2%!!! vs -1.7%; Indian Sensex +1.6% vs +3.6%!!! vs -1.8% vs -0.9% vs -1.3% vs +1% vs +1.2% vs -2% vs -2.2%. U.S. futures weak in sympathy with Europe: DOW -66; SPX -8.70; NDQ -13. Gold rallying for a second session after plunging Gold has nearly offset the huge four day decline from the big record high of $1917.90 set last Monday and is now $1,827.60 +$36! As for Crude, as TB pointed out, it has stalled and appears to be heading lower again. $86.60 -.67. First resistance is at $90, then $92-95. Meanwhile, bonds were trashed but have regained the losses and more and now are above Friday’s close! 30 yr 3.53% +1-1/8; 10 yr 2.19% +9/16 – don’t write off bonds! Also Gold! On an inside session overnight,

 

…don’t you? You have to believe the Fed has a handle on what is happening. You have to believe that stocks are ONLY valued off p/e ratios and that earnings are not only sustainable but growing to make them the values we are being told they are. They have value…but at what point? You have to believe that Congress will come to its senses and GOVERN and not play politics…but already they are more intent on doing what is right for their political constituencies, despite Bernanke’s stern warning that he can’t do it alone and NEEDS fiscal help, both in reining in the deficit but in producing jobs. Meanwhile the GOP is off on another of its old tangents to destroy the UN by threatening funding again…we want nations to only fund the agencies that do what we want…yep, this is the don’t lead from the rear group again. Let’s start wars and dictate how they are fought. But perhaps that isn’t all bad as an increasing number of economists and savvy investors are saying that like most major recessions the only way out is a war! Od course this belies the fact that few if any young people have any desire to fight for their country. Nearly three years ago in a debate at U of T, Robert Woodward was on a panel discussing the global situation…he asked how many would volunteer to fight for America…only a handful were supportive…and Texas is hardly a stronghold of liberals.

 

Speaking of Texas, Rick Perry better either be praying for rain or doing a rain dance because the drought throughout the lower Midwest is now worse than during the dustbowl. TB spoke to a friend, a farmer in Iowa who said that he has cracks in his fields you could break your leg in. Of course, this was a major contributor to the depression but nobody in government is even discussing the problem.

 

As TB said yesterday, Eric Cantor, the House Majority Whip said during the debt ceiling debates (sic) and this was endorsed by his fellow right-wingers, that any emergency funding must be offset by further budget cuts. Well FEMA, on the heels of tornadoes, etc. is nearly out of money and now must beg for more for hurricane relief. Of course, there might be some give since D.C. was an effected area, but don’t count on it as tea bags have replaced money bags in the nations capitol. Well, sure enough that cry has been raised again. Honk if you think there is any chance of the Special Committee coming up with any meaningful agreement. Silence.

 

Only a few correctly translated Bernanke’s comments. To help you, one merely has to go back to his speech at Jackson Hole a year ago when he outlined the tools the Fed has at its disposal. This time he cited none, extended the period of ease at least through the end of 2013, begged Congress to help, and chastised them for their stubbornness. Who cares? Well, the market should have cared which is what makes this rally especially ridiculous…other than a sign of needing something and quickly. Meanwhile European Economic Confidence imploded overnight to lowest level since December 2008 – right at the peak of the financial crisis…dig???

 

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

 

Something is very screwy…first, in order to learn how much the financial institutions took in the bailout, it took a Bloomberg lawsuit and congressional

pressure to offset the obstenence of the Fed…and what we learned was shocking. The bailout was ten times more than we believed, thanks to the Fed’s balance sheet which is now bloated with bad loans that were purchased at inflated prices!

 

BofA stock took a secondary plunge at the end of July on rumors of it being insolvent…yet liquidation value based on cash and assets was more than $10 a share…if that counts for anything, which apparently it doesn’t since all of the top for banks (sic as it included Goldman Sachs), traded below their BOOK VALUES simultaneously and are still below despite the rally.

 

BofA said, nonsense, it needs no additional capital and is fine. Then Warren Buffett had a dream and awakened to call the bank and ask if he could help to the tune of $5 billion…no catches…just 6% preferred and options to buy 700 million shares at $7.14 each. Done, done and done! Huh? That is a huge cost amounting to $300 million a year in non-deductible interest should they ever start making money (which should be a clue) and a whopping 7% dilution of common equity! Why?

 

But BofA sold its interest in the profitable BlackRock…why? Then yesterday sold half its interest in China Construction for a $3.3 billion gain…why?

 

Something smells bad…no, stinks to high heaven at BofA and you can bet all this newfound cash will not find its way into common dividends…thus if you are a buyer of the common you are a fool…might look at that 8.20% preferred though which is trading at a slight discount…hmmm. NOT A RECOMMNDATION, just a thought!

 

Hope you have a goodly day!

 

TB

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