9/16/11…the myth of free market capitalism

Bloomberg Top Stories:

*Stocks Rise in Europe as Debt Insurance Declines; Euro, U.S. Futures Drop

*Bank Bond Risk Heads for Record One-Week Decline in Europe Amid Debt Talks

*Ministers Spar on Collateral For Greece as Geithner Calls for Euro Action

*Germany Overtakes Spain in Debt-Swap Wagers on Bailout Costs!!!

*UBS Trader Gets No Miracle as Delta-One Loss Leads to Pre-Dawn U.K. Arrest

*Standard & Poor’s May Cut UBS’s A+ Credit Rating Following Huge Loss

*Goldman Sachs Shuts Down Global Alpha Fund After Investors Withdraw Money

*Bond Sale Revival Falters as Investors Reject Europe Debt

*Correlation Bets Climbing to Record as Europe Overwhelms Earnings

*Spanish Regional Debt Climbs to Second-Quarter Record, Central Bank Says

*Mortgage Debacle Costs U.S. Banks $66 Billion as Bad Home loans Sap Profit

*Libyan Rebels Fight for Sirte as Cameron, Sarkozy Pledge Aid to New Rulers

*Hillary Clinton Rise to Most Popular Politician Prompting Buyer’s Remorse

 

Volume dropped to 4B shares from 4.5B shares for NYSE stocks while trades executed on the Big Board shrunk to 964M shares the first below average (1.04B) share day in five session, which should make one dubious about the staying power of this rally. Advance/Declines were positive: +3.3:1 vs +3:1 vs +3.2:1 on NYSE and +2:1 vs +3:1 vs +3.1:1 on Nasdaq. Breadth was also positive: +7.5x vs +5.4x vs +3.1x on NYSE and +3.3x vs +5.5x vs +6x on Nasdaq. Negating all this is new 52 week highs ran 52 vs 55, while new lows slipped but not so much to 85 from 123 – maintaining the negative ratio which continues to haunt and cast aspersions on the ‘rally.’ The VIX fell to 31.97 -2.63, still elevated but took out the 40 day 32.58; the 50 day 29.86; and 200 day 20.92 remain as resistance. 48 was the selloff high, not seen since 5/21/10: 48.20!

Look at the last four sessions, for the month/quarter (in parenthesis): Dow (-1.6%/-7.9%!) +1.7% vs +1.3% vs +0.4% vs +0.6%; Transports (-0.1%/-14%!!!) +1.4% vs +2% vs +3.4% vs -0.2%; S&P 500 (-0.8%/-8.5%!) +1.7% vs +1.4% vs +0.9% vs +0.7%; Nasdaq Composite (+1.1%/-6%!) +1.3% vs +1.6% vs +1.5% vs +1.1%; 100 (+2.0%/-1.7%) +1.5% vs +1.5% vs +1.3% vs +1.3%; Russell 2000 (-1.8%!/-13.8%!!!) +1.3% vs +1.8% vs +1.8% vs +0.9%. We are on the cusp of breakeven…for the month but look at those quarter to date declines…ouch!!! NYSE Financials are off 4.63%/-17% respectively.

Global stocks are rallying for a fourth day on the Greek bailout…which at best staves off bankruptcy by a few months without Eurobonds which Germany flatly refused, and rightly so – for them!: FTSE +0.6% vs +1.9% vs +1.5% vs flat; CAC 40 +0.6% vs +2.5% vs +2% vs +0.5%; DAX +1% vs +2.5% vs +1.1% vs +1%; Nikkei +2.3% vs +1.8% vs -1.1% vs +1%; Hang Seng +1.4% vs +0.7% vs -3.5% vs closed; Korean KOSPI +3.7% vs +1.4% vs -3.5% vs closed; Indian Sensex +0.3% vs +1% vs +1.5% vs -0.2%. Sounds good until you look at the quarter and the year to date!!! U.S. futures rallied modestly now negative: DOW -42; SPX -5; NDQ -5.50. As for bonds, continuing to show weakness since peaking on 9/9. 10 yr remains above 2% at 2.09%; 30 yr holding at 3.35%.

Gold gave up the ghost at $1800, plunging $46 yesterday as everything is coming up roses…but there is a smell out there that ain’t roses! It is now $140 off the record high of $1923.50 set on 9/6. Overnight it is $1786.70 +$5.30 – treaded as low as $1765 o/n! Crude continues to struggle below major resistance at $90, but and has traded in a narrow range for the last three sessions – all with lower highs and lower lows (bearish) following Tuesday’s attempt to resume the rally.

…a week or so back, TB discussed Ayn Rand, her influence on Sir Alan of Greenspan and his ‘greed is good’ feelings that support the myth of free market capitalism. IF there ever was such a thing as TB and you other older folks were taught in Econ classes, it no longer exists…can’t exist…and if it DID exist would destroy itself through cannibalism.

It is with no joy that TB writes this as the only hope for saving us from it lay in the aftermath of 9/11 which George W. Bush squandered. Whereas he could have been a leader like JFK, he took the root of the fastest return, i.e. increase consumption, instead of restoring the moral fiber of this great country. He then did two rounds of tax cuts which benefitted the wealthiest Americans and added to the wealth gap pushing it to record levels. What did we get for it? …an economy built on credit that ex-financials had below average growth. It was all a shell came constructed from derivatives which required more and more leverage to grow…and that they did. So, aside for the few who joined the military and were altruistic, the rest of us went on believing in the myth that we were better off, not realizing we were doing nothing more than borrowing from future earnings to buy overpriced homes and other goods.

No one did more for this than Alan Greenspan, followed closely by Robert Rubin and the ‘don’t tax just spend GOP’ who now wishes us to believe they have seen the light…as does their old leader, Newt Gingrich, who wasn’t a spender but who, himself an historian, wants us to forget his past and trust what he says…TB doesn’t trust what any politician says but when the facts are before your eyes it is impossible.

A continuing theme for TB has been that had Wall Street remained partnerships we would never have had the problems we did. When it was THEIR money…meaning the older partners…they were cautious…but then they went public and it is now OPM, meaning the shareholders and the taxpayers. Add some quants who knew nothing about the business and only cared about getting rich quick, and voila, corporate greed won out…to the detriment of not only the shareholders, but the country and arguably we pushed the entire world over the edge of the abyss…look at Goldman Sachs today. It had to shut down its Alpha fund due to horrible losses which have resulted in massive net withdrawals. We now know that Goldman was no better than the other firms…except for making money for the insiders. The stock is trading at a 30% of book value (a meaningless figure for a financial firm), and at the same level as March 2009! Talk about falling from grace…and not gracefully! Thus Wall Street fell in with the other corporations which since the 1980’s, to support and justify CEO’s compensation has resorted to quarterly earnings management with no concern for beyond the CEO’s tenure. It is the long-run good of the firm that is the linchpin of free market capitalism and it no longer exists!

What brought all this up was last night TB turned on CNBC and saw Sir Lawrence of Kudlow pontificating to his guests that the GOP should reject Obama’s stimulus package in total, and create their own. There is no spirit of compromise anywhere! Then TB saw that following it on American Greed there was a documentary on post 9/11 scams which made you sick and the minor penalties they received did not relate to the sickness of their crimes. THEN, following that was another one entitled Philanthropy Inc. which questioned whether corporations are being philanthropic in their giving to charity and catastrophes or is this merely a marketing expense…the conclusion was both but likely more the latter.

Two cases in point: Coca Cola which purports to wish to help the environment yet built a plant in India in a water starved area taking water from farmers (they didn’t mention the water shortage in Atlanta that resulted in rationing yet the Coke plant remained open). Then there was WalMart who became the big donor after Katrina and thus nullified all the bad press they had received over treatment of employees and shirking of responsibility on their healthcare. As a result, they shot to the number one socially responsible company in America…all was forgiven. It left open the question of whether they have really reformed or needed something dramatic to repair their image…you decide.

Of course, the other question is whether the private sector can do a better job in a disaster than the federal government. From those involved the answer was slightly better but not that much. It is incredible to hear GOP members say eliminate FEMA (as bad as it is), and let the states take care of it as they know better what is needed…all well and good if the states had any money! Also there is the question of magnitude…could Louisiana alone have paid for it? Could New York have covered 9/11 alone? All we get are rhetorical, simplistic answers that if you stop to think about them make no sense whatsoever and solve nothing. That is the impasse we are at today and it isn’t a pretty picture.

Should the market rally as the Eurozone attempts to put a bandaid on Greece…some say yes…for the short run, until it gets worse again…if there ever was a time for trailing stops…and raising them as the market moves up…this is it…what say you, dear reader?

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

Kudlow cheerfully brought out the latest poll showing Obama’s popularity continuing to decline, as it should. But he ignored, as one would expect the other poll which showed the GOP is doing the worse job on handling the economy.

Yesterday, TB listened to Norman Orenstein, a political analyst with Politico.com which sponsored the GOP debate from the Regan Library. When asked if one party was responsible for the stalemate, he said both are but not equally. He put most of the blame on the GOP for their rhetoric which has produced such disgust and loathing that nothing can get done. He specifically pointed to the ‘fringe right’ which is now in control of the party and distorting facts for political gain. This is a specialty of his on how as soon as someone is elected they either must raise money or they decide to make a big splash to enrich themselves later and are gone once the consequences are felt. Throw them all out!

TB also suggested some time ago that Obama should do the right thing…lay down an ultimatum – a sound one to the GOP – and say that if rejected he would not run for re-election…a confidence vote if you will. But who could the Dems run? TB suggested Hillary (which he never would have thought he would do) as she has handled herself admirably as Secretary of State in very trying times. A Bloomberg top story today suggests others feel this way. A big positive is there would be no fighting in the primaries as the GOP is facing, normally which toughens candidates but Hillary IS tough and has done that before…and well. Just a thought. But Obama has an ego too and won’t do it..or…

Do not think that there is a better country on this planet because there isn’t, but we have to get it back on track and we have to think of the entire country, not just our ‘class.’ Furthermore, we need to not just quote (and often misquote) the founding fathers and the Constitution but act in a way that would make them proud along with others who have made such enormous sacrifices for us…and look how we are acting: shamefully.

Have a terrific weekend!

TB

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