10/11/11…some rally!

Bloomberg Top Stories:

*Goldman Sachs Earnings Collapse as Wells Fargo Heads for Record Year!
*Stocks Drop in Europe on Debt Concern; U.S. Stock Futures Fall
*Trichet Says Debt Crisis Shift To Larger Countries Increases Systemic Risk
*EU, IMF Say Next Payment to Greece Likely in Early November
*Most Tankers Idled Since -80’s Still Won’t Buoy Charter Rates
*Russell VIX at 2 Yr High as Traders Buy Small Cap Protection
*Bombardier Credit Default Swap Costs Soar as Jet Sales Ease
*Americnas in Poll Back Taxing Rich While Maintaining Entitlement Benefits – think about this in light of Wall Street protests! TB

Volume plunged to 3.9B shares from 4.76B shares yesterday NEGATING the rally on the myth that the EU can solve the banks problems in three weeks. That is called HOPE, a wish trade and guess what? Overnight stocks are weaker on Europe debt concerns! NYSE stocks executed on the Big Board however plunged again from 1.19B shares to 888 MILLION shares, lowest since July 26th! THIS IS NOT WHAT YOU WANT ON A MAJOR RALLY DAY!! Advance/Declines were very positive for a third session: +10.4:1 vs +5.5:1 vs +2.7:1 on NYSE and +4.9:1 vs +3.3:1 vs +2.2:1on Nasdaq. Breadth was similar…still: +9.7x vs 16.3x vs +5.9x vs +5.7x vs -30x vs -16x on NYSE and +7.6x vs. +7.9x vs +7.6x vs +8.7x vs -10x vs -9.2x on Nasdaq! BUT look at New 52 week highs surging to 40 from 16, but new lows rose slightly to 85 from 81…on a BIG UP DAY??? The ratio is -2.1:1. The VIX meanwhile imploded to 33.02 -3.18 with the 40 day (36.64) 50 day (36.04) now res. Support is at 30. But wait the RUSSELL 2000 VIX hit a 2-yr high as small caps are inciting fear among traders! THINK! This PLUS a huge rally on a LOW VOLIUME DAY???

Here are the results: Dow +3.0% vs +1.7% vs +1.2% vs +1.4% vs -2.4% vs -2.2%; Transports +3.9% vs. +2.2% vs +2.7% vs +4.4%! vs -3.6% vs -3.5%; S&P 500 +3.4% vs +1.8% vs +2.3% vs -2.9% vs -2.5%; both Nasdaq indices +3.5% vs  +1.6% vs +2.5% vs +2.1% vs -2.5% vs -2.7%; Russell 2000 +4.4%! vs +3.2%! vs +1.5% vs +6.5%!!! vs -5.4%!!! vs -2.8%%; NYSE Financials +4.7% vs. +3.2%! vs +1.4% vs +3.1% vs -4.4%! vs -3.6%.

Stocks are weaker in Europe but Strong in Asia, except India which had a big rally yesterday: FTSE -0.7% vs. +0.8% vs +2% vs +1.9% vs -3.4%! vs -1.7% vs -1.3% vs -0.7% vs -0.2%; CAC 40 -0.5% vs. +0.9% vs +2.3% vs +2.9% vs -3.2% vs -2.3% vs -1.8% vs -0.1% vs +0.1%; DAX -0.3% vs. +.08% vs +1.5% vs +3.5% vs -4.1%! vs -2.8% vs -2.5% vs -0.4% vs +0.1%; Nikkei +2% vs. +1% vs +1.7% vs -0.9% vs -1.1% vs -1.8% vs flat vs +1% vs +0.1%; Hang Seng +2.4% vs. +3.1% vs +5.7%!!! vs closed -3.4%! vs -4.4%!!! vs -2.3% vs closed vs -0.7%; Korean KOSPI +1.6% vs. +2.9% vs +2.6% vs -2.3% vs -3.6% vs closed vs flat vs +2.7%!!! vs -0.7%; Indian Sensex -0.1% vs. +2.8% vs closed vs -0.5% vs -1.8% vs -1.8% vs -1.5% vs +1.5% vs -0.5%. US futures plummeted on the bad Europe news but are coming back: DOW -30; SPA -5; NDA -4 – don’t count on this holding after that big faux rally yesterday. Bonds weak again after being closed for Columbus Day, but that might be catch up on yesterday’s stock rally. Currently 10 yr still above 2% at 2.15% -5/8, after a RECORD low 9/23 of 1.6855%; 30 yr also above 3% at 3.07%% -1-3/15; Long TIP 0.97% -1-3/8.

Gold continues to hold above $1600, now for a seventh day after closing $1670.80 +$350), following 9/23’s low of $1534, lowest since 7/6!), and is now $1662.90 -$7.90. Last Monday’s low was nearly to the 200 day, now $1536.60, now critical support. The record high is $1923.70, a buying climax on 9/6. Can we do it again? Crude rallied yesterday to highest since 9/21, closing at $85.41 +$2.43 but is off slightly overnight to $84.82 -.59. Last Tuesday’s close was lowest since 9/23/10 as was low of $74.95!

…come on folks, stop listening to Merkel and Sarkozy playing cheerleaders to the world. They can’t…nobody can…fix the banks…they are broken! Today, the foreign markets are waking up to this fact…yes fact!

Another fact is what TB said yesterday: do not dismiss the Wall Street protests as meaningless. Let Eric Cantor, Herman Cain, George Will and the other luminaries (sic – maybe but not leaders!) say it. But they are afraid.

Why has this movement been slow to take hold? First, it isn’t that slow as it has spread to Salt Lake City and the West Coast. But it is small…just like, as TB said, the Viet Nam protests. But now the media has got it in its sights and it is ludicrous to say the Tea Party is totally different. OK, so why aren’t influential supporters coming forward…just wait they will…but if you were an elected official would you want to embrace a movement that is populist in nature and could harm the financial system. It has to be controlled…just like Wall Street controls Congress. Have you forgotten that the biggest contributor to Obama’s campaign was Goldman Sachs…but if you think that was an unlikely duo, they were also in the top ten to McCain. Get it? They buy everyone. So if you want to bite the hand that feeds you be prepared for the consequences.

But haven’t you noticed the polls getting stronger against the wealthy? First, during the debt ceiling crisis…invented by the Tea Party and embraced by the GOP..in one of the most foolhardy acts imaginable by a government, polls showed that Americans were NOT opposed to raising taxes but did want meaningful budget cuts.

The latest poll says raise taxes on the rich and don’t cut entitlements…that is one heck of a progression in less than six months!

Now to clarify, TB does not want this…TB warned of the possibility of this and three readers wrote yesterday affirming it. It is bad, Bad, BAD!!! But how long did you think Main Street would stand by while Wall Street continued to enrich itself after creating the biggest financial debacle in history? They were stunned…unlike Wall Street which immediately set out to destroy any steps at regulation…and crucified Elizabeth Warren…as they did Brooksley Born a decade ago…thanks to Robert Rubin, Larry Summers, Phil Gramm, and Alan Greenspan.

We would not have had this mess if as Brooksley Born proposed that derivatives be traded on and subject to commodities rules. Why did Wall Street protest? Because they couldn’t make much money that way. If on an exchange CDS, MBS, etc. would have a small commission. Why not, sell CDS protection for instance, then when the client wants to unload the protection buy it back from them with a new contract…thus piling up layers of contracts, thereby increasing the risk of at least one party in the daisy chain, being unable to deliver.

That is what it is all about. Here is the time line:

1984: Reagan, over the objections of Treasury Secretary Regan, bailed out Continental Illinois, not only creating ‘too big to fail’ but causing an incredible inflow of international deposits to the top eight U.S. banks…see it wasn’t that they were any better, but they had NO chance of failing thanks to The Gipper.

1980’s-1990’s” FNMA and FHLMC became ever more powerful thanks to huge campaign contributions to BOTH parties thus ensuring they could get what they wanted. Barney Frank became the poster child for this group but the entire Senate leadership was bought and paid for…

1999: Citicorp, the baby of Sandy Weill, convinced Robert Rubin (with the lure of becoming vice chairman and making hundreds of millions) to get rid of Glass-Steagall. Larry Summers jumped on board as did Phil Gramm and Alan Greenspan (meanwhile attacking  Brooksley Born for trying to regulate derivatives), thus they convinced Clinton, who says it was the worst decision he made. THEN the SEC under first William Donaldson, and then the financially illiterate Chris Cox, decided not to regulate the top five banks…but have them audited randomly and periodically…sadly Cox did not audit even one bank once!

2000-2006: Then after 9/11, Bush followed suit endorsing them while he cut taxes and saddled us with trillions of lost tax revenues and Medicare Part D which was not funded but is out of control.

2007: stock market peaked, then had a secondary peak in 2008, crude prices soared to a record as pension funds purchased unbelievable volumes of commodities index swaps from Goldman, Morgan Stanley, BofA and JP Morgan. Then it all began to unravel. Alt-A and subprime mortgages were not only being sold to people who had no ability to make payments but were being packaged up and sold to investors…some of them didn’t even make the first payment.

2008: collapse of Bear Stearns, AIG, Lehman Brothers, Merrill Lynch and Wachovia…only Lehman not merged…but the size of their derivative book nearly destroyed the rest of the world. Then in October came the bailouts TARP, TALF, you name it.

Who went to jail? No one! TB couldn’t even get some of his friends in the business to admit that they were ashamed to be in this industry we once all loved. Well, TB admitted it and wrote of it. How could it happen? Greed…oh yes, the good greed of Ayn Rand and Alan Greenspan…except one thing was wrong: as partnerships, Wall Street could never get in that much trouble, but by going public…the last being Goldman, partners were able to get their capital back…and so it was other people’s money – OPM – the very best kind of money. That is the world we live in today folks…and why we have protestors on Wall Street.

You had all better hope that once a leader is found it will be a benevolent leader who wants to do good, not punish everyone from the middle class up…and that could well happen. Socialism and Communism both have these traits…and we have a democracy that as Thomas Jefferson said, could be destroyed in one generation. Through greed, we have been working on it for THREE generations…be careful and be very afraid!

…. . .  – – –  . . .    . . .  – – –  . . .

Enjoying Chicago today with friends, hope yours is a good one!

TB

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