11/8/11…fed up with the Fed!

TB’s Quotes of the Day: “We must build a positive reputation based on reality, or others will create one for us based on speculation or animus and we won’t like what they create.”

 

 “My overall concept is to minimize the role of government and to maximize the role of the private economy and maximize personal freedoms.”

 

Both quotes are from Charles Koch, who along with his brother David, are tied for the sixth wealthiest men in America and own Koch Industries, not only the second largest publicly held company in America (behind Cargill), but the biggest industrial safety violator and polluter in the country. See Bloomberg magazine article for what kind of slime these men are. TB learned decades ago in a PR course that you are wasting time if you profess ideals that you don’t follow.

 

Bloomberg Top Stories:

*Stocks, U.S. Futures Rise on Earnings Before Italy Vote; Commodities Gain

*European Banks Cutting Sovereign Bond Holdings Threatens to Worsen Crisis

*SocGen Profit Decline on Greek Writedown Leads Bank to Scrap 2011 Dividend!!!

*Lloyds Banking May Miss Income Targets as Pretax Profit Drops in Quarter!

*Citigroup Ranks With JPMorgan, RBS in Facing Highest Basel Capital Demands

*EU to Roll Out Rescue Fund Next Month, Keeps Pressure on Greece Over Terms

*ECB Efforts Will Prevent Disaster, Might Not Promote Recovery, Carney Says – delay disaster?

*Nomura Plunges to 37-Year Low as Olympus, Europe Weigh on Japanese Broker

*Cargoes to U.S> Drop for First Time Since ’09 as Confidence Wanes – ahead of Christmas sales?

*Toyota Joins Honda in Abandoning Forecasts as Thailand Floods Curb Output

*Berkshire Railroad Cuts Fuel Hedge as Buffett Says It’s Just Not Worth it

*General Maritime Bonds Seen Worthless as Cash Dwindles – and so it goes…

*Options Traders Bet Euro Resilience to Fade Over Turmoil – that’s the smart money, folks!

*Italian Parliament Vote Will Test Berlusconi’s Majority as Allies Defect

(how many bunga-bunga girls will it take to muster support???)

 

Volume slumped again to another below average 3.5B shares from 3.76B shares, lowest in months! The Dow rose while Transport and the Russell 2000 were slightly negative, while the Dow and Nasdaq Composite climbed slightly above their 200 day m/a, S&P didn’t nor did the weak Russell 2000, NDQ 100 is above but stalled for three days.  NYSE stocks executed

on the Big Board were even worse at 782M vs  861M shares, lowest since 7/28!!!. Advance/Declines were mixed: +1.1:1 vs -1.1:1 vs  +3.5:1 vs +5:1 vs -5.9:1 vs -4.5:1 vs +1.1:1 vs +6.9:1 vs +4.1:1 vs -5:1 vs +5:1 vs +6.5:1 on NYSE and -1.2:1 vs -1.8:1 vs +2.9:1 vs +3.5:1 vs -5.3:1 vs -3.6:1 vs -1.3:1 vs +5.1:1 vs +2.7:1 vs -4:1 vs +5:1 vs +3.5:1 on Nasdaq. (TB is leaving in those long strings to show why individuals should be avoiding this market like the plague! Breadth was modestly positive: +1.4x vs -1.8x vs +5.5x vs +8.5x vs -13.8x!!! vs -15x!!! on NYSE and +1.2x vs -1.2x vs +3.6x vs +2.5x vs -11.1x!!! vs -7.5x! on Nasdaq. New 52 week highs rose modestly to 93 from 79, while new lows were rose to 68 from 61. The ratio remains only slightly positive.  VIX dropped slightly foe second straight session to 29.85 -31. Major sup/res at 30…follow closely!

Here are the results for the past six days. Dow +0.7% vs +0.5% vs +1.8% vs +1.5% vs  -2.5% vs -2.3%; Transports -0.1% vs -0.4% vs +2.1% vs +1.3% vs -2.6% vs -2.4%; S&P 500 +0.6% vs -0.6% vs +1.9% vs +1.6% vs -2.8% vs -2.5%; Nasdaq Composite +0.3%-0.4% vs +2.2% vs +1.3% vs -2.9% vs -2.5%; Nasdaq 100 +0.6% vs -0.5% vs +2.1% vs +0.9% vs -2.6% vs -1.9%; Russell 2000 -0.2% vs -0.7% vs +2.5% vs +2.7% vs -3.7%!!! vs -2.1%; NYSE Financials +0.3% vs -1.4% vs +1.8% vs +2.2% vs -4.5%!!! vs -4.9%! BAC-0.6% vs  -6.2% vs +2.8% vs +5% vs -6.3%.

 

Global stock markets higher except Japan and Korea: FTSE +1.8% vs-0.6% vs +0.7% vs +06% vs +0.2% vs -3%!!! ; CAC 40 +2.4% vs -0.3% vs FLAT vs +2.2% vs +1.1% vs -4.4%!!!; DAX -0.1% vs -0.3% vs +2.2% vs +1.2% vs -5.3%!!!; Nikkei DOWN 1.3% vs -0.4% vs +1.9% vs closed vs -2.2%!!! vs-1.7%; Hang Seng FLAT vs -0.8% vs +3.1%! vs -2.5% vs +2% vs -2.5% vs -1.8%; Korean KOSPI DOWN 0.8% vs -0.5% vs +3.3%!!! vs -1.5% vs -0.6% vs flat; Indian Sensex FLAT vs closed vs +0.5% vs +0.1% vs -0.1% vs -1.3%. U.S. stock futures stronger: DOW +87; SPX +8.10; NDQ +21.50. Bonds slightly weaker: 10 yr 2.05% -1/16. RECORD low 9/23 of 1.6855%; 30 yr 3.10% -1/8; Long TIP 0.71% +1/16. The 5 yr TIP yields MINUS 1.12%!,

10 yr -0.12%. Libor  0.44% 3 mo., and 0.64% 6 mo., creeping up. Bills still yield zero percent out to six months where it is 0.03% – 1 month T-Bill -0.01%! 

Gold up slightly overnight after testing $1800 yestereday. It is up $1.50 overnight to $1792.60. 9/26’s low was $1534, lowest since 7/6, now critical support). The record high is $1923.70, a buying climax on 9/6. SUP is the 50 day ($1727), then the 40 day ($1699), while 200 day ($1572). Major support $1600! Crude up overnight taking out $96 and is now $96.15 +.63. Support again at the 200 day (94.93) which has been resistance for the past two weeks. Support is the convergence of the 40 and 50 day m/a’s at $86.80-87.10, still rising.

…yesterday there was a meeting…as there always is…of regulators at the NY Fed over the implosion of MF Global. The senselessness of this is best described in the question of a CNBC reporter to Mary Schapiro, SEC Chairman: Was MF Global the result of regulatory failure?

 

To which Ms.Schapiro responded with a straight face “no.” But the reporter pressed on: “but what about their leverage of 41:1? Ms. Schapiro again responded that we do not regulate brokers. That is correct, but the NASD is supposed to…hmmm, wasn’t Ms. Schapiro the former head of that auspicious (suspicious? dubious?) entity…wait a minute…wasn’t Bernie Madoff also??? You bet your sweet bippy!  Ah, but Ms. Schapiro is following in the footsteps of Chris Cox, arguably the laziest chairman of the SEC. Here are Ms. Schapiro’s vitals. As head of NASD she was paid $2 million but she then went to FINRA earning $3.3 million but…

“FINRA’s Form 990 for 2008 reports that Ms. Schapiro’s compensation was $3.3 million, not bad for an outfit that lost almost $700 million that year thanks largely to an overly aggressive strategy of investing FINRA’s portfolio in hedge funds and other exciting opportunities. Last year FINRA changed to a more conservative investment approach, but as far as we’re aware it made no effort to claw back some of Ms. Schapiro’s salary.

In 2009 Ms. Schapiro left FINRA with a $7.3 million retirement package. We know this because of SEC and FINRA responses to media inquiries, not due to any disclosure process akin to what profit-making public companies do. Once FINRA files its 990 later this year, industrious taxpayers will at least be able to submit formal requests to learn all the details. Perhaps an outfit like FINRA needs to pay such salaries to attract top talent, but in any case Ms. Schapiro should explain why disclosure wasn’t a priority when she was the one in the executive suite.” (Source WSJ)

Ah but it gets better. You see those in the business regard the Federal Reserve’s primary government securities dealers as sacrosanct. Subject to review, etc. Well, the only review the Fed does is make sure they hold up their obligations to support the auctions, etc. and maintain capital of $150 million…no comment on leverage!

How can Schapiro not be concerned with 40:1 leverage? Is she daft? Take a hypothetical firm with $1 million in capital…nice small business, right? That gives them $40 million in assets…but that also means that if just 2.5% of those assets go bad they are broke: in other words just $400,000!!! That is not only irrational but plain stupid…who did MF think they were? JPMorgan who was just as lame? From Kotok:

Gretchen Morgenson and Josh Rosner covered the issue of NY Fed audit and supervision in their book, Reckles$ Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon (pp. 42-44).  I read this book and recommend it to readers.  They mentioned the fact that in January 1992 the Fed ended its primary dealer surveillance program that it had long used to audit and inspect Wall Street firms. From then on, the Fed had to rely on reports filed by the firms, which were verified by other regulators. “It was, to some Fed officials, a dangerous delegation of an important duty that had given the central bank access to crucial information about the soundness of the Wall Street firms it was dealing with,” the authors wrote.

Let’s flesh out some history.

 

The Fed stopped (1992) this surveillance activity following the bankruptcy of Drexel Burnham, then a primary dealer.  The Fed was motivated by the Salomon Brothers episode, according to a document review.  The Salomon affair came after Drexel.

Peter Fisher’s report is excerpted below.  Boldface is mine.

 

“Criteria for primary dealer relationships with the FRBNY were revised in February 1992 following the Solomon Brothers episode.  At that time, we identified “drawbacks” of the then-existing primary dealer system as including:  “… the pubic impression that, because of the Federal Reserve Bank’s standards for selecting and maintaining these relationships, the Fed is in effect the regulator of the primary dealer firms [and that] . . . the primary dealer designation has been viewed as conferring a special status on these firms that carries with it elements of “franchise value” for the dealer operation ….”

 

As a consequence, the criteria were revised, dropping the requirement that dealers maintain a one-percent share of total customer activity. At the same time, the FRBNY discontinued its “dealer surveillance” activities.

 

So here is the question for the NY Fed and, by reference, the FOMC.

 

You have the power to write the rules and policies for primary dealers.  You cannot do it for the entire system, because you need the Congress to legislate, but you can do it for the primary dealers that transact directly with you.  You choose them.  You set the terms of admission to this club.  You had a surveillance operation and ended it in 1992. The evidence shows that the surveillance function worked prior to that ending decision.  Your Board of Governors Chairman noted how successful it was in keeping the Drexel failure from becoming a systemic meltdown.  Your Fed Chairman cited the repeated role of the Fed in numerous crises and how the Fed responded to limit systemic damage.

What kind of country have we become? Where the kids are telling the adults what to do and the adults are letting them. But isn’t this because they are all buddies…colleagues if you will? But as long as regulators like Mary Schapiro who are grossly overpaid for their ineptitude, make stupid statements when institutions threaten our financial system, we will not get out of the mess we are in.

MF Global a threat? Hell, these idiots didn’t perceive Lehman as a threat but bailed out Bear, Stearns…which begs the question why? TB leaves that up to you to decide…

Kotok add his comments:

“But one question haunts us.  Will the opacity of the New York Fed and the accountability for its oversight or lack of oversight be made transparent?  Has anything really changed since the six-month period between the Bear Stearns merger (March 2008) and the Lehman failure (September 2008)?  If the New York Fed was “watching the store,” did they miss the clues for lack of skill, or were they deceived by MF Global?  Is the disclaimer of the NY Fed financial chutzpah to the Nth degree?

 

Inquiring minds want to know.  So should all the others who have to live with the results of the failure of the primary dealer named Lehman Brothers, whose CEO sat on the board of directors of the NY Fed until his firm failed.  And so do the creditors of MF Global.”

 

Here is the link to the complete commentary: Cumberland

Note that Groupon (GRPN) which was priced at $20, opened at $36 Monday, quickly rose to $31.14, then closed at $26.11, just above the session low of $25.90.

 

That was what TB wrote yesterday, ending with: “expect more of the same.”  Yesterday’s high was $27.78 before falling to $25.97 (an inside day) and closing at $25.07 -.14. Expect more of the same…

 

. . .   – – –  . . .

There should be a special place in hell for the Koch brothers. See how Charles writes in his book, then read what Bloomberg found out, largely from regulators and former employees: it is all a sham. They are the argument against laissez-faire capitalism! They support any organization (or individual…possibly Cain whose 9-9-9 plan is right up their alley), who will enrich them. Right in the wake of 9/11 through their foreign companies they sold goods to Iran to make chemicals. They falsify reports, vilify employees who uncover illicit transactions and fire them. What is incredible is how they have redirected tea party members anger against those who have suffered, while the vast majority of tea party members are in no risk of having their taxes raised!

 

Do you remember the line in the sting about what gives a grafter the thrill? It isn’t the money, it’s seeing the face of the mark when he realizes he has been duped. Right Charles and David?

 

A top o’ the mornin’ to you…

 

TB

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