1/13/12…too big or not too big?

Bloomberg Top Stories:


*JPMorgan Fourth-Quarter Net Declines on Weak Trading; Matching Estimates – not good!

*Index Futures in U.S. Drop on JPMorgan Earnings; Italian Bonds Pare Gains

*U.S. Trade Deficit Widens More Than Economists Forecast as Exports Decline – weak Euro?

*Hungarian Bonds Retreat as IMF Says More ‘Tangible Steps’ Needed on Policy

*Norway’s Haven Status Veils Dangerous Housing Bubble, Yale’s Schiller Says – he knows!

*Attorneys General Discuss Mortgage Probes as Bank Settlement Talks Drag On

*Fed Oversight Possible for 25 Non-Banks Under Dodd-Frank – but will they???

*Americans Proving Clueless Paying Wall Street $20 Billion for Broken Swaps

*Credit Score Zealouts Seeking Numbers higher Than 800 Pursue Fool’s Errand

*Obama Will Seek Authority to Merge Agencies in Effort to Shrink Government – but will it?


Volume was steady at 3.93B shares vs 3.96B, still close to ‘average’ volume for only the fourth time in weeks…months?  Next Friday is options expiry, be advised! It was an UP session with all indices up from 0.2%-0.6% except Dow Utilities which were FLAT. The S&P 400 has been essentially flat for the past two sessions and little changed for the past three sessions which provided a 3% kicker to start the year. NYSE stocks executed on the Big Board rose slightlyto 770M shares from 759M shares, about 250 million short of the twelve month average and still indicative of a lack of retail participation. 40 of the last 43 sessions have been less than 1B! Advance/Declines were positive: +1.7:1 vs +1.2:1 vs +3.3:1 vs +1.8:1 vs -1.1:1 on NYSE and +1.5:1 vs +1.5:1 vs +3.6:1 vs +1.3:1 vs -1.2:1 on Nasdaq. Breadth was similar: +1.4x vs +2.1x vs +4.2x vs +2.1x vs -1.9x on NYSE and +2.1x vs +1.4x vs +2.7x vs +1.9x vs +1.4x on Nasdaq. New 52 week highs rose to 182 from 135 while new lows were little changed at 43 vs 42. The ratio is now about 5x positive. The S&P VIX declined to 20.47 -.58 – lowest since 7/26!.

Here are the results of the past five sessions: Dow +0.2% vs -0.1% vs +0.6% vs +0.3% vs -0.6%; Transports +0.3% vs +0.5% vs +1.4% vs +0.6% vs flat; Dow Utilities FLAT vs -0.4% vs +0.1% vs +03% vs -0.6%; S&P 500 +0.2% vs flat vs +0.9% vs +0.2% vs -0.3%; Nasdaq Composite +0.5% vs +0.3% vs +1% vs +0.1% vs +0.2%; Nasdaq 100 +0.4% vs +0.2% vs +0.7% vs -0.2% vs +0.3%; Russell 2000 +0.4% vs +0.3% vs +1.5%! vs +0.5% vs -0.3%; NYSE Financials +0.6% vs +0.6% vs +2%!!! vs -0.6% vs -0.9%. Leaders: BAC DOWN 1.2% vs +3.6% vs +5.7%!!! vs 1.5% vs -2.1% vs +8.6%; C +1.1% vs +4.2%.

Global equity markets generally higher: FTSE -0.3% vs +0.2% vs -0.7% vs +1.3%; CAC40 +0.8% vs +1% vs -0.4% vs +2.5%; DAX +0.1% vs +1.2% vs -0.4% vs +2.7%; Nikkei +1.4% vs -0.7% vs +0.3% vs +0.4%; Hang Seng +0.6% vs -0.3% vs +0.8% vs +0.7%; Korean KOSPI +0.6% vs +1% vs -0.4% vs +1.5%; Indian Sensex +0.7% vs -0.9% vs +0.1% vs +2.2%. U.S. Futures weaker following JPM’s earnings: DOW -61; SPX -9 ; NDQ -9. Bonds modestly higher with 10’s and 30’s well below 2% and 3% respectively. 10 yr 1.88%!!! +7/16. RECORD low 9/23 of 1.6855%; 30 yr 2.92% +1-1/16; Long TIP 0.68%!!! +1-1/8. 0.57% at high. The 5 yr TIP yields MINUS 1.01%!!!; 10 yr -0.19%!!!. 3 mo. Libor 0.57%, and 0.79%, first drop in weeks!. Bills 0.02% out to 3 months, 6 months 0.05%.

Gold rose again and closed above the 200 day ($1633) for a third straight session. It closed at $1647.70 +$6.10, highest since 12/13 but is now $1638.80 -$8.90! The record high is $1923.70, a buying climax on 9/6. RES is $1658, the 40 day and $1682, the 50 day m/a. Crude closed SHARPLY lower at $99.10 -$1.77. It is continuing to fall and is now $98.28 -$.82. It is now BELOW both the 40 day (99.16) and the 50 day (98.59). RES at $100. Follow closely!

…are the banks too big? Not according to Mitt Romney and even Obama who continues to rail at them but doesn’t do anything. Simon Johnson, former chief economist at the World Bank, blasts both sides and says that the ‘left’ should get behind the ideas of Jon Huntsman, TB’s choice of the ‘right’ candidate for the GOP, and the country. Huntsman wants to limit the size of the banks, while Romney insists that they must be left alone.

The problem again comes back to Phil Gramm, Alan Greenspan and the lovable Robert Rubin who managed to destroy the one protection we had from the big banks: Glass-Steagall! Look what that brilliant idea reaped…along with the ill-designed Bush tax cuts, it allowed the financial sector to swell camouflaging the weakness in the overall economy and creating a massive bubble. In order to cure this, the banks must be returned to what they allegedly are: banks! Remove once again the investment banking operations and if they fail…well let them!

Johnson argues that the banks are over-regulated and that their best defenders are the people who regulate them. Many of whom will eventually go to work for them and thus have a vested interest in making them look good to enhance their job chances.

Of course Romney and the right would argue against this…why not? That is where their money is coming from…and a sizable portion of Obama’s no doubt…last time Goldman was the biggest contributor to his campaign…and very high on McCain’s list. How about the ability to compete with the big European banks…do you really want TB to answer that? Most of them have been bailed out or taken over. If a larger company has a failed business plan would any competent CEO of a competitor follow that model? Maybe, but it would ill-advised…except for the short-term gains he might receive, but certainly not in the long-term interests of the company.

Johnson knows of which he speaks: at the World Bank he saw that the number one problem of countries that needed bailouts was the financial sector getting too close to the government. Think about that…

. . .   – – –  . . . note that the same old SOS applies…perhaps more so!

With the Romney nomination about in the bag…certainly before any meaningful state in terms of electoral votes gets a say…we are assured that if he is elected the same problems will plague us and don’t believe his claim that only he knows how to create jobs. No, his forte is creating more wealth for Wall Street and the wealthiest Americans. Sadly, the one honest AND intelligent man with a plan is Jon Huntsman and all we can hope for is that his ideas on reforming the banking system (remember TB’s idea of Reform Wall Street rather than occupy it?). That is a slim hope but if he does well in South Carolina and Florida there is a chance the GOP will wake up and if they don’t the Democrats finally do!

The Supreme Courts decision that corporations are individuals and that neither should be subject to limitations on how much it spends to get someone elected…remember they already had their powerful lobbying interests…will go down as the worst decision of all time…and we will all pay dearly for it.

In South Carolina there is not one minute of air time available…the candidates have bought it all up and that has been the case for a couple of weeks. We are being destroyed by those wealthy enough to throw money at these candidates. Despite having a near zero chance, Gingrich received $1 million from an old friend because he supported his views on Israel. Romney’s buddies have contributed millions to his campaign…but a pittance compared to what Obama has already raised. TB would not object if the ads (or the debates for that matter) provided any insight to how these men might lead us but instead they only smear the opposition.

When Herman Cain accused all those without jobs of being lazy, he just didn’t get it. Arguably we are in a worse situation than during the Great Depression because then the only real debt was for homes and there was only one breadwinner. Today, we are buried in debt and trying to pay it down. If one person in a family loses their job, the risk of losing everything grows. Meanwhile, the Tea Party says the most important thing is to pay down the debt…but for god’s sake don’t raise taxes on those who benefitted the most…despite the fact that their effective tax rate is about 20%. Most of us would jump at that!

Despite this, Romney, Santorum and others say the American Dream is still alive…is it? Do you feel that you can buy a home and feel confident it will rise in value…even if inflation rises more, or do you worry about who will buy it if you need to sell it? Think about this, the stakes are high.

We repeat this cycle again and again…the wealthy never learning that all their money cannot buy them success forever. At some point the law of large numbers takes over…meaning the size of the electorate and if they get tired of hearing false promises…we are going to be in a heap of trouble… it happened here before with the robber barons and it happened in Czarist Russia, and Germany under the Kaiser…those are just a few…and the outcome does not appeal to TB.

Today is Friday the 13th…but this is no time to be superstitious…even if the Dow is off 100 points already.

Have a great weekend…a long one!



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