1/31/12…The Iron Lady…then and now

Bloomberg Top Stories:

 

*U.S. Nove. S&P Case/Schiller Home Pricses Fall 3.7% vs Year Ago – all 20 cities down!

*Stocks Rise as Euor Strengthens on Gerek Debt Talks, Commodities Advance

*Europe Moves Toward Greek Rescue Confrontation as Leaders Seal Fiscal Pact

*Denmark’s Bank Crisis Is Worsening as More Failures Loom, FSA Head Warns

*Apple Names Dixons CEO Browett as Retail Head in Cook’s First Outside Pick

*UPS Profit Forecast for Year Tops Estimates as Shipping Demand Increases

*Exxon Drops After Fourth-Quarter Sales are Lower Than Analysts Estimated

*Honda Leads Japan’s Manufacturers in Cutting Outlook as Yen Erodes Exports

*Tourism Seen Adding $850 Billion With Obama New Immigration Visas

*Tesco Market Share in U.K. Drops Below 30% for the First Time Since 2005

*China-Based Hackers Target Law Firms as Bacvk Doors in Search for Deal Data

*Wells Fargo Investment Bankers Bring Buffett-Assisted Revenue Once Shunned

*Syrian Troops Push Deeper into Damascus Suburbs Before UN Resolution Talks

*Florida’s 680-Mile Campaign Trail Diverted by Angst Over housing Distress

 

Volume plunged to a way below average 3.62B shares from an average 4B shares in a losing session that managed to extricate itself from the opening plunge slowly and never saw the light of day…this was the third straight down day for the Dow. Biggest loser was NYSE Financials which fell 1.2%. NYSE stocks executed on the Big Board also declined to 744M shares from 850M shares, now about 300 million short of the twelve month average. 51 of the last 54 sessions have been less than 1B! Advance/Declines were negative:-1.8:1 vs +1.9:1 vs  -1.1:1 vs +3.3:1 vs +1.2:1 on NYSE and -2:1 vs +1.9:1 vs -1.2:1 vs +2:1 vs +1.5:1 on Nasdaq. Breadth was similar: -2.4x vs +1.1x vs  -2x vs +3.4x vs +1.2x on NYSE and -1.3x vs +1.3x vs -2x vs +2.8x vs +1.2x on Nasdaq. New 52 week highs slipped to 266 from 285 while new lows rose to 29 vs 19. The ratio dropped to 9x positive. The S&P VIX rose to 19.40 +.87, highest since 1/19!

Here are the results of the past five sessions: Dow -0.1% vs -0.6% vs -0.2% vs +0.6% vs -0.3%; Transports -0.4% vs +0.8% vs +0.4% vs +1.5%v vs -0.7%; Dow Utilities -0.3% vs -1.3% vs +0.1% vs +1.6% vs -0.8%; S&P 500 -0.3% vs -0.2% vs -0.6% vs +0.9% vs -0.1%; Nasdaq Composite -0.2% vs +0.4% vs -0.5% vs +1.1% vs +0.1%; Nasdaq 100 +0.1% vs +0.3% vs -0.5% vs +1.3% vs -0.1% vs flat; Russell 2000 -0.8%!!! vs +0.8% vs -0.3% vs +0.9% vs +0.7%; NYSE Financials -1.2% vs +0.3% vs -0.4% vs +0.5% vs -0.4%. NYSE Leaders: BAC -3%!!! vs -0.1% vs -0.7% vs +0.8 vs +0.6%; PFE-+0.5% vs -0.7% vs -0.4%; F+0.7% vs -4.2% vs -1.1% vs -0.9% vs +1.3%; NOK -0.7% vs -6%.

 

Global equity markets stronger: FTSE +0.7% vs -0.8% vs -0.5% vs +1.2% vs -0.7%%; CAC 40 +1.5% vs -1.1% vs -0.5% vs +1.2% vs -0.9%; DAX +1% vs -0.8% vs +0.2% vs +1.5%; Nikkei +0.1% vs -0.5% vs -0.4% vs +1.1% vs +0.2%; Hang Seng +1.1% vs -1.7%! vs +0.3% vs +1.6%; Korean KOSPI +0.8% vs -1.2%! vs +0.4% vs +0.3%; Indian Sensex +2% vs -2.2%!!! vs +0.9% vs closed vs +0.5%. U.S. Futures stronger, but off session highs: DOW +55; SPX +6; NDQ +10. Bonds little changed: 10’s still well below 2%, 30’s at 3%! 10 yr 1.85% -1/16. RECORD low 9/23 of 1.6855%; 30 yr 3.00% flat; Long TIP 0.65% +3/16; 0.57% at high. The 5 yr TIP yields MINUS 1.29% vs -1.31%; 10 yr -0.29%. 3 mo. Libor 0.54%, and 0.78%, starting to slip again! Bills 0.04% 1 month; 0.05% 3 months, 6 months 0.08%. Reverse Repo 0.16%, steady.

Gold closed slightly lower at $1734.40 -$1 with an intraday high just shy of Friday’s $1743, the highest since 12/6! It is well above the 200 day ($1649), and has been above $1600 for 14 straight sessions. It is now $1743.50 +$9.10. The record high is $1923.70, a buying climax on 9/6. Sup is $1667, the 50 day, further support $1653, the 40 day m/a. Res is $1770, the 12/2 high! Crude lower again, closing at $98.78 -.78. It is now $99.08 +$1.20, and weak with res at $100 and support at the 40 day (99.42), the 50 day (99.27), and $95.19, the 200 day.

 

…yesterday, TB went to see The Iron Lady, a great movie not just for the acting of Meryl Streep, but the directing and more importantly, the discourse (discord?) of 30 years ago which sounded like Congress today. Of course, the British Parliament is all about provoking discussion and while heated is otherwise civil. One thing TB loves about it is rather than a SOTU speech the PM has to go before Parliament four times a year and be subjected to strong criticism which is always responded to vigorously and with great wit. We would do well to learn from them…as Thatcher suggested to them they could do by following the Americans by looking to the future and not focusing on the past. Of course, we are long past that point now with the gloom and doom that says we will never grow revenues (the thing that got us in the mess that was capped off by the financial bailout). A must see…see more below.

 

How did the markets recovered most of the early session plunge which took the Dow down more than 100 points…but how did it do it? On low volume…even on the ETN’s while NYSE traded stocks had volume 300 million shares below average…from 200 million recently.

 

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

If you see The Iron Lady you may have one of two views: if you are conservative, especially a Tea Party type, you will love it and think how much we need her now; if liberal you will think this film was planted to show just how right the GOP is in trying to balance the budget at all costs. Even  the phrase “if not now, when?” is not new but came from this era. TB however is more pragmatic and sees it as a historical perspective.

 

Remember that this was thirty years ago…unlike the U.S. labor unions, mostly government, in what was really a socialized country, they routinely went on strike, paralyzing the nation. The last we had was in this era when the air traffic controllers struck and Reagan replaced them.

 

The Gipper gets much of the credit here when the leader was clearly Thatcher, but they had a great friendship which the movie barely touches on. But the question we should be asking ourselves is whether her strategy of a flat tax makes sense now.

 

Thirty years ago, neither country had a wealth gap problem…CEO’s made 10-15 times the salary of the average employee…a far cry from the 400-800 times we see today. Also, they had no golden parachutes making them accountable for their long-term planning, not just the near-term, which has now come to mean, quarter to quarter.

 

Thirty years ago, $100,000 put you in the top 10% of all workers….today it is only modestly higher and adjusted for inflation, significantly lower! There were few billionaires and far fewer millionaires. Thus the idea of a flat tax, or abolishing the income tax in favor of a national sales tax is ludicrous. First, the tax accountants and lawyers would never allow it due to their loss of revenue. Second, a consumption tax is the most regressive tax there is. Thatcher said all people should pay some tax…in this country they do…be it sales tax or property tax and indirectly product costs reflect tax costs.

 

But we need to eliminate preference items first…we need to eliminate generation skipping, which only promotes the idea of future generations of idle rich…the carried interest exclusion which converts ordinary income to capital gains…which it most certainly is not.

 

Also, we need to stop thinking that because a person is wealthy and investing in stocks that that is true capital gains…especially dividend income…thus a low or possibly zero capital gains rate for the first five years of a business is a sensible idea.

 

Finally, we now know beyond a certainty that ‘trickle down’ supply-side economics does not work, despite the pleadings of Arthur Laffer (now being sued for his firm steering clients to what turned out to be a Ponzi scheme for a $3.1 million kickback). It was unquestionably supply-side economics that created the wealth gap…and as TB said, we aren’t talking from the top to the bottom but from even the top 1% to the top 10%! The ownership of assets is even worse as the middle class has been eroded yet some stalwartly hold that money is being put into the economy in the form of new businesses, which are the only true creator of jobs…most are not.

 

So TB heartily recommends The Iron Lady, but only if you remember that this was thirty years, and two massive Bush tax cuts ago.

 

Have a great day!

TB

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