2/23/12…while they were shouting

Bloomberg Top Stories:

 

*Euro Strengthens After German Confidence Report; U.S. Futures Erase Gains

*Germany Confidence Defies Euro-Area Recession as Italy Contracts…but confident!

*Banks Lobbied to Widen Volcker Rule Before Inciting Foreigners Against Law

*JPMorgan Wagers $72 Billion on Global Home Loans in Yield Hunt…it’s YOUR money!

*Sears Will Sell 11 Stores, Separate Hometown, Outlet Units to Boost Cash

*Consumers Hit by Higher Rates Afteer Deregulation Financed by…Goldman Sachs!

*Shell Bid Starts Race for African Gas Fields Bigger Than Norway’s – what about OURS???

*Thailand Proving Best Bet After China of Global Emerging Market Investors

*Romney as Auditing Chairman Saw Marriott Son of BOSS Tax Shelter Defy IRS – he’s for YOU

*Syrian Troops Shell Homs on eve of Tunisia Talks to Discuss Ousting Assad

*Romney Getting No Support From Snyder in Campaign Dogged by Bailout Stance

Volume has been nearly steady at 3.6B shares since last weeks roughly 4B shares that culminated with Monday’s 4.06B share day that generate a nice rally followed by two days of lower equity prices. NYSE stocks executed on the Big Board however dropped to a weak 729M shares…about 300 million below average and lowest since Feb. 6th. Since 11/1 there have been just six 1B share days…only one in 2012! 70 of the last 76 sessions have now been less than 1B! Advance/Declines were negative: for a second straight session: -1.3x vs 1:1 on NYSE and -2x vs -1.6xon Nasdaq. Breadth was similar: -2.2x vs 1x on NYSE and -3x vs -1.6x on Nasdaq. New 52 week highs have dropped to 167 from 273 while new lows rose to 24 vs 17. Watch the new highs. The ratio, which had been as high as 24x positive, is now just 6.5 times and dropping fast. The S&P VIX declined to 18.19 -1, despite the decline in stocks.

Here are the results of the past two sessions: Dow -0.2% vs +0.1%; Transports -0.7% vs -1.5%; Dow Utilities FLAT vs -0.1%; S&P 500 -0.3% vs +0.1%; Nasdaq Composite -0.5% vs +0.2%; Nasdaq 100 -0.5% vs +0.2%; Russell 2000 -0.8% vs +0.2%; NYSE Financials -1.1% vs -0.1%. NYSE Leaders: BAC -3% vs +1.1%; F 2%; GE -0.1% vs +0.7%; C -3% vs +1.3%.

Global equity markets mixed: FTSE +0.3%; CAC40 +0.2%; DAX -0.4% despite higher investor confidence???; Nikkei +0.4%; Hang Seng -0.8%; Korean KOSPI -1%; Indian Sensex -0.4%. U.S. Futures oscillating: DOW +17; SPX +1.20; NDQ +6.50. Bonds weaker: 10’s and 30’s both well above  2% and 3% respectively 10 yr 2.04% -3/8. RECORD low 9/23 of 1.6855%; 30 yr 3.18% -11/16; Long TIP 0.71% -3/8; 0.57% at high. The 5 yr TIP yields MINUS 1.38%; 10 yr -0.30%. Bills 0.06% 1 month; 0.08% 3 months, 6 months 0.12%….slowly climbing. Reverse Repo 0.12%  had been around 0.25%. 3 mo. Libor 0.49%, and 0.75%.

Gold closed strong at $1771.30 +$12.80 with an intraday high just above $1783, highest since 11/16! It is well above the 200 day ($1666), and has been above $1600 since Jan. 3. It is now $1777.00 +5.70. The record high is $1923.70, a buying climax on 9/6. Sup is $1681, the 40 day, further support $1670, the 50 day m/a. Res is $1800, the 11/14 high! Crude strong too on Iran fears, closing at $106.28 +.44! It is now $106.49 +.21, with support at the 40 day (100.27), the 50 day (99.59), and major support at $94.42, the 200 day. Think about this: domestic oil production is at an all-time high and imports at an eight year low…are we being had? What about nat gas???

…while the GOP candidates continue to scream at one another over who wears the most conservative tie and has the biggest American flag pin (joke), they offer no solutions other than to get Obama out of office and at this rate it ain’t gonna happen! They blew it. On one hand you have Romney the flip-flopper who promises an across the board 20% tax cut…you rock, Mitt! Except how are we going to cut the deficit AND cut taxes??? Also, in case you didn’t notice it is more of the same…trickle down – TB is sure that those at the poverty or near poverty rate will perk up at this news. He doesn’t get it! On the other hand, you have Rick ‘give me life’ Santorum, who insists that he was just taking one for the party when he voted all those times the wrong way.

TB has been reading This Time is Different by Carmen Reinhart and Ken Rogoff. TB has been trying to get too it but finally had time. It blows holes in the myth of the deficit being all due to Obama (which we all knew and the GOP leadership knows but continues to misinform about, but then all’s fair in politics right…even if it hurts the country). Other than the size of this failure, it is typical of all collapses…brought on by high borrowing – the important part here is it doesn’t matter if it is government or private, at some point it becomes unmanageable. Then when the blow-up occurs, government is forced to borrow more until they can’t. We are nearing that point but comparisons to Greece are absurd…Greece has no way out…we have several. But we cannot do it on the backs of the bottom 90-95% (remember it was Romney who used that number as struggling to make ends meet!). They examined eight centuries of financial crises and the most difficult part was determining total government debt due to off balance sheet borrowing – such as we do from the social security trust fund (sic).

TB loves the expression “the stock market climbs a wall of worry.” It does…until it doesn’t or can’t. What happened to us could have been mitigated…which is not to say it wouldn’t have happened but it would have been on a much smaller scale if the Fed…probably the ones who miscalculated the worst and that would be BOTH Greenspan and Bernanke along with Rubin, Summers, and the Cox-led SEC hadn’t acted so irresponsibly. They ignored the facts thinking – it’s different this time…but it wasn’t…it never is!

Markets are built on confidence and once that is gone there is no hope. We allowed our markets, the best regulated in the world, to run rampant while those who knew better sat and watched. Now we are all paying for it. Markets are even worse now as we have no idea just how much liquidity supports them. High frequency trading dominates the markets and when ranges are broken the liquidity disappears. Consider what is happening now with the Dow on the cusp of 13k…for a second time of course…peaking Tuesday at 13005 and now weaker. CNBC had a big party when it crossed it…imagine: that isn’t even as high as it was just before the big 2008 selloff (13132-13136 on 5/2 and 5/19, 2008), which was down from the record high of 14198 on October 11, 2007! Note that financial stocks peaked in early 2006-2007 and that the sector had grown from 15% of the market to an unprecedented 25%! Financial activity, not industrial had driven the entire economy providing an illusion of both wealth and liquidity.

So…if you like stocks…go for it…just don’t expect a safety net. We don’t even know what the average holding period for a stock is…some say 70% of the volume is in high-frequency trades resulting in an average holding period of 11 seconds according to once source. A study of investment managers found that there estimated stock turnover was understated by 26% from actual. But whatever the real average holding period is, means nothing. That is because the high frequency traders dictate the direction and magnitude of stock moves. TB cannot recall the last time that BofA wasn’t the most active stock on the NYSE…and that is definitely not institutional trading. Consider that the stock is from 8% to 20% of all trading…is that real liquidity? Not to TB.

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

You just can’t separate investing and politics…not just here but globally. Also, it doesn’t matter what you or TB thinks or wishes…decisions are made by the monied class. What is bizarre is why so many of us want to protect them through ridiculous tax loopholes and low Bush era tax rates that have enriched them…and continue to do so as they are buying perhaps 25% of the foreclosed real estate in yet another, and perhaps the biggest transfer of wealth yet – at the expense of the middle class! Reinhart and Rogoff point out that the share of the financial sector relative to GDP rose to 8% in 2007 from 4% in the mid-70’s. That year the top executives of the five largest investment banks, divided a bonus pool of over $36 billion! This does not include hedge fund operators or people like Angelo Mozillo, or even the biggest bankers.

This sector controls politics today…in either party…that is why no politician who wants to get elected dares even comment on this for fear of alienating them. A Bloomberg story today states that the big banks pushed to have the Volcker rule extended to foreign entities operating in the U.S. But wait…weren’t they trying to kill it…yep…but they wanted it extended to get the foreign banks to join in their opposition…is that sick or what?

There is no doubt in TB’s mind that we will face another financial crisis, it may not be bigger but we are in no condition to be able to guarantee the banks again. Imagine, we cannot even get them to separate their investing activities from the banking ones which are all we should be insuring. A friend sent TB an article from the NY Post on where OWS went wrong…first, it had a negative, socialist sounding name and agenda (although there was no true agenda, merely to wake up Washington to the problem…yet Washington was part of the problem…in fact, they were the enablers! We need corporate and governmental reform but that is not going to happen, thus history is doomed to repeat itself…after they enrich themselves one more time at the expense of the global financial system and the other 99% of Americans…TB believes that it is not the top 1% but the top 0.1% where the problem lies (yes, the IRS had to create this category in 2005!)…even lovable Warren Buffett who says he pays too few taxes isn’t voluntarily writing a check, in fact he is in a dispute with the IRS over payment of billions in taxes from subsidiaries of Berkshire Hathaway…perhaps he just wants to be loved. Doesn’t everyone?

Have a great day!

TB

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