3/22/12…the selling off of America

TB’s Quotes of the Day:

“Everyone has his day and some days last longer than others.” – Sir Winston Churchill

At a rally in South Carolina last January, Senator John McCain endorsed GOP presidential hopeful Mitt Romney by saying, “I believe President Obama will turn this country around.” – he meant Romney! You can’t make these things up. To be fair, McCain has been fair about Obama giving him credit for the things he has done right, while Romney can find nothing he has done right and still insists we are worse off than when he took office.

Bloomberg Top Stories:

 

*Stocks in Europe Fall With Commodities on Economy; Euro Drops, Bunds Rally –one more time!

*European Economy Gauge Shows Deeper Contraction Than Economists Forecast –  yep!

*Bank of America Global Markets Chairman Orcel Said to Prepare Move to UBS – rats leaving?

*Ireland Asks ECB Council for Delay in Cash Payment on Bank Debt –lower GDP, exports

*Ireland Enlists Pensioners for Bond Crusade by Prime Minister – tap the pension funds!

*AIJ Beckoned Japanese Pensions Burdened by Return Targets Set 50 Years Ago – like Madoff!

*Credit Suisse Will Meet Latest Standards While Returning 15%, Dougan Says – believe it?

*AMR Is Said to Prepare Bankruptcy-Court Request to Reject Union Contracts –not management

*Israeli Billionaires Put Own Interests Before Bondholders After Debt Glut – just like here!

*Obama Campaign Challenge is Showing He’s Reason for U.S. Economic Rebound

Volume declined slightly again after hitting new 2012 highs on BOTH NYSE listed stocks AND on those traded directly on the NYSE last Friday. 3.54B shares vs 3.65B vs 4.85B shares. Contrast to Friday’s 4.85B shares. Meanwhile, NYSE stocks executed on the Big Board rose slightly to 766M shares vs 711M about 250M below the 12 month average and well blow Friday’s 1.65B shares, highest of 2012 and since 12/16/11…the last quadruple witching! Since 11/1 there have been just eight 1B share days…only three in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 87 of the last 94 sessions have now been less than 1B! . Advance/Declines were almost even: -1.1x vs -2x vs +1.8x vs -1.2x vs +1.5x on NYSE and +1.1x vs -2.2x vs +1.8x vs -1.1x vs +2x on Nasdaq. Breadth was identical – never saw this before: -1.1x vs -1.5x vs +2.1x vs +1.5x vs +4x on NYSE and +1.1x vs -1.5x vs +2.5x vs +1.1x vs +2.8x on Nasdaq. New 52 week highs rose to 189 vs 124, while new lows slipped to 35 vs 54. The ratio is now +6x vs +2x. The S&P VIX declined modestly to 15.13 -.45. Friday’s intraday low of 13.66 was lowest since 6/20/07’s 12.75. VIX measures volatility and can be good or bad when up, very high is bad. But when it rises and market is going nowhere or trying to rally it is a lack of confidence.

Here are the results of the last five sessions: Dow -0.4% vs -0.5% vs +0.1% vs -0.2% vs +0.4%; Transports +0.8% vs -1.2% vs +0.2% vs flat vs +3.3%; Dow Utilities -0.2% vs +0.4% vs -0.4% vs -0.2% vs -0.1%; S&P 500 -0.2% vs -0.3% vs +0.4% vs +0.1% vs +0.6%; Nasdaq Composite FLAT vs -0.3% vs +0.8% vs flat vs +0.5%; Nasdaq 100 FLAT vs +0.2% vs +0.8% vs -0.1% vs +0.2%; Russell 2000 +0.1% vs -1.0% vs +0.9% vs -0.1% vs +1%; NYSE Financials -0.6% vs -0.3% vs +0.6% vs +0.5% vs +1.3%. NYSE Financial Leaders: BAC +0.1% vs +2.9% vs -2.8% vs +6.1% vs +4.5%; C -0.7% vs +2.5% vs +1.3% vs +1% vs -0.9%; RF +2% – Regions Financial

European equity markets weak, Asia modestly higher, India now down 4.3% in six sessions: FTSE -0.8% vs +0.1% vs -1.2% vs -0.3% vs +0.4%; CAC40 -1.5% vs flat vs -1.3% vs -0.6% vs +0.2%; DAX -1.3% vs -0.1% vs -1.4% vs -0.5% vs +0.2%; Nikkei +0.4% vs -0.6% vs +0.1% vs +0.2% vs +0.1%; Hang Seng +0.2% vs -0.2% vs -1.1%!!! vs -1%!!! vs -0.2%; Korean KOSPI FLAT vs -0.7% vs -0.2% vs +0.6% vs -0.5% vs -0.1% vs +1%; Indian Sensex DOWN 2.3% vs +1.7% vs+0.3% vs -1.1% vs -1.2% vs -1.4%. U.S. stock futures weak: DOW -65; SPX +8.40; NDQ -13.50! Bonds rallying for a second session but still trying to recover from the selloff: 10’s and 30‘s still well above 2% and 3% respectively: 10 yr 2.25% +3/8. RECORD low 9/23 of 1.6855%; 30 yr 3.35% +5/8; Long TIP 0.86% vs 0.90%!, it was 0.57% at high. The 5 yr TIP yields MINUS 1.23%; 10 yr -.14%. Bills 0.08% 1 month; 0.08% 3 months, 6 months 0.14%. Reverse Repo 0.22%. 3 mo. Libor 0.47%, and 0.74%, stable.

Gold closed below $1700 for an 8th straight session but was up $5 and making the hit off $126 since 2/28, closing $1646.30 +$5.10. 2/28’s $1792.70 intraday high was not seen since 11/16! It had been above $1600 since Jan. 31, but is now $1633.80 -$16.50! The record high is $1923.70, a buying climax on 9/6. Res is $1684, the 200 day and $1707, the 50 day, then $1719, the 40 day, rolling over. Major support was $1652, the 1/25/13 low, now res! Crude closed up at $107.27 +$1.56, following the worst decline since 11/17/11! But it is now $106.19 -$1.08, with support at the 40 day (103.50), the 50 day (102.78), and major support at $95.12, the 200 day…careful though as they are all rising and that is the SUPPORT. Resistance remains at $110.

The indices were weak except Dow Transports which rose 0.8%. All other indices were slightly lower except both Nasdaq indices which were FLAT – rare!  The world’s biggest casino is about to get even bigger when a new fiber optic cable NY-London is completed mid-year! What a title to be proud of…

Overnight, Dow futures traded down to 12983 (equivalent to about 13040 on the index). Will today be the day we break 13k to the downside? Will CNBC  be celebrating that?

Gold rose slightly yesterday gaining $5 but is off $16.50 overnight due to slower growth in EU and that caused the Euro to weaken taking commodities with it. Since 2/28 it is off $142 and trading below major support, at $1652, the 2/28 low! Oil rallied slightly but gave most of it up overnight!

Thanks to the wonders of fiber optics, Jim Barksdale made a household name by Michael Lewis in The Next New Thing (Netscape, MyCFO.com), is the man behind the fiber-optic cable that runs from Chicago-New York, and will soon complete a new one from New York to London…so? Aren’t we awash in fiber-optic capacity? Not for the wonderful world of finance, aka high frequency trading. TB recently learned of the Chicago cable and the big thing is that it is not for humans…only data on trades and only available to those who signed up for the proposal…for a very high fee. All others excluded.

Now the same is being done to London and it could change the landscape of the big players and become an enormous money transfer from the old market leaders such as the banks (think JPMorgan, Citi, Morgan Stanley) to huge hedge funds who were willing to pay dearly for the right to get data six microseconds faster…remember that data already travels at the speed of light which for humans is fast enough but not for computers implanted with trading algorithms. Some of the big players will find they have lost their edge.

Remember, that flash trading is much more than stock! It is bonds, commodities and anything else that is tradeable. When TB was in San Francisco in February he met a young quant who worked for a hedge fund. TB asked him what their style was. He said they are strictly currency traders…hello??? This used to be the realm of the money center banks…exclusively…but now with algorithms anyone with a math/physics background can do it. I asked him if it was harder with everything going on in Greece and the Euro. He said none of that matters. A perfect explanation of high frequency trading…and scary for those of us old enough to have seen crashes.

Originally Goldman (TB believes) paid dearly to have their computer right next to the NYSE trading floor. That worked giving them the advantage. Then, a fiberoptic cable allowed firms to do the same from mid-town and now Chicago and next London. Think of the disadvantage other traders are at? Three milliseconds (.003 seconds) is a lifetime to a computer program geared to take advantage of minor blips in stocks.  Furthermore, it is unequal dissemination of information and is about to be tested in court. If upheld, the principle that has made the U.S. markets the safest and fairest in the world will be negated…although the SEC through neglect already did that!

. . .   – – –  . . .  (SOS)

In 2010, Chicago Mayor Richard Daley made a proposal to sell off the parking meters in Chicago. Not a new thing as many cash-strapped cities and even states have done similar things. But Daley called an emergency meeting of aldermen and said it had to be done immediately, over their objections that they needed time to review it. He forced the issue and it was sold to Morgan Stanley who said they had an investor. First, they bought it, then sold it to an Abu Dhabi syndicate –shock! They lied! The new owners then raised rates, extended metered parking hours, and if there were art fairs etc. that closed off streets, made the townships pay the meter charges! This of course ended those fairs:

“A Morgan Stanley venture may reap $9.58 billion in profit over a 75-year lease of city parking facilities, based on documents from the group. The bank, joined by the Abu Dhabi Investment Authority and Allianz Capital Partners, set up a venture to lease the Chicago operations in 2008. The profit was estimated based on projections in a 2010 offering document.

 

 Now Morgan Stanley has proposed doing the same for cash-strapped Harrisburg, Pa. See what helpful people these are? …and you can bet the same thing will happen. Of course, history now shows just what they are up to, but Harrisburg is not in a position to negotiate. What is amazing is just a few years ago there was a huge furor about selling off assets to foreigners…but to Morgan Stanley to flip them? Not a whimper. By the way after paying just $1.5 billion for Chicago’s meters, they flipped it for $11 billion due to the revenue increases they initiated…TB wonders how much Daley made?

The GOP has released its new improved jobs bill…whenever you hear that term from inside the beltway, run! Remember the bankrupty act renamed the consumer protection act? Well they are at it again….

“JOBS” disaster looms

By Simon Johnson

The House “JOBS” bill is a thinly disguised repeal of investor protection in the United States.  This legislation would help unscrupulous people in the securities industry but it would be bad for nonfinancial businesses – by raising the risks to investors, it would push up the cost of capital for honest entrepreneurs.   Investment professionals belonging to the CFA Institute have expressed their serious concerns and strong opposition.  Attempts to amend this legislation – and to make it more sensible – failed in the Senate yesterday.

The Senate will vote today on whether to adopt the main provisions of the House bill.   Passing this bill would be a major public policy mistake – akin to the disastrous (and bipartisan) deregulation of the financial sector in the 1990s.  This kind of excessive deregulation leads to disaster – and to fiscal crisis.  (For more background and the historical comparison, see this piece.)

President Obama claims he wants strong investor protection.  Where is he on the specifics of the JOBS bill?  Why is the White House staying so much on the sidelines during this critical Senate process?  The president should rally Democratic Senators against the House bill and press again for an amended and more responsible piece of legislation.

If the Republicans refuse to agree to sensible investor protections – flying in the face of American tradition and established best practice (and lessons learned the hard way in the Great Depression) – that is a great issue for the general election in November.

Think of this: the GOP says fiscal policy doesn’t work. In the last jobs program there were tax incentives to create jobs but those expired and predictably firms reduced the number of employees accordingly…as has happened every time it has been attempted before. But the purpose of this is to cut taxes once again to GOP supporters…aka financial sector and large firms…

Have a great day – Illegitimi non carborundum!

TB

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