4/18/12…banking on it!

Bloomberg Quote of the Day: “Fiction reveals truths that reality obscures.”- Jessamyn West


Bloomberg Top Stories:

*Soaring Spanish Bad Loans Cast Doubt on Public Cost of Propping Up Banks! Do tell!

*European Stocks Drop as BOE Inflation Forecast Sinks Gilts, Bolsters Pound

*Spanish Banks Gorging on Sovereign Bonds Shifts Risk to European Taxpayers – atta boy!

*Posen Ends Push for Bank of England Stimulus on Inflation Concern – nobody knows!

*Fannie Mae Proposal Is Said to Include U.S. Safety Net for Home Mortgages – oh buy!

*Bank Credit Worst to Companies Since Peak of Global Crisis – oh yeah, their lending, right!

*Citigroup to Fix Pandit’s Pay After Shareholder Rejection – finally listening to owners!

*Halliburton Earnings Rise as Higher Oil Prices Drive U.S. Drilling Demand

Mr. Market made a fool of TB yesterday…in terms of his predicting that it would be a long time until we saw Dow 13k. Specifially, “while the Dow  was up 0.7% (along with Transports +0.9% and Utilities +0.6% (lagging and a strange bedfellow), the session high was 12986 EXACTLY a triple top and producing formidable resistance before Dow 13k can be realized! Also resistance below and above the psychological 13k: 12998, the 50 day m/a and 13033, the 40 day, so even broaching the magic number could be fleeting. Big Caution Flags!”  OUCH! The very next day it blasted through all of that resistance ‘like buttah.’ The trajectory to 13115 eliminated all but 1.1% of the 4.2% plunge from April 2. AMAZING! All 30 Dow stocks were up, led by IBM with 36 index points and 7 others gaining at least 10 points! Apple’s surge does not affect the Dow but it did add to the  S&P and especially the two Nasdaq indices. Volume was essentially stable for a FIFTH straight day at an unremarkable 3.44B shares on NYSE listed stocks (compare to 4.66B on last Tuesday’s downdraft). BUT NYSE stocks executed on the Big Board fell to the lowest level since March 12th, 710M shares from 735M – after the surge to 972M on Tuesday’s selloff,  260M below the falling 12 month average (970M)! 7 of the last 8 sessions have been less than 800M shares! Since 2/29 there have now been just THREE ‘average’ days, including 3/16’s high for 2012, and the average has fallen to 805M shares. 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. 103 of the last 113 sessions have been less than the 12 month average! Advance/Declines were positive: +3.4x vs +1.3x vs +-3.3x vs 4.6x vs +3.8x on NYSE and +3.2x vs +1.1x vs -3.5x vs +2.1x vs +3.6x on Nasdaq. Breadth was even better: +7.3x! vs +1.2x vs -6.4x! vs  +9.5x!!! vs +3.7x  on NYSE and +5x! vs MINUS 1.4x!!! vs -6.4x vs +4.5x vs  +4.3x vs -11.7x!!! on Nasdaq. New 52 week highs rose to 180  vs 119 (high was 420 on 3/26), while new lows were more than halved to 53 vs 117! Ratio positive again: +3.5x vs 1:1 vs  -2.9x vs +3x vs 1:1 vs -3x!!! vs -2x. The S&P VIX dropped by 1.09 to 18.46 after being unchanged at  19.55. This after bouncing back from 17.20 and above the near convergence of the 40/50 day m/a’s (16.95-17.33) and after gapping up Tuesday with a high of 21.06, highest since March 6! March 16’s intraday low of 13.66 was lowest since 6/20/07’s 12.75!!!

Here are the results of the last five sessions: Dow +1.5% vs +0.6% vs -1.1% vs +1.4% vs +0.7%; Transports +1.4% vs +0.9% vs -1% vs +2.2% vs +0.9%; Dow Utilities +0.6% vs +0.6% vs -0.3% vs +0.5% vs +0.3%; S&P 500 +1.6% vs -0.1% vs -1.3% vs +1.4% vs +0.7%; Nasdaq Composite +1.8% vs -0.8% vs -1.5% vs +1.3% vs +0.8%; Nasdaq 100 +2% vs -1.1% vs -1.5% vs +1.2% vs +0.5%; Russell 2000 +1.6% vs +0.2% vs -1.5% vs +1.5% vs +1.6%; NYSE Financials +1.6% vs +0.6% vs +1.9% vs +1.6% vs -2.2%!!. NYSE Financial Leaders: BAC +1.5% vs +1.3% vs -5.3%!!! vs +3.4% vs +3.8% vs -4.4%!!! vs -3.3%!!, Citi +3.2% vs +1.8% vs -3.5% and since peaking at $38.40 on 3/19, it is now off 8.3%!!! This is utter insanity…do you honestly think people are buying it?

European equities weak, Asia strong, another reversal:  FTSE -0.4% vs +0.8% vs +0.3% vs -0.4% vs -0.3%; CAC40 -1.6% vs +1.4% vs +0.6% vs -1.1% vs -0.5%; DAX -0.9% vs +1.2% vs +0.3% vs -0.9% vs -0.1%; Nikkei +2.1%! vs -0.1% vs -1.7%! vs +1.2%! vs +0.7%; Hang Seng +1.1% vs -0.2% vs -0.4% vs +1.8%!! vs +0.9%; Korean KOSPI +1% vs -0.4% vs -0.8% vs +1.2% vs -0.4%; Indian Sensex  +0.2% vs +1.2% vs+0.3% vs -1.4% vs +0.8% vs -0.3%. U.S. stocks futures weaker: DOW -44; SPX -4.80; NDQ -5. Bonds better and note they did NOT selloff with stock rally this time! 10’s thru 2% but 30’s still well above 3%.10 yr 1.98% +1/8, RECORD low 9/23 of 1.6855%; 30 yr 3.13 +1/4; Long TIP 0.70% +5/16. It was 0.57% at high. The 5 yr TIP yields MINUS 1.31%; 10 yr -.31%. Bills 0.06% 1 month; 0.08% 3 months, 6 months 0.13%. Reverse Repo 0.23%. 3 mo. Libor 0.47%, and 0.73%; steady. New section on euro sovereign 10 years, for reference Germany 1.72% -2 bp’s (benchmark for the matrix); Italy 5.44% -1; Spain 5.77% -6; Greece 20.22% -17; Portugal 11.86% +2; Ireland 6.64% flat.

Gold closed below $1700 for a 25th straight session, up $1, making the hit $141 since 2/28, closing $1651.10 +$1.40. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, which remains below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1688, the 40 day and $1697, the 50 day, then $1698, the 200 day. It is now $1640.90 -$10.20. Crude a tad higher, closing at $104.20 +$1.27. Tuesday’s low of $100.68 was worst since 2/15/12! It remains below the range of $105-110 which held from to 3/28!!! RES still at the 50 day (104.48), the 40 day (105.56), and major support at $95.89, the 200 day, all still rising. Little changed o/n, now $103.70 -.50. $101.08, the April 4 low is still minor support – Last 4/10’s low $100.68!!! – lowest since 2/15/12!.

See the above section for TB’s mea culpa on Dow 13k –BUT he isn’t giving up…not with options expiry on Friday and the fact that this was a flash trade rally as evidenced by the low volume…especially shares traded directly on the Big Board! While Apple did not affect the Dow, it added at last 0.2% to the S&P 500 and doubled the Nasdaq 100 to +2% vs +1%.  The economic data released yesterday was mixed at best and didn’t support any rally, especially one of that magnitude. We have seen this before…correction to follow. For now they are contenting themselves with the earnings reports…the good ones!

Apple has been down for the prior FIVE sessions, after peaking at $644 on 4/10, then closing down $8 from the prior day’s high, thus ending the rally that began on 3/13 – gapping up two straight days and producing one third of the quarter’s gain (16%/48%), without which the market would not have glistened so much in the first quarter. Yesterday however it was up 6.7% to $609.70 +$29.57, on an almost PARALLEL day to Monday’s plunge…also, not quite an outside day OR a key reversal meaning the technicals for it remain intact! Tuesday a Bloomberg article told how Apple could regain its earnings growth but that it was unlikely; yesterday, another article said it is still cheap!

TB says it was SHORT COVERING of a high flier…not REAL buyers! So laugh if TB is wrong but this is insanity…going down? Apple and major indices. You decide.

TB still recommends either staying sidelined but is increasing the need for setting trailing stops in volatile stocks. See how easy it is to get whipsawed? Piece of cake!

. . .   – – –  . . .  (SOS)   . . .   – – –  . . .  (SOS)   . . .   – – –  . . .  (SOS)   . . .   – – –  . . .  (SOS)

…due to time constraints, TB could not get anywhere near finished on the Volcker Rule so here is some background that is even more valuable…especially if you like bank stocks. Quiz:

Which are the top five U.S. bank holding companies (3/31/12)?

    1. JPM, BofA, Citi, Wells, GS – faux bank, #6 is U.S. Bancorp
    2. Note that thanks to the meltdown insurers and brokers are banks! NOT!

How would TB rank these banks on quality

a.  USB, WFC best, JPM neutral, BofA and Citi –Sell

b.  Only USB and WFC have no proprietary trading (Volcker Rule)

  1.                                                                i.      Both have dividends of 2.5% or more and rising
    1. still too low for a bank s/b 4-5%
    2. JPM just raised to 2.7% but…, Citi 0.11%, BofA 0.45%

There are a few other suitable banks like BB&T and PNC, which made aggressive loans but kept losses in check.

How do U.S. banks rank compared to the top 50 in the world (12/31/11 –latest)?

aMiserably, but is that a bad thing seeing what they did to themselves?

  1.                                                              ii.      JPM – 10th, BofA -17th, Citi – 23rd, WFC -24th  – no others!
  2.                                                             iii.      Top 3: BNP Paribas, Deutsche, Barclays

How would TB rank the top five U.S. banks by quality (lack of risk)?

USB      WFC     JPM       BofA    Citi

Return on Assets       1.46%   1.17%   0.84%       -0-    0.58%

Loans to Deposits      90.8%   83.7%  64.2%    89.7%  n/a???

When TB was in banking 30 years ago, required reserves which were controlled by the Fed under Regulation D were 17.5%. Then in 1990, thru a wonderful bill, transactional accounts dropped to 3%, and non-transactional went to zero! This on the premise that since the Fed didn’t pay interest on reserves it was in fact a hidden tax. One for which the banks, when they had problems got full value and more…but banks never see themselves as getting in trouble as they are too busy patting themselves on the back.

Back then it was First Pennsylvania’s John Bunting who was the wunderkind, much as JPMorgan’s Jamie Dimon is today. To Bunting’s credit he never allowed the shananigans that JPMorgan has had happen on his watch…or at least wasn’t caught. Still, the bank failed due to overexpansion into investments, etc.

What has Dimon done that has endangered the banks? First, it was Ronald Reagan who created ‘too big to fail’ by bailing out Continental Illinois in 1984 over the objections of Treasury Secretary Don Regan (formerly of Merrill Lynch). Since Continental was the eighth largest bank larger banks were also considered to be TBTF and foreign money flowed in while domestic deposits moved to the larger – safer banks. Pity.

Dimon and other bankers were opposed to regulating derivatives and having them trade on an exchange. That was Sheila Bair’s idea…then head of the CFTC who was lambasted by Rubin, Summers, and Greenspan in what was in fact defamation of character, much as happened to Elizabeth Warren when she was to head the new consumer protection agency, despite efforts by her to win Dimon over.

What is so important about regulating derivatives and having them trade on an exchange? Because by having each contract tailored the fees are gargantuan. Furthermore, you can’t get out of it so you have to create a new one to sell and once again enrich a broker. Thus you have one long and one short position to net out…yet you have counterparty risk on both. Bair was correct and the others were fools and accountable for most of what happened in the financial collapse. Derivatives MUST be regulated!

Still, this all would have been insignificant had not Sandy Weill, talked to Clinton, Rubin, AND Greenspan to grease the skids for his stock swap of Citi with Traveler’s. This also led to the demise of Glass-Steagall which needed modification but not to be replaced with legislation which exempted the top five banks (who, recall were TOO BIG TO FAIL!), from oversight. The promises were so good that he even did the stock swap BEFORE Glass-Steagall was replaced. Coincidentally (sic), Rubin went on to become Vice Chairman of Citi…with no duties – what a guy!

Yesterday, we learned two new things about the banks:

1. Jamie Dimon’s $27 million is 67 times the average salary, not of any typical employee, but of the investment

bankers at JPM! Is he worth that much? You decide.

2. Citi, in an unusual move, had an advisory vote by shareholders on Vikram Pandit’s compensation. While as all

shareholder actions, it is merely advisory, Chairman Parsons said that they will seek a more ‘quantitative’,

formula-based method of determining it. Isn’t it about time to stop the madness? 

Tomorrow, the Volcker Rule, good or bad? – promise!

Now about the Buffett Rule requiring millionaires to pay a minimum tax of 30%. 72% of Americans just polled were in favor…a majority of the Senate was in favor but the GOP filibustered and there were not enough votes to stop it…they killed the rule…who are they represented? The same people as when they won’t allow a presidential nominee an up or down vote when they have put their lives on hold. This is a disgrace!

‘Anyone but Obama’ should be the epitat of the GOP this presidential election. In every category, Obama trumps Romney by double digits including representing women, likeability, honesty, ability, despite the rhetoric to the contrary. Also, 62% of those polled who would vote for Romney say they will do it in opposition to Obama. Think about that.

There is the possibility that the GOP picks up congressional seats but even that is in doubt thanks to the efforts of  Wisconsin’s Scott Walker and others who have tried to radically reform government. Business knows better? Would any sound business slash spending without trying to increase revenues? Not if it wants to stay in business.

Have a great day!



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