4/27/12…another wealth transfer?

There will be no more missives until May 14th…deal with it. TB.


TB’s Song of the Day:


There’s something happening here
What it is ain’t exactly clear
There’s a man with a gun over there
Telling me I got to beware

I think it’s time we stop, children, what’s that sound
Everybody look what’s going down

There’s battle lines being drawn
Nobody’s right if everybody’s wrong
Young people speaking their minds
Getting so much resistance from behind

I think it’s time we stop, hey, what’s that sound
Everybody look what’s going down

What a field-day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly say, hooray for our side

It’s time we stop, hey, what’s that sound
Everybody look what’s going down

Paranoia strikes deep
Into your life it will creep
It starts when you’re always afraid
You step out of line, the man come and take you away

We better stop, hey, what’s that sound
Everybody look what’s going down
Stop, hey, what’s that sound
Everybody look what’s going down
Stop, now, what’s that sound
Everybody look what’s going down
Stop, children, what’s that sound
Everybody look what’s going down


– Steven Stills, performed by Buffalo Springfield 1967 – the ‘summer of love’ about the Sunset Strip riots in L.A. that were due to the closing by the police of a popular club.


Bloomberg Top Stories:


*U.S. Economy Grew 2.2% in Q1 – Less Than Forecast; Spending Rose 2.9% – sustainable???

*Spain Rules Out Need for EU Bailout as De Guindos Says Banks Fully Funded – a joke???

*European Stocks, U.S. Futures Advance on Earnings Results as Euro Rebounds – U.S? Huh?

*Goldman Sachs Banker Korenberg Under Investigation for More Than Two Years – ‘nuf said!

*Procter & Gamble Cuts Full-Year Profit Outlook on higher Commodities Costs! Heed!!!

*Merck Profit Beats Analysts’ Estimates on Higher Sales of Diabetes Drugs – Obese America!

*Chesapeake’s Outlook Dims as Board Switches Course on CEO Personal Loans – not again!

*Wells Fargo Will Buy Merlin Securities to Enter Prime Brokerage business–Merlin? Magician?

*Samsung Ends Nokia’s 14-Year Run as World’s Biggest Maker of Mobile Phones – sayonara!

*Gold Traders Getting  More Bullish as Central banks Hoard More – ask the IMF!

*Buyout Boot Camp Shows There’s More to Private Equity Than Wielding an Ax


TB is glad he is leaving on vacation after being whipsawed twice in two weeks. Still holding convictions but you are on your own. The Dow hit a high of 13227 in a stealth rally into the close easily taking out resistance at 13131, the April 17 high, and closed at 13204. Only resistance now is the 4/2 high of 13297…but April is coming to a close and we know what happens in May – usually! Major support remains at 13048 (40 day m/a), 13027 (50 day), then 12205, the 200 day. Also, 12710, the 4/10/12 low. NYSE stock volume was steady at 4B shares – about average but that is huge these days and close to last Thursday’s 4.17B ahead of options expiry. NYSE shares executed on the Big Board dropped to 780M shares from 822M (correction: TB had said 651M, lowest since 3/12, but Bloomberg had not put in final count…mea culpa!). Last Friday’s 959M (highest since 4/10/12) was the first ABOVE average volume day since April 10! 11 of the last 15 sessions have been less than 800M shares! Since 2/29 there have now been just FIVE ‘average’ days, including 3/16’s high for 2012, but average has fallen to 805M shares. The 12 month average however is 968M shares – there have been just five above average days this year and four above 900M. Since 11/1 there have been just eight 1B share days…only four in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 108 of the last 120 sessions have been less than the 12 month average! Advance/Declines were positive for a second session: +2.1x vs +3.3x vs +2x vs -3.8x vs +2x on NYSE and +1.7x vs +2.8x vs +1.8x vs -3.1x vs +1.5x on Nasdaq. Breadth was similar: +2.1x vs +3.3x vs +2.3x vs -5.5x vs +1.1x on NYSE and +2.6x vs +5x vs -1.2x vs -4.8x vs -1.2x on Nasdaq. New 52 week highs rose sharply again to 286 vs 239 (high was 420 on 3/26), while new lows were steady at 56 vs 51. Ratio is positive by nearly 6x.  The S&P VIX dropped again to 16.24 -.58 after gapping up on the open Monday to 20.27.


Here are the results of the last five sessions: Dow +0.9% vs +0.7x vs +0.6% vs -0.8% vs +0.5x; Transports DOWN 1.1%!!! vs +0.9x vs +1.2% vs -0.9% vs +0.1%; Dow Utilities +0.7% vs +0.7% vs +0.7% vs -0.5% vs +.9%; S&P 500 +0.7% vs +1.4%* vs +0.4% vs -0.6% vs +0.1%; Nasdaq Composite +0.7% vs +2.3%!* vs -0.3% vs +1%! vs -0.2%; Nasdaq 100 +0.7% vs +2.7x!* vs -0.6% vs -0.8% vs -0.4%; Russell 2000 +0.6% vs +1.8x! vs +0.8% vs -1.5%! +0.6%; NYSE Financials +0.8% vs +1% vs +0.8% vs -1.1%! vs flat; NYSE Financial Leaders: BAC +0.1% vs +0.8% vs flat vs -2.2% vs -4.7%!, F +1.2% vs +3% *indices with AAPL which was up 9% on the session!


European equities better, Asia little weaker: FTSE +0.3% vs flat vs +0.1% vs +0.1% vs -1.7%!; CAC 40 +0.4% vs -0.9% vs +2%! vs +0.7% vs -2.3%!; DAX +.02% vs-0.4% vs +1.4% vs flat; Nikkei -0.4% vs flat vs +1% vs +0.8% vs -0.2%; Hang Seng -0.3% vs +0.8% vs -.2% vs +0.3% vs -1.8%!; Korean KOSPI  UP 0.6% vs +0.1% vs -0.1% vs -0.5% vs -0.1%; Indian Sensex FLAT vs-0.1% vs -0.3% vs +0.7% vs -1.6%!. U.S. stock futures DIW ahead of GDP: DOW +4; SPX FLAT; NDQ +6.25. Bonds slightly better – note that bonds rallied sharply ALONG WITH STOCKS!!! 10’s well below 2% and 30’s still closing in on 3%. 10 yr 1.93% +1/8, RECORD low 9/23 of 1.6855%; 30 yr 3.11% +1/4; Long TIP 0.68%!!! +5/16. It was 0.57% at high. The 5 yr TIP yields MINUS 1.25% vs -1.20%!; 10 yr -0.36% vs -0.31%! Bills 0.07% 1 month; 0.09% 3 months; 0.14% 6 mos. Reverse Repo 0.22%. 3 mo. Libor 0.47%, and 0.73%; steady. European problem sovereign 10 years, Germany-benchmark: 1.67% -1 bp; Italy 5.69% +8; Spain 5.22% +12; Greece 20.48% +2; Portugal under 10%!!!! 9.98%??? -44!!!; Ireland 6.56% -11.

Gold closed below $1700 for a 32nd straight session, +$18, making the hit $131 since 2/28, closing $1660.50 +$18.30. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, but still below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1666, the 40 day and $1684, the 50 day, then $1701, the 200 day. It is now $1655.90 -$4.60. Crude closed little changed for a third session but slightly higher at $104.55 +.43. 4/10’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 at the 40 day (104.84), the 50 day (105.06), and major support at $96.13, the 200 day, 40/50 converging. It is now  $104.20 -.35. $101.08, the April 4 low is still minor support.


Apple was not a factor yesterday and was one of just two stocks losing 2 index points on the NDQ 100 (AAPL/CELG). 82 up, 18 down. But the only gainers earning more than 1 point were INTC/CTXS +1.6; and EBAY, GOOG, CMCSA, QCOM all up about 1 pt.


As for the Dow – it stunned with 4:1 advancing but look at this CVX +18, IBM +15, WMT +12, UTXD +11, XOM MINUS 6…earnings were key! It easily took out the April 2 high with only resistance now the April 2 high of 13297…can it get there though before

April comes to a close and we start worrying about  that old reliable saw about May?


Forget the Dow and look at the Transports!!! They were the only loser on a day which almost all indices were +0.7% (suspicious that!), falling 1.1%!!! Worse look at the list of losers: LSTR -21; CHRW -9; UPS -8; UAL -5. NSC only gainer of 1+ points at +1.8???

Dow theorists take notice as what is key about transportation stocks is that: everything we sell has to be shipped! This was far too broadbased so the theory says if the Dow is rallying but not confirmed by transportation stocks – trouble is brewing!!!! Consider: year to date the Dow is up 8.1% while Transports are up just 4.3%! Also, over the past 12 months the Dow is up 4.1%, Transports DOWN3.9%!!! Something smells in Denmark besides the cheese…but you decide. Perhaps TB is just suffering a bout of paranoia (see verse in today’s song).


Gold just won’t die even with the Bernanke stand. Note also the Big Ben took exception to Paul Krugman’s op ed saying he has done a lot for financial institutions but very little for the people in job creation. Krugman says he needs to raise interest rates to make the cost of holding cash higher…the prescription he, Rubin, Summers, and Greenspan recommended for Japan. Thus he is violating his own research…as the Fed did in not preventing the crisis. Bernanke says no, Japan was in deflation, but to TB that is a subtle difference between short rates at ZERO, and a 10-year treasury yielding less than 2%! TB’s confidence in Bernanke is waning…especially on his refusal without a court order (which Bloomberg successfully obtained) to disclose which banks received money and how much. This from a man who says he believes in transparency? Get real, Big Ben!

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


…we are witnessing yet another wealth transfer…this one even more insidious than the last one: the chief asset of the middle class – their home – being gobbled up in foreclosure by wealthiest individuals…some with syndicates. How much of America’s assets do they feel is the right amount for them to own? It appears to be 100%!


Without the ability to own a home, what incentive is left for the middle class…that is if there truly is a middle class given the income levels below the top 5%? Hey, how about stocks??? There’s an idea whose time has went.


A friend sent TB a shocking report based on a study by Merrill (Bank of America). In just FIVE charts, it explains the writer’s premise that there will be NO housing recovery until 2020 – at least!


Chart 1. there remain 6.6 million mortgages to be liquidated through 2016 – bank owned properties…and remember that these do not appear in home sales. It will take until 2020 to work off that supply before there is a housing recovery – buyers of homebuilders heed.


Chart 2. The share of young adults living at home is rising: 18-24 had declined steadily from 54% in 1983 to about 49% in 2005…relatively stable, but is back to 54.6% today. TB sees this as a function of a lack of jobs/low paying jobs/student loans plus a feeling that homes aren’t a good investment. But the shocking part it those aged 25-34 which has ranged from 10-13% but now stands at 14.2%!!! So, you ask…


Chart 3. Renting is more common for those in their 20’s and about equal in early 30’s. The 30-34 year range tips the scales slightly towards owning but for 35-44 home ownership is more than double renters and it peaks in the 45-54 year range. The two younger groups are seeing little reason to buy a home now…especially not for investment!


Chart 4. Home equity loans have fallen from $80 billion in 2006 to abut $2 billion! Think of what this does to consumption! Also refi originations have fallen from about 30% in 2006 to about 3%! With rates low you would expect this to be high…but the precipitous plunge is a reflection of credit worthiness and stinginess of banks to lend.


Chart 5. Residential investment as a % of GDP averaged about 4.5% from 1965-2005 – about in line with GDP growth as one would expect, but after peaking at 6% in 2005 it has declined to 2%. Assuming a rebound to historical averages it will get to the norm by about 2020 which means you had better not buy a home if you may have to move in less than five years…and possibly as long as eight years.


This will all be a drag on housing. Today’s Minneapolis Star-Tribune has an article on apartments being built in the ‘burbs. They are for young people who want to raise their kids in safe areas with good schools and low crime, but the only way they can do this is to rent and builders are moving to accommodate them.


Does this spell a rosy future for America? You decide, while you ponder if the wealthiest are paying too much in taxes or if slashing the budget without revenue increases will solve our problems – or make them worse! TB has decided…now you decide but think because what we do now will have lasting implications for this country…and your kids.


Minnesota Governor Dayton vetoed an anti-abortion bill yesterday and will likely veto another to prohibit the sale of abortion pills. No need to ask who pushed this through. The same people who promoted ‘shoot first, ask questions later.’ Is there nothing more important than this? Oh, yeah…the bill to subsidize the building of a new stadium for the Minnesota Vikings. This is a bad deal and as much as TB loves football, let the owners do it or those fans who somehow come up with a few hundred dollars to take their family to a game…one of eight at home! This is bad economics and worse is the plan to fund it through gaming which preys on the lowest income groups. But worse, should the entire state pay for a stadium that only benefits a few in the twin cities? You decide.


Simon Johnson, The Baseline Scenario, posted an interesting piece today on how the US declined to participate in this latest round of fund-raising ($430 billion!). Nice, Ryan will like this…mainly because Obama couldn’t support it without being attacked by the GOP.

But the problem is that we are on the hook for billions (like FNMA/FHLMC), aka TBTF!

They fall under the category ‘contingent liabilities.’ He points out that traditionally the IMF was funded with ‘equity’ contributions by member governments. In the 1940’s the U.S. paid its share with gold ($35 an ounce!), as did many other countries. Today the IMF’s gold holdings are 90.5 MILLION troy ounces (2,814.1 metric tons), making it the third larges official holder of gold in the world! Currently that value is $148 billion, mas o menos. The risk comes with them lending to bolster the Euro and our stake is 17.69% of the quota while we have 16.8% of the votes. We do not have limited liability and think what would happen if we refused to ante up? We saw it with FNMA/FHLMC and of course Lehman. We are in the roach motel. Enjoy!


Well, TB is off until May 14th and will write about how Ireland looks compared to 1997 when TB was last there…as well as how the greens are being maintained at St. Andrews.


All the best!




1 Comment »

  1. ldh said

    remember, TB… “just because you are paranoid doesn’t mean they aren’t REALLY out to get you!” 🙂 have a great trip. LH

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