5/15/12…Dimon’s are rough but Irish peninsula’s are beautiful

TB’s Quote of the Day: “We know we were sloppy, We know we were stupid. We know there was bad judgment.” – Jamie Dimon…now resign from the NY Fed before we kick you off for incompetency. TB

Bloomberg Quote of the Day: “This time, like all times, is a very good time, if we but know what to do with it.’ – Ralph Waldo Emerson…like effect change??? TB

TB’s Song of the Day:

I’m sorry, so sorry
That I was such a fool
I didn’t know
Love could be so cruel
Oh, oh, oh, oh
Uh-oh
Oh, yes

You tell me mistakes
Are part of being young
But that don’t right
The wrong that’s been done

I’m sorry
So sorry
Please accept my apology
But love is blind
And I was to blind to see
Oh, oh, oh, oh
Uh-oh
Oh, yes

You tell me mistakes
Are part of being young
But that don’t right
The wrong that’s been done
Oh, oh, oh, oh
Uh-oh
Oh, yes

I’m sorry, so sorry
Please accept my apology
But love was blind
And I was too blind to see

–         Brenda Lee …perhaps a re-release by Ina Drew and Jamie Dimon?

Bloomberg Top Stories:

*JPMorgan Said to Weigh Bonus Clawbacks Following $2 Billion, Trading Loss

*Greece Weighs $562 Million Choice of Defaulting or Yielding

*Facebook Increases Stock Price Range for IPO to $34-38 – SELL ON OPEN!!!

The Dow peaked at 13338 on May 1 (May Day…add this to TB’s S-O-S!), closing that day at 13279, highest since May 19, 2008, just after the crash began and has plunged to 12820 (Friday’s close) – a 3.9% drop. For the past 12 months the return has fallen to 5.04%, while year to date it is up 5.97%. You may recall being warned to watch out for returns as the stock market low was on 3/6/09, meaning that due to the rapid rise from that low, returns are going to be getting worse, not better for future three year periods. From 3/9/09-3/31/12, the Dow delivered an annualized return of 23.53% – an extraordinary performance. Thru Friday’s close that has slipped to 22.88%…not big but watch out when we come to June 30th. Also, for you lovers of mutual funds who follow those three year returns just remember: figures lie and liars figure!

As for volume:

NYSE stock volume was 3.67B shares vs 3.74B on Friday.  NYSE shares executed on the Big Board were 803M shares vs 786 million shares. 17 of the last 27 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 808M and just six have been 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. 120 of the last 132 sessions have been less than the 12 month average! Advance/Declines were negative for a second straight session: -5.4x!!! vs -1.5x on NYSE and -3.1x vs -1.5x on Nasdaq. Breadth was similar: -7x!!! vs -2.3x on NYSE and -2.9x vs -1.1x on Nasdaq. New 52 week highs plunged to 75 vs 119 (high was 420 on 3/26), while new lows surged to 240 vs 146! Ratio is now negative by 3.2x vs 1.2x.  The S&P VIX gapped up on the open and surged nearly 2 points closing at the high, 21.87 +1.98 vs19.89. This is the highest it has been since 4/26 and has ranged from 15.75 (low on 4/26) to 21.59 (high on May 14!). Restating: this is a clear warning that market is losing complacency…sell in May???

Here are the results:  Dow -1% vs -0.3%; Transports -0.8% vs +0.1x; Dow Utilities -0.4% vs +0.1%; S&P 500 -1.1% vs -0.3%; Nasdaq Composite -1.1% vs FLAT?!?; Nasdaq -1% vs 100 FLAT; Russell 2000 -1.4%!!! vs -0.2%; NYSE Financials -1.9% vs -1%, biggest loser again! (KBW Banks -2.6% vs -1.2%, Nasdaq -1.4% vs -0.7%); NYSE Financial Leaders: BAC -2.7% vs -2%!, JPM -3.2% vs -9.3%; C -4.1% vs -4% (ranked by volume!)

European stocks are up but barely, Asia mixed: FTSE  +0.2% vs -2%!; CAC 40 +0.8% vs -2.1%!; DAX +0.4% vs -2%!; Nikkei -0.8% vs +0.2%; Hang Seng +0.8% vs -1.2%; Korean KOSPI  -0.8% vs -0.2%; Indian Sensex +0.7% vs -0.5%.. U.S. stock futures also weak: DOW +53 vs -88; SPX +7 vs -11; NDQ +17 vs -20 Bonds weaker after yesterday’s strong rally, BUT TIPS continuing to decline which to TB means forget those inflation fears and worry about the economy!!! 10’s and now 30’s well below 2% and 3% respectively – first time since 1/18’s 2.96%! 10 yr 1.79% -1/4, RECORD low 9/23 of 1.6855%; 30 yr 2.95%% -11/16; Long TIP 0.69% -3/4. It was 0.57% at high. The 5 yr TIP yields MINUS 1.20%; 10 yr -0.39%. Bills 0.07% 1 month; 0.09% 3 months; 0.14% 6 mos. – unchanged since 4/26! Reverse Repo 0.29%. 3 mo. Libor 0.47%, and 0.73%; also steady. European problem sovereign 10 years, Germany-benchmark: 1.49% +3 bp; Italy 5.68% +1; Spain 6.19% -2; Greece 27.27% +97!!!; Portugal 10.65% +9!!!; Ireland 6.77% +6.

Commodities were trashed across the board. Gold closed lower and has been below $1600 since 5/9. It closed at $1561.00 -$23 – OUCH!!!, making the hit $230 since 2/28,  loss of 13%! 2/28’s $1792.70 intraday high was not seen since 11/16! The record high is $1923.70, a buying climax on 9/6. Res is $1646, the 40 day and $1654, the 50 day, then $1702, the 200 day. It is now $1558.30 -$2.70. Crude closed $94.78 -$1.35! with a low of 93.65, lowest since 12/11!!! On 4/26 it closed at $104.55…that is a 10% LOSS!!! We took out 4/10’s low of $100.68, worst since 2/15/12 on May 4, a day crude fell by $4.55, or 4%, with a low $1 below that! It is well below the range of $105-110 which held from to 3/28!!! RES at $96.26 the 200 DAY!!!, the 40 day (102.95), the 50 day (103.60), and major support at $92.52-54, the lows of 12/16-12/17, a clear double bottom!!!. It is now $94.72 -$.06.

Yesterday, TB said “today will be ugly, courtesy of Jamie Dimon’s (der wunderkind’s) JPMorgan, aka Gip’Em.” But once again, low volumes of individuals and quick trades by flash traders mitigated the losses. There were nine waves on the Dow with the highest taking it up to just a 2 point loss, before it caved to down 125…low was off 160. SPX was similar with the high also off 2 points and low off 17, close 15. Financials were crushed and worst performer, followed by the Russell 2000, off 1.4%.

As TB stated yesterday, “this bank STINKS from the top down.” Worse, Jamie Dimon sits on the board of the NY Fed. As Elizabeth Warren stated yesterday, he should resign immediately from the board as he cannot be a judge of his own bank. Yes, this is the same Elizabeth Warren that Dimon destroyed when she was nominated by Obama to head the new financial consumer protection board. Dimon was on Meet the Press just over a week ago talking down the Volcker Rule. It is obvious that he knew of the trading problem then and perhaps as much as a week earlier. It is also obvious to TB that he was trying to conceal the problems for as long as possible…hopefully until after today’s shareholder meeting which should be a hoot! Everyone knew of the trading of the ‘Whale’ and in fact it was reported in a Bloomberg top story on April 27th – the day TB left on vacation.

J.E. Staley, who TB reported cost the firm $373 million by trying to scam American Century, was the second highest paid in both 2010 and 2011 (he replaced former Vice Chairman Steven Black who left the bank in late 2010 and received 289,386 shares of restricted stock worth $11.66 million). Note that on these awards which were below the closing prices at the prior year end, they have risen in value by about 50%. In addition, look at these transactions by Staley:

1/13/12 – exercised 121,402 shares at ZERO (bonus award)

1/13/112 – surrendered 58,369 shares with strike price of $35.53

1/17/12 – SOLD 55,000 shares at $35.21

4/16/12 – exercised 50,000 shares at $21.87

4/16/12 – surrendered 37,702 shares with strike price of $43.32

(currently holds 414,856 shares (131,883 directly, 282,973 restricted?)

Now look at these Bloomberg stories:

2/28/12 – JPM says credit, swaps among top trading revenue generators

2/28/12 –  Dimon dismisses talk of historic threat to Wall Street!!!

3/23/12 – JPM discloses it lost in an arbitration LAST YEAR! – finally the American Century issue!!!

3/26/12 – JPM Asia CEO leaving company after 14 years to purse personal interests! 3/29/12 – Staley tells CNBC equities trading fell in quarter, activity lower, 90% of positions in credit default swaps

5/11/12 – bank order led to losing trades – from Dimon to Drew!

5/14/12 – JPM CIO Chief Drew Quits After Trading Loss – retires, not fired!

Questions for today’s shareholder meeting…don’t you wish you could attend?

Why would Drew, an acknowledged expert switch strategies from hedging to increasing returns? How did a very small division produce more than half the banks returns…thru hedging??? Didn’t Dimon’s order countermand the hedges (if in fact they were) into risk taking? Why did Staley receive $17M bonus for 2011 after costing bank $373 million plus??? Why was the American Century settlement withheld until after bonuses were paid? Is it coincidental that despite the bank having knowledge of the new trading problems as early as late April that is wasn’t disclosed? How did you have the audacity to name the clean-up crew ‘Seal Team Six?” Shouldn’t you, Mr. Dimon, remove yourself from the New York Fed? How about clawing back yours, Staley’s and Drew’s bonuses of the past two years?

Another big issue is regulatory controls. Sen. Carl Levin said last night on PBS that the first reports from the Comptroller of the Currency showed no problems in examination. Then they corrected that statement saying they aren’t sure due to the complexities of the trading. Levin also stated that not only does Dodd-Frank (which Romney seeks to repeal!) require that all proprietary trades be hedges on specific assets not broad classes, but he also said the law is under review for actual implementation which will probably be JPM’s defense.

Despite his modified mea culpa (I’m sorry, but…), Dimon continues to claim that the Volcker rule is bad. You see the problem is that the focus is on return on equity and nothing boosts that better than the leverage created by derivative trades…nothing! Nor does anything magnify the losses more. It appears to TB that Dimon saw the European crisis ebbing and thus wanted to double down to make huge profits…but when it stalemated those odds went against their positions…time will tell.

Shouldn’t Dimon also…along with Citi’s Vilnik be prosecuted under Sarbanes-Oxley? TB believes yes…is there enough evidence that their conduct was to willfully misrepresent facts? Probably not, but if we have a law and don’t use it, what is the point. You aren’t going to scare CEO’s into compliance by letting them see it is toothless!

So here are TB’s ideas for the Volcker Rule:

  1. Allow proprietary trading in traditional U.S. treasury, agency, and municipal bonds only. Hedges can be done using only the cash market or listed financial futures
  2. All activities of the ‘bank’ must be directly related to banking, and only those activities will be guaranteed by the FDIC
    1. all other activities must be in subsidiaries of the holding company and bear no guarantees, including implied!
    2. there can be no intercompany transactions between the bank and non-bank subsidiaries…none!
  1.                                                                i.      Roubini advocated that these subs cannot borrow from other banks either which is obvious or they would make agreements to finance each others operations (Citi to JPM, JPM to Citi). TB originally thought this too severe but now sees it as a requirement. Let them obtain financing from hedge funds, private equity, etc.
    1. the bank can use derivatives to hedge specific positions only but only IF those derivatives are traded on an exchange…this elminates the profit motive in derivatives and even more importantly allows positions to be adjusted by merely selling the contract, not offsetting it with another over-priced contract. This is the only way that price transparency can occur.
    2. Hold all bank officials personally liable for their actions that violate these principles. Why allow them to make millions then pay a token fine? Assess prison time.

It appears to TB that a prime motivator is the ‘scapegoat’ method that was employed by Morgan Stanley – choose one person to accept the blame…in both cases these have been competent senior women, then cut them a deal that makes them better off than they could be even if still working for the bank (sic). This, along with confidentiality agreements insures their silence and prevents whistleblower suits. Note the JPM thru its Chase credit card division had a well placed whistleblower who has gone to every agency and all have refused to take action against JPM…so she went public on 60 Minutes! Perhaps now???

As for the regulators, TB only found out after MF-Global imploded that the Fed no longer monitors or audits primary government securities dealers of which MF was one (you decide what the initials stand for!), and JPM is the largest. It is inconceivable that the Federal Reserve Bank of New York would consider doing business with a dealer without knowing or caring about their financial condition. Isn’t the credit quality and reputation of the entire Federal Reserve system at risk due to this? Hell yes! In 1986, TB was with L.F. Rothschild when it became a primary dealer and they made us jump through hoops…even then LFR had to be taken over due to grossly oversized mortgage positions…which TB had warned them they didn’t have enough capital to support.

Enough venting…our financial system and controls are now in a pathetic state. Were it not for the crisis in Europe, the dollar would be even weaker…why is the Euro still valued at $1.28…down from $1.32 just two weeks ago when TB was in Ireland? Meanwhile the Pound has fallen from $1.62 to $1.60. True the Dollar Index has rallied from 78.60 to 80.65 but it was 88 in June 2010 and 89.62 at the peak in March  2009, just one year after the stock market bottomed…and the Dollar bottomed at 70.70!!!

Don’t take anything TB has said at face value but do some checking and for god’s sake stop taking everything you hear from FOX as factual…or CNBC for that matter. How can the ‘experts’ (eggspurts) be so lame?

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

…we arrived on Saturday morning at Shannon Airport, which was not all TB thought it would be…landed at Dublin Airport in 1997, and Shannon is nothing to write home about except for its location for travelers.

It was 8:30am when we got our car and headed out of the airport…TB only drove on the right once…or twice, and a good thing too as Irish roads are notoriously narrow with either rock walls on both sides or a four inch drop to the shoulder that quickly gets your attention…especially when your wife says ‘oh my god!’

We drove out to the Cliffs of Moher which is stunning…very high and with walls well back as the winds are incredibly strong and people have been blown off the edge. TB felt one of those gusts and it pushed him back sharply!

From then we drove down and took the ferry across the River Shannon then down to the Dingle peninsula and our destination of Heaton’s on the coast just out of town, a very nice medium-sized B&B. Dingle is probably the best spot for pubs and Irish folk songs (dubbed ‘trad’). While there TB heard of a new brewery, Crean’s on the outskirts of town in a very nice building. It only opened a year or so ago and is making a fine pilsner that has a rich taste using caramel malt. Loved it. The brewery is named after Tom Crean, an Irish explorer from nearby who made three trips to Antarctica – of the four by British expeditions, received a medal for saving the lives of two explores by leading a group nearly 60 miles to save them.

In 1997, on our visit to Kinsale we met Gerry Daly, a ‘deep cut’ crystal glass cutter who had worked for Waterford (which no longer makes deep cut crystal due to the expense of breakage), then established the renowned Kinsale Crystal company. In a guide, TB noticed Dingle Crystal, owned by Sean Daly. Not remembering the first, name he went to see the shop and found out that Sean (a man with a shaved head and love of Harley’s), was Gerry’s brother…Gerry died not long after we visited there and the business is now run by his sons. Why the interest? TB’s wife is a Daly and we found out a lot about the family…clan…from him. Look at both websites for some beautiful crystal…TB bought his Irish whiskey/scotch tasting glasses from them! There is no comparison with Waterford in terms of brilliance, beauty, and clarity. Check out the websites. This is nearly a lost art!

We toured the Dingle peninsula on a beautiful sunny day. Thanks to Rick Steves we traveled the reverse route of the tour buses which was academic since TB is an early riser and so we were finishing just as they were beginning. We saw the behive huts that date back before 1,000AD, and the remains of the farms from the potato famine as well as beautiful islands, beaches and hills…of the four major peninsula’s (Connemara, Kerry, Dingle and Beara), this is the one to see.

From there we drove past Killarney, but stopped at beautiful Muckross Castle and its garden’s…huge and incredibly scenic. Then to Kenmare we stayed at Sallyport a beautiful home built in 1932 as a summer home…walking distance to town where the family had lived. Reminiscent of San Franciscan’s who had summer homes in the Oakland hills. We stayed two nights and had a bad news/good news event when the road we wanted to take was closed so we had to go over the pass on a very narrow windy road with beautiful views. Our objective was Kilcrohain, where the Daley’s were from. A pretty, small town on little Dunmanus Bay. We found the church but no sign of Daly’s as this was town controlled by the McCarthy chieftans, until we saw a monument and found that  the  Daley’s were sub-chieftans. Then we hit paydirt…a tiny cemetery and found some of the Daley gravestones dating back to the 1650’s.

From there we decided to not retrace the windy road and instead drove to Cork…and the port town of Cove, where another of TB’s wife’s ancestors was from, the Carroll’s. There was a small Titanic exhibit there as that was the last port (Belfast, Southampton, Cove), before Titanic left on its first and final voyage. From there it was an hour and a half drive back to Kenmare, our longest sightseeing day of the trip…but rewarding!

The next day we drove to Kilkenny as we didn’t want to visit Dublin again. Kilkenny is dubbed the most beautiful inland town in Ireland and mentioned in TB’s favorite Irish song Carrickfergus. It was a hard drive on smaller roads and took a full day with no stops of interest on the way.

The next day we set off for Northern Ireland, our destination, Londonderry. Due to the fighting between the Catholics and the Protestants, you will hardly see a sign for the town as the ‘London’ has been painted out…it is Derry and that is final! The only clan of TB’s wife that we didn’t visit was that of her maiden name, Powers (Power), but to honor them TB drank a lot of Powers Gold Label Irish Whiskey…straight and Irish Coffee.

The only eventful thing was we were driving on the M9 just south of Dublin at 120kmh (72mph) when something hit the left side mirror…likely a big crow. The mirror exploded and TB had to use bungie cord to get to the airport and switch cars. Pretty traumatic.

There was a music festival in Derry, and we stayed in town at the Tower Hotel…a great location and better still a private garage. TB noticed a concert by Van Morrison, and decided to go. The Millenium Center is a great music venue. Morrison dressed in a loose-fitting suit, glasses, Blues Brothers hat, is still incredible with a big band that has been with him for more than a dozen years…there was virtually not talking and the band cued themselves off Morrison’s movements…incredible…90 solid minutes of his songs! Not bad for a guy 66 years old…just eight months younger than TB

Tomorrow: the road to Antrim and Belfast/Bangor

Erin go brah! (Ireland forever!) What a beautiful country…and the peninsula’s are la crème de la crème.

TB

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