6/18/12…the CEO as Captain

From Keep Calm and Carry On: “Success is the ability to go from one failure to another with no loss of enthusiasm.” – Winston Churchill …especially if you are a CEO! TB

Failures are finger posts on the road to achievement.” – C.S. Lewis – do tell!!! TB

This week’s economic calendar is fairly light with an emphasis on housing data. However, the highlight of the week will be the FOMC Meeting (Tuesday & Wednesday) which will conclude with the release of the member’s central tendency forecasts and Chairman Bernanke’s press conference. We will also get May Housing Starts (Tuesday), May Existing Home Sales, the June Philadelphia Fed Survey, and May Leading Indicators. Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA.

Bloomberg Top Stories:

*Spanish Bond Yields Climb to Euro-Era Record as Stocks Rise, Futures Fall

*Euro Chiefs Signal Willingness to Adjust Greek Terms With New Government

*Yields in Spain at 7% Show Investors Slam Door After Greece – and why not???

*Bond-Swap Divide Widens as Europe Turmoil Fuels Distortion – more to come!

*European Leaders Will Vow to Use All tools to Tackle Crisis, Draft Shows

*Nervous Henrys Dragging Down U.S. Recovery as Wealth Effect Fades

The market goes to great lengths to embarrass TB as it held following Friday’s options expiry.  The Dow closed up 115, just 7 points off the session high and managed to take out the 40 day (12706) and the 50 day (12752) moving averages. But did the rally make sense? Was it because we have just two weeks until quarter end and those caught short got nervous? The increase in volume, even though it was options expiration – and a major one – indicates there was real retail buying…but for how long?

After five straight weak sessions, NYSE stock volume surged to 4.31B shares vs 3.64B shares (range wass 3.3B-3.38B shares). June 1st’s 4.6B was highest since March 16th.  NYSE stocks executed without the aid of the ETN market (where the high freq geeks play) nearly doubled to 1.51B shares vs  779M shares…this after FIVE straight <800M shares well below the average since 3/1 of 818M shares. 28 of the last 51 sessions have been less than 800M shares!!! Since 2/29 there have been just 12 ‘average’ days (mostly down!), including 3/16’s high for 2012 of 1.65B and just 11 have been above 900M – 950M is 12 month average. Since 11/1 there have been just 12 1B share days…now eight in 2012! Since 2/6 there have been SEVEN sessions less than 700M shares. 138 of the last 155 sessions have been less than the 12 month average! Advance/Declines were positive for a second day: +2.3x vs +2.4x vs -2.1x vs +3.6x vs -3.9x on NYSE and +2.3x vs +2.3x vs -2.3x vs +2.3x vs -3.4x on Nasdaq. Breadth was similar: +3.9x vs +3.7x vs -2.2x vs +6x v -11.3x!!! on NYSE and +5x! vs +1.8x vs -2.4x vs +3.9x vs -6.5x on Nasdaq. New 52 week highs rose by 50% to 155 vs 107 (high was 420 on 3/26), while new lows dropped to 97 vs 150.. The ratio turned positive which has not been the norm of late to +1.5x vs -1.4x vs -1.7x vs -1.6x! vs +1.5x vs +1.5x vs +2x vs +2.5x vs -2x vs -8.7x!!! The S&P VIX dipped buy by far less than one would expect given the magnitude of the gain to 21.11 -.57 but remains slightly above the 40/50 day at 20.75

Here are the results of last 5 sessions,: Dow +0.9% vs +1.2% vs -0.6% vs +1.3% vs -1.1%; Transports +0.7% vs +1% vs -0.6% vs +0.9% vs -1.4%; Dow Utilities +0.5% vs +0.7% vs -0.1% vs +0.3% vs -0.4%; S&P 500 +1% vs +1.1% vs -0.7% vs +1.2% vs -1.3%; Nasdaq Composite +1.3% vs +0.6% vs -0.9% vs +1.2% vs -1.3%; Nasdaq 100 +1.2% vs +0.5% vs -0.7% vs +1.2% vs -1.7%!!!; Russell 2000 +1.2% vs +1.3% vs -1.2% vs +1.2% vs -2.4%!!!; NYSE Financials +1.4% vs +1.1% vs -0.5% vs +1.6% vs -1.7% (KBW Banks +1.5% vs +1.5% vs -0.2% vs +2% vs -2.3%; Nasdaq Banks +1.1% vs +1.4% vs -0.7% vs +1.6% vs -2.1%); NYSE Financial Leaders: BAC +2.9% vs +2.1% vs +0.1% vs +2.9% vs -3.7%; C +1.4% vs +0.9% vs -0.2% vs +4.3% vs -4.7%. Not leaders, but… JPM +1.1% vs +1% vs +1.6% vs +2.9% vs -2.6%; WFC +1.3% vs +1.4% vs +0.9% vs +1% vs -1.4%; USB +1.8% vs +1.5% vs -0.3% vs +1% vs -0.8%. NOTE BofA, despite the % change has been in a range of $7.92 to $6.72 since 5/21!

European stocks mixed after a knee-jerk rally on Greek elections, Asia strong sans India: FTSE +0.3% vs  +0.4% vs -0.7% vs -0.1% vs +0.3%; CAC 40 -0.1% vs +1.6% vs -0.5% vs -0.2% vs +0.4%; DAX +0.6% vs +1.3% vs -0.7% vs -0.4% vs +0.4%; Nikkei +1.8% vs flat vs -0.2% vs +0.6% vs -1%; Hang Seng +1% vs +2.3%! vs -1.2% vs +0.8% vs -0.5%; Korean KOSPI +1.8% vs -0.7% vs +0.7% vs +0.3% vs -0.7%; Indian Sensex DOWN 1.3% vs +1.6% vs -1.2% vs +0.1% vs +1.2%. U.S. stock futures weak after gapping up on the open and are now at session lows: DOW -50 – range 140 pts!; SPX -4.60; NDQ -2.50.

Bonds modestly rallying: 10 yr 1.56% +1/8 – record low 6/1 of 1.442%!; 30 yr 2.66% +7/8; Long TIP 0.45% +3/4. Record low yield of 0.347% on 6/1. The 5 yr TIP yields -1.22%!!!; 10 yr -0.60%. Bills 0.05%!!! 1 month; 0.09% 3 months; 0.14%. Reverse Repo 0.33%! still rising! 3 mo. Libor 0.47%, and 0.74% – steady. European problem sovereign 10 years, Germany-benchmark: 1.40% -3 bp’s; Italy 6.02% +12; Spain 7.07%!!! +27; Greece 24.97% -67!!!; Portugal 10.02% +1; Ireland 7.10% +1.  

Gold remains above $1600 closing well above critical support at $1608-17 at $1628.10 +$8.50. Since breaking above on June 1, it HAD traded in a narrow range of $1610-1642 before breaking down again. The hit is $163 since 2/28! 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/sup is $1608, the 40 day and $1617, the 50 day, then $1685, the 200 day. It is now $1621.40 -$6.70. 5/2’s o/n low of $1526.70 was lowest since 12/29! Crude barely budged on Friday closing $84.03 +.12. 6/12’s cycle low was $81.07! On 4/26 it closed at $104.55…that is a 21% drop! RES at the 40 day (93.35), and the 50 day (95.24), then the 200 DAY (96.36), – all slipping. First res $89.17, the 11/1/11 low, then $92.52-54, the lows of 12/16-12/17, a prior double bottom, MAJOR sup at $74.95, the 10/4/11 low!!! It is now $83.16 -.88 after gapping up on the open but then plunging below Friday’s narrow range setting up a key reversal (higher high, lower low, close below prior low).

The strong rally Friday which held following options expiry still makes no sense given the significance of the Greek elections and weak conditions in Europe. This plus a Congress that has signed off for the session – figuratively – even when significant problems should be addressed does not…at least to this writer…bode for strength in the financial markets. Overnight Futures gapped up and soared on the news, but not European markets are mixed, Asia strong ex-India and U.S. futures which gapped up 140 points are now negative.

Next significant date if Tuesday May 26th – last day for T+3 trading ahead of quarter end.

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

…the best job in the U.S. Navy is captain of a ship…it is like being God…it pays relatively well and you are your own boss…until something goes wrong…even if it wasn’t your fault. That is accountability.

No captain knows everything that is going on within his ship yet he is responsible regardless. Take the sad case of Captain Lloyd Bucher of USS Pueblo – the spy ship captured by the Koreans who was held accountable even though he followed his orders to the letter, requested help when attacked by Korean gunboats, and had no idea what was contained within the bulk of his ship – the spying gear. He had no idea how long it would take to destroy the equipment and documents. Tough luck, Captain!

Now take a modern CEO of a multi-dimensional financial corporation. When all goes well he takes full credit…reaps huge bonuses, but when things go bad he feigns ignorance. He is defended by those who say it is so complex that no one can have control over so many areas and thus doesn’t know what is going on in all of his departments but relies on those he appoints.

Thus when things go badly, he fires the cause of the problem…often with a nice settlement so that they keep their mouths shut, and still gets his bonus…or retains the ones he received even though they were the result of the underperforming unit.

The situation is worse when he is chairman and CEO as is Mr. Dimon of JPMorganChase. Even though the bulk of profits from the prior year came from a division that was supposed to mitigate risky assets held by the bank, this group (the CIO), made enormous profits…why didn’t Mr. D question how outsized profits can occur from true hedging? Yet, despite prodding from a Senator he didn’t back down from his statement on clawbacks from the perps but not his own ill-gotten gains (i.e. undeserved).

Also, he omitted informing shareholders of the $363 million loss from the fraud perpetrated against American Century while taking another bonus…as well as for the man who orchestrated it J.E. Staley…who also was promoted. This was done by having the records sealed. TB wishes he could have received an $11 million bonus for costing the bank money AND get a promotion!

True, Dimon guided the bank through the crisis…but only because the ‘balanced’ book of credit default swaps stacked one atop another didn’t result in more counterparties unable to pay. Despite this he fights for less regulation, not more, and appears to have beat the Senate at the hearing.

Lastly, no captain is rewarded for failure…either his career is deadended or he is out of the Navy…but for a CEO, failure means a nice fat golden parachute to tide him over until he gets yet another job.

This is not being responsible or accountable…but then, you decide…

Hope you all have a great week!

TB

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: