6/27/12…drill baby, drill

From Keep Calm and Carry On: “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” – Lawrence J. Peter

“If all economists were laid end to end they would not reach a conclusion.” – George Bernard Shaw

Bloomberg Quote of the Day: “Life is half spent before we know what it is.” – George Herbert

Bloomberg Top Stories:

*Draghi May Enter Interest- Rate Twilight Zone Where Bernanke Fears to Tread

*Stocks Rise on China Stimulus Speculation as Italy Bonds Hold Onto Gains

*Monti Plays Italian Politics With Divisive Labor-Law Overhaul

*Heat Wave Wilting Corn as Stockpiles diminish Most Since 1996

*Wall Street Wins With Neither Obama Nor Romney as Elections Spurs Scrutiny

*Stockton, California to File for Protection From Creditors as Talks Fail

*Kerviel Prosecutor Demands five Year Jail Sentence for SocGen Trading Loss

Volume dipped slightlyto 3.41B shares vs 3.5B shares in a session that spent the first half in the red then managed another desperate attempt to rally but with no meaningful results. Some (most?) of this can be chalked up to it being the last day of trading for hedge funds for the quarter (due to leverage considerations they cannot incur a liability until it is on their books). NYSE stocks executed without the aid of the ETN market also declined to 712M vs  754M, in contrast to Friday’s 1.58B, highest since 3/16’s 1.648B share day. 33 of the last 58 sessions have been less than 800M shares!!! Since 2/29 there have been just 14 ‘average’ days (mostly down!), including 3/16’s prior high for 2012 of 4.65B and just 12 have been above 900M – 946M is 12 month average. Since 11/1 there have been just 13, 1B share days…nine in 2012! Since 2/6 there have been SEVEN sessions less than 700M shares. 144 of the last 162 sessions have been less than the 12 month average!

Advance/Declines continued to seesaw but were only slightly positive: +1.8x vs -3.3x +2.2x vs -4.3x vs -1.1x on NYSE and +1.2x vs -2.9x vs +2.4x vs -3.8x vs -1.3x on Nasdaq. Breadth was similar: +1.9x vs -8.6x!!! vs +2.2x vs -13.7x!!! vs +1.1x on NYSE and +1.4x vs -6.5x! vs +3x vs -5.7x vs +1.5x on Nasdaq.. New 52 week highs rose to 137 vs 111 (high was 420 on 3/26), while new lows fell back to 140 vs 179. The ratio is now about 1:1 vs -1.6x vs  +1.3x vs +1.2x vs +4.5x. The S&P VIX declined slightly to 19.72 -.66 and remains below the 40/50/200 day averages.

Here are the results of last 5 sessions: Dow +0.3% vs -1.1% vs +0.5% vs -2%! vs -0.1%; Transports +0.4% vs -1.9% vs -0.8% vs -2% vs -0.4%; Dow Utilities +0.3% vs -0.4% vs +0.1% vs -1.2% vs -1.2%; S&P 500 +0.5% vs -1.6%! vs +0.7% vs -2.2%! vs -0.2%; Nasdaq Composite +0.6% vs -2% vs +1.2% vs -2.4% vs flat; Nasdaq 100 +0.6% vs -2% vs +1.2% vs -2.5% vs +0.1%; Russell 2000 +0.4% vs -1.7% vs +1.4% vs -2.4% vs -0.3%; NYSE Financials +0.6% vs -2.2% vs +1.1% vs -2.5% vs +0.4% (KBW Banks +0.6% vs -2.7% vs +1.4% vs -2.3% vs +0.3%; Nasdaq Banks +0.7% vs -2% vs +1.7% vs -1.9% vs +0.1%); NYSE Financial Leaders: BAC +0.2% vs -4%!!! vs +1.5% vs -3.6%! vs +0.1%; GE +1.4% vs -1.5%. JPM +1.2% vs -1.9% vs +0.1% vs -2.3% vs +2.9%.  Not leaders, but… C –0.1% vs 4.4%! vs +0.5% vs -3.6% vs +1%; WFC +3.4% vs -1.8% vs -0.5% vs -1.4% vs -0.5%; USB +0.5% vs -1.8% vs +1.6% vs -1.5% vs -0.1%. NOTE BofA is trading in a range of $8.11 to $6.72. Still highest volume on NYSE? Hello???

Global stocks higher: FTSE +0.6% vs +0.2% vs -0.7% vs -0.8% vs -0.8%; CAC 40 +0.5% vs +0.1% vs -2% vs -0.5%; DAX +0.3% vs flat vs -1.8% vs -0.8% vs +0.3%; Nikkei +.8% vs -0.8% vs -0.7% va -0.3% vs +0.8%; Hang Seng +1% vs +0.5% vs -0.5% vs -1.4% vs -1.3%; Korean KOSPI flat vs -0.4% vs -1.9% vs -2.2%!!! vs -0.8%; Indian Sensex +0.4% vs +0.1% vs -0.5% vs -0.4% vs +0.8%. U.S. stock futures little changed: DOW +5; SPX +2; NDQ +3.

Bonds did nothing yesterday after the overnight session, little changed oveernight: 10 yr 1.63% -3/64 – record low 6/1 of 1.442%!; 30 yr 2.71% -1/8; Long TIP 0.50% -1/4. Record low yield of 0.347% on 6/1. The 5 yr TIP yields -0.99% still losing ground!; 10 yr -0.50%. Bills 0.06% 1 month; 0.09% 3 months; 0.15% 6 months. Reverse Repo 0.22%. 3 mo. Libor 0.46%, and 0.73% – steady. European problem sovereign 10 years, Germany-benchmark: 1.55% +4 bp’s; Italy 6.10% -6; Spain 6.76% -3; Greece 25.83% +7; Portugal 9.21% +5; Ireland 6.83% -1.  

Gold fell again giving up most of its gains from Monday and never approached $1600 and resistance at $1608-17. It closed at $1574.90 -$14.50. Friday’s intraday low of  $1555.60 was lowest since June 8th! The hit is $215 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 is $1594, the 40 day and $1608, the 50 day, then $1676, the 200 day. It is now $1567.70 -$7.20. 5/2’s o/n low of $1526.70 was lowest since 12/29! Crude closed slightly higher at $79.36 +.15. Friday’s low of $77.93 was lowest since 10/5/11. It has been below $85 since June 1!  RES at the 40 day (89.28), and the 50 day (92.17), then the 200 DAY (96.11), – 40/50 still plunging. 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 remains at $74.95, the 10/4/11 low!!! It is now $79.21 -.15.

The only activity yesterday was professional high frequency traders. Retail continues to be light, volume was lowest since 6/13. Nothing to do but wait for Friday’s quarterend.

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

…remember Sarah Palin’s ‘drill, baby, drill’ which is the only memorable event of the last GOP convention? Well, offshore drilling bit us (no pun intended)…but nary a comment that perhaps they were wrong…so they shifted to pipelines…which would create jobs but only serve to dump more Canadian oil where it isn’t needed.

Last night, Frontline did a special on dental care for children who require Medicaid to pay for it. It was shocking and once again shows how short-sighted we are on any form of healthcare:  avoid modest short term preventative costs at the expense of major long-term costs to society. Sounds the way many of our corporations are run today doesn’t it?

There were two fascinating aspects of this. First, while one in four children are in families receiving food stamps, one in two are not receiving proper, if any, dental care. This eventually leads to physical sickness and increased medical costs. As if it isn’t enough to have their appearance impaired and with it self-confidence.

Second, some states have raised the benefits for dental care but it is still way below what dentists charge and they are not taking on these cases…most good dentists aren’t taking on any new patients. But this has attracted ‘private eqaity’ who are churning out dental mills that can treat twenty or more patients at the same time. Using a private sector model they pressure dentists to do more costly procedures and in some cases the quality of work is poor. Dentists are incented on the number of patients they treat and the revenues from that work.

So what does this mean? For one thing, it confirms that a private sector model doesn’t always work in the public sector. A profit model does not produce the same results. Furthermore, it encourages more short-run revenues…and accompanying costs to the government, at the expense of longer-term medical treatment. Sen. Grassley commented strongly on this issue and is conducting an investigation.

We don’t ever look at cost reduction techniques which is what is wrong with Obamacare. No buying of prescription drugs where the government as the largest buyer would have some leverage as most prescription insurers do. No negotiation of fees as insurers do. Payment for unnecessary procedures often explained as malpractice protection.

Meanwhile healthcare expenses are becoming a larger share of total GDP and will continue to do so unchecked while the inflation rate is grossly above the broad CPI.

On another subject: the Supreme Court. In its decision on immigration several provisions of the Arizona law were overturned while some questionable ones were upeld. Most significantly the ‘requirement’ that police stop any suspicious person and require identification. IF there is ‘reasonable cause’ that is fine but TB suspects more cases will arise from this on illegal search and detainment. Time will tell, but…

The ongoing argument about Supreme Court justices being either ‘strict constructionist’ or ‘activist’ was thrown on its ear when Justice Alito, the bastion of the conservative side of the court blasted Obama’s decision on immigration. It was not a simple statement opposing it but a damning that can only be considered political. Consider when the justices attend the SOTU speech. They sit, faceless, and unemotional regardless of who is president and that is as it should be.

Lastly, how can a ‘strict constructionist’ uphold the right of corporations to influence elections? Yet they affirmed Citizens United in a case of a state trying to prevent outside Superpacs from influencing its elections. TB stands with Sandra Day O’Connor that this will go down as one of the worst decisions (Citizens), the court has ever made.

TB would not object were these organizations providing needed – if biased – information but to flood the airs with negative ads and no responsibility, whereas candidates have to stand by them is appalling. Worse, it is blocking the candidates from putting out their ads.

Fair? You decide.

Have a wonderful day,

TB

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