7/9/12…governance or lack thereof

From Keep Calm and Carry On: “If we will keep quiet and ready enough, we shall find compensation in every disappointment.” – Henry David Thoreau

Who said this: “The present evils which afflict the country have been produced by overbanking, overtrading, overspending, overliving, overdashing, overdriving, overreaching, overcheating, overborrowing, overeating, overdrinking, overpraying, oversinning, overthinking, overplaying, overriding, overstepping, overfiddling , and oveer acting of every kind and description, except over ploughing.” – New York Times Herald, May 3, 1837…some things never change, do they? TB

From Weather with Paul Douglas: “This is the summer where 85 F became a ‘cool front”. Even some of my most skeptical friends are beginning to have second thoughts about a warming atmosphere. They may not believe peer-reviewed papers from climate scientists but they ten to believe their own eyes. How do you separate day to day changes in weather from longer term climate trends? The sky overhead is running a low-grade fever, and we can diagnose the symptoms: at least 240 ALL TIME record highs in just the last 2 weeks, 2,346 record highs in the last week record highs in the last week, record low Arctic Ice, 7 times more record highs than record lows since January 1, 2012 will probably be the warmest year ever recorded. The previous records: 2010 (warmest), 2011 (second warmest), coming after the warmest winter. The pace of records seems to be accelerating.” But a few out of touch scientists disagree allowing those who could make allowances decide not to because it costs too much. Ostrich mentality? TB    

This week’s economic calendar is relatively with few major market-moving indicators. The highlight of the week will be the June PPI (Friday). We will also get May Consumer Credit (Monday), May International Trade and May Wholesale Trade (Wednesday), June Import Prices and the June Treasury Budget Deficit (Thursday), and preliminary July Consumer Sentiment (Friday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

Bloomberg Top Stories:

*Spanish Yield Exceeds 7% as Stocks Fall Before EU Talks; U.S. Futures Drop – again?

*BOE’s Tucker Faces Libor Grilling as Race to Replace King Hangs in Balance

*Most-Accurate Strategists Say Worst Over for Euro Amid Clash With Options

*Libor Scandal Seen Boosting Demand for NYSE Repo Futures – new contract on repurchase rates for treasuries…isn’t that special?

*Alcoa Earnings Seen Plunging 81% as Aluminum Oversupply Drives Down Prices

*Prudential Joins Pimco in Buying Higher Yielding Peso Bonds- remember tesabonos?

*World Set to Dodge El Nino’s Spur to Food Costs, Rioting – fighting the weather?

*Fed Indirectly Does What Can’t Be Done Directly in Twist of Political Fate

*Obama to Call for One-Year Extension of Bush-Era Tax Cut for Middle Class – OOPS!

*GOP Attacks Obama on Economy After Data Show Job Market Struggling-  but fix it?

*Romney Fundraise in Koch’s Ocean-Front Backyard Draws Hamptons Protesters

*Bank of America Was Used by Mexican Cartel to Launder Money, FBI Says

Volume plunged even further to a near 12 month low in a lackluster session: 2.64M vs 2.96B shares with all indices off from 0.9% (S&P) to 1.3% (both Nasdaq indices and the Russell 2000!). NYSE stocks executed without the aid of the ETN market declined to 596M vs 684M shares vs 466M shares. Worse the high of the week was Monday’s 736M share day and the average of 621M shares was the lowest since the week ended 12/30/11! 38 of the last 65 sessions have been less than 800M shares (Corrected!) Since 2/29 there have been just 15 ‘average’ days (mostly down!), including 3/16’s high for 2012 of 1.65B (4.85B including ETNs) and just 14 have been above 900M – 942M is 12 month average. Since 11/1 there have been just 14, 1B share days…ten in 2012! Since 2/6 there have now been ELEVEN sessions less than 700M shares. 150 of the last 169 sessions have been less than the 12 month average (89%)!

Advance/Declines were negative for a second day: -2.1x vs -1.3x vs +3.9x vs +2.4x vs +6.6x on NYSE and -2.5x vs -1.2x vs +2.7x vs +1.8x vs +5.8x on Nasdaq. Breadth was worse: -4.6x vs -2.7x vs +3.4x vs +1.7x vs +6.2x on NYSE and -3.9x vs -1.1x vs +3.4x vs +2x vs +5.9x on Nasdaq.. New 52 week highs were nearly halved to 244 vs 411 (7/3’s 504 is the high), while new lows rose slightly to 43 vs 29. The ratio is +5.7x vs +14x vs +20x vs +12.5x vs +10x. The S&P VIX declined(?) to 17.10 -.40…the low for 2012 is 13.66 on 3/16!

Here are the results of last 5 sessions: Dow -1% vs -0.4% vs +0.6% vs -0.1% vs +2.2%; Transports -1% vs +0.2% vs +0.6% vs -0.1% vs +2.8%; Dow Utilities -0.4% vs -0.5% vs -0.3% vs +0.7% vs +0.7%; S&P 500 -0.9% vs -0.5% vs +0.6% vs +0.3% vs +2.5%; Nasdaq Composite -1.3% vs flat vs +0.8% vs +0.6% vs +3%; Nasdaq 100 -1.3% vs +0.1% vs +0.8% vs +0.4% vs +3.1%; Russell 2000 -1.3% vs -0.1% vs +1.3% vs +1.2% vs +2.9%; NYSE Financials -1% vs -1.4% vs +0.7% vs +0.8% vs +2.8% (KBW Banks -0.8% vs -1.5% vs +0.4% vs +0.6% vs +2.7%; Nasdaq Banks -0.5% vs -0.5% vs +0.7% vs +0.8% vs +1.9%). NYSE Financial Leaders: BAC -2.1% vs -3%! vs +0.1% vs -1.6% vs +5.7%!; GE -1.6%; JPM -4.5%!!! vs -4.2%!!! vs -0.3% vs +1.5% vs -0.4%; F -0.7%. Not leaders, but…C -1.8% vs -3%! vs +0.7% vs flat vs +3.9%; WFC -0.2% vs -1% vs -0.2% vs flat vs -0.1%; USB -0.9% vs -0.9% vs +0.4% vs +0.9% vs +2.3%.

Global stocks weaker for a second session, especially Asia: FTSE -0.4% vs flat vs +0.6% vs +0.4% vs +0.5%; CAC 40 -0.2% vs -0.4% vs +0.2% vs +0.4% vs; DAX flat vs -0.4% vs +0.8% vs +0.7% vs +1%; Nikkei -1.4% vs -0.7% vs -0.3% vs +0.7% vs flat; Hang Seng -1.9% vs -0.1% vs +0.5% vs +1.5% vs +2.2%; Korean KOSPI -1.2% vs -0.9% vs +0.1% vs +0.9% vs -0.1%; Indian Sensex -0.7% vs -0.1% vs +0.4% vs +0.2% vs -0.2%. U.S. stock futures also weak: DOW -45; SPX -6; NDQ -6.

Bonds continuing Friday’s rally: 10 yr 1.52% +1/4 – record low 6/1 of 1.442%!; 30 yr 2.63% +5/8. Long TIP 0.42% +13/16. Record low yield of 0.347% on 6/1. The 5 yr TIP yields -1.16%; 10 yr -0.60%. Bills 0.06% 1 month; 0.08% 3 months; 0.14% 6 months. Reverse Repo 0.28%. 3 mo. Libor 0.46%, and 0.73% – steady. European problem sovereign 10 years, Germany-benchmark: 1.31% -2 bp’s; Italy 6.05% +6; Spain 6.97% +10!; Greece 24.86% +12; Portugal 9.79% -1; Ireland 5.99% -3.

Gold plunged thru $1600 yet again closing at 1578.90 -$20.50 with an intraday LOW of $1576.90. It obviously lacks traction to sustain any rally. 6/22’s intraday low of $1555.60 was lowest since June 8th! The hit is $185 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 $1590, the 40 day and $1601, the 50 day, then $1668, the 200 day. It is now $1583.20 +$4.30. 5/2’s o/n low of $1526.70 was lowest since 12/29! Crude also took a dive closing at  $84.45 -$2.77 with a session low of $84.02. The intraday low on 6/28 of $77.28 was lowest since 10/5/11. So much for that short rally! RES at the 40 day (86.33), the 50 day (89.43), then the 200 day (95.96).. First REAL 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 remains weak overnight at $84.61 +.16.

TB has warned of two things which are inter-related: first the domination of high frequency trades, and second the relatively large moves on low volume days indicating a lack of retail participation. Volume was pitiful on Friday at a gross 2.64M shares while REAL trades on the NYSE were just 596M shares completing a week without a single 800M share day and an average of just 621M shares which is lowest since 539M in the week ended 12/30! As to that second part it is highly suspect when ALL indices are off about the same amount and Friday was no exception, ranging from -0.9% to -1.3% – most importantly it was the two Nasdaq indices AND the Russell 2000 that declined 1.3%!

We are entirely at the mercy of the high frequency traders and their algorithms which have nothing to do with economics, global conditions, or stock valuations and everything to do with technicals which set off their algorithmic trading…and while waiting for those levels to kick in watch as their computers ‘fish’ for information and then when some sucker buys/sells at the critical level react disproportionately. This is faux liquidity at its worst and subjects REAL investors to the whims of computers. Whatever happened to ‘maintaining orderly markets?’ This is not your fathers market.

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

…why are our financial institutions, regulators, and elected officials failing to represent the people? Why is the most important issue still Obamacare when jobs are growing at an almost imperceptible rate and state and local governments continue to try desperately to balance their financial statements (usually through accounting gimmickry as the State of California just did). Already Stockton, California has filed for bankruptcy and several others are considering it.

This is a global problem…not surprising in emerging markets but when the major industrialized nations are experiencing this something is definitely amiss.

TB has written twice on the Barclays Libor-fixing scheme and included comments from Simon Johnson of The Baseline Scenario. Today, Johnson refers to a Financial Times article in which respected analyst Martin Wolf states the severity of the problem.

“banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today’s banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.”

Note that Mr. Wolf is senior economics writer for the FT and was a member of the UK’s Independent Banking Commission. Here is the link to the entire article which TB strongly recommends also it is the best daily commentary TB receives…along with David Kotok’s Cumberland Advisors:

http://baselinescenario.com/

Note the title of this piece: Lie-More as a Business Model – a perfect description!

Further in the article it discusses too-big-to-fail institutions and how they must be brought in rein. Jamie Dimon and JPMorganChase are discussed and if anything Johnson is too kind, saying that the bank is so big and so diverse the CEO cannot possibly know all that is going on within it. But we know that Mr. Dimon was intimately aware of what was happening in the CIO trading unit yet continues to perpetuate the myth that it was a hedge gone bad…which simply wasn’t the case.

Who is going to protect us from the short-term profit motivated individuals…their gains, the shareholders loss as well as overall economic health? Unless we get serious financial reform…over the bodies of Dimon and Diamond (who in their respective countries led the charge against any meaningful reform), is the only way. Perhaps the UK has now seen the light but there are still a lot of dark corners…especially elected officials culpability.

One thing for certain: Mitt Romney isn’t the solution…nor is Barack Obama. We needed a real choice in this election and it is neither of these men. As Lee Iacoca wrote: where are the leaders?

Tomorrow: some examples of their failings

Have a great week!

TB

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