7/16/12…there’s never just one cockroach!

From Keep Calm and Carry On: “There is no trouble so great or grave that cannot be much diminished by a cup of tea.” – Bernard-Paul Heroux …or a good Martini!

Sent by a friend: “Only two things are infinite, the universe and human stupidity.” – Albert Einstein
 
From Matthew Dodd on MTP: “All that is necessary for the triumph of evil is that good men do nothing.” – Edmund Burke…think about that and when you add a stupid Congress what have you got?

This week’s economic calendar has a number of important indicators. The highlights of the week will be June Retail Sales (Monday), the June CPI (Tuesday), and June Housing Starts (Wednesday). We will also get the July Empire State Manufacturing Survey and May Business Inventories (Monday), June Industrial Production (Tuesday), and June Existing Home Sales, the July Philadelphia Fed survey, and June Leading Indicators (Thursday). There are no data scheduled for release on Friday. In addition to the economic data, the Federal Reserve will release its Beige Book (Wednesday) in preparation for the FOMC meeting at the end of the month. Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

Bloomberg Top Stories:

*Citigroup’s Profits Exceeds Analyst’s Estimates on Investment Banking Income

*Treasury Five-Year Note Sinks to Record Low After Retail Sales Fall – and 10’s!!!

*Manufacturing in New York Area Grows Faster Than Forecast, Fed Index Shows

*JPMorgan Blaming Traders for Marks That Masked Losses Baffles Ex-Employees

*Short Selling on NYSE Surpasses 2011 Peak After September Trades Lost 21%!!!

*Hedge Fund Bulls Bet Most Since April Before Wining Streak in Commodities

*Pound Proves Recession-Resistant to Exporters Bemoaning Strength in Crisis

*HSBC Said to Face Senate Criticism on Mexico, Iran Money-Laundering Lapses

*Worst-in-Generation Drought Dims U.S. Farm Economy Once Called Bright Spot – ahem…how come TB is buying corn for 10-20 cents an ear??? How come farm land prices continue to soar? Who is paying the rent on them and how? Just asking. TB

*Libor Flaws Allowed Banks to Manipulate Benchmark Rate Without Conspiracy

*Russia Calls for Immediate Syria Cease-Fire, Troop Pullout Monitored by UN – aren’t the Russians bold! What leadership!

*Barton Biggs, Strategist Who Spent 30 Years at Morgan Stanley, Dies at 79!    

Volume dropped sharply to a well below average 3.2B vs 3.65B shares. Since 7/29’s QE surge of 4.56B (above average) it has traded between 2.06B and 3.65B shares – 3.02B average which is pathetic). NYSE stocks executed without the aid of the ETN market dove sharply to 683M vs 764M shares – on the first up day in seven session. As TB said Friday however: it appears to be running out of momentum. This is the 9th straight session where volume was less than 800M. This is the second lowest volume of the week (650M was low) and third lowest of the year! The average for 2012 is just 812M sharees and since 7/2 just 675M shares, levels not seen since week ended 12/30/11! 43 of the last 70 sessions have been less than 800M shares. 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 – 940M is 12 month average. Since 11/1 there have been just 14, 1B share days…ten in 2012! Since 2/6 there have been THIRTEEN sessions less than 700M shares. 155 of the last 174 sessions have been less than the 12 mo average (89%)!

Advance/Declines were positive for only the second time in seven sessions. Here are last five: +4.9x vs -1.7x vs +1.1x vs -2x vs -1.2x vs -2.1x on NYSE and +2.8x vs -1.5x vs 1:1 vs -2x vs -1.4x vs -2.5x on Nasdaq. Breadth was strong: +7.4x vs -2.7x vs -1.1x vs -4.6x vs -2.2x vs -4.6x on NYSE and +3x vs -2.6x vs -1.9x vs -3.7x vs -1.6x vs -3.9x on Nasdaq. Now if only there had been VOLUME to support it! Looks like positioning ahead of options expiry to TB! New 52 week highs doubled to 360 vs 176 (7/3’s 504 is the high), while new lows were more than halved to 62 vs 139 – an absence of sellers? The ratio is +6x vs +1.3x vs +2.3x vs +3.8x vs +5x vs +5.7x vs +14x vs +20x – first strong number in seven sessions…can it hold? The S&P VIX dropped sharply to : 16.74 -1.59…back to levels of July 2…hmmmm.

Here are the results of last 5 sessions – 1:7 declining: Dow +1.6% vs -0.3% vs -0.4% vs -0.7% vs -0.3%; Transports +2.2%! vs -0.5% vs -0.2% vs -1.3%! vs -0.3%; Dow Utilities +1% vs flat vs +0.5% vs +0.2% vs -0.3%; S&P 500 +1.7% vs -0.5% vs flat vs -0.8% vs -0.2%; Nasdaq Composite +1.5% vs -0.8% vs -0.5% vs -1% vs -0.2%; Nasdaq 100 +1.6% vs -1% vs -0.6% vs -1% vs -0.1%; Russell 2000 +1.4% vs -0.3% vs -0.4% vs -1.2% vs -0.3% vs -1.3%; NYSE Financials +2%!!! vs -1% vs +0.7% vs -0.8% vs -0.3% (KBW Banks +3.3%!!! vs -1.4% vs +1.2% vs -0.9% vs -0.5%; Nasdaq Banks +2.1% vs -0.4% vs +0.8% vs -0.4% vs -0.6%). NYSE Financial Leaders: BAC +4.6%!!! vs -2%! vs +2%! vs -1.5% vs -1.3% vs -2.1% vs -3%!; JPM +6%!!! vs -1.6% vs +1% vs +0.9% vs +0.2% vs -4.5%!!! vs -4.2%!!!;  C +5.4%!!! vs -2.3% vs flat vs -0.9% vs -0.9% vs -1.8%. Not leaders, but… WFC +1.3% vs -1.3% vs -2% vs -0.9% vs +0.6%; USB +2.2%! vs -0.2% vs +1.2% vs -0.4% vs flat. Can this short rally continue? Not likely after this week!

European stocks weak, Asia slightly better…flip-flopping? FTSE -0.1% vs +0.4% vs -1.1% vs -0.1% vs +0.8%; CAC 40 -0.5% vs +0.5% vs -0.5% vs -0.3% vs +1%; DAX -0.3% vs +1% vs -0.8% vs +0.5% vs +1.2%; Nikkei +0.1% vs +0.1% vs -1.5%! vs -0.1% vs -0.4% vs -1.4%; Hang Seng +02% vs +0.4% vs -2%!!! vs +0.1% vs -0.2% vs -1.9%; Korean KOSPI +0.3% vs +1.5% vs -2.2%!!! vs -0.2% vs -0.4% vs -1.2%; Indian Sensex DOWN 0.6% vs -0.1% vs -1.5%! vs -0.7% vs +1.3%. U.S. stock futures WEAK and dropping: DOW -44; SPX -4.50; NDQ -7.25…so much for Citi’s earnings!

Bonds rallying further: 10 yr 1.45% +5/16 – record low 6/1 of 1.442%!; 30 yr 2.53% +15/16. Long TIP 0.32% +1-3/32!!! A new record low!!!! Taking out 0.347% on 6/1. The 5 yr TIP yields -1.22%!; 10 yr -0.67%…records? Bills 0.03% vs 0.07% 1 month!!!; 0.09% 3 months; 0.14% 6 months. Reverse Repo 0.29%. 3 mo. Libor 0.46%, and 0.73% – down without rounding! European problem sovereign 10 years, Germany-benchmark: 1.23% +3 bp’s; Italy 6.06% +3; Spain 6.68% +11!!!; Greece 24.12% +7; Portugal 10.07% +2; Ireland 6.00% +1.

Gold closed sharply higher but failed to reach $1600 for a 6th day: 1592.00 +$26.70, with a session high of $1596.50, a day after taking out 6/28’s intraday low of $1547.60, lowest since June 1. The hit is $171 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 $1591, the 40 day and $1593, the 50 day, then $1665, the 200 day, all stable! 5/2’s o/n low of $1526.70 was lowest since 12/29! Overnight it is $1588.90 -$3.10. Crude rose to $87.10 +$1.02. The intraday low on 6/28 of $77.28 was lowest since 10/5/11. SUP at the 40 day (85.18), RES the 50 day (87.50), then the 200 day (96.05)…40/50 still falling. 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 is now $86.93 -.17.

Friday the 13th came and went with nothing serious going wrong…or did it? The rally in stocks was once again on low volume, the Dow, S&P, both Nasdaq indices and Russell 2000 all rose from 1.4%-1.7%. Dow Transports rose 2.2% to take the honors but were followed closely by the beaten up financial sector: NYSE Financials +2%! KBW Banks +3.3%; Nasdaq Banks +2.1%. BofA rose 4.6% but is still nowhere near $8 – nowhere near its $10.28 high on 7/21/11 or $8.22 high on 6/20/12 (a quad top at $8.20-8.22). JPM rose 6%, Citi +5.4% (and reported positive earnings this morning of $1 vs $0.89 forecast). After the close Visa/Mastercard lost a judgment of $7.5 billion in price-fixing and will also have to reduce user business fees by 10% for eight months. This is the largest anti-trust settlement ever (remember we are talking current dollars though – not constant dollars. Visa rose 1.2% Friday and is back near its 12-month high…a shoo fly. Mastercard  rose 1.3%…both are up 40% over the past 12 months! Retailers may now charge the customer for the fees…of course they could reduce prices for cash but do you really believe that is going to happen? Shock? Uh…in futures V is trading 3.2% HIGHER, while Mastercard is trading 2.8% higher…go figure! The Dow had just one loser, HP which cost it 2.4 index points.

Beware of low volume rallies…and those led by financials which have been beaten up lately…especially since Friday is July options expiry…so high may be Tues/Weds!

. . .  – – –  . . . (SOS!)  . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!) . . .   – – –  . . .  (SOS!)  Note exclamation points added to the SOS’s! It’s ramping up!

…or just one lie. As we learned from Watergate, the coverup is always worse than the original lie. Be it Cheasapeake Energy where the former Chairman/CEO first bought company stock on margin, then when the market tanked in 2008 had to meet a margin call forcing more liquidation of the stock…then he had to resign this year in another scandal and it now appears they overestimated shale oil and gas reserves by one-third.

BestBuy had their CEO resign followed by the Chairman and principal shareholder and to stop him from buying back the company the board paid key officers huge bonuses. This is a company whose business model is failing.

Barclay’s Chairman became the CEO…acting CEO while they find a suitable replacement for the American, Diamond, who was forced to resign over Libor-gate, after they paid a record fine for price-fixing…in the UK…U.S. authorities are investigating them and the other members of the BBA which sets the rates that determine yours and about $400 trillion of loans and derivatives.

At JPM, Jamie Dimon proudly says they are going to get clawbacks from the three offenders while CIO head Ina Drew is voluntarily returning her last two years of income. That would be about $25 million but she has retirement and stock options worth over $12 million…would like to hear the story directly from her…Dimon had to know what was going on and reportedly was telling them to take more risk. Ah, but we investors (sorry, speculators bought the stock – +6% Friday – on the basis of earnings which had a big boost from reductions to loan loss reserves…more on that follows).

Wells Fargo had great earnings too and is now out of the wholesale mortgage market of which they were the largest originator of subprime loans…the stock rose 3.2% Friday but is little changed since quarter end, +1.4%.

Note that neither company announced a dividend increase from their paltry 3% (given the risk in the financial sector), while Dimon announced a resumption of stock buybacks by the fourth quarter…and Ken Langone, founder of Home Depot and defender of Dick Grasso’s pay package, called JPM “one of the best-run companies.”

A word about stock buybacks, which used to be regarded as a good thing and caused stock prices to jump on the news. THEN along came hedge funds who coerced (?) CEO’s into more and more buybacks for immediate gratification while panning dividend growth. Think how much less you might have lost in the sell-off if you had received dividends and used them the way YOU wanted instead of ‘betting on the come’ and losing everything. On top of that studies show that only rarely do companies complete the entire buyback, even less common is to actually ‘retire’ the stock from treasury and the reason for the buybacks…besides enriching hedge funds is to offset excercises of stock options! Talk about heads they win, tails you lose…but what the hey…it all sounded good. Too good to be true? Well it was!

Who is looking after protecting the markets? The CFTC is by trying to regulate derivatives but failing miserably…too bad we didn’t listen to Brooksley Born a dozen years ago when she pled her case to Greenspan, Rubin, and Summers…instead we chose to listen to their sage advice. There would have been NO derivative meltdown if they had because the profit incentive and transparency (as well as common terminology and pricing) would have taken the insane profitability out of those instruments…and ‘mark to market’ would not be an issue whereby the banks value their holdings of the same instruments higher than their customers!

There is so much to be done and so little time as JPMorgan has shown. There is total contempt for customers, shareholders, and sound business practices…by the big banks:  JPM, C, and WFC…although Wells is not in the same league as the others. Oh, and let us not forget about Barclays and UBS which looks to be the next one with head on the block!

Hope you have a terrific week!

TB

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