8/7/12..state and locals

From Keep Calm and Carry On: “Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from safe harbor. Catch the trade winds in your sails. Explore. Dream Discover.

Bloomberg Quote of the Day: “I say luck is when an opportunity comes along, and  you’re prepared for it.” – Denzel Washington

Bloomberg Top Stories:

*Standard Chartered Falls Most in 24 Years on Potential Costs of Iran Deals – SICK!!!

*U.S. Stock Futures Gain as Spain Bonds Decline; Standard Chartered Tumbles

*Knight’s Joyce Sees End to Solvency Concerns After Rescue as Shares Plunge

*Pension Funds Favor Sunshine as Debt Return Outlook Darkens – in Europe

*Yuan to Drop as Forwards Gap Hits Highest in Three Years – maybe!

*Spain’s Amancio Ortega Overtakes Warren Buffett as Third-Richest Person

*Richest Family Offices See Fastest Growth With Firms Ousting Bigger Banks

*Syria Summons Cabinet After Prime Minister Hijab’s Defection to Opposition – dying!

*Durbin Calls 46.6 Billion Visa Swipe-Fee Settlement Bad Deal for Merchants

*Ex-UBS Executive Told Colleague to Forget About Rigged Deal, Witness Says

A second day of rally (although weak), following four straight ‘down’ day following two straight ‘up’ days. How long can it continue? Until the flash traders say it can’t. True to form though volume DROPPED yet again to 3.01B shares vs 3.75B vs  4.12B shares vs 4.34B! Hint: that is not what you want to see happen! The range since 7/29’s QE surge of 4.56B (above average) remains 2.06B-4.28B shares. NYSE stocks executed without the aid of the ETN market were horrible falling back to 647M (lowest since 7/10) vs 754M vs 826B vs 1.03M – a total absence of retail!  Just 7 of the last 25 sessions have surpassed 800M shares. The average for 2012 is just 812M shares and since 6/29 just 754M shares, levels not seen since week ended 12/30/11! 52 of the last 86 sessions have been less than 800M shares. Since 2/29 there have been just 19 ‘average’ days (mostly down!), including 3/16’s high for 2012 of 1.65B (4.85B including ETNs) and just 17 have been above 900M – 925M is the 12 month average. Since 11/1 there have been just 16, 1B share days…12 in 2012! Since 2/6 there have now been 17 sessions less than 700M shares. 167 of the last 189 sessions have been less than the 12 mo ave (88%)!

Advance/Declines were solid for a second straight day…but: +1.7x vs +4.7x! vs -1.7x vs -1.7x vs -.4x vs -1.1x on NYSE and +1.6x vs +3.4x! vs -1.4x vs -2.9x vs -1.4x vs -1.8x on Nasdaq. Breadth was similar: +2x vs +7.1x!!! vs -4x!! vs -2x vs -1.8x vs +1.1x on NYSE and +3.3x vs +4.7x! vs -2x vs -2x vs -1.6x vs -2x on Nasdaq. New 52 week highs were stable at 305 vs 301 (7/3’s 504 is the high), while new lows plunged to 56 vs 77 from a recent high of 229! The ratio rose to +5.4x vs  +3.9x vs -1.2x! vs +2.1x vs +3x vs +3.7x +4x. This from the early rally highs of +14x and +20x. The S&P VIX however ROSE to 15.95 +.31 vs 15.64. 7/15’s 20.47 was highest since June 15th. A week earlier it closed at 15.45, lowest since 3/26 – the low for this year!  The rally is now running on fumes…after just two days!

Here are the results of last 6 sessions: Dow +0.2% vs +1.7% vs -0.7% vs -0.3% vs -0.5%; Transports DOWN 0.1% vs +2.1% vs -0.1% vs -2%!!! vs -0.5%;Dow Utilities flat vs +1.1% vs -0.7% vs -0.7% vs -0.8%; S&P 500 +0.2% vs +1.9% vs -0.7% vs -0.3% vs -0.4%; Nasdaq Composite +0.7% vs +2% vs -0.4% vs -0.7% vs -0.2%; Nasdaq 100 +0.7% vs +1.9% vs -0.4% vs +0.3% vs flat; Russell 2000 +0.7% vs +2.6% vs -0.3% vs -2%!!! vs -0.6%; NYSE Financials +0.2% vs +2.7% vs -1.1% vs -0.4% vs -0.6% vs -0.1% vs +2.4% (KBW Banks +0.1% vs +3.1% vs -1.3% vs -0.5% vs -0.4%; Nasdaq Banks -0.2% vs +2.8% vs -0.5% vs -1.3% vs -0.3%). NYSE Financial Leaders: BAC +2.8% vs +3.5% vs –0.6% vs -1.6% vs +0.8%; C +4.2% vs -2.2% vs -1.3% vs flat vs -0.6%. Not leaders, but…JPM +0.6% vs +2.6% vs -2.3% vs flat vs -0.4%; WFC -1% vs +3% vs -1.7% vs +0.2% vs -0.5%; USB -1.4% vs +1.8% vs -1.3% vs -0.5% vs -0.7%; GS +1% vs +3.2% vs -2.3% vs -0.8% vs flat; MS +2.6%! vs +5.8%!!! vs -3.6%! vs -1.1% vs +1.1%; UBS +1.2%! vs +5%!! vs -2.2% vs -1% vs -4.2%. Meanwhile MGIC (MTG) which fell -64% Thursday after missing on earnings and breaching capital requirements continues to trade ‘below the buck.’ As for Knight (KCG) which fell -62.8% following a 32.8% decline on Wednesday collapsed by another 24.2% despite managements caliming to have found an angel.

Global stocks up but on what grounds? FTSE flat vs +0.3% vs +1.5% vs +1.1% vs -0.3%; CAC 40 +0.9% vs +0.7% vs +2.7% vs +0.9% vs flat; DAX +0.6% vs +0.7% vs +2.3% vs -0.1% vs +0.3%;Nikkei +0.9% vs +2% vs -1.1% vs +1.3% vs -0.6%; Hang Seng +0.4% vs +1.7% vs -0.1% vs -0.7% vs +0.1%; Korean KOSPI +0.1% vs +2% vs -1.1% vs -0.6% vs -0.1%;Indian Sensex +1.1% vs +1.3% vs -0.2% vs -0.2% vs +0.1%. U.S. stock futures higher but…DOW +37; SPX +5.40; NDQ +16.

Bonds continue to sag on the faux stock rally: 10 yr 1.59% -1/4 – record low of 1.40%; 30 yr 2.69% -11/16. Long TIP 0.35% -3/8. 0.28% is record low!The 5 yr TIP yields -1.27%!!!; 10 yr -0.68%!!!Bills 0.04% 1 month; 0.09% 3 months; 0.13% 6 months. Reverse Repo 0.25% vs 0.31%! 3 mo. Libor 0.44%!!!, and 6 mo. 0.72% – both trading below 0.45% and 0.73% and slipping further. European problem sovereign 10 years, Germany-benchmark 1.46% vs 1.34%; Italy 5.86% vs 5.95%; Spain 6.61% vs 6.68%; Greece 23.75% vs 24.41%; Portugal 9.73%!!! vs 10.06%; Ireland 5.86%. Crazy!

Gold holding above $1600 but without conviction closing at 1616.20 +$6.90. 7/12’s intraday low of $1547.60 was lowest since June 1. The hit is $154 since 2/28! 2/28’s $1792.70 intraday high not seen since 11/16! The record high is $1923.70, a buying climax on 9/6. RES/SUP at $1601, the 40 day and $1600, crossed and stable, then $1665, the 200 day. 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1617.90 +$1.70. Crude barely budged following Friday’s HUGE rally of 4.9%! closing at $92.20 +$0.80. SUP at the 40 day (86.03), and the 50 day (85.89), both rising! RES at the 200 day (96.61). First SUP is $89.17, the 11/1/11 low, RES $92.52-54, the lows of 12/16.

Is this rally on its last legs? While advance/declines and breadth remain positive they are fading. But the best indicator is VOLUME which tumbled again – especially on the retail infested real NYSE which had the lowest volume, 647M shares since July 10! The Dow and S&P were barely positive, +0.2% while Transports were off 0.1%. Attesting to the high freak trading is this: both Nasdaq indices and the Russell 2000 ALL rose 0.7%! The NDQ 100 gained 18 points: AAPL +5.6, while CTSH/CSCO/MSFT/ORCL/BIDU added 7 more to get there. 65 stocks rose, 35 fell…hmmmm.

A quick look at financials which gained just 0.2% with the KBW banks +0.1% and Nasdaq banks DOWN 0.2%. Very strange, no? BAC +2.8%, C +4.2% JPM +0.6% BUT WFC -1% and the hott USB -1.4%!!! Meanwhile all three brokers…er…banks…rose: GS +1%; MS +2.6%, even the headline troubled UBS +1.2%. Caution! Something stinks!

Knight (KCG) and MGIC Mortgage (MTG) remain weak, the former falling another 24.2% while the latter continues to trade below the buck! Wouldn’t buy either but MTG’s assets may prove of use to some other mortgage company while KCG has software and Ameritrade is back to dealing with them…go figure! KCG is reminiscent of D.E. Shaw, which blew up and caused the demise of BofA’s CEO who made a loan to them without board approval and put them in the arms of NationsBank…a sad commentary. Meanwhile, Shaw has come back and is now a giant in financial software. It happens.

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

…how could TB talk about cockroaches and omit state and local governments which are crawling with them…these the ignorant kind. Look how many scandals we have had, not to mention California cities and counties following suit of Birmingham Alabama.

It makes good press to knock municipal government and they have certainly made some bad deals as their rules are totally screwed up. A former colleague of TB’s was Investment Officer for San Francisco. Six months after he took the job he was given a raise…they had already raised the salary to attract qualified individuals. He puzzled over this. It seems that according to the rules, the CIO can only make 10% more than the highest people working under him…sooooo…give them raises, then raise your own salary…again and again. THAT is wage inflation! Another friend went to work there years later and it was still true! Remember that most of their money is handled by OUTSIDE managers so they are grossly overpaid by any standards! Plus incredible retirement benefits. Speaking of which…

With all the griping about municipal workers pay, for the majority of workers it is in line. It is at the top as illustrated above where the problems arise. Funny too that police and fire don’t draw the ire (pun intended). They get the most pay and benefits.

In Stockton, California, which recently filed for protection, the police chief who was brought in to reorganize the police department failed and was let go. After just 3-1/2 years on the job he will get $204k in retirement pay…for doing a bad job? Who do they think he is a corporate CEO? See, retirement pay is based on highest level attained and like in the prior example other employees are promoted in their last year to give them more money. It is a disease. Back to Stockton, the chief is the third one in less than ten years! It has become a game…get the promotion, then leave. This guy is now acting chief at another department for a similar salary PLUS his retirement! San Francisco has had a string of police chiefs too all being much better off when they retired.

When TB lived in Orinda, California the police/fire chief retired. He was immediately rehired as an interim chief until a replacement could be found…at his full salary and drawing benefits! Can you imagine a corporation that would have found a replacement before the CEO retired?

A disgrace is that municipal workers are allowed to save and buildup vacation and overtime hours that are comp time and then when they retire they get paid for them at the highest rate! This is utter insanity and precisely why corporations long ago restricted carryover. Much of the overtime is bunk anyway and hoarded by a few key workers. In S.F. they found at the end of April one employee had built up enough overtime that he had to have worked 24 hour days for most of the time…and didn’t take any vacation!

The other thing to keep in mind is the number of government workers relative to the labor pool. Since 1950 from about 10-14% of the economy has been in government jobs. That number is now about 11% and dropping. Yet all of our ire is aimed at them. This replaces labor unions (private not municipal which are alive and very strong). They have seen steady job declines of about 9,000 a month – most notably the USPS which Congress is trying to destroy by rejecting their cost-saving proposals such as 5 day mail delivery and requiring them to fully fund the next 35 years of retirement benefits which no other organization is required to do and which results in a loss of over $5 billion a year!

The only thing we accomplish by laying them off is to worsen the chances of a solid economic recovery but seem destined to do! For political gain. This will only get worse after we hit the fiscal cliff in March. Expect higher taxes, more layoffs and more service fees for things that your local taxes used to pay for…libraries, etc.

TB believes as do most enlightened economists that we are already in or at least on the brink of recession but it will certainly be one once the austerity cuts begin…better take a hard look at Spain and Greece of which we are being compared to and definitely are not!

Lastly, much is made of college grads having a low unemployment rate. At what cost? Huge student loan debt and if you pick the wrong major, good luck. We are told there is a shortage of skilled labor but it is criminal how ‘for-profit’ schools exploit this. They are training people for positions that have a surplus and are no longer high paying. Meanwhile, they are funding this off student loans, which is what the schools want. The default rate is double that of private and public universities.

To illustrate this point an article in the Minneapolis Star-Tribune shows a point big business does not want to advertise: while there is a shortage of skilled workers, the demise of labor unions has seen pay go down – especially when adjusted for inflation while executive salary has shot the moon. Here is a table from the article:

Position                                                              2005     2011    Change

Assemblers and fabricators                   $11.40   $11.50   +0.9%

Computer machine tool operators     $16.61    $15.00    -9.7%

Cutting, Punching Operators                 $13.82   $15.39   +11.4%

Machinists                                                     $24.91   $25.00    +0.4%

Welders                                                           $18.43  $17.00      -7.8%

Now adjust for inflation and all this opportunity that the supply-siders tell us about is pure bunk! Trickle down…uh you know what that means…and this is supposed to be their reward of Romney’s tax plan to benefit the wealthiest Americans?

The article featured a woman, a welder. She loves her job…but she didn’t go to one of those high priced trade schools…she attended and local junior college. Imagine if she had spent $25,000 or so on the training and had the student loans to prove it!

Ponder those statements…and have a great day!

TB

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