Bloomberg Quote of the Day: “Look at all the sentences which seem true and question them.” – David Reisman …more true today than when he uttered it! Goes for this column too! Question authority!…and those who purport to be authorities on anything!

(Today’s column is dedicated to the late Paul S. Nadler, professor of economics at Rutgers University and accomplished speaker. He died at the age of 77 in 2007 and his message would be wonderful right now. It wouldn’t pull punches and certainly wouldn’t be playing favorites with either political party. He would let the chips fall where they may.

But the truly amazing thing about Nadler’s speeches (he heard him several times as a banker and investment department head of a bank), was his ability to tell it like it is and make you feel low and miserable, then close on what a great country this is and how we will pull through as we always do. You left the room with a feeling of awareness and pride that made you want to do something about it…not like the feel good speeches of today’s politicians. Today’s column imagines he was drafted to give the keynote speech at the DNC…he was a democrat…it would be a truly uplifting speech.) 

This week’s holiday shortened economic calendar contains several important indicators. The highlight of the week will be the August Employment Situation Report (Friday). We will also get the August ISM Manufacturing Survey, July Construction Spending, and August Motor Vehicle Sales (Tuesday), the August ADP National Employment Report and Q2 revisions to Productivity & Costs (Wednesday), the August ISM Non-Manufacturing Survey (Thursday). The markets will be closed on Monday for the Labor Day holiday. Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA

Bloomberg Top Stories:

*U.S. ISM Manufacturing Index fell to 49.6 from 49.8.

*Merkel-Monti Diplomacy Intensifies as Draghi Bond Rescue Plan Takes Shape – ???

*Stocks Drop as Futures Erase Gains Before U.S. Data; Spanish Bonds Advance – zzzz

*Traders Diverge Most in 13 Months From Strategists Forecasting Weaker Euro

*Obama Plan Pares Deficit as Romney Promises End Without Offering the Means

*Bernanke Channels Hatzius Dismissing Gross-El-Erian Structural New Normal

*Bank Bonds Beating Industrials for First Time Since 2005-it’s called moral hazard!

*Spanish Unemployment Poised to Swell as Public Jobs Disappear – DUH!!!

*America Drinking High-End Wine Fuels Napa Valley Vineyard Deals – no $2 Chuck!

*Breaking Up Wall Street Banks Hard to Do With Traders Addicted to Deposits

*Obama’s Boom in Energy Jobs Diverges From Green Revolution He Envisioned

*South Africa’s Deadliest Mine Violence Shows Wealth Gap Inciting Tensions

*Democratic Keynoter Castro Seeks to Fill White-Voter Losses With Latinos

*Rubio Thanks Rove for Check as Super-PAC Pushed to Win Control of Senate

See note at top for backgrouind on today’s column. TB.

…good evening ladies and gentlemen, I am here before you to fire you up…that is what a keynote speaker is supposed to do. But not as Democrats…as Americans. For some reason that other party…you know, the one who purports to be the party of Lincoln – he would be turning over in his grave right about now…feels that they are the only true Americans…and perhaps they are as they carry the Constitution and Bill of Rights in their pocket, right behind their American flag pin…although some of them have never read either and confuse the two…or at least use them interchangeably.

They talk of public service…but how many of them actually served in the military…or even their kids? The same goes for the leaders of this party! Joe Biden’s son did and Joe was going to have him appointed to replace him for the duration of his term but he said he had no interest in politics…perhaps that illustrates the difference between service for profit and military service. I have never seen an elected official leave office with less than he came in with or had to file bankruptcy…have you?

But tonight what I want to talk about is how facts can be misconstrued to one’s own benefit and to detract from the true issues at hand. That ‘other party’ loves to talk about the Gipper in glowing terms…and he did do a good job as president and deserves credit for such. But he didn’t cut taxes – he raised them to fix the deficit problems and left office with the government larger than when he came in, despite his sincere desire to reduce it and its scope. Eventually, he did cut taxes but only after raising them twice in the biggest tax increase since World War II…in percentage terms the increase in 1945 was the greatest, but who’s to quibble? We never let facts get in the way.

The GOP has repeatedly said that the budget deficit is Obama’s fault and if you say ‘it happened on his watch’ that is a truism. But if I start a war in the final days of my term is it the fault of my successor? Does it mean that he should have been able to end what I started? Let’s look at the Bush years…you know the ones where we went from a surplus which was projected to grow to a deficit which did grow at an exponential rate.

Bush took office and the economy suffered a blip…in fact according to the NBER (which knows these things), it began in the final months of the Clinton administration…quell horror! Yes, after an unprecedented eight years of above trend growth, we had a hiccup. Panic ensued. That is the problem with government: we have to solve all problems, not let them work their way out…isn’t that interesting that the pro-capitalist Bush administration would see government as the answer? They cut taxes not once, but twice! With the majority of those benefits going to the wealthiest Americans. They allowed us to write of 100% of the cost of a new car the first year…provided it was above 4,000 pounds encouraging us to buy gas-guzzlers and Detroit to turn out huge SUV’s. How many of those cars were really needed or even used for business purposes? …or you could buy a nice sedan and depreciate it over five years…what would you do? We know the answer because you did…and even those of you who couldn’t deduct it bought one because your neighbor had one. Ah, but the two rounds of tax cuts were only the second largest contributor to the budget deficit.

Then to placate the seniors, the GOP came up with Medicare Part D. This was the single biggest contributor to the budget deficit and thanks to Billy Taussig who headed the committee Medicare was prohibited from negotiating and buying prescription drugs. That is why today, Medicare pays 30% more for prescription drugs than Medicaid or the military! As for Billy, he retired from the Senate and became the head of the Pharma lobby for $2 million a year…and brought along his key staffers! As Jack Abramoff said, you don’t have to bribe a congressman, merely suggest to his key aides that they might be good as lobbyists. Piece of cake.

Of course, in the interim we had 9/11…and Bush rose to the situation not by asking the people what they could do for their country but by telling them to go out and shop to show we were not deterred. Beautiful! We sent our troops off to Afghanistan to get Bin Laden then when that failed, diverted most of them to Iraq on ridiculous claims about WMD…which were never found…while the real risk of WMD was right across the border in Iran which is the threat today. Why? Because we upset the balance of Saddam’s blustering to keep them at bay. What fools we were and as bad as Saddam was, what do they have today? 11 years later we found him and our Navy Seals killed them, and even on that Obama is blamed for taking full credit…which he never did, he sanctioned it at great political risk. We have Seals in SuperPAC commercials claiming he did and just like those Swift Boat skippers you can’t argue with heroes…right?

In October 1986, I gave a speech on the dangers of the budget deficit…yes, Reagan was still president. I said that when he took office the deficit was $63 billion and that if it continued to grow it would kill us. Five years later, the interest alone on that debt was $153 billion – how in five years could the interest be triple the principal? …only way I know of is to borrow from the Mafia! We were facing a ‘fiscal cliff’…no one talks about that. Today, we are obsessed with the ‘fiscal cliff’ and if we don’t fix it immediately we will go to hell in a handbasket.

The solution offered by that other party is to NOT raise any taxes, NOT cut military spending, cut Medicare, Social Security, and the social safety net. That’s the ticket. Just last week, the CBO said that if the GOP does as it says it will reduce GDP by 0.5%. Also, on Friday, Ben Bernanke, said that we are in ‘grave danger’ and that the Fed is prepared to act. Interesting that he would say this, two months before a presidential election, with an FOMC meeting on Septermber 13th. Why aren’t the Republicans crying foul? Because they can’t! To protest would be to say the situation isn’t ‘grave’ even if it gives a boost to Obama…by the way Mitt, it is Obama…not Barrack! He is after all the president, at least for now.

Make no mistake about it, despite the gains we made on improving banking after two crises: Continental Illinois, the savings and loan debacle, we eliminated waves of regulation and I felt that this was going to prevent another disaster from occurring. But I had no idea that the treasury secretary, would act with the head of Citibank to dismantle Glass-Steagall on Clinton’s watch. At least the culprit, Sandy Weill, has admitted his ‘error’ – albeit after enriching himself and bringing the nation to its knees and with another quid pro quo from Secretary Rubin would be to make him vice chairman of Citi. Today, Weill’s acolyte, Jamie Dimon continues to oppose any regulation…guess you taught him to well, Sandy!

This brings us to the final leg of the Bush legacy which has been thrust on Obama: the bank bailout. This leg though like a human leg from the hip to the toes, has several ‘joints.’ After bailing out Bear Stearns (by letting JPMorgan buy it with OUR guarantee and little of their money), and then letting Lehman Brothers fail, while protecting the banks, we extended our moral hazard to the Big Five banks…an improvement since Continental extended it to the top EIGHT banks, we pumped trillions into the banks with cheap loans, the Fed cut interest rates to zero effectively, and then…Obama took office!

Reagan said to ask yourself if you are better off now than four years ago and the answer is no you aren’t. Obama could have done more rather than being obsessed with his universal care bill, which at least was honest…but the GOP fought him despite the fact that is was very similar to ones proposed by the GOP and the one Mr. Romney advocated and enacted in Massachusetts and which works well today. He used up all his political capital and the same Billy Taussig got him to sell out on the prescription drug purchases – again! He also erred in not listening to the man he said was his hero: Paul Volcker, in favor of the same political hacks that were around under Clintion…Emanuel and Summers plus Tiny Tim Geithner. That was his failure! Perhaps had he had more experience he would have been able to do more…especially in his first term with control of both houses of Congress (although barely in the Senate)!

Then came the effects of the crash and thanks to CNBC’s Rick Santelli, the Tea Party was created which the Koch brothers then championed. So two years later, even the GOP couldn’t control the tea party. The leadership caved and joined them. They made an issue of the debt ceiling…you know the thing that allows us to pay for what we created – mostly under the GOP-led Congress of Bush. This caused the rating agencies to take away our triple-A rating yet allowed them to blame, as they do to this day: Obama!

Now for an important, perhaps the most important failure of Obama: he created the Simpson-Bowles committee on the budget. It was bi-partisan as evidenced by the title, yet the GOP representatives were all tea party leaning. Thus while it gave very positive actions including BOTH raising taxes and budget cuts, no sitting republicans voted for it! Furthermore, when it was delivered to the White House, Obama took off on a foreign trip leaving it to Biden. So while he created it and praised it, he never pushed for it. Pity.

But at the GOP convention, while spinning lies, fabrications and misstatements, Paul Ryan criticized Obama for not supporting it…even though he personally voted against it! Whether on the topic of the budget, or whether Obama is a native born American, the leadership of the GOP has failed to act like adults. For that matter so has Harry Reid who acted like Sarah Palin or Michelle Bachman with unsupported claims that Romney paid no taxes…he has proudly stated that he paid 13% minimum over those ten years. Obama should have acted like an adult…no more than that presidential and decried Reid’s pronouncements. That is the problem facing America today: where are the adults? Leaders compromise for the common good, not just for the benefit of the latest fad.

In his speech, Romney, while trying to look like the wise grandfather, brought up Solyndra as yet another Obama failure. (here is a link to the truth Solyndra). They spent three days building up his character yet the lies persist. Perhaps our vote should go to the first one who pledges no more lies and holds his own supporters accountable for their misstatements…including their running mates! One can hope, there is always hope.

So let’s show what we Democrats can do…not for us, not for our party, but America (TB is NOT a Democrat…remember this is Nadler). We can do it…and perhaps if we show them, they will be forced to act like adults too. Speaking of adults, how about the young adults…the ones who rose up to the occasion four years ago and are now sulking at the way it all turned out. Perhaps they will vote for Romney/Ryan with their claims of being above the fray and their plans which sadly are like Obama’s four years ago. At least this much can be said of his statements: he believed he could effect change and those of us who voted for him knew that he was our last hope of change. Can anyone do it?

Throughout our history the most prosperous times have been when one party controlled Congress and the other the presidency. When a party is undisciplined, has made pledges of no new taxes to an individual (Grover Norquist…just the thing the founding fathers feared most), and allowed a minority in its party to wrest control, you must ask yourself if we would be better served with all being under the control of one party…and most likely appointing several Supreme Court justices. You must also ask yourself given the history of incumbents getting re-elected – both in Congress and the presidency (thanks to our beloved lobbyists) –  whether this is worth risking eight years to someone else with mere promises and no plan?

Friends, and I say this to all Americans of both parties, we live in the greatest country in the history of this world. Our country however isn’t in permanent decline, it is WE the people who are in decline and we must wake up to that and take back our control of our destiny. Neither party holds the solution but with all of our hard work we can restore it to what it was…put it back on the growth track and make it a better place for our children and grandchildren. Or we can let it continue to erode…and fulfill the fears of Thomas Jefferson…can the great experiment succeed? You bet it can…but YOU have to do it.

(TB’s apologies to Paul Nadler, if it isn’t what he would have said but the intent is certainly what he would have said. Also apologies for the length of this column. Veritas, is the motto of Harvard University, now embroiled in a cheating scandal, but it is also something we must force upon our elected leaders. Thank you for reading. Tomorrow TB will begin to dissect the DNC confab.)


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

Stocks rallied bravely but couldn’t get above Wednesday’s close so it was better than a dead cat bounce but not much more, especially given the WEAK volume of 1.81B shares vs 2.45B, and obliterated the range since 7/29 – the old low was 2.06B shares with just 2 days above 4B! NYSE stocks executed without the aid of the ETN market however ROSE but to a still weak 746M shares vs 512M vs  509M vs  516m vs 504M – lowest since 8/15! This is the first 700M+ day since 8/7 and the highest since 8/3 – neither even close to 800M shares The high was 8/1’s 1.03B shares! Since 6/29 just 7 sessions have surpassed 800M shares. The average since 8/1’s 1.03B is just 602M, and the highest since 8/3 is 754M shares. There is STILL NO retail! The average for 2012 is just 785M shares and since 6/29 just 678M shares, levels not seen since week ended 12/30/11! 70 of the last 104 sessions have been less than 800M shares (69%!). 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 – 858M is the 12 month average and dropping! Since 11/1 there have been just 16, 1B share days…12 in 2012! Since 2/6 there have been 34 sessions less than 700M shares. 186 of the last 197 sessions have been less than the 12 mo ave (94%)!

Advance/Declines were positive for only the third time in ten sessions: +2.3x vs -2.5x vs +1.5x vs +1.3x vs -1.1x on NYSE and +1.7x vs -3x vs +1.5x vs +1.1x vs -1.1x on Nasdaq. Breadth was similar: +3.7x vs -4.3x vs +1.2x vs -1.2x vs -1.4x on NYSE and +1.6x vs -6.5x vs +1.4x vs -2.2x vs -1.1x on Nasdaq. New 52 week highs surged to 207 vs 122 (7/3’s 504 is the high), while new lows remained dipped to 46 vs 58. The ratio is +4.5x. The S&P VIX declined slightly to 17.47 -.36 but was at the highest since 8/2 and has risen for 8 of the last 10 days after posting a 13.45, the low for 2012.

Here are the results of last 5 sessions: Dow +0.7% vs -0.8% vs flat vs -0.2% vs -0.3%; Transports +0.3% vs -1.1% vs -0.2% vs -0.2% vs -0.9%;Dow Utilities -0.1% vs -0.5% vs -0.5% vs -0.2% vs +0.2%; S&P 500 +0.5% vs -0.8% vs +0.1% vs -0.1% vs -0.1%; Nasdaq Composite +0.6% vs -1.1% vs +0.1% vs +0.1% vs +0.1%; Nasdaq 100 +0.7% vs -1.1% vs +0.1% vs flat vs +0.2%; Russell 2000 +0.4% vs -1.1% vs +0.4% vs +0.5% vs +0.2%; NYSE Financials +0.8% vs -0.8% vs +0.1% vs flat for 2 days (KBW Banks +0.3% vs -0.7% vs +0.6%? vs -0.2% vs flat; Nasdaq Banks +0.1% vs -0.9% vs +0.8% vs -0.5% vs +0.5%). NYSE Financial Leaders: BAC +1% vs -1.1% vs +0.5% vs -1% vs -1.1%; GE +0.7%. Not leaders, but… C +0.2% vs -0.9% vs +1.9%? vs -0.5% vs +0.8%; JPM +0.7% vs -1.1% vs +0.5% vs +0.1% vs -0.2%; WFC +0.5% vs -0.6% vs -0.1% vs -0.1% vs +0.4%; USB+0.4% vs -0.6% vs +0.6% vs +0.5% vs -2.2%; GS +1% vs -0.8% vs +0.5% vs +0.2% vs +0.8%; MS +0.7% vs -0.3% vs +1.4% vs -0.2% vs +0.4%; UBS +1.5% vs -2.1% vs +0.4% vs +0.4% vs -0.9%. BAC closed below $8 for the third time in four sessions at $7.99 +.08. Note that it was the faux banks that rallied the most!

Global stocks lower, except India: FTSE -0.9% vs +0.6% vs -0.2% vs -0.5% vs flat; CAC 40 -0.6% vs +1.4% vs -0.5% vs -0.6% vs +0.5%; DAX -0.5% vs +1.4% vs -0.7% vs -0.5% vs +0.7%;Nikkei -0.15 vs -1.6% vs -1% vs +0.4% vs -0.6%; Hang Seng -0.7% vs -0.4% vs -1.2% vs -0.1% vs +0.1%; Korean KOSPI -0.35 vs -0.1% vs -1.2% vs +0.6% vs -0.1%;Indian Sensex +0.3% vs flat vs +0.3% vs +0.1% vs -0.3%. U.S. stocks slightly lower and slipping – confused? DOW -30; SPX -2; NDQ -5.

Bonds weaker but following a modest a strong rally Friday: 10 yr 1.58% -1/4 – record low of 1.40%; 30 yr 2.69% -3/8. Long TIP 0.39% -1/4. 0.28% is record low!The 5 yr TIP yields -1.41% losing ground again! 10 yr -.69% vs -.63%!Bills 0.10% 1 month; 0.10% 3 months; 0.13% 6 months. Reverse Repo 0.26%. 3 mo. Libor 0.41%! and 6 mo. 0.71% continuing to slip. European problem sovereign 10 years, Germany-benchmark 1.39% +1; Italy 5.65% -10; Spain 6.55% -24???; Greece 21.28% -96?!?; Portugal 8.73% -25???; Ireland 5.78% -2. All TB can say is what the hell???

Gold exploded to the upside following Bernanke’s comments? Short-covering? It had been weak for three days, casting doubt on the sustainability of the rally. It closed at 1687.60 +$30.50 after an intraday HIGH of $1695 following a low of $1652.30, below the 200 day?!? 7/12’s intraday low of $1547.60 was lowest since June 1. The hit stands at just $87 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 9/6/11. SUP at $1617, the 40 day, $1612, the 50 day. MAJOR SUP/RES at $1654, the 200 day. 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1693.60 +$6.00 with a high of $1699.60!!! Crude closed at $96.47 +$1.85, six days after an intraday high of $98.29 on a negative ‘key reversal’ killed the rally! The high was $96.92 just above the 200 day but close was below while Thursday’s close was $93.35, lowest since 8/16! SUP at the 40 day (91.73), and the 50 day (89.87). RES at the 200 day (96.68). Currently $96.23 -.24.   

A weird pre-holiday Friday. Total NYSE volume fell to the lowest since 7/29 while shares executed on the Big Board actually rose slightly to a weak 746M but still very weak. Amazing how there were enough people around to do even that!

While all indices were up (except utilities which declined slightly again, despite the simultaneous bond rally), Dow Transports continue to lag…right Dow theorists?

NYSE Financials rose 1% a day after falling 0.8% BofA closed at $7.99 up just 8 cents but of course that is good for a 1% gain! While it was the faux banks that were pummeled on Thursday they carried the day Friday as evidenced by the KBW Banks and Nasdaq banks which rose just 0.3% and 0.1% respectively! The faux bank rally was less however than Thursday’s losses…ok?

The VIX declined slightly from Thursday’s close of 17.83 –a 15.7% gain in three days and highest since 8/2! It closed 17.47 -.36  Sept. options expiry on third Friday will be fun! Quadruple witching!

Gold surged $30 on Bernanke statements after being weak all morning. Just before he spoke it was $1647 off $10 then rocketed to $1695.50 before settling at $1687.60 +$30.50!!! The intraday low was BELOW the 200 day which is major support/resistance. Crude rose too, closing at $96.47 +$1.85 but still below the 200 day ($96.72!). Thursday’s intraday low was $93.55, lowest since 8/16!

The cover story in Barron’s Friday was on the impact of the Euro without Greece. Of course that could never happen…not according to the eggspurts…but most ‘enlightened’ folks believe otherwise…at 1 drachma to 1 euro? Good luck lenders. Meanwhile the big banks including JPMorgan are already creating accounts for the new currency should it come to fruition…that will only bring more chaos!



  1. ldh said

    TB, would love to be able to “search” the blog for prior tags, cannot figure out how.. can you add a search box or a list of tags to the blog layout we can click on? I was going to look up Kotok’s etf book which I think you had mentioned months ago. Thanks!

    • traderbill said

      The book was From Bear to Bull With ETF’s by David Kotok. I am not sure how to make all tags visible. Thank you for your comments.

      • ldh said

        Thanks, TB! A quick search of Amazon turned it up. Keep up the good work, and looking forward to YOUR book, when it’s ready!

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