11/17/12 20 days; #14 Regulation

Bloomberg Quote of the Day: “Knowledge of what is possible is the beginning of happiness.” – Georges Santayana

Bloomberg Top Stories:

*Bank of America Posts Lower Third-Quarter Profit no Merrill Legal Costs – you rock!

*Hollande Backs Spanish Call for Clarity on Conditions Needed for Bailout

*Euro Rallies With Spanish, Italian Bonds; Oil Gains as Treasuries Decline

*Wen Indicates China’s Economic Slowdown Is Moderating Before GDP Report – B.S.

*Knight Capital Reports Loss Afteer Software Error Turns Revenue Negative – way negative!

*Pandit Risks Forfeiting $33 Million as Citigroup Exit Voids Retention Plan – hmmm, risks?

*BlackRock Net Rises 7.9% as Exchange-Traded Funds Deposits Fuel Asset Gain

*Junk Yields at Record Lows Seen as Cheap in Spread History – cheap? Junk? Hello!!!

*Citgroup Picks Spartacus-Trained Corbat to Cut Fat After Pandit’s Ouster – Watch Q4!!!

*Obama Goes on Offense in Second Debate attacking Romney on Economy, Libya

Readers note: each day from now until the election TB will focus on one aspect of the race. No playing of favorites, no picking who to vote for, hopefully just more information for you to decide.

(A note on last nights disgusting ‘debate.’ What have we become when we consider that in any way, shape or form a debate? Here is a link to the lies and misstatements: factchecking the debate  Does that make you proud to be an American. God help the undediceds. Who won? The man you are voting for of course!!! Now THAT’S stupidity!)

…the GOP loves to say that we need less regulation, the Dems want more regulation. Who is right? First, why are we having this discussion??? Didn’t we just come through the biggest financial crisis in our history where we spread our greed to the entire world?

The strength behind less regulation, which was espoused by Ronald Reagan, is free-market capitalism is the best way to achieve maximum productivity…and it is!

The problem is that free-market capitalism, an idea developed by Milton Friedman, does not exist. It may never have but if so it was based on the concept that a corporation would never do anything that was against its long-term existence. While that may have been true prior to the 1980’s (not coincidentally when Reagan became president), when CEO compensation was roughly 10 times the average employee, several things happened to

Look what just came out and this is hard to deny as it is from David Stockman’s new book:

Stockman on Romney  TB has repeatedly tried to tell you that private equity is not business, it is about a quick turnaround to make a big buck…the faster the better and then forget about it. Contrast to running the country…you own it! It is your problem and will be remembered as such for generations.

Do you really believe that the crisis would not have occurred with NO regulation or less? It would have only happened sooner. The problem lies with the SEC, the Fed and other regulators who did not do their job. For the Fed, what do you expect from a chairman who is a disciple of Ayn Rand? To TB it was all about leverage (the very thing that is lacking today to give the banks the performance they need to justify even the current p/e’s!). But they are fighting it…and why not? Nothing has happened…no one has been prosecuted…record fines have been levied, each one topping the last one…but for a fraction of the revenues generated by the activity! Sabanes-Oxley – go climb a tree! No one has been prosecuted yet (but TB has a feeling that Vikram Pandit is going to be the first…even though he wasn’t in charge when it happened, hell, he isn’t even a banker but a hedge fund operator who sold it to Citi and it became insolvent! Why? Because of the whistleblower who sent memos that the reporting was false to senior management at Citi – including Pandit! That could be the reason for the speedy resignation…the earnings don’t explain it…hell they beat the street estimates and the stock rose 5.5% Monday! Get real! This way the bank is spared and it all falls on his shoulders…along with millions in a goodbye kiss no doubt.)

Pandit and Corzine and Romney…not businessmen…gamblers, speculators, flim-flam artists~!

There are two big 503(c)’s backing Romney…one headed by Karl Rove the other funded by the Koch brothers…they don’t even share many of the same beliefs. Still, they are coordinating their ads to get the most bang for the buck and get Romney elected! This from a fundraising analyst on Nightly News last night…it boggles the mind. This is what America has become thanks to our politicized Supreme Court! Imagine what happens when the 5:4 split is widened to 6:3 or worse?

Greenspan had the power to regulate mortgage companies…he decided he didn’t. Paul Volcker would have done so and then said, ‘so sue me’ when they complained…which they wouldn’t dare as it would expose their ugly game. Citi, Wells Fargo, JPMorgan, Merrill Lynch, Goldman Sachs. They were all in on the take…Merrill though was so stupid they bought the crap they created when it was so overpriced no one else would buy it…but don’t worry it was ‘AAA.’ That’s hubris.

Greenspan, Rubin, Summers and Phil Gramm, destroyed Sheila Bair from what could have saved the entire mess in two ways: first, she wanted derivatives (swaps) traded on an exchange but they all ridiculed her. Had they been regulated you would buy a swap to speculate or hedge (most of the swaps were pure speculation…in fact there were more swaps on GM than the size of the entire corporate bond market at one point. Buying, or selling a credit default swap was the roach motel. How so? Because each swap was a contract and not negotiable if you were long (short) all you could do was offset the position by shorting (buying). IF they were uniform and on an exchange you would merely sell your swap…instead there were hedged portfolios that held 10, 20 or more long AND short contracts…most with different counterparties….thus increasing the risk of default even though your book showed you balanced! The second point: by having them on an exchange you take the profit out of it…and no profit, no interest from Wall Street.

Instead, they were screaming at mortgage originators to bring them more loans…and they demurred by making lower and lower quality loans to produce higher yields. Disgusting.

These two factors created the bubble…as TB has often said: there is nothing wrong with someone earning $10,000 a year from trying to buy a $400,000 home with nothing down. It only becomes a problem when some greedy originator falsifies financial statements and grants the loan. Over and over. Meanwhile everyone in the industry got rich, appraisers (the good ones wouldn’t play and left the business), mortgage companies hiring strippers and others with no financial background and paying huge commissions, realtors threatening that they wouldn’t use an appraiser again if he didn’t meet the value required…even telling them just how much which is illegal.

No folks, the problem was not too much regulation it was weak enforcement, and gaming the system by the banks. Then we not only bailed them out, we even paid off the bondholders in full. Then Paulson told them to give themselves big bonuses to energize the economy. Now we have Dodd-Frank and they are surgically stripping it of impact.

While Obama has been weak on regulation, do you expect more or less under Romney and a GOP Congress? Just asking…

So as long as CEO’s are rewarded for their greed, have tenures of 2-3 years, or follow in the footsteps of Sandy Weill, Jack Welch, Ken Lay and others, there is no free-market capitalism and what masquerades for it is detrimental to any democratic society.

Have a thoughtful day,


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

Second day, same as the first: Impressed by the rally yesterday? TB isn’t. Where are the REAL buyers? Hmmmm.  NYSE true volume yesterday on the exchange was 641M shares. Since 9/28 when it had 832M shares trade (not even average at the time). The range has been 464M-641M. Compare to the 12 month average of 803M shares ( a year ago the 12-month ave was 1.05B!!!).

Equity volume rose to 3.55B shares vs 3.46B shares, weak but still up from 2.31B on the partial holiday. Stocks were strong for a second day…why? On 9/1 volume hit 4.56B shares, high of the year. NYSE stocks executed without the aid of the ETN market barely budged to a still very weak 641M from 619M vs 608M and last week AVERAGED just 607M shares, thanks to last Monday’s 464M shares – the lowest since 11/25/11! There have been just seven 700M+ days since 8/3. The high ytd was 9/21’s 1.8B shares – due to options expiry and an S&P rebalancing. Since 6/29 just 11 sessions have surpassed 800M shares. The average since 8/1’s 1.03B is just 654M. The average for 2012 is just 774M shares and since 6/29 just 690M shares– WEAK!!! 98 of the last 136 sessions have been less than 800M shares (72%!). Since 2/29 there have been just 22 ‘average’ days (mostly down!), including 9/21’s high for 2012 of 1.8B (5B including ETNs) and just 19 have been above 900M – 803M is the 12 month average and slipping! Since 11/1 there have been just 17, 1B share days…13 in 2012! Since 2/6 there have been 57 sessions less than 700M shares. 217 of the last 231 sessions have been less than the 12 mo ave (94%)!

Advance/Declines were positive again: +3x vs  +2x vs -1.7x vs +1.9x vs -1.6x on NYSE and +1.8x vs +1.8x vs -2x vs +1.5x vs -1.2x on Nasdaq. Breadth was similar: +3.9x vs +1.8x vs -3.7x vs +2.6x vs -2.5x on NYSE and +1.9x vs +2.8x vs -1.4x vs +1.3x vs -1.9x on Nasdaq. New 52 week highs doubled to 294 vs 150 (768 is cycle high), while new lows fell to 46 vs 75. The ratio is now +6x vs +2x +1.6x vs +3.9 vs -1.2x. The S&P VIX, which rose intraday to 16.79 on 10/10, declined again to 15.22 from 15.27 -.05. The 12-month low was 13.32 on 8/17 while the 1012 high is 27.73 on June 4.

Here are the results of last 5 sessions: Dow +1% vs +0.7% vs flat vs +0.1% vs -1%; Dow Transports +1.1% vs +0.4% vs +0.9% v -0.1% vs +0.1%;Dow Utilities +0.4% vs +0.6% vs -0.7% vs +0.1% vs -0.3%; S&P 500 +1% vs +0.8% vs -0.3% vs flat vs -0.6%; Nasdaq Composite +1.2% vs +0.7% vs -0.2% vs -0.1% vs -0.4%; Nasdaq 100 +1.2% vs +0.7% vs flat vs -0.3% vs -0.5%; Russell 2000 +1.4% vs +0.6% vs -0.8% vs +0.4% vs -0.1%; NYSE Financials +1.1%??? vs +1.1% vs -0.9% vs +0.7% vs -0.1% vs -1% (KBW Banks -0.5% vs +1.1% vs -2.5% vs +0.7% vs +0.1%; Nasdaq Banks -1% vs +0.4% vs -2.2% vs +0.5% vs +0.4%; NYSE Brokers +1.3% vs +1.1% vs -1.8% vs +1.3% vs -0.3%). NYSE Financial Leaders: BAC +0.2% vs +3.5%! vs -2.3% vs +1.4% vs flat; C +1.6%! vs +5.5%!!!  Hello? See end of commentary today…ugh!

Global stocks higher for a THIRD day: FTSE +0.5% vs +0.9% vs +0.5% vs -0.4% vs +0.8%; CAC 40 +0.3% vs +1.3% vs +1.4% vs -0.4% vs +0.8%; DAX +0.1% vs +1.4% vs +0.8% vs -0.4% vs +0.9%;Nikkei +1.2% vs +1.4% vs +0.5% vs -0.2% vs -0.6%; Hang Seng +1% vs +0.3% vs +0.1% vs +0.7% vs +0.4% vs -4%!!!; Korean KOSPI +0.7% vs +0.8% vs +0.4% vs flat vs -0.8%;Indian Sensex +0.2% vs -0.7% vs +0.2% vs +0.9%. U.S. stock futures mostly higher: DOW +10; SPX +2.50; NDQ -1.75

U.S. treasury bonds continue to trade weak: 10 yr 1.75% -5/16 – record low of 1.40%; 30 yr 2.95% -11/16. Long TIP 0.47% vs 0.40%! -5/8. 0.28% is record low!The 5 yr TIP yields -1.53% vs -1.58%. 10 yr -.73% vs -.80%.Bills 0.12% 1 month; 0.10% 3 months; 0.15% 6 months. Reverse Repo 0.32%. 3 mo. Libor 0.32%;  6 mo. 0.57!!! Both still dropping! European problem sovereign 10 years, Germany-benchmark 1.59% +5; Italy 4.80% -11; Spain 5.48% -28!!!; Greece 17.18% -8…on 9/20: 19.75%!!!; Portugal 7.76% -9; Ireland 4.58% -4  Insane!!!

Gold traded a little higher yesterday and closed at $1746.30 +$8.70 –dead cat bounce. Friday’s high was $1798.10, highest since 2/29 and it has lost $47 since. 7/12’s intraday low of $1547.60 was lowest since June 1. The record high is $1923.70, a buying climax on 9/6/11. SUP at $1738, the 40 day, $1713, 50 day. MAJOR SUP at $1666, the 200 day. 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1751.90 +$5.60. Crude closed little changed at $92.09 +.23. The $87.70 low of 10/3, was lowest since 8/3! It has traded below the 40/50/200 day since 9/19! RES at the 40 day (93.91), 50 day (93.95), and the 200 day (95.87).

A note on Citi: never has TB seen anything like this. On Monday, they beat earnings estimates and the stock rose 5.5%. Oddly, TB had CNBC on most of the session, in fact several said that the bank finally has its act together…nary a negative comment on Pandit! Then the ‘surprise’ resignation overnight and every one of these clowns says that the bank will be better off without him. The stock was a leader and rose another 1.6%! That’s a 7.7% gain in two days??? Without retail? Sounds like talking from position to TB…isn’t it always on CNBC though? Get real! According to management (sic), this has been in the planning for two years and this time the earnings could support it (read: cover up). They said Pandit’s decision to not remain on the board (his decision…uh huh), was his own so he wouldn’t hamstring the new CEO. UGH!!! How bright are those analysts at CNBC? Not very…they said it had been a $550 stock in 10/2007 and is now a $55 stock…WRONG!!! On 3/21/11 they did a 1:10 REVERSE split…it is a $5.50 stock (the actual high was $55; either way a loss of 90% of shareholder value). Why did they do that? Because under $10 institutions won’t buy it…or perhaps continue to hold it! Sick!!!


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