10/22/12…15 days; How will you decide to vote, or have you?

This week’s economic calendar is fairly light. The highlight of the week will be the Q3 advance GDP report (Friday). We will also get September New Home Sales (Wednesday), September Durable Goods Orders (Thursday), and revised October Consumer Sentiment (Friday). In addition, the FOMC will hold a two-day meeting (Tuesday-Wednesday). Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA


Bloomberg Top Stories:

*Caterpillar Forecasts Slowest Growth in four Years on Outlook for Economy

*Worst Carry Trades of 2012 Show Central Banks Reaching Limits of Stimulus

*U.S. Stocks Are Little Changed as Investors Monitor Third-Quarter Earnings

*Bernanke Sedates Bond Traders Seeing Treasuries Added to QE3 by Year-End – oh oh!

*S&P 500 Beating All Other Assets for First time since ’95 After 16% Rally

*Prince Alaweed Praises Pandit for His Handling of Citigroup During Crisis – Masochist!

*Obama-Romney Race Tightens in Polls going Into Campaign’s Last Two Weeks

*Facebook Cited as Conduit for Terrorists Seeking Sympathizers in UN Report

*Obama Lead Over Romney in Foreign Policy Tested in Campaign’s Final Debate  

(Market data, which is to TB the most important part of the commentaries is part two because to most readers it is ignored. But have moved the summary back because it adds perspective.)

Since 9/18, treasury bonds and German Bunds have traded in a pretty defined range, but look at the changes in the other Euro countries vs Germany 1.62% vs 1.66% -.05; Italy 4.73% vs 4.99% -.26! Spain 5.38% vs 5.73% -.40! Greece 16.07% vs 19.25% -3.18%! Portugal 7.38% vs 8.31% -.93! Ireland 4.60% vs 5.00% -.30%. Why do we continue to deceive ourselves that the crisis is over? Beats TB! None of the problems is solved! Even more surprisingly Libor is falling with no clear reason (perhaps banks have so much in excess reserves they are dumping them to earn something at least. Since July 10, 6 mo. Libor has fallen from 0.72% to 0.56%! A huge move considering there have been no policy changes (high on 1/12/12 was 0.812%! 3 mo. has fallen from 0.46% to 0.32% with 1/31/12 peak at 0.58%! Shifting to commodities, BOTH gold and silver are breaking: Gold had a nice run peaking at $1798.10 intraday a weak ago last Friday. Since then it has fallen $71 and is now $1724, with an overnight low of $1713 below both the 40 day AND 50 day moving averages! Crude broke down Friday with a NEGATIVE key reversal (higher high, lower low, close below the prior days low) – but no affecting on gas prices which remain close to $4 a gallon! It closed at $90.05 Friday but only after falling during the session to $89.83, lowest since the rally began on October 9 but after two days it flatlined until Friday’s drop.

What is wrong with investors in stocks? Nothing…there are no real investors in stocks and what there are were sellers on Friday! It was the highest volume since 9/21 on the ‘minor’ options expiry but still not even 1B shares. Do you really think stocks will continue to rally even with earnings falling? If so, either the ‘p’ will fall or the multiplier will be out of whack.

Read three disturbing pieces on Friday. One was a brilliant study on QE (note we have a two day Fed meeting this week!), and how the results of QE1 and QE2 acted negatively for the economy pushing inflation and commodities prices higher while the only benefit was higher stock prices!

As evidence of a failure of QE3, mortgages have been driven up in price, but the market is saturated, WSJ in Heard on the Street Friday had a very negative outlook on mortgage REITS! They have been among the most stable investments since the crisis…

Lastly, in their third quarter review and outlook, Van Hoisington and Lacy Hunt are calling for a global recession! Think about that as we near the elections and worse the risk of ‘sequsetration’ which it appears will be stayed off by extending the date…do you think that will be a positive? THAT is the real reason businesses aren’t hiring and neither Romney or Obama can fix it…capische?

– – –  . . .  – – –

(First, TB received an email from a friend critical of Friday’s commentary saying it wasn’t hard enough of Obama and said he should listen to other commentators. That is what TB does not want to do. This was merely factchecking, not opinion. As TB has told you to do, he went to politifact.org. There are 133 pages of 20 statements by Obama, Romney, others associated with the campaign, and the SuperPacs. Statements are graded from ‘Pants on Fire’, False, Mostly False, all the way up to True, plus flip-flops. The list goes back to the primary race. SuperPacs and other ‘agenda’ groups were the worst, and the lies in the GOP primary were horrible, most notabley by Bachman, but also Santorum, and lately Rob Portman which was disappointing. Among the commentators two stood out as liars: Rush Limbaugh and also Bill O’Reilly. So TB went through 33 pages (660 statements). Here are the results on the lying side:

Pants on Fire  False  Mostly False Flip-Flop

Romney        10                19          14                4    (Ryan had one POF, 4 Mostly False)

Obama           2                 10          10                 1    (Biden 1 False, 2 Mostly False

Others            6                 13            9    (Almost all were associated with Romney)

It is the Pants on Fire category as well as the significance of the subject of the lie that matters most. Check it out for yourself at www.politifiact.org and you decide.)

Are you a Republican? Democrat? Are you for Obama? Romney? I don’t care.

What you need to consider before you cast your ballot

  1. Are you voting your conscience or along with a party?
  2. Are you voting for what is best or because it serves your current interests?
  3. Are you voting for or against someone or something for the right reasons?
  4. Are you voting for the ballot issues without considering consequences?

The President:

Who you vote for is your decision. Make sure though that you are voting for what they can do, not what they say they can do. The president has no power over taxes. That is up to Congress. He can recommend but they have to act. There are powerful lobbies of tax lawyers, accountants, tax preparers, banks and powerful people who want no change.

I voted for Obama because I wanted change and felt he was the last chance. He failed to provide change. Is there any reason to believe Romney will provide change? More importantly will you be happy with or regret the changes he is proposing – which are sweeping?

Rather than just the four years, the next president will have an impact for the next thirty years or more. This is because the partisan Supreme Court is 5:4 conservative. At least one or possibly two justices will retire. That means whoever is president will be able to either bring the court back to balance or push it to the extreme right. It could go to 6:3 or even 7:2. The argument by the GOP is they only appoint ‘strict constructionist’ judges, a nebulous term. If Obama is elected it could be 5:4 or possibly 6:3 liberal. There was little agreement by the framers of the Constitution other than creating a representative democracy. They argued about the power of the president, Congress, and worried about abuses of power…and rightly so. So they let the Supreme Court be the arbiter for a check (and to provide balance), to extremist views. An very unbalanced court has the potential to destroy this safety valve. That is the most important thing you are voting for and it has hardly been discussed.

It is difficult to separate the misstatements, oversimplifications, and outright lies. Don’t accept what you hear as the truth…especially from an ad by one of the SuperPacs which has its own agenda. But you can find the truth at Factcheck.org, PolitiFact.org, or other non-partisan sites. While both candidates have misrepresented the facts, it is the PAC’s that have horribly distorted the truth with solely negative ads. Don’t you think this election is important enough to know the truth before you cast your vote?

It is sad that many people have already cast their absentee ballots. At least those who say they have made up their minds might discover something to change it.

But even if so few people care enough to take the time to find out the truth about the candidates, it is worse at the state and local level. There are less factchecks and information, except those with an agenda.


We have the most contentious Congress one can recall. They don’t speak to one another. They meet two days a week and don’t get to know one another. They get pensions with paid healthcare at retirement. They are supposedly there to do public service but instead most of their time is spent raising funds trying to get re-elected. That was not what the founding fathers envisioned either. They would be appalled. That is not public service.

The gridlock in Congress resulted in a near crisis (and may again do so), over the debt ceiling. For your edification, the debt ceiling is only needed to raise the debt limit to pay for the things that Congress has already approved  This gridlock has caused S&P to cut our debt rating from AAA, not to a fiscal crisis, but a failure to work together towards a solution while there is still time. Moody’s stands ready to cut it too…for the same reason.

How much time have you spent learning about candidates for the House of Representatives or the Senate? Even less at the state and local level.

The approval rating of Congress is less than 10%. Consider: the approval of the British Crown was higher at the time of the American revolution. The approval rating of the Greek government is higher. The approval rating of the Egyptian government was higher at the time of the coup. How disgusting is that?

Despite the low approval rating, people are generally happy with their senator or representative. Why? Because they know them…they have done things for their districts. This is no different from saying cut the budget or raise taxes just not anything that I want.

Congress has failed the people over the past four years. First, the Democrats thought they had a mandate. They had no such thing. Then the GOP thought they had a mandate. Surveys of Tea Party members show that they were not opposed to higher taxes if they would help reduce the deficit. This was ignored thanks to a pledge to Grover Norquist who was never elected. Imagine, your elected representatives believing a pledge to someone with no authority is more important than their responsibility to the people.

You have a choice in this election. You can believe your elected officials or decide if they acted in the best interests of the country. These officials have a responsibility to those who elected them but not to the detriment of the rest of America and its future.


Years ago, I asked a friend who is a lawyer what he thought about a proposition on a ballot. He said that he opposes them because it is a way for our elected officials to shirk their responsibility and when it is placed on the ballot it is over-simplified. Worse still is an amendment which is nearly possible to change if the outcome is other than promised.

Take the Marriage Amendment on the Minnesota ballot. We already have a law that defines a marriage as one man and one woman. Yet they want to make it part of the state constitution. This despite the fact that about 50% of marriages today end in divorce. Same sex people are not freaks. They are loving people just as hetero couples. It takes a lot of courage to admit that one is not a heterosexual. It is also wrong that they be treated differently. Most corporations treat same-sex couples the same as married couples for health insurance and other benefits. Is this wrong? Is it preferable to have people of either gender living together with no contract? Think about it, then you decide.

Doesn’t anyone remember the effects of Prohibition which turned ordinary people into criminals as well as businesses? According to Ken Burns’ documentary, more than half of the Congress continued to drink during prohibition. Meanwhile, it gave the power to organized crime which still exists today.

In 1919, the 18th Amendment created prohibition. Later that year, Congress passed the Volstead Act to enforce it. Despite the unpopularity the Amendment couldn’t be repealed until 1933. Prior to enactment, the tax on alcohol was the largest source of revenue in the U.S., a point the proponents ignored. It was larger than the Income Tax created by the 16th Amendment in 1913 (originally 7%). A constitutional amendment (federal or state) is not something to trifle with.

The other amendment on the Minnesota ballot sounds like a good idea. You can’t vote without voter ID. Good idea, right? But the devil is in the details. It must be a state approved voter ID and just like with prohibition the legislature will determine just what that is. The argument is that everyone should be able to show identification and if you can’t you can vote a provisional ballot. But you then have to drive to a state office and prove who you are in order for it to count. How many will take this second step? First, look at the low percentage of eligible voters that even vote. Second, and more important, just how much voter fraud is there? While some self-promoting studies say 11% of votes are fraudulent, more unbiased studies show it to be about 0.0004%. You do not pass laws based on that; especially constitutional amendments which will restrict the ability of seniors to vote. There is more likelihood that someone will be influenced by the myriad of false ads and statements and that is far more dangerous to our country’s future. Aren’t uninformed or misled voters a bigger threat than fraud? The amount spent on misleading ads says yes!

In closing, any good reporter is suspicious when someone comes to them with a story. The same goes for a proposition or amendment. What do they have to gain from this? Yet, we don’t ask. We let religious groups, political parties and others decide. Isn’t there supposed to be separation of church and state? Should one group be able to tell another how to live their lives just because of their beliefs? Don’t ask the Taliban or other religious extremists. Again, I don’t care who you vote for, but you should be willing to think of the consequences of your vote. Fail to do so and you and your fellow citizens may regret it.

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

Friday was options expiry and while a minor one, note that equity volume was 3.87B shares vs

3.83B vs 3.64B shares, finally close to 4B BUT it was a MAJOR down session. On 9/1 volume hit 4.56B shares, high of the year. NYSE stocks executed without the aid of the ETN market however surged to 941M shares (significant as it was heavy selling), highest since 9/21 from very weak 692M(highest since 9/28). Last Monday’s 464M shares was the lowest since 11/25/11! There have been just eight 700M+ days since 8/3. The high ytd was 9/21’s 1.8B shares – due to a quadruple witching and an S&P rebalancing. Since 6/29 just 13 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!!! 100 of the last 139 sessions have been less than 800M shares (72%!). Since 2/29 there have been just 23 ‘average’ days (mostly down!), including 9/21’s high for 2012 of 1.8B (5B including ETNs) and just 20 have been above 900M – 801M is the 12 month average and slipping! Since 11/1/11 there have been just 17, 1B share days…13 in 2012! Since 2/6 there have been 59 sessions less than 700M shares. 219 of the last 234 sessions have been less than the 12 mo ave (94%)!

Advance/Declines were modestly very negative: -3.4x vs -1.1x vs +2.2x vs +3x vs +2x on NYSE and -4.2x! vs -2.1x vs +1.6x vs +1.8x vs +1.8x on Nasdaq. Breadth was even worse: -8.3x! vs -1.3x vs +2.7x vs +3.9x vs +1.8x on NYSE and -5.5x! vs -1.8x vs -1.1x vs +1.9x vs +2.8x on Nasdaq. New 52 week highs were nearly halved to 177 vs 330 vs 363 vs 294 vs 150 (768 is cycle high). New lows ROSE sharply to 121! vs 54 vs 48 vs 46. The ratio is now +1.5x vs +6x vs +7x vs +6x. The S&P VIX, which rose intraday to 16.79 on 10/10, suddenly came to life surging to 17.06!!!+2.03! vs 15.14 vs 15.07 vs 15.22. 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 -1.5% vs -0.1% vs flat vs +1% vs +0.7%; Dow Transports -1.4% vs +0.2% vs +0.6% vs +1.1% vs +0.4%;Dow Utilities -0.7% vs +0.3% vs +1.1%! vs +0.4% vs +0.6%; S&P 500 -1.7% vs -0.2% vs +0.4% vs +1% vs +0.8%; Nasdaq Composite -2.2% vs -1% vs +0.1% vs +1.2% vs +0.7%; Nasdaq 100 -2.4% vs -1.1% vs -0.1% vs +1.2% vs +0.7%; Russell 2000 -1.9% vs -0.6% vs +0.9% vs .+1.4% vs +0.6%; NYSE Financials -1.4% vs flat vs +1.2% vs +1.1% vs +1.1% (KBW Banks -0.7% vs -0.5% vs +1.6% vs -0.5% vs +1.1%; Nasdaq Banks -0.6% vs -0.7% vs +1.1% vs -1% vs +0.4%; NYSE Brokers -2.8%!!! vs -1.1%! vs +2.5% vs +1.3% vs +1.1%. NYSE Financial Leaders: BAC -0.3% vs +0.3% vs -0.2% vs +0.2% vs +3.5%! vs -2.3%; C -3.3%!!! still up 7% for the week???-0.1%+3.2%!?! vs +1.6%! vs +5.5%!!!

European stocks weak again; Japan/China/India up: FTSE -0.1% v -0.1% vs -0.2% vs +0.5% vs +0.9%; CAC 40 -0.1% vs -0.5% vs -0.3% vs +0.3% vs +1.3%; DAX -0.3% vs -0.5% vs +0.3% vs +0.1% vs +1.4%;Nikkei +0.1% vs +0.2% vs +2%! vs +1.2% vs +1.4%; Hang Seng +0.7% vs +0.2% vs +0.5% vs +1% vs +0.3%; Korean KOSPI -0.1% vs -0.8% vs +0.2% vs +0.7% vs +0.8%;Indian Sensex UP 0.6% vs -0.6% vs +1% vs +0.2% vs -0.7%. U.S. stock futures slightly higher: DOW +16; SPX +2; NDQ +7.50

U.S. treasury bonds bounced a bit on Friday on equity weakness but are weaker overnight: 10 yr 1.79% -1/4 – record low of 1.40%; 30 yr 2.95% vs 3% -3/8. Long TIP 0.41% vs +.44% -1/4. 0.28% is record low!The 5 yr TIP yields -1.46% vs -1.48%; 10 yr -73% vs -.71%.Bills 0.09% 1 month; 0.09% 3 months; 0.14% 6 months. Reverse Repo 0.29%. 3 mo. Libor 0.32%; 6 mo. 0.56!!! On 9/18 they were 0.38% and 0.67% respectively…with no policy change??? European problem sovereign 10 years, Germany-benchmark 1.62% +3; Italy 4.73% -3; Spain 5.38% +6; Greece 16.07% -8!!!…on 9/20: 19.75%!!!; Portugal 7.38% -1; Ireland 4.60% +3.

Gold not only traded weak Friday but below BOTH the 40 day AND 50 day moving averages for the first time since August 15th! It closed at $1724.00 -$20.70!!! Friday’s low was $1716, lowest since 9/7 vs $1798.10 last Friday, highest since 2/29 and it has lost $75 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. RES now at $1721, the 50 day, $1744, the 40 day. MAJOR SUP at $1668, the 200 day. CAUTION!!! 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1724.50 +.50. O/N LOW $1713!!! Crude closed sharply down on a negative key reversal after trading weak for two weeks at $90.05 -$2.05! the low was $89.83, lowest since10/9. 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 (93.51), 50 day (93.83), and the 200 day (95.70)….all declining!

(Commentary has been moved to page one after Top Stories)


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