11/5/12…last day before elections: the next four years

TB Saiz: “I’d kill for the Nobel Peace Prize!”

Bloomberg Quote of the Day: “When the eagles are silent, the parrots begin to jabber.” – Sir Winston Churchill…about sums up the U.S. Congress!

This week’s economic calendar is fairly light. The highlight of the week will be the October ISM Non-Manufacturing Survey (Monday). We will also get September Consumer Credit (Wednesday), September International Trade (Thursday), October Import & Export Prices, preliminary November Consumer Sentiment, and September Wholesale Trade (Friday). There are no data releases scheduled for Tuesday. Courtesy of Steve Wood, Insight Economics, Walnut Creek, CA.

Bloomberg Top Stories:

*HSBC Likely to Face U.S. Criminal Charges for Money Laundering Violations

*Stocks Decline in Europe on Greece Bailout as Bund Yields Fall Below Zero – !!!

*UBS Overhauls Investment Banking Unit With Split Into Two Client Groups

*Economy Primed for Better Times Whether Obama or Romney Wins U.S. Election

(Not according to Mitt…wait…he has a plan…two plans: economic and taxes!)

*Goldman Partner List Shrinks by 31 as Selection of New Class Looms – yippee!!!

*Toyota Mulls New Look for Prius With Record Sales Set to Top 700k – might sell a lot of them in NY/NJ, right? Not too many GM Volts though…no plug-ins!

*BOE Tests Faith in Funding for Lending Toolkit as QE Loses Bite – no longer works!

*Bonds Seen as Victim of BofA’s ‘Great Rotation’ to Stocks – wrong again?

*Samaras Bows to Austerity as Euro Looms Over Greece’s Budget – coming here soon?

*All Bond Market Rally Frits Time Since 2008 Led by Portugal With 47% Gain – 47%, where have we heard that number before?…then later retracted!

*Buffett’s  $47B (another 47) Cash Hoard Nears Record as CEO Hunts for Elephants!

*Microsoft Plumbs Yield Depths With Rare AAA Bond Issue – better than US of A!

*Coca-Cola Hacked Doesn’t Mean Shareholders Know as Companies Dare Not Say !!!

*Obama Pushes for High Turnout as Romney Seeks Upset on Final Campaign Day (GOP wishes they already had those Voter ID laws – when fraud is virtually nil!)

*NYC Needs Housing Fro 40,000 as New Round of Storms Bears Down on Region

(Sorry folks we have a federal budget deficit so you are on your own…ask churches!)

*Suicide Rate in U.S. Climbed in Recession as Rising Unemployment Took Toll –(wonder what would have happened without food stamps, emergency unemployment etc.?)

Stocks opened sharply higher following the payrolls report then plummeted with the Dow going from +55 to -190 and closing -174. All indices were down and gave up most of Thursday’s rally…Russell 2000 loss exceeded it. Bond market was weak on the numbers with the long bond off 1 point, but came back as stocks flailed closing at -1/8. while the 10 year, which had been off 5/8 closed UP 1816! Bad day for both Gold and Crude as gold had the first close below $1700 since 8/31 and crude closed at lowest sine 7/9!!!

Suppose we had a solid payrolls report and nobody cared? Certainly not the Mittster who focused solely on the miniscule increase in the jobless rate ignoring the reason: more people entering the workforce which, surprise, surprise, is a positive!!!  Guess that is what you get when Glenn Hubbard is your economic advisor….kaching!!!

– – –  . . .  – – –

(Before we start there is an email going around purportedly from GOP sympathizers telling Dem seniors that they don’t have to go to the polls but can vote by phone, which is totally false. Snopes.com found this but anyone could do it and tell a senior to stay home depriving them of one of the rights they value most. Worse, someone could call them asking if they wish to vote by phone and if so they only have to provide their social security number to the caller. We live in one sick society. TB)

…if we don’t know by late tomorrow night who the next POTUS is this country is in very deep trouble! Romney hasn’t been able to catch a break since the September payrolls report and then had to deal with the hurricane. Prior to that he had the Libyan mission attack (the GOP still keeps calling it an embassy) but that was way back on 9/11. Also the first debate in which he trounced Obama or did he do that to himself? But the second and third round went to Obama. Still, first impressions count and that may trump the other two.

Factcheckers though are still scoring more positively for Obama and the Dems although both sides insist on still repeating the same misstatements and lies as if the American people are stupid…or fools, which may well be the case if we let the crap that has been fed to us direct our votes without finding out the truth which is simpler these days than at any time in U.S. history…still, people won’t do it and even decry the factcheckers as biased which is insane. These people are doing a tough job and getting right.

Since Sandy though, Romney’s pitch (this is aside from whether he should be the man) is tired. On the September payrolls there was screaming that Obama had rigged it – how else could unemployment fall 0.3% – even that amount is within margin of error – so it was false. Then there was the gloom and doom about how we needed more jobs and Romney said he knew he could create them. This time, jobs surged but the unemployment rate climbed 0.1% despite a huge surge in jobs when you include the revisions to the last two months. One has to wonder if the people aren’t getting just a little sick of berating any good economic news, of which there have been loads including consumer sentiment and housing. He never has a positive thing to say…except that he has a plan…details omitted, along with the fact that his own Congress could sink him. Who will control who?

If you watched 60 Minutes last night, you should be so disgusted you might not want to even vote in this election! They had Sen. Majority Leader Harry Reid, and Minority Leader Mitch McConnell – seated side by side but not once looking at the other. To his credit, Reid made a better presentation stating that there were 248 filibusters by the GOP in the last four years…contrast to when Bob Dole was leader when they had just ONE! He also quoted McConnell on the show four years ago when he said the priority was to make Obama a one-term president. One thing on the filibuster…they don’t even filibuster: simply make calls to the bills sponsors threatening it and it is withdrawn. It takes 60 votes to override a filibuster…the Dems have just 53. McConnell looking like a dour old man said compromise is not possible when the sides are this far apart. That says it all Mitch…you and the other obstructionists must GO!!! Also on were former GOP Senator Olympia Snow and Dem Evan Bayh. Both did not run again as they believe in compromise and given the leadership (sic) this is impossible. Is this the kind of government you want? Check out www.nolabels.org a Concord Coalition group of which Bayh is a member that is working for change…Godspeed!!!

On the other hand we have President Obama who for four years has given us nothing but feel-good speeches. He needed to level with us. How? By knocking down the GOP argument that he failed to create jobs when this was a fiscal crisis caused by too much debt, not an economic recession. In that type of environment neither fiscal or monetary policy can solve the problem as Reinhart and Rogoff and others have shown. It takes TEN years to recover from a financial crisis – on average!!! Look how long the Great Depression lasted. The reason debt has to be reduced and savings increased but with no yields growth is at a snails pace. By the way at the end of ten years long government bond yields are STILL 2.5%! To Bernanke’s credit he has tried, but now the QE effects are not only stimulating less with each round but working detrimentally to the desired effect based on mortgages.

Friday evening on PBS, there was a discussion on unemployment between Dr. John Taylor and Austin Goalsby. After Taylor said Romney was the man for the job, TB wrote him and asked (as he did earlier in the day on NPR of Bloomberg’s senior economist), why he couldn’t see that we are in a financial crisis, not an economic recession? The difference being that after a meltdown neither monetary OR fiscal policy works as debt must be sharply reduced and thug growth slows. TB pointed to the research of Reinhart and Rogoff. Taylor responded citing studies by Michael Bordo, a former Fed Governor, and another Hoover Institute fellow, but when reading an op-ed he penned in the WSJ on Nov. 28th he said:

“Thus the slow recovery that we are experiencing from the recession that ended in July 2009 is an exception to the historical pattern.” This can largely be attributed to the unprecedented housing bust, a proximate measure of which is the collapse of residential investment, which still is far below its historic pattern during recoveries. Another problem may be uncertainty over changes in fiscal and regulatory policy, or over structural change in the economy.”

Since Bordo, also a Hoover fellow, says that following a financial crisis growth should be 1.2% vs 2.2% from an economic recession, Obama is doing better than expected. Hmmmm. TB was pleased that Taylor responded in such a thoughtful manner, especially after he had questioned whether Taylor was ‘pandering’ to voters by saying Romney’s plan was better.

But the economy will continue to grow slowly unless…unless…we let the fringe continue to panic us about a ‘fiscal cliff.’ Imagine fixing a business by merely paying off debt while revenues don’t increase? Mitt would that make sense to you? Also, your plan to let GM file bankruptcy would have been a disaster in late 2008 to mid-2009 – there was no available capital…from Bain or anywhere else…and it worked while saving thousands of jobs. Ford came back stronger while Chrysler is now on a sound path but rather than laud them he is claiming that they are building Jeeps in China for sale here.

No matter that it has been proven to be an outrageous lie…he continues to repeat it. That doesn’t sound presidential to TB.

But what he should be upset about is United Airlines…one where the government had to take over the pension fund…the ones of the employees, NOT management. Yesterday, Bloomberg reported that they are considering replacing their jumbo jets with the new Airbus…why not complain about that Mitt? Barrack? Someone??? 

Readers know that TB admires the work of James Kwak and Simon Johnson at The Baseline Scenario. Mr. Kwak wrote this Saturday and it is worth considering:

The Economist on Romney’s Fiscal Policy

Posted: 02 Nov 2012 11:30 AM PDT

By James Kwak

It should be no surprise that I am voting for Barack Obama on Tuesday, despite all his flaws and failures of the past four years. There are just too many dimensions on which he is clearly preferable to Mitt Romney. One of the more important ones, on which I spent most of last year (writing White House Burning), is fiscal policy. And here, since anything I write will be dismissed by many readers as liberal propaganda, is The Economist on the topic:

“Yet far from being the voice of fiscal prudence, Mr Romney wants to start with huge tax cuts (which will disproportionately favour the wealthy), while dramatically increasing defence spending. Together those measures would add $7 trillion to the ten-year deficit. He would balance the books through eliminating loopholes (a good idea, but he will not specify which ones) and through savage cuts to programmes that help America’s poor (a bad idea, which will increase inequality still further). At least Mr Obama, although he distanced himself from Bowles-Simpson, has made it clear that any long-term solution has to involve both entitlement reform and tax rises. Mr Romney is still in the cloud-cuckoo-land of thinking you can do it entirely through spending cuts: the Republican even rejected a ratio of ten parts spending cuts to one part tax rises.”

TB frets that some of his friends have bought into the GOP gloom and doom scenario that compares the U.S. to Greece of all things. We have time to fix this but both sides must work together and a program of Draconian budget cuts will only worsen things and could lead to a major recession. That is what happens when even good news is paint with gloom. Pity.

As a good op-ed in the Minneapolis Star-Tribune stated there is very little difference in the two men. Both are qualified, and while they seem miles apart, in practice they will have few options in dealing with the Congress. Some say Romney will reach across the aisle but the situation in Massachusetts was nothing like it is in today’s bifurcated Congress. So what it comes down to is what type of Supreme Court justices they will appoint…and will they be able to get past an even more bifurcated Senate? That will be their lasting legacy for better or worse…choose your answer carefully.


Funny thing, Lee Iacocca endorsed Mitt Romney…he the auto expert? Meanwhile, former GOP turned independent Michael Bloomberg endorsed Obama…understandable but cited his efforts on global warming? Sure Obama favors ‘green’ but has been able to do little and didn’t even make use of the debates to take a stand. Perhaps because it is hard to begin a dialogue when the other side calls you a ‘treehugging wacko.’ Science be damned. Note that no scientist is blaming global warming on Sandy BUT they note that the water temp is five degrees above normal…same as occurred in Katrina and the other monster storms. Their thesis is we won’t have more storms, in fact fewer, but the size will be much greater…estimated to have added 10% to Sandy! You have to wonder what Manhattan will be like when – not if – sea levels rise by 3-4 feet. The financial community completely abandoned New Orleans post Katrina. Many cities are now requiring that the first floor be six feet above the street level. THINK!!!


So the only chance we have is to have one of these men win clearly and decisively and TB doubts this is going to be the case. Batten down the hatches! Foul weather ahead!


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

Volume slipped on a down day that was much more than 50% of Thursdays rally! Dow Utilities were down for a second session: 3.61B vs 3.9B vs 3.56B…vs…3.28B vs 3.5B. On 9/1 volume hit 4.56B shares, high of the year. NYSE stocks executed without the aid of the ETN market are around 560M shares every session  10 minutes before the close and finished at a still weak 793M vs 797M vs 853M…vs…719M vs 696M. 9/15’s 464M shares was the lowest since 11/25/11! There have been just 12 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 14 sessions have surpassed 800M shares. The average since 8/1’s 1.03B is just 673M. The average for 2012 is just 771M shares and since 6/29 just 696M shares– WEAK!!! 107 of the last 147 sessions have been less than 800M shares (73%!). 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 – 791M is the 12 month average. Since 11/1/11 there have been just 17, 1B share days…13 in 2012! Since 2/6 there have been 63 sessions less than 700M shares. 225 of the last 242 sessions have been less than the 12 mo ave (93%)!

Advance/Declines were negative: -2.3x vs +3.4x vs +1.4x…vs…-1.4x vs +1.5x on NYSE and -2.7x! vs +1.9x vs +1.2x…vs…-1.4x vs +1.4x on Nasdaq. Breadth was similar: -2.8x vs +4x! vs +1.3x…vs…-2.6x vs +1.2x on NYSE and -2.8x vs +4.5x! vs -1.4x!…vs…-1.1x vs +1.1x on Nasdaq. New 52 week highs dropped sharply to 256 vs 309 vs 225 vs 117; 363 (768 is cycle high). New lows were a tad higher at 101 vs 93 vs 137 vs 99, recent low was 48. The ratio is: +2.5x vs +3x vs +1.6x, recent high was 7x. The S&P VIX rose to 17.59 vs 16.69 vs 18.60 +.90. The 12-month low was 13.32 on 8/17 while the 1012 high is 27.73 on 6/4.

Here are the results of last 5 sessions: Dow -1.1% vs +1% vs -0.1%…vs…flat vs +0.2%; Dow Transports -1.1% vs +1.6% vs +0.7%…vs…+0.3% vs +0.6%;Dow Utilities -0.7% vs -1.4%! vs +0.8%!…vs…-0.1% vs +0.4%; S&P 500 -0.9% vs +1.1% vs flat…vs…-0.1% vs +0.3%; Nasdaq Composite -0.9% vs +1.4% vs -0.4%…vs…+0.1% vs +0.2%; Nasdaq 100 -1.2% vs +1.5% vs -0.7%!…vs…+0.3% vs +0.1%; Russell 2000 -1.6%! vs +1.1% vs +0.7%…vs…-0.4% vs +0.4%; NYSE Financials -0.6% vs +1.3% vs +0.8% vs -0.6% vs +0.3% (KBW Banks -0.7% vs +1.7% vs +0.7%…vs…-0.9% vs +0.6%; Nasdaq Banks -1.3%! vs +0.6% vs +0.3%…vs…-0.6% vs +0.8%; NYSE Brokers -0.4% vs +1.8% vs +0.6% …vs…-0.1% vs +1.4%.NYSE Financial Leaders: BAC UP 1.1%? – but still below $10! vs +4.5% vs +2.2%…vs…-1.2% vs -0.8% – no other leaders for a SIXTH session! For the week: BAC +8.1%; C +2.7%; JPM +3.1%; WFC-0.7%!; USB +0.8%; GS +3.2% MS +4.3%!; UBS +14.8% – this for a dysfunctional broker? Hello???

Global equities weaker, negating Friday’s gains! FTSE -0.6% vs +0.4% vs +0.6% vs -1.2% vs +0.8%; CAC 40 -1%! vs +0.6% vs +0.6% vs -0.9% vs +1.4%; DAX -0.6% vs +0.6% vs +0.7% vs -0.3% vs +1%;Nikkei -0.5% vs +1.2%! vs +0.2% vs +1% vs -1%; Hang Seng -0.5% vs +1.3%! vs +0.8% vs +1% vs -0.4%; Korean KOSPI -0.6% vs +1.1% vs -1.3% vs +0.7% vs +0.4%;Indian Sensex flat vs +0.5% vs +0.3% vs +0.4% vs -1.1%. U.S. stock futures DIW: DOW +2; SPX -0.80; NDQ +3. All had been off earlier.

U.S. treasury bonds were slammed early Friday as stocks rallied then both reversed with the 30yr coming back from off 1 pt to close -1/8, solid gains overnight: 10 yr 1.68% vs 1.76% +1/4 – record low of 1.40%; 30 yr 2.87% vs 2.95% +11/16. Long TIP 0.35% +3/4. 0.28% is record low!The 5 yr TIP yields -1.45%; 10 yr -.79%.Bills 0.04%!!! 1 month; 0.09% 3 months; 0.14% 6 months. Reverse Repo 0.32% vs 0.38% vs 0.55%!!! 3 mo. Libor 0.31%; 6 mo. 0.54! On 9/18 they were 0.38% and 0.67% respectively …with no policy change??? European problem sovereign 10 years, and adding Japan, Germany-benchmark 1.43% -2; Japan 0.76% -2; Italy 4.99% +7; Spain 5.72% +9; Greece 17.71% -5…on 9/20: 19.75%!!!; Portugal 8.25% +9!; Ireland 4.63% -1.


Gold was hit hard Friday closing below $1700 for the first time since 8/31 at $1675.20 -$40.30!!!, barely off the session low of $1674 just $3 above the 200 day! It remains well below BOTH the 40 day AND 50 day moving averages last visited on August 15th! It closed at $1798.10 on 10/13, highest since 2/29 and it has lost $123 since (6.8%)! 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 at $1737, the 50 day, $1750, the 40 day.MAJOR SUP at $1671, the 200 day. CAUTION!!! 5/2’s o/n low of $1526.70 was lowest since 12/29! Currently $1681.40 +$6.20, but overnight low of $1672 is just $1 above 200 day. Crude closed down large after Thursday’s faux rally at $84.83 -$2.23 – lowest since 7/9, wiping out 10/24’s session low of $84.94! It has traded below the 40/50/200 day since 9/19! RES at the 40 day (91.15), 50 day (92.06), and the 200 day (95.00) – all falling sharply again. Overnight it is $85.16 +.30 and going nowhere.


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