12/13/12…look for the union label

Bloomberg Quote of the Day: “We all have the ability. The difference is how we use it.” – Stevie Wonder…no wonder!

TB’s Song of the Day:

Oh, you can’t scare me, I’m sticking to the union,
I’m sticking to the union, I’m sticking to the union.
Oh, you can’t scare me, I’m sticking to the union,
I’m sticking to the union ’til the day I die.

-from Union Made by Woody Guthrie

Bloomberg Top Stories:

*First-Time Jobless Claims in U.S. Decline to a Nine-Week Low of 343,000 – don’t see this as the beginning of a trend or a reason for stocks to rally because it isn’t! TB

*Retail Sales Increase as Americans Snap Up Autos, Electronics – is this just due to the holidays accelerating buying? Inventory buildup says it is and will slip in January. TB

*Wholesale Prices in U.S. Fell More Than Economists Estimated in November – also a sign of excess inventories …do you cut prices with increasing demand…WHOLESALE!

*ECB Will Become Euro-Area Bank Supervisor Under Accord Unlocking Aid Funds

*Kng Secrecy on Credit Plan Said to Have Stoked Internal Revolt – !!!

*Greek Debt-Relief Debate Flares After Approval of $64 Billion Aid Package

*Fed Extends Dollar Swap Line Scheme With European, Canadian Central Banks

*Deutsche Bank Says Charges to Reduce Earnings in Difficult Fourth Quarter – !!!

*Rigging Libor With Policemen Nearby Exposes Flaw of London Self-Regulation – it’s a flaw of ALL self-regulation (an oxymoron!)

*Made-by-Obama Cliff Debate Obscures Jobless Toll That Dwarfs Debt Interest – made by??? Forced on him by Tea Party…first time TB has seen this claim!

*Tory Skeptics Raise Rebel Flag as Cameron Is Pushed Toward EU Referendum

Yesterday’s NYSE volume was almost identical to Tuesday’s at a mediocre 3.7B shares vs 3.64B but up from 3.0B and 3.11B…still well below average. REAL trades on the floor were about the same and fell shy of even 700M shares again to 695M vs 693M vs 593M – lowest since 11/23’s low for the year of 329M shares. Advance/declines and breadth (NYSE slightly positive) were both slightly negative. The Dow and S&P 500 were both FLAT while the two Nasdaq indices fell 0.3% and the Russell 2000 fell 0.7% in a ‘rocky’ session both before and after the FOMC statement..  

Bond market closed sharply lower despite the FOMC indicating it may be mid-2915 before unemployment reaches 6% – their target, but they also added a caveat that all bets are off if inflation tops 2.5%…doubtful under those conditions…we aren’t Greece or post WWI Germany. Little changed overnight: 10 yr note 1.70%, 30 yr 2.89%. TIPS took a huge hit with the 30 yr TIP off more than a point while yield rose to 0.29% vs 0.26% vs 0.23% vs 0.22% – the record low.

Gold was up $8.30 yesterday closingat $1717.90, but after an intraday high of $1725! That’s the good news…now the bad. It remains slighlty below the 40/50 day moving averages,but overnight it tanked to $1692.10 a loss of $26 after just 3 days above $1600, and has only gained back $5 of that thrashing. Crude lost 13 cents closing at $86.77, with a high right at the 50 day before fading into the sunset. It remains below both the 40/50 day m/a’s. Overnight it is off 45 cents – gas prices below $3 for first time in months!

– – –  . . .  – – –

…some explanation is due. TB grew up in a union hating family. His grandfather was a tradesman…painter, carpenter, even built some houses! He objected because he painted with a TEN inch brush which TB could barely lift, let alone use to paint! The union specified no more than five inches. He just wanted to get the job done faster…and he did it well! At that time he was working at a hospital (Santa Monica – hospital to the stars at the time). This was ingrained in TB.

After getting out of the Navy TB went to work for Southern California Edison as an apprentice lineman. The union was of course the wage negotiator. TB became very adept at avoiding the shop steward when returning to the yard at the end of the day. In other words, TB was getting a free ride but not being cheap: he didn’t want to ever be associated with the union fearing it might affect him later.

Later he worked as a Harbor Patrolman…and this is key…it was in 1970 and the union had just been named negotiator since the courts ruled that management couldn’t set wages as it was a conflict of interest…you know…like the CEO does with white collar workers! None of us joined the union…all being conservative.

The unions began however, to lose power in 1980…coincidentally (?) with Reagan or more likely with the advent of IRA’s and then 401(k)’s. These allowed companies to switch from defined benefit plans to defined contribution – saving them millions each year. Strangely GE, and a few others – mainly auto workers didn’t follow suit.

It is now recognized that IRA’s were never intended to allow the worker to retire but most likely to take employers off the hook and they succeeded. In the 1960’s, fewer than half of the high school grads went on to college…some of the mediocre ones however were got at skills and became well-paid tool and die makers, etc.

But by the end of the 80’s, globalization was well underway thanks to computers, and the demise of the Soviet Union which provided cheap labor in Eastern Europe. Outsourcing was on the way. There are few tool and die makers left in this country and those mainly because it is coming back…slowly…and at a cost…those well-paying jobs now pay $12 an hour or so while the CEO’s who perform in a mediocre manner mostly (that is the large companies…small company CEO’s work very hard for not that much more than their employees…perhaps the traditional ten times?), yet earn 400-500 times the average worker thanks to competition instilled by compensation analysts, one of whom has become a friend, Graef Crystal, who laments what they did to companies and has tried to make amends. In addition, to equalizing pay, they shifted performance to ‘relative’ from absolute which lowered the bar at the expense of shareholders…if God didn’t want them shorn, why did he make them sheep?

Then there was the transition from traditional long-term holders of stock who are now an anomaly as the average holding period has gone from five years to just three months! For pension funds it has fallen to just one year…from five! Buy and hold? Ha! Long-term to a CEO is his expected tenure, and more likely the current year or even quarter! Face it, you have been screwed…the CEO is now often the chairman  too…who is sworn to represent the shareholders…a total conflict of interest…especially when the board is made up of cronies or big customers who know nothing about the inner workings of the company. What value do they add except to rubber stamp the CEO on everything?  

Ah, but there is one group of unions who is strong and growing stronger…municipal unions…and in large cities or public institutions there may be a dozen or more unions, all with different negotiation periods and who exchange information…in other words, gang up on management. That is the reason many of the cities are filing for bankruptcy protection…where they can get out of union contracts.

Police and fire, which even Wisconsin Governor Scott Walker didn’t mess with, are the worst offenders. They have disability retirements…when they could be given desk jobs with their same salary. But it is their chiefs that are the major problem. They end up working as chief for a couple of years then retire at their highest pay!  A few years ago a fireman had a chance to become chief in Marin County…one of the richest in the nation. Instead he took the job with lowly Fremont for more money! Does that tell you anything?

The first bankruptcy of note since Orange County’s record filing in 1994 was Vallejo, California. There have been some other ones around the country but it is epidemic in California where San Bernardino County and others are following suit. But here is the strange thing: they have done nothing to reform their pension policies…even obvious ones like limiting pensions to the average of the last five years, forcing vacation carryovers to no more than two weeks and not computed in retirement, and controlling overtime which in some cases exceeds base pay! That is the big problem in government!

Here is another one…to ‘control’ wage increases some cities/counties/states, limit management positions to no more than a percentage (10%), more than the highest paid subordinate. To get around that, they give ample pay boosts to subordinates which in turn raises their pay and it goes on over and over again…and unlike the private sector, these employees have healthcare benefits and more that make them significantly better off in their later years. Oddly, the federal government is not overpaid, it is state and local!

One reason they get away with this is that absent the federal level they represent a huge voting block…much as the labor unions of yore, who have become irrelevant, except for the GOP to politicize…generally wrongly.

Now if we go on an austerity budget as the Tea Party wants, more pressure and costs will fall on the state and local governments…this will cause more bankruptcies and eventually massive municipal bond defaults…something not seen since the 1930’s! This is especially true with its mislabeled, misundertood and mis-reprented ‘block grants,’ which do not allow for inflation. Is this the America you want to live in?

We are told that raising taxes on the top 1-2% will cause them to leave the country…let them…let them find out what it is like to live in another country. Most likely though, they have no intention of doing so…primarily because of uncertainty: is the government stable? Will THEY raise taxes? Certainly a return to Clinton era tax cuts will not affect their decision or willingness to invest…the top don’t invest…they collect dividends, they don’t create jobs…they don’t give a damn…except charity to the extent that it offsets their ‘ordinary income’ and leaves them with capital gains…a al Mitt Romney. Nothing wrong with this…it is using the system. But for Romney or anyone else to say that as th President they are going to change the Tax Code is a bald-faced lie…only Congress can do that and they are paid dearly to not change items that affect the wealthy or key industries…led by financial companies and defense.

So we are in a mess…we have the ‘faux’ fiscal cliff…a group of zealots who would rather see the economy in recession or worse…and a group which doesn’t have a particularly different view except espouses it to the lower classes. Good luck to us!

Have a prosperous day!

TB

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

Volume barely budged to 3.7B shares vs 3.64B from a recent low of 3.0B shares. NYSE shares executed without the aid of the ETN market also barely moved and remain at a weak 695M shares vs 693M vs 593M vs 600M vs 616M vs 759M. There have been just 21 700M+ days since 8/3. The high ytd was 9/21’s 1.8B shares. Since 6/29 just 18 sessions have surpassed 800M shares, mostly down days. The average since 8/1’s 1.03B is just 680M. The average for 2012 is just 761M shares and since 6/29 just 694M shares– WEAK!!! 130 of the last 174 sessions have been less than 800M shares (75%!). Since 2/29 there have been just 27 ‘average’ days (mostly down!), and just 22 have been above 900M – 764M is the 12 month ave and falling! Since 11/1/11 there have been just 18, 1B share days…14 in 2012! Since 2/6 there have been 80 sessions less than 700M shares. 246 of the last 269 sessions have been less than the 12 mo ave (91%)! Avoid!!!

Advance/Declines were sligjhtly negative: -1.1x vs +2.1x vs +1.2x vs +1.2x vs +1.1x on NYSE and -1.5x vs +2.5x vs +1.4x vs -1.1x vs 1:1 on Nasdaq. Breadth was mixed: NYSE: +1.4x vs +2.2x vs +1.2x vs +2.6x vs +1.2x on NYSE and -1.2x vs +3.6x vs +1.8x vs -1.3x vs +2.3x on Nasdaq. New 52 week highs rose were 209 vs 218 vs 144 vs 128 vs 116 (768 is cycle high, 28 low), while new lows were steady at 55 vs 55 vs 71 vs 60 vs 71 vs 78. The ratio remains positive: +3.9x vs +4x vs +2x vs +2.1x vs +1.6x. Recent high was +7x! The S&P VIX rose to 15.95 vs 15.57 vs 16.05 vs 15.90 vs 16.58.

Here are the results of last 5 sessions: Dow FLAT vs +0.1% vs +0.1% vs +0.6% vs +0.3%; Dow Transports -0.3% vs +0.1% vs +1.1% vs +0.2% vs -0.1%;Dow Utilities -0.1% vs +0.1% vs flat for a 2 days vs -0.3%; S&P 500 FLAT vs +0.7% vs flat vs +0.3% vs +0.3%; Nasdaq Composite -0.3% vs +1.5% vs +0.3% vs -0.4% vs +0.5%; Nasdaq 100 -0.3% vs +1.6% vs +0.3% vs -0.6% vs +0.7%; Russell 2000 -0.7% vs +1.6% vs +0.5% vs +0.1% vs +0.2%; NYSE Financials +0.4% vs +0.3% vs -0.2% vs +0.5% vs +0.2% (KBW Banks +0.4% vs +0.4% vs -0.1% vs +1.1% vs +0.3%; Nasdaq Banks -0.5% vs +1% vs +0.3% vs flat for 2 days; NYSE Brokers +0.4% vs -0.2% vs -1.1% vs +0.5% vs -0.2%.NYSE Financial Leaders: BAC +1% vs -0.6% vs -0.6% vs +1.7% vs -0.1%; C +1.4%; GE +1.3% vs +0.6%.

Global equities weaker, ex-Japan/Korea: FTSE -0.2% vs +0.3% vs +0.1% vs -0.1% vs -0.2%; CAC 40 -0.1% vs -0.1% vs +0.7% vs -0.3% vs -0.3%; DAX -0.3% vs +0.3% vs +0.6% vs -0.3% vs -0.3%;Nikkei UP 1.7%!!! vs +0.6% vs -0.1% vs +0.1% vs -0.2%; Hang Seng -0.3% vs +0.8% vs +0.2% vs +0.4% vs -0.3%; Korean KOSPI +4.4%!!! vs +0.6% vs +0.4% vs flat vs +0.4%;Indian Sensex -0.7% vs -0.2% vs -0.1% vs -0.1% vs -0.3%. U.S. stock futures up slightly, mid-range: DOW +11; SPX -0.20; NDQ +0.75

U.S. treasury bonds closed WEAK, off slightly again overnight: 10 yr 1.69% – record low of 1.40%; 30 yr 2.89% -1/16. Long TIP 0.29% vs 0.26%!!! – 0.22% record low!The 5 yr TIP yields –1.57%; 10 yr -.86%.T-Bills strong: 0.03% 1 month; 0.06% 3 months; 0.11% 6 months. Reverse Repo 0.29%. 3 mo. Libor 0.308%; 6 mo. 0.513%.  European problem sovereign 10 years, Germany-bench: 1.32% -1; Japan 0.72% +3; Italy 4.63% -1; Spain 5.34% +2; Greece 12.64% +13 vs 12.29% vs 12.88% vs 13.35% vs 13.92% vs 14.72% …on 9/20: 19.75% – first higher yield in six sessions; Portugal 7.17% -3; Ireland 4.54% -3.

 

Gold closed up $8.30 at $1717.90 with an intraday high of $1725 – midpoint between the 40-50 day but closed below both. Overnight is a different story as it is now $1696.90 OFF $21 from down $26 earlier in the session.Crude lost 13 cents closing at $86.77 and remains below the 40/50 day m/a’s. Still skidding along the bottom! Overnight it is $86.33 -.44. Gas prices fell below $3.00 yesterday – $2.99 in MN. First time in months!

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