2/4/13…it’s the Dow, stupid!

TB’s Song of the Day:

 I’m gonna take two weeks,

gonna have a fine vacation

I’m gonna take my problem

to the United Nations

Well I called my congressman

and he said quote:

“I’d like to help you son

but you’re too young to vote”

Sometimes I wonder

what I’m a gonna do

But there ain’t no cure

for the summertime blues

-Summertime Blues by Eddie Cochran, 1958…a very good year…and it sums up the attitude of those we elected and sent to Congress!

From the Friars Club Encyclopedia of Jokes: “Juries scare me. I don’t want to putt my fate in the hands of twelve people who aren’t even smart enough to get out of jury duty.” – Monica Piper

TB’s Quote of the Day: “In his case,” wrote Ike of Republican Senate Majority Leader, William Knowland (CA), “there seems to be no final answer to the question, ‘How stupid can you get? Could be applied to so many on Capitol Hill today. That from Eisenhower!

Bloomberg Quote of the Day: “Formal education will make you a lviing; self-education will make you a fortune .” – Jim Rohn

Bloomberg Top Stories:

*Stocks Slide With U.S. Futures While Euro Weakens, Spanish Bonds Decline – up and down, up and down…where is the trend? S&P breaks out, fails; Dow breaks out – ?

*Too Big Too Fail Proves Too Hard to Solve Amid Calls to Break Up U.S. Banks –without the support of the banks they will destroy us again…and shareholders…to enrich overpaid executives in what is not a complicated business…just needs common sense!

*Europe’s Tremors Threaten Market Respite on Spain-Italy Political Troubles

*Stocks Pace by Portugal Show No Loss of Better World to Come as in 2012 – hyped!!!

*Cameron EU Demands Risk U.K. Becoming Island of Hedge Funds in Market View – !!!

*Biggest Japan Pension Fund Says It Owns Too Many Bonds If Abe Policies Succeed – if

*Swiss Property in UBS Bank Zone May Provoke Tougher Bank Rules

*Youngest Woman Billionaire Unwrapped with In-N-Out Burger Chain – the future is in?

*Iran Welcomes Biden’s Offer of Direct Talks With U.S. Over Nuclear Program

*Skeleton Found Buried in U.K. Parking Lot Identified as King Richard III

*Former RBS Chief CDO Trader Sues for Unfair Firing at Tribunal in London – hah!!!

Total NYSE Volume tied Thursday’s 3.9B shares as the highest in nine sessions (while floor volume on the NYSE fell sharply from 933M to just 757M – think about that! On an up session!)…but with the Dow closing above 14,009 for the first time ever with all indices up vs Thursday when all the major indices were all down (except Dow Transports +0.4% – but fell 1.6% Wednesday and the Russell 2000 +0.6% vs -1.2%). The gains were about 1% +/-, across the board  The S&P closed also closed at 1513, a new high but after holding there for three straight sessions, ranging from 1498-1508 – unimpressive given all the hype of taking out 15k! and had traded in a 7-11 point range each day. Advance/Declines and Breadth were solidly positive at 2.6x to 3.9x. The VIX PLUNGED with the worry over payrolls removed diving from 14.28 to 12.90 – a big move but as TB had expected. What does this tell us about the future…nothing… absolutely nothing as the open suggests..

European stocks very weak (see headline), Asia Mixed: UK -1.3%; France -1.7%; Germany -1.6%.,Japan +0.6%, Hang Seng, Kospi, India all -0.2%, U.S. stock futures tanked and since opening are: DOW -98; SPX –8; NDQ -14! All still falling!!!

Bonds initially rallied along with stocks on Friday then plummeted. Today on stock market weakness they are rallying again but weak with the 10 yr Treasury at 1.99% vs 1.94% +1/4 and the 30 yr at 3.19% vs 3.14% +9/16. The long Tip is 0.54% vs 0.50% +5/8. Foreign bond yields mixed: Germany 1.64% -4; Japan 0.80% +4; Australia 3.59% +7; Italy 4.45% -13!; Spain 5.39% +21!!!; Portugal 6.30% +24; Greece 10.67% +20. . .

Gold rallied a bit remaining below the 40 and 50 day and closed on the 200 day m/a. $1670.60 +$8.60. The $1636 low on 12/21 – lowest since 8/21 is critical support!  It is weak this morning again at $1663.30 -$7.30. Crude had slight gains but remains lackluster but at solid levels rising just 28 cents to $97.77. Wednesday’s $1.13 gain with a high of $98.92 not seen since 9/17. Overnight it is $96.19 -$1.56!!!

…TB did a lot of reading over the weekend which provided some good ideas for columns, including a conversation on government with a friend and former colleague,  but due to time constraints will pre-empt them with an analysis of how the markets are really performing. First from last Monday’s column on the S&P 500:

Let’s look at the long-term performance of the S&P 500, due to the preference for the Spyder S&P 500 Index ETF (SPY), the largest and most actively traded ETF. Long-term as in since the high on 9/1/00 (1530) and the slightly higher record high on 10/11/07 of 1576. Kind of makes you wonder what kind of fool gloats over 1503 doesn’t it? Of course it could be the start of something big…or not!

9/1/00- 12/31/12: -0.6%…or +1.9% annualized with dividends reinvested in the index!

10/11/07-12-31-12: -1.3% +0.9%

(Caveat: the index is not the same as it was in 2000 or 2007 as they swap out losers and replace with winners…like Apple. It is doubtful you adjust your portfolio that much.)

Sadly, S&P doesn’t much care for transparency so the changes in membership and weightings are difficult to obtain, particularly upsetting with Apple a member. Both of these indices are market cap weighted (to reduce the impact of Apple, they halved its weighting but the subsequent rally offset it). On the other hand, the Dow, which is also cap weighted (and doesn’t include Apple), is totally transparent. Thus TB’s interest as it closed at a record high Friday of 14,009. But how has it really done?

First, recall that it was rather boring during tech/dotcom boom, which didn’t save it from the bust in 2000 however. The high for the Dow 30 in that rally was 11,750 on 1/14/00!

The high on 10/11/07 was 14,118, a gain of 72% from the 1/14/00 high (but just 4.3% annualized!). From their it plunged to 6,470 on 3/6/09 (the bottom for the crisis), a decline of 40%, 34% annualized!

From 1/14/00 to 2/1/13 it is up 63% but just 3.9% annualized…you won’t retire on that! The gain from the 3/6/09 low though is impressive: +90.7%, +18.8% annualized…but:

Here are the changes in the Dow going back to 11/1/99…they are startling:

4/18/04 (first change): AT&T, Eastman Kodak, International Paper out…all losers, replaced with AIG, Pfizer, and Verizon…hmmm the high flyers outing the dogs.

2/19/08: Altria (MO), and Honeywell out…also losers, replaced by BofA and Chevron – do you see a pattern here, one which makes returns irrelevant to a buy and hold investor?

9/22/08: now it gets interesting as just 4-1/2 years after adding AIG, it was removed and replaced by Kraft Foods!

6/8/09: Citibank replaced by Travelers (both Sandy Weill controlled companies!) and GM was removed, replaced by Cisco (tech)

9/14/12: the last revision with United Healthcare replacing Kraft.

Since its inception in 1896, there have been 49 changes in the composition, an extraordinarily high percentage since 2004. Worse, is the addition and removal of Kraft and AIG, while Travelers Insurance replaced Citibank. GIGO: garbage in garbage out?

Today, due to Euro concerns (aren’t they always there? We just play off them on both good and bad news), the Dow is now off 116 to 13894, and the S&P 11 to 1501. Yet where are all the cheerleaders of CNBC who eagerly championed both when they broke out? Beats TB! Every major index is off today by about 1%…some rally!

Yet, we are told to keep buying stocks no matter what, at whatever level…there are no expensive stocks…ever. That isn’t how Barron’s Roundtable of astute investors, plus Abby Joseph Cohen saw it this time…as bearish as TB has seen them since the crash.

But there is one good point for those of you who hate paying taxes: IF you are buying for your IRA or 401(k) at least the government is losing along with you and you didn’t have to pay tax on it in the first place…that spells winner…sort of?

Perhaps today’s song should have been What Kind of Fool Am I? What’s in your wallet.

Well the brothers Harbaugh put on quite a show – not the greatest football but exciting (TB and most over 25 were probably non-plussed with the half-time extravaganza, but the power outage in half the Dome was something new). It wasn’t pretty but in the end little brother John’s Ravens bested big brighter Jim’s Niners. The difference likely being an experienced QB vs a rookie who suffered badly in the first half while the Ravens failed to stop them…till near the end. The final score of 31-29 was right on the spread, thanks to Flacco taking a safety to run out the clock and prevent the Niners from getting the ball for one play…bet the oddsmakers loved it…hey, let’s start a rumor! Not!!!

Hope you all have a great week!

TB

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

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1 Comment »

  1. traderbill said

    Good catch and I am sorry…did a mea culpa in yesterday’s column, but missed the point about the punter, not Flacco. Thanks for reading and commenting! TB

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