2/6/13…Standard does Poorly

From the Friars Club Encyclopedia of Jokes: Just as the prisoner was being strapped into the electric chair, the priest said, “Son, is there anything I can do for you?” The prisoner said, “Yeah, when they pull the switch, hold my hand.” – Dick Gregory

TB’s Quote of the Day: ”You think New York is bad? You ought to go to Detroit. You can go ten blocks and never leave the scene of the crime.”  – Red Skelton.

Bloomberg Quote of the Day: “Success is a lousy teacher. It seduces smart people into thinking they can’t loose.”  – Bill Gates…so are golden parachutes to lousy CEO’s!

Bloomberg Top Stories:

*RBS Fined $612 Million in Libor Case; Compensation Clawbacks to Be Sought – Concept! Why didn’t the U.S. do this instead of letting shareholders foot the bill???

*S&P Lawsuit Undermined by SEC Rules That Discourage Competition in Ratings – thanks to government requirement for  investment grade require ratings by Moody’s/S&P

*Euro Weakens Before ECB Meeting as Stocks, Oil Decline, Treasuries Advance – yawn!

*Europe Yield Backup Signaling Complacency No Way for EU to Overcome Crisis – that goes for the U.S. too…in spades!!! Wake up!

*Buffett Market Losses on Moody’s Stake Seen at @292 Million With S&P Suit – Berkshire is Moody’s largest shareholder! He cut back but still owns 13% of company!

*German Factory Orders Gain in Signal Euro-Area Economy Recovering

*Greening Chicago Demolishing Urban Idea of Frank Lloyd Wright

*EU to Discuss Adding Hezbollah to Terror List After Attack on Tour Bus

*Obama Planning First Trip to Israel as U.S. President With Iran on Agenda

*Berlusconi Narrows Front-Runner Bersani’s Lead to Within Margin of Error

Total NYSE Volume rose slightly to 3.59B shares from 3.37B following the two day tie at 3.9B shares, highest in nine sessions, as stocks recouped more than half their prior days losses with the S&P yo-yoing for three days near the post 2007 highs (while floor volume on the NYSE rose slightly to a still weak 702M shares vs 694M vs 757M vs 933M)…as S&P closed above 1500 again closing at 1511, near the 1514 high set Friday, but the Dow closed below 14k at 13979 led by the NDQ 100 +1.5% vs -1.8%, Composite +1.3% vs -1.5% and Russell 2000 +1% vs -1.3%, while the Dow gained 0.7% vs  0.9%(Apple a major factor again adding 13 points contributing to the NDQ 100’s 39 point gain). NYSE Financials gained 0.9% vs -1.4% with BofA most active +3.5% vs -2%. Advance/Declines and Breadth were positive at +2.6x vs -3.5x vs +2.6x and +3.2x on NYSE and +6.9x!!! on Nasdaq vs an average -5x vs +3.9x. The VIX which plunged on Friday by 1.38 to 12.90 then reversed itself climbing 14.67, highest since Jan.2, but fell by .95 to a still high 13.72 What does this tell us about the future…nothing… absolutely nothing…except, don’t be complacent! Ever!

European stocks weak, while Asia is quiet ex-Japan: UK -0.2% vs +0.7% vs -1.3%; France -1.7% vs +1.2% vs -1.7%; Germany -1.4% vs +0.4% vs -1.6%. Japan +3.8%!!! vs -1.9% vs +0.6%, Hang Seng +0.5% vs -2.3% vs -0.2%, Kospi -0.1% vs -0.8% vs -0.2%, India -0.1% vs -0.5% vs -0.2%, U.S. stock futures traded lower and market is opening weak: DOW -66; SPX -6; NDQ -12. Rock and roll!

Bonds closed weaker yesterday but are higher this morning with the 10 yr Treasury at 1.98% vs 2.01% +3/16 and the 30 yr at 3.19% vs 3.22% +1/4. The long Tip is 0.54% vs 0.54% stable. Foreign bond yields mixed: Germany 1.62% -3; Japan 0.77% -2; Australia 3.52% +3; Italy 4.53% +9; Spain 5.38% +4; Portugal 6.35% +8; Greece 10.60% -7.

Gold slightly weaker and remains below the 40 and 50 day closing at $1673.50 -$2.90. The $1636 low on 12/21 – lowest since 8/21 is critical support!  It is up slighthly this morning at $1675.90 +$2.40 with the  40 day and 50 day still res at $1677-1687. Crude rose slightly closing at $96.64 +.47 on an inside day following Monday’s $95.89 – a 5 day low. Overnight it is $95.44 -$1.20!

…how do capitalist companies make stupid errors when they have it all? Not only did Moody’s and S&P have a government sanctioned franchise (SEC) on providing ratings to qualify for investment grade (Fitch was added more recently) that goes back over fifty years, but municipal bond insurers like MBIA who also had a license to steal in a business insuring muni bonds against default (not only are the defaults minimal, they subjected them to tests which if they qualified meant the insurance wasn’t necessary, and IF a bond defaulted all they had to do was pay principal and interest on the defaults, not on the entire issue – unlike full payouts which occurred in the 30’s), wanted to get higher earnings so they invested in mortgage-backed securities which defaulted…what idiots! But hey, the bonuses were good and so was the bottom line.

But S&P is a special case…remember they are paid by the issuer, not the investor so the incentive is to do what it takes to get the business. First, they used subprime default rates from 1945…until after 2000, these comprised just 2% of total mortgages, plus there were no liar loans. Garbage in, garbage out. Then they compounded the ‘felony’ by letting the Wall Street firms that were paying for the ratings provide the default measures!

Ah, but it gets better…first, the pools were ‘analyzed’ by the rating agencies – randomly. IF a loan was rejected from the pool the issuer was allowed to resubmit a loan twice more!!! Think about this…if they looked at 10% of the loans, it is highly likely that a bad loan would not be re-inspected (0.1 x 0.1 x 0.1 = 0.001%), unconscionable!!! But they were being paid to do this. Now it gets worse: later, they were rating mortgages where the collateral had not even been determined (CDO squared, CDO cubed), and didn’t even have good geographic distribution which is critical…since prior to the crisis there had never been a decline in the entire real estate market since records were kept starting in 1945. But they used default rate formulas provided by the very Wall Street firms paying for the ratings which inflated the ratings…as we were to later find out.

TB fully expects, due to the identical (?) ratings provided by Moody’s and Fitch to see more suits (as was done in the foreclosure and mortgage fraud suits which were applied to all the major banks)…but where are the criminal prosecutions? The reason TB is so worked up over this is what he saw on PBS last night. First, they had the Illinois AG who when asked about why more people weren’t prosecuted. She said that they were collecting record fines at both state and federal levels…obviously she knows nothing about investing because the perps don’t pay (where are the clawbacks???), only the shareholders who have already been made to suffer. This is positively sick.

Sicker still is Floyd Abrams, the attorney for S&P (owned by McGraw-Hill), who when confronted by the emails (one from an employee who wrote: I hope we are all out of here before this house of cards collapses). Not only did Abrams shrug this off as a ‘disgruntled employee’ (disgruntled…no someone who was collecting bonuses…much like in the dotcom bust!!!), and added, “when there are 1 million emails and 999,000 prove nothing, how can you rely on a few disgruntled employees? It proves nothing.”  God help us!

So there you have it and yet a large number of those earning more than $1 million a year are recipients of the largesse of fools who bought their investment products…and what did it cost them? Not even their pride! Such egos! Yet they complain about their taxes?

Have a great day! Illegitimi non carborundum (Don’t let the B——S grind you down!)

TB

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

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