3/19/13…ode to the bankers

From the Friars Club Encyclopedia of Jokes: “In matters of opinion, our adversaries are  insane.” – Mark Twain

Bloomberg Quote of the Day: “Feel the fear and do it anyway.” – Susan Jeffers


Bloomberg Top Stories:

*Housing Starts in U.S> rise as Building Permits at Highest Level Since ’08 – oh oh!!!

*Cyprus’s Passage of Deposit Tax Is in Doubt With No Euro Plan B in Sight

*Stocks in U.S. Gain on Housing Starts Data, Euro, Europe Shares Pare loss – egads!

*Siemens Said Planning to Cut Up to 1,400 Jobs to Increase Profitability

*Home Depot to Lowe’s Gain as Walls Fall For $40,000 Wine Cellars – unbelievable!

*Banks Needed $269 Billion More in Reserves to Meet Basel III Capital Rules – !!!

*U.S. Underwater Homeowners Regained Equity Last Quarter as Prices Rose

*Republicans Winning Congress as Democrats Get Most Votes Rooted in History

*Obama Lands in Israel Determined to Bridge Gap From Two-State Plan to Iran

*Ryan Says U.S. Congress Should Aim for ‘Down Payment’ on Deficit Reduction – ???


What kind of day was it? One that had a minor selloff but had more serious implications: while the Dow fell by 0.6%, along with Dow Utilities, the S&P 500, AND the Russell 2000 small cap, Dow Transports fell  by 0.3% as did the Nasdaq 100 (which would have been off at least 0.8% had Apple not had a major rally), while the Composite fell by 0.4%. NYSE Financials plunged 1.1% led by brokers with both bank indices close behind. Advance/declines and breadth were negative, new 52 week highs were halved, and saving the best for last, S&P Volatility (VIX) ‘gapped up’ huge on the open and traded in a range of 12.57-13.64 following two days at the lowest levels in nearly five years before closing at 13.36, highest since March 6th!

Bonds appreciated the stock market weakness on Cyprus (does this tell you anything when an ant can move a mountain?), and Gold traded to $1610, highest since Feb. 27th! Crude closed imperceptibly higher in a ‘wild session’ after plunging to $91.76. Whew!

Note that the FOMC has a one day meeting this week with results announced Thursday.

NYSE Volume plunged Monday following Friday’s options expiry  (as usual since the only two days where we have high volume are options expiry and possibly monthend). It was just 3.15B shares vs 4.93B shares (2013 high) vs 3.43B vs 3.03B vs 3.22B vs 2.98B vs 3.64B vs 3.62B vs 3.67B vs 3.57B vs 3.38B vs 3.76B vs 3.53B. Real NYSE volume also plunged to 676M shares from 1.825B shares (new 12-month high!!!) vs 676M vs 585M shares (lowest since 2/11’s 497M shares). Since 3/1 the range has been a weak 585M to743M shares. Ave 668M). The second and third highest of this year were 1/18’s 1.07B shares (expiry) and 2/28’s (monthend) 1.01B shares, beaten only by  12/21’s 12 mo. high of 1.88B shares). Note that Friday was the only day since 2/28 to register over 1B shares with no other sessions reaching anywhere near 800M, and occurred just once last week while the average volume since 2/15 is a weak 779M shares!!! Ave vol. 12 mos. 742M, ytd 727M. There have been just NINE 800+M shares in 2013.

  1. new 52 week highs which have ranged from 121-709, before falling to just 121, plunged to 282 vs 584 vs 652 vs 410 vs 413 vs 560 vs 630. New lows fell to 42 vs 64vs 50 vs 42 vs 36 vs 26 vs 24 vs 64 vs 73 vs 98.
  2. Advance/Declines were negative for a 2nd day at -1.5x vs -1.1x vs +2x vs +1.3x vs -1.4x on NYSE and -1.9x vs -1.3x vs +2.1x vs +1.3x vs -1.4x on Nasdaq. Breadth was worse at -2.6x! vs -1.1x vs +2.8x vs +1.2x vs -1.3x on NYSE and -2.3x! vs -2x vs +1.9x vs +1.1x vs 1.7x vs +2.1x on Nasdaq.
  3. The Dow’s losing streak is accelerating to 62 points from Friday’s 25 point loss -0.3%, while the SPX fell by 0.6%! There were no winners. The Nasdaq 100 lost 0.3% (Composite -0.4%) but with just 18 winners and 82 losers. Best performer was Apple which added 9.6 index points on talk of increasing the dividend…without it, the index which was off 7.1 points would have been -0.9%!
  4. NYSE Financials fell by 1.1%, and were the big loser at -1.1% spread evenly between brokers and banks. Compare to flat vs +0.9% vs +0.2% vs -0.7% vs +0.6%. NYSE Brokers -1.1% vs -0.2% vs flat vs +1.1%. BofA still most active – natch – -0.1% vs +3.8% vs +0.4% vs +1.4% vs -1.2% vs +0.7% vs +1.6% – the range is $11.11, on 12/17 to $12.57 on 3/15. Note: 11 cents is a 1% change!!!  Citi fell by 2.2%! JPM wasn’t a most active but fell and is now -3% in two sessions from its 12 month high!
  5. Lastly volatility (S&P VIX) was extremely volatile and surprisingly so following options expiry. It gapped up on the open (from a multi-year low!!!) by 2.2 points, HUGE!!! and still traded in a range of 12.57-13.64 before closing at 13.36 +2.06! That is a 15.6% increase!!! When something like this can occur because of a mouse like Cyprus one has to wonder. But recall the financial collapse began with Iceland, spread to Ireland, then to the Euro countries and the U.S. and ultimately to Greece…now Cyprus??? Is this really a good time to be bullish on stocks???

Global equity markets being trashed for a 2nd session, ex-Japan/Korea: UK flat vs -0.7% vs -0.6% +0.4% vs -0.8%; France -0.6% vs -1.3%! vs -0.9% vs +0.8% vs -0.4%; Germany -0.3% vs -1.1% vs -0.3% vs +1.1% vs -0.1%t; Japan UP 2%!!! vs -2.7%!!! vs +1.5% vs +1.2% vs -0.6%; Hang Seng -0.2% vs -2%!!! vs -0.4% vs -0.4% vs +0.3%; Kospi +0.5% vs -0.9% vs -0.8% vs +0.1% vs +0.3%; India -1.5%!!! vs -0.7% vs -0.7% vs +1.1% vs -1%. U.S. stock futures slightly higher after opening weak: DOW +18; SPX +2.70; NDQ +8.25.

Bonds were higher on Friday, Monday, and overnight and are now well below the recent rangest: 10 yr Treasury from 2.06% to 1.85% prior 19 sessions, now 1.94% +5/32, and the 30 yr’s 3.26% to 3.05%, now 3.17% +9/32. The long Tip is still barely moving at 0.62% +5/16 vs 0.63%, still near the high yield of 0.66%. Libor update: 0.242% 3 mos., 0.448% 6 mos. Foreign bond yields mixed for a 2nd day with problem countries higher, especially Greece: Germany 1.39% -1; UK 1.87% -2; Italy 4.64% +2; Spain 4.95% +2; Portugal 5.93% +1; Greece 11.21% vs 11.06% vs 10.58% +25 – 79 bp’s in TWO days!!!…still on Cypress bailout…it never ends!

Gold closed slightly higher for a third day, closing above $1600, for the first time since 2/28!!! It is still below resistance and way below the 1/17 high of $1699.90. It closed at $16.04.60 +$12.  2/21/13’s low was $1554.30 – not seen since May 2012! Last time it was below $1500 was Sept. 2011. Overnight it is slightly lower at $1602.80 -$1.80. Crucial to hold $1600 The total breakdown through the 40/50/200 day m/a’s, has major resistance $1625-1669, with major support at $1600, a double bottom from 8/14-15, also a psychological level. Crude had a wild ride yesterday first falling to $91.76 and placing the rally in jeopardy before bouncing and rising just 29 cents to $93.74. The recent low is $89.33, lowest since 12/26, set on March 4. Overnight however is ti $94.09 +.35 and approaching the converging 50 day ($94.39), and 40 day ($94.56)! It is now $94.09 +.35.


Some random thoughts:

TB’s uncle, filed a suit against the IRS over the sale of a residence/duplex that caused him to pay more taxes because of a change in the tax law which did not pass until later that year. It is taught in law schools today (U.S. v Darusmont). It went all the way to the U.S. Supreme Court who refused to allow it. Note that he won in two lower courts with the IRS appealing both. The reason is that ex post facto ONLY applies to criminal law, not the right of the government to tax retroactively. An example that was given was that the government could initiate a tax on bank deposits at the end of the year and make it retroactive to the full year! Interesting how the Cyprus situation plays into this.

The ‘forced’ deposit tax by the ECB in exchange for a loan – the alternative being that they would have shut down all the banks TODAY! – would probably be retroactive also, meaning those people taking out their money would still be taxed on it. 7-8% is the level!

In a way this is a blessing because it should deter any other nation from ever trying to do this as it would cause disintermediation and the resulting ‘run’ would shift assets to other nations…either those perceived as tax shelters like the Cayman Islands or  a flight to safety such as our ‘too big to fail’ banks who need it like a hole in the head but would gladly take it to gamble with…not make more loans!

Tracing back the beginnings of the financial crisis takes us home to the U.S. of A. where a housing boom and un unimaginable increase in ‘flippers’ drove prices to the moon, aided and abetted by realtors, lenders, and even appraisers who were also on the take.

However, without the ingenuity of the big banks and brokers (now banks or taken over by banks, or in the case of Lehman Brothers, bankrupt), it would not have been a big deal, but here is how it played out.

The ‘smart guys’ in New York and London came up with securitizing loans – not a new vehicle – but securitizing subprime mortgages and packaging them along with prime mortgages into pools that the rating agencies (using default rate histories going back to 1945 when only about 2% of mortgages were subprime), reviewed and approved – a subprime loan could be packaged in a pool and then IF rejected in a random sampling, be resubmitted again…and again…a total of THREE times. Any beginning student of statistics knows that it is unlikely the loan would be reviewed in the second and even less so in the third review! In other words it was all crap! Worse, in order to improve the quality of the pools some loan applications were ‘embellished’ by the lenders or in the ‘liar loans’ by the applicants themselves. These pools were then sold to unsuspecting (and usually dumb) investors.

The first one to appear was in Scandinavia where a small town was sold some of these – probably by an illiterate salesman. Then came the Icelandic banks, run not by bankers but by former, now rich, fisherman, who made the worst loans in the world…and got caught!

Then it spread to Ireland who had the only true economic boom but accompanied by a housing boom and again stupid bankers who made bad mortgage loans. Ultimately it spread to the rest of Europe and the U.S. creating the largest financial debacle in history. We are now in the wake of that boom/bust and the regulators remain under the control of the very bankers who caused it. They are now wealthy, still in their jobs if they choose to continue working, or enjoying the fruits of their labors while Main Street pays the bill.

To add insult to injury in 2010 the newly formed ‘tea party’ seized control of the GOP who had just wrested control from the ‘tax and spend’ (sic) Democrats. Aha! There is a crisis, and despite two rounds of tax cuts – temporary ones which the GOP intended all along to make permanent – two wars, not paid for, and robbing what was left of the Social Security trust funds, they preached that spending was a bad thing…and of all things that we don’t have a revenue problem…we have spending problem…one of their own making!

To put this in perspective, despite the greatest financial crisis in history which would have been fatal to all economies, the central banks led by the Bernanke Fed managed to save the world (unlike Time Magazines ‘committee to save the world triumvirate of Greespan, Rubin, and Summers who in fact created the environment for the crisis), while Congress sat on its fat ass and debated – heatedly – one another.

So what has happened over the past 30 years – since Reaganomics took hold? The wealth gap has exploded, real wages for all but the top 2% of workers has been STAGNANT or even negative adjusted for inflation, the perps got rich at shareholder expense and the publics, and still they want to cut back on social programs which are fully funded until 2034 (Social Security) and 2024 (Medicare). They are taking a meat cleaver to programs that can be ‘fixed’ ignoring the consequences of their actions.

How long are we, the American people, going to take it? Perhaps just until the next election while the GOP tries to convince the electorate that they are changing. That cannot happen as long as people like Sarah Palin and Michelle Bachman remain their spokesmen (despite the damage Bachman did by damning HPV virus, and claiming that from her role on the House Intelligence Committee (where Boehner lets her remain) she knows the State Department is infiltrated with Muslim terrorist sympathizers…the new ‘Tailgunner Joe’ McCarthy). This is a party without discipline…except to destroy any of their own who dare to not tow the entire party line. My party…my FORMER party! Sick!

Have a great day!



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