From The Friars Club Encyclopedia of Jokes: “Love is like an hourglass with the heart filling up as the brain empties.” – Jules Renard – is that what is meant by brain drain?
Bloomberg Quotes of the Day: “Know how to live the time that is given you.” – Dario Fo
Bloomberg Top Stories:
*Morgan Stanley Earnings Top Analyst’s Estimates on Jump in …TRADING REVENUE!
*Jobless Claims in U.S. Drop to Two-Month Low as Auto-Shutdown Effects Ebb
*Dell $24.4 Billion Buyout Plan Becomes Nail-Biter on Eve of Investor Vote
*Investment Banker’s Pay at Morgan Stanley Reduced to 43% of Unit’s Revenue – think about that…43% of the department’s revenue goes to them…with no RISK to traders???
*Celgene Stops Trial for Expanded Use of Revlimid Cancer Drug After Deaths – !!!
*BlackRock’s Second-Quarter Profit Rises 32% as Stock Markets Lift Assets
*Draghi to Carney Face Test Backing Guidance on Rates With Monetary Action
*Russia Seeks Own Brand of Easing as G-20 Finance Chiefs Talk Stimulus Exit
*Misfit Borrowers Attract Lenders as U.S. Housing Market Revives – but rates rising???
*Schaeuble Suggests Greek Debt Relief Possible After Deficit Target Reached
*Senate Said to Reach Student-Loan Deal to End Doubling of Interest Rates
*Putin Foe Navalny Sentenced to Five-Years in Prison on Evee of Moscow G-20
*South Africans Mark Nelson Mandela’s 95th Birthday With Charity Campaign
*Federal Reserve Succession Is Clouded by Sexism: Commentary by Ezra Klein – so appoint Larry Summers, a proven sexist and control freak! That’s the ticket!
It was a very strange day with Dow Transports climbing 0.8%, Dow Utilities falling by 0.2% – the only loser, the Dow up just 0.1%, and the rest up from 0.3%-0.5%. In case you forgot about options expiry this Friday the VIX continued its decline falling another .64 to 13.78…on June 24th it peaked at 21.91, not only bearish but highest since 12/28/12, before closing at a new 2013 high of 21.11, and has fallen by 33% since – bullish stance making put protection CHEAP again (the recent low is13.56 on 5/28, 11.95 on 3/14 was a five year low – on 5/15/08 it bottomed out at 16.25! before surging to an all-time record of 89.53 on 10/24/08!!! Guess we have forgotten the 2008 crash…and then some! The record low is 8.89 on 12/31/93 as we began to rebuild from the dotcom bust!
Yesterday’s Volume barely budged to 3.15B shares from 3.05B vs 2.6B vs 2.97B shares from an average 3.43B shares a week ago. Meanwhile, floor-traded shares rose minimally to a very weak 3.16B shares vs 3.05B vs 562M (lowest since 7/3!) vs 681M vs 742M. The 12-month average is 722M shares. Strangely A/D’s and Breadth were very positive?
…and away we go:
* Dow 30 +0.1% vs -0.2% vs +0.1% vs FLAT vs +1.1%; Dow Transports +0.8% vs -0.7% vs +0.5% vs -0.6% vs +1.2%; Russell 2000 +0.4% vs -0.4% vs +0.7% vs +0.5% vs +1.3%; Dow Utilities -0.2% vs -0.5% vs +1.6%!!! vs +0.4%!!! vs +1.7%!!!; S&P 500 +0.3% vs -0.4% vs +0.1% vs +0.3% vs +1.4%; Nasdaq Composite +0.3% vs -0.3% vs +0.2% vs +0.6% vs +1.6%; NDQ 100 +0.3% vs -0.1% vs FLAT vs +0.6% vs +2%!!!
*NYSE Volume rose slightly to a still below average 3.15B shares vs 3.05B vs 2.6B vs 2.97B vs 3.43B vs 2.99B (1.96B is the lowest of 2013). REAL NYSE Volume rose slightly to another weak 666M (Hex?) shares vs 617M shares vs 562M shares (lowest since 7/3) vs 681M vs 752M. The 12-month average is 722M shares! The average since 6/30 is just 673M shares, ranging from 482M to 906M, 482M being the 2013 low! There have been just SEVEN 1B+ share sessions! There have been 27 800M+ shares in 2013: 10 up, 17 down, but on trades of less than that 89 have been up and 32 down…there have been 26 mixed sessions.
*New 52 week highs have ranged from 33-864. They slipped to 448 vs 456 from 687! vs 574 vs 484 vs 451 vs 606 vs 669. New lows also slipped to 30 vs 37 vs 40 vs 32 vs 29 (a new recent low!).
- Advance/Declines were positive: +1.9x! vs -1.8x! vs +1.6x vs +1.1x vs +6.6x! (recent range -17.5x to +4.4x) on NYSE and +1.5x vs -1.2x vs +1.9x vs +1.2x vs +2.5x (recent -3.5x to +3x). Breadth was similar: +2x! vs -1.6x vs +1.8x vs +1.3x vs +6.9x!!! (recent -18.6x!!! to +6.9x!!!) on NYSE and +1.8x vs -1.3x vs +1.7x vs +1.6x vs +4.8x!!! (recent -12.8x to +6.2x)
- NYSE Financials rose by 0.5% vs -0.3% vs +0.5% vs +0.3% vs +1.5%. BofA was most active: +2.8%!?! vs +0.4% vs +0.7% vs +1.9%??? vs +1.1% vs -1.2% vs +1.9%. It closed at $14.31 +.39 with a new two year high of $14.44! Brokers +0.2% vs -1.2%!; KBW Banks +0.6% vs -0.8%; Nasdaq Banks +0.4% vs -0.5%. Last 3 days: BAC +3.8% w/12 mo high of $14.44 on earnings…due to ML not banking activities! JPM +0.5%; WFC +2.1% (NH); USB -2.4% BUT from NH; GS +0.9%; MS +1.6%; UBS +2.3%…can this last? Doubtful IMHO!
- Volatility (S&P VIX) declined breaking 14 to 13.78 -.64 – on 6/20 it peaked at 20.49, plunged to 18.90 on June options expiry then closed at 20.11 on 6/24 and has been down since – a decline of 33%! 6/24’s session high of 21.91 was highest since 12/31/12 (22.72)!!! The range since April ‘12 is 11.99 (multi year low) to 21.9, It is well below the 40/50 day (15.95/15.32) and the 200 day (15.04)!!!…ytd the range is 11.05 (3/14) to 21.92 (6/24)!
Global equities slightly higher – Korea strong!: UK flat vs flat vs +0.4% vs +0.3% vs +0.6%; France +0.3% vs -0.6% vs +0.4% vs +0.2% vs +0.9%; Germany +0.2% vs -0.3% vs +0.2% vs +0.9% vs +1.1%!; Japan +0.1% vs +0.6% vs closed vs +0.2% vs +0.4%; Hang Seng +0.2% vs flat vs +0.1% vs -0.8% vs +2.6% vs +1.1%; Korea UP 1.1%! vs -0.5% vs +0.3% vs -0.4% vs +2.9%!!! vs -0.3%; India +0.5% vs -0.9% vs +0.4% vs +1.4%!!! vs +2%. U.S. equity futures little changed in another extremely narrow trading range: DOW -2; SPX +0.60; NDQ +5.
Bonds closed higher Wednesday and are little chantged overnight: 10 yr Treasury 2.49% +1/32 (recent range 2.74% to 1.63%!!!), and the 30 yr range of 2.82% to 3.71%, currently 3.58% -1/32. The long TIP is 1.29% -3/8 – still the weakest link since the (record?) low of 0.36% on 4/5. Recent high 1.53%! Libor update: 0.266% 3 mos, 0.398%!!! 6 mos – dropping again! 6 month is almost at the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields sharply LOWER led by Portugal and Greece: Germany 1.51% -3; UK 2.25% -4; France 2.17% -2, Italy 4.45% -4; Spain 4.65% -7; Portugal 6.81% -19; Greece 9.93%!!! -13 vs 10.07%vs 10.02% -16!!! vs 10.27% -19!!! vs 10.33% -25!!! vs 10.69% vs 10.85% +28!!! vs 10.52% vs 10.54% +40!!! vs 10.85% -37!!! vs 11.22%. Recent range: 8.04% to 12.57%. Japan 0.80% -1. Note daily changes on Greece!!!
Gold closed weaker at $1278.80 -$13.20 after putting in a new rally high of $1301.70 – highest since 6/24 – BUT it had a NEGATIVE key reversal (higher high, $1301.70, lower low and close below prior session low!). 6/27’s intraday low was $1179.40 – lowest since at least 2011 and now critical support. $1300 is again resistance, then the 40 day/50 day: $1329/1348 – both declining again, and way above, the 200 day – $1576!!! Overnight it is $1282.30 +$3.50. Crude closed at $106.48 +.48. It remains well above the 40/50 day m/a’s (97.84/97.40), while the 200 day ($92.90), is distant support. First support is $104.21-36 – a triple bottom from last week. 4/18’s low of $85.61 was lowest since 12/11! It is slightly higher overnight at $106.60 +.12. The range is $85.61-$107.45 since March 1, 2012.
Some random thoughts:
Yesterday TB commented on an exclusive Bloomberg article on Glass-Steagall. It is now available on the web: Remember why Glass-Steagall was passed
Today’s commentary is an open letter to TB’s (and hopefully your) senators and representative:
It is disturbing to have to bring this to your attention but despite the greatest financial crisis in the history of the world, you, the Congress, as well as the Obama administration have failed miserably to find a way to protect the American people from it ever happening again. Not only that, you or your predecessors failed to listen to the few warnings against the repeal of the Glass-Steagall Act by trusting Treasury Secretary Robert Rubin, Asst. Secretary Robert Rubin, and Federal Reserve Chairman Alan Greenspan. Of course, you had reason to believe them, but if you listen to Bill Moyers interview with former Citigroup CEO John Reid, you will realize that this was all for fulfilling one man’s dream – Sandy Weill, Chairman of Citigroup – of creating a ‘financial supermarket.’ Note that while Greenspan gained nothing from this, in fact it sullied his reputation, both Summers, and especially Rubin benefitted financially from it.
Weill has now stated that the financial supermarket was a good idea but is no longer. It was good because it served his interests of combining Traveler’s Insurance and Citigroup, it did nothing for the American people, or ultimately, Citigroup investors.
Then SEC Chairman, William Donaldson, had a plan to keep the big five banks in line (the repeal and subsequent legislation deregulated the top five banks). He planned ‘random audits’ of them which would have been about five years apart. That was thwarted by former GOP Representative Chris Cox, who did not conduct one of those audits in his five year term, among other things like not protecting against ‘naked shorts’ which added dramatically to the decline of bank/broker stocks and facilitated the demise of Lehman Brothers, a company that should have been bailed out due to their vast global exposure to bonds. If so, management should have been replaced as it should have been for the other offenders, but was instead done both sparingly and not forced by the government that provided the bailout protection (which by the way, was grossly misused to inflate profits and thus bonuses, with the blessing of then-Treasury Secretary and former Goldman Sach Chairman Henry Paulson, who by the way let his brother’s firm Lehman Brothers fail while bailing out Bear Stearns, Merrill Lynch, and Wachovia Bank).
‘Too Big to Fail’ was created by President Reagan in the collapse of Continental Illinois in 1984 over the objections of his Treasury Secretary and former Merrill Lynch Chairman, Donald Regan. It produced moral hazard and since Continental was the 8th largest U.S. financial institution, the implied guarantee of the top eight banks. This caused two things: first global inflows of funds, and second, funds flowing to these banks from smaller U.S. banks. This was clearly wrong, yet nothing was done and despite another banking crisis and savings and loan crisis, it was allowed to stand.
This combined with the 1999 repeal of Glass-Steagall was what created the crisis. I have heard and read of mortgage brokers being threatened by the big brokers that they would go elsewhere to buy mortgages if they didn’t produce more…and worse, lower quality ones to both meet demand and to keep the rates higher. Many of the mortgage companies like Countrywide, paid commissions to brokers that incented them to steer borrowers who could have qualified for conforming loans, in particular minorities, to subprime loans which were variable and as time went on the terms became more extortive.
We often hear ‘everyone was to blame’ – but were they? The realtors too were incented by rising prices, and in many cases told the appraiser what they need to get – threatening them with taking their business to others who would produce the desired result…even banks did this. Worse, they altered financials to make the borrower qualify or get a higher credit score. I know of one instance where Citi inflated a salary from $60,000 to $160,000! This was common practice…and why not? The bank would sell the bank to an underwriter immediately with no more and often less than two months recourse.
That is what created the crisis…because anyone can apply for a loan of $1 million and not be able to make the payments and that is not a crime, but if the lender gives it to them without doing due diligence, that is or should be a crime.
Despite the above, had former CFTC Chairman Brooksley Born, been granted her request to regulate derivatives there still would not have been a crisis. Why? Because trading derivatives that had to conform to standards on a commodities exchange would have eliminated the profit motivation. By not conforming each derivative, which often exceeded three hundred pages, was not only not read, but could not be traded except by going back to the broker who created it. Instead, Born was publicly ridiculed by….Rubin, Summers, and Greenspan!…for doing her job! Who caused the crisis? You decide.
Also, despite the ‘gift’ given to the banks and despite paying them off they are still receiving benefits attributed to it. The big banks, led by JPMorganChase have fought every attempt at financial reform including watering down Dodd-Frank and the Volcker Rule. This insures that we will have another financial crisis and this time we might not be savable.
Look at the number of civil suits the banks have lost over securities dealings with state and local governments. Still, no one has gone to jail…not by the SEC which is pre-occupied with insider trading…poor Martha Stewart…and those record fines? Who pays them? The already punished shareholders while CEO compensation continues to climb.
Meanwhile, the SEC has only fined Angelo Mozilo of Countrywide, $67.5 million, a fraction of the money he made while selling his holdings while telling the public everything was fine. It was a record fine…but without admitting guilt and an agreement to not file criminal charges. The Holder Justice Department has also failed to prosecute anyone on the basis that despite whistleblower memo’s etc, they don’t have enough evidence to convict…whatever happened to the ‘perp’ walk? Again, they point to colleting record fines but the wrongdoer is not fined…only the company…and many of them remain in their jobs. Why did we bother to pass Sabanes-Oxley? It has never been used…not once!
Meanwhile, Grover Norquist has continued to lever his control over Congress due to a ridiculous pledge of no new taxes signed by most of the Republican party. That includes allowing hedge fund operators to become billionaires through the ‘carried interest’ loophole which taxes them at between 15 and 20%. This is unconscionable and along with CEO compensation has contributed greatly to the wealth gap which is dangerously high and growing.
Much of this has been allowed to happen because of a small percentage of Congressmen who see any tax as wrong and have effectively shut down government thereby reducing growth the requiring the Fed to subject us to ‘systemic risk’ (in the words of the Fed’s own advisory committee!), by buying up mortgages…note that the banks create them often collecting an origination fee, then sell most of them to FNMA/FHLMC while retaining the 0.5% servicing fee (on a 4% mortgage?), and they are in turn sold to the Fed which is not only increasing risk but inflating asset prices – both stocks and real estate – since the Fed cannot allow us to slip into deflation. Thus the Fed is the lender of last resort and the only one, rightly or wrongly, that is protecting us while our elected officials stand idly by.
I have been in the financial business for 42 years, ten of those in banking of which I was proud of…then. But even then I said, “banking laws are of the bankers, by the bankers, and for the bankers.” Today that is more true than ever
In closing, please do something for the American people once, not your campaigns.
Have a great day….but do something positive to help yourself and America!