7/30/13…J.P. or J-me?

From The Friars Club Encyclopedia of Jokes: “Definition of a power struggle: when your boss has the power and you have the struggle.” – unattributed

Bloomberg Quotes of the Day: “A smile is a curve that sets everything straight.” – Phyllis Diller…and a frown can send someone ’around the bend’. TB

Bloomberg Top Stories:

*Barclay’s Seeks $8.9B From Shareholders to Help Plug Hole in Capital – good luck!  

*Deutsche Bank Profit Unexpectedly Falls on Higher Reserves for Legal Costs    

*S&P 500 Futures Pare Gain as Aussie Weakens; Metals Lead Commodities Lower

*Uralkali Ends Potash Cartel to Grab Market Share as Fertilizer Price Drops

*UBS Plans to Buy Back Toxic-Asset Fund From Central Bank as Profit Jumps

*JPMorgan Accused of Gaming U.S. Energy Markets as FERC’s Settlement Looms

*Merck & Co. Second-Quarter Profit Beats Estimates as Revenue Falls Short – oh oh!

*Lloyds Said to Lose About 12 Financial Markets Posts in Cost-Cutting Drive

*Ex-UBS Banker Adoboli Loses Bid to Appeal Unauthorized Trading Conviction

*Lebanese Hit Back at Undercutting Syrians as Conflict Spills Into Economy

*Sheikh Tamim Financing Revolution Abroad Not as Easy as Qatar Stock Picks

*Obama to Urge Business Tax-Code Overhaul to Help Spur U.S. Job Creation – sure!

*Al-Qaeda Supporters Hold U.S. Contracts in Afghanistan, Inspector Reports   

*Berlusconi Faces Moment of Truth With Top Court’s Final Ruling on Tax Case

*Kenya Forms Security Unit to Guard Oil Assets in Strife-Hit Northern Area

*Nixon Jokes With ‘Dirty Tricks’ Men as Candid White House Video Revealed – sick!

Yesterday was a down day for everything but Dow Utilities which rose 0.3% vs +0.6%!

Worst performer was Dow Transports -1.1% vs +0.5% followed by the Russell 2000 -0.8% vs -0.6% and NYSE Financials -0.7% vs -0.3%. The Dow declined by 0.2%; S&P 500 -0.4% along with the Nasdaq Composite while the 100 slipped just 0.2%

More on the NDQ 100 which continues to confuse and befuddle.– compare to the leaders of the prior five sessions: the 100 slipped by 7 points vs -14.6 vs +20 vs +10 points vs -24 vs +10 vs -33 – BUT with 3:1 DECLINING vs 1.5:1 declining vs 2:1 advancing vs 7:3 declining vs 3:1 declining vs 2:1 advancing  Leaders rotated yet again: there were only FOUR movers of 1 point or more: AMZN -2.4 vs +3.1 vs +1.8; BIIB -1.5 vs -1 ; AAPL +5.7 vs +1.9 vs -1.8 vs +18 vs -6.1 vs +1.1 vs -5.6; FB +2.2. Recent movers but not yesterday MSFT +1.1 vs -4.2 vs +1 vs -1.4 vs +4.6 vs -30!!! vs -3.2; CELG +1.1 vs +1.7.

The VIX trading range shifted higher nearly hitting 14: 13.33-13.86, finally settling in at 13.39 +.67…caution!…Monday’s 11.99 low was lowest since 5/17 – is the euphoria over? The market is very vulnerable to earnings reports which continue to come in mixed. We remain in the summer doldrums…and that is not good for trend followers. A/D’s were both negative, while Breadth had NYSE stocks at +2.8x positive? Nasdaq 1.6x negative?. Both new 52 week highs and lows were lower.

…here’s the book:

* Dow 30 -0.2% vs +0.5% vs +0.1% vs -0.1% vs +0.3%; Dow Transports -1.1%!!! vs +0.5% vs -0.1% vs –1% vs -0.8%; Russell 2000 -0.8% vs -0.6% vs +1% vs -0.1% vs flat; Dow Utilities +0.3% vs 0.6% vs +0.4% vs +0.2% vs +0.3%; S&P 500 -0.4% vs +0.1% vs +0.3% vs -0.2% vs flat; Nasdaq Composite -0.4% vs +0.2% vs +0.7% vs -0.6% vs -0.4%; NDQ 100 -0.2% vs +0.5% vs +0.7% vs -0.8% vs -0.5%.

*NYSE Volume tweaked higher to 2.82B shares from a very weak 2.74B vs 3.31B vs 3.07B vs 2.42B (3rd weakest of 2013…1.96B is the lowest of 2013). REAL NYSE Volume slipped to a very weak 579M shares vs 596M vs 677M vs 670M vs 608M (562M is lowest since 7/3). The 12-month average is 716M shares and declining! The average since 6/30 is just 669M shares, ranging from 482M to 906M, 482M being the 2013 low! There have been just SEVEN 1B+ share sessions! There have been 28 800M+ shares in 2013: 10 up, 17 down, and one mixed, but on trades of less than that 91 have been up and 34 down …there have been 29 mixed sessions.

*New 52 week highs have ranged from 33-864. They slipped to 209 vs 262 vs 410 vs 569 vs 545 vs 630. New lows also slipped to 76 vs 87 vs 180 vs 60 vs 45 – 27 is the low.  

  1. Advance/Declines were negative: -2.2x vs -1.1x vs +1.3x vs +1.3x vs +1.5x (recent range -17.5x to +4.4x) on NYSE and -2.2x vs -1.6x vs +2x vs -1.2x vs -1.1x (recent -3.5x to +3x). Breadth was mixed: +2.8x? vs -1.1x vs +1.5x vs +1.4x vs +1.6x (recent -18.6x!!! to +6.9x!!!) on NYSE and -1.6x vs -1.4x vs +2.6x vs -1.7x vs -1.3x (recent -12.8x to +6.2x)  
  2. NYSE Financials declined again by 0.7% vs -0.3% vs +0.4% vs -0.1% vs flat. BofA was most active again slipping  to $14.71 -.23 three days after hitting $15.03, highest since Jan. 14 and now major res: -1.5%!!! vs -0.7% vs +0.8% vs -1.6%! vs -0.1% vs +1.2%. Brokers -0.9% vs -0.8% vs +0.7% vs flat; KBW Banks -0.9% vs -0.7% vs -0.2% vs flat vs +0.1%; Nasdaq Banks -1%! vs -0.5% vs -0.3% vs +0.3% vs +0.3%.  
  3. Volatility (S&P VIX) rose to 13.39 +.67 with a range of 13.38-13.86!  On 7/23 it declined to 12.07, lowest since April 12th! VIX peaked at 20.49, plunged to 18.90 on June options expiry then closed at 20.11 on 6/24 and has been down below 14 since! 6/24’s session high of 21.91 was highest since 12/31/12 (22.72)!!! The range since April ‘12 is 11.05 (multi-year low o n 3/14/13) to 21.9. It is well below the 40/50 day (15.65/15.34) and the 200 day (14.95)!!!…ytd the range is 11.05 (3/14) to 21.92 (6/24)!

Global stocks higher…even Japan – but not India!!! UK +0.3% vs +0.3% vs -0.3% vs -0.8% vs +0.9%; France +0.5% vs +0.3% vs +0.4% vs -0.8% vs +1.3%; Germany +0.4% vs +0.3% vs +0.5% vs -0.9% vs +1.2%; Japan +1.5%! vs -3.3%!!! vs -3%!!! vs -1.1%! vs -0.3%; Hang Seng +0.5% vs -0.5% vs +0.3% vs -0.3% vs +0.2% vs +2.3%!!!; Korea +0.9% vs -0.6% vs +0.1% vs -0.1% vs +0.4% vs +1.3%!; India DOWN 1.3%!!! vs -0.8% vs -0.3% vs -1.4% vs -1%. U.S. equity futures slightly higher in another tight trading range…look at last four sessions: DOW +29 vs -25 vs -57 vs -61; SPX +4 vs -3.20 vs -6.50 vs -7.30; NDQ +10.50 vs -5.50 vs -4.75 vs -2

Bonds closed weaker – along with stocks? – but are slightly higher overnight: 10 yr Treasury 2.59% +1/8 (recent range 2.74% to 1.63%!!!), and the 30 yr range of 2.82% to 3.71%, currently 3.66% +1/4. The long TIP is 1.37% +3/8. The (record?) low of 0.36% was set on 4/5. Recent high 1.53%! Libor update: 0.265% 3 mos, 0.397% 6 mos. Both remain near the Jan. 2010 record lows (0.245% and 0.382% respectively). Foreign bond yields mixed again and little changed: Germany 1.67% +1; UK 2.31% -1; France 2.26% -1, Italy 4.39% -6; Spain 4.64% -3; Portugal 6.29% -1; Greece 9.79% +1 vs 9.81% vs 9.81% -10 vs 9.91% vs 10.02% +19 vs 9.81% vs 9.95% +17 vs 9.86% vs -13 vs 9.93% 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 0.79% flat.

Gold closed higher as it see-saws but remains well above the critical $1300 closing at $1329.60 +$7.70. Last Tuesday’s session high was $1349.20 – highest since 6/20! 6/27’s intraday low was $1179.40 – lowest since at least 2011 and now critical support. $1300 remains psychological support, and it remains between the 40 day $1314 and the 50 day $1329 – both still falling. lt is way below, the 200 day – $1557!!! Overnight it is lower at $1325.50 -$4.10. Crude closed little changed at $104.55 -.15 – with a session low of $103.56!!! The rally that began on 7/12 has been neutralized. It remains well above the 40/50 day m/a’s (100.28/99.13), both starting to rise. The 200 day ($93.52) is distant support. First support is $104.21-36 – a triple bottom from 7/10-7/12….it has now traded below it for three straight sessions. 4/18’s low of $85.61 was lowest since 12/11! It is lower again at $104.00 -.55 – with a new low of 103.56!!! The range is $85.61-$109.32 since March 1, 2012.

Some random thoughts:

Is there a similarity between J.P. Morgan – the man…sneaky but also bailed out the U.S., and Jamie Dimon? Both loved making a buck and would allow things to ‘happen’ under their command…but Dimon has now set a continuous track record of having his subordinates involved in shady dealings…being investigated, fined…but they remain at the ‘bank’. What does this tell you about the message of management? MAKE MONEY!

The latest is an Enron-type fleecing of energy prices…recall that brought on Sarbanes-Oxley which in 13 years (unlucky?) has not seen ONE CEO prosecuted! They have the shield of ‘I didn’t know’ to hide from…but explain why these ‘bad acting’ underlings remain in their positions?

TB brought to your attention the case of American Century v. JPMorganChase, which the bank lost and tried – unsuccessfully – to have the record sealed. It revolved around the sale of American Century client accounts to JPMorgan …here is the full account  as reported by the Kansas City Business Journal (note that Staley not only remained with the bank but was promoted):

American Century Investments quietly won a $373 million judgment last year against a subsidiary of JPMorgan Chase & Co., according to court records reviewed by the Kansas City Business Journal.

An arbitration panel ruled in August that JPMorgan, which held a minority stake in American Century, broke a revenue agreement with the Kansas City-based asset management firm in an attempt to weigh down its value, making it a cheaper acquisition target.

A Jackson County judge upheld the award in December over JPMorgan’s objections. JPMorgan paid a lump sum of $384 million, including interest, later that month, said Randy Hendricks of Rouse Hendricks German May PC, which represented American Century.

“It represents an important event for a Kansas City company to prevail in what resulted in the largest verdict in the state of Missouri, against a Wall Street powerhouse,” Hendricks said.

Judge Jim Kanatzar unsealed key documents in the matter March 21 after the Business Journal had requested and received part of the case file from a court clerk. Time Inc. also had filed a motion to unseal the case.

American Century filed a lawsuit under seal in Jackson County Circuit Court in Kansas City in April 2009, alleging that JPMorgan had violated a 2003 agreement to market certain American Century investment funds.

That suit was partially settled in July 2009. In exchange for dropping tort claims that carried punitive damages, American Century received an undisclosed payment and the option to sell JPMorgan’s stake, according to the arbitration decision.

The companies submitted the remaining breach of contract claims to private arbitration. Six weeks of hearings took place in February and March 2011 in the basement of the InterContinental Kansas City at the Plaza, with almost 50 witnesses testifying.

In July, American Century exercised its option, triggering the sale of JPMorgan’s remaining 41 percent stake to Canadian bank CIBC for $848 million.

The arbitrators issued their decision Aug. 10, finding that JPMorgan had largely ignored its 2003 agreement to pitch certain American Century funds to customers.

The agreement was part of JPMorgan’s purchase of Retirement Plan Services, a company American Century had created to service 401(k) plans for large companies. RPS had been a joint venture between the two companies since JPMorgan bought its original 45 percent stake in American Century for $900 million in 1998.

But instead of marketing American Century funds as it took sole control of RPS, arbitrators said JPMorgan pushed its own funds, rewarded its salespeople for favoring JPMorgan products and urged customers to swap American Century funds for competing ones from JPMorgan. That “stacked the deck” against American Century, the decision stated.

American Century CEO Jonathan Thomas said during the arbitration hearing that Jes Staley, now JPMorgan’s head of investment banking, “flat-out admitted what they were doing” in a conversation with him in 2008, according to the arbitration decision.

In addition, lawyer Hendricks said, some of the JPMorgan funds stopped paying interest. JPMorgan misrepresented the risk profile of the funds, which he said contained mortgage-backed securities.

According to the arbitrators, Staley “misunderstood” the 2003 agreement he helped negotiate with American Century when he led asset management for the New York giant. He mistakenly told other executives JPMorgan could not be liable for any more than $80 million in damages if it flouted the contract, according to exchanges cited in the decision.

The arbitrators awarded $207 million for contract breaches related to various funds and an additional $166 million in damages for overpayment of service fees by American Century.

The ruling depicts a troubled relationship between the two companies and paints a particularly unflattering picture of JPMorgan.

JPMorgan had long wanted to take over the entire company, the decision said, but its valuation of American Century’s products was far below the Kansas City firm’s calculation.

JPMorgan officials started discussing ways to gain the upper hand on American Century just a month after signing the 2003 agreement, according to the ruling.

The decision quotes a 2004 email from one JPMorgan executive to another: “Jes’ objective is to be able to consolidate (American Century) with (JPMorgan) and for us to control their distribution, especially their third-party and institutional channels. … We’d like to explore options for gaining control at a minimum price.”

A key focus was edging American Century out of its low-risk stable value fund business, the arbitrators said. Originally, American Century took clients with less than $50 million to manage, and JPMorgan handled bigger customers. But as JPMorgan increased its retail presence — including its acquisitions of Chase Bank and Bank One — it increasingly dipped below that dividing line.

Another key category was age-based, or target-date, funds — investments that are structured to carry less risk as the investor reaches retirement. JPMorgan conceded in a post-hearing arbitration brief that it had breached the agreement with respect to those funds.

While he was head of asset management for JPMorgan, arbitrators noted that Staley also had a fiduciary duty to American Century as a member of its board of directors.

New York-based Cahill Gordon & Reindel LLP argued the arbitration hearings for JPMorgan. Shook Hardy & Bacon LLP represented JPMorgan in its attempt to vacate the award.

“Since the arbitrators found in favor of American Century, JPMorgan’s point of view and arguments are not represented in the decision and award document,” a JPMorgan spokeswoman said in a written statement. “The parties agreed at the onset to resolve this matter privately through arbitration. At this time we do not feel it is appropriate or necessary to reopen these arguments in a public forum.”

Note that this case was not disclosed prior to the shareholders meeting and Dimon received a $30 million bonus, Staley – along with Ina Drew of London Whale fame – $15 million each (Drew subsequently voluntarily returned her bonus). Again TB asks: what kind of message is Dimon sending to his management team? Make money…I don’t care how you do it???

Have a wonderful day…you too, Jamie!

TB

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