10/28/13…a former Fed Chairman, Nobel laureates, and an ideologue

Today’s Quote from the Friars Club Encyclopedia of Jokes: “According to the latest statistics, there are 11 million Americans who aren’t working. And there are plenty more if you count the ones with jobs.” – unattributed (On Friday night, TB saw Billy Crystal’s ‘400 Sundays’ – it is on the way to NYC…incredible story and amount of energy! TB

Bloomberg Quote of the Day: “In, Life, as in a football game, the principle to follow is: Hit the line hard.” – Theodore Roosevelt

Bloomberg Top Stories:

*Yen Slips on Bank of Japan as Europe Stocks Fall; U.S. Futures Erase Gains

*Small-Caps Doubling in Dow in 34-Year Signal That Economy Is Gaining Momentum-?

*Apple Quarterly Sales Seen Showing Mobile Shift Lifting Google to Facebook

*Toyota Beats GM, Volkswagen in Quarterly Sales as Abe Gives Boost to Japan

*Euro Jobless Default Line Festers as Italian Scourge Scars Region’s Economy

*Investor Shift to Hedge Funds Seen Courting Lame Returns – Hah!!!

*Marsh & McLennan Reaches Nine-Year High in Recovery From Spitzer-Era Clash

*Mizuho Punishes Officials fro Loans to Crime Groups as Bank Chairman Quits

*Dutch Copy Fannie Mae as Debt Backstop Brings BlackRock Warnings

*Man Making Ireland Tax Avoidance Hub for Silicon Valley Proves Local Hero

*Local Tax Fiefdoms Flourish in Obscurity Fueling Big Government in America

*Obamacare Insurance Exchange Websites Limited by Verizon Data Hub Failure

*Spying Probe Sought by Germany as Spain Protests U.S. Phone Eavesdropping

*Worst U.K. Storm in Five years Strands Commuters, Cuts Power to Thousands

*Five Die as Car Rams Into Crowd by Beijing’s Tiananmen Square, Injuring 38

*Keystone Pipeline Seen gaining Sunflowers to Schwinns on National Bikepath  

Labor market trends are now “muddling” (at best) with this week’s report bringing the 6-month average of non-farm payroll growth to 163k, modestly lower than the 12-month average of 185k.  Regional manufacturing activity surveys were mixed but overall suggest a slight increase is possible for ISM. Meanwhile, durable goods orders, wholesale inventories and construction spending rose while consumer sentiment and existing home sales fell. Inflation remains subdued. Next week’s economic calendar is packed with important indicators. The highlight of the week will be the September PPI and September Retail Sales (Tuesday), September CPI (Wednesday) and ISM Manufacturing Survey (Friday). We will also get September Industrial Production and October Dallas Fed Manufacturing (Monday), August Case-Shiller, October Consumer Confidence, and October Business Inventories (Tuesday), October ADP Employment (Wednesday), October ISM Chicago Survey (Thursday), and October Motor Vehicle Sales (Friday). In addition, the Federal Reserve FOMC will be meeting on October 29th – 30th with an announcement on the 30th. Courtesy of Economic Advisory Service

Friday’s Market Summary:

Stocks had another modest rally, BUT led by Dow Utilities +1%!?! Meanwhile the ‘hot’ Dow Transports lost 0.2% vs +0.9% while the Russell 2000 small cap slipped 0.1% vs +0.7%.Dow, S&P 500 and the two Nasdaq indices all up 0.4%. NOTE that there have been only minor moves since a week ago Friday’s gains of over 1% across the board!

Total NYSE Volume dropped to a weak 3.11B shares vs 3.63B. REAL NYSE Volume rose dropped sharply to a below average 670M shares vs 716M vs 709M shares vs 753M – a far cry from the prior Friday’s 892M shares – highest since 9/28’s 2.06B share day on quarterend with that big Dow member change.

The Nasdaq 100 gained another 0.5% climbing 21.5 points and along with Thuusday’s 0.5% gain, more than eradicated Wednesday’s 22 points loss. Five members gained more than 1 point while three lost more than a point: MSFT +14.9!!!; AMZN +12.7!!! vs +2.1 vs -2.3 vs +2.5 vs -1 vs +7.4; INTC +2; QCOM/ALXN +1.5; AAPL -4.7 vs +5.7 vs +3.8 vs -1.2 vs +10 vs +3.5; GOOG -2.5 vs -1.4 vs +6.3; ESRX -2.1. Note the first two were more than the total point gain!!!

Advance/Declines and Breadth were mixed and modest. New 52 week highs rose again to 500 vs 476 two days after being cut by more than half to 298, while new lows barely budged to 34 vs 29 vs 35 vs 36 vs 33 vs 40 – weak! VIX rose declined slightly, closing at 13.11 -.09. This since hitting 21.34 on 10/9 – close to the 12/28 high of 22.72 and 6/24 high of 21.91.

Bonds closed slightly weaker again. Commodities were weaker but only slightly  Gold rallied to a new recent high of $1356.40 (higher high, higher low) – highest print since 9/30 and closed +$2.20, making the 50/40 day majors support. Crude rose slightly but remains weak, closing at $97.85 +.74.

Dow 30 +0.4% vs 0.6% vs -0.3% vs +0.5% vs -0.1%; Dow Transports -0.2% vs +0.9% vs +0.6% vs +0.8% vs +0.4%; Russell 2000 -0.1% vs +0.7% vs -0.4% vs +0.3% vs -0.2%; Dow Utilities +1%!!! vs -0.1% vs +0.3% vs +1.4%!!! vs -0.1%; S&P 500 +0.4% vs +0.3% vs -0.4% vs +0.6% vs flat; Nasdaq Composite +0.4% vs +0.6% vs -0.6% vs +0.2% vs +0.2%; NDQ 100 +0.5% vs +0.5% vs -0.7% vs +0.2% vs +0.2%.

*NYSE Volume plunged to 3.11B shares vs 3.63B vs 3.64B vs 3.8B vs  3.05B vs 3.64B. The record high (?) is 4.82B shares on Q3 end of quarter while 2.52B is 4th weakest of 20131.96B is the low). REAL NYSE Volume also plunged to a weak 670M shares vs 716M shares vs709M vs 753M vs 678M from a strong 892M shares!!! (2.06B shares also on Sept. expiry was 3rd highest ever (6/30/06 3.38B; 7/12/02 2.29B while 482M on 7/3 in a shortened trading session is the 2013 low). The 12-month average is 723M shares. The average since 6/28’s 1.75B share day, is just 694M shares, ranging from 482M to 2.025B shares on 9/20. There have been just EIGHT 1B+ share sessions! There have been 34 800M+ shares in 2013: 14 up, 18 down, and two mixed.

*New 52 week highs have ranged from 33-864. They rose again to 500 vs 476 after falling to a weak 298 from a strong 745 vs 746 from a super-strong 890!!! New lows rose slightly to a still weak 34 vs 29 vs 35 vs 36 vs 33 vs 40..  

  1. Advance/Declines were lminor and mixed: +1.4x vs +1.4x vs -1.2x vs +2.7x vs -1.1x (recent range -17.5x to +6x) on NYSE and -1.1x vs +1.6x vs-1.4x vs +1.2x vs -1.1x (recent -4x!!! to +3.8x). Breadth was similar: +1.5x vs +1.4x vs -1.9x vs +2.1x vs -1.4x (recent -18.6x!!! to +7.2x!!!) on NYSE and -1.2x vs +1.2x vs -3.4x vs -1.1x vs +1.1x (recent -12.8x to +6.5x).  
  2. NYSE Financials rose a modest 0.2% vs +0.4% vs -1%! vs +0.4% vs +0.6%. BofA most active +0.6% vs -0.3% vs -2.1%!!! vs +0.1% vs -0.9%, closing at $14.26 +.09. It has struggled since hitting $15.03 on 8/1 – highest since Jan. 14 and major res. Brokers +0.4% vs +0.6% vs -0.6% vs +0.2% vs -0.5%; KBW Banks +0.3% vs flat vs -0.7% vs -0.5% vs -0.1%; Nasdaq Banks +0.1% vs +0.4% vs +0.1% vs +0.1% vs flat.
  3. Volatility (S&P VIX) declined slightly for a second day following three days of modest increases to 13..11 -.09. The recent range is now 11.83-21.01!!! It peaked at 22.79 on 12/28/12. It is now well BELOW the 40 day (15.28), the 50 day (15.31) and the 200 day (14.39)…ytd the range is 11.05 (3/14) to 21.92 (6/24)!

European stocks weaker, Asia better, ex-India, led by Japan (reverse of Friday!): UK -0.1% vs +0.1% vs +0.5% vs -0.3%; France -0.7% vs flat vs +0.1% vs -0.7%; Germany -0.2% vs +0.2% vs +0.5% vs -0.2%; Japan +2.2% vs -2.8%!!! vs +0.4% vs -2%!; Hang Seng +0.5% vs -0.6% vs -0.7% vs -1.4%; Korea +0.7% vs -0.6% vs +0.5% vs -1%; India -0.6% vs -0.2% vs -0.2% vs -0.5%. U.S. equity futures were higher most of the session but now weakening: DOW -5; SPX -0.60; NDQ +3.50.

Bonds closed lower again. Slightly weaker overnight: 10 yr Treasury 2.52% +1/16 (recent range 2.99% to 1.63%!!!), and the 30 yr range 2.67% to 3.90%, 3.61% -1/8. The long TIP is 1.28% +1/8. The (record?) low of 0.36% was set on 4/5. Recent high yield: 1.63%! Libor update: 0.236% 3 mos, 0.354% 6 mos. (another low).  Both at record lows!!! Banks cautious and loaded with cash!!! Foreign bonds mostly lower: Germany 1.76% +1; UK 2.61% -1; France 2.25% -1; Italy 4.21 -1; Spain 4.10% -5; Portugal 6.07% -3; Greece 8.35% -1. Recent range: 8.04%-12.57%. Japan 0.61% +1.

Gold closed slightly higher after putting in a slightly higher high since 9/30 and the 50/40 day m/a’s are now major support, closing at $1352.50 +$2.20 This after putting in a low of $1251 on 10/15 – lowest since 7/10. Recent high was $1375.40 on 9/19.  6/27’s intraday low was $1179.40 – lowest since at least 2011 and critical support. $1300 remains psychological support, major support at the 50 day ($1343) and the 40 day ($1331). Major resistance at $1375, the 9/19 high. The 200 day is at $1439. Overnight it is slightly lower at $1351.30 -$1.20.

Crude closed up slightly but remains weak. Thursday’s low of $95.95 – was lowest since 6/27!  It has shown no sign of strength since 9/18’s surge to $108.49 – since then it is off 9.9%!!! – closing at $97.85 +.74. 9/19’s session high was $108.99! Recent rally high and close are $110.70 and $110.53 respectively. It is way below the 40/50 day m/a’s ($103.89-104.47), crossed, starting to plunge, and major resistance! The 200 day ($98.66) is major resistance. 4/18’s low of $85.61 was lowest since 12/11! The recent range is $85.61-$112.24 since March 1, 2012. Overnight is little changed at $97.66 -.19.

Some random thoughts:

Following in the footsteps of luminaries (sic) like Robert MacNamara, Sandy Weill, and Angelo Mozillo, who all admitted mistakes but said what could I do, Sir Alan of Greenspan has written a book and says the financial crisis was in no way his fault…all that happened was he didn’t see the signs? Didn’t see the signs??? When waiters are buying multiple homes on spec? Read Up and Down Wall Street in this weeks Barron’s for a good chuckle.

So look at this chronology: we have Greenspan, the longest serving Fed Chairman following Paul Volcker and Arthur Burns, replaced by Ben Bernanke – who conducted the study on how the Fed caused or at least exacerbated the Great Depression – and thus vowed to not let it happen again on his watch, namely maintaining a tight policy and in fact raising reserve requirements! So he did all he could…single-handedly while Congress succumbed to Wall Street’s will and money, but now all he can accomplish, since jobs are not truly being created, is to inflate assets and thus cause the ‘wealth gap’ to widen. Now he is going out and it will be up to Janet Yellen…or will it?

Not if Rand Paul has his ideological way. No, he wants to block her nomination in order to push through changes in the Fed’s autonomy. Imagine, the only U.S. institution that tried to do something and Congress wants to control it too??? Didn’t the GOP learn that blackmail doesn’t work? Write him and tell him to get off this dangerous path: http://www.paul.senate.gov. Better still…Call him at 202-224-4343! Thanks to David Kotak of Cumberland Advisors for pointing this lunatic out.

Oh and another good one: how could the Nobel Prize Committee select two economist at opposite ends of the spectrum to share an award? Dunno, but the did it by choosing rational markets theorist Eugene Fama (I thought that 2008 put that to bed???), AND Robert Schiller for his work on ‘irrational behavior’? One has to wonder, but note that Fama and others preaching efficient markets have indoctrinated thousands of CFA’s into believing the markets are efficient! What fools!

Meanwhile, ignoring theory and instead studying facts, Schiller accurately called two bubbles…how come the Fed Chairman who he met with couldn’t see it? TB recalls a debate sponsored by CNBC with Schiller, David Lareah, (who said this in 2006: “The steady improvement in [home] sales will support price appreciation…[despite] all the wild projections by academics, Wall Street analysts, and others in the media.”), a mortgage banker, and a trader.

Schiller began by clearly stating his reasons that there was a real estate bubble to which Lareah pounced, along with the others. Schiller never took the bait but sat quietly with a slight smile while they ripped him to shreds. How did he do that? Because he had been there before when he predicted the 2000 stock market bubble and crash! He was confident but to a novice he looked like a fool. Who cares…he was right! He even had lunch with Greenspan to discuss his theory but sadly the king of ‘puts’ ignored his sage advice and we, the people, had to pay for his glaring error.

Incidentally, Lareah made himself famous and became famous…enough to become the economist for the National Association of Realtors and the Mortgage Bankers Association…what a joke! Remember that it was Economist Irving Fischer who decreed stocks had reached a permanently high plateau in 1929, just weeks before the crash. He and Lord Keynes both took advantage of the decline to buy, the latter options, and both died poor. That is at least putting your money where your mouth is…even if wrong!

To sum up, markets are efficient – most of the time, but when they get out of what…i.e. irrational…they no longer are and panic ensues as Kindleberger taught us…why didn’t we learn from him.

TB

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