Quote of the Day from the Friars Club Encyclopedia of Jokes: “Money really isn’t everything. If it was, what would we buy with it?” – Tom Wilson…who cares? To the uber wealthy it is merely a counter…yet they bitch at those who are the have-nots. TB
Bloomberg Quote of the Day: “Be yourself. The world worships the original.” – Ingrid Bergman…in other words: be a ‘oner’!
Bloomberg Top Stories:
*Orders for U.S. Durable Goods Unexpectedly Slump the Most in FIVE Months – !!!
*S&P 500 Index Futures Pare Gains on U.S. Data as Treasuries Erase Decline – NOT!
*Home Prices in 20 U.S. Cities Rise Most in Eight Years, Case-Schiller Says – now if only wages rose accordingly we would have an economy! …and perhaps inflation!
*San Francisco Income Gap Takes Unwelcome Spotlight From Wall Street – !!!
*Apple Lineup Reaching Sales Ceiling Puts Pressure on Cook for New Devices
*Yellen Faces Task Bernanke, Greenspan Couldn’t Do: Deflate Bubbles Safely
*Bonds Set for Best Start to Year Since 2008 Amid Developing-Nation Turmoil-and yen!
*Jefferies Discloses $25 Million Settlement in Mortgage-Bond Trading Probe-that’s all?
*Singapore’s DBS, United Overseas Restrict Staff Electronic Communications – !!!
*Netflix Subscriber Growth Lowers Cost of More Expansion- but cashflow per too low!
*Druckenmiller Lawyer Takes on Hedge Funds over Unfair Investor Arguments – hero!!!
*Argentina’s Lying Prices Show Shortcomings of Attempts to Control Capital
*Obama Uses Executive Authority to Impose $10.10 Minimum Wage for Contracts – J
*Ukraine Premier Azarov Offers to Quit as Lawmakers Revoke Anti-Rally Laws
*Deep South Set for Rare Winter Storm as Frigid Front Sweeps Through U.S. – Wow!
*Obama’s Go-Alone Strategy Falls Short on Agenda From Taxes to Immigration – L
*University Endowments Gain 11.7% as Investment Returns Rebound on Markets – the operative word here is ‘rebound’ not GAIN!
*Ex-UBS Banker Quits Zurich Desk Job to Pursue Horse Racing Venture Dream
Monday’s Market Summary:
A ‘dead gerbil’ bounce…not even the ‘dead cat’ bounce TB imagined. After losing 290 points on Friday…and well over 300 at the low, the Dow could only regain 64 – and that was at the session high, closing down another 41! Meanwhile, the S&P 500 which lost 38 points only backtracked by FIVE and closed down another near 9 points. Dow Transports which had looked so good at the start of the year and lost an incredible 311 points Friday (4.1%!), gained back about 10% of those, and then plunged another 60 points on an ‘inside’ session – the low being just 2 points above Friday’s low. Special honors to the two Nasdaq’s which lost 91 and 73 respectively on Friday another 45 and 32 yesterday barely getting a ‘green’ print at the open! So where do we stand ytd? Dow -4.5%!!!; Dow Transports -2.7%; S&P 500 -3.6%; Composite -2.2%; NDQ 100 -2.3%; Russell 2000 -3.5%; Oh, and NYSE Financials -4.2%! A bright spot? Lowly Dow Utilities UP 0.5%! Subsectors NDQ Biotech and REITS both up: 5.1% and 1.2% respectively. How about Oil? -5.1%! Oil Services -5.6%! Here’s a laugh: Philly Gold and Silver: +6.5%!!!
This has the makings of a really tough year with the Yen rallying right out of the gate and Emerging Markets CRUSHED? HAL: Nothing can go wrong!…go wrong…go wrong…
NOTE that all major indices ‘crashed’ through both the 40 and 50 day m/a’s!
Good news in all this? Options expiry is behind us. Bad news? Watch out for Feb!
All 20 Transports were down on Friday…improvement? Just 17 down yesterday led by FDX -14 and JBH -8.5. It’s too early to ruin your year….keep hands in pockets!
Within Financials, Brokers fell 2.1%! vs 2.5%; KBW Banks -0.7% vs -2.6%, and Nasdaq Banks -1.1%! vs -1.5%. BofA was most active falling 0.9% vs 2.4% to the lowest since 1/2/14 and in freefall since hitting $17.42, the highest level since 6/30/10!; Citi made it to the most actives – in a bad way, falling 1.1% vs -2.4%; JPM, after the ‘faux’ board gave Jamie a $20 million kiss for losing shareholders $20 billion, was unched surprisingly after plunging 2.4% on Friday…shareholders meeting could be fun, no? ‘splain it, Jamie!!! The much-loved (sic) GS lost 1.8% vs -1.8%; MS -1.4% vs -3.3%; UBS -0.6% vs -2.6%! But to show you how it pays to be honest, the ‘clean’ WFC was up 0.1% after losing 2.9%. With dividends so low, except 2.6% for Wells and JPM (so Jamie can earn on his new restricted stock, can you give TB a good reason to buy a bank? …and if the Fed ever wakes up and stops paying them 0.25% on their excess reserves they will have to either sell Fed Funds at 0.07% or quell horror…make loans!!! (Note that all of the major banks except UBS (faux bank) had record highs with the last week! Oh, and they led the decline by several months as they peaked in 2007 while the rest took until 2008! That decline began on the first day of trading in 2008…fyi.
Note that yesterday morning the stock market open mixed and little changed – except the Dow which quickly went to down 60…oh and Dow Transports which rallied all session!
TB contends there has never been a week (albeit holiday shortened, like this one), where the Dow had a mind of its own and yesterday imparted its mind on the others indices…except the aforementioned Transports which took ‘honors’ by gaining 0.3%! There no other ‘winners’ with the Dow the goat falling 1.1% (176 points…at the low down 213 points!), and the S&P 500 and Russell 2000 not far behind at -0.9%! The two Nasdaqs were off 0.5-0.6%, and the lowly Dow Utilities had just a 0.2% loss! Income producers and bonds were the winners…along with GOLD!!! You had also better be concerned with the pounding as NYSE Financials not only plunged 1.4% but each sector was trashed: Brokers -1.4%; KBW Banks -1.6%, and even NDQ Banks -1.2%!!!
Apple and Microsoft continue to disagree: biggest loser on the NDQ 100 was MSFT at -5.8 index points! The ONLY winner? APPL +3.5…you pick ‘em.
NYSE Volume slipped but to a still very strong 3.99B shares (TB is tired of saying the big volume comes on down days…so he won’t comment) from the near- record 4.64B shares! REAL NYSE Volume also declined but to a still strong 780M shares vs 919M!!! – very strong and highest since 12/20’s 1B+ share day! The 12-month average is a weak 721M shares. Since 12/20’s options expiry with 1.968B shares the average has been just 669M shares. Advance/Declines and Breadth were solidly negative again. Volatility exploded by 31.7%!!! on Friday to 18.14 (gapped up on the open then closed at the high!)…yesterday it surged to 18.99 following the open then down to 16.85 before settling in at a still bearish 17.42 -.72.
Dow 30 -0.3% vs -2%!!! vs -1.1!% vs -0.3% vs -0.3%; Dow Transports -0.8% vs -4.1%!!! vs +0.3% vs +1.4%! vs +0.6%; Russell 2000 -1.4%! vs -2.4%!!! vs -0.9% vs +0.5% vs +0.6%; Dow Utilities UP 0.2% vs -1% vs –0.2% vs +0.1% vs +1.1%!!! S&P 500 -0.5% vs -2.1% vs -0.9% vs +0.1% vs +0.3%; Nasdaq Composite -1.1%! vs -2.2%!!! vs -0.6% vs +0.4% vs +0.7%; NDQ 100 -0.9%! vs -2%!!! vs -0.5% vs +0.3% vs -0.6%.
*NYSE Volume slipped to a still very high 3.99B shares from Friday’s HUGE 4.64B vs 3.98B vs 3.37B vs 3.75B vs 3.65B. 2014 low is 2.76B. The record high (?) is the 4.97B shares of 12/20/13 and Q3 end of quarter while 11/29’s 1.59B is weakest of 2013). REAL NYSE Volume also declined to a still strong 780M shares vs 919M vs 771M vs last Friday’s 893M (first time above 800M since 12/20), all were major DOWN SESSIONS. Now above 700M eight times since 12/20! The 12-month low is 272M on 12/24. The average since 12/20 is up climbing rapidly to 669M shares, still weak, vs 643M. The 12 month is still 721M shares. Last year there were just TEN 1B+ share sessions! There have been 41 800M+ shares since 12/31/12: 18 up, 21 down, three mixed.
*New 52 week highs have ranged from 33-864. They slid again to 74 vs 81 vs 211 vs 440 vs 498 vs 373 vs 419 vs 515 vs 281. Another new recent low eclipsing 201! Recent high is a super-strong 890!!! New lows rose again to 148 vs 110 vs 62 vs 46 vs 37 vs 40 vs 42 vs 37 vs 36 vs 50. Recent high is 353; low 20!!!
Advance/Declineswere very negative for a 3rd session: -2.8x vs -6.3x! vs -2x vs +1.8x vs +1.9x (recent range -17.5x to +6x) on NYSE and -3.4x vs -4.6x vs -2.2x vs +1.4x vs +1.6x (recent low -4.6x!!! to +3.8x). Breadth was similar: -2.5x vs -13x!!! vs -3.2x vs +1.4x vs +1.4x (recent -18.6x!!! to +7.2x!!!) on NYSE and -3.9x vs -4.6x!!! vs -2.3x vs +1.7x vs +1.7x vs -1.7x (recent -12.8xto +6.5x).
NYSE Financials 0.9% vs -2.5%! vs -1.4%!!! vs +0.1% vs +0.1%. BofA most active again -0.9% vs -2.4%!!! vs -1.7%!!! vs +0.8% vs flat. Closed $16.31 -.14. The high print was $17.42 on 1/15/14 – highest since 5/10/10!!!Brokers -2.1%! vs -2.4%!!! vs -1.4%!!! vs +0.3% vs +0.9%; KBW Banks -0.7% vs -2.6%!!! vs -1.6%!!! vs +0.4% vs +1.1%; Nasdaq Banks -1.1%! vs -1.5%!!! vs -1.2%!!! vs +0.6% vs +1.8%.
Volatility (S&P VIX) surged again by 4.7% at the open from 18.14 to 18.99 before closing at 17.42 -.72, -8.3% vs +31.7% vs +7.4%!!! This after falling to 11.81 a week ago. 8/15’s close of 12.28 was near its lowest close and low since 8/5/13! From 13.31 with a high of 13.65 to 12.29 -.99 with a low of 11.96! It is now well above the 40/50 day (13.87/13.65) and the 200 day. 14.43. 12/26’s 11.69 was lowest since 3/15/13!!! Recent high on 1/2 was 16.67! The recent range is 11.83-21.01!!! It peaked at 22.79 on 12/28/12…the range since 12/31/12 is 11.05 (3/14) to 21.92 (6/24)!
Bonds were a little weaker and don’t seem to know what to do now with yields lowest since Oct/Nov. About even overnight: 30 yr 3.67%! — the high was 3.97% on 12/31; the 10 yr 2.74%!!! +1/32, recent high 3.03%! Long TIP 1.37% -1/32. The (record?) low of 0.36% was set on 4/5. The recent high yield: 1.64%! Libor update: 0.236% 3 mos,0.332%!!! 6 mos. BOTH at or near NEW record lows 0.234%!!! and now 0.332% respectively!). NOTE that the Fed Funds rate has averaged 0.08% since 5/22/13 and is currently 0.06%,…while the Fed is paying 0.25% to the banks on their excess reserves!!! No wonder they won’t make loans! Would you??? Foreign bond yields mixed for a 2nd day: Germany 1.67% +1; UK 2.79% +2 – recent high 3.03%!; France 2.36% –; Italy 3.86% -3; Spain 3.71% -3; Portugal 5.07%!!! -6!; Greece 8.34% -2. Recent range 7.51%-12.57%. Japan: 0.62%!!! -1. Yen slightly weaker after rallying for three days to 101.77!!!. It is now 102.72. Back from the brink!!! Recent range now 101.77-105.44 last week, low since 10/1/08!!!
Gold rose again intraday to $1280.10, highest since 11/18!!! before settling at $1263.50 -$1. Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Recent high is $1375.40 back on 9/19. Psych levels: $1200 sup; $1300 res, with major major support now at the 40 day ($1234) and the 50 day ($1239). The 200 day is $1322 and major res. Overnight it is slightly weaker in a narrow range at $1257.60 -$5.80.
Crude closed lower again at $95.72 -.92, with a low of $95.21.. Thursday’s high was $97.84, highest since 1/2/14. 1/14’s low was worst since 5/2/13: $91.24! Note 12/27 was first time above $100 since 10/21! The record high of $114.83 was on 5/2/11, the low since on 10/4/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. It is now between the 40/50 day m/a’s which are major sup/res: 50 day m/a ($95.63), 40 day (96.06), crossed!!! and the 200 day ($98.99!!!) – 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, it is slightly higher in a narrow range at $96.08 +.36 – wake me when it takes out the 200 day!
European equity markets higher, Asia weaker – Japan slammed for a 3rd day and has now lost 8.5%!!! all due to stronger Yen: UK +0.2% vs -1.3%! vs-0.9% vs -0.1% vs –; France +0.4% vs +0.2% vs -1.5% vs – vs +0.3%; Germany +0.1% vs – vs -1.2% vs -0.2% vs +0.2%; Japan -5.1%!!! vs -2.5%!!! vs -1.9%! vs -0.8% vs +0.2%; Hang Seng -0.1% vs -2.1%!!! vs -1.3% vs -1.5%!!! vs +0.2%; Korea +0.3% vs -1.6%! vs -0.4% vs -1.2%! vs +0.3%; India -0.1% vs -2%!!! vs -1.1%! vs +0.2% vs +0.4%; U.S. stock futures MIXED overnight: DOW +32;SPX -9!; NDQ -17.5. IF Dow was down when the others were higher…can they be coming together? Just asking…
Some random thoughts:
What about banks as an investment??? TB began his career February 1972 at Western Bancorporation (First Interstate), handling investments for our smaller banks under a Wall Street insider and former partner in White Weld, F. Alden Damon…a man who had the principles of what the ‘owners’ had – when it was THEIR money at risk, and they weren’t about to lose it for a twenty-something wunderkind. I contend that we would not have had a financial crisis if the investment banks were still partnerships instead of playing with OPM and being rewarded even greater than when it was the partner’s money that was at risk!
He was taught then, and still believe, that in banking the only reason to own a bank stock is for the dividend! The history of banking shows it is a zero sum game. So only by taking and investing the dividends elsewhere can you earn money from a bank stock…and dump it when they are cut or earnings slump. He heard Harry Keefe (Keefe, Bruyette & Woods, bank stock specialists) once say: show me a bank with three quarters of negative earnings and I will show you a bank that will never survive to touch its capital.
Keefe was wrong…only because of a total lack of regulation, and the destruction of Glass-Steagall (which was due or at least instigated by Sandy Weill according to former CEO John Reed…see Bill Moyers interview…with the blessings of Grassley and Gramm, whose wife was on the board of Enron and who later become Chairman of UBS Americas). Note that Weill (who tried to buy BofA back in their problem days of the 1990’s), had zero banking experience…investment banks don’t count and in fact led to his ‘financial supermarket’ theory which is what created the problem. He first contacted Clinton, who referred him to Rubin on eliminating Glass-Steagall, then passed by Rubin and finally Greenspan…hmmm, the ‘committee to save the world’ – which in fact nearly destroyed it. There was even a quid pro quo as Rubin became Vice Chairman of Citi – without portfolio and showed little interest in running the bank…except to encourage the officers to ‘take more risk’ (this I learned from a former, bitter Sr. VP. who saw his retirement money evaporate.)
But back to why TB didn’t buy any bank stocks for his clients (except Wells, BofA, and JPM preferreds, only Wells 8% has not been called). TB bought these at the height of the crisis…just as he swapped GE for its preferred in what may have been the best trade of his career): they are overpriced…even more so now than in March 2009!
This summary if from TB’s Bloomberg relative value of 14 top major banks. Here are their averages: Market Cap $99.2B; REVENUE GROWTH 1 yr: -4.3%; EARNINGS GROWTH +533.7% (more on that later); P/E 27x!!!; ROE 9.11%; Dividend Yield: 2.22% – wow…impressive in all categories!
If we take out the three ‘faux’ banks’ (MS by the way is what distorted the earnings growth as it came from so low that it was 7250% (not a typo!), and the SIX foreign banks we are left with JPM, BofA, Citi, WFC, Suntrust, and Keycorp. Compare:
BANK Market Cap Rev Earnings P/E ROE Div Yield
JPMorgan $206.9B -1.8% – 15.9% 8.1x 8.4% 2.61%
BofA 174.2B +1.6% +261.5% 10.8x 4.6% 0.24%
CITI 149.4B +2.0% + 69.1% 10.0x 7.1% 0.08%
Wells 239.1B -3.5% + 16.2% 11.7x 14.0% 2.53%
Suntrust 20.4B -23.5% -32.9% 15.8x 6.3% 0.92%
Keycorp 11.6B -6.1% +5.7% 12.9x 8.8% 1.67%
Clearly, the stock prices are not sustainable…but Wells is la crème de la crème. Note that all of these stocks hit their 12-month high…some even to pre-crash levels…in the past WEEK!
Why Wells Fargo (note that their subsidiary was the biggest subprime lender yet they didn’t hold any subprime mortgages – instead they kept the home equity portion and that is what burned them…but on a much smaller scale than the other big banks)? TB also likes and trust USBank, BB&T, PNC, but wouldn’t buy them as all of their dividends are less than 2.5%! A 5% dividend used to be the norm…that is before the real estate boom/bust!
Those are the reasons I wouldn’t own a bank stock…not because of Eric Holder ‘declaring war’ on them…which should have happened long ago. Meanwhile, their powerful lobbies own Congress…look what they have done to Dodd-Frank and the Volcker Rule – neither of which is fully in force…and derivatives are still not regulated! Oh, and Jamie Dimon!
SOTU tonight…waiting with baited breath…NOT!!!
Just remember: you pays your money you takes your chances…