3/17/14…then was then…now is…Erin go bragh!!!

(sorry this was in drafts and didn’t get posted yesterday…mea culpa! TB)

Quote of the Day from the Friars Club Encyclopedia of Jokes: “I’m desperately trying to find out why Kamikazi pilots wore helmets.” – George Carlin

Bloomberg Quote of the Day: “A best friend it like a four leaf clover: hard to find and lucky to have.” – Unknown…otherwise known as a BBF or now just a ‘Best’

Bloomberg Top Stories:

*Stocks in Europe Rise as Crimea Vote Boosts Micex; Hryvnia Drops With Yuan

*Inflation Unexpectedly Slowing in Euro Region Maintains Pressure on ECB

*Fortress-Linked Pantera Said to Bet on Bitcoin Exchange Succeeding Mt. Gox

*March New York Fed Empire Report Rises to 5.61, Less Than Estimate of 6.5 -!!!

*Chinese Developer With $567 Million of Debt Said to Collapse as Owner Held – !!!

*New Neutral Looms for Yellen-Carney With Investors Betting on Lower Rates

*Porsche Wins Dismissal of $1.94 Billion Hedge-Fund Suit Over Bid to Buy VW

*University of Chicago is Outlier Using Debt to Finance Growth w/Muni Bonds

*Next Stop on Vladimir Putin’s European Tour is Belarus, Etc. – no joking matter!

*Bugatti-Driving 26 -Year-Old Is linked to $3 Billion Penny-Stock Promotions – Wolf?

*EU Ministers Meet on Russia Sanctions After Crimea Votes to Leave Ukraine L

*Crimeans Celebrate Vote to Return to Russia as Tensions With Ukraine Rise L

*Paris Limits Car Traffic Afrer City’s Pollution Level Exceeds Beijing’s – Whew!

Friday’s Market Summary:

Another low volume down day with two exceptions: Dow Utilities UP 0.6%! (vs +0.7% vs +1%!!!), and the Russell 2000 Small Cap +0.4%??? (vs -1.5%! vs +0.4% vs -0.4%). Thr rest were off from 0.1% (Dow Utilities) to -0.7% (NDQ 100). NYSE Financials were second worst at -0.5% with BofA falling 2.1% and closing at $16.80, first close below $17 since 3/4 and posting a new 12-month high of $17.47 on 3/10! Options expiry is this Friday! Volume was a weak 3.27B shares vs 3.65B on Thursday’s big down session! But the worst was the S&P VIX which rose 9.9% to 17.82 +1.60!!! The range was 16.09 -18.22 (highest since 2/6!!! This following Thursday’s 11.1% jump: +22% in just two sessions??? The worst is yet to come???

NYSE Volume plunged to 3.27B from a well above average 3.65B shares – the last average session was 3.5B shares three days before that! Real NYSE trades slumped to a weak 640M shares from 693M while the 12-month average continues to slip and is now 719M shares while volume since 12/20’s huge day is slowly rising to 692M shares illustrating just how weak it is. Friday’s higher average coming on a down day is not a good thing…the last above average session of 3.5B shares was on a ‘mixed’ day.

Advance/Declines AND Breadth were…in a word: weird! Meaningless changes centered around 1:1: A/D: NYSE +1.4x/-2.0x/+1.4x/-2.1x/-1.3x, Nasdaq +1.2x/-3.3x/+1.3x/-2.7x/-1.2x; Breadth -1.2x!/-5.2x!!!/+1.1x/-2.4x/-1.8x, and +1.04x/-3.4x!/+1.8x/-3.3x/-1.2x/-1.2x. New 52 Week Highs dipped to a weak 146 vs 164 vs 117 vs 251 vs 226 vs 382 vs 486 while New Lows slipped back to 72 vs 79 vs 63 vs 44 vs 35 vs 20 vs 16 (new low) – still weak!

Overnight Comments:

Bonds: closed strong at the lowest yields since 3/3 (10’s 2.64% vs 2.60% after hitting 2.79%; 30’s 3.59% vs 3.55% back from 3.73%). Overnight off about an 1/8 and a ¼ on the long TIP: 10 yr 2.67% -1/8; 30 yr 3.61% -1/8; TIP 1.30% -1/4. Recent ranges: 30 yr high was 3.97% on 12/31; the 10 yr recent high 3.03%! Long TIP recent high was 1.64% The (record?) low of 0.36% was set on 4/5/13.  Libor update: 0.234% 3 mos, 0.333% 6 mos. –  record lows set recently: 0.329% 6 mos! 3 mos  0.233%!!!). NOTE the Fed Funds rate has averaged 0.08% since 5/22/13 and is steady at 0.07-0.09%!!! Foreign bond yields slightly lower ex-Greece and Portugal which are rebounding after being weak for FOUR sessions: Germany 1.56% +1; UK 2.69% +3 – recent high 3.03%! France 2.13% +1; Italy 3.38% -2; Spain 3.31% -2; Portugal 4.47% -9; Greece 6.92% -18!!!– back below 7% again and traded as high as 7.1% for first time since 2/26; two week ago intraday low hit 6.57%! Recent range now 6.57% to 12.57%. Japan: 0.61% –.

Gold continued its rally closing at $1379.00 +$6.60  with a session high of $1388.40, highest high and close since 9/9!!! It has closed above the psychological $1300 every day since 2/12! It has also been above the 200 day since 2/14, which is major support at $1303. It also took out 3/3’s high of $1355.00 and 2/27’s high close of $1351.80 were highest since 9/23/13 before the selloff began!!! Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!!  Psych level: $1300 support, also technical with the 200 day, $1304 and now the 40 day at $1303! Further support at the 50 day ($1291), both rising. Overnight slightly weaker, $1378.60 -.40 but a new intraday high of $1392.60 – highest since 9/4/13!.

Crude continues to trade weak and wafflling and closed at $98.89 +.69 and that after a low of $97.55 on 3/12 – lowest since 2/6/14! It had held ‘par’ since 2/12 – the first time since 12/27/13! 1/14’s low was worst since 5/2/13: $91.24! 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. First Resistance is the 40 day ($99.69) with support at the 50 day ($98.36). Major resistance at the 200 day ($100.20). The recent range is $85.61-$112.24 since March 1, 2012. Overnight, $98.56 -.33.

European equity markets higher, Asia mixed: UK +0.6%; France +0.9%; Germany +0.8%; Japan -0.4%; Hang Seng -0.3%; Korea +0.4%; India +0.2%. U.S. equity markets opening STRONG??? Dow+165; S&P +7; Transports +77; Composite +42; NDQ 100 +40; Dow Utilities +0.25.   

 

Some random thoughts:

The year was 1980, Ronald Reagan, a conservative had defeated Jimmy Carter with much of the difference due to the handling of the Iran hostage situation.

Reagan, former head of the Screen Actors Guild (union) and a lifelong Democrat until linking with Fred Schwartz and the Christian Anti-Communist Crusade in the early 1960’s  and then becoming governor of California. Got the picture?

So from those beginnings, he set out to destroy the labor unions which he did, and to convince the public that ‘government is the problem’ – not the solution.

When the Marine barracks in Beirut was bombed he retaliated…he attacked Grenada…if you don’t recall this or Grenada you can be forgiven…but the point is he did nothing against Lebanon other than shell it from the Iowa, well offshore in the Med.

Then came the federal air controllers strike when he fired them all and replaced them. That created a problem for air safety. But what the hey, he sent a message to the unions. Nevermind the stresses that come with being an air traffic controller.

Ah but his most lasting achievement was Arthur Laffer’s supply side economics ‘theory‘ otherwise known as ‘trickle down’ or ‘voodoo economics’, depending on your viewpoint. That folks is what created the wealth gap. Don’t take TB’s word for it…take a look at the IRS data. They even had to create a new tax bracket: the top 0.1%! But with the number of people earning more than $10 million they should create a 0.01% category. Then the changes would be even more visible! We are in the biggest transfer of wealth in U.S. history…kind of makes you proud, doesn’t it?

One other event that added sharply to the problem was the creation of IRA’s and 401(k)s on Reagan’s watch. Prior to that time most large companies had defined contribution retirement plans, but this was their out…contribute to their 401(k) or created a ‘defined contribution plan, and tell them to invest in an IRA…of course, no one, government or employer concerned itself with telling people how the original $1,500 a year was going to provide for a healthy retirement…no sir! That, folks, was criminal!

Back to the 401(k)’s: companies jumped on them often providing matching contributions to employees…without limit! (TB’s friend and former boss,  C. Paul Hulten,the EVP of Finance at Western Bancorporation (later First Interstate and now Wells Fargo), brought up in a board meeting that their should be caps on the matching contributions since senior execs had bonuses and the idea was to encourage lower level employees to save. This was met with ridicule. Got it? Who benefited the most? Why, management of course and once again at shareholder expense.

But this was at a time when the CEO made 10-15 times their average employees salary. Since TB has blasted Reagan and the GOP, time to go after the Dems who created the Alternative Minimum Tax which was to ‘get’ less than 50 people who paid no taxes!

It was passed and the key was that it was not indexed for inflation! Either party could have corrected this flaw which became a trap for even middle income people and rather than fix it they ‘temporarily’ raised the ceiling for years…how stupid can they be? Well, that was because it would curtail Congresses ability to spend and spend they did!

(Don’t forget the attacks by Newt Gingrich…shutting down the government…and for a while it worked. We did reduce the size of the government but then the GOP replaced the Dems as the ‘big spenders’. Worse, the cut taxes twice under George W. Bush – while fighting two wars and using a ‘very mild’ recession just as they took office to implement their tax cuts (with most of the benefit going to the top 1% – natch!)

Not content the Dems decided that CEO compensation was too high so they capped it at $1 million…the deduction that is. At first, corporations said, so what, and the escalation of CEO compensation began rising to 100 times, then ultimately 400-500 times or more. This was done by giving restricted stock to the key executive…give them an incentive to work harder.

But the huge effect began in 2007 when the market peaked and as stock prices plummeted culminating in the first quarter of 2009, more and more shares were given since in dollar terms they were only equal or modestly higher. Then came the rally and this was a two-edged sword confronting the shareholders: first, earnings growth was distorted and even though realized earnings were less than 2007, and second, even mediocre performance generated huge gains on the restricted stock (think of a successful hedge fund). It was ‘heads I win, tails you lose’.

TB has had the pleasure of knowing Graef (Bud) Crystal, a humble man and former pension consultant who has felt guilty about his participation in the explosive growth of CEO compensation. Graef says, “I have no problem with paying a CEO a high compensation if they earn it, but very few do.” His poster child was Sanford Weill, Citigroup’s CEO and the force behind the demise of Glass-Steagall, thanks to Rubin and Greenspan, the former becoming Vice Chairman of Citi after leaving Treasury – and encouraging management to take more risk – like Goldman, then saying he had no idea how much risk they were taking and that he, a former bond trader, didn’t understand the investments! Pick your word for this kind of scum!

Crystal left consulting and went on to teach at the Hass School, UC Berkeley, and wrote until recently for Bloomberg as well as maintain a blog. He is an incredible man.

But what is appalling is that CEO’s have become kings…they donate money to the party that will do the most for them…uh, the GOP? Supposedly the ‘board’ makes that decision but who are we kidding? …and they don’t and don’t even have to report this to shareholders who are becoming aware that these contributions aren’t really helping the company (in addition, many if not most, contribute smaller portions to the ‘other’ party so they can get access. Do you still wonder why Obama’s plan to ‘change’ government (for which they never had a plan or strategy – this from an insider).

Accountability of CEO’s has become non-existent! Even when the screw up they get incredible golden ‘handshakes’. Of course, there is Jamie Dimon who got a $20 million bonus despite dozens of civil lawsuits filed against JPM – all of which have been settled without admitting guilt. He even took the bonus despite encouraging more risk-taking which resulted in a $20 billion loss to shareholders. Is that a great job or what???

So here we are, a society where Reagan couldn’t get a GOP nomination (too liberal), Congress is in stalemate with the GOP following orders of Grover Norquist and the ‘neo-neo-cons’ that make even the old neo-cons seem moderate. Meanwhile the Dems refuse to give on any entitlements…how can they if the GOP can’t even provide cover by raising taxes – or even eliminating detrimental subsidies, like ‘carried interest’! The private sector –especially the financials – having caused the biggest financial crisis is back in business and never missed a beat: making riskier loans, Wells Fargo back in subprime lending, and most new mortgages by banks being sold to FNMA/FHLMC and then to the Fed – while they retain the lucrative 0.5% servicing fee…talk about ‘sweet’! A GOP original idea of national healthcare was put together in a manner that protected pharma and insurers and has turned into a disaster the Dems may pay dearly for in August. Imagine – the GOP had three years to do something constructive to fix it but instead the House passed more than 40 resolutions to kill it, knowing it would go nowhere…and this despite the majority of Americans recognizing the need for it…as every other industrialized nation does!

Honk if you are proud to be an American and honk twice if you feel good about what you have done for future generations. Come on people…do the right thing? It’s your country!  

TB

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