3/18/14…many…oops, a few happy returns

Quote of the Day from the Friars Club Encyclopedia of Jokes: “Nothing screams “Welcome for one night,” like the inflatable mattress. “Hey, I threw a sheet on a pool raft. Hope you like it.” Greg Fitzsimmons – and a pinhole leak is better still!

Bloomberg Quote of the Day: “Passion is energy. Feel the power that comes from focusing on what excites you.” – Oprah Winfrey…don’t let money excite you but what you can or would do with it…for the good of mankind.

This week’s economic calendar is full of economic indicators. The highlight of the week will be the February CPI (Tuesday). We will also get March Empire State Manufacturing, February Industrial Production (Monday), February Housing Starts (Tuesday), Current Account Q4 (Wednesday), March Philadelphia Fed Survey, February Leading Indicators and February Existing Home Sales (Thursday). In addition, the Federal Reserve FOMC will be meeting on March 18th – March 19th with an announcement on the 19th. Courtesy of Economic Advisory Service…sorry, should have been included yesterday.

Bloomberg Top Stories:

*Housing Starts in U.S. Little Changed From Better January Than First Seen

*High-Speed Traders’s Exchanges Said to Face New York Inquiry Into Fairness – about time but NY??? Where the hell is the SEC since NY has a conflict of interest!!!

*Stocks Rise With U.S. Futures – ??? Treasuries, Yen Pare Gains on Putin Speech-yawn!

*German Investor Confidence Falls More Than Forecast in Third Straight Drop

*Barclays Awards 12 Senior Executives $53 Million in Bonuses, Led by McGee – sick!

*EU Bonus-Curb Rules Risk Backlash as Barnier Seeks Lawmakers’ Support

*Hertz Plans to Spin Off Equipment-Leasing Unit to Focus on Renting Autos – ha!

*China Developer’s Debt Debacle Spurs Bond Losses for Real-Estate Companies

*Corporates at $9.8 Trillion Top Mortgage Bonds at ’07 Peak – WOW!!!

*Car Sales in Europe Climb 7.6% as Price Cuts, Economy Help Renault Demand

 *Musk Jab at Competitor Underscores U.S. Space Dependence on Putin’s Russia

*High-Speed Traders, Dark Pools, Stocks Exchanges; Not So Fast – wanna bet???

*Londongrad Deals Threatened by Sanctions on Russia After $180 Billion Boom

*Putin Supports Annexing Crimea in Defiance of Western Economic Sanctions

*Putin’s Ukraine Motives Rooted in a Siege Mentality Remain Opaque Abroad

Monday’s Market Summary:

An up day with an asterisk… and a big one…actually three! While every index was solidly higher, a few points stick out: first, NYSE Total Volume was a ridiculous 2.84 billion shares –  rally on low volume, bad idea…especially when Options Expiry is coming on Friday! Worse, shares traded on the floor were a pathetic 606M shares from a well below average (718M shares), 640M – this is the lowest since January 3rd!!! second, the Dow, S&P 500, NDQ 100 and NYSE Financials led the way, all up exactly 1% – do you believe in coincidences? Dow Transports were next, up 0.9% followed by the  Nasdaq Composite +0.8%, while DOW UTILITES continued their streak and rose 0.7% – in a broad rally??? Bringing up the rear was the Russell 2000 small cap at 0.6%; third was  the combination of A/D’s and Breadth, new 52 week highs, and volatility. Hmmm

Advance/Declines AND Breadth were positive but not enough so for a big rally: A/D: NYSE +2.6x/+1.4x/-2.0x/+1.4x/-2.1x, Nasdaq +1.8x/+1.2x/-3.3x/+1.3x/-2.7x; Breadth +3x/-1.2x!/-5.2x!!!/+1.1x/-2.4x, and +1.7x/+1.04x/-3.4x!/+1.8x/-3.3x/-1.2x. New 52 Week Highs rose but not enough to 242 vs 146 vs 164 vs 117 vs 251 vs 226 vs 382 vs 486 while New Lows were slammed to 36 vs 72 vs 79 vs 63 vs 44 vs 35 vs 20 vs 16 (new low).


Overnight Comments:

Bonds: gave up much of Friday’s gains but remain at lower end of trading range since 3/3 (10’s 2.69% vs 2.64% after hitting 2.79%; 30’s 3.63% vs 3.59% back from 3.73%). Overnight about even: 10 yr 2.69% +1/16; 30 yr 3.63% -1/32; TIP 1.31% -1/16. 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: 0.235% 3 mos, 0.334% 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 0.07-0.10%!!! Foreign bond yields slightly lower while Greece is plunging again! Germany 1.57% –; UK 2.68% — – recent high 3.03%! France 2.12% -1; Italy 3.36% -2; Spain 3.29% -2; Portugal 4.46% -4; Greece 6.70 vs 6.92% -20!!!– didn’t stay above 7% for long after trading as weak 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% -1.

Gold closed modestly lower but with a new recent high of $1392.60, highest high since 9/4/13 – just before the selloff began!!! This created an outside day and nearly a negative key reversal!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 $1304. 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 ($1290). Overnight it is weaker, $1359.60 -$16.10.

Crude continues to trade weak and wafflling as it put in a session low of $97.37 lowest since February 6th! It closed lower at $98.08 -.81 thus also creating a negative key reversal!!! 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 50 day ($98.44), with major resistance at the 40 day ($99.78), while the 200 day is way above at $100.23! The recent range is $85.61-$112.24 since March 1, 2012. Overnight, $98.30 +.22.

Global equity markets higher: UK +0.4% vs +0.6%; France +1% vs +0.9%; Germany +0.8% vs +0.8%; Japan +0.9% vs -0.4%; Hang Seng +0.5% vs -0.3%; Korea +0.7% vs +0.4%; India +0.1% vs +0.2%. U.S. equity futures strong and in a wide trading range after opening weak: DOW +57 vs -34 (range 107); SPX +6 vs -5 (13); NDQ +11 vs -11 (26).   


Some random thoughts:

2014 is proving to be a tough year for money managers and many will have trouble covering their fees for the quarter. Just as with yesterday’s rally when the Dow Utilities continued their winning streak and are bet performer year-to-date, a message is being sent that the risks are not built into the market…agree? Also note, that while the 12-month are still double digit (barely for the Dow and NYSE Financials), they are all plunging, except Dow Utilities which continue to ‘lop’ along with a nice 6.8% steady return:

Index as of 3/17



12 Mos.

Dow 30




Dow Transports




Dow Utilities




S&P 500



NDQ Composite




NDQ 100




Russell 2000




NYSE Financials




   KBW Banks




   NDQ Banks




If you thought yesterday’s column was a rant, you are wrong…dead wrong! It was a wake-up call to those of you in this once fine business that by doing and saying nothing you…yes, you…are part of the problem. Wake up and smell the napalm!

As frequent readers know, TB holds in high regard Simon Johnson and James Kwak at The Baseline Scenario, for their constant and insightful writing on the financial crisis.

Today, James Kwak published this and since it follows suit to TB’s commentary from yesterday, here it is – in entirety. Then ask yourself what kind of nation we have become.

Last week Peter Eavis of DealBook highlighted a statement made last year by New York Fed President William Dudley (formerly of Goldman Sachs, then a top lieutenant to Tim Geithner): “There is evidence of deep-seated cultural and ethical failures at many large financial institutions.” There was a point, say in 2008, when many people probably thought that our largest banks were just guilty of shoddy risk management, dubious sales practices, and excessive risk-taking. Since then, we’ve had to add price fixing, money laundering, bribery, and systematic fraud on the judicial system, among other things. 

Eavis also tried to make something positive out of a couple of other recent comments. Dudley said, “I think that trust issue is of their own doing—they have done it to themselves,” while OCC head Thomas Curry said, “It is not going to work if we approach it from a lawyerly standpoint. It is more like a priest-penitent relationship.”

I don’t see much reason for optimism. First, framing the problem as a “trust issue”—customers no longer see banks as trustworthy institutions—is beside the point. Wall Street’s main defense is that its clients already realize that investment banks do not have their buy-side clients’ best interests at heart, and clients who don’t realize that are chumps. And in the wake of the financial crisis, I suspect there are few individuals out there who believe that their banks are there to help them. The banking industry has discovered that it can thrive without trust, which is not surprising; retail depositors trust the FDIC, and bond investors know that trust isn’t part of the equation.

Second, when an entire industry shows a deep proclivity to flaunt the law, it’s distressing that one of its top regulators sees himself more as a priest than as a lawyer. With a priest, the presumption is that the congregant actually wants to be saved, and therefore will listen to the priest. Wall Street banks just care about profits, which is only natural. Once they’ve learned that they can be profitable without being ethical, there’s no turning back. The only way to change the equation is to make lawbreaking unprofitable, which means serious penalties, both civil and criminal. 

In that vein, the SEC is especially proud of a judge’s decision last week to impose an $825,000 fine on Fabrice Tourre, the Goldman employee implicated in the ABACUS deal. The SEC’s enforcement director claimed that the penalty reflected “the S.E.C.’s intent of pursuing meaningful sanctions to punish individuals responsible for misconduct and deter others from violating the federal securities laws.” If only.

That is a meaningful sanction, particularly because the judge prohibited Goldman from covering Tourre’s penalty of $650,000. I doubt, however, that she could stop Goldman employees from individually gifting cash to Tourre. And, if they have any kind of sense of fairness, they should start passing the hat—because Tourre was the only one out of probably thousands of people engaged in similar behavior who got busted. Which means that, if you want to structure deals so they are likely to collapse and lie about it to your buy-side clients, the odds are spectacularly in your favor. More important, if you are a senior executive and you want to pressure your employees (including by promising them huge bonuses) to structure deals that are likely to collapse and lie about it to your buy-side clients, the odds in your favor approach certainty.

Talk is cheap. But ultimately, it’s hard to see how anyone’s behavior is going to change with the regulators we’ve got.

We need more people like this…care to come aboard?



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