6/3/14…it’s good to be king…better to be a CEO! Updated 10:50am EDT

Quote of the Day from the Friars Club Encyclopedia of Jokes: “Life is a sexually transmitted disease.” – Guy Bellamy

Bloomberg Quote of the Day: “Laugh at yourself first, before anyone else can.” – Elsa Maxwell

Bloomberg Top Stories:

*ECB Poised to act After Inflation in Euro Region Slowed More Than Forecast – not tighten! Duh!

*Stocks in U.S. Pare Drop on higher Factory Odors (oops Orders) While Treasuries Retreat

*Hillshire Agrees to Merger Talks With Pilgrim’s, Tyson Offer Raised – won’t be as good as Sterling’s deal! LOL

*Barclays Said to Start Cutting Investment Bank Jobs Across World This Week – !!!

*GM, Chrysler, Ford U.S. Auto Sales Exceed Analysts’ Estimates With Nissan

*France Says BNP Paribas’s Poitential $10 Billion Fine Isn’t Reasonable – awww

*Junk Bonds Favored as BlackRock  ETF Leads Flows of Funds – not to TB and a BIG caution flag!

*Consumer Stocks Plunge Reversing as Amazon Benefits From Bets on Spending – hurts local communities!

*Violin-Shaped Pools Beckon as Goldman Alumni Seek to Make Good Life Better – better than ‘dark pools’???

*Obama Says U.S  Will Bolster NATO Military Aid in Europe to Counter Russia – that’s our leader…ugh!

*EPA Chief McCarthy Says She Expects Significant Revisions to Climate Rule – duh, Duh, and DUH!!!

*Obama Defends Prisoner Swap Under VOw to Leave No Soldier on ‘Battlefield’ – that’s the operative word!

*Doctors Shift Money to U.S. Democratic Party as More Women Join the Ranks – surprise, surprise!!!

 

Monday’s Market Summary:

Wait…isn’t it a wee bit early for the summer doldrums??? You bet, but judging by the plunge of 670M shares for NYSE stocks to a tepid 2.5B – and worse the weak 549M shares traded on the floor of the NYSE, a drop of 65M shares…they are here! What ever happened to the July 4th start? That aside, it was a boring, mixed session with Dow Transports the best (+0.5%) and the goat being the Russell 2000 (-0.5%). The rest were up 0.1-0.2% except the two Nasdaqs, -0.1%. Let’s leave it at that…nothing to see here…again!

Repeating: Here are returns for month and year to date:
May YTD
Dow +0.8% +0.9%
Transports +5.6% +9.5%
Dow Utilities -1.6% +11.1%!!!
S&P 500 +2.1% +4.1%
NDQ Comp +3.1% +1.6%
NDQ 100 +4.3% +4.0%
Russell 2000 +0.7% -2.5%
NYSE Fin +1.5% +1.1%
KBW Banks +0.7% +1.1%
NDQ Banks -0.6% -4.4%

Total NYSE Volume as stated above took a header back to a weak 2.5B shares vs 3.7B vs 2.68B vs 2.92B vs 2.89B vs 2.4B vs 2.74B! …WEAK!! Real trades on the floor of the NYSE also took a header from the strong monthend volume to a very weak 549M shares vs 916M vs 544M vs 636M vs 657M vs 554M vs 577M! That is very close to the low volume for May of 544M shares – one of the lowest of the year! The 12-month average slipped to 719M shares – historically weak!
A/D’s were minor and negative: NYSE -1.1x vs +1.1x vs +2x vs +1.1x vs +2.2x; Nasdaq -1.6x vsw -1.6x vs +1.4x vs -1.6x vs +2.9x. Breadth was similar but mixed: NYSE +1.1x vs -1.1x vs +2.6x vs -1.1x vs +2.1x; Nasdaq -1.2x vs -1.4x vs +2.1x vs +4.3x! vs +2.5x. But who cares when the volume is so low? New 52 Week Highs surprisingly surged to 318 vs 271 vs 287 vs 229 vs 336 vs 167 – recent low 71!!! New Lows were slightly lower at 57 vs 60 vs 45 vs 61 vs 50 – recent range 45-214.
As for volatility…S&P VIX remains bullish but climbed slightly to 11.58 +.18 – but the important thing was the range which broadened to 11.58-12.17 – first time with a ‘12’ print in 7 sessions!

Overnight markets:

Bonds closed weak, perhaps setting up for Friday’s payrolls (?), with TIPS taking the brunt: 10 yr closed at 2.53% -7/16. 30 yr closed 3.37% -3/4. The long TIP, which hit a low of 0.978% on 5/29, closed 1.07%-1-3/8!!! Overnight weaker again: 10’s 2.56% -1/4; 30’s 3.40% -1/2; and long TIP 1.09% -9/16. Cycle highs: 30 yr high was 3.97% on 12/31; the 10 yr recent high 3.03%! Long TIP was 1.64%. The (record?) low of 0.36% was set on 4/5/13.
Libor update: 0.227% 3 mos.; 0.322% 6 mos., both remain just off their record lows, set recently: 0.227% and 0.320% respectively! NOTE the Fed Funds rate has averaged 0.08% since 5/22/13 and is 0.07% -0.09%. Foreign bond yields higher, ex Spain/Portugal: Germany 1.40% +3; UK 2.66% +4; France 1.80% +3; Italy 2.97% +1; Spain 2.82% -2; Portugal 3.63% -1; Greece, which bottomed at 5.83% on 2/24 is now 6.18% +5 – the high on selloff was 6.75%. Highly volatile!!! Range is 5.77% to 12.57%. Japan: 0.58% –.

Gold closed slightly lower – 4th day of decline – at $1244.00 -$2.00 with a session low of $1241.40 – lowest since 1/31/14!!! Off $35 last month! This, after hitting $1304.10 on 5/22 – the last time it saw $1300! It is way below the 40/50/200 days and the psych support level of $1300 with first res at the 40 day $1292, then the 50 day $1294, and the 200 day $1298 – coming together and thus formidable resistance. It has fared poorly since the ‘key reversal’ on 3/17, after printing the recent high of $1392.60, highest high since 9/4/13! Jan. 2’s low was $1181.40 – A MULTI-DECADE LOW!!! Overnight an ‘inside’ session and is currently $1247.00 +$3.00.

Crude closed slightly lower again at $102.47 -.24 with a low of $102.10, lowest since 5/20. Friday’s high was $104.50 – still highest since being slammed on 4/22! 3/2’s session low was $97.37, lowest since 2/4! 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. It remains well above all three moving averages with support at the 40 day ($102.08) then the 50 day ($101.72), and 200 day $100.27. The recent range is $85.61-$112.24 since March 1, 2012. Overnight it is little changed in a narrow range ($102.23-102.67),and is currently $102.36 -.11.

European equity markets lower – Asia rallying: UK -0.6% vs -0.1% vs +0.3% vs +0.1% vs +0.5%; France -0.3% vs – vs -0.4% vs -0.2% vs +0.1%; Germany -0.5% vs +0.2% vs – vs -0.1% vs +0.1%; Japan +0.7% vs +2.1%!!! vs -0.3% vs +0.1% vs +0.2%; Hang Seng +0.9% vs closed vs +0.3% vs -0.3% vs +0.6%; Korea +0.3% vs +0.4% vs -0.9% vs -0.2% vs +1%!; India +0.7% vs +1.9%!!! vs -0.1% vs -1.3%! vs –. U.S. Stock Index Futures slightly lower in another narrow range session: DOW -41 (range 40); SPX -5.80 (6); NDQ -12.25 (12).

Market update 10:50am EDT: Stocks weak…false rally on economic reports, now back near session lows. Bonds at early morning levels…that’s about it!

Some random thoughts:

…King Juan Carlos is out…Felipe is in…it’s good to be king but as Nobel laureate Joseph Stiglitz and other recent articles have shown: it’s better to be a CEO…and not bad to be a company director ‘earning’ as much as $500k a year (the directors, not the CEO! – he would never work for that paltry amount)! TB urges you to listen to the Moyers/Stiglitz interview…or read his white paper at: Joseph Stiglitz on taxes and wealth gap – this cannot and will no stand!

Another example of CEO excess is outgoing Target CEO who resigned, along with others over the data breach…not to mention their huge flub in entering Canada without properly studying the demographics…what was supposed to be ‘additive’ turned out to be a huge drain on earnings.
Mulligan (does that mean Target gets one?), the interim CEO, observed that JCPenney tried to change to fast – tried to change? Their CEO didn’t even understand what the company was! Ditto for Sears! Almost immediately, the board said that THEY, not Mulligan, will choose the new CEO – duh! You have to love this too…their CEO of Canada said, “after 30 days, we want to have an aggressive road map towards improvement.” – you, rock, Mark Schindele!.
Oh, and guess what…to show they believe there is value the directors stated they are committed to a stock buyback…that is the lamest, most tired statement that is designed only to reduce dilution…by the way, Mulligan exercised options on 17k shares. How stupid are investors that a) the reason for stock buybacks is to keep hedgies happy and more importantly reduce dilution!; and b) companies don’t withdraw the shares but keep them in treasury so they can be reissued! That is why Franco Modigliani (and now Stiglitz), convinced TB that the proper corporate tax rate is ZERO (Stiglitz actually favors one where the tax rate is high but with big incentives for domestic operations). Point of fact: corporations either pay NO tax or a fraction of the 35% corporate rate!

Wait, let’s stop being critical of Target and its ‘band of brothers’ – oops, board of directors – after all they are taking steps to correct the problems…finally. To wit:
1. splitting the Chairman/CEO jobs – Gregg Steinhafel was both
2. reducing the CEO’s (Steinhafel) compensation by 41% from 2012 to a paltry $12.9 million! Way to go, board! That’s hitting him where it hurts! Oh yeah, and he is no longer with the company!
3. No bonuses for the executive team…awwww
4. rolled back the pension add-on that inflated Steinhafel’s age and pension benefit
5. made his long-term compensation dependent on Target’s performance – concept!!!

The sad thing is Target is not the exception to the rule…it IS the rule! By they way they had a ‘non-binding’ shareholder vote last year on compensation. The board ‘squeaked out’ a 51-48 victory on that one. More proof that institutional shareholders tend to vote with their feet!

Enough on Target…why single them out, right? How about the poster child for greed…the man who changed the America’s Cup from a sailing event to …whatever it was…Larry Ellison, founder of Oracle. Don’t misunderstand…Ellison is smart and has done a great job…mainly through muscle by acquiring the competition, but that still takes courage. But did you know, that at $79 million last year, he was the highest paid CEO in America? But he did a good job, you say.
Yes, but did you also know that he still owns 34% of the stock? Now that’s greed…or a big concern that ‘shareholder value’ – his own…is not sustainable…or perhaps estate planning (but why pay the full tax rate when he could defer it? Dunno, but then we don’t know his ‘effective’ tax rate, do we?

TB’s friend, Graef ‘Bud’ Crystal, was a compensation analyst who seeing the error of the industry’s ways…or was it planned since their compensation came from a percentage of the job search. He admitted his sins and went to teach at UC Berkeley…and became an outspoken critic of ‘excess’ CEO compensation due to the methodology. He had no complaints over how much they made if THEY earned it, which he found they seldom did! HIS poster child as the worst, most overpaid CEO in America was Sanford Weill, then Chairman/CEO of Citi. Like Ellison, he should have been more interested in shareholder wealth – he wasn’t even interested in shareholder value – just lining his own pockets (oh, and JPMorgan’s Jamie Dimon learned at his side). He was the ‘perp’ that set in motion the destruction of Glass-Steagall for his own benefit! (see Moyers interview with former Citi CEO John Reed if you doubt this).

Now let’s go back in time…to the 1960’s. A former colleague and friend, who did the annual reports once worked for McDonnell Aircraft preparing their annual reports. Old man McDonnell, who held a substantial amount of the stock believed that his compensation was in the increase in value of the company stock. Therefore, he insisted that this phrase be in every annual report: the CEO’s compensation is equal to the salary of ten ‘janitors’. Note this was not average employees, but the lowest paid employees in the company! (of course a CEO today would merely elevate them to managerial status and pay them $500k a year to be able to make that claim – oops, forgot the average compensation is now $15 million so make that 30 janitors…that’s the ticket!

Here is another one for you: we have heard all about the struggles in broadcasting thanks to cable, the internet and the siphoning off of advertising revenues from the networks, right? Right! Well, how about this: Leslie Moonves, CEO of CBS earned $10 million last year…note that the stock trades at 17x trailing earnings! The reason for his compensation the company cited: increase in shareholder value. Of course it increased…stock price that is and that is the measure…we just came off the biggest financial crisis in world history!

Meanwhile, these CEO’s contribute to lobbyists, and politicians who favor their interests over the public’s. This cannot stand and if history repeats…which we know it does…won’t stand.

The point of all the above is that corporations are being run for the benefit of the officers, and directors, often to the detriment of the shareholders. Furthermore, the concept of compensating executives on ‘shareholder value’ is a sick joke…and a win, win for management: if the stock goes down as it did in 2008, they get more restricted stock awarded to them or options at a very low strike price; if it goes up they are given full credit for the increase – even if the overall market rises…sometimes by more. Is this a great country or what? Some might say…”or what?”

Have a great day!

TB

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