6/4/14…the grasshopper and the ants – huh?

Quote of the Day from the Friars Club Encyclopedia of Jokes: “I bring out the worst in my enemies and that’s how I get them to defeat themselves.” – Roy Cohn (McCarthy henchman)

Bloomberg Quote of the Day: “A hunch is creativity trying to tell you something.” – Frank Capra

Bloomberg Top Stories:

*JPMorgan Sees Record $100 Billion This Year in New Junk Rated Bonds – the next bubble???
*U.S. Trade Deficit Jumps to Two-Year High as Americans Splurge on Imports
*S&P 500 Index Futures Fall as Treasuries Halt Losses After ADP Labor Data – 179k vs 210k ee!
*Companies in U.S. Added Fewer Workers in May Than Forecast, ADP Data Show
*Investors Flag Risk of ECB Disappointing Following Rally in European Bonds
*Google Data-Deletion Requests Will Be Policed by an EU Privacy Taskforce
*Buffett’s $26 Billion Bet on Power in U.S. West Poised for Payoff
*Putin Offers to Meet Obama in France as Fighting Rages in Eastern Ukraine
*Tea Party Is Revised as Cochran Runoff looms Ahead of U.S. House Contests
*Tiananmen Vigil Draws Crowds in Hong Kong on 25th Anniversary of Crackdown
*Limbaugh Target Fluke to Compete in State Senate Runoff Race in Califoria – not bad for ‘slut’
*New Rome Coliseum Would Make Russell Crowe’s Gladiator Proud – named Olimpico

Tuesday’s Market Summary:

A downer…with only Dow Utilities in the green (+..3%). Transports were the goat this time -0.8%! The rest were all off 0.1-0.2%. Furthermore, volume – while still weak rose to 2.83B from 2.5B. Bonds took a big hit while Gold and Crude closed modestly higher. That’s about it.

Total NYSE Volume as stated above rose to a still weak 2.83B shares vs 2.5B 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 increased to 657M shares vs 549M vs 916M vs 544M vs 636M vs 657M vs 554M vs 577M! The 12-month average remains at 719M shares – historically weak!
A/D’s were both negative: NYSE -1.6x vs -1.1x vs +1.1x vs +2x vs +1.1x; Nasdaq -1.6x vs -1.6x vs -1.6x vs +1.4x vs -1.6x. Breadth was less negative: NYSE -1.1x vs +1.1x vs -1.1x vs +2.6x vs -1.1x; Nasdaq -1.1x vs -1.2x vs -1.4x vs +2.1x vs +4.3x! New 52 Week Highs dropped back sharply to 225 vs 318 vs 271 vs 287 vs 229 vs 336 vs 167 – recent low 71!!! New Lows nearly doubled to 93 vs 57 vs 60 vs 45 vs 61 vs 50 – recent range 45-214.
As for volatility…S&P VIX remains bullish but climbed modestly for a second day to 11.87 +.28 – but the important thing was that the high was 12.13 – 2nd time with a ‘12’ print in 8 sessions!

Overnight markets:

Bonds closed very weak, with TIPS again taking the brunt: 10 yr closed at 2.60% -5/8. 30 yr closed 3.44% -1-1/4! The long TIP, which hit a low of 0.978% on 5/29, closed 1.15%-2-1/8 – that’s 3-1/2 points in two sessions!!! Overnight flat: 10’s 2.60% –; 30’s 3.44% –; and long TIP 1.15% +1/16. 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: 0.230% 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-Portugal: Germany 1.42% +2; UK 2.68% +4; France 1.83% +2; Italy 3.00%! +1; Spain 2.86% +2; Portugal 3.62% -2; Greece, which bottomed at 5.83% on 2/24 is now 6.33%! +9! – the high on selloff was 6.75%. Highly volatile!!! Range is 5.77% to 12.57%. Japan: 0.61% +1.

Gold closed nearly unchanged – but with a 5th day of decline – at $1244.50 +.50 BUT with a session low of $1240.20 – 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 $1291, then the 50 day $1292, and the 200 day $1297 – note convergence 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 $1245.80 +$1.30.

Crude closed barely higher in a very tight inside session at $102.66 +.19, following Monday’s 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 above all three moving averages but very close to first support at the 40 day ($102.12) then the 50 day ($101.78), and 200 day $100.22. The recent range is $85.61-$112.24 since March 1, 2012. Overnight it is a little higher at $103.35 +.69.

Global equity markets somewhat lower – ex-Japan: UK -0.3% vs -0.6% vs -0.1% vs +0.3% vs +0.1%; France -0.1% vs -0.3% vs – vs -0.4% vs -0.2%; Germany -0.2% vs -0.5% vs +0.2% vs – vs -0.1%; Japan +0.2% vs +0.7% vs +2.1%!!! vs -0.3% vs +0.1%; Hang Seng -0.6% vs +0.9% vs closed vs +0.3% vs -0.3%; Korea closed vs +0.3% vs +0.4% vs -0.9% vs -0.2%; India -0.2% vs +0.7% vs +1.9%!!! vs -0.1% vs -1.3%! U.S. Stock Index Futures slightly lower in another narrow range session: DOW -7 (range 37); SPX -2.20 (5); NDQ -4.75 (12).
Some random thoughts:

…do you recall the fable, The Grasshopper and the Ants? As a young lad this was one of TB’s favorites…especially the record with Danny Kaye providing the words and weird sounds.

The gist of it is that the grasshopper played while the ants worked. One day an ant passed him, huffing and puffing pushing a huge load. The grasshopper stopped his chirping and singing to ask why? The ant said he was storing food for winter…which the grasshopper thought was foolish.
Along came winter and the grasshopper was starving while the ants were distributing food.
The moral: It is best to prepare for the days of necessity.

(The record version had the conversation with the queen while the grasshopper played his legs like a violin. In the end she saved him by bringing him into her anthill and feeding him. Life is not like that…particularly when the government is hell-bent on an austerity budget, right?)

So? So…today’s CEO’s are like the proverbial grasshopper…all about the present – especially since that is what benefits THEM the most…and with the incentives, why shouldn’t they?

In days of yore…when TB was starting out in business, the Chief Operating Officer was responsible for the short-run – or tactical – current operations, while the CEO was supposed to be the strategist…mining the future for new opportunities, etc. Remember those were days of yore.

One is lucky to find a CEO looking past the current fiscal year as most are thinking quarter to quarter for their bonuses – afterall, what happens to the company ten years from now is not their problem…they will be wealthy beyond their dreams and gone…with maybe two or three other CEO’s in between. History is replete with these types whose main concern is that it doesn’t happen on his watch – nevermind that the ‘setup’ for the disaster occurred because of them.

When TB asks friends how many CEO’s they have worked under that they truly respected he either gets blank stares or ones or twos. The rest are mediocre (and thus not deserving of the current average of the top 200 companies $15 million a year!), or downright losers. But for those who can’t cut it, there is always the golden parachute, handshake, or some other sucker company that will buy the story that it was not their fault.

Thus the only thing that is driving stock prices is growth – short-run growth – but as a study by Rob Arnott shows, much of that growth has come from tax cuts. Sunday’s WSJ had an excellent article explaining this by Jonathan Clements – who has rejoined the WSJ for the Sunday edition only. It might make you want to reconsider your expectations for stocks. Here is the link: Jonathan Clements – stocks

But the most troubling is the mantra of the GOP: free market capitalism. IF it existed, as Milton Friedman believed, it is now just a memory. The premise was that businesses would always do what was in their long-term best interests. If so, why did we just have the worst financial crisis in world history? Meanwhile, they get away with it through their lobbyists, PAC’s, and other campaign contributions. Is this a great country or what? It is good to be CEO…shareholder? Not so much!

Have a great day!

TB

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