11/13/14…government isn’t the problem, who we elect is the problem!

Quote of the Day from the Friars Club Encyclopedia of Jokes: “How many actors does it take to change a lightbulb? One hundred! One to change the bulb and 99 to say “I could have done that.” – Norm Crosby

Bloomberg Quote of the Day: “We are always the same age inside.”–Gertrude Stein–who says?

Bloomberg Top Stories:

*Berkshire Agrees to Acquire Duracell From P&G for $4.7 Billion in Shares

*Jobless Claims in U.S. Increased More Than Economists Forecast Last Week – yawn!

*Oil Drops to a Four-Year Low (support: $74.95!)as Europe Stocks, Ruble Fall; Treasuries Gain

*Wal-Mart’s Earnings Top Estimates After U.S. Sales, Rise; Shares Advance – let’s give a big shout out to America’s riches…and most niggardly family! Support them! …oops we already do!

*Goldman Sach’s New Partner Class Shows Shrinking role of Trading Division – what ‘class’?

*Pound Weakens to 14-Month Low as Housing Slowdown Adds to Gloom on Outlook

*Carney-Yellen Neck-and-Neck on First to Raise Interest Rates – first to cause a recession???

*Oil-Price Slump Tells Goldman Sachs Market Is Moving Away From OPEC Cuts

*Sweden Flaunts Depth of Monetary Tool Box to Show It Can Beat Inflation

*Black of Female in Silicon Valley Taught Unwritten Quiet Code on Diversity – i.e. shut up!

*Your Cash Under Mattress May be Better Idea Than a G-20 Bank – hmmm

*Forex Investors May Face $1 Billion Loss as Popular Trade Website Vanishes – poof!

*EU Split on Russia Sanctions Seen Limiting Steps to Hamper Ukraine Rebels

*Ebola Challenge in West Africa Stuns Even Quick-Strike Guerilla Doctors

*Putin Welcome at Davos as Sanctions Prove No Barrier for Russia Invitation

*U.K. Woman Gets 28 Months in Prison Over Underwear Plot to Fund Terrorists – selling them?

Wednesday’s Market Summary

After those two straight nothing days, what could happen? How about a day that starts out in the tank with the announcement of the fines in the Libor trading scandal dragging down the European stocks and with it U.S.futures. We opened down and then it got really weird (remember this is just one day after more record highs which fizzled), Dow Utilities kept diving closing -2% as the goat for a 2nd straight session (not that it matters ytd), while the S&P 5000 closed -0.1%; the Dow closed flat, and the two Nasdaqs and Dow Transports closed +0.2-0.3%. What do you call that?

Volume got back above 3B shares, A/D’s and Breadth were modestly positive, new 52 week high fell back well below 300, while new lows climbed a tad. The VIX traded entirely with ‘13’ handles (13.04-13.76) and closed up .10 at 13.02…make sense of all that…if you can. Don’t bother!

Total NYSE Volume climbed back above average to 3.25B shares from 2.93B vs 3.24B vs 3.45B vs 3.6B. Average volume since 9/30 is about 3.7B shares but now falling, or about 700M more than the 12-month average. Shares traded on the NYSE floor – affectionately referred to by TB as REAL volume also rose to 718M shares from 614M (lowest since 9/15),vs 717M vs 752M vs 796M – trending lower. For comparison purposes, for the prior 12 months it is a historically weak 712M shares…but since 10/1: 840B shares (and now falling) – including that HUGE 1.22B share day – highest since 9/19, followed by two more 1B plus days leading to options expiry!. The lowest was 10/6’s 696M share session. April 30 – September 30 we had just SEVEN 800M shares…since 10/1: 16, and FIVE 900M+ days.

A/D’s were moderately positive but better on Nasdaq: NYSE: +1.2x vs +1.1x vs +1.3x vs +1.6x vs 1.3x; Nasdaq +1.6x vs -1.1x vs +1.6x vs -1.1x vs +1.4x. Breadth was similar: NYSE 1:1 vs +1.1x vs +1.1x vs +1.9x vs +1.4x; Nasdaq +1.6x vs +1.1x vs +1.4x vs +1.1x vs +1.5x. New 52 Week Highs dropped to 276 vs 339 vs 368 vs 313 vs 328 vs 390 – their range for the year is 39-612!!! New Lows higher again at 113 vs 100 vs 85 vs 114 vs 145. The 2014 range is 24-1043!!! S&P VIX closed slightly barely higher but gave up the ‘12’ handle at 13.02 +.10 but the range was 12.99-13.76, two days after closing the gap from 9/19/-9/22 and its 12th sub-15 close since peaking on 10/15. Now on the ‘cusp’ of bull/bear from those bearish extremes that had a high of 31.06 (highest since 11/28/11!!!). The average of the past 12 months is 13.97, with a low of 10.28!…high close of 26.25 on 10/15/14!

U.S. bond market was little changed except TIPs which were hit pretty hard. The recent 12 month low yields (10’s 2.09%; 30’s 2.87%; and long TIP 0.83%), 10’s closed at 2.36% -1/32; 30’s 3.09% +1/16; and the long TIP 1.00%! -11/16. Overnight all doing better: 10’s 2.35% +3/16; 30’s 3.08% +9/16; and long TIP 0.99% +9/16. Where to from here? Dunno…  

Libor update: 0.233% 3 mos.; 0.326% 6 mos., both steady and just above new record lows! The Fed Funds rate has averaged 0.09% and is steady at 0.08-0.10%. T-Bills acting screwy: 0.05%, one-month, 0.01% 3 mos???, 0.14% +.04 one year???

Foreign bond yields mixed; Greece higher – Japan reversing? (Benchmark is 10yr): Germany 0.79% -2; UK 2.17% -2; France 1.16% -1; Italy 2.37% +1; Spain 2.12% +2; Portugal 3.21% +1; Greece 7.93% +10. 10/16’s close was 8.54%! – cycle low: 5.42%; Crisis high: 12.57%. Japan: 0.49% -3.

Gold closed slightly lower at $1159.100 -$3.90 in another boring and ‘inside’ session following Friday’s surprise rally to $1176.70 culminating in a positive key reversal (session low was $1130.40, a new recent low!). The recent intraday high of $1255.60, highest since 9/10/14, was rejected. The last 11 sessions have had prints below $1200 first time since 12/31/13 Last close above $1300 was on 8/15. 7/17’s session high was $1346.60, highest since March 19th!!! Res is at $1200 (psychological), then the 40 day at $1209, the 50 day $1216, then the 200 day at $1279, all declining. The 12-month high is $1392.60 on 3/17, highest high since 9/4/13. $1130.40. 11/7’s low was $1130.40! Overnight slightly better in another quiet session at $1162.90 +$3.80. Silver remains weak but a bit higher overnigh from the mid-15’s following 11/5’s low of $15.12, more than a five year low, but with the positive key reversal (higher high, lower low, and close above prior day’s high), that should be at least a near-term floor.

Crude closed lower at $77.18 -.76 in a ‘parallel’ sesson, still proving Friday’s $78.65 an outlier. Still struggling following 10/31’s intraday low of $75.84, lowest since 10/14/11!!! 10/25’s high was $84.83. There have been 32!!! handles since peaking at $107.73 on June 13th, highest since 9/19/13. The record high of $147.27 was on 9/30/08, the low since on 12/30/11 is $74.95: $93.60 is the midpoint!!! Recent rally high and close are $110.70 and $110.53 respectively. RES at the 40 day ($84.91), then the 50 day ($86.57), and lastly the 200 day (97.47), all continuing to plunge and accelerating to the downside. Is there any support? Try $74.95, the 10/4/11 low on a spike down…miss that and we are looking at $70! The recent range is now $75.84-$112.24 since 3/1/12. Overnight it is weaker again at $76.30 -.88 with a low of $76.03…$70??? Hmmm.


European equities weaker for a 2nd day; Asia mixed: UK -0.1% vs -0.4% vs +0.2% vs +0.5% vs +0.3%; France -0.4% vs -1.1% vs +0.7% vs +0.3% vs -0.9%; Germany -0.2% vs -1.3% vs +0.4% vs +0.3% vs -0.7%; Japan 1.1%! vs +0.5% vs +2.1%!!! vs -0.6% vs +0.5%; Hang Seng +0.3% vs +0.8% vs +0.3% vs +0.8% vs -0.4%; Korea -0.3% vs +0.2% vs +0.2% vs +1%! vs +0.2%; India -0.2% vs +0.4% vs +0.1% vs flat vs -0.2%. U.S. equity futures slightly higher after gapping down on the open: Dow +15 (range 75); SPX +1.50 (9); NDQ +6.25 (20).


Some random thoughts:

“In this present crisis, government is not the solution to our problem; government is the problem.” – Ronald Reagan, First Inaugural Address (note the first four words, not a broad statement although he had no problem applying it to all of government).

With all due respect to ‘The Gipper’, government WAS the problem and continues to be a problem not in spite of Reagan but largely because of him. How can TB say that? Consider:

In his zeal against government, he de-regulated far too much and too fast. We all recall the air controllers strike in which he simply fired 11,500 of them, placing air travelers at risk, as inexperienced controllers were hired to replace them, just nine months after he took office.

He appointed deregulation proponents to every area of government. Consider in his first term, he appointed Larry Kudlow, as economic advisor to the president, Donald Regan, former head of Merrill Lynch, chief of staff, and of course Richard Pratt to head the Federal Home Loan Bank board.

Pratt, immediately began to deregulate the Home Loan Bank resulting in ‘contract fraud’ of massive proportions, When Pratt resigned two years later he was replaced by Reagan campaigner, close friend and confidante Edwin Gray. Gray was grilled on his views on deregulation by Regan and Edwin Meese and pushed to continue with deregulation. Gray acceded to this demand until the Texas S&L scandal and Charles Keating’s Lincoln Federal Savings altered his thinking thanks to attorney for the Home Loan Bank, William K. Black, who along with a few other officials had his ear and caused him to reverse his stand which sent Don Regan howling. He was pressured by the cabinet and Reagan himself to not do this, but he knew it was the right thing to do. Thanks to Charles Keating’s (a republican) contributions to campaign contributions to what became known as the ‘Keating Five’ (Allan Cranston (D), Dennis DeConcini (D), John Glenn (D), John McCain (R), and Donald Riegle (R), he fought Pratt and the Home Loan Bank and almost succeeded. Not only did he have these five under his control but House Speaker Wright (D). Never in history has one person had this much influence over more than ONE congressman…but SIX??? As a result, the S&L crisis in Texas and in California (most notably Keating’s Lincoln Savings), resulting in hundreds of billion dollars in losses to the government…still think regulation was the problem? Had Congress allowed the Home Loan bank to do its job the losses could have been (just) a few billion dollars. Note that Keating was also a friend of Reagan, and was ‘equal-opportunity’ in supporting politicians favorable to him (he was a pioneer in what has become SOP for all corporations who are on the ‘edge’ or downright corrupt. Talk about cheap protection, the total amount involved was $1.3 MILLION to all five of them! Who wouldn’t accept those odds???

Despite this, when Gray’s term expired he was replaced…by a Congressional junkie, Danny Wall, who attempted to circumvent all that Pratt had accomplished. Remember, Pratt was no crusader, he backed into ‘re-regulating’. At the press conference nominating Wall, not only was Pratt not invited, but his name was not even mentioned by Reagan! Unheard of contempt for a man who attempted to protect savers and save the government money.

Then came 1987 (we will skip the rest of the S&L crisis other than to say that despite bilking widows and other unsophisticated investors into buying Lincoln Savings ‘junk bonds’ while promoting them as safe – the proceeds were used to pay off junk bonds issued by Michael Milken – and these people got nothing). President Reagan, disregarding Don Regan, approved the bailout of Continental Illinois, the 7th largest bank in the U.S. at the time. Yes, Reagan himself, created ‘moral hazard’ and we have been paying for it ever since. So the man who said ‘government’ was the problem was in fact the problem! He also slashed taxes creating a record deficit at the time. Due to the implied guarantees the other top banks (1-6) were deemed government guaranteed and drew in money, not only from other global banks but from smaller regional and community banks…nice job, Ron!

What happened to Keating? Sentenced to 3-1/2 years in jail…can’t find that he paid any fines! The poor people who bought his junk bonds lost everything. As for Knapp, he got six years.

The biggest loser was poor Ed Gray. He was a broken man and not much else happened with him after. Some friend Ronnie turned out to be to him.

More odd Reagan homilies…some may shock you: Reagan quotations

Tomorrow: how the economists and accounting firms aided and abetted along with the ‘efficient markets hypothesis’ that has now been drummed into all those young, impressionable CFA (Chartered Financial Analysts). What happened will surprise and shock you, or at least it did TB!



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