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Wednesday, April 25, 2012 – Bernanke Approximately Right, UK Approximately Wrong, Students Approximately Taxed

DOW + 89 = 13,090 SPX + 18 = 1390NAS + 68 = 302910 YR YLD +.02 = 1.98%OIL -.11 = 104.01GOLD + 2.80 = 1645.30SILV – .12 = 30.81PLAT + 8.00 = 1559.00 If you own shares in Apple, congratulations. It gained nearly $50 to finish at $610, up nearly 9%. If you don’t own Apple, don’t worry about it, don’t chase it. Realize that a big chunk of the move today for the broader market, was really just Apple, but it was a good day, with gainers outpacing losers by 3 to 1. The Federal Reserve wrapped up their FOMC meeting and announced no changes. Wow, what a surprise. The Fed didn’t raise rates – they can’t. They didn’t lower rates – they can’t. They didn’t announce QE3, but they didn’t take it off the table. Bernanke told reporters at a press conference, “We see monetary policy as being approximately in the right place at this point.” He said, “Our intention is to maintain highly accommodative stance of policy for the foreseeable future.” Kind of like QE in Perpetuity. Bernanke stressed that the Fed could purchase more assets if it looked like the economy needed help, but he said some ways to boost the economy, like tolerating higher inflation, would be “reckless.” At the same time, he said it was too early to raise rates, “I think it’s a little premature to declare victory. I think that keeping interest rates low is still appropriate for our economy.” The …

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Tuesday, April 24, 2012 – As the Euro Turns, Counting Protesters at Shareholder Meetings

DOW + 74 = 13,001 SPX + 5 = 1371NAS – 8 = 296110 YR YLD +.03 = 1.96%OIL +.20 = 103.75GOLD + 3.20 = 1642.50SILV -.03 = 30.93PLAT – 14.00 = 1550.00 Yesterday’s edition of “As the Euro Turns” included the collapse of the government in the Netherlands when it could not agree with a key allied party on budget cuts to bring the deficit below the EU-mandated 3 percent. In France, Socialist Francois Hollande led the first round of presidential elections; he has vowed to renegotiate a European treaty tightening rules on debt. All that was absorbed today. After all, the Dutch still have a Triple-A credit rating; they will probably pay their bonds. It does appear, at least for today, that the Euro has turned; as if a sudden transformation has swept the continent. Austerity is dead. Keynes has been resurrected and placed on a pedestal in Brussels, right next to a chocolate covered waffle. There was a mass awakening that countries cannot cut their way to prosperity. Angela Merkel is fighting back against the austerity backlash; she argues the “credibility” of the Eurozone is at risk without more austerity and continuing cutbacks. But austerity isn’t working and its hard to maintain credibility in the face of failed policy. Here is the problem: If a government (say Greece) has a massive deficit and now they are trying to balance their budget, the government will be making the situation worse by imposing cuts, both because government expenditure is …

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Monday, April 23, 2012 European Debate Austerity v. Growth, Walmart in Mexico, Apple in Seattle

DOW – 102 = 12,927SPX – 11 = 1366NAS – 30 = 297010 YR YLD – .04 = 1.93%OIL +.03 = 103.14GOLD – 4.10 = 1639.30SILV – .84 = 30.86PLAT – 22.00 = 1565.00 There is some uncertainty in Europe. Sarkozy is losing the election in France; the Dutch government has collapsed, and the debt continues to mount and the austerity plans aren’t working and the natives are getting restless. In France, Sarkozy came in second behind Francois Hollande, the Socialist candidate and a harsh critic of the spending cuts prescribed as a way to end the region’s debt crisis. This was the first round of voting and there will be a runoff election on May 6th. Hollande won 28.6 percent to Sarkozy’s 27.1 percent; Hollande has the momentum. Voter frustration with the status quo and with the E.U. fed a rise of support for extremes at both ends of the political scale, making potential kingmakers out of 11 million voters who supported candidates of the far right and left. Sarkozy and Germany’s Chancellor Angela Merkel have been the main architects of Europe’s efforts to avoid a collapse of the region’s shared currency. If Sarkozy loses, it means Merkel might not last. If both Sarkozy and Merkel lose power, we’ve got a whole new situation. Figures reported by the European Union’s statistics office confirmed the effects of budget-cutting programs on countries that use the euro currency. Even with widespread spending cuts, overall debt rose to 87.2 percent, the highest level since …

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Friday, April 20, 2012 – Burning Down Spanish Debt, AMR and Unions

DOW + 65 = 13,029SPX + 1 = 1378NAS – 7 = 300010 YR YLD +.02 = 1.97%OIL + 1.05 = 103.32GOLD – .20 = 1643.40SILV – .10 = 31.80PLAT unch = 1586.00 Italian and Spanish bond yields rose after a draft statement released by G-20 finance chiefs who are meeting in Washington said that Europe’s debt crisis still poses a threat to global growth. Spanish bonds briefly pushed above 6%. That helped push the cost of credit-default swaps to insure Spanish government debt up to a record high 503 bp and increased the cost of insuring Italian debt up to 474 bp, a 3-month high. Credit default swaps pay the buyer face value if the borrower – in this instance Spain – fails to meet its obligations, less the value of the defaulted debt. They’re priced in basis points. A basis point equals $1,000 on each $10 million in debt. Credit default swaps, or CDS, are generally considered insurance against default, but it’s not really insurance because anybody can write CDS against anybody else; there is no requirement for “insurable interest”. For example, if insurance worked like CDS, I could write a fire insurance policy on your house and if your house burned down, I would collect the payment. You might think that would give me an incentive to burn down your house. Yep, that might be what you would think. Now the bankers in New York and London might also have a little incentive to burn down Spanish …

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Thursday, April 19, 2012 – Say on Pay Just Says No to Citigroup, BofA Loses by Winning, and the Risky World of Derivatives

DOW – 68 = 12,964SPX – 8 = 1376NAS – 23 = 300710 YR YLD -.03 = 1.95%OIL -.01 = 102.66GOLD +.60 = 1643.60SILV + .17 = 31.90PLAT + 3.00 = 1587.00 Vikram Pandit, the CEO of Citigroup was “this close” to a $15 million dollar payday. And then shareholders slammed on the brakes and demanded the amount be toned down. It might be a trend. Wells Fargo and Bank of America will ask shareholders to vote on executive pay in coming weeks, and the results at Citi might influence the voting at Wells and BofA. Yesterday, shareholders rejected the compensation plan of regional bank FirstMerit Corp., of Akron, Ohio. The bank gave its CEO a pay raise to $6.4 million last year from $5.5 million, while its stock fell 20 percent. “Say-on-Pay” votes by shareholders were a requirement of the Dodd-Frank financial reform Act, and it looks like 90% of the compensation packages are winning approval, but the margin is slim. The Occupy movement plans to protest at 36 shareholder meetings this spring and the investment community seems to be waking up from a long nap of disengagement. The California Public Employees Retirement System, or CalPERS, voted no on the Citigroup pay measure because Citi “has not anchored rewards to performance.” Unfortunately, the only reason CalPERS voted against the pay package was because Pandit’s performance was beyond incompetent. What is the appropriate role for CalPERS? Shouldn’t they stand up for their members? Chief executives at some of the nation’s …

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Wednesday, April 18, 2012 – Euro Debt, Iceland, the IMF, and Forgiveness

DOW – 82 = 13,032SPX – 5 = 1385NAS – 11 = 303110 YR YLD -.03 = 1.98% OIL – 1.43 = 102.77GOLD – 8.00 = 1643.00SILV – .08 = 31.73PLAT – 5.00 = 1581.00 Spain’s non-performing loans as a proportion of total lending jumped to 8.16% in February, up from 7.91% in January and the highest level in 18 years. Data from the Bank of Spain show that Spanish banks are burdened with about 176 billion euros of “troubled” real estate assets and that 21% of the 298 billion euros of loans linked to property developers are non-performing. Despite the increase in the country’s bad loans, the yield on Spain’s 10-year bond fell to a 1-1/2 week low of 5.72% on optimism over tomorrows auctions of 2-year and 10-year Spanish securities. Will Europe and its increasingly ugly currency, the euro, get out of the crisis in one piece? This is probably the biggest question for the global economy right now. There is increasing concern that Spain and Italy will eventually default. Maybe the euro will survive but nobody seems confident of that right now. And it appears Europe is facing an economic depression which will diminish living standards and create social unrest and take years to work though. A best case scenario is years of stagnation. Actually there is another solution and we’ll get to that in a few moments. The fate of the euro has global consequences. Europe is the largest marketplace in the world. When Euro-countries and …

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Tuesday, April 17, 2012

DOW + 194 = 13,115 SPX +21 = 1390NAS + 54 = 3042 10 YR YLD +.04 = 2.01% OIL +.07 = 104.27GOLD – 2.90 = 1651.00SILV +.18 = 31.81PLAT + 8.00 = 1589.00 Tax Day, and you still have a few hours to get the forms filed. We talk a lot about taxes on MoneyRadio; how to legally minimize the tax bill, how to defer the tax bill. We talk about annuities, life insurance, harvesting losses, IRA’s, 401K’s, corporate entities and more. And that’s all good, but if you really want to cut your tax bill, there is a sure fire way to do it. If you are looking to stick it to the IRS, I’ll tell you the secret. You don’t need accountants, you don’t need financial planners, you don’t need tax software, you don’t even need a mailbox in the Grand Caymans. You need a lobbyist. The top eight companies that spent the most on federal lobbying from 2007 to 2009 all saw their reported tax rates decrease from 2007 to 2010; these top eight firms spent $540 million on lobbying from 2007 to 2009. They filed 332 lobbying reports that mentioned taxes and named 491 different tax bills in those reports. The top eight companies that spent the most on lobbying were Exxon Mobil, Verizon Communications, General Electric, AT&T, Altria, Amgen, Northrop Grumman and Boeing. Exxon Mobil spent the most, some $81.92 million from 2007 to 2009. AT&T recorded the largest tax reduction, with its tax …

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Monday, April 16, 2012

DOW + 71 = 12,921 SPX – 0.69 = 1368NAS – 22 = 298810 YR YLD – .02 = 1.97%OIL +.24 = 103.17GOLD – 5.60 = 1653.90SILV +.03 = 31.63 PLAT – 10.00 = 1581.00 Spanish 10-year government bond yields broke above 6 percent for the first time this year as concerns over the country’s ability to keep its finances under control pushed debt markets back into crisis mode. Spanish 10-year yields were at 6.15 percent. Five-year yields topped 5 percent, while two-year yields spiked to 3.70 percent, all 2012 highs. Six percent is psychologically important because the the quick slide in prices has accelerated on previous occasions when that level was broken. Beyond 7 percent, Greece, Portugal and Ireland struggled to raise cash in the market and were forced to seek financial aid. The cost of insuring Spanish debt against default hit a record high Monday of $520,000 a year to buy $10 million of protection; that is to buy credit default swaps, and after the Greek fiasco, nobody really knows how much protection a credit default swap really buys. The ECB seems reluctant to resume bond purchases. We’re back in full crisis mode, it is looking more and more likely that Spain is going to have some form of a bailout. Absent an intervention from the ECB, you would not see a cap on Spanish yields; they would just keep increasing.” Top European Central Bank officials are calling on the rest of the world to pledge more money …

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Friday, April 13, 2012

DOW – 136 = 12,849SPX – 17 = 1370NAS – 44 = 301110 YR YLD -.05 = 2.00%OIL – .81 = 102.83GOLD – 16.80 – 1659.50SILV – .88 = 31.60PLAT – 20.00 = 1581.00 The S&P 500 is now down 3.4 percent from this year’s closing high, after falling 2.7 percent over the past two weeks. Wells Fargo and JP Morgan reported first quarter results; both beat expectations. JP Morgan came in with EPS of $1.31 on $26.7b in revenues; topping estimates of EPS $1.18 and revenues of $24.6b. Wells Fargo posted EPS of $0.75 on $21.6b in revenues, beating estimates of $0.73 and $20.4b. JP Morgan made a big chunk of earnings by lowering their reserves for loan losses by $2 billion. In the last 2 years, JP Morgan has generated $12.3 billion in non-earning earnings, even as non-performing loans increased by $600 million in the last quarter. Or as CNBS said, they “blew expectations out of the water.” Blowing smoke is more like it. WFC – 3.4% JPM -3.6% BAC -5.3% GS -4.4% C -3.5%. Jamie Dimon, the CEO of JP Morgan said he would fight buyback demands or repurchase claims on mortgage securities that turned sour. Bank of America has already lost a few of these multi-billion dollar battles. JP Morgan is in the same business as Bank of America. Jamie Dimon briefly responded to questions about the Chief Investment Office, or CIO; that’s the proprietary trading division. According to JP Morgan the CIO division uses approximately …

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Thursday, April 12, 2012

DOW + 181 = 12,986 SPX + 18 = 1387NAS + 39 = 3055 10 YR YLD +.02 = 2.05%OIL +.08 = 103.72GOLD + 15.60 = 1676.30SILV + .77 = 32.48PLAT + 20.00 = 1611.00 The Federal Reserve Propaganda Tour continued last night with performances by Janet Yellen and William Dudley, the head of the New York Fed. Dudley said, “we cannot lose sight of the fact that the economy still faces significant headwinds and that there are some meaningful downside risks… the incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be getting better established. But, while these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods in terms of generating a strong, sustainable recovery. On the inflation front, the year-over-year rate of consumer price inflation has slowed in recent months, and despite the recent rise of gasoline prices, we expect inflation to moderate further in 2012.” To translate, the Fed isn’t worried about inflation and they have given themselves a green light for QE3 and they’ll juice the economy with piles of free money when they feel like it. Of course, that’s not the final word on the matter; St. Louis Fed President James Bullard says he sees the unemployment rate at 7.8% by the end of the year, noted that March’s monthly employment report was just one “mediocre” report and not an immediate concern that would push the …

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