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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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Wednesday, April 11, 2012

DOW + 89 = 12,805SPX + 10 = 1368NAS + 25 = 301610 YR YLD +.04 = 2.03%OIL – .13 = 102.57GOLD – .90 = 1660.70SILV -.23 = 31.71PLAT – 14.00 = 1591.00 What changed between yesterday and today? What pushed the markets higher today? What pushed the markets lower yesterday? I hope I’m smart enough to not fall into that trap. The markets fluctuate. They don’t go straight down and they don’t go straight up. At the start of the month, I said you might want to think about taking profits off the table; I still think that’s wise, but I’m not saying the market will crash; I don’t think the sky is falling, at least not today. There are twelve different regional banks in the Federal Reserve; each month the task of writing about the economy falls to a different bank; the results are published in a book format with a beige cover, hence the name “Beige Book”. It’s a misnomer. Some months the book should be called “the lime green electrifying economic report” and other months it might be called the “Kind’a Blue Forecast”. This month, the report was prepared by the Cleveland Fed and the “Beige Book” title fits. The Federal Reserve says the economy continued to grow at a “modest to moderate pace” over the last month. Manufacturers and retailers expressed some concern about rising oil prices, but the unusually warm weather helped retail sales. The report showed an economy chugging if not roaring along: …

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Tuesday, April 10, 2012

DOW – 213 = 12, 715SPX – 23 = 1358NAS – 55 = 299110 YR YLD -.05 = 1.99%OIL +.09 = 101.11GOLD + 19.30 = 1661.60SILV + .08 = 31.94PLAT – 14.00 = 1605.00 Today marked the start of the first quarter earnings reporting season. The Dow and the S&P have now dropped for 5 consecutive days. The S&P 500 dropped below its 50-day moving average of 1,372. The Nasdaq also slid below its 50-day moving average and closed below 3,000 for the first time since March 12. Volume finally increased today, confirming the bearish move. The Standard & Poor’s 500 Index is still up 8 percent so far this year – compared with its gain of 12 percent at the end of the first quarter, but the benchmark index has fallen 4 percent in the past five sessions, its worst streak since November. Earnings reporting is actually well underway; with 5 percent of the S&P 500 components having already reported, profits are seen rising 3.1 percent in the quarter. Symbolically or alphabetically if you really want to be accurate, Alcoa kicks off the earnings season. Alcoa is one of the 30 stocks in the Dow industrial Average and the ticker is AA. After the close of trade, Alcoa said income from continuing operations in the first quarter was $94 million, or 9 cents per share, compared with a profit of $309 million, or 27 cents per share in the same quarter last year. Revenue rose slightly to $6 billion. …

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Monday, April 09, 2012

DOW – 130 = 12, 929 SPX – 15 = 1382NAS – 33 = 304710 YR YLD – .14 = 2.04%OIL – .15 = 102.31GOLD + 10.20 = 1642.30SILV +.05 = 31.86PLAT + 17.00 = 1619.00 Remember Friday? Remember the disappointing jobs report? The economy added 120,000 jobs in March. The unemployment rate dropped from 8.3% to 8.2% but that was just because people dropped out of the labor pool, they just quit looking for a job. While the economy undeniably continues to grow, the rate of that growth continues to disappoint. The stock market was closed on Friday; today, we saw the response and it was ugly. Alcoa kicks off the earnings reporting season tomorrow afternoon. Alcoa is forecast to post a $0.05 loss versus a $0.28 gain a year ago. Even if Alcoa beats expectations, it would be disappointing. A bad first quarter is expected; earnings will almost certainly be lower than last quarter and absolutely down on a year over year basis. And while earnings might be disappointing, big U.S. companies are flush with cash, they’re more productive, more profitable, and less burdened by debt. An analysis by The Murdoch Street Journal of corporate financial reports finds that cumulative sales, profits and employment last year among members of the Standard & Poor’s 500-stock index exceeded the totals of 2007, before the financial crisis. Deep cost cutting during the downturn and caution during the recovery put the companies on firmer financial footing, helping them to outperform the rest …

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