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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422


Next post Monday May2.
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April 29, 2011

Model Portfolio Value As of 29 April 2011

$ 613,951


Thoughts

April 28, 2011

Model Portfolio Value As of 28 April 2011

$ 613,873


Thoughts

We are taking Friday off to celebrate the wedding; view the NFL draft: watch the shuttle launch; and hopefully enjoy the sun appearing after a week of rain. Next post Monday May2.
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Asia and Europe were mixed small and U.S. futures indicate a down opening. Gold is $1530 and Oil has a $112 handle as the trading day begins.
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Diane Swonk, Chief Economist Mesirow Financial:
Bernanke Opens the Fed to the Press

Federal Reserve Chairman Ben Bernanke tried to rock as few boats as possible during his inaugural press conference. He presented the Fed's official forecast for the economy, which reflected the Federal Open Market Committee (FOMC) statement released earlier. The central tendency of projections showed: real GDP growth is now expected to grow somewhat slower than previously expected; the unemployment rate was revised down to reflect changes since the start of the year; and, inflation was revised higher. Bernanke underscored, however, that the higher inflation scenarios are more transitory than permanent in nature and, hence, still consistent with price stability. Indeed, the central tendency of inflation forecasts for 2012 and 2013 show inflation moving back below the Fed's implicit 2% target.

Separately, the central tendency on unemployment suggests we are still many years from reaching full employment, which the Fed estimates is somewhere between 5.2% and 5.6%. That is lower than my own estimate, but still suggests we are a long way from home.

Bernanke concluded with the idea of normalizing policy as needed. This is an important distinction from an actual tightening of policy. Normalization could include a gradual shrinking of the balance sheet and/or an increase in the interest charged on reserves. He also underscored the uncertainty in forecasting, noting that the "extended period" language on rate may mean a few meetings.

Bottom Line: Our forecast on monetary policy holds, with the Fed delaying an increase in rates until early 2012. In the course of his question and answer session with reporters, Chairman Bernanke suggested that he may want to wait even longer to tighten.
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(Yahoo/Finance) First quarter GDP: the data indicate that the U.S. economy expanded at an annualized rate of 1.8% from January through March. It had been expected, on average, that GDP would grow by 1.7% after a 3.1% spike in the fourth quarter. The GDP deflator for the first quarter increased by 1.9%, which is less than the 2.4% increase that had been broadly anticipated. Separately, initial jobless claims for the week ended April 23 totaled 429,000, which is greater than the 390,000 initial claims that represent the Briefing.com consensus. The latest initial claims tally also marks an increase of 25,000 from the prior week. Continuing claims came down to 3.64 million from 3.71 million, though.
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Is this a great country-or what?
More than 200 people suspected of ties to terrorism bought guns in the U.S. last year legally, FBI figures show. The 247 people who were allowed to buy weapons did so after going through required background checks as required by federal law. It is not illegal for people listed on the government's terror watch list to buy weapons…… Between February 2004 and December 2010, 1,453 people on the terror watch list have attempted to buy firearms or explosives. Of those, 90 percent of the people were allowed to go through with their purchases. There is no public information about anyone on the watch list who was allowed to buy a firearm using it in a crime. The National Rifle Association, which wields significant political influence in Washington, is opposed to a law that would give the attorney general the authority to deny someone on the watch list the ability to buy a firearm. NRA spokesman Andrew Arulanandam said the watch list lacks integrity and includes law-abiding citizens who are mistaken as having ties to terrorists. Read more:
http://www.foxnews.com/politics/2011/04/28/fbi-247-people-terro-watch-list-bought-guns-2010/#ixzz1KprxhohC
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Following Piper Jaffray's attendance at Coldwater Creek's (NASDAQ: CWTR) analyst event in New York City yesterday, it believes there are some encouraging signs that Coldwater Creek's merchandising team is moving in the right direction. Specifically, it believes that critical new hires, a new catalog format, and a change in the company's merchandise presentation could all be positive catalysts in 2011. Piper Jaffray remains on the sidelines for now, however, in view of sourcing pressures and a highly promotional retail environment.

New hires could be laying the foundation for improvement in 2011. Management discussed several additional recent hires in the organization, notably a chief merchandising officer and a head designer for jewelry, which is a category identified as a significant opportunity for growth.

Management believes that poor in-store visual merchandising played a prominent role in Coldwater Creek's disappointing top-line performance in the back half of FY11, and that improved store displays will be crucial for regaining lost sales. Specifically, management is focused on segmenting its stores based on which items go together as part of one theme or lifestyle, as opposed to its prior presentation, which in Piper's opinion was heavily item-driven.

Piper Jaffray has a Neutral rating on CWTR. Read more:
http://www.benzinga.com/analyst-ratings/analyst-color/11/03/962766/piper-jaffray-comments-on-coldwater-creek-following-analy#ixzz1KqXE0Roy
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We are heading out early today. In the final hour the DJIA and S&P are higher while the NAZZ is lower. Breadth is flat and volume light.
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April 27, 2011

Model Portfolio Value As of 27 April 2011

$ 612,070


Thoughts

The two day Fed meeting ends today at 1PM with a press conference by Uncle Ben. It’s the first time we remember a Fed meeting ending with a press conference and we would guess that traders will be keying on the words of wisdom or whatever from Uncle Ben’s mouth. Overseas markets were mixed small as are U.S. futures pre-opening. Gold is $1506 and Oil $112 as the trading day begins.
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(NYT) Nokia, the world’s leading cellphone maker, said Wednesday that it would eliminate about 7,000 jobs as part of a cost-cutting program that was deeper than expected.

The 12 percent reduction in the Finnish company’s global work force will help trim operating costs by €1 billion, or $1.47 billion, a 17 percent reduction, by the end of 2012. Analysts had expected that 5,000 to 6,000 jobs would be cut. Stephen Elop, the former Microsoft executive who became Nokia’s chief executive in September, said the cuts and reorganization were needed to prepare for its partnership with Microsoft. Nokia plans to eventually phase out the Symbian operating system as it rolls out smartphones next year running Microsoft’s Windows Phone software. “With this new focus, we also will face reductions in our work force,” Mr. Elop said. “This is a difficult reality, and we are working closely with our employees and partners to identify long-term re-employment programs.” In a statement, Nokia said the reductions would be achieved by eliminating 4,000 jobs, mostly in Britain, Denmark and Finland, and by transferring 3,000 employees responsible for its Symbian operating system to Accenture, a global technology consultant to businesses.
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Diane Swonk, Chief Economist Mesirow Financial
A Rebound in Durable Goods Orders: Durable goods orders increased 2.5%, indicating that business investment remains intact; it's likely to regain momentum lost at the start of the year, as we move forward. Transportation equipment was particularly strong, reflecting strength in the vehicle market. We are also beginning to see pent-up demand for heavy trucks, as manufacturing activity continues to recover on the heels of strong exports.

Most encouraging was the 3.2% increase in capital goods orders, which most closely track actual business investment. Shipments of capital goods orders also rose; this will help offset some of the weakness in business inventories during the quarter.

FOMC Downgrades Forecast Slightly, Dismisses Inflation Threat: The Federal Open Market Committee (FOMC) unanimously voted to maintain current policy at its meeting today. In particular, the Fed voted to complete its bond purchase program (also known as QE2), continue to replace any maturing mortgage-backed securities (MBS) with additional Treasury bond purchases and maintain its zero-interest-rate policy for "an extended period."

The Fed slightly downgraded its assessment of current economic conditions, while acknowledging that inflation has picked up. It maintained the view, however, that the increases in inflation we are seeing are transitory.

The statement was unremarkable, which is to be expected at this stage of the game. We are too close to finishing QE2 for the hawks to fight it. A dissent today would have been particularly bad for Chairman Ben Bernanke, as he will be holding his first press conference to answer questions on the Fed's forecast later today.  His hope is to make as little news as possible as the Fed shifts its communication strategy.

Bottom Line: Business investment appears to be reaccelerating after losing some momentum (probably due to inclement weather) at the start of the year. This gives us some hope that the details of the GDP report, due to be released tomorrow for the first quarter, will be stronger than headline figures suggest. Indeed, real GDP could easily slip below the 2% threshold in the first quarter. Much of that weakness, however, is likely to be attributed to weaker inventories, setting the stage for a rebound down the road when inventories are restocked.
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DreamWorks dropped on earnings and we added shares to larger accounts. We repurchased our Sony trading position and added to TLAB again today.
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Breadth was flat and volume light as the major market measures closed 0.75% higher today. Oil ended at $113 and Gold was $1526.
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April 26, 2011

Model Portfolio Value As of 26 April 2011

$ 609,268


Thoughts

(AP) An improving economy and new vehicles like the Ford Explorer propelled Ford Motor Co. to a $2.6 billion profit, its best first-quarter performance since 1998. The company earned 61 cents per share from January through March, compared with 50 cents per share in the same quarter a year earlier. The results beat Wall Street's expectations. Analysts surveyed by FactSet were forecasting earnings of $2.1 billion, or 50 cents per share. Revenues rose 18 percent to $33.1 billion. The company was profitable in all regions, but saw strong growth in Asia, where sales rose 28 percent. Sales rose 12 percent in North America.
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Asia was mildly lower and European bourses are higher. Oil is at $112 and Gold over $1500 as the trading day begins with a slightly higher opening in the works for U.S. markets.
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(Briefing.com) Tellabs reports EPS in-line, misses on revs; guides Q2 revs below consensus (TLAB) 5.39 : Reports Q1 (Mar) loss of $0.03 per share, in-line with the Thomson Reuters consensus of ($0.03); revenues fell 15.0% year/year to $322 mln vs the $326.1 mln consensus. Co issues downside guidance for Q2, sees Q2 revs of $325-345 mln vs. $356.52 mln Thomson Reuters consensus. Co expects non-GAAP gross margin to be flat with 1Q11, plus or minus one or two points, depending on product and customer mix. Co expects second-quarter non-GAAP operating expense to be down slightly in the low $140 millions. "While international revenue grew 40% from a year ago, lower revenue in North America drove Tellabs' first-quarter results."
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Diane Swonk, Chief Economist Mesirow Financial:
Confidence Rises on Fading Inflation Concerns, but Home Prices Fall

Consumer confidence rebounded slightly in April to 65.4 after plummeting to a revised 63.8 in March. Consumer concerns about inflation are abating, despite soaring prices at the pump. Indeed, anecdotal reports suggest that low- and middle-market retailers were forced to resume discounts in April because consumers curbed discretionary purchases in the face of higher gas prices. That is exactly what Federal Reserve Chairman Ben Bernanke had predicted would happen to inflation, given the limitations most consumers face with their budgets.

Separately, the S&P/Case Shiller Home Price indices for the top-10 and top-20 metro areas continued to fall in February, measured on both a month-to-month and a year-to-year basis. The overall indices are now close to the lows hit during the recession in April of 2009. The only city to escape a decline on a month-to-month basis was Detroit, where prices are so low that even one or two major sales could push the index up. Indeed, the level of prices in some investor (sometimes called "vulture") buying helped Detroit home values to post the only monthly gain in the survey. The level of home prices in four cities, including Detroit, are now below the levels hit prior to the boom in 2000; Atlanta, Cleveland and Las Vegas make up the other three cities with prices below their 2000 levels. We also saw some reversal in places like San Diego, which had been showing signs of strength in recent months.

The only city to show consistent signs of improvement on a year-to-year basis was Washington D.C., where home prices rose 2.7% from a year ago, despite losing some ground on a month-to-month basis.  Washington has seen more improvement in employment over the last year than other parts of the country. The city offered a tax credit for home buyers relocating to the area, including newly-elected members of Congress; this no doubt helped buoy prices. The D.C. credit was above and beyond the federal tax credits offered to first-time home buyers by Congress in late 2009 and early 2010. The special Washington credit was allowed, however, to quietly expire in December, which means that its impact on home prices in that area is now dissipating.

Bottom Line: Consumer confidence is improving but remains at very low levels; the housing market is not much better. The two are intricately linked. Look for the Fed to wrap up its second round of quantitative easing (nicknamed "QE2") in June as planned; but the "extended period" language on low rates will likely be maintained. The consumer and housing have given Ben Bernanke plenty of cover for defending the Fed's forecast for a transitory blip in inflation, when he holds his historic, first press conference after the Fed's two-day meeting ends tomorrow.
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(Forbes) Telecom equipment provider Tellabs (TLAB) this morning posted a Q1 loss of 3 cents a share, in line with Street estimates, but revenues were slightly below expectations.

Revenue for the quarter was $322 million, down 15% from a year ago, and below the Street consensus forecast of $326 million. Meanwhile, Tellabs sees Q2 revenue of $325 million to $345 million, below the Street at $356.5 million. “While international revenue grew 40% from a year ago, lower revenue in North America drove Tellabs’ first-quarter results,” CEO Rob Pullen said in a statement. “Going forward, we will continue to invest in the smart mobile Internet through increased R&D spending to position Tellabs for long-term growth.” We added TLAB at $4.95 to accounts. The company has $4 per share in cash with no debt.
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Gold lost $7 to $1501 and Oil was flat at $112. The major market measures closed up almost 1% in light trading.
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April 25, 2011

Model Portfolio Value As of 25 April 2011

$ 607,792


Thoughts

Markets around the world are mixed small as the trading day begins. Oil is $113 and Gold $1526.
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Markets closed mixed in light trading. It was that boring.
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April 21, 2011

Model Portfolio Value As of 21 April 2011

$ 606,774


 

April 20, 2011

Model Portfolio Value As of 20 April 2011

$ 605,044


Thoughts

Intel beat as did IBM and tech stocks are moving higher taking the rest of the market with them. The major market measures are going to open up 1% and higher. Asia and Europe were also 1% to 2% higher overnight and Gold is $1504 while Oil has a $109 handle as the trading day begins.
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Investors Intelligence: 54% Bulls; 19% Bears; and 26% Correction. That is still worrisome unless HFT trading has made all other measures meaningless. This is a thin week with Passover and Easter and so the big boys and girls are having fun.
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We added Huntington Bank to accounts that own Fifth Third. HBAN earnings came today and they were fine. Fifth Third announces in the morning and we may add a few shares after.
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$111 handle on Oil and $1500 on Gold; the salad days are here again.
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The major market measures opened higher and held a 1% and more gain all day in light trading. Breadth was 3/1 to the good at the close.
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April 19, 2011

Model Portfolio Value As of 19 April 2011

$ 598,171


Thoughts

Oil has a $106 handle with Gold at $1495 as the trading day begins. Asia was lower overnight but Europe is rallying and futures suggest a slightly higher opening. Technicians see an inverse head and shoulders formation with 1294 the left and right shoulders. That is bullish but the S&P has to hold 1294 for it to work. We do think the S&P downgrade of U.S. debt was a one day wonder and yesterday’s action may also have had something to do with a large fund or two being caught the wrong way on Friday’s expiration. A down opening would have been more positive for the bulls but …

Goldman beat and is grudgingly pennies higher. Our guess is a first hour pullback and then midday rally. It is only a guess.
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We repurchased Hewlett Packard $1.50 lower in our tax free accounts.
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At 10:30AM the major market measures are now negative. So far so good if you are a bull.
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Matt Taibbi on Goldman Sachs:
I read some of the Levin report. It's wild. It completely puts to lie the notion that Goldman was innocent during this entire time period, as the report details instance after instance of the bank reaming its clients and customers. The most interesting passage for me so far came on page 391, about the “Hudson” deal:

Goldman began marketing Hudson 1 securities in October 2006, soliciting clients to buy Hudson securities. It did not fully disclose to potential investors material facts related to Goldman’s investment interests, the source of the CDO’s assets, and their pricing. The Hudson 1marketing materials stated prominently, for example, that Goldman’s interests were “aligned” with investors, because Goldman was buying a portion of the Hudson 1 equity tranche. In its marketing materials, Goldman did not mention that it was also shorting all $2 billion of Hudson’s assets – an investment that far outweighed its $6 million equity share and which was directly adverse to the interests of prospective investors. In addition, the marketing materials stated that Hudson 1’s assets were “sourced from the Street” and that it was “not a balance sheet CDO.” However, $1.2 billion of the Hudson assets had been selected solely to transfer risk from ABXassets in Goldman’s own inventory.

Goldman also did not disclose in the materials that it had priced the assets without using any actual third party sales. The absence of arm’s length pricing was significant, because the Hudson CDO was designed to short the ABX Index using single name RMBS securities, and there was a pricing mismatch between the two types of assets. Goldman not only determined the pricing for the RMBS securities purchased by Hudson 1, but retained the profit from the pricing differential. The marketing materials did not inform investors of Goldman’s role in the pricing, the pricing methodology used, or the gain it afforded to Goldman.

Translating this into English: Goldman acquired reams of crappy residential mortgage-backed securities, dumped them on clients, then bet against 100% of the deal. But the shocking detail to me was this bit about pricing: Goldman bought the crappy securities at X price, then sold the securities to their clients at another, completely Goldman-invented price – let’s call it (X + Blankfein) – and then pocketed the difference. So the bank gouged clients on price and then turned around and took a short position on them on the other side.

 Then, and this is my favorite part, when Hudson began losing money, all the investors came running to Goldman, begging them to liquidate the deal to get whatever they could for the crap securities before they lost all their value. But unbeknownst to Goldman’s clients, you see, Goldman had that monster short position on the other side, meaning that the more those securities plummeted in value, the more Goldman made. So Goldman stalled and continually refused to liquidate the deal even as their clients begged them to get out. The report quotes a Morgan Stanley rep (Morgan was one of the investors) who claimed that he was so mad when Goldman refused to liquidate the deal that “I broke my phone.” He says to the head of Goldman’s CDO desk: “One day I hope to get the real reason you are doing this to me.” Morgan Stanley ended up losing $960 million on that deal. Think about that next time you consider how much federal aid both Goldman and Morgan Stanley got during the bailouts. Morgan Stanley lost nearly a billion dollars on this one simple, good old-fashioned ripoff – a straight-up fraud deal. Of course, we ended up paying for it.

I personally don’t see why more politicians don’t do what Levin is doing. These nitwits at Goldman are totally indefensible and politically cancerous. Even for purely cynical reasons – even leaving out the part about it being the right thing to do – politicians should be whaling away at them with stories like this. But they don’t. It’s hard to figure, even when you take the campaign dollars into consideration. http://www.rollingstone.com/politics/blogs/taibblog/mailbag-the-levin-report-on-goldman-donald-trump-bad-grammer-20110418
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Diane Swonk, Chief Economist Mesirow Financial:
Housing Starts Show a Pulse in March

Housing starts bounced back to a 549,000 unit annualized rate in March, after being revised up for the month of February to a still anemic 512,000 unit pace. Permits were a little more robust, especially in the multi-unit sector, where a firming of rents is attracting investors back into the mix. Data released yesterday, however, suggest that builders remain extremely dour about the housing market outlook, as the level of activity is still closer to the lows of the bust than anything that could be considered a recovery.

Regionally, gains were broadly based, but not exactly stellar. Only the South continued to see declines. That is also where we are likely to see tear-downs accelerate as homes that have become uninhabitable are removed from the housing stock.

Bottom Line: The housing market is still alive, but barely, and will be operating on life support for much of the year. We still need to clear much of the existing inventory, which is difficult because of ongoing problems that banks face in foreclosing on properties in default, and the hidden supply that is likely to hit the market, the minute we see any firming in prices.
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 (ThinkProgress.com)The Wall Street Journal reports today that Corporate America certainly isn’t doing its part to help bring America out of its economic malaise. The paper surveyed employment data by some of the nation’s largest corporations — General Electric, Caterpillar, Microsoft, Wal-Mart, Chevron, Cisco, Intel, Stanley Works, Merck, United Technologies, and Oracle — and found that they cut their workforces by 2.9 million people over the last decade while hiring 2.4 million people overseas.

The paper notes that this is actually a sharp reversal from trends in the late 1990s, when these major companies were creating more jobs in the United States than overseas. Yet by 2001, things took a turn for the worse, and these corporations have been adding more jobs abroad than at home,
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(WSJ) European stock markets rose Tuesday, led by auto and luxury-goods issues, and supported by strong euro-zone manufacturing data and bargain hunting after Monday's selloff. Oil rebounded with the markets and closed at $108.15 and Gold touched $1500 but closed at $1496.
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The major market measures closed 0.5% higher in light trading, that’s half of yesterday’s loss. Breadth was positive.
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April 18, 2011

Model Portfolio Value As of 18 April 2011

$ 596,043


Thoughts

Markets around the world are lower with European bourses down 1% and more and U.S futures indicate a lower opening. Oil has a $108 handle and Gold is $1480 as the trading day begins.
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Las Vegas cheers
(WSJ) The U.S. Justice Department shut down Full Tilt Poker on Friday, along will other online poker sites, accusing 11 people of bank fraud and of illegally operating gambling websites. The government seized accounts run by the sites that held money stored by players. The crackdown came after years of tension between the sites and the U.S. government, which long held that online gambling is illegal. The case could test the claim by the poker site operators that operating a poker site online isn't illegal because, they say, as a game that involves skill, poker is not gambling.
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Federal help is bad unless …
(Reuters) Texas Gov. Rick Perry sought additional federal help in battling wildfires across his drought-parched state as a woodland blaze gutted at least six homes on Sunday and threatened hundreds more in Austin, the state capital.
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S&P changed its outlook on U.S. debt to negative and that has led to a 2% drop in the major market measures. S&P are the folks who rated garbage CDOs as AAA so their judgment is worthless. We are among the folks who think the debt crisis is baloney. And that is what we think of S&Ps ratings and always have. But the big boys and girls needed a reason to play their games and the ratings question supplies that for the day at least.

S&P statement: Standard & Poor’s Ratings Services said today that it affirmed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the U.S. Standard & Poor’s also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable. Our ratings on the U.S. rest on its high-income, highly diversified, and flexible economy. It is backed by a strong track record of prudent and credible monetary policy, evidenced to us by its ability to support growth while containing inflationary pressures. The ratings also reflect our view of the unique advantages stemming from the dollar’s preeminent place among world currencies.

“Although we believe these strengths currently outweigh what we consider to be the U.S.’s meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the ‘AAA’ level,” said Standard & Poor’s credit analyst Nikola G. Swann. “More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” Mr. Swann added
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How Wall Street Crooks Get Out of Jail Free

Readers may wonder why we keep harping on the lack of prosecutions on Wall Street. The reason is that we are subject to the same rules as the big boys and girls and we are audited every two or three years by both the SEC and FINRA and if we don’t cross all the Ts and dot all the Is we are written up. The Goldman’s of the world have always walked the edge and stepped over at times but they now are truly too big to fail.   ...unfortunately now it seems that while as a Company they can be fined no individual in the company ever has to take responsibility for their actions.
See: http://www.thenation.com/article/159433/how-wall-street-crooks-get-out-jail-free
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(Daily Kos) The average federal income tax rate for all Americans has gone down in the past 20 years. Overall, it's dropped from 9.9 percent to 9.3 percent since 1992. But among the 400 people with the highest adjusted gross income in the country, averaging $345 million a year, the average rate—the effective rate—has dropped from 26 percent to 17 percent.
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We repurchased Dell and Best Buy and added shares of BankAmerica.
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Now he tells us:

(Bloomberg) Former Federal Reserve Chairman Alan Greenspan said tax cuts put in place by former U.S. President George W. Bush should be allowed to expire and the U.S. should return to tax rates that were in effect under former President Bill Clinton to help address the budget deficit.

We should “allow the Bush tax cuts to expire,” Greenspan said on NBC’s “Meet the Press” today, calling the economic crisis “imminent and dire.” We should “put the rates back to where they were during the Clinton administration,” he said.
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European bourses closed off 2% and the major market measures in the U.S. lost 1%. Volume was light and breadth was 5/1 negative.
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April 15, 2011

Model Portfolio Value As of 15 April 2011

$ 600,065


Thoughts

Google missed and is lower, BankAmerica missed and was higher/now lower and Asia and Europe were mildly better overnight. Gold is up at $1475 and Oil has a $107 handle as the trading day begins.
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Diane Swonk, Chief Economist Mesirow Financial:

Pass-through Inflation Remains Extremely Contained- Manufacturing: One Bright Light

The Consumer Price Index (CPI) rose 0.5% in March on higher energy and food prices, which underscores our concern about an inflation-adjusted decline in spending at food and beverage stores; we flagged this in the retail sales data earlier this week. This suggests that consumers are making very tough decisions when it comes to what kind of food they put on the table because prices at the pump are soaring. Spending at food and beverage stores was basically unchanged in March, which means that consumers actually cut back on their spending at the grocery store on an inflation-adjusted basis during the month.

Inflation-adjusted earnings actually contracted by 0.6% in March. Core inflation rose a much more modest 0.1%, reinforcing the Federal Reserve's view that the recent surge in commodity prices will be transitory. The idea is that higher commodity prices represent a tax on consumers, limiting demand in economies with as much slack as we have in the U.S. This is in contrast to the situation in Europe: accelerating inflation in Germany, where economic conditions are significantly more robust than they are in the U.S., are offsetting deflationary pressures elsewhere in the region, or, as another example, China, where the dollar peg has ham-stringed the government's ability to rein in inflation with monetary tightening.

Here in the U.S., discretionary retailers, such as apparel and furniture sellers, were forced to cut prices during the month. That was despite rising input costs and threats by discounters, such as Walmart, that they will be raising prices. Reality is always tougher than rhetoric when it comes to the economy, something that I wish Congress would come to terms with.

Industrial production surged 0.8% in March, reinforcing the manufacturing sector's role as one of the few bright spots in the U.S. economy. Gains were broad-based across consumer goods and business equipment. Even construction posted gains, although those were likely fueled by exports, mostly to developing economies. We should also see a blip in construction equipment, once rebuilding gets underway in Japan.

Less encouraging was an outsized rise in utility production, which had fallen sharply during the previous two months. Capacity utilization also moved up to 77.4% from 76.9% in March. For manufacturing alone, factory capacity rose to 75.3%, still well below the Federal Reserve's long-term average. Moreover, many producers are now starting to reopen idled plants, which will alleviate some bottlenecks that are beginning to emerge. The Fed works hard to exclude factories that are obsolete from their calculations. The Fed's Beige Book suggested that manufacturing is one of the only sectors that has been able to pass along increases in input costs to buyers. Luckily for us, most of those buyers live in emerging markets, which means that much of the inflation associated with those price increases is being exported abroad instead of worsening our own inflation situation.

Bottom Line: Rising commodity prices are clearly damaging to the U.S. economy. So far, however, the result seems to be more damaging to demand than to overall inflation. Even Charlie Plosser, a known inflation hawk at the Fed, admitted that core inflation can be a good predictor of overall inflation, if economic conditions do not pick up substantially; he said this in an interview with Steve Liesman on CNBC today. Manufacturing continues to recover from recession lows, but it is still running at a fraction of its previous peak in most industries. The good news for the broader economy is that we have begun to hit a tipping point and will begin to open more factories as long as exports remain robust.
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Big Break For Big Oil, Larger Burden For Taxpayers (Imagine the oil companies letting consumers estimate how much gasoline they have pumped into their cars when filling up and what the price should be.)

Even as leaders grapple with the nation's fiscal troubles and urge expanded drilling for natural resources, their failure to remedy decades-old systemic shortcomings at the Interior Department may have allowed billions of dollars in royalties from oil and natural gas companies to slip away, increasing the burden on taxpayers.

By law, energy companies must pay one-sixth to one-eighth of the value of oil and gas obtained on public lands and in federal waters off the nation's coasts. In practice, government auditors and Interior's inspector general believe the industry is paying less than it legally should. Exactly how much less is anybody's guess, but it is believed to be at least hundreds of millions -- and possibly tens of billions of dollars.

So flawed and complicated are Interior Department operations and records that even auditors from the Government Accountability Office, the watchdog arm of Congress, have been unable to figure out exactly how much has been lost to taxpayers……

…..The problems have their roots in the process itself. Each company is responsible for keeping track of the amount produced each month from federal lands or waters, then reporting that production to Interior, along with a total for how much the company owes in royalties. The assessment is based on the total value of that month's production, including the price -- a number that fluctuates daily, making it hard to lock down a figure.
http://www.huffingtonpost.com/the-center-for-public-integrity/big-break-for-big-oil-lar_b_849560.html
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Ten interesting tax charts:
http://www.offthechartsblog.org/top-ten-tax-charts/
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The major market measures closed higher but off their best levels in light trading. Breadth was positive. Oil closed with a $109 handle and Gold was $1487.
*****

 

April 14, 2011

Model Portfolio Value As of 14 April 2011

$ 600,973


Thoughts

As the trading day begins Oil has a $106 handle as gas prices hit $5 in California and $4.50 in Chicago. Asian and European markets were and are mixed overnight.
*****

Diane Swonk, Chief Economist Mesirow Financial: Beige Book Provides Rationale for Central Tendency of Federal Reserve

The Federal Reserve's Beige Book, which provides a roundup of economic conditions in Fed districts throughout the country, suggests that:

•    Growth across the nation remains steady but weak. The exception is housing, which was either flat or continued to deteriorate across much of the country.

•    Wages remain constrained, despite some signs of hiring, particularly among higher-skilled and more educated workers.

•    Input costs are rising, with the recent surge in commodity prices. Producers' ability to pass on those increases in the form of higher prices, however, remains extremely uneven. Manufacturers, who are experiencing a sharp uptick in activity, are able to pass along price increases largely because much of what they are selling is to foreigners. Those dealing with the consumer or construction sectors, however, are facing much more push-back, and being forced to take the hit in margins. Restaurants and retailers who service low-to middle-income households have already reported some weakening of spending in their establishments. The exception is high-end retailers and eateries in New York, where clientele have returned to spending as conspicuously as ever.

The result reinforces the resolve of Fed Chairman Ben Bernanke and the majority of the Federal Open Market Committee (FOMC) to finish the current round of quantitative easing (QE2) as planned in June, and keep the "extended period" language in the Fed's statements for the next several meetings. It does seem reasonable, however, for Bernanke to bend to the wishes of hawks and allow the Fed's balance sheet to shrink naturally, once QE2 comes to an end. The Fed's portfolio of mortgage-backed securities is no longer maturing as fast as it was last summer, now that the flood of mortgage refinancing has come to an end.

PPI Rises on Energy, while Jobless Claims Move Up

The Producer Price Index rose a less-than-expected 0.7% in the month of March; 90% of the gain can be attributed to the rise in energy prices alone. The core (non-food and energy) component of the index surprised some by rising 0.3% instead of the 0.2% predicted. That increase was also concentrated in one category; light vehicle prices soared, largely in response to supply shortages created by Japan's earthquakes. Vehicle producers, in particular, raised wholesale prices to make up for production shortfalls.

Dealers have already complained, however, that those increases could not be passed on to consumers in an environment in which prices at the pump were also rising. Indeed, many consumers are moving back into smaller and used vehicles, in the face of rising gasoline prices. Tomorrow's Consumer Price Index (CPI) data will provide more insight on the pass-through of inflation to consumers.

Separately, jobless claims moved back above the 400,000 threshold for the most recent week and were revised up for the prior week. The Labor Department qualified the upward swing by arguing that jobless claims often move higher in the first week of a quarter. We saw continuing claims fall, which on the surface would seem encouraging, but much of that drop can be attributed to people falling off the rolls because they have used up their benefit extensions and then lost unemployment insurance, rather than getting jobs.

Bottom Line: Incoming data seems to support the Federal Reserve's central concern that higher food and energy prices will have a larger impact on demand than inflation. This isn't to say we won't see a blip in inflation (we are seeing that now); it is just very hard for the broader economy to hold price increases for very long when that blip is causing consumers to curtail spending elsewhere. This was confirmed by the Fed's Beige Book report yesterday, which showed that retailers who service low- and middle-income households were suffering from a slackening in sales as gas prices soared.
*****

…. Although factory shutdowns will diminish production for 2011, Goldman says the attractive fundamentals haven't changed. Analyst Peter Archambault says auto stocks have a 20% upside: Goldman likes Ford, which is actually up 5% since the quake and claimed America's hottest selling car in February

We believe investors will ultimately look through 2011 production shortfalls that are not demand-related. While we trim our 2011 estimates by an average 5%, 2012E rises by 3%, yielding price targets with an average upside of 20%. We view weakness in the shares as a buying opportunity as we believe we are still in the early stages of a global demand rebound, with valuations that are not fully reflecting sector EBITDA and FCF growth prospects. Our top ideas remain CL-Buy rated Ford and Dana.
http://www.businessinsider.com/goldman-auto-japan-2011-4
*****

So how did that intervention go for the U.S. and NATO?

Qaddafi Controls Every Western City Except For Misrata, Where The Rebels Warn Of A Massacre
Read more: http://www.businessinsider.com/libya-thursday-april-14-2011-4#ixzz1JVDnH3Yx
*****

You don’t say.

Goldman Sachs misled clients and Congress about the firm’s bets on securities tied to the housing market, the chairman of the U.S. Senate panel that investigated the causes of the financial crisis said.
http://www.bloomberg.com/news/2011-04-14/goldman-sachs-misled-congress-after-duping-clients-over-cdos-levin-says.html
*****

And there is more—but no regulation is needed?

U.S. investigators are examining whether some of the world's biggest banks colluded to manipulate a key interest rate before and during the financial crisis, affecting trillions of dollars in loans and derivatives, say people familiar with the situation. For the past year, law-enforcement officials have been investigating whether the U.S. and European banks understated their own borrowing costs, which are used to calculate the London interbank offered rate, or Libor. The investigators are now looking into whether the banks effectively formed a global cartel and coordinated how to report borrowing costs between 2006 and 2008…. Roughly $10 trillion in loans and $350 trillion in derivatives are tied to Libor, which affects costs for everything from corporate bonds to car loans. (A trillion is a lot of money but not as much as a gazillion.)
http://professional.wsj.com/article/SB10001424052748704547804576261120293347088.html?mod=WSJ_hp_LEFTTopStories&mg=reno-secaucus-wsj
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(NYT) A trick question: If Congress takes no action in coming years, what will happen to the budget deficit?

It will shrink — and shrink a lot. This simple fact may offer the best hope for deficit reduction.

As federal law currently stands, some significant tax increases are set to take effect in coming years. The most important is the scheduled expiration of the Bush tax cuts at the end of 2012.

Of course, both parties favor the permanent extension of most of those tax cuts — the ones applying to income below $250,000. Both parties also oppose big cuts to the military, Social Security and Medicare, at least in the short term. Unfortunately, the deficit is likely to remain frighteningly large over the next decade without either cuts to those programs or tax increases.

Democratic and Republican leaders alike dance around this point. President Obama may call for “tax reform” in his deficit speech on Wednesday. He may even suggest that tax reform can reduce the deficit. He is very unlikely to explain which taxes will go up in his vision of reform, aside from some of those on the affluent. And while those increases will certainly help, they’re not enough.
http://www.nytimes.com/2011/04/13/business/economy/13leonhardt.html?_r=1&hp
*****

The new reality: governmental units will fight for revenue:

(LaCrosse Tribune) Jackson County (Wisconsin) will take on the state (of Wisconsin) in its own game of cuts by keeping traffic citation money from going to Madison. The move would be the first time in the state when the circuit court and district attorney’s office will openly work to regularly amend state traffic charges to county ordinance violations. The process would allow more money from fines to stay local instead of being divided with the state. “This move would be kind of in-your-face with the state,” Jackson County Circuit Court Judge Thomas Lister said. The change in procedure is an attempt to counter anticipated cuts coming from the state as the county struggles in some areas to balance its budget.

Lister said the county stands to gain $121,000 annually instead of allowing the state to collect it. For more:
http://lacrossetribune.com/news/local/article_581af844-664e-11e0-a24f-001cc4c002e0.html
*****

This morning The NYT Business Section lead story (http://www.nytimes.com/2011/04/14/business/14prosecute.html?hp ) relates that no top officers at any financial institution have been indicted for the trillions in losses inflicted on folks by their financial shenanigans. The Justice Department and presumably the FBI just couldn’t get enough evidence to get a grand jury to indict anyone- let alone try anyone.

In the same NYT there is an article explaining that Barry Bonds was found guilty of a single count of obstructing justice. The five year investigation and trial of Barry bonds cost tens of millions of dollars and thousands of hours of FBI time.

Or this story: Oklahoma woman has been sentenced to 10 years in prison for selling $31 of marijuana. http://www.aolnews.com/2011/02/21/oklahoma-mom-patricia-marilyn-spottedcrow-gets-10-years-for-sell/ Patricia Marilyn Spottedcrow, a 25-year-old mother of four, and her mother, Delita Starr, 50, sold an $11 dime bag to a police informant in Oklahoma on Dec. 31, 2009. The informant returned two weeks later to buy $20 of marijuana. Spottedcrow, who worked in nursing homes before her arrest, told The Oklahoman she did it to get some extra money.
http://www.aolnews.com/2011/02/21/oklahoma-mom-patricia-marilyn-spottedcrow-gets-10-years-for-sell/

Barry Bonds is black, the woman is Indian and the trial was in Oklahoma. Just sayin’.
*****

Oil closed with a $108 handle and the major market measures ended higher after being lowermost of the day. Breadth was flat and volume light. Gold was $1473 and Silver closed over $40 for the first time since the Hunt fiasco over thirty years ago as the commodity trade gets more crowded.
*****

 

April 13, 2011

Model Portfolio Value As of 13 April 2011

$ 603,070


Thoughts

U.S. market measures are higher in pre-opening trading on JP Morgan’s beat on earnings and a takeover offer for Tyco. Asia and Europe were also higher overnight. Oil has a $106 handle as the trading day begins.
*****

(WSJ) France's Schneider Electric SA has made a preliminary bid for approximately $30 billion for Tyco International Ltd., according to people familiar with the matter, hoping to draw the Swiss-based conglomerate to the negotiating table.

Where have we been? We didn’t know that Tyco was Swiss based. We thought they were in the Caymans to avoid U.S. taxes as all patriotic U.S. companies try to do. And it is interesting that all the takeover offers are coming now after stock prices have recovered 100% and more from their lows.
*****

Worrisome:
Bulls 55%; Bears 16%; Correction 27%.
*****

(WAPO) Gasoline prices peaked in July 2008, when a gallon of regular sold for an average of $4.11 nationally. Some analysts fear prices could again approach that level in the near future, since demand for gasoline generally rises in the warm-weather months. Nearly three-quarters of Americans says higher prices could slow their spending in other areas in the months ahead, according to a Deloitte survey of consumers’ spending intentions. We have an au pair from France, and she recently filled up our minivan and gave me a bill for $70,” said Melanie Janin, a mother of three from Bethesda. “I was like, ‘Oh, my God.’
*****

Diane Swonk, Chief Economist Mesirow Financial: Retail Sales Soften in March

Retail sales rose a less-than-expected 0.4% in March, after being revised up for the month of February. Retail sales, excluding autos, increased a stronger 0.8% but at least a portion of those gains were absorbed by higher prices at the pump. Indeed, spending on gasoline, measured on a year-on-year basis, rose 16.7% in the first quarter, which is more than double the pace of overall retail spending.

Another disturbing trend was the weakness that we saw in spending at food and beverage stores, which increased only 0.1% during the month, despite recent increases in prices (i.e., spending at the grocery store may have actually declined after adjusting for inflation, as consumers started to show the stress associated with higher prices at the pump). One hopes that this is more due to the difficulty in making the proper statistical, "seasonal adjustment" for a much later-than-usual Easter holiday, than to a disturbing shift in consumer spending patterns.

Moreover, much of the impact associated with higher energy prices is still ahead of us. Anecdotal reports suggest that consumers have already shifted back into smaller, rather than larger, vehicles and used cars instead of new, despite significant pent-up demand.

Bottom Line: The economy clearly expanded at a slower pace in the first quarter, in part because of transitory issues. The second quarter looks better, but headwinds are building. Everything from higher energy prices to more substantial budget cuts at both the federal and state levels to higher gas prices and disruptions created the disasters in Japan are likely to suppress growth from what was expected to be at the start of the year.
*****

We sold Johnson & Johnson, Hewlett Packard, and Dell for cash on the worrisome Investors’ Intelligence numbers.
*****

One reason for high oil prices when supply is adequate aka Price Gouging

In recent weeks, gas prices around the country have surged to levels unseen since the 2008 oil spike. However, market fundamentals are not driving the nearly $4.00/gallon gas prices. In fact, under the Obama administration, oil production is at record highs and there is adequate global supply of crude. As Commodity Futures Trading Commission (CFTC) commissioner Bart Chilton has explained, rampant oil speculation, which is at its highest level on record right now, is to blame for current prices. In 2008, Koch called attention to itself for “contango” oil market manipulation. A commodity market is said to be in contango when future prices are expected to rise, that is, when demand is expected to outstrip supply. ….

…. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. In December of 2008, Koch leased “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply, Fortune magazine writer Jon Birger noted they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Speaking with the Business Times, Koch executive David Chang even boasted that falling crude prices in 2008 provided an opportunity remove oil from the market for future delivery:

CHANG: The drop in crude oil prices from more than US$145 per barrel in July 2008 to less than US$35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery. For whole story
http://thinkprogress.org/2011/04/13/koch-industries-price-gouging/ 
*****

The major market measures vacillated all day but closed positive in light trading. Breadth was 5/4 to the good. Banks weak and machinery stocks strong. Oil finished with a $107 handle and Gold was $1457.
*****

 

April 12, 2011

Model Portfolio Value As of 12 April 2011

$ 602,981


Thoughts

Asia and Europe were and are off 1% and more as the trading day begins. Oil has a $109 handle and Gold is $1463. Alcoa beat but that want’ good enough and the shares are lower in early trading. Proctor & Gamble raised its dividend 9%.
*****

(AP) -- Ford Motor Co. says that its Asia-Pacific operations may have to slow or stop production later this month because of parts shortages from Japan.

Ford has had to temporarily halt operations in the U.S. and Europe because of shortages, but this was the first word of possible production cuts in Asia. Ford has 13 plants in its Asia-Pacific region, including eight assembly plants in Australia, Thailand, Taiwan, Vietnam, India, the Philippines and China.

Ford doesn't have any production facilities in Japan but, like other automakers, does source parts from suppliers that were hurt by the March 11 earthquake and tsunami.
*****

File under the heading: Brokers never lose.

(Bloomberg) -- Goldman Sachs Group Inc. was sued by two co-founders of Marvell Technology Group Ltd. who allege the investment bank tricked them into selling company shares by claiming the sale was needed to cover a margin loan. Sehat Sutardja, Marvell’s chief executive officer, and Weili Dai, the company’s former chief operating officer, said they were duped into selling shares in 2008 that are now worth $141.5 million, according to a complaint filed yesterday in state court in San Francisco. Goldman Sachs pressured them by claiming a regulatory rule, which didn’t exist, required them to sell their stock, according to the complaint. Goldman Sachs held millions of shares of Marvell stock in 2008, they said.

“Goldman forced its clients to unnecessarily liquidate their holdings through forced margin calls, only to repurchase these same shareholdings for accounts owned by Goldman and its related hedge funds,” according to the complaint. Goldman Sachs also forced a sale of Sutardja and Dai’s shares of Nvidia Corp., causing them to lose $166 million, they said in the complaint. The lawsuit, filed under California’s unfair competition and the state’s Consumers Legal Remedies Act, seeks compensatory damages for the two stock sales and unspecified punitive damages. Marvell, the maker of processors for the BlackBerry phone, is based in Santa Clara, California. Andrea Rachman, a spokeswoman for New York-based Goldman Sachs, didn’t return a voice-mail message after regular business hours yesterday. The case is Dai v. Goldman Sachs, CGC-11-510102, Superior Court of California (San Francisco).
*****

Diane Swonk, Chief Economist Mesirow Financial: Trade Deficit Narrows, Import and Export Prices Surge on Oil

The U.S. trade deficit narrowed slightly, from $47 billion in January to $45.8 billion in February.  Both exports and imports decreased, most notably on the goods side: vehicles, machinery and heavy equipment. The trade balance has been moving down for the better part of the last three years, reflecting the discrepancy in growth between the U.S. and the rest of the world. We still have a long way to go, however, before we repay our debts to the rest of the world, let alone ourselves.

It is important to note that this data includes some, but not all, of the recent distortions created by rising oil prices. The largest impact hit import prices, which surged in response to higher oil prices and a weaker dollar.

Separately, oil imports, after adjusting for inflation, actually declined in February, which suggests that higher oil prices are taking a toll on demand as well as boosting inflation. This demand impact is what the Federal Reserve believes will ultimately stop the recent surge in commodity prices from becoming a more broad-based, self-sustaining inflation.

Indeed, the National Federation of Independent Business (NFIB) survey of small businesses confirmed today that business conditions softened, as those who tried to pass along price hikes met with weaker demand. Consumers just don't have the means to absorb the recent surge in energy prices without making cuts in other spending. My local florist confirmed the trend, telling me she was forced to cut prices and switch to less expensive floral arrangements, when business tapered off as a result of surcharges.

Bottom Line: The trend in trade continues to move in the right direction. Exporters are clearly able to pass along some of the rise in input costs to buyers abroad. The ability to absorb those shocks at home, however, remains highly questionable, as consumers batten down the hatches to protect themselves from the storm in commodity prices.
*****

Sell’em lower; Buy ‘em higher:

(The hedge fund journal.com, 8 Jun 2009) Although hedge funds managed to break through the downward performance spiral of the last two quarters of 2008, the industry continued to record heavy net outflows in Q1 2009. Net outflows of the hedge fund industry in first quarter 2009 decreased 21% quarter on quarter to US $115.71 billion - the second largest negative reading since 1994. For the rolling one-year period at the end of March 2009 net money outflows of the hedge fund segment amounted to US $277.25 billion.

(Barron’s, April 12, 2011) Hedge funds attracted net inflows of $34.9 billion in February, their heaviest monthly inflow total on record, according to BarclayHedge and TrimTabs Investment Research. That helped to raise industry assets to $1.73 trillion, the highest level since October 2008. “Flows are doubtless following performance,” said Sol Waksman, BarclayHedge’s president, in a statement. The Barclay Hedge Fund Index generated an increase in each of the past seven months, he added. Funds of hedge funds had net inflows of $7.3 billion in February, the heaviest inflow in nearly three years, while commodity trading advisors (CTAs) attracted a nearly two-year high of $7.5 billion. All six types of equity hedge fund strategies received assets in February, the report noted.
*****

We took a profit on Merck to raise our cash position and switched Aéropostale to American Eagle.
*****

In case you were wondering.

Michele Bachmann: “I’m a principled reformer, and my goal is to see the country turn around,” she said. “I’m also committed to being a one-term president if that’s what it takes in order to turn things around, because this is not about a personal ambition.”
*****

Matt Taibbi: From Rolling Stone Magazine

In August 2009, John Mack, at the time still the CEO of Morgan Stanley, made an interesting life decision. Despite the fact that he was earning the comparatively low salary of just $800,000, and had refused to give himself a bonus in the midst of the financial crisis, Mack decided to buy himself a gorgeous piece of property — a 107-year-old limestone carriage house on the Upper BeerEast Side of New York, complete with an indoor 12-car garage, that had just been sold by the prestigious Mellon family for $13.5 million. Either Mack had plenty of cash on hand to close the deal, or he got some help from his wife, Christy, who apparently bought the house with him.

The Macks make for an interesting couple. John, a Lebanese-American nicknamed "Mack the Knife" for his legendary passion for firing people, has one of the most recognizable faces on Wall Street, physically resembling a crumpled, half-burned baked potato with a pair of overturned furry horseshoes for eyebrows. Christy is thin, blond and rich — a sort of still-awake Sunny von Bulow with hobbies. Her major philanthropic passion is endowments for alternative medicine, and she has attained the level of master at Reiki, the Japanese practice of "palm healing." The only other notable fact on her public résumé is that her sister was married to Charlie Rose.

It's hard to imagine a pair of people you would less want to hand a giant welfare check to — yet that's exactly what the Fed did. Just two months before the Macks bought their fancy carriage house in Manhattan, Christy and her pal Susan launched their investment initiative called Waterfall TALF. Neither seems to have any experience whatsoever in finance, beyond Susan's penchant for dabbling in thoroughbred racehorses. But with an upfront investment of $15 million, they quickly received $220 million in cash from the Fed, most of which they used to purchase student loans and commercial mortgages. The loans were set up so that Christy and Susan would keep 100 percent of any gains on the deals, while the Fed and the Treasury (read: the taxpayer) would eat 90 percent of the losses. Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.

So how did the government come to address a financial crisis caused by the collapse of a residential-mortgage bubble by giving the wives of a couple of Morgan Stanley bigwigs free money to make essentially risk-free investments in student loans and commercial real estate? The answer is: by degrees. The history of the bailout era reads like one of those awful stories about what happens when a long-dormant criminal compulsion goes unchecked. The Peeping Tom next door stares through a few bathroom windows, doesn't get caught, and decides to break in and steal a pair of panties. Next thing you know, he's upgraded to homemade dungeons, tri-state serial rampages and throwing cheerleaders into a panel truck.

The impetus for this sudden manic expansion of the bailouts was a masterful bluff by Wall Street executives. Once the money started flowing from the Federal Reserve, the executives began moaning to their buddies at the Fed, claiming that they were suddenly afraid of investing in anything — student loans, car notes, you name it — unless their profits were guaranteed by the state. "You ever watch soccer, where the guy rolls six times to get a yellow card?" says William Black, a former federal bank regulator who teaches economics and law at the University of Missouri. "That's what this is. If you have power and connections, they will give you a freebie deal — if you're good at whining."

This is where TALF fits into the bailout picture. Created just after Barack Obama's election in November 2008, the program's ostensible justification was to spur more consumer lending, which had dried up in the midst of the financial crisis. But instead of lending directly to car buyers and credit-card holders and students — that would have been socialism! — the Fed handed out a trillion dollars to banks and hedge funds, almost interest-free. In other words, the government lent taxpayer money to the same assholes who caused the crisis, so that they could then lend that money back out on the market virtually risk-free, at an enormous profit.

Cue your Billy Mays voice, because wait, there's more! A key aspect of TALF is that the Fed doles out the money through what are known as non-recourse loans. Essentially, this means that if you don't pay the Fed back, it's no big deal. The mechanism works like this: Hedge Fund Goon borrows, say, $100 million from the Fed to buy crappy loans, which are then transferred to the Fed as collateral. If Hedge Fund Goon decides not to repay that $100 million, the Fed simply keeps its pile of crappy securities and calls everything even.

This is the deal of a lifetime. Think about it: You borrow millions, buy a bunch of crap securities and stash them on the Fed's books. If the securities lose money, you leave them on the Fed's lap and the public eats the loss. But if they make money, you take them back, cash them in and repay the funds you borrowed from the Fed. "Remember that crazy guy in the commercials who ran around covered in dollar bills shouting, 'The government is giving out free money!' " says Black. "As crazy as he was, this is making it real."

Read the full article here:
http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411
*****

The major market measures traded lower all day and closed down 1% and more. Volume was light and Breadth was 3/1 negative. Oil ended with a $105 handle down over $4 on a topping call by Goldman Sachs. They probably sold yesterday.
*****

 

April 11, 2011

Model Portfolio Value As of 11 April 2011

$ 605,791


Thoughts

Speculators now have Oil at $111 and the American consumer is paying for their fun. Gold is $1469 as the big boys and girls have are playing commodities and pushing prices higher until…. Overnight Asia and Europe were and are mixed and U.S. futures indicate a higher opening. Yes, we are writing again after one day off because the kids in Washington reached agreement to fund the government through fiscal year end- unless they didn’t. But fear not there is still the raising of the national debt in May for the talking heads and punditocracy to fester over.

On Wednesday the President is going to tell all how he will lower the deficit by manipulating the middle class and the poor in concert with his Republican confreres. Of course he is going to suggest higher taxes on the wealthy while cutting out health care for the poor. When push comes to shove the wealthy we will be spared. Obama’s ability to cave while sounding noble fools no one but his most ardent admirers but since the Repubs are in the driver’s seat we think the markets will hold and move gradually higher. Markets like lowering taxes on the rich no matter that deficits will rise because of it. The deficit mania reminds of the mania over the Muslim mosque in Manhattan last election season. What happened to the outrage? Oh that’s right a politicians attention span is controlled by elections cycles and the public‘s attention span by the seasons.

Jobs are needed to address the deficit- that and tax increases on folks like us.  The Repubs don’t care if the economy slips back into recession since Obama will be blamed.

From Hullabaloo there is notice of one provision of the budget compromise: One piece of excellent news, though. Taxpayers will no longer be burdened with the budget strain of keeping the gray wolf on the endangered species list. The two Democratic Senators from Montana fought hard and they won the right to shoot them. So that's good.
*****

Alcoa kicks off second quarter earnings season tonight.
*****

We switched BP at a profit to Ford warrants. We are never comfortable owing BP. We also added shares of Barnes & noble to accounts that own. We also sold Best Buy and Medtronic for profits.
*****

JPMorgan Accused of Breaking Its Duty to Clients: this story didn’t even merit a front page on the NYT—how times have changed. The your money is not as important as our money mantra is back and well on Wall Street with the blessing (by ignoring reality) of the authorities.
http://www.nytimes.com/2011/04/11/business/economy/11bank.html?ref=business
*****

(Goldman Sachs) We are closing our CCCP basket trade, first recommended on December 1, 2010, for a gain of roughly 25% against our 28% target. This recommendation was premised on our belief that Crude Oil, Copper, Cotton/Soybeans and Platinum remain the key structurally supply-constrained markets. On a 12-month horizon we believe the CCCP basket still has upside potential, but the unrest in the Middle-East and North Africa region, and the potential for further supply shocks pushed the basket up significantly in a short period and our Commodity Research team believes that in the near term the risk/reward no longer favours being long the basket and consequently, we are closing the recommendation with good potential gains. While crude oil, cotton and copper prices have substantially exceeded our targets, platinum and soybean prices have lagged.

In the near-term we see crude oil price risk as becoming more symmetric. While the potential for further contagion risk in the Middle east remains elevated, there are now nascent signs of oil demand destruction in the United States (see April 5 Energy Weekly), but also record speculative length in the oil market, elections in Nigeria and a potential cease-fire in Libya that has begun to offset some of the upside risk, leaving us more neutral at current levels. As the accompanying note from our Commodity team points out Copper and Platinum face headwinds too in the near-term while we see upside in Soybeans (See “Target in sight, closing CCCP trade”, April 11, 2011).
*****

This LA Times article discusses the phony panacea of states paying to entice companies to create manufacturing jobs in their states: The southern states where these jobs are being created are the new Mexico.
http://www.latimes.com/business/la-fi-ikea-union-20110410,0,5341610.story 
*****

The major market measures opened higher but couldn’t sustain their gains and closed lower on the day. Breadth was 2/1 negative and volume light.
*****

 

April 8, 2011

Model Portfolio Value As of 8 April 2011

$ 607,876


Thoughts

We are on government shutdown. We will be back when they are.
*****

 

April 7, 2011

Model Portfolio Value As of 7 April 2011

$ 611,271


Thoughts

Asia overnight and Europe midday were and are meandering. Gold is $1460 and Oil has a $108 handle as the trading day begins. Jobless claims were 382,000 and the government is going to shut down, maybe. Government workers will be payless until the Pols-who will continue to be paid—something about it being unconstitutional not to pay them—decide who is suffering the most politically and make a deal. Our bet is that Obama caves.
*****

We forgot to mention yesterday that we added Talbots and Johnson & Johnson to accounts. Today we added Sony when Japanese stocks dropped on news of a serious aftershock.
*****

Diane Swonk, Chief Economist Mesirow Financial: Central Banks Tread Carefully.

The Bank of Japan offered a more modest loan facility for reconstruction efforts than many expected. It is trying to be cautious, after easing aggressively in the wake of the crisis and is now waiting to get a clearer picture of what is actually needed.

Meanwhile, the Bank of England (BoE) decided to side with the Federal Reserve on energy inflation and hold its key interest rate unchanged. The view is that the economy is too weak to sustain a self-feeding rise in inflation, and that the recent spike in inflation related to energy prices will play out.

Finally, the European Central Bank (ECB), which has talked the toughest on inflation, did raise its target rate by a quarter point. It also raised other key lending rates, which would be a problem for peripheral countries if the European Union (EU) wasn't standing by with bailout funds for those member countries under pressure from massive budget crises. Portugal asked for bailout funds yesterday, following a failed bond auction, and is likely to receive aid this weekend.

Several factors separate the ECB from other central banks. One is the strength of its core economies, which are significantly stronger than those of the other major developed economies and, hence, more prone to inflation. Another is the need to defend the ECB's credibility and ultimately the euro when the broader euro area is facing such unprecedented difficulties. Most EU countries have accepted centralized monetary policy, but not fiscal policy; until they do, the euro's fate will remain debatable. The key question is not how much policymakers will defend the euro, which is already clear, but whether voters, particularly in Germany, will continue to support bailouts of the peripheral countries if and when required.

Bottom Line: The conduct of monetary policy is no easy feat with such an uncertain backdrop. Decisions in the U.S. are even more complicated because of the Fed's dual mandate to stabilize both inflation and unemployment at low rates. It should be no surprise then, that debate about the course of monetary policy has become even more heated, both within and outside the walls of the Federal Reserve. Congrats to former Fed Governor Kevin Warsh, who left the Fed at the end of March. He is finally getting a much deserved break.
*****

The Government has been shut down 17 times since 1977 over budget matters. Who knew or remembered?
*****

Europe closed lower. The major market measures also closed lower but above their worst levels in light trading. Breadth was negative.
*****

 

April 6, 2011

Model Portfolio Value As of 6 April 2011

$ 610,873


Thoughts

Over the last few weeks the markets have continued to meander higher in light trading. We have added stocks that we consider to be good investments. The recent 7% three day pullback that we used to add may be the extent of the pullback for now. Volume has been light in the rallies for the last five months and that is a negative that has given and gives us pause. The markets survived the turmoil of 2008/2009 and are now acting normally. The continuing bid in the market may be a result of the Repubs concentration on the budget deficit and their mantra of cutting spending and not taxes. Personally we think that approach is wrong but Mr. /Mrs. Market has his/her own mind and we do much better reacting than predicting. A total collapse is not in the cards and the larger correction we think is needed may be some months off. We have plenty of cash in our larger accounts to take further advantage while at the same time we have a decent amount of invested equity in greater than the market beta securities.
*****

Asia was mixed small overnight while Europe is mildly higher. Oil has a $108 handle and Gold is $1452 as the trading day begins.
*****

(The Economist) The Federal Government has been described as a gigantic insurance company with a side business in security. Its largest fiscal obligations, outside of defense, involve protecting Americans from various risks: unemployment, destitution, illness and lack of education. Paul Ryan’s budget is, ultimately, an alternative to that vision—one in which the federal government would shift many of those risks to the states or to Americans themselves.That is what emerges, in its own antiseptic way, from the Congressional Budget office’s analysis of Mr. Ryan’s proposal.

For the full article:
http://www.economist.com/blogs/freeexchange/2011/04/americas_budget

For the CBO letter and analysis:
http://www.cbo.gov/ftpdocs/121xx/doc12128/04-05-Ryan_Letter.pdf
*****

Krugman on Ryan’s Proposal: Paul Ryan’s Multiple Unicorns
http://krugman.blogs.nytimes.com/2011/04/06/paul-ryans-multiple-unicorns/?smid=tw-NytimesKrugman&seid=auto
*****

Who will be surprised if all these ‘get the government off our backs’ rancher/farm folk will be looking to the government for disaster relief?

(Huffington Post) In most years, the dark clouds over western Oklahoma in the spring would be bringing rain. This year, they're more likely to be smoke from wildfires that have burned thousands of acres in the past month as the state and its farmers struggle with a severe drought.

Oklahoma was drier in the four months following Thanksgiving than it has been in any similar period since 1921. That's saying a lot in the state known for the 1930s Dust Bowl, when drought and high winds generated severe dust storms that stripped the land of its topsoil.

Neighboring states are in similar shape as the drought stretches from the Louisiana Gulf coast to Colorado, and conditions are getting worse, according to the U.S. Drought Monitor. The area in Texas covered by an extreme drought has tripled in the past month to 40 percent, and in Oklahoma it nearly doubled in one week to 16 percent, according to the monitor's March 29 update.

An extreme drought is declared when there's major damage to crops or pasture and widespread water shortages or restrictions.

Full story:
http://www.huffingtonpost.com/2011/04/06/2011-drought-oklahoma_n_845419.html
*****

We thought our goofy governor Scott Walker didn’t like government aid.

(Wisconsin State Journal) Federal emergency management officials issued a disaster declaration for 10 Wisconsin counties that saw record snowfall during an early February storm.

The storm began on Jan. 31 and lasted through Feb. 3. Gov. Scott Walker's office says emergency response efforts such as snow plowing cost the counties about $9.5 million.

The declaration allows municipal governments within the counties to apply for reimbursement from the Federal Emergency Management Agency and the state. FEMA would cover 75 percent of an applicant's eligible expenses, the state would pay 12.5 percent and the applicant would have to come up with the remaining 12.5 percent itself.

The counties include Dane, Dodge, Grant, Iowa, Kenosha, Lafayette, Milwaukee, Racine, Walworth and Washington.
*****

The major market measures closed higher in light trading. Breadth was positive. Gold closed at a new all-time high at $1458.
*****

 

April 5, 2011

Model Portfolio Value As of 5 April 2011

$ 606,300


Thoughts

Pre-opening May 2, the NAZZ 100, which is an index of the 100 largest non-financial companies that are traded over the counter, is going to be rebalanced so that Apple’s portion of the index is reduced from 20% to 12%. Other stocks in the index will have their respective weightings raised or lowered. And so the games go on and stock prices will be affected as the rebalancing occurs. The price movements will have nothing to do with the investment merits of the individual issues.
*****

(minyanivlle.com): The true picture of the American economy is that in 2007 there were 146 million Americans employed, or 63% of the working age population. Today, there are 139.9 million Americans employed, or 58.5% of the working age population. Over this time frame, an additional 7.1 million Americans entered the working age population. In 2007 there were 26.3 million Americans on food stamps, or 8.6% of the US population. Today there are 44.2 million Americans on food stamps, or 14.3% of the US population.

Real Median Household Income, which is calculated using the dodgy government CPI, has not grown in 14 years. Using a true, non-manipulated inflation figure and real median household income is no higher than it was in 1987. The BLS Establishment data going back to 1965 is a treasure trove of interesting data. The average hourly wages have declined for the last three months and are essentially flat in the last year.
*****

China was closed overnight and the rest of the world markets are mildly mixed as the trading day begins.
*****

We think this is how it started the last time.

(Dealbreaker.com) Bob Diamond has decided Barclays must increase its risk appetite amid internal expectations at the bank that a key measure of its profitability will fall or stay stagnant this year. Barclays’ new chief executive is considering increasing the bank’s risk profile, in order to hit profitability targets over the next three years, according to people familiar with the bank’s thinking. Mr Diamond, who began in his job in January, has set a target of achieving a 13 per cent return on equity by 2013.
*****

Diane Swonk, Chief Economist Mesirow Financial:
China Acts to Slow Inflation; Bernanke Defends U.S. Policy
China raised interest rates last night, in yet another futile attempt to squelch a rapidly overheating economy. The key problem is that China has ceded real control over its monetary policy to the Federal Reserve, by keeping its currency pegged to the U.S. dollar, instead of allowing the yuan to appreciate more substantially, which is the only way China could truly slow its export-based economy.  The problem, of course, is that many export industries are too politically entrenched to allow them to fail. Moreover, it is unclear that China has developed enough to truly shift from being an export-driven to a more domestic, demand-driven economy. This has proven to be one of the hardest shifts for developing economies to make, and more have stumbled than succeeded, although Asia is a place where we have seen more successes than failures; Singapore and South Korea come to mind.

At the same time, Federal Reserve Chairman Ben Bernanke made it clear last night that he believes the current surge in U.S. inflation is transitory; it can't stick and broaden when wages and consumer balance sheets remain so constrained. Hence, the Fed's current stance on monetary policy: to complete the second round of quantitative easing, or QE2, and leave rates low for an "extended period." He also underscored that the Fed would not hesitate to reverse course and tighten, if his forecast proves wrong. This triggered a slight dollar rally. There was nothing in his comments, however, to help the Chinese better manage overheating; that is something they will have to take responsibility for on their own. It is worth noting that developing economies often peg their currencies to the dollar initially, to gain more discipline and credibility for their own lack of internal controls. This has never been done, however, with an economy the size of China's.

Bottom Line: Ben Bernanke will win over naysayers and at least complete QE2 in June. We are so close, it would be difficult to get the hawks, who unanimously approved QE2 at the start of the year, to shift course anyway. They only have one meeting left prior to June, which is on April 27, when Ben will make his debut at a press conference to explain the Federal Open Market Committee (FOMC) decision. The next issue is whether the Fed continues to replace its maturing portfolio of mortgage-backed securities with Treasury bonds, as it did last August. Without a refinancing boom, the runoff of the Fed's balance sheet has slowed quite considerably, so it seems reasonable to allow the balance to gradually shrink.
*****

(http://www.dailykos.com/story/2011/04/05/963618/-Ryans-new-welfare-queens:-Medicaidrecipients)

Rep. Paul Ryan says in his WSJ op-ed that his Medicaid reform is actually welfare reform. Matty Yglesias responds:

In other words, people are supposed to think Medicaid is that “bad” kind of government spending, the one that goes to shiftless black folks not hard-working Americans like you and me and Paul Ryan. But look at the actual distribution of Medicaid dollars:

Medicaid recipients

This is mostly a program for the elderly and the disabled. It’s the main way we finance long-term care in this country. If you don’t directly benefit from it, you very likely have a parent or grandparent who does and whose financial needs will simply tend to fall on you if the program is cut. Meanwhile, in terms of the "welfare" aspect of Medicaid by far the largest set of poor people it covers are poor children. Is Ryan’s view that these kids should have worked harder to have rich parents?

Let's reiterate a point here—a quarter of Medicaid spending goes for long-term care for the elderly. If Medicaid is not there to pick up those costs, it falls to families. There's already an explicit tax hike for the middle class in Ryan's plan. Taking Medicaid funding from families with disabled children and parents and grandparents in nursing homes compounds that.

Plenty of middle-class families only remain middle class because they're spared crippling medical and long-term care costs. A decade or two of the Ryan plan, and there will be no more middle class in America.
*****

We post the above because we took financial care of a disabled adult for last twenty years until the adult became too sick and the money ran out. Eliminating Medicaid will eliminate her care. Ryan has been on the government payroll all his life. Yet he thinks the government providing for folks in need is a waste of money. Shame on him.
*****

The major market measures closed mildly lower in light trading. Breadth was flat.
*****

 

April 4, 2011

Model Portfolio Value As of 4 April 2011

$ 604,724


Thoughts

As corporations report record profits even after paying record salaries and bonuses (to executives not workers) we learn that Republicans led by Paul Ryan says we must eliminate Medicare and reduce Social Security payments while at the same time cut corporate tax rates and allow corporations to repatriate $1 trillion with little or no tax in order to save $ 4 trillion over the next ten years. To replace Medicare the Repubs want to let competition among Insurance companies keep rates down. And how has that gone so far?  Ryan and friends live in some alternate universe. By the by, except for a few years in his early 20s working for his grandfather’s construction company Ryan has always been a U.S. government employee with  great medical insurance plan.

The Ryan Medicare plan allows those over 55 to keep Medicare so once again the Repubs will triumph by pitting those over 55 against those under 55. The Repubs have done it before by pitting those who are working without benefits and the ability to negotiate against unionized teachers and government workers. Meanwhile the Ryan plan cuts taxes on the wealthy to 25%. They cover that by saying all tax rates go to 25% which only means that the middle class will pay the same tax rate while the wealthy get a 40% cut.

Of course by just letting the misguided Bush tax cuts expire the projected budget deficit would be cut by 75% ($8 trillion).
*****

The WSJ has an article today on how the FED by keeping interest rates low is helping the banksters at the expense of savers and placing a lot of retired folks in a terrible position because they are no longer able to earn a decent rate of return from C/Ds and Treasuries.

(WSJ) Forrest Yeager, a 91-year-old resident of this seaside community, had been counting on his retirement savings to last until he died. The odds are moving against him. With short-term bank CDs paying less than 1%, the World War II veteran expects his remaining $45,000 stash to yield just a few hundred dollars this year. So, he's digging deeper into his principal to supplement his $1,500 monthly income from Social Security and a small pension.

"It hurts," says Mr. Yeager, who estimates his bank savings will be depleted in about six years at his current rate of withdrawal. "I don't even want to think about it."

Mr. Yeager is among the legion of retirees who find themselves on the wrong end of the Federal Reserve's epic attempt to rescue the economy with cheap money.

A long spell of low interest rates has created a windfall worth billions to banks, mortgage borrowers and others it was designed to benefit. But for many people who were counting on their nest eggs, those same low rates can spell trouble.

For http://professional.wsj.com/article/
*****

(AP) -- Shares of Ford Motor Co. rose 22 cents ahead of the opening bell Monday to $15.38 after a Credit Suisse analyst upgraded the company.

Analyst Christopher Ceraso said the automaker has a stronger balance sheet today than it did a year ago, with net debt of about $2 billion compared with more than $15 billion last April, and he wrote that despite a strong run in share price in the last half of 2010, the stock is only up about 11 percent since April of last year.

"Putting those facts together yields a valuation that is much more reasonable today than it was a year ago," Ceraso wrote.

Ceraso raised his rating on the company to "neutral" from "underperform, and his 12-month price target for the stock to $18 from $17, explaining that Ford has demonstrating substantially greater earnings power than was expected at this time last year.
*****

Matt Taibbi: Why is the Fed Bailing Out Qaddafi?

http://www.rollingstone.com/politics/blogs/taibblog/
*****

Surprise!!!! Obama is going to run again.
*****

Say What: http://www.dailykos.com/

According to the top brass at Transocean, its top brass deserve big bonuses for “the best year in safety performance in our company’s history,” as noted in the company's Proxy Statement and 2010 Annual Report. The safety bonus portion of the executives' bonuses averages 3.8 percent of their base pay. Transocean president Steven L. Newman received a $374,062 bonus and a $200,000 salary increase. Together with a stock award and other payments, his total compensation in 2010 rose to $6.3 million.

Remember Transocean? The largest off-shore drilling company in the world? The company BP contracted with to put a deep, deep hole in the Gulf of Mexico with its drilling rig, the half-billion-dollar Deepwater Horizon? The rig that exploded and killed 11 crew and injured 17 others a year ago this month? The hole that, consequent to the failure of a poorly designed blowout preventer and numerous mistakes in judgment by the drilling managers and crew, spewed millions of barrels of oil into the environment before it was ultimately capped? A spew that continues to affect the Gulf despite having long ago left the headlines? That Tranocean?

"Notwithstanding the tragic loss of life in the Gulf of Mexico," the proxy states, "we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate. As measured by these standards, we recorded the best year in safety performance in our Company's history. [It is] "a reflection on our commitment to achieving an incident-free environment, all the time, everywhere."

Once upon a time, such a statement would at least have brought red to the cheeks even of oil executives. Now it merely adds green to their bank accounts.
*****

Last week we added more Ford warrants and sold the common shares for less money doing more work as the price of the common has held support. We also took a trading profit in AT&T and added the Large Bank ETF (KBE) and Dell to accounts as well as additional shares of Sprint and GE. Today we bought more Boston Scientific.
*****

Sen. DeMint and the 18 Republicans co-sponsoring the legislation have strong ties to Wall Street interests and have received $49.7 million in campaign cash from the finance, insurance, and real estate industry (FIRE) during their time in Congress, according to Public Campaign Action Fund analysis of data provided by the Center for Responsive Politics.

“After witnessing the near collapse of our economy, and seeing millions put out of work thanks to greed on Wall Street and millions more living with underwater mortgages, you would think that these Senators would side with the ordinary Americans who were hurt the most,” said David Donnelly, national campaigns director for Public Campaign Action Fund. “But this group of Senators continues to side with the Wall Street interests who pour millions into their campaign coffers.”

http://www.campaignmoney.org/press-room/ and see these numbers:
http://www.dailykos.com/story/2011/04/04/962460/-Senate-Republicans-push-for-full-Wall-Street-reform-repeal 
*****

(Reuters) - A heart stent manufactured by Boston Scientific Corp proved to be as effective as a leading competitor sold by Abbott Laboratories Inc (ABT.N) in a clinical trial, researchers said on Monday.

The study, which included 1,750 patients around the world, compared Boston Scientific's drug-eluting Promus Element stent with its older Promus, which is sold by Abbott under the brand name Xience.

Results from the study, called Platinum, showed there were no significant differences between the two devices in safety and effectiveness.
*****

BP Seeks to Resume Drilling in Gulf of Mexico: http://www.nytimes.com/2011/04/04/business/energy-environment/04bp.html?hp

They promise to be more careful this time.
*****

Message of the Markets: Stock Market Moving Higher on Good Days; Consolidating Gains Politely on Bad Days

By T2 Technalytics Apr 04, 2011 3:00 pm

Overall, while many naturally intuitive arguments can be made on the bearish side of things, the market is ignoring most, if not all, bad news and continues to move higher on its best days and consolidate gains politely on bad days (in the short-term). As always, we must respect the market as most of us do not have the capital base to be on the wrong side of things for an extended period of time. For morehttp://www.minyanville.com/businessmarkets/articles/stock-market-bonds-stocks-currencies-charts/4/4/2011/id/33759
*****

European markets closed flat while Asian markets were higher overnight. Gold was $1434 and Oil has a $108 handle at the close.
*****

The major market measures closed little changed in light trading. Breadth was negative.
*****

 

April 1, 2011

Model Portfolio Value As of 1 April 2011

$ 605,057


Thoughts

While we were away:

Diane Swonk, Chief Economist, Mesirow Financial: Employment Situation Continued to Improve in March

Payroll employment expanded by 216,000 in March, slightly above expectations. Gains in the private sector continued to more than offset what looks like a long-term downtrend for state and local government jobs. This should come as no surprise, given the end to federal transfers to states and the deficits that many states are now grappling with. If the saying that "all politics is local " is any indicator, then the drama being played out at the state and local levels, including widespread public revolts, is only a prelude to what we are likely to see if we ever get serious about dealing with the federal deficit.

Separately, the unemployment rate edged down from 8.9% to 8.8% on a stronger measure for job creation and still very weak growth in the labor force. The household survey, which is what the unemployment rate is derived from, is better at capturing jobs generated by new firm births, which are critical in generating a more self-feeding recovery in jobs. The labor market participation rate remained steady at 64.2%, which is an extremely low rate. It means that unemployed workers are still skeptical about throwing their hats back into the ring and looking for work. At this point in the cycle, we should be seeing faster growth in the labor force than in jobs, but the opposite is true: job creation is increasing faster than the participation rate.

So it is still premature to think about popping champagne corks and celebrating the employment situation. More than six million workers have been unemployed for six months or longer, while wage gains were stagnant and hours worked ticked down slightly in March. This is especially important against the backdrop of the recent surge in energy prices, because it suggests that a good portion of the population remains incredibly constrained, when it comes to spending. This will make it particularly hard for retailers like Walmart (which recently came out saying it would have to raise prices) to make price increases stick. Indeed, the more likely scenario is that rising input costs erode retailer margins faster than they fuel overall inflation. The only exception is extremely high-end retailers, whose clientele can afford higher energy prices without cutting anything else out of their budgets.

Bottom Line: Employment has picked up and should remain elevated, relative to what we saw last year. That is not saying very much, however, as economic conditions remain too weak to trigger much of a self-feeding surge in inflation, despite the higher energy prices. Frankly, it would be nice if the economy was strong enough to risk inflation now. Historically, it would have been, at this point.
*****

The Real Reason Gas Prices Are Soaring

By CHARLES WALLACE

Have you ever wondered why when you go to the gas station to fill up the family car, the price of gas at the pump has just jumped 25 cents a gallon over the past three days? Perhaps you thought the oil companies were just being greedy. Or you believed the nightly news pundit who said that gas prices went up because the crisis in Libya was affecting supplies of oil. One professional oil trader says that you'd be wrong on both counts.

Dan Dicker, who has spent nearly three decades in the oil market, has a profoundly disturbing explanation of why the price of oil, and the gasoline that comes from the crude product, has risen so dramatically in recent months. It turns out, Dicker says, that the price has nothing to do with supply and demand for oil. It's the financial market for oil, filled with both professional speculators and amateur investors betting on poorly understood oil exchange-traded funds, who have ratcheted up the price of gas to such sky high levels.

"There is no supply issue going on here - what you have is the perception of the possibility of a supply issue," Dicker says. "A whole bunch of people are pouring money into an oil market trying to take advantage of what they perceive to be a real risk in supply. It's a marketplace that I argue should not be allowed to be wagered on like a stock or bond."

See full article from DailyFinance: http://www.dailyfinance.com/story/the-real-reason-gas-prices-are-soaring/19893347/
*****

When hell freezes over.” Our take is that Obama is afraid of the Republicans, not this (and many other) issue.

(Bloomberg) Federal prosecutors are considering whether to pursue manslaughter charges against British Petroleum’s  managers for decisions made before the Gulf of Mexico oil well explosion last year that killed 11 workers and caused the biggest offshore spill in U.S. history, according to three people familiar with the matter.

U.S. investigators also are examining statements made by leaders of the companies involved in the spill -- including former BP Chief Executive Officer Tony Hayward -- during congressional hearings last year to determine whether their testimony was at odds with what they knew, one of the people said. All three spoke on condition they not be named because they weren’t authorized to discuss the case publicly.

Charging individuals would be significant to environmental- safety cases because it might change behavior, said Jane Barrett, a law professor at the University of Maryland.
*****

Diane Swonk, Chief Economist Mesirow Financial: Consumers Dip into Savings to Cope with Higher Energy Prices
Monday, March 28, 2011 - 8:00 a.m. Central Time

Personal income rose 0.3% in February, in line with expectations; after adjusting for inflation, however, incomes actual contracted over the month. Spending rose a much more robust 0.7% during the month, on the heels of strong vehicle sales and easier vehicle financing. The auto industry is one of the few sectors that has moved back into making subprime loans. The result last month was a sharp dip in the saving rate, which isn't surprising but is not exactly welcome news, given our need to save more over the long haul in this economy.

Bottom Line: Consumers were able to spend more than they earned in February, a trend that is not likely to persist as it did in the past. Constraints on consumer credit, particularly those set by the newly-established Consumer Financial Protection Bureau, will likely limit access to credit for all but the most credit-worthy of borrowers. This development may create a safer, more stable, credit market over the long term. In the near term, however, it will exacerbate the gaping hole that has emerged between the "haves" and "have-nots." The recent surge in oil prices virtually assures it.
*****

John Stewart video on GE avoidance of income taxes:
http://www.salon.com/news/morning_clip/index.html?story=/news/feature/2011/03/29/daily_show_ge_corporate_taxes
*****

It was probably just luck.

(WSJ) David Sokol, widely seen as the leading contender to succeed billionaire Warren Buffett at the helm of Berkshire Hathaway Inc., resigned unexpectedly amid surprising revelations about his personal stock trading. In an unusual and personal announcement, Mr. Buffett said the resignation followed revelations that Mr. Sokol had purchased roughly $10 million in shares of a chemicals company that Berkshire recently agreed to buy at the suggestion of Mr. Sokol, Lubrizol Corp. Mr. Buffett said Mr. Sokol, 54 years old, had bought 96,060 shares in January, before Berkshire reached a $9 billion deal to acquire the company. Berkshire's purchase price of $135 per share meant that Mr. Sokol's stake rose $3 million in value. Mr. Buffett said he and Mr. Sokol didn't feel the Lubrizol purchases were "in any way unlawful." Mr. Sokol's interest in Lubrizol began after Citigroup bankers presented a list of "possible transactions" to him last fall, according to an SEC filing released Friday by Lubrizol. On Dec. 13, Mr. Sokol and the bankers met to discuss the list, and he expressed interest in Lubrizol, according to the filing. Mr. Sokol asked Citigroup to relay to Lubrizol CEO James Hambrick his interest in meeting to discuss Berkshire and Lubrizol. Mr. Sokol made his first personal purchase of Lubrizol shares the next day, buying 2,300 shares, according to Wednesday's statement. He sold the shares a week later, it said. On Jan. 5, 6 and 7, Mr. Sokol bought 96,060 shares of Lubrizol, based on an order he placed to buy 100,000 shares at up to $104 a share, the statement said. On the 6th, the Lubrizol board met to discuss Berkshire's interest, the Lubrizol filing said. Mr. Sokol held his shares as he talked with Mr. Hambrick on Jan. 14. Their conversation was generally about "corporate cultures and philosophies of both Berkshire Hathaway and Lubrizol," according to the filing. The two men arranged to meet in person on Jan. 25.Mr. Sokol first pitched the deal to Mr. Buffett on Jan. 14 or 15 and was rebuffed. That was also when he told Mr. Buffett he owned Lubrizol shares, Wednesday's statement said. "It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings," Mr. Buffett said. After dinner on Jan. 25 with Mr. Hambrick, Mr. Sokol discussed the deal with Mr. Buffett again and this time he bit. Berkshire's board approved the deal March 13. Mr. Buffett said he learned of the extent of the stock purchases shortly before beginning a trip to Asia on March 1
*****

If that isn’t insider trading those two words have no meaning- unless you are a small time printer or novice lawyer. And now the dissembling by the Buffet boosters may begin. Buffet had what could be considered inside information before he made his GE and Goldman Sachs investments in 2008 so………………..what’s the difference. The rich have different rules; always been and will always be that way.
*****

Matt Taibbi: The S.E.C.'s Revolving Door: From Wall Street Lawyers to Wall Street Watchdogs

Got a quick note from a friend today, sending some happy news from the corporate non-enforcement arena. It seems that the white-shoe corporate defense firm Wilmer Cutler Pickering Hale is expecting yet another regulatory baby!

The SEC last week announced that Anne Small will serve as the SEC’s new deputy general counsel. Small worked in Wilmer Hale’s litigation department before snagging this post. She’ll be replacing Mark Cahn, who worked at – wait for it – Wilmer Hale for 20 years, until joining the SEC last March, when he stepped in to work for a fellow named Andrew Vollmer, who had served as the SEC’s Deputy General Counsel since 2006. Cahn will now be kicked upstairs into the General Counsel spot.

But guess who his predecessor Vollmer worked for? That’s right, Wilmer Hale. So a Wilmer lawyer comes in to replace a Wilmer lawyer, who replaced a Wilmer lawyer. Hence the firm’s nickname – “SEC West.”

Besides Cahn and Small, there are other ex-Wilmerites at the Commission. There’s Joseph Brenner, the chief counsel of the Enforcement Division, and Meredith Cross, who heads the Division of Corporate Finance. Both were Wilmer partners.

Of course it’s not like the traffic doesn’t go in both directions. Last year the SEC’s head of trading and markets, Daniel Gallagher, left to become a Wilmer partner. And the SEC’s former Director of Enforcement William McLucas is now the head of Wilmer’s securities department. The firm hired the head of the SEC’s Los Angeles office, Randall Lee, in 2007. And so on and so on.

Exactly how tough do you think all these ex-Wilmer lawyers will be on current Wilmer clients like Goldman, Citigroup, Morgan Stanley, General Electric, Credit Suisse, and practically every other major financial services company? The shamelessness factor is growing by the minute.
http://www.rollingstone.com/politics/blogs/taibblog/the-s-e-c-s-revolving-door-from-wall-street-lawyers-to-wall-street-watchdogs-20110330
*****

Todd Harrison, minayanvill.com: Quarter-End Agendas Collide on Wall Street

For those of you who haven't managed a large fund -- which is likely a fairly large swath of our audience -- let me share a little insight regarding the dynamic currently in play.

Portfolio managers who run OPM (Other People's Money) have four days circled each calendar year: March 31st, June 30th, September 30th, and December 31st. That's when they're measured; it's the equivalent of a mid-term test that determines your entire grade, the seventh game of the World Series, the Super Bowl, March Madness, and the split second after you first to say "I love you" in a new relationship all rolled into one. When I was president at Cramer Berkowitz -- a $400 million fund -- those four days were the single most important days of our careers, each and every time, year after year. I'll sheepishly share that at the time, they were actually the most important days of our lives, although that seems silly with the benefit of hindsight. Suffice to say they matter; they count -- for money managers, they're everything. One of the most depressing dynamics on Wall Street is the nonsensical notion of relative performance. It's entirely alright for fund managers to lose money as long as everyone else does. If, however, they make money but other folks, or the benchmark averages, make more money? That's the black plague of high finance -- off with their head! I remember with great clarity how a double-digit return -- let's say, 15% -- earned you all-star status in 2000, 2001, or 2002 but that same performance triggered redemptions in 2003. There's an old adage that you're only as good as your last trade -- and to an extent, that's true. The end of each quarter is the living, breathing manifestation of that, and it leads to rather emotional decisions. As such, the buyers are typically higher and the sellers are usually lower, which is absurd at its face but a reality we must acknowledge. If nothing else, and I've said this before, please understand there are agendas and protocols in place -- more so than usual, and that's saying something -- so tread carefully as the games people play are broadcast in real-time.
http://www.minyanville.com/businessmarkets/articles/todd-harrison-stock-market-economy-bank/3/31/2011/id/33691
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