Market’s New High Does Not Relieve Short-Term Risk!
Saturday, February 18, 12:00 noon. It didn’t change the short-term overbought condition above the 50-day m.a. It did not change the high level of bullish investor sentiment. It did not change the divergence of the DJ Transportation Avg., which often leads the market in both directions. Unlike the rest of the market, the Transports were [...]

Saturday, February 18, 12:00 noon.

It didn’t change the short-term overbought condition above the 50-day m.a.

21812c

It did not change the high level of bullish investor sentiment.

It did not change the divergence of the DJ Transportation Avg., which often leads the market in both directions. Unlike the rest of the market, the Transports were down again this week.

21812b

Don’t Expect the Financial Industry to Reform!

The history of banking is the history of producing blood in the streets. Not literally of course, but of producing the periodic financial disasters when the time to buy is referred to by the euphemism ‘when there’s blood in the streets’.

That time in this cycle was obviously at the low in March, 2009, when it looked like the banks had really done it this time, that their greed in pushing imaginative liar loans on wannabe home-buyers, and selling the resulting toxic sub-prime mortgages as investments, was going to bring the entire global financial system down, and plunge the world into a global depression.

That the banking industry had brought the country to the brink of disaster was not something new. And after each episode, Congress and regulators produced new regulations that would prevent similar collapses from recurring.

We can see how well they worked, how easily the financial industry found new ways to scam investors and the public in general, i.e. the insider trading scandals of the 1970’s, the junk-bond scandals of the 1980’s, the 1987 market crash, the early 1990’s collapse of the savings & loans, etc.). Each time new regulations were introduced to prevent a recurrence of the previous problem. So the tactics and problems changed.

Some of the most meaningful changes were made after the investigations into the 1929 crash revealed the activities of the financial industry leading to that crisis.

One of the most of those new regulations was the Glass-Steagall Act. It separated the activities of financial institutions. For instance, commercial banks were henceforth barred from underwriting and distributing the stocks of private companies; investment banks were barred from commercial banking activities; commercial banks could not own or be closely affiliated with a brokerage business, or vice versa, nor could they underwrite insurance.

Over the years, as the economy and stock market recovered, and investors were no longer angry or paying attention, Wall Street lobbied heavily, and regulators agreed to scrap various other parts of the 1930’s regulations.

And in 1999, when investors were so distracted by the powerful 1990’s bull market and didn’t really care, Congress passed the Gramm-Leach-Bliley Act which repealed the Glass-Steagall Act.

As we all know, the financial industry reverted back to the wild and wooly financial shenanigans of the 1920’s in a hurry. Banks formed brokerage arms or bought out existing brokerage firms. Not only did they get heavily into promoting and selling stocks, but introduced their own mutual funds, selling those and funds of others right in the lobbies of their banks, many giving their depositors the impression that the funds were guaranteed by the FDIC like savings account are, before regulators at least put a stop to that. Brokerage firms got into banking and even providing mortgages. Giant insurance company Prudential was not the only insurance company to add substantial brokerage, mutual fund, and real estate divisions. Most established their own hedge funds or provided financial backing to others, got heavily involved in proprietary trading for their own accounts and profits, and got involved in providing increasingly aggressive creative mortgages, and breaking them up into leveraged ‘tranches’ that were sold to investors.

And of course the whole thing came tumbling down.

And the financial powerhouses had once again become too big and intertwined to be allowed to fail.

As always in the past, new regulations were again promised in 2008 and 2009 that would prevent such catastrophes from taking place ever again.

And as always, the major financial firms, although having to once again be bailed out, were able to come up with many $millions for lobbying efforts, which have successfully watered the proposed regulations down significantly, and postponed their adoption.

One of those proposed regulations is the ‘Volcker Rule’. It seeks to reinstate a small portion of the Glass-Steagall Act, by at least separating investment banking, private equity, proprietary trading, and hedge fund sections of financial firms from their consumer lending arms.

Wall Street has been lobbying hard against the adoption of the Volcker Rule and it has been watered down in the process. But it looks like it will not be delayed any longer.

The FDIC, Federal Reserve, and SEC voted in favor of it in October, and allowed banks and other interested groups until January 13 to comment on the proposal. On January 11 the Commodity Futures Trading Commission, the last of the five regulators that have been taking public comments on the proposal, voted 3-2 in favor of it.

But the public comment period was extended to February 13. So financial firms have continued to weigh in heavily on the situation. The Financial Times reports this morning, “Bank regulators are being bombarded with pleas to ease the Volcker Rule”, adding that “regulators have received 16,000 letters in what bankers and lawyers describe as a last-ditch effort to further soften the rule.”

For two years now the financial industry has basically been saying such ‘harsh’ regulations are not necessary, that they are able to police themselves to prevent abuses.

Really? Given their history we should have confidence in that promise?

Thomas Jefferson said in 1816 “I sincerely believe that banking establishments are more dangerous than standing armies.” In the early 1900’s, automaker Henry Ford said “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

There is every sign that nothing has changed, that banks intend to continue to get away with as much as they can, until the next debacle.

Let’s hope that at least they continue to come along only once every 10 or 15 years.

20 Years of Nuclear Disarmament Hasn’t Lowered Risk More Than This?

Congress is grilling Defense Department officials this week, worried that proposed defense cutbacks will mean not enough nuclear weapons to adequately protect the U.S.

Defense Secretary Panetta said no decisions had been reached, that the options include a ceiling of 1,550 long-range deployed warheads as agreed in last year’s treaty with Russia, as well as options for 1,000 – 1,110; 700 – 800; or 300 – 400.

The U.S. currently has 5,113 nuclear weapons including those that are stockpiled but not deployed. Russia has some similar number, China only a few by comparison.

Those kind of numbers have meant nothing to me until this week when I read that Russia came close to a nuclear disaster in December when a nuclear-powered sub carrying nuclear weapons was engulfed by a huge fire while in dry-dock for repair.

The number of nuclear weapons on just this one sub? Sixteen intercontinental ballistic missiles, each armed with four nuclear warheads. That’s 64 nuclear warheads on just one of hundreds of U.S. and Russian ships.

Okay. That has my attention.

To read my weekend newspaper column ‘Two Years of Fears Have Disappeared!’ Click here.

Yesterday in the U.S. Market.

A mixed day, with the blue chips up some, and the rest of the market, including the DJ Transportation Avg down some. Volume was only 0.9 billion shares on the NYSE, very light for an options expirations day.

The Dow closed up 45 points, or 0.3%. The S&P 500 closed up 0.2%. The NYSE Composite closed up 0.3%. The Nasdaq closed down 0.3%. The Nasdaq 100 closed down 0.3%. The Russell 2000 closed down 0.2%. The DJ Transportation Avg. closed down 0.5%. The DJ Utilities Avg closed unchanged.

Gold closed down $4 an ounce at $1,723.

Oil closed up $1.12 a barrel at $103.43 a barrel.

The U.S. dollar etf UUP closed unchanged.

But the U.S. Treasury bond etf TLT closed down 0.1%.

Yesterday in European Markets.

European markets closed up quite sharply yesterday. The London FTSE closed up 0.3%. The German DAX closed up 1.4%. And France’s CAC closed up 1.4%.

Global markets for the week.

A positive week, supported by more strong U.S. economic reports, and renewed hope on the Greek bailout. 


THIS WEEK (February 17)
DJIA12950+ 1.2%
S&P 5001361+ 1.4%
NYSE8114+ 1.5%
NASDAQ2951+ 1.6%
NASD 1002584+1.5%
Russ 2000828+ 1.9%
DJTransprts5239- 0.3%
DJ Utilities453+ 0.5%
XOI Oils1,324+ 1.9%
Gold bull.1,723+ 0.2%
GoldStcks193- 1.0%
Canada12458+ 0.6%
London5905+ 0.9%
Germany6848+ 2.3%
France3439+ 2.0%
Hong Kong21491+ 3.4%
Japan9384+ 4.9%
Australia4273- 1.1%
S. Korea2023+ 1.5%
India18289+ 3.0%
Indonesia3976+ 1.6%
Brazil66203+ 3.4%
Mexico37914- 0.6%
China2469+ 0.2%
LAST WEEK (February 10)
DJIA12801- 0.5%
S&P 5001342- 0.2%
NYSE7992- 0.8%
NASDAQ2903- 0.1%
NASD 1002547+ 0.7%
Russ 2000813- 2.1%
DJTransprts5254- 2.1%
DJ Utilities450- 0.2%
XOI Oils1,300+ 0.5%
Gold bull.1,720- 0.3%
GoldStcks194- 2.8%
Canada12389- 1.5%
London5852- 0.8%
Germany6692- 1.1%
France3373- 1.6%
Hong Kong20783+ 0.1%
Japan8947+ 1.3%
Australia4322+ 0.1%
S. Korea1993+ 1.1%
India17748+ 0.8%
Indonesia3912- 2.6%
Brazil63997- 1.9%
Mexico38149+ 0.1%
China2463+ 0.9%
PREVIOUS WEEK (February 3)
DJIA12862+ 1.6%
S&P 5001344+ 2.1%
NYSE8060+ 2.3%
NASDAQ2905+ 3.2%
NASD 1002529+ 2.8%
Russ 2000831+ 4.0%
DJTransprts5368+ 0.4%
DJ Utilities451+ 0.8%
XOI Oils1,294+ 2.8%
Gold bull.1,725- 0.8%
GoldStcks200- 1.2%
Canada12577+ 0.9%
London5901+ 2.9%
Germany6766+ 3.9%
France3427+ 3.3%
Hong Kong20756+ 1.2%
Japan8831- 0.1%
Australia4320- 0.6%
S. Korea1972+ 0.4%
India17604+ 2.2%
Indonesia4015+ 0.7%
Brazil65217+ 3.7%
Mexico38095+ 2.5%
China2441+ 0.5%

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Next week’s Economic Reports:

Next week will be a holiday-shortened week in the U.S., with the market closed Monday for the President’s Day holiday.

And it will be a very light week for potential market-moving economic reports, but they will include Existing Home Sales, New Home Sales, and Consumer Sentiment. To see the full list click here, and look at the left side of the page it takes you to.

To read my weekend newspaper column ‘Two Years of Fears Have Disappeared!’ Click here.

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I’ll be back with the next regular blog post on Tuesday morning at 9:25 a.m.

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