Wednesday 6 March 2013

The Greatest Disconnect.



Baltic Dry Index. 806  +17

LIR Gold Target by 2019: $30,000.  Revised due to QE programs.

Banks are an almost irresistible attraction for that element of our society which seeks unearned money.

J. Edgar Hoover

Yesterday, under the helpful free money from nothing QE policy of the Bernanke Fed, the US stock market rallied to a new all-time high. The Fed is back is back in the Greenspan business of blowing asset bubbles again. The theory is that even though only about the top 10 percent of Americans own stocks, there will be a trickle down feel good factor that will encourage the lower dross to get out and start borrowing and spending again, especially in housing. Below Reuters takes on the job of trying to figure out what just happened and why.

Analysis: The Dow - Old, yes, but hardly irrelevant in march to record

NEW YORK | Tue Mar 5, 2013 4:04pm EST
(Reuters) - Market professionals sometimes deride it as a relic, deeply flawed in its structure, useful mostly as the man-on-the-street's window on the stock market.

But the old man of Wall Street, the Dow Jones industrial average .DJI, has had enough kick left in its 117-year-old legs to vault to an all-time high before its major rivals. Not only that, but it has done it with arguably more tortoises than hares in its mix.

The index hit a high of 14,286.37 on Tuesday, surpassing the previous high set in 2007.

----The fact that the Dow is so widely followed and recognized by Main Street is part of what makes the index important.

"For everyday investors, the Dow is probably more important than the S&P 500," said Michael Sheldon, chief market strategist at RDM Financial, Westport, Connecticut.

"The idea that the Dow Jones industrial index is an industrial average reflecting the manufacturing sector in the United States went away decades ago."

So what has propelled it to uncharted territory when broader benchmarks are still retracing losses from the financial crisis? In a nutshell: dividends and value.

First, most of the stocks in the average pay dividends, giving it a slightly higher dividend yield, currently 2.61 percent, than the Standard & Poor's 500 Index' yield of 2.52 percent. The Dow's dividend yield has averaged a quarter percentage point above the S&P 500's yield since the U.S. stock market's post-crisis low in March 2009, attracting investors who favor income as well as stock price appreciation.

----Also, during the bear market from October 2007 to March 2009, the Dow fell less than other market measures. For instance, it lost 53.8 percent of its value, compared with 56.8 percent for the S&P 500.

The heavy focus on value stocks in the Dow has helped it during the recent market advance that began in November. The blue-chip index sports a price-to-earnings ratio of 14.5 times trailing 12-month earnings while the S&P is about 8 percent pricier, with a comparable multiple of 15.7.

That value bias has provided a tailwind for the Dow in recent months, with the index up 8.9 percent so far this year. A broader measure of the market, the Russell 3000 value index .RAV is up nearly 9.4 percent for the year, compared with a gain of about 7.3 percent for Russell's growth index .RAG, and value has outperformed significantly since September.

"Historically, the Dow tends to perform better in difficult markets and the S&P tends to perform better in stronger markets," said Jamie Farmer, managing director for S&P Dow Jones Indices, in New York.
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I leave it to Tyler Durden and Zerohedge to insert a much needed dose of reality. I think numbers 2, 4, and 5 are killers.

The Last Time The Dow Was Here...

"Mission Accomplished" - With CNBC now lost for countdown-able targets (though 20,000 is so close), we leave it to none other than Jim Cramer, quoting Stanley Druckenmiller, to sum up where we stand (oh and the following list of remarkable then-and-now macro, micro, and market variables), namely that "we all know it's going to end badly, but in the meantime we can make some money" - ZH translation: "just make sure to sell ahead of everyone else", just like everyone sold ahead of everyone else on October 11th 2007, the last time stocks were here...
  • Dow Jones Industrial Average: Then 14164.5; Now 14164.5
  • Regular Gas Price: Then $2.75; Now $3.73
  • GDP Growth: Then +2.5%; Now +1.6%
  • Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
  • Americans On Food Stamps: Then 26.9 million; Now 47.69 million
  • Size of Fed's Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
  • US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
  • US Deficit (LTM): Then $97 billion; Now $975.6 billion
  • Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
  • US Household Debt: Then $13.5 trillion; Now 12.87 trillion
  • Labor Force Particpation Rate: Then 65.8%; Now 63.6%
  • Consumer Confidence: Then 99.5; Now 69.6
  • S&P Rating of the US: Then AAA; Now AA+
  • VIX: Then 17.5%; Now 14%
  • 10 Year Treasury Yield: Then 4.64%; Now 1.89%
  • USDJPY: Then 117; Now 93
  • EURUSD: Then 1.4145; Now 1.3050
  • Gold: Then $748; Now $1583
  • NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares

Returning to a different sort of reality, North Korea threatened to resume their unfinished war with South Korea earlier in the week. Today South Korea said “game on.” Tomorrow the UN is set to announce yet more sanctions on North Korea for its latest nuclear explosion set off last month. While no one really expects the war to resume, stranger things have occurred in history. We now have a heightened stand-off between the Koreas, to add to China v Japan over the Diaoyu Islands, and the new on-again US-Israeli move to war with Iran. For comic relief the Sultan of Sulu has just invaded Sabah, Malaysia triggering a very one sided war with the Federation of Malaysia. There goes tourism in the Sulu Sea. Someone’s not paying enough attention to deteriorating world events.

South Korea says to strike back at North if attacked

SEOUL/UNITED NATIONS | Wed Mar 6, 2013 1:33am EST
(Reuters) - South Korea's military said it will strike back at North Korea and target its top leadership if Pyongyang launches a threatened attack in response to what it says are "hostile" drills between U.S. and South Korean forces.

One of North Korea's top generals, in a rare appearance on state television on Tuesday, said Pyongyang had torn up its armistice deal with Washington and threatened military action against the U.S. and South Korea if the drills went ahead. The military exercises began on March 1.

Tensions have ratcheted higher across the Korean peninsula since the North, under youthful leader Kim Jong-un who took office just over a year ago after the death of his father, launched a long range rocket last December.

He followed this with a third nuclear test on February 12, triggering the prospect of more U.N. sanctions that are due to be formally announced on Thursday after the United States and China, the North's one major diplomatic ally, struck a deal to punish Pyongyang.

At the same time, North Korea has stepped up its military threats against South Korea and the United States, prompting the terse warning from Seoul on Wednesday that it would not stand idly by if its territory was attacked.
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We end for the day with sick Euroland. Threatened by Germany with deposit haircuts as the price of a Cypriot bank and sovereign bailout, Russia’s oligarchs and other crooks are moving out their deposits making matters even worse. Well would you leave your money in a European bank that’s about to be forced to steal some of your hard stolen deposit? Neither would I. The convoluted game to try to save the dying euro just keeps staggering from worse to worser. If Germany can order Cyprus to steal bank depositors money to get a bailout, how safe are deposits in Portugal, Spain, Italy and France?

"Sooner or later both the Greek population and international creditors will tire of fighting a losing battle, leading to a break-up of the currency union as Greece pulls out, probably followed by other countries"

Douglas McWilliams, chief executive of the Centre of Economics and Business Research.

Cypriot crisis deepens as 'haircut' fears drive capital flight

Capital flight from Cyprus has accelerated since eurozone politicians began threatening losses for bank depositors, and may have reached 12pc of the country's GDP over the last month.

Cypriot sources say lenders haemorrhaged €1bn in deposits over the first two weeks of February, heightening fears that mere talk of "haircuts" is deepening the banking crisis as rescue talks drag on between the EU-IMF Troika and the island's new leaders. The Bank of Cyprus reported deposit losses of €1.7bn in January.

Brussels has warned against haircuts for depositors, a drastic move avoided in bail-outs for Greece, Ireland, and Portugal.

Cypriot finance minister Michael Sarris told eurozone colleagues on Monday night that such action would shatter confidence and set off a fresh spasm of the EMU debt crisis.

"There is no way we can entertain the idea of any kind of haircut to any kind of deposits. This would be an accident in the euro zone not caused by markets, but a self- inflicted wound, a self-inflicted catastrophe, not only for Cyprus, but for the euro zone and perhaps even beyond."

Yet politicians in Germany and Europe's AAA core have yet to be convinced that the tiny island with 1.1m people and a GDP of €17bn poses any systemic risk to the currency bloc. Eurogroup chief Jeroen Dijsselbloem refused to rule out losses for depositors, saying the matter would be settled later this month.

A depositor "bail-in" could in theory cut the rescue package for Cyprus from €17bn to €6bn, but this claim is hotly contested and assumes that investors will wait patiently for their punishment.

The crisis is now deepening on every front. The jobless rate hit 22pc in February. The country will run out of money to pay bills in May. An internal report by Brussels says the bank rescue costs may push island's public debt to 145pc of GDP, implying that debt relief will be needed.

Since EMU leaders have vowed never to repeat the mistake made in Greece where they set off a broader crisis by imposing wipe-out losses on investors, this means that the burden may fall on taxpayers in Germany and EMU core.
More

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

At the Comex silver depositories Tuesday final figures were: Registered 42.09 Moz, Eligible 121.64 Moz, Total 163.73 Moz.  


Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over. 

Today it’s back to the banksters again. One of the UK’s triple City regulators, under the ludicrous process set up by the misanthrope Labour Chancellor Gordon Brown, knew that Liebor was being rigged as far back as April 2008. In typical hands-off London bureaucratic style it did nothing.

"I want us to do even more to encourage the risk takers"

Gordon Brown. 2004.

FSA was warned of 'significant' Libor problem in 2008

Bank regulators realised as early as 2008 that manipulation Libor could pose a “significant” problem for the banking industry, it has emerged.

In an internal report on its handling of the scandal, the Financial Services Authority admitted that several warnings about the rigging of borrowing rates had gone unheeded.

The FSA conceded it had been slow to respond to intelligence provided by banks and its own staff about the dangers posed to the financial system by Libor-rigging.

In one email an employee in the FSA’s legal division sent an email to a colleague in its risk department, discussing the risk to loans if rates were being rigged.

“There could be a more significant issue if it [Libor] is not being calculated properly as that would potentially mean that people are paying rates on a false premise,” wrote the unidentified official in April 2008.

In another warning the same month, the compliance officer of a smaller bank sent an email to the FSA stating: “It appears to us that something is wrong when a panel of contributor banks is supplying Libor at a below what the banks can achieve in the market. It may be worth the FSA investigating to see if the contributor banks are making profits on the back of these quotes.”

In a comment on the banker’s email to senior FSA managers one supervisor noted “the implications if someone wanted to challenge the 'fairness’ of the fixes are massive”.

The FSA’s reported found 74 potential potential warnings of so-called “lowballing” of Libor submissions by major banks, of which 24 were described as “direct”. Of these direct references, half came from Barclays, which was last year fined £290m by the US and British authorities after admitting attempting to rig key global borrowing rates.

However, the FSA said its review of 17m records, including the detailed study of 97,000 documents, had found no other references to rigging.

“The FSA had no formal regulatory responsibility for Libor submission process. As a result, the FSA did not respond rapidly to clues that lowballing might be occurring,” said Lord Turner, chairman of the FSA.

So far, Barclays, Royal Bank of Scotland and UBS are the only banks to have been fined over Libor-rigging, however more than a dozen other major lenders are currently under investigation, including Lloyds Banking Group and HSBC.

On top of the official investigations, several legal actions are alredy in the works from customers sold products that were priced off Libor.
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“Prime Minister Gordon Brown called yesterday for the Financial Services Authority to start an inquiry, saying he was “shocked” at the “moral bankruptcy” indicated in the suit.”

Gordon Brown. 2010.

"Too bad ninety percent of the politicians give the other ten percent a bad reputation."

Henry Kissinger

The monthly Coppock Indicators finished February:
DJIA: +111 Up. NASDAQ: +129 Up. SP500: +148 Up.  All three indexes are giving the same signal since January, up, but surprisingly February’s  move in all three was weak, suggesting that the indicators are topping out. Will sequestration turn March into a down month? So far so good.

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