Halftime
by Sinclair Noe
DOW
– 114 = 14,909
SPX – 6 = 1606
NAS + 1 = 3403
10 YR YLD - .05 = 2.48%
OIL - .49 = 96.49
GOLD + 34.50 = 1236.30
SILV + 1.15 = 19.76
SPX – 6 = 1606
NAS + 1 = 3403
10 YR YLD - .05 = 2.48%
OIL - .49 = 96.49
GOLD + 34.50 = 1236.30
SILV + 1.15 = 19.76
What
a long strange trip it's been, and we've only just reached the
halfway mark of 2013.
It
started with the fiscal cliff, and after the lemmings jumped, we
still had payroll tax hikes, debt ceiling battles, sequestration,
mixed with assorted dysfunction; and through it all the stock market
climbed. The S&P 500 hit a record high of 1687 in May; the Dow
hit a high of 15,542. Those were the days of milk and cookies.
And
then Bernanke did a little tap dance around the punchbowl, sparking
the animal spirits of the marketplace, and transforming bond market
vigilantes into feral hogs, raising their snouts in the air and
sniffing a whiff of blood. Volatility spiked, with more than 15
consecutive days of 100-point swings for the Dow. The bond market
swooned, and June turned gloomy.
Still,
the first half was generally positive. The best first half for stocks
since 1998. The
S&P 500 closed the first half of 2013 up 12.6 percent.
For
the second quarter, the Dow rose 2.3%, the S&P 500 gained 2.4%
and the Nasdaq Composite climbed 4.2%
We
are at a policy inflection point, or at least we are at a point where
we can think about an inflection point, which may or may not be a bad
thing if it is accompanied by good economic news. So, let's see where
the markets stand in relation to the beginning of QE2 back in the
autumn of 2010. Not much change really. Bond yields are just a little
lower than in November of 2010. The dollar has been on a roller
coaster ride, but it recovered all the lost ground. Gold, which was
beaten bloody in the last quarter, was just a smidge higher in late
2010. Three rounds of QE failed to produce hyper inflation, or even
any kind of inflation; the price of milk and bread is the same as it
was five years ago; maybe all that QE avoided deflation. Even though
the Fed expanded its balance sheet, the money never made it into the
broader economy, with the possible exception of stocks. Stocks looked
bubbly, at least until a month ago. The jobs picture has improved,
but not enough.
Gold
plunged to a 34-month low, set for a record quarterly drop.
Gold
has dropped 23 percent this quarter, heading for its biggest loss
since at least 1920 in London. Silver futures fell to the
lowest since August 2010. About
$60 billion was wiped from the value of precious metals
exchange-traded product holdings this year. Silver futures are
down 34 percent this quarter, set for the biggest drop since the
start of 1980. It’s the worst performer this year on the Standard &
Poor GSCI Spot Index of 24 commodities. The index is down 5.5 percent
this year. The current gold to silver ratio is about 64 to 1; which
might indicate that silver is over-sold, or might indicate that gold
still has more to drop. China announced today that they would buy
gold to support their currency. Even as the paper metals have
dropped, the premium for physical metal has been growing. So, it
should go up, but remember that market can remain irrational long
than you can remain solvent.
The
dollar index has been on a bit of a rally the past couple of weeks,
and for the year the dollar has climbed from around 80 to 83;
cementing it's status as the prettiest horse in the glue factory. By
the way, a New Mexico company has received permits from the USDA to
open a horse meat plant. It would be the only one in the country, at
least for now, to slaughter horses for human consumption. Just a side
note there.
Bonds
have been hammered as of late. The benchmark 10 year note rose 64
basis points over the last three months in the largest quarterly
yield rise since the fourth quarter of 2010. The 10-year yield is up
33 basis points on the month. Bond mutual funds and bond ETFs
saw $62 billion in outflows through the first 3 weeks of June. The
withdrawals wiped out over half of the $115 billion deposited into
bond funds through the first five months of the year. Emerging market
debt and high yield were among the casualties, with losses of 8.8%
and 4.2% respectively. NYSE margin debt declined to $377 million in
May from April’s record reading of $384 million. This was the first
decline on a monthly basis since last June. Historically, margin
debt has a strong correlation with the S&P 500 as investors tend
to lever up as the market advances and the mood shifts from risk off
to risk on. Mortgage rates jumped to the highest level in 2 years.
The average rate on the 30-year fixed is 4.46%.
It
seems like we've been on a wild ride this week. There were Supreme
Court rulings: voting rights, affirmative action, Doma, Prop 8. You
heard all about those. You probably didn't hear about a few others.
Vance v. ball State and University of Texas v. Nassar involved
employment discrimination and both make it significantly more
difficult for employees to sue employers for workplace
discrimination. In Koontz v. St. Johns River Water Management, the
Court ruled that a man trying to develop property in a wetlands
region did not have to pay money to improve wetlands in other areas
to counteract the effects of his development. This decision makes it
more difficult for localities to demand financial compensation to
enforce environmental regulations. And in Mutual Pharmaceutical v.
Bartlett, the Court ruled a woman could not sue a pharmaceutical
company for the side effects of a generic drug she took which caused
her to go blind, put her in a coma, and made most of her skin fall
off. By the way, the drug is called Clinoril, a generic form of
sulindac, and it's still on the market.
Jon
Corzine has finally been charged, in a civil suit, for losing $1
billion dollars of MF Global's clients' money. A civil suit. And
before you say there is no justice in this country. I present the
case of Robert Bracone and Rene Torres. This is a New York City story
of corruption; filthy, dirty corruption. The two men are accused and
pleaded guilty to accepting cash payments to remove the filth from
New York. Specifically, they each accepted a $5 dollar tip for
cleaning up trash in an alley. The guys were sanitation workers,
trash men; more than 25 years on the job. They have lost their jobs,
and they have each paid a $2,000 fine. Finally, there is justice in
New York City.
And
then there was a little bit of data that slipped by almost
un-noticed. It comes from the Wealth Data Book. It confirms some of
what we know. America has more millionaires than any other country;
more billionaires, too. We have tall buildings and fast cars and
shiny airplanes, and that must mean we are the richest country in the
world, why, we must be the richest country in the history of the
world. Not exactly.
Kind
of depends on how you measure things. The most telling comparative
measurement is median wealth (per adult). It describes the amount of
wealth accumulated by the person precisely in the middle of the
wealth distribution -- fifty percent of the adult population has more
wealth, while fifty percent has less. You can't get more middle than
that. And when it comes to median wealth, we're not Number One. We're
not even in the Top Ten. We're Number 27!
And
according to the Global Wage Report, the number one reason why we're
number 27 isn't globalization, or new technologies, or poor social
safety nets; the reason is fiancialization.
"Financialization
means the increasing role of financial motives, financial markets,
financial actors and financial institutions in the operation of the
domestic and international economies."
This
includes such trends as:
• The
corporate change during the 1980s to make shareholder value the
ultimate goal.
• The
deregulation of Wall Street that allowed for the creation of a vast
array of new financial instruments for gambling.
• Allowing
private equity firm to buy companies, load them up with debt, extract
enormous returns, and then kiss them good-by.
• The
growth of hedge funds that suck productive wealth out of the economy.
• The
myriad of barely regulated world financial markets that finance the
globalization of production, combined with so-call "free trade"
agreements.
• The
increased share of all corporate profits that go to the financial
sector.
• The
ever-increasing size of too-big-to-fail banks.
• The
fact that many of our best students rush to Wall Street instead of
careers in science, medicine or education.
In
short, financialization is when making money from money becomes more
important that providing real goods and services.
With
all that going on, you may have missed the speech by President Obama
on Tuesday. It was the first time a President has acknowledged global
warming and set out to change policy to address the problem. The main
thing I got from it was bad for coal, good for fracking.
A
few weeks back, someone called in and asked about problems with the
Vatican Bank. I hadn't been following it but I did a little research
and yes, there was an investigation into money laundering. When Pope
Francis took office, he pledged to clean up the Holy See's scandal
plagued government. For the past two years, Italian prosecutors have
been investigating money laundering at the Vatican Bank, formally
known as the institute of Religious Works. That investigation
revealed an alleged plot to smuggle $26 million from secret Swiss
bank accounts into Italy. Today, Italian financial police detained a
Vatican accountant, a financial broker, and a former member of the
country's secret services.
There seems to be something about banking
that is repellant to the notion of good deeds; perhaps it is the idea
that usury is considered a sin; perhaps it goes back to the idea of
casting out the money changers from the Temple. Whatever the root,
the problems with the Vatican Bank underscores the challenges the
Pope faces in trying to recast the Catholic Church as more humble and
serving the poor.
So, where are we going in the second half? What do you think about the Supremes? Now that we have a policy dealing with global climate change, do you believe in climate change? Have you been outside today?
