Monday, November 18, 2013 - Activism from Billionaires and Tweeters

Activism from Billionaires and Tweeters
by Sinclair Noe

DOW + 14 = 15.976
SPX – 6 = 1791
NAS – 36 = 3949
10 YR YLD - .04 = 2.66%
OIL - .83 = 93.01
GOLD – 14.40 = 1277.00
SILV - .38 = 20.50

This one didn't feel like a record high celebration, in part because the major indices closed well off the intraday high. The Dow had been trading above 16,000 for much of the afternoon, but a late sell-off saw the Dow finish below that nice round number; still, it was good enough for another record high close. The S&P 500 hit an intraday high of 1802, but closed in negative territory. Still we mark today's gains in the Dow in the “win” column and that means we have now had 39 record high closes on the Dow in 2013.

The trend is in place, firmly. The rise in the Dow Jones industrials continues to be confirmed by an associated rise in the Dow Jones Transportation Average. A look at the S&P 500 also shows a clear breakout at the top multiyear resistance level. The breakout may be false, due to the lack of active participation, as evidenced by light volume. So far, it has held up pretty well, contrary to its overbought condition. Everything is pointing higher as long as the Fed continues to pump money into the economy; and it looks like they will continue until March, although they could start to taper in January or December. Or maybe Bernanke will go out with a gift of extra stimulus.

More than half the gauges Janet Yellen uses to track the labor market are below pre-recession levels, reinforcing the likelihood she will support never ending easy money policy. While payrolls have increased and firings slowed, four measures: unemployment, labor force participation and rates on hiring and voluntary quits are still worse than at the start of the recession in December 2007. Hard to say when we'll see taper, but the party will slow down when the Fed removes the punchbowl. Until then stay alert, don't doze off, stay agile. A trend in place remains in place, until it reverses.

Economist Paul Krugman, in his column in the New York Times, asks us to imagine a world in which depression like economics are the new normal. Krugman writes: “What if depression-like conditions are on track to persist, not for another year or two, but for decades?”

If that’s the case, then those with their hands on the economy’s wheel are going to have to readjust their worldview. Krugman writes: “Central bankers need to stop talking about ‘exit strategies.’ Easy money should, and probably will, be with us for a very long time.”

As a result, deficit hawks will have to wait a long, long while before their warnings about federal debt hold any real value. “We can forget all those scare stories about government debt, which run along the lines of ‘It may not be a problem now, but just wait until interest rates rise.’”

Carl Icahn was speaking today at the Reuters Global Investment Outlook Summit and he said he could see a big drop in the stock market because earnings at many companies are fueled more by low borrowing costs than management's efforts to boost results. Of course this is not news. For several years, we've seen and talked about the tactics of corporate management to boost earnings by cutting expenses without commensurate attention to innovation and growing revenue; we've discussed the advantage of a low interest rate environment; and we've gone into detail about the little trick of stock buybacks to gloss over a lack of creativity.

It makes sense to invest in research and development to create value and grow a business and capture market share; or you could buy back shares and give the false impression of growing earnings per remaining shares. Icahn favors the latter.

Apple, minus the paranoid attention to fine tune design and function under the leadership of Steve Jobs, has reverted to the innovation of adding colors to the iPhone cases. Maybe someone really needs a 41-megapixel camera on a Nokia smartphone. Samsung's new innovation is a bended display; the screen is curved a little and displays information on different parts of the screen; so if you look at it from the side, you can see whether there is a notification. Or you could actually pick up the phone and look at the screen. The way some high tech companies pursue an innovative edge is through the patent courts, although I didn't hear if Icahn had anything to say about that tactic.

The average selling price of smartphones around the globe has been plunging this year and Qualcomm just warned a few weeks ago about a decline in high-end phone demand. The hot new idea is a watch. Dick Tracy had one of those 50 years ago, so it's about time someone got around to actually building one.

The hot new technology seems to be coming in the form of a Sony PlayStation; they sold one million in the first 24 hours of the rollout of a new model. Games, bread and circuses; all controlled by the flick of the opposable thumb. Forget about hunger, clean water, renewable energy. This is how we train the next generation of drone warriors.

Last week we talked about Judge Jed Rakoff's speech dealing with the reasons why bankers haven't gone to jail:

US attorneys and the Federal Bureau of Investigation have other priorities, whether it's antiterror cases, accounting frauds after Enron's bankruptcy, or Ponzi rip-offs after Bernard Madoff's huge scam. Financial frauds are particularly tough to crack, and many of the prosecutors with the requisite knowledge have been moved to other areas.

Law enforcement agencies have had to compete for a shrinking pot of money from Congress, and the best way to do that is by beefing up their statistics with smaller, easier cases and avoiding the years-long financial fraud probes that may turn up nothing.

The federal government's involvement in the mid-2000s bubble, deregulating the financial industry, keeping interest rates low and such, may also have given prosecutors pause.

The US has shifted over the last 30 years from prosecuting high-level individuals to using delayed-prosecution agreements to settle cases against entire companies. That shift “has led to some lax and dubious behavior on the part of prosecutors," Rakoff said, including allowing managers to sweep crimes under the rug.

But the public at large is not happy with the banksters; witness last week's planned Twitter Q&A session planned by none other than JPMorgan. JPM execs thought it would be way cool to have a Twitter session on the topic of “What carreer advice would you ask a leading exec at a global firm? Tweet a Q using #AskJPM.

So people sent their questions and comments. Here's a sampling:

I have Mortgage Fraud, Market Manipulation, Credit Card Abuse, Libor Rigging and Predatory Lending AM I DIVERSIFIED?

Can I have my house back?

Did you always want to be part of a vast, corrupt criminal enterprise or did you "break bad"?

Is the fact that you've paid over half a billion in fines since August a source or pride, or are you embarrassed it's not higher?

What's it like working with Mexican drug cartels? Do they tip?

When Jamie Dimon eats babies are they served rare? I understand anything above medium-rare is considered gauche.

Is it the ability to throw anyone out of their home that drives you, or just the satisfaction that you know you COULD do it?

Is it easier to purchase a congressional representative or a senator?

How much does JPM spend every year buying off members of the SEC, and what is the average rate?

Did you have a specific number of people's lives you needed to ruin before you considered your business model a success?

After about 7 hours, JPM realized they had lost control and the bank pulled the plug on the social media event.