Archive for June, 2009
150 Years
Posted by Jody Eisenman | Filed under Uncategorized
was the sentence handed down to Bernie Madoff in New York this morning. While some of the victims cheered, I think most are happy justice is served, but it still doesn’t get them their funds back. What I found more interesting was the situation with the Security and Exchange Commission (SEC). The SEC has admitted that they screwed up, and I know of at least one lawsuit that is seeking redress directly from the Commission. There is no point in suing Madoff, as all his assets are either frozen or forfeited. I’m not sure how this agency, which is charged with oversight of the financial markets, could not possibly figure out that a man who was managing billions of dollars for over 20 years did not execute a single trade. It is also curious how the traders at Madoff’s firm did not realize what was going on. After all, what exactly did they trade? If Madoff had given them, say, a few million to trade, wouldn’t they have eventually inquired as to who was trading the bulk of the portfolio? Also, what were his sons’ role in all this? Of course, the question everyone wants the answer to is where the money actually went. I wonder when, if ever, will we get the answers to these questions.
Meanwhile, the stock market has started to climb again. After failing to close above 950 earlier this month, the S and P 500 retreated back to the 890 level last week. We are now back to 927, and another assault on 950 may come in this abbreviated trading week. The VIX, which is a measure of volatility that I discussed last year, has now dropped to around 25, which is its’ lowest level since the pre-Lehman bankruptcy. A drop in the index is generally an indication that a sense of clam is coming back into the markets. The index hit almost 90 last October.
The Stock and Bond Markets are Moving in Opposite Directions
Posted by Jody Eisenman | Filed under Uncategorized
The stock market has now been drifting lower for most of this month. The S and P started ended on June 1 at almost 943. After peaking on June 12 at 946, it has had a hard time getting through the 950 level, and has now drifted down to 895. There is no real news to account for this other than an absence of buyers and profit taking. Volume has been on the light side, averaging around 5 billion shares per day. In contrast, there was not a single day in May where volume was less than 5.1 billion. Here’s the breakdown:
# of Days Volume Exceeded: May June
6 billion 7 1
7 billion 2 0
8 billion 4 0
This tells me that the market is probably not dropping on any aggressive selling, as opposed to the first two months of this year. In contrast, the bond market has been soaring. Investors who shunned any form of fixed income other than CDs and treasuries have been buying up great quantities of bonds, driving yields lower. Yields on junk bonds, which were around 18% in March, have now dropped to around 10%. On Monday, seven billion in new corporate bond offerings were grabbed by investors (as opposed to the normal 4 billion). This is all the more impressive in that this occurred just before a 3 day offering of over 100 billion dollars in new treasuries. This afternoon, the 2 year auction took place. It went extremely well, with the yield coming in at 1.15, below the when issued yield of 1.19. Although there are 2 more days to go, this is certainly an encouraging sign.
As regular readers of this blog know, I had been pretty negative on the equity markets for most of last year. This was based to a great extent on the near collapse of the credit markets. Now that they have solidified, it would stand to reason that the stock market should follow suit at some point. Of course, volatility is still high and anything could happen over the short run. It should be an interesting summer!
Obama Proposes Major Regulatory Reform for the Financial System
Posted by Jody Eisenman | Filed under Uncategorized
In a move not seen since the depression of the 1930s, President Obama is seeking legislation to try and avoid a future financial crisis. The major points include giving the Fed more oversight, regulating financial derivatives for the first time, and creating a mechanism for the orderly liquidation of any financial firm whose failure could threaten the stability of the entire system. Ile I think pretty much everyone believes that changes need to be made, many question the wisdom of giving more power to an institution (the Federal Reserve) didn’t do a very good job during the present crisis. In addition, Edward Yingling,president of the American Bankers Association, said his group has some “real concerns” about the consumer protection measures. “For community banks that had nothing to do with this crisis, this will be massive regulation that will burden them with new costs,” Yingling said as he arrived at the White House for the announcement. Some version of this bill will probably be written into the law, but expect lots of political maneuvering over the next several months. Meanwhile, the state of California is moving closer to potential Armageddon. Like most states, California overspent in the boom times without giving much thought to the future. One of the biggest problems with municipal budgets is that legislators seek to get re-elected today, so they spend without regard to where the money will come from down the road. As Gov. Rockefeller of NY used to say, “Spend, spend, spend; Elect, elect, elect”.In the case of California, the recession, combined with the massive subprime lending crisis has caused a severe shortfall in revenues. The state may face bankruptcy by the end of July. Other states, as well as municipal bond holders are watching anxiously to see how this plays out. The stock market continues to trade in a relatively narrow range. However, the last few days have been negative, so bulls probably have to assert control soon or risk the market going through support levels. Although I believe that this is just a temporary pullback, you never know.
