Richard Daughty has a fun look at the loss of GM and CitiGroup and the insertion of Cisco Systems and Travelers in the DJI index, necessitating a divisor change.

Now on Sunday amongst friends, you too can opine on the divisor change to 0.132319125 from 0.125552709.

Want to know more, read Richard posting as the Mogambo Guru here. The article has a popularity of 1% at the moment, lets give it a push!

Well hooray! Ten US banks have been given permission to repay their TARP loans from the federal government - $68 billion worth. This governmental Seal of Approval may mean these banks are healthy and safe and ready to do business, but what it certainly means is that the executives running these banks want to escape any government control over how much they pay themselves.

What’s in it for us the taxpayers? Not much. The government still needs to borrow trillions and trillions of dollars, which means interest rates aren’t going down. No fundamental reforms have been imposed on the banking industry – just some tweaking around credit card rules – so you still will have a very hard time getting credit. You’ll also earn about 0% interest on your bank deposits, but pay 30% or more for credit depending on your financial condition. This is certainly not going to get the consumer spending or the economy moving, so what is it going to take to enact real change to our financial system?

Our own Zuma has come across a potent set of proposals for real reform from the author William Greider. You’ll want to check out both Zuma’s report on the Diaries page, as well as Greider’s article on Alternet (printed originally in The Nation). The gist of these reforms is radical in today’s political climate – it is nothing less than a legal cap on interest rates. No bank or finance company would be able to charge you more than this cap – to do otherwise would be considered usury. What would our economy look like if we had laws against usury?

Were you excited a few weeks ago when US mortgage rates fell to record lows of 4.75%? President Obama was. He urged struggling homeowners to refinance their mortgages, and whether it was at his urging or not, there was a refinancing rush and even a few people wanting to actually buy a home.

How did rates get so low in the first place? There was a little bit of government engineering and a large amount of market manipulation by the Treasury and the Federal Reserve to achieve these low, low rates. At first, the government had the wind behind its back, because in the first quarter investors were so concerned about credit defaults in the private sector they flocked to buy Treasuries as the only safe instrument available. This drove long term interest rates on Treasuries into the 3% range, and mortgage rates – which trade higher than US government paper – followed in the same path down.

It’s spring. Green shoots are sprouting, the skies are clear, the days ahead are warm, and according to Ben Bernanke, the Bluebird of Happiness has landed on our doorstep. Those green shoots are signs that the economic downturn has bottomed out, and while the road ahead will be bumpy, the Fed sees the recession ending by 2010.

The stock market is not so patient. It wants the recession over now, or at least it really wants to believe the recession is over now. The S&P 500 index is up 36% from its low in March, one of the fastest and largest rises in stock prices ever. As we all are told, the stock market is a forward looking indicator, and a rise of this magnitude must surely indicate the recession is coming to an end.

Or does it? Bear markets have been known to sport sucker rallies, often showing characteristics similar to this one: a tremendous advance that convinces investors the worst is over. Recognizing that there is no sure way for any investor to predict the future and to discern a bear market rally from a true, bull market rally (in which we ultimately will set new highs for stocks), what should we look for?

May 3

Reuters - Warren Buffett told a record crowd at a somber annual meeting of his Berkshire Hathaway Inc that first-quarter operating profit fell and the company's book value declined 6 percent, as the recession hurt many of the company's businesses and investments. Operating profit fell about 12 percent from a year earlier to $1.7 billion, as most of Berkshire's businesses were "basically down," Buffett told an estimated 35,000 people at the meeting in downtown Omaha.

_____________________________________________
Megan McCarthy liveblogging - the minute Buffett was asked about newspapers, everyone in the place was as attentive as a doberman on high-dose Adderall. Finally, Warren Buffett takes on the world's most important topic!
Sadly, what Warren had to say wasn't particularly novel: newspapers are in big, bad trouble.

Most newspapers in the United States, we would not buy at any price. They have the possibility of unending losses. 30 years ago, they were an essential business if you wanted to learn sports scores, news, etc. They were only essential to the advertiser as long as they were essential to the reader. That's changing, it's changing every day. And I do not see anything on the horizon that's changing.

Sell in May and go away. If I had any gains in the stock market (and no, I am not in it--my money is in cash for obvious travel related reasons) I'd be selling into the this bear market rally.

But hey, that's just me. Long live green shoots!

Trough has been passed, extrapolate with your eyes when the curve reaches 50:

Story is here: Finfacts Ireland

April 20 (Bloomberg) -- Companies with the most debt and lowest returns on assets are turning the biggest six-week rally in stocks since 1938 -- Bloomberg

"Sell these stocks", told sell-side analyst to me. February 16th. I really appreciate professional crooks in finance, not amateurs like Stanford or Madoff.

Or actually a lie which has been around a longer time and even repeated by some professional American economists.

The lie claims that European banks have much higher leverage than American banks. When I read this first time from propaganda stream I wondered how this could be true. It is not.

In the USA the accounting standard monster used is called GAAP. In Europe it is IFRS. GAAP assumes that netting of derivatives will be successful. IFRS is more conservative/ pessimistic. Usually the truth is what GAAP says, but during bad times the truth is what IFRS says.

The difference between these accounting standards leads to a very different leverage numbers being calculated. I wonder how this affects other European/American companies.

Michigan consumer confidence is now 61.9 . The lowest reading was in November 55.3

Thus the small downside seen in retail sales is somewhat temporary.

VIX is now "only" about 35. Numerous bears have burned their paws, noses and asses with the latest rally. That dip to 666 should not have ever happened. It was probably caused because of some insider information which didn't materialize. So, there is firm support at 667 or higher - LOL. The market has been mostly priced based on the insider information leaked from Washington.

Before this bear market rally, "everybody knew" that S&P 500 was going to 600. What "everybody knows" is of course always wrong in the stock market. If you didn't catch that I wrote "bear market rally", check your brain. I wrote earlier that a bull market in DAX had started with a typical bear market rally, which failed to turn down.

Do individual experts whose stock market forecasting records are good (bad) attract (lose) attention?

there is no relationship between the forecasting accuracy of and the attention paid to stock market gurus

CXO Advisory blog

This probably applies in many other fields too.

One of the great illusions of late 20th century finance was that banks were profitable. On paper - investment, commercial and mortgage banks appeared extremely profitable. The percentage of total S&P 500 profits that was attributable to financial companies rose steadily from 1980 to 2000, and by 2007 reached 40%, depending on how you measured it. This meant that two out of every five dollars of profit generated by America’s 500 largest companies came from the financial function. This, by the way, understated things, since it left out the quasi-banks like General Electric and GMAC.

The illusion comes from the fact that this paper profit was not the result of selling products that allowed businesses and consumers to be more productive and more profitable in their own right. What was really happening was that financial firms were extracting equity that had been built up over nearly a century by businesses and consumers. The financial business had become a predatory business, scavenging the land for pockets of wealth to convert into cash that would be funneled in part to the banks as fees.

looks like ... interesting times ahead for somebody.

Russian RTS is 732, up over 40% of its trough.

European unemployment figures are surprisingly low.

Bloomberg

My dad often said, "High emotions, low intelligence."
She doesn't know the difference between advice from rich people and advice from sales people.
Jim Cramer is a very smart man. I watch his show. I just do not follow his advice.

This guy is disgusting especially when he is right.

The P/E10 Ratio
Legendary economist and value investor Benjamin Graham noticed the same bizarre P/E behavior during the Roaring Twenties and subsequent market crash. Graham collaborated with David Dodd to devise a more accurate way to calculate the market's value, which they discussed in their 1934 classic book, Security Analysis. They attributed the illogical P/E ratios to temporary and sometimes extreme fluctuations in the business cycle. Their solution was to divide the price by the 10-year average of earnings, which we'll call the P/E10. In recent years, Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced the P/E10 to a wider audience of investors. As the accompanying chart illustrates, this ratio closely tracks the real (inflation-adjusted) price of the S&P Composite.

Gabor Steingart in Washington D.C.

The G-20 has agreed on plans to fight the global downturn. But its approach will only lay the foundation for the next, bigger crisis. Instead of "stability, growth, jobs," the summit's real slogan should have been "debt, unemployment, inflation."

Now they're celebrating again. An "historic compromise" had been reached, German Chancellor Angela Merkel said at the conclusion of the G-20 summit in London, while US President Barack Obama spoke of a "turning point" in the fight against the global downturn. Behind the two leaders, the summit's motto could clearly be seen: "stability, growth, jobs."

When the celebrations have died down, it will be easier to look at what actually happened in London with a cool eye. The summit participants took the easy way out. Their decision to pump a further $5 trillion (€3.72 trillion) into the collapsing world economy within the foreseeable future, could indeed prove to be a historical turning point -- but a turning point downwards. In combating this crisis, the international community is in fact laying the foundation for the next crisis, which will be larger. It would probably have been more honest if the summit participants had written "debt, unemployment, inflation" on the wall.

The Financial Accounting Standards Board succumbed today to intense pressure from the banking industry and Congress, by relaxing the rules surrounding mark to market accounting. These were already loose rules to begin with. Banks could use internal models rather than an outside price to determine the value of an asset. They had great flexibility on what went into this "mark to model" pricing.

That wasn't enough, though, Certain assets like mortgage-backed securities had outside prices, but for the longest time these have been anywhere from 30 cents/dollar down to nearly zero. A small number of trades were being down at these greatly-reduced prices. The banks argued that their much large portfolio of trades, if forced on to the market at once, would drive even these low prices close to zero. Also, the assets over their shelf life of five to ten years will generate enough cash flow to justify much higher prices today - more like 60 cents to 70 cents on the dollar, the price which the bank was currently using for valuation.

All I can say to this headline:

Stocks Gain as Global Equities Complete Best Month Since 2003

Is the following comment: have you looked at a long-term chart lately? The technical position of the market looks terrible, this slight rally notwithstanding. I mean what part of cut-in-half do you not understand? You loose fifty percent or more, but the market rallies twenty percent? You're still down a boatload!

Mind you, I'm not a perma-bear, not by a long shot. But with news like this, "Record Drop in January Index of Home Prices," I don't see any real economic upside. We've got employment numbers coming up soon, too, right? Now that'll be fun. But I don't see a catalyst for real economic growth. And therein lies the problem. Washington is desperately trying to kick start an economic engine that's broken, in need of an overhaul. And yet they think their little tune up did the trick? Please. This thing still has legs and much more time to play out.

Nasdaq rose to 1,587.00, which is higher that its open for the year. Some bears have burnt their paws.

German DAX came down from about 8000 points in March 20th 2000 to 2715 in March 17th 2003. That was exactly 3 years and 75%. A year after the index was 4000.

The index recovered back to 8100 in July 9th 2007. The top to top round trip took over 7 years, which is a long time.

(Dates and points are approximations.)

Note in the graph that the recovery started with a typical bear market rally. It just never had a subsequent down-leg as a pair. And note the real bear market rallies too before the recovery started. One of those is the butterfly effect which hit New York.

Yesterday the Federal Reserve announced it will purchase $300 billion in Treasury bonds, and an additional $750 billion in Fannie Mae and Freddie Mac securities. Treasury bond rates fell from 3.0% to 2.5%, the greatest one day drop in interest rates since 1981. The stock market loved it; it looks like the Fed is dead serious about pushing down long term interest rates, which will especially help the mortgage market.

Isn’t it wonderful we have such a generous and caring central bank? Or is this really motivated by something else. I wonder.

Does anybody remember last week when Wen Jiabao, the premier of China, complained about the deteriorating financial condition of the United States, and the risks this poses for China’s nearly $1 trillion in reserves held in Treasury and agency securities? He wanted some “guarantee” from the U.S. that China wouldn’t lose anything on its holdings.

Republicans and Democrats have so little to agree upon these days, that we must give thanks to AIG for bringing this country together, however briefly. Everyone agrees that paying $165 million in retention bonuses to AIG employees on March 15 is outrageous and shows an appalling lack of appreciation and sensitivity by AIG for all that the U.S. taxpayers have done for them.

To find out just how outrageous these bonuses are, I read the correspondence between AIG executives and the U.S. Treasury, including a White Paper explaining in detail why these payments are considered obligatory. There is, as you can expect, more to this story than the average newspaper reader wants to know, but at the very least it is a cautionary tale about what happens when standard business practices meet up with political realities that are normally not a concern in business.

If AIG could be knocked out by a political campaign, then Goldman Sachs, which bought many CDS-contracts from it, would receive a good slap on its face too. And who owns a good piece of Goldman Sachs? Warren Buffett.

Have you noticed that Berkshire Hathaway's CDS price has been volatile lately?

An obvious scheme going on. Ask the crooks for more details.

Some bad news/good news market philosophy from yesterday's Nelson Report:

OBAMANOMICS...every commentary we read about the Obama Administration's response to the financial crisis is that for the markets, nothing seems to matter except "fixing the banks"...defined as taking all those toxic loans off the back of the credit market, so business can get what it needs to keep employment from continuing to fall off the cliff.

This is very bad news, it's increasingly becoming clear, since "everyone" also now agrees that the markets will continue to tank, in the absence of a "bank plan" it believes in.

That's because the Obama folks seem to be telling us that there will BE no immediate satisfaction of this "demand", since the President and his advisors realize that whatever they may want privately, Congress isn't going to vote the trillion (or perhaps two-trillion) needed to really clean up bad bank debt.

More after the jump

Well that's one prediction already come true. It certainly wasn't that hard to predict. The question now is, how low will it go? I've been out of the loop for well on a week now. Anyone got any idea where it's headed?

Dow at Close:

6,763.29
–299.64
–4.24%