This has been the worst week for the market in years, about 3% down and I have not missed the downturn. On the other hand, there is no reason to be glum, things will improve. While others are losing money in the market the Facebook organization is making billions. A strange twist if I must say so myself.

Sometimes I think this blog is too serious so in the future I hope to lighten it up a little starting today with this letter from Mark Zuckerberg.

About Facebook’s IPO
by Borowitz Report

Dear Potential Investor:

For years, you’ve wasted your time on Facebook. Now here’s your chance to waste your money on it, too.

Tomorrow is Facebook’s IPO, and I know what some of you are thinking. How will Facebook be any different from the dot-com bubble of the early 2000’s?

For one thing, those bad dot-com stocks were all speculation and hype, and weren’t based on real businesses. Facebook, on the other hand, is based on a solid foundation of angry birds and imaginary sheep.

Second, Facebook is the most successful social network in the world, enabling millions to share information of no interest with people they barely know.

Third, every time someone clicks on a Facebook ad, Facebook makes money. And while no one has ever done this on purpose, millions have done it by mistake while drunk. We totally stole this idea from iTunes.

Finally, if you invest in Facebook, you’ll be far from alone. As a result of using Facebook for the past few years, over 900 million people in the world have suffered mild to moderate brain damage, impairing their ability to make reasoned judgments. These will be your fellow Facebook investors.

With your help, if all goes as planned tomorrow (i.e. this morning) , Facebook’s IPO will net $100 billion (actually $104 billion). To put that number in context, it would take JP Morgan four or five trades to lose that much money.

One last thing: what will, I, Mark Zuckerberg, do with the $18 billion I’m expected to earn from Facebook’s IPO? Well, I’m considering buying Greece, but that would still leave me with $18 billion. LOL.

Friend me,

Mark

It was a horrible day for me in the market. One of the worst I have had in some time. What does it mean? It is telling me that the money managers have started to sell the good stocks off. When they start selling the quality stuff off then you know we are in trouble. Yet, all the talking head in the media only seem to be talking about the Facebook IPO. What can I say?

Peter Schiff: Today’s Horrible Philly Fed Number Just Proves My Point
by Max Nisen

Peter Schiff, the head of EuroPacific Capital weighed in on recent economic data in an interview with KingWorldNews.

Schiff, a vocal gold bug and dollar bear, is profoundly skeptical of the recovery.

From the interview:

“Well, we keep getting more weak economic data, which is validating my perspective that we never really had a recovery at all. We simply juiced the economy up on stimulus, and as the stimulus high wears off, the hangover sets in.”

“We’re seeing that today with weak jobless numbers. We also have the weakness of the Philadelphia Fed Study. So the market is just rolling over as it’s coming to grips with the fact that the fantasy investors believed in is just that, fantasy. It’s not reality.

Schiff goes on to claim gold is oversold, QE is “heroin” for the economy, and the dollar will collapse

This market is killing me…but I am going to hang in there a little longer. I have bought quality stocks over the past few months and doing so has paid off because my losses are not as bad as they might be if I had bought speculative stocks. It all gets back to the banks again. The European crisis impact on the stock market is because if Europe doesn’t straighten out soon we could have another major bank problem. On the other hand Warren Buffet would tell you to be buying into this market but I am not sure I have the stomach for that yet.

Europe vs. U.S.
by Steve Peasley

While the Europeans, along with the rest of the world, wrestle with the likelihood of Greece leaving the EU, economic numbers here in the U.S. have decidedly improved.

This morning the report of Industrial Production in April rebounded strongly from a poor showing in March. It was up 1.1% and was the strongest showing since December of 2010. Also, it was broadly based not confined to just one or two sectors.

Builder optimism rebounded as well. The Builder Sentiment Index rose to 24 which was the highest number since May of 2007. Still a reading over 50 is considered to be healthy. However, this morning a strong housing start report up 2.6% and strong revisions for March’s number reflected the better prospects of the construction industry.

The EU reported that overall they have not fallen into recession though many member countries have. That is because Germany, which represents 30% of the economic output for the entire Euro zone, surprised the experts with GDP growth in the second quarter of .5% instead of the .1% that was expected. That number with the size of Germany’s economy brought up the entire EU zone. There are some bright spots amongst the ruin of many economies of Europe and I note that those bright spots are all the countries that have practiced some fiscal discipline over the last many years or they are very small countries with little legacy of long term deficit spending.

Expect more of the same: improvement here in the U.S. and angst in Europe.

Not much to say today. Interesting article on commodity prices.

Plunging Commodity Prices Are Ominous For Stock Market
by Sy Harding, StreetSmartPost

Consumers understandably like to see prices for commodities decline, the more the merrier, particularly gasoline and energy costs.

Many analysts also take commodity price declines as a positive for the economy, on the theory that consumers will have more spending money in their pockets, and manufacturers will have lower costs, so hopefully greater earnings.

Investors tend to also take declining commodity prices as a positive for the stock market on the same reasoning.

Unfortunately, history doesn’t confirm the optimism.

As a five-year chart of the CRB Index of Commodity Prices shows, declining commodity prices usually indicate demand for goods is dropping and the economy is in trouble, which in turn is a problem for the stock market.

For instance, the price of oil dropped from $147 a barrel in 2008 to just $35 by early 2009. The CRB Index of Commodity Prices plunged 57%, from 470 to 200 in the same period. Good for the economy and stock market? Not hardly. The severe 2008-2009 ‘great recession’ and severe bear market in stocks accompanied the decline in commodity prices, and saw the S&P 500 also plunge 57%.

Similarly, in the summer of 2010 the CRB Commodity Index fell 15% from 293 to 248. The economic recovery stumbled, and the S&P 500 also fell 15% in that summer’s market correction before the Fed came to the rescue with QE2.

Last summer the CRB Index fell again, declining 19.5% from 370 to 298. And sure enough, the economic recovery was stumbling again, and the S&P 500 declined 21% in last summer’s correction, before the Fed came to the rescue with ‘operation twist’.

And here we are this spring seeing commodity prices plunging again.
The CRB Index of Commodity Inflation has declined 10% so far from its high in February, and indications are that the economic recovery is stumbling again.

Perhaps more ominous, the CRB Index did not recover much from its plunge of last summer before rolling over again this spring. It has remained in a ‘bear market’, still down 21% from its peak of a year ago, and showing no signs of bottoming. The latest report is that the Producer Price Index, which measures price changes before they reach the consumer level, declined 0.2% in April, its biggest monthly decline since October.

That does not seem to bode well for the economy or the stock market.
Indeed, commodity prices are global in nature, and major stock markets outside of the U.S. are already in quite significant corrections, some in bear markets.

The further declines in the U.S. stock market and oil prices of the last two weeks have both of them short-term oversold, and next week is an options expirations week and expirations weeks tend to be positive.
So it’s likely the stock market and oil prices will bounce back some next week – if they’re not sand-bagged by further negative news from the euro-zone.

But short-term bounces notwithstanding, investors would do well to keep their eye on commodity prices.

As noted, the CRB Index of Commodity Prices has declined 10% since its February peak and shows no sign of bottoming, and many major markets around the world are in significant corrections and showing no signs of bottoming. Yet the S&P 500 has pulled back only 4% so far from its recent

If you have four hours to spare go to the Frontline website (see below) and go through the “Money, Power and Wall Street” series. You will learn everything you need to know about the current banking crisis.

http://www.pbs.org/wgbh/pages/frontline/money-power-wall-street/

Thoughts on banks
by technologyinvestor.com

Once upon a time there were commercial banks and investments banks. If you were a commercial bank president, you earned $500,000. If you were an investment bank president (or the trader at an investment bank), you earned $10,000,000. Pure and simple greed is what caused commercial bank presidents to want to own investment banks.

With huge rewards come huge risks, e.g. the $2 billion-plus trading loss at JPMorgan.

Some banking history: The Glass-Steagall Act was an Act to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations and to establish the FDIC…

It was passed in June 1933 when banks were failing and the recession was at its depths.

The deal was simple, “we’ll guarantee your deposits,” but you won’t mess with speculative business, like you did in the 1920s which led us into the mess of the 1930s.

The pressures from commercial bank presidents to earn more forced hole after hole being poked in the Glass-Steagall Act until in 1998 commercial bank Citibank bought Travelers which owned investment bank called Salomon Smith Barney. This was blatantly illegal — contra to the Glass Steagall Act and the following year, after much lobbying by the banks, President Bill Clinton repealed the Act through something called the Gramm-Leach-Biliey Act.

From Wikipedia: Many commentators have stated that the Gramm-Leach-Bliley Act’s repeal of the affiliation restrictions of the Glass-Steagall Act was an important cause of the late-2000s financial crisis. Some critics of that repeal argue it permitted Wall Street investment banking firms to gamble with their depositors’ money that was held in (their) affiliated commercial banks.

Fact is that gambling with derivatives (as JP Morgan did) and managing a commercial bank require very different skills. Traders are gamblers. Commercial bankers are ultra-conservative. They lend on assets — think of your mortgages.

My friends tell traders are impossible to “manage.” You have to be standing over them every minute of every day watching them and their “bets.”

But you can’t.

You can, of course, see their open bets at the beginning and end of every day. But even then.. My friends tell me the tendency among traders when they’re losing a bet is to keep doubling down, until they make their money back. If you’ve ever tried this strategy in Vegas you are familiar with what can happen. You can easily be wiped out. You most likely will be.

We don’t yet know what happened at JP Morgan Chase to lose $2 billion — soon to be $3 billion. But we do know two things:

1. It’s not easy to make money today doing commercial banking, given today’s low interest rates,

2. The gambling business can be much more profitable. In fact, the woman Jamie Dimon is firing — Ina Drew — is a genius. Over the years, she has made the bank billions and billions of dollars in trading profits. This latest loss is actually a blip. She’s being sacrificed. I want in on her new hedge fund.

The blip does highlight one fact: The nation’s five largest banks — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and perhaps Goldman Sachs — are simply too big to manage.

Which makes them lousy investments long-term. Stay away from them. That’s my conclusion of a weekend of reading and interviewing.

This is good information to know.

Q1 Earnings Season Has BLOWN AWAY Expectations, Even Adjusted For Apple
by Sam Ro

We’re about to wrap up what was supposed to be one of the worst earnings seasons in years.

Days before Alcoa kicked off Q1 earnings season, Wall Street’s consensus called for S&P 500 earnings to fall 0.1 percent year-over-year, according to data compiled by FactSet.

But Wall Street couldn’t have been more wrong.

Of the 453 S&P 500 companies that have announced earnings so far, 72 percent have beaten analysts EPS estimates.

Overall, earnings are now on track to grow 7.3 percent year-over-year. Adjusted for the huge influence of Apple’s staggering growth rate, the earnings growth rate would be 4.9 percent.

Key Themes

High food and energy costs are squeezing profit margins. There were 96 companies that reported revenue increases and earnings decreases. This is the highest number since Q3 2008. Many of these companies came from the consumer discretionary and consumer staples sectros.
Emerging market demand is expected to pick up in the second half of the year.

Weakness in the eurozone and the strengthen of the dollar against the euro will pressure sales in upcoming quarters.

In this market it is getting very difficult to make a dollar. Everyone is telling us the market is going to crash or at least make a big dip. The “retail” buyer is pulling out his money and putting it into money market funds not wanting to get caught again by the “big boys”. The truth is there is no glamour or interest by the “average Joe” in the stock market. Joe has become more conservative and smarter with his money and the market reflects that view. As for myself, I just keep moving along making a dollar in this market where I can.

Slow and Steady
by Steve Peasley — investtalk.com

We have some inflation numbers out this morning which is giving the FED the green light to do whatever they want to do to boost the economy without worrying about causing an uptick in prices. With their twofold mandate to boost economic activity and yet keep inflation under control it is often difficult to do both at the same time.

The weeks ahead are going to be full of angst over Europe. This week with radical elements being elected in France and Greece, markets around the world convulsed worrying about the two countries’ continued focus on reducing their debt. Surprisingly, the U.S. stock market seemed to be the place where calm trumped fear, though our market didn’t escape weakness. That calm was helped along by economic numbers reported this week showing continued slow growth with slight improvement in construction spending. We might even see construction adding to our GDP in 2012 for the first time in years.

Not all is clear sailing and certainly it should be expected that Europe will cause more problems, but there is nothing in any of the numbers that tells us that the U.S. will fall back into recession, unlike many parts of Europe. Also, if there were, the FED would be warming up their next QE program. It looks like China and other parts of Asia already have their QE out of the bullpen and on the playing field.