Cashin Comments

FAIR VALUE = -250 BUY PROG = -150 SELL PROG = -350
CASHIN'S COMMENTS
TUESDAY, APRIL 21, 2009
[AN ENCORE PRESENTATION]
On this day in 753 B.C., the Ancient and Eternal City of Rome was founded. For the first quarter millennium of its existence it was ruled by kings - starting with Romulus (part of a notable brother act with a doggy home life) and ending with Tarquinius Superbus. (If your king sounded like an oversized van, wouldn't you give up the monarchy?)
Next came the Republic: lots of success, gladiators, scholars, archways, public baths, Spartacus and Caesar (but no salads). During this period, Rome dominated, educated and even enumerated virtually all of the known world. (Doubters may look up "Census - Tiberius et. al.)
So - okay - you're sitting there saying "I learned all that in sixth grade." And you're also saying "does that dope expect me to believe he knows the ancient date when Ancient Rome was founded." Well...the answer is - Yes! You see it's the "A.U.C." thing.
If you were living in Ancient Rome and wanted to count time, it was tough. You couldn't do "B.C." since you couldn't anticipate the date of the birth you were counting before. (Huh?) So, without the birth of Christ as a date of demarcation, the Romans had a problem. If you were opening a toga shop, would you put on the letterhead....er....parchment head....e.g. "Founded - ???"
At first they tried the obvious: "In the third year of Romulus..." But that got to be a problem as new kings were envious of the names of old kings still having their names around on walls, letterhead, etc. Even worse, it could get confusing, "Was he born in the 2nd year of Pliny the 3rd or the 3rd year of Pliny the 2nd?"
So the Romans opted for something a bit more permanent like the city itself. So they began dating everything from the time the city was founded which you will recall from Latin class would be Ab (from) Urbe (the city) Condite (founding). Thus, they made cornerstones and time clocks possible. Therefore, this would be "Annus 2762 A.U.C."
Traders didn't worry too much about what time it was Monday. What they did worry about is where they were heading.
Market Looks At Brave New World And Finds It Doesn't Like It At All – Listeners to the UBS squawkbox heard most of this before the opening Monday with updates through the day. We ask their forbearance since yesterday was quite important.
The media suggests that the trigger for yesterday's plunge was the Bank of America (BAC) results and, more directly, their reserving $13.4 billion for futures losses. That's like blaming the Johnstown flood on a leaky toilet in Altoona, Pennsylvania.
There were three key themes that sent a significant chill through the markets. First was the story that the U.S. government was making yet one more change in TARP conditions. Second were rumors about Bernanke's tenure that sprang from a Fed conference at Vanderbilt University Saturday. Third were reports circulating that there was a study around claiming that 16 of the 19 largest U.S. banks not only shouldn't pass the stress test – they were just plain insolvent.
Let's look at them, one by one.
The greatest buzz around was the possible change in TARP. A New York Times story said the Administration would not only refuse to allow the banks to pay back the TARP, they would demand that the loans be converted into common stock. That would likely make the U.S. government the largest single stockholder in each of the nation's 19 largest banks. And, citing the governments firing of GM's Rick Waggoner, as well as the GM Board, traders suspected the government would not be a "passive investor."
The key benefit to converting the loan to common stock would be freeing up lots of capital on the bank's balance sheets. The key concern, as just noted, was the level of government involvement in the day to day operating decisions of those banks. Additionally, the taxpayer would ultimately have been paid back by the banks to return the TARP loan. How would the taxpayer get money back from common stock? Would there be massive secondary share offerings months, or years, from now?
The second boulder that fell on the market involved Chairman Bernanke. There was a Fed Conference over the weekend at Vanderbilt University. Among the speakers were Fed Vice Chair Donald Kohn, New York President Bill Dudley and Former Chairman Paul Volcker. Press reports indicate some rather animated exchanges (for a Fed Conference) between Volcker and Kohn and then Volcker and Dudley. The overall impression was that Volcker had serious reservations about current Fed policy. That, in turn, raised questions about what Mr. Volcker would say to the President about Mr. Bernanke's possible re-appointment early next year.

Cashin's Comments
Tuesday, April 21, 2009
Page 2
Then there were pervasive but unconfirmed stories of a report that found 16 of the 19 banks not only were unlikely to pass the stress test, but were, by some accounting standards – insolvent.
Now mix in rumors that more write-offs might be needed at Citi and the aforementioned BAC reserves and you have a salmonella laden omelet.
The market sold off with nary a credible rally attempt. A few times they managed to circle the wagons and hold steady for a few brief minutes but then the sellers would return and ground was given. All in all, it was a very ugly day whose only saving grace was that the volume was somewhat limited. Traders suspected that's because it was a buyers boycott, leaving few bids to hit.
The Week Ahead – Part II – Based upon published data, the watercooler wizards are guessing the calendar for the balance of the week may look something like this:
Wednesday: Earth Day
IMF Report
BOE Minutes
(7:00) Mortgage Data N.A.
(10:35) Crude Inventories
Thursday: (8:30) Initial Claims +10K
(10:00) Exiting Home Re-sales -1.0%
(10:35) Natural Gas Invent. N.A.
(1:00) Five Year TIPs Auction
(4:30) All The M’s
Friday: G7 in Washington
Outline of Stress Tests
(8:30) Durable Goods 1.5%
(10:00) New (Proposed) Home Sales Unch.
First Social Security And Now This – Mark Hulbert has a MarketWatch piece on S&P report citing shortfalls in the funding of many corporate pension funds. He notes that the funds should be at $1.4 trillion but are carrying only $1.1 trillion. Here's what he wrote:
That's a $300 billion shortfall. And, given the 10% drop in the equity markets during the first quarter of this year, the shortfall today is likely to be even greater.
To put that $300 billion year-end deficit into context, consider that the 2008 net incomes of the S&P 500 companies are estimated to have totaled around $132 billion, according to S&P. So the pension shortfall is more than twice last year's total net income.
That may, in turn, be a drag on corporate cash flows in the next few years. And, with baby boomers heading toward retirement in increasing numbers, will household income be strained? Seems like everywhere you look…..
Cocktail Napkin Charting – As noted, it was a rather ugly day. The S&P sliced through potential support again and again. They closed on the day's low (832) which was a backup support level. However, the selling broke an uptrend line connecting the late March lows with the ascending higher lows of April. Support on the napkins looks like 818/822, then 798/803. Resistance looks like 848/853.
Consensus – The implications of the ingredients of the above noted omelet may be far reaching consequences. Perhaps the markets will find clarity when Geithner testifies this morning. Nervousness has returned to the markets. Is capitalism morphing into something else? Stay wary. Stay nimble.
Trivia Corner
Answer - The original check was $31.63. He got $63.31 and then spent a nickel leaving 63.26 or twice the original check.
Today's Question - Al and Fitz are amateur speechwriters. Together they can write a decent speech in 24 hours. If Al can only create two thirds as fast as Fitz, how long would it take each to write a speech alone?