The morning started off with a disappointing employment report. Initial Jobless Claims came in at 427,000. That’s 8,000 above consensus, but apparently lower than the whisper numbers out there after other bad recent reports. What does it mean? Who knows for now. One month a trend does not make, but the Obama administration felt worried enough to let everyone know that they’re considering a payroll tax break. That’s just more stimulus, in my mind, and won’t permanently change behavior. They should put the sugar away and start serving a healthy dose of DayQuil. Apparently Sec. Geithner told the rest of the administration a variation of that and was promptly smacked down. It must be tough to live within the unreal circle of the economic team in the Obama administration.
On stocks, Bruce Berkowitz defended his stake in Bank of America (BAC) and doesn’t care how long it takes to right the ship. See the CNBC story here. He compares his holdings to the killing he made in Wells Fargo (WFC) in the ‘90’s and sticks to his guns that Bank of America can earn $45 to $50 billion in operating income in a normalized environment. I happen to agree with that and have owned the stock for some time, but as Dodd-Frank continues to hack away at revenue, and the political environment continues to be anti-bank, it’s a fair guess as to what normalized will mean. With discussions of higher capital ratios, stricter oversight, and continued uncertainty, is it any wonder that banks don’t want to lend? They may as well keep their money parked at the Fed, and they are.
To stay on the political theme today, Newt Gingrich was feeling the heat even as he lounged on his Mediterranean vacation. Nearly all of his senior staff quit today, unhappy that Newt has no chance of winning. Who speaks for the candidate when he’s on vacation and his spokesman resigns? The only way is to jump on Facebook to peck out a sentence, and that’s what Newt did. "I am committed to running the substantive, solutions-oriented campaign I set out to run earlier this spring," he said. "The campaign begins anew Sunday in Los Angeles." My guess is Sunday will be lonely for him.
Now that it appears there will be no QE3, who’s going to buy the government’s debt at such low rates? China has been expressing bubble concerns, and they know a thing or two about bubbles. My question is why the Treasury has shortened maturities over the last few years? They should be issuing 50 year and 100 year bonds to mitigate the effects of the coming rise in rates. All it will take is a return to normalized (there’s that word again) interest rates to exponentially increase borrowing costs. That won’t be good for anyone and it has to be seen as inevitable. I’m not a bond expert by any means, but it seems to me that a little bit of common sense would go a long way, no?
Lubrizol’s (LZ) shareholders voted in favor of the Berkshire (BRK.A) buyout, giving Warren Buffett another win. I’ve seen no David Sokol comments. John Paulson was playing the arbitrage and owns 9.33% of the outstanding shares. If you remember, before he was famous, Paulson focused on merger arbitrage. If you act fast you can still get a half of a percentage point on the spread.
Finally, Jim Cramer essentially told Jamie Dimon (JPM) to shut up. Well, he was nice about it, but still…
Disclosures: Long BAC, BRK.B