You don't have to put on the red light
Those days are over
You don't have to sell your body to the night
You don't have to wear that dress tonight
Walk the streets for money
You don't care if it's wrong or right
Bankers and prostitutes seem to go together like peanut butter and jelly, and now those bankers are losing their monocles and throwing their top hats to the ground in frustration. In a funny, yet cautionary story out of Spain, we see where unions are using their power to persuade the financial industry. In this case, reports say Madrid's high-end escorts have begun withholding sexual pleasures from bank employees. Apparently, the largest trade association for luxury escorts in Spain is on a general and indefinite strike on sexual services for bankers.
What are their demands?
These escorts want banks to go back to providing credit to Spanish families and small and mid-size businesses. The idea began with one lady making such demand from a banker client—and it worked. In her words, those lines of credit and loans were the bankers "responsibility to society." The strike is four days old, but the association is extremely confident in its ability to pressure bankers. In the meantime, attempts around the ban have backfired including the one banker that pretended to be an architect. There were even more pitiful attempts around the strike.
Considering the 24% unemployment rate in Spain, the amount of would-be clients that could afford €300 for an hour is rather limited. On that note, it would seem like a battle of wills could be played out as bankers have already asked the government to intervene. According to a source, the Minister of Economy and Competitiveness says a lack of legislation regulating escorts makes it difficult for government to get involved. They do things different in Spain, in New York there is a hunt on to see if an employee of a prominent Wall Street firm backed a major escort service. It's also a different interpretation of free markets.
Of course when you have a Mac Daddy like Ben Bernanke, there is no need for coercion or strikes. The Fed bought 61% of government debt and yesterday picked up $4.81b in longer-dated treasuries in a bid to keep rates low and stoke those animal instincts. It hasn't worked thus far, but this is the game plan, and there will be no deviation.
Obamacare and the Market
It hasn't been a great week for the stock market, which continues to grapple with maintaining its amazing 2012 traction. Of course compared to the thrashing Obamacare has taken this week, the struggles of stocks seem like a walk in the park. Still, the market needs intervention or calm to hold on until the next time jobs data is released. I continue to say the market is all about:
> The Fed
Only the latter gave us a warm and fuzzy feeling as the street had to parse through Ben Bernanke's interview with Diane Sawyer the night before. (The charmed offensive is really odd in my estimation. Why does the Fed need so many public relations outings? I wouldn't be surprised if he announced a reality television show next.)
But, much of yesterday's pressure can be sourced to increasing worry about China. Scuttlebutt continues about internal fighting inside the communist party, even whispers of a coup don't go away. Wall Street is less worried about who sits in the big chair as long as they're willing to turn the spigots back on and let the money flow.
I often point to last October and what I called the Dirty Fingernails rally. It was as much a China, Brazil and rest-of-the-word story as domestic. With concerns over that demand, market leaders like Caterpillar took it on the chin as did material and commodities names.
I like that stocks rebounded into the close that has been the most enduring part of the script this year—that intra-day resolve. I like that financials are now a bedrock group rather than the weakest link. I also like that IPOs are rocking (see VCRA and BNNY). But there is no doubt something is awkward about the rally. Pockets of strength means a certain amount of money doesn't want to move to the sidelines. But, the fact is those trillions waiting there will not leap without serious seduction, and I'm not talking whispering sweet nothings. That sideline cash was poised to come in and still has its nose pressed against the window looking inside.
It needs real "good" news. We need a jobs report that reveals 300,000 net new jobs. We need GDP numbers with three handles. We need to call a truce in the war on business and prosperity. All of these seem like Herculean task with the last being the easiest to do but the one that is most entrenched. Today, President Obama will speak in the Rose Garden and ask Congress to take away subsidies from oil companies and invest that money into clean energy. I would laugh if I wasn't crying.
The message will be that A) Oil companies get money directly from the taxpayer B) Oil companies don't pay their fair share C) Money poured into clean energy is an investment rather than a rat hole used as a conduit to pay off political backers and appease the environmental voting block and finally to achieve the utopian dreams of Robert Owen and Voltaire. Here's the real deal:
Subsidy-is a payment made by the government to a business and is often seen as a handout.
Deduction-is a write off that occurs on the income statement and subtracted from gross revenue.
Oil companies and thousands of other businesses have the ability to use the Domestic Manufacturing Deduction, also known as Section 199, designed to keep jobs in America (a provision in the American Jobs Creations Act), jobs like those in refineries that aren't being build, which has added to the gasoline crisis, coal mining which is being crushed by the EPS, and natural gas drilling jobs which is the next target of environmentalist. Companies must qualify for such deductions based on qualified production activities income resulting from domestic production.
The revenue impact is anticipated to be $76 billion over first ten years of program.
On that note, I still think market bias remains to the upside as it's the only game in town. But winning by default makes for a faulty floor, so keep that in mind if this current spate of market weakness persists, we could see frustration and more selling. This morning's GDP revision was a dud—late yesterday there was scuttlebutt of a better-than-expected number.