StreetSmartPost

Saturday, January 30th, 2010. 9:45 am.

Global government representatives went to the annual meeting of the World Economic Forum in Davos this week with one of their goals being to get started on a global effort to impose tough regulations on major banks.

Executives of major banks went to the meeting determined to lobby against new regulations on their industry.

The win seemed to go to the government side.

U.S. Congressman Barney Frank said after yesterday’s meeting that global governments are in control, not the banks, “No one got up and said “Don’t regulate us. It would have been a waste of their time if they did.” Asked later if he thought the bankers had gotten the message, he replied, “Frankly it doesn’t matter if they did or didn’t. They aren’t in charge of this.” The chief of Britain’s Financial Services Authority said, “It was not a negotiation or a debate.”

Don’t be too sure of whose in control, Mr. Frank.

Bankers left the meeting basically making no comment except along the lines that “It was a useful meeting”.

The bankers had already made their comments, having warned weeks prior to the meeting that the U.S. and other countries risk choking off the gradual global recovery if they impose tough regulations on the banking industry.

What better way to emphasize that warning than to create a plunge in global stock markets?

You think they couldn’t do that?

Long-time readers are aware of how I have ranted for years about the influence the large program-trading firms have over the daily trading on the stock market with their massive buy and sell programs. The control, when they want it, is most obvious when big waves of buy programs often come in during the final hour or minutes of a declining market and drive the market up to a positive close for the day.

Last week program-trading accounted for 25.1% of all the trading on the NYSE. Do you think that if you controlled 25% of all trading you could move the market in whichever direction you wanted? Not much doubt about it. Not that they would or did, but that they could.

And who are the major program-trading firms? They are the major banks and brokerage firms trading for their own accounts and those of their largest customers, the very firms that dark clouds of potential profit-restricting regulations hover over.

The top ten most active program-trading firms last week were Goldman Sachs, Morgan Stanley, Barclay’s Capital, Deutsche Bank, Wedbush Morgan Securities, Credit Suisse, JP Morgan, Penson Capital (global broker-dealer), RBC Capital (Royal Bank of Canada), and Merrill Lynch (now a division of Bank of America).

A serious market decline would probably have more effect on government determination to hit the banks with tough regulations right now than any amount of lobbying the banks might do.

Just a thought.

Not that market manipulation is possible in the modern market.

After all, the Glass-Steagal Act, the Up-Tick Rule on short-selling, the Curbs on Program Trading, etc., were regulations passed after the 1929 and 1987 crashes to prevent a repeat of market manipulation by banks and brokerage firms.

So we can relax on that score. . . .  Oh, that’s right. Those regulations were all repealed in the 1990’s under pressure from the financial industry, weren’t they. . . . Oh well.

Interesting Charts of the Morning.

Isn’t it interesting that the selling that has plunged the overall market for two weeks hasn’t affected the banking sector, which remains above its 21-day m.a., and within a fraction of its highs.

Yes, the selling has been in the rest of the market, leaving the banking sector untouched. Is that odd under the circumstances?

(You might want to send this blog post to Barney Frank, or to the media, where it would get more coverage than from my obscure voice).

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Yesterday in the U.S. stock market.

The market got off to a healthy start yesterday in response to the strong 4th quarter GDP report, with the Dow up 120 points in the first hour. But it couldn’t hold the gains. Heavy selling took over that had the market at unchanged by 12 o’clock. Another partial rally into positive territory in the afternoon was squashed in the final 90 minutes, to close the market down for the day, closing it at its low for the day and the week.

And as happened in the previous week’s plunge, volume picked up to almost 1.6 billion shares traded on the NYSE on the down day.

Yesterday’s intraday chart:

The Dow closed down only 53 points, or 0.5%. But the S&P 500 closed down 1.0%. The NYSE Composite closed down 1.1%. The Nasdaq closed down 1.5%. The Russell 2000 closed down 1.0%. The DJ Transportation Avg. closed down 1.1%.

Global markets for the week.

Again this week, no green anywhere. And once again global markets were already down as much as the U.S. before the negative day in the U.S. yesterday, including the highly touted  ‘BRIC’ countries (Brazil, Russia, India, China), and emerging markets. EFT’s on the U.S. dollar, and Treasury Bonds, were about the only safe havens, except short-sales and downside positions of course.

If you’d like to see a three-month chart of any or all of the above indexes click here, and then cl
ick on any of the markets in the similar list at the left side of the page it takes you to.

SUBSCRIBERS: There will be another important Special Report on your website later today, probably around 5 o’clock. That will be the 3rd special weekend report in 3 weeks.

What’s next for stock markets?

As if the market didn’t already have enough to worry about, next week brings another heavy schedule of potential market-moving economic reports, the ISM Mfg Index, Pending Home Sales, and the ADP Jobs Report among them.

And ending with what we always refer to as The Big One!, the Labor Department’s monthly Employment Report, this one for January. We call it the big one because it has the record for most often coming in with a surprise in one direction or the other that sends the Dow in a triple-digit move in one direction or the other.

To see the full schedule of next week’s reports click here, and look at the left side of the page it takes you to.

Stock Market Patterns.

The ‘monthly strength period’ was due to begin on Thursday, and to run through next Thursday, Feb. 4. It certainly did not happen so far. (That could be a bad sign, as it isn’t as consistent in bear markets as in bull markets).

Please scroll down to see other recent ‘Interesting Charts of the Morning’ and commentary.

To read my new weekend newspaper column ‘Is This as Good As It’s Going to Get?’ click here!

I’ll be back Monday a.m. after a look at events over the weekend, Asian markets Sunday night, and early morning indicators for Monday.

SUBSCRIBERS: There will be another important Special Report on your website later today, probably around 5 o’clock.

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