The Complicit Bellwether (?)
How the Dominant Stock
Leads the Rest of the Crowd
A Caution for the Present
If you grew up on a sheep farm or were a shepherd before what you are now, you know that a bell was put on one sheep in the flock, usually a castrated ram, or, in older or other cultures a ewe. Wherever the bell was heard, you would find the rest of the crowd.
The Bank of America (BAC) is a good example of a bellwether stock today. It is the biggest bank in America with 2.2-trillion dollars in total assets. Its runner up is JPMorgan Chase with 2.0-trillion.
Where it leads, the market follows.
The most recent all-time high in the SP500 was October 12, 2007. It was preceded by the all-time high for BAC on November 17, 2006, a good 13 months earlier, plenty of time for bellwether warning.
The number two bank, JPMorgan Chase, peaked
May 4, 2007 six months ahead of the S&P. The S&P is the rest of the flock. It follows the two bellwethers here, down the mountain into the valleys of low, low prices.
From top to bottom was a pell-mell disaster. BAC down -94%, JPM down -70%, SP500 down - 56%. This was the prelude that preceded the continuous, ongoing tries by the herders in D.C. to rescue the flock.
BAC, lead bellwether is still today -76% below its peak. JPM below its peak -25%. SP500 still off -25% from its high. Worse, a second follow-up negative divergence appears to emerging now as this is written.
It started three months ago on July 30 when BAC shares peaked at $14.40. Today they are -18.5% lower. JPM peaked the following week at $40.44. Today it is -6.8% lower.
But the SP500 is up +7.4% from its July 30 price.
A continued negative divergence, with the S&P closlng at a high above its own most recent peak of 1217 on April 23, and the other two unable to exceed their own highs of late July and early August will be especially ominous.
COMPLICITY
. . . can either be implicit or explicit and voluntary or involuntary. Take your pick. Pivotal hours occurred Monday morning, December 14, 2009, when the President of the United States at his invitation met in the White House with the CEOs of the nation's biggest banks including the top five.
You don't need much of an imagination to imagine some of the dialog went like this, "I may need your help, fellows. I know I can count on you."
Here is a list of assets of the guests.
LARGEST BANKS IN THE U.S.
Ranked by Size
as of June 30, 2010
|
Rank |
Company* |
Trillion |
|
1 |
BANK OF AMERICA CORPORATION |
$2.37 |
|
2 |
JPMORGAN CHASE & CO. |
$2.01 |
|
3 |
CITIGROUP INC. |
$1.94 |
|
4 |
WELLS FARGO & COMPANY |
$1.23 |
|
5 |
GOLDMAN SACHS GROUP, INC. |
$0.88 |
|
6 |
MORGAN STANLEY |
$0.81 |
|
11 |
U.S. BANCORP |
$0.28 |
|
12 |
PNC FINANCIAL SERVICES GROUP, INC. |
$0.26 |
|
13 |
BANK OF NEW YORK MELLON CORPORATION |
$0.24 |
|
14 |
CAPITAL ONE FINANCIAL CORPORATION |
$0.20 |
|
17 |
STATE STREET CORPORATION |
$0.16 |
|
20 |
AMERICAN EXPRESS COMPANY |
$0.14 |
|
|
|
|
Total assets |
$10.52 |
Complicity may also be effective or ineffective. So far, if any, it has not done much good.
Impetus for this article came when we noticed something unusual in the 100 Stocks--3 Portfolios weekly summaries that we publish . . . more than unusual--unprecedented! The two biggest banks in America showed up, joined by two others in the top 20 as the very worst performing stocks in this list of the best and biggest companies in the U.S. See the current table here, third section down (red banner)
WEAKEST / This Week's Worst.
That grew into this chart you see below.
|
The Complicit Bellwether (?)
Bank of America and JPMorgan Chase vs S&P500
with Price Behavior Rankings
8.8 years--December 28, 2001--October 8, 2010
Weekly
|
COMPLICIT
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2010 The 2000 Corporation.
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