October, Wednesday 19, 2011

DOW – 72 = 11,504
SPX – 15 = 1,209
NAS – 53 = 2604
10 YR YLD +=2.15%
OIL - .07 = 86.04
GOLD –12.40 = 1643.70
SILV - .81 = 31.33
PLAT – 17.00 = 1521.00

We have too much to cover today. We’ll deal with the craziness in the first half hour, then we’ll settle down in the second half hour and try to restore some financial balance, our guest is David Harris from Harris Investment Advisors, and we’ll be talking about some basic financial planning ideas and maybe how to deal with an uncertain world.

Balance. Balance.

Let’s get to work two main areas: Europe has gone crazy, and Bernanke is trying to move from crazy to nasty crazy.

First is Euroland. Greece is on strike – the whole country is frozen by a general strike. Now, I have heard a whole lot of derisive comments about the Occupy Wall Street crowd; maybe they’re dupes fallen under the control of one ruling element or another; maybe they’re dolts for not understanding the issues to the satisfaction of one group or another. I went down to the Occupy Phoenix demonstration over the weekend; there were a few unique characters there – nothing wrong with unique characters - but there were a whole lot of people that could have been at the check out line of any grocery store. I talked with a few of the people and they seemed like they had a decent understanding of issues. The TV crews were filming the crowd and interviewing – they seemed fixated on the unique characters. Understand that there is almost no chance I am ever going to get picked out of a crowd for an interview. There were people giving speeches over a PA system; there were some good speeches, and some not so good speeches. I did not hear a speech that might compare with Dr. Martin Luther King, there was no Harry Browne stepping up to the microphone, no Abby Hoffman, no Ayn Rand, no Cesar Chavez. We’ve got to work on the quality of speakers; otherwise it was a pleasant enough little gathering – tranquil – almost boring. Still, my hat is off to the protesters – they have remained non-violent.

Athens Greece is a different story. The Greeks are not just striking, they are rioting; they are smashing and looting and trashing and clashing with police; they are hurling rocks and Molotov cocktails and the police are responding with tear gas and stun grenades. The Greeks are upset about a new austerity bill which includes new tax hikes, further pension and salary cuts, reduced pay for 30,000 public servants and the suspension of collective labor contracts. Creditors have demanded the measures before they give Greece more funds from a $150 billion dollar package of bailout loans from other eurozone countries and the IMF. Greece will run out of money within one month if they don’t get the bailout.

So the Greek government narrowly passed the austerity bill and they have to vote again tomorrow for the bill to become law. Finance Minister Evangelos Venizelos insisted there was no choice but to accept the hardship. He said, "We have to explain to all these indignant people who see their lives changing that what the country is experiencing is not the worst stage of the crisis. It is an anguished and necessary effort to avoid the ultimate, deepest and harshest level of the crisis. The difference between a difficult situation and a catastrophe is immense."

O.K., we’ve been warned.

The eurozone finance ministers and chief muckey-ups are scheduled to meet again this weekend to try to come up with a grand plan that might forestall the catastrophe phase. French President Nicolas Sarkozy has been shuttling back and forth between Paris and Berlin. His latest utterances are that negotiations are stuck. They can’t figure out the formula; should they turn the EFSF into a bank, should they expand the bailout fund to 1-trillion euros, or maybe 2-trillion-euros, should they recapitalize the banks, should the banks take big hits or little hits when Greece defaults on its debt. So the bigwigs are rushing to concoct a plan for the write down of Greek debt and try to prevent it from infecting Euroland and the world, and nobody listens to the Greeks in the street. The quote of the day comes from some guy who was on strike in Athens – just some guy and he said: "Who are they trying to fool? They won't save us. With these measures the poor become poorer and the rich richer. Well I say: 'No, thank you. I don't want your rescue'."

Greece is certainly not tranquil or boring – and it’s about to get very interesting. Wall Street has been fluctuating on the Rumor of the Day coming out of Europe. The slightest hint of a plan that might result in a plan to achieve a grand plan to solve the Euro problem – and Wall Street jumps a couple hundred points. The slightest hint that the plan might not be a magic wand and the markets drop by triple digits. When something actually happens – it could be big.

Meanwhile, back in the US of BofA, the Federal Reserve is lobbing stun grenades at the FDIC. We talked about this story yesterday. Tonight on the Nightly news you are much more likely to hear about Lindsay Lohan than you are to hear about  the BofA derivatives dump. It is a little complicated and not easy to explain but stick with me because it is important.

Bank of America has managed to dump somewhere between $53 trillion and $75 trillion dollars of derivatives onto the backs of the US taxpayers and account holders. BofA can be broken down into two main components – the retail bank side; where people deposit money into checking and savings accounts – and the bank holding side: where they trade all the CDO’s and MBS, and CDS, and all those bizarre derivatives including the various assets that once were held under the Countrywide Mortgae and Merrill Lynch banners.

The derivatives in the bank holding side are pretty lousy, possibly toxic and might collapse, especially if the holding company saw its credit rating drop – oops that just happened. So, how can the bank holding side insure the $75 trillion in derivatives? Well , if they moved them from the holding bank side over to the retail bank side, then they could use all of the deposits – about $1 trillion in deposits in checking and savings accounts – backed by the FDIC. They shift the risk from the bank holding company to the FDIC. Remember the changes to the bankruptcy laws in 2005? In the event of a bankruptcy, derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. So, if the derivatives fail, the banksters pay the derivatives out of the $1 trillion held in deposits – they go in and raid the checking and savings accounts – and they leave it to the FDIC to pay back the depositors. The FDIC does not have enough money to pay back $1 trillion in deposits, so there would have to be a bailout. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. There is no way to get another bankster bailout in the current political environment- but we have a moral duty to protect the Mom and Pop depositors.

Now, there is a chance that the derivatives might not default. They might not wipe out depositors. Maybe, maybe not; but by making the transfer, BofA is covering their , uhh backside. And who is looking out for you?

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting. This should be proof that Ben Bernanke is crazy – and if the insanity defense doesn’t fly then he should looking at criminal incompetence or just plain old corruption. BofA says they don’t believe regulatory approval is needed. We don’t need no stinking regulations.

Citigroup has agreed to pay a $285 million fine to settle civil charges brought by the Securities and Exchange Commission that it sold securities backed by mortgages that it simultaneously bet against.

The SEC alleged that Citigroup Global Markets structured and marketed a $500 million collateralized-debt obligation that was backed by subprime loans, and then bet against those mortgage-related assets, which it didn't disclose to investors.

According to the SEC, one trader in an email called the portfolio "possibly the best short ever."

The CDO in question defaulted within months, leaving investors with losses while Citigroup made $160 million in fees and trading profits. The fine will be used to reimburse investors – you know – after the lawyers get paid.

The fine is the agency's third largest since the financial crisis, trailing only the $550 million Goldman Sachs paid to settle civil charges relating to a case of structuring a housing-backed investment gone bad, and the $300 million State Street paid over allegations that it misled investors over a money-market fund that was invested in subprime loans.

How is this not insider trading? How is this not fraud? Seriously. And what about the titles to the properties? Aren’t all those loans originated based upon a fraudulent transaction?  There is a different form of justice for the banks. The laws of mere mortals do not bind them.

Morgan Stanley today reported income of $2.2 billion, or $1.14 per diluted share on an apples to unicorns basis, compared with income of $314 million, or $0.05 per diluted share, for the same period a year ago. Net revenues were $9.9 billion for the current quarter compared with $6.8 billion a year ago. And of course, a big part of the earnings came from DVA, Debt Valuation Adjustment; the new banksters trick for turning debt into profit. Strip out the Orwellian accounting and you are left with $6.5 billion in revenue and .02-cents per share in earnings – in other words a horrible quarter for Morgan Stanley – but why report real numbers when you can just invent numbers?

The world is crazy.

American Airlines is in bad need of an upgrade… uhm it’s trying to pull out of a nosedive… uhmm earnings have stalled… uhmmm American Arilines wins today’s award for cliché financial news headlines. The airline posted a $162 million loss on Wednesday, and has lost money in 14 of the last 16 quarters. Shares of parent AMR Corp. dropped 7.5 percent, and they have fallen 66 percent this year as investors worry that the company could be headed for bankruptcy protection.