Friday, August 31, 2012

Friday, August 31, 2012 - Trout Fishing in America Benny

Trout Fishing in America Benny
- by Sinclair Noe

DOW + 90 = 13090
SPX + 7 = 1406
NAS + 18 = 3066
10 YR YLD -.06 = 1.56
OIL + 1.75 = 97.51
GOLD + 36.30 = 1692.60
SILV + 1.30 = 31.84
PLAT + 33.00 = 1545.00

First, let's wrap up the month of August

compared to July 31:

DOW = 13,008 (up 82 for month)
SPX = 1379 (up 27 mo)
NAS = 2939 ( up 127 mo)
10 YR YLD = 1.49 ( up .07 mo)
OIL = 89.89 (up 7.62)
GOLD = 1615.90 (up 76.70)
SILV = 28.10 (up 3.74
PLAT = 1421.00 (up124.00)

Every August, the world's financial markets shift their attention from the centers of global commerce -- New York, London, Tokyo -- to a mountain valley in northwest Wyoming. And for a day at least, Jackson Hole becomes the financial center of the globe. Why? The answer is trout. And it goes back to former Fed chairman Paul Volker, who enjoyed fly fishing. And yesterday, Bloomberg News marveled at the sight of Ben Bernanke at the airport, wearing blue jeans. Even central bankers wear jeans. It's good to have these guys going fishing. It would be even better if they stayed in Jackson Hole and kept fishing and never went back.

Chairman Ben Bernanke sent a clear message that the Federal Reserve will do something. We still don't know exactly what or when.

Bernanke described the U.S. economy's health as "far from satisfactory" and noted that the unemployment rate, now 8.3 percent, hasn't declined since January.

He stopped short of committing the Fed to any specific move. But in his speech Bernanke said that even with interest rates already at super-lows, the Fed can do more. He acknowledged critics' arguments that further Fed action could fan inflation and inject other risks. Yet after raising such arguments, Bernanke proceeded to knock them down.

So now the best guess is the Fed will unveil some bold new step as soon as its Sept. 12-13 meeting, possibly a third round of bond purchases meant to lower long-term interest rates and encourage more borrowing and spending. That policy is called "quantitative easing," or QE.

In two rounds of QE, the Fed bought more than $2 trillion of Treasury bonds and mortgage-backed securities. Many investors have been hoping for a third round — a QE3. Of course, we still are not sure we'll see QE3. We might get something less dramatic: a plan to keep short-term rates near zero into 2015 unless the economy improves, perhaps followed by bond purchases later. I don't think so; this looks very much like QE3. If the Fed delivers anything short of QE3, the reaction could be ugly.

In his speech, Bernanke assessed the economy's weaknesses, defended the extraordinary steps the Fed has taken to date and insisted it can do more. Bernanke acknowledged that the Fed is operating in essentially uncharted territory. Traditionally, central banks stimulate weak economies by pushing down short-term rates. In December 2008, the Fed slashed such rates to record lows. Yet even with short-term rates as low as they can go, the economy still needs help.
Central banks can take what Bernanke called "nontraditional" measures when they've run out of conventional ammunition. And under Bernanke the Fed has tried many. It's made its public communications more explicit, but nobody truly believes the Fed is totally transparent, and even though there has been some increase in transparency, what does that matter to the economy?

The Fed has jawboned; trying to embolden investors and businesses by saying short-term rates will stay low as long as the economy is weak. The Fed originally said it expected to keep rates "exceptionally low" through mid-2013. It extended that target to late 2014.

And besides embarking on two rounds on QE, the Fed has sold short-term Treasurys and replaced them with long-term Treasurys. That shift is intended to push long-term rates down further.

Bernanke argued Friday that collectively, such measures have succeeded. He cited research showing that two rounds of QE had created 2 million jobs and accelerated economic growth; so it seems clear that Bernanke likes Quantitative Easing. But you have to question the effectiveness of even more QE. Even if the Fed does act further, would make much difference? Interest rates, both short- and long-term, are near historic lows. Borrowing — for those who have the credit — has never been cheaper. Yet the economy remains in a rut.

Critics have also argued that besides escalating inflation later, the Fed's easy-money policies could push individuals and institutions into riskier investments. That, in turn, could destabilize the financial system. Bernanke conceded that nontraditional policies carry risks. But he argued that these risks are "manageable." (Scary when he talks like that.) He noted that inflation remains around 2 percent despite "repeated warnings that excessive policy accommodation would ignite inflation." And he said "we have seen little evidence thus far of unsafe buildups of risk or leverage."

In his speech, Bernanke seemed to embrace a dual mission: Rebut arguments against further Fed action — and build a case for it. He echoed what the Fed had said in a statement after its last policy meeting July 31-Aug. 1: that it will act further, as needed, to stimulate economic growth and job creation.

In the weeks since then, somewhat better economic news had led some analysts to suggest that the Fed might now feel less urgency to act. Well, don't fall for that; the economy is still in tough shape and there is tremendous pressure for action and almost zero chance of action coming out of Congress, Bernanke didn't mention any recent economic improvements. And his reiteration of the Fed's readiness to provide more help suggested that his view of the economy remains dim. He called the weak job market "a grave concern" that causes "enormous suffering," wastes talent and can inflict lasting damage on the economy. We'll have another jobs report next Friday, and it would have to be a blockbuster jobs report to dissuade the Fed from taking additional steps for accommodation.

The result is that Treasuries moved higher, dropping the yield down. Both gold and silver had a nice pop. I'll remind you that the metals tend to move higher in response to Quantitative Easing. Stock also moved up, but I wouldn't feel complacent about any of this.

Next week we'll be watching the jobs report but also we'll keep an eye on Europe. Germany has scheduled a vote on the constitutionality of bailing out.., well the rest of Europe, and then the ECB meets and they will be expected to do whatever it takes.

Today, Spain injected emergency capital into the country's biggest bank and they enacted reforms to allow banks that are losing money to receive Euro-zone bailout money. Bankia admitted to losing more than 4 billion-euro. The Spanish government passed an ambitious banking law today, pledging once more that this would be the definitive shakeup for its finance sector that is looking for about $125 billion in bailouts.

A so-called "bad bank" will swallow large amounts of the toxic real estate that has brought down several Spanish banks and threatens several more. The property is left over from the housing construction bubble that burst in 2008, just as the credit crunch happened, and which lies at the root of Spain's double-dip recession and 25% unemployment.

The bad bank will receive building plots, unfinished developments and possibly tens of thousands of unsold homes from developers who went bust or are struggling to repay loans. It will be expected to sell this stock at a profit over the next 10 to 15 years. The creation of the bad bank – which the government hoped would be mostly privately financed – was one of the demands made by the eurozone countries providing the $125 billion loan facility to Spain's banks.
Spain is struggling. The economy is contracting at a rate of 1.3%. Unemployment topped 25%. Spanish bonds crept up to 6.9%. Money continues to flow out of the country; about $250 billion in net capital outflow in the first half of the year. And where does the bailout money go?
To the banks.

This is how central banking works. If you think there is any difference between the ECB and the Fed, think again. The bailouts in Europe are just another version of the bailouts by the Fed, whether they call it the Fund for Orderly bank Reconstruction in Spain (F-Rob), or the ESM, or QE-to-infinity and beyond. It's really all the same. It is private reward and public risk; it's an old game and it is getting worn out. 

Thursday, August 30, 2012

Thursday, August 30, 2012 - While We Wait for Fed, Banks Behave Badly

While We Wait for Fed, Banks Behave Badly
-by Sinclair Noe

DOW – 106 = 13,000
SPX – 11 = 1399
NAS – 32 = 3048
10 YR YLD -.03 = 1.62%
OIL - .67= 95.88
GOLD - .80 = 1656.30
SILV -.29 = 30.54
PLAT – 11.00 = 1512.00

Federal Reserve Chairman Ben Bernanke has returned to Jackson Hole Wyoming for the annual economic symposium.  Following the minutes of the most recent FOMC meeting, in which we learned the Fed felt compelled to take action unless the economy shows dramatic improvement, there has been general acknowledgment the Fed must certainly act sooner rather than later. Sooner being tomorrow or later being at the next FOMC meeting September 13th.  And although it is unlikely Bernanke will announce a major new program tomorrow, he must at least telegraph.

Any new Fed actions are likely to have only a small effect on job creation. Among possible options, Bernanke might announce he’ll extend the Zero Interest Rate Policy to late 2014 or into 2015. He could move toward QE3, another round of bond purchases, most likely involving Treasury bonds and mortgage bonds. This would flood money into the economy and housing market, pushing record-low interest rates even lower. Both republicans and democrats have weighed in. Democrats say he should not be deterred from doing what’s needed to reduce unemployment; Republicans say new action should be avoided because of the risk of inflation. So we have a question of whether inflation or no job is the main culprit to eroding incomes.  Bernanke says that the big economic decisions are Congress’s to make. And that should frighten everyone.

If Bernanke doesn’t move with authority, you can expect an adverse reaction.
Meanwhile, the head of the European Central bank, Mario Draghi has vowed to do whatever it takes; and the former prime Minister of Greece has a suggestion but I doubt Drgahi will take it.  Former Greece prime minister George Papandreou has said his country might have avoided a bailout if the economy had not been robbed by funds being funneled to tax havens. Papandreou says $21 trillion was hidden in tax havens around the world.
"Whether it is in developed or developing nations, it is our citizens that are being robbed," he said, saying this "plain robbery" denied governments the capacity to invest in areas like welfare and education. I know this, Greece is suffering from this. Had this alone been tackled, Greece would have most likely never have needed a bailout.  Yet Europe, the G8, G20, the banking system despite my pleas as prime minister, despite token reference in our council of G20 decisions, have done nothing to change this."

Meanwhile, another day brings another example of banks behaving badly.  Citigroup has agreed to pay $590 million to shareholders who sued the bank over toxic assets the bank was hiding on its own books.  The story goes back to before the 2008 meltdown and bailout. Citi lied to its own shareholders regarding billions of dollars in toxic mortgage-backed securities on its books. The bank did not write-down the positions even though executives knew the assets were worth less than what was shown on the books.   In a separate suit last year, Citi agreed to pay the SEC $285 million to settle charges of lying to investors about CDOs. In that case, Citi sold the CDO to investors then bet against the $1 billion CDO, with losses to investors topping $160 million.
A judge must still approve the new settlement on toxic assets but it would essentially clear Citi of ongoing litigation associate with the financial meltdown.  Of course, Citi did not admit wrongdoing in the case. And for this reason, I truly hope the judge rejects the settlement. I understand the expediency of a universal settlement with no admission of wrongdoing, but at some point, somebody has to take responsibility.

The Office of Mortgage Settlement Oversight has released their initial assessment of the foreclosure fraud settlement. And what they’re finding is that banks are “paying off” their portion of the settlement by engaging in short sales with their borrowers; which is something they were already doing in greater numbers prior to the settlement. The Mortgage Settlement was the $25 billion, multi-state deal. So far the banks are claiming credit for more than $10.5 billion, but $8.6 billion is short sales which were already happening. Short sales increased by 25% year-over-year in the first quarter of 2012, according to RealtyTrac. That mostly predates the foreclosure fraud settlement. Fannie and Freddie just inaugurated a program facilitating short sales that has nothing to do with the settlement. And there’s the issue that economically a short sale amounts to waiving a deficiency judgment, which are barred in non-recourse states anyway, including… California and Arizona, where we’ve seen high pickup on short sales for a year now.

On principal reduction, which was supposed to be the purpose of the settlement, banks have not even done $750 million; and in the case of Bank of America, the number is a big fat zero.  BofA has not completed any first-mortgage modifications that reduce loan balances for borrowers – and that was supposed to be the big point of the settlement. BofA did complete $4.8 billion in short sales, which they were already doing. So, you break the law, you get caught, you don’t’ have to admit wrongdoing, the court forces you to go home, go to your job, and continue doing exactly what you were doing before.  

Global food prices rose 10% in the month of July, raising fears of soaring prices for the planet's poorest, the World Bank has warned.  The bank said that a US heatwave and drought in parts of Eastern Europe were partly to blame for the rising costs.  The price of key grains such as corn, wheat and soybean saw the most dramatic increases, described by the World Bank president as "historic".  The bank warned countries importing grains will be particularly vulnerable.

From June to July this year, corn and wheat prices each rose by 25% while soybean prices increased by 17%, the World Bank said. Only rice prices decreased - by 4%. In the United States, the most severe, widespread drought in half a century has wreaked havoc on the corn and soybean crops while in Russia, Ukraine and Kazakhstan, wheat crops have been badly damaged.
The World Bank said that the use of corn to produce ethanol biofuel - which represents 40% of US corn production - was also a key factor in the sharp rise in the US maize price.  Overall, the World Bank's Food Price Index - which tracks the price of internationally traded food commodities - was six percent higher than in July of last year, and one percent over its previous peak, in February 2011.

Wednesday, August 29, 2012

Wednesday, August 29, 2012 - Today's Debt and GDP

Today's Debt and GDP 
By Sinclair Noe

DOW + 4 = 13, 107
SPX + 1 = 1410
NAS + 4 = 3081
10 Yr Yld +.02 = 1.65%
OIL – 1.02 = 96.80
GOLD – 10.50 = 1657.10
SILV - .17 = 30.83
PLAT – 3.00 = 1521.00

The month of August has been basically flat, looking at the major market indices, just a couple of points movement. You may recall that last March I was warning you about the worst six months in the market, the old idea of “sell in May and stay away”. On May 1st, the S&P 500 closed at 1405. So, if you did get out in May, you’re doing O.K. Of course, the theory looks at the worst and best six months of the market, and based upon that you would avoid the market volatility in September and October. September is historically the worst month for stocks. The Dow Industrial Average has declined 1.4 percent on average in September since 1929. Taking a broader look at the market, September is by far the worst month for the S&P 500. It has posted an average decline of 1.3 percent since 1929. Over that period, it's the only month to drop more than 50 percent of the time. Of course, there are no guarantees in the stock market; might go up, might go down; but I think it’s a safe bet that the lazy, hazy days of summer will give way to more volume and more volatility and it could start with Fed Chairman Bernanke’s address from Jackson Hole Wyoming this Friday.

Household debt and delinquency dropped in the second quarter.

Aggregate consumer debt fell by $53 billion, or 0.5%, to $11.38 trillion, the New York Fed said in its quarterly look at household debt. From the peak in the third quarter of 2008, household debt has tumbled by $1.3 trillion.

Most of that was driven by a decline in real estate loans, which also fell 0.5%, to $8.15 trillion. The delinquency rate also fell, slipping to 9% from 9.3%.Approximately 256,000 consumers had a foreclosure notation added to their credit reports in the quarter, the lowest since mid-2007.

The one area of growing debt and delinquency came in student loans. Student loan debt climbed $10 billion to $914 billion, a surge of $303 billion since the third quarter of 2008.  Student loan delinquency rates increased for the second consecutive quarter, with the percent of student loan balances 90 or more days delinquent up to 8.9% from 8.7%.

The economy expanded somewhat faster in the second quarter than originally reported because of higher consumer spending and slower growth in imports.  The revised gross domestic product increased at a 1.7% rate in the April-to-June period, up from a first read of 1.5%. GDP, the value of all goods and services produced in the country, is considered the broadest measure of an economy’s health.

The economy’s current level of growth, however, still falls well short of what’s needed to dramatically lower the nation’s high unemployment rate and eliminate the lingering threat of another recession.

GDP is projected to grow 2.0% in the third quarter and 1.9% in the final three months of the year.

I’m not sure what GDP truly tells us. It might not be the best way to gauge progress and prosperity. As an example, consider that GDP gives approximately the same weighting to any economic activity. So, in the health care sector, if you break your leg the ambulance ride, the costs of doctors, nurses, hospitals, medicines and such are all added to the GDP. Although you wouldn’t consider it to be an economic benefit to break your leg, that is how it is counted. Marriages and divorces are both counted toward GDP without distinction. In short, GDP is a measure of quantity without regard to quality.

Some people have tried to come up with new gauges which include measurements of health, life expectancy, education, public infrastructure, fuel efficiency, community, leisure, pollution, and income equity. One appeal of GDP is that it presents a simple message; up is good; down is bad. To a certain extent we are what we concentrate on; you tend to get what you measure, so we’d better measure what we want.

Another possible explanation for slower growth is that education in the US is in decline. There are certainly other reasons that we might explore some other day, but according to some calculations we hit a plateau in educational attainment more than 20 years ago. The US is steadily slipping down the international rankings in the percentage of its population of a given age which has completed higher education.  Of course one big problem is the cost of higher education and the debt required to finance the cost. Once upon a time, California had a Plan for higher education which established a three-tier system of free public higher education; that’s right, free, as in no tuition, even for the high achievers who gained admission into the prestigious state universities. There was a pledge that the state would pay instructional costs for all residents. The Arizona constitution says that university instruction shall be furnished “as nearly free as possible” to Arizona residents.  Stupid is as stupid does.

And that brings us round to another topic that will be getting attention this week – entitlement reform.

"Rightly understood, health-care entitlement reform is not, as conservatives suggest, a matter of lessening the dependency of big chunks of the population on government largesse. It’s about weaning the members of our medical-industrial complex from their entitlement to far higher payments, despite shabby results, than their counterparts abroad get. This license for inefficiency, issued by both parties to doctors, hospitals, health plans, drugmakers and device firms, is diverting precious resources in an aging America from urgent non-health care, non-elderly needs." - Matt Miller, WaPo

So, how do we improve efficiency and lower costs? Let’s go back to the basic idea of supply and demand. More doctors, nurses, researchers, scientists, lab techs, and such – in other words if we increased the supply of trained workers and the demand stayed fairly constant, we should see a decline in prices. Of course, to increase the supply of skilled workers, you have to educate them and if you chain them down with debt for that education, you won’t lower costs.

It gets back to the idea of quality versus quantity in the GDP. A cigarette adds more to GDP than a crown of broccoli. . Higher health care costs add to GDP, whether it is the cost to treat diabetes or the cost of preventive care.  Student loans and debt adds to the GDP but ultimately student debt does not improve quality of life, or at least it improves it far less than a society that is willing to make the investment in free education or nearly free education for those willing to study. The money goes somewhere, and right now it goes to servicing debt rather than going to education and ultimately an educated and efficient and employed population.

RFK once said (in a 1968 speech): GDP "counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.  It counts special locks for our doors and the jails for the people who break them.  It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities.  It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.  Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play.  It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.  It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.  And it can tell us everything about America except why we are proud that we are Americans."

Tuesday, August 28, 2012

Tuesday, August 28, 2012 - I Won't Be Going to Jackson Hole

I Won't Be Going to Jackson Hole
Sinclair Noe

DOW – 21 = 13,102
SPX – 1 = 1409
NAS + 3 = 3077
10 YR YLD -.02 = 1.63%
OIL + .57 = 97.48
GOLD + 3.00 = 1667.60
SILV +.18 = 31.00
PLAT – 23.00 = 1524.00

The ECB announced that Mario Draghi had canceled plans to attend the Kansas City Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming citing “a heavy workload”. So, I would just like to announce that I'm not going to be able to attend either. Further, I can tell you that none of that makes much difference; the markets are waiting on a Federal Reserve announcement and an ECB announcement. Relax, it'll happen. Draghi faces a tougher row to hoe. ECB staff are still weighing a variety of approaches. Draghi, meanwhile, remains in conflict with Germany’s Bundesbank, which has reiterated its opposition to bond purchases of any kind.

Meanwhile Fitch has downgraded ratings on 7 mid-sized Italian banks, based on the "current challenges in the operating enviroment" and the difficult of accessing wholesale funding. At the same time, the ECB is in a standoff with Spain, which remains reluctant to seek help from the euro-zone’s rescue fund, an action that Draghi and other ECB officials have made clear is an absolute prerequisite for any new bond-buying efforts. Apparently the Spanish have figured out that the medicine is worse than the ailment and they don't want to be economically indentured for the foreseeable future. I can understand that Draghi is busy these days.

Stock markets were flat. Volume was among the lightest of the year after Monday's lightest trading in 2012. August is a slow season, and investors mostly stayed on the sidelines. Light volume can exacerbate moves in the markets but what we're seeing now is a snooze fest.

I've seen a couple of news flashes today. One talking about Hurricane Isaac, the other flashing on the Republican Convention. Mitt Romney has been nominated by the GOP; not exactly a news flash. Hurricane Isaac is heading for New Orleans. But the best optic of the day may be the Tampa Bay Times Forum arena, the location the Republican Party chose to host a convention, the arena was built with taxpayer funds, which accounted for $86 million or 62%, of the total money needed to finance the construction of the stadium.

Oil rose as Isaac gathered strength on its way into the heart of the Gulf of Mexico's oil and refinery operations. The price got a boost after midday when Isaac strengthened into a Category 1 hurricane with 75 mph windsNearly 94 percent of oil production in the Gulf, or 1.3 million barrels per day, has been halted. At least 1 million barrels per day of refining capacity is expected to be shut down, which is about half the refining capacity in the storm's predicted path. The US consumes about 19 million barrels of oil products per day.

As Gulf Coast towns shudder and scramble, fearing the deluge of rain and wind that Hurricane Isaac is expected to dump, the drought-stricken Midwest couldn’t be more thrilled to welcome the storm system. The heartland of the United States has been hoping for rain since May; across the central plains, crops are withering and rivers are running completely dry, strangling local economies, but for those hoping for a respite from what’s been one of the most ruinous droughts in decades, Isaac may not be bringing salvation. The 1 to 3 inches of rain expected to fall on parched farmland later this week will provide a nice shot in the arm but most of the crops are already lost and the rain really won’t do much for lakes and streams. In fact, it might not even be enough to provide any relief at all. In Missouri, for example, this season’s rainfall is 15 to 20 inches below normal amounts, meaning even 3 inches of rain isn't going to be enough to end to the drought or save summer corn and soybean crops.

The storm system may even do more harm than good in America’s agricultural breadbasket. Abnormally high winds could push over already brittle unharvested corn stalks, flatten rice plants and knock over the newly-seeded sugarcane crop. Also at risk are cotton harvests in Louisiana, where many plants are currently in the “open-boll stage” and vulnerable to rain and wind. The soil is so parched across the central part of the U.S. that a sudden downpour — Isaac’s predicted 1 to 3 inches is on par with a weak hurricane or intense tropical storm — could send the rain sliding off the hard soil, leading to flash flooding.

The news flash of the day is Isaac, and it turns out there's an app for that, six apps at last count. Take your pick: Hurricane tracker, Hurricane HD, Hurricane Express. I haven't seen an app for the earthquake swarms coming out of Imperial County but I'm thinking it's just a matter of time.

Apple won its patent case over Samsung last Friday. Samsung was hit with a $1.05 billion verdict after a federal jury found that it had infringed Apple’s smartphone patents. In other words, Samsung ripped off the iPhone. Apple is now asking the judge to bar Samsung from selling 8 of its popular mobile devices in the United States. That’s a big deal.

Apple’s share price hit another record high this week. Samsung, dropped to a four-year low, wiping out some $12 billion in market valuation; which is about what Google paid to purchase Motorola Mobility, Samsung’s smaller rival. Despite Apple’s victory, this dispute is far from over. Samsung has said it will appeal, and then the case goes global and they square off in several other jurisdictions around the world.

Any billion-dollar jury award is significant, but this case is about much more than just money. The judgment represents 2% of Sansung’s global revenue; they can survive that. So, what’s this story about? It’s about market dominance in the global smartphone race. Apple’s victory is the most high-profile outcome thus far from Silicon Valley’s escalating intellectual property war. The biggest winners? Lawyers. Can you imagine the litigation fees on a $1 billion jury judgment?

Generally speaking, there are two schools of thought coming out of this verdict. This first is that Apple’s decisive victory means that its competitors — ie. Samsung, HTC, and Google-owned Motorola — will have to redouble their efforts at innovation now that a jury has told them to stop ripping off Apple’s designs. In other words, the decision will benefit consumers by fostering a diversity of designs and products in the smartphone market.

The second school of thought is that Apple is throwing its weight around and obsessively patenting hundreds, if not thousands, of not so technical features like a square with rounded edges, or the flick-of-a-finger on a touch-screen. If you can afford enough attorneys you can control the patents. In this view, high-priced intellectual property lawyers and tech firms with deep pockets actually stifle innovation; it allows one powerful company, Apple, to essentially have a monopoly on smartphone features. Like a square with rounded edges.
Intellectual property laws are in desperate need of reform. Inventors should be protected; that is understood, otherwise what’s the incentive to create anything? On the other hand, the current method of adjudicating patent disputes is badly broken.
When the big winners are the lawyers, the outlook for innovation is not good.

Michael Wolff at the Guardian had this worthwhile look at Apple:

During the closing arguments at the trial last week, Apple's attorney showed the jury two smartphones, Nokia's Lumia and a phone from Sony, and he said not every smartphone needs to look like an iphone. Just in case you were wondering what to buy instead of Apple, and ironically Nokia runs on a Windows platform.

Apple came close to destroying its business in the late 1980s by pursuing a suit against Microsoft claiming that Windows infringed the look and feel of the Mac desktop metaphor. Apple focused its hopes and business future on this lawsuit, while its market share dwindled. Rather than competing, it litigated. And lost.

The first justifiable conclusion might be that big companies get their way. The second might reasonably be that Apple doesn't change much: its business model remains aggressive self-righteousness. The third is what everybody knows: patent rules and philosophy are all screwed up.
As for the first point, Apple is not just a big company, but the biggest. And it is not just the biggest American company, but the most American company. It has entered a rarefied brand status in which it is now almost synonymous with American virtue: American as Apple. Its good design sense has become a major point of American pride, if not nationalism. The brand is a national asset. Apple is AT&T in its pre-break-up from; it's GM, in its what's-good-for-General-Motors-is-good-for-the-country stage; it's United Fruit when it made US foreign policy; it's Microsoft when desktop computing was transforming the world.

This is about as close to commercial omnipotence as it gets. Its unassailability, its right to be aggressive, is built into its share price. There are special privileges for the really big and pwerful. So let us briefly consider the chance for a Korean company defending itself against (or, perish the thought, challenging) the greatest American company of the age in the eyes of an American jury.
And then, there's the self-righteousness. Apple is one of the most aggressive intellectual property litigators of all time. Its major moves have not been about protecting precise technical innovations, but about claiming the much softer zone of look and feel. It sues for brand rather than engineering. It has pioneered a new modern sensibility: taste is what's most valuable; identity is king. It's sued about the lower case "i"; it's sued about the word "pod"; it's sued New York City over the "big Apple"; it's sued over using the words "app store".
This fierce defensiveness might be rightly understood in a psychological sense: Apple itself is based on stolen iconography. There was first the Beatle's Apple and there was Xerox's Palo Alto Research Center desktop design. Apple's self-righteousness masks its guilt. What's more, it knows better than anybody that if you relax your vigilance, somebody can easily walk off with what you've done – and improve it.
This is the story between the lines of its great victory and its further share price surge. On the one hand, there is this seemingly golden company. On the other hand, there is anybody with any sense of history knowing this is going to end badly.

Companies that acquire the nation's imprimatur often, if not invariably, over-reach. It is a characteristic of American capitalism: the price of getting really big and overbearing is that you incur an inverse reaction. In the early 1990s, an ambitious department of justice (a Republican administration DOJ at that) commenced its assault on Microsoft. For better or worse, by the time the feds were finished, the company, with its rotten operating system, besieged and beleaguered, had become just one of many not-very-adept players in the space – an unimaginable outcome if you remember the once God-like power and scorched-earth wrath of Microsoft.
Apple, and its rotten phone, have a ways to go. But karma should not be underestimated as a factor in this game.

Monday, August 27, 2012

Monday, August 27, 2012 - Still Waiting on the Fed

Still Waiting on the Fed
Sinclair Noe

DOW – 33 = 13,124
SPX – 0.69 = 1410
NAS + 3 = 3073
10 YR YLD -.03 = 1.65%
OIL +.25 = 95.72
GOLD – 7.10 = 1664.60
SILV - .10 = 30.82
PLAT – 6.00 = 1549.00

The Greek economy shrank 6.2% in the last quarter. The European Monetary Union is insisting on even more austerity in return for emergency funding. They're trying to see if they can contract the economy right into oblivion. And that's the good news; the bad news is that 20% of Greek bank loans are now non-performing.  The non-performing loans in Greece are bound to get worse, as the government does not have enough cash to return VAT tax refunds to small businesses which depend on such rebates for survival.  So, it is highly likely that the non-performing assets in Greek banks will rise as small businesses fail. And in Spain, 9.5% of bank loans are non-performing, a record high and cause for a little concern. Italy's fiscal deficit is swelling. Germany is still the strongest Euro-country and they will probably see economic contraction in the next quarter. The UK might be as bad as any of them, with the exception of Greece. 

In China, the housing bubble is deflating.  Prices are falling rapidly.  Lack of new construction has had a worldwide impact on the prices of raw materials.  The slowdown in demand and the decline in raw material prices has significant negative implications for the commodity producing countries like Australia and Canada.  The banking system in China, already undercapitalized, is facing major increases in non-performing loans. Japan has been taking a nap for the past 20 years. 

The United States looks like the prettiest horse in the glue factory. There are some positive economic signs:

Earlier this year I told you the Federal Reserve and the administration would try to revive the economy through the housing market. And it's kind of working. After seven years of the real estate market nationwide being a drag on the overall economy, we seem to have turned the corner.  New numbers are creating the expectation that economic growth in the U.S. will actually be bolstered by housing.

Sales of resale and new homes have been gaining steam throughout 2012, and prices are now tracking right alongside. Builder confidence is up, and interest rates for consumer mortgages remain historically low.  Last week’s average rate on a 30-year fixed rate loan was 3.62 percent, according to Freddie Mac.  

The AP reported today that “the housing recovery is looking steadier and more sustainable, which will likely add to economic growth in 2012 for the first time in seven years.  Purchases, construction and prices are gradually but consistently increasing, though they remain far below levels seen in a healthy economy.  That’s a big change for an industry that has been a major drag on the economy since the housing bubble burst more than five years ago. It's estimated  that home construction will add 0.2 percentage points to growth this year. That would make 2012 the first full calendar year in which housing has added to growth since 2005.

Of course, it might leave you feeling queasy to think the housing market has fully recovered. There is a big shadow inventory; there is still a big problem with negative equity; and it seems lending has become more strict than a CIA employment application. 

We know that the labor picture has been showing signs  of improvement. The unemployment rate stands at 8.3% and the economy added 163,000 jobs last month. Of course, there are different ways to count employment, and by some calculations the jobs picture is not so bright. Even the jobs that have been created are not as good as the jobs that were lost.  Meanwhile, inflation is non-existent, at least according to the government. The measurements of inflation changed several years ago, and if all you buy is flat screen TVs and typewriters, there is no inflation. 

The point is that the Federal Reserve has a dual mandate of price stability and maximum employment, and given a backdrop of no official inflation and persistently high and likely under-reported unemployment, and the outlook for a global slowdown, you may be wondering what it takes to motivate the Fed to announce more monetary easing. That's what the markets were thinking today.

The markets appear to be totally transfixed on the next policy statement from the Fed or the ECB or both, and to be totally ignoring the fundamental growth slowdown worldwide and the lasting impact of the last downturn.  In reality, there is really very little the Fed, the ECB, the Bank of Japan, the Bank of England, or any central bank can do to help their respective economies during a debt deleveraging cycle by the private sector. The central banks can provide liquidity, but their actions cannot resolve the solvency crises now facing the major industrial economies.  The money goes to the wrong places, it gets sucked into the black hole of debt; it does not get put to use in the broader economy and it does not create production and it may be the most circuitous and costly path to creating jobs. Meanwhile, stimulus in the form of fiscal policy is stuck in neutral, unable to inch forward due to a thoroughly dysfunctional Congress. 

Speaking of politics, the GOP convention is underway. It started with a whimper. The tone was deliberately subdued after Isaac led Republicans to scrap most of their first day's schedule in Tampa. Actually, it was a sunny day in Tampa, and it looks like Hurricane Isaac will hit New Orleans, but the graphics of Hurricane damage in New Orleans on a split screen with the GOP convention, well, they are laying low for now. With many of the 50,000 delegates still struggling to get to Tampa on storm-delayed flights, organizers mounted a scaled-back agenda on Monday and reshuffled their lineup of speakers into a three-day plan, capped by Romney's speech Thursday night. And most of the stuff between now and then is fluff. However there is a chance that we'll see some up and coming politician wow the crowd. Reagan did it in 76. Clinton proved he could talk endlessly in 88. Obama made an impression in 04. 

Friday, August 24, 2012

Friday, August 24, 2012 - Say It Ain't So

Say It Ain't So
-by Sinclair Noe

DOW + 100 = 13,157
SPX + 9 = 1411
NAS + 16 = 3069
10 YR YLD +.01 = 1.68%
OIL - .44 = 97.47
GOLD - .40 = 1671.70
SILV +.24 = 30.92
PLAT + 7.00 = 1554.00

Say it ain't so Lance. The unbeatable Lance Armstrong; the guy who did so much with the yellow bracelets; he finally admitted he is a cheat. He used performance enhancing drugs. He doped. “Enough is enough,” that was Armstrong's statement. I couldn't agree more. And yet, even with this I have to take exception. You see, Armstrong didn't admit guilt. He didn't come clean. Armstrong will not contest the charges of doping against him. Weary from years of denial, legal battles, skirmishes with former-team mates and anti-doping chiefs, it is a fight Armstrong says he no longer has the stomach for: "Today I will turn the page," Armstrong said. "I will no longer address this issue regardless of the circumstances."

He didn't go through a discovery process that would have brought out all the sordid details and entered them into evidence. No, that might have allowed his corporate sponsors to claw back all those endorsement fees. So, Armstrong and his attorneys just say that's it, enough is enough. This is what corporations do when they want to limit liability; make no mistake, Armstrong is a corporation.  Pay the fine, but do not admit guilt, give up the Tour de France championship but keep the money. The workers were already taking down his statue in front of the stadium at Penn State. 

This is an ongoing and systemic problem, and it includes Penn State and the Catholic Church, and major league baseball, and the NFL; and it includes FEMA and Hurricane Katrina and the Army Corps of engineers, and WMD's and Iraq. We can't even seem to make it through a week without another mass shooting. Ten people shot in the street near the Empire State building. Yea, that gets the headlines. What about the 19 people shot in Chicago in one night; they weren't all in the same intersection, but still it's a lot. And don't forget Enron, Worldcomm, Global Crossing, Lehman Brothers, Bear Stearns, Bank of America, JPMorgan, Morgan Stanley, Goldman Sachs, Standard Chartered, HSBC, the London Whale; Wall street in general; Stockton, Birmingham, Portugal, Ireland, Italy, Greece, and Spain, and all the other little piggies, the Big 3 car companies, regulators, and the courts. Congress has an approval rating of 12%. I didn't realize they had that many relatives. And those ratings are about where we place the large corporations, and labor unions, and of course, the news media. Who do you trust? 

The institutions that have lost the most trust are also among the most important to basic functioning. We don't trust these vital institutions because they have proven themselves to be untrustworthy. We can no longer assume competence nor common sense nor common decency nor good faith. And this, as much as any particular truth, the thing that defines America in 2012.  We seem to have entered a downward spiral of misconduct and low expectations.

Meanwhile, Ben Bernanke wrote a letter to a congressional oversight committee and he said the Fed has room to deliver additional monetary stimulus to boost the economy. The letter comes a week ahead of the annual economic symposium at Jackson Hole, Wyoming, where Bernanke and ECB President Mario Draghi will speak. The ECB is discussing yield-band targets under a new bond-buying program to let it shield its strategy and avoid speculators trying to cash in; any decision would not be made before the ECB's September 6 policy meeting. So, the Dow Industrials go up 100 points, not because the economy got better, not because Quantitative Easing will actually provide stimulus to the economy but because it will put money in the pockets of bankers who didn't do anything productive. 

Bernanke also defended accusations that the Fed acts when the market pouts. “Markets understand that basic fact [that policy is set on future economic forecasts]; as a result, when new information becomes available regarding the future state of the economy, they draw their own inferences regarding the likely future course of policy.”

As for whether Fed action obscures signals for potential economic growth, hides risks of inflation and alters returns on investment, Bernanke responded by repeating the Fed’s mandate — to promote price stability and maximum sustainable employment, adding it’s “keenly attuned” to the risks of inflation.

Barring some miraculous recovery in the economy, the Fed will embark on additional accommodation, which is not to be confused with stimulus. That’s not really news. We already knew the Fed had inched closer to action from the statement it released following its last FOMC meeting. The minutes released on Wednesday only reinforce that view.

The key difference is that the bar has been lowered. The economy doesn’t have to get worse to compel the Fed to act, it now has to show “substantial and sustainable improvement” in order for it not to act. We can assume that means growth higher than the 1.5 percent pace tallied in the second quarter.

The Fed has expanded its balance sheet to about $2.8 trillion, from about $900 billion in August 2008. The bigger the balance sheet the weaker the results; the strategy appears to be suffering from the law of diminishing returns. The more you do something, the less effective it becomes over time. Not only that, but monetary easing isn’t really a good solution to what’s wrong with the economy. The economy isn't growing because demand is low. And one reason demand is low is because the money that could have gone to economic stimulus went instead to monetary easing, then it got stuck in corporate coffers and Federal Reserve deposit accounts.  And the Fed forgot about their mandate to provide maximum employment; they took care of the banks first, and foremost. For the first time ever, household net worth has contracted over a five-year period. The remedy to that problem isn’t lower rates.

The Fed may be printing money, but no one’s doing anything with it. Just look at the banks. The gap between deposits and lending is now a record $1.7 trillion. The banks have money and they buy Treasuries with it. Banks have already bought double the amount of Treasuries they did in 2011, pushing their holdings to an all-time high of $1.8 trillion. The Fed prints money and gives it to the banks; the banks give it to the Treasury. You scratch my back and I'll scratch yours; tit for tat; quid pro quo. And all that money just can't seem to find its way to willing hands of practical purpose. 

People who lost long-held jobs during this depression struggle to find new employment and often take substantial pay cuts if they did find new work. I don't know what arrow Bernanke has in his quiver to  deal with this. A new Labor Department report shows that the people lucky enough to find new work are often taking steep wage cuts. Of the displaced workers who lost full-time wage and salary jobs from 2009-2011 and were reemployed by January, just 46% were earning as much or more than they did in their lost job. A third of them reported earnings losses of 20% or more. 

From the most recent FOMC minutes we learned  "the majority of FOMC participants don't seem to think that the unemployment rate will improve that quickly, but "it is not at all obvious that the pace of the recovery is inconsistent with the FOMC's view of achieving its dual mandate." In other words, the high unemployment numbers aren't cyclical, they are structural; we have yet another systemic failure. 

Thursday, August 23, 2012

Thursday, August 23, 2012 - No QE? Step Away From the Crack Pipe

No QE? Step Away From the Crack Pipe
-by Sinclair Noe

DOW – 115 = 13,057
SPX – 11 = 1402
NAS – 20 = 3053 
10 YR YLD -.05 = 1.67%
OIL – 1.05 = 97.69
GOLD + 17.00 = 1672.10
SILV + .75 = 30.68
PLAT + 6.00 = 1548.00

The Federal Reserve FOMC minutes were released yesterday and the interpretation called for monetary accommodation sooner rather than later; so we'll see QE3 August 31 at Jackson Hole on September 13 at the next FOMC meeting. They might not call it QE3, they might do some variation on the theme but the promise was that there will be big time accommodation unless the economy shows a strong and sustainable improvement. And if the Fed fails to deliver on QE3, you can expect a severely negative response from Wall Street; expect a move that would make today's 115 point drop look small; the economy would tank and the Fed would be forced to step in with QE3, only in crisis mode. 

So, this morning on CNBC, James Bullard, president of the Fed's St. Louis bank, said the minutes from the July 31-Aug. 1 meeting were "stale" because the economy had picked up since then. If it becomes "a bit stronger," he said, the Fed will hold off. And then he went back to smoking  his crack pipe. 

What do the economic reports suggest? The HSBC Flash China manufacturing purchasing managers index, a preliminary reading that provides an early peek at data for August,  fell this month to its lowest level since November.  A German business survey showed orders from abroad for the country's goods, a mainstay of its economic strength, fell at the fastest rate in more than three years.

The number of Americans filing new claims for jobless benefits rose last week while US manufacturing improved only slightly in August, worrisome signs for an economy struggling to create enough jobs. Sales of new single family homes rose in July, matching April's two-year high. That's nice. Maybe Mr. Bullard needs to visit This is a blog I just heard about that collects stories of suicides and murder-suicides linked to foreclosure trauma. The current count is 227. 

Earlier this week, Mitt Romney's economic adviser Glenn Hubbard told Reuters that Ben Bernanke's motives should not be questioned by politicians. Hubbard said:  "Ben is a model technocrat. He gets paid nothing for getting kicked around all the time. I think they ought to pat him on the back." Today, Romney said he would not re-appoint Bernanke to another term as chairman of the Federal Reserve. 

It's good to see agreement and communication in action. There are broad differences between the two parties this year, but when it comes to explaining their visions in more than a soundbite, each side is unwilling to trust voters to understand the full implications of their positions. 

Then Romney announced an energy plan which he claims will make the US energy independent by 2020. It basically boils down to more oil drilling. I didn't see much about alternative energy, green energy, or conservation.

A website called Gawker has posted more than 900 documents that include audits, financial statements and investor letters that catalog some of Romney's investments through Bain Capital. As the site explains: Bain isn’t a company so much as an intricate suite of steadily proliferating inter-related holding companies and limited partnerships, some based in Delaware and others in the Cayman Islands, Luxembourg, and elsewhere, designed to collectively house roughly $66 billion in wealth in its many crevices and chambers. It will be interesting to see what comes out of this over the next few days.

Securities and Exchange Commission Chairwoman Mary Schapiro called off a vote that would have changed the rules for the money-market-fund business; the votes didn't add up. Schapiro’s proposal would have required money funds either to float their share prices like other mutual funds, which might result in breaking the buck, or to post capital against losses on their asset holdings; that seems to make sense.  The proposal would also have made money funds hold back a small portion of investors’ cash for 30 days when investors redeem all their shares, to reduce the possibility of a run on the fund at the first hint of trouble. Of course, if you knew that your money would be kidnapped for a month, you might not want to put your money in the money market fund in the first place. The money fund industry is $2.6 trillion big; it carries implicit guarantees to individual investors – not explicit, just implicit; it is subject to runs; it is systemically important; and they still haven't figured out what to do with it. 

Only half of the previously foreclosed homes owned by Fannie Mae are either on the market or being prepared for sale. The remaining properties are currently locked away in some step of the foreclosure system.  The National Association of Realtors said in its existing home sales report yesterday that its officials were pressuring government agencies to release more of their REO in markets short of inventory.   It has long been suspected the government – including Fannie, Freddie Mac and the Department of Housing and Urban Development – are deliberately holding these homes off the market in order to get more for them when home prices recover. Fannie Mae says it has 109,000 repossessed homes currently available for sale but they also admit 47% of their inventory is unable to be marketed. That's a big chunk of inventory.

German and French leaders put the pressure on Greece to keep pursuing painful reforms, suggesting they are hesitant to accept the new Greek prime minister's demand for more time to fix his country's battered economy and public finances. The German's remain intransigent. The Greeks might default. Formal default might not have a huge impact but it sets the stage for Spain and Italy to default. That scares the Germans, so there is a chance the Greeks will get an extension, and that means another 6 months or another year of the Greek economy existing in a downward spiral without a functioning economy.

Hedge funds are having a hard go; only about 11% are matching or beating the performance of the S&P 500. Citigroup's private bank is pulling about $410 million from Paulson & Co., that's the hedge fund  run by billionaire John Paulson; the fund lost 18 percent this year through July in its Advantage Plus strategy; the fund posted a loss of 51 percent last year. This may be the first time Citigroup fired someone for underperformance, rather than being the one getting fired. 

If the Federal Reserve goes ahead with QE3, or rather when – who benefits? The Bank of England released a study on the distributional effects of quantitative easing. The research states: By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5 per cent of households holding 40 per cent of these assets. In other words; who benefits from QE? The rich. I think this should also prove there is a difference between quantitative easing and stimulus. 

Both gold and silver moved above their 200-day moving average, for you chart watchers; that's a very bullish sign. There are rumors the LBMA is having trouble delivering silver for large orders. Supplies are tight, demand is strong.  Sprott buying silver; Soros and Paulsen buying gold.  Basel III rules for making gold a tier 1 asset are in the works.  FOMC hints at pending QE, which is another way of saying print Benny, print.  Global economies still under duress. Don't get carried away with the move in metals but when the Fed announced QE2, gold and silver moved to highs. 

Wednesday, August 22, 2012

Wednesday, August 22, 2012 - QE Soon, Inequality Grows

QE Soon, Inequality Grows
- by Sinclair Noe

DOW – 30 = 13,172
SPX + 0.32 = 1413
NAS + 6 = 3073
10 YR YLD -.09 = 1.72%
OIL - .28 = 96.40
GOLD + 15.50 = 1655.10
SILV + .50 = 29.93
PLAT + 26.00 = 1541.00

The Federal Reserve released minutes of their most recent Federal Open Market Committee meeting. Here’s the money quote from the FOMC minutes: “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

In other words, a majority of the FOMC members think it is time for QE3, unless we see an economic miracle, say hallelujah! So, when will they make an announcement? Well, there is a symposium in Jackson Hole, Wyoming on August 31. There is another FOMC meeting September 12 and 13. The language in today's minutes is not a guarantee of QE3, but if they do not make an announcement of QE3, then the lack of action will be interpreted as highly political and obstructionist. They have now obligated themselves to some sort of accommodation; it might not be called QE3, but a rose by any other name...

The economy is ready for help; GDP is growing at less than 2%; inflation is running less than 2%; unemployment is lingering at 8.3%; Europe could implode and hurt the US economy. So, what will happen when the Fed provides additional monetary accommodation? Kansas City Federal Reserve President Esther George thinks more easing won't work. She asks: “Is there anyone not borrowing today or purchasing a house because interest rates aren’t low enough? Do we expect that businesses will hire if their long-term rates are lower?”  And of course, the answers are no and no. 

That means the Fed had better go big, real big. Extending their zero interest rate policy another year is not enough. Revisiting the tired old bond buying program of QE 1&2 will likely fall flat. Boston Fed President Eric Rosengren thinks the new accommodation should be open-ended, with no specific time frame. How about adding a reduction in interest paid to member banks to park money with the Fed? What other tricks does the Fed have up its sleeve? If they have more tools in the toolbag, why haven't they used them? What are they waiting for? 

We have known and we have told you the Fed would have another round of accommodation; the only question was when. We now know the answer is sooner rather than later. 

There are, of course, limits to the efficacy of monetary policy. The Fed can't rescue Americans from the  fiscal follies of a dysfunctional Congress, hell bent on cliff diving. The Congressional Budget Office issued a fresh warning today on the fiscal cliff. They say the economy will grow at a 2.1% clip in 2012, but fall by 0.5% between the fourth quarter of 2012 and the fourth quarter of 2013 under the fiscal cliff scenario. If Congress can't get its act together, the unemployment rate will rise from 8.3% to 9.1%. Of  course, that is the worst case scenario for the fiscal cliff; that is when the politicians can't find any common ground, all the tax cuts expire and all the automatic spending cuts take effect. It could happen that way. If Congress manages to avoid the fiscal cliff altogether, then the CBO sees the economy growing by 1.7 percent next year and unemployment drifting lower to 8 percent. There is actually a solution that involves some tax increases and some spending cuts and life is beautiful and easy. 

It could happen.

I have a dream.

A new report from the Pew Research Center shows inequality increasing, the middle class shrinking and wealth concentrating at the top. Surprise, surprise.

The study shows that for the roughly 50 percent of adults defined as middle class, with household incomes ranging from $39,000 to $118,000, the past ten years were the "worst decade in modern history," as income dropped for the first time since the end of World War II.

Most middle class Americans say they have been forced to reduce spending in the past year; fewer now believe that hard work will allow them to get ahead in life. Families are now more likely to say their children's economic future will be the same or worse than their own. In all, 85 percent of middle class Americans say it is more difficult now than a decade ago to maintain their standard of living. 

In 1970, the share of income that went to the middle class was 62 percent, while wealthier Americans received 29 percent. But by 2010, the middle class earned just 45 percent of the nation's income, tying a low first reached in 2006, compared to 46 percent for upper-income Americans. 

Since 2000, the median income for America's middle class has fallen from $72,956 to $69,487.Median net worth for the middle class fell 28 percent over the last decade, from $129,000 in 2001 to $93,000, wiping out two decades of gains. Among upper-income families, net worth edged higher from $569,000 to $574,000. Lower-income families saw net worth fall 45 percent to $10,000. 

Roughly 42 percent of middle-class adults say their household's financial situation is worse now than before the recession began, compared to 32 percent who reported they are now better off and 23 percent who said their finances are unchanged. Of those who said they were worse off now, about 51 percent said it will take at least five years to recover, including 8 percent who said they will never recover.

Who's to blame?  By a wide margin, 62 percent say the blame lies with Congress. About 54 percent blame  banks and financial institutions, while 47 percent say large corporations, 44 percent point to the Bush administration, 39 percent cite foreign competition, and 34 percent find fault with the Obama administration. About 8 percent say the middle class itself deserves a lot of the blame.

One area where the middle class was hammered in the past few years was real estate; the dream of home ownership turned into an underwater nightmare. The National Association of Realtors reported today that July sales of existing homes increased to an annual rate of 4.47 million. They say the housing market is constrained by unnecessarily tight lending standards and shrinking inventory supplies. So, it is stabilizing but not close to normal. 

Public pension funds from Arkansas, Ohio, Oregon and Sweden will be lead plaintiffs in a group lawsuit against JPMorgan Chase over trades made by Bruno Iksil, also known as the London Whale. A district judge in New york ruled the lawsuits could be consolidated into a class action. The lead plaintiffs are the Arkansas Teacher Retirement System, Ohio Public Employee Retirement System, School Employees Retirement System of Ohio, State Teachers Retirement System of Ohio, Oregon Public Employee Retirement Fund and a Swedish pension fund. The pension funds allege they lost as much as $52 million because of fraudulent activities by JPMorgan’s London chief investment office, and that they were given false information that hid the nature of the bank's trades.