Thursday, September 20, 2012 - QE3 to 5.5, Bad Banks, Bad Politicians

QE3 to 5.5, Bad Banks, Bad Politicians

by Sinclair Noe

DOW + 18 = 13,596
SPX – 0.79 = 1460
NAS -6.66 = 3175
10 YR YLD unch = 1.78%
OIL + .51 = 92.93
GOLD – 1.20 – 1769.50
SILV - +.07 = 34.74
PLAT – 16.00 = 1633.00

So, we know the Federal Reserve has committed to buy mortgage-backed securities at the rate of $40 billion a month until the employment picture gets better; that's the plan behind QE3 to infinite and beyond. So, when will they stop? Narayana Kocherlakota, president of the Federal Reserve Bank of Minnesota, gave the answer in a speech today. Kocherlakota says that as long as inflation isn’t a problem the Fed should keep its foot all the way on the gas pedal until unemployment drops from its current 8.1 percent down to 5.5 percent. Koacherlakota is not the ultimate decision maker for the Fed, but now we have a target. Why did it take so long?

An interesting graph today from the Department of Labor showed the fastest growing industries for new jobs over the next 10 year; the top 4 are Services for elderly, Home health care services, offices of mental health, and masonry contractors.

Bank of America has a plan to cut back on expenses by $ 8 billion dollars in annual savings by 2015. How can they possibly find that much in savings? By firing 16,000 by the end of the year, and more than 30,000 total. See how that works? Bank of America keeps the unemployment rate high and they are guaranteed low interest rates and MBS purchases from the Fed.

The Fed released its Flow of Funds report today. Household mortgage debt has declined by almost $1 trillion following the housing bust. Most of the decline is not because people were paying down their mortgages but rather because they were defaulting. Five years ago, a few of the analysts at different banks tried to estimate how bad the losses from the subprime-mortgage meltdown might be. An analyst at Merrill Lynch estimated $500 billion. An analyst at Barclays estimated losses of $700 billion; the newspapers described that as a bloodbath that would top the GDP's of all but 15 nations. We're at $1 trillion in losses and counting.

American households accumulated debt at the fastest rate in the second quarter in more than four years, and total domestic debt grew at the quickest rate in 3 1/2 years. Household debt grew at a seasonally adjusted annual rate of 1.2% in the second quarter, marking only the second increase in 17 quarters. Mortgage debt fell 2.1% in the second quarter and has shrunk in 16 out of the 17 quarters. Consumer credit by contrast grew 6.2%, driven both by student debt (lots of people going back to school to learn masonry contracting) and by auto loans to fund American car purchases.

At the same time, corporate stockpiles of cash fell slightly to $1.73 trillion from $1.75 trillion. State and local government debt rose for the first time since the fourth quarter of 2010. Federal government debt meanwhile shot up 10.9%; which nonetheless was the slowest pace of growth since the second quarter of 2011. Total domestic debt - which includes household, business and government debt - grew 5% to $39.06 trillion, or roughly 2.5 times the size of the U.S. economy.

The Justice Department recently asked several banks to sign “tolling” agreements, in which the companies promise they won’t challenge any enforcement action on the grounds that the alleged wrongdoing occurred beyond the statute of limitations. The requests were sent to all the major banks under investigation, including Citigroup, Deutsche Bank, JPMorgan, RBS, and UBS.

According to a group of international securities regulators, the same lack of oversight that enabled traders to manipulate the London interbank offered rate plagues other benchmarks around the globe. Less than half of the benchmark interest rates surveyed in the US, Europe and Asia were based on actual transactions. Instead, the rates were calculated by methodologies that were unclear, not transparent and only rarely subject to specific regulatory standards or obligations. In other words, people make them up as it suits them.

Spain and Italy are bracing for downgrades. Debt investors are positioning for potential fallout in the countries' $250 billion corporate debt markets. Even with the prospect of aid from the European Central Bank, Spain and Italy could still face credit downgrades. The main focus is on Spain and Moody’s has said it may cut Spain to junk status, a move that would likely be followed by a cascade of cuts of its banks and several companies to junk. Such a move would likely trigger a wave of selling from investors who can only own bonds with investment-grade ratings. Some ratings-sensitive investors are selling ahead of the move. Others are getting ready to buy.

Ireland has already been down the road that Spain and Italy are now on. Ireland has tried to raise money in the markets to avoid a debt restructuring. Lots of austerity has failed to kick-start the economy. The head of European economics for Citigroup says “Ireland faces an almost impossible task to get back to fiscal balance,” and that visits to the country showed “life is tough, very tough and not getting that much better anytime soon.”

The Federal Energy Regulatory Commission has accused J.P. Morgan Ventures Energy Corp. of misleading regulators and said its authority to sell electricity might be suspended. The agency is investigating JPMorgan’s power trading in California and the Midwest. That investigation came to light when FERC went to court seeking internal e-mails from JPMorgan, saying the bids from the company might have resulted in at least $73 million in improper payments to generators.

The latest Reuters/Ipsos poll shows Obama leads Romney among likely voters by a margin of 48 percent to 43 percent; that is outside the margin of error. Other polls over the past couple of days have indicated similar results. A Pew Research Center poll showed Obama ahead of Romney 51% to 43% among likely voters. That's the biggest margin in a September survey prior to a presidential election since Clinton led Dole in 1996. Obama led Romney by double-digit margins on a range of personal attributes, from likability to whether he will protect American jobs to whether he appears presidential. Romney only led on the question of whether he was a "man of faith," by 43 percent to 34 percent. Obama's lead hasn't changed much over the past week, rather Romney has slipped. Other polling shows Obama with similar leads in key states of Virginia, Florida, and Ohio. It's still a long way to the election.

Senate Republicans prevented a veterans' jobs bill from coming to a vote yesterday by forcing a budget point of order vote. Democrats came up 2 votes short of the 60 needed to defeat the GOP's budget measure.

The Veterans Jobs Corps bill - which is part of President Obama's push to secure jobs for veterans, would have provided $1 billion over five years to hire 20,000 young veterans for public lands jobs and prioritize vets for first responder jobs such as police, firefighter, or EMT. The measure would have also provided young vets access to the infrastructure with which to assist in job searches, such as access to computers, internet and career services advisers.

The Iraq and Afghanistan Veterans of America, a vets group that supported the legislation, called the failure "a huge disappointment," adding, "Today, politics won over helping vets."

While only five Republicans voted with the Democrats to waive the GOP budget point of order measure, Sen. Tom Coburn (R-OK) led the GOP opposition. He said, "When we find ourselves in $16 trillion of debt and we pay for a five-year bill over 10 years, we make the problem worse.” Senator Coburn is an asshole of the first order, willing to put partisan politics ahead of his sacred duty. We have a debt to the men and women of the armed forces, and that debt is far greater than any other debt this country may incur. War costs money but that is the cheapest thing it costs. And it is a national disgrace that these damned rat bastards voted against the veterans.