Thursday, March 14, 2013

Thursday, March 14, 2013 - Infinite Possibilities

Mark your Calendar, April 5 & 6 and make your reservations for the 2013 Wealth Protection Conference in Tempe, AZ. For conference information visit or click here or call 480-820-5877. This year's conference features Roger Weigand, Nathan Liles, David Smith, Mark Liebovit, Arch Crawford, Ian McAvity, Bill Tatro, and I will speak on Friday. There is an expanded Q&A session with all speakers on Saturday. I hope you can attend.

Infinite Possibilities
by Sinclair Noe

DOW + 83 = 14,539
SPX + 8 = 1563
NAS + 13 = 3258
10 YR YLD + .01 = 2.03%
OIL + .41 = 92.78
GOLD + 2.60 = 1591.30
SILV - .11 = 28.91

March 14 is Pi Day, the official celebration of the mathematical constant pi, the number that represents the ratio of a circle's circumference to its diameter. What makes pi so special? It is an incredibly complex way to describe the simplest shape; a circle.

No matter how large or small the circle, the ratio is always 3.1415926, I could go on forever with the number
because, as an irrational number, pi never ends. Some scientific types have calculated pi to 10 trillion digits, but the numbers of pi are random, with no repeating patterns. So pi has an unknown, infinite quality. It never ends, and since it is really a circle, it has no beginning.

So, today is a day of infinite of infinite possibilities. Case in point.

The Dow posted a record high again. This is the tenth straight day of gains on the Dow. Ten day winning streaks are rare; only happened 25 times in the last 70 years. The all-time longest winning streak is 14 days, set back in 1897, and the longest modern day streak was 13 days in January 1987. Of course, length versus the magnitude of the streak are completely different metrics. The current mini-stampede has only delivered a 2.85% gain, making it the fifth weakest of 25 such moves.

There will be some sort of correction will occur sooner or later. The markets won't go up forever. Ultimately, there is an over-riding point of focus in the market, and that is price. Ultimately the market gets back to price. You can buy or sell at a given price, and if you do it right you have enough money to put a roof over your head and bread on your table.
We know the markets have a seasonal tendency to peak about this time of year; that has been the pattern over the past three years, and four years ago, in 2009, the market bottomed. So what is going to happen now? I wish I knew with certainty. What I do know with a fair amount of reliability is that investors and traders tend to get beaten up when they try to impose their will on the markets.
The next question is invariably: should I buy or sell? And I've told you this and repeat: follow your plan. If you don't have a plan, get a plan.

Because these markets are crazy.

On a day full of infinite possibilities, here's an idea that that's really crazy: break up the nation's largest and most powerful banks. There has been some chatter lately, including the Bloomberg story about how the big banks are essentially subsidized to the tune of $83 billion a year, and there is a report due out from the GAO that is supposed to back up that idea of the subsidy.

We’ll get another one Friday, when Carl Levin’s Senate Permanent Subcommittee on Investigations releases their report, along with the hearing on the London Whale trades. We now hear the losses could stretch to $8 billion. Levin’s committee did an excellent job in prior investigations of Wall Street, including Goldman Sachs (which they gift-wrapped to the Justice Department as a criminal referral, only to see DoJ toss it in the wastebasket).

And there is a new report called “JPM – Out of Control” which is a 45 page report on the problems of JPMorgan Chase, and the problems are almost as infinite as the mathematical constant pi. The report is from an analyst named Josh Rosner of Graham-Fisher & Co. and it includes documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; while “neither admit nor deny wrongdoing”). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”

Obviously this contrasts with Jamie Dimon’s spotless reputation (at least in Washington) and his bold talk of a “fortress balance sheet.” Yet as you read the report, it’s hard to see the bank as anything but a criminal racket just days away from imploding, were it not propped up by implicit bailout guarantees and light-touch regulators. Rosner paints a picture of a corporation saddled with pervasive internal control problems, and he calculates that since 2009, JPM has paid out $8.5 billion in settlements for its outlaw activity, which equals nearly 12% of net income over the same period.

It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here's a quick list:
Bank Secrecy Act violations
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal;
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card bedt collections;
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).
And these are only the ones where the company has entered into settlements or been sanctioned; it doesn’t even include ongoing investigations into things like Libor, illegally concealing inclusions of mortgage-backed securities in employer funds (another ERISA violation), the Fail Whale trades, and especially putback suits for mortgages.

Two case studies stand out. First, JPM is trying to stick the public with losses related to its purchase of Washington Mutual and its related liabilities. JPM wants to shift losses on over $190 billion in MBS onto the FDIC. They hope to get out from under as much as $5 billion in losses in this fashion. It’s impossible to logically follow JPM’s claim that they purchased WaMu but not any of its risk-related activities.

Finally, we have the Fail Whale trade, the subject of the Friday Permanent Subcommittee on Investigations hearing. The case study keys in on JPM’s internal “Task Force” report .It limited the scope of the investigation to late 2011 and 2012, when now-public data clearly shows the problems at the Chief Investment Office going back years earlier, and fully known to senior management at the time. This looks like a clear violation of Sarbanes-Oxley, as top executives annually attested to the accuracy of financial statements now known to be untrue. The Task Force tried to exonerate Jamie Dimon by actually saying in a footnote that he was out of town for a period of time covered by the report.

Do I really think that anything will come of these ever increasing reports that show the banksters are incredibly corrupt? Probably not, but today is pi day; a day of infinite possibilities.

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