Friday, October 11, 2013 - We Have Met the Enemy

We Have Met the Enemy

by Sinclair Noe

DOW + 111 = 15,237
SPX + 10 = 1703
NAS + 31 = 3791
10 YR YLD un = 2.68%
OIL – 1.22 = 101.79
GOLD – 13.20 = 1274.20
SILV - .34 = 21.44

The Nobel Peace Prize was awarded to the OPCW, the Organization for the Prohibition of Chemical Weapons, the international chemical weapons watchdog helping to eliminate the Syrian army's stockpiles of poison gas. Its inspectors have just begun working in the active war zone, and the Norwegian Nobel Committee said it hopes the award offers "strong support" to them as they face arduous and life-threatening tasks.

Overall consumer confidence decreased from 77.5 in September to 75.2 in October, according to the Index of Consumer Sentiment published by Thomson Reuters and the University of Michigan. The economic expectations index in the survey also fell from 67.8 in September to 63.9 for October, reaching the lowest level so far this year as consumers reported less optimism about the course of the economy for the next 12 months.

In what has become an almost daily occurrence, Thursday night brought another poll, this one from NBC and the Murdoch Street Journal, showing that Americans really don't like the politicians.

A recap: Only 24% of Americans had a favorable view of Republicans, the lowest figure in the poll’s multi-year history and four percentage points lower than last month. Another low: only 21% had a favorable view of the tea party. Obama's standing was relatively stable, moving from 45% favorable last month to 47% now, within the poll’s margin of error of 3.5 points. Democrats overall were at 39% positive, with congressional Democrats at 36%. And 70% of Americans said Republicans were putting politics ahead of what was best for the country. A lesser 51% said that about Obama.

The poll also shows  the GOP-Tea Party efforts to defund or delay Obamacare—the demand which directly led to the government shutdown—has brought about a seven point increase in popularity of the law. Immediately prior to the shutdown, only 31 percent of Americans believed Obamacare was a good idea. Today, that number is 38 percent.

To paraphrase Pogo, the GOP has met the enemy, and they are it.

It looks like the politicians might be getting closer to some sort of deal to avoid throwing Treasury bonds into a financial abyss. The idea is to combine a government funding bill (which would end the shutdown) along with a debt-ceiling increase (which would avoid a default) along with a repeal of the medical device tax in Obamacare (which has nothing to do with Obamacare and is just a bone to throw at the GOP). The deal would avert default for 6 weeks, and would demand negotiations on a variety of issues including spending levels, means testing for entitlements, chained CPI for Social Security.

President Barack Obama has been adamant that he will not negotiate over anything while the government is shut down and the debt limit is held hostage. According to a New York Times report, Obama thinks the Republicans are demanding too much, saying “The only thing not on their list is my own resignation.” The paper also reported that Obama told a group of Democrats that “If he gives in now, Republican demands would be endless.” The sides would have to figure out some sort of agreement to get past that obstacle. If the House Republicans don't move fast to cut a deal with themselves that the White House can support, the Senate appears ready to step in and take over.

Something might get done. That's what Wall Street traders were betting on yesterday and today. But the important point is that it hasn't happened yet. Which means that average ordinary citizens need to maintain pressure on the politicians, and there are two ways to do that: get drunk and then drink coffee.

Now you can get drunk and dial up Congress in a very random way and spout something so intelligent that your representative will feel compelled to end the partisan nonsense.

Drunkdialcongress.org connects the disgruntled to the House of Representatives. You can enter your phone number into the website and an inebriated voice from a 1-800 number will call you back and ask, “Is this government shutdown making you want to drink?” before transferring to Capitol Hill so that you can “tell them what’s on your mind and tell them to get back to work.”

The site, created by the mobile ad firm, Revolution Messaging, offers talking points like “I can’t watch the panda!” or “Why don’t you make yourself useful and at least mow the lawn?” For those who need help selecting their form of liquid courage, there are also recipes for drinks like “the bad representative” (three parts liquor, one part lemon juice).

After you sober up, you can go get a coffee at Starbucks and sign a petition begging Washington to end the shutdown. Yea, this isn't such a great idea either. I've always thought there was a problem with Starbucks' semantics: “grande” means medium, “tall” means small, and “magna cum laude” means barista, and “barista” means someone who works slightly less than full-time and therefore does not qualify for corporate health insurance. Plus, I'm not sure if the long term solution that Starbucks CEO Howard Schultz wants is the same solution I want. Plus, the coffee tastes like it's been burned.

It's earnings reporting season and today JPMorgan Chase reported a loss of $380 million. This is the first quarterly loss for JPMorgan under the reign of Jamie Dimon. The loss was connected to legal expenses. Dimon tried to explain that, “While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense.” The financial press picked up on that and the refrain was … leaving regulatory problems aside... JPMorgan would have turned a profit. But it was more than regulatory problems, it was legal problems. Big difference.

Of course that is a problem encountered by illegal enterprises of all stripes; crime doesn't pay; not in the long run. Earlier this year, when Dimon faced a shareholder referendum over his fitness to serve as both chairman and CEO of the legally besieged bank, some big Wall Street names came to his defense with a flawed rationale: the company was booking record profits; who cares about anything else? Maybe it's time to rethink.

Today, I saw Maria Bartiromo on CNBC trying to say the banks had done everything right and we should blame the regulators for not doing their jobs. That debate should be laid to rest. Just because the cops don't stop the crime, it doesn't mean the criminal is innocent.

And even if you get past the multi-billion dollar legal problems, the banks still have another problem. Mortgage production at JPMorgan Chase and Wells Fargo fizzled in the last quarter as fewer borrowers sought to refinance their home loans amid rising interest rates. Wells Fargo felt the most pain from rising rates. The bank reported $1.6 billion in mortgage banking income for the third quarter, a 43 percent drop from the same period one year earlier.  The slowdown reflects a shift in the housing recovery, which has largely been relying on refinance activity. The number of loans eligible for interest rate reductions dropped and interest rates have been higher, and if the Fed tapers, rates will move higher still. And if the politicians can't come up with some sort of deal over the weekend and if we actually see a default, you don't even want to imagine what will happen to rates.

About one week ago, it started to snow in South Dakota, the wind kicked up to 60 mph, and there was more snow; blizzard conditions; five feet of snow in some places. Cattle ranching is big business in South Dakota, about a $5.2 billion dollar industry. When the freak early snowstorm hit, the cattle hadn't yet grown a winter coat; it killed a lot of cattle, maybe 20,000, plus a yet to be determined number of horses, sheep, and other livestock. Losses like this would be enough to cripple many ranchers even in the best of times, especially with the loss of future calves next spring whose would-be mothers were killed, but with the federal Department of Agriculture still shut down, ranchers are cut off from the livestock insurance that would normally keep them afloat following a disaster like this.

The federal Farm Service Agency's livestock indemnity program, which offers compensation for lost livestock. As long as the government stays shut, FSA offices nationwide will be shut too, leaving ranchers without support.  Even before the shutdown, the insurance program was already threatened by delayed passage  of the new farm bill, which allocates money for a wide range of programs including food stamps and farm subsidies and what is basically insurance for farmers. While the shutdown debate rages, the Senate and House are still hashing out the farm bill, leaving the livestock indemnity program in midair.

There are about 8.5 million people in Switzerland, and of that total more than 100,000 have signed a petition which should result in a vote by the Swiss parliament on a modest proposal to provide a basic monthly income of about $2,800 to each adult in the country. The idea is called universal basic income and the basic idea is, no matter what you do, if you’re a resident, or a citizen you get a certain amount of money each month. And it’s completely unconditional: If you’re rich you get it, if you’re poor you get. If you’re a good person you get it, if you’re a bad person you get it. And it does not depend on you doing anything other than making whatever effort is involved to collect the money.

So far, the biggest opposition to universal basic income is from the left. They fear it threatens the existence of the existing social welfare systems there, because it’s very hard to finance both the full set and full range of social welfare institutions that exist already, and side by side to give people $2,800 a month.