Tuesday, April 09, 2013 - Poultice Does Not Cover the Wound

Poultice Does Not Cover the Wound

by Sinclair Noe

DOW + 59 = 14,673
SPX + 5 = 1568
NAS + 15 = 3237
10 YR YLD +.01 = 1.75%
OIL +.60 = 93.96
GOLD + 12.30 = 1586.00
SILV + .68 = 28.08

The Dow Industrials hit a record high close. The S&P 500 was close to a record; not quite.

Yesterday, there was a Statement Issued by the Europe Commission on Portugal. The Statement reads: “The European Commission welcomes that, following the decision of the Portuguese Constitutional Court on the 2013 state budget, the Portuguese Government has confirmed its commitment to the adjustment programme, including its fiscal targets and timeline. Any departure from the programme's objectives, or their re-negotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens.”

Let me clear this up for you; the Portuguese courts ruled that austerity was a bad thing and suggested that the Portuguese governmetn stop with the austerity. By ruling that four government austerity measures, including planned cuts in public-sector pay and state pensions, were in breach of the constitution, the court has blown a 1.3-billion-euro hole in the 2013 budget. It has raised the possibility of another bail-out crisis in southern Europe while the dust is still settling on the rescue of Cyprus’s banks.

Let's look at Portugal:  Portugal is in a recessionary cycle. The economy will shrink by 2.3 per cent this year, more than twice as much as the previous government forecast (and the slowdown of exports to the rest of the eurozone is not helping). The deficit-to-GDP ratio widened from 4.4 per cent in 2011 to 6.4 per cent last year, and is forecast to be 5.5 per cent in 2013. Far above the target of 3 per cent that the government had agreed with the Troika. The budgetary cuts did not boost private spending, and expectations remain gloomy. Portugal has entered a recessionary cycle. People have no reason to believe the future will be any better. So long for the confidence fairy.

For now, the Portuguese government is disregarding the court; and this makes the European Commission very happy. Austerity may be illegal in Portugal, but the government is sticking with it. I'm not quite sure how this is supposed to work in a supposed democracy. And there is no indication that austerity programs are doing anything but destroying the Portuguese economy.

And since this austerity thin has been working so well for parts of Europe, we're giving it a try in the US. Last Friday's jobs report was a big disappointment, but at least it was still showing some gains. The March jobs report was the first since the start of sequestration. It's hard to see any direct connection between those poor job numbers and the sequester. The government has been shedding jobs for years. We are just starting to see the results of sequester, but we are seeing it in bits and pieces; thousands of bits and pieces.

The public schools of Syracuse, New York, will lose over $1 million. The housing authority of Joliet, Illinois, will take a hit of nearly $900,000. Northrop Grumman Information Systems just issued layoff notices to 26 employees at its plant in Lawton, Oklahoma. Unemployment benefits are being cut in Pennsylvania and Utah. Some 1,700 poor families in and around Sacramento, California are likely to lose housing vouchers that pay part of their rents. More than 180 students are likely to be dropped from a Head Start program run by the Cincinnati-Hamilton County (Ohio) Community Action Agency. Two thousand civilian employees at the Army Research Lab in Maryland will be subject to one-day-per-week furloughs starting on April 22, for example, resulting in a 20 percent drop in pay. The Hancock Field Air National Guard Base is furloughing 280 workers.

Over one million federal workers are set to begin unpaid furloughs this month, amounting to pay cuts of anywhere from 20 to 30 percent. Sequestration has also prompted the extension of a pay freeze already in force for federal workers. The cuts will result in the equivalent of 750,000 full-time job losses throughout the economy.

Due to a cut to Medicare reimbursement for expensive chemotherapy drugs, cancer clinics across the country have already begun to turn away thousands of Medicare patients, forcing them to seek treatment at hospitals, which may not be able to accommodate them

The U.S. District Court in Los Angeles announced that it will close its clerk's office for seven Fridays over the next few months. Utah officials said they would limit Friday federal court openings beginning in April. In Nevada and several other districts, federal courts are "going dark" on criminal cases on Fridays, the day that many federal public defenders will be furloughed. No justice on Fridays.

The Federal Aviation Administration has delayed until mid-June the closing of 149 airport control towers, but still plans to go forward with the plan, As the travel industry nears its summer upswing, airlines and hotels are joining other companies in warning about lost revenue due to federal budget cuts that started in March -- and fear they'll lose much more. This week, Delta Air Lines and US Airways Group said reduced last-minute bookings by government workers cut their unit revenue in March, sparking a selloff in airline stocks.

Shares of F5 Networks Inc plunged 18 percent on Friday, after the network equipment maker partly blamed lower government sales for its profit warning - news that also pressured shares of rivals Juniper Networks Inc and Cisco Systems Inc..

It's earnings reporting season. Over the next few days, we'll get reports from a couple of the big banks, including JPMorgan Chase and Wells Fargo. We already know the big banks are likely looking at the best results since 2006. So what are they going to do? They are firing 21,000 workers. Revenue is weak. The business model is changing. Headcounts are being re-aligned. The departures come on top of 320,000 jobs cut by financial companies over the past 5 years. US banks had $141 billion in net income last year, the second-best on record behind the $145 billion total reported for 2006.

It was easy to miss a little story from a few days ago. The Consumer Financial Protection Bureau hit the nation’s four largest mortgage insurers with a total of $15.4 million in fines for “allegedly” paying kickbacks to lenders to steer business their way. There was no admission of wrongdoing.

Back in the summer of 2009, the Inspector General of the Department of Housing and Urban Development handed the Justice Department evidence that laid bare a scheme by lenders, including: Citigroup, Wells Fargo, Countrywide, and so on, to get kickbacks from mortgage insurers for making borrowers who had to buy mortgage insurance, purchase coverage from those companies kicking back profits to lenders.

One estimate of the amount of kickbacks is $6 billion. But the Big Four insurers were only fined a total of $15.4 million. Genworth Financial and AIG’s United Guaranty unit each paid $4.5 million. MGIC Investment Corp. paid $2.65 million, and Radian Group paid $3.75 million. Of course, nobody is actually guilty; nobody will ever go to jail; nobody has to stop doing what they do.

The Federal Reserve and the Office of the Comptroller of the Currency are starting to mail out checks as part of a multi-billion dollar settlement with banks over mortgage foreclosure abuses. The banks were forced to conduct their own review of abuses. The banks hired consultants who worked for the banks and according to the consultants, the banks did abuse homeowners, but they claim they didn't do too much. Of course, the consultants were supposed to review millions of foreclosed loans but that would have taken a long time and been a whole lot of work, so they just reviewed some of the files. Good enough for the regulators.

This round of self-revealed abusive behavior will cost the banks $3.6 billion. The first checks will go to members of the military, about 1,082 service members who were foreclosed on illegally by the banks. Under the settlement, each borrower will receive about $125,000, the largest amount of relief. Most homeowners who will see checks, will see checks for $300 dollars or less. I'm sure that makes everything better. If you seek forgiveness, the poultice must cover the wound.