Monday, June 17, 2013 - Preaching, Practicing, and Doing

Preaching, Practicing, and Doing

by Sinclair Noe

DOW + 109 = 15,179
SPX + 12 = 1639
NAS + 28 = 3452
10 YR YLD + .05 = 2.17%
OIL + .07 = 97.92
GOLD – 6.80 = 1385.70
SILV - .24 = 21.94

President Obama is in Northern Ireland today, part of a three-day European tour that includes a G-8 summit meeting. Maybe we could call this the “Practice what I preach, not what I practice Tour”. Obama kicked off the tour with a speech in Belfast to celebrate Northern Ireland's peace process; later he'll talk with Euro leaders, including Russian President Putin about lifting a European arms embargo to arm Syrian rebels.

The G-8 summit generally deals with economic issues, and tops on the list will be tax evasion. The Brits, lead by David Cameron and George Osborne will pressure for a comprehensive deal to include developing countries while preventing developed countries from trying to water down proposals. The two big ideas include having the beneficial ownership of offshore accounts made public and then having the G-8 countries commit to a global agreement on exchange of tax information that developing countries can join. The concern for poorer countries is that the G8 will deliver a "gold standard" for itself but offer a less satisfactory agreement for poor countries, which lose three times as much in tax evasion as they gain from aid.

The Syrian conflict might actually be a positive for pushing through a deal on tax havens. It is unlikely there will be an agreement on Syria, and so the G-8 might push through something on tax evasion to be seen as having accomplished something. Of course, a deal on tax evasion is not a good bet. The issue is much more prominent in Euro-land, where multinational companies like Google and Apple and Starbucks have been playing the system and stiffing taxpayers. The mega corporations tend to stiff US taxpayers as well, but we haven't raised a ruckus about it. In Euro-land, it's a hot topic. Don't be surprised if the G-8 does little more than agree to discuss it in the future.

There will also be talk about a transatlantic trade deal between the European Union and the US, but then there has been talk about a deal for years. The US and the EU already trade about $1 trillion a year in goods and services and invest another $4 trillion in each others economies, and most of that is already free of tariffs; a trade deal would look to eliminate the rest. As you might suspect, there are multiple industries that want to protect their turf.

Then there is the idea of how to stimulate economic growth. A couple of months ago, Treasury Secretary Jack Lew talked to Euro-leaders and urged them to avoid austerity. Last week, the International Monetary Fund said an excessively rapid and ill-designed deficit reduction plan had hampered a tepid recovery in the US economy. Against that backdrop, the Federal Reserve FOMC is meeting this week in Washington.

The time is nearing for the Federal Reserve to scale back its program of Quantitative Easing to support the economy, which involves buying $85 billion in bonds each month. It's clear that QE can't go on forever, but divisions remain over when it will start tapering its bond purchases. At some point there will be an exit, and the Fed will almost certainly provide plenty of warning, well in advance of any exit.

The central bank’s Federal Open Market Committee will meet on Tuesday and Wednesday, and issue a statement at the conclusion on Wednesday, followed shortly after by a news conference by the Fed chairman, Ben Bernanke.

How does the Fed announce an exit of QE, while the President is in Europe urging the G-8 to avoid austerity? It will be a balancing act that involves a fair bit of shaming the Congress for failure to deliver fiscal policy, combined with a fair bit of cheer leading for the strength of the US economy. A positive economic assessment from the Fed might also serve as a gift wrapped present for the remainder of the G-8, who appear to be in a race to drop the value of their currencies.

The Fed's primary challenge is to drive home the idea that while the economy may be improving, there is still uncertainty surrounding the bond-buying outlook. Central bankers also need to repeat what they’ve been saying in speeches: Smaller bond buying won’t represent a tightening in monetary policy, just a reduction in the amount of stimulus the Fed is delivering. It’s a crucial point, and how they deliver the message will determine, in part, how the bond market responds. So, it is now widely anticipated that the Fed will fine tune it's monetary policy this week. Or they might not do anything. Stay tuned.

The Supreme Court announced a couple of rulings this morning.

First, the court struck down an Arizona law that required people registering to vore in federal elections to show proof of citizenship. In a 7-2 vote, the court, in an opinion written by conservative Justice Antonin Scalia, ruled the voter registration provision of the 2004 state law was trumped by a federal law, the 1993 National Voter Registration Act.

The other decision announced today says federal regulators can sue drug companies for antitrust violations when brand-name drug makers pay generic competitors to keep cheaper, rival copies of a drug off the market.

In a decision that shifts the balance of power in the drug business, manufacturers will now have to defend the agreements against charges that they violate anticompetition laws, perhaps exposing the companies to a greater likelihood of aggressive competition from generic drugs and to lawsuits from drug retailers and wholesalers, insurers and others. Consumers also could benefit from sharply lower drug costs.

The court did not address whether the agreements, called pay-for-delay or reverse payments, were presumptively unlawful. But it laid out a number of possibilities under which the contracts could be attacked by antitrust officials.

The case pitted a company’s constitutional right to protect its intellectual property, through reliance on a patent that excludes competitors, against antitrust law, which holds that a company cannot unfairly exclude others from legitimately entering a business with a rival product.

According to affidavits filed in a Massachusetts lawsuit against Bank of America, the bank routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure.

In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.  They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier "in-house" loans and paying bonuses to employees based on the number of new foreclosures they initiated. 

Five big banks-including Bank of America-settled a sweeping complaint with 49 states and several federal regulators about their foreclosure and loan modification practices. 

Bank of America agreed to abide by HAMP program guidelines, which require it to modify loans for qualified buyers, when it accepted $25 billion in bailout funds from the government in 2008 following the housing collapse. In return for the financial lifeline, the bank agreed to help millions of struggling homeowners by rewriting mortgages with more affordable terms. As an added incentive, the government agreed to pay a cash bonus for every loan that was modified successfully. But, according to the former employees, while the bank was lying to borrowers, it was also falsifying its performance when reporting to the government the number of loans that had been modified. 

Later this week, a monitor assigned to track the bank's practices will issue a report that's expected to cite ongoing violations of those new rules.

What does it take to get people off the couch? Who knows? We don't seem to protest much in the US anymore. It's common elsewhere around the world. The BBC reports more than 1,000 public protests per month in Egypt so far this year. A few hundred marched in Hong Kong shouting  “Shame on NSA! Defend freedom of speech!” They carried signs written in Chinese and English and wrapped in plastic to keep out the rain. “Protect Snowden!” In Indonesia at least 4,000 people took to the streets today to protest the governments plan to raise the subsidized price of fuel. Tens of thousands of people held a rally near Malaysia’s capital against alleged electoral fraud. Around 7,500 people participated in anti-nuclear protests in Tokyo. Yemeni security officials say thousands have protested in the capital against “excesses” by security forces, calling for the overthrow of the president and national security apparatus. Greeks set up an encampment outside th state broadcaster, Hellenic Radio and Television, after it was shut down by the Prime Minister. Some 15,000 people protested in Bulgaria yesterday about the appointment of a new national security chief. More than 3,000 Chinese villagers have maintained a 24-hour silent vigil for the past 12 days over a coal mine, which they say has devastated the ground near their homes, swallowed up a road, and left cracks in their houses. Thousands of Canadians marched in downtown Montreal on Saturday to protest changes in employment insurance. Portuguese teachers are on nationwide strike, right during final exams. And thousands of Brazilians protested increased bus and subway fares in Sao Paulo and Rio de Janeiro. Those protests have been going on for ten days, and police have been firing tear gas canisters and rubber bullets at the crowds.

The world is an edgy place these days.