Friday, September 13, 2013 - Five Years After

Five Years After

by Sinclair Noe

DOW + 75 = 15,376
SPX + 4 = 1687
NAS + 6 = 3722
10 YR YLD - .02 = 2.88%
OIL - .39 = 108.21
GOLD + 6.90 = 1328.90
SILV + .53 = 22.37

The war hasn't started..., yet.

That's good. Peace talks continued in Geneva today. Secretary of State John Kerry and Russian foreign minister Sergei Lavrov, and somehow at the peace table was Henry Kissinger, or maybe that was just an apparition; the ghost of Salvador Allende; nope, it was Henry.

Anyway, no cruise missiles flying, no poison gas bombs exploding. It's a good day. The road to peace is full of potholes, and one of the biggest obstacles is the time to round up the poison gas in Syria and get rid of it, against the backdrop of a fast moving kaleidoscope of warring factions. Even in a tranquil setting, the disposal of poison gas is apparently a momentous task, but Assad has signed the Chemical Weapons Convention treaty to get rid of the poison gas.

When the convention came into force in 1997, participating countries agreed to destroy their stockpiles within 10 years, with an option to apply for a five-year extension. Five countries - the US, Russia, South Korea, India and Albania - all missed the main 2007 deadline. Two years ago, the United States, Russia and Libya were granted further extensions to a previously agreed final deadline for destroying their weapons. There is probably some gas in Libya that isn't fully accounted for.

However, the majority of declared, undestroyed chemical weapons remain in Russia and the US. The US has destroyed 90% of the chemical weapons it declared in 1993, when the treaty was first signed. We still have more than 3,100 tons of poison gas stored in Colorado and Kentucky, and the best guess is that it will take 10 more years to dispose of it.

So, this whole peace process could change in many, many ways before there is a resolution on chemical weapons. But the war hasn't started..., yet.

With Congress momentarily freed from the Syrian crisis, lawmakers plunged back into their bitter fiscal standoff as Speaker John Boehner appealed to the Obama administration and Democratic leaders to help him resolve divisions in the Republican ranks that could lead to a government shutdown by month’s end. OK, let's make sure you actually heard that; Boehner is appealing to Obama to keep Republicans under control. In response, Obama suffered minor shock, started smoking cigarettes again, and decided to prop up a cardboard cutout of Henry Kissinger between Boehner and Ted Cruz. The reason for the discontent goes back to Obamacare, which survived the 41^st vote to defund it in Congress.

Against that backdrop, much of the federal government will shut down as of Oct. 1 unless Congress approves new spending bills to replace expiring ones, and by mid-October, the Treasury Department will lose the borrowing authority to finance the government and pay its debts. Just five scheduled legislative days stand between the House and a government shutdown that has loomed for months. As of now, Republican leaders appear to have no idea how to stop it. House members are preparing for the worst. A 14-page fact sheet on the impact of a government shutdown, originally written in 2011 by Representative Scott Rigell, Republican of Virginia, has gone back into circulation among House members.

Now, it shouldn't happen, but the closer the deadline, the more probable the bad outcome; this is after all, Congress.

The Federal Reserve FOMC meets next week and they will likely consider two steps that seem inconsitstent. They will probably lower their estimates for growth for this year and next for the third consecutive time. Simultaneously, they are forecast to start scaling back the $85 billion in monthly bond purchases they have been relying on to stoke the recovery.

What’s more, annual inflation has been running at least a half percentage point below the Fed’s goal since December. And while the unemployment rate is at 7.3 percent in August and falling, that’s mainly because some Americans are leaving the labor force.

So, the growth forecast is being lowered, inflation is running low, and hiring is slowing and the Fed is expected to announce a taper away from QE. This is going to be fun to watch.

So, it's a good day, even if it is Friday the 13^th. I don't think I'm superstitious, but the Associated Press reports on a Finnair Airlines flight to Helsinki today; the airline's three letter designation for Helsinki is HEL, and it is flight number AY666. Yea, I don't think so.

It was smooth sailing on Wall Street today. The Dow gained about 3% this week; the best week since early January. This marks the fifth anniversary of the collapse of Lehman Brothers. The American Enterprise Institute, a conservative think tank that typically defends big business, published a survey and they concluded: The persistent lack of trust in Wall Street five years after the crash suggests that many Americans have deep misgivings about the operations of the financial sector. The consensus is that many of these firms are not ethical or concerned about the well-being of the country.

An NBC poll asked how much people were personally affected by the crises on Wall Street and in the housing market over the past five years, 52 percent said "some" or "a great deal," while 47 percent said "only a little" or "not at all." That reflects a slight cooling of concerns expressed in the middle of the crisis, when 59 percent said some or a great deal and just 41 percent said only a little or not at all.

I didn't need a survey for that.

Reuters notes that no top executives at large Wall Street or commercial banks have been convicted of criminal charges relating to the 2008 crisis. They try to explain why, but they failed to mention that the bankers bought Congress and the courts. Despite costly state rescues in Spain, mainstream politicians have shied away from calling for investigations into various failures and that may result in blowback. Frustrations over the slow progress of legal probes in Spain is even leading some activist groups to consider lobbying the United Nations to list economic crimes as a crime against humanity. True that, but it won't happen.

It's not that federal government tried to prosecute a bunch of them but lost the cases. There were no serious efforts at criminal prosecutions at all. U.S. Attorney General Eric Holder offered one explanation earlier this year, saying: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” (In a later hearing, he said that his comment was misconstrued and that he was arguing that no bank is in fact too big to jail.)

America doesn’t criminalize bad business decisions, even when they lead to business failure. But there is a long list of criminal activity documented over the past five years, and a long trail of evidence that could be used in court; still no cases. And it really proves the two-tiered nature of justice; the courts have become a place of special privileges for the select few.

Five years later; after a big dip, corporate profits have roared back to a record high as a share of GDP in 2013. In the five years since Lehman fell, corporate profits have risen at an annualized rate of 20.1 percent. (Those are profits after taxes, by the way.)

The top 1 percent of earners got hit hard by the financial crisis, seeing their incomes drop 36 percent. But they've more or less recovered since, with incomes rising roughly 31 percent. 

The median household income in July was $52,113. That's 6.2 percent lower than the median in September 2008, the start of the financial crisis. And there hasn't been much growth since 2011. That jibes with research from economist Emmanuel Saez, which notes that incomes of the bottom 99 percent have fallen 12 percent in the downturn and have grown just 0.4 percent in the recovery.

Labor's share of the national income has fallen to record lows. All sorts of theories have been put forward for this trend. High unemployment has held wages down since the recovery. But there are also long-term trends at work, too. Outsourcing and labor-saving technologies have allowed companies to boost profits while cutting payroll. U.S. productivity gains don't seem to be translating into higher wages the way they used to. And for people who lost a job, and have been unemployed more than 26 weeks, it is nearly impossible to get back in the workforce.

There are still 7.1 million American homeowners who are underwater on their mortgage — that is, they owe more than their home is worth. This number has started to come down for the first time this year as home prices rise nationwide, but that was after years of little progress. In Nevada, 36 percent of homeowners still have negative equity.