Thursday, November 14, 2013 - These are the Days of Milk and Cookies or, If You Prefer, Wine and Neurosis

These are the Days of Milk and Cookies or, If You Prefer, Wine and Neurosis

by Sinclair Noe

DOW + 54 = 15,876
SPX + 8 = 1790
NAS + 7 = 3972
10 YR YLD - .03 = 2.69%
OIL + .08 = 93.96
GOLD + 5.00 = 1288.30
SILV + .13 = 20.85

More record highs for the Dow and the S&P 500. Celebrate with your beverage of choice.

You will likely hear a bunch of stupidity with regard to Janet Yellen as she works her way through the confirmation process. Today, she delivered prepared remarks to a Senate Committee. She did not surprise and she did not disappoint. Yellen is dovish; we knew that. She believes in monetary stimulus; we knew that. She believes in regulations to prevent a repeat of past mistakes; we knew that.

She is probably the most qualified Fed Chair nominee ever. A little bit of background: Economics degree from Brown University; Phd. From Yale; taught at Harvard, the London School of Economics, and UC Berkeley; Fed Governor from 1994 to 97; San Francisco Fed president in 2004; vice chair of the Fed since 2010; a member of multiple economic councils and committees, including the Council of Economic Advisors, CBO, MIT, etc, etc; married to Nobel Prize winning economist George Akerlof, considered more accurate than her Fed peers in foreseeing the housing crisis and the financial downturn.

Indeed, Yellen was “one of the only top Fed policy makers who warned about the housing bubble before the crisis.” - (NYTimes) and “identified the impending threats that both the housing bubble and the shadow banking sector posed to our entire economy.” (WaPo). So, as Fed economists go, she was a very good prognosticator, head and shoulders above her peers. While Bernanke and Greenspan were completely clueless, Yellen was concerned, though somewhat sanguine. She did not scream bloody murder, and some people would rant that she was inaccurate due to her lack of urgency, while a more correct assessment might be that she was calm and considered.

Yellen's appointment seems to be a foregone conclusion. And that means more QE, no rush to taper, possibly some new forms of stimulus, although I wouldn't expect anything overly avante garde. She is a New Keynesian in economic philosophy; we knew that.

And the markets seem to like the idea of more free money from the Fed. The economy is bad and needs fixing and the markets hit record highs. You can celebrate with cookies and milk, or perhaps wine and neurosis would be more appropriate.

President Obama held a press conference today and the overriding topic was Obamacare; he announced new rules that will let insurance companies keep people on health care plans that would not have been allowed under the Affordable Care Act. The changes should allow most people to retain their health care plans for a year despite having received letters saying they could no longer keep their insurance. House Speaker Boehner said that he was skeptical of the president’s plan, and that the new law needed to be overturned. A spokesperson for the insurance industry reaffirmed that they are in the premium collection business, not the claims payment business.

Wikileaks released on Wednesday what it called the draft text of a secretly negotiated international economic treaty that critics warn could limit Internet freedoms.

The document-leaking organization published a draft of the Intellectual Property Rights chapter for the Trans-Pacific Partnership (TPP), a proposed free-trade agreement between the US and 11 Pacific Rim nations that's been under negotiation for nearly three years. However, because the Obama administration has deemed the talks to be classified information, this is the first time the public is seeing the details; specifically the 95 page chapter on intellectual property, patents, copyrights, internet access and usage, pharmaceuticals, software, and the like.

The released chapter shows the United States working to aid drug-makers and medical device manufacturers largely by limiting the opportunities for other countries to ignore those patents in the interest of public health and cheaper medicines. Copyright is a key part of this draft. And the negotiators would further stiffen copyright holders' control while upping the ante on civil and criminal penalties for infringers.

The chapter shows that the United States is seeking to limit the ability of countries to claim “public health” reasons to ignore patent rights by restricting those exceptions to epidemics and disallowing diseases such as cancer. The United States is also pushing to ease drug-makers’ ability to obtain patents overseas and in developing countries and to extend the duration of those patents beyond 20 years.

Regarding the TPP effect on internet operations, the International Bussiness Times summarized: Each Party shall provide that authors, performers, and producers of phonograms have the right to authorize or prohibit all reproductions of their works, performances, and phonograms, in any manner or form, permanent or temporary (including temporary storage in electronic form).

Yeah, good luck with that one. The idea is to obligate internet service providers to act as copyright police. If a website posts material improperly, the site owner and the host are obligated to remove it as soon as the publisher is notified. The idea is that if the publisher does not promptly comply, a sharply worded letter to the webhost will get the entire site taken down. 

ISPs are extremely low margin businesses. Forcing high-cost monitoring on them would lead them to increase their staffing considerably. The resulting hosting increases would force the closure of most small independent sites. The increased oversight of ordinary users (they’d be required to monitor ongoing communications for piracy, which sounds like an NSA wet dream) would also likely lead to higher access charges for consumers.

Wikileaks claims that: “If instituted, the TPP’s IP regime would trample over individual rights and free expression, as well as ride roughshod over the intellectual and creative commons. If you read, write, publish, think, listen, dance, sing or invent; if you farm or consume food; if you’re ill now or might one day be ill, the TPP has you in its crosshairs.”

Right now the TPP is on Fast Track authorization status, meaning Congress and citizens have almost zero input.

US District Judge for Southern New York Jed Rakoff has released a scathing letter condemning the Department of Justice for not holding individuals accountable for Wall Street’s financial wrongdoing. Rakoff is known for sending a couple of settlements back to the SEC and the DOJ and saying essentially, the prosecutors were overly lenient in working out a settlement; grow a spine and try again.Instead, as he noted in his letter released on Tuesday, the Justice Department has shifted in the past several years to prosecute companies instead of individuals for wrongdoing. "The failure of the government to bring to justice those responsible for such a massive fraud speaks greatly to weaknesses in our prosecutorial system that need to be addressed," Rakoff said.

While a few companies have been prosecuted for the 2007-2009 financial crisis, most have resulted in settlements with no admission or denial of wrongdoing, and no top Wall Street executive has been held to account yet. As the statute of limitations for most of the criminal violations is about to pass, nothing can be done to prosecute any suspected executives once it expires.

A word of friendly advice for the holiday shopping season, do not pay full retail for anything. There will be discounts galore; so, pause, take a deep breath and look for a lower price, you will find a lower price. How can we be sure? Well today WalMart posted third quarter earnings that topped estimates by a penny per share, but it was because of an aggressive share buyback program; there were fewer shares outstanding. Revenue and same store sales were down, and guidance for the fourth quarter was cut by 10 cents per share.