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Showing posts with label Credit Suisse Bank. Show all posts
Showing posts with label Credit Suisse Bank. Show all posts
Monday, August 20, 2012
Monday, August 20, 2012 - Diminished Expectations
Diminished Expectations
-by Sinclair Noe
DOW – 3 = 13,271
SPX -0.03 = 1418
NAS -0.38 = 3076
10 YR YLD un = 1.81%
OIL - .05 = 97.70
GOLD + 5.40 = 1622.20
SILV +.72 = 28.91
PLAT + 12.00 = 1496.00
Apple already boasts the largest market value of any public company. Today it became the most highly valued public company ever. With an increase in its share price, Apple broke the record for the biggest market capitalization, $616.34 billion, set by Microsoft on Dec. 27, 1999. Of course, shortly thereafter, Y2K hit and destroyed modern civilization as we know it; or maybe it was because Apple invented the iPod and the iPhone and the iPad, and Microsoft gave us Zune. Who knows? Apple’s stock closed at $665.15, giving it a market value of $623.52 billion. Microsoft’s 1999 market value is still far higher than Apple’s when adjusted for inflation. The Microsoft of late 1999 would be worth $850 billion in today’s dollars. To beat Microsoft’s inflation-adjusted market value, Apple needs to close at $910. The Microsoft of August 2012 is worth $257 billion.
I'm not sure what it says about our economy, that Apple is the most valuable company ever, but I suspect it is problematic.
ECB President Mario Draghi is scheduled to speak at this year's Jackson Hole symposium. A fellow named Ben Bernanke is already scheduled to speak at the symposium, and so there has been a little speculation that there might be some coordinated action that will be announced. I'm not sure the ECB has learned the meaning of coordination.
German magazine Der Spiegel said over der weekend that der ECB was considering buying debt issued by member countries if their interest rates became too elevated; the idea is unlimited bond buying to cap interest rates, but a bank spokesman said it was misleading to report on yet-to-be decided matters.
Germany's central bank, the Bundesbank, also on Monday reiterated its opposition to bond purchases, and a spokesman for the German Finance Ministry said it was not aware of any plans for the ECB to target bond spreads. It is a little tricky to figure out exactly what position Germany is taking, but they seem to benefit for the ongoing crisis; Germany is considered a safe haven of sorts. Spain is still a basket case. Technically, Spain can't receive aid until they make a formal request for aid; they haven't requested the aid, but there has been a bailout of the Spanish banks, but nobody knows details. The latest plan calls for banks to transfer their non-performing assets into a newly formed “bad bank” (which seems like a redundant term). At some point,the ECB may throw a bone to Greece, maybe not. In other words; the Euro-crisis seems very uncoordinated.
The European Central Bank will hold their next policy meeting on September 6. The German constitutional court will rule on the legality of the euro zone's new bailout fund on September 12. You may recall, Draghi promised to do whatever it takes to support the Euro-union, yet what can he do before he finds out whether the Germans decide that whatever he is doing is legal or not? Expectations for a successful resolution are greatly diminished.
The next Federal Open Market Committee meeting is scheduled for September 13. We are seeing a situation where the US economy is looking a little better, while the economy of the euro zone continues to deteriorate. This is bullish for the dollar and bearish for the euro currency. There is a slim chance we could see some coordinated action between the Fed and the ECB coming out of Jackson Hole; I doubt it. There is a slim chance that the Fed will take an accommodative move, possibly QE3 during their September FOMC meeting; but I doubt it; more likely, they wait till next year – unless.., Unless the ECB and the Germans are so uncoordinated that they can't come up with some program. Inaction, or a lack of action might be very dangerous for the for the Euro-zone. There is a chance the ECB could screw things up over the next three weeks, forcing the Federal Reserve to take action on the 13th. Just something to keep in mind. The way this is likely to play out is deflationary pressures in various parts of the world, especially Europe, along with a flight to quality buying due to the ongoing economic and political problems in the Euro-zone.
Right now, it looks like the Federal Reserve is fairly satisfied with the idea of 8.3% unemployment and they think that any risk of sustained inflation above 2% per year is unacceptable. The Fed seems to be sanguine in the face of steady job growth in the neighborhood of 150,000 new jobs per month. It is real easy to forget that the economy has been adding jobs, steadily, consistently, for 29 consecutive months. I don't think we've added enough jobs. If you are unemployed, you are certainly not satisfied, but the Fed seems sanguine.
The biggest fear is that the Fed has not set a higher standard for unemployment; it is possible the Fed has set the bar for unemployment and that this will be a self-fulfilling prophecy. Any cyclical decline in the labor force participation rate becomes structural over time as skill loss increasingly excludes those displaced by the depression from reentering the labor force.
There is concern that the bar has been set too low for the economy as a whole. Once the policymakers believe the economy is operating at full-potential rather than recognizing it is operating at far less than potential, then they start behaving like we can't realistically expect more; they set policy and manage the economy for suboptimal results, and that is exactly what we get. The anticipated becomes the expected and it is the self-fulfilling prophecy. We get what we expect; and our expectations are diminished.The cyclical becomes structural.
The Fed has done this, turned the cyclical into the structural in the area of their mandate on price stability; they set a 2% rate of inflation as their target; they did not set a specific, enumerated target for unemployment. The result? We have lingering and high unemployment and we have inflation firmly ensconced below 2%. We have met expectations; the cyclical has become the structural.
Right now, the Fed acts like it is scared of inflation. They might have good reason; we will likely see higher food prices as a result of the drought; we will likely see higher gasoline prices, despite more domestic oil production and despite conservation efforts. There are some outside forces the Fed can't control but those forces will likely revert to the mean over time.
The Fed does control monetary policy and monetary policy still has a huge influence on the economy, on the growth of the economy, on prices we pay in the economy, and on money we earn in the economy. There is an old saying: “don't fight the Fed.” But I wonder if the Fed is still willing to fight, or have they given up? Are they willing to accept the new, suboptimal normal? Are they willing to push the boundaries of 2% inflation? Would Bernanke's head explode if we had 3% inflation? Is it time for the Fed to step on the throttle and see if they can get all cylinders firing? We usually end up with the economy the Fed wants us to get.
I mentioned the inflationary pressures on food prices from the drought. For California, the drought is a problem but a bigger problem is not enough farm workers. Some crops won't get picked this season due to a lack of workers.
Farmers will just leave some crops in the field. The Western Growers Association reports a 20 percent drop in laborers this year. Stronger border controls are keeping workers from crossing into the US illegally, and the current guest worker program is not providing enough bodies. The lack of workers is forcing farmers to pay more. Still, it's not enough to attract local labor.
A UK parliamentary report criticized Barclays ex-Chief Executive Officer Robert Diamond for giving “unforthcoming and highly selective” evidence; the report faulted the bank for letting traders rig interest rates.
The “candor and frankness” of Diamond’s testimony to lawmakers on July 4 “fell well short of the standard that Parliament expects,” the House of Commons Treasury Committee said in a 122-page report today following its inquiry into the bank’s attempts to manipulate the London interbank offered rate.
“The Barclays board has presided over a deeply flawed culture,” the panel of British lawmakers said. “Senior management should have known earlier and acted earlier.”
Barclays was fined $450 million for manipulating Libor. Barclays’ compliance department was told three times about concerns over Libor, yet these warnings weren’t passed on to senior management, the committee said. Compliance at the bank was “persistently ineffective”, and the actions of Barclays and other traders were “disgraceful” and harmed the reputation of the bank and the industry.
You see how this sets up for the senior management to get a slap on the wrist and for some “rogue traders to be severely punished?
Foreign banks dominated a key Federal Reserve bank lending program that ran from 2007 to 2010. According to a paper written by Northwestern University’s Efraim Benmelech, the Fed’s lending tool called the Term Auction Facility, TAF, lent directly to deposit taking banks and was created to circumvent many financial institutions’ reluctance to borrow from the central bank’s traditional source of emergency lending, the Discount Window. The research was published by the National Bureau of Economic Research.
Lending via the TAF was substantial and at its peak represented the largest category on the Fed’s expanding balance sheet, around $500 billion in early 2009 and steadily trailed off as the worst days of the financial crisis passed.
So, what did those foreign banks do with all the money they borrowed from the Fed's TAF, to help keep them afloat?
Federal and state prosecutors are investigating Deutsche Bank and several other global banks over accusations that they funneled billions of dollars through their American branches for Iran, Sudan and other sanctioned nations
The Deutsche Bank investigation is the latest in a series of cases against global firms since 2009 that suggests the practice of transferring money on behalf of Iranian banks and corporations flourished under a loophole in United States policy that ended in 2008.
A spokesman for Deutsche Bank declined to comment, but noted that the German bank decided in 2007 that it would “not engage in new business with counterparties in countries such as Iran, Syria, Sudan and North Korea and to exit existing business to the extent legally possible.”
Since 2009, the Justice Department, the Treasury Department and the Manhattan district attorney’s office, working largely in concert, have brought charges against five foreign banks, contending they moved billions of dollars through their American subsidiaries on behalf of Iran, Cuba and North Korea, sponsors of terrorism and drug cartels.
The five banks all included deferred prosecution agreements and required the banks to forfeit some assets. The banks are: ABN Amro, Barclays, Credit Suisse, Lloyds and ING.
The cases typically have not involved United States banks. Unlike foreign institutions, American banks were prohibited from originating or receiving such transactions from Iran. That enabled them to largely sidestep the conduct that has helped ensnare foreign banks.
Thursday, July 12, 2012
Thursday, July 12, 2012 - Banks Taking Risks, Evading Taxes, Discriminating, Foreclosing, And Yes It Is A depression
Banks Taking Risks, Evading Taxes, Discriminating, Foreclosing, And Yes It Is A depression
-by Sinclair Noe
DOW – 31 = 12,573
SPX – 6 = 1334
NAS – 21 = 2866
10 YR YLD -.02 = 1.48%
OIL - .23 = 85.85
GOLD – 4.40 = 1573.20
SILV +.07 = 27.31
PLAT – 12.00 = 1423.00
After the financial meltdown of 2008, regulators vowed to overhaul supervision of the nation’s largest banks. Last year, the Federal Reserve Bank of New York replaced almost all of its roughly 40 examiners at JPMorgan Chase. The thinking was that the regulators shouldn’t get too cozy with the regulated. They brought in some new regulators. By the time they got up to speed, it was too late.
The New York Fed’s shake-up only aggravated a continuing struggle between JPMorgan executives and regulators from the Office of the Comptroller of the Currency, which supervises banks. For years, the agency, with dozens of its own examiners at JPMorgan, worried that the bank had been miscalculating how much money it could lose in extreme situations.
Examiners challenged the executives; the executives stonewalled. At one point in early 2012, JPMorgan briefly stopped providing examiners with an important risk estimate for the chief investment office, the group at the center of the recent trading losses. Executives told examiners not to worry. For their part, regulators say it is not their job to micromanage or remove risk altogether. Their goal is to protect the financial system broadly.
Around that time, the bank changed the value-at-risk measure for the chief investment office, which they did not disclose publicly for months. The switch would prove important. By changing the metric, the bank could seemingly take on more risk. It all came to a head in May when the bank announced a $2 billion trading loss on a soured credit bet. These are excess customer deposits. Tomorrow, JPMorgan will report second quarter earnings; the loss likely grew from $2 billion to $5 billion, and it might still get worse.
German tax inspectors are raiding the homes of people suspected of using Credit Suisse accounts as illegal tax shelters. The dispute is the latest in widening effort by foreign governments to crack down on tax evasion engineered by Swiss banks.
Wells Fargo says it will pay a total of $175 million to settle Justice Department charges that the company violated fair-lending laws for its role in allegedly steering black and Hispanic borrowers into subprime mortgages. According to the Justice Department, the settlement provides $125 million in compensation for borrowers who the agency alleges were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin, not because of their creditworthiness or other financial risk.
Wells Fargo denied the claims, the company said it would compensate those the government believes were adversely impacted by mortgages priced and sold by independent mortgage brokers through its wholesale channel. The Justice Department also said Wells Fargo will also provide $50 million in direct down payment assistance to borrowers in communities the agency identified as having large numbers of discrimination victims. And this is the part of this that I am truly sick and tired of hearing; the big bad banksters are not required to admit their guilt. Wells Fargo and the CEO and the executives and even the biggest investors like Warren Buffet should be required to go to areas where they discriminated against people, (I've seen judges that forced shoplifters to wear a sign outside the Walmart that says “I'm a shoplifter”) and the banksters should wear a sandwich board sign that says “I am a bigot. I steal from people because of their skin color.” And maybe they should be put on probation and if they violate probation, they should go to jail. (Don't hold your breath.)
I know, you're wondering why I'm going off on Wells Fargo. The Justice Department reached a similar pact with Bank of America in December. In that case, the agency struck a $335 million settlement with BofA over alleged discriminatory lending practices by its Countrywide unit during the build up to the financial crisis of 2008.
Wells Fargo issued a statement saying they're committed to fair and responsible lending for all their customers and they blamed it on independent mortgage brokers and they claim they've stopped funneling loans through the independents. Yea, that's it; it was those guys over there.
Actually, there is nothing to indicate Wells Fargo is full of racists and bigots. They'll steal from anybody; they just got caught stealing from people of color.
California foreclosure starts for June rose 18% from a year ago. That pushed California into the top position in the nation for foreclosures. It was the first time California’s foreclosure rate ranked No. 1 since January 2005.
RealtyTrac reported one housing unit in every 177 in San Bernardino and Riverside counties was in a phase of foreclosure in June. That has kept the two-county Inland area in the No. 3 spot for foreclosure activity across all metropolitan areas. The top two regions were Stockton and Modesto.
Additional scrutiny on how lenders and service providers process foreclosures, plus aggressive foreclosure prevention efforts by federal and state governments, have kept a lid on the foreclosure problem. At the same time foreclosure starts began boiling over in more markets in the first half of the year, particularly in the second quarter.
A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the Fed. Theoretically, the S&P 500 would be more than 50 percent lower if the bullish price action preceding Fed announcements was excluded. The Fed posted this info on their website and it looks at the periods immediately before FOMC announcements on interest rates and monetary policy; and there are spikes in the stock market, and the Fed just wanted to say we would all be burning in hell right now, were it not for their beneficence. PTF, Praise the Fed, and say hallelujah!
What moves the markets? Free money from the Fed. Unfortunately, the old fundamentals like companies that make something and sell it for a profit, that stuff doesn't have much effect on the markets.
I don't know if the Fed can rightly take the credit for stocks moving higher, maybe they did nothing but set up trades for the High Frequency traders. And if the Fed is to take credit, then they should also take the blame for the downturns right? Nope, that's why we have Congress.
For the past four years I've been saying the United States is in a small “d” depression. Every now and then I hear about economists and Nobel Prize winners that agree with me. David Rosenberg, chief economist for Gluskin Sheff, explains why the current economy has analysts so puzzled. The United States economy is not heading into the second dip of a double-dip recession as many economists believe; rather, it is merely at the halfway mark of a full-blown depression.
To support his theory, Rosenberg points to economic statistics that support the inescapable conclusion that not only is the economy in worse shape than anyone wants to admit, but that this recovery will be much longer and more drawn-out than any the country has seen in generations.
For example the current economic downturn has lingered longer than any other since the end of World War II in spite of unprecedented government efforts to generate a rapid recovery. If the prevailing wisdom among economists is correct, this recession is now three years into its recovery. Yet the nation is experiencing less than two percent annual Gross Domestic Product (GDP) growth. Historically, by three years into an economic recovery, the country’s average GDP growth rate has been above five percent.
Rosenberg also cites the lingering softness in the housing market, as well as dismal employment statistics. One of every seven homeowners is currently in default on their mortgages, and many are in the midst of foreclosure. On the employment front, there are five million fewer jobs today than there were in 2007, and the U6 employment figures show an unemployment and underemployment rate of nearly 15 percent. In addition, the government recently released statistics that show that the median net worth of American households dropped an 40 percent from 2007 to 2009.
All these dismal statistics come in the context of the largest effort ever made by any administration in the history of the United States to shore up the nation’s economy. The government’s concerted efforts to create a false bottom for the economic crisis have served only to prolong the agony. In the absence of government intervention, the pain of the recession would have been much greater, but the suffering would have been over much more quickly. As it is, Rosenberg predicts another three years of recovery before the economy returns to the state it was in before the downturn began.
-by Sinclair Noe
DOW – 31 = 12,573
SPX – 6 = 1334
NAS – 21 = 2866
10 YR YLD -.02 = 1.48%
OIL - .23 = 85.85
GOLD – 4.40 = 1573.20
SILV +.07 = 27.31
PLAT – 12.00 = 1423.00
After the financial meltdown of 2008, regulators vowed to overhaul supervision of the nation’s largest banks. Last year, the Federal Reserve Bank of New York replaced almost all of its roughly 40 examiners at JPMorgan Chase. The thinking was that the regulators shouldn’t get too cozy with the regulated. They brought in some new regulators. By the time they got up to speed, it was too late.
The New York Fed’s shake-up only aggravated a continuing struggle between JPMorgan executives and regulators from the Office of the Comptroller of the Currency, which supervises banks. For years, the agency, with dozens of its own examiners at JPMorgan, worried that the bank had been miscalculating how much money it could lose in extreme situations.
Examiners challenged the executives; the executives stonewalled. At one point in early 2012, JPMorgan briefly stopped providing examiners with an important risk estimate for the chief investment office, the group at the center of the recent trading losses. Executives told examiners not to worry. For their part, regulators say it is not their job to micromanage or remove risk altogether. Their goal is to protect the financial system broadly.
Around that time, the bank changed the value-at-risk measure for the chief investment office, which they did not disclose publicly for months. The switch would prove important. By changing the metric, the bank could seemingly take on more risk. It all came to a head in May when the bank announced a $2 billion trading loss on a soured credit bet. These are excess customer deposits. Tomorrow, JPMorgan will report second quarter earnings; the loss likely grew from $2 billion to $5 billion, and it might still get worse.
German tax inspectors are raiding the homes of people suspected of using Credit Suisse accounts as illegal tax shelters. The dispute is the latest in widening effort by foreign governments to crack down on tax evasion engineered by Swiss banks.
Wells Fargo says it will pay a total of $175 million to settle Justice Department charges that the company violated fair-lending laws for its role in allegedly steering black and Hispanic borrowers into subprime mortgages. According to the Justice Department, the settlement provides $125 million in compensation for borrowers who the agency alleges were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin, not because of their creditworthiness or other financial risk.
Wells Fargo denied the claims, the company said it would compensate those the government believes were adversely impacted by mortgages priced and sold by independent mortgage brokers through its wholesale channel. The Justice Department also said Wells Fargo will also provide $50 million in direct down payment assistance to borrowers in communities the agency identified as having large numbers of discrimination victims. And this is the part of this that I am truly sick and tired of hearing; the big bad banksters are not required to admit their guilt. Wells Fargo and the CEO and the executives and even the biggest investors like Warren Buffet should be required to go to areas where they discriminated against people, (I've seen judges that forced shoplifters to wear a sign outside the Walmart that says “I'm a shoplifter”) and the banksters should wear a sandwich board sign that says “I am a bigot. I steal from people because of their skin color.” And maybe they should be put on probation and if they violate probation, they should go to jail. (Don't hold your breath.)
I know, you're wondering why I'm going off on Wells Fargo. The Justice Department reached a similar pact with Bank of America in December. In that case, the agency struck a $335 million settlement with BofA over alleged discriminatory lending practices by its Countrywide unit during the build up to the financial crisis of 2008.
Wells Fargo issued a statement saying they're committed to fair and responsible lending for all their customers and they blamed it on independent mortgage brokers and they claim they've stopped funneling loans through the independents. Yea, that's it; it was those guys over there.
Actually, there is nothing to indicate Wells Fargo is full of racists and bigots. They'll steal from anybody; they just got caught stealing from people of color.
California foreclosure starts for June rose 18% from a year ago. That pushed California into the top position in the nation for foreclosures. It was the first time California’s foreclosure rate ranked No. 1 since January 2005.
RealtyTrac reported one housing unit in every 177 in San Bernardino and Riverside counties was in a phase of foreclosure in June. That has kept the two-county Inland area in the No. 3 spot for foreclosure activity across all metropolitan areas. The top two regions were Stockton and Modesto.
Additional scrutiny on how lenders and service providers process foreclosures, plus aggressive foreclosure prevention efforts by federal and state governments, have kept a lid on the foreclosure problem. At the same time foreclosure starts began boiling over in more markets in the first half of the year, particularly in the second quarter.
A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the Fed. Theoretically, the S&P 500 would be more than 50 percent lower if the bullish price action preceding Fed announcements was excluded. The Fed posted this info on their website and it looks at the periods immediately before FOMC announcements on interest rates and monetary policy; and there are spikes in the stock market, and the Fed just wanted to say we would all be burning in hell right now, were it not for their beneficence. PTF, Praise the Fed, and say hallelujah!
What moves the markets? Free money from the Fed. Unfortunately, the old fundamentals like companies that make something and sell it for a profit, that stuff doesn't have much effect on the markets.
I don't know if the Fed can rightly take the credit for stocks moving higher, maybe they did nothing but set up trades for the High Frequency traders. And if the Fed is to take credit, then they should also take the blame for the downturns right? Nope, that's why we have Congress.
For the past four years I've been saying the United States is in a small “d” depression. Every now and then I hear about economists and Nobel Prize winners that agree with me. David Rosenberg, chief economist for Gluskin Sheff, explains why the current economy has analysts so puzzled. The United States economy is not heading into the second dip of a double-dip recession as many economists believe; rather, it is merely at the halfway mark of a full-blown depression.
To support his theory, Rosenberg points to economic statistics that support the inescapable conclusion that not only is the economy in worse shape than anyone wants to admit, but that this recovery will be much longer and more drawn-out than any the country has seen in generations.
For example the current economic downturn has lingered longer than any other since the end of World War II in spite of unprecedented government efforts to generate a rapid recovery. If the prevailing wisdom among economists is correct, this recession is now three years into its recovery. Yet the nation is experiencing less than two percent annual Gross Domestic Product (GDP) growth. Historically, by three years into an economic recovery, the country’s average GDP growth rate has been above five percent.
Rosenberg also cites the lingering softness in the housing market, as well as dismal employment statistics. One of every seven homeowners is currently in default on their mortgages, and many are in the midst of foreclosure. On the employment front, there are five million fewer jobs today than there were in 2007, and the U6 employment figures show an unemployment and underemployment rate of nearly 15 percent. In addition, the government recently released statistics that show that the median net worth of American households dropped an 40 percent from 2007 to 2009.
All these dismal statistics come in the context of the largest effort ever made by any administration in the history of the United States to shore up the nation’s economy. The government’s concerted efforts to create a false bottom for the economic crisis have served only to prolong the agony. In the absence of government intervention, the pain of the recession would have been much greater, but the suffering would have been over much more quickly. As it is, Rosenberg predicts another three years of recovery before the economy returns to the state it was in before the downturn began.
Thursday, June 21, 2012
Thursday, June 21, 2012 – Like Crack for Bankers – by Sinclair Noe
DOW – 250 = 12,573
SPX – 30 = 1325
NAS – 71 = 2859
10 YR YLD - .02 = 1.62%
OIL – 3.20 = 78.25
GOLD – 41.60 = 1566.20
SILV – 1.24 = 26.98
PLAT – 19.00 = 1445.00
Here is the bottom line on today's declines; Wall Street has become addicted to free money from the Federal Reserve. Stimulus from the Fed is like crack for the Wall Street bankers. Yesterday, the Fed refused to pass out more free money. Today, Wall Street got a bad case of the shakes.
One of the concerns when Bernanke and pals fail to act is that they can't really think of anything they might do that would have any real effect, or maybe they're satisfied with 2% inflation and 8.2% unemployment. So what if Bernanke doesn't have any more ammo?
Then we are left to the devices of fiscal policy, in other words; what can the politicians in Washington do to stimulate the economy? The most likely answer is that the politicians can drive the economy over a cliff. While that might seem cynical, it's really just pragmatic.
And then, of course there is the Lehman Brothers event with subtitles looming in Europe. If Europe collapses, the thinking is that Bernanke will find a few more bullets in the form of QE3, and he will once again toss money at the Wall Street bankers. The Wall Street crack whores will fire up their pipes and place “risk-on” trades with the certainty that the Fed will place a put against any losses. The problem with this scenario is that Wall Street won't be ready to go risk-on in the event of a Euro-collapse, they'll just hoard the money and arbitrage against the Fed.
And the bigger problem is that QE3 won't find its way into the broader economy; at least if past performance is any indicator of future results. QE1&2 were abysmal failures for Main Street. The money never went out into the broader economy and never developed any velocity; Operation Twist might have pushed down long term interest rates but it didn't make it easier to get an actual lower rate on your mortgage – that involved fiscal policy and it has be less than satisfying. the money was sucked into that black hole of bad bankster bets; and the banksters can bet more than Main Street can ever produce.
If you forget your history, you can just refer to the playbook as it is happening right now in Europe. A new audit shows Spain's banks would need $64 to $78 billion in extra capital tow survive a serious downturn in the economy, less than the $125 billion aid package offered by the Euro-zone, but far more than the $$27 billion actually allocated for the ESM bailout fund, which has not yet been funded. Spain said it will make a formal request in the next few days but details on how much each bank will need won't be known until September. The important point here is that the money is not going to the Avenida Central, it doesn't create jobs to alleviate the 25% unemployment rate in Spain; the money goes to the banks, and it disappears. Spanish banks need a $64 to $78 billion dollar bailout – for now. How long do you think it will take before they come back and demand more?
I read recently that the bailout money already sent to Greece is more than the amount Germany received under the Marshall Plan. That's an alarming statement, except Greece didn't receive the bailout money; it went to the banks. They didn't build roads and bridges and factories. And it is wrong to imagine Germany can bail out the Euro. The crisis has engulfed three small countries – Greece, Ireland and Portugal – and is now on its way towards Spain and Italy. France might well be next. These six countries’ public debts amount to 200% of German GDP. With its own debt of 80% of GDP, Germany can't stop the inevitable.
It's important to understand which countries were fiscally reckless. In 2007, Greece and Italy both had high debt to GDP (over 100%), Portugal, France and Germany had debt to GDP of a little more than 60%; Spain was in the 30% range; Ireland in the 20% range. The numbers should prove that the crisis is not a debt crisis but a banking crisis. The Greek bailout was a banking bailout and several of the banks were from France and Germany and even the US.
Here in the United States we bailed out the banks to the tune of hundreds of billions and a couple of rounds of QE and the Twist and we still have big problems. Bernanke claims he still has some ammo left. Maybe he is holding it for a Euro-collapse but while he's waiting the US economy might go over the monetary cliff and he'll figure the only thing to do is another round of QE. Maybe the mistake the banksters really made was to have a pleasant little Wall Street rally to start the month of June; maybe Bernanke, in a flash of probity, didn't feel comfy passing out free money during a rally. Maybe he knows that after QE3 he really is running out of bullets.
Moody’s Investors Service downgraded the debt ratings of 15 major international banks and securities firms after the close of trade. The downgraded banks include: Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, Royal Bank of Canada, Deutsche Bank, BNP Paribas, Credit Suisse, RBS, HSBC, and Barclays. Morgan Stanley and UBS each took a two-notch cut, not as bad as anticipated. Credit Suisse took a three-notch cut. The downgrades may affect derivatives that aren’t centrally cleared, some policies require the counter-party to maintain an A-rating. The downgrades also may hasten obligations to post additional collateral and termination payments. Moody's said: “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities.”In after hours, Morgan Stanley moved higher because the hit could have been worse. Is this the canary in the coalmine? It's hard to imagine the financials don't take a hit.
The global economy is slowing. In China, the preliminary HSBC manufacturing purchasing managers’ index dropped to 48.1, the eight straight month of contraction. In Europe, the flash manufacturing PMI fell to 44.8, the lowest in three years. In the US, the flash manufacturing PMI remained in positive ground at 52.9, but the pace of the expansion in the factory sector slowed from May. The Philadelphia Fed said its manufacturing index plunged to negative 16.6 in June. Sales of existing homes dropped 1.5% in May. Oil prices down below $80 is a clear indication of a slowing economy. The number of Americans who applied for unemployment benefits fell slightly last week but remained at a level indicating virtually no improvement in hiring trends or labor market conditions.
It wasn't total gloomy economic news; the index of leading indicators rose 0.3% in May; the FHFA house price index inched up 0.8%; the data points toward a slowing economy, grinding lower without severe contraction.
There are plenty of reasons we can attribute to today's declines, if you need a motive to deal with the move, pick one and wallow in it. We'll probably grind lower through the summer. There will likely be some rallies, like the first half of June, and there will likely be some nasty falls, like the month of May and today. And there will be the overhanging threat of a global financial meltdown, but most likely it will just be a grind it out summer.
Some people think the US economy has pulled out of the recession and the recovery just isn't robust. Some people think the US economy might be headed for a double dip recession. Some people think we came out of a recession and now we're headed for a depression. I've been telling you for a long time that we have been and continue to be in a depression. We've seen some signs of life but not enough to pull us out of the depression. In a depression, even the good times feel like a grind. Enjoy.
SPX – 30 = 1325
NAS – 71 = 2859
10 YR YLD - .02 = 1.62%
OIL – 3.20 = 78.25
GOLD – 41.60 = 1566.20
SILV – 1.24 = 26.98
PLAT – 19.00 = 1445.00
Here is the bottom line on today's declines; Wall Street has become addicted to free money from the Federal Reserve. Stimulus from the Fed is like crack for the Wall Street bankers. Yesterday, the Fed refused to pass out more free money. Today, Wall Street got a bad case of the shakes.
One of the concerns when Bernanke and pals fail to act is that they can't really think of anything they might do that would have any real effect, or maybe they're satisfied with 2% inflation and 8.2% unemployment. So what if Bernanke doesn't have any more ammo?
Then we are left to the devices of fiscal policy, in other words; what can the politicians in Washington do to stimulate the economy? The most likely answer is that the politicians can drive the economy over a cliff. While that might seem cynical, it's really just pragmatic.
And then, of course there is the Lehman Brothers event with subtitles looming in Europe. If Europe collapses, the thinking is that Bernanke will find a few more bullets in the form of QE3, and he will once again toss money at the Wall Street bankers. The Wall Street crack whores will fire up their pipes and place “risk-on” trades with the certainty that the Fed will place a put against any losses. The problem with this scenario is that Wall Street won't be ready to go risk-on in the event of a Euro-collapse, they'll just hoard the money and arbitrage against the Fed.
And the bigger problem is that QE3 won't find its way into the broader economy; at least if past performance is any indicator of future results. QE1&2 were abysmal failures for Main Street. The money never went out into the broader economy and never developed any velocity; Operation Twist might have pushed down long term interest rates but it didn't make it easier to get an actual lower rate on your mortgage – that involved fiscal policy and it has be less than satisfying. the money was sucked into that black hole of bad bankster bets; and the banksters can bet more than Main Street can ever produce.
If you forget your history, you can just refer to the playbook as it is happening right now in Europe. A new audit shows Spain's banks would need $64 to $78 billion in extra capital tow survive a serious downturn in the economy, less than the $125 billion aid package offered by the Euro-zone, but far more than the $$27 billion actually allocated for the ESM bailout fund, which has not yet been funded. Spain said it will make a formal request in the next few days but details on how much each bank will need won't be known until September. The important point here is that the money is not going to the Avenida Central, it doesn't create jobs to alleviate the 25% unemployment rate in Spain; the money goes to the banks, and it disappears. Spanish banks need a $64 to $78 billion dollar bailout – for now. How long do you think it will take before they come back and demand more?
I read recently that the bailout money already sent to Greece is more than the amount Germany received under the Marshall Plan. That's an alarming statement, except Greece didn't receive the bailout money; it went to the banks. They didn't build roads and bridges and factories. And it is wrong to imagine Germany can bail out the Euro. The crisis has engulfed three small countries – Greece, Ireland and Portugal – and is now on its way towards Spain and Italy. France might well be next. These six countries’ public debts amount to 200% of German GDP. With its own debt of 80% of GDP, Germany can't stop the inevitable.
It's important to understand which countries were fiscally reckless. In 2007, Greece and Italy both had high debt to GDP (over 100%), Portugal, France and Germany had debt to GDP of a little more than 60%; Spain was in the 30% range; Ireland in the 20% range. The numbers should prove that the crisis is not a debt crisis but a banking crisis. The Greek bailout was a banking bailout and several of the banks were from France and Germany and even the US.
Here in the United States we bailed out the banks to the tune of hundreds of billions and a couple of rounds of QE and the Twist and we still have big problems. Bernanke claims he still has some ammo left. Maybe he is holding it for a Euro-collapse but while he's waiting the US economy might go over the monetary cliff and he'll figure the only thing to do is another round of QE. Maybe the mistake the banksters really made was to have a pleasant little Wall Street rally to start the month of June; maybe Bernanke, in a flash of probity, didn't feel comfy passing out free money during a rally. Maybe he knows that after QE3 he really is running out of bullets.
Moody’s Investors Service downgraded the debt ratings of 15 major international banks and securities firms after the close of trade. The downgraded banks include: Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, Royal Bank of Canada, Deutsche Bank, BNP Paribas, Credit Suisse, RBS, HSBC, and Barclays. Morgan Stanley and UBS each took a two-notch cut, not as bad as anticipated. Credit Suisse took a three-notch cut. The downgrades may affect derivatives that aren’t centrally cleared, some policies require the counter-party to maintain an A-rating. The downgrades also may hasten obligations to post additional collateral and termination payments. Moody's said: “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities.”In after hours, Morgan Stanley moved higher because the hit could have been worse. Is this the canary in the coalmine? It's hard to imagine the financials don't take a hit.
The global economy is slowing. In China, the preliminary HSBC manufacturing purchasing managers’ index dropped to 48.1, the eight straight month of contraction. In Europe, the flash manufacturing PMI fell to 44.8, the lowest in three years. In the US, the flash manufacturing PMI remained in positive ground at 52.9, but the pace of the expansion in the factory sector slowed from May. The Philadelphia Fed said its manufacturing index plunged to negative 16.6 in June. Sales of existing homes dropped 1.5% in May. Oil prices down below $80 is a clear indication of a slowing economy. The number of Americans who applied for unemployment benefits fell slightly last week but remained at a level indicating virtually no improvement in hiring trends or labor market conditions.
It wasn't total gloomy economic news; the index of leading indicators rose 0.3% in May; the FHFA house price index inched up 0.8%; the data points toward a slowing economy, grinding lower without severe contraction.
There are plenty of reasons we can attribute to today's declines, if you need a motive to deal with the move, pick one and wallow in it. We'll probably grind lower through the summer. There will likely be some rallies, like the first half of June, and there will likely be some nasty falls, like the month of May and today. And there will be the overhanging threat of a global financial meltdown, but most likely it will just be a grind it out summer.
Some people think the US economy has pulled out of the recession and the recovery just isn't robust. Some people think the US economy might be headed for a double dip recession. Some people think we came out of a recession and now we're headed for a depression. I've been telling you for a long time that we have been and continue to be in a depression. We've seen some signs of life but not enough to pull us out of the depression. In a depression, even the good times feel like a grind. Enjoy.
Friday, June 15, 2012
Friday, June 15, 2012 - Greeks Look for a Bargain - by Sinclair Noe
DOW +115 = 12,767
SPX + 13 = 1342
NAS + 36 = 2872
10 YR YLD -.02 = 1.59%
OIL – 1.11 = 82.80
GOLD + 3.40 = 1627.70
SILV + .10 = 28.84
PLAT – 8.00 = 1490.00
Sunday there will be an election in Greece. I don't know how the election will turn out. I can't find any consensus opinion. There may not be a consensus, even if there is a definitive winner. It appears the extremes are gaining in Europe because centrist parties are offering voters no meaningful choices. Pasok and ND (New Democracy) and Syriza. New Democracy is the old-guard conservative party; Pasok is the old-guard socialist party; Syriza is the new-upstart far left party. Golden Dawn is the new-upstart far right/neo-nazi party but they went to far during a televised debate last week when a spokesman started beating a woman on camera – that went too far and destroyed that fringe element. For Greeks that want to vote against the status quo they have no alternative but to vote for extremists. Right now it looks like New Democracy and Syriza will get the most votes, but not a majority, so they will have to pull together a coalition government, which they failed to do one month ago. But again, the election could swing in any number of unusual ways.
Some common themes from Greek voters is that they feel they are being blackmailed into voting for parties that drove the economy into a ditch and blindly imposed austerity measures. The Euro-zone support for the international institutions basically means support for the current policy, which is a failed policy. Surveys indicate most Greeks want to remain in the Euro-union; they just want to get out from under the austerity and they want a plan to pay back the debt.
Alexis Tsipras is the young leader of the far-left Syriza party. He says: “A Europe without Greece is a disabled Europe, and a Europe without democratic principles has no future,” and he adds: “in the European Union, we are all equals. Greece should not be used as a guinea pig for a failed economic policy.” It sounds reasonable enough; even the New Democracy and Pasok parties are agreeing with the far left; they all agree they want to stay in the Euro-union but they want to renegotiate the bailout terms. Still, all this agreement doesn't mean they will be able to forge a coalition to govern the country.
There is a good chance Syriza will do well in the election. The whole bailout process has been a bit one-sided; the Europeans, especially Germany, has placed its boot on the neck of Greece and that's how they've been doing business for the past year or so. Syriza has promised to bargain and negotiate with the Euro-union for better terms and conditions. The old-guard New Democracy and Pasok are begging and pleading with the Euro-union for better terms and conditions. The difference is Syriza is threatening to draw a line in the sand and try to force a bargain. The voters face a dilemma because there are risks involved either way.
And the question of whether Greece will remain in the Euro-union will likely not be decided by Greeks but by the technocrats; and you couldn't find a more screwed up group than the wing nuts that are in charge right now.
How screwed up is everything? Christine LaGarde is the head of the International Monetary Fund. She has been very critical of the Greeks. She says Greek parents have to take responsibility if their children are being affected by spending cuts. “Parent have to pay their tax.” It is a strange argument. If the parents really had money saved up from not paying taxes, then they should be able to take care of their children with the tax free money. But forget the glaring irrationality of the argument. Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."
Christine LaGarde is not Greek. As the managing director of the IMF, Lagarde receives a salary of $467,940 plus additional allowances of $83,760, plus automatic annual pay raises. As an official of an international institution the compensation package is not subject to any taxes.
Angela Merkel, the German chancellor, declared that Europe was “in a race with the markets” to turn its monetary union into a fully fledged political union. Spanish borrowing costs have jumped to unsustainable levels; Italy tried to assuage credit markets with promises of even more cuts in public spending. The UK introduced a series of measures to insulate the British financial system from the Euro-zone's crisis; apparently the idea is to flood the British banks with about $200 billion in cheap credit to jump-start lending to British businesses. The only question is whether there is any demand. The euro-crisis has sent the cost of bank funding spiraling upwards again, and so despite record low bank rates mortgages and business credit have been hard to find and are likely to cost more when available and credit expansion has not been happening.
More Americans applied for jobless benefits and consumer prices dropped by the most in three years. So we have a couple of economic reports today which might give the Federal Reserve room to juice the economy. Right now the reports don't show growth or inflation. Claims for unemployment insurance payments climbed by 6,000 to 386,000 in the week ended June 9. The cost of living fell 0.3 percent in May, led by the biggest decrease in gasoline prices in three years. Also, the University of Michigan Consumer sentiment index fell this month to the lowest level since December, with gloomier views on current and future conditions. The Federal Reserve FOMC meets next week to determine monetary policy. The FOMC meeting coincides with G-20 and G-7 summits. Basically, the central bankers of the world are standing by, ready to jump in helicopters and throw money at bankers if there is a glitch in, well almost anything; they're just looking for a reason to get in the helicopters.
Average rates on fixed mortgages rose this week, the first increase in seven weeks. But mortgage rates remain near historic lows, boosting prospects for home sales this year. Mortgage buyer Freddie Macsaid Thursday that the average rate on the 30-year loan increased to 3.71%. That’s up from 3.67% last week, the lowest since long-term mortgages began in the 1950s. The average rate on the 15-year mortgage, a popular refinancing option, rose to 2.98%. That’s up from 2.94% last week, also a record low.
On July 1st, Cyprus, the tiny island nation in the Mediterranean, will automatically rotate into the Presidency of the Council of the European Union for a six-month term. Cyrpus is broke. Its economy is shrinking, unemployment is at a record, and real estate is collapsing after a phenomenal bubble and a massive nationwide title-deed scandal that involved widespread collusion among bankers, lawyers, and developers. Cyprus is broke and in desperate straits. What will the European-union do to the Cypriots? What back breaking austerity measures will be imposed? When will the technocrats take over the government? Just what kind of lazy, shiftless, no-good, do-nothing, tax-dodging sinners are these Cypriots anyway?
Unlike Greece, Cyprus will get a bailout without hardly breaking a sweat. The reason? Last December they discovered vast deposits of natural gas off the southern coast, up to 8 trillion cubic feet of gas.
OPEC oil ministers agreed to keep their production target steady. Oil prices have fallen more than 20 percent over the past two months, and a statement from the Organization of the Petroleum Exporting Countries cited “downside risks facing the global economy” and ample stocks of crude as being responsible for the trend. While agreeing to hold the output target steady, however, the statement suggested that OPEC ministers were ready to come together on short notice if prices fell to levels dictating a production cutback. So, they don't seem to be in any rush to push prices higher because the global economy stinks, but they won't let prices drop much from current levels. Look for sideways price action for the next few months.
Opec oil producers are not worried about the shale revolution. They might need to re-run their numbers. The United States imported 4.5 million barrels per day (bpd) of Opec crude last year, 20% of the cartel’s exports and about half the country’s import needs. But thanks to new technologies like hydraulic fracturing now sucking away on North American soil, the continent is already self sufficient in natural gas, and is eyeing an even bigger landmark – Opec-free oil supplies. The US was the fastest-growing non-Opec oil producer in 2011 for the third year in succession. US oil production is up 1 million barrels per day since 2006 to 7.84 million bpd, consumption is down 1.85 million to 18.84 million. Well, maybe OPEC doesn't need to be worried right now but we are heading for energy independence, someday, maybe. It could happen.
Usually the price of oil moves in lockstep with the S&P 500 but there has been a bit of a divergence lately; oil prices have dropped while the S&P has shown some resilience after a decline through the month of May. The question is whether equities will catch oil of vice versa.
This week's tour de force performance was Jamie Dimon before the Senate Banking Committee. Dimon lied about not knowing what risks the CIO was taking. He knew the risks for at least the past two years. He lied about the losses being a “tempest in a teapot”; the losses have been growing and might not be finished yet. He lied about not knowing about the Volker Rule. He lied when said the traders were hedging and not prop trading. As a too big to fail banker, Dimon is part of a club of liars.
In the largest fine ever assessed against a financial institution for violating sanctions on Cuba and Iran, Netherlands-based ING Bank will pay $619 million to the US government. ING agreed to pay the fine for secretly moving more than $2 billion through U.S. financial institutions in 20,000 transactions from the early 1990s to 2007. Cuba, Iran, Syria and Sudan are on the list of countries under sanctions for supporting international terrorism. The half-century old US trade embargo against Cuba also bars Cuban entities from using dollars in their transactions.
The Department of Justice said ING has accepted responsibility for its criminal conduct" and agreed to pay the $619 million as part of a deferred prosecution agreement. The United States has 5% of the world's population; we have 25% of the worldwide world's prison population. If ING is accepting responsibility for criminal conduct, the why isn't somebody in jail? We sent Lindsey Lohan to jail for nearly 3 months because she drank too much. We sent Martha Stewart to jail for more than a year because she lied about selling a few thousand shares of stock. Can't we throw some bankers in jail for a few weeks for blatantly violating US laws governing transactions involving Cuba and Iran, and then using shell companies and other deceptive measures to cover up its criminal conduct?
I don't want it to sound like I'm singling out ING. Credit Suisse Bank paid a $536 million fine to the U.S. government in 2009 to settle allegations of illegal dealings with Cuba, Iran and other sanctioned countries, in 2010 Barclays PLC paid $298 million on account of the same lies, Lloyds Banking Group PLC paid $350 million, while Switzerland's UBS paid another $100 million in 2004 for similar complaints.
SPX + 13 = 1342
NAS + 36 = 2872
10 YR YLD -.02 = 1.59%
OIL – 1.11 = 82.80
GOLD + 3.40 = 1627.70
SILV + .10 = 28.84
PLAT – 8.00 = 1490.00
Sunday there will be an election in Greece. I don't know how the election will turn out. I can't find any consensus opinion. There may not be a consensus, even if there is a definitive winner. It appears the extremes are gaining in Europe because centrist parties are offering voters no meaningful choices. Pasok and ND (New Democracy) and Syriza. New Democracy is the old-guard conservative party; Pasok is the old-guard socialist party; Syriza is the new-upstart far left party. Golden Dawn is the new-upstart far right/neo-nazi party but they went to far during a televised debate last week when a spokesman started beating a woman on camera – that went too far and destroyed that fringe element. For Greeks that want to vote against the status quo they have no alternative but to vote for extremists. Right now it looks like New Democracy and Syriza will get the most votes, but not a majority, so they will have to pull together a coalition government, which they failed to do one month ago. But again, the election could swing in any number of unusual ways.
Some common themes from Greek voters is that they feel they are being blackmailed into voting for parties that drove the economy into a ditch and blindly imposed austerity measures. The Euro-zone support for the international institutions basically means support for the current policy, which is a failed policy. Surveys indicate most Greeks want to remain in the Euro-union; they just want to get out from under the austerity and they want a plan to pay back the debt.
Alexis Tsipras is the young leader of the far-left Syriza party. He says: “A Europe without Greece is a disabled Europe, and a Europe without democratic principles has no future,” and he adds: “in the European Union, we are all equals. Greece should not be used as a guinea pig for a failed economic policy.” It sounds reasonable enough; even the New Democracy and Pasok parties are agreeing with the far left; they all agree they want to stay in the Euro-union but they want to renegotiate the bailout terms. Still, all this agreement doesn't mean they will be able to forge a coalition to govern the country.
There is a good chance Syriza will do well in the election. The whole bailout process has been a bit one-sided; the Europeans, especially Germany, has placed its boot on the neck of Greece and that's how they've been doing business for the past year or so. Syriza has promised to bargain and negotiate with the Euro-union for better terms and conditions. The old-guard New Democracy and Pasok are begging and pleading with the Euro-union for better terms and conditions. The difference is Syriza is threatening to draw a line in the sand and try to force a bargain. The voters face a dilemma because there are risks involved either way.
And the question of whether Greece will remain in the Euro-union will likely not be decided by Greeks but by the technocrats; and you couldn't find a more screwed up group than the wing nuts that are in charge right now.
How screwed up is everything? Christine LaGarde is the head of the International Monetary Fund. She has been very critical of the Greeks. She says Greek parents have to take responsibility if their children are being affected by spending cuts. “Parent have to pay their tax.” It is a strange argument. If the parents really had money saved up from not paying taxes, then they should be able to take care of their children with the tax free money. But forget the glaring irrationality of the argument. Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."
Christine LaGarde is not Greek. As the managing director of the IMF, Lagarde receives a salary of $467,940 plus additional allowances of $83,760, plus automatic annual pay raises. As an official of an international institution the compensation package is not subject to any taxes.
Angela Merkel, the German chancellor, declared that Europe was “in a race with the markets” to turn its monetary union into a fully fledged political union. Spanish borrowing costs have jumped to unsustainable levels; Italy tried to assuage credit markets with promises of even more cuts in public spending. The UK introduced a series of measures to insulate the British financial system from the Euro-zone's crisis; apparently the idea is to flood the British banks with about $200 billion in cheap credit to jump-start lending to British businesses. The only question is whether there is any demand. The euro-crisis has sent the cost of bank funding spiraling upwards again, and so despite record low bank rates mortgages and business credit have been hard to find and are likely to cost more when available and credit expansion has not been happening.
More Americans applied for jobless benefits and consumer prices dropped by the most in three years. So we have a couple of economic reports today which might give the Federal Reserve room to juice the economy. Right now the reports don't show growth or inflation. Claims for unemployment insurance payments climbed by 6,000 to 386,000 in the week ended June 9. The cost of living fell 0.3 percent in May, led by the biggest decrease in gasoline prices in three years. Also, the University of Michigan Consumer sentiment index fell this month to the lowest level since December, with gloomier views on current and future conditions. The Federal Reserve FOMC meets next week to determine monetary policy. The FOMC meeting coincides with G-20 and G-7 summits. Basically, the central bankers of the world are standing by, ready to jump in helicopters and throw money at bankers if there is a glitch in, well almost anything; they're just looking for a reason to get in the helicopters.
Average rates on fixed mortgages rose this week, the first increase in seven weeks. But mortgage rates remain near historic lows, boosting prospects for home sales this year. Mortgage buyer Freddie Macsaid Thursday that the average rate on the 30-year loan increased to 3.71%. That’s up from 3.67% last week, the lowest since long-term mortgages began in the 1950s. The average rate on the 15-year mortgage, a popular refinancing option, rose to 2.98%. That’s up from 2.94% last week, also a record low.
On July 1st, Cyprus, the tiny island nation in the Mediterranean, will automatically rotate into the Presidency of the Council of the European Union for a six-month term. Cyrpus is broke. Its economy is shrinking, unemployment is at a record, and real estate is collapsing after a phenomenal bubble and a massive nationwide title-deed scandal that involved widespread collusion among bankers, lawyers, and developers. Cyprus is broke and in desperate straits. What will the European-union do to the Cypriots? What back breaking austerity measures will be imposed? When will the technocrats take over the government? Just what kind of lazy, shiftless, no-good, do-nothing, tax-dodging sinners are these Cypriots anyway?
Unlike Greece, Cyprus will get a bailout without hardly breaking a sweat. The reason? Last December they discovered vast deposits of natural gas off the southern coast, up to 8 trillion cubic feet of gas.
OPEC oil ministers agreed to keep their production target steady. Oil prices have fallen more than 20 percent over the past two months, and a statement from the Organization of the Petroleum Exporting Countries cited “downside risks facing the global economy” and ample stocks of crude as being responsible for the trend. While agreeing to hold the output target steady, however, the statement suggested that OPEC ministers were ready to come together on short notice if prices fell to levels dictating a production cutback. So, they don't seem to be in any rush to push prices higher because the global economy stinks, but they won't let prices drop much from current levels. Look for sideways price action for the next few months.
Opec oil producers are not worried about the shale revolution. They might need to re-run their numbers. The United States imported 4.5 million barrels per day (bpd) of Opec crude last year, 20% of the cartel’s exports and about half the country’s import needs. But thanks to new technologies like hydraulic fracturing now sucking away on North American soil, the continent is already self sufficient in natural gas, and is eyeing an even bigger landmark – Opec-free oil supplies. The US was the fastest-growing non-Opec oil producer in 2011 for the third year in succession. US oil production is up 1 million barrels per day since 2006 to 7.84 million bpd, consumption is down 1.85 million to 18.84 million. Well, maybe OPEC doesn't need to be worried right now but we are heading for energy independence, someday, maybe. It could happen.
Usually the price of oil moves in lockstep with the S&P 500 but there has been a bit of a divergence lately; oil prices have dropped while the S&P has shown some resilience after a decline through the month of May. The question is whether equities will catch oil of vice versa.
This week's tour de force performance was Jamie Dimon before the Senate Banking Committee. Dimon lied about not knowing what risks the CIO was taking. He knew the risks for at least the past two years. He lied about the losses being a “tempest in a teapot”; the losses have been growing and might not be finished yet. He lied about not knowing about the Volker Rule. He lied when said the traders were hedging and not prop trading. As a too big to fail banker, Dimon is part of a club of liars.
In the largest fine ever assessed against a financial institution for violating sanctions on Cuba and Iran, Netherlands-based ING Bank will pay $619 million to the US government. ING agreed to pay the fine for secretly moving more than $2 billion through U.S. financial institutions in 20,000 transactions from the early 1990s to 2007. Cuba, Iran, Syria and Sudan are on the list of countries under sanctions for supporting international terrorism. The half-century old US trade embargo against Cuba also bars Cuban entities from using dollars in their transactions.
The Department of Justice said ING has accepted responsibility for its criminal conduct" and agreed to pay the $619 million as part of a deferred prosecution agreement. The United States has 5% of the world's population; we have 25% of the worldwide world's prison population. If ING is accepting responsibility for criminal conduct, the why isn't somebody in jail? We sent Lindsey Lohan to jail for nearly 3 months because she drank too much. We sent Martha Stewart to jail for more than a year because she lied about selling a few thousand shares of stock. Can't we throw some bankers in jail for a few weeks for blatantly violating US laws governing transactions involving Cuba and Iran, and then using shell companies and other deceptive measures to cover up its criminal conduct?
I don't want it to sound like I'm singling out ING. Credit Suisse Bank paid a $536 million fine to the U.S. government in 2009 to settle allegations of illegal dealings with Cuba, Iran and other sanctioned countries, in 2010 Barclays PLC paid $298 million on account of the same lies, Lloyds Banking Group PLC paid $350 million, while Switzerland's UBS paid another $100 million in 2004 for similar complaints.
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