Tuesday, March 11, 2014 - The Next Wave

The Next Wave

by Sinclair Noe

DOW – 67 = 16,351
SPX – 9 = 1867
NAS– 27 = 4307
10 YR YLD - .02 = 2.76%
OIL – 1.60 = 99.52
GOLD + 9.70 = 1350.50
SILV + .05 = 20.99

Stocks were higher for most of the day, with the S&P 500 looking at record territory. Prices dropped as the session wore on. Copper futures slid as much as 3 percent to the lowest level since July 2010 as signs of slowing economic growth in China sparked concern demand will slump. (We told you about that yesterday.)

Yesterday we marked the 5 year anniversary of the bull market and the 14 year anniversary of the bear market. Today, we remember the date 3 years ago, when the ground shook and a wave washed over the eastern shore of Japan. The Fukushima Daiichi nuclear plant, which exploded and underwent three core meltdowns, continues to spew radiation into the air and sea. Decommissioning is expected to take decades. Another earthquake could send radioactive fuel rods into another meltdown. There are still questions about whether to re-start other nuclear facilities in Japan that were idled following the disaster at Fukushima. Demonstrators have been marching by the thousands in Tokyo to mark the anniversary and to protest against nukes. Perhaps the most troubling thing is after three years there is no full explanation on what went wrong at Fukushima, and how to avoid a recurrence.

The situation in Ukraine remains on the verge of a meltdown. Diplomatic talks continue but there is no breakthrough. The US continues to look to sanctions to apply pressure; maybe it will have an effect, maybe not. Ukraine says Russia has almost 19,000 soldiers in Crimea, which holds a referendum on March 16 on whether to secede. Ukraine is trying to gather 20,000 troops to defend its border, or its new border. The European Union told Russia it must switch course in Crimea by next week or risk more sanctions as Ukraine’s deposed president warned of a possible civil war.

Keep in mind that when you hear news reports on Ukraine, the back story is about oil. In industrial civilization, the nation that controls the oil is king. Russia has a lot of oil and natural gas but to get it to market they have built a network of pipelines through Ukraine. The Eurozone relies on Russian nat gas to stay warm. The United States has ramped up oil and gas exploration like crazy; it’s supposed to launch a renaissance in American manufacturing, or it could just make a boatload of money for big oil companies, if they can put the nat gas in tankers and ship it over to Europe.

Remember the war in Iraq was about oil. We were told that Iraqi oil  would pay for the war; not yet. Alan Greenspan told at least one truth in his life: "I hate to have to admit what everybody knows. Iraq is about oil." Today, we can say that Ukraine is certainly about oil and nat gas, but it’s not just oil and gas. The 100 largest arms producers and military services contractors recorded $395 billion in arms sales in 2012. And military spending was down in 2012.

The problem is not just Ukraine; there were street protests in Turkey today after a 15-year old boy died; he had been in a coma after being hit in the head by a tear gas canister fired by police at a street demonstration almost 9 months ago. Don’t forget the problems in Thailand, Venezuela, Argentina, Egypt, Bulgaria, and of course Syria; and that’s just a partial list. Consider the massive, ongoing street protests, strikes and acts of civil disobedience in Spain, Portugal, Italy, Greece, and the Netherlands by the angry, austerity ravaged citizens fueled by near daily doses of political scandals and corruption.

The world’s youth are the fuel behind the protests; that’s what happens when unemployment gets too high; young people lose jobs or can’t get jobs; they are restless and distrustful and very energetic. Around the globe, growing class warfare is showing itself in a backlash against oppressive political power and a global economic system that is clearly rigged; everything is rigged. Part of the problem with a rigged system, is it has a tendency to spiral out of control. Today’s case in point, the CIA.

Senator Diane Feinstein today accused the CIA of spying on Congress. Feinstein, chairwoman of the Senate Intelligence Committee, said the CIA searched the panel's computers to find out how staff obtained an internal agency review of Bush-era interrogation and detention program that was more critical of the interrogation program than the official CIA report. CIA Director John Brennan denied the allegations. Feinstein also referred openly to recent attempts by the CIA to remove documents from the network detailing evidence of torture that would incriminate intelligence officers. She also alleged that anonymous CIA officials were effectively conducting a smear campaign in the media to discredit and “intimidate” Senate staff by suggesting they had hacked into the agency’s computers to obtain a separate, critical internal report on the torture practices.

Feinstein said the document, which has become known as the Panetta Review after then-director of the CIA Leon Panetta, was first discovered by committee staff using CIA-provided search tools in 2010. It became particularly relevant later, after the committee completed a 6,300-page report in December 2012, and the CIA sent its official response in June 2013. The committee's detailed report is still classified, but it is known to be highly critical of both the CIA's role in the torture regime and its campaign to deceive Congress about it.

Based on the CIA's extensive record of removal and destruction of evidence, which Feinstein detailed in her floor speech, committee staff decided "there was a need to preserve and protect" a copy of the review, which meant bringing it back from the CIA-leased offices in Virginia where staff had been forced to conduct their investigation to secure facilities in a Senate office building. Feinstein said in January of this year, John Brennan, the current director of the CIA, informed her that CIA personnel had conducted a search of the committee's computers in the Virginia facility, including the standalone network that contained the committee staff's own internal work product and communication.

Besides the constitutional implications, the CIA search may also have violated the Fourth Amendment, the Computer Fraud and Abuse Act, as well as Executive Order 12333, which prohibits the CIA from conducting domestic searches or surveillance.

Welcome to America. It’s bad news to hear that Congress is being hacked by the CIA, but hey, most regular citizens have come to realize the government is hacking everything we do online. That’s what big data is all about. Maybe you should call your Congressional representative and tell them welcome to America.

Send a check first; if you actually want to talk to your representative, that is.

Remember back in 2010, when the Supreme Court opened the door, hell they flung the gates wide open on big spending by outside groups, rejecting the argument that such unlimited contributions by corporations and other entities would tilt the political system away from average citizens. In his opinion for the majority, Justice Anthony Kennedy agreed with the view that "independent expenditures do not lead to, or create the appearance of, quid pro quo corruption. In fact, there is only scant evidence that independent expenditures even ingratiate."

Yeah, right. Well a couple of grad students finally put Citizens United to the test. And this might shock you, but they found that money truly does equal access. Their study found campaign donors are more likely than regular constituents to get meetings with lawmakers or high-ranking officials.

Another new study reveals why the Federal Reserve was totally unprepared for the financial crisis of 2008. The study says the Fed's policy committee is made up almost entirely of economists who study the world one piece of data at a time, cranking each piece into models that they think will magically predict how the economy is going to perform. They are unable to look beyond the data to see how seemingly disparate pieces of evidence might fit together into a bigger picture.

The study finds that policymakers dismissed worst case scenarios and basically stuck with conventional wisdom. The study authors wrote: "The relevant markets were not a product of the relevant models; to the contrary, there was a complete disjuncture between market and model, each seemingly operating according to its own logic."

And the study suggests the Fed might want to bring on some non-economists as policymakers, somebody who could rock the boat a little. But the study finishes on a slightly pessimistic or realistic note: “Not surprisingly, since the events of 2008, nothing has changed on the FOMC. The next time such a complex unraveling begins to occur, one can expect the same result."

What we do know is there will be another earthquake, there will be another bear market; we know that there will be more wars over oil; we know that spies spy on us and if they spy on us, they are likely to spy on Congress; we know that politicians have their hands out and they take bribes and they call it campaign contributions, and that bribery buys favors; we know that economics requires coming down from your ivy covered tower and actually getting your hands dirty from time to time to see how regular people live in a world that does not fit neatly on a spreadsheet. We know there will be another tsunami, we just don’t know when or where, and we don’t know how bad the fallout will be.

Friday, October 25, 2013 - New Records on Bad News

New Records on Bad News

by Sinclair Noe

DOW + 61 = 15,570
SPX + 7 = 1759
NAS + 14 = 3943
10 YR YLD - .02 = 2.51%
OIL + .79 = 97.90
GOLD + 5.60 = 1353.90
SILV - .13 = 22.70

The S&P 500 closed at a record high. The Nasdaq Composite closed at a 13 year high. The Russell 2000 hit a record high intraday, but closed slightly down on the day. The Dow Industrial Average did not hit a high; maybe next week, but not today, and so no milk and cookies.

For the week, the Dow was up 1.1%, the S&P up 0.9%, the Nasdaq up 0.7%. Based on results so far and estimates for companies still to report, S&P 500 earnings are expected to have risen just 3.4 percent in the third quarter, with 69 percent of companies reporting earnings above analysts' expectations. Revenue growth is seen at 2.2 percent for the quarter, with just 54.2 percent beating sales estimates, below the long-term average of 61 percent.

Consumer sentiment dropped in October to its lowest level since the end of last year. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment fell to 73.2 in October from 77.5 in September and was the lowest final reading since December 2012. This report covered the time when the government shutdown. Consumer confidence is often linked to consumer spending expectations, and so there is some concern this report might foretell a weak holiday spending season.

Meanwhile capital goods orders were weak in September. Excluding orders for aircraft, orders dropped 1.1%. This report covers data prior to the shutdown. It's estimated the shutdown will shave as much as 0.6 percentage point off annualized fourth-quarter gross domestic product through reduced government output and damage to both consumer and business confidence. And even before the impasse, the pace of hiring by US employers had slowed sharply in September, as we learned earlier this week in the delayed jobs report.

This shutdown and threat of another coming in January are clearly going to change how people act and feel. Government employees and contractors (and other creditors) have been presented with a realistic scenario of not being paid either for a period of time, or even never being paid. Behavior will change in response to this newly found recognition of a vulnerability. The partial bounce back may even be muted by social security recipients realizing that they may one day find their checks delayed (and need to have a cash reserve to deal with that).

The single biggest impediment to a stronger economic recovery has been the years of dysfunction in Washington and the policies that have emerged. S&P estimates the shutdown will cost the economy $24 billion, but that's just the shutdown. Most substantively, the sharp decline in the budget deficit, from $1.4 trillion in 2009 to $642 billion in the 2013 fiscal year that ended Sept. 30, has braked the economy at a time when it was already improving only slowly.

Federal spending has been declining for 2 straight years and the Congressional Budget Office calculates that the pullback in spending, together with higher taxes will cause the economy to grow by 1.5 percentage points less this year than it would have if the deficit had remained constant, that’s the equivalent of 1.5 million fewer jobs.

So, we have bad economic news and expectations for a weak 4^th quarter and the stock market at record highs, because on Wall Street, bad news is good news. The weak economy means the Federal Reserve is not going to taper, or cut back on it's quantitative easing program of buying $85 billion a month in securities.

Right now the potential costs of withdrawing even a little bit of monetary support from the economy appear much greater than they were. For proponents of asset purchases, the cost-versus-efficacy calculation that figures into their votes each meeting is now chiefly about assessing the impact of slowing purchases, rather than of continuing them. The Fed holds its next FOMC meeting next week, and it looks like there will be about zero chance of a change in QE. The window to make changes in the bond buying program is now closed, and likely closed for quite some time.

Yesterday I addressed at length (click here) the Federal Reserve's proposals to have banks increase capital reserves, which is a positive though incomplete effort to avoid future bailouts. That process of increasing reserves would be phased in beginning in January 2015, and that taper could produce a shortage of high-quality assets. So, the pigs on Wall Street gorge at the Fed's Free Money trough, and push equities to new highs; and if it all sounds irrational and a tad exuberant, well it is; but the market can be irrational at times and brutal at others.

White House officials say the have submitted the paperwork necessary to confirm Janet Yellen as the next head of the Federal Reserve. Yellen will meet Senators next week as part of the process to install her as the next head of the central bank.

Yellen is expected to secure the 51 Senate votes needed to confirm her position. However, the hearings are expected to be contentious. Several Republican Senators have already indicated that they will oppose Yellen's nomination. Kentucky Senator Rand Paul is threatening to block the nomination to get a vote on his Fed transparency bill, which would require the Fed to undergo a complete audit by a specific deadline. 

Today, JPMorgan Chase announced it has reached a $5.1 billion settlement with the US Federal Housing Finance Agency (FHFA) over charges it misled mortgage giants Fannie Mae and Freddie Mac during the housing boom. A separate settlement with the US Justice Department is expected to be announced soon, that's the proposed $13 billion deal. It is the biggest settlement ever by a US bank. In a statement JP Morgan said the settlement resolves the biggest case against the firm relating to mortgage-backed securities.

The bank added that the agreement relates to "approximately $33.8 billion of securities purchased by Fannie Mae and Freddie Mac from JP Morgan, Bear Stearns and Washington Mutual" from 2005 – 2007. As part of the agreement with the FHFA, the bank will pay $4 billion to Fannie Mae and Freddie Mac to settle claims that it violated US securities law.

It will pay the agencies an additional $1.1 billion for misrepresenting the quality of single-family mortgages.JP Morgan has set aside a total of $23 billion to help the bank work through its many investigations by regulators in the US and abroad.

Last month, the bank agreed to pay more than $1bn to help it end various investigations into its 2012 "London whale" trading debacle, which cost the bank more than $6 billion in trading losses.

It's estimated that JPMorgan has now paid out more than $31 billion in fines and legal costs since 2009. The settlement announced today is the biggest settlement ever by a US bank. Now, what seems really crazy is that you have these massive fines and legal costs, and you still have apologists for Jamie Dimon to stay on as the chief at JPM. Either JPMorgan is incapable of turning a profit without violating the law, or they have squandered an enormous amount of profits by violating the law.

Meanwhile, kudos to Bill Black for recognizing a bit of media legerdemain, specifically, this one sentence which describes this week's jury verdict against Bank of America for the Hustle scam: “Bank of America, one of the nation’s largest banks, was found liable on Wednesday of having sold defective mortgages, a jury decision that will be seen as a victory for the government in its aggressive effort to hold banks accountable for their role in the housing crisis.”

I'm still waiting for aggressive efforts to hold banks accountable.

An earthquake of magnitude 7.3 struck early Saturday morning off Japan's east coast, the U.S. Geological Survey said. Japan's emergency agencies declared a tsunami warning for the region that includes the crippled Fukushima nuclear site. Japan's Meteorological Agency issued a 3-foot tsunami warning for a long stretch of Japan's northeastern coast, which isn't really much more than a swell.

There were no immediate reports of damage on land. Tokyo Electric order workers near the Fukushima nuclear plant to move to higher ground but there were no reports of trouble at the plant. All but two of Japan's 50 reactors have been offline since the March 2011 magnitude-9.0 earthquake and ensuing tsunami triggered multiple meltdowns and massive radiation leaks at the Fukushima Dai-ichi nuclear power plant, about 160 miles northeast of Tokyo. About 19,000 people were killed.

The Fukushima plant has been leaking radioactive water into the ground and into the ocean, and there are concerns about the stability of the damaged buildings holding radioactive fuel rods. So, something like an earthquake could easily damage the buildings, resulting in a meltdown 85 times larger than Chernobyl. But the good news is that did not happen; not today.

Wednesday, August 07, 2013 - A Crack in QE

A Crack in QE

by Sinclair Noe

DOW – 48 = 15,470
SPX – 6 = 1690
NAS – 11 = 3654
10 YR YLD - .04 = 2.60%
OIL – 1.12 = 104.18
GOLD + 4.70 = 1288.30
SILV + .11 = 19.69

Remember back in late May when Ben Bernanke hinted that the Fed might not continue Quantitative Easing forever; there might actually be a time when the Fed stopped pouring $85 billion into mortgage backed securities and Treasuries. The stock market took a hit on the whim of a whisper of a hint that the punchbowl might be removed. Bernanke did some backtracking, and the markets rebounded to hit record highs on the Dow and the S&P, and we all enjoyed milk and cookies.

This week, we've seen several Fed officials talking about QE again, and again the markets are pulling back; down for three days. On Monday, it was Dallas Fed Bank President Richard Fisher; yesterday it was Charles Evans, president of the Chicago Fed Bank, and Dennis Lockhart, President of the Atlanta Fed Bank.

Today, Federal Reserve Bank of Cleveland President Sandra Pianalto said that the central bank would be prepared to scale back asset purchases if the labor market remains on the stronger path followed since last fall. Pianalto said that there have been "clearer signs of a more sustained recovery" in the labor market in the last few months. "In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases." She did not provide any timetable for Fed action.

Taper talk, markets down. It is becoming so predictable that it even has it's own little name, a “taper tantrum”.

Over the past two months, the 10-year Treasury yield has climbed from around 1.75% to 2.75%. Consequently, mortgage rates have jumped nearly 100 basis points as well. Investors are rightfully concerned and asking how this will impact the economy and their portfolios.

And it certainly appears the Fed is playing the markets like a violin. The ongoing tapering talk is deliberate and designed to accomplish two things: one, establish a new trading range for rates and observe the markets and economic reaction to the rise in rates, and two, begin getting investors numb to the talk of tapering and rising rates so that when it does finally occur, the reaction will be muted.

The reaction is indeed muted. President Obama is going around talking about how we need to do things to improve the economy and regulate to avoid another crisis because there will be no more bailouts. But wait a minute. Remember back in 2008 when the Federal Reserve and the Treasury got together to cough up $80 billion in cash and $65 billion in loan guarantees to keep insurance giant AIG alive. What an outrage!

So, here we are, the Fed has gone through QE 1 at a cost of about $700 billion, QE2 at a cost of about $1.2 trillion, and QE 3 at a cost of $85 billion per month and counting. If you want to see where the stock market is headed, just look at the Fed's balance sheet, which is also hitting record highs; just don't call it a bailout.

Well, even the Fed understands that massive bailouts can't continue forever, even if you don't call it a bailout. Problem is, the stock market is hooked on QE, just like a junkie looking for a fix. And so we have Federal Reserve officials making the rounds, calmly reminding Wall Street that they need to step away from the crack pipe.

By the way, the President’s plan was to get Fannie Mae and Freddie Mac on the hook for mortgages, without government backing up everything. He talked about a bunch of rules and guidelines that need to be established that are actually critical to getting credit flowing to creditworthy borrowers that are shut out of the system by confusion and nervousness among lenders about how these rules will turn out.

Take "put-backs," for example. When banks originate a mortgage loan, they then typically sell it to a secondary buyer, which these days means Fannie or Freddie. But if something is wrong with the documentation, the appraisal, or the underwriting procedure of the loan, the current holder of the security can insist the bank take it back in a forced repurchase.

These put-backs have become a lot more common in recent years, as we've learned that the banks had a habit of putting bad things in the documentation. One problem is that there's a real lack of clarity as to what constitutes a "put-back-able" offense, and that's led nervous lenders to lend only to those with the pristine credit scores. Getting the regulators to fix this should be quick work. Loan are going to be more standardized, and if you can check all the boxes, it should be easier.

We know the world economic pattern we have been used to in years past–world population grows, resource usage grows (including energy resources), and debt increases. The economy grows fast enough that paying an interest rate a little higher than the inflation rate “works” for both lenders and borrowers. Borrowers are able to handle the required interest rate, because their wages are rising fast enough to buy homes and cars at prevailing interest rates. Unemployment is not too much of a problem because jobs grow with population and resource usage. Governments do fairly well, too, because they can tax the growing wages of the population sufficiently to get enough taxes to pay the benefits they have promised to constituents.

This model “works” fairly well, as long as the economy is growing fast enough–population continues to grow and resource extraction continues to grow as planned. In a finite world, we know that this model cannot work forever. At some point, we can expect to start reaching limits.

What do these limits look like?  I would argue that in the case of resource extraction, these limits look like increasingly high cost of extraction. We need to extract resources from increasingly deep locations, in increasingly out-of-the way places, using increasingly more energy intensive techniques. For a while, improved technology is sufficient to keep costs down, but eventually the cost of extraction begins to rise. 

When the cost of extraction begins to rise, it is as if we are pouring more manpower and more resources of many types (steel, fracking fluid, jet fuel, electricity, diesel fuel) into a deep pit, never to be used again. When we put more resources in, we get the same amount of resource out, or even less than in the past. If we want to continue to increase the amount we extract, we have to further increase the quantity of resources used in extraction. Obviously, if we put more manpower and other resources into this pit, we have less for other purposes.

A recent example of resources hitting limits is oil. World oil prices started increasing about 2004. If the sales price of oil rises, to what extent will this increase adversely affect the economic growth oil importing economies? While the cost of oil extraction is expected to continue to rise, can the sales price of oil really increase to match this higher extraction cost? If oil price can’t rise because of affordability issues (low salary growth, low growth in debt, or cutbacks in government transfer payments), then there is likely to be a crisis of a different kind.

Agencies such as the International Energy Agency use projected GDP growth in estimating future demand for energy products, including oil. Growth in oil usage would also be expected to mirror GDP growth, but at a slightly lower rate of increase than growth of energy use in general. This is the case because oil is the most expensive of the major energy products. Consequently, there is a strong incentive to switch to cheaper energy products or to increase efficiency. 

So, as we look at the Federal Reserve, and which way they are blowing on the issue of QE, keep in mind oil prices.

This is the 68^th anniversary of the nuclear age. August 6, 1945 the US dropped the bomb on Hiroshima. The news came in the form of a little more than 1,000 word press release. The first few sentences of the statement set the tone: “Sixteen hours ago an American airplane dropped one bomb on Hiroshima, an important Japanese Army base. That bomb had more power than 20,000 tons of TNT.…The Japanese began the war from the air at Pearl Harbor. They have been repaid many fold…. It is an atomic bomb. It is a harnessing of the basic power of the universe.”

One thing the press release did not talk about was the long lasting consequences of radiation.

In 2011, Japan was hit by an earthquake and tsunami which resulted in massive damage, including a nuclear energy plant. Now, Japan's nuclear watchdog says the crippled Fukushima nuclear plant is facing a new emergency caused by a build-up of radioactive groundwater. The Nuclear Regulatory Authority warns that a barrier built to contain the water has already been breached. This means the amount of contaminated water seeping into the Pacific Ocean could accelerate rapidly. It's not a surprise; there have been multiple water leaks at the plant. Its operator, Tokyo Electric Power Company (Tepco), has been criticised heavily for its lack of transparency over the leaks.

Tepco admitted for the first time last month that radioactive groundwater had breached an underground barrier and been leaking into the sea, but said it was taking steps to prevent it. However, the head of a Nuclear Regulatory Authority task force, says the countermeasures were only a temporary solution, and the situation is now considered an “emergency”.

JPMorgan Chase announced today that it is being investigated by civil and criminal divisions of the Department of Justice over offerings of mortgage-backed securities. The civil division gave the company a notice in May that it had preliminarily concluded that the firm violated federal securities laws in offerings of subprime and Alt-A residential mortgage securities during 2005 to 2007. The company made the disclosures in a quarterly filing with the Securities and Exchange Commission. The criminal side is apparently new, and long overdue. Interesting that they get a notice of the investigation.

Meanwhile, we told you about how Goldman Sachs has a subsidiary which warehouses aluminum in Detroit. And Goldman has been hoarding the aluminum, creating supply imbalances to drive up prices, and then trading on the information. The lawsuits are starting to fly. Last week, Goldman and the LME were named as defendants in a Detroit lawsuit. Today, a new lawsuit filed by Florida-based aluminium user Master Screens and an individual plaintiff, expands the geography and number of companies being sued: Glencore Xstrata and JPMorgan Chase are also named. The Florida lawsuit alleges "manipulation of the aluminium market through supply price fixing," among other practices, and is seeking class action status. 

Friday, July 26, 2013 - Notes from the Favela

Notes from the Favela

by Sinclair Noe

DOW + 3 = 15,558
SPX + 1 = 1691
NAS + 7 = 3613

10 YR YLD - .01 = 2.56%
OIL - .82 = 104.67
GOLD - .30 = 1334.80
SILV - .26 = 20.09

Earlier in the week, the Dow and S&P hit record highs but the markets slipped; earlier today the Dow was down 150 points. For the week, the Dow rose 0.1 percent, the S&P 500 was flat (even as it hit a record) and the Nasdaq rose 0.7 percent.

It's Friday, and I have a bunch of notes and scraps that have been piling up, so we'll clean the desk, in no particular order.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment climbed to 85.1 from 84.1 in June, topping expectations for 84. It was the highest level since July 2007 and was also an improvement from July's initial reading of 83.9. Of course, if you paid a premium subscription, you could have had that information before the rest of the market.

Yesterday, I mentioned former Fed Chairman Paul Volker's remark that the only real financial innovation in the past 20 years was the ATM, which is actually about 30 years old now. And Volker wasn't quite right; the banks haven't done any real innovation but the hackers have. For nearly a decade, a band of cybercriminals rampaged through the servers of a global business who's who: Among the victims were 7-Eleven, Dow Jones, Nasdaq, JetBlue and JC Penney. Prosecutors say the hackers stole "conservatively" 160 million credit card numbers, and the dollar value of the crimes they helped facilitate is enormous; just four of the victims are out $300 million. The prosecutors say it's the largest data heist case ever and the suffering caused to identity theft victims was "immeasurable".

On Thursday, five of the gang's members were indicted. One is in custody in the US, a second is awaiting extradition in the Netherlands, and three more are still at large. Maybe if the banks paid more attention to providing a safe place to store money and a safe way to facilitate digital transactions, and if they spent less time trying to trade derivatives; maybe there could have been some financial innovation that actually was innovative.

The Federal Housing Finance Agency says the Swiss bank UBS has reached a settlement and will pay $415 million to the government-sponsored housing enterprises Fannie Mae and $470 million to Freddie Mac to resolve claims of misrepresenting the quality of collateral backing securities sold to Fannie and Freddie between 2004 and 2007.

The bank has already paid out $612 million to settle allegations of manipulating interest rates. UBS is now the third bank to settle with the FHFA after Citigroup and General Electric did so for undisclosed sums. UBS is just one of 18 banks the FHFA pursued in 2011 for allegedly lying about the quality of the collateral backing securities; essentially packaging subprime loans and selling them as a better quality.

 Home Affordable Modification Program or HAMP has been something of a disappointment nearly from its inception. After loudly touting the program’s ability to help 4 million borrowers, the administration was forced to concede it had barely helped a fraction of that number, or roughly 1.2 million mortgage modifications; and some advocates and administrators in the program actually came right out and declared the thing a failure. However, in recent months, we’ve been hearing a lot about how HAMP is finally getting going and hundreds of thousands of borrowers are getting the loan modifications that they need. What we haven’t heard until now, though, is just how many of them are re-defaulting on those loan modifications just months or years later; the number is now at 306,000.

I can see why many people think the HAMP program is a dud, but just to maintain perspective the Hope For Homeowners plan initiated by President Bush set aside $300 billion to refinance toxic loans and in 3 years time it managed to modify 71 loans; and the FHA-Secure plan managed to refinance 4,100 mortgages over a 3 year span. As far as the high number of re-defaults, the modification programs never dealt with the underlying problems, and for many, relief was just too little, too late.

One year ago today, Mario Draghi, the president of the European Central Bank spoke at an investment conference and he said:  "the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." The speech seemed to revive markets and stave off what looked like an impending collapse. A few weeks later, Draghi introduced OMT, or Outright Monetary Transactions, a conditional bond buying program. Spanish and Italian bond yields stabilized, even though the ECB hasn't actually used OMT to actually buy bonds. Germany’s constitutional court is due to rule later this year on OMT’s legality under German law. The ECB hasn't exactly managed to forge a solid plan, and so the financial improvement has not been accompanied by a meaningful change in what matters most: namely, the ability to generate economic growth, create jobs and arrest excessive income and wealth inequalities.

Earlier this week we marked the 3 year anniversary of the Dodd-Frank Act. Which is to say it was passed onto law, although less than half of the Act has been enacted. Mainly, it's been a battleground for bank lobbyists trying to tear out the entrails.

A federal grand jury indicted Steven A. Cohen's hedge fund SAC Capital Advisors on fraud charges. The hedge fund was charged with wire fraud as well as four counts of securities fraud, and the government is seeking to force SAC to surrender any fraud-related profits. According to the indictment from roughly 1999 to 2010, SAC obtained and traded on inside information to boost returns and fees and that the scheme involved a number of portfolio managers, research analysts and dozens of publicly traded companies.

The government has also filed civil money-laundering charges against the firm, which call for fines and penalties to be determined at a trial, the date of which hasn’t been set. Those civil charges pose the greatest threat to Cohen’s fortune because prosecutors allege that if the fund reinvested the proceeds of illegal insider trading into its capital pool, then the entire pool is tainted and subject to forfeiture, but it's expected that prosecutors won't try to go after the entire amount.

SAC oversaw $6 billion for outsiders at the start of this year, but have since withdrawn about $5 billion. The big question for those folks is whether they will face clawbacks. SAC is almost like Cohen's personal hedge fund; he has about $7.5 billion in SAC’s funds and employees account for $1.5 billion of assets. And the fund is conducting business as normal, or somewhat normal. Cohen wasn't named in the criminal indictment and faces no threat of prison time. In the corporate criminal world, avoiding indictment is the key battleground.

What does it take to be considered wealthy? A new survey finds the majority of people with a net worth of between one and five million dollars do not consider themselves wealthy; 28 percent of people worth between $1 million and $5 million call themselves wealthy. For people worth more than $5 million, just 60 percent of them say they’re rich. Of those surveyed, 50 percent said they’d consider themselves rich if they had no financial constraints on activities. So, it's not really a number.

Tell that to Eike Batista; he's the Brazilian oil tycoon who started 2012 as the eighth richest person in the world; net worth estimated at $34 billion; now that has dropped to $200 million. You might think that $200 million is a lot; if you had that money, you might think you were wealthy, but I'm not sure if that's how Batista feels. So, it's not really a number.

A few months ago, a Senate committee grilled Apple CEO Tim Cook over the company’s creative accounting strategies, accusing it of cheating the U.S. Treasury by stashing away billions of dollars that live in no tax jurisdiction at all. The company didn’t dispute the truth of the accusations, but blamed the United States for building a tax system that makes bringing overseas earnings back to the United States very expensive, and proposed simplified rules that would make it cheaper to do so.

The Organization for Economic Cooperation and Development has been working on the problem; in February they issued a report. The G20 held a meeting last weekend and they said they want a more globally uniform tax system, and they want the OECD to finish up a a concrete plan to crack down on tax cheats, and they want that plan within the next 2 years.

More problems for Boeing's troubled 787 Dreamliner today; one was grounded, an oven overheated in another and damage was found in wiring on two other planes. It's turning out to be like a flying cruise ship.

Halliburton Co has agreed to plead guilty to destroying evidence related to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, which killed 11 workers and left a horrific mess. The guilty plea is the third by a company over the spill, and requires the world's second-largest oilfield services company to pay a maximum $200,000 statutory fine; that's about how much Halliburton earns every 23 seconds, based on 2012 revenue numbers. Halliburton also made a separate, voluntary $55 million payment to the National Fish and Wildlife Foundation, plus 3 year probation.

Meanwhile, another Gulf of Mexico drilling rig caught fire this week off the coast of Louisiana. The blaze broke out Monday on a natural gas platform. The rig partially collapsed, but then sand and sediment covered up the spill and the fire is out or nearly out; and because it is natural gas it dissipated quickly in the ocean water. No one was injured.

Meanwhile, TEPCO, the Tokyo Electric Power Company finally admitted today, what had been suspected for quite some time; the Fukushima Dai-ichi nuclear power plant, the one damaged in the 2011 eathquake and tsunami, has been leaking contaminated water into the ocean. They don't know how much damage has been done by the leaks; they don't have a plan to clean it up and they don't seem to have a plan to stop it.

The northeast of Brazil is largely poor and rural. Years ago, there was a migration to the South, to the major cities of Rio de Janiero and Sao Paolo. The migrants were looking for jobs, industrial jobs. There were more people looking than getting. The migrants camped out. In Rio, they camped out in the hills surrounding the city. Eventually the encampments turned into shacks, the shacks turned into homes, but the entire process was haphazard. The homes lacked modern conveniences, and so the residents strung up illegal lines, they built illegal plumbing. The shacks turned into homes turned into small cities; slum cities known as favelas. The houses were built close together, the roads often not more than a tight alleyway, difficult for police to patrol. Poverty and unemployment were high. Gangs soon became a stronger authority figure than police; crime was pervasive; hope was not.

The favelas grew over time. In Rio, a city of more than 11 million people, it is estimated that more than 4 million live in favelas, or slums. The largest favela, Rocinha, is home to more than 500,000. Last year, the government sent in police with machine guns and armored vehicles to clean up the favelas in advance of the World Cup Soccer tournament next year, and the Olympic Games in 2016. You would probably not feel safe walking through a favela.

There is a favela in the north part of Rio, known as Varginha; it is very poor and violence is common. Built on swampland, Varginha is one of several favelas that have been "pacified," meaning the drug lords who once ran the place have been ejected or subdued by authorities. The government has allocated money for community centers, libraries and a train station. But residents say they have received more broken promises than actual help, and basic services such as sanitation remain woefully unavailable. They also complain that police are abusive and treat everyone like a criminal.

Pope Francis is visiting Brazil. He is not meeting with Brazil's president; the Pope instead headed to Varginha, telling residents of the notorious slum that their leaders must do a better job of helping them. The Pope said public authorities and "those in possession of greater resources" must "never tire of working for a more just world, marked by greater solidarity!" He told the crowds that "No one can remain insensitive to the inequalities that persist in the world!"

It was the most political message yet in the pope's pilgrimage to Brazil, and for many it echoed the enormous protests that erupted last month among Brazilians angry over government corruption, excessive state spending on upcoming international sports events, and lack of basic services such as education and healthcare.

And then after visiting the favela, he went to another favela, known as the City of God and he visited with recovering drug addicts, saying , “It is necessary to confront the problems underlying the use of these drugs, by promoting greater justice, educating young people in the values that build up life in society, accompanying those in difficulty and giving them hope for the future.”

And along the way, the Pope opened the windows of the Popemobile and even got out to walk with the crowds of people and kiss babies and give hugs and blessings to the crowds of people; he visited a little speck of a Catholic chapel; he just walked up to the modest home of a local family and was welcomed like a long lost brother. The security detail must have freaked out, but even in the most dangerous and violent slums of South America, there was not even the hint of a problem.

He stressed to the people of the favelas that he is on their side, saying: “The church offers its collaboration on all initiatives that lead to the development of all people. The church is with you. The pope is with you.”

Hours later, speaking under a rainy sky at the beach in Copacabana, the pope’s message to the more than one-million faithful was to shake up the church and make a “mess” in their dioceses by going out into the streets to spread the faith. He was less political and more centered on the importance of believing in Jesus. “He is a friend who does not defraud. ”

There has been revolution in the Middle East – the Arab Spring, and the n the Arab Spring-Part2. And throughout much of Europe there have been protests, especially in the periphery. It seems that we have forgotten what is important. How much real-world difference the papal visit might make remains to be seen. John Paul II visited the favelas of Rio in 1980, and obviously the underlying problems hardly disappeared in the intervening 33 years, but the Pope is the spiritual leader of more than one billion souls. And even if he can't change the reality on the ground, maybe he can make us consider how we keep score. He said, "The measure of the greatness of a society is found in the way it treats those most in need, those who have nothing apart from their poverty."

Wednesday, July 10, 2013 - Trying to Make Some Sense of It All

Trying to Make Some Sense of It All

by Sinclair Noe

DOW – 8 = 15,291
SPX + 0.3 = 1652
NAS + 16 = 3520

10 YR YLD +.05 = 2.68
OIL + 2.64 = 106.17
GOLD + 12.20 = 1263.90
SILV + .20 = 19.57

Over the past couple of days, we've talked about the slowdown in the global economies; the IMF revised growth forecasts. We've also talked about the new capital reserve requirements for banks. Today, we got the minutes of the last FOMC meeting in June. Today, I'll try and put it all together and explain it so it makes a little sense. I'll try.

Everywhere around the world, economic growth is slowing; this is especially true in emerging markets. For example: growth in China is forecast to be 7.8 percent in 2013, a downward revision of 0.3 percent; growth in India is forecast to be 5.6 percent, down 0.2 percent, growth in Brazil is forecast to be 2.5 percent, down 0.5 percent;  growth in Russia is forecast to be 2.5 percent, down 0.9 percent.

There is still growth in the emerging markets, but the BRIC countries had been looking at really strong growth, now it's slightly sluggish growth, and the rate of change is the attention grabber. In China, there is considerable downside risk because they are facing a financial crisis brought about through a shadow banking system that financed unproductive investment and succeeded only in building credit risk. Now that risk is coming home to roost.

Japan is looking at an expanding economy, perhaps 2% growth for 2013; that represents a big jump, but it is still not what you'd call fast growth. I'll talk about Japan a bit more in just a moment.

In the Euro-zone, we'll probably see contraction of a negative 0.6%. This reflects serious downturns in Spain and Italy and low growth in the other core countries.

In the US, we're probably looking at 2013 growth in the range of 1.6% to 1.9%. You'll recall that we've seen some downward revisions to GDP.

So, generally speaking there is a slowdown in the advanced countries, and that leads to a slowdown in consumption and investments; and demand remains low, in large part because unemployment levels remain high. This is true in the US, even though private sector employment has picked up a little; it's been offset by declines in public sector employment. The unemployment problem in the Euro-zone is particularly bad, especially in the southern, peripheral countries. Exports can't overcome the weak internal demand.

In the US, we've been on the verge of a virtuous circle; that point where we see sustainable, productive growth, but we can't quite reach escape velocity. One reason is that fiscal policy has been a disaster. We have refused to invest in infrastructure; we refuse to invest in education; we refuse to invest in the future. Meanwhile, monetary policy has been a failure; at least it has been a failure in helping to achieve the Fed's mandate of maximum employment; it's been fairly successful in it's real, unstated purpose of propping up the big banks.

The Fed has had three rounds of Quantitative Easing plus Operation Twist since 2008; they've pumped more than $2.3 trillion into the banks. If they had pumped that money into the economy, we might be seeing different results, but they didn't pump the money into the economy. If they had pumped $2.3 trillion into the economy, we would see a very big spike in inflation. It just hasn't happened.

Even as the Money Supply has grown, the money actually ended up on the books of the banks; specifically the excess reserves of the biggest private banks have now increased to about $1.9 trillion. Back in 2008, the excess reserves were at almost zero. And the Basel III rules call for 3% reserves, but yesterday the Fed, the FDIC, and the OCC called for the big banks to hold at least 6% in reserves.

Following the financial meltdown in 2008, the Fed's mission was to prop up the banks. So far they have propped up the banks with $1.9 trillion in excess reserves and they still feel more reserves are needed, just to be on the safe side. The mission of the Fed is not maximum employment; it is to avert another financial meltdown and more bank bailouts. More bailouts are unacceptable because it might just wake up the average citizen and cause them to scream bloody murder, and put an end to the whole mess. The side benefit of building up banks' capital reserves is that the banks actually have money to lend, at least a little.

There are a couple of ways this shows up in the economy. First, there is basically no inflation. If you pump $2.3 trillion into the economy, you should have inflation. The spending of money -- and in particular the rate at which money changes hands -- is what creates inflation. Economists call this the "velocity of money." The velocity of money is at the lowest levels in more than 60 years. Money is not moving through the economy. It is stuck in the banks. It's kind of like burying you money in a coffee can. This is a way for the Fed to continue QE, without having the immediate concerns about inflation.

And so today, Fed Chairman Ben Bernanke said the economy continues to need highly accommodative monetary policy. Answering questions at a conference sponsored by the National Bureau of Economic Research Bernanke said that when looking at the Fed's dual mandate on employment and inflation more work needed to be done. He said the 7.6 percent unemployment rate probably "overstates the health of the labor market" and that inflation remains below the Fed's 2 percent target. Moreover, fiscal policy remains "quite restrictive."

Before Bernanke spoke, the Fed delivered the minutes from the FOMC meeting of June 18-19. The minutes showed that some Fed officials worried not only about the outlook for employment, but the pace of economic growth as well: "Some (officials) added that they would ... need to see more evidence that the projected acceleration in economic activity would occur, before reducing the pace of asset purchases."

Of the Fed policymakers who argued it would be wise to curtail bond purchases soon, two thought it should be done "to prevent the potential negative consequences of the program from exceeding its anticipated benefits."

The negative consequences some Fed policymakers worry about are what might happen if the banks start to use some of the capital reserves for something other than reserves. That's when things could get dicey. The easy thing to do is watch the velocity of money; if money starts circulating through the economy, it could quickly lead to nasty inflation, especially if it goes into the economy through the typical routes used by banks. For example, if they start easing up on underwriting requirements for mortgages, we could see the beginnings of an asset bubble in housing. If the banks start trading the money in the markets, we could see a financial asset bubble develop on Wall Street, or perhaps in the commodity markets, or the energy markets.

So, there is a bit of a trick to see the velocity of money increase, which would be beneficial to the economy, in that it could increase demand, and help guide us to the virtuous circle of a sustainable and productive economic growth – yet still avoid asset bubbles and inflation.

And that brings us back around to one of the few countries in the world that is seeing an increase in the rate of growth – Japan. The Japanese approach is called Abenomics, and it involves three arrows. The first arrow is fiscal stimulus, the second arrow is aggressive monetary easing, and the third is structural reforms. So far, we have seen the aggressive monetary policy – nearly twice as aggressive as the Fed's QE, at least on a percentage basis. Why have the Japanese been so extremely aggressive? Well, they are faced with a nuclear problem of truly epic proportions. The Fukushima nuclear reactor meltdown has threatened everything in Japan, including the economy. The Japanese were forced to take drastic action to rouse the economy out of a two decade slumber, or risk watching the economy slip into a long, dark nuclear winter.

Now, the Japanese still have to complement the monetary policy with a credible fiscal plan, and substantial structural reforms, otherwise they risk investors becoming nervous about debt sustainability and demanding higher interest rates.

We don't face the imminent threats of an economy badly damaged by radiation, however we face similar economic problems as the Japanese. The Fed runs the risk of nervous investors pushing up interest rates and making the Fed's balance sheet – which is rapidly approaching $4 trillion total – making the debt on the Fed's balance sheet unsustainable. And we just can't seem to get the other two arrows out of the quiver.

There is no credible fiscal policy coming out of Washington, and the only structural reforms are being determined by the banks; they are literally writing the legislation. If we don't make essential investments in the US economy now, then things will just get tougher down the road. Looming in the distance is a potential dollar meltdown. The dollar is the strongest currency in the global market; in large part because it is the reserve currency, but also because other currencies have been debased. Since January 2002, for example, when the U.S. Dollar Index stood at 120.22, the dollar has fallen by 31%. And that's after its recent two-year rise.

These are tricky times.

Monday, October 29, 2012 - Hurricanes and Clean Energy

Hurricanes and Clean Energy
by Sinclair Noe

The stock and bond markets in New York were closed today; that's the first time that's happened since Hurricane Gloria hit New York in the 80's. The markets will be closed tomorrow; that's the first time the market has been closed for 2 days due to weather since 1888, when a blizzard hit New York; of course it was closed following 9/11. Areas around New York's Financial District were part of a mandatory evacuation zone. The storm surge is already pushing water over seawalls in the southern tip of Manhattan. And the hurricane is just now hitting New York head on. It already flooded Atlantic City. Much of the East Coast was at a standstill as the storm approached. The storm, 900 miles across, shut the federal government in Washington and state offices from Virginia to Massachusetts. Schools were closed, planes and trains tried to get out of the way; delays are affecting transportation around the nation. You can't get there from here.

Economic losses could ultimately reach $20 billion, only half of it insured. Some estimates put the property damage as high as $90 billion; we'll see. Ten states have declared a state of emergency; 60 million people are in the path of the hurricane; there will undoubtedly be some tragedies. Keep those people in your prayers.

It is estimated millions of people will lose electricity for an extended period. Federal inspectors have been dispatched to 11 nuclear power plants from Maryland to Connecticut; trying to avoid a repeat of the Fukushima Reactor meltdown in Japan. Hope the backup generators work.

Last Friday, we opened the phones and for some reason, the conversation centered around global warming. So, I think I'll talk about green energy today.

Clean energy has become a dirty word in presidential politics. In their second debate, Mitt Romney and Barack Obama each tried to outdo the other’s love of fossil fuels: Obama extolling his record on oil and natural gas production, Romney vowing to take “advantage of the oil and coal we have here.” The Republican candidate has ridiculed the administration’s $535 million loan guarantee to Solyndra, the bankrupt California-based solar panel maker, and accused Obama of living “in an imaginary world where government-subsidized windmills and solar panels could power the economy.”

The candidates’ coolness to renewable energy comes at a time when the domestic supply of traditional energy sources, such as oil and natural gas, is at an all-time high. And yet this failure to make the promise of renewables a keynote in the debate is a huge missed opportunity. In particular, it ignores the dramatic reduction in the cost of photovoltaic solar power worldwide and the considerable benefits to consumers and the environment.

The untold story of this campaign is that what killed Solyndra may turn out to be a boon for the nation. Over the past five years the price of photovoltaic panels has plummeted 75 percent, due largely to a glut of Chinese-made panels. The fall in prices rendered technically advanced photovoltaic panels, like those produced by Solyndra and other US companies, too expensive to compete. But cheap panels have been a godsend for consumers.

Nationally, the average cost of residential installations—including hardware, permits, and labor—has plummeted from $9 a watt in 2006 to $5.46. Averaging in commercial industrial installations, the national installed price drops to $3.45 a watt, (says the Solar Energy Industries Association, a Washington-based trade group.) For consumers, the economics are compelling; it's a hedging strategy for energy consumption, something like locking in $1-dollar-per gallon gas for the next 20 years.

The result: almost 52,000 residential rooftop systems were installed in the US last year, up 30 percent from a year earlier. Total rooftop installations, including on commercial buildings, grew 109 percent from 2010 to 2011. Total photovoltaic installations are projected to grow an additional 71 percent this year from 2011 levels. In less than four years we have tripled solar energy to 5,700 megawatts installed.

Worldwide, the picture is even more positive. Australia projects that 10 percent of its 8 million houses will have rooftop systems within the next 12 months; most of that growth coming in the past three years. European rooftop installations continue to outpace those in the U.S., even as some countries begin to pare subsidies that have helped spur a continental rooftop boom. Including residential, commercial, and industrial-scale projects, the world had installed about 67 gigawatts of photovoltaic power at the end of last year—up from just 1.5 gigawatts in 2000.

Despite such breakthroughs, the U.S. economy is harnessing only a fraction of solar’s potential benefits. Based on U.S. Census Bureau data, about 100 million U.S. residential units could physically hold rooftop systems one day, generating by one estimate 3.75 trillion kilowatt hours of electricity a year. In 2011, total U.S. electrical generation from all sources was about 4 trillion kilowatt hours—42 percent of that from coal, according to the U.S. Energy Information Administration. The trouble is, many of the big,investor-owned utilities that provide about 85 percent of America’s electricity see solar as both a technical challenge and a long-term threat to their 100-year-old profit models. And the lack of a national energy policy means regulation of solar is up to states, public service commissions, and a wealth of local governments and bureaucracies—many of whom have a vested interest in maintaining the status quo.

We are starting to see a shift in pricing power and in political clout. Today solar is cost effective without local subsidies for 300 utilities in 30 states representing 21% of electricity solar in the USA.  That is a market opportunity of over $1 Trillion. We now have more than 100,000 solar energy jobs at more than 5,600 companies in the US, double the number from 4 years ago.

In fact, the Department of Defense, the largest single energy consumer in America, is bullish on solar. Whether it is the 1.45-megawatt solar project at the Burlington, Vt., Air National Guard Base or the 14-megawatt project at Nellis Air Force Base, Nev., the military recognizes the value of solar. America is now home to the largest operating solar photovoltaic plant in the world, the 250 megawatt thin-film plant in Yuma. That plant can provide electricity to 100,000 homes.

Photovoltaic technology is not the only significant solar development. In California, construction is underway for the largest concentrated solar thermal plant of its kind in the world, the 392-megawatt Ivanpah project in California that created 2,100 construction jobs. When completed in 2013, this concentrated solar plant will power 140,000 homes. And a 280 megawatt concentrated solar plant in Gila Bend, will be the first in the US with energy storage, providing power even when the sun goes down. That project created 1,600 jobs.

The story is much the same with wind energy. At the end of 2008 we had about 25,000 megawatts of wind energy, but today we have doubled wind energy capacity to over 50,000 megawatts. We have added more new wind energy capacity over the last five years than nuclear and coal combined. We now have 75,000 Americans working in wind and over 470 plants in America manufacturing wind products. The upshot: the cost of wind energy dropped from 8.4 cents per kilowatt hour in 2008 to about 5 to 7 cents per kilowatt hour today. States like Iowa and South Dakota have achieved the milestone of getting 20 percent of their electricity from wind. And the Shepherds Flat wind farm in Oregon, one of the largest in the world at 845 megawatts, created 400 construction jobs and is powering 235,000 homes.

Energy efficiency is the low-hanging fruit. Every day we are paying more for energy than we should due to poor insulation, inefficient lights, appliances, and heating and cooling equipment -- money we could save by investing in energy efficiency. In the past 4 years, more than 1 million homes have been weatherized. Given the fact that over 90 percent of the products used in weatherization are manufactured in the United States, we are creating jobs not only in construction but also in manufacturing. This is a win-win-win situation.

I wish I'd heard more about green energy during this election cycle. I think it is probably the biggest growth story in the economy. I think it's a national security issue.

A hurricane or a earthquake could do serious damage to a nuclear plant. Even if you don't believe the ever-growing mountains of evidence supporting global warming being human caused, there is no doubt that there are dangers from nuclear; there are dangers from oil, nat gas, and coal. There is no question that coal is a pollutant, and can cause serious health issues, same with the pollution from oil products.

If you choose to disregard the scientific evidence that these pollutants are a part of global warming, that is your choice. There is clear evidence that we are seeing warming. The arctic ice caps are melting, glaciers are melting, Iceland isn't all Ice any more, and there are hurricanes in New York at the end of October. What is causing the warming? The vast majority of scientists say we are the cause. You are not compelled to believe in science. However, I'll tell you one reason I believe. If we can clean up the air and water, we'll have a cleaner, healthier planet; that's a good thing; and if the scientists are right, we'll avoid the destruction of the planet and ourselves. It's kind of like believing in God. You live a better healthier life for believing, while if you don't believe and you are wrong – you're just damned.

A report from the European Renewable Energy Council finds the European Union could generate trillions of dollars in fuel savings by looking beyond goals mandated for 2020. Greater investments for things like wind and solar power, coupled with a slow move away from things like coal, could make the region nearly carbon-free by 2050. On the other side of the Atlantic, however, officials have expressed reservations about being forced into a low-carbon economy, highlighting the green divide among western powers.

The European campaign groups, in a report highlighting an "Energy (R)evolution," call on European leaders to move in favor of renewables and energy efficiency instead of fossil fuels or nuclear power. The group states that every time oil prices increase by $1, Europeans wind up paying more than $500 per month. That, they say, could drop by half by 2030 if leaders embrace a comprehensive green energy future. EU member states have agreed to cut their carbon footprint by 20 percent, improve energy efficiency by 20 percent and get 20 percent of their energy from renewable energy resources by 2020. In the U.S., meanwhile, a study on the energy future finds state and federal governments could generate as much as $124 billion by exploiting unconventional oil and gas plays as part of an all-out push for energy independence. 

Opponents of low-carbon measures like Michigan's argue about high consumer bills, while supporters point to the long-term consequences of a carbon-intensive economy. The European argument, at least from the other side of the ocean, seems to be that, while coal, oil and natural gas are bountiful now, in the long run, you get what you pay for. 

Sandy is now coming onshore across New Jersey right about at Cape May. As the hurricane makes landfall our winds will begin to slowly subside. As I write this we are probably at the peak of the storm. Shortly, you may notice that the worst of the worst seems to be over and you will be correct. This is not to say the storm is finished, it's just that we are close to the apex in terms of winds increasing any more. Trees can still come down and power outages will be an issue throughout the night. Power outages will be a big problem. We'll see in the next couple of hours how bad the flooding problem is.

The storm forced the New York Stock Exchange to extend today's closing to Tuesday -- the first unplanned shutdown since the Sept. 11 terrorist attacks. Commodity markets traded electornically, with gold down 1.30 = 1710.80, silver down .33 = 31.86, crude oil down .74 = 85.54. The Port of New York and New Jersey, whose terminals make up the third-busiest container port in the country, also was temporarily shuttered and evacuated. And a Phillips 66 refinery in Linden, N.J. and a Hess refinery in Port Reading, N.J., shut operations, while several others curtailed production. Although oil prices are expected to drop due to less demand.

The potential damage to homes from Hurricane Sandy-driven storm surges is likely to be greater than it was last year for Hurricane Irene. CoreLogic estimates nearly 284,000 residential properties valued at almost $ billion are at risk for potential storm surge damage among the coastal Mid-Atlantic states.

Now is as good a time as any to remind people of who provides all those detailed projections of where Hurricane Sandy is going to hit and how strong it’s going to be: the federal government. No matter how you get your weather news—local TV or radio, The Weather Channel, AccuWeather, whatever—hurricane forecast information originally comes from the National Hurricane Center, which is part of the National Weather Service. The raw data come in part from the Hurricane Hunters, the pilots who fly planes into hurricanes, who are part of the Air Force Reserve and the National Oceanic and Atmospheric Administration. The computer models that predict where hurricanes are going to strike are developed by the NHC. There’s a strong case to be made that hurricane research is one area where a small amount of taxpayer spending has had huge public benefits.

The Labor Department said it hopes to release October's unemployment report on Friday as scheduled, despite the closure of the federal government on Monday, and possibly additional days this week, because of Hurricane Sandy.

The report on October's unemployment rate and the number of new jobs added that month is the last major economic report before next week's presidential election. And a delay in the report until after the election would fuel conspiracy theories. The September jobs report, released Oct. 5, showed the unemployment rate surprisingly dropped to 7.8% from 8.1% the previous month, the lowest level since Obama took office.