Tuesday, February 12, 2013 - The Battles to Come

The Battles to Come

by Sinclair Noe

DOW + 47 = 14,018
SPX + 2 = 1519
NAS- 5 = 3186
10 YR YLD + .01 = 1.97%
OIL + .48 = 97.51
GOLD + 3.00 = 1652.30
SILV + .17 = 31.22

The all-time high in the S&P 500 index is 1565. The all-time intraday high in the Dow Industrials is 14, 198.10, reached in October 2007. We are close.

After years of acting like deer in the headlights, investors are now throwing cash at the stock markets. Meanwhile, insiders are selling. Google's CEO is selling more than 40% of his stock. He didn't sell hardly anything from 2008 through now. There is a thought that insiders are selling now and mom and pop investors are buying, and once we work through this exchange, the markets will tank. This theory is being called the grand rotation.

Ahead of tonight’s State of the Union Address, the White House has followed custom by leaking tidbits from the speech. It is expected the president will talk about North Korea testing a nuclear bomb; this, for the third time, and bigger than ever. Apparently Mr. Obama will also announce that 34,000 out of 66,000 troops will come home from Afghanistan by this time next year, which sounds better than it is. That means the Pentagon is roughly on pace to hand over security to the Afghans by the end of 2014, as Mr. Obama has long promised. It also means there will still be more than 30,000 troops in Afghanistan, and I'm not sure what will be accomplished. 

The most recent Medal of Honor recipient, Clint Romesha was invited to attend the State of the Union speech as a guest of the first lady. Apparently he will spend the evening with his wife and buddies from his former unit, Black Knight Troop, 3-61 CAV. Romesha and his wife are celebrating their wedding anniversary. I don't know whether they will watch the address or not. Viewership is down to 38 million or so, less than back in the 70's. Romesha's story is inspiring. He was wounded on the battlefield during what has been described as one of the fiercest fights in the Afghan war, but he fought on, rescued his comrades and managed to hold onto an outpost that was technically indefensible. The young Sergeant is amazing; he can spend his evening however he wants.

President Obama will have a fight on his hands as he proposes a second-term agenda that includes new government investments, limits on guns, a revamped immigration system and new initiatives to kick-start the economy for middle-class Americans. The president will propose government action in education, manufacturing, infrastructure and clean energy. The president is also expected to announce his intention to begin negotiations on a free trade agreement with the 27-member European Union.

Mr. Obama already faces stiff opposition from Republicans who control the House and have repeatedly blocked some of his top priorities. On Tuesday, Republicans began using the Twitter hashtag #notserious to describe Mr. Obama’s expected speech; and that's the gentler of the hashtags; the not-so-gentle tag is #youlie.

House Speaker John Boehner this morning gave his own preview of the State of the Union as he  repeatedly challenged the president's willingness to go against his own party on issues that include reforms to social programs and spending.

Speaking with a small group of reporters this morning, Boehner said: "I think he'd like to deal with it [fiscal problems], but to do the kind of heavy lifting that needs to be done, I don't think he's got the guts to do it. He understands there is a spending problem. He understands that we need changes and reforms, and we need to solve these problems." When pressed about the severity of that statement, he modified, saying the president does not have the "courage."

Washington is in the midst of yet another self-inflicted, artificial fiscal crisis, facing a political showdown over "sequestration," the self-imposed round of across-the-board spending cuts to domestic programs and the Pentagon. The sequester was supported by both the White House and Congress as a way to encourage lawmakers to find common ground. Instead, they have been mired in a stalemate, unable to find an equitable solution for both sides. The deadline is March 1^st. It doesn't look good.

The State of the Union wasn't the only big speech of the week but it certainly has been overshadowing a speech by Janet Yellen, vice-chair of the San Francisco Federal Reserve; she talked about how slow this recovery has been and why. One of the culprits for the slower recovery? Fiscal policy. Specifically? We're not spending enough. Government spending, which usually provides a boost to the economy in the quarters following the recession, has been a net drag this time because the government is spending less than it normally does.

After passage of the 2009 economic stimulus package, which helped save or create millions of jobs, Congress all but gave up providing support to the labor market. Instead, in the last two years, the nation’s deficits have been reduced by $2.5 trillion, with the overwhelming majority coming from spending cuts. Yellen described fiscal policy as a headwind for the recovery: “Discretionary fiscal policy hasn’t been much of a tailwind during this recovery. In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery.”

Everybody that’s tried austerity in a time of no growth has wound up cutting revenues even more than they cut spending because it results in a downward spiral and it drags the country back into recession. The experience of Europe should be showing US policymakers that cutting spending in a weak economy backfires, squashing economic growth, which causes debt to expand. But it doesn’t seem like that lesson is taking hold.

Today, the Treasury Department reported the federal government had a rare surplus for January and is on track to run its smallest annual budget deficit since  2008. The government took in a surplus of $2.9 billion in January. That's the first monthly surplus since April, a month that benefited from income tax payments. January's budget benefited from an estimated $9 billion in extra revenue from higher Social Security taxes. That helped lowered the deficit through the first four months of the budget year to $290.4 billion — nearly $60 billion lower than the same period a year ago. The budget year began on Oct. 1.

For the entire year the Congressional Budget Office is forecasting the deficit will total $845 billion. If correct, that would be first time government hasn't run an annual deficit in excess of $1 trillion since 2008.

The deficit is the amount the government must borrow when its expenses exceed its revenue. Each month's deficit is volatile and can be affected by calendar quirks that shift government spending or revenue from one month to another. The annual deficit is projected to be smaller this year because the government is collecting more revenue this year, mainly because of faster job growth and higher taxes. At the same time, the government is spending less on some programs. That's in part because of spending cuts that were enacted under a 2011 agreement to raise the federal borrowing limit. Also, the improved economy has reduced demand for unemployment benefits and some other government programs, or some people have just used up their benefits and fallen from the rolls.

The Congressional Budget Office is projecting even smaller annual deficits of $616 billion in 2014 and $459 billion in 2015.

This weekend the G-20 will meet in Moscow. Today, the G-7 broke into the European trading morning with its first statement on exchange rates since September 2011, in which it pledged to keep economic policies directed at domestic needs and disavowed targeting currencies. The G-7 acknowledged Japan isn’t driving a devaluation and that its monetary policy is aimed at ending 15 years of deflation.

But after the G7 statement, an unnamed official of the G7 told reporters in the United States that markets had misinterpreted the statement and that it was in fact aimed at Japan, that it's okay for Tokyo if a weaker yen is the result of policies aimed at driving the economy, but it's not kosher if policies are aimed specifically at devaluing the currency.

What the G7 appeared to be saying - before the unnamed official signalled it was a warning to Tokyo - is that currency devaluation can be a byproduct, rather than a goal, on the long, hard road back to a sustained recovery. The Federal Reserve's quantitative easing, for example, an asset-buying program, is negative for the US dollar, but is aimed at juicing the economy, not driving down the greenback; theoretically anyway.

So, the G-7 issued another statement that said: "We, the G7 ministers and governors, reaffirm our longstanding commitment to market determined exchange rates and... that we will not target exchange rates."

And now the thinking is that this means Japan won't be buying US Treasury bonds as part of its stimulus plan because that would further weaken the yen. This also means there is a global race to devalue currencies.

China has become the world's biggest trading nation in goods. China's customs administration said the combined total for imports and exports in Chinese goods reached $3.87 trillion last year, edging past the $3.82 trillion trade in goods registered by the US commerce department. The US economy is still twice the size of the Chinese economy, but apparently we are more self contained.

A new report from the Project on Government Oversight says that regulators at the SEC derailed last year's efforts to reform the $2.6 trillion money market fund industry, and that many of those regulators are now working in the private sector, and the “revolving door” policy may have impacted policy and enforcement decisions. Yea, we're all shocked.

Wednesday, June 06, 2012 - Rally for Central Bank Juice - by Sinclair Noe

DOW + 286 = 12,414

SPX + 29 = 1315
NAS + 66 = 2844
10 YR YLD +.10 = 1.65%
OIL +.51 = 85.53
GOLD + 2.80 = 1620.70
SILV +.90 = 29.53
PLAT + 26.00 = 1468.00

There have been several ideas floated to explain today's rally on Wall Street: the markets were oversold, it was a technical bounce off the 200 day moving average, it was a dead cat bounce, traders who have shorted the market had to cover their positions, a response to Election Tuesday results, seller exhaustion, re-balancing, or my favorite – bargain hunting. How quick we forget. Goldman Sachs has already announced they expect the Federal Reserve to juice the economy and soon. So, apparently the work order has been submitted and now we just wait to see if Helicopter Ben can deliver the goods.

Today, the general market feeling was that some central bank somewhere would start throwing money at the banksters. European Central Bank President Mario Draghi suggested that further stimulus to tackle the euro zone's debt crisis would not necessarily be forthcoming, but speculation persisted that the ECB could act if financial market tensions intensify further.

The ECB left interest rates unchanged following its policy meeting today. The Euro economy is standing at the edge; unemployment is soaring; the Spanish banking system is on the verge of collapse; Greece is already toast. And it looks like the ECB is trying to make sure the Euro-politicians know they won't get any relief unless they enforce even more austerity and wage cuts in the south. Or maybe the ECB is unwilling to admit that their old policy, the rate hikes were a mistake; or maybe they believe that suffering is necessary to purge the system.

There is no historical support for the need to cut social spending to revive growth. From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US. Cutting social programs in socialist democracies is a surefire recipe for an economic downturn.

And so the Germans, responded today with a softer stance on Spain. German and European Union officials were seeking solutions for Spain's weakened banks. Spain has not requested aid and they are resisting the political conditions; the strings that would be attached to any bailout. The problem is that the contingent liabilities associated with bailouts have been sending citizens into the streets.

Spain admits they are losing access to credit markets due to prohibitive borrowing costs but they say they will just wait for an IMF report and an independent audit of the banking sector, both due this month, before taking decisions on how and how much to recapitalize the banks; estimates have been anywhere from $30 billion to $300 billion. Still, the scuttlebutt is that there is contingency planning underway for a Spanish bailout. And so today, Germany indicated, unofficially, just rumors, but they indicated they might pump up the Spanish banks without making embarrassing demands for new economic reforms imposed from the outside.

Let me be clear, a Spanish bailout means bailing out the Spanish banks. The $625 billion European Stability Mechanism, due to enter into force next month, could lend directly to Spain's bank rescue fund; maybe – it might not be legal but that doesn't seem to be a prohibitive factor.

Meanwhile, the tele-conference of G-7 finance chiefs wrapped up with the US Treasury proclaiming the group discussed “progress towards a financial and fiscal union in Europe” and agreed to monitor developments closely. The group made no joint statement and took no immediate steps. Wow, that is so incredibly bold. Meanwhile, the US is pressuring European governments to move toward financial and fiscal union, which would be a bold step, and the US wants to see the makings of a plan by a G20 summit in Mexico, on June 18-19. Which would be just after the Greek elections and just before the Federal Reserve FOMC meeting. And just a bit before the EU leaders next scheduled meeting on June 28-29.

So, the general feeling today was that some central bankers somewhere will juice the banking system in the near future. And just a few days after the worst day in the markets so far this year, Wall Street responded with the best day of the year. Woo hoo, the big bad bear is dead! What insanity. Let's forget about what's happening in the economy. Let's forget about the track record for successful resolution of crises.

Yesterday, I was less than sanguine about the ability of our institutional leadership to deliver us from evil, and I listed some of the bigger and more blatant failures of the past few years. A listener wrote and added to the list, saying: "And how about" when Alan Greenspan warned that surpluses were in effect, bad and that the proper method of handling surpluses was not to pay down debt but to give it all back in the form of tax breaks to the rich when he was hauled in to support and justify the Bush tax cuts in my view the very beginning of the whole downward spiral that preceded the two recessions since 2000. Where we're the deficit hawks then - What a bunch of hypocritical creeps. My .02 cents worth.

Dennis Lockhart, the president of the Atlanta Federal Reserve Bank says risks to the economy "are gathering." Lockhart said that he saw a higher probability of a negative influence on the US economy coming from Europe. Lockhart said his baseline forecast was for a continued, though modest, growth. If this no longer looks realistic, further Fed action "will certainly need to be considered." The Fed must "maintain a state of readiness" to respond to financial and economic instability should the need arise. San Francisco Fed President John Williams said demand for U.S. exports has been cut, as the value of the dollar has risen and investors have flocked to the safety of Treasurys. Williams says the danger posed by the European crisis is one reason the economy might perform worse than expected. It is crucial for the Fed to maintain its easy monetary-policy stance and the central bank should also "stand ready to do even more if needed."

Bernanke testifies before the Joint Economic Committee tomorrow. If he is more negative than positive in his remarks, it might indicate another round of Fed easing is in the offing, as early as the June 19/20 meeting. Maybe. Bernanke might even go against convention and tell the Congressional do-nothings that they need to start doing something. Somebody needs to tell the Congress that their partisan blithering is hurting the economy and they could actually do something to make a positive difference if they wanted to, and the only reason they don't is because they would clearly sacrifice the economy on the alter of political aspiration.

Still, the market was looking for the Fed to ride to the rescue with another round of quantitative easing, even though they keep saying they will watch developments, even though there is a good chance Bernanke will use his testimony to reprimand politicians. Maybe Bernanke will step up where the ECB refused to step up. Probably not. Most likely they will all wait for the situation to get worse before they jump into the fray. Keep the powder dry. No rush, after all the austerity doesn't hurt them.

Tuesday, June 5, 2012 - Waiting for Euro-Failure - by Sinclair Noe

DOW + 26 = 12,127

SPX + 7 = 1285
NAS + 18 = 2778
10 YR YLD +.03 = 1.56%

OIL - .23 = 83.75
GOLD – 1.40 = 1617.90
SILV +.27 = 28.63
PLAT + 10.00 = 1444.00

So, the G-7, the Group of 7 countries conferred on the Euro-zone's debt crisis; Spain announced it was losing access to credit markets; the situation appears bad. So, the G-7 finance chiefs came riding to the rescue. And they achieved almost zero.

Spain had a real estate bubble. Spanish banks are loaded down with bad debt. The premium investors demand to hold its 10-year Spanish debt over the German equivalent hit a euro era high last week on concerns it will eventually have to take a Greek-style bailout. Today, Spain's treasury minister said Spanish banks should be recapitalized through European mechanisms, in other words the Spanish banks need a bailout and Spain can't bail them out; this was a significant departure from the previous government line that Spain could raise the money on its own. And then Spanish government sources said ehhh, we're not sure about a bailout. And the G-7 did almost zero.

Observers of the G-7 conference say that there was talk about a bigger solution, a bigger response from the politicians in the form of a stronger economic union; and the talk was that it would probably take a few months to figure it out, maybe a few years; and it doesn't look like there is a quick fix.

The ECB holds its monthly rate-setting meeting on Wednesday and European Union leaders meet on June 28-29 to discuss a strategy for overcoming the crisis.

The G-7 meeting turned out to be the G-Zero meeting.

We have been told for many months that the Federal Reserve and the US Treasury and the European Central Bank and the IMF and all the big shot politicians were on top of the crisis. They now had the experience of the Lehman Brothers collapse and they have assigned multitudes of very smart boys and girls to address the Euro-crisis. No worries, everything is under control. The political and financial leaders continue to insist that solutions will be found to keep the system working. Italy likes the idea of euro-bonds. Germany is hesitant to put its credit rating on the line for such bonds. Spain is trying to act like they don't need help when everyone knows they are getting desperate. And don't forget Greece, which would like to stay in the Euro without being squashed by the Euro. Robert Zoellick, president of the World Bank, recently said the Euro-zone is approaching a “break the glass” moment, when somebody finally pulls the fire alarm.

Here is the problem; when it gets hot you turn on the AC, and if it isn't cooling the house or it's making funny noises, you call the repairman and you hope he can figure out the problem and you hope he won't rip you off. You have to trust the AC repair guy. Well, there are all these very smart boys and girls in the Fed and the ECB and the IMF and other places of power and they have been called in to fix the AC. We can hope they are competent, intelligent, informed, honest, and not working on some hidden agenda. Unfortunately, there is a good chance they are not competent and working at cross purposes, and that the problems in Europe are going to get real hot, real quick.

We know that past performance is no guarantee of future results, however this might be a good time to consider the track record of the smart boys and girls in positions of authority. Where shall we start?

How about the Nobel prize winning economists who created Long Term Capital Management, the speculative hedge fund that imploded and was bailed out in 1998? How about the traders that ran Enron? How about the accountants at Arthur Anderson that vouched for the psycho traders at Enron? Or how about WorldCom or Global Crossing or Chrysler or Government Motors or MF Global or Bernie Madoff? How about the banks that can track a debit card purchase of a cup of coffee half way around the world but can't figure out how to refinance a mortgage or modify a loan? How about all the economists who still haven't figure out that we have been in a depression for the past few years? How about Ben Bernanke, who thought the subprime problem didn't represent a serious threat to the economy and everything was fundamentally sound? How about the efficient response to Hurricane Katrina? How about the smart boys and girls that trusted the levees? How about Detroit? How about the Emergency Financial Managers in Benton Harbor or Flint? How about the lies that put hundreds of thousands of our bravest heroes in harm's way in Iraq? And how about the politicians who were too damn smug to do squat about the debt ceiling even if it meant a whack to the country's credit rating? How about Murdoch hacking into dead teenager's telephone to deliver the news? And how about Bank of America failing to tell the truth about Merrill Lynch? And how about Bear Stearns and IndyMac and Countrywide and Washington Mutual and Northern Rock and a few hundred others? And how about JPMorgan and the London Whale?

And don't forget Lehman Brothers. And don't forget the three page hand scribbled note that stole hundreds of billions from the US treasury; the crisis that threatened to jump up out of nowhere and threatened to destroy the global financial system in its entirety and leave you with malfunctioning credit cards. Who knew?

And then remember that none of those folks that threatened to destroy the economy, none of them has gone to jail – much less been indicted. And the rules haven't been changed to prevent future problems. And nothing has changed except the Too Big to Fail Banks have grown bigger and more dangerous.

And don't forget Greece. The birthplace of democracy which is now run by Vichy ECB technocrats. A new poll by Stern shows half the Germans surveyed want Greece out of the Euro, while 80% of the Greeks want to stay in the Euro. They point fingers at one another and nobody remembers to point the finger at Goldman Sachs which scammed the system years ago and started the ball rolling into a debt death spiral.

And remember about a week ago when the head of the World Bank warned financial markets faced a rerun of the Great Panic of 2008 and that Europe was in the danger zone. And then the rumors started swirling that Pimco, JP Morgan, and other financial companies were canceling summer vacations for employees so they could prepare for a major 'Lehman type' economic crash projected for the coming months. Who knows?

And so today the G-7 met and did G-Zero. I'm shocked, shocked I tell you.

Monday, June 4, 2012 - Euro-crisis Moving Faster

DOW – 17 = 12,101
SPX +0.14 = 1278
NAS + 12 = 2760
10 YR YLD +.06 = 1.53%
OIL +.15 = 84.13
GOLD – 8.00 = 1619.30
SILV - .42 = 28.36
PLAT – 19.00 = 1434.00

Finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks on the euro zone debt crisis tomorrow. The economic problems have spread and the G-7 teleconference is at least an admission that the euro is breaking down as a viable economic undertaking. We are finally moving past denial.

There's something rotten in Denmark; the Danish central bank cut interest rates twice last week; they say they're battening down the hatches for a splintering of the European Monetary union. The European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Felipe Gonzalez,the former Spanish prime minister says the Spanish economy is facing a “total emergency”, which is – just guessing here – a bit more problematic than a partial emergency. The Cypriot banking system is nine times the country's GDP and they are now begging for a bailout. What a shocker. Cyprus is on the verge of becoming Iceland South. Switzerland is threatening capital controls to repel bank flight from Euroland. The Swiss two-year note has fallen to -0.32%; if you want to park money in the safe haven of Swiss bonds, you pay for the privilege.

US 10-year note yield dropped down to 1.44%, lower than during the Great Depression. The United States is in no position to lead the world to economic recovery, not after the jobs report on Friday; today's ISM business index – a proxy for business demand – flashed a "screeching halt" in May, crashing to 49.9 from 61.2 in April, where anything below 50 denotes contraction. The US economy has not bottomed here but it isn't flying high.

China has been facing a dramatic downturn, so no help from the East or the West. Brazil wilted in the first quarter. India grew at the slowest pace in nine years. Russia can't even help Cyprus. All the economic engines are sputtering at the same time.

The ECB has so far sat on the sidelines as spreads on 10-year Spanish bonds reached a record 496 basis points over Bunds. The ECB is wary of moral hazard but it is a dangerous game for the financial technocrats to force democracies to their knees by switching intervention on and off. In this case it is spreading contagion to Italy and risks igniting a tinderbox.

There is no talk of firewalls, or of simply letting Spain go, or of the European banking system being re-capitalized to compensate for the losses that it would suffer. Nope. Spain is Too Big to Fail. Spain is the fourth largest economy in Europe. Spain is not a peripheral Mediterranean country. It is not an insignificant player in the political project. It is not a marginal going-along-for-the-ride-and-the-free-money passenger on the euro train. Not only is its economy so large as to be indispensable, but its ties with Italy mean that the Italian economy (which is the third largest in the EU) would be fatally compromised by its fall.

Europe is struggling with a fundamental flaw of its original design: that’s it’s a monetary and economic union but not a political or fiscal one. Once again we're hearing talk about the USE – the united States of Europe. That might be a stretch. So far, they can't even agree on Euro-bonds. They can't agree on European deposit insurance to stem the outflows of deposits already being seen from peripheral countries’ banks. They can't agree on allowing banks to access direct financing from the European Stability Mechanism — the region’s permanent bailout mechanism which currently is designed to be tapped by sovereign governments. Merkel has crushed talk of an immediate banking union. They can't seem to agree on anything except austerity, and the European population is telling the politicians and the bankers to stuff their austerity where the sun doesn't shine.

Germany's Spiegel magazine reported that Chancellor Angela Merkel is actively pushing Spain into the arms of the EU bail-out machinery, concluding that Madrid cannot hope to tap the open market for the about $60 billion to $110 billion needed to recapitalize banks. The recurring crisis in the eurozone is not driven by financial markets' demands for austerity in a time of recession, as is commonly asserted. Rather, the primary cause of the crisis and its prolongation is the political agenda of the European authorities -- led by the ECB and European commission. These authorities (which, if we included the IMF, constitute, the 'troika' of unelected technocrats that runs economic policy in the eurozone) want to force political changes, particularly in the weaker economies, that people in these countries would never vote for.

Mariano Rajoy, the current Spanish prime minister, demanded intervention by the ECB to cap bond yields and warned the EU authorities that they too had to deliver on their side of the bargain as his country swallows austerity. With the cost of borrowing heading rapidly towards 7 percent and most foreign investors already shunning Spanish debt, the government will find it increasingly difficult to refinance 98 billion euros of debt and find another 52 billion euros to fund its deficit this year. Local banks are barely lending, or offering loans at prohibitively high rates, squeezing companies and increasing the risk of a chain of bankruptcies which could send the economy into a nosedive. The banking system's total loans to the business sector were 44.6 billion euros at the end of March half of what they were at the end of the boom in 2007, and the contraction continues almost every month.

The latest data show that the real M1 money supply – cash and overnight deposits – for China, the eurozone, Britain and the US has been contracting since the early Spring. The world money data show that real M1 for the G7 economies and leading E7 emerging powers peaked at 5.1% in November and has since plunged to 1.6% in April. The data explain why commodity prices are falling hard, with oil down to $84 a barrel.

And that brings us back round to the banksters solution: more free money. Goldman Sachs expects Federal Reserve chair Ben Bernanke to open the door for QE in testimony on Thursday.

Stock markets rallied in Madrid and Milan led by bank shares on rumors of an EU plan to recapitalize banks directly with funds from the ESM bail-out machinery. The only thing that prevents it for now is polling data that sends a shiver up the back of the German politicians.

Merkel has no background in economics at all, and Draghi was formally an investment banker for Goldman Sachs. This is not about doing the right thing for the general population. The present crisis, which is largely the result of excessive credit expansion and poor risk management by EU banks, is being used by the European Commission and the ECB to establish a euro-wide "banking union" and to impose savage cuts to social programs, health care, and pensions. The response by EU policymakers is a social counter-revolution designed to transform the 17-member monetary union into a permanent "austerity zone" ruled by corporate elites and big finance.

The European Commission stated the objectives quite simply: "The eurozone must boost growth and cut debt to regain investor confidence but it should also move towards a banking union, consider eurobonds and the direct recapitalisation of banks from its permanent bailout fund.” This looks to be the end game, more money for the banks by means of bailouts, euro-bonds to recapitalize banks, a banking union to solidify the power of big finance over the individual countries.

Top executives at Bank of America Corp did not tell shareholders just before a 2008 vote on its purchase of Merrill Lynch & Co that Merrill's losses were mounting and expected to weigh down earnings for years; this according to papers filed in private shareholder litigation show.

Former BofA CEO Kenneth Lewis said in their own court papers that they should not be liable to shareholders who claimed to have lacked information that they needed to vote on the once $50 billion merger.

Lewis also said he had been advised by the bank's law firm and chief financial officer that no disclosure was necessary.

The papers, including sworn testimony from Lewis, were filed on Sunday night in class-action litigation accusing BofA of fraudulently misleading holders of shares and call options about Merrill's losses and bonus payouts.

They may also strengthen the contention that Bank of America withheld material information just before the December 5, 2008, merger vote, a characterization that Lewis resisted in a March 27 deposition by the shareholders' lawyers.

In all cases of securities fraud, the fight is always about who knew what, when. This deposition shows that before the actual shareholder vote, there was knowledge that the numbers were different. Call it large, call it substantial, but it is likely material.

The bad news just keeps on coming in the JP Morgan CIO scandal. We’re getting a lot of salacious detail, but the media manages to continue to miss the bigger picture. An article in Reuters explained: “JPMorgan dips into cookie jar to offset ‘London Whale’ losses”.

The main point of the article is that the ‘cookie jar’ contains $8 billion of unrealized gains from the profitable investment of excess deposits. The tricky bit for JPM, its depositors and inquisitive regulators, investors, external auditors, and disgusted citizens  is explaining why $1 billion of that reserve was gifted to the CIO desk to cover its trading losses. Trickier still is Dimon’s pledge of the entire $8 billion to cover any further CIO trading losses. Henry reports:

‘JPMorgan Chase & Co has sold an estimated $25 billion of profitable securities in an effort to prop up earnings after suffering trading losses tied to the bank’s now-infamous “London Whale,” compounding the cost of those trades.’

The story estimates that JPM sold $25 billion of the Investment portfolio assets to generate the initial $1 billion gain used to offset the $2 billion losses Dimon disclosed in the May10 press conference. There is no word yet on the size of the losses JPM has incurred since the announcement.

As a result of the sale, at least 12% of the total investment account reserves that were, in theory, set aside to protect depositors in the event of a market shock, have been raided to prop up the second quarter bottom line. But that assumes you buy the Dimon’s “excess deposits” party line.

One only raids the cookie jar in times of systemic stress. JPMs inclusion of the Investment account assets as part of the trading portfolio defies both accounting norms and historical precedents.

‘What he was trying to tell us’ is that these losses will continue to be buried in the investment account until such time as JPM determines that it is tax efficient to recognize offsetting gains. He has already hinted that these loss-generating CDS positions will take time to unwind, which signals that JPM will make every effort to reclassify the loss-producing hybrid trading-hedges as held to maturity positions against the investment portfolio.

Or until such time as the SEC and DOJ or any other regulator or Congress finally have had enough and call JPMs bluff.

And I finish with some sad news: 

Bob Chapman, the long-time editor of the International Forecaster newsletter, has died. It is my understanding that Bob had been fighting pancreatic cancer. Bob often had very different views, but that was part of what made conversations with Bob so compelling. He was a brilliant mind and a genuinely nice person. Condolences to his family.