Friday, September 06, 2013 - Fed Policy Creates Inequality

Fed Policy Creates Inequality

by Sinclair Noe

DOW – 14 = 14,922
SPX + .09 = 1655
NAS + 1 = 3660
10 YR YLD - .04 = 2.93%
OIL+ 1.86 = 110.23
GOLD + 21.10 = 1389.80
SILV + .63 = 23.94

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

This morning we got the big monthly jobs report. Nonfarm payrolls increased by 169,000 jobs last month falling short of the 175,000 to 180,000 Wall Street had expected. Not only did hiring miss expectations last month, but the job count for June and July was revised to show 74,000 fewer positions added than previously reported.

While the unemployment rate fell a tenth of a percentage point to 7.3 percent, its lowest level since December 2008, the decline reflected a drop in the share of working-age Americans who either have a job or are looking for one. That participation measure reached its lowest point since August 1978, a further sign of underlying economic weakness. The rate for men touched a record low.

U-6, a measure of underemployment that includes people who want a job but who have given up searching and those working part time because they cannot find full-time jobs fell three tenths of a percentage point to a 4-1/2-year low of 13.7 percent.

The private sector accounted for the bulk of the job gains last month, but government payrolls increased 17,000 as local governments hired teachers for the new school year. Factory employment rebounded after falling in July. Construction payrolls were flat as both residential and nonresidential construction jobs fell. There was another month of strong job gains in the retail sector. Leisure and hospitality employment also posted solid increases as did health care and social assistance.

So, a generally weak jobs report; there was still growth; we posted a positive number; not a negative, but it was weak growth. That got people wondering if the Federal Reserve would still taper this month. It's widely expected the Fed will cut back or taper its purchases of Treasuries and Mortgage backed securities; currently the Fed is purchasing $85 billion per month; the idea is to reduce purchases to just $70 billion, as they try to slowly get away from the QE purchases. Did today's jobs numbers change anything? Probably not. Certainly nothing that made an overwhelming case. It can be argued how much impact QE has had on jobs in the first place.

One area QE has had a big impact is in the mortgage market; 10-year Treasuries hit 3% briefly yesterday, and the 5% mortgage is likely not too far behind. Oddly enough, jumbo loans are actually now cheaper than conforming loans for the first time in anyone’s memory. The Federal Reserve has essentiallly subsidized the housing market with its mortgage backed securities purchases. And as QE maybe starts to unwind, we ask who won and who lost?

According to a new report from mortgage-backed securities analysts at Bank of America Merrill Lynch, “the cost burdens are disproportionately impacting low-income groups and renters.” Not exactly earth-shattering news unless you consider the source. (I've been saying it for years, but now BofA admits it.)

One important insight here is that “easy monetary policy,” as evidenced by QE, is correlated with the rise in income inequality over the past 35 years. The two periods over this time where inequality really shot up came right after recessions in 1991-93 and 2007-11. These two periods were characterized by aggressive monetary policy, including quantitative easing. Since the primary credit channel in the successive rounds of QE targeted assets for either the rich or near-rich, this stands to reason.

But the primary focus of the paper is housing, and the primary focus of the Fed's QE policy also appears to have been housing. The Fed basically created the conditions for a rise in home prices, thinking that would have great positive effects for the economy. BofA/Merrill cites a Harvard State of the Nation Housing report.

The report starts with comments on the benefits associated with housing’s revival, such as home equity accumulation, but it quickly turns to a starker reality, which is that “the number of households with severe housing cost burdens has set a new record.” This language would be more consistent with the view of housing expressed in gold terms – housing is not a good news story. Moreover, the report shows that the hardest hit in the population are renters and those at the low end of the income distribution. The share of renters in the population, now at 35%, has been rising in recent years, as the homeownership rate has steadily declined from the bubble peak in 2004. So not only are renters disproportionately sharing in increased housing costs, the percent of households in this category is increasing in the wake of the financial crisis.

The Harvard report defines two categories of households with respect to housing costs as a share of income: moderately burdened and severely burdened. Moderately burdened households pay 30%-50% of pre-tax income for housing; severely burdened households pay more than 50%. Rising home prices laid the burden primarily on owners between 2001 and 2007, but as home prices declined and credit tightened, the burden shifted to renters. Most importantly, in aggregate, between 2001 and 2011, there was a 35% increase in the number of burdened households, for a net addition of 11 million households to the burdened category. The percent of burdened households grew from 29.4% to 36.8%.

Even with mortgage rates plummeting from 7% to 4% from 2001 to 2011, 42 million households experienced moderate or severe housing costs. And the report doesn't take into account negative equity. Renters took the brunt of this stress in the later period; by 2011, an incredible 50% of all renters were burdened by high housing costs.

This impacts quality of life. If you spend most of your income just to keep a roof over your head, it means you spend less for other things like food, health care, transportation, and education. And that lead the banking analysts to conclude that the Fed was adding to inequality. Specifically, the report says:

If monetary policy is in fact responsible for increasing housing cost burdens through policies that have inflated home values, then it is also responsible for limiting the available dollars that lower income families have to spend on education. If unequal access to education is indeed a key driver of growing income inequality, then it appears as if the vicious cycle of rising home prices, higher housing costs, less money to spend on education and greater income inequality is poised to continue.

So today, when the jobs numbers came out weaker than expected, the speculation centered on whether the Fed would cut back on QE. When you consider that QE in reality is lip service and happy talk about full employment and stable prices, and the actual outcome is greater inequality, well, maybe something other than Fed monetary policy would be better.

The G20 wrapped up its summit in Russia. The summary was that the situation in the global economy looks better now than it did five years ago. Economic growth is recovering, but there are still risks, and saying it was too early to ease off government stimulus spending, in spite of recent positive economic news. The G20 now faces a multi-speed recovery with the US economy pushing ahead, Europe maybe finding a floor and developing economies facing blowback from the looming 'taper' by the Fed. Collateral damage from the Fed's easy monetary policies can be found in emerging market economies that enjoyed rapid growth with a flood of cheap dollars, only to see those easy dollars dry up with talk of taper.

The G20 Summit was designed to deal with economic issues, but this one got caught up in the Syrian situation. Obama persuaded nine other G20 nations plus Spain to join the United States in signing a statement calling for a strong international response, although it fell short of supporting military strikes. Obama and Putin talked but could not find agreement. Unable to win Security Council backing because of the opposition by veto-wielding Russia and China, Obama is seeking the support of Congress instead. He declined to speculate whether he would go ahead with a military strike in Syria if Congress opposed it but said most G20 leaders condemned the use of chemical weapons even if they disagreed whether to use force without going through the U.N..

Looking ahead to Monday, Congress reconvenes. This is the first day that both the Senate and the House are back in session after the long summer recess. There are many urgent issues waiting to be resolved — including the continuing resolution that will keep the US government open for business, and this thing with Syria. Sept. 17 & 18 is the next Fed FOMC meeting. And then as we wrap up September, Congress must pass a continuing resolution by Sept. 30 or the government will shut down Oct. 1. There is no chance that a complete 2014 budget can be passed before Oct.1, the start of 2014 fiscal year. A short-term, extension-type continuing resolution for government funding must be passed instead, before Oct. 1. The duration of the continuing resolution will likely be pretty short — say, a couple of months -- so that the Congress does not have to make tough decisions on issues such as sequesters for the 2014 fiscal year.

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

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."

Friday, April 20, 2012 - Burning Down Spanish Debt, AMR and Unions

DOW + 65 = 13,029
SPX + 1 = 1378
NAS – 7 = 3000
10 YR YLD +.02 = 1.97%
OIL + 1.05 = 103.32
GOLD - .20 = 1643.40
SILV - .10 = 31.80
PLAT unch = 1586.00

Italian and Spanish bond yields rose after a draft statement released by G-20 finance chiefs who are meeting in Washington said that Europe's debt crisis still poses a threat to global growth. Spanish bonds briefly pushed above 6%. That helped push the cost of credit-default swaps to insure Spanish government debt up to a record high 503 bp and increased the cost of insuring Italian debt up to 474 bp, a 3-month high. Credit default swaps pay the buyer face value if the borrower - in this instance Spain - fails to meet its obligations, less the value of the defaulted debt. They're priced in basis points. A basis point equals $1,000 on each $10 million in debt.

Credit default swaps, or CDS, are generally considered insurance against default, but it's not really insurance because anybody can write CDS against anybody else; there is no requirement for “insurable interest”. For example, if insurance worked like CDS, I could write a fire insurance policy on your house and if your house burned down, I would collect the payment. You might think that would give me an incentive to burn down your house. Yep, that might be what you would think.

Now the bankers in New York and London might also have a little incentive to burn down Spanish debt. They are taking out insurance on the bet that Spain will default on their debt, and to further the point, they are pushing yields higher and prices lower. The bankers are shorting Spanish debt knowing full well that there will be massive capital losses as Spanish bonds deteriorate. And they fully expect that the IMF and the ECB will eventually bailout Spain. And then they'll sell their CDS and go long Spanish bonds.

The European Central Bank created put $1.3 trillion into a special fund, the EFSF, or European Fubar Slush Fund, in order to build a firewall to prevent contagion. Now they say they're going to need a bigger fund. European banks reportedly will have more than $750 billion dollars in redemptions by the end of the year. They come at a time when the banks have sustained billions in capital losses they can't make up.

Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February. Since 2010, banks in France and Germany have retreated, cutting lending to the governments of Spain, Portugal, Ireland and Greece 42 percent The more banks stop cross-border lending, the more the ECB steps in to do the financing, so the exposure of the core countries to the periphery is shifting from the private to the public sector.

Worse, they've borrowed a staggering 316.3 billion euros ($414.9 billion) from the ECB through March, which is 86% more than the 169.8 billion euros ($222.7 billion) they borrowed in February. This accounts for 28% of total EU-area borrowings from the EU

Spain (#12 Economy in the World) has gotten so bad, so fast that it has made us forget Italy (#8) and we're all ignoring France (#5). France holds their elections on the weekend; apparently they think this will make it easier for people to vote. The Socialist candidate, Francoise Hollande is likely to win the election; it won't be completely decided this weekend; this is just round one.

Also this weekend the G20 is meeting. This morning, the Group of 20 nations committed $430 billion to bulk up the International Monetary Fund's war chest to fight any widening of Europe's debt crisis. The money was available because of a pledge from the BRICS, who are now demanding more voting clout. The G20 issued the following statement: "The tail risks facing the global economy only months ago have started to recede, however, growth expectations for 2012 remain moderate, deleveraging is constraining consumption and investment growth, volatility remains high partly reflecting financial market pressures in Europe and downside risks still persist."

This one nearly slipped by without notice; about a week ago, Spain imposed a ban on cash transactions over 2,500-euro, or about $3275-dollars. Those who violate the rule will face fines amounting to 25 per cent of the value of the payment. About two weeks ago we told you the story of the elderly man who in Greece who publicly committed suicide, which rallied the masses in Athens. Meanwhile, it's really an epidemic in Europe, with suicide rates up 24% in Greece, 16% in Ireland and over 15% in the overall EU and climbing rapidly. Spanish unemployment is already at 23% and climbing while the official Spanish government projections call for an economic contraction of 1.7% this year. The analysts say Spain appears to be falling into its second recession in three years; which is absolute garbage; it's not a recession; it is a depression – full blown and nasty.

Against this backdrop, the International Monetary Fund today released their Financial Stability Report, which assesses how the world's financial system is holding up. Here are a few key points:

The IMF says under existing policies there will be a $2.6 trillion credit crunch in bank assets that will lead to a result in a 1.7% drop in euro-area credit. Under a best case scenario, there will be a $2.2 trillion dollar credit crunch and bank credit will contract by 0.6%. Worst case is $3.8 trillion dollars and bank credit shrivels by 4.4%.

In turn, this would force the Euro-banks to sells assets and freeze up interbank lending. Spain and Italy would be hit very hard, and the UK would take a bigger hit than France and Germany. Go figure.

Beyond Europe, it is essential to start addressing now the medium-term fiscal challenges in the United States and Japan. This should be accompanied by stronger efforts to address US household debt and accelerate housing market reforms.

Now, what does this mean for you? The quick answer: short the euro and go long the dollar, which might be a positive for US Treasuries, and the reason is simple: when you talk about going long the dollar, you really mean treasuries and I don't see treasuries moving much higher, conversely there just isn't much room for yields to drop significantly lower. It might also be a short-term negative for gold and silver, except gold and silver have been holding up quite nicely. We seem to be in a fairly tight range around 1640 to 1660. You might have expected a hit to the metals but it hasn't materialized. If gold drops under 1620, it might be nerve wracking but might offer a dip for buying. It would have to drop under 1500 to make me really nervous, but I don't think we'll get that low because what you're really looking for is a move to safety. In the long run, nothing is safer than the metals. All these moves to prop up the euro are just part of the process of debasing the currency. Right now the dollar looks safe to a whole bunch of investors. Right now, the US dollar is the cleanest shirt in a hamper full of dirty laundry, but that doesn't mean it will smell sweet.

For the week, the Dow gained 1.4 percent, the S&P 500 added 0.6 percent and the Nasdaq fell 0.4 percent, down for a third week running.

About 81 percent of S&P 500 companies that have reported so far have beat expectations, which means 19% of the companies are too stupid to manage analysts.

Apple shares posted back-to-back weekly declines of more than 4 percent for the first time since late December 2008.

Labor groups at bankrupt American Airlines say they support a potential merger with rival US Airways in a deal they say would save more jobs than a plan by parent AMR Corp to reorganize as a stand-alone carrier.

The unions representing American's pilots, flight attendants and ground workers said they struck a deal with US Airways that would preserve 6,200 of the 14,200 jobs American says it would cut if it pursues its current plan.

Their joint statement supporting a merger is an unusual twist that comes ahead of a showdown next week with AMR over the company's request in bankruptcy court for permission to void labor contracts and impose new terms. AMR filed for Chapter 11 last November, citing labor costs. I can't think of another occasion when airline unions actively supported a merger, because those deals usually mean job cuts. For the American unions, it's a real indictment to the company's plan. But it doesn't necessarily mean there will be a merger.

US Airways CEO Doug Parker cautioned his employees in a letter today that the union deal does not mean a merger is in the works. He noted that a deal would need support from the AMR creditors management team and its board of directors.

"But this is obviously an important first step along that path and we are hopeful we can all work together to make this happen," Parker said.

Although AMR has tried for months to blunt speculation, US Airways has hired advisers to explore merger options with AMR, but has not issued a proposal.

AMR spokesman Bruce Hicks dismissed union support for merger talks, noting the company's right in bankruptcy court to create its own reorganization plan without interference at least until September 28.

"These statements do not in any way alter the company's commitment to pursue our business," the airline said in a statement.

Parker has been a vocal proponent of airline consolidation as a means to cut excess capacity on unprofitable routes. He said a deal with AMR would create a "preeminent airline with the enhanced scale and breadth required to compete more effectively and profitably." You might also argue that consolidation means less competition and fewer traveling options, but you can't deny that it is the current trend. Another undeniable trend is that the airline workers have been getting the short stick in consolidation.

Delta is also studying a potential bid for AMR, but the carrier has not presented a merger plan to AMR's unions or creditors in a way that US Airways has made an outreach to the stakeholders of AMR

Earlier this week, Citigroup shareholders rejected a $15 million dollar pay package for CEO Vikram Pandit; the first time shareholders have rejected a compensation plan at a major US bank. Now Pandit and the board of directors are being sued for breaching their fiduciary duties by awarding more than $54 million of compensation in 2011 to the executives, including $15 million to Pandit, though the bank's performance did not necessarily justify it. The complaint says the pay increase proposal "has cast doubt on the board's decision-making process, as well as the accuracy and truthfulness of its public statements."