Monday, November 25, 2013 - A Record High, Barely

A Record High, Barely

by Sinclair Noe

DOW + 7 = 16,072
SPX – 2 = 1802
NAS + 2 = 3994
10 YR YLD - .01 = 2.73%
OIL - .75 = 94.09
GOLD + 7.90 = 1252.60
SILV + .38 = 20.31

The Dow and the S&P 500 indices have posted 7 weeks of gains. Today was flat, with the Dow up a few points and the S&P down a little. We'll have a holiday shortened week, with the market closed on Thursday (something retailers should consider).

Over the weekend, the big news was a nuclear agreement, of sorts between the US and Iran. The basic idea of the agreement is that we would lift some sanctions against Iran and they would not expand their nuclear program. The deal frees up some Iranian oil revenue that had been frozen in foreign banks. It's unlikely Iran will add much in oil exports in the six months covered by the agreement. Iran has been exporting oil to China, India, South Korea, and Japan; those countries were granted waivers on sanctions because they really wanted the oil.

The main benefit of the weekend’s deal with Iran may be the psychological impact on the market, which has long been propped up by fears of a supply disruption resulting from the standoff between Iran and the United States and its allies. Also, Iran may benefit from access to investment in oil infrastructure and equipment; but again, this is a 6 month deal for now. Many Middle Eastern countries have invested in infrastructure and need prices not to drop. Don't forget, a cartel controls a fair amount of the international pricing of oil. As sanctions kept Iranian oil out of the market, (kind of, sort of) many OPEC countries ramped up production and exports; they could easily cut exports if the price drops.

The US has been aggressively pursuing domestic oil and gas development, and there is currently a bit of a glut of production in the US. Don't expect a change in the price at the pump. The national average for gasoline is $3.26 a gallon compared with $3.43 a gallon a year earlier; and down about 60 cents just since early September. We may see a further decline, but very little that could be attributed to the deal with Iran at this time.

Meanwhile, a funny thing has happened as the price at the pump dropped, the wholesale price that refiners, banks, and traders pay before the gas reaches the consumer have jumped almost 20 percent over the last couple of weeks. While we've seen a boom in domestic production, we've also seen a boom in US exports of refined products; exports have more than tripled from about 1 million barrels a day to more than 3 million barrels a day. Yes, we have plenty of oil, a little less in refined petroleum products.

Also, this deal is still largely dependent on the cooperation of Congress, and Congress has been less than cooperative on almost everything, and especially anything to do with Iran. The White House has some discretion to rescind the Iran sanctions without Congress’s approval. The method for removing any given set of sanctions depends on how those sanctions were passed in the first place. If they’re the product of an executive order, as many of the existing sanctions against Iran are, removing them requires only that the White House decide to stop enforcing them. Removing sanctions that have been passed into law by Congress, however, is a much more difficult challenge.

Former Treasury Secretary Tim Geithner has a new job. He passed up a chance to work at megafund manager BlackRock. Geithner, who has landed a plum private-equity gig with Warburg Pincus, opted against joining CEO Fink’s BlackRock — with $4 trillion in assets under management — because he wanted to have a more involved role with any company he ended up joining.

Swiss voters overwhelmingly rejected an initiative that would have restricted executive salaries to 12 times that of the lowest-paid employee. Roughly 65% of Swiss voters Sunday opposed the 1:12 Initiative for Fair Pay.

How much should you pay to deposit money in a savings account at a bank? Not how much should you be paid, how much should you pay. Retail banks have warned they might need to start charging customers and companies for deposits if the US Federal Reserve cuts interest it pays on bank reserves. Not only has the Fed maintained a zero interest rate policy, but they have been paying banks to hold excess funds on deposit with the Fed. There is talk of the Fed not paying the banks; just talk at this point. The idea being that banks would be more inclined to put money to work with lending and other stuff that helps the economy. So, the banks are just talking about how they might have to charge you to make a deposit. The banks say that, without that interest payment, they might also be pushed to take ever-crazier risks with money that was once safely parked at the Fed.

Signed contracts for existing homes fell nationwide in October for the fifth straight month, further evidence the housing market has slowed after a frenzied rebound earlier this year.

The National Assn. of Realtors said its pending sales index, adjusted for seasonal swings, dropped 0.6% from September and was down 1.6% from its October 2012 level. The trade group said the government shutdown in early October, declining affordability and limited inventory curbed sales.  The index, which reflects signed contracts whose sales haven't yet closed, is at its lowest level since December of last year.

The world's biggest retailer, Walmart, announced that it is to replace its president and chief executive, Mike Duke, who is stepping aside after a year in which the company has struggled with sluggish sales and labour disputes.

Doug McMillon, currently CEO of Walmart's international division, will replace Duke as president and CEO of Walmart Stores on 31 January. Duke relinquishes the reins five years in charge, although he will stay on as chairman of the company's executive committee. Maybe a sign that Walmart will concentrate more on the international side of their business.

H&M the second largest clothing retailer, based out of Sweden has promised to pay workers In Bangladesh and Cambodia, a living wage. The pledge covers 850,000 workers. H&M said that because conditions varied between countries and factories, it would support textile workers in negotiating a living wage – a salary that enables a decent standard of living – instead of imposing a figure. It said paying more to factories that adopt a living wage would not push up the price of its goods.

The stock market will be closed Thursday, and a half day on Friday. Or, I should say Black Friday. Don't fall for it. Bargain hunters can — and, in some cases, should — avoid the Black Friday weekend crush. The shopping bonanza is mainly an expertly marketed ploy to capitalize on shoppers' fear of missing out. By dangling a small batch of irresistible savings, stores land hordes of hopeful shoppers all scheming to score the retail version of the golden ticket. Yet only a tiny percentage of customers end up with the most desirable deals. The rest, unwilling to leave empty-handed, walk away with lesser bargains arranged appealingly nearby.

The weekend is crowded with misleading promotions, including deceptive discounts off misstated "original" prices and deals that could have been had a year earlier. More than 90% of Black Friday ads this year feature items being sold at exactly the same price as they were last Black Friday. Retailers have been in a promotional mood for months as they try to attract wary shoppers. They're trying to make up for sales that have been weak through much of the year, damaged by volatile weather, shaky consumer confidence, the government debt stalemate and a payroll tax increase.

Forecasts for the Thanksgiving-to-Christmas period — which can sometimes account for 40% of a retailer's annual sales — are dour. Morgan Stanley predicted the worst holiday sales since 2008. Worried retailers may continue discounting well past Black Friday in an attempt to suck in last-minute stragglers

Friday, September 27, 2013 - Swords to Plowshares

Swords to Plowshares

by Sinclair Noe

DOW – 70 = 15,258
SPX – 6 = 1691

NAS – 5 = 3781

10 YR YLD - .02 = 2.62%
OIL - .16 = 102.87
GOLD + 12.40 = 1337.20
SILV + .05 = 21.88

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

And it looks like it won't start any time soon; I refer, of course to US military intervention in Syria; the Syrian Civil War is ongoing, but the US didn't jump into that quagmire. A funny thing happened in New York last night, the five permanent members of the United Nations Security Council have agreed on a resolution that will require Syria to give up its chemical weapons; yes, that means Russia and China signed off on the deal, but there will be no automatic penalties if the Syrians fail to comply. If Syria fails to comply, there would need to be further UN agreement on what measures to impose for noncompliance. Still, it is a remarkable turn of events considering that a few short weeks ago we had destroyers in the Mediterranean and it looked like bombs would fly at the drop of a hat.

The diplomatic breakthrough on Syria came as Iran’s foreign minister, Mohammad Zarif, said progress had been made toward a resolution of the nuclear dispute between his country and the West, suggesting it could happen in a year. Zarif met face to face with Secretary of State John Kerry in one of the highest-level discussions between the two countries in more than 30 years. Then, this morning President Obama revealed he had talked by phone with President Hassan Rouhani of Iran, the first direct contact between the leaders of Iran and the United States since 1979. Obama said they discussed Iran’s nuclear program and said he was persuaded there was a basis for an agreement.

Mr. Obama added: “A path to a meaningful agreement will be difficult. And at this point both sides have significant concerns that will have to be overcome. But I believe we’ve got a responsibility to pursue diplomacy and that we have a unique opportunity to make progress with the new leadership in Tehran.”

So, the war hasn't started, and that's good. War is hell, and it's expensive. War, the military industrial complex, and the national security state that accompanies it can cost and arm and a leg, literally. And for many years, that is where American taxpayers' dollars have gone. Trillions of dollars. The Iraq war has cost somewhere north of $3 trillion, depending on the source for the numbers. And just to have the Tomahawk missile program sitting idle on the sidelines, waiting for potential deployment – that costs about $36,000 per hour. About $600 billion a year gets pumped into the Department of Defense, and that doesn't include the civilian intelligence community or the Department of Homeland Security. And we've recently learned there is more money being pumped to the civilian contractors than we previously imagined.

Budget cuts at the Pentagon were long considered an impossibility and a formula in Congress for political suicide. Now, the austerity movement’s first major initiative in Washington, known as sequestration, those mandated, take-no-prisoners, across-the-board cuts in federal spending instituted by Congress, have in fact accomplished what nothing else could: the first downsizing of our defense spending in this century. Sequestration cut about $40 billion from the Pentagon's funding this year. It's a start.

If we were smart, we should be able to get some credits for not starting wars, because that would have pushed military expenditures into the stratosphere. For example, no military intervention in Syria should result in at least $80 billion extra that could be spent to hire teachers or build bridges or public transit or to help veterans or green energy; whatever.

There should be a process for converting from a war economy to a civilian peace-time economy. Consider the Norfolk Naval Shipyard in Portsmouth, Virginia, a vast facility that repairs and rebuilds submarines. It spans 800 acres, contains 30 miles of paved roads and four miles of waterfront, employs 6,750 civilian workers, and has its own police and fire departments. Examining the current job categories at the shipyard reveals a skills base ready to be tapped to develop and produce green-energy technology. From electrical engineers and chemists to machinists, metal workers, and crane operators, there’s plenty of overlap between existing man- and womanpower in military industry and what’s needed for the robust growth of this country’s green energy sector.

For now, though, the shipyard is still doing submarines. And it will keep doing them until Congress makes new and different plans for this country. That's just one example; there are plenty more all around the country. Taxpayers have invested billions of dollars over decades in developing inventive technology, building infrastructure, and training skilled workers to fulfill military contracts for the war economy. It’s time for the American public to start seeing all this harnessed to new purposes.

Right now lawmakers are loath to cut funding if it means erasing military jobs in their districts, and the military-industrial complex has been particularly clever in the way it has spread its projects across every state and so many localities. Converting military contracts into green energy contracts would make redirecting wasteful military spending more politically feasible, and the federal government already operates an array of programs, including the Pentagon's own Office of Economic Adjustment, that could be expanded to help businesses and communities make the transition.

Moving public dollars into this country’s renewable energy sector could begin to lay the groundwork for a vibrant economy in the second and third decades of this century, while creating good jobs in a growth sector, working toward energy security, and helping this country reduce its reliance on fossil fuels. Like the construction of our interstate highway system in the 1950s, it’s an investment that would pay dividends for decades to come.

Maybe there is a better use of our time, energy, and money than to launch the next war.

The Intergovernmental Panel on Climate Change (IPCC), released the first chapter of its fifth assessment on global warming this morning, and the unequivocal message is that human beings are the “dominant cause of observed warming” that’s been seen since the mid-20th century and we must take action to cut greenhouse gas emissions. This is not news; while the certainty around the scientific case for man-made climate change has tightened somewhat, much of the new report reiterates the conclusions reached in the last IPCC assessment,which was released in 2007. 
The new report says that even if the world begins to moderate greenhouse gas emissions, warming is likely to cross the critical threshold of 2C by the end of this century. That would have serious consequences, including sea level rises, heatwaves and changes to rainfall meaning dry regions get less and already wet areas receive more. The IPCC warned that the world cannot afford to keep emitting carbon dioxide as it has been doing in recent years. To avoid dangerous levels of climate change, beyond 2C, the world can only emit a total of between 800 and 880 gigatonnes of carbon. Of this, about 530 gigatonnes had already been emitted by 2011. We're two-thirds of the way there. That has a clear implication for our fossil fuel consumption, meaning that humans cannot burn all of the coal, oil and gas reserves that countries and companies possess. In other words, we are fast approaching a tipping point, a point of no return.

Each of the IPCC’s last five big reports found that climate science has gotten increasingly certain that the planet is warming, and humans are the main cause. Scientists have a 95-100 percent certainty (“extremely likely”) that humans are causing temperatures to rise. Directly from the report: “It is extremely likely that more than half of the observed increase in global average surface temperature from 1951 to 2010 was caused by the anthropogenic increase in greenhouse gas concentrations and other anthropogenic forcings together.” The report in 2001 was 66 percent certain, and the 2007 report was 90 percent certain. Scientific conclusions that cigarettes are deadly and that the universe is about 13.8 billion years old have similar levels of certainty.

The science finds that the atmosphere and ocean have warmed, the amount of snow and ice has diminished, the global mean sea level has risen and that concentrations of greenhouse gases have increased. The central estimate is that warming is likely to exceed 2C, the threshold beyond which scientists think global warming will start to wreak serious changes to the planet. That threshold is likely to be reached even if we begin to cut global greenhouse gas emissions, which so far has not happened.

The IPCC assessments are important because they form the scientific basis of UN negotiations on a new climate deal. Governments are supposed to finish that agreement in 2015, but it's unclear whether they will commit to the emissions cuts that scientists say will be necessary to keep the temperature below a limit at which the worst effects of climate change can be avoided. And the worst effects of climate change are scary; livelihoods across the planet will be affected, the sea levels will rise, major changes in the sources and availability of drinking water, massive displacements of hundreds of billions of people, the acidification of the oceans, raging forest fires, famine, starvation, and more.

The science grows clearer, the case grows more compelling, and the costs of inaction grow beyond anything that anyone with conscience or commonsense should be willing to even contemplate. 

Thursday, October 4, 2012 - If I Didn't Hear It, Did It Happen?

If I Didn't Hear It, Did It Happen?

By Sinclair Noe

DOW + 80 = 13,573
SPX + 10 = 1461
NAS + 14 = 3149
10 YR YLD +.04 = 1.66%
OIL + 3.47 = 91.61
GOLD + 11.30 = 1791.30
SILV + .33 = 35.07
PLAT + 31.00 = 1725.00

Initial claims for state unemployment benefits climbed 4,000 last week to a seasonally adjusted 367,000, the Labor Department. But that followed a drop of 22,000 and a four-week average, which offers a view of trends, held steady at 375,000. The monthly jobs report is tomorrow morning.

Today, the Federal Reserve released the minutes of the FOMC's September 13meeting. Of course, we know the Fed launched QE to Infinity and Beyond, or at least $40 billion dollars a month in mortgage-backed securities, until such time as we see maximum employment or until inflation becomes a problem. From the meeting minutes we learn that there might be limits on QE. The report says: "Most participants agreed that the use of numerical thresholds could be useful in providing more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges."

In other words, there might be limits to acceptable unemployment. Maybe 7%, maybe 5%? We don't know. And there might be limits to acceptable inflation. Maybe 2%, maybe 3%? We don't know. We would like to know. If we knew, we could bet on the numbers. Unemployment at 8.2% and inflation at 1.5% equals risk on. Unemployment at 4.9% and inflation at 3.1% equals risk off.

A number of FOMC participants expressed uncertainty about the effect the new Fed program might have and how it might complicate monetary policy going forward. So they adopted a "flexible approach" that would allow the Fed "to tailor its policy response over time." And instead of numerical thresholds, the Fed will buy large quantities of mortgage bonds until it is satisfied that the jobs market has "substantially" improved.

I didn't hear a lot of things in the presidential debate last night. For example, it seems the housing crisis is officially over; didn't hear anything. I didn't hear anything about the problems in Europe. I heard more about big bird than malfeasance by banksters. Facts; that was another thing missing in action. If I didn't hear it, did it happen? One of the big things I didn't hear was a mention of the Federal Reserve or the fate of the dollar. QE to infinity and beyond will substantially chip away at the value of the dollar. Sometimes currencies don't slowly erode, sometimes they crumble quick. The Iranian rial is collapsing. The rial has dropped 60% in the past 8 days. The sanctions against Iran are having an effect. There have been increasing labor strikes for months around Iran. There are three likely outcomes: first, the government of Iran might collapse, or they might try to provoke an attack by Israel or the US and rally the people behind an increasingly unpopular government, or the economy might collapse without the government collapsing – this would probably involved throwing Ahmadinejad under the bus.

Of course, there is one more possibility. The sanctions might not work as expected. China’s buying of Iranian oil hasn’t slowed in recent months despite the sanctions. In July they bought 20 million barrels. If China and others are buying Iranian crude on the sly and paying with gold, they are providing lifelines to Tehran’s economy and the regime. Because of this, Europe is considering a fresh wave of sanctions at their next ministerial meeting on October 15th targeting loopholes where crude is leaking out of Iran. And the US is also set to implement a new round off sanctions this fall. Time will tell if this is a deathblow to the Iranian economy; if it is and there is regime change, the sanctions get lifted and oil flows back into the broader market and prices could drop fast. Or it could go nuclear and prices light up like a bottle rocket. Expect volatility.

Meanwhile, the European Central Bank held another policy meeting today. They decided to hold interest rates at 0.75% because there isn't really any advantage to lower rates right now. ECB President Mario Draghi said the program of outright monetary transactions, or OMTs, outlined last month has “helped to alleviate such tensions (in financial markets) over the past few weeks, thereby reducing concerns about the materialization of destructive scenarios.”

Draghi said the OMT program is ready to launch and serves as an effective “backstop” against turmoil in the region, while reiterating that the ECB sees the euro currency as “irreversible.” It is widely expected Spain’s 2013 budget will get a thumbs-up from European authorities in coming days, clearing the way for a formal aid application and the subsequent activation of the OMT program. The bailout could be a boost for the euro and possibly for stocks. Meanwhile, Spain, which is seen as all but certain to need a full sovereign bailout as it wrestles with the aftermath of a collapsed property bubble, has remained reluctant to seek aid, and has continued to drag its feet. That’s attributed largely to concerns abut the potential for demands for added austerity and the loss of Madrid’s control over its own budget. The Spaniards really don't want to have the ECB jackboots on their economic throat.

Nobel prize winning economist Joseph Stiglitz writes: Central banks on both sides of the Atlantic took extraordinary monetary-policy measures in September: the long awaited “QE3”..., and the European Central Bank’s announcement that it will purchase unlimited volumes of troubled eurozone members’ government bonds. Markets responded euphorically... Others, especially on the political right, worried that the latest monetary measures would fuel future inflation...

In fact, both the critics’ fears and the optimists’ euphoria are unwarranted..., the stimulus that is needed – on both sides of the Atlantic – is a fiscal stimulus. Monetary policy has proven ineffective, and more of it is unlikely to return the economy to sustainable growth.

And here in the US the Murdoch Street Journal had this headline:

Imminent Recession?

So says David Malpass in the WSJ:

Data released this week by the Commerce Department waved bright red recession flags—orders for durable goods fell 13.2% in August and inflation-adjusted personal income fell 0.3%. ... the new Commerce Department numbers, combined with his stay-the-course approach, point to recession in 2013.

Back in June 2008, David Malpass stated:

While many problems remain from the 2007-2008 financial crisis, the rebound from the two-quarter slowdown looks to have taken root. I expect 1-2% growth in the second quarter and 3% in the second half. Rising inflation and Fed rate hikes later in 2008 will bring periodic worries about the pace of rate hikes, causing occasional market jitters like the current one. But the low level of interest rates should win out for both the economic and equity market uptrends (as it did during the rate-hiking cycle in 2004-2006).

 When someone with a bad track record tries to scare people you have to take it with a grain of salt, however we do have general nervousness about economic conditions in the US, combined with QE to infinity and the ECB's OMT. Monetary-policy easing over the past few months has acted as a support for gold as investors view it as the ultimate store of value. Mix in some tensions in the Middle East, and watch gold jump to an intraday high of 1796.

Yesterday I told you about the New York Attorney General's civil fraud case against JPMorgan Chase over mortgages originated and sold by Bear Stearns. The lawsuit accuses Bear Stearns of a "systematic abandonment of underwriting guidelines" and says that defects among loans sold to investors were largely ignored. Creating and packaging defective loans for sale to investors helped cause the housing bubble and subsequent collapse. The JPMorgan complaint was the first action to come out of a working group created by President Barack Obama earlier this year to go after wrongdoing that led to the 2008 financial crisis. JPMorgan, which bought Bear Stearns for $10 a share in March 2008, said in a statement it would contest the allegations.

Today, Reuters reports the New York AG and the Justice Department are investigating Credit Suisse over mortgage backed securities packaged and sold by the bank. Credit Suisse was a "huge player" in residential mortgage-backed securities until the market collapsed in 2007. The bank securitized some $128 billion in residential mortgage loans starting in 2004.

The head of the Office of the Comptroller of the Currency, a new guy appointed in March, is trying to shake things up, you know, actually get the regulators to show more signs of life than Jim Lehrer. So, Thomas Curry has apologized to senators and bankers. He says his agency should have stopped a major bank from helping drug cartels launder cash. The violations went on for years while his agency was overly passive. “I deeply regret we did not act sooner,” he said.

Curry had been on the job for just over three months on that day in July, so the mistakes hadn’t been made on his watch. His apologies were less a confession than a signal the Office of the Comptroller of the Currency -- long seen as the most bank- friendly of US regulators -- was changing course. Curry has also raised the profile of consumer protection and shifted focus toward “operational risk” -- the idea that bank practices and management can pose as much of a threat to safety and soundness as external forces.

Curry’s four predecessors all became advisers to the banking industry after they left the job -- three as lawyers in financial-services practices and Eugene Ludwig as founder and chief executive officer of Promontory Financial Group LLC, a Washington-based consulting firm. 

Monday, August 20, 2012 - Diminished Expectations

Diminished Expectations
-by Sinclair Noe


DOW – 3 = 13,271
SPX -0.03 = 1418
NAS -0.38 = 3076
10 YR YLD un = 1.81%
OIL - .05 = 97.70
GOLD + 5.40 = 1622.20
SILV +.72 = 28.91
PLAT + 12.00 = 1496.00

Apple already boasts the largest market value of any public company. Today it became the most highly valued public company ever. With an increase in its share price, Apple broke the record for the biggest market capitalization, $616.34 billion, set by Microsoft on Dec. 27, 1999. Of course, shortly thereafter, Y2K hit and destroyed modern civilization as we know it; or maybe it was because Apple invented the iPod and the iPhone and the iPad, and Microsoft gave us Zune. Who knows?  Apple’s stock closed at $665.15, giving it a market value of $623.52 billion. Microsoft’s 1999 market value is still far higher than Apple’s when adjusted for inflation. The Microsoft of late 1999 would be worth $850 billion in today’s dollars. To beat Microsoft’s inflation-adjusted market value, Apple needs to close at $910. The Microsoft of August 2012 is worth $257 billion.

I'm not sure what it says about our economy, that Apple is the most valuable company ever, but I suspect it is problematic. 

ECB President Mario Draghi is scheduled to speak at this year's Jackson Hole symposium. A fellow named Ben Bernanke is already scheduled to speak at the symposium, and so there has been a little speculation that there might be some coordinated action that will be announced. I'm not sure the ECB has learned the meaning of coordination. 

German magazine Der Spiegel said over der weekend that der ECB was considering buying debt issued by member countries if their interest rates became too elevated; the idea is unlimited bond buying to cap interest rates, but a bank spokesman said it was misleading to report on yet-to-be decided matters.

Germany's central bank, the Bundesbank, also on Monday reiterated its opposition to bond purchases, and a spokesman for the German Finance Ministry said it was not aware of any plans for the ECB to target bond spreads. It is a little tricky to figure out exactly what position Germany is taking, but they seem to benefit for the ongoing crisis; Germany is considered a safe haven of sorts. Spain is still a basket case. Technically, Spain can't receive aid until they make a formal request for aid; they haven't requested the aid, but there has been a bailout of the Spanish banks, but nobody knows details. The latest plan calls for banks to transfer their non-performing assets into a newly formed “bad bank” (which seems like a redundant term). At some point,the ECB may throw a bone to Greece, maybe not. In other words; the Euro-crisis seems very uncoordinated. 

The European Central Bank will hold their next policy meeting on September 6. The German constitutional court will rule on the legality of the euro zone's new bailout fund on September 12. You may recall, Draghi promised to do whatever it takes to support the Euro-union, yet what can he do before he finds out whether the Germans decide that whatever he is doing is legal or not? Expectations for a successful resolution are greatly diminished. 

 The next Federal Open Market Committee meeting is scheduled for September 13. We are seeing a situation where the US economy is looking a little better, while the economy of the euro zone continues to deteriorate. This is bullish for the dollar and bearish for the euro currency.  There is a slim chance we could see some coordinated action between the Fed and the ECB coming out of Jackson Hole; I doubt it. There is a slim chance that the Fed will take an accommodative move, possibly QE3 during their  September  FOMC meeting; but I doubt it; more likely, they wait till next year – unless.., Unless the ECB and the Germans are so uncoordinated that they can't come up with some program. Inaction, or a lack of action might be very dangerous for the for the Euro-zone. There is a chance the ECB could screw things up over the next three weeks, forcing the Federal Reserve to take action on the 13th. Just something to keep in mind. The way this is likely to play out is deflationary pressures in various parts of the world, especially Europe, along with a flight to quality buying due to the ongoing economic and political problems in the Euro-zone. 

Right now, it looks like the Federal Reserve is fairly satisfied with the idea of 8.3% unemployment and they think that any risk of sustained inflation above 2% per year is unacceptable. The Fed seems to be sanguine in the face of steady job growth in the neighborhood of 150,000 new jobs per month. It is real easy to forget that the economy has been adding jobs, steadily, consistently, for 29 consecutive months. I don't think we've added enough jobs. If you are unemployed, you are certainly not satisfied, but the Fed seems sanguine.

The biggest fear is that the Fed has not set a higher standard for unemployment; it is possible the Fed has set the bar for unemployment and that this will be a self-fulfilling prophecy. Any cyclical decline in the labor force participation rate becomes structural over time as skill loss increasingly excludes those displaced by the depression from reentering the labor force.

There is concern that the bar has been set too low for the economy as a whole.  Once the policymakers believe the economy is operating at full-potential rather than recognizing it is operating at far less than potential, then they start behaving like we can't realistically expect more; they set policy and manage the economy for suboptimal results, and that is exactly what we get. The anticipated becomes the expected and it is the self-fulfilling prophecy. We get what we expect; and our expectations are diminished.The cyclical becomes structural. 

 The Fed has done this, turned the cyclical into the structural in the area of their mandate on price stability; they set a 2% rate of inflation as their target; they did not set a specific, enumerated target for unemployment. The result? We have lingering and high unemployment and we have inflation firmly ensconced below 2%. We have met expectations; the cyclical has become the structural. 

Right now, the Fed acts like it is scared of inflation. They might have good reason; we will likely see higher food prices as a result of the drought; we will likely see higher gasoline prices, despite more domestic oil production and despite conservation efforts. There are some outside forces the Fed can't control but those forces will likely revert to the  mean over time. 

The Fed does control monetary policy and monetary policy still has a huge influence on the economy, on the growth of the economy, on prices we pay in the economy, and on money we earn in the economy. There is an old saying: “don't fight the Fed.” But I wonder if the Fed is still willing to fight, or have they given up? Are they willing to accept the new, suboptimal normal? Are they willing to push the boundaries of 2% inflation? Would Bernanke's head explode if we had 3% inflation?  Is it time for the Fed to step on the throttle and see if they can get all cylinders firing? We usually end up with the economy the Fed wants us to get. 


I mentioned the inflationary pressures on food prices from the drought. For California, the drought is a problem but a bigger problem is not enough farm workers.  Some crops won't get picked this season due to a lack of workers.
Farmers will just leave some crops in the field.  The Western Growers Association reports a 20 percent drop in laborers this year. Stronger border controls are keeping workers from crossing into the US  illegally, and the current guest worker program is not providing enough bodies. The lack of workers is forcing farmers to pay more. Still, it's not enough to attract local labor. 


A UK parliamentary report criticized Barclays ex-Chief Executive Officer Robert Diamond for giving “unforthcoming and highly selective” evidence; the report  faulted the bank for letting traders rig interest rates.

The “candor and frankness” of Diamond’s testimony to lawmakers on July 4 “fell well short of the standard that Parliament expects,” the House of Commons Treasury Committee said in a 122-page report today following its inquiry into the bank’s attempts to manipulate the London interbank offered rate.

“The Barclays board has presided over a deeply flawed culture,” the panel of British lawmakers said. “Senior management should have known earlier and acted earlier.”

Barclays was fined $450 million for manipulating Libor. Barclays’ compliance department was told three times about concerns over Libor, yet these warnings weren’t passed on to senior management, the committee said. Compliance at the bank was “persistently ineffective”, and the actions of Barclays and other traders were “disgraceful” and harmed the reputation of the bank and the industry.  

You see how this sets up for the senior management to get a slap on the wrist and for some “rogue traders to be severely punished?


Foreign banks dominated a key Federal Reserve bank lending program that ran from 2007 to 2010. According to a paper written by Northwestern University’s Efraim Benmelech, the Fed’s lending tool called the Term Auction Facility, TAF, lent directly to deposit taking banks and was created to circumvent many financial institutions’ reluctance to borrow from the central bank’s traditional source of emergency lending, the Discount Window. The research was published by the National Bureau of Economic Research.

Lending via the TAF was substantial and at its peak represented the largest category on the Fed’s expanding balance sheet,  around $500 billion in early 2009 and steadily trailed off as the worst days of the financial crisis passed.

So, what did those foreign banks do with all the money they borrowed from the Fed's TAF, to help keep them afloat? 

Federal and state prosecutors are investigating Deutsche Bank and several other global banks over accusations that they funneled billions of dollars through their American branches for Iran, Sudan and other sanctioned nations

The Deutsche Bank investigation is the latest in a series of cases against global  firms since 2009 that suggests the practice of transferring money on behalf of Iranian banks and corporations flourished under a loophole in United States policy that ended in 2008.

A spokesman for Deutsche Bank declined to comment, but noted that the German bank decided in 2007 that it would “not engage in new business with counterparties in countries such as Iran, Syria, Sudan and North Korea and to exit existing business to the extent legally possible.”

Since 2009, the Justice Department, the Treasury Department and the Manhattan district attorney’s office, working largely in concert, have brought charges against five foreign banks, contending they moved billions of dollars through their American subsidiaries on behalf of Iran, Cuba and North Korea, sponsors of terrorism and drug cartels.

The five banks all included deferred prosecution agreements and required the banks to forfeit some assets. The banks are: ABN Amro, Barclays, Credit Suisse, Lloyds  and ING.

The cases typically have not involved United States banks. Unlike foreign institutions, American banks were prohibited from originating or receiving such transactions from Iran. That enabled them to largely sidestep the conduct that has helped ensnare foreign banks.

Monday, August 6, 2012 - Front Running and Money Laudering - All in a Day's Work

Front Running and Money Laundering - All in a Day's Work

- by Sinclair Noe

DOW + 21 = 13,117
SPX + 3 = 1394
NAS + 22 = 2989
10 YR YLD -.02 = 1.55%
OIL -.10 = 93.86
GOLD + 8.00 = 1612.60
SILV +.08 = 27.98
PLAT – 5.00 = 1407.00

A couple of weeks ago I said we had entered the Dog Days of Summer; technically that was correct, however the Economic Dog Days officially start this week; there is almost nothing on the calendar, trading volume has dried up; today was the lightest volume of the year, excluding holidays. Knight Capital was trading again but not with the same vigor of last week. Knight managed to find a consortium of investors to pony up $400 million to allow the company to continue to scalp trades. High-frequency trading algorithms have flourished in the past few years, as under-regulation made way for non-regulation.  The mega banksters and their attendant trading firms figured out a way to  make huge trading profits virtually every day, off of their customers, by front-running, which means  they inserted themselves as middle-men into every trade.

The high frequency traders set up computer rooms right next to the exchanges to assure they get super fast trade information, just a few milliseconds is enough. The high frequency trade algorithms submit bids-to-buy and offers-to-sell hundreds of times per second, and the computer programs determine exactly what price sellers and buyers are willing to accept. The bids and offers would be near-immediately canceled, because the investment banks had no interest in actually following through with them — for all intents and purposes, these were fake bids and offers, or a type of quote-stuffing.  The brokerage firms would then run-in-front of the buyers, hence “front-running”, to buy the stock first, then immediately turn around and sell it to the other buyers for just a bit more.

So, for example, if your pension fund tried to buy a million shares of company XYZ, they put in a bid, the HFT companies like Knight Capital get that info a few hundreds of a second before the public; their computers come up with fake bids and offers, and then they front run the sale and it ends up costing your pension fund an extra half penny per share. It adds up over time.

And so it's no surprise, that a consortium of Wall Street investment banks would want a piece of this High Frequency action. It is almost like a transaction tax that the investment bankers can impose on customers, you know, the same kind of transaction tax that the investment bankers claim they can't be forced to pay.

Stocks closed at 3 months highs. Spanish and Italian bond markets recovered a little. European Central Bank President Mario Draghi has said the ECB may buy short-dated bonds to lower borrowing costs to help Europe. Draghi will have to wait for the Germans to determine if they want to participate and if they think Draghi's plan is legal, and the whole deal will take at least a few weeks, and most of Europe goes on vacation in August and nothing, really nothing gets done. Nothing has been fixed in Europe, but things seem to be getting better or at least not worse, and it seems unlikely that there will be any kind of real blow-up, and that is problematic for the market bears, so there is a bit of a short squeeze. Why fight it? Go on vacation.  European shares closed at 4 month highs.

The New York Stock Exchange has confirmed it is in talks with securities regulators to settle allegations that the exchange violated rules intended to promote fair competition. The SEC is investigating whether the NYSE is violating the regulation that prohibits an exchange from sending out data on a private feed to certain clients faster than on public data feeds. The SEC ramped up its focus on market structure issues like the one at the heart of the NYSE probe in the wake of the May 6, 2010, "flash crash" in which the Dow Jones Industrials plunged about 700 points in several minutes, but there is no indication the current investigation deals with the flash crash. Earlier this year, the SEC's market abuse specialized unit disclosed it was conducting roughly 20 different inquiries, ranging from order types to how exchanges police their markets.

Standard Chartered Bank reaped hundreds of millions of dollars of fees by scheming with Iran's government to hide roughly 60,000 transactions over nearly a decade. The bank violated anti-money laundering laws by scheming with Iran to hide more than $250 billion of transactions, New York state bank regulators say Standard Chartered may lose its license to operate in New York State.

The bank was "apparently aided" by its consultant Deloitte & Touche LLP, which hid details from regulators, and despite being under formal supervision by regulators including the Federal Reserve Bank of New York for other compliance failures involving the Bank Secrecy Act and money laundering.

According to regulators, the bank's actions "left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity."

So, five years ago the banking industry imploded, and over the past few weeks we've seen example after example of how the problems with the finance industry have not been fixed. We've had the frightening risk management at JPMorgan, where the London Whale lost $5.8 billion and counting, we had the complete breakdown of PFGBest; we still don't have any response to the vaporization of more than a billion dollars of MFGlobal accounts; the misuse of insider information at Nomura, the Libor scandal at Barclays, which is growing daily and just involves the global standard for anything with an interest rate; the software glitch at Knight Capital that led to a miniature flash crash, so their traders can scalp a few pennies on everything; money laundering at HSBC; and now money laundering at Standard Chartered. This latest deal was more than just trying to avoid taxes, it was literally aiding Iran.

According to Reuters, the regulator described how Standard Chartered officials debated whether to continue Iranian dealings. In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a "panicked message" that the Iranian dealings could cause "catastrophic reputational damage" and "serious criminal liability."  A top executive in London shot back: "You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians." The reply showed "obvious contempt for U.S. banking regulations," the regulator said.

Standard Chartered allegedly moved money through its New York branch on behalf of Iranian financial clients, including the Central Bank of Iran and state-owned Bank Saderat and Bank Melli, that were subject to U.S. Sanctions. Such transactions were permissible until November 2008, when the Treasury Department prohibited them on concerns that they were being used to evade sanctions, and that Iran was using banks to fund nuclear and missile development programs.

Maybe treason is too harsh a word.

And then there is the case of Capital One, just a small problem, hardly worth a mention. The Justice Department says Capital One has agreed to pay $12 million to resolve allegations the bank violated special consumer protections in federal law for members of the military. Capital One wrongfully foreclosed on some homes and improperly repossessed some cars,  the bank obtained wrongful court judgments against some service members, and improperly denied interest rate relief on some credit card and car loans.

In a settlement under the Servicemembers Civil Relief Act, Capital One will pay $7 million in damages, including at least $125,000 to each service member whose home was unlawfully foreclosed upon and at least $10,000 to each service member whose vehicle was unlawfully repossessed. The Act basically says you can't foreclose on a service member while they are on active duty. Some guy in the mountains of Afghanistan really should not be worrying about his family, back in the states, being kicked to the street while he's trying to fight Taliban armed with the latest rocket launcher purchased by the ayatollahs in Iran and financed by Standard Chartered and audited by Deloitte and Touche.



Earlier today at a conference in Massachusetts, Fed Chairman Ben Bernanke said:
“ ..aggregate statistics can sometimes mask important information.  For example, even though some key aggregate metrics--including consumer spending, disposable income, household net worth, and debt service payments--have moved in the direction of recovery, it is clear that many individuals and households continue to struggle with difficult economic and financial conditions. Exclusive attention to aggregate numbers is likely to paint an incomplete picture of what many individuals are experiencing. One implication is that we should increase the attention paid to microeconomic data, which better capture the diversity of experience across households and firms. ...”

Another implication is that policymakers such as Ben Bernanke should do more to help individuals and households who "continue to struggle with difficult economic and financial conditions." So why isn't he pushing the Fed to do more at every opportunity?


Banks are also stockpiling cash; they're sitting on more than $1.5tn in excess reserves in the US. Corporations are sitting on much more cash than that. Many are not even rewarding investors or accelerating their growth with the money, thereby causing harm to themselves, according to a recent survey by Ernst & Young. Economists also say that cash hoarding is blocking a recovery in Europe.Another study by the Political Economy Research Institute at the University of Massachusetts found that if corporations and banks invested $1.4bn in cash into productive investments and job creation, unemployment would fall below 5% by the end of 2014.

To be sure, the purpose of these companies - and of capitalism itself - is to create profits, not jobs. But as the Great Depression and the Great Recession have demonstrated - and as a famous philosopher-economist once said - capitalism sows the seeds of its own destruction. Sometimes it makes sense to take a long term view, and invest in your customers.

Of course, the question will arise: how can we make quarterly profits-obsessed corporations tap their vast reserves to invest and create jobs to serve their long-term interests? I don't know. But we do know where the money is.

And then we hear the story of the geniuses in San Diego. San Diego's Poway school district is paying $1 billion to borrow $105 million. According to a story in the Voice of San Diego, the city really had no choice. It was either raise taxes or float what appeared to be just another bond to fix its schools.

"Without increasing taxes, the district couldn't afford to borrow money in the conventional way. So, instead of borrowing from investors over 20 or 30 years and paying the debt down each year, like a mortgage, the district got creative. With advice from an Orange County financial consultant, the district borrowed the money over 40 years in a controversial loan called a capital appreciation bond. The key point for the district: It won't make any payments on the debt for 20 years."

Never mind the irony of the advice coming from a consultant in Orange County, which once hailed as being the home of the biggest US bankrupt county. This 40-year capital appreciation bond is really a zero-coupon bond that doesn't require any payments for the first 20 years.

"And that means the district's debt will keep getting bigger and bigger as interest on the loan piles up. The bottom line: For borrowing $105 million in 2011, taxpayers will end up paying investors more than $981 million by 2051, or almost 10 times what the district borrowed. That's wildly more expensive than a typical school bond, in which a district pays back two or maybe three times what it borrowed."

Friday, June 15, 2012 - Greeks Look for a Bargain - by Sinclair Noe

DOW  +115 = 12,767
SPX + 13 = 1342
NAS + 36 = 2872
10 YR YLD -.02 = 1.59%
OIL – 1.11 = 82.80
GOLD + 3.40 = 1627.70
SILV + .10 = 28.84
PLAT – 8.00 = 1490.00


Sunday there will be an election in Greece. I don't know how the election will turn out. I can't find any consensus opinion. There may not be a consensus, even if there is a definitive winner. It appears the extremes are gaining in Europe because centrist parties are offering voters no meaningful choices. Pasok and ND (New Democracy) and Syriza. New Democracy is the old-guard conservative party; Pasok is the old-guard socialist party; Syriza is the new-upstart far left party. Golden Dawn is the new-upstart far right/neo-nazi party but they went to far during a televised debate last week when a spokesman started beating a woman on camera – that went too far and destroyed that fringe element. For Greeks that want to vote against the status quo they have no alternative but to vote for extremists. Right now it looks like New Democracy and Syriza will get the most votes, but not a majority, so they will have to pull together a coalition government, which they failed to do one month ago. But again, the election could swing in any number of unusual ways. 


Some common themes from Greek voters is that they feel they are being blackmailed into voting for parties that drove the economy into a ditch and blindly imposed austerity measures. The Euro-zone support for the international institutions basically means support for the current policy, which is a failed policy. Surveys indicate most Greeks want to remain in the Euro-union; they just want to get out from under the austerity and they want a plan to pay back the debt. 


Alexis Tsipras is the young leader of the far-left Syriza party. He says: “A Europe without Greece is a disabled Europe, and a Europe without democratic principles has no future,” and he adds: “in the European Union, we are all equals. Greece should not be used as a guinea pig for a failed economic policy.” It sounds reasonable enough; even the New Democracy and Pasok parties are agreeing with the far left; they all agree they want to stay in the Euro-union but they want to renegotiate the bailout terms. Still, all this agreement doesn't mean they will be able to forge a coalition to govern the country.


There is a good chance Syriza will do well in the election. The whole bailout process has been a bit one-sided; the Europeans, especially Germany, has placed its boot on the neck of Greece and that's how they've been doing business for the past year or so. Syriza has promised to bargain and negotiate with the Euro-union for better terms and conditions. The old-guard New Democracy and Pasok are begging and pleading with the Euro-union for better terms and conditions. The difference is Syriza is threatening to draw a line in the sand and try to force a bargain. The voters face a dilemma because there are risks involved either way. 


And the question of whether Greece will remain in the Euro-union will likely not be decided by Greeks but by the technocrats; and you couldn't find a more screwed up group than the wing nuts that are in charge right now. 


How screwed up is everything? Christine LaGarde is the head of the International Monetary Fund. She has been very critical of the Greeks. She says Greek parents have to take responsibility if their children are being affected by spending cuts. “Parent have to pay their tax.” It is a strange argument. If the parents really had money saved up from not paying taxes, then they should be able to take care of their children with the tax free money. But forget the glaring irrationality of the argument. Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."


Christine LaGarde is not Greek. As the managing director of the IMF, Lagarde receives a salary of $467,940 plus additional allowances of $83,760, plus automatic annual pay raises. As an official of an international institution the compensation package is not subject to any taxes. 




Angela Merkel, the German chancellor, declared that Europe was “in a race with the markets” to turn its monetary union into a fully fledged political union. Spanish borrowing costs have jumped to unsustainable levels; Italy tried to assuage credit markets with promises of even more cuts in public spending. The UK introduced a series of measures to insulate the British financial system from the Euro-zone's crisis; apparently the idea is to flood the British banks with about $200 billion in cheap credit to jump-start lending to British businesses. The only question is whether there is any demand. The euro-crisis has sent the cost of bank funding spiraling upwards again, and so despite record low bank rates mortgages and business credit have been hard to find and are likely to cost more when available and credit expansion has not been happening. 




More Americans applied for jobless benefits and consumer prices dropped by the most in three years. So we have a couple of economic reports today which might give the Federal Reserve room to juice the  economy. Right now the reports don't show growth or inflation. Claims for unemployment insurance payments climbed by 6,000 to 386,000 in the week ended June 9. The cost of living fell 0.3 percent in May, led by the biggest decrease in gasoline prices in three years. Also, the University of Michigan Consumer sentiment index fell this month to the lowest level since December, with gloomier views on current and future conditions. The Federal Reserve FOMC meets next week to determine monetary policy. The FOMC meeting coincides with G-20 and G-7 summits. Basically, the central bankers of the world are standing by, ready to jump in helicopters and throw money at bankers if there is a glitch in, well almost anything; they're just looking for a reason to get in the helicopters. 


Average rates on fixed mortgages rose this week, the first increase in seven weeks. But mortgage rates remain near historic lows, boosting prospects for home sales this year. Mortgage buyer Freddie Macsaid Thursday that the average rate on the 30-year loan increased to 3.71%. That’s up from 3.67% last week, the lowest since long-term mortgages began in the 1950s. The average rate on the 15-year mortgage, a popular refinancing option, rose to 2.98%. That’s up from 2.94% last week, also a record low.


On July 1st, Cyprus, the tiny island nation in the Mediterranean, will automatically rotate into the Presidency of the Council of the European Union for a six-month term. Cyrpus is broke. Its economy is shrinking, unemployment is at a record, and real estate is collapsing after a phenomenal bubble and  a massive nationwide title-deed scandal that involved widespread collusion among bankers, lawyers, and developers. Cyprus is broke and in desperate straits. What will the European-union do to the Cypriots? What back breaking austerity measures will be imposed?  When will the technocrats take over the government? Just what kind of lazy, shiftless, no-good, do-nothing, tax-dodging sinners are these Cypriots anyway?


Unlike Greece, Cyprus will get a bailout without hardly breaking a sweat. The reason? Last December they discovered vast deposits of natural gas off the southern coast, up to 8 trillion cubic feet of gas. 


OPEC oil ministers agreed to keep their production target steady. Oil prices have fallen more than 20 percent over the past two months, and a statement from the Organization of the Petroleum Exporting Countries cited “downside risks facing the global economy” and ample stocks of crude as being responsible for the trend. While agreeing to hold the output target steady, however, the statement suggested that OPEC ministers were ready to come together on short notice if prices fell to levels dictating a production cutback. So, they don't seem to be in any rush to push prices higher because the global economy stinks, but they won't let prices drop much from current levels. Look for sideways price action for the next few months. 




Opec oil producers are not worried about the shale revolution. They might need to re-run their numbers.  The United States imported 4.5 million barrels per day (bpd) of Opec crude last year, 20% of the cartel’s exports and about half the country’s import needs.  But thanks to new technologies like hydraulic fracturing now sucking away on North American soil, the continent is already self sufficient in natural gas, and is eyeing an even bigger landmark – Opec-free oil supplies.  The US was the fastest-growing non-Opec oil producer in 2011 for the third year in succession.  US oil production is up 1 million barrels per day since 2006 to 7.84 million bpd, consumption is down 1.85 million to 18.84 million. Well, maybe OPEC doesn't need to be worried right now but we are heading for energy independence, someday, maybe. It could happen. 


Usually the price of oil moves in lockstep with the S&P 500 but there has been a bit of a divergence lately; oil prices have dropped while the S&P has shown some resilience after a decline through the month of May. The question is whether equities will catch oil of vice versa.


This week's tour de force performance was Jamie Dimon before the Senate Banking Committee. Dimon lied about not knowing what risks the CIO was taking. He knew the risks for at least the past two years. He lied about the losses being a “tempest in a teapot”; the losses have been growing and might not be finished yet. He lied about not knowing about the Volker Rule. He lied when said the traders were hedging and not prop trading. As a too big to fail banker, Dimon is part of a club of liars. 


In the largest fine ever assessed against a financial institution for violating sanctions on Cuba and Iran, Netherlands-based ING Bank will pay $619 million to the US government. ING agreed to pay the fine for secretly moving more than $2 billion through U.S. financial institutions in 20,000 transactions from the early 1990s to 2007. Cuba, Iran, Syria and Sudan are on the list of countries under sanctions for supporting international terrorism. The half-century old US trade embargo against Cuba also bars Cuban entities from using dollars in their transactions. 


The Department of Justice said ING has accepted responsibility for its criminal conduct" and agreed to pay the $619 million as part of a deferred prosecution agreement. The United States has 5% of the world's population; we have 25% of the worldwide world's prison population. If ING is accepting responsibility for criminal conduct, the why isn't somebody in jail? We sent Lindsey Lohan to jail for nearly 3 months because she drank too much. We sent Martha Stewart to jail for more than a year because she lied about selling a few thousand shares of stock. Can't we throw some bankers in jail for a few weeks for blatantly violating US laws governing transactions involving Cuba and Iran, and then using shell companies and other deceptive measures to cover up its criminal conduct?


I don't want it to sound like I'm singling out ING. Credit Suisse Bank paid a $536 million fine to the U.S. government in 2009 to settle allegations of illegal dealings with Cuba, Iran and other sanctioned countries, in 2010 Barclays PLC paid $298 million on account of the same lies, Lloyds Banking Group PLC paid $350 million, while Switzerland's UBS paid another $100 million in 2004 for similar complaints.