Friday, August 15, 2014 - Don't Worry

Don’t Worry

by Sinclair Noe

DOW – 50 = 16, 662
SPX – 0.12 = 1955
NAS + 11 = 4464
10 YR YLD - .06 = 2.35%
OIL + 1.49 = 97.07
GOLD – 8.40 = 1305.50
SILV - .31 = 19.65

For the week, the Dow rose 0.7%, the S&P 500 gained 1.2% and the Nasdaq climbed 2.2%.

The Federal Reserve said factory production jumped 1.0% last month after rising 0.3% in June. That was the largest gain since February and reflected increases across all major categories. Auto production surged 10.1%, the biggest rise since July 2009. There were also solid gains in the production of machinery and computers and electronic goods; yesterday we talked about the importance of capex and business spending; maybe we’re seeing signs of that.

Or not. In a separate report, the New York Fed said its "Empire State" general business conditions index fell to 14.69 this month from 25.60 in July.

A preliminary August reading on the University of Michigan/Thomson Reuters consumer-sentiment index fell to the lowest level in 9 months, 79.2 down from a final July level of 81.8.

Producer prices, or prices at the wholesale level increased 0.1% in July, with 0.5% growth for transportation and warehousing prices; goods prices were unchanged; food prices rose 0.4%; energy prices dropped 0.6%. Overall producer prices rose 1.7% over the 12 months that ended in July, down from June’s annual-growth rate of 1.9%.

But the economic news carried little weight today, as attention once again focused on geopolitics. That might not be totally accurate; Wall Street looks at geopolitical hotspots but it can’t hold their focus. A new survey of institutional money managers around the world by Bank of America Merrill Lynch has found a sudden surge in worry and fear, and a rise in the number buying “protection” against a crash; which means derivatives such as put options or credit default swaps.

Money managers are worried about the markets and the Fed raising interest rates and geopolitical events and the baggage retrieval system at Heathrow, and so, over the past month they have raised their cash positions from 4.5% to 5.1%. Which doesn’t sound very defensive; in fact, it sounds like money managers are still excessively bullish on stocks.

Yesterday Russian President Putin talked about how he wanted to avoid confrontation in Ukraine. Last night a Russian armored column crossed the border into Ukraine; they started firing artillery at Ukrainian forces, which exchanged shellfire. Ukrainian President Petro said a "significant" part of the Russian column had been destroyed. Russia's government denied its forces had crossed into Ukraine. NATO said there had been a Russian incursion into Ukraine but would not go so far as to call it an invasion.

After Ukraine reported the invasion, Russia's ruble weakened against both the dollar and the euro. Russian shares were also dragged lower. International markets moved lower. European Union governments warned they are ready to expand sanctions against Russia if the conflict in Ukraine intensifies.  US markets initially moved lower. The yield on the ten year treasury dropped 6 basis points to 2.35%; Treasuries are usually considered a safe haven. The yield on German bunds, or 10 year bonds, dropped under 1%. The escalating clash is now haunting the European economy, already on the brink of fresh recession, with a string of southern states in debt-deflation.

All of a sudden, the euro crisis is back, though in truth it never really went away. The latest economic figures from the eurozone make bleak reading. Across the eurozone, which is struggling to get banks lending to businesses, economic growth is expected to be 1.1% this year. All three of the euro area’s biggest economies — Germany, France and Italy — are failing. Germany’s output actually fell in the second quarter. Italy is suffering through a triple dip recession. The French economy has stagnated. Analysts expect it to grow by less than one per cent this year. Italy has dropped back into recession, or maybe it never got out of recession. The closest thing approximating good news was that Spain's dead-cat bounce recovery continued with 0.6% growth. But it still has 24.5% unemployment. The eurozone economy is still far smaller than six years ago, by about 1.9%; unemployment is in double figures and debt burdens in some areas are high.

In June, the ECB cut its key interest rates and introduced a new program of cheap loans to banks that are intended to be passed on to businesses. Some economists say the European Central Bank should go further and engage in large-scale purchases of public and private debt to reduce borrowing costs and add to the money supply. ECB President Mario Draghi is under fire to do more to resuscitate growth. He, in turn, argues that “monetary policy can only achieve so much, with government reform required to do the heavy lifting,” and he is probably right, but there doesn’t seem to be much appetite for reform. Monetary stimulus is simply not remotely an adequate substitute for government spending. Even the austerian IMF has been forced to acknowledge that fact.

The Ukraine crisis has drawn the EU into an economic confrontation with Russia, which is not only the principal supplier of energy to many eurozone countries but is also a significant trading partner and export market for European goods. This is hardly designed to improve the economic outlook, and the eurozone remains too weak to withstand external shocks. And Eurozone weakness was already in place before the most recent economic sanctions against Russia; the unfortunate reality is that nobody really knows how Russian sanctions will play out. There will be costs associated with sanctions; many of them unexpected.

Next week, the Federal Reserve will hold its annual Jackson Hole retreat. Janet Yellen will speak on labor markets. The labor market has improved but still looks weak. Various Fed officials have various theories on the labor markets, but not much in the way of solutions, and so, not surprisingly, they have different views on Fed policy.

Jeremy Stein left the Fed Board of Governors earlier in the year to return to a teaching gig at Harvard. Last week Stein said whatever the Fed does, we can expect less financial stability. Stein says that the process of exiting QE and raising interest rates has “no real precedent”. Yellen devoted an entire speech to the subject of financial stability last month at the IMF, where she said the Fed had devoted “substantially increased resources” to monitoring stability and acknowledged that the Fed’s low-interest rate policy had spurred “households and businesses to take on the risk of potentially productive investments.” But, she went on, “Such risk-taking can go too far, thereby contributing to fragility in the financial system.”

Yesterday, St. Louis Federal Reserve President James Bullard said he believes financial markets are probably mistaken if they’re counting on Fed interest rate increases to occur more slowly than policy makers forecast. Bullard says the Fed will raise the interest rate target in the first quarter of 2015. Bullard said: “We’re way ahead of where we expected to be” in terms of the Fed’s employment mandate, and “If that strength continues in the second half of the year here, then the conversation on a little more hawkish direction of monetary policy will heat up.”

Today, Minneapolis Fed President Narayana Kocherlakota offered a contrasting view, saying: “The FOMC is still a long way from meeting its targeted goal of price stability” because of excess slack in the job market, and “progress in the decline of the unemployment rate masks continued weakness in labor markets,” which would keep the inflation rate below the Fed’s 2% target until 2018. Kocherlakota pointed to the participation rate among people between the ages of 25 to 54, the prime working years; another especially significant” measure of slack is the “historically high” percentage of workers who would like full-time jobs but can only find part-time work. The U-6 unemployment rate, a broad measure of unemployment that includes people working part time because they can’t find full-time jobs rose to 12.2% in July after declining one percentage point over the first six months of the year.

One of the biggest changes in the US labor market over the past two decades has been the increasing number of people working over the age of 55. From the end of World War II until the early 1990s, a smaller and smaller share remained in the labor force but since the 1990s that trend reversed. In 1993, only 29% of people that age were in the labor force. The vast majority were retired. But participation has been rising and by 2012 more than 41% of people in that age group were still in the labor force, the highest since the early 1960s. Clearly, something has changed about people’s attitudes toward retirement. A survey from the Federal Reserve last week provided some clues. Around 21% of people said their plan for retirement is simply “to work as long as possible” and the number of people giving this response increases by age.

In addition to the Fed’s get-together in Jackson Hole, next week’s economic calendar includes minutes from the Fed’s July 30^th FOMC meeting; on Thursday we’ll get a report on July existing home sales from the National Association of Realtors; Tuesday brings an update on July housing starts. Housing starts tumbled 9.3% in June. The Labor Department will release the consumer price index report on Tuesday; the CPI measures inflation at the retail level; it’s been running near 2%, more or less.

Thursday, June 26, 2014 - Buffers and Filibusters

Buffers and Filibusters

by Sinclair Noe

DOW – 21 = 16,846
SPX – 2 = 1957
NAS – 0.71 = 4379
10 YR YLD - .03 = 2.52%
OIL - .80 = 105.70
GOLD  - .70 = 1317.90
SILV + .10 = 21.22

Yesterday, the Commerce Department downgraded the first quarter gross domestic product to a negative 2.9%, meaning the economy shrank by 2.9%. Today, St. Louis Federal Reserve president James Bullard says it’s likely an aberration; the weak report for the first quarter was likely distorted by inventories, weather, and by the challenges of accounting for health-care spending under the new law. Bullard says he isn’t worried, “the market’s right to shake this off. Looking forward over the next four quarter, most forecasters have 3% growth.”

Well, that’s good. No worries. Nothing to see hear, move along, move along.

It’s just that the fall was so nasty, it’s hard not to look and linger over the carnage. It really was ugly. And while we can blame it on the weather, that doesn’t seem right. We always have weather. Minneapolis is underwater today. Bad weather is a fairly constant aberration. We should be past the point of excuses; we are 5 years into a recovery; granted it has been a stealth recovery.

I wonder if Mr. Bullard is confusing the stock market with the economy. A down day in the bull market would just be a blip on the tape, but the stock market is not the economy. And the economy is not bouncing back, which would be the expected move after a seasonal aberration. Most importantly, we haven’t seen a surge in hiring. It looks more like we’ve gone through a very long period where everybody who was going to be fired was fired, and companies are running as lean as they can. So, the jobless claims have leveled off, but there’s a big difference between no more fat to cut and an economy that produces lots of well-paying jobs.

If you want new jobs, and the consumer spending that flows from new jobs, you look for new businesses, and you can just keep looking. The creation rate of new businesses, as well as new plants built by existing firms, was about 30% lower in 2011 (the most recent year of data) compared with the annual average rate for the 1980s. The decline affected nearly all business sectors. The fact that the economy has been weak since 2007 suggests that new business activity has also declined in existing companies.

New businesses are critical for economic growth because a small fraction of today's startups will become tomorrow's economic heavyweights. Most of today's workers are employed at older, established businesses, but the country cannot rely on existing companies to boost the economy.

Businesses have a life cycle, in which even the largest and most successful reach a stage at which they stop expanding. Also, most of today’s workers are working at smaller businesses, companies with less than 100 employees, and we just aren’t making enough of these smaller businesses.

The Federal Reserve’s monetary policy has been a boon for Wall Street, so we’ve seen record highs even as the economy contracts. The Fed policy was to elevate asset prices in the hope it would trickle down to the rest of the economy; the trickle down part has been a terrible failure but the higher prices have been nifty for a small group of financial companies and some of the largest corporations. The problem is that it is hard to maintain corporate profits in a recession. Also, it’s hard to have sustainable growth from big corporations; they’re like trees; once they reach a certain height, they stop growing. Look back to the Fortune 500 list from 1995; less than half the firms on that list are still on the list today.

And businesses aren’t investing for the future. A major factor in the first quarter contraction was lower gross private domestic investment; a smaller increase in inventories accounted for most of that, but we also saw a drop in investment in non-residential structures, investment in equipment, investment in information processing equipment; countered by a slight increase in investment in intellectual property; that’s tricky to measure because it could be money spent on research and development or it might be money spent on movies. Lower investment accounted for about 2% of the 2.9% drop.

For the last few decades, every boom has depended on housing; same strategy today. The problem is that boomers will not start upgrading now in their 60s. And the young ones expected to pick up the baton are full of debt. And the housing numbers seem to back it up. We did see a big jump in new home sales for May, but that was mainly confined to the South, meanwhile existing home sales barely inched forward, and it appears the big run in home sales has happened and now we’re leveling out. Any boost from housing has already hit.

And this is the recurring theme of the recovery, it’s just around the corner.

No, not that corner, the next corner.

The Supreme Court is still dishing out decisions; two more today, but not the big one on Hobby Lobby; that will probably come on Monday. Today we heard about buffer zones and recess appointments.

The Supreme Court ruled on McCullen v. Coakley, striking down a Massachusetts law requiring protesters to stay at least 35 feet from an abortion clinic's entrance and walkways. In a unanimous opinion, the court held that such buffer zones violate First Amendment free speech rights.

Only three other states, Colorado, Montana and New Hampshire, have buffer zone laws on the books, but the Massachusetts zone was the largest. The Massachusetts law was passed after 2 clinic workers were shot and killed by a gunman outside a clinic in 1994. In 2000, the Supreme Court upheld Colorado's 8-foot "floating" buffer zones around individuals as they walk into and exit an abortion clinic.

Chief Justice Roberts delivered the opinion of the court. "It is no accident that public streets and sidewalks have developed as venues for the exchange of ideas." Roberts said: “Even today, they remain one of the few places where a speaker can be confident that he is not simply preaching to the choir. With respect to other means of communication, an individual confronted with an uncomfortable message can always turn the page, change the channel, or leave the Web site."

The court was silent on the free speech rights of protesters confined to “free speech pens” around political conventions, and buffer zones around churches, and funeral services, and for that matter, the buffer around the Supreme Court building in Washington DC.

Also today, the Supremes ruled unanimously in NLRB v Noel Canning that President Obama had violated the Constitution in 2012 by appointing officials to the National Labor Relations Board during a short break in the Senate’s work when the chamber was convening every three days in short pro forma sessions when no business was conducted. Those breaks were too short, Justice Stephen G. Breyer wrote in a majority opinion joined by the court’s four more liberal members.

A ruling could cast a cloud over the appointment of Richard Cordray as director of the Consumer Financial Protection Bureau. Justice Breyer added that recess appointments remain permissible so long as they are made during a break of 10 or more days. But many experts say that if either house of Congress is controlled by the party opposed to the president, lawmakers can effectively block such appointments by requiring pro forma sessions every three days. Each house must get the approval of the other chamber for recesses of more than three days. Somebody shows up, claims the Senate is in session, and they hold a fake session and that’s that.

The decision affirmed a broad ruling last year from a federal appeals court in Washington that had called into question the constitutionality of many recess appointments by presidents of both parties. The appeals court last year said that presidents may bypass the Senate only during the recesses between formal sessions of Congress. Two of the three appellate judges went further, saying that presidents may fill only vacancies that arose during that same recess. The Constitution’s recess-appointments clause says, “The president shall have power to fill up all vacancies that may happen during the recess of the Senate.”

And while today’s ruling is being hailed as a major blow to executive power, in practical terms, today’s ruling no longer really matters. That’s because the Senate majority has since eliminated the filibuster on executive and judicial appointments that was the cause of this whole mess to begin with.

After the DC Circuit Court of Appeals ruled last year that the NLRB appointments were illegal, President Obama renominated appointees to fill those slots and submitted them to the Senate. What happened? Senate Republicans filibustered them forever, of course. Eventually, Senate majority leader Harry Reid got fed up and triggered the “nuclear option”: a Senate rules change that would require only 50 votes, instead of 60, to invoke cloture on executive and judicial nominations. The NLRB nominees, and several others that had been held up, made their way through.

Yesterday, the Supremes ruled that law enforcement can’t search your smartphone without a warrant or a really, really good reason why they don’t need a warrant.  Of course, police can search all sorts of things without a warrant, and the solicitor general had argued that cell phones were not that different than briefcases or purses that are regularly searched when you enter a federal building or an airport.

Chief Justice Roberts said: “Cellphones differ in both a quantitative and a qualitative sense from other objects that might be kept on an arrestee’s person.” He went on at length to describe the differences, noting that a cellphone can reveal more private information than the search of an entire house. The phone contains “the sum of an individual’s private life” he said; searching it without a warrant is constitutionally unreasonable. The chief justice’s response to the government’s warning that a warrant requirement would impede law enforcement was basically a shrug: “Privacy comes at a cost.”

What we learned is that Supreme Court justices now have and use smart phones.

The best line yesterday came on the NBC Nightly News when Brian Williams, followed the report by asking the reporter if this will have any effect on the NSA’s ability to electronically dig into our cell phone records without warrants.

That Brian Williams is a real comedian.

Monday, June 09, 2014 - Record Highs and a Few Crumbs

Record Highs and a Few Crumbs

by Sinclair Noe

DOW + 18 = 16,943
SPX + 1 = 1951
NAS + 14 = 4336
10 YR YLD + .02 = 2.61%
OIL + 1.73 = 104.39
GOLD - .30 = 1253.00
SILV + .05 = 19.16

The major indices are now up for 4 consecutive sessions. The Dow Industrials hit a record high close for the 10^th time this year. The S&P is now up 14 of the last 17 trading sessions. The last time the Dow experienced a 10% correction was back in October 2011; since then, the Dow has gained almost 60% over 32 months without a 10% correction. Typically, you can expect a correction about every 12 months on average. The longest period without at least a 10% pullback was an 82 month run from 1990-1997. The S&P 500 hit a record high close for the 19th time this year. The S&P bull market is now at 62 months and counting, the best run since 1994 to 2000.

The CBOE Volatility Index moved a little higher today to 11.34. On Friday, the VIX hit a low of 10.73, the lowest level since January 2007. The VIX can go low and stay low for an extended period of time. In 2007, after hitting a low, the VIX steadily rose for the remainder of the year but stock prices didn’t peak until the end of 2007. The VIX measures options trades, but does it really mean investors are dangerously complacent? The Murdoch Street Journal reports: “Last week, 39% of respondents to a long-running weekly survey from the American Association of Individual Investors said they were bullish about stocks. That is well above readings of just over 27% in both February and April, when violence in Ukraine weighed on sentiment. But it is far from giddy. In fact, it is in line with the average since the poll's inception in 1987.”

Today had all the signs of a bull market, in addition to record highs, we had a good old fashioned Merger Monday. Tyson foods agreed to buy Hillshire for $8.5 billion, or $63 a share cash. That follows a bidding war between Tyson and Pilgrim’s Pride that pushed Hillshire from $37 a share on May 23 to the current bid.

Drugmaker Merck paid $3.9 billion, or $24.50 a share in cash for Idenix Pharmaceuticals, a 240% premium to Friday’s close of $7.23. Idenix has three drugs to treat Hepatitis C in clinical trials, but none on the market. Chipmaker Analog Devices agreed to buy Hittite Microwave Corp for $2.5 billion, or $78 a share, a mere 29% premium to Friday’s close.

Depending on the source, deal volume is up about 65% to 70% this year. Worldwide, companies are sitting on about $7.5 trillion of cash. With organic top line growth hard to come by in sluggish economies, many are turning to acquisitions.

You can buy a share of Apple for about $93; that following a 7 for 1 split; the first split for Apple in 9 years. A split is generally a non-event. If you owned 100 shares of Apple on Friday, you now own 700 shares, but the price was divided by 7. The financial structure and value of the company doesn’t change.

The yield on a 10-year US Treasury note was up a couple of basis points today to 2.61%. Meanwhile, the yield on the 10-year Spanish government bonds dropped 5 basis points to yield 2.59%. Normally, you would expect a government bond yield to correspond to demand and overall safety of the bond and the country backing the bond. Things are a little upside down. The good news is that investors aren’t expecting the Eurozone to disintegrate; the bad news is that investors aren’t expecting any growth in the Eurozone.

James Bullard, president of the St. Louis Federal Reserve Bank, speaking at a conference in Florida today, said the US macroeconomy is much closer to a normal state than it has been in 5 years and only weak labor markets and low inflation is keeping the Fed’s accommodative monetary policy in place. Last month, Bullard said that while the housing and labor markets remain weak, he expects recovery through the rest of the year, and said inflation would likely move towards the Fed's desired 2% rate.

Bullard told reporters after his speech: “If you get 3% growth for the rest of this year, if you get unemployment coming down below 6%, if you continue to have jobs growth at 200,000, if you continue to see inflation moving back up toward target, I think if we get to the fall of the year and all of those things are transpiring as I’m suggesting they will, that will change the conversation about monetary policy, and there will be more sentiment toward an earlier rate hike.”

The housing market may not be as strong as some Fed policymakers believe. On Friday, the jobs report showed the economy had regained all the jobs lost in the recession, but that isn’t the case for the home building sector. The number of construction jobs has been climbing, rising about 7% in May from a year earlier, to 2.6 million, including electricians and other specialty trade contractors; but that's way down from the high of 3.45 million in April 2006. While jobs overall are back to their pre-recession peak, residential construction jobs are 34% below their peak.

Even five years after the housing meltdown, a sizeable chunk of homeowners remain underwater. About 6.3 million homes, or 12.7% of all properties with a mortgage, were underwater as of the first quarter.  About 1 in 10 homeowners are almost underwater, with less than 10% equity in their homes, meaning it would probably cost them to sell, when including selling related expenses.

A survey released last week by the MacArthur Foundation found that 43% of those polled said it is no longer the case that owning a home is an excellent long-term investment and one of the best ways for people to build wealth. More than half said that buying a home has become less appealing than it once was. And 70% believe the nation is still in the middle of a crisis and that the worst is yet to come.

One major demographic group that isn’t buying homes is the Millennials; they are just trying to pay off student loans. President Obama announced Monday that he will expand a federal program designed to reduce student loan payments. The program, called “Pay As You Earn”, will give as many as five million more Americans with federal student loan debt the ability to cap their monthly student loan payments at 10% of their income and to have their remaining debt forgiven after either 10 years (for government and some non-profit workers) or 20 years (for other workers).

The current program is only available to Americans who began borrowing after October 2007 and kept borrowing after October 2011; the new order will allow students who borrowed money before October 2007 and those who have not borrowed since October 2011 to participate. The new program will begin in December 2015.

Of course, like so much consumer debt, if you pay the smallest monthly minimum, you just string out the loan and end up paying more over time; so, the new plan might not work for everybody. The best idea is to work some numbers, comparing monthly payments and lifetime costs; there are calculators for this at the Department of Education website.

The housing market is just one factor in an economy that doesn’t seem quite as strong as Fed President Bullard suggests. This was supposed to be a breakout year for economic growth but it started with negative GDP in the first quarter. And even though we have regained the jobs lost in the recession we still have nearly 10 million unemployed, and that’s more than 2 million more than in January 2008; and the quality of the jobs, and the pay has gone downhill for most workers. Income growth is at its lowest point since 2007. When people are shopping, they’re using borrowed money.

Corporations and Wall Street raked in profits unseen in their history. At the end of 2013, corporate profits hit an all-time high of $1.9 trillion. Those profits were largely achieved not by growing, but by cutting jobs and investments; and relying instead on mergers, buybacks, stock splits, QE, and other financial legerdemain.

The economy hasn’t really turned positive. It could change. Maybe the Fed will quit QE and try something that actually helps the economy. Until then, enjoy your milk and cookies, or whatever crumbs might come your way.

Monday, December 09, 2013 - Corrupt Practices

Corrupt Practices

by Sinclair Noe

DOW + 5 = 16,025
SPX + 3 = 1808
NAS + 6 = 4068
10 YR YLD + .01 = 2.75%
OIL - .41 = 97.24
GOLD + 9.70 = 1241.40
SILV + .30 = 19.94

Next week the Fed FOMC will meet to determine policy. Today, three Fed big wigs gave speeches. We start with James Bullard, president of the St. Louis Federal Reserve Bank; Bullard says: “A small taper might recognize labor market improvement while still providing the [Fed] the opportunity to carefully monitor inflation during the first half of 2014,” and if inflation doesn't return to something approaching a target of 2%, well the Fed could pause the taper.

In separate remarks, Richmond Fed President Jeffrey Lacker said that the central bankers would discuss pulling back the pace of its asset purchase program but gave no indication of how the discussion could go.

 Dallas Fed President Richard Fisher said the central bank should begin to scale back its bond-buying “at the earliest opportunity,” because, “Money is cheap and liquidity is abundant. Indeed, it is coursing over the gunwales of the ship of our economy, placing us at risk of being submerged in financial shenanigans rather than in conducting business based on fundamentals.”

The taper talk spooked Wall Street traders but it's unlikely the Fed will taper at the December meeting. There is little harm in postponing the decision till the new year, particularly compared to the risks of pulling back too soon.

Meanwhile, the Federal Reserve reports that US net worth, a measure of household wealth, rose 2.6% to $77.3 trillion from July through September. Net worth reflects the value of homes, stocks, bank accounts and other assets minus mortgages, credit cards and other debts.

Net worth peaked at $69.1 trillion in Q3 2007, then dropped to $55.7 trillion in Q1 2009, for a loss of more than $13 trillion, and now it is up $21.6 trillion to $77.3 trillion. Adjusted for inflation, net worth is still about 1 percent below its pre-crisis peak, but both the stock market and home prices have continued to increase in the current October-December quarter.  Rising stock prices boosted Americans’ net worth $917 billion. Higher home values added another $428 billion.

The gains haven’t been equally distributed. The wealthiest 10 percent of households own about 80 percent of stocks. And home ownership has declined since the recession, particularly among lower-income Americans.

Total mortgage debt rose 0.9 percent from the previous quarter. Americans are also holding more consumer debt outside of mortgages, in the form of student loans, auto loans and credit cards. Consumer debt rose 6 percent from the previous quarter.

The flow of funds data from the Fed would indicate that QE has had an effect on the economy, it's still accurate to say it has been an unequal redistribution of wealth; with most of the gains going to Wall Street and little to none making it to Main Street. And then there is a question of the sustainability of the gains.

The other day, I talked about the fines in the JPMorgan $13 billion settlement and I raised the question of how the fines were calculated. Well it turns out they weren't really calculated as much as they were negotiated. It looks like the settlement agreement does not quantify the losses that form the basis for the civil penalty, or even provide an indication of how many violations the government determined occurred in connection with the issuance of the mortgage securities; according to the government, JPMorgan bankers regularly included loans in deals that did not meet the bank's underwriting guidelines and were "not otherwise appropriate for securitization." We just don't know the quantity and the actual losses associated with these toxic mortgages.

The breakdown of the $13 billion settlement with JPMorgan includes a $2 billion fine to prosecutors in Sacramento and $4 billion in relief to struggling homeowners in hard-hit areas like Detroit and certain neighborhoods in New York. The government earmarked the other $7 billion as compensation to federal agencies and state attorneys general across the country. In some settlements, the beneficiary of the fines is often the United States Treasury.

But the 8^th Amendment prohibits excessive fines; something the Supreme Court has defined as fines that would be grossly disproportional to the gravity of the offense. The government can look beyond the actual amount involved in the case and also consider the harm done to others, the need for deterrence, and such other matters as justice may require. And since the settlement was negotiated, JPMorgan could hardly argue now that the fines are excessive.

As far as the deterrence factor, the government failed horribly on that front. JPMorgan CEO Jamie Dimon probably had little to no direct involvement in the troubled mortgage deals, even if he did preside over the company and set policies. He did sign off on the annual reports, and under Sarbanes Oxley, he should have had, at the very least, some awareness. Dimon walks scot-free.

But what about the investment bankers who were involved in underwriting and selling the dubious mortgage deals that led to the massive penalty? They appear to be doing just fine as well. Indeed, until last month, three of the top bankers responsible for the deals still worked at JPMorgan. And one of them, the guy in charge of managing risk for the securitization group, is now in charge of the division that monitors risk for the entire bank.

JPMorgan claims that many of the toxic mortgages originated through Bear Stearns and Washington Mutual, the two failed financial institutions that JPMorgan scooped up in the financial crisis. What about the investment bankers who were involved in underwriting and selling the dubious mortgage deals at Bear and WaMu? Well, the head of Bear Stearns' mortgage division (also named in the suit) is now a partner at Goldman Sachs and he's the global head of the bank's mortgage trading division. Another head from Bear's bond business (also named in the suit) is now the head of Deutsche Bank's corporate banking and securities division. Another mortgage chief from Bear ended up as a chief of mortgage products for Bank of America. Other bankers involved in the mortgage scam have retired, but there doesn't seem to be anything in the settlement that would prevent them from continuing in the industry.

So, the bottom line is that there was no individual accountability in the settlement, there was not full disclosure of crimes committed, or any significant attempt to quantify the actual losses, and of course there was no admission of wrongdoing; absent those factors, settlements like these continue to reward and incentivize illegal conduct.

Meanwhile, you'll recall that in August JPMorgan disclosed that the SEC was investigating the bank's hiring practices in China; specifically that the bank favored hiring people from prominent Chinese families in order to win investment banking business. Over the weekend, the New York Times reported that emails uncovered in that investigation appear to clearly indicate that they knew they were crossing the line. In one email, an executive said that hiring sons and daughters of powerful people in China "almost has a linear relationship" with winning assignments. The documents even include spreadsheets that list the bank's "track record" for converting hires into business deals. And the email goes on: “You all know I have always been a big believer of the Sons and Daughters program."

So, the program even had a name, and everybody knew it, except apparently for the upper level executives back in New York, who remarkably remained clueless about the Sons and Daughters program, or the types of trades executed by the London Whale, or the toxicity of the mortgage loans by the mortgage department, or anything else.

Anyway, JPMorgan could be indicted under the Foreign Corrupt Practices Act which prohibits American companies from paying money or offering anything of value to foreign officials for the purpose of "securing any improper advantage."  Under the Act, the gift doesn't have to be linked to any particular benefit to the American firm as long as it's intended to generate an advantage its competitors don't enjoy. Of course, JPMorgan has spreadsheets to prove they got a big bang for their bribery buck. But the point is that the Foreign Corrupt Practices Act is strict.

By comparison, we don't even require that American corporations disclose to their own shareholders the payments they make to American politicians. If a Wall Street bank wants to hire the child of a prominent politician – go ahead. And of course the politicians and the technocrats regularly enjoy the revolving door between Washington DC politics and Wall Street corporate offices.

The list of public officials with past or present ties to Wall Street reads like a government phone book: Treasury Secretary Tim Geithner is now head of Warburg Pincus; budget director Peter Orszag works for Citigroup; Don Regan (Merril Lynch); Robert Rubin (Goldman, Citigroup); Phil Gramm (UBS); Alan Greenspan (Pimco); and that's just a quick sample.

In the Citizens United case, Justice Anthony Kennedy wrote for the majority: “if the First Amendment has any force it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.”

Of course, we all know that money talks. JPMorgan has the spreadsheets that prove that money talks in China. And we have to Foreign Corrupt Practices Act to punish bribery. But in the US, we don't have a strict Corrupt Practices Act because the people that write the laws sold us out. Sorry, but you know it's true.

Monday, November 04, 2013 - SAC Chairs Avoid Hard Time

SAC Chairs Avoid Hard Time

by Sinclair Noe

DOW + 23 = 15,639
SPX + 6 = 1767
NAS + 14 = 3936
10 YR YLD - .02 = 2.62%
OIL - .12 = 94.49
GOLD – 1.20 = 1315.60
SILV - .21 = 21.76

Stock markets finished October in fine fashion. Remember there was a brief rally in September when the Fed did not taper QE; then there was a rough patch as the government shutdown and tiptoed to the edge of not paying its bills, but that's all behind us now, at least for a month or so. December is now the next foreseeable turning point in the Washington budget battles. That's when a report is due from a joint congressional budget conference. Corporate earnings have been generally positive, even as guidance has been less than exuberant, but that's the game of earnings expectations: under-promise and out-perform. The S&P 500, the Dow industrials, and the small cap Russell 2000 saw new all-time highs last month; absent a big collapse, the Russell is on track for one of its best years of performance ever. The Nasdaq Comp, is still a long way from records but the petal is to the metal.

Since the start of the year through the end of October, the Russell and the Nasdaq are up more than 29%; the S&P 500 is up over 23%, and the Dow has added 18%. Looking forward to this week, a slew of economic data will be released, including: factory orders, the ISM non-manufacturing index, jobless claims, GDP data and personal income and outlays. Earnings season continues. Meanwhile, the soon-to-be former chairman of the Federal Reserve Ben Bernanke will speak on a panel in DC about “Policy Responses” to Crises. The correct answer according to Bernanke is to crank up the digital printing press and shower Wall Street with money.

Today, St. Louis Fed President James Bullard said inflation is too low and he'd like to see tangible evidence that inflation is moving closer to the Fed's target of 2%; that's an argument against tapering in the near term. Bullard thinks the Fed should ignore the “bickering in Washington” largely because it won't go away any time soon. Bullard thinks there will be too many distortions in the Friday jobs report to use the data in a definitive manner. So, all in all, it is a very low probability the Fed will taper in December. We would likely need to see inflation make a very big jump and see the next two jobs reports with net new jobs over 200,000. Doubtful. But we could see taper; it is still in the realm of possibilities. Or maybe we'll see the Fed double down and start buying $170 billion a month in treasuries and MBS. Also doubtful. The only certainty right now is that the Fed is providing fuel to the markets and for now the markets are moving higher.

If history is any indication, the market should see a fourth quarter rally. Shares have climbed in the final two months 82 percent of the time since 1928 when the benchmark gauge advanced at least 10 percent through October. So, the pump is primed. And if the averages hold, the S&P 500 could see a 6% increase in the final two months of the year, which would put the S&P at about 1850 by year's end. But that doesn't guarantee an end of year rally; a weak holiday shopping season could slow down the train, and Fed taper could slam on the brakes and send sparks flying. But for the moment, Wall Street is happy and traders are counting their bonus.

The bear market case is supported by rapidly rising price to earnings ratios, bullish sentiment on Wall Street, margin debt at 5 year highs, and the market has gone almost a year and a half without a real correction, so you have to figure we'll get one at some time. But if you're really counting on a correction, a serious, bring you to your knees correction, then you would look at the Fed hiking rates or tapering from QE combined with higher energy prices. Right now, the price of oil is back under $95 a barrel. No worries.

There will be no bonuses at SAC Capital; might not be a SAC Capital. SAC Capital Advisors has agreed to plead guilty to insider trading violations and pay a record $1.2 billion penalty, becoming the first large Wall Street firm to confess to criminal conduct since the days of Drexel and Michael Milken. The guilty plea and fine paid by SAC, which is owned by the billionaire investor Steven A. Cohen, are part of a broader plea deal. It also will impose a five-year probation on the fund and require SAC to terminate its business of managing money for outside investors, though the firm will probably continue to manage Cohen’s multi-billion dollar fortune. Cohen has not been charged criminally.

SAC’s admission that several of its employees traded stocks based on secret information also sours Cohen’s investment track record. Since 1992, the fund posted average annual returns of nearly 30 percent. The $1.2 billion penalty adds to the $616 million in insider trading fines that SAC agreed to pay to federal regulators earlier this year. Cohen, who owns 100 percent of the firm, will pay those penalties.

The plea deal does not incorporate a separate civil action by the SEC against Cohen. Also, authorities continue to view Cohen and other SAC employees as targets of a continuing criminal insider trading investigation. The plea agreement expressly states that it “provides no immunity from prosecution for any individual.” The firm will not trade about $6 billion in outside investors accounts but Cohen still has a personal fortune around $9 billion, and the firm will likely stay open to accommodate his personal wealth.

This was probably not a difficult deal for Cohen to make. He still keeps a big chunk of money, no matter how much was ill gotten. It’s far easier for SAC Capital as a corporate entity to plead guilty and settle with the government because it doesn’t have to worry about being incarcerated. The government is not going to incarcerate the chairs and desks. For now, SAC appears to be intact; prosecutors did not freeze assets. The corporate entity does not go to jail; just one more reason why corporations are not people.

Even before the deal could be done, it's coming under fire. The lawyer for a class-action suit over SAC’s trading in drug company Elan has asked a federal judge to reject the potential settlement. Federal judges have started to balk at rubber-stamping settlements in which defendants neither admit nor deny wrongdoing; a step in the right direction, but this deal with Steven Cohen seems to confirm that for Cohen at least, crime pays.

Another big settlement today involving big pharma. The Justice Department says Johnson & Johnson will pay more than $2.2 billion in criminal and civil fines for marketing drugs Risperdal, Invega and Natrecor for uses they weren't approved. The settlement also covers charges that the company paid kickbacks to doctors and pharmacies promoting the drugs.

The criminal filings said Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson, marketed Risperdal for unapproved uses. The drug, approved to treat only schizophrenia, was marketed to also treat anxiety, agitation, depression and apparently anything that might feel better by taking a pill, preferably a blue pill.

The Johnson & Johnson subsidiary, Janssen, will pay $400 million for the illegal marketing, while Johnson & Johnson will pay $1.7 billion to settle civil cases with the federal government and 45 states.

You've heard of Blackberry's plans to sell itself. The mobile phone manufacturer never quite caught up with other smart phone makers. Today saw the collapse tentative takeover offer from Blackberry's largest shareholder. Blackberry's CEO resigned. The shareholder, Fairfax Financial Holdings, and an unnamed group of institutional investors will invest $1 billion through debentures that can be converted into common shares at a price of $10 a share.

A scientific panel set up by the United Nations has found that climate change will pose a serious threat to the world's food supply in the coming decades. The findings aren't set to be announced until March and are still undergoing editing, but a copy of the report has leaked online, and ended up on the New York Times. The findings come from the Intergovernmental Panel on Climate Change (IPCC), which has been releasing reports on the matter around every six years. The report paints a decidedly grim picture. Climate change will pose sharp risks to the world’s food supply in coming decades, potentially undermining crop production and driving up prices at a time when the demand for food is expected to soar. And they say they are already seeing the harmful effects in some regions.

On the food supply, the new report finds that benefits from global warming may be seen in some areas, like northern lands that are now marginal for food production. But it adds that over all, global warming could reduce agricultural production by as much as 2 percent each decade for the rest of this century. During that period, demand is expected to rise as much as 14 percent each decade, the report found, as the world population is projected to grow to 9.6 billion in 2050, from 7.2 billion today. The report finds agricultural risks “are greatest for tropical countries, given projected impacts that exceed adaptive capacity and higher poverty rates compared with temperate regions.” And yes, hundreds of billions of dollars are already being spent in an effort to reduce emissions in response to previous findings by the IPCC.

Tuesday, May 21, 2013 - Apple Gimmicks

Apple Gimmicks

by Sinclair Noe

DOW + 52 = 15,387
SPX + 2 = 1669
NAS + 5 = 3502
10 YR YLD - .02 = 1.94%
OIL - .98 = 95.95
GOLD – 18.10 = 1377.00
SILV - .49 = 22.53

It's Tuesday. The markets moved higher. It's almost inevitable. The Dow Industrials have closed higher every Tuesday this year, with the exception of January 8^th; 19 consecutive Tuesdays. No, I don't know why.

Well, today, part of the reason could be traced to the Federal Reserve. A couple of Fed heads were talking up easy money. New York Fed President William Dudley said he cannot be sure whether policymakers will next reduce or increase the amount of purchases, due to the "uncertain" economic outlook. The QE taper may end up being a QE expansion. Dudley worries about investor over-reaction to a "normalization" of policy and suggests the FOMC may need to update what it needs to see to move in that direction. Earlier, James Bullard, president of the Federal Reserve Bank of St. Louis, urged the European Central Bank to consider employing a US style quantitative easing program to counter slowing inflation and recession in the euro zone.

Tomorrow, Fed Chairman Ben Bernanke will speak before a congressional panel, the Joint Economic Committee. The minutes of the Fed's latest policy-setting meeting will be released on Wednesday afternoon. When the Fed showers liquidity, the money flows to the markets, but I can't give a good reason for the Tuesday winning streak.

There is a certain symmetry in life: fire and ice, winter and summer, darkness and light, yin and yang. And this brings us to the IRS scandal; last week we learned about the demand treatment afforded some groups by the IRS, this week we learn about the generous nature of the taxman. It's not so much that the taxman is benevolent; we all no better; but some entities demand preferential treatment; powerful, giant corporations are holding governments and citizens up for ransom; taking tax breaks and subsidies from countries in the name of competitiveness; sheltering profits in off-shore tax havens.

Google, Amazon, Starbucks, GE, Apple, and pretty much every other major corporation and the big Wall Street banks siphon off profits via off-shore entities that are sometimes no more than a mailbox on a tropical island, and they don't pay taxes like the rest of us, because if they did it would destroy their ability to be competitive.

And today, Tim Cook, the CEO of Apple, ran down the aisles of Congress and hurled his hammer at the totalitarian overlords, metaphorically speaking. Actually, Cook appeared before the Senate Permanent Subcommittee on Investigations. Congressional investigators found that some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in California. By officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.

Apple Operations International, which has no employees but reported $30 billion in income over the four years, has not filed an income tax return in any country for the last five years, the subcommittee investigation found.

A second company, Apple Sales International, holds the economic rights to Apple's intellectual property in Europe, Asia and Africa. The subsidiary had $74 billion in sales income from 2009-2012 but paid less than 1% in taxes to Ireland.

The only taxes paid were on the interest earned by the cash pile and small sums in local markets. Senate investigators allege a total of $70bn has been sheltered this way in four years.

The tactic, which is legal, is possible through complex cost-sharing agreements that transfer the economic rights to the valuable intellectual property behind the iPhone, the iPad, and other products to subsidiaries outside the US.

Tim Cook told the senators: “We pay all the taxes we owe, every single dollar.” And that appears to be the case; Apple does pay a considerable amount of taxes in the US . Cook added: “We don't depend on tax gimmicks.” And that appears to be a slightly more dubious claim. Cook said he "personally doesn't understand the difference between a tax presence and a tax residence".

In a dramatic display of how threats from multinational corporations are driving down taxes across the world, Cook warned Congress that he would refuse to repatriate a total of $100 billion stashed offshore unless it acted to slash the 35% US rate. Cook said the tax rate for repatriated money should be set "in single digits" to persuade companies to bring it back. Standard tax for US profits should be, he said, in the "mid 20s". 

 Everyone "knows" that the corporate income tax is a mess. Ask any company. They pay too much in corporate income tax, face rates higher than in any other OECD country, and are just following the law when they use tax havens to keep profits eternally deferred from taxation and to perform general sleight-of-hand. There is a big difference between the headline rate of 35%, which is indeed tops in the OECD, and the effective rate of 12.1%, one of the lowest in the OECD.

Apple is not an outlier in its efforts to produce 'stateless income'; income that is taxed neither in the US nor in the countries where its foreign customers are located, but it is audacious in its tax avoidance strategies. Apple shifted tens of billions of dollars of income without even breaking a sweat. Google followed the Apple playbook by using a low-tax Irish subsidiary to avoid taxes; Google is now under investigation in the UK. Starbucks' tax dodge was so blatant British consumers began boycotting the firm until it reversed course. In the US, we aren't indignant. Today, senators talked about how they considered Apple to be a great company, even if they did have concerns about the tax thing.

We have lots of great American companies that operate in a more or less free-market system that has allowed them to thrive on publicly-funded research, infrastructure, defense, and in the case of Apple – patent and intellectual property protections. And they show their gratitude by choosing to cut their taxes in half – or actually closer to one-third despite doubling their profits, so they may hold more than $1 trillion dollars of cash off-shore, and eliminate workers rather than create jobs. Or, as one Apple executive explained: “We don't have an obligation to solve America's problems.”

Which raises an interesting question; why should America have an obligation to solve Apple's problems? Apple enjoys the protections of US laws against patent and intellectual property infringement. Apple enjoys the ability to ship its products around the world, in part because the US has the largest, most powerful military making sure the avenues of commerce aren't crowded out by pirates on the high seas or in the skies. If Apple doesn't want to pay for those protections, they shouldn't be forced to. They could just stop using those services. You don't pay; you don't get – no gimmicks in that equation.

The scandals in Washington remind us to be ever vigilant about the dangers of government overreaching its authority, whether by the long arm of the IRS or the Justice Department, but that doesn't mean that we accept anarchy. We need to remember that government does provide important services and protections, and somehow we have to pay for that. Tim Cook and Apple don't want to pay. Nobody wants to pay. I understand. And so, not much changes

By the way, the World Bank estimates the total cost for a successful attack on malnutrition would be approximately $10.3 to $11.8 billion annually. Apple alone underpaid its 2012 taxes by $11 billion, based on a 35% rate. So, we could literally put an end to hunger in this world, if Apple paid it's taxes, but you know, it's not Apple's obligation to solve the problems of the world. 

Thursday, August 23, 2012 - No QE? Step Away From the Crack Pipe

No QE? Step Away From the Crack Pipe
-by Sinclair Noe

DOW – 115 = 13,057
SPX – 11 = 1402
NAS – 20 = 3053 
10 YR YLD -.05 = 1.67%
OIL – 1.05 = 97.69
GOLD + 17.00 = 1672.10
SILV + .75 = 30.68
PLAT + 6.00 = 1548.00

The Federal Reserve FOMC minutes were released yesterday and the interpretation called for monetary accommodation sooner rather than later; so we'll see QE3 August 31 at Jackson Hole on September 13 at the next FOMC meeting. They might not call it QE3, they might do some variation on the theme but the promise was that there will be big time accommodation unless the economy shows a strong and sustainable improvement. And if the Fed fails to deliver on QE3, you can expect a severely negative response from Wall Street; expect a move that would make today's 115 point drop look small; the economy would tank and the Fed would be forced to step in with QE3, only in crisis mode. 

So, this morning on CNBC, James Bullard, president of the Fed's St. Louis bank, said the minutes from the July 31-Aug. 1 meeting were "stale" because the economy had picked up since then. If it becomes "a bit stronger," he said, the Fed will hold off. And then he went back to smoking  his crack pipe. 

What do the economic reports suggest? The HSBC Flash China manufacturing purchasing managers index, a preliminary reading that provides an early peek at data for August,  fell this month to its lowest level since November.  A German business survey showed orders from abroad for the country's goods, a mainstay of its economic strength, fell at the fastest rate in more than three years.

The number of Americans filing new claims for jobless benefits rose last week while US manufacturing improved only slightly in August, worrisome signs for an economy struggling to create enough jobs. Sales of new single family homes rose in July, matching April's two-year high. That's nice. Maybe Mr. Bullard needs to visit Greenspansbodycount.com. This is a blog I just heard about that collects stories of suicides and murder-suicides linked to foreclosure trauma. The current count is 227. 


Earlier this week, Mitt Romney's economic adviser Glenn Hubbard told Reuters that Ben Bernanke's motives should not be questioned by politicians. Hubbard said:  "Ben is a model technocrat. He gets paid nothing for getting kicked around all the time. I think they ought to pat him on the back." Today, Romney said he would not re-appoint Bernanke to another term as chairman of the Federal Reserve. 

It's good to see agreement and communication in action. There are broad differences between the two parties this year, but when it comes to explaining their visions in more than a soundbite, each side is unwilling to trust voters to understand the full implications of their positions. 

Then Romney announced an energy plan which he claims will make the US energy independent by 2020. It basically boils down to more oil drilling. I didn't see much about alternative energy, green energy, or conservation.

A website called Gawker has posted more than 900 documents that include audits, financial statements and investor letters that catalog some of Romney's investments through Bain Capital. As the site explains: Bain isn’t a company so much as an intricate suite of steadily proliferating inter-related holding companies and limited partnerships, some based in Delaware and others in the Cayman Islands, Luxembourg, and elsewhere, designed to collectively house roughly $66 billion in wealth in its many crevices and chambers. It will be interesting to see what comes out of this over the next few days.

Securities and Exchange Commission Chairwoman Mary Schapiro called off a vote that would have changed the rules for the money-market-fund business; the votes didn't add up. Schapiro’s proposal would have required money funds either to float their share prices like other mutual funds, which might result in breaking the buck, or to post capital against losses on their asset holdings; that seems to make sense.  The proposal would also have made money funds hold back a small portion of investors’ cash for 30 days when investors redeem all their shares, to reduce the possibility of a run on the fund at the first hint of trouble. Of course, if you knew that your money would be kidnapped for a month, you might not want to put your money in the money market fund in the first place. The money fund industry is $2.6 trillion big; it carries implicit guarantees to individual investors – not explicit, just implicit; it is subject to runs; it is systemically important; and they still haven't figured out what to do with it. 

Only half of the previously foreclosed homes owned by Fannie Mae are either on the market or being prepared for sale. The remaining properties are currently locked away in some step of the foreclosure system.  The National Association of Realtors said in its existing home sales report yesterday that its officials were pressuring government agencies to release more of their REO in markets short of inventory.   It has long been suspected the government – including Fannie, Freddie Mac and the Department of Housing and Urban Development – are deliberately holding these homes off the market in order to get more for them when home prices recover. Fannie Mae says it has 109,000 repossessed homes currently available for sale but they also admit 47% of their inventory is unable to be marketed. That's a big chunk of inventory.

German and French leaders put the pressure on Greece to keep pursuing painful reforms, suggesting they are hesitant to accept the new Greek prime minister's demand for more time to fix his country's battered economy and public finances. The German's remain intransigent. The Greeks might default. Formal default might not have a huge impact but it sets the stage for Spain and Italy to default. That scares the Germans, so there is a chance the Greeks will get an extension, and that means another 6 months or another year of the Greek economy existing in a downward spiral without a functioning economy.

Hedge funds are having a hard go; only about 11% are matching or beating the performance of the S&P 500. Citigroup's private bank is pulling about $410 million from Paulson & Co., that's the hedge fund  run by billionaire John Paulson; the fund lost 18 percent this year through July in its Advantage Plus strategy; the fund posted a loss of 51 percent last year. This may be the first time Citigroup fired someone for underperformance, rather than being the one getting fired. 

If the Federal Reserve goes ahead with QE3, or rather when – who benefits? The Bank of England released a study on the distributional effects of quantitative easing. The research states: By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5 per cent of households holding 40 per cent of these assets. In other words; who benefits from QE? The rich. I think this should also prove there is a difference between quantitative easing and stimulus. 

Both gold and silver moved above their 200-day moving average, for you chart watchers; that's a very bullish sign. There are rumors the LBMA is having trouble delivering silver for large orders. Supplies are tight, demand is strong.  Sprott buying silver; Soros and Paulsen buying gold.  Basel III rules for making gold a tier 1 asset are in the works.  FOMC hints at pending QE, which is another way of saying print Benny, print.  Global economies still under duress. Don't get carried away with the move in metals but when the Fed announced QE2, gold and silver moved to highs.