Wednesday, November 7, 2012 - Status Quo

Status Quo

by Sinclair Noe

DOW – 312 = 12,932
SPX – 33 = 1394
NAS – 74 = 2937
10 YR YLD -.11 = 1.63%
OIL – 4.11 = 84.60
GOLD + .40 = 1718.30
SILV - .18 = 31.94

Technically speaking, Barack Obama, Joe Biden and Senate Democrats were Election Day's big winners. But that's only if you believe something called the election results. Who were the night's real winners?

The policy wonks and demographic statisticians were big time winners. They were able to data mine and focus like a laser on key counties and precincts, and they played it to perfection. The Republican presidential primary candidates, who are no longer lonely. Chris Christie, because whatever his chances for 2016, he got to meet the Boss (Springsteen, not Obama). Tim Geithner, who now gets to land a cushy job as director of such and such bank or a big endorsement deal from TurboTax. Governor Jerry Brown because he doesn't have to go back to the drawing board. That guy from fivethirtyeight, who nailed the prognosticating. And Barack Obama had an okay night.

The losers would have to include all the lawyers who were itching for a recount. The state of Florida which showed they are incapable of a count. All those dudes in Colorado who will have to listen to all those jokes about Rocky Mountain High. Kid Rock, just because. Twitter, just because. And Barack Obama because he still has 4 more years.

The good news is that the age of big money in politics is over. Another big story from last night: Billions spent on this election, virtually no change. Karl Rove's superPac spent $100 million to defeat Obama and elect conservatives, and it got zilch for it. Romney raised a fortune, and he was never able to get any traction, except after the first debate, which was not an actual media buy. Sheldon Adelson spent a fortune and got nothing in return; he now knows what the customers in his casinos feel like. Sure, people will still spend and raise a ton of money in the future (and in the primaries, it may remain important for awhile), but the bottom line is that every dollar is getting less and less return on investment. Big money isn't gone, it just has a lousy ROI.

Now that the election is over, let's test you electoral IQ: From the NewYorker

How many unqualified voters were estimated by the chief of police of Phoenix, Arizona, to have forged ballots using invisible ink, wrapped them around rocks, and flung them through polling-station windows while illegal-alien poll-watchers stood idly by, munching nachos and swigging Coronas?

• Immediately after the 2012 Presidential election, the electoral college announced that it is merging with a) the Federal Bureau of Threads and Screws, b) Phoenix University, c) the Broadway musical “Rebecca.”

• Every election-watcher knows that 2012 Presidential election absentee ballots were counted at absentee polling stations by absentee voting-precinct officials—but did these ballots count if they went to an absentee candidate? Answer: Delayed, still waiting for absent absentee-voting expert.

• New York tycoon Donald Trump failed to cast his Presidential vote because a) his ballot got tangled up in his hair and could not be dislodged before the polls closed; b) the Board of Elections refused to allow him to cast his own exclusive personal gold ballot featuring his photo portrait; c) he demanded to vote ten times to reflect his stature.

• True or False? Former Democratic V.P. candidate Sen. Joe Lieberman watched the returns by shuttling between two different TVs, one tuned to Fox and the other to PBS.

• Political analyst/gadfly/operative James Carville’s explanation of the election outcome was comprehended by: a) one Louisianan, b) two Louisianans, c) three people, counting his wife, Mary Matalin.

• True or False? Midwestern political activist Joe the Plumber demanded a recount of his vote.

• Lie or Otherwise? According to the citizen-action group O.B.A.M.A. (Obama Believes America Means Atheism), strong-arm thugs prevented God and Jesus from voting.

• Immediately following the closing of the polls, Michiganders For An Even More Broke Michigan claimed that the government’s failed auto-bailout scheme deprived how many registered voters of their chance to cast their ballots because they had no cars to drive themselves to the polls in? Best guess_____ Second-best guess_____ Wild guess_____.

• False or True? Immediately after the polls closed, the Rick Perry Foundation think tank filed for bankruptcy.

Here’s an interesting new data point that the St Louis Fed has put together to calculate recession probabilities:

“Recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. “

What’s interesting about this index is the current reading.  At 20%, the index is at a level that has ALWAYS been followed by a recession. The index has never approached 20% without a subsequent recession.  All 6 recessions since 1967 have coincided with 20%+ readings in the US Recession Probabilities index.

Fitch Ratings said that there would be "no fiscal honeymoon" for Obama, warning that the U.S. probably would lose its AAA credit rating if Obama and Congress don't address looming tax increases, spending cuts and the fast-approaching debt ceiling.

Fitch said: "The economic policy challenge facing the president is to put in place a credible deficit-reduction plan necessary to underpin economic recovery and confidence in the full faith and credit of the U.S."

The expiration of Bush-era tax cuts and the start of automatic spending cuts to reduce the deficit will take place Jan. 1. In addition, the government will hit its $16.4-trillion debt limit near the end of the year. Treasury officials said they can take steps to allow continued borrowing, but the nation would face a possible default early in 2013 if the limit isn't increased.

Moody's warned in September that failure to reach a deficit-reduction deal probably would lead it to downgrade the U.S. rating. And Fitch echoed that today.

"Avoiding the fiscal cliff and a timely increase in the debt ceiling would support the economic recovery and send a positive signal that agreement can be reached on a credible plan to reduce the federal budget deficit and stabilize federal debt over the medium term, consistent with the U.S. retaining its 'AAA' status," Fitch said.

"Conversely, failure to reach even a temporary arrangement to prevent the full range of tax increases and spending cuts implied by the fiscal cliff and a repeat of the August 2011 debt ceiling episode would mean that the general election had not resolved the political gridlock in Washington and likely result in a sovereign rating downgrade by Fitch."

Greek police fired water cannon and fought running battles with protesters hurling petrol bombs outside parliament during the biggest rally in over a year against spending cuts the country must approve to avert bankruptcy.

Nearly 100,000 Greeks waving flags and chanting "Fight! They're drinking our blood" packed the square outside parliament as lawmakers neared a vote on unpopular budget cuts and labor reforms that the government is narrowly expected to win.

Violence erupted when a handful of protesters tried to break through a barricade to enter parliament, prompting riot police to respond with teargas, stun grenades and, for the first time in an anti-austerity protest, water cannon.

More chaos reigned inside the assembly, where the session was briefly interrupted when parliamentary workers went on strike to protest against a clause that would have cut their salaries. In a humiliating about-face, the government was forced to cancel the measure to allow the session to resume. The Greek Prime Minister Antonis Samaras said: "Today we vote on whether we will remain in the euro zone or return to international isolation, meet complete bankruptcy and end up in the drachma."

If the parliament sides with the Austerity Troika and its plan to put banks before people then there will be serious unrest. Not least because many Greeks no longer believe their parliament or their democracy work for them. They are increasingly seen as the mouth-piece of an occupying power.

Meanwhile, European Central Bank President Mario Draghi said the debt crisis is hurting Europe’s largest economy and the European Commission cut its growth forecasts for the euro area .The European Commission cut its growth forecast for the euro zone as the debt crisis ravages southern Europe and gnaws at the economic performance of export-driven Germany. Draghi said: “Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area, but the latest data suggest that these developments are now starting to affect the German economy.”

The 17-nation euro economy will expand 0.1 percent in 2013, down from a May forecast of 1 percent, the Brussels-based commission said today. It cut the forecast for Germany to 0.8 percent from 1.7 percent. The German finance ministry said factory orders were down 3.3% in September from the month before shocking economists who had forecast a 0.4% drop. Taken with figures showing German business confidence has fallen to the lowest in two-and-a-half years, the data was described as “a catastrophe and very bad news.”

Spain is braced for the European Commission to axe its forecast growth for the country after El Pais obtained a draft of the predictions. According to the Spanish newspaper, the EC, which is due to publish figures tomorrow has changed its forecast for 2013 GDP from 0.5pc to 1.5pc.

So, after all that, we're back to the status quo.

Wednesday, September 12, 2012 - I Remain Optimistically Antiquated

I Remain Optimistically Antiquated

-by Sinclair Noe

DOW +9.99 = 13,333
SPX + 3 = 1436
NAS + 9 = 3114
10 YR YLD +.07 = 1.76%
OIL - .16 = 96.85
GOLD – 1.10 = 1732.40
SILV -.17 = 33.41
PLAT +42.00 = 1653.00

As we get down to FOMC crunch time, the skeptics come out of the woodwork. The Murdoch Street Journal ran a story saying that economists doubt the benefits of another round of bond-buying by the Federal Reserve. They surveyed 47 people, we don't know how many were just walking through the newsroom, and they generally expect the Fed to start another round of large-scale asset purchases, known as quantitative easing, at its September policy-setting meeting. Another seven expect a move later this year, but not tomorrow. Just five respondents don't believe the Fed will take action this year.

And then there are others who say the economy is horrendous and jobs are not coming back and housing is still weak and all that, but the Fed doesn't necessarily need to do anything to help support the markets. Some economists don't see a large impact from a large bond-buying program. On average, they estimate that $500 billion in purchases would only reduce the unemployment rate by 0.1 percentage points and increase gross domestic product by 0.2 points over a one-year period. They estimate such a program would lift the inflation rate by 0.2 percentage points over 12 months.

Others argue that QE1&2 didn't really get the job done, and QE3 would just extend the misery; there is no exit plan from QE, and we might as well feel the pain now and get it over with. This argument usually comes from someone who thinks they will avoid the pain.

Monetary policy may not be pretty but fiscal policy has been seriously ugly. So, something is going to happen; this is what Bernanke does; the Fed will deliver some sort of QE. What remains to be seen is whether the Fed goes big and bold or weak and meek.

Last week the European Central Bank decided that if a country made a formal application for assistance and promised to abide by very strict terms and conditions, the ECB would buy up as much of that country's short-term bonds as necessary to bring down interest rates and assure a stable market for sovereign debt. The problem is that in the euro-union money comes from Germany and the German constitution basically said it was illegal to bailout the rest of the continent. Constitutionality is subject to interpretation in the light of financial crisis. Today, Germany’s constitutional court allowed a permanent bailout fund to go ahead.

The next issue is for broken down countries to step up and swallow the bitter pill and ask for aid and promised to..., well we don't know what they have to promise. Spain remains coy but the PM has hinted he might consider a half step toward a partial use of unlimited bond buying. Among the bailed-out euro zone countries, Ireland is inching its way back towards the capital markets and Portugal is doggedly implementing a tough austerity program, and has just been granted an extra year to achieve its fiscal targets. Portugal remains the poster child for austerity; the country has tried to cut back but when it does the economy just contracts even more.

After the German ruling there was enthusiastic market reaction; Spanish and Italian bonds rallied, equities moved higher, the euro hit a four month high. The problems in the euro-zone persist but for now the train wreck has been averted, the can has been kicked down the road for yet another day. And there is every indication that when the next wave of financial turmoil hits it will be a little less vicious, maybe.

California Governor Jerry Brown signed on Wednesday a pension reform bill that he said puts into law the "biggest rollback to public pension benefits in the history of California pensions." The legislation raises minimum retirement ages and will reduce pension benefits for new public workers. In addition to raising the retirement age for state employees, the legislation imposes new formulas for calculating pensions for new public sector workers. New hires will also split payments to their pension accounts at least evenly with their employers. Government employers will have greater authority to negotiate similar 50-50 contributions with current employees. The state Senate and Assembly approved the bill on strong bipartisan votes last month on the final day of their session.

The tax measure on the November ballot would increase the state's sales tax and raise income tax rates on the state's highest earners. Revenue would be used to prevent spending cuts to education programs in the near term and bolster the state's finances in coming years. Moody's Investor Services called the pension legislation a positive development for California's credit and for local governments and agencies that manage pension accounts through the California Public Employees' Retirement System and the California State Teachers' Retirement System. Moody's maintained rating for California of A1 with a stable outlook.

As of May, the world was producing 75 million barrels a day of crude oil, not including nat gas, biofuels, and various whatnots. That's up a million barrels a day from where it had been last October. However, all of the gains since October came from the return of Libyan production after the unrest seen there last year. You and I observed 9/11 with our own individual remembrances. In Benghazi Libya, a small group stormed the US Consulate and killed the ambassador and 3 other Americans.

Remember earlier this year, a guy named Greg Smith wrote a newspaper article about why he left Goldman Sachs, basically saying that Goldman was sleazy and he finally just determined that he wanted nothing more than to go home, take a long shower and try to wash away the scum.

The article struck a nerve. Within 24 hours, it had more than three million views online. Publishers clamored for the rights to a book. Grand Central Publishing secured a deal, offering Mr. Smith an advance of close to $1.5 million, and Mr. Smith’s memoir, “Why I Left Goldman Sachs,” is set for publication on Oct. 22. 

To some, an email isn’t complete without the inclusion of :-) or :-(. To others, the very idea of using “emoticons” – communicative graphics – makes the blood boil and represents all that has gone wrong with the English language. Regardless of your view, as emoticons celebrate their 30th anniversary this month, it is accepted that they are here stay. Just in case you want to plan a celebration, their birth can be traced to the precise minute: 11:44am on 19 September 1982. At that moment, Professor Scott Fahlman, of Carnegie Mellon University in Pittsburgh, sent an email on an online electronic bulletin board that included the first use of the sideways smiley face: “I propose the following character sequence for joke markers: :-) Read it sideways.” This weekend, the professor, a computer science researcher who still works at the university, says he is amazed his smiley face took off. Nowadays dozens of variations are available, mainly as little yellow, computer graphics. There are emoticons that wear sunglasses; some cry, while others don Santa hats. But Professor Fahlman isn’t a fan. “I think they are ugly, and they ruin the challenge of trying to come up with a clever way to express emotions using standard keyboard characters.” Alas, some people deliciate to use keyboards to create actual words; a quaint, antiquated mode of communication, so much more than brabble from days of yore. I do not need little smiley faces to jargogle my brain.

Americans are becoming more optimistic about the direction of the country. A new Reuters Ipsos survey showed 39 percent of Americans believed the country was moving in the right direction, while a still-high 55 percent believed it was on the wrong track. The numbers represented a sizable change from August, when 31 percent of those surveyed thought the country was going in the right direction and 64 percent on the wrong track. It was the highest level for the "right direction" rating since April 2010. So I guess we're more optimistic; just don't send me something with that damned yellow smiley face.

:-)

Tuesday, May 15, 2012 - JPMorgan is Scary, the California Budget is Easy - by Sinclair Noe

05152012 Script

DOW – 63 = 12,632
SPX – 7 = 1330
NAS – 8 = 2893
10 YR YLD =.01 = 1.78%

OIL - .57 = 93.41
GOLD – 12.20 = 1545.30
SILV -.46 = 27.82
PLAT – 5.00 = 1437.00

So, JPMorgan shareholders held their annual meeting. They decided to pay Jamie Dimon $23 million. They can still afford it; despite a $2 billion dollar loss, JPMorgan is still the largest publicly traded company, the largest bank in the US, and the largest derivatives dealer in the world. JPMorgan invented credit default swaps, they wrote the legislation to reform the derivatives markets, and when JPMorgan went insolvent in the 1980s and in 2007, they were bailed out by taxpayers.A $2 billion dollar loss is not the end of the world, JPMorgan is not in imminent danger, but I don't think this will end well. The really scary part isn't the loss, but that it only represents one-tenth of the annualized profit. What are they doing to make that kind of money? And if these are supposed to be the best and brightest bankers, what does it say about the others?

The FBI has opened an investigation into the trading losses. We don't know what the FBI is looking at and I won't hold my breath waiting. The SEC has opened an inquiry into JPMorgan's disclosures and accounting practices. JP Morgan maintains that the purpose of the trades that resulted in the $2 billion loss was to hedge exposure elsewhere, as opposed to being proprietary trading intended to generate profits. That’s contradicted by a report citing current and former employees of the chief executive office, including its former head of credit trading. Dimon is claiming even now that this qualifies as a hedge under the current version of the Volcker rule. And the Volcker rule was put in as part of Dodd–Frank at the suggestion of Paul Volcker for the explicit purpose of preventing exactly this kind of transaction. The banks and the leader in the banks' campaign against the Volcker rule has been JPMorgan and Jamie Dimon in particular, who has been brutally rude to Paul Volcker and incredibly arrogant, saying Volcker doesn't understand anything about what he's talking about.

"You can't legislate away stupidity and risk-taking and greed and recklessness. What you can do is make sure when it happens it does not cause too much damage and to do that you have to make sure you have good rules against fraud and abuse, better protections and you force banks to hold more capital against their risk," so says Treasury Secretary Timothy Geithner. He is wrong. You can legislate away quite a bit of stupidity and risk-taking and greed and recklessness. If you can have government creating a fractional reserve system which allows banks to create money out of thin air, then you can legislate how they gamble with that money. The solution is incredibly simple – reinstate Glass-Steagall. Let commercial banks be commercial lenders and the investment bankers can still gamble with their own money. Of course, any meaningful reform is nearly impossible considering the banks have purchased the politicians.

Francoise Hollande has been sworn in as the new president of France. In his inauguration speech he promised a “new path” for France, and then, in his first act as president, he followed the well worn path to Berlin to meet with German Chancellor Merkel. It wasn't easy; his plane had to turn around after being struck by lightning. Seriously. He's never heard of an omen?

Greece can't form a government, and so they will vote again in about one month. Meanwhile, stocks, precious metals, oil, gasoline, and the kitchen sink have all been slipping in price and the reason, from everything I read - is because of Greece. You probably never realized the amazing economic control Greece is able to exercise on world markets. It's reported that Greeks withdrew nearly $900 million dollars from Greek banks yesterday; kind of a run on the banks.

I keep getting the feeling that what we've been watching play out in Greece will eventually play out in the US, an if so, it might start in California. Governor Brown announced an ugly budget, featuring cuts in Medi-Cal payments to hospitals and nursing homes, (remember the talk about health care “death panels”? Eliminate Medi-Cal and see what happens) cuts to those who care for the disabled, cuts to state courts and cuts in hours and pay for state employees. Construction on courthouses, will be stalled and the court system will be even more underfunded. And although few Californians have much sympathy for state workers, they are struggling to fill the gaps in agencies that are experiencing layoffs and, if Brown gets his way, will be rewarded for their extra work with a 5% pay cut. So far schools have been largely spared from this grisly exercise, but that will probably change in November if voters fail to approve a tax-hike initiative.

Brown's proposed budget presumes that voters will approve the tax-hike initiative in November, which would increase the state sales tax by a quarter of a percent and raise income taxes on the wealthy. These taxes would generate an estimated $8.5 billion through the end of the budget year, and voters would blow another gaping hole in the budget if they reject them. Brown addresses this possibility by including "trigger" cuts in his budget proposal that would reduce funding for schools and community colleges by a whopping $5.5 billion and higher education by $500 million, while cutting game wardens, park rangers, lifeguards and other popular positions and services. There is a word for these kinds of cuts, it's a Greek word – austerity.

Facebook is expected to increase its offering price from its initial range, giving the company a valuation possibly as high as $104 billion. Governor Brown is expected to announce a 15% tax on IPO valuations on Saturday. Problem solved. This budget stuff is easy.

So, do you think the economy has slowed enough to warrant the Fed stepping in with another round of stimulus?

Home builder sentiment improved in May to the highest reading since the depression. The National Association of Home Builders/Wells Fargo housing market index rose to 29 from 24 in April. The April index was initially reported to be 25. The reading, though the best since May 2007, is still well short of the 50 level that indicates that more builders view conditions as good than poor. Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April.

The Commerce Department said April retail sales growth slowed to 0.1% Taking the first four months of 2012 together, the U.S. economy appears to be growing at a modest 2% to 2.5% clip. In April, online retailers, furniture outlets, auto dealers, pharmacies, and sports and leisure stores all posted solid sales increases. Internet and catalog retailers got a 1.1% boost while spending on autos climbed 0.5%.

Consumer prices were unchanged in April as lower gasoline prices offset rising food, apparel and car prices, The Labor Department said prices didn’t change on a seasonally adjusted basis and that so-called core prices, which exclude food and energy, rose 0.2%. Gasoline prices dropped 2.6% on the month, while food prices dropped were up 0.2%. For the past 12 months, consumer prices are up 2.3%.

So, do you think the economy has slowed enough to warrant the Fed stepping in with another round of stimulus? The economy is actually in much better shape than the past couple of weeks in the financial markets, nothing exciting but shuffling along while the markets stumble. The broader economy can crash and burn and the Fed would be frozen but when the markets whine, it usually gets the Fed to take action. Not this week, but it is a setup for next month's FOMC meeting. 

Monday, May 14, 2012 - Problems in Greece, Euro, California, and JPMorgan - No Surprise

DOW – 125 = 12,695
SPX – 15 = 1338
NAS – 31 = 2902
10 YR YLD -.05 = 1.79%
OIL - .70 = 94.08
GOLD – 23.80 = 1557.50
SILV - .71 = 28.28
PLAT – 29.00 = 1442.00

Back in early April I started telling you to heed the old market maxim: “Sell in May and Stay Away”. You are welcome. The Dow Industrial Average has now dropped 8 out of the last 9 sessions; no surprise.

Of course, we had the weekend to think about the shenanigans of JPMorgan Chase; a too big to fail bank acting irresponsibly while simultaneously demanding less regulation; no surprise.

Today's declines started in Europe; no surprise. In Germany, Angela Merkel's Christian Democratic Union Party suffered more losses in a local election for the second straight week. Merkel's CDU party received just 26% of the vote while a coalition of left-leaning Social Democrats and Green party candidates received over 50%. In light of the recent French elections, we are starting to see a trend.

In Greece, the various leaders of the various political parties failed to form a coalition government over the weekend; no surprise. The Greeks will likely need to call another election. And the fate of Greece hangs over the markets just as the possibility of exiting the Euro-Union hangs over the heads of the Greeks. And I think that is the correct application of the metaphor, with Angela Merkel in the role of Dionysius and the Greeks in the role of Damocles. I don't know whether the next Act in the tragedy comes from “The Merchant of Venice”: The quality of mercy is not strained, or “Brer Rabbit”: Brer Fox I don’t mind if you eat me. But, oh, whatever you do don’t throw me in that briar patch; or maybe “Hamlet”: To be or not to be, that is the question. Whether 'tis nobler to suffer the slings and arrows of outrageous austerity, Or to take arms against a sea of troubles, And by opposing them end them?

Which is the long way of getting round to the point that the final chapter has not been writ and so there are infinite options in Euro-land. The Greeks are coming to the realization that the plan of essentially indentured servitude to their northern masters might have shortcomings and they reject this as a false choice, although the alternatives are still a bit vague. The Greeks might like to stay in the Euro-zone and reject the harsh budget-balancing measures Europe has demanded in return for the money Greece needs to remain solvent. That, at least, was the message of the recent election in which the two dominant parties that had signed off on the terms of Greece’s 130 billion euro bailout deal took a drubbing. So, why can't the Greeks increase wages, halt public sector layoffs and repudiate Greece’s debt, and stay in the Euro-Union?

Of course, that is dangerous thinking for the powers that be. If Greece does not buckle under the crack of the bankers' whips, there is little chance the Portuguese and Spanish and Italians and Irish, and then the Union will dissolve and Greece will be shown the exit. This is the claim. The Greeks say it is a bluff. The ECB and the IMF must surely be flustered. They can't even have a good standoff until the Greeks can cobble together a government and the next election won't happen until mid-June.

It appears to be the European hard-liners that have been pushing austerity that has destroyed the political center and radicalized the extreme right and left. What's the worst that could happen? Greece gets tossed back into the briar patch once known as the drachma. They won't be buying new cars or computers or importing much of anything but they'll export like crazy; tourism will flourish; before you know it they'll be standing on the Acropolis, combing the tar out of their fur and laughing at the IMF.

With a month to go until the next election, is it possible the hard-liners will soften their demands? After all, how can you get money out of a bankrupt country? And don't forget who gets the bailout money; it's not the Greeks, it's the Euro-banks. All these billions of dollars of funds aren't going into the pockets of people in Athens, the money goes to the banksters. And the Greeks have come up with the radical idea that they don't care if the banksters get paid.

The threat to kick Greece out of the Euro-Union is very real but it would require the votes of 16 countries to do it. What happens if Portugal or Spain sides with Greece? How long would it take for that vote? Germany may talk tough but they don't have much firepower behind their rhetoric, and the German voters don't seem to have the stomach for discipline.

Though this be madness, yet there is method in't.

There is a chance that Greece might find some coalition of pro-austerity parties and remain in a debt purgatory while applying Teutonic discipline, or there is a possibility the Greeks will lead a Euro-revolt against austerity and various elections will serve as happy rapprochment between the debt slaves and the cracking whip. Of course, there is still a huge downside to all of this; global credit markets could freeze, global equity markets could tumble, global capital markets could be trashed, and governments could nationalize, and the banksters could be bailed out again, or not, and we could have a global financial meltdown – you know, almost like the one we had in 2008, and then did nothing to correct.

And make no mistake, we are not immune; it is just a matter of time before the basic problems of Europe come to the United States; it could hit us any day; maybe today.

And that brings us to California, which still has a budget problem; no surprise. Governor Jerry Brown is proposing more than $8 billion in cuts to close the state budget deficit and he is touting a tax hike initiative for the November ballot. And the combo might fill the revised $15.7 billion budget shortfall for the fiscal year that starts July 1. That is up from an earlier estimate of a $9.2 billion gap projected in January.

The Legislature had cut tens of billions of dollars from schools, social services, universities, courts, and health care programs for the poor. The cuts in higher education have sparked demonstrations at regents' meetings and on college campuses.

Brown said the size of the deficit makes it virtually impossible to balance the budget with spending cuts alone, so his budget balances the cuts with the revenue he anticipates if voters approve his proposal to increase the statewide sales tax by a quarter cent and boost income taxes on those who make more than $250,000 a year. Both tax increases would be temporary. Brown's budget proposes $8.3 billion in cuts, $5.9 billion from the tax increases and $2.5 billion in a variety of other solutions.

Jamie Dimon has been trying to gut the Dodd-Frank reforms, specifically the Volcker rule. Apparently JPM was so confident that their interpretation of the hedging exemption would prevail, that they got ahead of themselves and operated as if this loophople were in effect. That is part of what the Too Big To Fail Banks have been doing. Paying the lobbyists and the legislators to eviscerate the reforms, while continuing to act like the rule of law doesn't apply to them. Maybe it doesn't. A new article from Matt Taibbi, How Wall Street Killed Financial Reform. This is a good article, and it really points out just how broken Congress and the electoral system are.

Let me share with you part of what Taibbi wrote:

The giant reform bill turned out to be like the fish reeled in by Hemingway's Old Man -- no sooner caught than set upon by sharks that strip it to nothing long before it ever reaches the shore. In a furious below-the-radar effort at gutting the law -- roundly despised by Washington's Wall Street paymasters -- a troop of water-carrying Eric Cantor Republicans are speeding nine separate bills through the House, all designed to roll back the few genuinely toothy portions left in Dodd-Frank. With the Quislingian covert assistance of Democrats, both in Congress and in the White House, those bills could pass through the House and the Senate with little or no debate, with simple floor votes -- by a process usually reserved for things like the renaming of post offices or a nonbinding resolution celebrating Amelia Earhart's birthday.

The fate of Dodd-Frank over the past two years is an object lesson in the government's inability to institute even the simplest and most obvious reforms, especially if those reforms happen to clash with powerful financial interests. From the moment it was signed into law, lobbyists and lawyers have fought regulators over every line in the rulemaking process. Congressmen and presidents may be able to get a law passed once in a while -- but they can no longer make sure it stays passed. You win the modern financial-regulation game by filing the most motions, attending the most hearings, giving the most money to the most politicians and, above all, by keeping at it, day after day, year after fiscal year, until stealing is legal again. "It's like a scorched-earth policy," says Michael Greenberger, a former regulator who was heavily involved with the drafting of Dodd-Frank. "It requires constant combat. And it never, ever ends."

That the banks have just about succeeded in strangling Dodd-Frank is probably not news to most Americans -- it's how they succeeded that's the scary part. The banks followed a five-point strategy that offers a dependable blueprint for defeating any regulation -- and for guaranteeing that when it comes to the economy, might will always equal right.

Here's a list of the five ways,. The article gives great detail on how each of these work and were accomplished for the Dodd-Frank legislation. 

STEP 1: STRANGLE IT IN THE WOMB

STEP 2: SUE, SUE, SUE

STEP 3: IF YOU CAN'T WIN, STALL

STEP 4: BULLY THE REGULATORS

STEP 5: PASS A GAZILLION LOOPHOLES

Taibbi concludes this lengthy article, saying, "But money never gets tired. It never gets frustrated. And it thinks that drilling holes in Dodd-Frank is every bit as interesting asThe Book of Mormon or Kate Upton naked. The system has become too complex for flesh-and-blood people, who make the mistake of thinking that passing a new law means the end of the discussion, when it's really just the beginning of a war."