Speak Your Mind by Blowing Your Wad
by Sinclair Noe
by Sinclair Noe
DOW + 40 = 16,573
SPX + 5 = 1890
NAS + 8 = 4276
10 YR YLD + .04 = 2.80%
OIL – 33 = 99.29
GOLD + 10.10 = 1290.90
SILV + .22 = 20.08
SPX + 5 = 1890
NAS + 8 = 4276
10 YR YLD + .04 = 2.80%
OIL – 33 = 99.29
GOLD + 10.10 = 1290.90
SILV + .22 = 20.08
The S&P 500 closed at another record high.
The Commerce Department reported that orders to US
factories rose 1.6% in February, the most in five months. January's durable
goods orders were revised to show a larger drop of 1.0% instead of the
previously reported decline of 0.7%. Yesterday, the Institute for Supply
Management said its manufacturing index rose in March.
A private survey showed that US companies stepped up
their hiring in March. Payroll processer ADP said private employers added
191,000 jobs. ADP also revised February's job creation up to 153,000 from the
139,000 figure reported earlier. The report comes ahead of the government's
monthly jobs report, scheduled to be released on Friday; the over-under number
for Friday is 200,000 net new jobs.
We know the Federal Reserve will be watching the jobs
report. St. Louis Fed President James Bullard speaking to reporters at his
branch of the central bank, said a formal rate rise is "still a
considerable distance away." Federal Reserve Bank of Atlanta President
Dennis Lockhart said today: “Based on my working medium-term outlook, I see the
latter half of 2015 as the likely time frame for the first move to higher
rates,” but if the economy doesn’t grow as he current expects, Lockhart thinks,
“a later liftoff date… will likely be appropriate.”
Lately bad weather was cited as the reason that Walmart
and FedEx and Delta’s earnings were disappointing. If it isn't one-time charges that happen
every quarter being removed from reported results, it's the weather being
blamed. Of course, even if the weather truly was awful enough to prevent people
from shopping, or buying a house, that demand should simply show up in a later
month. A certain amount of productive capacity is lost, but pent up demand
should rev things right back up again. The March jobs report won’t be the final
word on the weather and the economy, but if we don’t see some sort of
significant improvement, then we are running out of bad weather excuses.
Russian, American, and European diplomats continue to
talk about settlement talks that might halt further Russian military action in
Ukraine; Crimea is a done deal, but Ukraine is another matter. NATO will
suspend "all practical civilian and military cooperation" with Russia
because of its annexation of Crimea, saying it has seen no sign that Moscow was
withdrawing troops from the Ukrainian border.
Meanwhile, Gazprom, the Russian energy company has fired
a shot across the bow, raising the price it charges Ukraine for natural gas.
The price jumped from $268 per 1,000 cubic meters of gas to $385, or about a
44% increase. Gazprom execs attributed the price increase to an unpaid debt for
gas. This is not the first time energy has been used as an economic weapon, nor
will it be the last.
The US has been undergoing an oil and gas renaissance;
the White House has promoted exploration and drilling, and output has jumped. When
it comes to natural gas, the US is being compared to Saudi Arabia, or Saudi
America. Of course, that provided no advantage to thwart Putin’s aggression in
Crimea. One reason Saudi America has failed to instill fear in Russia is that
we lack the capacity to export LNG to Europe, and probably won’t be able to
export in any significant quantities for a few more years; and then it would
probably be a few more years before Ukraine could build facilities to receive
such exports.
Meanwhile, we ran into a rash of reports in the past week
or so, all telling us that our reliance on fossil fuels is killing us. The
American Association for the Advancement of Society, the Intergovernmental
Panel on Climate Change, and the World Meteorological Organization all confirmed
that the planet is getting hotter; 13 of the past 14 years have been the
hottest ever recorded. The Antarctic ice shelf is melting, Greenland too; the
rain forests are dying and the Gulf Stream is collapsing. It’s not just the
melting ice and the poor polar bears; the reports warn of very human problems
of hunger, disease, drought, flooding, refugees, violence, and war.
Necessity is the Mother of Invention, and the time is now
for innovation; and the good news is that there are inventors who have been
working on these problems and have created solutions; the bad news is that the
status quo and the powers that be are entrenched. This is a defining moment,
and energy is being used as an economic weapon, and that weapon is pointed
directly at our own foot.
And the entrenched powers just became more entrenched.
The Supreme Court has struck down the aggregate campaign contribution limits,
opening the gates for even more money to flood into the political system. The
good news is we have the best politicians money can buy. The bad news is we
have the best politicians money can buy. The 5-4 ruling in McCutcheon v.
Federal Election Commission was penned by Chief Justice John Roberts and joined
by justices Anthony Kennedy, Samuel Alito and Antonin Scalia; Justice Thomas
went a step further and called for a complete end to campaign finance reform.
The decision relies heavily on the assertion in the 2010
Citizens United ruling that influence and access are not a corruption concern.
This means that a single donor will soon be able to contribute millions of hard
dollars in limited contributions, to political parties, candidates and
political action committees.
Federal law sets certain limits, so you can't just go
write a candidate a check for a million dollars and call it a day. That means
you can't give more than $2,600 to any one candidate per election. Even if you
were to donate once in the primary election and again in the general, the
absolute most you could give to an individual candidate's campaign is $5,200.
And you can’t, or couldn’t just spread money across the board. For the 2013-2014
election cycle, Federal Election Commission rules state that a donor can give
no more than $123,200 to all political committees, with two sub-limits of
$48,600 to candidates and $74,600 to political parties and political action
committees. In other words, there was a limit, a cap on aggregate spending. Those
limits are no more.
Now, a single
donor can now give more than $5 million in individually limited contributions
to every House candidate, every Senate candidate, every state party committee,
every national party committee and every leadership PAC connected to one
political party. The McCutcheon ruling also did away with the aggregate limit
on donations to political action committees, or PACs, which can give money
directly to candidates. While there's a limit on how much PACs can give to each
candidate, there's no limit on the number of PACs that can exist. Without the
aggregate limit, one donor can now give $5,000 each to 1,000 different PACs.
And those 1,000 PACs can turn around and funnel that money straight to one
candidate. Which means that one candidate could haul in $5 million in direct
contributions from one donor, funneled through a network of PACs.
So, if you have a big wad of money that you would like to
waste on buying politicians, the Supreme Court has just ruled that you can blow
your wad just a freely as you can speak your mind.
The new Michael Lewis book, “Flash Boys” looks at High
Frequency Traders front running trades, using technology to jump in front of a
trade and skim some profits. The uproar from Wall Street has been hilarious. There
are claims that front running isn’t really bad; it doesn’t hurt ordinary
investors; it may actually add to liquidity, blah, blah, blah. This is kind of
like saying a mafia hit man is good for the neighborhood because he spends his
money at the local grocery store and he hasn’t killed anybody on my street.
As we said the other day, High Frequency traders front
running the market is not new; it has been going on for years, but the book and
the 60 Minutes interview and the publicity finally caught the attention of
otherwise somnambulant sleuths at the FBI who are investigating front running,
which is a criminal offense. Where this could get interesting is that the High
Frequency Trading firms set up shop in close proximity to the stock markets in
New York, and they pay for high speed access to the exchanges’ computer systems
and data.
The New York Stock Exchange calls it “fully managed
co-location space next to the NYSE Euronext’s US trading engines in a new state
of the art data center”. The NYSE is the landlord. And they can set up the “super
high density” fiber optic connections for an initial fee of $7,000, or a
onetime upgrade fee of $9,200. In other words, the New York Stock Exchange and
the Nasdaq are complicit in the skimming operation. I didn’t hear Lewis or 60
Minutes talk about that, but that is the ugly truth.
The other funny thing about the Michael Lewis book and
interview is the notion that some clever fellows, backed by hedge fund guru
David Einhorn and a few other Wall Street big dogs, had come up with a clever
technical fix in a new and better exchange called IEX. Protected by a spool of fiber to ward off the
high frequency traders like garlic against vampires. Free market triumphs,
mission accomplished. Don't even think about a minimum transaction tax, a speed
bump rule such as a minimum order duration, or anything more comprehensive than
that.
