Friday, April 25, 2014 - Don't Hold Your Breath

Don’t Hold your Breath
by Sinclair Noe

DOW – 140 = 16,361
SPX – 15 = 1863
NAS – 72 = 4075
10 YR YLD - .02 = 2.66%
OIL – 1.25 = 100.69
GOLD + 9.90 = 1304.80
SILV + .07 = 19.83

Consumer sentiment rose in April to a nine-month high as views on current and near-term conditions surged. The Thomson Reuters/University of Michigan's final April reading on the overall index of consumer sentiment came in at 84.1, up from 80 the month before.

Meanwhile, a new Gallup poll shows more Americans are optimistic about the job market this month than at any time since the 2008 financial crisis, with 30% saying now is a good time to find a quality job.

That marks a significant improvement from the 8% who said they were optimistic about the job market in 2010, but it’s still a drop from the pre-2008 highs of almost 50%. And even though almost a third of Americans are optimistic, two-thirds still say the job market is lackluster; 66% of Americans say it’s not a good time to hunt for employment.

Next week’s economic calendar includes a two day Federal Reserve FOMC meeting. Next Friday, we’ll have a monthly jobs report; the current estimates call for 215,000 net new jobs in April and the unemployment rate dipping to 6.6% from 6.7%. Also, the Commerce Department will release its first guess of first quarter GDP; the consensus estimate on the initial estimate is that the economy grew about 1%.

The situation in Ukraine is going to hell in a hand basket. Russian militants have now become entrenched in towns across eastern Ukraine; Russian troops are massed on the border. Ukrainian leaders said operations to expel pro-Russian militants in eastern cities would continue, even though military action so far has done little more than prompt Russia to stage military exercises on Ukraine’s border and raise concerns about Moscow’s next move. The government in Kiev says that if the Russians cross the border they would view that as an invasion. Ukraine's Prime Minister said Russia wanted to start World War Three by occupying the country and creating a conflict that would spread to the rest of Europe.

A group of foreign military observers, possibly including some Germans, traveling under the auspices of the Organization of Security and Cooperation in Europe, along with their Ukrainian military hosts, were detained by pro-Russia separatists in Slovyansk. It was unclear precisely how many were in the group, about a dozen, but the detention appeared to be the first time that members of the Ukraine armed forces had been taken into custody by the separatists.

The US, Britain, and Germany are now calling for more sanctions against Russia, but none of the three countries gave any details of what the sanctions might be, or when they might be enacted. The standoff has already led to heavy capital flight from Russia, prompting credit rating agency Standard & Poor's to cut the country's ratings. That forced the Russian central bank to raise its key interest rate to reverse a drop in the ruble.

The Federal Communications Commission announced new rules governing Internet service. The rules effectively put an end to net neutrality, or the idea that all web traffic should be treated equally. A court decision in January struck down FCC rules meant to ensure that Internet providers do not discriminate by blocking or slowing certain content.

That new rule gives broadband providers what they’ve wanted for a long time, the right to speed up some traffic and degrade others. When broadband accelerates some traffic the result is that other traffic slows down. We take it for granted that bloggers, start-ups, or nonprofits on an open Internet reach their audiences roughly the same way as everyone else. Now they won’t. They’ll be moved over to a slow lane and forced to line up for their chance to reach an audience as they watch as companies that can pay tolls to the cable companies speed ahead. The motivation is not complicated. The broadband carriers want to make more money for doing what they already do. Never mind that American carriers already charge some of the world’s highest prices, around sixty dollars or more per month for broadband, a service that costs less than five dollars to provide.

After the ruling, internet providers like Comcast and Verizon cut deals with content providers, such as Netflix, which would pay to stream their content in an Internet “fast lane.” The new rules effectively create a fast lane and a slow lane on the internet. The fast lane includes big tech companies that can afford to pay; the slow lane includes startups, small businesses and everybody else. The internet providers are also becoming more and more involved in providing content, and it just makes sense to think their content will get preferential treatment. Companies like Verizon and Comcast will have staggering power to decide what bits of information reach your devices and mine, in what order and at what speed. That is, assuming we're permitted to get that information at all.

Bottom line is that the internet is going to get more expensive; if content providers have to pay extra for the fast lane, they’ll pass those costs on to the end user. The finer details will be hashed out in the coming months, starting on May 15, when the proposed rules become public.

Back in the Spring of 2010 the Office of the Comptroller of the Currency (OCC) and the Federal Reserve issued consent orders to 11 mortgage servicers, mandating that borrowers who had pending foreclosures, or had completed foreclosure sales in 2009 or 2010 could request an investigation by independent reviewers. The independent reviews would be paid for by the servicers, and in a shocking twist, the independent reviewers were anything but independent.

Eventually 16 servicers were included in the reviews, accused of using forged and shoddy paperwork to rapidly foreclose on homeowners, a practice known as “robo-signing.” The servicers, including Bank of America and Wells Fargo, agreed to have independent consultants review their foreclosure files for errors. In the 12 months that the review was up and running, not a single homeowner received any compensation. But the eight consultants managing the process were paid a total of $1.9 billion.

And so the independent review was cancelled and the regulators and the banksters worked out a quick and dirty settlement, with $3.3 billion going to wronged homeowners; a bunch of insultingly small checks distributed to a wide swath of people, and the regulators and banksters got to say: look how many people we helped. Meanwhile, nobody went to jail for the thousands of forged documents, the perjury, the obstruction of justice, etc., etc. in what was surely one of the largest fraud cases in American history.

Another problem is that nobody really knew who had been wronged and in what amounts, and so when the restitution was paid, nobody really knew if there was any rationale for the payments. The OCC said the consultant’s review had found an overall error rate of about 4.5% after assessing about 100,000 files, but that always seemed to be a lowball estimate.

Meanwhile, Representative Elijah Cummings continued to get data, and now that data is coming to light. In one example, a reviewer, Promontory Financial, found errors with 60% of the loan modifications conducted by Bank of America; a partially completed review found similar problems of the cases reviewed for PNC Bank. Based upon those numbers, the banksters got off with a puny little fine, and the wronged homeowners got shortchanged.

Now, you’re probably thinking to yourself, that this is old news about the robo-signing, but what is still relevant is  how the politicians have suppressed this information for so long; further proof of how deeply pretty much all of Washington DC is in bed with the banks. Only now when foreclosure abuses are considered old news does the public begin to get an inkling of how much the official story was close to a complete fabrication.

Of course, the people who went through the Independent Foreclosure Review process knew full well what a charade it was, but they were never taken seriously. The review process cost nearly $2 billion and it turned out to be a cost efficient whitewashing by the banksters. If you’ve lost your home, you are sure to be under financial duress, and people with no money don’t have any clout with our government. Foreclosure is considered a stigma, which discourages victims from telling their stories and sets those brave enough to do so up for abuse; the banks have done a great job of playing up the “deadbeat borrower” meme, whether it fits or not.

And we finish today with the story of how a top bank executive finally has to pay for his fraudulent actions. Bank of America's former finance chief, Joe Price, has agreed to pay $7.5 million to settle a New York lawsuit that accused the bank and its former executives of misleading investors during the lender's acquisition of Merrill Lynch. The top execs at BofA lied about the toxic assets on the books at Merrill Lynch and mounting losses leading to the merger; and misrepresenting the impact the merger would have on the bank's future earnings; this violated so many securities laws that it is crazy.

New York Attorney General Eric Schneiderman said: "This settlement is one more step in our effort to hold top financial executives accountable for their actions." What a crock.

The bank paid the fine for Joe Price, which means the shareholders are actually paying. Joe Price did not have to admit wrongdoing. Former BofA CEO Ken Lewis settled last month; the bank paid his fine too; Lewis did not admit wrongdoing.

Meanwhile, there is still a $2.3 billion class action lawsuit pending, and the Department of Justice is now offering a $13 billion settlement to Bank of America to resolve federal and state investigations of the lender’s sale of bonds backed by home loans in the run-up to the 2008 financial crisis. Don’t hold your breath for justice.

Tuesday, April 16, 2013 - Love That Dirty Water

Love That Dirty Water

by Sinclair Noe

DOW + 157 = 14,756
SPX + 22 = 1574
NAS + 48 = 3264
10 YR YLD + .02 = 1.72%
OIL + .20 = 89.90
GOLD + 16.70 = 1370.30
SILV + .65 = 23.44

If home is where the heart is, then Boston is everybody's hometown today. No significant developments to report. The death toll stands at 3, with 176 people reported as injured, some in very critical condition. Officials now say it was just two bombs; yesterday, there was speculation there were more. There is no indication that the bombing was part of a broader plot. We still don't know if it was one evil lunatic or a group of evil lunatics. We don't know if it was done by someone from this country or elsewhere. There have been no arrests, and it is a very intensive ongoing investigation. We should not speculate on some things. What we do know is that people responded by running toward the blast to help the victims. We do know that the medical personnel and others responded heroically. And we do know that the good, decent, and heroic people outnumber the evil lunatics; always have, always will.

Total housing starts in March were up 46.7% from the March 2012 pace, although some of that increase was due to a surge in multi-family starts in March. Single family starts were up 28.7%. Even with this significant increase, housing starts are still very low.

The consumer price index decreased 0.2% in March, led by lower energy and apparel costs. Energy prices decreased 2.6% in March, retracing half of the 5.4% rise in February. Gasoline prices fell 4.4% in the month. Electricity prices also declined. The only big gain came in prices for used cars and trucks.

In the past year, the CPI has risen 1.5%. So,today's report may actually add to concerns about deflationary pressure; at the very least, it leaves plenty of room for the Federal Reserve to continue QE.

Industrial production rose a seasonally adjusted 0.4% in March, and February’s growth was revised higher to 1.1% from the initially reported 0.8% advance. The March gain wasn’t necessarily a great sign for the economy; utilities output rose due to unusually cold weather, and manufacturing and mining output actually decreased. Still, the annualized 5% gain in output during the first quarter was the best since the first quarter of 2012, and came as consumer goods output shot up 6.2%, the best quarterly gain since the end of 1999. The auto industry was a major factor in the first quarter numbers. Strong demand for new cars pushed automotive product output up 2.6% higher in March and 13.2% for the quarter.

Coca-Cola reported first-quarter results above Wall Street's forecasts. Coke also said it struck a deal to start refranchising its business in the US, which will lower costs.

WW Grainger, which sells power tools and other industrial equipment, said its first-quarter net income climbed 13 percent.

Intel reported a widely expected drop in first-quarter earnings on Tuesday, though the final results were in line with diminished expectations. Intel reported net income of $2 billion, or 40 cents per share, compared with net income of $2.7 billion a year ago.

US Bancorp reported first-quarter earnings that fell short of analysts' expectations. The Minneapolis bank's net income rose 7 percent to $1.43 billion as it set aside less cash to cover soured loans. Goldman Sachs reported first-quarter profit of $2.2 billion, or $4.29 a share, driven by strength in its investment banking business as well as its investing and lending unit.

European lawmakers have voted to cap banker bonuses at the region’s largest institutions, as part of a major set of reforms designed to curb the financial industry’s risky behavior.

The legislation had faced major opposition from Britain, home to Europe’s largest financial center, but it was eventually outvoted by other European Union countries that wanted to rein in the excesses. It's not like the bankers will starve. Compensation limits will restrict bonus payments to one year’s base salary, though that figure can be doubled if a majority of shareholders approve. The legislation will apply to all banks active in Europe, as well as the international divisions of European firms like Barclays and UBS.

Meanwhile, Italian officials broadened their investigation into whether the Japanese investment bank Nomura helped hide losses at the troubled lender Monte dei Paschi di Siena, ordering the police to seize assets worth $2.35 billion and naming a former top Nomura executive as a suspect.

The unusual move to seize such a large sum, and go after prominent bankers, underlined the importance of the case in Italy and the euro zone, where people are still a little nervous about banks, following that little episode in Cyprus. Monte dei Pashci is the oldest bank in the world and the third largest in Italy, and it apparently has to do with some transaction that left the bank in need of a bailout for more than $5 billion by the Italian government.

For the past few years I've talked with you about the foreclosure frauds perpetrated by the banksters. Lots of things went wrong, including: fake documents, forged documents, robo-signing, illegal foreclosures, foreclosures on military families while they served overseas, foreclosures on homes with no mortgages, foreclosures on people who paid on time, foreclosures on people who were truly trying to work out some sort of reasonable deal, kickbacks, and in general a complete lack of accountability for these crimes and abuses.

But instead of giving voice to thousands upon thousands of victims of illegal foreclosures, instead of documenting the banks’ criminal practices, maybe what we all should have done is simply let the Office of Comptroller of the Currency – part of the Treasury Department — and the Federal Reserve construct their own settlement with the banks. Then, when it utterly unraveled — as it has over the past couple of months — the unimaginable fraud heaped upon homeowners would get more attention than ever before.

Indeed, despite OCC and the Fed’s best efforts to protect banks from harm, they’ve actually exposed them like never before. Two years ago,  the OCC, the primary regulator for the banks doing the lion’s share of the foreclosing, had to answer for their complete lack of oversight and enforcement. So they came up with a solution.

Instead of joining with other regulators and leveraging their authority to generate the biggest penalties possible, OCC would break off (the Federal Reserve would join them), and pursue its own settlement. Announcing that 14 mortgage servicers committed “violations of applicable state and federal law,” OCC would allow 4.2 million homeowners in foreclosure in 2009 and 2010 to petition for an “independent” review, and would mandate specific restitution for any foreclosure found to be improper. The real goal was to find as few irregularities as possible, to “prove” that the problem was contained to a few isolated cases of sloppy paperwork, and to undermine the other state and federal regulators’ investigations. It was the perfect plan, if your idea of a good plan is to downplay bank malfeasance and subvert justice.

This plan began to take water from the moment it began. The Independent Foreclosure Reviews weren’t independent: OCC and the Fed, in their infinite wisdom, decided to let the banks hire and pay for their own third-party reviewers. The predictable consequences included a windfall for the bank consultants hired for the job – they made a combined $2 billion off the reviews – and numerous cases of reviewers deliberately trying to make the banks look better, or even hiding evidence of bank malfeasance. The OCC faced a moment of truth: Power through with expensive and obviously flawed reviews, or pull the plug. They did the latter. Instead of completing the 500,000 reviews requested by individual borrowers, they would merely slot all 4.2 million, whether victims of foreclosure fraud or not, into several broad categories, and pay out a total of $3.6 billion. The regulators refused to release the methodology underlying that process, or any of the completed reviews from the third-party consultants.

This all spilled out in an ugly manner over the past week. The vast majority of aggrieved homeowners will get less than $300. The main stream media has picked up on the story. Politicians have picked up the story. The regulators are now stonewalling Congress. Where does this go from here? Hard to say, but the whole story has revealed a nasty mess that will be difficult to sweep under the rug.

Economic leaders gathering in Washington for the World Bank and International Monetary Fund  spring meetings this week. So, the IMF updated its economic forecast. The IMF now predicts global growth of about 3.3 percent this year and 4 percent in 2014. That is a reduction of 0.2 percentage point since its January estimate for 2013; it did not change its estimate for next year’s growth.

Still, the report underscored that financial conditions had improved markedly since last year, in no small part because of aggressive monetary easing undertaken by the Federal Reserve, the Bank of Japan and the European Central Bank. Recession continues to afflict Europe, and the world still struggles with high unemployment, but risks to the downside; in particular from the threat of a country’s leaving the euro zone and from fiscal policy uncertainty in the United States, have faded.

Kind of strange that they think things are getting better and they lower their growth estimates.

The fund lowered its estimate of United States growth this year to 1.9 percent, down 0.2 percentage point from its January forecast. But it said the United States was “in the lead” in seeing an acceleration of growth, in part because Washington policy makers were able to avoid the so-called fiscal cliff of tax increases and spending cuts at the turn of the year.

The I.M.F. also said that the United States had proved too aggressive in carrying out budget cuts, given its still-sluggish rates of growth and high unemployment levels. It said it anticipated that the across-the-board $85 billion in budget cuts known as sequestration would push down growth levels this year and beyond.

The report says: “The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate. But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 percent of G.D.P. Underlying private demand is actually strong, spurred in part by the anticipation of low policy rates under the Federal Reserve’s ‘forward guidance’ and by pent-up demand for housing and durables.”

There are some positive developments for the Inland Empire but there are still some big challenges. San Bernardino is still facing a scarcity of good news as the city's financial consultant presented a proposed budget to the City Council last night. One significant improvement is that - as long as a large chunk of the city's debts continue to be deferred - the city won't be in danger of not making payroll as it was in the weeks leading up to several pay days in 2012. The budget proposes to resume payments to the California Public Employees' Retirement System, but defers more than $16 million in other funds. The most positive developments might not have anything to do with repairing broken municipalities, but with a new wave of businesses washing into the Inland Empire.

An article in the LA Times this past weekend identified the Inland Empire as the fastest growing industrial region in the country and the most desirable industrial real estate market. Among the many merchants running large-scale operations now are such household names as Amazon.com, Kohl's, Skechers., Mattel, and Stater Bros. Markets.

They come for warehouses; really big warehouses; some are bigger than 30 football fields under one roof; really, really big warehouses where they can store, process and ship merchandise such as clothes, books and toys to ever more online shoppers and handle the rising flood of goods passing through the ports of Los Angeles and Long Beach.

The demand for these big buildings is so intense in San Bernardino and Riverside counties that developers are erecting more than 16 million square feet of warehouses on speculation, meaning they are gambling that buyers or renters will rush forward to claim the buildings by the time they are complete.

Although the Inland Empire was hard hit by the recession and earned a reputation for mortgage foreclosures, evictions and high unemployment rates during the downturn, the industrial property business has remained a bright spot. And it is now picking up speed.

Southern California has long been a vital hub for major retailers and manufacturers; the region features major seaports, and an enormous population base, but with Los Angeles and Orange counties essentially full, the Inland Empire with its wide-open spaces is now where the big new buildings are flying up.

Los Angeles County's industrial vacancy is 2.5%, the lowest in the country, and some of the priciest industrial property in the country is around LAX. Orange County is the second-tightest market in the U.S., with 3.5% vacancy. The two counties and the Inland Empire have a combined total of more than 1.65 billion square feet of industrial property, which is twice as big as the next largest market, Chicago.

Key to all this is logistics; the organization and movement of goods to accommodate business. The Inland Empire is close to the ports, which in turn means that the Inland Empire is close to the Pacific Rim. Once upon a time, a warehouse was where you stored things for weeks or months, such as toys and canned food that retailers would grab to restock their shelves. Sorting, organizing and moving the inventory was a constant challenge.

Tracking goods in the modern age of bar codes, scanners and computers is a comparative breeze. The location of every widget can be identified with pinpoint accuracy and fetched by robots that can lift and carry 3,000-pound loads with ease. Technology has allowed larger facilities with more sophisticated equipment to be able to deliver products very efficiently, enabling businesses to consolidate their logistical operations into bigger warehouses.

And it's not just the Inland Empire; the general wave of industrial revival has hit many core markets, including Chicago, Atlanta, the Inland Empire, New Jersey and others. The expansion of e-commerce has sparked the need for big-box distribution centers in major distribution hubs. More than one-third of 2012 build-to-suit requirements were e-commerce related. According to the US Census Bureau, e-commerce sales totaled $225 billion in 2012, more than double the amount in 2005. Strong demand for big-box quality space in major logistics markets has triggered an increase in both BTS and spec development. Last year, 58 million square feet of supply was added to the nation’s inventory and 57.7% of that was built to suit,

In total, developers currently have 57 million square feet of industrial space under construction. The Inland Empire leads all markets with 6.8 million, and Dallas comes in second with 5.8 million. New starts remain well below historical norms, which means new demand can quickly tighten the market. In fact, supported by strong new demand, the vacancy rate declined 30 basis points in the fourth quarter of 2012, the largest quarterly decline since 2006. So, with any luck, this is something that won't turn into a bubble. Knock on wood.

Friday, April 12, 2014 - Trade Secrets

Trade Secrets

by Sinclair Noe

DOW – 0.08 = 14,865
SPX – 4 = 1588
NAS – 5 = 3294
10 YR YLD - .07 = 1.72%
OIL – 2.85 = 90.66
GOLD – 84.00 = 1478.00
SILV – 1.81 = 25.95

The S&P 500 is up about 2.4 percent for the week, and the Dow up about 1.8 percent and Nasdaq up about 2.4 percent. The S&P has only had two weeks in 2013 with bigger gains. For the year, the Dow has gained more than 13 percent and the Nasdaq is up 8.7 percent.

Retail sales fell in March for the second time in three months and consumer confidence dropped in April. Sales fell 0.4 percent in March. Consumer spending was considerably weaker in the first quarter than estimated. Core sales, which strip out cars, gasoline and building materials, fell 0.2 percent last month. This measure corresponds closely with the consumer spending component of the government's measure of gross domestic product. It is widely believed that the end of the payroll tax holiday is related to the drop in consumer spending. Going a step further, growth is expected to slow sharply in the second quarter largely because fiscal policy tightened further in March.

A separate report from Thomson Reuters/University of Michigan shows the consumer sentiment index dropping ot 72.3 in April, the lowest level since last summer.

Producer prices, or prices at the wholesale level, fell 0.6 percent in March, their biggest drop in 10 months, as gasoline prices tumbled. In the 12 months through March, wholesale prices were up 1.1 percent, the smallest rise since July. Prices had increased 1.7 percent in February.

It's earnings season, and today a couple of the biggest banks posted results. Wells Fargo reported earnings of $5.2 billion, up from $4.2 billion a year ago. Revenue was slightly lower. The bank’s mortgage banking income slipped 3 percent; mortgage originations dropped by 16%. Corporate lending increased.

The nation's largest bank, JPMorgan Chase, reported a 33% increase in first quarter earnings. Net earnings came in at $6.5 billion, even as revenue dipped by $1 billion. JPMorgan reported strength in mortgage lending and investment banking. Within the investment banking unit, assets grew to $19 trillion for the first quarter. At least that's what it looks like. And it looks like they had about $2.3 trillion in derivatives on the balance sheet, and $1.6 trillion in derivatives “off balance sheet”. The notional amount of assets associated with these derivatives is somewhere around $70 trillion; again just kind of guessing.

What are these derivatives assets being used for? How do they contribute to JPMorgan’s record earnings? What risks are being run by having such large items “off balance sheet”? Is it gambling in derivatives that is enabling JPMorgan to make record profits in a depressed marketplace? The public has no information and no way of finding out.

JPMorgan and various counterparties operate in what is basically a hidden casino, and when one of the players loses, the entire global derivatives casino tends to freeze; that's what happened in 2008 with the collapse of Lehman; everything froze because nobody had enough information to assess the damage to their own balance sheets and “off-balance sheet” holdings, and that means they were totally clueless about the counterparties in the derivatives casino.

Jamie Dimon, the CEO of JPMorgan, talked about the growth in tangible book value, but he did not include the off balance sheet derivatives, which would clearly push book value below one. Which means that all the analysts who cover JPMorgan can't figure out value. And the reason is they don't know how much risk the bank is taking. And an even better question is why are they taking all the risk? How does this benefit the economy? The answer is that it provides no benefit to the economy, beyond enriching a few executives and traders in the firm.

While the banks are still reporting big profits, they are also cutting jobs. So, something doesn't add up. Why would a business that grows earnings 33% need to fire tens of thousands of workers? Regulation will force changes in their business model. The big question is what the banks will look like in a year.

Of course, Jamie Dimon couldn't let the earnings report pass without begging for some relief from regulators. Dimon argued  that banks are safer than ever, that JPMorgan’s size and scale and universality provides services that clients want and is good for the world, and that “I hope at one point we declare victory and stop eating our young.”

of course yesterday, JPMorgan research released a 328 page report arguing that global tier 1 investment banks were “un-investable” and the mega banks need to spin-off their businesses to provide capital return to shareholders. So, there's a bit of a disconnect there. Also, there was a Wells Fargo report this week saying the biggest banks trade at 20-30% discounts to their sum-of-the-parts values.

A follow-up to the mortgage abuse settlement. Recall the PR barrage in the wake of the robosigning scandal: its was “sloppiness,” “paperwork errors”. Servicers kept claiming, despite overwhelming evidence of bad faith and the institutionalization of impermissible practices, that there was really nothing wrong with how they were operating. Remember it was important for them to take that position, because if they were to admit that the bank knew it was engaging in widespread abuses with management knowledge and approval, it would be admitting to fraud.

The Fed and the OCC told the big 14 mortgage servicers to conduct reviews of all mortgages; the mortgage servicers hired consultants to scour the mortgage files; the consultants charged $2 billion but couldn't get through many files; the Fed and the OCC threw up their hands and worked out a deal for the servicers to send out checks to abused homeowners, $3.6 billion for 4.4 million homeowners; most check are for $300 or less. Now, you may be wondering how the mortgage servicers and banks and regulators knew how much to send to abused homeowners, and which homeowners should get checks, seeing as how they didn't finish the investigation; well, they let the banks tell them how much they felt was a good amount to pay, and that settled it. Senators are now looking into the mess and demanding information from the regulators, but the Fed is stonewalling the Senate investigation.

At the meeting yesterday, Federal Reserve staff argued that the documents relating to widespread legal violations are the “trade secrets” of mortgage servicing companies. In addition, staff from the Office of the Comptroller of the Currency (OCC) argued that these documents should be withheld from Members of Congress because producing them could be interpreted as a waiver of their authority to prevent disclosure to the public of confidential supervisory bank examination information.

Widespread legal violations are the trade secrets of mortgages servicing companies. I can’t make this stuff up.

Lots of people have been discussing how negative investor sentiment is. Markets are making new all time highs as expectations that markets will be higher six months hence is at a mere 19% 

While the stock market has been climbing to record highs, the rally has highlighted the disconnect from the broader economy; however, the market does not appear disconnected from earnings. Record high stock indices are matching record high levels in corporate earnings. S&P 500 companies are on track to generate north of $25 per share in collective profits this quarter. That's better than it sounds; earnings for S&P 500 companies are expected to grow at a modest 1.2 percent in the first quarter. What's very unusual about this particular new high in earnings is that it doesn't come along with a new high in economic activity around the world. If we have record earnings in a relatively lousy economic environment, what if the economy improves? Or the flip side of that question is whether we can maintain corporate earnings without improvement in the economy?

As the U.S. Commerce Department released a report late last month showing corporate profits at a 60-year high, suddenly the big news was about how cheating surely must be rampant in Social Security disability.

Wait, what?

Also late last month, a Washington Post investigation showed that the 30 companies that make up the Dow Jones industrial average pay a dramatically smaller portion of their profits in taxes than they did a half century ago. Instead of discussing how that impacts government services, all of Washington is talking about slashing Social Security and Medicare.

It’s bait and switch.

The Commerce Department says corporate profits increased to 25.6 percent in 2012, the highest in any year since 1950 and far higher than the 19.9 percent level common in the years just before the economic collapse.  Citizens for Tax Justice and the Institute on Taxation and Economic Policy evaluated 280 of the Fortune 500 companies and found that 30 paid no federal income taxes at all from 2008 through 2010. The following year, 26 paid no income taxes. None. Zip. Zero. Some corporations pay. But not much. A Washington Post analysis found that about 50 years ago, corporations included in the current Dow Jones industrial average routinely listed federal tax expenses as 25 to 50 percent of worldwide profits. Now, the Post found, they report less than half that.