Friday, March 14, 2014 - The Circle of Life

The Circle of Life

by Sinclair Noe

DOW – 43 = 16,065
SPX – 5 = 1841
NAS – 15 = 4245
10 YR YLD - .01 = 2.64%
OIL + .81 = 99.01
GOLD + 10.90 = 1383.00
SILV + .29 = 21.56

In economic news, the early-March consumer sentiment index fell to 79.9. That’s down from a final February reading of 81.6 but the latest number is within the range of numbers posted since November.

A separate report from the Labor Department shows the producer price index dropped o.1% last month. The PPI measures inflation at the wholesale level. Final demand for goods rose 0.4% in February. Final demand for services dropped 0.3%. Producer prices excluding volatile food and energy costs fell 0.2%. In the 12 months through February, producer prices increased 0.9%, the smallest one-year gain since May 2013. Inflation is not a concern. The economy is still too sluggish to generate inflation.

There are two big news stories of the day: Flight 370 and Ukraine. We don’t know anything about either. A total absence of actual information about the missing Malaysian flight is not in any way hindering 24 hour news coverage of the story. Facts have given way to fantastic fantasizing about everything from terrorism to hidden island airstrips to alien abductions. The news networks have been gathering tons of erroneous and conflicting reports which they immediately pass to their viewers. They must think we’re all morons.

Secretary of State John Kerry and his Russian counterpart Sergei Lavrov wrapped up meetings in London by announcing they have no common vision on the crisis in Ukraine. Russia will go forward with a referendum vote on Crimean sovereignty on Sunday. Monday will be a strange day as we watch the markets try to weave a narrative.

The Swiss bank UBS said it will conduct an internal review of its precious metals business amid expanding regulatory investigations into potential manipulation of interest rates and the price of commodities and currencies. European regulators began looking at other benchmark rates, including for gold and silver, as part of an outgrowth of its investigation of rigging of the London interbank offered rate, or Libor, and other global interest rate benchmarks. The process of setting the benchmark price for gold in London dates to 1919. It is set twice a day by five firms that serve as market makers; those market makers are: Barclays, Societe Generale, Deusche Bank, Scotiabank, and HSBC.

The Hong Kong Monetary Authority said that after an investigation of nine banks that were part of the local consortium making daily submissions to determine the Hong Kong Interbank Offered Rate, which is used as a benchmark to price corporate loans, household mortgages and other types of debt; only UBS was found to have tried to manipulate the rate, but the regulators conclude that they were not good at rigging the rate, so no fines have been levied.

Today the Federal Deposit Insurance Corp sued 16 of the world's largest banks, accusing them of cheating dozens of other now defunct banks by manipulating the Libor interest rate. The big global banks broke certain swaps contracts they had entered into with the now-closed banks by separately colluding to rig the Libor rate to which the contracts were tied. Some of the big banks have already paid fines to resolve the charges; but the big banks are also being sued by investors and other who claim they lost money due to the manipulation.

A federal judge last March dismissed many of those claims that were based on antitrust law, but has yet to rule on cases that rely on the "breach of contract" theory used by the FDIC.

The Inspector General for the Department of Justice has released a report that basically says the crackdown on mortgage fraud is a joke. In 2010, Attorney General Eric Holder said, “mortgage fraud crimes have reached crisis proportions, but we are fighting back.” The only problem is it didn’t happen. More money was given to the FBI, but the inspector general’s report shows that the FBI considered mortgage fraud to be its lowest-ranked national criminal priority.

Holder announced in 2012 that prosecutors had charged more than 530 people over the previous year in mortgage fraud related cases, but the new report says the actual number of cases was 107. Yep, the regulators are now cooking the books.

Yesterday we reported that Wall Street bonuses grew 15% last year to more than $26.7 billion, or an average of $164,000 per employee, according to the New York Comptroller; it marked the third highest bonus payout on record. The average salary including bonuses in 2012 was $360,700, or more than five times greater than the rest of the private sector. The average Wall Street bonus is now 7 times larger than it was 30 years ago. Meanwhile the median household income has been stagnant for the past 30 years.

People who park their savings in these big banks accept a lower interest rate on deposits or loans than they require from America’s smaller banks. That’s because smaller banks are riskier places to park money. Smaller banks won’t be bailed out if they get into trouble; big banks are too big to fail. That implied government protection is like a hidden subsidy for the big banks, and it affords them a competitive advantage, and allows them to rake in more profits than smaller rivals.

How large is this hidden subsidy? Two IMF researchers have calculated it’s about eight tenths of a percentage point; and based on the total amount of money parked at the 10 biggest Wall Street banks that works out to a subsidy of about $83 billion a year. The top 5 banks account for $64 billion of the $83 billion subsidy; and that pretty much equals the top 5 banks average annual profits. Bottom line, no subsidy, no bonus pool.

Meanwhile, I almost missed this story from Tuesday. In Vermont, 15 towns have voted to support the creation of a public bank in Vermont, calling for the state legislature to establish such a bank and urging passage of legislation designed to begin its implementation. The specific proposal under consideration, Senate Bill 204, would turn an existing agency, the Vermont Economic Development Authority, into a public bank that would accept deposits and issue loans for in-state projects.

Currently, the only state in the US to maintain a public state bank is North Dakota. However, since the financial downturn of 2008, other states have looked into replicating the North Dakota model as a way to buck Wall Street while taking more control of state and local finances.

Here’s how the public bank in North Dakota works: All state revenues must be deposited with the state public bank by law.  The bank pays no bonuses, fees or commissions; does no advertising; and maintains no branches beyond the main office in Bismarck. The bank offers cheap credit lines to state and local government agencies. There are low-interest loans for designated project finance. The Bank of North Dakota underwrites municipal bonds, funds disaster relief and supports student loans. It partners with local commercial banks to increase lending across the state and pays competitive interest rates on state deposits. For the past ten years, it has been paying a dividend to the state.

An economic study on a public bank in Vermont suggests the plan would create 2,500 new jobs and increase the gross state product by more than $340 million, with no new appropriations or bonding to establish the bank.

And we wrap up with this; today is Pi Day. March 14, or expressed another way 3-14, which happen to be the first 3 digits of pi, that Greek letter that has come to be defined as the ratio of a circle’s circumference to its diameter; in other words the ratio of the linear distance around the edge of a circular object to its measure of a straight line going through the center of a circle connecting two points on the circumference. So, if you want to know the circumference of a circle you could just multiply the diameter times 3.14 (pi). This also happens to be the birthday of Albert Einstein, which just makes both all the more intriguing.  A year from today, the date will be 3-14-15, which happens to be the first 5 digits of pi; it’s a once in a lifetime event.

Pi is, of course, an irrational number, which means it cannot be expressed as a ratio. It’s a decimal that’s neither finite (like 2.0 or 2.2) nor repeating (like 3.3333) nor periodic (like 9.1818). It just keeps going past 3.14159 for as long as you’d like to take it. Some people have done the calculation out to more than 2 trillion decimal places, with the help of computers. And so we consider pi to be infinite.

Another way to consider this is that there is no perfect circle. Or we might say that since pi is an infinite, non-repeating decimal every possible number combination exists somewhere in pi’s infinite sequence of numbers, and if you were to convert it to ASCII text, somewhere in that infinite string of digits is the name of every person you will ever love, or even meet, plus the date, time and manner of your death, and every question and every possible answer, and all the mysteries of the universe are contained in this infinite sequence of digits, and the only way we can wrap our minds around it is to think of it as a circle.

Celebrate safely.

Thursday, March 14, 2013 - Infinite Possibilities

Mark your Calendar, April 5 & 6 and make your reservations for the 2013 Wealth Protection Conference in Tempe, AZ. For conference information visit www.buysilvernow.com or click here or call 480-820-5877. This year's conference features Roger Weigand, Nathan Liles, David Smith, Mark Liebovit, Arch Crawford, Ian McAvity, Bill Tatro, and I will speak on Friday. There is an expanded Q&A session with all speakers on Saturday. I hope you can attend.

Infinite Possibilities

by Sinclair Noe

DOW + 83 = 14,539
SPX + 8 = 1563
NAS + 13 = 3258

10 YR YLD + .01 = 2.03%
OIL + .41 = 92.78
GOLD + 2.60 = 1591.30
SILV - .11 = 28.91

March 14 is Pi Day, the official celebration of the mathematical constant pi, the number that represents the ratio of a circle's circumference to its diameter. What makes pi so special? It is an incredibly complex way to describe the simplest shape; a circle.

No matter how large or small the circle, the ratio is always 3.1415926, I could go on forever with the number

because, as an irrational number, pi never ends. Some scientific types have calculated pi to 10 trillion digits, but the numbers of pi are random, with no repeating patterns. So pi has an unknown, infinite quality. It never ends, and since it is really a circle, it has no beginning.

So, today is a day of infinite of infinite possibilities. Case in point.

The Dow posted a record high again. This is the tenth straight day of gains on the Dow. Ten day winning streaks are rare; only happened 25 times in the last 70 years. The all-time longest winning streak is 14 days, set back in 1897, and the longest modern day streak was 13 days in January 1987. Of course, length versus the magnitude of the streak are completely different metrics. The current mini-stampede has only delivered a 2.85% gain, making it the fifth weakest of 25 such moves.

There will be some sort of correction will occur sooner or later. The markets won't go up forever. Ultimately, there is an over-riding point of focus in the market, and that is price. Ultimately the market gets back to price. You can buy or sell at a given price, and if you do it right you have enough money to put a roof over your head and bread on your table.

We know the markets have a seasonal tendency to peak about this time of year; that has been the pattern over the past three years, and four years ago, in 2009, the market bottomed. So what is going to happen now? I wish I knew with certainty. What I do know with a fair amount of reliability is that investors and traders tend to get beaten up when they try to impose their will on the markets.

The next question is invariably: should I buy or sell? And I've told you this and repeat: follow your plan. If you don't have a plan, get a plan.

Because these markets are crazy.

On a day full of infinite possibilities, here's an idea that that's really crazy: break up the nation's largest and most powerful banks. There has been some chatter lately, including the Bloomberg story about how the big banks are essentially subsidized to the tune of $83 billion a year, and there is a report due out from the GAO that is supposed to back up that idea of the subsidy.

(Excellent article from David Dayen dealing with JPM)

We’ll get another one Friday, when Carl Levin’s Senate Permanent Subcommittee on Investigations releases their report, along with the hearing on the London Whale trades. We now hear the losses could stretch to $8 billion. Levin’s committee did an excellent job in prior investigations of Wall Street, including Goldman Sachs (which they gift-wrapped to the Justice Department as a criminal referral, only to see DoJ toss it in the wastebasket).

And there is a new report called “JPM – Out of Control” which is a 45 page report on the problems of JPMorgan Chase, and the problems are almost as infinite as the mathematical constant pi. The report is from an analyst named Josh Rosner of Graham-Fisher & Co. and it includes documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; while “neither admit nor deny wrongdoing”). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.”

Obviously this contrasts with Jamie Dimon’s spotless reputation (at least in Washington) and his bold talk of a “fortress balance sheet.” Yet as you read the report, it’s hard to see the bank as anything but a criminal racket just days away from imploding, were it not propped up by implicit bailout guarantees and light-touch regulators. Rosner paints a picture of a corporation saddled with pervasive internal control problems, and he calculates that since 2009, JPM has paid out $8.5 billion in settlements for its outlaw activity, which equals nearly 12% of net income over the same period.

It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here's a quick list:

Bank Secrecy Act violations

Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal;
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card bedt collections;
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).

And these are only the ones where the company has entered into settlements or been sanctioned; it doesn’t even include ongoing investigations into things like Libor, illegally concealing inclusions of mortgage-backed securities in employer funds (another ERISA violation), the Fail Whale trades, and especially putback suits for mortgages.

Two case studies stand out. First, JPM is trying to stick the public with losses related to its purchase of Washington Mutual and its related liabilities. JPM wants to shift losses on over $190 billion in MBS onto the FDIC. They hope to get out from under as much as $5 billion in losses in this fashion. It’s impossible to logically follow JPM’s claim that they purchased WaMu but not any of its risk-related activities.

Finally, we have the Fail Whale trade, the subject of the Friday Permanent Subcommittee on Investigations hearing. The case study keys in on JPM’s internal “Task Force” report .It limited the scope of the investigation to late 2011 and 2012, when now-public data clearly shows the problems at the Chief Investment Office going back years earlier, and fully known to senior management at the time. This looks like a clear violation of Sarbanes-Oxley, as top executives annually attested to the accuracy of financial statements now known to be untrue. The Task Force tried to exonerate Jamie Dimon by actually saying in a footnote that he was out of town for a period of time covered by the report.

Do I really think that anything will come of these ever increasing reports that show the banksters are incredibly corrupt? Probably not, but today is pi day; a day of infinite possibilities.

Tuesday, August 14, 2012 - Go Figure

Go Figure
- by Sinclair Noe

DOW + 2 = 13,172
SPX – 0.18 = 1403
NAS – 5 = 3016
10 YR YLD +.07 = 1.73%
OIL +.60 = 95.30
GOLD – 10.90 = 1600.00
SILV un = 27.93
PLAT + 12.00 = 1403.00

I have always been fascinated with Pi; not the apple or blueberry pie (although that's good), rather Pi, the ratio of a circle's circumference to its diameter. Pi is considered a transcendental number; you can't square the circle. It is an irrational number which cannot be expressed as a ratio of two integers. The number is 3.141, but that's just the beginning. It is a number that cannot be fully expressed. People have tried. Mathematicians have used computers to extend the decimal out to 10 trillion digits, and then they give up; the decimal representation never ends and it never repeats; the number appears random but there has never been proof of the randomness. As best we know, Pi is infinite, and yet the definition of Pi relates to the circle, which is a closed loop. There are links to Pi in music and in the pyramids and in scripture and most likely in all sorts of things we haven't yet begun to understand.

Go figure.

The US Census Bureau population clock hit 314,159,265; which is 100 million times Pi. Beyond the obvious conclusion that there are more births than deaths, I don't know what it means. Maybe the world is more inscrutable; maybe it has always been so.  The next time you're feeling really smart, try to figure out Pi. 

The British bank Standard Chartered has agreed to pay a $340 million in fines to the New York state regulator which had accused it of scheming with Iran to hide about $250 billion dollars worth of transactions from the US authorities, at a time of sanctions against Iran. 

A week ago, the Department of Financial Services said that Standard Chartered had left the US financial system "vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity". The regulator threatened to revoke Standard Chartered's banking charter in New York. A hearing was scheduled for tomorrow. The deal was reached earlier today. The New York regulator effectively stepped in front of federal regulators and insured that New York state got some money. The federal regulators will probably get more down the road.

Standard Charted said it strongly rejects and contests the New York regulators' portrayal of its transactions with Iranian banks. So, I guess I was wrong. There was no crime. That whole money laundering thing, just forget it. It was nothing, really. SCB has a get out of jail card; it was there in their hip pocket the whole time, right next to their wallet. Go figure. 

Europe’s economy is in a depression and that is making it harder for other economies around the world to recover and policymakers from all round the world are urging more decisive action, particularly from the European Central Bank. Eurostat, the European Union‘s statistics agency, reports the economies of both the eurozone and the wider 27-country EU shrank by a quarterly rate of 0.2 percent in the second quarter of the year. In the first quarter, output for both regions was flat. A recession is officially defined as two straight quarters of falling output. It is worse than just a recession, this is contraction. The downward spiral has begun. 

The euro-zone is struggling with sky-high debt levels and record unemployment of 11.2 percent. Compared with the year before, the euro-zone’s economy is 0.4 percent smaller.


Europe’s largest economy, Germany,  grew by a quarterly rate of 0.3 percent in the second quarter. Though down on the 0.5 percent recorded in the first quarter, the advance was a little more than expected; estimates called for 0.2 percent growth.

Germany currently benefits from strong demand for its products, but German exporters are finding it increasingly difficult to tap international markets.  The other 16 countries that use the euro are Germany’s biggest export market and six of them are toast. The US is the prettiest horse in the glue factory but our growth in the second quarter down compared to the previous three months at 0.4 percent.

Slower economic growth is also making it harder for governments and central banks to control the debt crisis in Europe. Shrinking economies make it more difficult to get the public finances into shape. Lower output cuts tax revenues while forcing up the cost of social benefits. The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight. Turns out the austerity programs imposed on the periphery countries made things worse instead of better. Go figure. 

Wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro. Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen. There is increasing anxiety, particularly because politicians and the technocrats have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.

According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the summer of 2011. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.  In addition to scaling back their loans to companies and financial institutions in other European countries, banks are even severing connections to their own subsidiaries abroad. Germany's Commerzbank and Deutsche Bank apparently prefer to see their branches in Spain and Italy tap into ECB funds, rather than finance them themselves. At the same time, these banks are parking excess capital reserves at the central bank. They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them. Even the watchdogs don't like to see banks take cross-border risks, although in an absurd way this runs contrary to the concept of the monetary union. You know things are bad when banks won't do business with themselves. Go figure. 


Meanwhile, US retail sales rose in July by the largest amount in five months, with more spending on autos, furniture and clothing.  The Commerce Department says retail sales rose 0.8 percent in July from June. The increased followed three months of declines, including a 0.7 percent drop in sales in June.
Retail sales totaled a seasonally adjusted $403 billion in July, up 21 percent from the low hit in March 2009.

All major categories showed increases.  Auto purchases rose 0.8 percent. Excluding autos, retail sales also increased 0.8 percent. Consumers paid more for gas in July than June, although that had little impact on the data. Retail sales excluding gasoline station sales were up 0.8 percent, the same as the overall increase. The retail sales report is the government’s first look each month at consumer spending, which accounts for 70% of economic activity. Overall, consumer spending on goods and services grew only 1.5 percent in the April-June quarter, the slowest pace in a year. Americans are also saving more. The savings rate — the percentage of after-tax income that consumers don’t spend — rose to 4.4 percent in June, the highest in a year. The more we spend the more we save; apparently that TV commercial was telling the truth; go figure.