Friday, November 01, 2013 - Halloween, Christmas and Banksters

Everyday is Christmas

by Sinclair Noe

DOW + 69 = 15,615
SPX + 5 = 1761
NAS + 2 = 3922
10 YR YLD + .08 = 2.62%
OIL – 1.78 = 94.60

GOLD – 6.90 = 1316.80
SILV - .04 = 21.97

I hope you enjoyed Halloween, maybe you got to hand out some candy to the little kids. And what wasn't handed out, well I hope it's digested, because this this might make you queasy. Merry Christmas, Happy Hannukah, etc., etc. Today is Black Friday. Retailers facing the shortest holiday season in years are preparing to assail customers with deals and promotions as of right now. Wal-Mart is kicking off its online deals today, a month earlier than usual, underscoring worries that intense discounting aimed at luring budget-conscious shoppers could result in the most tepid holiday spending rise in four years.

Retailers have traditionally kicked off the all-important holiday shopping season on or the day after Thanksgiving and saved some of their best online deals for "Cyber Monday," the Monday after Thanksgiving when workers return to offices and use computers to make holiday purchases. This year, the holiday falls on Nov. 28 and as a result there are six fewer shopping days between Thanksgiving and Christmas, prompting many retailers to jump the gun on incentives.

So, if you want a 42-inch JVC LED TV for just $299, or a Xelio 10-inch tablet for just $49, with free shipping, today is your day, because all you are in the eyes of corporate America is nothing but a consumer who understands the real meaning of the holiday season is not a message of faith, hope, or anything so maudlin. So, don't rush online, because...

this holiday season will be the most promotional one since 2008, so you've still got plenty of time to grab a deal.

Now, let's turn our attention to the banksters; a regular rogues' gallery. JPMorgan disclosed today in their quarterly SEC filings that the Department of Justice and agencies from other jurisdictions are investigating hiring practices in Hong Kong, where they are already being investigated by the Securities and Exchange Commission. Plus, JPMorgan is also being questioned about its currency trading by various other authorities; more on that in a moment.

JPMorgan also gave more details about US government investigations into the bank's relationship with convicted Ponzi schemer Bernie Madoff. The US Attorney's Office for the Southern District of New York and the Office of the Comptroller of the Currency, are currently looking into the ties between Madoff and the bank.

The US Attorney's Office for the Southern District of New York is also investigating the bank's activities in the California and Midwest power markets that were the subject of a $410 million settlement between JPMorgan and the Federal Energy Regulatory Commission.

Additionally, the bank offered more specifics on the amount of claims that investors and bond insurers had over mortgage-backed securities. Total claims added up to approximately $117 billion, $88 billion of which involves Bear Stearns, Washington Mutual, JPMorgan or its affiliates as an issuer and $29 billion of which involves the entities solely as underwriters.

Meanwhile, Citigroup's SEC filing revealed the bank has put its chief currency trader in London on leave as US government agencies and authorities from other jurisdictions are investigating foreign exchange trading. Citi is not alone. Barclays, Standard Chartered, and JPMorganhave all put traders on leave as regulators from around the globe investigate manipulation of the $5.3 trillion dollar a day forex market. Royal Bank of Scottland is co-operating with regulators. If it all sounds familiar its because it basically follows the pattern of the Libor rigging scandal; here, authorities are investigating whether traders colluded with counterparts at other banks to try to rig benchmark foreign exchange rates, tipping each other off about their positions and trying to influence the rate set.

Yesterday, Fannie Mae, the government controlled mortgage company, filed suit in District Court in Manhattan against 9 banks of colluding to rig Libor interest rates, during the 2008 financial crisis. Fannie Mae sued for $800 million. Libor underpins hundreds of trillions of dollars of transactions, and is used to set interest rates on such things as credit cards, student loans and mortgages. The lawsuit claims: "defendants' promises and representations regarding the legitimacy of Libor were false," causing Fannie Mae to lose money on swaps, mortgages, mortgage securities and other transactions.

The U.S. government bailed out Fannie Mae and Freddie Mac in 2008. Both companies are now overseen by the Federal Housing Finance Agency (FHFA), which tries to conserve and recover assets for the benefit of taxpayers. In 2011, the FHFA sued 18 banks and financial companies to recover losses that it said Fannie Mae and Freddie Mac suffered on about $200 billion of mortgage securities.

The Commodity Futures Trading Commission has decided not to press charges against two traders in the "London Whale" case partly because it is so strapped for cash. The CFTC is also slowing down investigations and laying off staff as a result of its funding crunch. The CFTC budget has grown from $111 million five years ago to $195 million today, but that is well below the requested budget of $315 million, which was rejected, even though the CFTC has collected many times its budget in fines. Meanwhile, the markets under the CFTC's jurisdiction have gotten more than ten times bigger. The CFTC was just recently handed a critical new task, based on the Dodd-Frank financial-reform law, of watching the $600 trillion -- that's "trillion," with a "t" -- market for swaps. These derivatives were at the heart of the financial meltdown in 2008. The CFTC was already struggling to keep an eye on the $37 trillion -- again, "trillion," with a "t" -- futures market.

Food stamp benefits are being cut for more than 47 million Americans effective today, as a temporary boost to the federal program comes to an end without a new budget from a deadlocked Congress to replace it.

Under the program, known as the Supplemental Nutrition and Assistance Program, or SNAP, a family of four that gets $668 per month in benefits will find that amount cut by $36. Last year, the average monthly benefit per household was $278. . The average beneficiary received $133.41 in food stamps per month last year – less than $1.50 per meal. Children, seniors or people with disabilities account for 83% of SNAP benefits and the average SNAP household has a gross monthly income of $744. Nearly 1 in 2 Americans are now living at or near the poverty line according to recent Census Bureau data. Mother Jones, citing research from the Center on Budget and Policy Priorities, reports that the “13.6% temporary boost in food stamp dollars helped more than half a million Americans.” Food stamp purchases account for 25% to 40% of sales for some Walmarts across the country.

Two factors are driving the fiscal squeeze. The first is the windup of additional SNAP allocations under President Obama's 2009 stimulus bill. The second is the inability of Congress to agree on a new farm bill.

Negotiations on a new bill, including cuts to the SNAP program, began Wednesday. Five-year farm bills passed by both the House and the Senate would cut food stamps, reductions that would come on top of the cut that goes into effect Friday. But the two chambers are far apart on the amounts. A farm bill usually win bipartisan support because it includes funds for agricultural programs favored by farm and business interests and SNAP, which is supported by liberal and urban interests. If a joint bill is not passed by the end of the year and current farm law is not extended, certain dairy supports would expire, possibly raising the price of milk. Farmers would start to feel more effects next spring.

About 1 in 9 US bridges, about 66,500 in total, are rated structurally deficient and in urgent need of repairs, maintenance or even replacement. Everyday, Americans of all different stripes drive across these deficient bridges, with more than 260 million trips taken on them each day. To put that crazy number in perspective, McDonald's restaurants will serve about 64 million people today, worldwide. Anyone who travels at all can see how shoddy America has become. Our airports and train stations are a disgrace by international standards. The US is slipping into third world status when it come to infrastructure. That's another area that has been hit hard by budget constraints. In the past ten years there has been a sharp drop in infrastructure spending, from around $330 billion in 2003 to about $225 billion now; that includes state and local government spending, which is where the rubber tends to meet the road. And waiting doesn't make it better. It's like postponing the repair of your roof, which you know has a bad leak; putting off repairs doesn't make it cheaper later one; just the opposite; there is an increased probability that the leak turns into a roof collapse at a much greater expense. And that doesn't even include the lost productivity from time lost in traffic on subpar roads, and other such delays.

And right now, interest rates are incredibly low, and likely to go higher at some point, which means even greater expense in the future.

I had someone ask me why I tend to focus on the banksters.,.

Tuesday, March 05, 2013 - Milk and Cookies

Milk and Cookies

by Sinclair Noe

DOW + 125 = 14,253.77
SPX + 14 = 1539
NAS + 42 = 3224

10 YR YLD + .02 = 1.89%
OIL + . 50 = 90.62
GOLD + .80 = 1576.40
SILV + .16 = 28.80

The Dow has recovered all of its losses from the financial crisis and the small”d”depression, gaining 119 percent from its low in March 2009, making this the third-strongest bull market for the Dow since World War II.

Though the Dow has erased its memories of the crisis, many households aren't so lucky: Neither jobs nor wages have regained their pre-crisis highs. Home prices are still nearly 26 percent below their level when the Dow last peaked, and about 14 million homeowners are still underwater on their mortgages.

The job market has recovered only 5.5 million of the 8.7 million jobs lost during the downturn.

With the job market weak, worker wages have stagnated. Inflation-adjusted average income is 8 percent lower than in 2007, when the Dow was at its previous high. A chart of the stock market points to the upper right hand corner, while a chart of hourly earnings is just a flat line.

Higher stock prices do tend to benefit the more affluent. This might eventually provide a lift for the broader economy, or it might just be enough to sucker Mom and Pop investors into the market again; you remember those folks who were clobbered, twice in the past 13 years; those folks who were steamrolled by the flash crash; some of them will follow their lizard brain and jump in at record highs. Maybe it will work. I hope so.

These are boom times for Wall Street traders and Corporate America but Main Street America hasn't fully recovered from the Great Recession or the small “d” depression or whatever you want to call it; and just a reminder – it was kind of caused by Wall Street.

Unemployment is still around 7.9%. Median income dropped more than 8%. Wages as a percent of the economy are at an all-time low (at least for the time we've been keeping records). The number of people on food stamps is also at a record – 46 million. If we didn't have food stamps, there would be long lines outs outside of soup kitchens. More Americans are now a doctor's bill away from the poor house; more than 48 million have no health insurance. Student loan debt has gone from just over 23K in 2007 to $26,500 for the Class of 2011; someday they'll get a job and start paying down the debt. Home-ownership is down to 65.4%, the lowest level in 15 years; and if you still own your home there's a good chance you're underwater. Surprisingly, homelessness is on the decline. And foreclosures are on the decline, though still high, the numbers peaked out.

So, nothing to worry about. Jump into the market. What could go wrong? The excesses have been washed out. The banksters that crashed the market have all begged forgiveness and changed their evil ways. Washington has punished the wrong doers so severely that they'll never consider shenanigans again. Plus, the regulators are on top of everything. If it seems like Denzel Washington is flying the plane and everything is upside down – well, it is.

In this crazy mixed up world, why is the stock market doing so well? Corporations are enjoying sky high profits; they are doing more with fewer workers. Payrolls were cut, and the remaining workers were required to pick up the slack. American workers are incredibly productive, and right now they have no bargaining power to push for higher wages. Also, the tax code favors investments in technology and capital goods expenditures, but not for human labor. Tax and trade policies also encourage US corporations to expand and hire overseas. And then the Federal Reserve has been throwing money at Wall Street and that translates to lower borrowing rates for corporations. Corporate profits are claiming a larger share of national income than at any time in 60 years. It was the best of times, it was the worst of times.

After taking inflation into account, both the Dow and the S&P are down from their earlier highs in 2000. And, on an inflation-adjusted basis, the S&P 500 is down even after factoring in returns from dividend payments.

Still, American stocks are far ahead of their foreign counterparts. The Euro Stoxx 50, a barometer of euro zone blue chips, trades at 2,683 points, off its record high of 5,464 reached in March 2000, while the FTSE 100 in London was at 6,431, compared to a record of 6,930 in December 1999.

In Asia, the Nikkei 225-share index in Tokyo closed Tuesday at 11,683.45; it reached its high of 38,916 points in December 1989. And the Hang Seng index in Hong Kong finished at 22,560, versus a high of 31,638 points in October 2007.

The Dow is a price weighted index, so they almost couldn't include Apple or Google at current prices. They swapped a few companies over the past five years. Still, it's been an impressive rebound. After the crash of 1929, it took 25 years for the Dow to get back to the nominal level it plunged from.

The biggest factor in the recent rebound: the Federal Reserve has added more than $3 trillion of monetary stimulus to the economy and more than $1 trillion of bailout loans to financial firms since the 2008 financial crisis. This was done to prevent a widespread banking crash and help the wider economy. The banks have enjoyed a windfall, the broader economy, not so much. Federal Reserve Vice Chairman Janet Yellen said Monday that the Fed should press on with $85 billion in monthly bond- buying while tracking possible costs and risks from the unprecedented program.

"Turning to the potential costs of the Federal Reserve's asset purchases, there are some that definitely need to be monitored over time," Yellen said in a speech in Washington. "At this stage, I do not see any that would cause me to advocate a curtailment of our purchase program."

Yellen, the central bank's No. 2 official, echoed Chairman Ben Bernanke's comment last week that the benefits of the Fed's historically low interest rates and near-record $3.09 trillion balance sheet outweigh any risk of financial instability.

The big question is whether the stock market can keep going up from here. 

 One determinant is whether stocks are seen by traders as relatively expensive, and therefore vulnerable to a sell-off. Robert Shiller, a professor of economics at Yale University, has built a model for gauging whether stocks are cheap or pricey. Right now, stock valuations are above historical averages, but well below the stratospheric highs they’ve reached in bubbles. According to his model, stocks are signaling that they can return about 3 to 4 percent a year. Of course, that's not guaranteed.

I repeat – not guaranteed.

But for today at least, Wall Street looked like the past 5 1/2 years never happened. What happens next depends on the Federal Reserve continuing to prop up Wall Street even as Main Street struggles; it is a dichotomy that can't go on forever. This bifurcation and the growing inequality is the dark lining behind this silvery cloud. Bernanke is a student of the Great Depression. One lesson he could still learn from the small “d” depression is that there is a difference between markets and the economy.