Month: July 2014

Remember when the DOJ’s banker lackey, assistant attorney general Lanny Breuer admitted to PBS that the US department of justice (sic) does not prosecute big banks because they are too systematically important and thus, above the law? Breuer was promptly fired (only to rejoin Covington & Burling as vice chairman and head the firm’s white collar defense practice) and with his departure the DOJ was said to have “fixed” its practice of giving banks, the more massive and insolvent the better, not only a “get out of jail” card but “do not even enter the courtroom” card. Ironically, all of the DOJ’s subsequent wrath fell mostly on foreign banks (with domestic banks actually benefiting from the addback of “one-time, non-recurring” legal charges to their non-GAAP bottom line). It goes without saying, that not a single banker has still gone to jail since the infamous Too Big To Prosecute incident, suggesting it was all, once again, merely lip service to so-called justice.

But nowhere is it clearer that nothing at all has changed when it comes to crony capitalist behind the scenes muppetry, than in the latest Reuters exclusive of the white glove treatment “evil” BNP got in order to make sure the full wrath of US justice doesn’t damage the criminal money launderer too severely.

An official at the U.S. Securities and Exchange Commission (SEC) broke ranks with other commissioners, and voted against granting BNP Paribas a critical waiver to continue operating several investment advisory units in the United States.

 

Kara Stein, a Democratic SEC commissioner who has recently demanded more accountability for big banks who break the law, was the sole dissenting vote on Monday on the temporary waiver, according to a document made public this week.

 

BNP’s application was granted the same day that BNP, France’s largest bank, pleaded guilty to criminal charges it violated U.S. sanctions.

 

The temporary waiver will become permanent, unless an “interested person” in the matter is granted a hearing. The deadline for requesting a hearing is July 25.

 

The SEC rarely denies such waivers because such a move risks destabilizing financial firms.

Which all leads us to this:

The New York state banking regulator on Monday separately decided not to pull BNP’s banking license in the state, despite a criminal guilty plea, because of the risk it could put BNP out of business.

And as is well known, we can’t risk a bank going out of business because of its criminal actions, now can we. As for actually sending someone to jail? Don’t make us laugh.

via Zero Hedge http://ift.tt/1qnD2QV Tyler Durden

Answer: Everything. Just as he did January 2008…

 

Today, the "renowned" Wharton School of Finance professor Jeremy Siegel opined that the Dow could top 18,000 by year-end or 19,000, or 20,000…

"I think we're going to get to 18 and above. Could it go to 19, 20? It could."

 

"We could be overvalued at 21,000 – at least in the short-term."

So strap in!! Or perhaps one should consider the "renowned" money-manager academic professor's perspective in 2008… (emphasis added)

2008 Economic and Market Forecast

 

by Jeremy J. Siegel

 

The economic forecasts for 2008 are now split down the middle. Almost all prognosticators see a marked slowdown in economic activity in the first half of this year. But about one half (and that includes me) believe that the U.S. economy will skirt a recession and that growth will pick up in the second half of the year; the other half see falling home prices and a credit squeeze that finally will pound consumers, precipitating a short but mild recession. (There are always a few who think this is the “beginning of the end,” but I’ll ignore them.)

 

As I see it, the U.S. economy has more to fear from rising oil, food, and gasoline prices than it does from the credit crunch. As far as the housing crisis goes, I believe the actual number of foreclosures this year will be below what the market predicts; I believe investors have overreacted to the mortgage crisis. Yes, far too much money was lent on far too easy terms, which caused the housing market to experience a boom/bust cycle. But a lot of those foreclosures were for second and investment properties that many speculators were hoping to flip in a hot market. The vast majority of the homeowners who received subprime mortgages are current with the payments, and lenders are willing to work out terms with those who run into difficulties.

 

The Economy and Stocks

 

That said, the impact of the subprime crisis on the psychology of consumers and businesses will leave its mark. I predict that GDP growth will slow in the first half of this year to about 1% and rise in the second half, as conditions in the credit market ease. Overall, I expect 1.5% to 2.5% GDP growth in 2008.

 

I believe the stock market will do better in 2008 than it did in 2007, when it chalked up a 5.5% return, the fifth year in a row that the market went up. Year-ahead forecasts for the stock market are notoriously difficult, but I believe that a 10% to 12% gain is possible, on the heels of a recovering financial sector. Financial stocks plummeted almost 20% last year, and this was the reason why the market had a mediocre year. Outside of financials, the S&P 500 Index had double-digit returns. A revival of financial stocks would spur good market gains this year.

 

Interest Rates

 

What does all this mean for interest rates? The Federal Reserve cut the Fed funds rate to 4.25% on December 11, but it will have to do more this year. I believe that the Fed will get rates down to 3.5% before ratcheting them upward in the second half of next year as the economy improves.

 

U.S. government bonds did very well in 2007, as interest rates on top-rated securities plunged in response to the credit crisis. But as the risk premiums recede, money will flow away from government bonds and their interest rates will rise. I recommend investors cash in governments and top-rated corporate bonds now – you got a nice ride in 2007 that you won’t get this year.

 

…

 

In the meantime, have a healthy and prosperous new year!

*  *  *

Why are the 'smartest' people always introduced as "renowned"?

via Zero Hedge http://ift.tt/1rZodmT Tyler Durden

Submitted by Charles Gave via Gavekal Dragonomics,

This weekend has seen the European Union do a stitch-up deal so that arch-federalist Jean-Claude Juncker became Commission president. To be honest, who gets to play eurocrat in chief is of no great interest to me, but the manner of the appointment tells us lots about the changing nature of power in Europe. Governments from Stockholm to Rome reportedly opposed Juncker, but ultimately none would defy Berlin. Also this weekend, it is worth noting some ostensibly bland comments by Vladimir Putin at a German-Russian official function: “We value the accumulated potential of Russian-German relations and the high level of trade and economic cooperation. Germany, one of the European Union leaders, is our most important partner in enhancing peace, global and regional security.”

I would contend that we are seeing a decisive shift in the political character of Eurasia. History tells us that long wars have tended to be fought between maritime empires and continental empires. Think of Athens vs. Sparta, Carthage vs. Rome or Britain vs. Napoleonic France. The last big fight was between the US and the Soviet Union ended in favor of the maritime empire. As a result, since 1989 we have lived in an order ultimately run by the US military. But after some unpleasantness playing the role of global policeman, that maritime empire is in retreat.

The consequence of this move toward isolation is that a bunch of ‘continental empires’ are starting to challenge the monopoly of “legal” international violence that the US has exercised for the last 25 years. The most obvious challengers can be seen in the shape of Sunni Muslims across the Middle East, or in East Asia where a more confident and assertive China is stating its case for preeminence. Such struggles have the potential to become major regional problems, but what worries me more is the emerging continental alliance between Russia and Germany. Preventing such a partnership has for centuries been an idée fixe for French diplomacy, and for good reason. A combination of German industrial might and Russian raw materials and military strength would instantly create a colossus. The Poles, who have been perennial victims of engagements between Germany and Russia, are already visibly panicking, as they should be.

Historically, Paris has tended to ally with the Russians, not because it liked them but to prevent Germany from doing the same. The problem is that France has nothing to offer Russia (save some nice holiday homes and mooring berths for tycoons on its Mediterranean coast) and is, in any case, more focused on perfecting its own political and economic suicide.

This leaves the UK as the only shield against an alliance in the east. But this weekend we saw a clear statement of where Berlin sees its interests. Soothing words of “don’t go” may have been offered to London after the Juncker vote, but the incident has confirmed that the landscape has shifted from a European Germany to a German Europe.

The UK now seems set on a path to leave the EU within four years. The chances of London achieving the kind of root-and-branch treaty change that would keep it in the EU must rank as being close to nil. And as Winston Churchill said: “England does not belong to Europe, it belongs to the seas.” As was the case in the mid-20th century, the UK is unlikely to join a continental empire as a junior member and, when decision time arrives, it will stay allied with the US-led maritime empire.

In the old system, Europe was a kind of protectorate of the US maritime empire, a set-up that worked reasonably well. The challenge to the status quo comes from the east where Vladimir Putin has the clear goal of creating a new Russian/German alliance whose fief will run through Eastern Europe. If he succeeds, this will be a major loss for the maritime empire, especially if the UK has removed itself as an EU player.

There will be major political repercussions in the US from such a political carve up. The question will not only be how did “we” come to lose Asia and the Middle East, but also “our” most reliable and pliable ally—Europe.

via Zero Hedge http://ift.tt/1xiwCon Tyler Durden

The Fed claims that inflation is just “noise” but the clear signs of inflation have been appearing everywhere in the system going as far back as 2008.

 

Let’s be clear here… inflation does NOT mean prices have to move higher in nominal terms. The reason for this is because companies cannot and will not simply raise prices overnight. Consumers will not simply put up with the cost of a good going up time and again.

 

So don’t look for the cost of an item to necessarily go straight up in nominal terms. This can happen, but more often than not, corporations engage in a number of different strategies to maintain profit margins without raising prices.

 

These strategies include:

 

1)   Shrinking the box/package of the good, thereby selling less for the same amount.

2)   Not filling the package all the way; again selling less for the same amount.

3)   Changing what’s considered a “serving size” or the quantity of good being sold.

4)   Swapping in lower quality ingredients, thereby selling a lower quality good for the same amount.

 

Companies have been doing all of these since 2008. Most recently however, costs have risen to the point that these strategies won’t cut it anymore. Consequently, we’re starting to see prices going up across the board.

 

Housing is now more expensive relative to incomes than it was in 2007. Food prices for 5 out of 6 items at the grocery store have risen year over year. Gas prices are at their highest levels since the oil bubble of 2008. Healthcare costs have risen. In fact, just about everything under the sun except phones and computer tablets have risen.

 

This is why the Fed’s claim that higher prices are just “noise” is so ridiculous. The Fed is either ignorant or lying. Neither of those is good. Indeed, the only support the Fed has for its claim is that bond yields remain at historic lows (see below).

 

 

However, the Fed is missing the big picture here. The reason bonds continue to fall in yield is because:

 

1)   Wall Street is front-running the Fed’s QE programs (buying bonds from the Treasury and then flipping them to the Fed for a quick profit).

2)   Financial institutions, particularly in Europe, remain highly leveraged and so are seeking higher-grade collateral by buying US Treasuries.

3)   The Fed has created an artificial floor beneath Treasury demand by soaking up half or more of all US debt issuance each month for the last five years.

 

You cannot mess around with the entire risk profile of the investment world and expect not to see asset classes mispricing risk. The Fed has pumped money into the system in over 90% of months since 2008. It’s kept interest rates at zero throughout this period. And it’s put nearly $4 trillion into the financial system.

 

Does the Fed really think it could do this and NOT cause inflation?

 

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

via Zero Hedge http://ift.tt/1kfa6EU Phoenix Capital Research

And to think we have none other than the US Commerce Department to thank for issuing the one report which not only refutes all wrong “explanations” of the collapsing labor force participation rate, propagated by the Bureau of Labor Statistics and the Fed itself. that blame said plunge on demographics, but once and for all slams the door shut on any future debate about just the New Normal secular shifts within the aging US population truly are.

From: “65+ in the United States: 2010“

On the one hand, the recession forced some workers to retire sooner than planned. On the other hand, the declines in housing and financial asset prices pushed many workers to delay retirement. The decision of when to retire was being influenced by opposing factors: (1) the decline in stock market prices and lowered housing values supported retirement delays, and (2) the rise in unemployment and greater difficulty among older adults in finding another job supported earlier retirement (Hurd and Rohwedder, 2010b). Among those nearing retirement age (age 50 to 61), 63 percent reported pushing back their expected retirement date as a result of economic conditions (Taylor et al., 2009a).

 

 

In 2010, 16.2 percent of the population aged 65 and over were employed, up from 14.5 percent in 2005. In contrast, 60.3 percent of the 20 to 24 age group were employed in 2010, down from 68.0 percent in 2005. Employment shares declined from 2005 to 2010 for all age groups younger than age 55. There was no statistical change in the employment share for workers aged 55 to 64 nor those aged 70 to 74. Engemann and Wall (2010) found that more people aged 55 and over were employed during the recession than would have been if there was no recession. Using the Bureau of Labor Statistics employment data, Engemann and Wall found that during the 2007–2009 period, employment grew by 7.4 percent for the population aged 55 and over. Based on trends prior to the recession, employment for this age group was expected to grow by only 6.1 percent. All younger age groups experienced a decline in employment during the same 2007 to 2009 period.

Oh, we almost forgot the punchline: dear US “retirees” – if you want to mitigate the impact of the US depression, all you have to do is, well, work until you die.

Many older workers managed to stay employed during the recession; in fact, the population in age groups 65 and over were the only ones not to see a decline in the employment share from 2005 to 2010 (Figure 3-25)… Remaining employed and delaying retirement was one way of lessening the impact of the stock market decline and subsequent loss in retirement savings.

Q.E.D.

via Zero Hedge http://ift.tt/1z8p5uf Tyler Durden