The Wall Street Journal“UBS to Pay $19 Billion As Auction Mess Hits Wall Street” reports on state attorneys general entering into settlements with banks on auction rate securities (ARS). UBS (UBS), Merrill Lynch (MER) and Citigroup (C) have agreed to buyback more than $36B as well as pay fines. The process will start with individuals and charities in October and institutional clients in mid 2010. Over 100K individuals were included in the more than $330B sold.
The basis of the complaint is that investors were misled about the safety and liquidity of ARS. While the market was drying up, the banks temporarily stepped in to support the auctions. This gave the illusion of liquidity as the bank tried to unload their inventory through their retail channels. Commissions for the product were increased at many firms, and a Merrill Lynch analyst’s dire warning was enhanced to say only ARS offered “higher returns in exchange for less liquidity.” Apparently, even this subtle warning was buried so deep in Frances Constable’s report that no one found it. Merrill Lynch even categorized ARS as “other cash” on clients’ brokerage statements.
Sure the banks consciously tried to hide the liquidity risks, and the reduced monoline ratings accentuated the problems. But, investors should have understood the maturity of the bonds they purchased, and the market for trading them. Retail investors, charities, and small and medium sized business are very lucky to be bailed out. It is difficult to know how large businesses will fare. Those being helped should keep in mind that the only reason they are being helped is the desecration the ARS caused public finance. The attorneys general had little sympathy for investors.
This scandal reminds me of the analysts’ scandal emanating from…
This is a disturbing analysis of Stalin’s "repression and elimination of massive numbers of ordinary citizens," that I read while looking for interesting subjects. It may be peripherally related to other weekend topics in the sense that gaining support and silencing others can be accomplished by means other than killing dissenters, such as lies and fear tactics. Courtesy of Mark Thoma, Economist’s View.
Were Stalin’s mass killings a "rational" attempt to avoid losing power in a revolution rather than the acts of a deranged dictator?:
The dictator’s approach to electoral patterns, by Konstantin Sonin, Vox EU: While the people of the developed world are fascinated by electoral campaigns, more than a half of the world’s population does not have a chance to participate in elections. Yet any dictator needs some popular support; the difference is that he can trim his constituency, eliminating those who do not support him.
For democratic politics, Glaeser and Shleifer (2005) described how politicians use policy leverage to force some social groups out of their districts. In non-democracies, examples abound. Fidel Castro in Cuba and Robert Mugabe in Zimbabwe pushed thousands of “undesirables” into emigration, increasing the share of supporters among those who remained. “Ethnic cleansing”, as ugly as ubiquitous a means of boosting support for the government in times of war, is another example of trimming the constituency. Dictators in the former Soviet Union countries such as Alexander Lukashenko of Belarus or Islom Karimov of Uzbekistan rely upon open borders to force out those who disagree with their leadership. In totalitarian countries, the dictator can – in extreme cases – physically eliminate those who would not have voted for him in open elections.
One approach to understand the structure of dictatorial behaviour is to study the strategy of the most famous of them, Joseph Stalin of Soviet Russia. Twentieth century dictators, from communist leaders to Saddam Hussein, have claimed to be his disciples in the science of power.
Stalin’s mass terror campaigns
Stalin’s killing and imprisonment of millions of Soviet citizens are cited as irrational acts attributed by psychiatrists to paranoia or worse mental illness (Rancour-Lafferiere, 2004), to his violent Caucasus upbringing (Baberowski, 2005), or to other idiosyncratic factors that render the deaths of millions a "historical accident." If dictatorial behaviour, such as this, is the consequence of personality quirks, historical accidents, or mental illness, further economic investigation
Excerpt: "In a special section marking the anniversary of the credit crunch, we start with the Federal Reserve. Its creative response to the crisis may have staved off catastrophe, but may also have put its independence at risk
WHEN he was still in academia, Ben Bernanke once argued that Franklin Roosevelt’s greatest contribution to ending the Great Depression was not a specific policy, but his “willingness to be aggressive and to experiment…to do whatever it took to get the country moving again.” That would fairly describe how Mr Bernanke has battled perhaps the biggest financial crisis since FDR’s time, which erupted one year ago this week.
The chairman of the Federal Reserve has cast aside any notion that central bankers should be boring. He has slashed interest rates; rolled out a dizzying array of new lending programmes; backed the debt of Bear Stearns, a failing investment bank; agreed to lend to Fannie Mae and Freddie Mac, America’s troubled, quasi-private mortgage agencies; argued for fiscal stimulus and mortgage write-downs; and proposed an expansion of the Fed’s regulatory domain.
The Fed did not seek its bigger role, but acted because no one else could. Mr Bernanke is now consumed with responsibilities he never imagined when he became chairman in early 2006. Since the crisis broke, he has been at his desk seven days a week, fuelled by cans of Diet Dr Pepper from a small refrigerator in his office. Even if his aggression and experimentation do not prevent a recession, they have softened the impact of falling house prices, rising default rates and the credit squeeze on America’s economy. But they have also created new political risks for the Fed.
The central bank is lending to private companies on an unprecedented scale and is thus making decisions it long sought to avoid about the allocation of credit. It is also acquiring new powers of oversight. Politicians could chafe at the Fed’s power: why, they might ask, should unelected officials choose who benefits from taxpayers’ money? And they might press the central bank to pursue political ends—such as propping up favoured borrowers—that interfere with monetary policy.
Events beyond the Fed’s control magnify these risks. Unemployment and inflation are likely to remain uncomfortably high for the next…
I have a lot of catching up to do so this may get long…
First off, we have a fantastic graphic from a site Barry Ritholtz found called Oil Change USA, which tracks the dirty dealing of the energy industry. It’s not very surprising to see who’s in the center of the campaign money train this year – Mr. DRILLDRILLDRILL himself, Johnny McSame, who’s already gotten $971,418 in direct contributions and we haven’t even had the convention yet – that’s astounding!
I don’t know if the copy of the image will work but if you go to the web-site, you can mouse over each barrel of oil and see where the money is oozing in from. Note that these figures do NOT include the money funneled into McCain, the Senator or from "Leadership PACs" as that’s a whole separate barrel of slime…
Of course the oil companies have no actual principles and they are hedging their bets and Barack got $345K for his campaign but no money at all from PACs, who tend to expect direct favors for their money so they gravitate towards the most pliable candidates. Also great on the site is the "Vote Tracker" which show’s you just what an oil company can buy when it spends it’s money wisely like the perfect voting records on oil legistlation of Robert Bennett (R – UT), Michael Crapo (R – ID), Dick Shelby (R – AL, was a Democrat until the Republicans gained a majority in 1994, then switched so you know he’s got real principles!), Ted Stevens (R – AK, indicted), John Cronyn (R – TX), David Vitter (R – LA), James Inhofe (R – OK), Trent Lott (R – MS, brother in-law indicted – he resigned), Elizabeth Dole (R – NC), Mitch McConnell (R – KY), Lisa Murkowski (R – AL), John Isakson (R – GA), C. Saxby Chambliss (R – GA) (that’s 2 from GA so guess who’s getting offshore drilling for XMas!), Jim DeMint (R – SC), George Voinvich (R – OH), Jefferson Sessions (R – AL), Wayne Allard (R – CO), Orin Hatch (R – UT), Pat Roberts (R – KS), Christopher Bond (R – MO), Larry Craig (R – ID), Jim Bunning (R – KY), Thad Cochran (R – MS), Charles Grassley (R – IA), Charles Hagel (R – NE), Samuel Brownback (R –…
The amount of water on this planet hasn’t really changed in the last million years. However, today there are over six billion humans drinking and bathing in the stuff. And while the world’s population has doubled in the last 60 years, water consumption has more than tripled over the same time period.
And supplies are starting to get tight.
Less than 2% of the world’s water supplies is fresh. Even less is easily accessible. According to the Financial Times, about a quarter of the world’s population already lives in an area of physical water shortage— a place where water simply doesn’t exist in abundance. An additional billion people live in areas of economic water shortage— areas where water exists but there is not the necessary infrastructure to extract and distribute it.
This issue affects the whole world, not just developing countries.
At Goldman Sach’s “Top Five Risks” conference earlier in June, the investment bank announced that water was the “petroleum for the next century.” According to the presentations at the conference, the US alone needs to invest over $1 trillion in new piping and waste water plants in the next 12 years alone.
Legal skirmishes over water rights are already showing up in the headlines. However, currently they are more about making money than survival.
BusinessWeek recently ran a cover story on billionaire T. Boone Pickens’ efforts to acquire water rights from Texas landowners in order to transport the stuff to Dallas and other thirsty, fast-growing Texas cities. Similar issues are showing up in Egypt where the government has threatened military attack against any country that draws water from the Nile without a contract.
However, the area where water shortages are most acute is China.
China comprises 21% of the world’s population, but controls only 7% its water supply. And its rapidly expanding population is requiring larger and larger food supplies as consumers adopt a more western, protein heavy diet.
It takes 1.5 cubic meters of water to produce 1 kg of corn. In contrast it takes six cubic meters to produce a 1 kg of poultry and 15 cubic meters to produce a 1 kg of beef. And Chinese meat consumption…
Americans need to face the sobering reality that the country’s infrastructure is in trouble. Most of it was built in the 20th century, during the greatest age of construction the world has seen. The continent was wired for electricity and phone service, and colossal projects, including the Hoover Dam, the Golden Gate Bridge and the interstate highway system, were completed—along with thousands of smaller bridges, water tunnels and more. We are living off an inheritance of steel-and-concrete wonders, grander than anything built by Rome, constructed by everyday giants bearing trowels, welding torches and rivet guns.
To fix our infrastructure, from dilapidated levees to congested roadways and ports, the American Society of Civil Engineers (ASCE) has estimated that the country needs to spend $1.6 trillion over five years. Only $1 trillion of that, the organization says, has been allocated or promised. Accepting those numbers, we need an additional $600 billion to reverse the slide of infrastructure, a figure that seems as difficult to produce as it is to comprehend.
Or is it? Spread over five years, ASCE is calling for $120 billion per year. The economic stimulus package signed into law in February is sending $168 billion out to individuals to spend, in a best-case scenario, on new TVs and restaurant meals. That money could have bought a lot of concrete. While more funds are needed, how they’re spent is equally important. New information technology, fresh engineering and advanced materials can help us not just restore, but improve our infrastructure in the coming century. Planned and managed properly, next-gen projects can be smarter and more resilient than what came before. Engineers and construction workers know how to get the job done. But first, we must gather the national will.
The article below compares the average behavior of the stock market over the typcial presidential term to the current cycle. Generally, this Y4 is unusually weak, we should be seeing moderate gains. Courtesy of Steve LeCompte of the CXO Advisory Group LLC.
Taking the same approach as used for the calendar year at Trading Calendar, what is the typical cumulative return profile for the U.S. stock market over the four-year presidential term? Using monthly closing levels of the S&P 500 index from December 1951 through July 2008 (13+ presidential terms), we find that:
The following chart plots the average cumulative return of the S&P 500 index across the four years of the presidential term (Y1-Y4) for the entire sample period based on monthly data (M12=December). The return profile indicates that all of Y1 and most of Y2 are approximately flat. Strong gains follow from late in Y2 to two-thirds through Y3. Moderate gains ensue through the end of the term.
For comparison, the chart includes a plot of the cumulative return of the S&P 500 index for the 2005-2008 presidential term through July 2008. This current term is roughly typical until Y4.
Is the average behavior persistent over time?
One way to test persistence of a pattern is to break the sample into subsamples to see whether the subsamples are consistent. The next chart shows the average cumulative return of the S&P 500 index across the four years of the presidential term for two subsamples of approximately equal duration (about seven terms each), 1953-1980 and 1981-2008, again based on monthly data. The shapes of the two profiles appear similar enough to warrant a cautious belief in some persistence.
In summary, there is some evidence to support a belief in three phases of the U.S. stock market across the typical presidential term: (1) flat at the beginning; (2) strongly advancing in middle; and, (3) moderately advancing at the end. However, the data span a small sample of presidential terms, so confidence in this view is low.
We noted the other day that, while this was a "nice" recovery from our perspective, it was a spectacular recovery from an international perspective as the rising dollar coinciding with rising US equities gives our markets a very nice, booming V bottom from our July 15th low. The S&P priced in Euros is up 15% from the bottom in less than a month yet remains 25% off it’s highs of last May, where the market peaked on a currency-adjusted basis (see lower, weekly chart).
It’s good to review my Weekly Wrap-Up of July 13th, where I did, in fact call the bottom and gave an extensive overview of my reasons for doing so. At the time I said (as we had moved to 70% invested, trying to pick a bottom): "I wish there were a more painless way to pick a bottom but the only way to get ahead of the curve is to take a little damage at the bottom. We need to be very realistic about what happens next week and fall back to a more conservative strategy if we break below 11,000 but I’m really hoping something comes out by pre-market Monday to let us put the GSE issue behind us so we can get back to focusing on a very busy earnings week."
As I had said that weekend, just because you call a bottom doesn’t mean you get it and that Monday we discussed the manic-depressive nature of the markets as we were cynical of the sudden recovery, even though we were playing for it. That morning I said "Here’s my problem – I’m a fundamentalist, so I believe a company has value and an economy will do X and not Y and I don’t believe that changes from day to day to any great degree. Our basic investing strategy is that, when we see a stock deviating from our percieved "value" of a company and we feel the risk/reward is justified over the time frame – we buy some options looking for a return to the norms. So it disturbs me when, for example, a massive financial institution like FRE or FNM can, through the wisdom of Wall Street and the "efficient market," lose 1/2 it’s value at 9:30 and then get it all back at the end of the day. When the Dow goes up and down…
Jonathan Burton for MarketWatch recently posted a feature about the 4 most dangerous words in the vernacular of investing. Specifically… "This time it’s different."
As Burton explains it, the late 90s/early 2000s tech bubble is a prime example. Stock market valuations no longer mattered… it was a new era of dot-com excitement and endless possibility. Of course, it wasn’t a new era and the stock market suffered one of the worst bears in its history from 2000-2002.
Real estate’s collapse is another. "This time it’s different" led to the perfect storm of imprudent lending standards, get-rich quick home flipping and faulty declarations of ever-increasing demand amid limited supply. It wasn’t a new era for real estate either… as the 2007-2009 real estate crash continues.
Some say that energy and commodities may be the next to falter… if they haven’t already; that is, you’ve got alarmist projections about demand for all commodities far outstripping supply, crippling consuming nations and causing greater geopolitical tensions. It’s not that commodities haven’t been hot, but "this time it’s different" has led some to over-allocate to energy/resources at a time when demand could possibly slow.
Yet "this time it’s different" thinking can be harmful in a different sense. Just as extreme optimism leads to an inability to see impending doom, extreme pessimism is going to keep investors from making wise purchasing decisions for long-term wealth.
If you read the mainstream media with any degree of regularity, you can’t help but feel that the U.S. economy is lost forever. Our dollar is on its way to being worthless. Our system of credit will never operate smoothly again. And Wall Street will be mired in a bearish grip for many years to come.
Why? Because this time it’s different. Recovery for the investment markets? Impossible… because this time it’s different.
History shows that the mid-point of a recession typically marks a stock market bottom. In other words, new bull markets begin when things couldn’t possibly seem any worse. Just as they did in October 2002… or March 2003… depending on who’s calculating.
The euro slumped to a five-month low against the dollar as traders pared bets that the European Central Bank will raise interest rates due to a slowing economy.
The euro also fell to a three-week low versus Japan’s currency after ECB President Jean-Claude Trichet said economic growth will be "particularly weak" through the third quarter. The dollar headed for its biggest weekly gain against the yen in almost two months as oil dropped 18 percent from a record. The Australian dollar declined for a ninth day, the longest stretch since 1980, as futures show the central bank will cut borrowing costs this year.
"Trichet triggered the euro’s decline when he went out of his way to highlight weakness in the economy," said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo. "A rate increase is off the cards for the time being, and the euro is likely to adjust lower."
Trichet said yesterday he has "no bias" or "pre-commitment" toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters at a press conference in Frankfurt that while inflation remains a threat, risks to economic growth are "materializing."
Risks To Growth Are Obvious
Risks to growth have been materializing for so long now that they should have long ago been obvious to everyone. In the US, "Talk Of Rate Hikes Is Comical".
With Trichet signaling he is done hiking, a signal that was not expected, there is now room for the US dollar to rally. With that in mind, let’s take a look at a few charts.
$USD – US$ Index Daily
Click on chart for sharper image
On the daily chart the US$ crossed resistance and sitting right on the 200 day exponential moving average. It has not closed above the 200 EMA since March of 2006.
You probably haven’t heard of Mark Paffrath, the 28-year-old Navy veteran, and former employee of the Drury hotel chain, who was fired from his job and called a “terrorist” for taking pictures of Department of Homeland Security (DHS) vehicles and posting them to his personal Facebook page.
The story of his recent job termination is further proof of fascism’s relentless bull market within these United States. What happened to Mr. Paffrath co...
Looking back to 2007 (seven years ago) we have seen the price of crude oil perform incredible price swings. No matter the time frame in which we observe price when an extreme price spike takes place due to news/event, statistics show that half if not all the event driven price spike will eventually be negated in the future.
The perfect example of this is the rubber band affect. If you pull an elastic band in one direction, eventually when it breaks or it’...
The Final University of Michigan Consumer Sentiment for November came in at 88.8, a bit off the 89.4 preliminary reading but up from from the October Final of 86.9. As finaly readings go, this is a post-recession high and the highest level since July 2007, over seven years ago. Today's number came in below the Investing.com forecast of 90.2.
See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
With warmer weather arriving to melt the early snowfall across much of the country, investors seem to be catching a severe case of holiday fever and positioning themselves for the seasonally bullish time of the year. And to give an added boost, both Europe and Asia provided more fuel for the bull’s fire last week with stimulus announcements, particularly China’s interest rate cut. Yes, all systems are go for U.S. equities as there really is no other game in town. But nothing goes up in a straight line, not even during the holidays, so a near-term market pullback would be a healthy way to prevent a steeper correction in January.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based Sector...
By Rod Garratt and Rosa Hayes - Liberty Street Economics, Federal Reserve Bank of New York
In June 2014, the mining pool Ghash.IO briefly controlled more than half of all mining power in the Bitcoin network, awakening fears that it might attempt to manipulate the blockchain, the public record of all Bitcoin transactions. Alarming headlines splattered the blogosphere. But should members of the Bitcoin community be worried?
Miners are members of the Bitcoin community who engage in a proce...
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I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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